Sin-ming Shaw's Blog

Bangkok Burning

2010-05-22T11:48:00.002+08:00

I wrote a month ago about Thailand expressing my concerns over its future. Well, stuff happened fast. We all saw the 2 month siege in prime areas in Bangkok. Class antagonism was thick in the air denied, of course, by those on top. "Class? What class? We are Thais. We love each other!. Sure.

My latest column on this topic is here:

History Repeats Itself

2010-05-09T17:50:00.002+08:00

Karl Marx was a man of great soundbites. One of his classic ones was this: History Repeats Itself. First as Tragedy, second as Farce.

It takes a novelist of history tales to drive home the point of how foolish this entire US war policy in Afghanistan is.

Read it here.

My Latest Take on the Thailand crisis

2010-04-21T05:34:00.001+08:00

http://www.project-syndicate.org/commentary/shaw12/English

Burial Grounds of Empires

2010-04-05T22:50:00.003+08:00

Yes I know i may sound like a broken record, but this is no laughing matter. Soldiers are dying, frankly unnecessarily, in Afghanistan while its head of state is fighting to the last soldier -- of the West which he despises -- while he steals money directly from US taxpayers, by far the largest providers of cash and while his brother, the opium king, is selling it to addicts in mostly higher income addicts who are, as you guessed it, mainly westerners, which Karzai also despises.

What to do? The report here cannot be more clear. Kabul has got the West by the balls.

Karl Marx, of all people, would be laughing behind his stupid beard. Afterall it was he who uttered those immortal words: "History repeats itself first as tragedy second as farce."

The US foray in Afghanistan is a farce. But actually it's worse. People, soldiers, innocent civilians, enemies, are dying everyday. But the enemies are dying at a slower rate than the "Good Guys".

This movie can only end in a farcical tragedy.

Quagmire in Afghanistan

2010-04-03T19:21:00.002+08:00

Not many pundits were using that Q word 2 years ago. There is no need to thump my chest and say I did so even earlier. This is a national disaster of which bravado is misplaced. Now the Q word has become common.

Today's column in the NY Times by Bob Herbert is a powerful reminder how American presidents have not learned much from the disastrous Vietnam. Read here.

The reasons are various. One had to be the way they were "educated" where history courses are seldom part of the Liberal Arts requirement. You have heard me say this on many occasions already.

The most popular course at the top universities is Economics. How well that has served national interests? Well, quite apart from the recent financial crisis aided and abetted by the "smartest" crew on Wall Street mostly educated at the top schools, just look at how the "best and the brightest" have also helped their nation to become indebted to the Communist Party of China!

Herbert's column neglected to touch on a very pertinent issue in the mindset of Karzai. In his recent diatribe against the US and the "West", he used the P word, as in Puppet, to describe how the West was treating his regime. And he resented that. As part of his defiant "show you" exercises, he invited Iran's dictator to go to Kabul during which meeting both of them verbally attacked the "West", a short hand for Washington.

The US still didn't get it. Karzai was not actually wrong about the Puppet regime that he was. The US wants to fight the war and change Afghanistan to its image. Karzai was always meant to be the acceptable proxy of Washington's proxy. DC would not appoint some one who does not share its vision. To put differently, US wanted its own man running Kabul.

Of course that means the man in Kabul is effectively a puppet.

The problem for Washington in Kabul, and in the old Saigon, is to ignore something totally fundamental. Karzai's interests are not necessarily the same as those of USA.

US wants a democratic regime and to defeat Al Qaeda and the Taliban. Karzai has no desire to see a truly democratic society which may de throne him and to jeopardize the financial interests of himself, his brother and his extended family.

Karzai is an Afghan first and foremost carrying with him all the cultural and emotional "baggage" of millennium. How the US elite think they could miraculously change that baggage to their liking is indeed a sign of hubris and bad education.

So the US is mired in a quagmire supporting a regime that in fact despise the US and is perfectly willing to fight the war to the last US soldiers while the ruling family enriches itself on US taxpayers' largess and on the ignorance of Washington leaders with all its IVY League education.

A recent study shows close to half of the top leaders in Washington have a Harvard degree and close to 80% have at least one IVY League + Stanford + Berkeley degree. Very sad.

Afghan War "movie" is getting from bad to worse

2010-04-02T19:15:00.004+08:00

Well, the inevitable happened. Karzai is now attacking the "West", mainly its principal patron, the US, because he is being depicted in the "West" as corrupt and that he managed to "steal" the last election declaring him the winner.

He has the balls to do that because he knows he has got USA on a noose: Washington wants to win the war more than he does.

Why does Washington want to hang on to this corrupt man as ally is evidence of how fundamentally wrong the US war policy in Afghanistan has always been -- propping up a corrupt dictator suddenly handed billions to fight an enemy who does not need the same fortunes to die. The war policy itself corrupts. An impoverished country with a life style and a culture mired in medieval times is suddenly given billions to spend with the purse string controlled by a handful of unelected leaders with their own ancient tribal agendas is a recipe for disaster.

The US couldn't even field an effective police force in Afghanistan, let alone an army, to fight is due to the same reason why the US failed in Vietnam. Your local ally government has no credibility among the people in whose name those government rule.

But as I have been saying like a broken record, US leaders do not read history and therefore, as the famous saying goes, are doomed to repeat the same mistakes.

Karzai's obvious despise for the "West" and for the US is recorded here.

Elite Education in the US of A

2010-03-31T18:41:00.003+08:00

Something is very wrong with how the American elite gets educated by all those top ranked universities when famous alumni who went on to become leaders make the same stupid mistakes over and over again. Read this well-written op ed here by one of the most informed writers on the Muslim world on Afghanistan that is so vivid and heart wrenching you want to throw your computer out of the window.

Moral Quagmire in Afghanistan

2010-03-31T18:33:00.002+08:00

So Prez Obama was just in Kabul days ago pressing Prez Karzai to crack down on corruption knowing full well his brother is a drug king. Guess what? Nothing is done. On the contrary US officials are saying, as they did in Vietnam, such drug runners are essential to the war's effort. Really? Didn't work then, wouldn't work now.

Read Prez Kabul's de facto response here to Obama's visit.

Bad Movie in Kabul

2010-03-29T03:30:00.002+08:00

So Obama wants Karzai to crack down on corruption in Afghanistan? Read the lead story on Obama's unannounced trip to Kabul prior to touch down in this paper here.

I would be more appreciative if we had been spared of this embarrassing display of tiresome PR to placate the uninformed back home in good old US of A.

Asking Karzai to crack down on corruption is about the same as asking Don Corleone is tame mafia crimes in Brooklyn in Coppola's immortal movie Godfather.

Is there anyone in this world who keeps up with the news who still does not know Karzai's brother is the number one opium overlord in Afghanistan? Furthermore, have we not read that none other than the US military has pleaded with Washington not to crack down on that business because they need local tribal support?

Ok. To give "face" to Obama Karzai will do something about crimes. What is likely to happen is for his henchmen to crack down on all his brother's competition eliminating (and I don't mean just economically) those who do not submit to Karzai bro's orders. There will be relative peace because after the crackdown there will be just one monopoly of crimes standing that goes all the way to the palace of Kabul where the president sits.

Mr Obama, please spare us the theatrics. Get your troops out and let the Afghans deal with each other. What do your want to betray your own core values to defend opium and crime bosses? Is that worth losing thousands of American soldiers and civilians and suspending one's basic beliefs about drugs and violent crimes/

Afghan Policce & US Folly

2010-03-21T20:32:00.002+08:00

Interesting article from Newsweek here.

US has spent $6 billion since 2002 on training up a police force of 98,000. An effective force is a central part of Obama's exit strategy. US experts admit less than 12% of the force is "effective". What does that mean? Not able to even catch thieves and police the streets "effectively". We are not talking about going to the mountains to catch Al Qaeda fighters, for chrissake.

Let's do the math. $6 billion on 98,000 police = $61,200 per head. Per capita income is $800. Al Qaeda or the Taliban don't have that kind of money let alone spend only on the "police" force. Yet these enemies have been able to hold off the mighty US military.

What does that tell you? To me it is senseless to fight in a country where your supposed allies are not motivated even if you show a fortune on them. They are mostly likely laughing their head off at your naivete and stupidity and are crying all the way to the bank. Cynical? Read the latest on how the US is helping the opium business in Afghanistan.

In case you have been avoiding the news for sometime, the opium business is monopolized by the brother of the president of Afghanistan, the "ally" on whom the US effort depends.

So, how could you motivate the police when everyone and his brother in law knows the US is in bed with the opium king?

Yoiu tell me.

Opium and USA

2010-03-21T05:12:00.002+08:00

If you are caught with heroine and opium on US soil, you can look forward to many years in jail. It's a big federal crime. When it comes to foreign wars, beginning with the Vietnam War, USA abandoned all pretense to the values the nation had held dear.

During that war, the Americans not only tolerated opium cultivation they created a US run airline, called Air America, to transport opium from difficult hills up country to facilitate distribution on behalf of those hill tribes the failing US military wanted to win over to help fight the communists. Never mind the opium would end up in Los Angeles or New York. In war all is "fair" right?

But of course what the US did in Vietnam was illegal, but who cares, right? In the end the war failed to win hearts and minds.

Now, we are seeing the same tiresome movie. The US military is now openly in support of opium trade again. We are condemned to watch this B movie all over again. Never mind what the US used to stand for: the rule of law, respect for humane values and all that. They read well in textbooks. It's sad to see the decline of moral values in the USA.

You want to win hearts and minds in Afghanistan? Imagine you are a young Afghan. You grow up watching GI's supporting opium in your own backyards. You then get a scholarship to Yale. Would you have much respect for Washington leaders telling the world how to behave? I doubt it.

Read this heart wrenching report on the US involvement in Afghan opium trade here.

The "Mountain" has moved

2010-03-19T09:52:00.005+08:00

In the classic Kurusawa movie "Ren", a rising warlord patiently watched the action of the dominant warlord of all warlords (WOAW) before he pounced. Finally he saw the opportunity when WOAW moved the bulk of his troops out of his impregnable fortress to attack the patient usurper. He uttered those simple words to his generals: "The Mountain has moved".

It's so zen. Mountains do not move. When they move it means the center of gravity, gravitas, the solidness has become "light" and vulnerable. In the movie the WOAW lost. It had lost its mind, it had lost its strategy, it had lost its "gravity".

This is how I read this article (here) about Applied Materials, the Rolls Royce of semi conductors in Silicon Valley is building in China its largest ever plant, and the largest of such plants with not only cutting edge technology of today, but putting down deep roots in China the platform for tomorrow's technology. This exercise is headed by one of the most important techies in the entire semi conductor business.

I do not argue that US companies should not invest abroad. They should indeed do so. However, what been happening is nothing short of moving the "Mountain". It's hollowing out of the core of what once made USA great.

Applied Materials and many other cutting edge firms are saying by their action they have "seen" the future, and it is in China. This is still a country of limited intellectual and political liberties, right? Yet, they see the future there?

Should that raise several red flags in the US of A? Do we see, hear serious debates and then actions to remedy the situation?

The issue is not really even about China. It is about the US of A. Why has it become what it has become, a place that a firm like Applied Materials no longer sees the company future in the nation's future?

We do know a lot of about some of the structural problems. Many blame China's "slave" labor wages attracting investments.

Relative wages play a part, but only up to a point. Go to MIT, Caltech, Berkeley or Princeton and visit their PhD programs in physics, electrical engineering, math and their cousins and you meet more Asian, particularly Chinese, students than "locals".

The "best and the brightest" young Americans all want to become investment banks and consultants. Money, do we not know, is galactic. Engineering? Physics? Too hard, too boring. No money. Civil Engineering? Who in their right minds want to work on building better roads, airports or dams?

The proverbial message is no longer just on that wall. It is not even a message anymore.

The story of Applied Materials in China is yet another floodgate being lifted. Another dyke widened.

The balance of global power, both soft and hard, is shifting so rapidly away from the US it pains to see the amount of low quality political debates in the main US media, especially on Fox News, where repeated assertions of USA being number 1 has become substitutes for intelligent analyses; that only the Democrats or anyone who is not Republican could fail to see that USA is a country blessed personally by God.

If anyone needs to be reminded how regressive USA can become, just read the latest on textbook changes in Texas as mandated by backward looking Republican stalwarts.

Long gone are the days of traditional Republicanism: fiscally conservative, culturally liberal and enlightened. The Rockefellers were Exhibit A.

Hubris and ignorance are lethal ingredients in all the falls of empires in the past. USA has an oversupply of both right now among its ruling elite in the Congress, in the media and in State politics.

China may have its cyclical comeuppance in another asset bubble that would take the market cap of its stock markets down a few pegs, but the underlying structural change is as amazing as the head in the sands of the Republican Party, the party which should be promoting growth and technology, but now spending its energy on backward looking rhetoric.

The final paragraph of the article is not a journalist trick to overstate in order to impress. Any frequent travelers to China who have talked to the young and the bright could recognize that voice.

China - The Mother of All Black Swans

2010-02-26T02:19:00.000+08:00

This presentation here is too good not to be widely read.

Casino Greece

2010-02-25T20:18:00.002+08:00

I am lured back from my "sabbatical" to this blog by the more revelation of how "credit-default swaps" derivative products designed to help Greece to "hide" its true indebtedness have come to bite its bottom. Read the full report here.

The following excerpts deserve a few of your minutes:

..."These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich....

...But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.

Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations....

...there is fierce debate over what exactly is behind Greece’s recent troubles. Some traders say swaps have made the problem worse, while others say Greece’s deteriorating finances are to blame.

So who or what's to blame? Swaps or Greek fiscal irresponsibility?

The primary problem has to be the latter. If Greece had been fiscally strong, no "hi-tech" derivatives could produce a financial calamity. Those CDS prices would not have gone haywire creating a momentum of their own.

