Tidbits Quotations
To Accompany the December 20, 2011 edition of Tidbits
Bob Jensen at Trinity University

Barney Frank: I've destroyed the economy, my work here is done.
Washington Times headline, Nov. 29, 2011
Barney's Rubble --- http://www.trinity.edu/rjensen/2008Bailout.htm#Rubble

Oh, and don't forget Fannie Mae and Freddie Mac, those two government-sponsored mortgage giants that engineered the 2008 subprime mortgage fiasco and are now on the public dole. The Fed kept them afloat by buying over a trillion dollars of their paper. Now, part of the Treasury's borrowing from the public covers their continuing large losses.
George Melloan, "Hard Knocks From Easy Money:  The Federal Reserve is feeding big government and harming middle-class savers," The Wall Street Journal, July 6, 2010 --- http://online.wsj.com/article/SB10001424052748704103904575337282033232118.html?mod=djemEditorialPage_t

Political quotations forwarded by Eileen

Those who are too smart to engage in politics are punished by being governed by those who are dumber.

The problem with political jokes is they get elected.
~Henry Cate, VII

We hang the petty thieves and appoint the great ones to public office.

If we got one-tenth of what was promised to us in these campaign speeches there wouldn't be any inducement to go to heaven.
~Will Rogers

Politicians are the same all over. They promise to build a bridge even where there is no river.
~Nikita Khrushchev

When I was a boy I was told that anybody could become President. I'm beginning to believe it.
~Clarence Darrow

If God wanted us to vote, he would have given us candidates.
~Jay Leno

I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them.
~Adlai Stevenson, campaign speech, 1952

A politician is a fellow who will lay down your life for his country.
~Texas Guinan

Any American who is prepared to run for president should automatically, by definition, be disqualified from ever doing so.
~Gore Vidal

I have come to the conclusion that politics is too serious a matter to be left to the politicians.
~Charles de Gaulle

Politics is supposed to be the second-oldest profession. I have come to realize that it bears a very close resemblance to the first.
~Ronald Reagan

Politics: [Poly "many" + tics "blood-sucking parasites"]
~Larry Hardiman

Instead of giving a politician the keys to the city, it might be better to change the locks.
~Doug Larson

Don't vote, it only encourages them.
~Author Unknown

There ought to be one day - just one - when there is open season on senators and congressmen.
~Will Rogers

Jensen Comment
The above Will Rogers' quote is no longer politically correct since Gabby Giffords was gunned down in her home district. But don't you wish, down deep, that Dick Cheney would invite Newt Gingrich on a hunting trip.

From BBC News, December 13, 2011
Top Economists Reveal Their Graphs --- http://www.bbc.co.uk/news/in-pictures-16090055
Click on the Start Slide Show button

 It noted that this victory came after the victory of Lebanese and Palestinian peoples in July 2006 and December 2008 against a regional superpower “Israel” which many promoted as “invincible”.
"Hezbollah Hails Iraqi Historic Victory that ‘Broke US Pride" Ahlul Bayt News Agency, December 18, 2011 ---

Hezbollah saluted on Friday the great historic victory achieved by the resistance and patience of the Iraqi people who forced the U.S. occupation to withdraw 'humiliated'.

In a statement released by Hezbollah Media Relations, the Lebanese resistance stressed that “this victory, achieved by the sacrifices of thousands of martyrs and injured people, is a role model for all the oppressed peoples of the world in the face of arrogant powers.”

The statement indicated that through their trust in Allah and the noble brave resistance and capable figures who reject injustice and aggression, the Iraqi people accomplished in eight years an achievement that will remain our nation’s source of proud.” It added that the Iraqi people broke the pride the United States, which wanted through it occupation to Iraq, to indulge this nation in an era of humiliation and crunch.”

Hezbollah expressed his “pride with this brilliant victory,” and hoped that “Iraq with its people and government to carry out its leadership role in the Arab and Muslim worlds.”

“We call on the Iraqi people to unite and be wary of the US administration’s plots and its desperate attempts to sow division, fragmentation and discord,” it added.

Hezbollah stressed that “the Iraqi people forced the U.S. occupation to withdraw from the Iraqi territories humiliated.”

“This victory records the defeat of a great arrogant tyrannical power before the will of the resistant people who reject and fight occupation providing sacrifices in order to liberate their land and preserve their dignity, independence and sovereignty, the statement said. It noted that this victory came after the victory of Lebanese and Palestinian peoples in July 2006 and December 2008 against a regional superpower “Israel” which many promoted as “invincible”.

Continued in article

Corporate Executives Just Do Not Learn From Past Disasters

"Execs to Cash In Despite Market Woes: Even companies whose investors received a negative return this year expect to fund at least 100% of formula-based annual bonus plans," David McCann, CFO.com, December 9, 2011 ---

Are companies in denial when it comes to executives' annual bonuses for 2011? Judge for yourself.

Among 265 companies that participated in a newly released Towers Watson survey, 42% said their shareholders' total returns were lower this year than in 2010. No surprise there, given the stock markets' flat performance in 2011.

Yet among those that reported declining shareholder value, a majority (54%) said they expected their bonus plan to be at least 100% funded, based on the plan's funding formula. That wasn't much behind the 58% of all companies that expected full or greater funding (see chart).

"It boggles the mind. How do you articulate that to your investors?" asks Eric Larre, consulting director and senior executive pay consultant at Towers Watson. Noting that stocks performed excellently in 2010 while corporate earnings stagnated — the opposite of what has happened this year — he adds, "How are you going to say to them, 'We made more money than we did last year, but you didn't'?"

In particular, companies would have to convincingly explain that annual bonus plans are intended to motivate executives to achieve targets for short-term, internal financial metrics such as EBITDA, operating margin, or earnings per share, and that long-term incentive programs — which generally rest on stock-option or restricted-stock awards, giving executives, like investors, an ownership stake in the company — are more germane to investors.

But such arguments may hold little sway with the average investor, who "doesn't bifurcate compensation that discretely," says Larre. Rather, investors simply look at the pay packages as displayed in the proxy statement to see how much top executives were paid overall, and at how the stock performed.

Larre attributes much of the current, seeming generosity to executives to complacence within corporate boards. This year, the first in which public companies were required to give shareholders an advisory ("say on pay") vote on executive-compensation plans, 89% received a thumbs-up. But that came on the heels of 2010, when the S&P 500 gained some 13% and investors were relatively content with their returns. "They may not be as content now," Larre observes. "I think the number of 'no' say-on-pay votes will be larger during the 2012 proxy season."

Continued in article

Bob Jensen's threads on corporate governance are at

White Collar Crime Pays Even if You Get Caught ---

The Very Real Agenda of Socialist Maxine Waters --- http://www.youtube.com/watch?feature=player_embedded&v=o3I-PVVowFY

The Ethics Record of Maxine Waters ---

"Voter fraud is real And voter ID laws are really needed; they are not racist ," Pittsburgh Post-Gazette, December 18, 2011 ---

The state chairman of Indiana's Democratic Party resigned Monday as a probe of election fraud in the 2008 Democratic presidential primary widened.

State law requires a presidential candidate to gather 500 valid signatures in each county to qualify for the ballot. Barack Obama may not have met it. Investigators think 150 of the 534 signatures the Obama campaign turned in for St. Joseph County may have been forged.

Yet Democrats say that measures to guard against vote fraud are racist Republican plots to disenfranchise minority voters.

Republicans "want to literally drag us back to Jim Crow laws," said Rep. Debbie Wasserman-Schultz, D-Fla, chair of the Democratic National Committee.

The NAACP has asked the United Nations to intervene to block state voter ID laws. It may have an ulterior motive for opposing ballot security measures. An NAACP official was convicted on 10 counts of absentee voter fraud in Tunica County, Miss., in July.

Former Democratic Rep. Artur Davis, who is black, said vote fraud is rampant in African-American districts like his in Alabama.

"The most aggressive contemporary voter suppression in the African-American community is the wholesale manufacture of ballots at the polls and absentee, in parts of the Black Belt," Mr. Davis said. "Voting the names of the dead, and the nonexistent, and the too mentally impaired to function cancels out the votes of citizens who are exercising their rights."

Laws requiring photo IDs suppress minority voting, Democrats charge. The facts say otherwise. In Georgia, black voter turnout for the midterm election in 2006 was 42.9 percent. After Georgia passed photo ID, black turnout in the 2010 midterm rose to 50.4 percent. Black turnout also rose in Indiana and Mississippi after photo IDs were required.

"Concerns about voter identification laws affecting turnout are much ado about nothing," concluded researchers at the universities of Delaware and Nebraska after examining election data from 2000 through 2006.

