Tidbits Quotations
To Accompany the October 27, 2011 edition of Tidbits
http://www.trinity.edu/rjensen/tidbits/2011/tidbits102711.htm                     
Bob Jensen at Trinity University




"The Immigration Solution for Job Growth: Immigrants and their children founded almost half of Fortune 500 firms like Google and Intel," by Leonard A. Lauder,  The Wall Street Journal, October 19, 2011 ---
http://online.wsj.com/article/SB10001424052970203914304576631452123306760.html#mod=djemEditorialPage_t

The recent debate about immigration reform has made me wonder if we have lost sight of what we are and who we are. We are a society of people who have come here from elsewhere. This melting pot has made the United States the greatest and most prosperous nation on earth. We draw our strength and character from those who landed here with nothing more than hope and dreams.

Unfortunately, some have argued that opening our borders to those who seek greater opportunities has actually stifled job formation in our country. Not true. And those who have defended the present, cumbersome and outdated immigration regulations are making it more difficult for talented people to come here to start businesses and create new jobs.

Our political leaders say they want to reform these rules, yet they have consistently failed to make changes. By creating barriers to immigration we are forcing talented people to bring their ideas and energy to other countries where they will compete with the U.S. in the future. As we work to get our economy on track, we need more of these creative and innovative entrepreneurs to help create new jobs here in America.

There is no doubt that immigrant entrepreneurs and their children have fueled our economy. My mother is a prime example. Josephine Esther Mentzer was a daughter of Hungarian and Czech immigrants. Estée, as she was called by her family, was always interested in beauty and cosmetics and started selling skin care products to beauty salons more than 65 years ago. Her creativity and hard work are today embodied in a successful global corporation that provides jobs for thousands of people in the U.S. alone.

Our story is hardly unique. A new report from the Partnership for a New American Economy has found that more than 40% of Fortune 500 companies were founded by immigrants or their children. These companies generate more than $4 trillion in annual revenue—more than the gross domestic product of every country with the exception of the U.S., China and Japan.

One need not go back far to see how important opening our borders is to tomorrow's American businesses. Companies in the Fortune 500 founded since 1985 were more likely to have been started by immigrants than those founded before 1985. Think of such names as Google, Intel, eBay and Yahoo!, among other newly minted iconic companies, and then remember that they were started by first-generation Americans.

In fact, more than a quarter of the high-tech and engineering businesses launched here between 1995 and 2005 had an immigrant founder. In Silicon Valley alone, the percentage of immigrant start-up companies is more than 50%, according to a report out of Duke and the University of California, Berkeley.

America remains the land of opportunity for bright and creative minds around the world. Despite our economic challenges, millions of hard-working entrepreneurs want to come here. But too often they are being turned away.

Our visa system makes it extremely difficult for anyone with a great business idea to come here and stay. Our universities are teaching many more brilliant young foreigners, yet our immigration system often prevents them from remaining here after graduating. We should be creating incentives and opportunities for foreign students to remain in the United States—especially those in critical fields like science, engineering and technology.

Continued in article

Immigrants in 2010 Metropolitan America --- http://www.brookings.edu/papers/2011/1013_immigration_wilson_singer.aspx


"Charters and Minority Progress: New evidence on school reform and black student performance," The Wall Street Journal, October 20, 2011 ---
http://online.wsj.com/article/SB10001424052970204485304576643461600325694.html#mod=djemEditorialPage_t

A tragedy of American politics is that civil rights groups like the NAACP oppose education reform, even as reform's main beneficiaries are poor and minority students in places like Harlem and New Orleans. The latest evidence comes in a study showing that black students in charter schools outperform their peers in traditional public schools.

The California Charter Schools Association looked at the state's Academic Performance Index (API), which runs on a scale from 200 to 1000, and found that the average black charter student outscored the average black traditional school student by an average of 18 points over the last four years of publicly available data.

In reform hubs like Los Angeles, the charter advantage was 22 points, in Sacramento 48 points, in Oakland 51 and in San Francisco 150. In San Diego, the other major urban center, traditional schools outscored charters by an average of eight points.

The report also found that charters are disproportionately among California's best schools in educating black students. Though charters account for only 9% of California schools, they represent 39% of those in which African-American API scores exceed 800 and English and math proficiency exceed 65%. Charters serving African-American students are also less likely than traditional public schools to have low academic status coupled with low academic progress.

Crucially, the data show that charters' success isn't attributable to attracting students who are better equipped to learn from the start. "The African American populations in charter public and traditional public schools are very similar," notes the report, with the same level of parental education, similar household income and nearly identical attrition rates.

The real difference is that charter schools are free of the traditional school system's union contracts and bureaucratic rules, which shorten the school day, stifle innovation and protect ineffective teachers. This autonomy doesn't guarantee charter success, but it allows the schools—and their students—to benefit from creativity, competition and accountability.

Minority parents increasingly understand this, which is why they work so hard to get their kids into charters. The report finds that 9% of California charter school students are African-American, compared to 6% of students in traditional schools.

Believe it or not, some people read this data not as an endorsement of better schools but as an indictment of reform and a sign of cultural imperialism. "We are concerned about the overrepresentation of charter schools in low-income and predominantly minority communities," wrote the NAACP, the National Action Network, the National Urban League, the Rainbow PUSH Coalition and others in a statement last year.

So more good schools in poor neighborhoods are a problem? Such statements show that the NAACP is still fighting the last civil-rights war, refusing to break with its teachers union allies from the 1960s even as another generation of black children is doomed to less equal educational opportunity.

Continued in article


Herman Cain --- http://en.wikipedia.org/wiki/Herman_Cain
Many people do not know much about Mr. Cain other than the fact that he's African American and the former CEO of Godfathers Pizza Corporation.

Few think of him as being former chairman (1995–96) of the board of directors of the Federal Reserve Bank of Kansas City. Before his business career he worked as a mathematician in ballistics as a civilian employee of the United States Navy. Aren't blacks supposed to be too dumb for mathematics?

No matter where you stand in the U.S. political spectrum (I probably will not vote for him in 2012 but maybe in 2016 after he's had sufficient experience in politics and foreign policy), it's interesting academically to note some of the skills that made Herman Cain rise from the bottom to the top in his company and in his life. He certainly had some skills that I lack in life, which explains in part why I never became an executive in my universities. Heck! I was even a lousy Department Chair in my one-time foray into academic administration.

Attributes that make for a good private-sector CEO and community leader, however, are not necessarily the crucial attributes that make a great government CEO, although some certainly help. One of the more important attributes is genuine integrity that is believed by all the constituents. Of course integrity is neither a sufficient condition and certainly not a necessary condition in politics. In fact, integrity is probably a rare condition in politics --- certainly from the standpoint of keeping campaign promises. In fact, in both the private and public sectors integrity might even keep you from rising to the top. Isn't that depressing?

Another desired attribute is toughness --- the ability not to wither under the media's slings, arrows, lies, and genuine hate. One of the failings of George W. Bush is that he tried to be loved too much, something for which he's not given enough credit for in some circles and inappropriately lied about in other circles.

