Tidbits Quotations
To Accompany the January 5, 2012 edition of Tidbits
Bob Jensen at Trinity University

The Obamas' Christmas Message (video) ---

World Giving Index 2011: U.S. Is #1 (Out of 153 Countries)
Gallup Survey:  Giving money, volunteering time and helping a stranger ---
The comments at the end are nasty.

Mandelbaum and Friedman offer one of the funniest lines in the book. It comes from a member of President Obama’s Simpson-Bowles deficit commission, who quips that China had better not invade Taiwan because, if the United States rode to the rescue, “we would now have to borrow the money from China to do it.”

In Iraq this year I asked an Iraqi military officer doing joint training at an American base what was the big thing he'd come to believe about Americans in the years they'd been there. He thought. "You are a better people than your movies say." He had judged us by our exports. He had seen the low slag heap of our culture and assumed it was a true expression of who we are. And so he'd assumed we were disgusting.
Peggy Noonan, "Oh Wow! Some highlights of 2011," The Wall Street Journal, December 23, 2011 ---

Republicans and Democrats arguing over how to solve the deficit problem remind us of two drunks arguing over the bar tab on the Titanic.
This appears to be a paraphrasing of a quotation by Robert Ian

Video:  Mike Kelly’s Righteous Rant ---

Debates like this are the equivalent of arguing about who’s going to pay the bar tab on the Titanic. The game is already over. The ship is already sinking.
Robert Ian as quoted at

The sad part of all this is that the $15 trillion booked National Debt and the $80 unbooked entitlements seem to not truly be a priority in the current Executive, Legislative, and Judicial branches of U.S. Government. Debates focus on keeping taxes low versus continued funding of social benefits with little serious action being taken about the booked and unbooked oceans of debt.

50 fascinating facts: Kim Jong-il and North Korea North Korean leader Kim Jong-il has died following a stroke or heart attack. Here are 50 facts about the late dictator and his country ---

"Seven Top Leaders on Making Tough Calls and Serving for the Greater Good," Knowledge@Wharton, December 9, 2011 ---

MSNBC's Socialist Lawrence O'Donnell gets a lump of coal for fibbing about government job creation ---

Obama Admin Skews Deportation Figures (by a huge amount) ---

Freedom Betrayed: Herbert Hoover's Secret History of the Second World War and Its Aftermath
Editor: George H. Nash
Pub Date: 
November 07, 2011
Product Format: 

Why the Canadians never built an $80 trillion Titanic that lies deep in the ocean.
"Expect higher payroll taxes in 2012, taxpayers group says," by Joanna Smith, The Star, December 28, 2011 --- Click Here

Canadians will see the biggest increase in payroll taxes in a decade next year, according to a Canadian Taxpayers Federation analysis of how many of your dollars will go to federal government coffers.

Employment insurance premiums will increase 5 cents per $100 of insurable earnings as of Jan. 1. That’s half of what the Conservative government originally planned but the analysis shows employees will still see a $53 jump to $840 in EI premiums in 2012

Combine that with the federal pension plan contributions and it means employees will have to give up a total of $3,147 in payroll taxes next year — an increase of about $142 over this year.

Employers will have to shell out about $164 more in payroll taxes next year, for a total of $3,483.

The combined net increase of 4.84 per cent is the highest since 2002.

“Finance Canada tells us that we should be thanking the government because they are not going to be raising payroll taxes as much as they promised,” said Derek Fildebrandt, national research director for the advocacy group.

A spokeswoman for the federal finance department suggested exactly that.

“The Canada Employment Insurance Financing Board is responsible for setting premium rates to ensure that the program just breaks even over time and managing a cash reserve — including adjustments in rates,” Suzanne Prebinski wrote in an email.

“However, to protect the economy and jobs, we cut any potential increases in half for 2012 — keeping EI premiums near their lowest level since 1982. This change is expected to save employers and employees $600 million in 2012.”

Prebinski noted there is no change to the Canada Pension Plan contribution rate, which has been at 9.9 per cent of pensionable earnings since 2003, but there will be an increase in the maximum contribution to account for inflation.

