Tidbits Quotations
To Accompany the September 26, 2012 edition of Tidbits
Bob Jensen at Trinity University

How Security Leaks Jeopardize National Security (video produced by Navy Seals) ---

You may remember Steve Bridges as the guy who imitated George Bush so well on the Jay Leno Show. He has now started imitating Obama and REALLY does it really well --- http://www.youtube.com/watch_popup?feature=player_embedded&v=WH_a0cGVRmI

To paraphrase an old joke: what do you get when you cross a Godfather with a central banker? Someone who makes you an offer you can’t understand.
Paul Krugman with reference to the Fed's plan to buy $60 billion in mortgages per month until unemployment rates drop (to some vague, unspecified level) or inflation rises (to some vague, unspecified level) ---

Rumor has it that President Obama will seek a "chaired" professorship after leaving office
Clint Eastwood (hypothetically that is)

Meanwhile, the (Chicago) schools budget, which is separate from the general city budget, is expected to be $3 billion short over the next three years.
David Feith, The Wall Street Journal, September 14, 2012 ---
Will Chicago leave the dollar zone so it can print its own currency?

One in Five Bogus Voters in Ohio (in some countiesthe number of registered voters exceeds the population)
"Voter rolls in Ohio are bloated, experts say," Darrel Rowland , Columbus Dispatch, September 11, 2012 ---

Censorship by Big Brother According to Bob Woodward's Latest Book
I wonder if this was thumbs up versus thumbs down refereeing for entire submissions?
"New York Times Sent Unpublished Columns to the Obama Administration for Vetting," by Clay Waters, Newsbusters, September 15, 2012 ---

The New York Times is developing a bad habit of sending its columns to the Obama administration for approval.

Continued in article

Jensen Comment
The New York Times is the same newspaper that, when George W. Bush was president, was, without prior approval, sending out classified National Security pieces that somehow "leaked."

"Leave for Prof Accused of In-Class Pitch for Obama," Inside Higher Ed, September 18, 2012 ---

A faculty member at Brevard Community College has requested and been granted an unpaid leave after she was alleged to have used class time to urge students to vote for President Obama and handed out campaign material on behalf of the Obama campaign and other Democratic candidates for office, Florida Today reported. Sharon Sweet, the faculty member, did not respond to requests for comment. College officials said that a parent of a student complained reported the allegations, setting off an investigation. "We are a nonpartisan, public institution,” a spokesman for the college said. "It is very important that all of our faculty and staff act in that manner at work and while they’re on campus."

Jensen Question
This is a blatant violation of AAUP rules discussed at

I wonder if she would've been fired for entertaining the class with the following video?
You may remember Steve Bridges as the guy who imitated George Bush so well on the Jay Leno Show. He has now started imitating Obama and REALLY does it really well --- http://www.youtube.com/watch_popup?feature=player_embedded&v=WH_a0cGVRmI

Bob Jensen's threads on liberal bias in the media and in academe ---

Why weren't there riots in the canals of Venice?

"Muslims, Mormons and Liberals Why is it OK to mock one religion but not another?" by Bret Stephens, The Wall Street Journal, September 17, 2012 ---

'Hasa Diga Eebowai" is the hit number in Broadway's hit musical "The Book of Mormon," which won nine Tony awards last year. What does the phrase mean? I can't tell you, because it's unprintable in a family newspaper.

On the other hand, if you can afford to shell out several hundred bucks for a seat, then you can watch a Mormon missionary get his holy book stuffed—well, I can't tell you about that, either. Let's just say it has New York City audiences roaring with laughter.

The "Book of Mormon"—a performance of which Hillary Clinton attended last year, without registering a complaint—comes to mind as the administration falls over itself denouncing "Innocence of Muslims." This is a film that may or may not exist; whose makers are likely not who they say they are; whose actors claim to have known neither the plot nor purpose of the film; and which has never been seen by any member of the public except as a video clip on the Internet.

No matter. The film, the administration says, is "hateful and offensive" (Susan Rice), "reprehensible and disgusting" (Jay Carney) and, in a twist, "disgusting and reprehensible" (Hillary Clinton). Mr. Carney, the White House spokesman, also lays sole blame on the film for inciting the riots that have swept the Muslim world and claimed the lives of Ambassador Chris Stevens and three of his staff in Libya.

So let's get this straight: In the consensus view of modern American liberalism, it is hilarious to mock Mormons and Mormonism but outrageous to mock Muslims and Islam. Why? Maybe it's because nobody has ever been harmed, much less killed, making fun of Mormons.

Here's what else we learned this week about the emerging liberal consensus: That it's okay to denounce a movie you haven't seen, which is like trashing a book you haven't read. That it's okay to give perp-walk treatment to the alleged—and no doubt terrified—maker of the film on legally flimsy and politically motivated grounds of parole violation. That it's okay for the federal government publicly to call on Google to pull the video clip from YouTube in an attempt to mollify rampaging Islamists. That it's okay to concede the fundamentalist premise that religious belief ought to be entitled to the highest possible degree of social deference—except when Mormons and sundry Christian rubes are concerned.

And, finally, this: That the most "progressive" administration in recent U.S. history will make no principled defense of free speech to a Muslim world that could stand hearing such a defense. After the debut of "The Book of Mormon" musical, the Church of Jesus Christ of Latter-day Saints responded with this statement: "The production may attempt to entertain audiences for an evening but the Book of Mormon as a volume of scripture will change people's lives forever by bringing them closer to Christ."

That was it. The People's Front for the Liberation of Provo will not be gunning for a theater near you. Is it asking too much of religious and political leaders in Muslim communities to adopt a similar attitude?

It needn't be. A principled defense of free speech could start by quoting the Quran: "And it has already come down to you in the Book that when you hear the verses of Allah [recited], they are denied [by them] and ridiculed; so do not sit with them until they enter into another conversation." In this light, the true test of religious conviction is indifference, not susceptibility, to mockery.

The defense could add that a great religion surely cannot be goaded into frenetic mob violence on the slimmest provocation. Yet to watch the images coming out of Benghazi, Cairo, Tunis and Sana'a is to witness some significant portion of a civilization being transformed into Travis Bickle, the character Robert De Niro made unforgettable in Taxi Driver. "You talkin' to me?"

A defense would also point out that an Islamic world that insists on a measure of religious respect needs also to offer that respect in turn. When Sheikh Yusuf Qaradawi—the closest thing Sunni Islam has to a pope—praises Hitler for exacting "divine punishment" on the Jews, that respect isn't exactly apparent. Nor has it been especially apparent in the waves of Islamist-instigated pogroms that have swept Egypt's Coptic community in recent years.

Continued in article

The Sad State of Governmental Accounting:  It's All Done With Smoke and Mirrors
"A $447 Million Consumer Alert:  The Consumer Financial Protection Bureau pays 60% of its 958 employees more than $100,000. But Congress can't really tell how else the agency's money is spent," by Randy Neugebauer, The Wall Street Journal, September 19, 2012 ---

Should an unelected Washington bureaucrat be given tremendous power to lead a new federal agency, set its budget and spend more than $550 million with no oversight or disapproval? The Dodd-Frank Act signed into law by President Obama two years ago established the Consumer Financial Protection Bureau, whose director has precisely those vast powers. The bureau to date has avoided giving direct answers to congressional inquiries about how it is spending money.

The Consumer Financial Protection Bureau—the brainchild of Elizabeth Warren, a law professor who is now a Senate candidate in Massachusetts—was created as an independent agency to regulate the offering and provision of consumer financial products or services. But consumer protection is only a small part of the story. Despite the bureau's broad powers, it is not subject to any of the traditional oversight powers of Congress, particularly the "power of the purse," which is the cornerstone of the appropriations process.

The Consumer Financial Protection Bureau, which can draw more than $550 million annually from the U.S. Federal Reserve, has vast power in determining its budget. Once the director has decided that a money draw is "necessary," there is nobody with authority to prevent these funds from being paid out. Not congressional appropriators. Not the Fed. Not even the president's Office of Management and Budget.

What's more, the bureau's transfer requests often come in the form of one-page letters lacking details as to how the money will be spent. By comparison, in order to procure permanent financing for a commercial construction loan in West Texas, 29 separate documents are required—including a business plan and a complete set of building specs. At a time when the federal debt is so high that we are borrowing 40 cents of every dollar we spend as a nation, shouldn't we expect some spending accountability from the Consumer Financial Protection Bureau?

In official statements to the House Committee on Financial Services, the bureau has said it is "committed to promoting a culture of transparency and accountability" and to "using our resources wisely and carefully." The head of the bureau, Richard Cordray, who was installed by President Obama after a controversial "recess" appointment that bypassed Congress this January, has stated that he "fully support[s] . . . continued oversight of the Bureau's operation and budget."

Unfortunately, the bureau's actions speak louder than its words. My House Subcommittee on Oversight and Investigations has tried unsuccessfully to gain greater visibility into the bureau's budgetary planning process. I have repeatedly asked to review the bureau's statutorily required financial operating plans and forecasts. These requests were denied. I have repeatedly requested that the bureau expand its Fiscal Year 2013 budget justification for $447,688,000 to more than a scanty 25 pages. These requests were denied.

Where are the transparency and accountability measures that Mr. Cordray promised the American people? Congress is unable to carry out its constitutional oversight responsibilities if we can't analyze budget plans until after the money is spent.

Another alarming issue is the salary rate of Consumer Financial Protection Bureau employees. Pursuant to the Dodd-Frank Act, the bureau's director may set and adjust employee pay to be comparable to the compensation and benefits provided by the Fed. This means the bureau's employees are paid outside of the traditional government scale.

A review of the bureau's salaries as of Aug. 28, 2012, reveals that approximately 60% of its 958 employees make more than $100,000 a year. Five percent of its employees are out-earning U.S. cabinet secretaries by raking in $200,000 or more annually. The director's secretary alone is paid $165,139 a year.

I look at hardworking Americans—who make a median annual salary of $50,054—and I wonder: Why is it necessary for a government agency, let alone one that was created to assist and protect consumers, to pay the majority of its employees six-figure salaries?

Continued in article

Jensen Comment
The GAO has declared that many huge sink holes for fraud and waste are unauditable --- the Pentagon, the IRS, Medicare, and the list goes on and on. But the Congress that funds these programs is manipulated by special interest groups who do not want these audits. The new sink hole on the block is almost anything green

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

Wars Without Guns and Bombs
"Exclusive: Iranian hackers target Bank of America, JPMorgan, Citi," by y Jim Finkle and Rick Rothacker, Reuters, September 21, 2012 ---

The attacks, which began in late 2011 and escalated this year, have primarily been "denial of service" campaigns that disrupted the banks' websites and corporate networks by overwhelming them with incoming web traffic, said the sources.

Whether the hackers have been able to inflict more serious damage on computer networks or steal critical data is not yet known. The sources said there was evidence suggesting the hackers targeted the banks in retaliation for their enforcement of Western economic sanctions against Iran.

Iran has beefed up its cyber capabilities after its nuclear program was damaged in 2010 by the Stuxnet virus, widely believed to have been developed by the United States. Tehran has publicly advertised its intentions to build a cyber army and encouraged private citizens to hack against Western countries.

The attacks on the three largest U.S. banks originated in Iran, but it is not clear if they were launched by the state, groups working on behalf of the government, or "patriotic" citizens, according to the sources, who requested anonymity as they were not authorized to discuss the matter.

They said the attacks shed new light on the potential for Iran to lash out at Western nations' information networks.

"Most people didn't take Iran seriously. Now most people are taking them very seriously," said one of the sources, referring to Iran's cyber capabilities.