What is not clear to most outside the financial business is how that industry has morphed into a hydra-headed weapon of destruction if you are on the wrong side of the trade.

And the mathematical complexity of those WMD is simply beyond most mortals. Not just WMD, the global financial game itself is beyond the knowledge of most politicians and legislators who are, in theory, there to protect the stability of the society which elected them.

Unless you understand this point, you cannot understand how Wall Street has been able to run circles around Washington in the current financial crisis getting away with the metaphorical murder.

Of course Wall Street has been and is still aided by its intellectual allies in Larry Summers, Geithner and Bernanke who have a natural tendency to think like Wall Streeters.

However, even they, without spent any meaningful time in the trenches on Wall Street, trading day in day out, playing with billions, making and losing in seconds, don't really appreciate how quickly Wall Street can spot an opportunity faster than you can say: "Can you explain this to me, please, slowly?"

two cases in point. When Wall Street understood Washington got scared by the prospect of Great Depression V2.0, the honchos immediately got Washington DC to grant them a banking license to gain access to zero cost funds plus federal guarantees on loans.

With these two de facto cost less blank checks, Wall Street quickly amassed financial assets priced for Armaggeddon. Any surprise their 2009 profits and bonuses were off the chart? They played DC for fools.

Take Greece. Of course the good folks at Goldman Sachs knew what they were doing selling derivates to Greece to postpone its inevitable days of reckoning. Of course they didn't want to hold any Greek papers unless they could quickly off load them to someone else. So Wall Street did two things: they helped create a market for those instruments by financing a new company, Markit in London, to produce sovereign risk indices: iTraxx Sovereign Index.

With that Index and its sub-indices covering Western Europe, Asia and so forth Wall Street created, out of thin air, derivative products that bet on movements of those products. Hence a giant Sovereign Risk Casino came into existence.

Wall Street could then hedge against whatever positions they may have held in whatever sovereign papers in their own accounts. Or for that matter bet against any sovereign risk on a net basis.

Goldman Sachs, according to earlier reports, also sold back to the Greece Central Bank, some of the Greek papers they were holding.

It is not far fetched that Wall Street has been running and managing a global casino for some years. Goldman Sachs and others have been not merely financial intermediaries taught in universities, they are principals themselves by holding positions for their own accounts.

If Uncle Sam had come to its rescue, that global casino's ownership and management would have looked very different today.

But politicians in general and Washington in particular don't understand modern finance. Wall Street has successfully led them to believe the world needs this "casino" and only they, the same crew, can manage it, thank you.

One can be cynical and say politicians are only too ready to be corrupted without knowing how to make an honest living let alone a living on Wall Street, and Wall Street is only too willing and able to lead them by their nose. But is that cynicism too far-fetched?

Back to my sabbatical, friends.

Summing Up and a Sabbatical

2010-02-18T17:01:00.004+08:00

Just about a year ago on March 1 I started this blog.

I said: "...There is much confusion and unhappiness all around regarding what is being done to bail out overpaid financial "geniuses" who got us into where we are.

Perhaps some straightforward thinking is in order devoid of patronizing and obfuscating technical terms preferred by those who run our system.

This blog hopes to contribute to that effort so that we, those who pay taxes and mortgages on time, may know what to do to make the system a little better in the future.

Towards this end all of us need to be a little more vigilant of future misdeeds committed by those we usually consider as our leaders or pillars of society: bank presidents, Treasury Secretaries, Central Bankers and elected officials.

Perhaps our vigilance will result in advance warnings before the next perfect storm could ever gather sufficient force to engulf us all as this one is doing right now"...

These days It is rare to find anyone who is not aware of how Wall Street went over board, how Washington DC has failed to put in rudimentary checks and balances reigning in Wall Street in exchange for a blank check; and how, as a politician, Obama has been self-destructing as a man whose promised changes one can no longer believe so readily.

After Obama compared multi-million dollar wages and bonuses paid to Wall Street leaders with those of baseball players, one can say for a high degree of certainty that Obama is essentially a "Chicago School" convert. Only alumni of that "Cathedral" could compare Wall Street pays with those of sports. Obama, as it turned out, ain't what many thought he was when they cast their vote for him as FDR V2.0. He is turning out to be "just another" politician.

Paul Krugman said it well, "Oh My God". He also said in conclusion: "He is clueless". To which I sadly concur.

The weight of money in influencing how public policies are formed in Washington, DC, indeed in so many other countries of varying degrees of political liberty, is perhaps the trend of the 21st Century.

If you detect a touch of helplessness and futility in what I have been trying to do, you are not wrong.

Here is what has happened:

The Great Depression V2.0 has been averted by the Fed and other major Central Banks printing money. However, due to the blanket no-question-asked way of doing so, a base is formed for another bubble down the road.

The unevenness with which public money has been spent lays bare how strong interest groups representing numerically small number of people, but numerically large sums of money, have managed to capture Washington DC.

USA is supposedly a true democracy. But in my view it is moving ever closer to a Third World Crony Capitalist model once dismissed in the land as corrupt and "Third World" with a barely disguised pinch of racist superiority. "We in the West don't do this sort of thing". "That" could only happen in "Asia".

Sure, mate. Whatever you wish to believe it's fine with me. We still live in the free world and we are all entitled to our opinions however stupid and wrong they maybe.

I am going to take time off to focus on other things including writing columns for publications, something I used to do far more regularly before I began this blog.

www.sinmingshaw.com lists most of my articles.

I want to add to that list. To do so, I will blog less frequently. So, it is not "adios", rather it is "hasta luego". See you soon.

Every now and then I could write something if I am so moved. But I shall not be writing everyday here. I hope you are not too disappointed.

If I publish something, I will alert you on this blog. So, check back every now and then.

Thanks to you all for being my regular readers. Until next time, keep well and keep alert for volatility in financial and other markets.

Ciao

Goldman Sachs and Global Financial Stability

2010-02-16T09:53:00.003+08:00

An intriguing thought proposed by Simon Johnson at MIT:

"A rogue trader could destabilize a firm, such as Barings, and a rogue firm such as Goldman Sachs"?

Johnson's argument is well worth your time:

Goldman Goes Rogue – Special European Audit To Follow
Posted: 14 Feb 2010 06:22 PM PST

At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company – implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial.

Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability.

(The blow-by-blow account is in Andrew Ross Sorkin’s Too Big To Fail; this is confirmed in all substantial detail by Hank Paulson’s memoir.)

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November.

These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.

This audit should focus on ten sets of questions.

1) Which eurozone governments have worked with Goldman, and on what basis, over the past decade? All actions prior to and after the introduction of the euro need to be thoroughly reexamined.

2) What transactions has Goldman facilitated and how has that affected the reporting of European government debt? (Under the Maastricht Treaty, eurozone government debt is not supposed to exceed 60 percent of GDP.)

3) In the case of Greece, the accusation is that Goldman deliberately and in a premeditated manner conspired to hide the true degree of government debt. Is this true, and to what extent has Goldman helped other countries engage in similar transactions, e.g., countries now seeking entry to the eurozone?

4) What is the full extent of Greek and other government liabilities, if these are accounted for properly? Without this reckoning, it is impossible to design a proper level of European Union (or any other) support for weaker eurozone countries.

5) Are there non-eurozone countries that have also been aided and abetted by Goldman in this fashion? For example, are the UK and Switzerland implicated – and thus endangered?

6) Has Goldman extolled the virtues of government debt in Greece, or other countries, while at the same time helping to deceive investors on the true risks inherent in those debts? What were Goldman’s own holdings of these securities?

7) Is there evidence that Goldman has structured similar transactions for the private sector – enabling companies to conceal the level of their true indebtedness? Have securities issued by such firms also been endorsed by Goldman to the buying public?

8) Were Goldman’s US-based supervisors aware of Goldman’s activities in Greece and other eurozone countries? Did they condone activities that undermine the integrity of the European Union?

9) Where was the European Central Bank while all of this was happening? Has the ECB become dangerously enraptured with the new Wall Street and its “techniques”?

10) Did any responsible official really think that what Goldman was constructing was really some sort of productivity-enhancing financial innovation – as opposed to a sophisticated form of scam?...

...If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.

Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether.

If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.

And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here - a sustainable recovery and a viable financial system, or one particular set of investment bankers?

To preserve Goldman, on incredibly generous terms, in the name of saving the financial system was and is hard to defend – but that is where we are. To allow the current government-backed (massive) Goldman to behave recklessly and with complete disregard to the basic tenets of international financial stability is utterly indefensible.

The credibility of the Federal Reserve, already at an all-time low, has just suffered another crippling blow; the ECB is also now in the line of fire. Goldman Sachs has a lot to answer for.

By Simon Johnson

How likely would any of the above 10 items be taken up by EU authorities? Good question.

Global Banking Compensation

2010-02-15T09:41:00.004+08:00

Absent is Goldman Sach's Lloyd Blankfein compensation because it would be outside of the box on the left hand side. He reportedly took home over $80 millions versus "only" $19.7 millions by Jamie Dimon. Obama still didn't get it that these guys were grossly overpaid compared to the "market".

Greek Offensive

2010-02-15T07:51:00.002+08:00

When your back is up against the wall the best defense is often a good offense. This is exactly what the besieged Greek Prime Minister is doing. Blame your domestic trouble on foreigners, even if they are in fact your fellow members of the same eurozone club, the club Greek begged to join as a symbol of its "developed" status when in fact it was and is still run like a banana republic.

What is Mr. Prime Minister doing?

FT reports:

..."In a harshly worded speech to the cabinet the day after the summit, which was televised live, Mr Papandreou claimed Greece was being used as a “laboratory animal” in a test of strength between the eurozone and financial markets.

“The EU’s own credibility is being tested,” he warned. “It must correct the mistakes it made over Greece, so it will be especially strict with us.”

Analysts said the speech was intended to rally trade unionists, who are threatening to increase strike action, as well as the governing Socialist party’s hardline faction"...

This is another example of how the bank is held hostage by a borrower of billions unable to pay. The bank needs him more to survive and the borrower can then play the bank like a fiddle.

That "harshly" worded speech was clearly intended also to shift national anger towards outsiders.

Greece will not wage war. But often in the past governments waged wars to divert domestic attention to somebody else. Today the Greek government is doing exactly that.

So predictable. So tragic.

The Greek Economy - A Glance

2010-02-15T00:22:00.003+08:00

From the CIA FactB Book 2009:

- Greece violated the EU's Growth and Stability Pact budget deficit criteria of no more than 3% of GDP from 2001 to 2006, but finally met that criteria in 2007-08, before exceeding it again in 2009 by 12.7%. Public debt, inflation, and unemployment are above the euro-zone average; debt and unemployment rose in 2009,
- GDP - real growth rate: -2.5% (2009 est.)
- nvestment (gross fixed): 15.6% of GDP (2009 est.)
- Budget: revenues: $108.7 billion expenditures: $145.2 billion (2009 est.)
- Public debt:108.1% of GDP (2009 est.) 97.4% of GDP (2008 est.)
- Exports: $18.64 billion (2009 est.) $29.14 billion (2008 est.)
- Imports: $61.47 billion (2009 est.) $93.91 billion (2008 est.)
- Reserves of foreign exchange and gold: $NA (31 December 2009 est.) $3.473 billion (31 December 2008 est.)
- Debt - external: $552.8 billion (30 June 2009 est.) $504.6 billion (31 December 2008 est.)
- The public sector accounting for about 40% of GDP

You don't need a PhD in economics from MIT to conclude Greece is flat broke.
Wny is it broke? There can only be one answer: years of mismanagement by the "leaders" of the country voters kept electing to public office.

What is a "Free Lunch" Greek style?

2010-02-14T21:18:00.002+08:00

The Germans without whose help Greece will fall further down a deep hole have this to say, reported by the FT:

..."The mood in the German Bundestag is strongly opposed to any significant financial package.

“We have a big problem,” said Hans-Peter Friedrich, deputy leader of the largest Christian Democrat-Christian Social Union group in the parliament. “Four years ago we increased our pension age to 67. In Greece it is 55. We cannot persuade our people that we will give the Greeks money to finance their state spending when they have not carried out their most urgent reforms"...

55 is the age of retirement or when the pension is collectible? If this ain't a "free lunch", I don't know what else it could be.

So, any wonder Greece is going broke? How to fix it is not an economic issue. You can see it is deeply political.
Once folks are used to "free lunches" they expect that to be their right. Who promised them initially? You don't need a PhD from Oxford to figure that one out.

Greece vs European Union

2010-02-14T20:49:00.002+08:00

Fingers are pointing this and that and every which way. They might as well be daggers. What a pathetic scene.

The FT reports: "Greek Prime Minister Mr Papandreou blamed the European Commission for failing to crack down on the previous conservative government’s “criminal record” in falsifying statistics. “This has undermined the responsibility of the European institutions with international markets,” he said".

Ah, so a domestic issue of lousy governance is a foreign responsibility?

You can bet your bottom dollar, or euro, that if indeed foreign authorities had taken a strongly worded public position there would have been a major uproar about violation of sovereignty.

Will stronger members of EU help out? In particular Germany, the largest of them all?

FT reports: "Mr. Papandreou's outburst is likely to infuriate the very leaders whose help Mr Papandreou needs. It came as it emerged there would be no more talk of financial assistance until Athens had persuaded the EU that it had a sustainable austerity programme in place.

Germany is insisting Athens bears initial responsibility for restoring confidence in Greece. Angela Merkel, German chancellor, resisted French efforts to come up with an explicit bail-out package at Thursday’s summit of EU leaders in Brussels"....

What would constitute a "sustainable austerity programme"?

Good question. The Greek government has just announced a series of measures: higher taxes on more people, no cash transactions of over 1500 euros after jan 1, 2011, higher VAT taxes, capital gains taxes and cut in earnings of public servants.