Continued in article

Book Review of
That Used to Be Us: How America Fell Behind in the World That It Invented and How We Can Come Back
by Thomas L. Friedman & Michael Mandelbaum
Farrar, Straus & Giroux, 2011, 400 pp., $28

Mandelbaum and Friedman offer one of the funniest lines in the book. It comes from a member of President Obama’s Simpson-Bowles deficit commission, who quips that China had better not invade Taiwan because, if the United States rode to the rescue, “we would now have to borrow the money from China to do it.”

"Declinism's Fifth Wave," by Josef Joffe, The American Interest, January/February 2012 ---

. . .

For instance, in none of the past four Declinist waves did the nation face bankruptcy. Why does it now? And here is a modern-day sage, Princeton economist Alan Blinder, with a brief take that spins a larger narrative in a way any layman can grasp:

The nation took leave of its fiscal senses and simply stopped paying for anything during President Bush 43’s term. Not for huge tax cuts. . . . Not for the Medicare drug benefits. . . . Not for two wars. That spree was followed by the financial crisis . . . and the policy responses thereto—all of which blew up the deficit massively under President Obama.

Friedman and Mandelbaum underline the broader ramifications of this debt run-up. This millstone will hang on the neck of the United States for decades, unless... To drive the depressing point home, and to relate America’s astronomic debt to its shrinking power abroad, Mandelbaum and Friedman offer one of the funniest lines in the book. It comes from a member of President Obama’s Simpson-Bowles deficit commission, who quips that China had better not invade Taiwan because, if the United States rode to the rescue, “we would now have to borrow the money from China to do it.”

The domestic implications of the U.S. plight are just as stark. Back in the Eisenhower days, Little Johnny couldn’t read so well, but so what? He could still take his place in the country’s humming industrial machine. Today, he can’t get a job because (a) net job-growth has been zero for the past decade and (b) low-skill, high-wage jobs are disappearing forever. Nor is this just Johnny’s problem. Behind him lurks an education system that isn’t equipping children with the intellectual capital in demand in the new knowledge economy. Though the United States boasts the world’s best research universities (17 of the Top Twenty), grades K–12 are struggling. In international comparisons such as the OECD’s Programme for International Student Assessment study, American students come out in the middle in reading skills but way down in math. 

There is no quick fix here, given the country’s dysfunctional political system. The Sputnik Shock swept billions into education and research. Neil Armstrong landed on the moon soon after. But now the Shuttle has been grounded. Who would call the nation to arms now, as Messrs. Kennedy and Reagan did?

 Not the Congress, not Mr. Obama, who seems not to believe in America’s exceptionalism and mission, while musing that the nation “has gone a little soft.” His rhetoric may echo JFK’s cadences, but not his spunk. Recall Kennedy’s First Inaugural Address: “We shall pay any price, bear any burden....”

So what’s wrong with American politics in this fifth wave of Declinism? To their credit, the authors don’t fall for buzzwords about how America is “polarized as never before.” Polarization has been as American as apple pie since the Jeffersonians had it out with John Adams’s minions. Remember, too, Andrew Jackson and William Jennings Bryan, who make Nancy Pelosi and Michelle Bachmann look like choir girls. The good news today is an electorate where the center holds as always, shifting from election to election to check the radicals. Why, then, the triumph of party (as opposed to voter) extremism that eats away at sensible governance? 

Unfortunately, these trends, as those of the economy, are not fleeting phenomena; they reflect long-term changes. The Democratic Party, which used to harness Dixiecrats and FDR-type Big Spenders, has “homogenized” and veered way to the left. Same on the other side of the aisle: The GOP, where “Rockefeller Republicans”, “Main Street” and God-fearing cultural conservatives used to coexist under a big tent, has swerved way to the right. Between the two parties, the national interest and the vast center of the electorate are being held hostage as never before. “If we don’t save the store”, the authors quote an old Republican hand, “we will all be working at TGI Friday’s in Beijing.” A Democratic old-timer would say “Amen.”

In the 1958 film Touch of Evil, the authors relate, the bad guy played by Orson Welles stumbles into a brothel where Marlene Dietrich works as a fortuneteller. “Read my future for me”, Welles asks. She replies: “You haven’t got any. Your future is all used up.” Shall this be the fate of Lincoln’s “last best hope on Earth?”