Iranian officials were not available for comment. Bank of America, JPMorgan and Citigroup declined to comment, as did officials with the Pentagon, U.S. Department of Homeland Security, Federal Bureau of Investigation, National Security Agency and Secret Service.

A U.S. financial services industry group this week warned banks, brokerages and insurers to be on heightened alert for cyber attacks after the websites of Bank of America and JPMorgan Chase's experienced unexplained service disruptions.

NBC reported late on Thursday that the Iranian government was behind these attacks, citing U.S. national security sources. Reuters could not verify that independently.

Tensions between the United States and Iran, which date back to the revolution in 1979 that resulted in the current Islamic republic, have escalated in recent years as Washington led the effort to prevent Tehran from getting a nuclear bomb and imposed tough economic sanctions.


Denial-of-service campaigns are among the oldest types of cyber attacks and do not require highly skilled computer programmers or advanced expertise, compared with sophisticated and destructive weapons like Stuxnet.

But denial-of-service attacks can still be very disruptive: If a bank's website is repeatedly shut down, the attacks can hurt its reputation, affect customer retention and cause revenue losses as customers cannot open accounts or conduct other business.

Bank of America, Citigroup and JPMorgan Chase have consulted the FBI, Department of Homeland Security and National Security Agency on how to strengthen their networks in the face of the Iranian attacks, the sources said. It was not clear whether law enforcement agencies are formally investigating the attacks.

The Iranian attackers may have used denial-of-service to distract the victims from other, more destructive assaults that have yet to be uncovered, the sources said.

Frank Cilluffo, who served as homeland security adviser to U.S. President George W. Bush, told Reuters that he knows of "cyber reconnaissance" missions that have come from Iran but declined to give specifics.

"It is yet to be seen whether they have the wherewithal to cause significant damage," said Cilluffo, who is now director of the Homeland Security Policy Institute at George Washington University.

Continued in article

Jensen Comment
Cyberwars work both ways. President Obama bragged that U.S. succeeded in burning out millions of dollars worth of Iranian centrifuges.

"Obama Order Sped Up Wave of Cyberattacks Against Iran," by David E. Sanger, The New York Times, June http://www.nytimes.com/2012/06/01/world/middleeast/obama-ordered-wave-of-cyberattacks-against-iran.html?pagewanted=all&_moc.semityn.www

"Sabotaging the System," CBS Sixty Minutes
class video posted November 9, 2009 by Bob Jensen, last edited February 10, 2012 , tagged accounting information systems, behavioral, ethics, government/not for profit, internal audit, phd seminar, public interest, sustainability
author name:
"Sabotaging the System," CBS Sixty Minutes
"Sabotaging the System," CBS Sixty Minutes, November 8, 2009 ---
Information Warfare, Hacking, Security

Sabotaging Life on Earth:  Backdoor Computer Hacking

According a Sixty Minutes Video
National Leaders Secretly Assume All Strategic Computer and Networking Systems are Infected by WMDs
(the one exception might be our nuclear defense system but don't count on it)

Did you know that such WMD computer warfare experiments already transpired on unsuspecting Brazil?


"The Most Outrageous Tax of the Year," by Adam Levin, Huffington Post, September 9, 2012 ---

. . .

It just may become the latest outrage during a year of outrages. At the precise moment when the federal government finally delivers a modicum of justice and some economic relief to millions of homeowners victimized by the nation's largest banks, the government threatens to beat those victims over the head with a punitive old favorite revenue raiser -- a tax on forgiven debt.

Here's the backstory: After years of standing on the sidelines and ignoring evidence that major banks were using their mortgage servicing arms to steal money from innocent consumers and illegally evict homeowners, the federal government finally joined with 49 states to prosecute the banks. It was a frustrating, agonizingly slow and painful process that led to an even more frustrating, agonizingly slow and painful negotiation.

The result was the National Mortgage Settlement, in which the five largest loan servicers must pay $21.5 billion in reparations and restitution to consumers victimized by their inappropriate conduct. Specifically, many homeowners whose mortgages were serviced by the Big Five -- Citi, JPMorgan Chase, Wells Fargo, Bank of America and Ally Financial -- may qualify for significant reductions in their mortgage principal and interest rates. And 1.5 million people who lost their homes due to questionable foreclosure practices can apply for a one-time payment of $2,000 (an insultingly low figure considering how much pain is involved in losing one's house).

Altogether, that's not an inconsequential number even in an imperfect world. More importantly, it's desperately needed right now by millions of underwater homeowners, who just might be able to hang onto their homes if they can receive the lower payments that come from interest and principal reductions. That helps individual homeowners, and it also helps everyone else, since our economy needs more foreclosures and more empty houses like it needs another global stock market crash.

But a grid-locked, polarized Congress is about to screw it up (again). You see, unless Congress acts with uncharacteristic speed and bipartisanship, anyone who might receive a principal reduction from the mortgage settlement could face a hefty tax bill.

That's not supposed to be the way this all goes down. In 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act, which prevents homeowners from paying taxes when their mortgage debt is forgiven due to a decline in the owner's financial life or a drop in the home's value. (We first covered the debt cancellation tax, known as the 1099-C, early last year, and gave tips on what to do if the IRS taxes you on cancelled debt.)

The law applies to homeowners who participate in the National Mortgage Settlement who receive up to $2 million in reduced principal and interest charges. It is scheduled to expire at the end of 2012 along with all the other tax cuts we have heard about for years.


So, instead of getting the relief they need to save their houses, victimized homeowners will be forced to pay a significant portion of that savings to Uncle Sam. Since the average homeowner will receive about $19,000 in settlement relief, and the average middle class family pays about 25 percent in taxes, approximately one quarter of the forgiven debt -- some $4,750 -- will have to be paid to the IRS and by those who can least afford to pay it. For some families, that could be enough to tip the scales, pushing them back to the brink of foreclosure and eviction.

This is fiscal insanity. And Congress knows it.

"Suddenly, just when they throw you a life ring, they jerk it back," Rep. Jim McDermott (D-Wash.), told the Washington Post. "We cannot let this happen. It's going to be a disaster."

Continued in article

Jensen Comment
Perhaps Adam Levin overstated the case a bit by not considering the high proportion of low and middle class taxpayers who pay no income tax and, therefore, are less adversely affected by the tax on forgiven debt:
Case Studies in Gaming the Income Tax Laws ---

See the chart at http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/

Edward  Whitacre, Jr. --- http://en.wikipedia.org/wiki/Ed_Whitacre

Ed Whitacre is the former AT&T CEO who oversaw the gobbling up of Baby Bells back into Mamma Bell. He came out of retirement to become short-term CEO of GM in GM's darkest moment (2009) --- the bailout and recovery from bankruptcy.

"Time for 'Government Motors' to Hit the:  Road Until Washington sells its shares of GM, the company won't be master of its own destiny and will remain wrongly tagged a failure," by Ed Whitacre, The Wall Street Journal, September 19, 2012 ---

The Treasury Department should sell every last share that it owns of General Motors—as quickly as possible.

I don't say that critically, but the government has been an active participant in GM's management for more than three years, and that's long enough. It's time for Treasury to step out of the way so that GM can fully focus on what it does best: designing, building and selling the world's best vehicles.

Since 2009, when the government stepped in with emergency funding, GM has gone from down on its knees in bankruptcy to solvent and standing strong. By that measure alone, Treasury's $50 billion gamble on General Motors has been a resounding success.

Millions of jobs were saved, along with the U.S. auto industry as a whole: GM is the backbone of the domestic vehicle business, so if the company had failed, other auto makers and suppliers would likely have followed. The courageousness of that effort, which started under President Bush and continued in force under President Obama, can't be underemphasized.

Nor can its benefits. The U.S. government basically saved American manufacturing, and in the process gave us hope for a brighter economic future. That is the real story of the auto bailout, which I supported 100%.

The government's authority over GM today isn't concentrated in the 500,000 shares it still owns, which amount to a hefty but not controlling 26.5% ownership stake. Rather, Washington's power comes from the management apparatus of TARP, the Troubled Asset Relief Program, from which the $50 billion bailout originally came.

TARP is funded by taxpayers, so there are many rules about how that money can and can't be used. The result: GM spends an awful lot of time checking in with the people who administer TARP over everything from hiring to executive compensation and management. For a global company, that adds up to a lot of distraction.

My view is influenced by personal experience. I was brought in by the White House as GM's chairman in 2009, around the time of the bankruptcy, and became CEO later that year. As a company, we were grateful for the government's support. But as GM's financial health began to improve, I could detect no real sense of urgency, or even interest, on the part of the government to relinquish control. Quite the contrary, it seemed that the TARP program at GM was expanding and digging in for the long haul. This concerned me.

When planning got under way for the initial public offering in 2010, I pushed for the government to sell its entire stake—all 912 million shares, or 61%—on day one. I thought that parting ways in one clean sweep would send a strong signal to Wall Street and the world that GM was back. If the stock sale fell short, GM could use its own cash to make up the difference, ensuring that U.S. taxpayers got repaid in full. This, to me, was a win-win: GM could return to running its own business, and Treasury could rightly declare victory on the auto bailout.

But nobody who had decision-making authority on the IPO—a show largely run by Treasury—liked my idea. I heard a raft of excuses, mostly from bankers, but the bottom line was this: An offering of that size had never been attempted before, so nobody wanted to try.

As the world now knows, the IPO was a roaring success. GM was priced at $33 a share, and the response from the public for common stock was overwhelming. The government sold a big chunk of its stake, but it chose to hold on to a half-million shares. Three years later, the government still holds that stake, and GM shares are trading well below the IPO price.

According to published reports—and I claim no special knowledge here—GM is now trying to convince Treasury to sell, for some of the reasons I have mentioned. These same reports say that the government may be willing, but not at the current stock price. GM stock hasn't performed as well as everybody would like, but I remain hopeful that it will rebound as the global economy improves.

Meantime, life in the hypercompetitive world of GM goes on. The company already answers to a lot of constituencies: stockholders, unions, Wall Street and global competitors. Adding TARP to the mix for another few years, or even another few quarters, is not fair to GM or to the one million people it employs, directly and indirectly.

So long as TARP money is wrapped up in GM, the company will never shake its "Government Motors" image. That label, as competitors and GM employees are keenly aware, is code for one thing: "GM is a failure." And while GM might have been a failure three years ago, it's not today. But it's also not the master of its own destiny—and it never will be as long as it's under TARP.

Mr. Whitacre, a former chairman and CEO of General Motors, is the author of "American Turnaround: Reinventing AT&T and GM and the Way We Do Business in the USA," forthcoming from Business Plus.

Continued in article

Jensen Comment About China Motors
Currently over 70% of vehicles built by GM are manufactured outside the United States. This is not such a bad thing for GM as a company, but admittedly a lot of the taxpayer TARP money was spent overseas and not for U.S. factories. Still having a profitable global GM goes a long way toward paying for U.S. pensions and carrying some losing car models built in the United States ---

Bob Jensen's threads on the bailouts are at

The Pentagon ordered 1,500 Turkeys for Thanksgiving
The expensive luxury and heavy Chevy Volt is a turkey and less environmentally friendly than hybrid cars of competitors (because of low gas mileage and miniscule electric power range). It appears that it's only customer is, get this, the Pentagon that just ordered 1,500 Volts.