Sexual infidelity can get you booted out of the race before you become President of the U.S. but does not seem to matter much after you've become president. Exhibits A and B are John F. Kennedy and William J. Clinton.

Intelligence is a good attribute, but I view Jimmy Carter as being extremely intelligent with high integrity in spite of being what I consider to be a lousy President of the United States. One of the failing attributes of Jimmy Carter was the inability to pick an outstanding surrounding staff who could work well toward his goals. President Obama seems to have a similar problem with this in terms of economic advisors and some members of his Cabinet whereas in some areas he's did a good job choosing his staff.

The job of CEO in both the private sectors and the public sectors is too complicated in modern times for even a great King. The most important attribute is probably the ability to pick an outstanding staff of surrounding helpers and then not to interfere with their work assignments. The Number 1 rule here is striving not so much to be liked by your staff as it is to be respected by your staff. This seems to be a major strength of Herman Cain, although I think he was also well liked by his subordinates.

 

"What was Herman Cain like as CEO?" by Laura Strickler, CBS News, October 21, 2011 ---
http://www.cbsnews.com/8301-503544_162-20123873-503544/what-was-herman-cain-like-as-ceo/

Some of the answers might surprise you like it surprised me! What may seem like "little things" to you and me really are rather big things.

PS
I'm both in favor of simplifying the income tax code and am in favor of making virtually all taxpayers contribute more toward the benefits they receive from the government. But I think 9-9-9 is a dumb idea.

 


The Power of Conformity --- Click Here
http://www.openculture.com/2011/10/the_power_of_conformity.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

This vintage stunt from a 1962 episode of Candid Camera makes for a good laugh. But it also captures something important about human psychology — something that social psychologist Philip Zimbardo, famous for his Stanford Prison Experiment, describes on a website related to his 2007 book The Lucifer Effect: Understanding How Good People Turn Evil. He writes:

One of the most popular scenarios in the long history of Alan Funt’s ingenious Candid Camera programs is “Face The Rear.” An elevator is rigged so that after an unsuspecting person enters, four Candid Camera staff enter, and one by one they all face the rear. The doors close and then reopen; now revealing that the passenger had conformed and is now also facing the rear. Doors close and reopen, and everyone is facing sideways, and then face the other way. We laugh that these people are manipulated like puppets on invisible strings, but this scenario makes us aware of the number of situations in which we mindlessly follow the dictates of group norms and situational forces.

Often times, the mindless submission to group norms has entirely innocuous results. But, in other cases, it can lead to “good people engaging in evil actions.” Witness what happened within the controlled environment of the Stanford Prison ExperimentOr, worse, the devastating abuses at Abu Ghraib, which brought otherwise average people to commit atrocious acts. For more read The Lucifer Effect.


Question
What do the 2011 Wall Street protests have in common with the assassination of President William McKinley, Jr. in 1901?

 

October 172 2011 message from Robert Bruce Walker in New Zealand

Here are a couple of articles that relate, directly or indirectly, to the current protests against Wall Street.  I think they are vaguely related to accounting.

The first article is a straight forward account of the intellectual origins of the protest.  It is reasonably interesting but the second is far more interesting because the subject matter is identical albeit located in time about 110 years ago.  It is a discussion of the assassination of President McKinley.  I did not know this, but perhaps I should have, that the assassination was carried out by an anarchist.  The article describes McKinley’s association to big business (principally a man named Hanna).  It is the time that the Republicans became strongly associated with business and Wall Street.  The parallels are uncanny.

The article also briefly touches upon the consequence of the assassination which led to the presidency of Roosevelt (version 1).  It is Roosevelt of course that was one of the principal authors of the idea that the government should intervene to curb the excesses of capitalism.

I have been re-reading R A Bryer’s article on the origins of fair value accounting which I found on Bob’s website.  His thesis is, if can do him an injustice, that fair value accounting has its origins in the acrimonious relations between labour and business in the US at the turn of the last century.

http://chronicle.com/article/Intellectual-Roots-of-Wall/129428/

http://www.nybooks.com/articles/archives/2011/oct/13/anarchists-capitalists/

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory


And this is why nearly half the U.S. taxpayers receive the benefits of U.S. Federal Government services without paying any Federal income tax
Some even take home taxes paid by the other half of the taxpayers
IRS Releases 2012 Inflation-Adjusted Tax Tables and Other Guidelines ---
http://www.irs.gov/pub/irs-drop/rp-11-52.pdf

Question
What subject is never raised when the media interviews protesters at Occupy America Protest sites?

"Why do half of Americans pay no federal income tax? A new study shows the top reasons that some Americans don't pay federal income taxes," by Don Marron, The Christian Science Monitor,  July 28, 2011 ---
http://www.csmonitor.com/Business/Donald-Marron/2011/0728/Why-do-half-of-Americans-pay-no-federal-income-tax

You may have heard the claim that about half of Americans pay no federal income tax. That’s a true fact. My Tax Policy Center colleagues estimate, for example, that 46% of households either will pay no federal income tax in 2011 or will receive more from the IRS than they pay in.

Today, TPC released a new study that examines why these people end up paying no federal income tax.

The number one reason should come as no surprise. It’s because they have low incomes. As my colleague Bob Williams notes:

A couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.

Low incomes (or, if you prefer, the standard deduction and personal exemptions) account for fully half of the people who pay no federal income tax.

The second reason is that for many senior citizens, Social Security benefits are exempt from federal income taxes. That accounts for about 22% of the people who pay no federal income tax.

The third reason is that America uses the tax code to provide benefits to low-income families, particularly those with children. Taken together, the earned income tax credit, the child credit, and the childcare credit account for about 15% of the people who pay no federal income tax.

Taken together, those three factors — incomes that fall below the standard deduction and personal exemptions; the exemption for most Social Security benefits; and tax benefits aimed at low-income families and children — account for almost 90% of the Americans who pay no federal income tax.

For further details and info about the other 10%, please see the study.

P.S.: The true fact — about half of Americans do not pay federal income taxes – often gets transmogrified in public discourse into the decidedly untrue claim that half of Americans pay no taxes. That simply isn’t so. There are many other taxes in our fair land, including payroll taxes, excise taxes, sales taxes, state income taxes, and property taxes. Most people who don’t pay federal income taxes still encounter some of these other taxes, especially at state and local levels. Even those that rent housing pay something toward local taxes in their rent checks.

Jensen Comment
Most of us receiving Social Security benefits do pay Federal income taxes on those benefits. It's a mistake to conclude that most of these benefits are exempt from income taxes.

I personally have benefitted from credits not mentioned above, particularly credits for payments made to add insulation and air tight windows to our 150-year old cottage. Thus I get the reduced cost of heating plus the tax breaks. I have not yet invested in solar or wind energy, but some of my friends up here in the mountains are getting tax credits for those investments as well.

The bottom line for me, however, is that I still pay what seems like a heavy Federal income tax in retirement even though I do get the benefits of a huge mortgage on my home. I do not have to pay a state income tax in New Hampshire except for a relatively small state tax on cash dividends and interest (but not capital gains).