Ummm. Good luck. Expect social turmoil, if you asked me.

The economy has been in recession.

FT reports : "...a deepening slump which has been worse than reported, with the fourth quarter of last year seeing another turn for the worse – raising more doubts over whether it can meet its targets of cutting public-sector deficits. Greek gross domestic product contracted by 0.8 per cent in the final three months of last year, by far the sharpest decline reported so far by a eurozone country.

That followed declines of 1 per cent, 0.3 per cent and 0.5 per cent in the first, second and third quarters of the year.

Previous estimates had shown falls of 0.5 per cent, 0.1 per cent and 0.4 per cent. The pace at which Greek GDP dropped last year could also cast doubt on the government’s prediction that GDP will fall by just 0.3 per cent in 2010"...

Given this background and the history of free lunches, the history of a "shadow" market where cash transactions have been a normal fact of life to get around punishing taxes that have been misspent by incompetent and wasteful governments, no one would want to pay higher taxes.

Students of economic development are usually forced to read dense, mathematical economic models. I have always thought that's silly.

No economy can prosper without quality public governance. Countries are poor not because the leaders do not understand mathematics or economic models. They do and they don't care. Most economic problems are created by corrupt leaders.

Greece is yet another example of how those leaders have led the country down to a dead end. To revive it would take herculean effort -- not by leaders who are on top, but by the people who have to pay the price.

Now, people are willing to suffer, even die, if they believe in a just cause. Unfortunately, leaders, or the ruling elites, of declining economies have long lost their legitimacy as trustworthy. It will take a miracle for the Greek people, or for that matter, for the Argentinian people, or name any African people to voluntarily agree to an austerity program when they do not have trust in their leaders. In those poor countries "austerity" measures are usually enforced by force. Many people have died in protestations.

This is going to be a real Greek drama. Watch your headlines. I smell big trouble. Even blood.

Wall Street & "hidden" Sovereign debts

2010-02-14T17:57:00.003+08:00

The real story not told by the scary headlines about Wall Street "hiding" Sovereign debt to help borrowers to report legally but not truthfully is how ignorant the various regulatory authorities are about modern financial tools.

The first layer story is about Wall Street designing derivative products that allow borrowers, including governments around the world, to legally report less than what it should.

Sovereign can legally make its debts "go away" because there are insufficient reporting requirements with respect to derivatives. Contingent liabilities appear to belong in a parallel and uncharted universe.

So, should we be upset now to realize Greece, among others, is in far more serious indebtedness than we knew of? That there is now at a minimum a meaningful risk that some major financial blowout may happen? We thought we had seen the worst, yes? So, whom should we blame?

We cannot really blame Wall Street since it had done nothing illegal, right?

So, do we blame government officials?

Well, not quite, since they are not as qualified and smart as those who run around them in circles, namely, their former smarter classmates who went on to work on Wall Street to maximize their incomes and wealth while the more publicly spirited blokes went on to work for the government, namely, to become "public servants" of you and me. We cannot realistically blame people for being dumb. They are what they are. Besides public servants are downright "cheap" compared to what their bankers receive as wages or bonuses.

Perhaps we should blame ourselves. We don't want to pay taxes but we expect public servants to be as savvy as Wall Street bankers. More than that, my recent postings tried to show, we, the taxpayers, expect free lunches wanting the government to foot all kinds of bills, but we pay the officials a pittance.

In Singapore, public servants are paid as well as most senior private sector jobs. And if they are then caught with a greasy palm, they end in a long jail sentence.

In the United States Senators, Congressmen can be "bought" with a pittance by lobbyists. When the government was deep in ideological navel gazing, as in the last Bush Administration, not even smart public servants dared to take a harsh look at funny business on Wall Street let alone propose new regulations to enforce more transparent reporting.

So, while the world is horrified by what Greece had managed to get away with hiding its debts with the help of, yes you guess it, Goldman Sachs, let's think about the deeper problem of how to regulate Wall Street without strangling it.

The full report of how Goldman Sachs helped Greece is here.

The "Cradle of Western Civilization"

2010-02-14T08:57:00.002+08:00

Simon Johnson says: "...Greece is well down the path to becoming regarded more like Argentina – a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises, most of which do not shake the world.

Will the EU save Greece? Much will depend on how bad the situation could become in other “related” (in the eyes of the financial markets) places"...

Source: http://www.huffingtonpost.com/simon-johnson/greece-derails-is-europe_b_461090.html

Argentina was once one of the five richest countries on this planet ahead of France even. Now, through a mind boggling history of serially mindless, cynical, corrupt, incompetent governments the country is now just another Exhibit A of a mismanaged Third World banana republic.

Sad. Argentina was at one point as advanced as a continental European country. It has produced as many Nobel prize winners as Spain, winning the first among all Latin American countries. The country's name, Argentina, was derived from the world silver in French: Argent, now commonly used in French to mean money.

Greece. Ah the Glory that was once Greece: Aristotle, Plato, Homer, Acropolis, that Greek myths and plays, the art, the architecture, and of course the thoughts behind the big D for Democracy that defined the concept of the West is now another tiresome exhibit of a nation badly governed serially run by cynical, incompetent, corrupt politicians who are only good at promising free lunches to a people grown up expecting "manas" from heavens without having to work for it.

As the West continues to expect "government" to do this and that for them, the West will no doubt continue to decline relative to those peoples elsewhere who, after years of painful lessons, know you cannot get rich without working your ass off, day in day out, without handouts.

Yes, many such countries' leaders are also corrupt, but the saving grace is their national economic development policy is growth oriented and not protectionists and not based on handouts.

The Greek "tragedy" or farce in PIGS

2010-02-13T08:52:00.005+08:00

PIGS in current economic jargon stands for Portugal, Italy, Greece and Spain. Why lump them together? Lots of debt.

So what's wrong with that? Well, if you owe enough money and if cannot pay the creditors, something has to give. As a footnote, many argue PIGS may sound good, but the acronym misses out Ireland. PIGS should really be PIIGS. OK, PIGS does sound better, so let's go with the convention.

Why is PIGS now a hot topic? The immediate answer is Greece. The larger issue is Debt in general, now especially in the West.

The case in point is the particularly odorous case of Greece the government of which has been lying to the world through creative accounting and selective reporting for some years (6 is the figure used) about the true sizes of its national deficits.

Right now EuroZone governments, mainly Germany and France, the two largest economies in Europe, are scrambling to find a solution to the Greek "problem".

The problem arose from essentially 2 sources, reducible to one.

1) EuroZone imposes strict quantitative limits on how much deficits (ergo national debt) a member country can run up.

If these limits are breached, the government in question must remedy the deficit situation. Ergo, cut, cut and more cuts to bring the deficits down to statutory limits. A grace period is given, but clearly specified.

2) Government spends more money than it should to placate social and economic demands (I want what "they" have and I want them NOW) and to "buy" off political opponents or to "solidify" domestic allies. In short, many folks outside the government want a free lunch. Irresponsible government officials gladly oblige. They don't have the leadership and the spine to say NO.

This second reason is now a Western phenomenon. The US is a prime example of that.

Ironically those Asian "third world" economies, themselves lectured at and battered by too much debt a while back had swallowed hard, tightened belts and now have by and large sterling national balance sheets. Thailand, Malaysia, not to mention Singapore, Hong Kong, Korea and of course China. All have abundant (some say too much) reserves, trade surpluses and high savings rate.

Greece, among others, has been living a good life on borrowed funds and the time to pay up has come.

What to do? Good question.

EU cannot really afford to let Greece get off the Euro as speculators are betting on. Recorded shorts on Euro has never been so high. Once Greece went, then like the Lehman Brothers case, the "signal" is that all weak Euro economices, the PIIGS, will have to leave the Euro. That means a total collapse of the European Union each going back to one's own national currency. IT would be a godsend to currency speculators.

I am sure the German Bundesbank and France are loath to bail out Greece, but what's the alternative? Switzerland is the second largest creditor to Greece.

I think these 3 countries will have to do what the Western countries have been doing for decades to African countries: just forgive the debt Greece owes. Or print more money to buy off the debt.

Who are the major creditors: See this chart

If you have 10 minutes the following 2 clips are worth your time: Stiglitz, Spanish official vs a sarcastic, no holds barred hedge fund manager on Greece.

http://www.youtube.com/watch?v=i-de7q3fbn0
http://www.youtube.com/watch?v=E4MAifsp-8E

Whither US interest rates?

2010-02-12T08:06:00.003+08:00

Is there a global bond bubble or are we blinded by old habits?

The author of "The Black Swam" recently said on TV that it was "100%" certain bond prices would collapse. Interesting statement from someone whose punch line in that famous book was about the unpredictability of the future. The book was published before the Wall Street bailout and the author became famous precisely he was warning about the uncertain future in the middle of a huge bubble no one saw bursting.

The case for a bubble is straightforward: just look at all the money printed by the major economies, including China, to save the world from Great Depression 2.0.

Yet, interest rates are close to zero. Long bonds have barely moved.

Paul Krugman argues strenously that those, like me, are blinded by simplistic quantity theory of money: more money printed, all others being equal, results in higher inflation.

Krugman believes we are more like Japan in the "lost decade" of the eighties where zero cost money didn't do much, if anything. Economy was stagnant because Japan found itself in a liquidity trap where easy money was irrelevant, What the world needed then and now is more stimulus, forcibly pulling the world economy out of a deep ditch.

To support his argument, there is indeed excess capacity all over the major economies. Stories of mega ultra modern factories in China abound. Savings rates in the US have been moving up, meaning folks are not spending. No wonders. A large number of Americans, save a handful on Wall Street, are flat broke.

Feeble private demand and excess capacity do not an inflation make. Hence, there is no bond bubble, if you follow this logic.

So, what gives?

Niall Ferguson, a fabulous English writer, a celebrity multi-millionaire talking-head on TV and a respectable historian, now a professor at Harvard B School, is not an economist. In fact, definitely he is not one of my favorite economists either.

However, sometimes it pays to listen to someone with a historical perspective even though Krugman, the Nobel winner and august professor at Princeton, has only contempt for Ferguson, the "fake" economist properly schooled only in historiography.

Trained as an economist myself, I am among the first to admit economists do not always have the correct answers on economic issues even if they speak with the air of authority honed by years of precision, mathematical logic.

This is why I want you to think about this particular excerpt by Ferguson here:

..."For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.

Read the entire article here. It provokes thought, if nothing else.

Don't you just love Goldman Sachs?

2010-02-11T21:06:00.006+08:00

..."Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit...

...the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

...At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005"...

Source: Read Der Spiegel here

This is Beijing calling Sigmund, are you home?

2010-02-11T18:16:00.005+08:00

..."A 20-year-old factory worker who joined a banned political party because he was unhappy with one-party rule in China was jailed for 18 months yesterday.

A court in Shenzhen found Xue Mingkai guilty of subversion of state power because he joined the United States-based China Democracy Party last April, his mother Wang Shuqing said"...

Source: The Standard, Hong Kong (here).

C'mon guys. The Chinese Communist has over 70 million members, larger than all but 18 countries on this planet. The party is larger than the entire population of England (62 millions), or France (65.5 millions) or Spain (46 millions). It is almost 10 times the population of Israel. That's men, women and child.

The 70 million party members do not include the military which is put at 3 million.

So what's this China Democracy Party? Is there anyone outside the paranoid Chinese Communist Party who seriously believes that this tiny group of people would constitute a threat so lethal that the political system in China would collapse?

Why are Chinese leaders so nervous, if not manic or are they manic-depressive?

How big is that little party that so scares Beijing? It has been put at between 15-200 members (tops) around the world.

So this 20 years old factory worker goes to jail because he has paid maybe 4 USD party membership fee and has attended a few meetings?

By that standard, the Republican Party in the US should all be in maximum security prison since they plot on an hourly basis to put Obama in the political dog house and are, so far, not doing a bad job either.

So what's with the CCP, the world's largest communist party that is more capitalistic than any society I can think and yet almost as retentive as that ruling party in Burma!

A severe case of insecurity? But about what? Uncle Sigmund, where are you? China needs you.

Hank Paulson being contrite?

2010-02-10T14:46:00.001+08:00

He actually thinks investment bankers are overpaid. Read this.

The geek who made Avatar possible

2010-02-09T18:16:00.002+08:00

No, it's not James Cameron, "King of the world", but this man you never heard of in this article here.

What is the market price of Democracy?

2010-02-08T20:07:00.004+08:00

It is sad to note how the weight of money is affecting democratic outcomes.

Here is a report of how Wall Street is now throwing its weight around, as if it had not done enough of late:

..."If the Democratic Party has a stronghold on Wall Street, it is JPMorgan Chase.

Its chief executive, Jamie Dimon, is a friend of President Obama’s from Chicago, a frequent White House guest and a big Democratic donor. Its vice chairman, William M. Daley, a former Clinton administration cabinet official and Obama transition adviser, comes from Chicago’s Democratic dynasty.

But this year Chase’s political action committee is sending the Democrats a pointed message. While it has contributed to some individual Democrats and state organizations, it has rebuffed solicitations from the national Democratic House and Senate campaign committees. Instead, it gave $30,000 to their Republican counterparts"...

Source: NY Times, February 08, 2010

The message is clear. If the Democratic President, Obama, intends to get tough with Wall Street, watch out, we the Wall Street will vote for your political opponents with our money.

It is a sad fact of life that it costs a fortune to run a national campaign. Any candidate with national aspirations has to cozy up to the monied class. Wall Street has the single largest concentration of wealth in USA now.

So, politicians are to blame, solely?

2010-02-08T13:25:00.002+08:00

Yesterday, I relayed a poll showing most Americans, Republicans and Democrats, blame politicians for excessive spending. I said politicians want to spend because such spending benefits someone or some organizations in their own home state

So, my question to those voters who blame politicians is this: why do you keep voting for big spenders?