Recall the Jeremiah technique: It’s damnation first and salvation later, but only if... The United States can become “us” again if it harkens to the authors’ five-pronged prescription: Address the deficit, cut entitlements, raise taxes, invest in educational and infrastructural programs that feed economic excellence, and reduce America’s oil addiction. Who but doctrinaire Dems and Reps would disagree with this agenda? The issue in politics is always: How do we get from insight to reform—especially when neither party has the guts to tell it as it is?

Naturally, diagnosis is easier than therapy. So what do Friedman and Mandelbaum counsel? They think that a third party, representing the “radical center”, will do the trick. But they are far too savvy to pin their hopes on a third-party President. This is not how the system works. Remember William Jennings Bryan, or Teddy Roosevelt and his Bull Moose insurgency; recall George Wallace, John Anderson and Ross Perot. Like bees, third parties die after they sting. 

Our duo thinks that even these moribund bees can actually heal the body politic. How so, if an independent candidate is doomed from the start? By hammering home the right questions and proffering precise and gutsy answers. Thus would such a candidate force those demented Donkeys and Elephants to sober up and think for the nation. The pre-ordained loser will “have a greater impact on the course of American history” than the winner, Friedman and Mandelbaum aver. Would that they were right.

Until this savior comes, read this book, for never has the cruel truth been so entertaining as well as edifying. This reviewer is as bullish on America as the authors. He would be even more bullish if That Used to Be Us were to galvanize a national debate that is so strangely absent amidst this fifth wave of Declinism. In the past, doom always came with “do!” How is this night different from all other nights? The fifth wave comes with an out-of-character lassitude, if not resignation, that is, well, un-American.

Bob Jensen's threads on entitlements are at

The problem is when the model created to represent reality takes on a life of its own completely detached from the reality that it is supposed to model that nonsense can easily ensue.

Was it Mark Twain who wrote: "The criterion of understanding is a simple explanation."?
As quoted by Martin Weiss in a comment to the article below.

But a lie gets halfway around the world while the truth is still tying its shoes
Mark Twain as quoted by PKB (in Mankato, MN) in a comment to the article below.

"US Net Investment Income," by Paul Krugman, The New York Times, December 31, 2011 ---
Especially note the cute picture.

December 31, 2011 Comment by Wendell Murray

Mathematics, like word-oriented languages, uses symbols to represent concepts, so it is essentially the same as word-oriented languages that everyone is comfortable with.

Because mathematics is much more precise and in most ways much simpler than word-oriented languages, it is useful for modeling (abstraction from) of the messiness of the real world.

The problem, as Prof. Krugman notes, is when the model created to represent reality takes on a life of its own completely detached from the reality that it is supposed to model that nonsense can easily ensue.

This is what has happened in the absurd conclusions often reached by those who blindly believe in the infallibility of hypotheses such as the rational expectations theory or even worse the completely peripheral concept of so-called Ricardian equivalence. These abstractions from reality have value only to the extent that they capture the key features of reality. Otherwise they are worse than useless.

I think some academics and/or knowledgeless distorters of academic theories in fact just like to use terms such as "Ricardian equivalence theorem" because that term, for example, sounds so esoteric whereas the theorem itself is not much of anything

Ricardian Equivalence --- http://en.wikipedia.org/wiki/Ricardian_equivalence

Jensen Comment
One of the saddest flaws of accountics science archival studies is the repeated acceptance of the CAPM mathematics allowing the CAPM to "represent reality on a life of its own" when in fact the CAPM is a seriously flawed representation of investing reality ---

At the same time one of the things I dislike about the exceedingly left-wing biased, albeit brilliant, Paul Krugman is his playing down of trillion dollar deficit spending and his flippant lack of concern about $80 trillion in unfunded entitlements. He just turns a blind eye toward risks of Zimbabwe-like inflation. As noted below, he has a Nobel Prize in Economics but "doesn't command respect in the profession". Put another way, he's more of a liberal preacher than an economics teacher.

Paul Krugman --- http://en.wikipedia.org/wiki/Paul_Krugman

Economics and policy recommendations

Economist and former United States Secretary of the Treasury Larry Summers has stated Krugman has a tendency to favor more extreme policy recommendations because "it’s much more interesting than agreement when you’re involved in commenting on rather than making policy."