The (Liberal, Obama-Loving) Washington Post Editorial Board admits that the Chevy Volt is on the road to nowhere fast
"GM’s vaunted Volt is on the road to nowhere fast," The Washington Post, September 12, 2012 ---

AS A CANDIDATE for president in 2008, Barack Obama set a goal of getting 1 million all-electric and plug-in hybrid vehicles on the road by 2015. In February 2011, the Obama administration’s Energy Department issued an analysis purporting to show that, with the help of subsidies and tax credits, “the goal is achievable.” This was a paltry claim in the first place, since 1 million cars amount to less than 1 percent of the total U.S. fleet. Yet it is increasingly clear that, despite the commitment of many millions of taxpayer dollars, the United States will not hit Mr. Obama’s target by 2015. A recent CBS News analysis suggested that we’ll be lucky to get a third of the way there.

The Energy Department study assumed that General Motors would produce 120,000 plug-in hybrid Volts in 2012. GM never came close to that and recently suspended Volt production at its Hamtramck, Mich., plant, scene of a presidential photo-op. So far, GM has sold a little more than 21,000 Volts, even with the help of a $7,500 tax credit, recent dealer discounting and U.S. government purchases. When you factor in the $1.2 billion cost of developing the Volt, GM loses tens of thousands of dollars on each model.

Some such losses are normal in the early phases of a product’s life cycle. Perhaps the knowledge and technological advances GM has reaped from developing the Volt will help the company over the long term. But this is cold comfort for the taxpayers who still own more than a quarter of the firm.

The Energy Department predicted that Nissan, recipient of a $1.5 billion government-guaranteed loan, would build 25,000 of its all-electric Leaf this year; that car has sold only 14,000 units in the United States.

As these companies flail, they are taking the much-ballyhooed U.S. advanced-battery industry down with them. A Chinese company had to buy out distressed A123, to which the Energy Department has committed $263 million in production aid and research money. Ener1, which ran through $55 million of a $118 million federal grant before going bankrupt, sold out to a Russian tycoon.

No matter how you slice it, the American taxpayer has gotten precious little for the administration’s investment in battery-powered vehicles, in terms of permanent jobs or lower carbon dioxide emissions. There is no market, or not much of one, for vehicles that are less convenient and cost thousands of dollars more than similar-sized gas-powered alternatives — but do not save enough fuel to compensate. The basic theory of the Obama push for electric vehicles — if you build them, customers will come — was a myth. And an expensive one, at that.

Chevy Volt --- http://en.wikipedia.org/wiki/Chevy_Volt#Controversies_and_criticism

Production cost and sales price

In 2009, the Presidential Task Force on the Auto Industry said that "GM is at least one generation behind Toyota on advanced, “green” powertrain development. In an attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt." and that "while the Chevy Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable." A 2009 Carnegie Mellon University study found that a PHEV-40 will be less cost effective than a HEV or a PHEV-7 in all of the scenarios considered, due to the cost and weight of the battery Jon Lauckner, a Vice President at General Motors, responded that the study did not consider the inconvenience of a 7 miles (11 km) electric range and that the study's cost estimate of US$1,000 per kWh for the Volt's battery pack was "many hundreds of dollars per kilowatt hour higher" than what it costs to make today." President Barack Obama behind the wheel of a new Chevy Volt during his tour of the General Motors Auto Plant in Hamtramck, Michigan

In early 2010, it was reported that General Motors would lose money on the Volt for at least the first couple of generations, but it hoped the car would create a green image that could rival the Prius.

After the Volt's sales price was announced in July 2010, there was concern expressed of the launch price of the Volt and its affordability and resulting popularity, especially when the federal subsidies of US$2.4 billion were taken into account in the development of the car.

General Motors CEO Edward Whitacre Jr. rejected as "ridiculous" criticism that the Volt's price is too expensive. He said that "I think it's a very fair price. It's the only car that will go coast to coast on electricity without plugging it in, and nobody else can come close." Despite the federal government being the major GM shareholder due to the 2009 government-led bankruptcy of the automaker, during a press briefing at the White House a Treasury official clarified that the federal government did not have any input on the pricing of the 2011 Chevrolet Volt.

There have also been complaints regarding price markups due to the initial limited availability in 2010 of between US$5,000 to US$12,000 above the recommended price,[232] and at least in one case a US$20,000 mark up in California.[233] Even though the carmaker cannot dictate vehicle pricing to its dealers, GM said that it had requested its dealers to keep prices in line with the company’s suggested retail price.

In May 2011 the National Legal and Policy Center announced that some Chevrolet dealers were selling Volts to other dealers and claiming the US$7,500 federal tax credit for themselves. Then the dealers who bought the Volts sell them as used cars with low mileage to private buyers, who no longer qualify for the credit. General Motors acknowledged that 10 dealer-to-dealer Volt sales had taken place among Chevrolet dealers, but the carmaker said they do not encourage such practice.

In September 2012, Reuters published an opinion/editorial article where it claimed that General Motors, nearly two years after the introduction of the car, was losing $49,000 on each Volt it built. The article concludes that the Volt is "over-engineered and over-priced" and that its technological complexity has put off many prospective buyers, due to fears the car may be unreliable. GM executives replied that Reuters' estimates were grossly wrong as they allocated the production costs only on the number of Volts sold instead of spreading the production costs in the future, over the entire lifetime of the model. GM explained that the investments will pay off once the innovative technologies of the Volt will be applied across multiple current and future products

Continued in article

Is the Chevy Volt losing $49,000 on each model built?
Not any longer thanks to the Pentagon.

"Pentagon to Buy 1,500 Chevy Volts," by Brian Koenig, The New American, September 12, 2012 ---

September 13, 2012 reply from Cheryl Dunn

Actually, I was told by our associate vice provost that our engineering department bought a Volt that its staff drive back and forth between Grand Rapids and Traverse City and they are getting 57 miles per gallon. That does not seem like "low" gas mileage to me, and it would be much higher if they weren't driving such long distances (Grand Rapids to Traverse City is approximately 140 miles). I think the Volt may be getting a bad rap, and the Pentagon may be making a good purchase.


September 13, 2012 reply from Bob Jensen

Hi Cheryl,

I'm don't agree that the Pentagon is getting such a good deal. It may take several wars to hit the payback point.

The NYT reported that the Chevy Volt "would need to reach US$12.50 a gallon for the Volt to break even, while the Nissan Leaf would be competitive with a similar gasoline-powered compact car at US$8.53 a gallon."

Chevy Volt --- http://en.wikipedia.org/wiki/Chevy_Volt 

According to Edmunds.com, the price premium paid for the Volt, after discounting the US$7,500 U.S. federal tax credit, takes a long time for consumers to recover in fuel savings, often longer than the normal ownership time period. Edmunds compared the Volt (priced at US$31,712) with the same-size gasoline-powered Chevrolet Cruze (priced at US$19,656) and found that the payback period for the plug-in hybrid is 15 years for gasoline prices at US$3 per gallon, 12 years at US$4 per gallon, and drops to 9 years with gasoline prices at US$5 per gallon. At February 2012 prices, the break even period is 14 years. These estimates assume an average of 15,000 miles (24,000 km) annual driving and vehicle prices correspond to Edmunds.com's true market value estimates.[90]

In a similar comparison carried out by TrueCar in April 2012 for The New York Times, the analysis found that the payback period for the Volt takes 26.6 years versus a Chevrolet Cruze Eco, assuming it was regularly driven farther than its battery-only range allows, and with gasoline priced at US$3.85 per gallon. The analysis assumes an average of 15,000 miles (24,000 km) driven a year, a fuel economy of 34.3 mpg
-US (6.86 L/100 km; 41.2 mpg-imp) for the Cruze Eco, priced at US$19,925, and a Volt price of US$31,767, after discounting the US$7,500 federal tax. TrueCar also found that with gasoline priced at US$5 per gallon, the payback time could drop to about 8 years if the Volt were to be operated exclusively on battery power. The newspaper also reported that according to the March 2012 Lundberg Survey, gasoline prices would need to reach US$12.50 a gallon for the Volt to break even, while the Nissan Leaf would be competitive with a similar gasoline-powered compact car at US$8.53 a gallon


Bob Jensen's Fraud Updates ---

President Barack Obama is about to release or transfer 55 Gitmo prisoners, despite reports that the Libyan believed to be behind the killing of US Ambassador Christopher Stevens was a former Guantanamo inmate transferred to Libyan custody ---

"Islamists neuter Pentagon war-fighting plans:  Military analysis of radicalism now called 'totally objectionable'," by Bob Unruh, WND, September 19, 2012 ---

Lawyers defending a military officer who was punished for teaching about the dangers of radical Islam are accusing the Pentagon of selling out to political correctness.

“In order to appease Muslims and the White House, Gen. Dempsey and the Department of Defense rushed to punish Lt. Col. Matt Dooley,” said Richard Thompson, chief counsel for the Thomas More Law Center.

Dooley and the longstanding course he taught at the Joint Forces Staff College, “Perspectives on Islam and Islamic Radicalism,” were targeted when Muslim groups demanded that material they viewed as offensive to Islam be “purged” from the coursework and that the teacher be “effectively disciplined.”

Dooley administratively was removed from his teaching assignment and an Officer Evaluation Report, marking him as outstanding, was withdrawn.

Thompson charged that Dooley’s commanders “violated not only our nation’s core principles of free speech and academic freedom guaranteed by our Constitution, but also, a number of the military’s own regulations dealing with academic freedom and non-attribution policies of the National Defense University.”

“They violated the right to due process of law and even bypassed the university’s provost, who under NDU’s own rules has primary responsibility for adjudication of this matter,” he said.

Dooley previously had been deployed in Bosnia, Kuwait and Iraq, serving as a tank platoon leader, tank company executive officer, operations officer, plans officer, small group instructor and instructor at the Joint Combined Warfare School.

He was awarded the Bronze Star, the Meritorious Service Medal with two Oak Leaf Clusters, the Joint Service Commendation Medal, the Army Commendation Medal with three Oak Leaf Clusters and a dozen other honors.

The course, its materials and subject matter all had been presented before, but Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, publicly blasted Dooley.

In a Pentagon news conference May 10 with Defense Secretary Leon Panetta, Dempsey characterized Dooley’s teaching as “totally objectionable” and “against our values.”

The Thomas More Law Center called the news conference “astonishing and unprecedented,” noting Dempsey personally attacked “a subordinate Army officer who honorably served our nation, and was subsequently prohibited from publicly defending himself. ”

“The final bastion of America’s defense against Islamic jihad and Shariah, the Pentagon, fell to the enemy,” commented Claire M. Lopez, a former CIA agent and strategic policy and intelligence expert.

She noted Dempsey reissued his earlier order that all Department of Defense course content “be scrubbed to ensure no lingering remnant of disrespect to Islam.”

The Thomas More Law Center said Dooley was grappling in class with the most dangerous aspects of radical Islamist ideology and encouraged students to debate the issues openly, using “prior-approved course content, established guest speakers and doctrinal teaching methodologies.”

But a letter from Islamic groups, including some with known links to terrorism, demanded that all government training materials be purged, a mandatory retraining program be instituted and punishment be instituted for “bigoted trainers” who would use “biased training materials.”

The groups included the Council on American-Islamic Relations, the American-Arab Anti-Discrimination Committee, Islamic Circle of North American and Islamic Relief USA.

Among the information cited as damaging was an FBI report that explained individuals who convert to Islam and suddenly begin wearing Muslim attire, growing beards and travel to Muslim countries could become radicalized.

Texts that were deemed biased included Robert Spencer’s “The Truth About Mohammed: Founder of the World’s Most Intolerant Religion.”