But I'm not really protesting my taxes. Over the years I've received tenfold more benefits from living in America than anything I contributed for those benefits.

 


"US deficit is 'real and growing' threat: Bernanke," ForexTV, October 4, 2011 ---
http://www.forextv.com/forex-news-story/forex-us-deficit-is-real-and-growing-threat-bernanke

Federal Reserve chairman Ben Bernanke called for quick and decisive steps to rein in the exploding US budget deficit, warning failure to act could result in a serious crisis. Warning that surging annual deficits presented a "real and growing threat"
Read Full Story

 

"A New Spending Record: Washington had its best year ever in fiscal 2011," The Wall Street Journal, October 18, 2011 ---
http://online.wsj.com/article/SB10001424052970204479504576637513885592874.html?mod=djemEditorialPage_t

Maybe it's a sign of the tumultuous times, but the federal government recently wrapped up its biggest spending year, and its second biggest annual budget deficit, and almost nobody noticed. Is it rude to mention this?

The Congressional Budget Office recently finished tallying the revenue and spending figures for fiscal 2011, which ended September 30, and no wonder no one in Washington is crowing. The political class might have its political pretense blown. This is said to be a new age of fiscal austerity, yet the government had its best year ever, spending a cool $3.6 trillion. That beat the $3.52 trillion posted in 2009, when the feds famously began their attempt to spend America back to prosperity.

What happened to all of those horrifying spending cuts? Good question. CBO says that overall outlays rose 4.2% from 2010 (1.8% adjusted for timing shifts), when spending fell slightly from 2009. Defense spending rose only 1.2% on a calendar-adjusted basis, and Medicaid only 0.9%, but Medicare spending rose 3.9% and interest payments by 16.7%.

The bigger point: Government austerity is a myth.

In somewhat better news, federal receipts grew by 6.5% in fiscal 2011, including a 21.6% gain in individual income tax revenues. The overall revenue gain would have been even larger without the cost of the temporary payroll tax cut, which contributed to a 5.3% decline in social insurance revenues but didn't reduce the jobless rate.

The nearby table shows the budget trend over the last five years, and it underscores the dramatic negative turn since the Obama Presidency began. The budget deficit increased slightly in fiscal 2011 from a year earlier, to $1.298 trillion. That was down slightly as a share of GDP to 8.6%, but as CBO deadpans, this was still "greater than in any other year since 1945."

Continued in article

Jensen Comment
In fairness, the exploding budget deficits were in the pipeline before President Obama took office. His predecessor, George W. Bush, had no ink in his veto pen when Congressional spending bills crossed his desk. Obama inherited the same inkless pen as far as spending bills are concerned.


"Your Cash for Their Clunkers:  Another White House energy favorite hits financial trouble," The Wall Street Journal, October 19, 2011 ---
http://online.wsj.com/article/SB10001424052970204346104576637061152676584.html?mod=djemEditorialPage_t

Here's some investment advice: When looking for tips on green technology plays, steer clear of the stock pickers located at 1600 Pennsylvania Avenue. They've made a habit of investing your cash in their clunkers.

Following on Solyndra's great success comes Ener1 Inc., a lithium-ion battery maker also promoted by the White House. President Obama gave the company's subsidiary, EnerDel, a shout out in August 2009, in a speech in which he announced $2.4 billion in grants "to develop the next generation of fuel-efficient cars and trucks powered by the next generation of battery technologies."

EnerDel snagged a $118 million grant, and Vice President Joe Biden toured one of its two Indianapolis-area factories as recently as January, citing it as proof that government isn't "just creating new jobs—but sparking whole new industries."

He didn't say profitable industries. Ener1 was founded in 2002, went public in 2008 and has never turned a profit. In August, it restated its earnings for fiscal 2010 at a $165 million loss—nearly $100 million more than previously reported. On September 27 it ousted its CEO, and its share price yesterday was 27 cents—a 95% decline from its 52-week high of $5.95 in January. Nasdaq is threatening to delist the stock, and Ener1 disclosed in a mid-August filing with the Securities and Exchange Commission that it is "in the process of determining whether the company has sufficient liquidity to fund its operations."

Ener1 attributed its financial restatement to the bankruptcy earlier this year of Norwegian electric car maker Think, in which Ener1 had invested, and with which it had signed a contract to supply batteries. Think had a long history of financial troubles and was hardly a safe investment.

Then again, Ener1 had to rely almost exclusively on Think after it lost its bid to supply batteries to Fisker Automotive, a battery-powered car maker which received a $529 million U.S. taxpayer-backed federal loan guarantee in 2010. Fisker chose to buy its batteries from a company called A123 Systems, itself the recipient of a $249 million U.S. Department of Energy grant (announced at the same time as Ener1's grant).

It's hard to sell electric car batteries when the market for electric cars is so small. Electric cars are expected to make up less than 1% of car sales by 2018, but that hasn't stopped the feds from financing a glut of battery makers. Some 48 different battery technology and electric vehicle projects received federal money as part of the Administration's August 2009 announcement, including such corporate giants as Johnson Controls and General Motors.

Current estimates are that by 2015 there will be more than double the supply of lithium-ion batteries compared to the number of electric vehicles. This government-juiced industry is headed for a shakeout, taking taxpayer dollars with it.

That may include Indiana state tax dollars. In recent years the Indiana Economic Development Corporation has offered Ener1 up to $21.1 million in performance-based tax credits and $200,000 in training grants. A

Continued in article


"Wall Street's Gullible Occupiers The protesters have been sold a bill of goods. Reckless government policies, not private greed, brought about the housing bubble and resulting financial crisis," by Peter J. Wallison, The Wall Street Journal, October 12, 2011 ---
http://online.wsj.com/article/SB10001424052970203633104576623083437396142.html?mod=djemEditorialPage_t

There is no mystery where the Occupy Wall Street movement came from: It is an offspring of the same false narrative about the causes of the financial crisis that exculpated the government and brought us the Dodd-Frank Act. According to this story, the financial crisis and ensuing deep recession was caused by a reckless private sector driven by greed and insufficiently regulated. It is no wonder that people who hear this tale repeated endlessly in the media turn on Wall Street to express their frustration with the current conditions in the economy.

Their anger should be directed at those who developed and supported the federal government's housing policies that were responsible for the financial crisis.

Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.

Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults, that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.

By 2008, Mr. Pinto has shown, this market consisted of about 7.8 million subprime loans, somewhat less than one-third of the 27 million that were then outstanding. The private financial sector must certainly share some blame for the financial crisis, but it cannot fairly be accused of causing that crisis when only a small minority of subprime and other risky mortgages outstanding in 2008 were the result of that private activity.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default, driving down housing prices throughout the U.S. and throwing Fannie and Freddie into insolvency. Seeing these sudden losses, investors fled from the market for privately issued MBS, and mark-to-market accounting required banks and others to write down the value of their mortgage-backed assets to the distress levels in a market that now had few buyers. This raised questions about the solvency and liquidity of the largest financial institutions and began a period of great investor anxiety.