According to Harvard professor of economics Robert Barro, Krugman "has never done any work in Keynesian macroeconomics" and makes arguments that are politically convenient for him.Nobel laureate Edward Prescott has charged that Krugman "doesn't command respect in the profession", as "no respectable macroeconomist" believes that economic stimulus works, though the number of economists who support such stimulus is "probably a majority".

Bob Jensen's critique of analytical models in accountics science (Plato's Cave) can be found at


M.I.T. Camera Captures Speed of Light: A Trillion-Frames-Per-Second --- Click Here

Jensen Comment
Imagine being able to view the booked U.S. National Debt in 15 seconds.
And in less than two minutes scientists at MIT can view the entire unfunded U.S. OBSF debt.

What is wrong with the long colorful tail of the peacock?
An attack of ROE (and in effect the University of Chicago)

Video:  Capitalism Gone Wild
Harvard Business Review Blog trying to appease the other side of the Charles River
December 21, 2011 --- Click Here

Video on the opposing side (that the only responsibilities of business firms are to earn a profit and obey the law)

Bob Jensen's threads on what's wrong with ROI and ROE ---

"Lessons from a century of large public debt reductions and build-ups," by S. M. Ali Abbas, Nazim Belhocine, Asmaa El-Ganainy, and Mark Horton, Vox, December 18, 2011 ---

As policymakers continue to grapple with high debts and the troubles that come with them, this column looks at the lessons from data on public debt in 178 countries stretching back as far as 1880. It argues that when faced with an unsustainable debt burden, slow but steady adjustment is the way to go.

Empirical work on debt cycles and debt sustainability has been constrained by lack of public debt data on a large number of countries over a long time period. Existing studies are based on datasets that either cover short time periods (such as Jaimovich and Panizza 2010) or omit a large number of countries (such as Reinhart and Rogoff 2010). In our latest study (Abbas et al 2011), we compile a comprehensive historical public debt database covering 178 countries, starting from 1880 for G7 countries and a few other advanced and emerging economies, and from 1920 for additional advanced and emerging economies. For low-income countries, data coverage generally starts in 1970 (Abbas et al 2011).

Figure 1. Debt-to-GDP ratios across country groups, 1880–2009 (Group PPPGDP-weighted averages, in percent of GDP)

. . .

Figure 1 provides a broad historical perspective of debt developments in advanced, emerging, and low-income economies. Debt levels in advanced economies (now the G20) averaged 55% of GDP over 1880–2009, with a number of peaks and troughs that correspond with key historical events along the way.

Episodes of large debt reductions and build-ups in advanced economies

So much for aggregate trends; what about individual episodes? For a group of 19 advanced economies, we identify 68 debt declines (including seven defaults) and 60 debt increases sized greater than 10% of GDP (see Figures 2 and 3).1 The ‘non-default’ debt declines averaged 38% of GDP, and were distributed roughly evenly across four periods: the pre-1914 gold standard era, the two World Wars and intervening decades, the Bretton Woods years from 1946–70, and the post-1970 period. Debt surges averaged 44% of GDP and were bunched around 1914–45 and the peacetime period of 1970–2007.

Figure 2. Identified episodes of debt-to-GDP Decreases (in percent of GDP)

Continued in article

Bob Jensen's threads on entitlements ---

"Research Roundup: Improving Intelligence Forecasts, Vertically Integrated Health Care, and 'Worrisome' Health Care Costs," Knowledge@wharton,  December 20, 2011 ---

How can intelligence agencies improve accountability and forecasting accuracy? Can hospitals become more efficient through vertical integration with home health agencies and nursing homes? Do taxpayers fully understand how the expansion of health care will be financed? Wharton professors Philip Tetlock and Barbara Mellers; Guy David and Evan Rawley; and Mark Pauly, respectively, examine these issues -- and what they mean for business -- in recent research articles.

Helping Intelligence Agencies -- and Companies -- Avoid the Blame Game

When business leaders fail to make accurate forecasts, profitability is at risk. When intelligence agencies miss the mark on their predictions, however, the results can be far worse. In a new analysis of behavior in the intelligence community, with implications for business managers, Wharton management professor Philip E. Tetlock and Wharton marketing professor Barbara A. Mellers present a framework to improve accountability and forecasting accuracy, particularly in a politically polarized climate.