Here is a living example of how spending became excessive with the voters essentially wanting the cake and eating it too!

..."Last week, after nine months, the Senate finally approved Martha Johnson to head the General Services Administration, which runs government buildings and purchases supplies. It’s an essentially nonpolitical position, and nobody questioned Ms. Johnson’s qualifications: she was approved by a vote of 94 to 2. But Senator Christopher Bond, Republican of Missouri, had put a “hold” on her appointment to pressure the government into approving a building project in Kansas City.

This dubious achievement may have inspired Senator Richard Shelby, Republican of Alabama. In any case, Mr. Shelby has now placed a hold on all outstanding Obama administration nominations — about 70 high-level government positions — until his state gets a tanker contract and a counterterrorism center"...

Source: NY Times here.

Voters want to see the Federal Government spend money in their own state, obviously. They reward their Congressional and Senate representatives when they bring back the "pork" benefiting their own local economies. In reality only the contractors and real estate folks will benefit from new constructions.

However, the same voters do not want to follow their own logic. This very same logic is on the minds of voters in all other states who want to see the Federal Government spend more money in their states.

Classic conflict between what is good for one individual is not necessarily good for the whole.

You may be cynical and call this Democracy for Sale. But the real question is why don't the majority voters who do not benefit from "pork" vote the bastards out? Instead they prefer to blame "politicians" who are what they are only because they got voted in by the same complainers!!!

I have no answer. Do you?

What are American taxpayers thinking?

2010-02-07T16:43:00.002+08:00

Latest poll (read here) has some interesting and revealing statistics about what Americans are thinking.

Overwhelming numbers (83%) don't mind paying taxes but believe politicians unwilling to cut spending. Over 91% of Americans believe politicians are responsible for excessive spending. Only 11% believe government spends money wisely.

Yet, politicians pass bills to spend money because they are effectively pressured by parts of their constituencies to spend that money. Those who successfully lobby their representatives in the Congress are among the voters.

What is so obviously clear is the Congress that spends money is largely influenced by a relatively small part of the population who have the means to lobby and to make politicians sign into law bills the interested parties desire.

Therefore we see the discrepancy between what most voters think is the fault of the politicians and whom the politicians really listen to -- the powerful lobbies representing serious economic interests.

Voters should not blame politicians. They should vote for those poorly financed in their campaign who want to institute "change you can believe" -- like Obama! Ha!

Goldman Sachs the un-fall-able?

2010-02-05T19:10:00.004+08:00

One would have thought the issue of whether US bailout saved Goldman Sachs from collapse had long been answered in the affirmative. But no, the official position at that august Wall Street firm is still Nyet. Nein. Non. No.

..." Gerry Corrigan, a senior executive at Goldman and former head of the New York Fed, suggested that Goldman Sachs has an impeccable approach to risk management and seemed to imply that the firm was not in trouble in fall 2008. When pressed on why Goldman requested and was granted a banking license – and access to the Fed’s discount window – in September 2008, he fell back slightly, “There is no question whatsoever that when you look at totality of the steps that were taken by central banks and government, particularly in 2008, that Goldman Sachs was a beneficiary of this"...

Why is this so hard for Goldman to admit?"...wrote Simon Johnson at MIT, former chief economist at the IMF.

Good question.

Source: http://baselinescenario.com/2010/02/05/goldman-sachs-and-the-republicans-2/

Wall Street Dominoes Falling?

2010-02-05T16:20:00.002+08:00

World Headlines read:

!) BofA and ex-chiefs face fraud lawsuits

Source: FT here

2) Cuomo Sues Bank of America, Even as It Settles With S.E.C.

Source: http://www.nytimes.com/2010/02/05/business/05cuomo.html?ref=business

Note: Why did Ken Lewis, ex CEO of BofA, settle a $150 million penalty with SEC if the bank hadn't done anything wrong?

While the media continues to vent anger against executives, I am still waiting for those honorable men and women of the press to wake up to the fiduciary responsibility of the Bank of America's Board of Directors who had the ultimate responsibility to make sure the bank's senior executives were doing the right thing.

Funny none has been hauled out to public scrutiny. Not at B of A, not at Goldman Sachs. Not at anywhere. Strange.

Global Warning, a figment of imagination?

2010-02-05T15:11:00.003+08:00

Why Is Princeton so Rich?

2010-02-05T14:23:00.009+08:00

Harvard may have the world's largest endowment, despite its 30% or more drop in its portfolio value, Princeton still has the highest endowment per student and the 4th largest in the world.

How did Princeton do it? It is a tiny university with under 8000 students in total compared to nearly 20,000 at Harvard and over 12000 at Yale?

Well, the legend is that the Admissions Office looks for brains and looks in addition to other criteria such as whether they are monied "legacy" kids whose parents and their parents have always attended Princeton.

Princeton's T.L.C. machinery is by any standard, especially by how other colleges discharge their duty of "in loco parentis" is only "deficient" against a $1500 a night Riokan in Kyoto where attendants serve their customers on hands and knees, making sure their boarders would experience a life-changing sejour at the centuries old "onsen" .

Princetonians, not exactly a low IQ crowd, despite obligatory grumbling about food and unresponsive Administration while at college -- like all undergrads anywhere -- would leave college knowing they had been spoiled rotten. They know in their heart of hearts they had been pampered at an intensity not since their infant days of suckling on their wet nurses' supple breasts.

One mother of a lovely Princeton co-ed told me in all seriousness that she "knew" for a fact that Princeton looked out for looks among its pool of applications for it was the unspoken policy there to encourage mating among the students. That was when her daughter was just a freshman. I thought it was a barely subtle comment by a proud mother of her daughter's good looks.

Fast forward 10 years she is marrying her classmate this Fall. I just received the invitation. It will be a cast of thousands at one of the poshest locations in NYC. Her future husband: a hedge fund manager -- of course.

What's the alleged reason behind getting good looking students? Well, elementary. First the presumption that Princeton graduates will do well financially -- a simple fact of life.

So, if students marry one another at a high percentage, then the Princeton Development Office needs only to make one phone solicitation to bag two checks, one from the wife, the other from the husband, 2 happy alumni.

How true is this folklore?

Don't take my word. This is straight from the horse's mouth:

..."Early in her undergraduate days at Princeton, Allison Slater Tate ’96 heard the rumor — the one that says 75 percent of Princeton alumni marry other Princeton alumni. Or was it 50? Or 90? No one (including University and Alumni Association officials) really knows.

Whatever the figure, as she went into her senior year, Tate didn’t think she would be another statistic. But she didn’t refrain from sharing the marriage rumor with prospective students as she led them through Prospect Garden on an Orange Key tour...

..."Dating at Princeton was so abysmal,” Tate says. “I’d heard the rumor, but I didn’t see it happening for me.”

That was before she met Trey Tate ’96 at the end of their senior year

...For the Tates, the 75 percent statistic isn’t hard to believe. Among their closest friends are married couples Paul Hanson ’96 and Oona Miller Hanson ’97, Ben Pecht ’96 and Banks Staples Pecht ’96, Tom Flummerfelt ’96 and Dahlia Fetouh ’96, Jennifer Hubbard ’96 and Frank Winslow ’96, and Dave Digilio ’96 and Kim Sladkin Digilio ’95. Among the Sladkin siblings, the number climbs to 100 percent — Kim’s two sisters, Colleen ’91 and Cheryl ’93, also married Princeton alumni..."

Source: http://paw.princeton.edu/issues/2010/02/03/pages/6899/index.xml

OK, you may ask, legitimately: Are these kids on average really better looking than those at its peers colleges? Yale? Brown- which recently hit the headlines having bagged Emma Watson, the Harry Porter girl? The highest paid actress in 2009, by the way?

What is the evidence?

Well, don't just believe what you read. Come Spring, spend a day walking around the beautiful campus. Pedestrian friendly. Not big. Decide for yourself whether by visual inspection Princeton guys and gals have a higher incidence of "looks" than other campuses before you choose the college of your dream to attend.

The Giving Rate among Princeton Alumni at nearly 70% is the highest in the nation, way way ahead of Harvard and Yale, both below 50%.

Princeton has shown the way to boost its endowment, why didn't the others follow? Just asking.

Showtime for Obama

2010-02-04T11:52:00.003+08:00

President Obama, shaken by the Massachusetts upset in which the most liberal "blue" state in the union sending an unknown Republican to the Senate, is now taking a number of "I am a new man" steps across the board.

He finally is taking a strong stand in facing down Wall Street promising very tough regulatory measures. He obviously didn't appreciate sufficiently that his voters across the nation had been terribly angry at his velvet glove treatment of Wall Street allowing them to use zero cost, Federal guaranteed money to play the market and won big and then paying themselves silly in bonuses.

Who can blame them if Obama and his Wall Street friendly cabinet hadn't put in conditions before handing out those blank checks? You can accuse Wall Street of political insensitivity, which by the way is not illegal, but you can't blame them for driving a container truck through those loopholes the Obama presidency has provided for them.

You can however definitely blame Team Obama for ignoring the nearly ear-spliting protests by folks across the land that they had first dropped the ball in not putting in appropriate controls and then turning a deaf ear to those who were telling them they should do so quickly before the billions got lost in the shuffle. Now, the billions had all been legitimately "laundered" as if were so long after the final bailout checks had been mailed.

Better late than never you say? So, now it is High Noon on Wall Street? Can Obama really finish this game of chicken? Gary Cooper managed to shoot the villain in the movie. What can Obama really do now?

Paul Volcker, long ostracized by Obama's team, is now back in vogue. Is it too late? Wall Street folks are already telling the press this: you can hand down Volcker rules Friday, by Monday we will figure out how to get around them.

The mainland Chinese working under a heavy Visible Hand for decades have a famous saying: Policies from top, we have counter policies from bottom. Wall Street and mainland Chinese have lots in common.

Now, Obama is even playing tough with China on seemingly a full court press.

Having rejected Dalai Lama's request to visit before Obama's China trip, a first presidential rejection ever, he is now making a widely publicized point of seeing him. As if deliberately to pick a bigger fight he is loudly upgrading Taiwan's weapon system and has sent Hilary Clinton to wage a PR war against Chinese hackers. Of course they are official hackers to have access to powerful computers. China has high quality IT institutes to groom hackers. These institutes are directly under the military or national security departments.

Obama had shown weakness by first acceding to China's pressure not to see the Dalai Lama. He should have stood up to them in the first place.

The China US relationship is importantly influenced by the indebtedness of the US to China, the largest single lender. Obama should have done what any large debtor should do -- since now I owe you, the bank, so much, you need me more than I need you. So, I dare you to "punish" me. Ha. Instead, Tim Geithner went to Peking University and promised the students (!) they could have faith in US credit. The only response, and a proper one, was laughter by the students. The fact that Obama continues to place stock with that incompetent man is mindboggling.

Re hacking.

The proper response is to keep quiet and to wage a powerful counter hacking war. Here, the US has been playing catch up for decades. A famous Newsweek cover story a few years back documented how Chinese hackers had infiltrated the Pentagon servers for years and had been downloading files for at least a decade if not more, like you and I having access to George Soros's private ATM machine. It was a painful article to read because it showed how clueless the brass had been at the Pentagon.

If cyperspace security is so important to national security, then Washington should mobilize Silicon Valley to stand firm to commercial blackmail. Those firms have been selling just about every security related hard and software to China hurrying the country to become a top IT country at accelerated speed.

So far the profit motive of Californian IT companies has been dismally shameful. They would rather hang onto this market even if that meant cutting away from their own country's national security.

The question remains. Can Obama/Clinton playing rough with China leveraging off Google's problem lead to any where or is it yet another path to nowhere.

There are consequences of doing too much of "nowhere" exercises. If one day your enemies figured out your pattern of behavior, you will lose credibility in future policy initiatives, and pretty soon, backed into a corner, both sides can easily miscalculate with disastrous consequences.

Oh, just to make your day, you must be aware by reading today's headlines that US troops are now directly involved in open military clashes with Al Queda and their sympathizers in Pakistan.

The US is now fighting in 3 fronts: Iraq, Afghanistan and in Pakistan. The war is spreading. Have a good day.

The Fall of Pax Americana

2010-02-02T22:02:00.003+08:00

The American "empire", yes I know America does not believe it ever was though it has always behaved like one since WWII, has to be the shortest on record. It has set a record in being the world's shortest superpower.

How did it get that way is the stuff of volumes. Throughout history, the demise of an empire was always preceded by the degradation of the nation's balance sheets.

In America's case the decay followed a familiar pattern of past empires: expensive overseas wars got too large relative to the productive capacity of the country.

Like fallen empires in the past, USA is now deeply in debt and has been for sometime.

Now, it is even in debt to its principal strategic competitor: China, a country ruled sternly by a communist party that proudly puts into its Constitution the guiding principles of Marx, Lenin and Mao.

You don't need an economics PhD from MIT to know that just as in a person, a nation cannot keep on borrowing to finance its many needs, especially capital-destroying wars, without having one day to pay for it one way or another. The de-leveraging process will be long and painful. When it happens to an empire, well, the empire will be no more.

The British Empire upon which the sun once upon a time never set collapsed after WWII because it had exhausted its moral and financial resources: morally because de-colonization became the dominant value of civilized nations under the United Nations charter heralding in a new world order.

Financially the "motherland" could no longer keep its far flung empire under its Sterling standards that was the glue of its global empire. It was borrowing mainly from the United States.

When the UK and France were trying to re establish their Middle East influence in their clumsy attempt to invade Egypt to recapture the Suez Canal, President Eisenhower, the largest creditor to the UK and France just picked up the phone and told these two former imperial powers to stop it. The two debtors promptly obliged.

