Tidbits Quotations
To Accompany the July 30, 2013 edition of Tidbits
Bob Jensen at Trinity University

My Free Speech Political Quotations and Commentaries Directory and Log ---

If everyone is thinking alike, then somebody isn't thinking.
George S. Patton

Barack Obama beat Mitt Romney in the 2012 elections 65,909,451 Obama to 60,932,176 Romney votes.
Among the 48 million people of food stamps, how many voted for Mitt Romney?
The GOP will never win without gaining half the food stamp votes.

American Planning Association: Blogs --- http://www.planning.org/multimedia/blogs/

Federal Reserve Bank of the United States --- http://en.wikipedia.org/wiki/Federal_Reserve_Bank

What are the latest reported liabilities on the Fed's balance sheet?

A measly $3.532 trillion on July 25, 2013 ---

U.S. National Debt Clock --- http://www.usdebtclock.org/
Also see http://www.brillig.com/debt_clock/

The Worst Companies to Work For (allegedly) ---

Jensen Comment
There are hundreds of thousands of small companies that are probably worse employers to a point where employees are praying to work for Wal-Mart where low wages are higher and there are benefits such as health care and free online degrees. Many small businesses are dropping benefits or opportunities to earn benefits like health care. They never had education benefits. Job security is becoming nill in strip malls that are now half empty.

Somewhat telling is the comment that “Radioshack constantly changes their focus because they are a struggling company.” Companies struggling to survive are not likely to be good places to work --- for a number of reasons. One of these reasons that those co-workers and supervisors who have not already abandoned ship are like to be the bottom of the barrel of remaining employees who have fewer choices to relocate. Such a working environment is probably not pleasant.

Struggling companies operating at or near a loss each year are resource challenged to make life pleasant for employees. Remaining employees may be asked to take pay cuts and/or be forced to work fewer hours each week. Travel budgets may make it possible to only stay in roach motels.

The only hope when working for a struggling company is that possible light at the end of the tunnel. For many struggling companies like the USA Postal Service there is no light at the end of the tunnel. Our Franconia Post Office has been reduced to 1.5 employees sorting mail and manning the long-lined counter 5.5 days per week. Return to the good days when there were 3.5 employees probably will never happen. What used to be one of the most secure careers in the USA is now one of the worst careers in the USA.

The Worst States To Be Unemployed ---

Jensen Comment
Tennessee is the worst state, but the big blue state of Illinois comes in Number 3 worst slightly beating out Number 2 Louisiana.

MOOC Massively Open Online Course --- http://en.wikipedia.org/wiki/MOOCs

"Who Is Driving the Online Locomotive?" by Rob Jenkins, Chronicle of Higher Education, July 25, 2013 ---

Jensen Comment
No single factor is driving the explosion in MOOC and other distance education courses.

But I think the major driver is concern by the world's most prestigious universities to that education opportunity is too skewed toward students from higher income families leaving the students from low income families with virtually no higher education opportunity or highly inferior education opportunities.

The rails of the online "locomotive" commenced at the MIT University Open Knowledge Initiative (OKI) station.
MIT formed a consortium of some (not all) of the most prestigious universities in the USA and some outside the USA. Initially OKI was not a distance education initiative. Rather is was a educational materials sharing initiative. Prestigious universities, especially MIT, commenced to share the learning materials of their own courses, including readings, lecture notes, assignments, examinations, etc. Eventually this led to sharing of lecture videos.  Of course these were only free open-shared study materials. Users could not get transcript credit for mastering these study materials.
MIT Open Courseware --- http://ocw.mit.edu/courses/

The OKI Consortium of MIT, Yale, Stanford, etc. shook the academic world like an academic earthquake after Columbia University's Fathom Project folded its tent! Why would prestigious universities, especially private universities with very high tuition, commence sharing most of their intellectual property?  I think the main reason was to commence to overcome elitism where low income students from everywhere on earth to catch the learning train.

The second shock also commenced at the MIT Station. 
MIT and other prestigious universities commenced to attach entire MOOC courses behind the online locomotive! Users could now enroll in courses (often in search of attendance certificates) from the best specialist teachers in the Academy.

The third shock commenced with prestigious universities contracting with MOOC corporations to administer competency-based examinations and issue transcript credits.
"What You Need to Know About MOOC's," Chronicle of Higher Education, August 20, 2012 ---

. . .

Who are the major players?

Several start-up companies are working with universities and professors to offer MOOC's. Meanwhile, some colleges are starting their own efforts, and some individual professors are offering their courses to the world. Right now four names are the ones to know:


A nonprofit effort run jointly by MIT, Harvard, and Berkeley.

Leaders of the group say they intend to slowly add other university partners over time. edX plans to freely give away the software platform it is building to offer the free courses, so that anyone can use it to run MOOC’s.


A for-profit company founded by two computer-science professors from Stanford.

The company’s model is to sign contracts with colleges that agree to use the platform to offer free courses and to get a percentage of any revenue. More than a dozen high-profile institutions, including Princeton and the U. of Virginia, have joined.


Another for-profit company founded by a Stanford computer-science professor.

The company, which works with individual professors rather than institutions, has attracted a range of well-known scholars. Unlike other providers of MOOC’s, it has said it will focus all of its courses on computer science and related fields.


A for-profit platform that lets anyone set up a course.

The company encourages its instructors to charge a small fee, with the revenue split between instructor and company. Authors themselves, more than a few of them with no academic affiliation, teach many of the courses.

The fourth shock was when less prestigious state universities and community colleges to provide education opportunity for low income statements commenced to emulate MIT and other prestigious universities in providing both non-credit courses and courses for credit as MOOCs.

The fifth shock was when the University of Wisconsin, Southern New Hampshire University, and the University of Akron commenced to offer competency-based transcript credit without requiring students to take courses.
"College Degree, No Class Time Required University of Wisconsin to Offer a Bachelor's to Students Who Take Online Competency Tests About What They Know," by Caroline Porter, The Wall Street Journal, January 24, 2013 --- "

Underlying all of are the thousands of free learning module videos of the Khan Academy where students can pick and choose topics that they want to learn ---
Khan Academy --- http://en.wikipedia.org/wiki/Khan_Academy

How to sign up for a MOOC ---

Ruth Bender, Ph.D. is an accounting professor in the United Kingdom

June 17, 2013 message from Ruth Bender

I did the MOOC ‘A Beginner’s Guide to Irrational Behavior’ from Dan Ariely at Duke (it uses Coursera).  I registered just to see what it was like, with no expectation of doing the work.  I ended up doing all of the video lectures, all of the required readings, many of the optional readings, some of the optional videos, all of the tests, the written assignment, peer-reviews of others’ assignments… I even spent time swotting for the final exam!  And when I got my certificate, even though it is covered in disclaimers (they can’t know that I really am the one who did the work) I felt a real sense of achievement.

On the other hand, I also started a Strategy course, and lasted only one lecture. 

And I have just started a Finance course, but am struggling with it as it’s a bit tedious.  (Not sure how much of that relates to the fact that I understand the time value of money, and how much of it is due to style, with a presenter speaking to camera for long periods.)

I wrote down, for Cranfield colleagues, some features of the Ariely course.  Here  they are.

1.    A lot of time had been spent getting this right.  They reckoned, about 3000 hours.  The videos are very professional.  The cartoon drawings that accompany them every so often are quite nice as a (relevant) distraction.

2.    As well as Dan Ariely, they had two teaching assistants on the course to answer queries.

3.    I didn’t use the discussion for a or the live hangouts.  I don’t know about the hangouts, but I did occasionally browse the discussion for a to see how they were being used.  They seemed quite active.  Likewise, I didn’t participate in the course Wiki but it did seem active.

4.    There was a survey done before at the start of the course and at the start of every single week.  The surveys covered attitudes, to the course and the subjects covered.  (This is a psychology course, after all.)