You need a photo ID to get on an airplane or an Amtrak train; to open a bank account, withdraw money from it, or cash a check; to pick up movie and concert tickets; to go into a federal building; to buy alcohol and to apply for food stamps.

Most Americans don't think it's a hardship to ask voters to produce one. A Rasmussen poll in June indicated 75 percent of respondents support photo ID requirements. Huge majorities of Hispanics support voter ID laws, according to a Resurgent Republic poll in September.

This year there have been investigations, indictments or convictions for vote fraud in California, Texas, Minnesota, Wisconsin, Michigan, Indiana, Ohio, Georgia, North Carolina and Maryland. In all but one case, the alleged fraudsters were Democrats.

In none would the fraud alleged have altered a major election, Democrats note. But in the Illinois gubernatorial election in 1982, 100,000 votes cast in Chicago -- 10 percent of the total -- were fraudulent, the U.S. attorney there estimated.

Fraud of the magnitude which swings elections typically combines absentee ballot fraud and voter registration fraud. At least 55 employees or associates of the Association of Community Organizations for Reform Now have been convicted of registration fraud in 11 states, says Matthew Vadum of the Capital Research Center, who's written a book about ACORN.

Of 1.3 million new registrations ACORN turned in in 2008, election officials rejected 400,000.

"There is no question about the legitimacy or importance of a state's interest in counting only eligible voters' votes," wrote liberal Justice John Paul Stevens for a 6-3 majority in the Supreme Court's 2008 decision upholding Indiana's ID law, the toughest in the nation.

In a speech Tuesday at the Lyndon Baines Johnson Library at the University of Texas, Attorney General Eric Holder announced a full scale assault on the laws the Supreme Court said are constitutional and necessary.

Mr. Holder -- who apparently won't prosecute violations of the Voting Rights Act if the victims are white -- picked an appropriate venue for his attack on the integrity of the ballot. LBJ stole his first election to the Senate, according to one of his biographers.

A Gallup poll Tuesday indicates why Mr. Holder is trying so hard to gut ballot security measures. Mr. Obama trails in all swing states. Democrats fear they can't win next year unless they cheat.

All while their kids eat free at school and live on food stamps
"The Next Ann Coulter? 20-Year-Old Pundit’s Blog Exposing Welfare Abuse Is a Hit," The Blaze, December 16, 2011 ---

A 20-year-old college student has developed a following and gotten at least five marriage proposals after writing a column about her experiences with welfare recipients as a Wal-Mart cashier. She says she wants to be the next Ann Coulter.

Christine Rousselle, who attends Providence College in Rhode Island, wrote on the website The College Conservative about her experiences working as a teenager at a Wal-Mart store in her hometown of Scarborough, Maine.

In the column this week, Rousselle described customers using welfare money (like vouchers) to buy toys, lobsters and jewelry, and welfare recipients yakking on expensive iPhones. She suggested that a hot dog stand operator used food stamps to supply his business.

Continued in article

Jensen Comment
On the other hand, it's also common for taxpayers to subsidize corporate business cheats on a much more grand scale. There are cheats at all ends of the income/wealth spectrum.

"The brave women of the Middle East: Female protesters brutally beaten with metal poles as vicious soldiers drag girls through streets by their hair in day of shame," by Inderdeep Bain, Daily Mail, December 18, 2011 ---

After being viciously beaten by a 10-strong mob of Egyptian male soldiers, this woman lies helplessly on the ground as her shirt is ripped from her body and a man kicks her with full force in her exposed chest.

Moments earlier she had been struck countless times in the head and body with metal batons, not content with the brutal beating delivered by his fellow soldier, one man stamped on her head repeatedly.

She feebly tried to shield her head from the relentless blows with her hands.

But she was knocked unconscious in the shameful attack and left lying motionless as the military men mindlessly continued to beat her limp and half-naked body.

Before she was set upon by the guards, three men appeared to carry her as they tried to flee the approaching military.

But they were too slow and the soldiers caught up with them, capturing the women and knocking one of the men to the ground.

The two other men were forced to abandoned their fellow protestors and continued running, looking helplessly back at the two they left behind being relentlessly attacked as they lay on the grou

Read more: http://www.dailymail.co.uk/news/article-2075683/The-brave-women-Middle-East-Female-protesters-brutally-beaten-metal-poles-vicious-soldiers-drag-girls-streets-hair-day-shame.html#ixzz1gu6AekTq

This is just one of the hundreds of shameful injustices seen in Cairo's Tahrir Square where Egypt's military took a dramatically heavy hand on Saturday to crush protests against its rule.

Aya Emad told the AP that troops dragged her by her headscarf and hair into the Cabinet headquarters. The 24-year-old said soldiers kicked her on the ground, an officer shocked her with an electrical prod and another slapped her on the face, leaving her nose broken and her arm in a sling.

Mona Seif, an activist who was briefly detained Friday, said she saw an officer repeatedly slapping a detained old woman in the face.

'It was a humiliating scene,' Seif told the private TV network Al-Nahar. 'I have never seen this in my life.'

Continued in article


Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.
James Surowiecki

"Living By Default," by James Surowiecki, The New Yorker, December 19, 2011 ---

We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.

These people have no hope of ever making a return on their investment in their homes. So for many of them the rational solution would be a “strategic default”—walking away from the mortgage and letting the bank take the house. Yet the vast majority of underwater borrowers keep faithfully paying their mortgages; studies suggest that perhaps only a quarter of all foreclosures are strategic. Given how much housing prices have fallen, the question is why more people aren’t just walking away.

Part of the answer is practical. Defaulting (even in so-called non-recourse states) is still a lot of trouble, and to most people it’s scary. In addition, homeowners are slow to recognize how much the value of their homes has dropped, and have inflated expectations of how much it will rise in the future. The biggest hurdle, though, is social: while companies get called “very smart” for restructuring their contracts, there’s a real stigma attached to defaulting on your mortgage. According to one study, eighty-one per cent of Americans think it’s immoral not to pay your mortgage when you can, and the idea of default is shaped by what Brent White, a law professor at the University of Arizona, calls a discourse of “shame, guilt, and fear.” When the housing bubble burst, the banking industry was terrified by the possibility that homeowners might walk away en masse, since that would have stuck lenders with large losses and a huge number of marked-down homes. So strategic default was portrayed as the act of dishonorable deadbeats. David Walker, of the Peterson Foundation, waxed nostalgic about debtors’ prisons, and John Courson, the head of the Mortgage Bankers Association, argued that defaulters were sending the wrong message “to their family and their kids and their friends.”

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting). And there are plenty of useful ideas out there for how banks could do this without taxpayer subsidies and without rewarding the irresponsible. For instance, Eric Posner and Luigi Zingales, of the University of Chicago, suggest that, in exchange for writing down mortgages in hard-hit areas, lenders would take an ownership stake in a house, getting a percentage of the capital gain when it was eventually sold. Lenders, though, have avoided such schemes and haven’t done mortgage modifications on any meaningful scale. It’s their right to act in their own interest, but it makes it awfully hard to take seriously complaints about homeowners’ lack of social responsibility.

Continued in article

From Stanford University
Pension Math in California --- http://siepr.stanford.edu/

Also see

Best and Worst Run States in America — An Analysis Of All 50

From the AICPA CPA Letter Daily on December 7, 2011
For the second year, 24/7 Wall St. ranked the 50 states according to how well they are run. Factors included the state's financial health, standard of living, education system, employment rate, crime rate and how efficiently the state uses its resources to provide government services. 24/7 Wall St. determined that Wyoming is the best-run state and California is the worst run. 24/7 Wall St.

"Freakonomics: What Went Wrong? Examination of a very popular popular-statistics series reveals avoidable errors," by Andrew Gelman and Kaiser Fung, American Scientist, 2011 ---

The nonfiction publishing phenomenon known as Freakonomics has passed its sixth anniversary. The original book, which used ideas from statistics and economics to explore real-world problems, was an instant bestseller. By 2011, it had sold more than four million copies worldwide, and it has sprouted a franchise, which includes a bestselling sequel, SuperFreakonomics; an occasional column in the New York Times Magazine; a popular blog; and a documentary film. The word “freakonomics” has come to stand for a light-hearted and contrarian, yet rigorous and quantitative, way of looking at the world.

The faces of Freakonomics are Steven D. Levitt, an award-winning professor of economics at the University of Chicago, and Stephen J. Dubner, a widely published New York–based journalist. Levitt is celebrated for using data and statistics to solve an array of problems not typically associated with economics. Dubner has perfected the formula for conveying the excitement of Levitt’s research—and of the growing body of work by his collaborators and followers. On the heels of Freakonomics, the pop-economics or pop-statistics genre has attracted a surge of interest, with more authors adopting an anecdotal, narrative style.