“The result is certain,” Thomas More said in a statement. “Officers and instructors see what has happened to Lt. Col. Dooley, and will refrain from telling the truth about Islam or confronting the difficult strategic challenges facing our nation for fear of jeopardizing their professional careers. The Pentagon has still apparently not learned from the politically correct policies that led to the Fort Hood massacre.”

The legal team said enforcement of a political correct perspective is dangerous.

Continued in article


No Free Lunch

Meanwhile, the (Chicago) schools budget, which is separate from the general city budget, is expected to be $3 billion short over the next three years.
David Feith, The Wall Street Journal, September 14, 2012 ---
Will Chicago leave the dollar zone so it can print its own currency?

"Teacher deal could lead to property tax hikes, school closings, layoffs," by Fran Spoielman, The Chicago Sun Times, September 14, 2012 ---

Four years of up-to-the-limit property tax increases for Chicago homeowners and businesses. Closing scores of under-enrolled and underperforming schools. Thousands of layoffs of teachers and other school staff. More cuts to the central office.

That’s what could await the Chicago Public Schools, thanks to the tentative agreement between teachers and the district that is expected to put an end to the five-day teachers strike.

Civic Federation President Laurence Msall said the 16 percent pay raise included in the tentative agreement will almost certainly trigger massive layoffs and scores of school closings.

Every 1 percent pay raise carries a $20 million price tag. That means the cost of the raises could be as high as $320 million over four years — although it could be less after retirements and cost-saving provisions of the agreement are factored in.

“By agreeing to raises in excess of the budget when you have no reserves, that pretty much guarantees that you have to reduce your personnel and the number of teachers and schools in the system,” Msall said.

“They will have to eliminate under-enrolled and underperforming schools. I don’t know where else you could get the money. We are very concerned that the district did not have a plan for how it could accommodate any salary increase above 2 percent and did not have a plan to address the major components of the $1 billion shortfall it projects for next years.”

September 15, 2012 message from Jim Martin

I have developed a summary of the WEF's Global Competitiveness Index (GCI)
for 2011 and 2012. The GCI is Part 1 of a 500+ page report that provides a
considerable amount of information for self reflection as well as political
debate and argument.
The Global Competitiveness Index measures the microeconomic and
macroeconomic foundations of national competitiveness defined as the set of
institutions, policies, and factors that determine the level of productivity
of a country. The U.S. is ranked as follows in the overall index: 2008, 1,
2009, 2, 2010, 4, 2011, 5, 2012, 7.
According to the WEG there are 12 pillars of competitiveness as follows:
Institutions, infrastructure, macroeconomic environment, health and primary
education, higher education and training, goods market efficiency, labor
market efficiency, financial market development, technological readiness,
market size, business sophistication, and technological innovation.
Although the pillars are aggregated into a single index, values and ranks
are reported for the 12 pillars separately to indicate the areas in which
countries need to improve. Each pillar includes a number of indicators. For
example, there are 21 indicators for the first pillar, i.e., institutions.
An indicator value is calculated for each country and used to rank the
countries from 1 to 144 in 2012. Some examples from the 2012 report: the
U.S. ranks 54th in terms of public trust of politicians, 76th in terms of
wasteful government spending, 87th in terms of organized crime, and 37th in
strength of auditing and reporting standards. The U.S. is ranked 26th in
quality of overall infrastructure, 140th in terms of government budget
balance, 34th in life expectancy, 58th in primary education enrollment, 47th
for secondary education enrollment, 142nd for imports as a percentage of
GDP, 42nd in cooperation in labor-employer relations, and 80th in terms of
soundness of banks.
For values and ranks for all of the pillars and indicators see my summary at


Shahid Khan: The New Face Of The NFL And The American Dream
"Face of the American Dream:  Immigrant-Turned-Billionaire:
 Shahid Khan's Innovative Car Design Gives Hope to the Rust Belt
Now He's Keen to Cure Football's Biggest Headache."
Forbes, September 24, 2012, pp.  122-128 ---

. . .

With flowing black hair and the thick handlebar mustache of a man used to leaving a lasting impression, the 62-year-old Khan, driving a shiny white Grand Cherokee, is a swashbuckling contrast to the desolation around him. While Danville and the rest of the Rust Belt were deteriorating over the last 40 years, Khan was moving in exactly the opposite direction. The sole owner and CEO of Flex-N-Gate, he built one of the biggest automotive parts suppliers in North America almost from scratch from his headquarters just 35 miles away and now employs more than 13,000 people at 52 factories around the globe. Sales reached $3.4 billion in 2011. FORBES estimates his net worth at $2.5 billion, placing him in the top half of the soon-to-be-released 2012 Forbes 400.

An enormous accomplishment for anyone, it’s more like a Mars landing for a middle-class kid from Pakistan who flew into Illinois for an engineering degree at 16 and never left. Khan’s is the kind of only-in-America success story that has filled boats and planes with dreamers for the past 150 years, one that gives a face to an ironclad fact: Skilled, motivated immigrants are proven job creators, not job takers.

Khan’s American Dream continued this January, when he purchased the NFL’s Jacksonville Jaguars for $770 million. In so doing, he became the first ethnic-minority owner in a league synonymous with cheerleaders and tailgate parties, Thanksgiving grudge matches and that most secular of U.S. holidays, Super Bowl Sunday. Buying into the NFL, he says, was a statement about the opportunity America offers.

It’s also a statement about his can-do entrepreneurialism. The Jags are to football what Rust Belt manufacturing has been to U.S. industry: the financially challenged, least popular team in a league otherwise envied around the world. A mere 0.4% of NFL fans in a recent ESPN poll cited the Jaguars as their favorite franchise, ranking them dead last out of 32. (Recent headline in The Onion : “New Commercial Posits Existence of Jaguars Fans.”)

They have the fourth-smallest market in the league, with just 1.4 million people in the Jacksonville metro area. They haven’t had a winning season since 2007, nor won their division since 1999, nor been to the Super Bowl, ever. And they play in a cavernous stadium, 76,877-seat EverBank Field, which Mark Lamping, the Jags’ new team president, describes as “a church built for Easter Sunday,” which in this college-football-crazed region means the annual game between the University of Florida and the University of Georgia. Filling a stadium that size every other Sunday might be simple in New York or Dallas, but it’s proved nearly impossible in northern Florida. In 2005 the Jaguars surrendered, covering nearly 10,000 upper-deck seats with tarps, but they still had trouble selling out, resulting in local television blackouts, which suppressed fan interest even more.

But now they have Shahid Khan, who knows how to find the bright side in a dismal situation—and says he has a plan.

Continued in article

Jensen Comment
One of the wonderful thing about America is that the American Dream is still possible from those that accumulate over a million dollars to those that accumulate over a billion dollars. The key is motivation and willingness to take risk on business ventures coupled with a government and legal system that enforces contracts and does not discourage entrepreneurial spirit with an oppressive tax system and socialism.

Bob Jensen's threads on the American Dream ---

"Charles G. Koch: Corporate Cronyism Harms America:  When businesses feed at the federal trough, they threaten public support for business and free markets," by Charles G. Koch, The Wall Street Journal, September 9, 2012 ---

"We didn't build this business—somebody else did."

So reads a sign outside a small roadside craft store in Utah. The message is clearly tongue-in-cheek. But if it hung next to the corporate offices of some of our nation's big financial institutions or auto makers, there would be no irony in the message at all.

It shouldn't surprise us that the role of American business is increasingly vilified or viewed with skepticism. In a Rasmussen poll conducted this year, 68% of voters said they "believe government and big business work together against the rest of us."

Businesses have failed to make the case that government policy—not business greed—has caused many of our current problems. To understand the dreadful condition of our economy, look no further than mandates such as the Fannie Mae and Freddie Mac "affordable housing" quotas, directives such as the Community Reinvestment Act, and the Federal Reserve's artificial, below-market interest-rate policy.

Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.

With partisan rhetoric on the rise this election season, it's important to remind ourselves of what the role of business in a free society really is—and even more important, what it is not.

The role of business is to provide products and services that make people's lives better—while using fewer resources—and to act lawfully and with integrity. Businesses that do this through voluntary exchanges not only benefit through increased profits, they bring better and more competitively priced goods and services to market. This creates a win-win situation for customers and companies alike.

Only societies with a system of economic freedom create widespread prosperity. Studies show that the poorest people in the most-free societies are 10 times better off than the poorest in the least-free. Free societies also bring about greatly improved outcomes in life expectancy, literacy, health, the environment and other important dimensions.

So why isn't economic freedom the "default setting" for our economy? What upsets this productive state of affairs? Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.

We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.

We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries. There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn't ordinarily buy.

Because they have the advantage of an uneven playing field, crony businesses can drive their legitimate competitors out of business. But in the longer run, they are unsustainable and unable to compete internationally (unless, of course, the government handouts are big enough). At least the Solyndra boondoggle ended when it went out of business.

By subsidizing and mandating politically favored products in the energy sector (solar, wind and biofuels, some of which benefit Koch Industries), the government is pushing up energy prices for all of us—five times as much in the case of wind-generated electricity. And by putting resources to less-efficient use, cronyism actually kills jobs rather than creating them. Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.

The effects on government are equally distorting—and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.

Subsidies and mandates are just two of the privileges that government can bestow on politically connected friends. Others include grants, loans, tax credits, favorable regulations, bailouts, loan guarantees, targeted tax breaks and no-bid contracts. Government can also grant monopoly status, barriers to entry and protection from foreign competition.

Whatever form these privileges take, Americans are rightly suspicious of the cronyism that substitutes political influence for free markets. According to Rasmussen, two-thirds of the electorate are convinced that crony connections explain most government contracts—and that federal money will be wasted "if the government provides funding for a project that private investors refuse to back." Some 71% think "private sector companies and investors are better than government officials at determining the long-term benefits and potential of new technologies." Only 11% believe "government officials have a better eye for future value."

Continued in article

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


Debt --- http://en.wikipedia.org/wiki/Debt

History of Money and Debt --- http://en.wikipedia.org/wiki/History_of_money

Debt (booked by accountants) versus Entitlements (promises made that are not yet booked) ---

"We've Always Been Deadbeats Debt is not a new American way," by Scott Reynolds Nelson, Chronicle of Higher Education, September 10, 2012 ---

My father was a repo man. He did not look the part, which made him all the more effective. He alternately wore a long mustache or a shaggy beard and owned bell-bottoms in black, blue, and cherry red. His imitation-silk shirts were festooned with city maps, cartoon characters, or sailing ships. Dad sang in the car, at the top of his lungs, mostly obscure show tunes. His white Dodge Dart had Mach 1 racing stripes that he had lifted from a souped-up Ford Mustang. The "deadbeats" saw him coming, that's for sure, but they did not understand his profession until he walked into their homes and took away their televisions.

Dad worked for Woolco, a company that lent appliances on an installment plan. When borrowers failed to pay, ignored the letters and phone calls, my father would come by. He often posed as a meter reader or someone with a broken-down car. If he saw a random object lying abandoned in the yard, he would pick it up and bring it to the door as if he were returning it. He was warm and funny, charming, but pushy. He did not carry a gun, but he was fearless under pressure and impervious to verbal abuse. If the door opened, he was inside; if he was inside, he shortly had his hands on the appliance; the rest was bookkeeping.

. . .

In each case, lenders had created complex financial instruments to protect themselves from defaulters like the ones I watched from the car. And in each case, the very complexity of the chain of institutions linking borrowers and lenders made it impossible for those lenders to distinguish good loans from bad.