In their article, "Intelligent Management of Intelligence Agencies: Beyond Accountability Ping-Pong," published in the September 2011 edition of American Psychologist, the authors note that forecasts by intelligence organizations frequently are open to harsh criticism for either underreporting potential danger or overreacting to threats that never materialize. A clear recent example of underreporting would be the September 11, 2011, terrorist attacks on the United States, Tetlock says. At the other extreme, he points to reports -- which later proved to be unfounded -- that Iraq had developed weapons of mass destruction.

"The intelligence community is often whipsawed between these conflicting criticisms," says Tetlock. "The question is: Is it possible in this kind of political environment to learn anything beyond avoiding the last mistake?" The authors propose three steps to end the "blame game" in intelligence predictions and improve accountability and intelligence forecasting.

First, the authors argue that intelligence agencies and constituents in government and throughout society need to come together and agree to put an end to bitter, often ideologically driven, assignment of blame. Tetlock suggests that "thoughtful moderates" with a long-term view of policy will need to drive this part of the process, especially during periods of deep division.

Next, intelligence agencies need to step up and agree to have their forecasting assessed on clear metrics. Tetlock says that meaningful forecasts could result from reports that put a hard number on predictions. For example, analysts could be required to put specific percentage odds on the likelihood that a coup, or uprising in a given country, would occur in a certain period of time. Agencies would amass large databases of predictions that could, over time, be reviewed to assess which were accurate and why.

Finally, in the authors' view, intelligence groups and their overseers should acknowledge that ideology plays a part in forecasting. "If you want ... the left and right to hold back their fire on unfair criticism, the best way to do that is to reassure people on the left and the right that their points of view are at least being used in the prediction process," Tetlock notes.

Continued in article

Bob Jensen's threads on health care ---

"In the Wake of Protest: One Woman's Attempt to Unionize Amazon," by Vanessa Veselka, The Atlantic, December 12, 2011 ---

"On Assets and Debt in the Psychology of Perceived Wealth," by Abigail B. Sussman and Eldar Shafir, Psychological Science, December 23, 2011 ---

. . .

WashTech was beaten on the customer service side a year after I left. Subsequent drives were squelched wherever they came up. Mostly they didn't get started because temps aren't legally employees and have no rights. In 2001 Bezos hired the Burke Group, the most formidable "union avoidance" consultants in the world, to address his labor problems. He was getting taken to court in the United Kingdom and needed an aggressive campaign to get around the stronger labor culture. In the US, more fulfillment centers opened in states where union shops were illegal. I still see small headlines here and there, on this failed Amazon union drive or that, or some worker passing out from exhaustion. Just last week, Germany's Der Speigel railed on Amazon's practice of repeatedly hiring temps for two weeks, letting them go, then rehiring them so that they were paid out of German job creation subsidies. But it all goes by in the background, a video stream or a shortened link on twitter.

Today, I think Amazon probably did know about me, and that what they knew was that I was essentially harmless. I was more valuable for my production speed than dangerous for my organizing. But to make the case that Amazon is anti-union barely approaches relevance. Most companies are anti-union, that's not important right now. What made Amazon unique was the way in which it was.

Bezos once bragged in a Wall Street Journal interview that he told temp agencies to hire the "freaks." The assumption at the time was that Bezos wanted creativity. But his creative staff wasn't coming out of the temp agencies, the warehouse recruits were. And I never met a "freak" who wouldn't throw over a decent wage to work somewhere lousy if they felt they belonged. These were people who wanted to be a part of something. They wanted to be valued for who they were, rather than what they produced. I often wondered if what Bezos really figured out was that if you gave freaks a home, they would give you everything they had-their best ideas, their longest days, and their rights on the job.

And that's what they did.

James Madison wrote disapprovingly in 1792 of “a government operating by corrupt influence, substituting the motive of private interest in place of public duty” where eventually “the terror of the sword, may support a real domination of the few, under an apparent liberty of the many.”

"The corporations that occupy Congress," by David Coy Johnston, Reuters, December 20, 2011 ---

Some of the biggest companies in the United States have been firing workers and in some cases lobbying for rules that depress wages at the very time that jobs are needed, pay is low, and the federal budget suffers from a lack of revenue.