As the authors of statistics-themed books for general audiences, we can attest that Levitt and Dubner’s success is not easily attained. And as teachers of statistics, we recognize the challenge of creating interest in the subject without resorting to clichéd examples such as baseball averages, movie grosses and political polls. The other side of this challenge, though, is presenting ideas in interesting ways without oversimplifying them or misleading readers. We and others have noted a discouraging tendency in the Freakonomics body of work to present speculative or even erroneous claims with an air of certainty. Considering such problems yields useful lessons for those who wish to popularize statistical ideas.

On a Case-by-case Basis

In our analysis of the Freakonomics approach, we encountered a range of avoidable mistakes, from back-of-the-envelope analyses gone wrong to unexamined assumptions to an uncritical reliance on the work of Levitt’s friends and colleagues. This turns accessibility on its head: Readers must work to discern which conclusions are fully quantitative, which are somewhat data driven and which are purely speculative.

The case of the missing girls: Monica Das Gupta is a World Bank researcher who, along with others in her field, has attributed the abnormally high ratio of boy-to-girl births in Asian countries to a preference for sons, which manifests in selective abortion and, possibly, infanticide. As a graduate student in economics, Emily Oster (now a professor at the University of Chicago) attacked this conventional wisdom. In an essay in Slate, Dubner and Levitt praised Oster and her study, which was published in the Journal of Political Economy during Levitt’s tenure as editor:

[Oster] measured the incidence of hepatitis B in the populations of China, India, Pakistan, Egypt, Bangladesh, and other countries where mothers gave birth to an unnaturally high number of boys. Sure enough, the regions with the most hepatitis B were the regions with the most “missing” women. Except the women weren’t really missing at all, for they had never been born.

Oster’s work stirred debate for a few years in the epidemiological literature, but eventually she admitted that the subject-matter experts had been right all along. One of Das Gupta’s many convincing counterpoints was a graph showing that in Taiwan, the ratio of boys to girls was near the natural rate for first and second babies (106:100) but not for third babies (112:100); this pattern held up with or without hepatitis B.

In a follow-up blog post, Levitt applauded Oster for bravery in admitting her mistake, but he never credited Das Gupta for her superior work. Our point is not that Das Gupta had to be right and Oster wrong, but that Levitt and Dubner, in their celebration of economics and economists, suspended their critical thinking.

The risks of driving a car: In SuperFreakonomics, Levitt and Dubner use a back-of-the-envelope calculation to make the contrarian claim that driving drunk is safer than walking drunk, an oversimplified argument that was picked apart by bloggers. The problem with this argument, and others like it, lies in the assumption that the driver and the walker are the same type of person, making the same kinds of choices, except for their choice of transportation. Such all-else-equal thinking is a common statistical fallacy. In fact, driver and walker are likely to differ in many ways other than their mode of travel. What seem like natural calculations are stymied by the impracticality, in real life, of changing one variable while leaving all other variables constant.

Stars are made, not born—except when they are born: In 2006, Levitt and Dubner wrote a column for the New York Times Magazine titled “A Star Is Made,” relying on the research of Florida State University psychologist K. Anders Ericsson, who believes that experts arise from practice rather than innate talent. It begins with the startling observation that elite soccer players in Europe are much more likely to be born in the first three months of the year. The theory: Since youth soccer leagues are organized into age groups with a cutoff birth date of December 31, coaches naturally favor the older kids within each age group, who have had more playing time. So far, so good. But this leads to an eye-catching piece of wisdom: The fact that so many World Cup players have early birthdays, the authors write,

may be bad news if you are a rabid soccer mom or dad whose child was born in the wrong month. But keep practicing: a child conceived on this Sunday in early May would probably be born by next February, giving you a considerably better chance of watching the 2030 World Cup from the family section.

Perhaps readers are not meant to take these statements seriously. But when we do, we find that they violate some basic statistical concepts. Despite its implied statistical significance, the size of the birthday effect is very small. The authors acknowledge as much three years later when they revisit the subject in SuperFreakonomics. They consider the chances that a boy in the United States will make baseball’s major leagues, noting that July 31 is the cutoff birth date for most U.S. youth leagues and that a boy born in the United States in August has better chances than one born in July. But, they go on to mention, being born male is “infinitely more important than timing an August delivery date.” What’s more, having a major-league player as a father makes a boy “eight hundred times more likely to play in the majors than a random boy,” they write. If these factors are such crucial determinants of future stardom, what does this say about their theory that a star is made, not born? Practice may indeed be a more important factor than innate talent, but in opting for cute flourishes like these, the authors venture so far from the original studies that they lose the plot.

Making the majors and hitting a curveball: In the same discussion in SuperFreakonomics, Levitt and Dubner write:

A U.S.-born boy is roughly 50 percent more likely to make the majors if he is born in August instead of July. Unless you are a big, big believer in astrology, it is hard to argue that someone is 50 percent better at hitting a big-league curveball simply because he is a Leo rather than a Cancer.

But you don’t need to believe in astrology to realize that the two cited probabilities are not the same. A .300 batting average is 50 percent better than a .200 average. In such a competitive field, the difference in batting averages between a kid who makes the majors and one who narrowly misses out is likely to be a matter of hundredths or even thousandths of a percent. Such errors could easily be avoided.

Predicting terrorists: In SuperFreakonomics, Levitt and Dubner introduce a British man, pseudonym Ian Horsley, who created an algorithm that used people’s banking activities to sniff out suspected terrorists. They rely on a napkin-simple computation to show the algorithm’s “great predictive power”:

Starting with a database of millions of bank customers, Horsley was able to generate a list of about 30 highly suspicious individuals. According to his rather conservative estimate, at least 5 of those 30 are almost certainly involved in terrorist activities. Five out of 30 isn’t perfect—the algorithm misses many terrorists and still falsely identified some innocents—but it sure beats 495 out of 500,495.

The straw man they employ—a hypothetical algorithm boasting 99-percent accuracy—would indeed, if it exists, wrongfully accuse half a million people out of the 50 million adults in the United Kingdom. So the conventional wisdom that 99-percent accuracy is sufficient for terrorist prediction is folly, as has been pointed out by others such as security expert Bruce Schneier.

But in the course of this absorbing narrative, readers may well miss the spot where Horsley’s algorithm also strikes out. The casual computation keeps under wraps the rate at which it fails at catching terrorists: With 500 terrorists at large (the authors’ supposition), the “great” algorithm finds only five of them. Levitt and Dubner acknowledge that “five out of 30 isn’t perfect,” but had they noticed the magnitude of false negatives generated by Horsley’s secret recipe, and the grave consequences of such errors, they might have stopped short of hailing his story. The maligned straw-man algorithm, by contrast, would have correctly identified 495 of 500 terrorists.

This unavoidable tradeoff between false positive and false negative errors is a well-known property of all statistical-prediction applications. Circling back to check all the factors involved in the problem might have helped the authors avoid this mistake.

The climate-change dustup: Rendering research conducted by others is much more challenging than explaining your own work, especially if the topic lies outside your domain of expertise. The climate-change chapter in SuperFreakonomics is a case in point. In it, Levitt and Dubner throw their weight behind geoengineering, a climate-remediation concept championed at the time by Nathan Myhrvold, a billionaire and former chief technology officer of Microsoft. Unfortunately, having moved outside the comfort zone of his own research, Levitt is in no better a position to evaluate Myhrvold’s proposal than we are.

When an actual expert, University of Chicago climate scientist Raymond Pierrehumbert, questioned the claims in Levitt and Dubner’s writing on climate, Levitt retorted that he enjoyed Pierrehumbert’s “intentional misreading” of the chapter. Referring to his own writings on the subject, Levitt wrote, “I’m not sure why that is blasphemy.” We’re not sure on this point either—we could not find a place where Pierrehumbert described Levitt’s writings in those terms. It is easy to be preemptively defensive of one’s own work, or of researchers whose work one has covered. Viewing alternative points of view as useful rather than threatening can help take the sting out of critiques. And if you’re covering subject matter outside your expertise, it pays to get second—and third and fourth—opinions.

Problems—and Solutions

2012-01MacroGelmanFB.jpgClick to Enlarge ImageHow could an experienced journalist and a widely respected researcher slip up in so many ways? Some possible answers to this question offer insights for the would-be pop-statistics writer.