In 1837, for example, banks in the north of England discovered that the unpaid "cotton bills of exchange" in their vaults made them the indirect owners of slaves in Mississippi. In 2007, shareholders in DBS, the largest bank in Singapore, found themselves part owners of homes facing foreclosure in California, Florida, and Nevada. In both cases, efficient foreclosure proved impossible.

In those crashes in America's past, perhaps a repo man in a Dodge Dart with a million gallons of gas could have visited every debtor, edged his way in, and decided who was good for it. (My dad did accept cash or money orders for Woolco's goods.) But big lenders have neither the time nor the capacity to act with the diligence of a repo man. Instead, such lenders (let's agree to call them all banks) try to unload debts, hide from their own creditors, go into bankruptcy, and call on state and federal institutions for relief. Banks have also routinely overestimated the collateral—the underlying asset—for the loans they hold. When those debts go unpaid or appear unpayable, banks quickly withdraw lending; the teller's window slams shut. A crisis on Wall Street becomes a crisis on Main Street. Money is tight. Loans are impossible: Crash.


Scholarship on these financial downturns has its own long and checkered past.

From the 1880s to the 1950s, scholars told the history of the nation's economic downturns as the history of banks. Such an approach was not entirely wrong, but it tended to focus on big personalities like J.P. Morgan or New York institutions; it tended to ignore the farmers, artisans, slaveholders, and shopkeepers whose borrowing had fed the booms and busts.

Then, in the 1960s and 1970s, the so-called new economic historians (or cliometricians) came along with a different story. Using state and federal data, they tried to build mathematical models of the nation's financial health. Moving beyond banks, they emphasized what they termed the "real economy," by which they meant measurable indices of growth and profit. Taking the nation's health like a simple temperature reading, they used gross domestic product, gross income, or collective return on investment. Of course, none of those figures had been measured directly before the 1930s, and so the prognoses tended to vary widely.

Such economic models of financial health, however scientific they looked, tended to be abstract representations of an economy that was, in fact, more complex and more interconnected than they pictured. The models, for example, often assumed that old banks were like modern banks, sharing common accounting principles, or that because banks first issued credit cards in the 1960s, they offered no consumer credit before then. Drilling into historical documents for seemingly relevant numbers, then plugging those numbers into a model of a world they understood rather than the economy they sought to describe, the cliometricians often produced ahistorical work. Hence, one economic historian assumed that American barrels of flour sent to New Orleans were consumed in the South, though most were bound for re-export to the Caribbean. Another calculated that railroads played little role in America's economic booms by modeling a scenario in which canals could have (somehow) crossed the arid plains into the Sierra Nevada mountains.

Bear in mind, that same kind of intellectual hubris about models of economic behavior had awful effects in the recent past. Around 2000, Barclays Bank borrowed a simple diffusion model from physics (called the "Gaussian copula function") to suggest that foreclosures would have a relatively small effect on nearby property values. Economists tested it with two years of foreclosure and price data and agreed. Billions of investment in real-estate followed, often in indirect markets like real-estate derivatives and collateralized debt obligations. By 2008 the model proved shockingly inaccurate.

If some historians focused on the temperature of the "real economy," economists were becoming obsessed with the money supply as the single factor explaining most American panics. Again, a certain kind of blindness to the history of debt and deadbeats ensued. The most important book here was Milton Friedman and Anna Jacobson Schwartz's seminal A Monetary History of the United States, 1867-1960 (1963). It urged economists to steer away from stories of speculation spun out by Keynesians like John Kenneth Galbraith.

How, according to Friedman and Schwartz, can we separate speculation and investment? All loans are risky. The riskier they are, the higher the return. Some investments will fail. Markets need to clear, and those buyers who come along to sweep up bargains are not ruthless profiteers but simply maximizers who make markets work. Thus, the pair steered economists away from problems of risk and toward the problems of state intervention. They were the prophets of financial deregulation.

Their story about past financial panics had the advantage of suggesting simple solutions: Use the Federal Reserve to inflate or deflate the currency. For them, financial crises were mostly monetary. Thus, the 1929 downturn started with a financial shock and then was prolonged by an overly tight monetary policy. After A Monetary History became gospel, economics textbooks dropped their numerous chapters on financial panics because the policy solution became so clear; economists trained after 1965 know little about financial downturns before the Great Depression.

Yet a tripling of the money supply has still not fully pulled the United States and the rest of the world out of our current financial crisis—suggesting that our problems, and all the previous ones, were not just monetary. My dad would have pointed out that economists have misunderstood the problem. Crises are mostly about productive assets—the promises in his trunk.

Social historians (and I count myself among them) tell a very different story about financial panics, but we have our own blind spots. Since the late 1960s, we have often discussed the American economy as if farmers were coherent families of self-sufficient yeomen surprised by the market economy. That story of a sudden revolution misses the early and intimate relationship between Americans and credit. It overlooks how American stores provided consumer credit to farmers, plantations owners, and renters who settled the West.

Thus, American social historians have used the term "market revolution" to describe the period after the 1819 panic. Accordingly market forces rushed in as repo men like my dad became vanguards of a new capitalist order. The financial jeremiads of Jacksonian Democrats of the 1820s and 30s against bankers and paper money became the natural outgrowth of frontier farmers' anger at a capitalism they had never seen before. But the store system of Andrew Jackson's day borrowed practices from the colonial store system that goes back to the 17th century, if not earlier. It was how the fur-trading and East and West India companies prospered. John Jacob Astor and Andrew Jackson were cut from the same cloth. They made their fortunes from their stores, and their store system made settlement possible.

Part of the reason we overlook the importance of credit in American history is our continued attachment to Marx's divide between precapitalist and capitalist forms of agriculture. That misses the relationship between farming and credit for most of the people who settled America. The more I study panics, the more I am persuaded that the pioneer American institution of the 18th and early 19th centuries was not the homestead or the trapper's shack but the store, an institution that sold foreign goods to farmers on credit, taking payment in easily movable settler products like furs, potash, barrel hoops, and butter.

Rather than imagining some golden age of subsistence, scholars in the Marxist tradition should look more closely at anticapitalist movements in the wake of panics. I include here not just the utopian and religious communities like Quakers, Shakers, and Oneidans but also the early Mormons, the Grangers, and the Populists. Those people understood what it meant for banks, and then railroads, to extend credit through stores. Often regarding capital as a collective inheritance, they built their own associations to replace such institutions of credit (and the railroad was an institution of credit) with locally managed cooperatives that distributed agricultural benefits in a way that served the broader community. The temple, the elevator, and the cooperative were attempts to break the chain of debt without demonizing capital.

From the perspective of business history, Joseph A. Schumpeter argued that business-cycle downturns came from periods of "creative destruction" in which new technologies undermined old ones. Outdated technologies, with millions invested in them, became instantly obsolete, leading to financial failures that cascaded to other industries. While Schumpeter, who died in 1950, once persuaded me, I think there is a mechanistic fallacy in the argument. Railroads, for example, have taken the blame for the 1857, 1873 and 1893 downturns. While there may be something there, the whole account seems reductive and technologically determinist. For example, canals, the Bessemer process, fractional distillation of oil, and washing machines are all revolutionary technologies that flourished during the American panics, not before them. They did sweep away older technologies, but rather than causing panics those technologies benefited by the uncertainty that panic created.

In a very different camp, neo-Marxists like Giovanni Arrighi and David Harvey betray a similar kind of reductive history, a latter-day Schumpeterianism. Their work posits a "spatial fix," a center of capitalism that then organizes and draws tribute from the rest of the world. For the late Arrighi, it was a kind of pump that sucked assets from elsewhere as states were forming throughout the sweep of centuries. For Harvey it is an investment in a capital city (Amsterdam, London, New York) and a new communication technology (telegraph, telephone, the Internet) that drew higher profits from everywhere else. Dutch and British hegemony became American hegemony after World War II. That suggests that these scholars have not really considered the tremendous influence of the U.S. Federal Reserve in reorienting international trade between 1913 and the 1920s. Their story seems more or less political to me: American empire comes when Americans claim victory in World War II. The economic material seems to be used in the service of a story about the rise and decline of empires.

If we follow the money, the American empire emerged during World War I, when the international flow of debt changed drastically. For Arrighi and Harvey, the International Monetary Fund and the World Bank are the pathbreakers of financial empire. But it is worth remembering that those institutions were explicitly designed to restrain the dirty tricks of financial empires of the 1920s and 1930s: No more American banks using gunboat diplomacy in Peru; no more Germans sending tanks into Poland to collect unpaid debts.


As a historian, I have learned the most about financial disasters from long-dead historians whose work blended primary, secondary, and quantitative material. Rosa Luxemburg, William Graham Sumner, Frank W. Taussig, and Charles Kindleberger would never have agreed about anything. Luxemburg, a renegade Marxist who read in five languages, described how the dangerous mix of a hierarchical production process with the anarchy of international trade could lead manufacturers to block free trade and embrace higher prices for their raw materials in the wake of a panic. Sumner, a laissez-faire Social Darwinist who argued that income inequality benefited society, carefully explained how drastic economic changes could follow from tiny changes in international trade deals. Put in a room together, each would have retreated to a corner to begin throwing furniture. But they and the others were storytellers who used a mixture of sources. Telling a story by looking through the trunk of assets and watching the damage afterward makes more sense to me than simple models of financial contagion, money supply, technological watersheds, or global fixes.

My father died before I started writing about financial panics, but my thoughts have grown out of our 30-year-long argument about financial downturns. Not surprisingly, he disliked "deadbeats," seeing them as the people whose false promises weakened our country. He probably had a point, and no doubt the executives of Woolco would agree. But I find much in them to admire, for defaulters are often dreamers. Viewing America's financial panics through the lens of numerous unfulfilled and forgotten debts that even the oldest banker cannot possibly remember can afford a perspective my dad would have appreciated: with my view from the Dodge Dart, the minute he rang the doorbell, when both debtor and creditor prepared their stories.

Scott Reynolds Nelson is a professor of history at the College of William and Mary. His book A Nation of Deadbeats: An Uncommon History of America's Financial Disasters has just been published by Alfred A. Knopf.

"Debt: The First 5,000 Years," by Paul Kedrosky , Kedrosky.com, September 10, 2011 --- Click Here

Debt versus Equity --- http://www.trinity.edu/rjensen/Theory02.htm#FAS150

The booked National Debt in August 2012 went over $16 trillion ---
U.S. National Debt Clock --- http://www.usdebtclock.org/
Also see http://www.brillig.com/debt_clock/
The unbooked entitlements have a present value between $80 and $100 trillion. But who's counting?

Pending Collapse of the United States --- http://www.trinity.edu/rjensen/Entitlements.htm

Should we never pay down  (even partly) the U.S. National Debt or Spending Deficit? ---

"An Illinois Pension Bailout? Governor Quinn wants you to guarantee his state's pensions," The Wall Street Journal, September 20, 2012 ---

Now that Chicago's children have returned to not learning in school, we can all move on to the next crisis in Illinois public finance: unfunded public pensions. Readers who live in the other 49 states will be pleased to learn that Governor Pat Quinn's 2012 budget proposal already floated the idea of a federal guarantee of its pension debt. Think Germany and eurobonds for Greece, Italy and Spain.

Thank you for sharing, Governor.

Sooner or later, we knew it would come to this since the Democrats who are running Illinois into the ground can't bring themselves to oppose union demands. Illinois now has some $8 billion in current debts outstanding and taxpayers are on the hook for more than $200 billion in unfunded retirement costs for government workers. By some estimates, the system could be the first in the nation to go broke, as early as 2018.