The government's rescue of Bear Stearns in March 2008 temporarily calmed the market. But it created significant moral hazard: Market participants were led to believe that the government would rescue all large financial institutions. When Lehman Brothers was allowed to fail in September, investors panicked. They withdrew their funds from the institutions that held large amounts of privately issued MBS, causing banks and others—such as investment banks, finance companies and insurers—to hoard cash against the risk of further withdrawals. Their refusal to lend to one another in these conditions froze credit markets, bringing on what we now call the financial crisis.

Continued in article

Causes of the Bubble ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Causes


Jensen Comment

I'm in sympathy with the protests of outrageous executive compensation that rewards failure as well as success. But I'm not in sympathy with protesters who blame the real estate crash on the private sector. In reality, the real estate bubble and subsequent crash lies at the feet of bad government policy dating back to Bill Clinton's presidency that created opportunities for mortgage fraudsters on Main Street rather than Wall Street:

Fannies' butt was being screwed on Main Street rather than Wall Street because of government policies forced on Fannie Mae and the smaller Freddie Mack.

Bob Jensen

"CHARTS: Here's What The Wall Street Protesters Are So Angry About... ," by Henry Blodget, Business Insider, October 12, 2011 ---
http://www.businessinsider.com/what-wall-street-protesters-are-so-angry-about-2011-10

The "Occupy Wall Street" protests are gaining momentum, having spread from a small park in New York to marches to other cities across the country.

So far, the protests seem fueled by a collective sense that things in our economy are not fair or right.  But the protesters have not done a good job of focusing their complaints—and thus have been skewered as malcontents who don't know what they stand for or want.

(An early list of "grievances" included some legitimate beefs, but was otherwise just a vague attack on "corporations." Given that these are the same corporations that employ more than 100 million Americans and make the products we all use every day, this broadside did not resonate with most Americans).

So, what are the protesters so upset about, really?

Do they have legitimate gripes?

To answer the latter question first, yes, they have very legitimate gripes.

And if America cannot figure out a way to address these gripes, the country will likely become increasingly "de-stabilized," as sociologists might say. And in that scenario, the current protests will likely be only the beginning.

The problem in a nutshell is this: Inequality in this country has hit a level that has been seen only once in the nation's history, and unemployment has reached a level that has been seen only once since the Great Depression. And, at the same time, corporate profits are at a record high.

In other words, in the never-ending tug-of-war between "labor" and "capital," there has rarely—if ever—been a time when "capital" was so clearly winning.

The CHARTS (slide show) are at ---- Click Here
http://www.businessinsider.com/what-wall-street-protesters-are-so-angry-about-2011-10#lets-start-with-the-obvious-unemployment-three-years-after-the-financial-crisis-the-unemployment-rate-is-still-at-the-highest-level-since-the-great-depression-except-for-a-brief-blip-in-the-early-1980s-1

Jensen Comment
It would not be so bad if corporate executives and bankers really earned their substantial incomes.

But in reality, these outrageous executive pay packages reward failure almost as much as success.

Quotations from http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.
John Kenneth Galbraith --- Click Here

If you aren’t (cynical) now, you will by the time you finish the new Bebchuk and Fried paper on executive compensation.  They paint a fairly gloomy picture of managers exerting their power to “extract rents and to camouflage the extent of their rent extraction.”  Rather than designed to solve agency cost problems, the paper makes the case that executive pay can by an agency cost in and of itself.  Let’s hope things aren’t this bad. 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364220

They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?

Lyrics of a Bob Dylan song forwarded by Damian Gadal [DGADAL@CI.SANTA-BARBARA.CA.US

Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
Now that the Fed is going to bail out these crooks with taxpayer funds makes it all the worse.
Bob Jensen's "Rotten to the Core" threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

That some bankers have ended up in prison is not a matter of scandal, but what is outrageous is the fact that all the others are free.
Honoré de Balzac

I’d been working for the bank for about five weeks when I woke up on the balcony of a ski resort in the Swiss Alps. It was midnight and I was drunk. One of my fellow management trainees was urinating onto the skylight of the lobby below us; another was hurling wine glasses into the courtyard. Behind us, someone had stolen the hotel’s shoe-polishing machine and carried it into the room; there were a line of drunken bankers waiting to use it. Half of them were dripping wet, having gone swimming in all their clothes and been too drunk to remember to take them off. It took several more weeks of this before the bank considered us properly trained. . . . By the time I arrived on Wall Street in 1999, the link between derivatives and the real world had broken down. Instead of being used to reduce risk, 95 per cent of their use was speculation - a polite term for gambling. And leveraging - which means taking a large amount of risk for a small amount of money. So while derivatives, and the financial industry more broadly, had started out serving industry, by the late 1990s the situation had reversed. The Market had become a near-religious force in our culture; industry, society, and politicians all bowed down to it. It was pretty clear what The Market didn’t like. It didn’t like being closely watched. It didn’t like rules that governed its behaviour. It didn’t like goods produced in First-World countries or workers who made high wages, with the notable exception of financial sector employees. This last point bothered me especially.
Philipp Meyer, American Rust (Simon & Schuster, 2009) --- http://search.barnesandnoble.com/American-Rust/Philipp-Meyer/e/9780385527514/?itm=1
American excess: A Wall Street trader tells all - Americas, World - The Independent
http://www.independent.co.uk/news/world/americas/american-excess--a-wall-street-trader-tells-all-1674614.html 
Jensen Comment
This book reads pretty much like an update on the derivatives scandals featured by Frank Partnoy covering the Roaring 1990s before the dot.com scandals broke. There were of course other insiders writing about these scandals as well --- http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
It would seem that bankers and investment bankers do not learn from their own mistake. The main cause of the scandals is always pay for performance schemes run amuck.
The End of Investment Banking --- http://www.trinity.edu/rjensen/2008Bailout.htm#InvestmentBanking

 


The total return of the S&P 500 index fell by nearly 40% last year, the second-worst performance by America’s stockmarket since 1825 --- http://www.simoleonsense.com/us-stockmarket-returns-since-1825/

But Wall Street's pay packages in 2009 are shooting for all time highs --- Click Here


Bonuses for What?
The only guy to make almost a $100 Million dollars at GE is the CEO who destroyed shareholder value by nearly 50% in slightly less than a decade

"GE has been an investor disaster under Jeff Immelt," MarketWatch, March 8, 2010 ---
http://www.marketwatch.com/story/ge-has-been-an-investor-disaster-under-jeff-immelt-2010-03-08

When things go well, chief executives of major companies rack up hundreds of millions of dollars, even billions, on their stock allotments and options.

It's always justified on the grounds that they've created lots of shareholder value. But what happens when things go badly?

For one example, take a look at General Electric Co. /quotes/comstock/13*!ge/quotes/nls/ge (GE 16.27, +0.04, +0.22%) , one of America's biggest and most important companies. It just revealed its latest annual glimpse inside the executive swag bag.

By any measure of shareholder value, GE has been a disaster under Jeffrey Immelt. Investors haven't made a nickel since he took the helm as chairman and chief executive nine years ago. In fact, they've lost tens of billions of dollars.

The stock, which was $40 and change when Immelt took over, has collapsed to around $16. Even if you include dividends, investors are still down about 40%. In real post-inflation terms, stockholders have lost about half their money.