Last month Citizens for Tax Justice and an affiliate issued “Corporate Taxpayers and Corporate Tax Dodgers 2008-10″. It showed that 30 brand-name companies paid a federal income tax rate of minus 6.7 percent on $160 billion of profit from 2008 through 2010 compared to a going corporate tax rate of 35 percent. All but one of those 30 companies reported lobbying expenses in Washington.

Another report, by Public Campaign, shows that 29 of those companies spent nearly half a billion dollars over those three years lobbying in Washington for laws and rules that favor their interests. Only Atmos Energy, the 30th company, reported no lobbying.

Public Campaign replaced Atmos with Federal Express, the package delivery company that paid a smidgen of tax — $37 million, or less than one percent of the $4.2 billion in profit it reported in 2008 through 2010.

For the amount spent lobbying, the companies could have hired 3,100 people at $50,000 for wages and benefits to do productive work.

The report – “For Hire: Lobbyists or the 99 percent” – says that while shedding jobs, the 30 companies are “spending millions of dollars on Washington lobbyists to stave off higher taxes or regulations.”

These and other companies have access to lawmakers and regulators that are unavailable to ordinary Americans.


Doubt that? Dial the Capitol switchboard at 1 (202) 224-3121, ask for your representative’s office and request a five-minute audience, in person, at the lawmaker’s convenience back in the home district.

In more than a decade of lectures recommending this, I have yet to have a single person email me (see address to the right) about having scored a private meeting with the representative called.

Corporations have vast resources to pour into ensuring access — resources that expand when little or no taxes are paid on profits thanks to rules they previously lobbied into law.

Companies form nonprofit trade associations, hire former lawmakers and agency staffers, and have jobs to dole out to lawmakers after they leave office and to friends and family while they’re in office. Thanks to the Supreme Court’s Citizens United decision, corporations can now pour unlimited sums into influencing elections. So can unions, but they are financial pipsqueaks compared to companies.

Then there are political action committees, or PACs, to finance campaigns as well as donations by executives and major shareholders.

Combine all this and you have a powerful formula for making rules that favor corporate interests over human interests, something that the framers of the U.S. Constitution understood more than two centuries ago.

James Madison wrote disapprovingly in 1792 of “a government operating by corrupt influence, substituting the motive of private interest in place of public duty” where eventually “the terror of the sword, may support a real domination of the few, under an apparent liberty of the many.”


The late U.S. president’s fears have come to life. For swords, just substitute police with rubber bullets, batons and pepper spray at Occupy demonstrations, including perfectly peaceful ones.

Company reports to shareholders show that among the 30 companies in the Public Campaign report, the 10 firms that spent the most on lobbying during the same three-year period fired more than 93,000 American workers.

Those firings took place in an economy that had five million fewer people with any work in 2010 than in 2008.

Continued in article


Bob Jensen's threads on corporate governance are at

"Update: Mortgage Servicer Foreclosure Review Process," by Francine McKenna, re:TheAuditors, December 27, 2011 ---

On November 22, 2011, the Office of the Comptroller of the Currency (OCC) issued a report on the actions by 12 national bank and federal savings association mortgage servicers to comply with consent orders issued in April 2011. These consent orders are intended to correct deficient and unsafe or unsound foreclosure practices by the servicers. The OCC also posted the twelve engagement letters between the consultants and the servicers on the OCC website.

These disclosures were a result of pressure brought to bear by Congresswoman Maxine Waters and several other congressional members who sent a letter to the OCC and the Fed on October 28. This letter expressed the legislators’ displeasure with the way the OCC and the Federal Reserve Bank had so far run the “independent” foreclosure review process that is intended to overhaul mortgage-servicing processes and controls and to compensate borrowers harmed financially by wrongdoing or negligence.

Congresswoman Waters cited my October 6 column for American Banker in this letter to the OCC and Fed when demanding that the regulators manage conflicts of interest in the foreclosure review process as well as make a full disclosure of vendors and their engagement letters with the banks.

On December 6, I wrote again in American Banker after I reviewed the engagement letters that were posted by the OCC. I had several concerns. Congresswoman Waters did, too.