5.    A final exercise, voluntary that I am not joining, is to write a group essay on the course.

6.    The videos ranged from 5 minutes to over 20.  The readings ranged from 1-2 pages through to academic working papers of about 40 pages.

7.    There are two tests each week – on the videos, and on the readings.  You can re-sit the tests up to 15 times

8.    The closing exam was closed-book.  People were selling revision notes, and also providing them for free.  Some very complex mind maps here – this was unexpected and very interesting. 

9.    A lot of interaction with Dan, including the weekly Q&A video.

Overall, I think it was a success because the material was interesting, and because it was presented really well.  They kept my interest with short-ish videos, and with quizzes.  Ariely is an entertaining presenter.  In order to get a grade you had to peer-review at least 3 other people’s written assignments.  I ended up reading 11, just because I wanted to see the standard.  A couple were dire, but most were high.

Hope this helps.  Happy to give more information if you like.



Dr Ruth Bender
Cranfield School of Management


"Why We Fear MOOCs," by Mary Manjikian, Chronicle of Higher Education, June 14, 2013 ---

Jensen Comment
Traditionalists, especially faculty on campus, in higher education, many of them feeling threatened by the online locomotive, think of every possible negative that might derail the online locomotive. But I think it's too late.

The best thing we can do is be totally honest about the advantages and disadvantages of hitching a ride behind the online locomotive.

The underlying purpose of this online locomotive is too important to the entire world to derail.

Some Thoughts on Fair Value Accounting

Our recent AECM regarding why accounting standard setters require mark-to-market (fair value) adjustments of marketable securities (except for HTM securities) and do not generally allow mark-to-market adjustments to inventories (except for precious metals and LCM downward adjustments for permanent impairments).

Fungible --- http://en.wikipedia.org/wiki/Fungible
I think this "inconsistency" in the accounting standards hinges on the concept of fungible. Marketable securities are generally fungible. A General Motors share of stock NYC is identical to other GM shares in Bavaria versus Hong Kong versus Sugar Hill, New Hampshire. One advantage of fair value accounting for marketable securities is that these securities are fungible until they become unique such as when companies go bankrupt.

The classic example for fungible inventories that I always used in class is the difference between new cars in a dealer's lot and used cars in that same lot is that new cars are fungible (there are thousands or tens of thousands in the world exactly like that new car) and used cars are not fungible. There is no other car in the world exactly like any of the used cars in a dealer's parking lot. We have Blue Book pricing of used cars of every make and model, but these are only suggested prices before serious negotiations between buyers and a seller of used models with varying mileage, accident histories, flooding histories such as being trapped while being parked in flood waters, new parts installed such as a new engine or new transmission, etc.

My point here is that it's almost impossible to accurately value a used car until a buyer and seller have negotiated a purchase price. And the variation from Blue Book suggested prices can be quite material in amount. Thus we can value General Motors common shares before we have a buyer, but we can't value any used car before we have a buyer.

I used to naively claim that this was not the case of new cars because they were fungible like General Motors common shares. But on second thought I was wrong. New cars are not fungible items. Consider the case of a particular BMW selling for $48,963 in Munich. The same car will sell for varying prices in NYC versus Hong Kong versus Sugar Hill, NH. This variation is due largely to delivery cost differentials.

Now consider the Car A and Car B BMW models that are exactly alike (including color) in a Chicago dealership lot. After three months, a buyer and the dealer agree on a $67.585 price for Car A. Car B sits in the lot for over 11 months before a buyer and the dealer agree on a price of $58,276. This discount is prompted mostly by the fact that the new models are out making Car B seem like its a year old even though it odometer has less than two miles.

My point here is that until a dealer finds a buyer for either a new car or a used car, we really don't know what the inventory fair value is for those non-fungible items. Similarly the same grade and quality of corn in Minneapolis has a different price than identical corn in Chicago. Corn and other commodities like oil are not really fungible for inventory valuation purposes.

There are numerous examples of where inventory product values really can't be known until a sales transaction takes place. We can fairly accurately estimate the replacement costs of some of the new items for sale although FAS 33 found that the cost of generally doing so accurately for inventory valuation purposes probably exceeds the value of such replacement cost adjustments at each financial reporting date.

There's great moral hazards in allowing owners of non-fungible inventories to estimate fair values before sales transactions actually take place. Creative accounting would be increasingly serious if accounting standards allowed fair value accounting for non-fungible items that vary in value depending upon the buyer and the time and place of sales negotiations.

Thus we can explain to our students that the reason we report marketable securities at fair value and inventories at transaction or production historical costs is that marketable securities are fungibles and most inventories are not fungible. The main reason is that estimating the value of truly fungible marketable securities is feasible before we have a sales transaction whereas the value of so many non-fungible (unique) items is not known until we have a sales transaction at a unique time and place.

Bob Jensen's threads on fair value accounting ---

A theory awaiting discovery of a cause:
"A Private University Might Have Saved Detroit," by Justin Pope, The Atlantic via Business Insider, July 27, 2013 ---

Jensen Comment
There has never been a municipal bankruptcy in a city the size of Detroit. I don't think the evidence is sufficient to support this theory. Some cities like Chicago and Los Angeles with prestigious private universities are in deep financial trouble, especially in terms of unfunded pensions.

Illinois Legislators:  "No Pension Reform, No Pay," by Colin Levy, The Wall Street Journal, July 10, 2013 ---

Illinois lawmakers have been notoriously reckless with the state's pension liabilities, leaving the system among the most underfunded in the country. In its latest bellyflop, the committee in charge of finding a "compromise" solution to the crisis missed a July 9 deadline. In a press conference Wednesday, Democratic Gov. Pat Quinn announced that he was suspending lawmakers' pay until they take action.

"For taxpayers, when they lose millions, it's a crisis," the governor said. "For lawmakers, when they lose their pay, maybe it's a crisis for them."

The urgency wasn't evident at a meeting last week. The panel of six Democrats and four Republicans spent most of their time discussing not reform but which tax hikes could be used to shore up a debt that is officially estimated to be over $100 billion (and privately estimated at over $200 billion). Among the suggestions at the meeting were a plan to create a tax on every financial transaction in Illinois and introducing a progressive income tax to replace the state's current flat tax.

"I've been a long-term advocate of the progressive tax," said Chicago Democratic state senator and committee chair Kwame Raoul. "I think expanding the sales tax base is worthy of discussion." That's music to the ears of Illinois unions. Labor has campaigned hard to sabotage any efforts to reform the defined benefit system, which is roughly 45% funded, or to change unions' gold-plated plans. Among those on the pension reform committee, Democratic state Sen. Daniel Biss has received $97,865 in contributions from state unions; Democratic state Sen. Linda Holmes has received $56,500 from state unions; and Mr. Raoul has gotten $40,000.

The largesse also covers the two major sponsors of pension reform proposals this year, Democratic Senate President John Cullerton and Democratic House Speaker Mike Madigan. Between 2010 and 2013, Mr. Madigan and his political committees have raked in $884,026, with Mr. Cullerton and his committees receiving $701,620.

No wonder that their proposals left something to be desired. Unions favored the more toothless proposal offered by Mr. Cullerton over a relatively more aggressive version by Mr. Madigan—but neither would put a dent in the long-term problem. Mr. Madigan's proposal would have cut pension debt by only $21 billion, a number that would have reduced the debt to 2011 levels—but even that was a bridge too far for the unions.

Because of previous shortchanging of the system, the state now spends 20% of all money on pension payments, a situation that will quickly become unsustainable. The best hope would be to switch to a 401(k)-style system where taxpayers could get out from under the mountain of debt. The Illinois Commission on Government Forecasting and Accountability calculated that one plan suggested by the Illinois Policy Institute would cut the state's unfunded liability by $46 billion immediately.

That would be a start—if it could ever survive the political swamps of Springfield.