So it may come as a shock to discover that during that same period, the 54-year old chief executive has racked up around $90 million in salary, cash and pension benefits.

GE is quick to point out that Immelt skipped his $5.8 million cash bonus in 2009 for the second year in a row, because business did so badly. And so he did.

Yet this apparent sacrifice has to viewed in context. Immelt still took home a "base salary" of $3.3 million and a total compensation of $9.9 million.

His compensation in the previous two years was $14.3 million and $9.3 million. That included everything from salary to stock awards, pension benefits and other perks.

Too often, the media just look at each year's pay in isolation. I decided to go back and take the longer view.

Since succeeding Jack Welch in 2001, Immelt has been paid a total of $28.2 million in salary and another $28.6 million in cash bonuses, for total payments of $56.8 million. That's over nine years, and in addition to all his stock- and option-grant entitlements.

It doesn't end there. Along with all his cash payments, Immelt also has accumulated a remarkable pension fund worth $32 million. That would be enough to provide, say, a 60-year-old retiree with a lifetime income of $192,000 a month.

Yes, Jeff Immelt has been at the company for 27 years, and some of this pension was accumulated in his early years rising up the ladder. But this isn't just his regular company pension. Nearly all of this is in the high-hat plan that's only available to senior GE executives.

Immelt's personal use of company jets -- I repeat, his personal use for vacations, weekend getaways and so on -- cost GE stockholders another $201,335 last year. (It's something shareholders can think about when they stand in line to take off their shoes at JFK -- if they're not lining up at the Port Authority for a bus.)


"A Dangerous Pattern: Rewarding Failure," by Ron Kensas, Harvard Business Review Blog, March 9, 2010 ---
http://blogs.hbr.org/ashkenas/2010/03/a-dangerous-pattern-rewarding.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE

Over the past few months there has been growing anger and frustration about outsized Wall Street bonuses awarded by institutions that were rescued by taxpayer funds. At the core of this anger is the feeling that the pursuit of big payoffs caused bankers to develop complex products and take big risks which ultimately caused the financial system to crash — and if this dynamic is not curbed, it will happen again. At the same time, there is also a feeling, reinforced by President Obama, that Wall Street bankers have not really been held accountable for their risky actions and, in fact, are being unduly rewarded while everyone else continues to suffer.

Unfortunately, the focus on Wall Street masks a more dangerous pattern of rewarding failure that is deeply embedded in the highest levels of corporate and governmental culture. For example, President Obama's point person for reforming Wall Street is Treasury Secretary Timothy Geithner. But somehow Geithner himself has not been held accountable for the financial crisis. This is despite the fact that as president of the Federal Reserve Bank of New York Geithner was responsible for the supervision of Wall Street banks. His reward for allowing these banks to create unsustainable balance sheets: He was made Treasury Secretary.

Similarly Geithner's boss in the Federal Reserve, Ben Bernanke, was not held accountable for the interest rate and regulatory policies that some say caused the crisis. Instead, he was confirmed for a second term by a wide margin in the Senate. And to complete the failure trifecta, Lawrence Summers, who supported many of the policies that caused the financial crisis and resigned from his position as President of Harvard after making unfortunate statements about the capabilities of women, was given a senior role as a White House economic policy advisor.

But this culture of rewarding failure is not limited to the highest levels of government. Virtually every senior corporate leader of a failed institution walks away with millions of dollars. Many move on to other senior corporate jobs or board positions. Take Robert Nardelli as an example. After not getting the top job at GE in 2001, Nardelli became the CEO of Home Depot where he made a series of strategic missteps and displayed an arrogance that alienated employees and customers. After being ousted from that job (with millions of dollars) he was hired by Cerberus to turn around Chrysler — another failure which ultimately resulted in its acquisition by Fiat. And while thousands of Chrysler employees and dealers lost their jobs and their incomes, again Nardelli walked away with his fortune intact and enhanced.

None of this is to blame Geithner, Bernanke, Summers or Nardelli. The point of this argument is that at the highest levels of government and corporations, we have accepted a culture of rewarding failure. That is why perhaps the best job in America is to be a failed CEO. You receive millions in severance and are once more given opportunities to either try it again, or serve on a board of directors where you can again escape accountability for failure. In fact, while President Obama calls for "clawbacks" of banker's bonuses, nobody seems to be calling for directors to return the compensation that they received for poorly "supervising" financial institutions and other corporations that struggle or fail.

Steve Kerr, former chief learning officer of GE and Goldman Sachs, notes that the biggest problem with compensation is what he calls "asking for A while rewarding B." If we are serious about asking for excellent performance, then we have to stop rewarding failure. It's a simple equation — and until we get it right, the President's calls for greater accountability will have a hollow ring.

What do you think?

"Five Ways to Heal American Capitalism," by Roger Marti, Harvard Business Review Blog, March 3, 2010 ---
http://blogs.hbr.org/cs/2010/03/healing_american_capitalism_to.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE

Bob Jensen's threads on outrageous executive compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation


Question
Do big bonuses lead to worse performance?

"Does Bigger Bonus Equal Worse Performance?Around the turn of every year, bankers can think of only one thing: the size of their bonuses," by Dan Ariely, Wall Street Technology, June 18, 2010 ---
http://wallstreetandtech.com/career-management/showArticle.jhtml?articleID=225700612&cid=nl_wallstreettech_daily
Thanks Jagdish!

Around the turn of every year, bankers can think of only one thing: the size of their bonuses.

Even beyond bonus season, they run different scenarios and assumptions, trying to calculate their number.

This distracts them so much that the bigger the bonus at stake, the worse the performance, according to behavioral economist Dan Ariely, who lays out his theory in his new book "The Upside of Irrationality" (HarperCollins, $27.99).

"For a long time we trained bankers to think they are the masters of the universe, have unique skills and deserve to be paid these amounts," said Ariely, who also wrote the New York Times bestseller "Predictably Irrational."

"It is going to be hard to convince them that they don't really have unique skills and that the amount they've been paid for the past years is too much."

Ariely's findings come as regulators try to rein in Wall Street's bonus culture after the 2008 financial collapse. The financial industry argues it needs to pay large bonuses to attract and motivate its top employees.

In an experiment in India, Ariely measured the impact of different bonuses on how participants did in a number of tasks that required creativity, concentration and problem-solving.

One of the tasks was Labyrinth, where the participants had to move a small steel ball through a maze avoiding holes. Ariely describes a man he identified as Anoopum, who stood to win the biggest bonus, staring at the steel ball as if it were prey.

"This is very, very important," Anoopum mumbled to himself. "I must succeed." But under the gun, Anoopum's hands trembled uncontrollably, and he failed time after time.

A large bonus was equal to five months of their regular pay, a medium-sized bonus was equivalent to about two weeks pay and a small bonus was a day's pay.

There was little difference in the performance of those receiving the small and medium-sized bonuses, while recipients of large bonuses performed worst.

SHOCK TREATMENT

More than a century ago, an experiment with rats in a maze rigged with electric shocks came to a similar conclusion. Every day, the rats had to learn how to navigate a new maze safely.