“[The OCC] issued a report on the actions of a dozen national bank and federal savings association mortgage servicers aimed at complying with the consent orders issued in April 2011 to correct deficient and unsafe or unsound foreclosure practices. (The two remaining consent order recipients — GMAC/Ally and SunTrust — have not yet finalized their terms with vendors and as a result their overseers, Fed Chairman Bernanke and the Federal Reserve Bank, have not yet responded to the request for full disclosure, according to the Water’s office.)

Waters was less than impressed with what she saw and so am I.  She told me, “My letters specifically asked for information on conflicts of interest between the banks and the consultants — which is precisely what the OCC redacted in the information they released last week. A cursory look into the banks and their consultants indicates that in some cases, there are substantial pre-existing relationships between the firms.”

Redacted is an understatement.

Here’s what was redacted, according to OCC spokesman Bryan Hubbard:

Limited proprietary and personal information has been redacted from the engagement letters including, but not limited to:

So what’s left? It’s interesting enough, as a start, to look at which consultants and law firms were selected by which servicers. It’s also interesting to look at the scope of services to be performed and the time and volume estimates for project activities where they were not redacted.

Continued in article


"What Fannie and Freddie Knew The SEC shows how the toxic twins turbocharged the housing bubble.," The Wall Street Journal, December 22, 2011 ---

Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis.

That's the story revealed Friday by the SEC's civil lawsuits against six former Fannie and Freddie executives, including a pair of CEOs. The SEC says the companies defrauded investors because they "knew and approved of misleading statements" about Fan and Fred's exposure to subprime loans, and it chronicles their push to expand the business.

The executives deny the charges, and we hope they don't settle. The case deserves to play out in court, so Americans can see in detail how Fan and Fred were central to the bubble. The lawsuits themselves, combined with information admitted as true by Fan and Fred in civil nonprosecution agreements with the SEC, are certainly illuminating.

The Beltway story of the crisis claims that Congress's affordable housing mandates had nothing to do with it. But the SEC's lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, "Desktop Underwriter." Fannie did so as part of its "Say Yes" strategy to "provide more 'approve' messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted."

The SEC also shows how Fannie led private lenders into the subprime market. In July 1999, Fannie and Angelo Mozilo's Countrywide Home Loans entered "an alliance agreement" that included "a reduced documentation loan program called the 'internet loan,'" later called the "Fast and Easy" loan. As the SEC notes, "by the mid-2000s, other mortgage lenders developed similar reduced documentation loan programs, such as Mortgage Express and PaperSaver—many of which Fannie Mae acquired in ever-increasing volumes."

Mr. Mozilo and Fannie essentially were business partners in the subprime business. Countrywide found the customers, while Fannie provided the taxpayer-backed capital. And the rest of the industry followed.

As Fannie expanded its subprime loan purchases and guarantees, the SEC alleges that executives hid the risk from investors. Consider Fannie's Expanded Approval/Timely Payment Rewards (EA) loans, which the company described to regulators as its "most significant initiative to serve credit-impaired borrowers."

By December 31, 2006, Fannie owned or securitized some $43.3 billion of these loans, which, according to the SEC, had "higher average serious delinquency rates, higher credit losses, and lower average credit scores" than Fannie's disclosed subprime loans. By June 30, 2008, Fannie had $60 billion in EA loans and $41.7 billion in another risky program called "My Community Mortgage," but it only publicly reported an $8 billion exposure.

The SEC says Fannie executives also failed to disclose the company's total exposure to risky "Alt-A" loans, sometimes called "liar loans," which required less documentation than traditional subprime loans. Fannie created a special category called "Lender Selected" loans and it gave lenders "coding designations" to separate these Alt-A loans from those Fannie had publicly disclosed. By June 30, 2008, Fannie said its Alt-A exposure was 11% of its portfolio, when it was closer to 23%—a $341 billion difference.

All the while, Fannie executives worked to calm growing fears about subprime while receiving internal reports about the company's risk exposure. In February 2007, Chief Risk Officer Enrico Dallavecchia told investors that Fannie's subprime exposure was "immaterial." At a March 2007 Congressional hearing, CEO Daniel Mudd testified that "we see it as part of our mission and our charter to make safe mortgages available to people who don't have perfect credit," adding that Fannie's subprime exposure was "relatively minimal." The Freddie record is similarly incriminating. ***

The SEC's case should embarrass Congress's Financial Crisis Inquiry Commission, which spent 18 months looking at the evidence and issued a report in January 2011 that whitewashed Fan and Fred's role. Speaker Nancy Pelosi created the commission to prosecute the Beltway theory of the crisis that private bankers caused it all, and Chairman Phil Angelides delivered what she wanted.