Bob Jensen's threads on pension accounting in the public and private sectors ---

"Gulf Oil Spill Fallout: Halliburton's Guilty Plea Is Good News for BP," by Paul W. Barrett, Bloomberg Businessweek, July 26, 2013 ---

Bob Jensen's Fraud Updates ---

"The Ethanol Tax It's costing you 10 cents a gallon this summer," The Wall Street Journal, July 19, 2013 ---

The summer is high driving season, so $4 gasoline in many parts of the country will add to the cost of family vacations. The gas price is mostly dictated by supply and demand, but Washington is helping to keep prices high. We warned in "The Ethanol Gas-Pump Surcharge" on March 13 that the 2007 ethanol mandate was starting to raise prices at the pump. Congress and the White House did nothing and now the problem is getting worse.

In 2007 the Bush Administration and Congress mandated how much ethanol the oil and gas industry must purchase each year to be blended into gasoline. This year it is 13.8 billion gallons. The quotas were established when Washington thought gas consumption would rise year after year, but instead it has fallen.

Lower consumption means refiners are now nearing a "blend wall" of 10% ethanol per gallon. Most American motorists won't buy gas with more than 10% ethanol, partly to protect engines from damage and partly because of higher prices. The volume mandates are so high they would require more than 10% ethanol.

So under federal law refiners must comply with a complicated system of buying renewable energy credits to make up for the ethanol they don't use. These credits are called Renewable Identification Numbers, or RINs. Demand for RINs has surged and so their price has exploded. In January the RIN price was less than 10 cents a gallon, then it hit $1 in March and is now $1.40. This translates into a roughly $14 billion a year gas tax, or 10 cents a gallon more for consumers.

The quickest way for Washington to lower prices would be to repeal the ethanol quotas. But White House energy adviser Heather Zichal said this week that repeal would be "shortsighted" because the mandate combats climate change. But even environmentalists (including Al Gore) now concede that ethanol probably increases carbon emissions.

The ethanol quota is scheduled to rise again in 2014 and many energy market experts believe this could add another 10 to 25 cents per gallon of gas. Only Washington could come up with such a scheme.

Jensen Comment
One enormous problem with corn ethanol is that it takes more energy to produce than it provides as an energy product. This is not true with sugar cane ethanol that makes sense to nations like Brazil that have vast sugar cane fields. But the corn ethanol is pleasing only two sectors of the USA --- the USA corn agribusiness conglomerate that lobbied to make their engine-damaging product required in all retail gasoline and the automobile manufacturers who like to see their engines burn out as quickly as possible.

Border towns in New Hampshire loved it when Boston and the entire State of Vermont banned Walmart Stores. Hotel chains then located new hotels within walking distance of New Hampshire's Walmart stores. The parking lot of our closest Walmart generally has more green Vermont license plates than the white New Hampshire plates. The nearby Hampton Inn has space for parking trailers to hall Walmart merchandise back to Vermont.

The States of Maryland and Virginia must be overjoyed now that Washington DC will soon ban new Walmart Stores and encourage shutting down of existing Walmart Stores and all most other big box stores that are not unionized. Unionized companies in bix box stores are exempted from having to pay higher minimum wages. There's some question as to whether this differential minimum wage law is even constitutional.

"Blocking Walmart From Washington, D.C. Would Hurt Poor," by Star Parker, Townhall, July 20, 2013 --- Click Here

How do you define "floccinaucinihilipilificator?"

It dies in derpistan,"

Answer --- Click Here

Glen Gray's Suggestion (not an advocacy proposal)  to Tax Endowment Income of Universities
In another thread Glen Gray raised a question of whether tax-exempt status should be denied to university foundations that invest endowment funds that are mostly gifts to the universities. I don't think he was suggesting that gifts to nonprofit universities be taxed. But he was suggesting that university portfolio income had become so immense that perhaps this was an untapped source of tax revenue for states and the IRS. There are, of course, conditions that could be attached. Maybe only portfolio income exceeding $1 million per year would be taxed. Perhaps only private university portfolio income like that of Harvard, Yale, and Stanford University would be taxed relative to the University of Texas that is a state agency under legislative controls. The University of Texas, the last time I looked, had a multi-billion endowment second only to Harvard. No doubt a law taxing the endowment income of the University of Texas would end up in the U.S. Supreme Court.

Many university foundations are not entirely tax exempt
For example tax exempt foundations pay property taxes on real estate not directly involved in their main missions of education and research. I'm not a tax expert, however, such that I would like our AECM tax experts to enlighten me on the extent to which endowment funds pay income taxes.

Differences between business operation and rental income versus interest income
For example, the University of Illinois has a corn patch above a  subterranean library in the center of the campus. For some legal reasons I don't entirely understand, the corn patch cannot be used for any purpose other than raising corn. I don't think the University pays property taxes on this patch. It probably does not pay income taxes on the picked corn revenues, but since the patch is so small nobody seriously cares about lost tax revenues on that patch.

If the university has a 1.000-acre farm on the edge of the main campus that is used for agricultural teaching and research missions, I don't think the University pays property taxes for any campus land used in teaching and research. I'm more uncertain about income taxes on sales of animals and crops raised on that 1,000 acres by faculty and students. My guess is no income tax, but I would like confirmation of this guess by our AECM tax experts.

If the University of Illinois also owns 50,000 acres of farms given to it by alumni and friends, farms that are rented out to tenant farmers, I think virtually all of those farms pay property taxes. I also think the University Foundation pays state and federal income taxes on the rental income from tenant farmers as well as income taxes on other business enterprises. But I would like this confirmed as well.

Thunderbird University is in the process of selling its campus to a for-profit university. Computing income taxes for hybrid universities like Thunderbird that are partly non-profit and partly profit corporations to me is mind boggling.

If the University of Illinois Foundation pays income taxes on rents from tenants of gift farms and does not pay taxes on the interest revenue of bonds in the Foundation's portfolio there is a bit of inconsistency in what it means to be "tax exempt" from income taxes.

Suppose that the Foundation also receives $50 million per year from royalties on patents invented by researchers at the University of Illinois. I think these patent revenues are currently tax exempt, but a pending lawsuit is challenging patent royalty tax exemptions:

"Suit Challenges Princeton's Tax-Exempt Status," Inside Higher Ed, July 1, 2013 ---

This also begs the question of taxing endowment revenues of other foundations such as those of the American Cancer Society, Salvation Army, and the Roman Catholic Church. Taxing legitimate charity endowment income would not be politically popular --- ask somebody who has cancer or rings a bell beside a Salvation Army pot.

Churches headquartered in other nations present jurisdictional complications. I think there are also long-standing legal protections shielding churches from taxation, protections that no doubt are despised by many atheists.

Average Total Compensation in the USA's Private Sector Versus the Federal Government
As derived from Census data by the Congressional Budget Office (CBO) --- Click Here

Jensen Comment
Keep in mind that averages can be deceptive unless compared to variance, kurtosis, and extreme outliers. For example, the many minimum wage jobs draw down the averages for the private sector. It would be even worse, however, if part-time and seasonal wages were added to the database for the private sector. Also in the case of compensation I'm not certain how deferred compensation and stock compensation plans are handled in this database for the private sector. Chances are, however, that these complicated benefit plans are only a small part of the entire compensation of the private sector in the USA.

The Underfunded Pension Mess in the USA
From the CFO Journal's Morning Ledger on July 25, 2013

Companies are getting closer to bringing their pension plans back to fully funded status this quarter, says CFOJ’s Emily Chasan.  Rising interest rates and stock prices have narrowed the gap of underfunded pension liabilities by 40% this year, and some companies—including Alaska Air, Cytec Industries and VF Corp.— have announced their pensions are nearly topped up. “A reduction in our pension expense is right around the corner, which is important because most of our competitors don’t have pension plans,” said VF Chief Financial Officer Bob Shearer.

The vast majority of pension plans are still in the red, but more than 208 S&P 500 companies with pension plans have improved their funded status by over $100 million each since the end of last year. Boeing, Ford, General Electric and IBM are all expected to improve their funding by more than $5 billion at the end of the year.