When the electric shocks were low, the rats had little incentive to avoid them. At medium intensity they learned their environment more quickly.

But when the shock intensity was very high, it seemed the rats could not focus on anything other than the fear of the shock.

This may provide lessons for regulators who want to change Wall Street's bonus culture, Ariely said. Paying no bonus or smaller bonuses could help fix skewed incentives without loss of talent.

"The reality is, a lot of places are able to attract great quality people without paying them what bankers are paid," Ariely said. "Do you think bankers are inherently smarter than other people? I don't." (Reporting by Kristina Cooke; Editing by Daniel Trotta)

Continued at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

Rotten to the Core ---
http://www.trinity.edu/rjensen/FraudRotten.htm

Jensen Comment
I'm in sympathy with the protests of outrageous executive compensation that rewards failure as well as success. But I'm not in sympathy with protesters who blame the real estate crash on the private sector. In reality, the real estate bubble and subsequent crash lies at the feet of bad government policy dating back to Bill Clinton's presidency that created opportunities for mortgage fraudsters on Main Street rather than Wall Street:

Fannies' butt was being screwed on Main Street rather than Wall Street because of government policies forced on Fannie Mae and the smaller Freddie Mack.

"Wall Street's Gullible Occupiers The protesters have been sold a bill of goods. Reckless government policies, not private greed, brought about the housing bubble and resulting financial crisis," by Peter J. Wallison, The Wall Street Journal, October 12, 2011 ---
http://online.wsj.com/article/SB10001424052970203633104576623083437396142.html?mod=djemEditorialPage_t

There is no mystery where the Occupy Wall Street movement came from: It is an offspring of the same false narrative about the causes of the financial crisis that exculpated the government and brought us the Dodd-Frank Act. According to this story, the financial crisis and ensuing deep recession was caused by a reckless private sector driven by greed and insufficiently regulated. It is no wonder that people who hear this tale repeated endlessly in the media turn on Wall Street to express their frustration with the current conditions in the economy.

Their anger should be directed at those who developed and supported the federal government's housing policies that were responsible for the financial crisis.

Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.

Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults, that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.

By 2008, Mr. Pinto has shown, this market consisted of about 7.8 million subprime loans, somewhat less than one-third of the 27 million that were then outstanding. The private financial sector must certainly share some blame for the financial crisis, but it cannot fairly be accused of causing that crisis when only a small minority of subprime and other risky mortgages outstanding in 2008 were the result of that private activity.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default, driving down housing prices throughout the U.S. and throwing Fannie and Freddie into insolvency. Seeing these sudden losses, investors fled from the market for privately issued MBS, and mark-to-market accounting required banks and others to write down the value of their mortgage-backed assets to the distress levels in a market that now had few buyers. This raised questions about the solvency and liquidity of the largest financial institutions and began a period of great investor anxiety.

The government's rescue of Bear Stearns in March 2008 temporarily calmed the market. But it created significant moral hazard: Market participants were led to believe that the government would rescue all large financial institutions. When Lehman Brothers was allowed to fail in September, investors panicked. They withdrew their funds from the institutions that held large amounts of privately issued MBS, causing banks and others—such as investment banks, finance companies and insurers—to hoard cash against the risk of further withdrawals. Their refusal to lend to one another in these conditions froze credit markets, bringing on what we now call the financial crisis.

Continued in article

Causes of the Bubble ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Causes


"The Exasperation of the Democratic Billionaire:  Real-estate and newspaper mogul Mortimer Zuckerman voted for Obama but began seeing trouble as soon as the stimulus went into the pockets of municipal unions," by James Freeman, The Wall Street Journal, October 15, 2011 ---
http://online.wsj.com/article/SB10001424052970204002304576628673446417268.html?mod=djemEditorialPage_t

'It's as if he doesn't like people," says real-estate mogul and New York Daily News owner Mortimer Zuckerman of the president of the United States. Barack Obama doesn't seem to care for individuals, elaborates Mr. Zuckerman, though the president enjoys addressing millions of them on television.

The Boston Properties CEO is trying to understand why Mr. Obama has made little effort to build relationships on Capitol Hill or negotiate a bipartisan economic plan. A longtime supporter of the Democratic Party, Mr. Zuckerman wrote in these pages two months ago that the entire business community was "pleading for some kind of adult supervision" in Washington and "desperate for strong leadership." Writing soon after the historic downgrade of U.S. Treasury debt by Standard & Poor's, he wrote, "I long for a triple-A president to run a triple-A country."

His words struck a chord. When I visit Mr. Zuckerman this week in his midtown Manhattan office, he reports that three people approached him at dinner the previous evening to discuss his August op-ed. Among business executives who supported Barack Obama in 2008, he says, "there is enormously widespread anxiety over the political leadership of the country." Mr. Zuckerman reports that among Democrats, "The sense is that the policies of this government have failed. . . . What they say about [Mr. Obama] when he's not in the room, so to speak, is astonishing."

We are sitting on the 18th floor of a skyscraper the day after protesters have marched on the homes of other Manhattan billionaires. It may seem odd that most of the targeted rich people had nothing to do with creating the financial crisis. But as Mr. Zuckerman ponders the Occupy Wall Street movement, he concludes that "the door to it was opened by the Obama administration, going after the 'millionaires and billionaires' as if everybody is a millionaire and a billionaire and they didn't earn it. . . . To fan that flame of populist anger I think is very divisive and very dangerous for this country."

This doesn't mean that Mr. Zuckerman opposes the protesters or questions their motives. When pressed, he concedes that the crowd in Lower Manhattan may include some full-time radicals, but he argues that the protesters are people with a legitimate grievance, as the country suffers high unemployment and stagnant middle-class incomes.

It is a subject he has obviously studied at length, and he explains how the real unemployment rate is actually well above the official level of 9.1%, which only measures people who have applied for a job within the previous four weeks. In fact, he says, unemployment has even surged beyond the Department of Labor's "U-6" number of 16.5% that has received increasing attention lately because it includes people who have given up looking for work within the past year, plus people who have been cut back from full-time employees to part-timers.

Mr. Zuckerman says that when you also consider the labor-force participation rate and the so-called "birth-death series" that measures business starts and failures, the real U.S. unemployment rate is now 20%. His voice rising with equal parts anger and sadness, he exclaims, "That's not America!"

It certainly isn't the America that Mr. Zuckerman discovered when he moved south from Canada to study at Wharton and Harvard Law School, graduating from both in the early 1960s. He reports feeling immediately at home and says he never considered returning "because of the sheer openness and energy of life in America."

The U.S. "has fundamentally great qualities," he says. "It's a society that welcomes talent, nourishes talent, admires talent . . . and rewards talent." But he sees "potentially catastrophic" political and fiscal problems. Mr. Zuckerman reports that when he was a young man, 50% of the top quartile of graduates from Canadian universities moved to the U.S. Now, he says, "I don't want my daughter telling me, 'Dad, I want to move back to Canada because that's the land of opportunity.'"