The creditor in one stroke ended forever the British Empire. Ho Chi Minh finished off the French empire once and for all in Dien Bien Phu in Vietnam.

We are witnessing a similar, though not exactly identical process, unfolding right in front of us.

I recently posted a hart showing how US debt/GDP, one indicator of a country's leverage, has been going up like a rocket.

The geopolitical implications, too, are clear. You certainly don't need a PhD in politics from Harvard to understand them.

Here is a telling excerpt from today's NY Times:

..."as Mr. Obama’s chief economic adviser, Lawrence H. Summers, used to ask before he entered government a year ago, “How long can the world’s biggest borrower remain the world’s biggest power?”

The Chinese leadership, which is lending much of the money to finance the American government’s spending, and which asked pointed questions about Mr. Obama’s budget when members visited Washington last summer, says it thinks the long-term answer to Mr. Summers’s question is self-evident. The Europeans will also tell you that this is a big worry about the next decade"...

The British didn't want to tell itself its imperial days were over until the new empire, America, led by Dwight Eisenhower, told London to get out of the Middle East. How come his words counted so much? Elementary. UK was borrowing to maintain its military strengths abroad. America was its largest supplier of credit.

The Chinese communists, men from violent struggles who understand only too well that power comes from the gun barrel and it takes real not borrowed money to produce guns (not to mention butter) know America is well on its way to the exit door.

The Obama budget, as is clear from this report here, is a confirmation of the ending of Pax Americana.

The country, barring a miracle, has little wriggle room in its national budget for the next decade because the deficits are going to remain in the stratosphere.

There is a way to reduce debt. Higher taxes, higher savings, less private consumption, less government spending, domestic or overseas.

America can, like a phoenix, rise again, in theory. It's been pointed out by any number of thoughtful analysts that America has to do some serious "nation building" at home as a prerequisite to regain its superpower status, one that until recently had not been called into question.

Unless you can rebuild your own nation, you just don't have the resources to do much abroad. Build up your productive capacity, strengthen your national balance sheet, and then, we can discuss once again your global "responsibility" -- one day.

Obama is in serious trouble.

2010-02-01T22:37:00.001+08:00

At the beginning of 2009 nearly 70% of Americans approved of Obama with 13% disapprove. It's been downhill ever since. Now the country is split down the middle, 48% pro, 46% against.

See the chart here and note the trend.

A Nation in Debt

2010-01-31T06:07:00.011+08:00

Obama did an about-turn in spending after the Massachusetts voters sent a Republican to fill Ted Kennedy's seat. Exit polls show unease about the way Obama was spending money that would increase the role of the government in the economy and at the same time vastly increase the nation's debt. It was an ambiguous message since voters were also worried about unemployment that remains stubbornly high.

So Obama is now freezing his spending in some areas while maintaining the growth in others:

..."Exempted from the cuts, however, are national security, veterans programs, Medicare, Medicaid and Social Security — the most expensive and fastest-growing areas of the budget. By filling in the details behind the freeze, the administration hopes to show critics that it used a scalpel rather than an ax to keep spending for the targeted domestic agencies to $447 billion annually through 2013, saving $10 billion in the coming fiscal year"...

Source: NY Times

Anyone following the fiscal conditions of the US would or should be shaking his/her head at this "scalpel" exercise which is purely window dressing.

Why? Because the larger picture shows fine tuning the spending will not affect meaningfully the overall indebtedness of the nation.

To seriously de-leverage the nation would have to mean substantial cuts (by an axe, not scalpel) and higher taxes. Increasing taxes in the minds of US politicians has always been considered an act of political suicide.

So much so even when the nation went to war, the politicians refused to ask the nation to make an economic sacrifice. It is a curious mindset since the same leaders are asking their young people, the nation's future, to make the ultimate sacrifice by going to war to die for their country.

The economic consequence of war without raising taxes necessarily results in high national debt. It happened during the Vietnam war because LBJ wanted guns and his Great Society Programs fully funded -- by debt. This continued under Richard Nixon.

The 8 years of supposedly fiscally conservative Republican government under George Bush went over the fiscal cliff influenced by crackpot ideologue economists such as Arthur Laffer, among others. Bush believed in fighting wars (Iraq and Afghanistan) and cutting taxes at the same time. In fact most tax benefits accrued only to the very rich, his financial base of his political supporters.

By the time this Obama went into office, the indebtedness of USA was already off the chart:

But the government was not the only guilty party. Why? Take a look at household debt and national savings. The chart below marks clearly how the mentality of "instant gratification" of the American consumers has been a factor in the nation's high indebtedness.

Put simply, the consumers apparently believe in having a great life style NOW even if that meant going into debt. Put it another way, the American people have been living a great life even though they could not afford it -- without hocking their children's future to the bankers.

This larger picture paints a disturbing narrative.

Politicians are quick in sending citizens to battlefields to die without the honesty to ask their fellow citizens to pay for the wars. Even the "Yes We can" Obama bragged about his several tax cuts in his State of Union speech while Iraq and Afghanistan continue to drain the country's coffers. Perhaps we should change his slogan to "No, You Can't".

Citizens are so used to living the good life as the "pursuit of happiness" was so fixated in their minds as a God given right enshrined in the US Declaration of Independence that "saving for the raining days" as an idea has become Un-American!

But do the American people really believe that or perhaps they had gotten so lied to by their leaders that you can have both guns and butters -- followed by inevitable inflation cutting down their debt in real terms -- that they decided to go along for the ride?

During WWII the people in America, indeed everywhere, understood instinctively the need to tighten belt to finance that war. Why didn't their leaders after WWII decide to behave as if voters were self-centered, stupid and selfish who wouldn't give up some comfort to fight for a national cause?

Is it really the profligate US consumer the root of the fiscal problem or cowardly politicians who couldn't inspire the people to make the fiscal sacrifice. It is rather a small price to pay for "national security" if indeed the foreign wars were essential to that security.

Many would argue none of the wars after 1945 were essential. David Halberstam's heart wrenching account of the war in Korea "The Coldest Winter" showed how the ego and the madness of MacArthur's desire to take war to China that created the larger Korean conflict.

The Vietnam War was essential to national security? Even Robert (Mac the Knife) McNamara admitted it was unnecessary. Again Halberstam's "Best and the Brightest" is a classic in showing the hubris of the ruling elite. That war was unpopular. Neither LBJ nor Nixon had the spine to ask for a tax increase.

The Iraq invasion under George Bush because Saddam Hussein "possessed" weapons of mass destruction that would destroy Manhattan turned out to be just as ridiculous as the late Secretary of State Dean Rusk telling the Senate back then: "We are in Vietnam, Senators, because we don't want to fight one day in Los Angeles a billion Red Chinese armed with nuclear weapons".

OK, even if that might have been a possibility, and not a figment of over ripe imagination, you should have raised taxes to finance that war.

How ironic the billion Red Chinese are now the single largest creditor to the profligate American ruling elite, mostly educated at those universities elite families around the world want to send their own children to school? You know where they are. The three most prominent ones are located in Cambridge, Mass., New Haven and New Jersey.

The 20 Century was American.

Unless the American ruling elite stops its propensity to wage wars without asking for necessary but relatively small financial sacrifice from the people whose children must bear the life-n-death burden of actually fighting the country's supposed mortal enemies, then the 21st century will surely by default belong to someone else who has a stronger balance sheet.

That would be a result more of the US behaving fiscally irresponsibly than the other country being smarter, more creative, freer than the US.

The charts here contain a serious story of "national security".

Economic Recovery in the US?

2010-01-30T22:25:00.005+08:00

Everybody, including Obama in his State of Union speech, talked about the biggest "recovery" since 2003 because during the last quarter in 2009 real GDP grew by 5.7%, higher than expected. Time to start pouring champagne? Not so fast. Devil is in the details, of course.

According to the Chicago Federal Reserve National Activity Index which tracks 85 economic indicators lumped into four categories: production and income (P&I); employment, unemployment, and hours (EU&H); personal consumption and housing (C&H); and sales, orders, and inventories (SO&I). The graph below explains how these categories performed in the second half of 2009. courtesy of Mish's Global Economic Trend Analysis, the growth was more inventory replenishment than recovery across the board.

Here are the chart and the numbers:

the chart suggests a big rebound last summer, but right now economy has hit a wall.

The table with numbers are downright discouraging. 4th quarter shows no meaningful growth whatsoever in the 4 categories nor in the overall index CFNAI, the Chicago Fed National Activity Index:

Eventually we are going to get out of this recession nicely...but not just yet.

Hope in Afghanisan

2010-01-29T07:27:00.003+08:00

If President Karzai is serious about his intention to work out a compromise with the Taliban, then there is hope that the war could end much more nicely than I had feared. Reaching out to the Taiban is the only way out of the quagmire. Devil remains in the details of a possible truce. That truce has to include the Taliban as part of a governing coalition with meaningful power. Here is the latest news:

..."Afghanistan’s president declared Thursday that reaching out to the Taliban’s leaders should be a centerpiece of efforts to end the eight-year-old war there, setting in motion a delicate diplomatic process that will carry great risks for both Afghanistan and the United States.

Speaking to an international conference here on Afghanistan, President Hamid Karzai said “reconciliation” was one of his top priorities. “We must reach out to all of our countrymen, especially our disenchanted brothers,” he said...

Source: NY Times

Obama and Goldman Sachs

2010-01-27T18:47:00.004+08:00

Even Tom Friedman, the "World is Flat" author who normally is only interested in global issues, is pissed off at Wall Street, in particular, Goldman Sachs. However, if you read between the lines, he was really pissed off at Obama who had not put in appropriate preconditions to save those guys before billions were being handed to the "too big to fail" fellows:

...."President Obama is so much better when he takes a heated, knotty issue, like civil rights or banking reform, and talks to the country like adults. He is so much better at making us smarter than angrier. Going to war with the banks for a quick political sugar high after an electoral loss will just work against him and us. It will spook the banks into lending even less and slow the recovery even more.

That said, part of me can’t blame the president. The behavior of some leading Wall Street banks, particularly Goldman Sachs, has been utterly selfish. U.S. taxpayers saved Goldman by saving one of its big counterparties, A.I.G. By any fair calculation, the U.S. Treasury should own a slice of Goldman today.....

The above excerpt is from his column today here.

Tim Geithner, AIG, Goldman Sachs

2010-01-27T18:38:00.006+08:00

Tim Geithner's inconsistent narrative on why AIG was allowed to pay off 100% to some of its creditors including prominently Goldman Sachs is getting more and more negative reaction across the nation.

Here is a very good line of enquiry on this issue, courtesy of a fellow blogger, Mish, on his Mish's Global Economic Trend Analysis. I can't say it better:

...'Please consider The Question Geithner Can’t Escape: Why Pay Off AIG’s Partners?

The latest political clamor over AIG, poised to combust next Wednesday at a House hearing on backdoor payments to banks that made risky deals with the company, centers on the Federal Reserve’s effort to conceal details of those payments. But senior officials, including Treasury Secretary Timothy Geithner, have so far evaded a key question: Why were AIG’s trading partners fully paid with taxpayer money instead of being told to take a loss?

“They chose to pay some people off entirely,” Bill Black, an economics and law professor at the University of Missouri and a leading critic of the government’s bailout managers, said in an interview. “They have never given a coherent explanation of why those particular folks. Under their own logic, there was no reason to pay off these parties at 100 cents on the dollar.”

In November, bailout inspector general Neil Barofsky quoted Geithner as stating that AIG’s bank counterparties — including Goldman Sachs, Merrill Lynch and 10 foreign firms — were not at direct risk if the troubled company defaulted on its debts. “The direct effects of that failure would not have been particularly significant,” Geithner reaffirmed last month during testimony on Capitol Hill.

In May, however, Geithner suggested that AIG could not have negotiated lower payments to its trading partners without endangering the health of the whole financial system.

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”

So which explanation is true: Were AIG’s creditors hedged against the risk of a default — as Goldman has argued — or not? And if the banks had already mitigated the risk of losing their deals with AIG, why didn’t that allow Geithner’s Fed to negotiate a cut in repayments?"....

I have been saying for some time that Tim Geithner has to be fired. I very much that would happen. And that's one reason why Obama's presidency is in deep trouble for it seems the President still does not understand how unfair and shady his entire Wall Street bailout package had been executed.

Obama's Credibility Gap

2010-01-27T07:38:00.004+08:00

Bob Herbert's column on this subject is excellent in capturing what's wrong with Obama's presidency. Read it here.

Readers' comments following the article show how much Obama has alienated his base. Readers of the NY Times are overwhelmingly Democrats.

In the following link you see how much Obama has even alienated the high profile public intellectuals who have been supporting him before he became president. Read that here and follow the links in it to get the full picture of those writings.

Miracles do happen in politics in that unpredictable events occur, such as the political earthquake in Massachusetts no one foresaw until just a few days before it happened.

Obama needs a miracle to save his presidency. His latest spending freeze proposal is an act of panic as many in the States correctly see. And dismissed as a PR exercise.

He is trying to do a "Clintonesque" triangulation by moving towards the Republic positions: spend less, cut taxes, etc. Well, we know how that ended with the Bush Administration: ballooning deficits among others.

Obama has failed utterly to lead. He failed to convince the nation why he had to increase spending to save the country. Instead he let Geithner/Summers go to the talk shows without appreciating the fact that these two have long become "hate figures" to the nation.

He failed utterly to allocate Federal bailout money fairly by focusing on saving banks "too big to fail" allowing a few Wall Street firms which the government had saved from collapse handing out on a silver platter to the smart traders at Goldman and JPMorganChase to make huge trading profits using risk free and zero cost taxpayers money.

He should have long ago asked for resignations of Wall Street tycoons BEFORE his government was handing out blank checks. He should have told them they were not victims of the bubble bursting but had been accessories to creating that firestorm. Instead, he bought the Wall Street's ridiculous argument that without them as copilots the economy would die.