Ford, which reported a 19% jump in quarterly profit yesterday,  is seeing a marked improvement in its pension plan this year, says CFO Bob Shanks. Ford chipped in $2 billion, but rising discount rates were the big reason the company has closed its $9.7 billion funding gap by about $4 billion this year. That would bring the funded status to about 85%, up from 82% last year. “We’re very encouraged by the progress we’re seeing,” Mr. Shanks said.

Jensen Comment
Government pensions, including teacher pensions, are in far worse shape. For example, the Governor of Illinois is withholding pay of state legislators until they come to agreement on how to my public pensions in Illinois sustainable. The USA Postal Service cannot figure out how to meet its pension obligations ---

Horrible (shell game) accounting rules for pension accounting
Over the past three decades, we have allowed a system of pension accounting to develop that is a shell game, misleading taxpayers and investors about the true fiscal health of their cities and companies -- and allowing management to make promises to workers that saddle future generations with huge costs. The result: According to a recent estimate by Credit Suisse First Boston, unfunded pension liabilities of companies in the S&P 500 could hit $218 billion by the end of this year. Others estimate that public pensions -- the benefits promised by state and local governments -- could be in the red upwards of $700 billion.
Arthur Levitt, Jr., "Pensions Unplugged," The Wall Street Journal, November 10, 2005; Page A16 --- http://online.wsj.com/article/SB113159015994793200.html?mod=opinion&ojcontent=otep

"Treasury's Fannie Mae Heist:  The government asked investors to shore up the two mortgage giants. Now those investors are being stiffed," by Theodore B. Olson, The Wall Street Journal, July 23, 2013 ---

The federal government currently is seizing the substantial profits of the government-chartered mortgage firms, Fannie Mae FNMA -4.35% and Freddie Mac, FMCC -1.36% taking for itself the property and potential gains of private investors the government induced to help prop up these companies. This conduct is intolerable.

Earlier this month I filed a lawsuit to stop it, now known as Perry Capital v. Lew, and other lawsuits challenging the government's authority to demolish private investment are stacking up. Perhaps it's time for the government to change course.

When the nationwide mortgage crisis first took hold in 2007 and 2008, Fannie and Freddie shored up their balance sheets with some $33 billion in private capital, much of it from community banks, which federal regulators encouraged to invest in the companies. As the crisis deepened, the government determined that Fannie and Freddie also needed substantial assistance from taxpayers. Congress passed the Housing and Economic Recovery Act of 2008, and under that law the government ultimately plowed $187 billion into the companies.

Taxpayers should get their investment back, but once they do, so should the private investors who first came to Fannie and Freddie's aid. The government's scheme to wipe out these investors is bad policy and a plain violation of the law that respects private, investment-backed expectations and our constitutional protection of property rights.

When the government intervened in Fannie and Freddie in 2008, it faced a choice: It could place the companies into a receivership and liquidate them, or it could operate them in a conservatorship and manage them back to financial health. Conservatorship, the government agreed, offered the best chance of stabilizing the mortgage market while repaying the taxpayers for their investment.

Today, Fannie and Freddie are back. Last quarter, Fannie announced a quarterly profit of over $8 billion; Freddie made $7 billion.

Rather than allow private investors to share in these profits, the federal government unilaterally decided to seize every dollar for itself. Last summer the government changed the terms of its investment from a fixed annual dividend of 10%—a healthy return in this market—to a dividend of nearly every dollar of the companies' net worth for as long as they remain in operation.

So, at the end of last month, Fannie and Freddie sent a whopping $66 billion to the Treasury as a dividend. None of this money went to pay down the government's investment. Whatever amount of money the government takes out of Fannie and Freddie, the amount owed to the government is never to be reduced, meaning there can never be any recovery for private investors.

It's a splendid deal for the government: The president's budget estimates, over the next 10 years, that the government will recover $51 billion more than it invested in the companies—and that's on top of tens of billions in dividends the government took out of the companies from 2008-12. But it's a complete destruction of the investments of private shareholders.

That is unlawful for at least three reasons. First, the government's authority to revise its investments in Fannie and Freddie expired more than three years ago. Its change in the payment structure was utterly lawless.

Second, the Housing and Economic Recovery Act expressly requires the government to consider how its actions affect private ownership of the companies. The government has evidently given no attention to that requirement.

Third, that same law requires the government, operating Fannie and Freddie as a conservator, to safeguard their assets, but the government's new dividend scheme conserves nothing. In fact, the government has acknowledged it intends to facilitate the companies' ultimate liquidation. That is the opposite of conservatorship and it violates virtually every limitation that Congress imposed on the government's authority to intervene in Fannie and Freddie.

Some have suggested that this illegal extinction of private investment is justified by the extraordinary levels of support that taxpayers provided to Fannie and Freddie during the financial crisis. Certain recent legislative proposals even purport retroactively to legalize the government's cash-grab in the name of ensuring the taxpayers are repaid. But the companies' return to profitability means that taxpayers likely will be repaid in full, with interest, by the end of next year.

In these circumstances the right thing to do is to permit the companies to pay down what they owe to the government's investment so that private investors also might have the opportunity to earn returns on theirs. Yet, the "right thing" here is not just what the law requires. It may benefit the taxpayers as well. If Fannie and Freddie ever return to private ownership, the government has rights to 80% of the companies' common stock.

The government's recent cash grab squanders that opportunity, but it threatens even more serious harms. The United States has the most liquid securities markets in the world only because of its strong commitment to the rule of law and respect for private property. The government's actions here are an affront to those commitments.

Mr. Olson, a former U.S. solicitor general, is a partner at Gibson, Dunn & Crutcher.

Bob Jensen's Fraud Updates ---

The Most Criminal Class Writes the Laws ---

Henry Rollins: Education is the Cure to “Disaster Capitalism” ---

If there is an overabundance of physicians (e.g., three on every floor of every apartment house as suggested by Rollins), what's the incentive for top students to spend 20-25 years becoming physicians? Presumably society has to reward those years of tension, sweat, and sleepless nights with some incentives. The Soviet Union used to hand out lots of medals, but the physicians in practice that were in short supply weren't very good.

And we can reward musicians the same as physicians even if they compose music that nobody cares to hear.

There really are economic efficiencies of the "invisible hand" even if progressives want to call capitalism a "disaster."

What is worse than austerity on economic recovery and boom times?

Government honesty in economic reporting

"The Numbers Are Still Being Cooked In Buenos Aires," by Joe Weisenthal, Business Insider, July 22, 2013 ---

The sad state of governmental accounting ---

"This German Woman Has Been Living Without Money For 16 Years," by Mandi Woodruff, Business Insider, July 18, 2013 ---

The Largest Municipal Bankruptcies Since 2010 ---

List of Bankruptcy Filings Since January 2010

All Municipal Bankruptcy Filings: 36

General-Purpose Local Government Bankruptcy Filings (8):

-- City of Detroit
-- City of San Bernardino, Calif.
-- Town of Mammoth Lakes, Calf. (Dismissed)
-- City of Stockton, Calif.
-- Jefferson County, Ala.
-- City of Harrisburg, Pa. (Dismissed)
-- City of Central Falls, R.I.
-- Boise County, Idaho (Dismissed)

Continued in article

Jensen Comment
Note the interesting links at the bottom of this article.

Municipal bankruptcy declarations are rare, although sometimes debts are modified in negotiations with creditors and unions. The biggest issue as evidenced in the Stockton bankruptcy case is the issue of pension debt versus bond holder debt. Especially troublesome is when there is suspected fraud in terms of pension commitments, union contracts, and debt issues. In most of these municipal bankruptcies the foxes demanding kickbacks have been guarding the hen houses.