Leave friendship at the door: We attribute many of these errors to the structure of the authors’ collaboration, which, from what we can tell, relies on an informal social network that has many potential failure points. In the original Freakonomics, much of whose content appeared originally in columns for the New York Times Magazine, the network seems to have been more straightforward: Levitt did the research, Dubner trusted Levitt, the Times trusted Dubner, and we the readers trusted the Times’s endorsement. In SuperFreakonomics and the authors’ blog, it becomes less clear: Levitt trusts brilliant stars such as Myhrvold or Oster, Dubner trusts Levitt, and we the readers trust the Freakonomics brand. A more ideal process for science writing (as shown in the illustration above) will likely look much messier—but it offers the promise of better results.

Don’t sell yourself short: Perhaps Levitt’s admirable modesty—he has repeatedly attributed his success to luck and hard work rather than genius—has led him astray. If he feels he is surrounded by economists more exceptional and brilliant than he is, he may let their assertions stand without challenge. Here it might be good to remember the outsider’s perspective so prized by Levitt: If you find yourself hesitant to ask questions that seem “stupid,” or if you feel intimidated, think of yourself as a “rogue.” Just don’t take it so far that you value your own rogueness over empirical evidence.

Maintain checks and balances: A solid collaboration requires each side to check and balance the other side. Although there’s no way we can be sure, perhaps, in some of the cases described above, there was a breakdown in the division of labor when it came to investigating technical points. The most controversial statements are the most likely to be mistaken; if such assertions go unchallenged, you will have little more than a series of press releases linked by gung-ho commentary and eye-popping headlines. Hiring a meticulous editor who can evaluate the technical arguments is another way to avoid embarrassing mistakes.

Take your time: Success comes at a cost: The constraints of producing continuous content for a blog or website and meeting publisher’s deadlines may have adverse effects on accuracy. The strongest parts of the original Freakonomics book revolved around Levitt’s own peer-reviewed research. In contrast, the Freakonomics blog features the work of Levitt’s friends, and SuperFreakonomics relies heavily on anecdotes, gee-whiz technology reporting and work by Levitt’s friends and colleagues. Just like good science, good writing takes time. Remembering this can help hedge against the temptation to streamline arguments or narrow the pool of sources, even in the face of deadlines.

Be clear about where you’re coming from: Levitt’s publishers, along with Dubner, characterize him as a “rogue economist.” We find this odd: He received his Ph.D. from the Massachusetts Institue of Technology, holds the title of Alvin H. Baum Professor of Economics at the University of Chicago and has served as editor of the mainstream Journal of Political Economy. He is a research fellow with the American Bar Foundation and a member of the Harvard Society of Fellows, and has worked as a consultant for Corporate Decisions, Inc. One can be an outsider within such institutions, of course. But much of his economics is mainstream. And his statistical methods are conventional (which, we hasten to add, is not a bad thing at all!). One of the pleasures of reading Freakonomics is Levitt’s knack for finding interesting quantitative questions in obscure corners, such as the traveling bagel salesman and cheating sumo wrestlers. Often such problems have not been extensively studied or even been noticed by others, and in these cases one is hard-pressed to identify any consensus or conventional wisdom. Often, in the authors’ writing, the “conventional” and the “rogue” live side by side. Chapter one of SuperFreakonomics, for instance, can be viewed either as a clear-eyed quantitative examination of the economics of prostitution, or as an unquestioning acceptance of conventional wisdom about gender roles. In exploring new territory, it’s especially important to be plainspoken about where your assumptions come from and what your primary ideas are.

Use latitude responsibly: When a statistician criticizes a claim on technical grounds, he or she is declaring not that the original finding is wrong but that it has not been convincingly proven. Researchers—even economists endorsed by Steven Levitt—can make mistakes. It may be okay to overlook the occasional mistake in the pursuit of the larger goal of understanding the world. But once one accepts this lower standard—science as plausible stories or data-supported reasoning, rather than the more carefully tested demonstrations that are characteristic of Levitt’s peer-reviewed research articles—one really has to take extra care, consider all sides of an issue, and look out for false positive results.

Continued in article

What went wrong in accounting/accountics research? 
How did academic accounting research become a pseudo science?

574 Shields Against Validity Challenges in Plato's Cave ---

"Solyndra Does Europe: Germany's solar power industry is the latest to flop as subsidies ebb," The Wall Street Journal, December 16, 2011 ---

This week Solon became the first publicly traded solar-power company to file for bankruptcy in Germany. Despite cost-cutting and a round of last-minute negotiations, the Berlin-based photovoltaic equipment maker can't make its deadline to repay €275 million in loans.

You could call Solon a European version of Solyndra, the California solar-cell maker that filed for bankruptcy in September after blowing through a $535 million loan guaranteed by U.S. taxpayers. But Solon also represents a broader bust in alternative-energy sources that's been more than a decade in the making.

Germany's Northern European climate never made it an obvious boom-site for solar power. Nevertheless, since 1990 Germany has been imposing some form of what are now called "feed-in tariffs"—mandates that force utilities to pay above-market prices for wind, solar and other so-called renewable sources of energy. These guaranteed long-term prices deliver renewable-powered electricity at retail prices 46% above conventional sources, according to research by Bloomberg New Energy Finance.

For that premium, Germans bought an electricity market that relies on renewable energy for more than 20% of capacity today, compared to 6.3% in 2000. They have installed more solar panels than any other country in the world. Between 2010 and 2011, the number of photovoltaic installations in Germany increased 76%, according to the German Association of Energy and Water Industries.

As the solar glut grew, the government of Angela Merkel decided it wouldn't make Germans subsidize high-cost energy forever. Berlin has been ratcheting down the mandated tariffs for the last few years, and in October it said the price-floor for solar power would drop by 15% in 2012.

Meanwhile, China continues to produce solar cells and other equipment far more cheaply than its European and American competitors—for which it has earned an anti-dumping investigation by the U.S. Commerce Department. Solon's bankruptcy comes after months of job cuts and restructuring talks across the German industry.

The only wonder in all this is why anyone is surprised. Spain offered a gloomy precursor to the Solon bust in 2008, when it reduced its own solar giveaways and saw the industry tank. German solar-cell manufacturer Q-Cells is cutting 250 jobs and said in November it expects its full-year operating loss to come to "hundreds of millions" of euros. The same month Bonn-based SolarWorld announced a 30% revenue drop from the year before and continued to trim jobs.

Over in Britain, solar firms SolarCentury and HomeSun remain in court, trying to force their government to abandon its plans to cut feed-in tariffs. If they succeed, they'll buy themselves a few more years with enough subsidies to keep them off the Solyndra/Solon path. Maybe they'd be better off dropping the lawyers and adopting a business plan that makes profit less dependent on political favor.

A December 2011 Summary of the U.S. Economic Outlook and Jobs

Latest comment & analysis

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A housing trade group claims that U.S. existing home sales statistics were seriously distorted (upward) ---

Forwarded by Auntie Bev
Bogus Unemployment Report --- http://www.bls.gov/web/empsit/cpseea01.htm

One month ago, October that is, there were 154,198,000 folks in the US labor force. 140,302,000 were employed and 13,897,000 unemployed.

So, what happened in November? The number of people in the US labor force dropped to 153,883,000. That means 315,000 people disappeared from the labor force. Many in the media, Fox included, were celebrating the news that 120,000 jobs were created in November and implying that we have turned a corner. Supposedly the number of unemployed declined by 594,000 from October to November.

You know how many times since 1976 we have seen the labor force contract? Never until Barack Obama became President.

Let’s start with Democrat economist Robert Reich. We need 125,000 jobs a month just to keep pace with population growth. Do you understand that?

So we learn today that we are not even keeping pace with population growth and the White House celebrates this as a victory?

We have not had a major flu epidemic. We have not had hundreds of thousands of combat deaths. And, to the best of my knowledge, martians have not abducted 315,000 of our citizens.

This type of delusion is common in America. We lie to ourselves consistently.

The manipulation of the unemployment numbers by the Obama Administration is criminal. Note, in 2009 the U.S. civilian non-institutional population over the age of 16 was 233,788,000. By 2011, November, that number is 240,441,000. That means the potential workforce population has increased by 6,653,000 people.

In 2008 the actual labor pool was 154,287,000. According to the magical Barack Obama statistical department, the labor pool as of November 2011 is 153,883,000. That means the labor pool has shrunk by 404,000 people. As noted above, this has never happened in the preceding 32 years of gathering this data. You are asked to believe that the potential labor pool (i.e., people at least 16 years of age) has increased by almost 7 million but the labor force has shrunk by more than 400,000. That, boys and girls, is BULLSHIT!