Mr. Zuckerman's bearish outlook since 2006 has been good for his business. That's when he decided that there was a bubble in commercial real estate and his publicly traded real estate investment trust needed to sell some of its office buildings.

'We've had a strategy in our business of trying to have 'A' assets in 'A' locations. I think we had 126 buildings at that point and we came to the conclusion that 16 of them were either A assets in B locations or B assets in A locations, like 280 Park [Avenue in New York]—it was a great address but not a good building. So we sold. We got through 15 of the 16 and we raised in the range of four and a half billion dollars," he says.

Once the downturn began, that cash pile helped him buy some famous properties at depressed prices, such as the General Motors building in New York and the John Hancock Tower in Boston. But he says his firm is still prepared for possible rough economic times ahead. "We're keeping it very liquid," he says, "because I don't know where this is going."

Mr. Zuckerman maintains that America will solve its problems over the long haul—"I am not somebody who's pessimistic about this country. I have had a life that's been better than my fantasies," he says—but he's certainly pessimistic about the current administration. That began shortly after inauguration day in 2009.

At that time he supported Mr. Obama's call for heavy spending on infrastructure. "But if you look at the make-up of the stimulus program," says Mr. Zuckerman, "roughly half of it went to state and local municipalities, which is in effect to the municipal unions which are at the core of the Democratic Party." He adds that "the Republicans understood this" and it diminished the chances for bipartisan legislating.

Continued in article


"The GOP's Solyndra Problem: Republicans have their own green baggage," by Kimberly A. Strassel, The Wall Street Journal, October 14, 2011 ---
http://online.wsj.com/article/SB10001424052970203914304576629333898072992.html?mod=djemEditorialPage_t

On Friday Rick Perry delivers his first major policy address, unveiling an aggressive energy and jobs plan. It will no doubt be good. It will no doubt address serious problems. It will no doubt be ignored.

That's because, unfortunately for Mr. Perry, drilling isn't the energy topic du jour. The buzz is the bankrupt Solyndra, which is why the only energy question that came to Mr. Perry at Tuesday's New Hampshire debate was this: How, exactly, is his state's vaunted "Emerging Technology Fund"—which has dumped some 200 million taxpayer dollars into private companies—any different from Obama programs that subsidized the likes of Solyndra?

It isn't, of course, and that's a problem for Mr. Perry. The political merit of Solyndra is that it perfectly illustrates the failed Obama economic mentality—that politicians should allocate capital, that government creates industries. Nothing should be further from a free-market mentality, and Solyndra ought to be providing Republicans a potent contrast with the president. Instead, candidates like Mr. Perry and Mitt Romney are dragging green baggage.

Congressional Republicans are now investigating the solar panels out of Solyndra, and rightly so. But no one should forget it was Republicans who in 2005 created the loan program that Mr. Obama would later expropriate to funnel stimulus dollars to his green boondoggles. This was the height of the Bush-era spending craze, when the GOP had come to see green energy as a slick way to funnel yet more pork (ethanol, nuclear, wood chips) to their states. As a side benefit, it offered cover against charges that Republicans were stooges of Big Oil.

Where the handouts really got rolling was at the state level. It used to be that Republican governors competed for business by lowering taxes and regulations. Then some genius worked out that it was easier to flat-out bribe companies to relocate by offering cold, hard taxpayer cash. And with green energy all the rage, a lot of state tax dollars started flowing to Solyndra-like ventures.

Mr. Perry did all this on a grand scale, convincing his legislature to create two investment funds, one being the Emerging Technology Fund, which has acted as state venture capitalist to more than a hundred firms, including green companies. In fairness, he wasn't alone. Indiana's Mitch Daniels, Mississippi's Haley Barbour, Louisiana's Bobby Jindal—conservatives all—have happily staked their taxpayers' dollars on green bets.

But it's Mr. Perry who is running for president, and who came out of the primary gates touting his funds as a centerpiece of Texas's job-creation story. As Solyndra has escalated, the Obama political liabilities have begun to attach to the Texan. The press is churning out exposés about how many jobs the Texas grants actually produced, or how many recipients had donated to Mr. Perry. His rivals, notably Michele Bachmann, have directly called the funds Mr. Perry's "Solyndra."

Mr. Perry's response has been to say that "the federal government shouldn't be involved in that kind of investment, period," but that it is "fine for states" to pick winners and losers in the economy. All of which sounds a bit like a certain governor attempting to explain away RomneyCare.

Speaking of Mr. Romney, he's taken his own shots at Solyndra, and his 59-point economic plan warns that government "should not be in the business of steering investment toward particular politically favored approaches." The former governor seems to be hoping that the press won't notice a day in early 2003 when he used a solar company as the backdrop to announce that his state was shifting millions to a new Green Energy Fund (still in existence) that would provide venture capital and loans to renewable companies.

True, the Massachusetts fund wasn't run out of the governor's office, and the amounts were a smidgen of Mr. Obama's green stimulus. Bets are Team Obama won't make that distinction when highlighting Mr. Romney's prior support for state-sponsored venture capital for solar.

Past mistakes aside, why aren't candidates using this moment to disavow green slush? Congressional Republicans—the tea party at their backs, Solyndra in their sights—are themselves beginning to envision the upside of abandoning green pork.

Yet Mr. Perry sticks to his flawed federalism argument. And the Romney jobs plan insists "government has a role to play in innovation in the energy industry," although Romney spokesman Ryan Williams tells me his candidate is focused on "basic research through programs that ensure long-term, apolitical funding for a wide variety of early stage technologies," and that he "opposes President Obama's efforts to play venture capitalist."

The problem is that there are no apolitical subsidies. The economics of political venture capital are bad, but the politics are worse. For Republicans in particular, the green subsidy road leads only to scandals, job-number embarrassments, poor excuses, and a missed opportunity to draw distinctions with big-government liberals.

Continued in article


We've come to expect that lawyers lie --- it's part of their job responsibilities in some instances
But it's a bit of a shock how much law schools themselves lie (until we make the connection that law schools are run by lawyers)

"Coburn, Boxer Call for Department of Education to Examine Questions of Law School Transparency," New Release from the Official Site of Senator Barbara Boxer, October 14, 2011 ---
http://boxer.senate.gov/en/press/releases/101411.cfm

Washington, D.C. – U.S. Senators Tom Coburn (R-OK) and Barbara Boxer (D-CA) yesterday asked the Department of Education’s Inspector General to provide information about key law school job placement, bar passage and loan debt metrics in light of serious concerns that have been raised about the accuracy and transparency of information being provided to prospective law school students.  

This letter follows repeated calls from Senator Boxer to the American Bar Association to provide stronger oversight of reporting by law schools and better access to information for students. 

In their letter, the Senators pointed to media reports that raise questions about whether the claims law schools use to lure prospective students are, in fact, accurate. They also cited reporting that questions whether law school tuition and fees are used for legal education or for unrelated purposes.  

The full text of the Senators’ letter appears below. 

October 13, 2011 

Ms. Kathleen Tighe
Inspector General
U.S. Department of Education
400 Maryland Ave., S.W.
Washington, DC 20202-1500

To help better inform Congress as it prepares to reform the Higher Education Act, we write to request an examination of American law schools that focuses on the confluence of growing enrollments, steadily increasing tuition rates and allegedly sluggish job placement.  