"Do Commodities Speculators Make Things Cost More?" by Justin Fox, Harvard Business Review Blog, July 22, 2013 --- Click Here

Commodities trading, Adam Smith wrote in 1776, was a boon to efficiency and a foe to famine. It was also extremely unpopular, especially in years when harvests were poor (he was writing specifically of trading in corn).
The popular odium ... which attends it in years of scarcity, the only years in which it can be very profitable, renders people of character and fortune averse to enter into it; and millers, bakers, mealmen, and meal factors, together with a number of wretched hucksters, are almost the only middle people that ... come between the grower and the consumer.

Since then, trading in corn and other commodities has gained in respectability — thanks in part to arguments and evidence mustered by economists following in Smith's footsteps. But the suspicion that commodities trading is dominated by wretched hucksters or worse (I don't know what "mealmen" are, but they sure sound bad) has never gone away, with David Kocieniewski's epic examination in Sunday's New York Times of an aluminum storage business owned by Goldman Sachs offering the latest bit of evidence. Kocieniewski describes forklift drivers moving aluminum from warehouse to warehouse in Detroit to profit from rules set by an overseas metals exchange, while delivery times to actual users of aluminum have stretched to 16 months and aluminum prices have been pushed up by the equivalent of a tenth of a U.S. cent per aluminum can.

The article is less clear about what brought this on. Is it bad rules set by the London Metal Exchange? The involvement of banks such as Goldman and J.P. Morgan in the metals trade? Or is the problem simply that speculators have taken over the market for a crucial commodity?

It is certainly true that investors, dismayed at the prospect of low returns for stocks and bonds for years to come, have poured money into commodities over the past decade. Markets that existed mainly for the convenience of industry have become dominated by exchange-traded funds, hedge funds, and investment banks.

By Adam Smith's reasoning, this shouldn't be a bad thing — people of character, or at least fortune, are getting into the trade. And the consensus among economists has for decades been that commodity speculation clearly serves a useful purpose — so more of it can't hurt, right?

The evidence on this is, frustratingly, not nearly as conclusive as one might hope. The most famous studies have had to do with trading in onion futures, which the Chicago Mercantile Exchange launched in the 1940s and Congress banned in 1958 after a precipitous boom and bust. Agricultural economist Holbrook Working proposed at the time that this presented the opportunity for a natural experiment: if onion prices were more volatile in the absence of futures trading, then the trading probably served a useful economic purpose. If not, then maybe it didn't. The first post-ban study, published in 1963, did indeed find such an effect, and has since been cited widely by economists and editorialists. A 1973 followup, however, was inconclusive.

When economist David S. Jacks of Simon Fraser University reviewed this evidence a few years ago along with before-and-after data from when futures trading in various commodities started, he still concluded that "futures markets are systematically associated with lower levels of commodity price volatility." So, on balance, having a futures market appears better than not having a futures market.

What this doesn't tell us, however, is whether certain kinds of commodity futures and spot markets are better than others, or certain kinds of traders are better than others. There's at least some evidence from the great commodities boom of the past decade that the new dominance of financial investors has made a difference, and not necessarily for the better. Three recent research findings:

  • Marco J. Lombardi of the European Central Bank and Ine van Robays of Ghent University found that "financial investors did cause oil prices to significantly diverge from the level justified by oil supply and demand at specific points in time."
  • Lucia Juvenal and Ivan Petrella of the St. Louis Fed found that speculative forces began to drive oil prices in 2004, "which is when significant investment started to flow into commodity markets."
  • Ke Tang of Renmin University of China and Wei Xiong of Princeton University found that prices in non-energy commodities have begun to move in tandem with oil prices, and have become more volatile.

None of these studies blamed speculation for causing all or even most of the price movements. It seems pretty clear that the big rise in oil prices since 2003 has been driven by fundamental forces of supply and demand. But the new commodities market participants may have made things worse, as Kocieniewski's aluminum findings seem to show.

So what's the solution? I'm guessing it has something to do with adjusting the rules of the game. Commodities-trading rules and customs that date back to the pre-financial era may not fit the more aggressive tactics of hedge funds and investment banks. The London Metals Exchange is already in the midst of changing its warehousing rules, with hard-to-foresee consequences. The Commodity Futures Trading Commission has started using new powers granted it under the Dodd-Frank Act to go after traders whose behavior it deems abusive. And in general, we're in the early stages of a long struggle to put the financial sector back in the position of servant of the economy rather than its master.

Speculation is, on balance, a good thing. But more of it isn't necessarily always better — and it's too important to leave entirely in the hands of the wretched hucksters.

JOBS Act Skepticism Grows
From the CFO Journal's Morning Ledger on July 10, 2013

A key provision of the JOBS Act is set to move forward today. The SEC is expected to lift a decades-old ban on soliciting shares in hedge funds and other private placements—a move that could unleash a wave of ads touting these investments, write the WSJ’s Andrew Ackerman and Jessica Holzer. It also will mean big changes for companies selling unregistered securities, which have had to tiptoe around the rules on general-solicitation advertising.

Hedge funds and others have argued that the ad ban makes it harder and more costly for business to raise private capital. But the easing of the ban comes before the SEC has finalized most of the protections that investor advocates say are critical to guarding against fraud—like standards for advertising investment performance.

Meanwhile, there’s a growing belief among investment bankers that the law has fallen flat. Only 14% of bankers polled by BDO USA this week said they felt the JOBS Act is boosting the number of IPOs, CFOJ’s Emily Chasan reports. That’s half the level who said last winter that the law was having a positive impact, and down sharply from 55% who said so last year. “There has clearly not been double or triple the amount of IPOs,” said Wendy Hambleton, director of SEC services for BDO in Chicago.

From the Global CPA Report on July 10, 2013

CFOs are optimistic overall but hesitant to hire
Optimism about the economy is on the rise, but companies continue to project low hiring and have reduced expectations for profit and sales, according to a quarterly Deloitte survey. North American chief financial officers cite public policy as a top impediment to growth. CGMA Magazine (6/28)


From the TaxProf Blog on July 10, 2013

The IRS Scandal, Day 62


"IRS scandal story's legs get sturdier," Kyle Wingfield, Atlanta Journal Constitution, July 19, 2013 ---

Liberals have been desperate to stamp a giant "case closed" on the IRS scandal. But, inconveniently for them, facts keep emerging that demand the case stay very much opened, and the trail followed as far as it goes.

Thursday, IRS employees who had direct contact with applications for tax-exempt status by tea parties and other conservative groups testified before Congress that interest in the applications, and control over how they were handled, went at least as high as the office of the chief counsel of the IRS. Now, as Democrats have been at pains to explain ever since this scandal erupted a couple of months ago, the IRS is not an agency loaded with political appointees. The chief counsel is one of only two IRS leaders -- the head of the agency is the other -- chosen by the president.

Democrats on the committee holding the hearing spent most of their time asking the witnesses whether they had any knowledge of President Obama's personal involvement in the extra scrutiny of tea-party applications. This was an absurd exercise in getting the witnesses to say what everyone in the room would have stipulated from the beginning: Only a fool would believe Obama would have picked up the phone, or written an email, or made any other effort to contact middle managers in the IRS to tell them what to do. Democrats are simply hoping Americans are foolish enough to believe the absence of such contact means there's absolutely nothing left to investigate in this case.

There are two points to make about this line of argument by the Democrats. The first is that the question of whether there is a direct tie between Obama and the IRS scrutiny is hardly the only question that matters. As I have written before, it may be even worse if unelected, unaccountable IRS employees were acting on their own. Of course, we now know the scrutiny was ordered by people in Washington who rank well above the low-level employees in Cincinnati whom IRS managers and the Obama administration originally blamed. At the same time, liberal efforts to portray left-leaning groups as being subjected to similar treatment have been refuted. The treatment of conservative groups -- being uniformly flagged, subjected to much stricter scrutiny, and delayed in most cases for years without any chance of appeal (as they would have had if they'd simply been denied, for reasons partisan or otherwise) -- was in no way similar to how liberal groups were treated in the handful of examples Democrats have been able to muster. The conservative groups were treated in a way that was a deliberate, disparate and harmful, and the full facts need to be presented regardless of who is or isn't to blame.