"Corporate Tax Avoidance Cost States $42 Billion," by Michael Cohn, Accounting Today, December 7, 2011 ---
To say nothing about the strategies to avoid or defer Federal taxes when, often reducing tax payments to zero or seeking negative tax refunds.

Sixty-eight of the most consistently profitable Fortune 500 companies paid no state corporate income tax in at least one of the last three years, and 20 of the companies averaged a tax rate of zero or less from 2008-2010.

Nevertheless, the companies told shareholders they made nearly $117 billion in pre-tax U.S. profits during those no-tax years, and 16 of the companies had multiple no-tax years.

A new study from the advocacy group Citizens for Tax Justice and the Institute on Taxation and Economic Policy found that 265 of the most consistently profitable U.S. corporations cost states $42.7 billion over three years. If the 265 corporations had paid the 6.2 percent average state corporate tax rate on the $1.33 trillion in U.S. profits that they reported to their shareholders, they would have paid $82.6 billion in state corporate income taxes over the 2008-10 period. Instead, they paid only $39.9 billion.

Continued in article

Corporate Tax Dodging in the Fifty States, 2008-2010 ---

Best and Worst Run States in America — An Analysis Of All 50

From the AICPA CPA Letter Daily on December 7, 2011
For the second year, 24/7 Wall St. ranked the 50 states according to how well they are run. Factors included the state's financial health, standard of living, education system, employment rate, crime rate and how efficiently the state uses its resources to provide government services. 24/7 Wall St. determined that Wyoming is the best-run state and California is the worst run. 24/7 Wall St.

Jensen Comment
The best-run state is Wyoming. The worst-run state is California  Most of the Top Ten best-run states have relatively low populations. Small seems to be better in terms of state government efficiency, although social programs and cold weather in those states tend to repel welfare and Medicaid recipients from around the nation. It's difficult to draw liberal versus conservative explanations for best-run states since liberal states of Vermont and Minnesota are mixed in the Top Ten along with the conservative states of Wyoming, Utah, and the two Dakota states.

Minnesota has the least debt per capita, but the union-run state of Massachusetts has the most debt per capita. This is somewhat interesting because both Minnesota and Massachusetts are viewed as liberal states (more so in the days of Hubert Humphrey and Walter Mondale). The relatively conservative southern states tend to be below the median on state debt per capita. The western states are more variable. I accuse Taxachusetts of being union-run in part because Boston refuses to allow Wal-Mart stores until Wal-Mart becomes unionized.

When it comes to debt per capita there is less denominator effect than I suspected beforehand, although small populations become a huge factor behind the high debt loads per capita in Alaska, Rhode Island, and Delaware. Alaska can also afford a higher debt load because of vast untapped natural resources.

I watched two very liberal commentators from Boston on television last night arguing that more debt load in Taxachusetts to support increased spending for social programs was a good investment of that state's economy. This seems to be questionable given where Taxachusetts already stands in relation to debt per capita.

Bob Jensen's threads on state taxation are at
You have to scroll down to find the state tax comparisons.

"GASB Plan Concerns Treasurers: NAST Members Share Qualms About Five-Year Projections," by Joan Quigley, The Bund Buyer, December 7, 2011 ---

State treasurers voiced concerns about a proposal unveiled Tuesday by the Governmental Accounting Standards Board that recommends they provide five-year projections of cash flows and information about future financial obligations.

The concerns surfaced here at the Issues Conference on Public Funds Management, sponsored by the National Association of State Treasurers.

The NAST gathering coincided with GASB’s release of so-called preliminary views in a document entitled “Economic Condition Reporting: Financial Projections.”

The proposal, which GASB is floating for public comment and hearings, would require issuers to provide the cash-flow projections if they wanted a clean audit.

GASB said users of governments’ financial statements need this information to assess an entity’s financial health.

Several state treasurers at the conference who had not reviewed the board’s proposal and had only read about it in media accounts expressed reservations.

“We do have a basic concern about what sort of future fiscal projections are expected, with what detail and with what caveats they would be presented,” said Nancy Kopp, the treasurer of Maryland.

She noted that if such projections had been required in 2006, they would have proven wrong after the 2008 financial crisis.

“It’s when you get to projections and hypothetical information, we get most concerned,” she said.

The treasurer’s office of Maryland currently posts projections on its website based on present law and economic assumptions.

“But these are unaudited, best-guess assumptions,” Kopp said.

Another state treasurer, who moderated the pension panel, said she had qualms about the proposal’s impact on small municipalities.

Continued in article

Bob Jensen's threads about the sad state of governmental accounting ---

Harvard Business Review's 2012 List of Audacious Ideas --- Click Here


We hang the petty thieves and appoint the great ones to public office.
Attributed to Aesop

If the law passes in its current form, insider trading by Congress will not become illegal.
"Congress's Phony Insider-Trading Reform:  The denizens of Capitol Hill are remarkable investors. A new law meant to curb abuses would only make their shenanigans easier," by Jonathan Macey, The Wall Street Journal, December 13, 2011 ---

Members of Congress already get better health insurance and retirement benefits than other Americans. They are about to get better insider trading laws as well.

Several academic studies show that the investment portfolios of congressmen and senators consistently outperform stock indices like the Dow and the S&P 500, as well as the portfolios of virtually all professional investors. Congressmen do better to an extent that is statistically significant, according to studies including a 2004 article about "abnormal" Senate returns by Alan J. Ziobrowski, Ping Cheng, James W. Boyd and Brigitte J. Ziobrowski in the Journal of Financial and Qualitative Analysis. The authors published a similar study of the House this year.

Democrats' portfolios outperform the market by a whopping 9%. Republicans do well, though not quite as well. And the trading is widespread, although a higher percentage of senators than representatives trade—which is not surprising because senators outperform the market by an astonishing 12% on an annual basis.

These results are not due to luck or the financial acumen of elected officials. They can be explained only by insider trading based on the nonpublic information that politicians obtain in the course of their official duties.

Strangely, while insider trading by corporate insiders has long been the white collar crime equivalent of a major felony, the Securities and Exchange Commission has determined that insider trading laws do not apply to members of Congress or their staff. That is because, according to the SEC at least, these public officials do not owe the same legal duty of confidentiality that makes insider trading illegal by nonpoliticians.

The embarrassing inconsistency was ignored for years. All of this changed on Nov. 13, 2011, after insider trading on Capitol Hill was the focus of CBS's "60 Minutes." The previously moribund "Stop Trading on Congressional Knowledge Act" (H.R. 1148), first introduced in 2006, was pulled off the shelf and reintroduced. The bill suddenly had more than 140 sponsors, up from a mere nine before the show.

The "Stock" Act, as it is called, would make it illegal for members of Congress and staff to buy or sell securities based on certain nonpublic information. It would toughen disclosure obligations by requiring congressmen and their staffers to report securities trades of more than $1,000 to the clerk of the House (or the secretary of the Senate) within 90 days. And it would bring the new cottage industry in Washington, the so-called political intelligence consultants used by hedge funds, under the same rules that govern lobbyists. These political intelligence consultants are hired by professional investors to pry information out of Congress and staffers to guide trading decisions.

Publicly, House members echo bill sponsor Rep. Louise Slaughter (D., N.Y) in saying things like: "We want to remove any current ambiguity" about whether insider trading rules apply to Congress. Or as co-sponsor Rep. Timothy Walz (D., Minn.) put it: "We are trying to set the bar higher for members of Congress."

On closer examination, it appears that what Congress really wants is to keep making the big bucks that come from trading on inside information but to trick those outside of the Beltway into believing they are doing something about this corruption. For one thing, the rules proposed for Capitol Hill are not like those that apply to the rest of us. Ours are so broad and vague that prosecutors enjoy almost unfettered discretion in deciding when and whom to prosecute.

Congress's rules would be clear and precise. And not too broad; in fact they are too narrow. For example, the proposed rules in the Stock bill are directed only at information related to pending legislation. It would appear that inside information obtained by a congressman during a regulatory briefing, or in another context unrelated to pending legislation, would not be covered.

At a Dec. 6 House hearing, SEC enforcement chief Robert Khuzami opined that any new rules for Congress should not apply to ordinary citizens. He worried that legislators might "narrow current law and thereby make it more difficult to bring future insider trading actions against individuals outside of Congress."

This don't-rock-the-boat approach serves the interests of the SEC because it maximizes the commission's power and discretion, but it's not the best approach. The sensible thing to do would be to rationalize the rules by creating a clear definition of what constitutes insider trading, and then apply those rules to everyone on and outside Capitol Hill.

If the law passes in its current form, insider trading by Congress will not become illegal. I predict such trading will increase because the rules of the game will be clearer. Most significantly, the rule proposed for Congress would not involve the same murky inquiry into whether a trader owed or breached a "fiduciary duty" to the source of the information that required that he refrain from trading.