He should have temporarily taken over those firms as he had done so with AIG, Freddy and Fanny with a team of good administrators to clean house. Instead he recruited the same tiresome insiders to run those firms.

Any wonder why voters in Massachusetts sent him a message telling him he was doing a lousy job by electing, for heavens sake, an unknown who has racist inclinations?

Yet Obama is still saying Geithner/Summers/Bernanke are doing a fine job.

Barring a miracle, Obama's presidency is fast becoming a lame duck and will be voted out before you know it.

Sad. So much for "change you can believe in".

Princeton and the World

2010-01-26T18:03:00.003+08:00

There was a time, not long ago, we spoke of the First, Second and the Third World. It was a simple scheme. Easy to understand. However, it is too simplistic.

You can google Gini Coefficients of any number of important countries starting from USA, China, and so on and you see the trend of growing income disparities.

In the US the bottom 1/2, maybe more, has not seen its real income grow while the top 2%, especially in the financial industry, has seen steady, even explosive share in total national income.

You open the papers these days and you read about the astronomical salaries and bonuses paid to Wall Street fellas and increasingly so, some women. Not so on Main Street which employs most of the workers in America.

What is happening in the economy has its mirror image in education.

Name a country, and I will name you on average not more than half a dozen of the most elite high schools and universities where "every" parent wants to send his/her kids.

In the UK you are looking at Oxford, Cambridge, London, St Andrews plus maybe 3 more. In France not more than half a dozen. In China, same story. The latest is the Chinese want to form their own "IVY League" with maybe 8 or 9 of their top schools.

America is the sole exception with more exclusive schools but they are still a tiny minority relative to the sum total of all universities in that country. I recommend Jonathan Cole's "The Great American University" for an amazingly detailed look at US universities, their strengths and their problems.

A few years back I gave a lecture to a small group of Princeton undergraduates. I told them two simple statistics:
the % of successful candidates passing the ultimate Imperial Chinese examination in the Forbidden City in the presence of the Emperor himself. It was less than 1%. Something like 0.80% if I remember what Princeton Professor Benjamin Elman told me. He is the authority in America on Chinese exam system.

His magisterial "A Cultural History of Civil Examinations in Late Imperial China" is a must read, forbidding it is, to those who want to know Chinese history.

The other statistic I reminded those Princetonians was the admissions rate at Princeton: about 9%.

I told them in my lifetime getting into Princeton would be as difficult as passing the imperial exam in China and that admissions rate at Princeton would match that of the dynastic periods in ancient China.

The reasons are varied. Two stand out. Capacity at elite schools will not expand as fast the demand for admissions at a quality school as global incomes rise, in China, Russia, or Africa as English has become the global language.

The second reason is simply this: consumers want designer labels in buying handbags, electronics, cars. Princeton and its few peers have become, like it or now, the equivalent of a Bentley in autos, Rolex in watches, and so on.

Hence soon admissions rate will go below 1%.

This does not mean only Princeton can provide a quality education. In fact many smaller, less well-known do provide as good an education as Princeton. Some would say better.

But just as in consumption goods, brand name recognition is not just about vanity, though it definitely has that element. A Princeton degree translates easily into a better first job opportunity than a graduate from, say, Macalester or Reed, both excellent small colleges.

The article here is just confirming a trend of increasing demand outstripping demand. If Princeton is to accept the same number of freshmen in this year as in last at 2150, then given the number of applicants at 26166, the admission rate drops to 8.2%. In 30 years or less, that rate will be a small single digit and then will go below 1%.

My "punch line" to those "Princes" and "Princesses", as they are nicknamed by their counterparts in other schools, was that they should remember their privilege and do some seriously good deeds to wherever they hail giving some back to their fellow, less privileged fellow men and women. Their future, I told them, barring a careless and wanton waste, was guaranteed to be a comfortable one by virtue of their Princeton pedigree like few others.

What is also happening at elite universities is the growing disparity in endowment, or wealth.

The combined endowment of Harvard, Yale, Princeton, Stanford, MIT, Caltech will surpass the next 50, perhaps 100 of the best American universities. As this trend continues, these wealthy universities will basically corner most of the most sought after scholars and students and will further increase the brand gap between them and the "rest".

The unfortunate cliche about "the rich get richer" is getting truer and truer in terms of income disparity among countries, but most alarmingly within each country. An elite education is part of that wealth disparity equation.

How all that will end deserves serious thought.

The world is no longer meaningfully divided in First, Second and the Third World.

There is far more common ground between the elite in China, say, and USA than between the bottom 1/2 in China and that of the United States.

The article on Princeton admissions is here.

USA for Sale - 2

2010-01-26T06:46:00.003+08:00

E.J. Dionne Jr., the veteran Washington Post columnist wrote: ..."The Supreme Court's 5-to-4 decision last week giving American corporations the right to unlimited political spending was an astonishing display of judicial arrogance, overreach and unjustified activism.

Turning its back on a century of practice and decades of precedent, a narrow right-wing majority on the court decided to change the American political system by tilting it decisively in favor of corporate interests"...

What Mr Dionne missed emphasizing is this: this ruling also allows US incorporated companies owned by foreign interest to finance openly US politicians.

This Supreme Court, headed by John Roberts, is a Bush court for during his 2 terms as president he managed to tilt the court by appointing a number of rightwing judges including Roberts.

Dionne's whole article is here.

USA for Sale

2010-01-25T08:57:00.002+08:00

The latest US Supreme Court ruling (read here) freeing corporations from spending to promote their political candidates open the way for both domestic and foreign corporations to influence Washington policies -- as if the current incestuous relationships between Wall Street and Washington were not enough.

The US is continuing its way down to becoming a Third World country in terms of public governance.

What Next, President Obama?

2010-01-25T07:49:00.002+08:00

The after-shock of seeing Massachusetts, the pen-ultimate liberal and democratic State, the State of the Kennedy's, losing to an unknown Republican continues to reverberate.

The verdict is clear to those, like yours truly, have been watching Obama throw away its political advantage after winning the presidency accepting bad advice from his experts while not showing any leadership of "change" we were told we could expect.

3 Items have totally alienated even Obama's most fervent supporters all over the country

Health Care

The bill has become a feeding frenzy of the usual lobbyists whose inputs have diluted the original intention turning it into another wasteful boondoggle.

Unemployment

Millions, including white middle class Americans, are living on food stamps. No jobs.

The people by and large understood why the government has had to print unprecedented amounts of money to save the economy. The deficit by itself was never the issue. It's the way the money was distributed that is making people angry. The bulk had gone into the big banks while the rest of country couldn't feel one darn thing.

Wall Street

This issue of favoring Wall Street is puzzling until you realize Obama and his crew got totally captivated by the dishonest "logic" of Wall Street -- "Save us the way we say or you face catastrophe".

The structure of the bailout package put together on the fly by both Hank Paulson/Bernanke under Bush and by Geithner/Summers/Bernanke team under Obama is more akin to Crony Capitalism in a third world corrupt country like Thailand or Argentina than we had naively gotten used to expecting from the United States of America.

The blatantly false logic of Wall Street telling the world that it never needed Federal money to survive and then made a fast buck using free taxpayers money to do a buy low/sell high trade in 2009 generating record profits and record bonuses is just another reminder of how the bailout package never contained any quid pro quo conditions to reform Wall Street. Having repaid the direct loans while still gaining access to zero cost Federal money via the discount window, Wall Street has the nerve to tell the country that it is doing "God's work" in the immortal words of Lloyd Blankfein, chair of Goldman Sachs whose alumni populate the higher echelons of both the Bush and the Obama adminstrations

These 3 reasons sank Obama's standing.

Now, Obama is desperate to address those issues. Playing tough with Wall Street now is frankly late.

You do not do retroactive contracts when you failed to put in the required conditions when you signed the first contract giving out billions.

It's just awful to see hope embodied in Obama's youthful campaign dissipate right in front of you like the morning mist when the sun rises.

Obama would need a miracle to save his presidency. MIracles do happen, especially in politics. The Massachusetts upset was a miracle to the Republican Party that was in the doghouse. Now, let's see whether Obama will get one.

Where Should We Send our Kids to College? Part 2

2010-01-24T09:01:00.005+08:00

Last year I wrote here that choosing college is a difficult exercise. There are so many good ones. Irrespective of rankings done by this or that magazine, one should choose one that is "right" for you. And each "you" is different.

That said, if your family balance sheet is not remotely close to that of a senior Goldman Sachs managing partner, the first cut could well be based on the size of university endowment per student. The reasons are rather obvious: those richly endowed universities (per student) will be able to do at least 2 things: provide more generous financial aids that the average, and secondly, those colleges are more likely able to provide lots of TLC in variety of concrete manifestations on campus ranging from counseling to professorial contact than those not so well endowed.

One reader took me to task for giving "bad" advice.

Well, if you read this article, lots of students and parents are agreeing with me by their action. Ignore the misleading attention grabbing headline and read the real message of the article.

I gladly stand by my initial position.

Google Land

2010-01-21T09:38:00.001+08:00

I am off-line for 3 days to travel to a country where blogging, among other stuff we take for granted, is banned. I should be back online on/before Jan 24.

Obama - one term president?

2010-01-20T11:37:00.005+08:00

Massachusetts has just elected a little-known Republican who once suggested Obama was a foreigner disqualified to become president.

This seat had been held by the late Ted Kennedy for 46 years -- that's 5 decades or nearly 2 generations. Massachusetts has always been "liberal". IT was the only state who voted for George McGovern in his failed attempt to run for Presidency. It is the home to Harvard, MIT, Tufts, Wellesley, Boston University, Brandeis University (just to name the obvious) that are as "liberal" as they come. It is a highly educated state. So, why did they vote for a Republican whose party these days stands for backward looking, somewhat racist policies?

The answer, my friends, is NOT blowing in the wind. The answer is this: Main Street has been angry at how the White House, guided by the Summers/Geithner/Bernanke crowd had handed out near blank checks to Wall Street with little accountability while Main Street gets the shaft.

Never mind Hank Paulson under Bush first started the handout. One reason Obama won big was the overwhelming desire by the people to right the wrongs under Bush.

I have been writing on this for sometime. In fact, the entire raison d'etre of this blog was to write about how Wall Street had been accessories to the financial firestorm while the White House, both under Bush and now Obama, has been treating that crowd as victims.

Obama has to take the blame for the disaster in Massachusetts as the buck stops there. He never should have hired Summers and Geithner as many had warned but their criticisms fell on deaf ears. Geithner and Summer continued Paulson's policy of handing out blank checks to save those "too big to fail". That crowd shooed away Paul Volcker who had been preaching a different tune reigning in Wall Street.

Now, its too late. Mega money had already gone into Wall Street's pockets, in fact, to a relatively few hands. And Obama's Health Bill maybe in jeopardy which was to his mind going to be the jewel in his political crown.

How quickly has the fortune of the Democratic Party turned sour to everyone's surprise. The Republican Party was to be a permanent minority party after 2 disastrous terms under Bush. But now the entire equation has been turned upside down. Will Obama understand his failure and then try to redress his problems?

Until I see him firing Geithner and Summers, frankly, I doubt it.

Will China Clash with USA?

2010-01-19T17:04:00.003+08:00

..."Both Bill Clinton and George W. Bush firmly believed that free trade and, in particular, the information age would make political change in China irresistible. On a visit to China in 1998, Mr Clinton proclaimed: “In this global information age, when economic success is built on ideas, personal freedom is essential to the greatness of any nation.” A year later, Mr Bush made a similar point: “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy ... Trade freely with the Chinese and time is on our side.”

The two presidents were reflecting the conventional wisdom among America’s most influential pundits. Tom Friedman, New York Times columnist and author of best-selling books on globalisation, once proclaimed bluntly: “China’s going to have a free press. Globalisation will drive it.” Robert Wright, one of Mr Clinton’s favourite thinkers, argued that if China chose to block free access to the internet, “the price would be dismal economic failure”.

So far, the facts are refusing to conform to the theory"...

Source: FT here

As the world once again moves back to a bipolar world with China replacing the defunct USSR as the other superpower at some point soonish in this century, are we going to have some unpleasant clashes?

What do you think?

Shades of the Tet Offensive?

2010-01-18T21:24:00.002+08:00

Back in the Vietnam War the Vietcongs in 1968 staged a multi-point offensive right in the heart of Saigon to make the point that they were far from being beaten by the overwhelming American forces. In fact they wanted to show they had the initiative to strike wherever, whenever they wanted. It was a major political-military success.

Now, as the US is escalating by increasing troops to cover more mountainous areas away from the Kabul, the Taliban is clearly making the point that they too could move anywhere they wanted by striking Kabul itself as shown in the report. Read here.

The headlines these days are all taken up by the disaster in Haiti and Google in China. Yet what's happening in Kabul has far more geopolitical implications than the other stories put together. News out of Afghanistan is not good, mate.

Boards of Directors on Wall Street

2010-01-18T21:06:00.002+08:00

"IT sounds like good work if you can get it, and thousands of people in corporate America do. On average, they attend 8 to 12 meetings annually. Although they are supposed to have fiduciary obligations, they often appear simply to warm their assigned seats, and to raise their hands when their leader calls for a vote. For that, they can receive as much as $640,000 a year.

Who are these people? Company directors, who are typically handpicked from other companies, banks, academia and, in some cases, social directories.

But underworked, overpaid corporate boards are doing serious harm to the shareholders of public companies and the economy as a whole, according to “Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions” (Free Press, $27), by John Gillespie and David Zweig"...

This sounds like a book I wish I had written for one of the first thoughts I had when the bubble burst taking down Wall Street firms and sucking billions out of taxpayers money was this: "The most guilty parties were the boards of directors to whom the CEO had to report to. Yet through the years of bubble creation and then bubble bursting, not one beep came from the boards admitting their own negligence.