At the same time, Democrats' focus on a direct, personal tie to Obama ignores a specific kind of culpability the left never hesitates to heap upon the right. Let me explain.

Liberals famously are self-proclaimed experts at detecting conservative "dog whistles" -- statements meant to elude the ears of all but the intended recipients, who are then supposed to act on the top-secret messages while everyone else remains oblivious. The ridiculousness of this theory is usually apparent in the fact that liberals, who in this line of thinking should be the ones unable to hear the conservative "dog whistles," nevertheless always manage to detect the messages.

But in the IRS case, it's possible we have an instance of a real "dog whistle," one which really worked in real life.

Obama spent months after the Supreme Court's January 2010 Citizens United decision bashing right-wing advocacy groups -- a good timeline of his remarks can be found here -- and by the final weeks before that year's midterm elections the president was calling these groups engaing in "unsupervised spending" both "a problem for our democracy" and a "threat to our democracy." The chairman of the Senate Finance Committee, Democrat Max Baucus, wrote a letter demanding the IRS investigate conservative groups seeking tax-exempt status. All this happened in the months when, according to evidence already gathered in the House's IRS investigation, we know the agency was well into the process of setting aside tea-party applications and scrutinizing them. And, let's not forget, this was also during the time tea-party groups were complaining about the extra scrutiny and long delays, while IRS officials told Congress they knew about nothing of the sort.

And yet, it would seem Obama, Baucus and other Democrats got exactly what they wanted -- but no one started to connect the dots until the IRS's ham-fisted revelation of the targeting. Isn't that exactly what the left calls a "dog whistle" in its frequent complains about the right? Do liberals ever care in those instances whether the whistler also placed a phone call or sent an email? Nope.

Unfortunately, it seems clear the president won't appoint a special prosecutor in this case, while House Democrats are determined to bog it down with constant misdirection and partisan trench warfare. Consider this brief history of Democrats' ever-changing explanations and accusations in the case, compiled by Rep. Trey Gowdy and summarized by the Wall Street Journal's Peggy Noonan:

"First, Ms. Lerner planted a question at a conference. Then she said the Cincinnati office did it -- a narrative that was advanced by the president's spokesman, Jay Carney. Then came the suggestion the IRS was too badly managed to pull off a sophisticated conspiracy. Then the charge that liberal groups were targeted too -- 'we did it against both ends of the political spectrum.' When the inspector general of the IRS said no, it was conservative groups that were targeted, he came under attack. Now the defense is that the White House wasn't involved, so case closed."

This is the behavior of people who either don't care if the facts eventually come out, or who have no compunction about rationalizing away any facts that do come out -- or, perhaps, who are making every effort to keep the facts from coming out, because they know where they lead.

Continued in article

"A Bombshell in the IRS Scandal A higher office is implicated." by Peggy Noonan, The Wall Street Journal, July 18, 2013 ---

The IRS scandal was connected this week not just to the Washington office—that had been established—but to the office of the chief counsel.

That is a bombshell—such a big one that it managed to emerge in spite of an unfocused, frequently off-point congressional hearing in which some members seemed to have accidentally woken up in the middle of a committee room, some seemed unaware of the implications of what their investigators had uncovered, one pretended that the investigation should end if IRS workers couldn't say the president had personally called and told them to harass his foes, and one seemed to be holding a filibuster on Pakistan.

Still, what landed was a bombshell. And Democrats know it. Which is why they are so desperate to make the investigation go away. They know, as Republicans do, that the chief counsel of the IRS is one of only two Obama political appointees in the entire agency.

To quickly review why the new information, which came most succinctly in a nine-page congressional letter to IRS Commissioner Daniel Werfel, is big news:

When the scandal broke two months ago, in May, IRS leadership in Washington claimed the harassment of tea-party and other conservative groups requesting tax-exempt status was confined to the Cincinnati office, where a few rogue workers bungled the application process. Lois Lerner, then the head of the exempt organizations unit in Washington, said "line people in Cincinnati" did work that was "not so fine." They asked questions that "weren't really necessary," she claimed, and operated without "the appropriate level of sensitivity." But the targeting was "not intentional." Ousted acting commissioner Steven Miller also put it off on "people in Cincinnati." They provided "horrible customer service."

House investigators soon talked to workers in the Cincinnati office, who said everything they did came from Washington. Elizabeth Hofacre, in charge of processing tea-party applications in Cincinnati, told investigators that her work was overseen and directed by a lawyer in the IRS Washington office named Carter Hull.

Now comes Mr. Hull's testimony. And like Ms. Hofacre, he pointed his finger upward. Mr. Hull—a 48-year IRS veteran and an expert on tax exemption law—told investigators that tea-party applications under his review were sent upstairs within the Washington office, at the direction of Lois Lerner.

In April 2010, Hull was assigned to scrutinize certain tea-party applications. He requested more information from the groups. After he received responses, he felt he knew enough to determine whether the applications should be approved or denied.

But his recommendations were not carried out.

Michael Seto, head of Mr. Hull's unit, also spoke to investigators. He told them Lois Lerner made an unusual decision: Tea-party applications would undergo additional scrutiny—a multilayered review.

Mr. Hull told House investigators that at some point in the winter of 2010-11, Ms. Lerner's senior adviser, whose name is withheld in the publicly released partial interview transcript, told him the applications would require further review:

Q: "Did [the senior adviser to Ms. Lerner] indicate to you whether she agreed with your recommendations?"

A: "She did not say whether she agreed or not. She said it should go to chief counsel."

Q: "The IRS chief counsel?"

A: "The IRS chief counsel."

The IRS chief counsel is named William Wilkins. And again, he is one of only two Obama political appointees in the IRS.

What was the chief counsel's office looking for? The letter to Mr. Werfel says Mr. Hull's supervisor, Ronald Shoemaker, provided insight: The counsel's office wanted, in the words of the congressional committees, "information about the applicants' political activities leading up to the 2010 election." Mr. Shoemaker told investigators he didn't find that kind of question unreasonable, but he found the counsel's office to be "not very forthcoming": "We discussed it to some extent and they indicated that they wanted more development of possible political activity or political intervention right before the election period."

It's almost as if—my words—the conservative organizations in question were, during two major election cycles, deliberately held in a holding pattern.

So: What the IRS originally claimed was a rogue operation now reaches up not only to the Washington office, but into the office of the IRS chief counsel himself.

At the generally lacking House Oversight Committee Hearings on Thursday, some big things still got said.

Ms. Hofacre of the Cincinnati office testified that when she was given tea-party applications, she had to kick them upstairs. When she was given non-tea-party applications, they were sent on for normal treatment. Was she told to send liberal or progressive groups for special scrutiny? No, she did not scrutinize the applications of liberal or progressive groups. "I would send those to general inventory." Who got extra scrutiny? "They were all tea-party and patriot cases." She became "very frustrated" by the "micromanagement" from Washington. "It was like working in lost luggage." She applied to be transferred.

For his part, Mr. Hull backed up what he'd told House investigators. He described what was, essentially, a big, lengthy runaround in the Washington office in which no one was clear as to their reasons but everything was delayed. The multitiered scrutiny of the targeted groups was, he said, "unusual."

It was Maryland's Rep. Elijah Cummings, the panel's ranking Democrat, who, absurdly, asked Ms. Hofacre if the White House called the Cincinnati office to tell them what to do and whether she has knowledge of the president of the United States digging through the tax returns of citizens. Ms. Hofacre looked surprised. No, she replied.

It wasn't hard to imagine her thought bubble: Do congressmen think presidents call people like me and say, "Don't forget to harass my enemies"? Are congressmen that stupid?