Liabilities are also spiralling nationwide, with some $2.5 trillion in unfunded state pension costs. According to a paper released Thursday by the Illinois Policy Institute, the crisis will end up pitting states against each other as taxpayers in places like Tennessee, Texas, Virginia and Utah will be asked to subsidize the undisciplined likes of Illinois and California.

For years, states have engaged in elaborate accounting tricks to improve appearances, including using an unrealistically high 8% "discount" rate to account for future liabilities. To make that fairy tale come true, state pension funds would have to average returns of 8% a year, which even the toothless Government Accounting Standards Board and Moody's have said are unrealistic.

It's no surprise that many of the states deepest in the red are public union strongholds. For decades, Democrats have bought union support in elections by using surplus revenue during good times to pad pension and retiree health-care benefits.

Look no further than the recent Chicago teachers strike. The city is already facing upwards of a $1 billion deficit next year with hundreds of millions of dollars in annual pension costs for retired teachers coming due. But despite the fiscal imperatives, the negotiation didn't even discuss pensions. The final deal gave unions a more than 17% raise over four years, while they keep benefits and pensions that workers in the wealth-creating private economy can only imagine.

As a political matter, public unions are pursuing a version of the GM strategy: Never make a concession at the state level, figuring that if things get really bad the federal government will have no political choice but to bail out the pensions if not the entire state. Mr. Quinn made that official by pointing out in his budget proposal that "significant long-term improvements" in the state pension debt will come from "seeking a federal guarantee of the debt."

Look for Democrats in Washington to take up that call, and for such an effort to get some traction if Democrats control one or both houses of Congress next year. Jim DeMint, the South Carolina Republican, has seen this future and is already warning against it. He and Illinois Senator Mark Kirk have proposed a resolution opposing a federal bailout of state pensions, and we hope more sign on. States need to clean up their own fiscal messes.



Pending Collapse of the United States --- http://www.trinity.edu/rjensen/Entitlements.htm

If the job market does not improve, how long will it take for the Fed to own all the real estate mortgages in the United States?

"Fed to Purchase $40 Billion Per Month in Bonds Until Job Market Improves," Time Magazine, September 12, 2012 ---

The Federal Reserve says it will spend $40 billion a month to buy mortgage-backed securities for long as necessary to stimulate the still-weak economy and reduce high unemployment.

It also extended a plan to keep short-term interest rates at record lows through mid-2015. And it said it’s ready to take other steps to boost the economy even after it strengthens.

The Fed announced the series of bold steps after its two-day policy meeting ended Thursday. Its actions pointed to how sluggish the economy remains more than three years after the Great Recession ended. “We’re not sure what the economic effects of this program will be – it should help growth and employment on the margin,” Dan Greenhaus, chief global strategist at BTIG LLC, said in a research note.

(VIDEO: How the Federal Reserve Works)

Stocks rose after the announcement. The Dow Jones industrial average was up 15 points for the day just before 12:30 p.m. It surged by 105 points within minutes of the announcement, then gave up some gains to be just 35 points higher.

The dollar dropped against major currencies, and the price of gold shot up about $16 an ounce, roughly 1 percent, to $1,750. “If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Fed said in a statement released after the meeting.

The statement was approved on an 11-1 vote. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worries about igniting inflation.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending. The Fed has previously bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

(MORE: U.S. Federal Reserve Earned $77 Billion Profit in 2011)

Skeptics caution that further bond buying might provide little benefit. Rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.

With less than eight weeks left until Election Day, the economy remains the top issue on most voters’ minds. Many Republicans have been critical of the Fed’s continued efforts to drive interest rates lower, saying they fear it could ignite inflation.

The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

Continued in article

"Bernanke Unbounded:  The Fed enters a brave new world of unlimited monetary easing," The Wall Street Journal, September 13, 2012 ---

So much for fears that the Federal Reserve might disappoint Wall Street. Chairman Ben Bernanke and his music men at the Fed's Open Market Committee put on their party hats Thursday and unleashed an unlimited program of monetary easing. The move exceeded even Wall Street's expectations, but whether it will help the real economy in the long term is doubtful.

This is the Fed's third round of quantitative easing (QE3) since the 2008 panic, and the difference this time is that Ben is unbounded. The Fed said it will keep interest rates at near-zero "at least through mid-2015," which is six months longer than its previous vow. The bigger news is that the Fed announced another round of asset purchases—only this time as far as the eye can see.

The Fed will start buying $40 billion of additional mortgage assets a month, with a goal of further reducing long-term interest rates. But if "the labor market does not improve substantially," as the central bankers put it, the Fed will plunge ahead and buy more assets. And if that doesn't work, it will buy still more. And if . . .

The Fed statement paid lip service to pursuing its "dual mandate" of controlling inflation and reducing unemployment, but no one should be fooled. The Fed has declared that it is going all-in to cut the jobless rate, no matter what it takes.

"We have to do more, and we'll do enough to make sure the economy gets on the right track," Mr. Bernanke declared at his Thursday press conference. That bravado contradicts the Chairman's by now routine caveat that monetary policy "is no panacea" and can't save the economy by itself, but no matter. He's going to try.

Will it work? Mr. Bernanke recently offered a scholarly defense of his extraordinary policy actions since 2008, and there's no doubt that QE1 was necessary in the heat of the panic. We supported it at the time. The returns on QE2 in 2010-2011 and the Fed's other actions look far sketchier, even counterproductive.

QE2 succeeded in lifting stocks for a time, but it also lifted other asset prices, notably commodities and oil. The Fed's QE2 goal was to conjure what economists call "wealth effects," or a greater propensity to spend and invest as consumers and businesses see the value of their stock holdings rise. But the simultaneous increase in commodity prices lifted food and energy prices, which raised costs for businesses and made consumers feel poorer.

These "income effects" countered Mr. Bernanke's wealth effects, and the proof is that growth in the real economy decelerated in 2011. It decelerated again this year amid Operation Twist. When does the Fed take some responsibility for policies that fail in their self-professed goal of spurring growth, rather than blaming everyone else while claiming to be the only policy hero?

Then there are the real and potential costs of endless easing, three of which Mr. Bernanke addressed at his Thursday press conference. He said Americans shouldn't complain about getting a pittance of interest on their savings because they'll benefit in the long term from a better economy spurred by low rates. Retirees might retort that they know what Lord Keynes said about the long term.

Mr. Bernanke was also as slippery as a politician in claiming that his policies don't promote deficit spending because the Fed earns interest on the bonds it buys and hands that as revenue to the Treasury. Yes, but its near-zero policy also disguises the real interest-payment burden of running serial $1.2 trillion deficits, while creating a debt-repayment cliff when interest rates inevitably rise. Does he really think Congress would spend as much if he weren't making the cost of government borrowing essentially free?

The third cost is the risk of future inflation, which Mr. Bernanke accurately said hasn't strayed too far above the Fed's 2% "core inflation" target. That conveniently ignores the run-up in food and energy prices, which consumers pay even if the Fed discounts them in its own "core" calculations.

The deeper into exotic monetary easing the Fed goes, the harder it will also be to unwind in a timely fashion. Mr. Bernanke says not to worry, he has the tools and the will to pull the trigger before inflation builds.

That's what central bankers always say. But good luck picking the right moment, which may be before prices are seen to be rising but also before the expansion has begun to lift middle-class incomes. That's one more Bernanke Cliff the economy will eventually face—maybe after Ben has left the Eccles Building. ***

Given the proximity to the Presidential election, the Fed move can't be divorced from its political implications. Mr. Bernanke forswore any partisan motives on Thursday, and we'll give him the benefit of the personal doubt. But by goosing stock prices, and thus lifting the short-term economic mood, the Fed has surely provided President Obama an in-kind re-election contribution.

The irony is that, with this historic and open-ended easing, Mr. Bernanke is also tacitly admitting how lousy the Obama-Bernanke economy really is. For all the back-slapping by the Fed and the White House about how they've saved us from a Great Depression, four years later the Fed is acknowledging that the recovery is rotten, that job creation stinks, and that their policies haven't helped the middle class. But, hey, it's great for Wall Street.

Jensen Comment
What is really sad that in it's effort to deceive the public, our deceptive government removed increases in food and fuel prices from the definition of "inflation."

From Duke University:  Bernanke's $40 billion per month currency printing is a failure from the start

"QE3 is a Mistake," Garden of Eden, September 2012 --- http://gardenofecon.com/2012/09/qe3-is-a-mistake/

The Fed made a mistake today in launching QE3. This is not just my opinion. It is the overwhelming opinion of America’s CFOs.

In the Duke University-CFO Magazine Global Business Outlook Survey released September 10, 2012, we asked a key question. If your borrowing costs were reduced by 50bp [an optimist assessment of QE3], would you accelerate or increase your capital investment? 647 of 667 or 97% of CFOs said "No".

We also asked them why? Here I quote them directly (I did not correct spelling or grammar). An extraordinary 343 CFOs took the time to respond. Here is an excerpt of some of their comments.

CFOs: We need increased growth not lower rates

CFOs: Rates already low so even lower irrelevant

CFOs: Uncertainty and regulatory climate hurts investment


It is amazing to me that all of the focus is on interest rates – when these rates are at a 50-year low.

Continued in article

Jensen Comment
I won't call the QE3 printing of currency a mistake until I get my home refinanced for less than two percent on a 30-year mortgage.


The sad, sad state of governmental accounting that's all done with smoke and mirrors ---

"Longer-term inflation expectations spike in reaction to the Fed" Sober Look, September 13, 2012 ---

Bob Jensen's threads on the bailout are at

Which State’s Residents Live the Longest?

Which states have the biggest obesity disease problems?


How we all live on welfare in the United States
"One Nation on Welfare:  Living Your Life on the Dole," by Michael Grunwald, Time Magazine, September 17, pp. 32-37 ---

The sun is shining on Miami Beach, and I wake up in subsidized housing. I throw on a T-shirt made of subsidized cotton, brush my teeth with subsidized water and eat cereal made of subsidized grain. Soon the chaos begins, two hours of pillow forts, dance parties and other craziness with two hyper kids and two hyper Boston terriers, until our subsidized nanny arrives to watch our 2-year-old. My wife Cristina then drives to her subsidized job while listening to the subsidized news on public radio. I bike our 4-year-old to school on public roads, play tennis on a public court...

It's just another manic Monday, brought to us by the deep pockets of Big Government. The sunshine is a natural perk, and while our kids are tax-deductible, the fun we have with them is not. The dogs are on our dime too. Otherwise, taxpayers help support just about every aspect of our lives.

Of course, we're taxpayers too, and we don't exactly fit the stereotype of entitled welfare queens. Cristina is an attorney and until recently was a small-business owner. I'm a journalist, an economic red flag these days, but I work for the company behind the Harry Potter and Batman movies, so at press time I was still getting paid. My family's subsidies are not the handouts to the poor that help fuel America's political culture wars but the kind of government goodies that make the comfortable even more comfortable. Our federally subsidized housing, for example, is a two-story Art Deco home in the overpriced heart of South Beach. But our mortgage interest is a personal deduction, my home office is a business deduction, and federal subsidies keep our flood insurance cheap. Even our property taxes are deductible. So thanks for your help.

The 2012 election is shaping up as a debate over Big Government, but it is only loosely tethered to the reality of Big Government. The vast majority of federal spending goes to defense, health care and Social Security plus interest payments on the debt we've run up paying for defense, health care and Social Security. Nondefense discretionary spending--Washingtonese for "everything else," from the FBI to the TSA to the center for grape genetics--amounts to only 12% of the budget.