Continued in article

From The Wall Street Journal Accounting Weekly Review on December 8, 2011

Congress Pushing Curb on Trading
by: Brody Mullins
Dec 07, 2011
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Disclosure, Ethics, Insider Trading, Securities and Exchange Commission

SUMMARY: The article describes the case behind enacting legislation to ban insider-trading by members of Congress and their aides. This initiative was spurred in part by WSJ reporting on the topic. The related video presents the case for why Congressional insider-trading doesn't matter as does the 2009 opinion page piece listed in the related articles.

CLASSROOM APPLICATION: The article is useful in classes covering topics in ethics or in the relationship between information and market responses.

1. (Introductory) What is insider trading?

2. (Advanced) In general, how does the Securities and Exchange Commission undertake enforcement actions against suspected violations of insider trading rules by corporate insiders?

3. (Advanced) On what basis are members of Congress considered not to be subject to insider-trading rules?

4. (Introductory) Who is Rober Khuzami? What is his suggestion for resolving questions of whether members of Congress and their aides are undertaking improper insider trading?

5. (Advanced) What is a blind trust? What role might blind trusts and disclosure practices provide in alleviating this issue?

Reviewed By: Judy Beckman, University of Rhode Island

Panel Cancels Vote on Insider Ban
by Brody Mullins
Dec 08, 2011
Online Exclusive

Learning to Love Insider Trading
by Donald J. Boudreaux
Oct 24, 2009
Page: W1


"Congress Pushing Curb on Trading," by: Brody Mullins, The Wall Street Journal, December 7, 2011 --- Click Here

Congress is pressing its most concerted effort in decades to curb improper stock investing by U.S. lawmakers and their aides, with a focus on preventing trading based on nonpublic information gathered in the halls of Washington.

A House bill to outlaw insider trading on Capitol Hill has the support of more than 180 lawmakers, up from nine a month ago. In the Senate, lawmakers introduced two similar proposals a few weeks ago that have won support of more than 20 senators.

In a House hearing on the matter Tuesday, lawmakers batted around other ideas, such as requiring lawmakers to hold their finances in blind trusts, and mandating near-simultaneous disclosure of stock trades.

The rules covering how lawmakers can trade stocks, and what constitutes inside information in Congress, are murky. Congressional ethics rules justifying stock ownership say lawmakers shouldn't be insulated from "the personal and economic interests" of their constituents. At the same time, lawmakers regularly pick up information through briefings with top officials that is not available to the investing public.

At Tuesday's hearing, the director of enforcement for the Securities and Exchange Commission gave the legislation a boost by saying it would make it easier for the agency to prosecute insider-trading cases against members of Congress, something that has never happened. House and Senate committee chairman have scheduled votes on the various proposals next week.

The moves, inspired in part by a series of articles in The Wall Street Journal, are gaining momentum on Capitol Hill as approval ratings for Congress nose-dive. The Journal analysis last year found that a total of 86 legislators and congressional aides on both sides of the aisle reported frequent trades of securities in 2009. One aide posted nearly 2,300 trades in his brokerage account.

The push received a boost after a recent report on CBS's "60 Minutes" also examined lawmakers' trading practices, and lawmakers say approving such legislation is a good way for Congress to help restore the faith of Americans in government.

"It is not right that Congress can benefit from information that is not available to other Americans," Rep. Tim Walz (D., Minn.) said at the House hearing. Mr. Walz is a chief co-sponsor of the Stop Trading on Congressional Knowledge Act, or Stock Act.

Despite the recent momentum, the legislation is unlikely to make it into law this year. Time is running out on the calendar and not all lawmakers believe legislation is needed.

A key player in the push is Rep. Spencer Bachus (R., Ala.), chairman of the House Financial Services Committee. Last year, the Journal documented that Mr. Bachus made more than 200 trades in stocks and options in 2008, according to congressional disclosure forms. He often made multiple trades per day in the depths of the financial crisis.

Among his transactions, Mr. Bachus made $28,000 on short-term trades involving a fund designed to profit on declines in the Nasdaq 100 index, the disclosures show. At the time, Mr. Bachus was involved in briefings with key Fed and Treasury Department officials about the government's response to the financial collapse.

Mr. Bachus told the Journal that he didn't trade on nonpublic information, and argued more lawmakers should invest in markets to better understand them.

Rep. Bachus last year made 28 trades, primarily in a portfolio of the largest Chinese stocks available to international investors, more recent disclosure forms show. He said he stopped trading after the Journal's articles appeared.

"After your articles and others criticizing my successful purchase of Apple, Focus Media and [ProShares UltraShort QQQ, an exchange-traded fund], the only way to avoid mischaracterization of my stock market activities was to stop all trading. I did so in October of 2010," he said Tuesday in a statement.

In a separate statement, Mr. Bachus said he believes SEC rules already prohibit insider trading on Capitol Hill, but that "legislation that clarifies and improves the existing law would be welcomed."

Under SEC rules, insider trading is defined as buying or selling stocks based on information that is market-moving and nonpublic. To enforce a case, the SEC must also show that an individual used the information in violation of a duty to keep it private. Many people say insider-trading rules don't apply on Capitol Hill because lawmakers don't have such a "duty" to anyone. By contrast, the SEC brings insider-trading cases against government employees at federal departments and agencies, because the executive branch has clear rules and employees have a duty to their bosses and the companies they regulate.

On Capitol Hill, the law is "not as clear as it needs to be," said Sen. Joseph Lieberman last week at a hearing in the Homeland Security and Governmental Affairs panel.

Testifying before the House, Robert Khuzami, director of SEC enforcement, said under current law a judge could throw out an SEC case on the grounds that lawmakers don't have a clear duty not to trade on information they pick up while performing their regular duties.

Mr. Khuzami said "if there is a law that says that a duty exists, that is pretty clear and removes the ambiguity."

Other ideas considered include requiring lawmakers to create blind trusts to hold their stock portfolios, an idea proposed by Rep. Sean Duffy (R., Wis.). Under Mr. Duffy's proposal, if a lawmaker chose not to create a blind trust, he or she would be required to disclose stock trades within three days.

Mr. Duffy said mandating the disclosure of stock trades by lawmakers would bring Congress in line with the rules for corporate insiders.

Continued in article

Answer (Please share this with your students):
Over the years I've been a loyal viewer of the top news show on television --- CBS Sixty Minutes
On November 13, 2011 the show entitled "Insider" is the most depressing segment I've ever watched on television ---

Jensen Comment

Watch the "Insider" Video Now While It's Still Free ---

If you agree with the above, pass it on.
Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:"I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in1971...before computers, e-mail, cell phones, etc. Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure.Warren Buffet is asking each addressee to forward this email to a minimum oftwenty people on their address list; in turn ask each of those to do likewise. In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.*Congressional Reform Act of 2011......
1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2.. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system,and Congress participates with the American people. It may not be used for any other purpose..

3. Congress can purchase their own retirement plan, just as all Americans do...

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care insurance and participates in the same health care plan as the American people.

6. Congress must equally abide by all laws they impose on the American people..

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor,not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

If each person contacts a minimum of twenty people then it will only take
three days for most people (in the U.S.) to receive the message. Maybe it is


Read more: http://www.cbsnews.com/video/watch/?id=7387951n&tag=contentMain;contentBody#ixzz1dfeq66Ok


The Most Criminal Class Writes the Laws ---

Bob Jensen's threads on Rotten to the Core ---

Another CBS Sixty Minutes Blockbuster (December 4, 2011)
"Prosecuting Wall Street"
Free download for a short while
Note that this episode features my hero Frank Partnoy

Sarbanes–Oxley Act (Sarbox, SOX) ---

 Key provisions of Sarbox with respect to the Sixty Minutes revelations:

The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

Sarbanes–Oxley Section 404: Assessment of internal control ---

Both the corporate CEO and the external auditing firm are to explicitly sign off on the following and are subject (turns out to be a ha, ha joke)  to huge fines and jail time for egregious failure to do so:

Most importantly as far as the CPA auditing firms are concerned is that Sarbox gave those firms both a responsibility to verify that internal controls were effective and the authority to charge more (possibly twice as much) for each audit. Whereas in the 1990s auditing was becoming less and less profitable, Sarbox made the auditing industry quite prosperous after 2002.

There's a great gap between the theory of Sarbox and its enforcement

In theory, the U.S. Justice Department (including the FBI) is to enforce the provisions of Section 404 and subject top corporate executives and audit firm partners to huge fines (personal fines beyond corporate fines) and jail time for signing off on Section 404 provisions that they know to be false. But to date, there has not been one indictment in enormous frauds where the Justice Department knows that executives signed off on Section 404 with intentional lies.