One should remember the boards in theory represent the interest of the shareholders "out there". In fact, they knowingly and shamefully decided to remain in the good graces of the management who pay them, cuddle them with many corporate freebies.

The quote came from the New York Times Sunday Business section here.

Goldman Sachs Acknowledges Mistakes?

2010-01-16T12:21:00.001+08:00

Read this to be sure.

Eugene Fama and the Chicago Mindset

2010-01-16T11:24:00.002+08:00

Eugene Fama, that famous Efficient Market guru at Chicago B School talked to john Cassidy, a good writer on economics for the lay people about the Crisis. Read it here and then decide for yourself whether he is out to lunch or whether his critics are.

Krugman on Wall Street

2010-01-16T08:24:00.002+08:00

Read his latest column here.

I must say professional investors can recognize easily the mentality of the Lloyd Blankfeins of the world. Theirs is the mindset of a trader.

Stuff, like a cycle, happens. Who cares there is a serious structural issue. As long as prices move up and down, and up and down, that's just perfect. Why fix it? Good traders thrive on such movements.

So what if those ups and downs cause ex-Wall Street phenom: such as huge unemployment, bankruptcies, recessions? They are only variables in those "ups and downs" of market prices. A Goldman Sachs would die if there were no market ups and downs. That's how serious traders make their fortunes.

Once you understand that mindset, then you understand why those guys testifying right now in DC are "clueless", Paul.

You just haven't been a trader.

Tim Geithner in Deep Denial

2010-01-15T20:52:00.005+08:00

Geithner in this interview here said a number of things that are just incredible to my eyes. You have to read and watch it to soak in what he was saying:

1) He was not personally involved in the NY Fed's directive to AIG not to disclose relevant information so as not to upset market sentiments.
2) He was deeply offended by the fact that the Fed had to save AIG.
3) Paying 100% on the dollar by AIG for its payables was the correct thing to do
4) US government had no legal means to prevent AIG from doing so anyway.

Why do I find his remarks "offensive"? For one thing, he was saying he, as the head of NY Fed was not really responsible for what his underlings did. So, does that mean no one is accountable anymore?

Second, if AIG was going down with plenty of worthless assets, why should the taxpayers be forced to make good on all those payables? the only immediate beneficiaries were the shareholders of AIG and not the nation.

No legal means? In the real world of liquidation, it is an impossibility for the payables to be made good 100%. Why should this case be different?

I know, I know. Geithner and company thought allowing AIG to go under was a NO NO.

That's why the government had to step in first to "nationalize" AIG and then reorganize its balance sheets. In that case, no payables had to be so financed 100%. Paul Volcker among others urged the government to do so -- falling on deaf ears because Summers/Geithner who got Obama's ears were against that. Had the government done so, a lot less tax payers money would have to be spent. And many Wall Street honchos might have to lose their jobs. And these honchos had a direct line to Summers/Geithner/Paulson/Bernanke who talk to Obama.

Oh, the interviewer didn't offer the obvious explanation. AIG had a big payable to Goldman Sachs. If Goldman Sach's receivable was not made good 100%, GS would fold. Guess who was the Treasury Secretary then writing checks to bail out AIG? Hank Paulson, former Goldman Sachs chairman.

Geithner famously dismissed the suggestion that USA should learn from the Swedish model saying "USA is not Sweden". Sweden nationalized a number of failing banks in a financial crisis in the early 90's in order to instill confidence in the market since after nationalization the financial system became "sovereign". Sweden then went on to reorganize the banks's balance sheets. AFter that the banks were re-privatized.

USA is not of course Sweden. It is more like Thailand in the Asia financial crisis when the government acted to help out its cronies in the private sector. The proper rebuttal to Geithner was this: "Yes, USA is not Sweden. It is Thailand." See my article I wrote back in April 2009 here.

Cyber warfare = shape of WWIII?

2010-01-14T19:49:00.004+08:00

..."Google’s description of the attacks closely matches a vast surveillance system called Ghostnet that was reported in March by a group of Canadian researchers based at the Munk Center for International Studies at the University of Toronto.

They found that an automated espionage system based in China was using targeted e-mail messages to compromise thousands of computers in hundreds of governmental organizations. In each case, after the computers were controlled by the attackers, they were able to scan for documents that were then stolen and transferred to a digital storage facility in China.

The researchers stopped short of directly accusing the Chinese government of masterminding the attacks. However, for years there have been reports of attacks planned by so-called patriotic hackers in China, and many American security specialists argue that these are simply irregular elements of the People’s Liberation Army....

Independent security researchers said that at least 34 corporations had been targets of the attacks originating in China"...

The full New York Times report is here.

Google in China - 2

2010-01-14T19:31:00.003+08:00

Nicholas Kristof, fluent in Chinese, Pulitzer winner has written a fine column here.

In it he said, among other things, he could offer no proof that the Chinese officialdom was behind the global cyber attack by hackers traced back to China. He was being a bit too circumspect. I am sure he knew better. etter.

Two items. No cyber attacks could be launched on a global basis without powerful computers and a small army of hackers working together. In China that means official backing. If these geeks were "independents", they would be reading novels in prisons and writing confessions.

Second. Anyone familiar with the software industry and Chinese education should know the Chinese government, more precisely the military and the intelligence departments, have been recruiting and grooming young talents all over the country putting them through special software schools, normally 3 years in duration, with the focused agenda of turning them into world class hackers.

These schools only take the best. Money, scholarships, living allowances, all that are not an issue.

They are likely prodigy schools. If this reminds you of how the former USSR and China, still, recruit athletes to compete in the Olympics, you get the idea.

Newsweek had a cover story a few years back documenting how the Pentagon servers had been hacked into for over 20 years before that leak was discovered and plugged. This is just one incident to suggest how much more advanced China officialdom is vis-a-vis US officialdom in applying computer science to national security! Surprised? Don't be.

US has been selling sophisticated hardware to China and its universities have been training many PhDs in computer sciences many of whom return to China to serve the country.

But more to the point, the government in China is putting money and effort to build a cyber army the world has never imagined possible. In this US is "primitive" by comparison.

Harvard and the Nation

2010-01-14T08:27:00.002+08:00

The role of Harvard graduates in the history of America is the stuff of legend. There have always been more of them in running the State than alumni of any other single university by a long shot.

However, lately Harvard's reputation has been stained by the action of a small number of them. Their role in the creation and then the bursting of the financial bubble is, frankly, shameful.

In that process you see the role of many Harvard graduates from either the College or from some parts of the university: Hank Paulson is a Harvard Business School alumnus, who used taxpayers money to save some of his Wall Street pals principally his old firm without putting in appropriate checks and accountability. Bob Rubin made himself a fortune on the board of Citicorp while the bank itself went to pot. Larry Summers, Lloyd blankfein, Jamie Dimon each played a significant role in the continuing drama of how Wall Street is unduly influencing Washington policy at the expense of taxpayers on Main Street.

This report here penned by Harry Lewis, former Dean of Harvard College is not about the financial crisis but on a small number of Harvard graduates who have been managing, or to many, mismanaging Harvard itself.

Google in China

2010-01-13T16:52:00.003+08:00

So, Google in China got hacked by "sophisticated" hackers as reported by Bloomberg News here and by others here. Well, Silicon Valley companies have been anxious and willing suppliers of sophisticated hardware and the MIT's and the Stanford's have been anxious and willing recruiters and trainers of large number of Chinese computer and electronic engineers.

Lies, Damn Lies and Statistics

2010-01-13T12:23:00.002+08:00

Government officials lie about all kinds of stuff. Even data. Why data? The most boring sort of things, right? Wrong.

Everybody in one way or another relies on statistics. Are we going broke? Well, that depends of income, debt service, and future incomes, right? That's statistics. Is inflation increasing or decreasing? That's important in setting prices of products, wages, and the foreign exchange markets adjust your currency up or down depending on future inflation, interest rates move. That's statistics.

So, an important European country such as Greece is caught lying, that's serious. Read the report here.

If you think that's outrageous. Let me tell you about Argentina, a country I like for its culture. The current president didn't like the inflation numbers (in double digits) a couple of years ago, she decided to fire the director of statistical bureau and then closed it down. She set up her own bureau, a team of several people, in her presidential office, to supervise the distribution of economic numbers. Not surprising, her numbers show only single digit inflation.

How long can she keep fooling everyone? Well, few I met in Buenos Aires got fooled. Most transactions now are done only in US$. Retailers adjust their product prices on the basis of double digit inflation.

So market didn't fooled. Guess who is the bigger fool?

Iran vs China?

2010-01-13T12:17:00.002+08:00

If what is behind this headline gets out of hand, China would find itself on the side of the "infidel" US of A in dealing with Iran, one of the 3 "Axis of Evil" countries!

The headline in today's FT reads:

Iranian hackers deface top China website

The full article is here.

Tim Geithner is in deep trouble - 4

2010-01-13T08:45:00.003+08:00

The blog sphere is practically pronouncing Geithner "dead". Here is yet another on Huffington Post, one of the most read blogs in Washington DC:

Who Will Succeed Tim Geithner as Next Treasury Secretary?

The article is here.

The Jews

2010-01-13T07:37:00.004+08:00

i have often told those who care to listen that Adolf got it backwards. The Jews were the superior, if not the super race. Aryans ain't. I then rattled off some rough data to prove my point. A friend with a macabre twist of wit promptly replied, "Yes, that's why he wanted to kill them".

Read this article for some official eye-opening statistics.

I have not read the book referenced in Brooks' column, but I do remember seeing official US data showing the two highest per capita income ethnic groups in America are the Jews and the Chinese.

While the Chinese have had a good representation in the Nobel sweepstakes, concentrated mainly in physics, they are nowhere near in other intellectual accomplishments compared to the Jews.

It has been said the 21st Century belongs to, well, you-know-whom. However, until and unless the Chinese as a cultural nation begin to de-emphasize conformity as the "golden mean", they will not be able to match the Jewish mind that prizes contentious arguments in the interest of sharpening one's logical reasoning to get to the bottom of "truth". Maybe the Indians one time might be a serious contender. That country has produced two of the most sophisticated systems of thoughts: Hinduism and Buddhism, both extremely dialectical. Indians are well-known for their propensity to argue out their thoughts, similar to the Jews. These are pre-requisites to innovative thinking.

We shall see.

Goldman Acknowledges Conflicts With Clients

2010-01-13T01:23:00.002+08:00

Is this so surprising that the so-called "Chinese Wall" at any investment banker separating one division from another in theory to avoid conflict of interest has been more often than not a fiction than a fact?

Read the whole report here.

Tim Geithner is in deep trouble - 3

2010-01-12T15:22:00.001+08:00

Main Street is mad. MSNBC news anchor is practically calling him a "thief" and then goes on to list the counts why Geithner should be fired. Very strong language for mass media. Watch it here.

A Pair Trade to Consider

2010-01-11T12:49:00.003+08:00

This year, a "no brainer" pair trade could be shorting US Short and Medium bills and buying German Bunds.
Why? US fiscal deficits, current account deficits, huge overhang of excess liquidity the Fed will feel compelled to start mopping up should make the US Short-medium bills a good short relative to the German papers.

What is the Greenspan and now the Bernanke "put"?

2010-01-11T08:00:00.003+08:00

To refresh your memory read this.

The Greenspan "put" is still in force

2010-01-11T07:55:00.004+08:00

Astute financial types recognize the Greenspan "put", now renamed the Bernanke "put", remains as Fed under Bernanke reassures the market that higher interest rates are now in the cards any time soon, as far as the Fed is concerned. But as John Cassidy observes...

"Unlike his predecessor, Mr Bernanke recognises the problem of excessive speculation and the massive externalities its sudden reversal can impose. In that sense, intellectual progress has been made. But he and his deputy, Donald Kohn, still refuse to acknowledge the Fed’s role in motivating reckless behaviour.

Take its current commitment to maintaining rock bottom rates for “an extended period”. Hedge funds and Wall Street dealing desks view this as an open invitation to borrow as much as they can and invest it in risky assets. As former Citigroup chief executive Chuck Prince might have put it, the music is playing, and it is time to dance. (The danger of being left without a chair when the music stops is greatly mitigated by the Fed’s promise to provide ample warning of it unplugging the sound system.)"...

Cassidy's full report is here.

Tim Geithner is in deep trouble - 2

2010-01-11T03:20:00.003+08:00

The "Fire Geithner" movement is getting traction as information on his role as head of the NY Fed asking AIG to withhold pertinent financial information before the bailout continues to shock the public.

NY Post (read here) has joined the bandwagon calling for his head.

CIA betrayed?

2010-01-11T03:07:00.001+08:00

An old CIA hand laments:

..."Sacrificing intelligence operatives out of political expediency is a bipartisan sport. Officials in the George W. Bush administration did not hesitate to blame the spies when it suited them — as though the decision to invade Iraq really depended on intelligence — and the Obama administration is proving, if anything, worse. Last spring’s decision to release secret Justice Department memos on the interrogations of suspected terrorists was a blatantly partisan act. It was designed to win political advantage by holding intelligence officers — whose offense was to follow faithfully their lawful orders — up to opprobrium and scorn. Members of Congress who had enthusiastically encouraged aggressive interrogations in the wake of 9/11 suddenly suffered amnesia when the political zeitgeist shifted"...

Read the whole essay here.

Fraternity on Wall Street

2010-01-10T18:39:00.002+08:00

Exclusivity is what makes Skull n Bones, Ivy, Porcelain clubs at Yale, Princeton and Harvard, well, exclusive. Many of the graduates end up on Wall Street and reproduce or prolongate their fun fraternity shindigs as in this yet another exclusive Wall Street club. Read this here.

Goldman Sachs Responsible for AIG collapse!