Still, it's a big government. The U.S. did not spend even $1 billion in 1912; it will spend $3.8 trillion in 2012 on everything from Missing Alzheimer's Disease Patient Assistance ($593,842) to Snow Survey and Water Supply Forecasting ($9,409,400), from mortgage insurance for manufactured homes ($64,724,187) to ironworker training on Indian reservations. There will be an additional $1.3 trillion in tax expenditures, federal benefits (like the deductions for my 401(k) and my nanny's salary) that are basically identical to those normal spending programs except that they happen to be provided through the tax code.

The rise of the Tea Party and the weakness of the Obama economy have fueled a Republican narrative about Big Government as a threat to liberty, redistributing wealth from honorable Americans to undeserving moochers, from taxpaying "makers" to freeloading "takers." In fact, most Americans are makers and takers--proud of our making, blind to our taking. Republicans often point out that only half the country pays income taxes, but just about all Americans pay taxes: payroll taxes, state and local taxes, gas taxes and much more. The problem is that we pay in $2.5 trillion and pay out $3.8 trillion. And those trillions of dollars don't all go to undeserving moochers, except insofar as we're all undeserving moochers.

7 a.m.: Subsidized food, water, electricity and clothing

The right routinely portrays government as a giant mess of Solyndra failures, lavish agency conferences in Vegas and pork for society's leeches. But my taxpayer-supported morning didn't feel like mooching at the time.

For example, my family pays for that water I use to brush my teeth, about $100 a month. But that's a small fraction of the true cost of delivering clean water to our home and treating the sewage that leaves our home. And it certainly doesn't reflect the $15 billion federal project to protect and restore the ravaged Everglades, which sit on top of the aquifers that provide our drinking water. Most Americans think of the water that comes out of our faucets as an entitlement, not a handout, but it's a government service, and it's often subsidized.

Similarly, my family pays more than $200 a month for the electricity that powers our toaster at breakfast. But that number would be much higher if the feds didn't subsidize the construction, liability insurance and just about every other cost associated with my utility's nuclear power plants while also providing generous tax advantages ("depletion allowances," "intangible drilling costs" and so forth) for natural gas and other fossil fuels. The $487 we're paying this year for federal flood insurance is also outrageously low, considering that our low-lying street floods all the time, that a major hurricane could wipe out Miami Beach and that the Property Casualty Insurers Association of America estimates that premiums in high-risk areas would be three times as high without government aid.

Some federal largesse--tax breaks for NASCAR racetracks ($40 million) and subsidies for rum distilleries ($172 million) and rural airports ($200 million)--is just silly. There's no reason my poker buddies should be able to deduct the gambling losses I inflict on them once a month. (Just kidding, guys!)

The silliest handouts that brighten my morning are the boondoggles that funnel billions to America's cotton and grain farmers and maybe knock a few cents off the price of my T-shirts and my kids' breakfast waffles. Uncle Sam sends at least $15 billion every year to farmers and agribusinesses in the form of grants, loans, crop insurance and other goodies. The farm lobby is so omnipotent in Washington that when the World Trade Organization ruled that U.S. handouts give our cotton farmers an unfair advantage over Brazil, the U.S. cut a deal to shovel $147 million a year to Brazilian cotton farmers rather than kick our own farmers off the dole. Our food and clothing may seem cheap, but, oh, we pay for them.

Reasonable people can disagree about most government aid. I enjoy NPR, even though I don't really see why it needs about $3 million a year of our tax dollars to produce good journalism; public-radio stations receive only about 15% of their revenue from the government anyway. On the other hand, I think my $500 Florida tax rebate for the energy-efficient water heater that warms my shower made great sense, promoting economic, environmental and national security by reducing fossil-fuel use.

Unless you're a hardcore libertarian, it probably doesn't bother you that the city of Miami Beach spends $500 million a year building roads, fixing potholes, picking up trash, putting out fires and creating bike lanes that make my cycling somewhat less life-threatening. The city also owns my local tennis courts, which are receiving a somewhat controversial $5 million upgrade, as well as the playground my 2-year-old visits frequently and the track where Cristina and I work out much less frequently. My mayor, Matti Herrera Bower, told me tennis players are the city's most aggressive and obnoxious special interest. We're the farmers of Miami Beach.

When I spoke to Bower, a former dental assistant and PTA mom who got into politics after years of community activism, the FBI had just busted a bunch of city code inspectors for shaking down a nightclub owner, and the city manager had just quit. MIAMI BEACH SINKING IN A VAST SWAMP OF DISHONESTY, a Miami Herald column declared. Citizens notice the bad news, Bower said with a sigh, but they don't appreciate that government keeps them safe and cleans their streets. They're not too interested in learning more, either; Bower holds regular Mayor on the Move forums to bring City Hall to Miami Beach's neighborhoods, but only two residents showed up to the last one. "There's this perception that government is all dirty, and perception is 99% of what matters," Bower says. "People are busy living their lives. They don't understand where their taxes go and what they get."

One thing my family gets from government is Cristina's paycheck from an advocacy group called Americans for Immigrant Justice, which is nearly 30% funded by the feds. Cristina is paid less than she would make at a private law firm, though more than most Americans, to represent undocumented minors in detention centers--in other words, kids in jail, some as young as 6, many victims of gang rape, gang terror or horrific family abuse. Cristina helps save the time of judges and immigration officials by advising these kids about their rights, and she probably saves taxpayers money overall by advising her clients when they have no legal case for staying. That said, it's unlikely that her job would exist without Uncle Sam's help.

Continued in article

The end of capitalism, economics, and investment banking as we know it ---

Forwarded by Dr. Wolff

A short time ago, Iran 's Supreme Leader Grand Ayatollah Ali Khomeini urged the Muslim World to boycott anything and everything that originates with the Jewish people.

In response, Meyer M. Treinkman, a pharmacist, out of the kindness of his heart, offered to assist them in their boycott as follows:

"Any Muslim who has Syphilis must not be cured by Salvarsan discovered by a Jew, Dr. Ehrlich. He should not even try to find out whether he has Syphilis, because the Wasserman Test is the discovery of a Jew. If a Muslim suspects that he has Gonorrhea, he must not seek diagnosis, because he will be using the method of a Jew named Neissner.

"A Muslim who has heart disease must not use Digitalis, a discovery by a Jew, Ludwig Traube.

Should he suffer with a toothache, he must not use Novocain, a discovery of the Jews, Widal and Weil.

If a Muslim has Diabetes, he must not use Insulin, the result of research by Minkowsky, a Jew.

If one has a headache, he must shun Pyramidon and Antypyrin, due to the Jews, Spiro and Ellege.

Muslims with convulsions must put up with them because it was a Jew, Oscar Leibreich, who proposed the use of Chloral Hydrate.

Arabs must do likewise with their psychic ailments because Freud, father of psychoanalysis, was a Jew.

Should a Muslim child get Diphtheria, he must refrain from the "Schick" reaction, which was invented by the Jew, Bella Schick.

"Muslims should be ready to die in great numbers and must not permit treatment of ear and brain damage, work of Jewish Nobel Prize winner, Robert Baram.

They should continue to die or remain crippled by Infantile Paralysis because the discoverer of the anti-polio vaccine is a Jew, Jonas Salk.

"Muslims must refuse to use Streptomycin and continue to die of Tuberculosis because a Jew, Zalman Waxman, invented the wonder drug against this killing disease.

Muslim doctors must discard all discoveries and improvements by dermatologist Judas Sehn Benedict, or the lung specialist, Frawnkel, and of many other world renowned Jewish scientists and medical experts.

"In short, good and loyal Muslims properly and fittingly should remain afflicted with Syphilis, Gonorrhea, Heart Disease, Headaches, Typhus, Diabetes, Mental Disorders, Polio Convulsions and Tuberculosis and be proud to obey the Islamic boycott."

Oh, and by the way, don't call for a doctor on your cell phone because the cell phone was invented in Israel by a Jewish engineer.


"Sweden 22-U.S. 35 Even the Swedes are cutting their corporate tax rate," The Wall Street Journal, September 18, 2012 ---

The headline above is not an athletic game score, and in this contest you want to be on the lower end. We're talking about the corporate tax rate, which Sweden's Prime Minister Fredrik Reinfeldt has announced that he intends to cut to 22% from 26.3% as part of his next budget.

The rate cut will be partially offset by closing some loopholes, but it will leave famously high-tax Sweden with one of the lowest corporate tax rates in Western Europe. With a top marginal personal income-tax rate of 57% and government spending equal to 56% of GDP, Sweden is no free-market paradise. But over the past two decades, Sweden has cut its public debt to 33% of GDP from a high of nearly 80% in the 1990s. It has also kept the budget at or near balance.

In announcing the cut last week, Mr. Reinfeldt called the corporate income tax "probably the most harmful tax of all" because it hits job creation and business investment. Corporate income taxes almost invariably lead to double taxation, as the profits taxed at the corporate level tend to be taxed again when they are distributed as dividends or realized as capital gains on business ownership.

Sweden is in a strong fiscal position now in part because it avoided the worst of the 2008 financial panic, but also because it eschewed the Keynesian blowouts that were all the rage in the global recession that followed. Now the biggest spenders are struggling with stagnant or shrinking economies even as they try to bring spending under control, while Stockholm is free to pursue pro-growth tax cuts.

All of which would seem to be a lesson for America, if our politicians weren't so preoccupied with redistributing wealth instead of creating it. Mitt Romney has proposed cutting the U.S. corporate rate to 25% from today's 35%—the highest rate in the developed world—but we can't recall when he last made the public case for it. Perhaps it offended someone in a focus group. If Mr. Romney wants to explain his economic proposals, maybe he could invite Mr. Reinfeldt to the States to help.

"Theory Of Spain's Political Class," by Cesar Molinas, The Browser, September 12, 2012 --- Click Here
Direct Link --- http://elpais.com/elpais/2012/09/12/inenglish/1347449744_053124.html

In this article I propose a theory of Spain's political class to make a case for the urgent, imperious need to change our voting system and adopt a majority system. A good theory of Spain's political class should at least explain the following issues:

1. How is it possible that five years after the crisis began, no political party has a coherent diagnosis of what is going on in Spain?

2. How is it possible that no political party has a credible long-term plan or strategy to pull Spain out of the crisis? How is it possible that Spain's political class seems genetically incapable of planning?

3. How is it possible that Spain's political class is incapable of setting an example? How is it possible that nobody - except the king and for personal motives at that - has ever apologized for anything?

4. How is it possible the most obvious strategy for a better future - improving education, encouraging innovation, development and entrepreneurship, and supporting research - is not just being ignored, but downright massacred with spending cuts by the majority parties?

In the following lines I posit that over the last few decades, Spain's political class has developed its own particular interest above the general interest of the nation, which it sustains through a system of rent-seeking. In this sense it is an extractive elite, to use the term popularized by Acemoglu and Robinson. Spanish politicians are the main culprits of the real estate bubble, of the savings banks collapse, of the renewable energy bubble and of the unnecessary infrastructure bubble. These processes have put Spain in the position of requiring European bailouts, a move which our political class has resisted to the bitter end because it forces them to implement reforms that erode their own particular sphere of interest. A legal reform that enforced a majority voting system would make elected officials accountable to their voters instead of to their party leaders; it would mark a very positive turn for Spanish democracy and it would make the structural reforms easier. THE HISTORY

The politicians who participated in the transition process from Franco's regime to democracy came from very diverse backgrounds: some had worked for Franco, others had been in exile and yet others were part of the illegal opposition within national borders. They had neither a collective spirit nor a particular group interest. These individuals made two major decisions that shaped the political class that followed them. The first was to adopt a proportional representation voting system with closed, blocked lists. The goal was to consolidate the party system by strengthening the internal power of their leaders, which sounded reasonable in a fledgling democracy. The second decision was to strongly decentralize the state with many devolved powers for regional governments. The evident dangers of excessive decentralization were to be conjured by the cohesive role of the great national parties and their strong leaderships. It seemed like a sensible plan.