Far from being peripheral to the housing crisis, the SEC lawsuit shows that Fan and Fred were at the very heart of it. Private lenders made many mistakes, but they could never have done as much harm if Fan and Fred weren't providing tens of billions in taxpayer-subsidized liquidity to lend on easy terms to borrowers who couldn't pay it back.

Congress created the two mortgage giants as well as their "affordable housing" mandates, and neither the financial system nor taxpayers will be safe until Congress shrinks the toxic twins and ultimately puts them out of business.

Subprime: Borne of Greed, Sleaze, Bribery, and Lies ---

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

"Have We Got a Convention Center to Sell You! From Boston to Austin, politicians spend money on fancy white elephants," by Steven Malanga, The Wall Street Journal, December 31, 2011 ---

. . .

Then there's Boston, perhaps the quintessential example of a city that interprets failure in the convention business as a license to spend more on it. Massachusetts officials shelled out $230 million to renovate Hynes Convention Center in the late 1980s. When the makeover produced virtually no economic bounce, officials decided that the city needed a new, $800 million center financed by a hotel occupancy excise tax, a rental-car surcharge, and the sale of taxi medallions. Opened in 2004, that new Boston Convention and Exhibition Center was projected (by consultants hired by the state) to have Boston renting some 670,000 additional hotel rooms annually within five years. Instead, Beantown saw just 310,000 additional hotel room rentals in 2009.

Now Massachusetts officials want to spend $2 billion to double the size of the Boston Convention Center and add a hotel. Of course, they predict that the expanded facilities would bring an additional $222 million into the local economy each year, including 140,000 hotel room rentals. Even with these bullish projections, officials claim that the hotel would need $200 million in public subsidies.

"The whole thing is a racket," Boston Globe columnist Jeff Jacoby recently observed. "Once again the politicos will expand their empire. Once again crony capitalism will enrich a handful of wired business operators. And once again Joe and Jane Taxpayer will pay through the nose. How many times must we see this movie before we finally shut it off?"

Many times, if officials in Baltimore have their way. Several years ago they built a $300 million city-owned hotel, (the Hilton Baltimore Convention Center Hotel) to boost the fortunes of the city's struggling convention center. Having opened in 2008, the hotel lost $11 million last year. Now the city is considering a public-private expansion plan that would add a downtown arena, an additional convention hotel, and 400,000 feet of new convention space at the cost of $400 million in public money.

The list goes on—everywhere from Columbus, Ohio, to Dallas, Austin, Phoenix and places in between. One problem is that optimistic projections about new facilities fail to account for how other cities are expanding, too. Why did Minneapolis struggle to hit projected targets after it enlarged its convention center in 2002? "Other cities expanded right along with us,'' Minneapolis's convention center director, Jeff Johnson, said this year.

The surest sign that taxpayers should be leery of such public investments is that officials have changed their sales pitch. Convention and meeting centers shouldn't be judged, they now say, by how many hotel rooms, restaurants, and local attractions they help fill. That's "narrow-minded thinking," said James Rooney of the Massachusetts Convention Center Authority this year. Instead, as Boston Mayor Thomas Menino has said, expanding a convention center can "demonstrate to the world that we have unlimited confidence in our city and what it can do, not only as a convention destination but as the center of the most important trends in hospitality, science, health and education."

Continued in article

Jensen Comment
When I still lived in San Antonio, taxpayers went on the hook for an Alamo Dome Convention Center that cost nearly $300 million intended to also be the home of the NBA San Antonio Spurs. Almost the instant the ribbon was cut on the the Alamo Dome, the San Antonio Spurs asked taxpayers to fund their own new arena. These things sell because the promoters say that the funding will come for taxes on visitors to the city rather than local taxpayers. What they don't tell you is that the new taxes event revenues do not pay millions of dollars in operating and vacancy losses. Those losses are then quietly billed to local taxpayers. Welcome to the world of urban crony business fraud




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