Mr. Cummings is not, and his seeming desperation is telling. Recent congressional information leads to Washington—and now to very high up at the IRS. Meaning this is the point at which a scandal goes nowhere or, maybe, everywhere.

Rep. Trey Gowdy, a South Carolina Republican, finally woke the proceedings up with what he called "the evolution of the defense" since the scandal began. First, Ms. Lerner planted a question at a conference. Then she said the Cincinnati office did it—a narrative that was advanced by the president's spokesman, Jay Carney. Then came the suggestion the IRS was too badly managed to pull off a sophisticated conspiracy. Then the charge that liberal groups were targeted too—"we did it against both ends of the political spectrum." When the inspector general of the IRS said no, it was conservative groups that were targeted, he came under attack. Now the defense is that the White House wasn't involved, so case closed.

Continued in article

From the TaxProf Blog on July 19, 2013

The IRS Scandal, Day 71

IRS Logo 2



"Another IRS Scandal Waiting to Happen Federal Elections Commissioner Donald McGahn wants to rein in the bureaucracy of this sensitive agency. The political left is furious," by Kimberly A. Strassel, The Wall Street Journal, July 11, 2013 ---

The Obama administration claims it wants to ensure that the rank political abuse perpetrated by the Internal Revenue Service is never repeated. Ask Donald McGahn how that's going.

Mr. McGahn is a Republican appointee to the Federal Election Commission, an agency with every bit as much potential for partisan meddling as the IRS. Due to leave the agency soon, Mr. McGahn's parting gift is a campaign to rein in an out-of-control FEC bureaucracy. But the left is fighting that oversight and is determined to keep power in the hands of unaccountable staff.

The FEC was created in the wake of Watergate, in part to remove primary power over political actors from the Justice Department. It sports an equal number of Democratic and Republican commissioners, so that neither side can easily impose a partisan agenda. This means a lot of deadlocks, a situation that infuriates the left, which prefers a fire-and-brimstone regulator.

It also frustrates the FEC's staff, which has responded by going around the commissioners. The Federal Election Campaign Act (FECA), for instance, makes it clear that staff may not commence investigations until a bipartisan majority (four members) of the commission votes that there is a "reason to believe" a violation has occurred. In theory, this provision should guard against IRS-like witch hunts.

Except that over the years staff have come to ignore the law, and routinely initiate their own inquiries—often on little more than accusations they find on blogs or Facebook FB +0.04% . For a sense of how these investigations can go off the rails, consider that Lois Lerner—before serving as the center of today's IRS scandal—was the senior enforcement officer at the FEC. A Christian Coalition lawyer has testified that during a (sanctioned) FEC investigation in the 1990s—in addition to generating endless subpoenas, depositions and document requests, Ms. Lerner's staff demanded to know what Coalition members discussed at their prayer meetings and what churches they belonged to. Once staff gets rolling, there is little to stop them.

More troubling to some FEC commissioners has been the staff's unsanctioned and growing ties to the Obama Justice Department. In September 2011, Tony Herman was named FEC general counsel. Mr. Herman in early 2012 brought in Dan Petalas, a Justice prosecutor, as head of the agency's enforcement section. FECA is clear that a bipartisan majority of commissioners must vote to report unlawful conduct to law enforcement. Yet FEC staff have increasingly been sending agency content to Justice without informing the commission.

For instance, when a complaint is filed with the FEC against a political actor, the general counsel is required to write a report for the commissioners on whether there is a "reason to believe" the actor committed a violation. This report is confidential and never made public until a case is closed. Yet FEC staffers have sent these reports to Justice, in one case before the report was considered by the commissioners.

In a June memo, Mr. Herman defended staff supremacy with the astonishing argument that big decisions are best made by "non-partisan, career leadership." (No joke.) That way, the commission is shielded from "claims that it is deciding whether to assist DOJ criminal prosecutions" on the basis of "political considerations." Better, apparently, to keep the public completely in the dark.

These ties are disturbing, since the Obama campaign pioneered the tactic of demanding that Justice pursue criminal investigations of its political opponents as a means of intimidation. The FEC's info-funneling to Obama Justice raises the obvious question of whether Obama Justice wasn't in turn influencing FEC reports. (It also raises another question: If Justice had this kind of pipeline to the FEC, did it have one to the IRS?)

These questions are why election law requires bipartisan diligence over investigations and information sharing. Mr. McGahn is attempting to right the ship by getting the commission to adopt a new enforcement manual that would require uniform procedures. Yet FEC Chairman Ellen Weintraub has been uncharacteristically quiet on the issue, and liberal groups such as the Center for American Progress (via its Think Progress blog) have launched howling accusations that Mr. McGahn is trying to "block enforcement" and "weaken the agency." Some have suggested he's trying to ram through the change while the commission has a temporary 3-2 Republican majority.

In fact, Mr. McGahn hasn't forced this issue, because he's intent on getting all his colleagues to stand up for institutional responsibility. He's made clear he's not trying to end the relationship with the DOJ, or to stop investigations. As he told me this week, the only question is who will make the decisions: "The presidentially appointed, Senate-confirmed commissioners who answer to the public, or an unaccountable staff?"

The left wants the latter, since it provides more latitude to use the FEC to their political ends. This has worked to their benefit at agencies like the (currently illegitimate) National Labor Relations Board, where (Acting) General Counsel Lafe Solomon is single-handedly running U.S. labor policy, much to their liking.

Continued in article


"Econ 101 is killing America:  Forget the dumbed-down garbage most economists spew. Their myths are causing tragic results for everyday Americans," by  Robert Atkinson and Michael Lind, Salon, July 8, 2013 ---

Atkinson and Lind assert Econ 101 teaches that "all profitable activities are good for the economy." Balony! Virtually all Econ 101 teach about markets versus externalities (like pollution) for which markets do not exist. In the face of externalities government intervention is necessary --- as we teach in Econ 101 for which competition is inefficient. In the face of monopolies and oligopolies government intervention is necessary --- as we teach in Econ 101

Atkinson and Lind assert Econ 101 teaches "monopolies and oligopolies are always bad because they distort prices." Balony! Virtually all Econ 101 teach about economies of scale.

Atkinson and Lind assert low wages are bad for the economy. Of course they are bad for the economy in Vermont where people choose to go on welfare (the highest among the 50 states) rather than work in low skill jobs. But wages for high skilled labor are good for the economy when they are set by supply and demand rather than having the government inefficiently tinker with the labor markets.

Atkinson and Lind have no answer to the Miracle in Chile where free markets eradicated poverty levels better than any socialist states in Latin and South America, something we do teach in Econ 101.
Miricle of Chile --- http://en.wikipedia.org/wiki/Miracle_of_Chile

Jensen Comment
Talk about dumbed-down garbage --- this article is a great example of indoctrination rather than education.  For example, is government banning of advanced welding courses in Milwaukee a good thing because it limits the supply of skilled welders available to the Catepillar factory, thereby making Catepillar contemplate moving out of Milwaukee.

From the TaxProf Blog on July 11, 2013 --- http://taxprof.typepad.com/

Lucy A. Marsh, a tenured law professor at Denver since 1982 who teaches Civil Procedure, Property, and Trusts & Estates (CV here), has filed an EEOC gender discimination complaint against the school charging that her $109,000 is the lowest at the school and well below the $149,000 median full professor salary.

From the EEOC complaint:

Professor Marsh believes that she and other female professors at the law school were discriminated against with respect to compensation because of their gender and were paid less than men performing substantially equal work under similar conditions in the same establishment.

From the Denver Post:

"What I hope comes out of this is not just fair compensation to professor Marsh and to fix the system, but hopefully there will be lessons learned that other universities, law schools and employers can look at and say, 'This is something that we can look at, to make sure the women are not paid less for equal work,'" said Jennifer Reisch, one of Marsh’s lawyers and legal director of Equal Rights Advocates, a national civil rights organization.