Recent media stories reveal concerning challenges for students and graduates of such schools. For example, The New York Times reported on a law school that “increased the size of the class arriving in the fall of 2009 by an astounding 30 percent, even as hiring in the legal profession imploded.” The New York Times found the same school is ranked in the bottom third of all law schools in the country and has tuition and fees set at $47,800 a year but reported to prospective students median starting salaries rivaling graduates of the best schools in the nation “even though most of its graduates, in fact, find work at less than half that amount.” 

Other reports question whether or not law schools are properly disclosing their graduation rates to prospective students. Inside Higher Ed recently highlighted several pending lawsuits which “argue that students were essentially robbed of the ability to make good decisions about whether to pay tuition (and to take out student loans) by being forced to rely on incomplete and inaccurate job placement information. Specifically, the suits charge the law schools in question (and many of their peers) mix together different kinds of employment (including jobs for which a J.D. is not needed) to inflate employment rates.”  

Media exposes also reveal possible concerns about whether tuition and fees charged by law schools are used directly for legal education, or for purposes unrelated to legal education. For example, The New York Times reports “law schools toss off so much cash they are sometimes required to hand over as much as 30 percent of their revenue to universities, to subsidize less profitable fields.” The Baltimore Sun recently reported on the resignation of the Dean of the University of Baltimore (UB) Law School, who said he resigned, in part, over his frustration that the law school’s revenue was not being retained to serve students at the school. In his resignation letter, UB’s Dean noted: “The financial data [of the school] demonstrates that the amount and percentage of the law school revenue retained by the university has increased, particularly over the last two years. For the most recent academic year (AY 10-11), our tuition increase generated $1,455,650 in additional revenue. Of that amount, the School of Law budget increased by only $80,744.”  

To better understand trends related to law schools over the most recent ten-year window, we request your office provide the following information: 

1. The current enrollments, as well as the historical growth of enrollments, at American law schools – in the aggregate, and also by sector (i.e., private, public, for-profit).  

2. Current tuition and fee rates, as well as the historical growth of tuition and fees, at American law schools – in the aggregate, and also by sector (i.e., private, public, for-profit).  

3. The percentage of law school revenue generated that is retained to administer legal education, operate law school facilities, and the percentage and dollar amount used for other, non-legal educational purposes by the broader university system. If possible, please provide specific examples of what activities and expenses law school revenues are being used to support if such revenue does not support legal education directly. 

4. The amount of federal and private educational loan debt legal students carried upon graduation, again in the aggregate and across sectors. 

5. The current bar passage rates and graduation rates of students at American law schools, again in the aggregate and across sectors.  

6. The job placement rates of American law school graduates; indicating whether such jobs are full- or part-time positions, whether they require a law degree, and whether they were maintained a year after employment. 

In your final analysis, please include a description of the methodology the IG employed to acquire and analyze information for the report. Please also note any obstacles to acquiring pertinent information the agency may encounter.  

We thank you in advance for your time and attention to this matter. Please feel free to contact us if you have any questions concerning this request.  

Sincerely,  

Tom A. Coburn,
M.D. United States Senator 

Barbara Boxer
United States Senator

Jensen Comment
Faculty urged not to be “too choosy” in admitting new cash-cow graduate students
"Not So Fast," by Lee Skallerup Bessette, Inside Higher Ed, August 29, 2011 ---
http://www.insidehighered.com/views/2011/08/29/essay_suggesting_faculty_members_should_be_dubious_of_drive_for_new_graduate_programs

 

Bob Jensen's threads on Turkey Times for Overstuffed Law Schools ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools


"ObamaCare Starts to Unravel:  The real story behind the Class program failure, and what to do now," The Wall Street Journal, October 17, 2011 ---
http://online.wsj.com/article/SB10001424052970204479504576635200446357240.html?mod=djemEditorialPage_t

Now that one of ObamaCare's major new benefit programs has been scrapped, liberals are trying to make stone soup by claiming that the Obama Administration merely committed an act of "good government." They claim that when this long-term care insurance program proved to be unworkable, the Administration conceded as much, and now it's gone. So let's review the evidence, not least because it so perfectly illustrates the recklessness that produced the Affordable Care Act.

When Democrats were pasting it together in 2009 and 2010, the immediate attraction of the program known by the acronym Class was that its finances could be gamed to create the illusion that a new entitlement would reduce the deficit. Ending the complicated Class budget gimmick erases the better part of ObamaCare's purported "savings," but it's also worth focusing on the program's long-run political goals.

For decades Democrats have been trying to put government on the hook for middle-class costs like home health services ($1,800 a month on average) and nursing homes ($70,000 to $80,000 per year). On paper, Class was supposed to be like normal insurance, funding benefits through premiums with no subsidy. But since the budget gimmick and the program's larger structure meant that premiums could never cover benefits, Democrats were trying to force a future Congress to prevent a Class bankruptcy using taxpayer dollars.

As the costs to the federal fisc continued to climb, the Democratic gambit was that Class would gradually morph into another part of Medicare. Insurance depends on younger, healthier people signing up to cross-subsidize the older and sicker, but under the Class program as written almost all of its enrollees would soon also be beneficiaries.

So to fix this "adverse selection," the plan was for Congress to eventually make participation mandatory, with the so-called premiums converted into another payroll tax and the benefits into another entitlement. Former White House budget director Peter Orszag has been writing that the long-term care insurance market can't function without a mandate, while HHS Secretary Kathleen Sebelius declined to rule one out at a Senate hearing in February. Now they tell us.

The only reason the Health and Human Services Department pre-emptively called off this scheme is that former New Hampshire Senator Judd Gregg succeeded in inserting a proviso that required the Class program's reality to match Democratic promises as a matter of law. If HHS couldn't provide "an actuarial analysis of the 75-year costs of the program that ensures solvency throughout such 75-year period," it couldn't be legally implemented.

In other words, HHS had to prove that the Class program wouldn't go broke the way it was designed to—and actuarial analysis is a matter of math, not politics. In a 48-page report that HHS submitted to Congress Friday, the department concedes that it is literally impossible to create any kind of long-term care program under the law's statutory text in which revenues match expenditures. Such a plan would cost as much as $3,000 per month, which no one would ever buy.

The HHS gnomes even considered "features deviating from or going beyond a plain reading of the statutory language" that its lawyers didn't think could pass legal muster, and they still couldn't avoid violating the known laws of mathematics despite 19 months of trying. HHS lawyers also said the government would have to warn enrollees that the promised benefits weren't contracts and could be abrogated to "dispel any claims that the Class program had misled the public or had encouraged reliance on its programs under false pretenses."

Continued in article


 




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

Bob Jensen's Tidbits Archives ---
http://www.trinity.edu/rjensen/tidbitsdirectory.htm 

Bob Jensen's Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

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

·     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?  ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/theory01.htm

Tom Lehrer on Mathematical Models and Statistics ---
http://www.youtube.com/watch?v=gfZWyUXn3So

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews

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/