In theory the SEC is to also enforce Section 404, but the SEC in Frank Partnoy's words is toothless. The SEC cannot send anybody to jail. And the SEC has established what seems to be a policy of fining white collar criminals less than 20% of the haul, thereby making white collar crime profitable even if you get caught. Thus, white collar criminals willingly pay their SEC fines and ride off into the sunset with a life of luxury awaiting.

And thus we come to the December 4 Sixty Minutes module that features two of the most egregious failures to enforce Section 404:
The astonishing case of CitiBank
The astonishing case of Countrywide (now part of Bank of America)

The Astonishing Case of CitiBank
What makes the Sixty Minutes show most interesting are the whistle blowing  revelations by a former Citi Vice President in Charge of Fraud Investigations

The astonishing case of Countrywide (now part of Bank of America)

I was disappointed in the CBS Sixty Minutes show in that it completely ignored the complicity of the auditing firms to sign off on the Section 404 violations of the big Wall Street banks and other huge banks that failed. Washington Mutual was the largest bank in the world to ever go bankrupt. Its auditor, Deloitte, settled with the SEC for Washington Mutual for $18.5 million. This isn't even a hand slap relative to the billions lost by WaMu's investors and creditors.

 No jail time is expected for any partners of the negligent auditing firms. .KPMG settled for peanuts with Countrywide for $24 million of negligence and New Century for $45 million of negligence costing investors billions.

Bob Jensen's Rotten to the Core threads ---

Bob Jensen's threads on how white collar crime pays even if you get caught ---

Question:  Can you believe the following scenario about a 10-year old daughter named Karen and her father Ken?

"Honestly Dad, a $1,000 per week allowance is just too much. I can get along on $5 per week plus whatever mom thinks is fair for new clothes."

"But I make $1 million a week running the company, and $1,000 per week is mere chicken feed to me."

"But that might spoil me rotten and made me look bad among my closest friends who get even less than $5 per week Please, please Dad, just leave $5 per week on the kitchen table."


Point to Keep in Mind Below
The SEC is the plaintiff in this case and the defendant, Citigroup, allegedly damaged investors by more than $1 billion.
In most instances the plaintiff in a case like this would be overjoyed if the judge declared the preliminary out-of-court settlement is way too low.

The Judge
"I want to award you much, much more since the defendant, the largest bank in history to ever go bankrupt and stole so much more than the pittance you agreed to in a preliminary settlement." 

"Please don't make us settle for more than 30% of the damages. Who cares about what this bank cost investors? We worry more about retaliation from the banking industry on our government agency. To hell with what investors lost!"


"SEC Appeals Judge Rakoff’s Rejection of $285 Million Citigroup Settlement," by Joshua Gallu and Patricia Hurtado, Bloomberg News, December 16, 2011 ---

And in another unrelated case:

"Commissioner slams SEC settlement," SmartPros, July 13, 2011 ---

One of the SEC's five commissioners has taken the extraordinary step of publicly dissenting from an enforcement action on the grounds that it was too weak.

Commissioner Luis A. Aguilar said the Securities and Exchange Commission should have charged a former Morgan Stanley trader with fraud in view of what he called "the intentional nature of her conduct."

The dissent comes weeks after the SEC took flak for negotiating a $153.6 million fine from J.P. Morgan Chase in another enforcement case but taking no action against any of the firm's employees or executives.

Under a settlement announced Tuesday, the SEC alleged that former Morgan Stanley trader Jennifer Kim and a colleague who previously settled with the agency had executed at least 32 sham trades to mask the amount of risk they had been incurring and to get around an internal restriction.

Their trading contributed to millions of dollars of losses at the investment firm, the SEC said.

Without admitting or denying the SEC's findings, Kim agreed to pay a fine of $25,000.

Aguilar said the settlement was "inadequate" and "fails to address what is in my view the intentional nature of her conduct."

"The settlement should have included charging Kim with violations of the antifraud provisions," Aguilar wrote.

Continued in article

Jensen Comment
Maybe Jennifer also did porn. SEC enforcers like porn (daily).---

"Should Some Bankers Be Prosecuted?" by Jeff Madrick and Frank Partnoy, New York Review of Books, November 10, 2011 ---
Thank you Robert Walker for the heads up!

More than three years have passed since the old-line investment bank Lehman Brothers stunned the financial markets by filing for bankruptcy. Several federal government programs have since tried to rescue the financial system: the $700 billion Troubled Asset Relief Program, the Federal Reserve’s aggressive expansion of credit, and President Obama’s additional $800 billion stimulus in 2009. But it is now apparent that these programs were not sufficient to create the conditions for a full economic recovery. Today, the unemployment rate remains above 9 percent, and the annual rate of economic growth has slipped to roughly 1 percent during the last six months. New crises afflict world markets while the American economy may again slide into recession after only a tepid recovery from the worst recession since the Great Depression.

n our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world.

Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.

In September 2011, the Securities and Exchange Commission asserted that overall it had charged seventy-three persons and entities with misconduct that led to or arose from the financial crisis, including misleading investors and concealing risks. But even the SEC’s highest- profile cases have let the defendants off lightly, and did not lead to criminal prosecutions. In 2010, Angelo Mozilo, the head of Countrywide Financial, the nation’s largest subprime mortgage underwriter, settled SEC charges that he misled mortgage buyers by paying a $22.5 million penalty and giving up $45 million of his gains. But Mozilo had made $129 million the year before the crisis began, and nearly another $300 million in the years before that. He did not have to admit to any guilt.

The biggest SEC settlement thus far, alleging that Goldman Sachs misled investors about a complex mortgage product—telling investors to buy what had been conceived by some as a losing proposition—was for $550 million, a record of which the SEC boasted. But Goldman Sachs earned nearly $8.5 billion in 2010, the year of the settlement. No high-level executives at Goldman were sued or fined, and only one junior banker at Goldman was charged with fraud, in a civil case. A similar suit against JPMorgan resulted in a $153.6 million fine, but no criminal charges.

Although both the SEC and the Financial Crisis Inquiry Commission, which investigated the financial crisis, have referred their own investigations to the Department of Justice, federal prosecutors have yet to bring a single case based on the private decisions that were at the core of the financial crisis. In fact, the Justice Department recently dropped the one broad criminal investigation it was undertaking against the executives who ran Washington Mutual, one of the nation’s largest and most aggressive mortgage originators. After hundreds of interviews, the US attorney concluded that the evidence “does not meet the exacting standards for criminal charges.” These standards require that evidence of guilt is “beyond a reasonable doubt.”

This August, at last, a federal regulator launched sweeping lawsuits alleging fraud by major participants in the mortgage crisis. The Federal Housing Finance Agency sued seventeen institutions, including major Wall Street and European banks, over nearly $200 billion of allegedly deceitful sales of mortgage securities to Fannie Mae and Freddie Mac, which it oversees. The banks will argue that Fannie and Freddie were sophisticated investors who could hardly be fooled, and it is unclear at this early stage how successful these suits will be.

Meanwhile, several state attorneys general are demanding a settlement for abuses by the businesses that administer mortgages and collect and distribute mortgage payments. Negotiations are under way for what may turn out to be moderate settlements, which would enable the defendants to avoid admitting guilt. But others, particularly Eric Schneiderman, the New York State attorney general, are more aggressively pursuing cases against Wall Street, including Goldman Sachs and Morgan Stanley, and they may yet bring criminal charges.

Successful prosecutions of individuals as well as their firms would surely have a deterrent effect on Wall Street’s deceptive activities; they often carry jail terms as well as financial penalties. Perhaps as important, the failure to bring strong criminal cases also makes it difficult for most Americans to understand how these crises occurred. Are they simply to conclude that Wall Street made well- meaning if very big errors of judgment, as bankers claim, that were rarely if ever illegal or even knowingly deceptive?

What is stopping prosecution? Apparently not public opinion. A Pew Research Opinion survey back in 2010 found that three quarters of Americans said that government policies helped banks and financial institutions while two thirds said the middle class and poor received little help. In mid-2011, half of those surveyed by Pew said that Wall Street hurts the economy more than it helps it.

Many argue that the reluctance of prosecutors derives from the power and importance of bankers, who remain significant political contributors and have built substantial lobbying operations. Only 5 percent of congressional bills designed to tighten financial regulations between 2000 and 2006 passed, while 16 percent of those that loosened such regulations were approved, according to a study by the International Monetary Fund.2 The IMF economists found that a major reason was lobbying efforts. In 2009 and early 2010, financial firms spent $1.3 billion to lobby Congress during the passage of the Dodd-Frank Act. The financial reregulation legislation was weakened in such areas as derivatives trading and shareholder rights, and is being further watered down.