Jensen Comment
Students should be able to explain why Professor Marsh may have a better case than a full professor of elementary education whose salary is $101,000 (hypothetically) but not the lowest for all full professors in elementary education at DU ---

Given that she obtained tenure in the DU Law School 31 years, Professor Marsh may have more of an age discrimination lawsuit, especially if some of the higher paid DU law faculty are women and/or minorities. She apparently thinks gender discrimination exists in the DI Law School. Her case is weakened if newly hired faculty women are given compensation packages comparable to those of males.

Students should understand the pervasive problem of salary compression and inversion in the Academy ---
My guess is that salary compression lawsuits are harder to win. Otherwise the courts would be clogged with salary compression lawsuits for nearly every college and university in the USA.

States Sending the Most People to Prison per 100,000 Residents ---
Florida, Arizona, and Georgia have a lot in common with huge crime-infested cities. But Idaho? Go figure!

Howard Dean, a physician, is the former Governor of Vermont and Chairman of the Democratic Party who launched an unsuccessful campaign to become President of the United States --- http://en.wikipedia.org/wiki/Howard_Dean

In the earlier parts of the article he chastises Republicans and some Democrats who want to derail the Affordable Healthcare Act at this late stage. Then he explains a part of the Affordable Healthcare Act that truly needs amending.

"The Affordable Care Act's Rate-Setting Won't Work:  Experience tells me the Independent Payment Advisory Board will fail," by Howard Dean. The Wall Street Journal, July 28, 2013 ---

. . .

That said, the law still has its flaws, and American lawmakers and citizens have both an opportunity and responsibility to fix them.

One major problem is the so-called Independent Payment Advisory Board. The IPAB is essentially a health-care rationing body. By setting doctor reimbursement rates for Medicare and determining which procedures and drugs will be covered and at what price, the IPAB will be able to stop certain treatments its members do not favor by simply setting rates to levels where no doctor or hospital will perform them.

There does have to be control of costs in our health-care system. However, rate setting—the essential mechanism of the IPAB—has a 40-year track record of failure. What ends up happening in these schemes (which many states including my home state of Vermont have implemented with virtually no long-term effect on costs) is that patients and physicians get aggravated because bureaucrats in either the private or public sector are making medical decisions without knowing the patients. Most important, once again, these kinds of schemes do not control costs. The medical system simply becomes more bureaucratic.

The nonpartisan Congressional Budget Office has indicated that the IPAB, in its current form, won't save a single dime before 2021. As everyone in Washington knows, but less frequently admits, CBO projections of any kind—past five years or so—are really just speculation. I believe the IPAB will never control costs based on the long record of previous attempts in many of the states, including my own state of Vermont.

If Medicare is to have a secure future, we have to move away from fee-for-service medicine, which is all about incentives to spend more, and has no incentives in the system to keep patients healthy. The IPAB has no possibility of helping to solve this major problem and will almost certainly make the system more bureaucratic and therefore drive up administrative costs.

To date, 22 Democrats have joined Republicans in the House and Senate in support of legislation to do away with the IPAB. Yet because of the extraordinary partisanship on Capitol Hill and Republican threats to defund the law through the appropriations process, it is unlikely that any change in the Affordable Care Act will take place soon.

The IPAB will cause frustration to providers and patients alike, and it will fail to control costs. When, and if, the atmosphere on Capitol Hill improves and leadership becomes interested again in addressing real problems instead of posturing, getting rid of the IPAB is something Democrats and Republicans ought to agree on.

Mr. Dean, governor of Vermont from 1991 to 2002 and a former chairman of the Democratic National Committee, is a strategic adviser to McKenna Long & Aldridge LLP.

Bob Jensen's threads on health care ---

"California Unveils Health Plans to Mixed Reactions," by Kathleen Doheny, WebMD, July 10, 2013 ---

"Unworkable ObamaCare Opaque rules, big delays and rising costs: The chaos is mounting," by Governors Bobby Jindal and Scott Walker, The Wall Street Journal, July 25, 2013 ---

Remember when President Obama famously promised that if you like your health-care plan, you'll be able to keep your health-care plan? It was a brilliantly crafted political sound bite. Turns out, the statement is untrue.

Aside from that small detail, the slightly larger problem is that the Obama administration doesn't have a health-care plan. Yes, the White House has a law with thousands of pages, but the closer we get to Oct. 1, the day government-mandated health-insurance exchanges are supposed to open, the more we see that the administration doesn't have a legitimate plan to successfully implement the law.

Unworkable. That word best describes ObamaCare. Government agencies in states across the country, whether red or blue, have spent countless hours and incalculable dollars trying to keep the ObamaCare train on its track, but the wreck is coming. And it is the American people who are going to pay the price.

Fifty-five working days before the launch of the ObamaCare health-insurance exchanges on Oct. 1, the administration published a 600-page final rule that employers, individuals and states are expected to follow in determining eligibility for millions of Americans. Rather than lending clarity to a troubled project, the guidelines only further complicated it.

If the experience of those working with the ObamaCare implementation at the state level had been taken into account, progress might have been possible, but the administration has treated states with mistrust. Perhaps that's because we can see that the federal government is repeating mistakes of the past and we know that outcomes rarely reflect what Washington has promised.

Adding to this mounting problem, the guidance that President Obama has offered to date has been inconsistent, arbitrary and frustrating—contributing further to the grave uncertainty that surrounds this law. But not everything about it is uncertain: In February, the nonpartisan Congressional Budget Office reported that seven million Americans will lose their employer-based health insurance as a result of ObamaCare.

On July 12, three of the country's largest unions sent a letter to Democratic leaders in Congress stating that ObamaCare would shatter not only hard-earned health benefits, but also destroy the 40-hour workweek that is the backbone of the American middle class. ObamaCare defines full-time employment as 30 hours per week. No wonder these unions are alarmed: They are widely credited with helping to get the votes to pass this unworkable law.

The administration, recognizing that ObamaCare is a ticking bomb, earlier this month announced that it would delay until 2015 the requirement that businesses offer health-care insurance to their employees or pay a fine. Yet the administration didn't also grant relief to individuals.

Think about that for a moment: The Obama team, for now, has spared employers but not employees. The day of reckoning for businesses is put off, but not for everyday citizens. Many Americans may wonder: On what authority does the administration arbitrarily decide which aspects of a law not to enforce and which ones to keep?

As governors, we have been expressing concern about the unworkability of ObamaCare since its passage in 2010. We have seen the trouble the law poses for our own state economies. The most recent evidence: The government now says that it will not verify the eligibility of individuals who apply for subsidized insurance on the health-care exchanges.

Governors have firsthand experience with implementing public-assistance programs. We know how important it is to care for our most vulnerable citizens and to ensure that people are healthy and able to work. We also know that a one-size-fits-all approach like ObamaCare simply doesn't work. It only creates new problems and inequalities. That's why if you look at all 50 states, you'll see 50 unique ways of handling Medicaid.

Health-care premiums are going up. Many businesses have stopped hiring, to avoid reaching the limit of 50 full-time employees where they are required to offer health benefits. Those businesses that are hiring often take on part-time workers to stay under the full-time cap. Older individuals seeking work are finding that companies are reluctant to take a chance on their potential health-care costs.

These are just a few of the problems resulting from a program that wasn't thought through before it was rushed into law. No wonder we hear that the Obama attack machine is gearing up to blame everyone but the law itself for the chaos that lies ahead.

This law was a bad idea from the start, and the American public never supported it. The Obama team, taking advantage of an unusual two-year window when Democrats controlled all branches of government, foisted upon the country a liberal hodgepodge of unworkable notions that will wreak havoc on American health care. Delaying implementation of ObamaCare, not just the employer mandate, is a reasonable idea. But an even better one would be a complete repeal.

Mr. Jindal is the governor of Louisiana. Mr. Walker is the governor of Wisconsin.


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

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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

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

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


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

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

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

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

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

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

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

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


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

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

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/