But four imponderables resulted in the young Spanish democracy acquiring a professional political class that quickly grew dysfunctional and monstrous. The first was the proportional system with its closed lists. For a long time now, members of party youth groups get themselves on the voting lists on the sole merit of loyalty to their leaders. This system has turned parties into closed rooms full of people where nobody dares open the windows despite the stifling atmosphere. The air does not flow, ideas do not flow, and almost nobody in the room has personal direct knowledge of civil society or the real economy. Politics has become a way of life that alternates official positions with arbitrarily awarded jobs at corporations, foundations and public agencies, as well as sinecures at private regulated companies that depend on the government to prosper.

Secondly, the decentralization of the state, which began in the early 1980s, went much further than was imaginable when the Constitution was approved. As Enric Juliana notes in his recent book Modesta España (or, Modest Spain), the controlled top-down decentralization was quicky overtaken by a bottom-up movement led by local elites to the cry of "We want no less!" As a result, there emerged 17 regional governments, 17 regional parliaments and literally thousands of new regional companies and agencies whose ultimate goal in many cases was simply to extend paychecks and bonuses. In the absence of established procedures for selecting staff, politicians simply appointed friends and relatives, which led to a politicized patronage system. The new political class had created a rent-seeking system - that is to say, a system that does not create new wealth but appropriates existing wealth - whose sewers were a channel for party financing.

Thirdly, political parties' internal power was decentralized even faster than the public administration. The notion that the Spain of the Regions could be managed by the two majority parties (the conservative Popular Party and the Socialists) fell apart when the regional "barons" accumulated power and, like the Earl of Warwick, became kingmakers within their own parties. This accelerated the decentralization and loss of control over the regional savings banks. Regional governments quickly passed laws to take over the cajas de ahorros, then filled the boards with politicians, unionists, friends and cronies. Under their leadership, the savings banks financed or created yet more businesses, agencies and affiliated foundations with no clear goal other than to provide yet more jobs for people with the right connections.

Additionally, Spain's political class has colonized areas that are not the preserve of politics, such as the Constitutional Court, the General Council of the Judiciary (the legal watchdog), the Bank of Spain and the CNMV (the market watchdog). Their politicized nature has strangled their independence and deeply delegitimized them, severely deteriorating our political system. But there's more. While it invaded new terrain, the Spanish political class abandoned its natural environment: parliament. Congress is not just the place where laws are made; it is also the institution that must demand accountability. This essential role completely disappeared in Spain many years ago. The downfall of Bankia, played out grotesquely in last July's parliamentary appearances, is just the latest in a long series of cases that Congress has decided to treat as though they were natural disasters, like an earthquake, which has victims but no culprits. THE BUBBLES

These processes created a political system in which institutions are excessively politicized and where nobody feels responsible for their actions because nobody is held accountable. Nobody within the system questions the rent-seeking that conforms the particular interest of Spain's political class. This is the background for the real estate bubble and the failure of most savings banks, as well as other "natural disasters" and "acts of God" that our politicians are so good at creating. And they do so not so much out of ignorance or incompetence but because all these acts generate rent.

The Spanish real estate bubble was, in relative terms, the largest of the three that are at the origin of today's global crisis, the US bubble and the Irish bubble being the other two. There is no doubt that, like the others, it fed on low interest rates and macroeconomic imbalances on a global scale. But unlike the US, in Spain decisions regarding what gets built where are taken at the political level. In Spain, the political class inflated the real estate bubble through direct action, not omission or oversight. City planning is born out of complex, opaque negotiations which, besides creating new buildings, also give rise to party financing and many personal fortunes, both among the owners of rezoned land and those doing the rezoning. As if this power were not enough, by transferring control of the savings banks to regional governments the politicians also had power of decision over who received money to build. This represented a quantum leap in the Spanish political class' capacity for rent-seeking. Five years on, the situation could not be more bleak. The Spanish economy will not grow for many years to come. The savings banks have disappeared, mostly due to bankruptcy.

The other two bubbles I will mention are a result of the peculiar symbiosis between our political class and Spanish capitalists who live off government favors. At a recent meeting, a well-known foreign investor called it "an incestuous relationship" while a Spanish investor talked about "a collusion against consumers and taxpayers." Be that as it may, let us first discuss the renewable energy bubble. Spain represents two percent of world GDP yet it is paying 15 percent of the global total of renewable energy subsidies. This absurd situation, which was sold to the public as a move that would put Spain on the forefront of the fight against climate change, creates lots of fraud and corruption, and naturally captured rent, too. In order to finance these subsidies, Spanish households and businesses pay the highest electricity rates in all of Europe, which seriously undermines the competitiveness of our economy. Despite these exaggerated prices, the Spanish power system debt is several million euros a year, with an accumulated debt of over 24 billion euros that nobody knows how to pay.

The last bubble I will discuss concerns the countless unnecessary infrastructure projects built in the last two decades at an astronomical cost, benefiting the builders and hurting the taxpayers. One of the most scandalous cases is the spoke highways into and out of Madrid. Meant to improve traffic flows into the capital, the radiales were built with no thought given to important principles of prudence and good management. First, rash forecasts were made regarding the potential traffic on these roads (currently it is 30 percent of expectations and not because of the crisis; there was no traffic in boom times, either.) The government allowed the builders and the concessionaires to be essentially the same people. This is madness, because when builders disguised themselves as license holders through companies with very little capital and huge debt, builders basically got money from the concessionaires to build the highways, and when there was no traffic, they threatened to let the latter go broke. The main creditors were - surprise! - the savings banks. So nobody knows how to pay the more than three billion euros in debt, which will ultimately fall on the taxpayers' shoulders. THE THEORY

The principle is very simple. Spain's political class has not only turned itself into a special interest group, like air traffic controllers for example; it has taken a step further and formed an extractive elite in the sense given to this term by Acemoglu and Robinson in their recent and already famous book Why Nations Fail. An extractive elite is defined by:

"Having a rent-seeking system which allows, without creating new wealth, for the extraction of rent from a majority of the population for one's own benefit."

"Having enough power to prevent an inclusive institutional system - in other words, a system that distributes political and economic power broadly, that respects the rule of law and free market rules."

Abominating the 'creative destruction' that characterizes the most dynamic forms of capitalism. In Schumpeter's words, "creative destruction is the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Innovation tends to create new centers of power, and that's why it is detested.

What does this simple theory have to say about the four questions set forth at the beginning of this article? Let us see:

1. Spain's political class, as an extractive elite, cannot effect a reasonable diagnosis of the crisis. It was their rent-seeking mechanisms that provoked it, but obviously they cannot say that. The Spanish political class needs to defend, as it is indeed doing to a man, that the crisis is an act of God, something that comes from the outside, unpredictable by nature, and in the face of which we can only show resignation.

2. Spain's political class, as an extractive elite, cannot have any exit strategy other than waiting for the storm to pass. Any credible long-term plan must include the dismantling of the rent-seeking mechanisms that the political class benefits from. And this is not an option.

3. Nobody apologizes for defending their particular interests. Air traffic controllers didn't, and neither will our politicians.

4. Just as the theory of extractive elites states, Spanish political parties share a great contempt for education, innovation and entrepreneurship, and a deep-seated hostility towards science and research. The loud arguments over the civics education course Educación para la Ciudadanía are in stark contrast with the thick silence regarding the truly relevant problems of our education system. Meanwhile, innovation and entrepreneurship languish in the midst of regulatory deterrents and punitive fiscal measures. And spending on scientific research is viewed as a luxury that politicians cut back savagely on, given half a chance.

Continued in article

September 16, 2012 reply from MacEwan Wright

Dear Bob,
An interesting commentary.

Australia has proportional representation. At the Senate level proportional representation does allow minority parties to exist, often with the balance of power. This has some interesting side effects. However, when combined with compulsory voting the principal outcome would appear to be mediocrity!
The secondary effect is mild pork barreling, but with the wide spread of interest groups, this is also fairly evenly spread.
But the voters have only themselves to blame. There is virtually no electoral fraud - very difficult given the requirement for compulsory voting. I have acted as a scrutineer, and my brother as an electoral official, and we have not seen any fraud.

Best wishes,


"CEO Pay in FTSE 100: Pay Inequality, Board Size and Performance," by William Patrick Forbes, SSRN, September 1, 2012 ---

Abstract: n this paper we examine the agency costs of seemingly excessive pay awards to CEO's within the FTSE 100 in the last decade. Are CEOs taking a large proportion of the total pot (a big "pay slice") more, or less, able to return value to shareholders by better management? In presenting this evidence we describe variations in whole distribution of executive pay, rather than invoking some arbitrary cut-off point (e.g. the CEO's pay as a percentage of their five highest paid peers or the CPS), to determine how changes in shareholder value match to concurrent changes in the distribution of executive pay. We ask is the impact of executive pay-inequality a function of board size, rendering the CPS measure problematic in this context? If so how does the interaction of board size and corporate performance size, as measured by shareholder returns, explain variation in the sensitivity of the pay-performance relationship for UK FTSE executives? We advance the Gini coefficient as a preferable measure of executive pay inequality in order to capture the impact of perceived inequality upon corporate performance.

Jensen Comment
Although the findings in this study in terms of CEO pay, I strongly object to the Gini coefficient for comparison of poverty levels between countries. For example, Canada and North Korea have roughly the same Gini coefficient. Yeah Right! You get a higher Gini coefficient just for spreading the poverty equally.

Having said that, I'm a long-time advocate for curbing excessive executive compensation, especially those that reward failure and fraud ---
On CBS news last week, it was stated that Putin's in house in Russia cost a mere $1 billion. When it comes to corruption, start at the top with government.
This is the graph of political corruption.

Bob Jensen's threads on the American Dream ---




Why it's better to grow old in the United States (at least for the moment)
United Kingdom National Health patients’ lives are at risk in NHS hospital wards that are “on the brink of collapse” due to a critical shortage of out-of-hours doctors and growing numbers of the elderly.

"Patients' lives at risk in NHS hospital wards 'on brink of collapse," by Stephen Adams, The Telegraph, September 12, 2012 ---

Some hospitals narrowly avoid “catastrophe” every weekend, research by the Royal College of Physicians has found, because doctors’ shifts are limited by the European Working Time Directive and they do not want to work anti-social hours.

Some are “struggling to cope” with the volume of older patients. Many are discharged in the middle of the night or shunted around “like parcels” to free beds for new arrivals.

If the problem is not tackled there will be more tragedies like the Mid Staffs scandal, in which up to 1,200 mainly elderly patients died from substandard care. A radical reorganisation of the NHS is needed, according to the college. It may include shutting the worst-performing hospitals to expand care at better ones, with more staff coverage at nights and weekends.

The Hospitals on the Edge report warns that:

The report notes that the number of beds in acute and general wards has fallen by a third over the past 25 years, while patients have increased. Beds have been cut as better care has led to shorter stays.

Dr Andrew Goddard, medical director for the college’s workforce unit, said: “Many hospitals run a traffic light system for their status: they are green if they are taking in patients; amber if they need to be a bit more careful; red for full or black if they are shut.

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Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

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

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

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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 ---


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Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

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