Others claim federal officials fear that punishing the banks too much will undermine the fragile economic recovery. As one former Fannie official, now a private financial consultant, recently told The New York Times, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”

The responsibility for reluctance, however, also lies with the prosecutors and the law itself. A central problem is that proving financial fraud is much more difficult than proving most other crimes, and prosecutors are often unwilling to try it. Congress could fix this by amending federal fraud statutes to require, for example, that prosecutors merely prove that bankers should have known rather than actually did know they were deceiving their clients.

But even if Congress does not, it is not too late for bold federal prosecutors to try to bring a few successful cases. A handful of wins could create new precedents and common law that would set a higher and clearer standard for Wall Street, encourage more ethical practices, deter fraud—and arguably prevent future crises.

Continued in article

Watch the video! (a bit slow loading)
 Lynn Turner is Partnoy's co-author of the white paper."Make Markets Be Markets"
 "Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy, Roosevelt Institute, March 2010 ---
 Watch the video!

The greatest swindle in the history of the world ---

Bob Jensen's threads on how the banking system is rotten to the core ---

"The Chicago Expulsion Act of 2011:  Windy City pols are bankrupting Illinois with bailouts for their hometown. Now downstate legislators are fighting back," by Alysia Finley, The Wall Street Journal, December 17, 2011 ---

'Why would anyone want to live in Illinois?" So muses Curt Wooters, who works for the state and helps his dad run the family's sporting-goods store in Findlay, 200 miles south of Chicago. Imagine California without the sunshine, New York without the cultural elan, New Jersey without Chris Christie. That's Illinois.

Mr. Wooters has another five years before he can retire, but he's advising his kids to leave the state after college. He's also talked with his dad about closing their shop because it costs too much to run a business in Illinois these days. Plus, "the customers are leaving town."

Now two downstate Republican lawmakers think that they've found a solution for Mr. Wooters and other disgruntled Illinoisans who want to escape but can't: Cut off the pesky tail that's wagging the dog—separate Chicago from the rest of the state.

That's the legislative initiative of State Reps. Adam Brown and Bill Mitchell, who think politicians from the Windy City have blown the state too far left. "At every town-hall meeting I hear, 'Can't we separate from Chicago?'" says Mr. Mitchell.

Chicago pols control almost all seats of power in Illinois. Gov. Pat Quinn, House Speaker Mike Madigan, Senate President John Cullerton, Attorney General Lisa Madigan and Secretary of State Jesse White are all Democrats from Chicago. So was former Gov. Rod Blagojevich, who this month was sentenced to 14 years in prison for corruption, including trying to sell President Obama's vacated seat in the U.S. Senate. Consequently, as Mr. Wooters says, a lot "of the money that we have down here goes up there to bail out Chicago."

In 2008, lawmakers in Springfield cobbled together a $530 million rescue package for Chicago's transit system, which was on the brink of collapse because of sky-high labor and legacy costs. Just this week they pushed through $300 million of tax credits for the Chicago Mercantile Exchange, Chicago Board Options Exchange and Sears to prevent the businesses from fleeing to lower-tax climes. Both Indiana and Ohio have been aggressively poaching Illinois businesses, especially since January, when lawmakers raised the state income tax to a flat 5% from 3% and the corporate tax to 9.5% from 7.3%.

The special carve-outs may stop Sears and the financial exchanges from flying the coop, but the income-tax hikes will still prove job-killers. While the jobless rate in other Midwest states has stayed relatively flat over the past year, Illinois's unemployment rate has risen to 10.1% from 9%. Most of the lost jobs are in information technology and financial services, which are some of the easiest to move.

Mr. Wooters knows several people who are leaving the state. His neighbors are moving to Kentucky, his best friend to Tennessee. Another friend, who owns a chain of agricultural-supply stores, has moved to Florida and is expanding operations in other states. Most of the state's business class appears bearish about their own future. In a Chicago Tribune survey of 45 chief executives of large, publicly held Illinois businesses, only two said they expected the state's economic condition to improve in the next year.

Little wonder why. The state's bond debt has soared to $30 billion from $9.2 billion in 2002, when Democrats seized control of both the governorship and statehouse. Lawmakers have borrowed $10 billion just to fund the state's pension system, which is running a $210 billion unfunded liability. In fact, all of the $7 billion raised by this year's income and corporate tax hikes is going toward funding pensions.

Lawmakers tinkered with pension reform last year, raising the retirement age to 67 for new employees, but Democrats don't see an urgent need to make more significant changes. This week, after catching flak from unions, Democrats sought to take back their support for proposed legislation that would curb egregious pension abuses by labor leaders.

Meanwhile, Republicans, who occupy about 40% of legislative seats, aren't exactly holding the Democrats' feet to the fire. As Speaker Madigan's spokesman Steve Brown told me, "95% of things that get done in Illinois are a result of compromise."

"Republicans who held power in the 1980s and '90s were not ideological. They supported tax increases," says John Tillman of the Illinois Policy Institute. More recently, most Republicans supported the Democrats' crony-capitalist tax credits for Chicago businesses, rather than insisting that the legislature roll back the corporate and income tax hikes.

But is booting Chicago from the state a feasible answer? It might win GOP lawmakers some points with conservative constituents, but it's no more likely to happen than the dream of some Californians to partition the Golden State in two. The division would require the approval of the state legislature, Congress and the people of Chicago.

Illinois Republicans would be better off spending their time devising a strategy to win the statehouse and governorship. The first step would be to educate the public about the state's problems and about how Republicans and Democrats differ in their proposed solutions. And while Chicago might be a lost cause for them, Republicans would do well to target their message at the Cook County suburbs, where most statewide elections are won and lost.

A few years ago it seemed unlikely that Republicans could seize control of legislatures and governorships in Wisconsin, Ohio and Michigan, all heavily unionized states. But it's happened in all three. That's the difference that budgetary chaos, a strong party organization and the right message can make.

In defence of the dismal science:  In a guest article, Robert Lucas, the John Dewey Distinguished Service Professor of Economics at the University of Chicago, rebuts criticisms that the financial crisis represents a failure of economics," The Economist, August 6, 2009 ---

THERE is widespread disappointment with economists now because we did not forecast or prevent the financial crisis of 2008. The Economist’s articles of July 18th on the state of economics were an interesting attempt to take stock of two fields, macroeconomics and financial economics, but both pieces were dominated by the views of people who have seized on the crisis as an opportunity to restate criticisms they had voiced long before 2008. Macroeconomists in particular were caricatured as a lost generation educated in the use of valueless, even harmful, mathematical models, an education that made them incapable of conducting sensible economic policy. I think this caricature is nonsense and of no value in thinking about the larger questions: What can the public reasonably expect of specialists in these areas, and how well has it been served by them in the current crisis?

One thing we are not going to have, now or ever, is a set of models that forecasts sudden falls in the value of financial assets, like the declines that followed the failure of Lehman Brothers in September. This is nothing new. It has been known for more than 40 years and is one of the main implications of Eugene Fama’s “efficient-market hypothesis” (EMH), which states that the price of a financial asset reflects all relevant, generally available information. If an economist had a formula that could reliably forecast crises a week in advance, say, then that formula would become part of generally available information and prices would fall a week earlier. (The term “efficient” as used here means that individuals use information in their own private interest. It has nothing to do with socially desirable pricing; people often confuse the two.)

Mr Fama arrived at the EMH through some simple theoretical examples. This simplicity was criticised in The Economist’s briefing, as though the EMH applied only to these hypothetical cases. But Mr Fama tested the predictions of the EMH on the behaviour of actual prices. These tests could have come out either way, but they came out very favourably. His empirical work was novel and carefully executed. It has been thoroughly challenged by a flood of criticism which has served mainly to confirm the accuracy of the hypothesis. Over the years exceptions and “anomalies” have been discovered (even tiny departures are interesting if you are managing enough money) but for the purposes of macroeconomic analysis and forecasting these departures are too small to matter. The main lesson we should take away from the EMH for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles. If these people exist, we will not be able to afford them.

Continued in article

Bob Jensen's threads on the Efficient Market Hypothesis (EMH) and its critics ---
Professor Lucas provides a brief, albeit interesting, summary of how Eugene Fama developed the EMH from cases to models rather than vice versa as in often advocated in journals like the TAR, JAR, and JAE that are heavily biased toward publishing models but not cases

How did academic accounting research become a pseudo science?


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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

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/