2010-01-09T14:22:00.002+08:00

Straight from the horse's mouth. Recriminations have begun in earnest. Lots of reputation are going to fall, starting already with Tim Geithner's role in the AIG bailout per my previous posts. Now read this!

Obama must fire Tim Geithner to save his wobbling Presidency

2010-01-09T08:07:00.005+08:00

When news broke 2 days ago on how Geithner's NY Fed which he headed during the Bush Administration advised AIG to withhold pertinent information on how it was using public bailout money part of which went straight to Goldman Sachs and other banks, I wrote in my January 2 blog that he had a lot of explaining to do.

Now public outrage is building momentum. Cries to get him fired are getting traction. Here is one such argument circulated widely in the US blog sphere:

..."For five reasons, Geithner must go:

Geithner was directly responsible for the most appalling corporate bailout in U.S. history, in which tens of billions of taxpayer dollars were secretly funneled to some of the richest corporations in the world. The terms of this bailout, and the associated cloak of secrecy under which it was conducted (the details of which continue to leak out) have hurt the public's confidence in the government.

Geithner's ongoing decision to save banks at any cost was predicated on the theory that this would keep the banks lending. This policy has failed: The banks have not continued to lend. What the banks HAVE done is coin billions of dollars of profits risk-free at taxpayer expense, fueling even more public outrage.

Geithner's policy of "too big to fail" has created a banking system whose bets are guaranteed by the US taxpayer, and it has distorted lending and market forces across the entire economy. This policy, which has now been all but written into the Constitution, is grossly unfair. Big banks can do whatever they want with no concern about the consequences; small banks have to hunker down or they'll get taken over and shut down.

Geithner's role in the AIG bailout, which the current administration bears no responsibility for, continues to destroy confidence in his current boss, President Barack Obama. If AIG stays in the headlines, and Geithner does not accept responsibility for what happened. Obama's agenda and influence will continue to suffer.

Geithner's consistent decision to put Wall Street first has helped fuel a populist rage that will make it very difficult for the government to do anything more to help the financial system. If the recovery continues, such help might never become necessary. If it falters, however, Geithner's policies will have severely curtailed the government's ability to do anything about it"...

source: Huntington Post Blog here.

Goldman Sachs Sued by Shareholders

2010-01-08T23:44:00.003+08:00

One institutional and one individual shareholder have sued Goldman Sachs for effectively hurting shareholders' interests by paying out mega bonuses to the senior executives of the firm. Read the report here.

I have long lamented the fact that the various boards of directors on Wall Street, which in theory were there to save guard the interests of shareholders never uttered one beep before, during and after the Wall Street bubble debacle and never once decided to fire a few top executives to punish them for their negligence or their excesses in fueling the bubble in the first place.

As the report from Bloomberg indicates, finally some shareholders are taking action without any help from those directors. And by the way none of these directors ever got ashamed enough of their own negligence, incompetence or their own active role in aiding and abetting the managements in the creation of toxic assets while knowing or not understanding the intrinsic riskiness of those products.

Read that Book!

2010-01-08T23:31:00.002+08:00

Joseph Stiglitz, Nobel economist, has a new book: "Freefall".

Do buy and read it for it provides an analysis of what has happened on Wall Street and Obama's response in a manner not frequently seen in public debates. Read a book review in Bloomberg News http://www.bloomberg.com/apps/news?pid=20601088&sid=aaoX3CCNGfb4

Wrong Side of Financial Reforms

2010-01-08T18:24:00.001+08:00

..."there’s a populist rage building in this country [USA], and President Obama’s kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage. If Congressional Democrats don’t take a tough line with the banks in the months ahead, they will pay a big price in November"...

Source:Paul Krugman's latest column here.

Geithner's Past Catching Up on Him!

2010-01-07T23:00:00.003+08:00

If what this Bloomberg News report here is correct, Geithner will have a lot of explaining to do as to why he told AIG to hide from its bankers relevant information that would put AIG in a bad light.

In fact, it is incredible that Geithner as the then head of the NY Fed would do such a thing in the first place.

Ageless Wisdom

2010-01-07T00:32:00.002+08:00

My friend Charles in Hong Kong drew my attention to what a Roman philosopher and politician said a long time ago:

..."The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must lean to work, instead of living on public assistance"...

- Cicero 55 BC

Amen.

Affirmative Action at Elite French Universities?

2010-01-06T18:26:00.003+08:00

France has the largest minority population in continental Europe but you would never have known it when you look at the elite in all fields except in soccer. Only when you watch the national soccer team play you get the inkling that France is not a lilly white country. It made history when a black woman made cabinet officer under Sarkozy.

The article here here. reminds one how backward the public debate in France remains concerning how to bring its under-privileged minority citizens into the "mainstream".

The elite universities' so 1960's argument that by having Affirmative action programs to aggressively recruit minority students would lower academic standards was the same you heard back in USA.

Yet it is precisely the concerted effort by some of the more enlightened admissions offices at the elite American universities that had allowed talented young people of "color" to show up their white counterparts that given a chance they could do just as well, and not just in sports.

At places such as Harvard, Stanford or Princeton you now have 10-15% black students, 30-45% students of "color". The standards of academic achievements remain as high as ever belying those reactionaries who once claimed Affirmative Actions would destroy quality of education.

For those French who still think in those archaic terms, they should look no further than 1600 Pennsylvania Avenue inhabited by a couple who jointly have 2 Harvard, one Princeton and one Columbia degrees.

Banks Not Lending

2010-01-06T10:39:00.004+08:00

In case any of you are still wondering why US banks are not lending despite President Obama's public pressure on them to do so, the simple answer is the Economic Team Obama has been negating Obama's intention with concrete action:

The Federal Reserve – for the first time in history – is paying the banks interest on excess reserves. They can earn 0.25% risk free on nearly $1 trillion. This is more than the banks can earn on 1, 3 or 6 month T-Bills right now. This helps prop up the financial sector while keeping long-run inflation expectations low, and hence, it is deflationary.

May I humbly suggest Obama quiz Summers/Geithner/Bernanke before he badgers the bankers again? And that's why Main Street which needs bank credit to do business is getting the shaft while Wall Street continues to get freebies courtesy of Team Obama on behalf of taxpayers.

Bernanke is not serious, of course.

2010-01-06T07:52:00.003+08:00

Yesterday I posted parts of Bernanke's speech to the American professional economist association asserting that low interest rates in years past, a policy he approved as a member of the Fed board of governors, were not a factor in the housing bubble. He quoted John Taylor's rule, named after a Stanford professor, to make his point. Now, straight from the horse's mouth -- Taylor himself.

...“The evidence is overwhelming that those low interest rates were not only unusually low but they logically were a factor in the housing boom and therefore ultimately the bust"...

Full report is here.

Is Bernanke serious?

2010-01-04T06:34:00.002+08:00

Bernanke argued:

1)..." that trends in other countries demonstrated a “quite weak” connection between housing price appreciation and monetary policy....

2) ...when historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment...

3) ...Regulatory failure, not lax monetary policy, was responsible for the housing bubble and subsequent financial crisis of the last decade"...

I have just 3) "stupid" questions.

Dr Bernanke:

1) if the connection between housing bubble and monetary policy were as week as you claim, does not mean housing prices do not respond to sky high interest rates?

2) Indeed, if low interest rate + very lax monetary policy, something you are doing right now, have "weak" connection with housing policy, why are you doing that right now if not to help ALL asset prices stabilize?

3) Would you raise interest rates and put in a tight monetary policy right to stabilize the dollar since in your logic doing so would have "weak" connection with housing prices, and by extension, other asset prices?

Seriously, we know you are defending the Fed for its irresponsible excesses in the past, but please don't insult our intelligence further to start off a new year!

The entire new report is here.

Can you spare a dime, brother?

2010-01-03T17:32:00.001+08:00

...."About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card"...

Source: NY Times here.

Islamic "dominoes".

2010-01-03T09:35:00.002+08:00

It is a case of "poetic" but macabre justice. Pakistan as a nation was always anti American, sympathetic to the Islamic "cause", spreading hatred around the world. The following is an excerpt from a Reuters report:

..."The Taliban has extended its reach from its strongholds to major Pakistani cities, including an attack on a mosque near the headquarters of the powerful military.

Karachi’s streets were nearly empty on Friday. The stock exchange, which normally operates on the first day of the year, was closed. Security forces carried out patrols. But residents were taking no chances.

”We are already losing business and can’t take the risk of going out today and opening our shops,” said Saleem Ahmed, who sells electronics at one of the city’s markets"...

The full report is here.

Recall Pakistan's nuclear scientist, Dr Abdul Qadeer Khan, father of Pakistan's nuclear bomb, sold secrets to such "civilized" countries as North Korea and Iran is still considered a national hero in Pakistan.

After getting caught, the former "pro" West president, Musharraf, who had previously appointed Khan as his "special scientific advisor", merely put him under house arrest in Khan's huge luxury villa. He was later pardoned by the Supreme Court.

Pakistan's madrassas that train young boys to become islamic clerics are a hotbed of radicals. They are taught to believe religious studies are all human beings need to become "educated". These future religious leaders are also taught to believe women are inferior beings.

Now, the real radicals are calling and if we believe what we read, they have a huge chance of taking over Pakistan. Unfortunately, given the slapdash way the US is "winning" hearts and minds supporting the corrupt Karzai in Afghanistan and given what its slapdash military in Iraq is mindlessly hurting Iraqi civilians via its proxy, Blackwater, US is not winning any hearts and minds throughout much of the Islamic world, and definitely not in Pakistan either.

As usual the West again mindlessly substitutes $$ and hardware and not focusing on the far harder task of "soft" power by giving Pakistan, and now Yemen, money and equipment.

If Pakistan teeters towards a collapse, it will inevitably draw the US into that military conflict for Pakistan is a nuclear power. India will not allow Pakistan to be Taliban-ized since India itself has a huge population of Muslim. 14% roughly or 161 million of them. India cannot afford to have a maniacal nuclear power jointly run by Taliban and Al Qaeda next door.

US will not allow it. The West will not allow it. But what can they do? Start another war to fight the Taliban and Al Qaeda in Pakistan? Short of re-enacting a national draft in the US there are not enough troops to do al that fighting! And even if you could send more troops to Pakistan, what is the likely outcome? Picture the US fighting in Afghanistan and in Pakistan while Iraq is still unstable?

Until and unless the Pakistani's themselves want to reject Taliban and Al Qaeda, there can only be yet another military disaster for any foreign power to get involved in Pakistan's domestic violence.

Goldman Sachs to the Rescue?

2010-01-03T06:44:00.002+08:00

US taxpayers have lost $400 billion and counting in saving Freddie and Fannie. Goldman Sachs, rescued from a probable collapse, is setting aside many billions for its senior staff. Should they not be asked to help out their deficit-ridden Uncle Sam by giving up part of their multibillion dollar bonuses?

Read this report here on how unfair this whole rescue operation has been managed by those Washington DC geniuses.

Media and Reporting

2010-01-03T00:36:00.003+08:00

The Washington Post's opening paragraph regarding the 14 civilian Iraqi deaths caused by 5 Blackwater operatives was about the US judge finding evidence not conclusive. I posted that article earlier. The UK paper here goes right into the heart of this war which is to win hearts and minds. See the difference?

Winning Hearts & MInds in Baghdad?

2010-01-02T18:38:00.002+08:00

Remember Blackwater? Straight out of Hollywood's TV series "24". Remember 5 Blackwater types shot and killed 14 Iraqi civilians and wounded 20 more and got sued?

From today's Washington Post: --

..."The shootings, in which the guards allegedly opened fire with grenade launchers and machine guns on civilians in a busy Baghdad traffic circle, became to many Iraqis a symbol of U.S. disregard for their lives. Seventeen people were killed in the attack and 27 were wounded, but prosecutors said they did not have sufficient evidence to press charges on behalf of all the victims...

..."U.S. District Judge Ricardo M. Urbina threw out the indictments because he found that prosecutors and agents had improperly used statements the guards had provided to the State Department with the understanding that the statements would not be used against them. An attorney for the guards has said they fired in self-defense.

Iraqis described the decision as unfathomable.

"They're letting the criminals who killed and burned people inside their cars escape? How can I forget what they did to my body with bullets, and the dear part of me that they took," said Mahdi Abdul Khudor, 45, who lost an eye in the shooting and suffered other wounds. "I'll be ready to reconcile with the Americans when they bring me back my eye."

The Iraqi government also protested and said it will pursue legal action.

"What happened yesterday confirms that the trial was biased," said Ali Adeeb, a lawmaker and top adviser to Prime Minister Nouri Al-Maliki. "This was an unreasonable, criminal operation, and there should have been justice."

The entire report is here.

Hong Kong - Beijing's Political Albatross?

2010-01-02T06:08:00.004+08:00

Hong Kong has a population of 8 million, +/-. Mainland China has 1.3 billion, soon to be world's second largest economy. You wouldn't think whatever happens in Hong Kong would be viewed as threatening to the political foundation of the ruling party in China, would you?

Well those nervous and paranoiac leaders in Beijing obviously think so. They have been blocking democratic reforms in Hong Kong, one of the world's most educated, sophisticated and wealthiest first world communities, because "it is not ready yet".

C'mon. why don't you just come out and say what's so obvious to anyone with half a brain. You are afraid that the 1.3 billion would demand the same reforms if democracy were to be "granted" to the population in Hong Kong.

Read the latest report here on Hong Kong's amazing patience demanding their political rights to elect their own leaders.

How Rumsfeld bungled the War in Afghanistan

2009-12-31T06:10:00.002+08:00

The equivalent of the Pentagon Papers on the Vietnam War will be published in 2010. As usual, the New York Times got an unauthorized advance copy excerpts of which are here.

The arrogance of Rumsfeld and the disasters from invading Iraq based on false pretenses reverberate to this day. Thanks for the memory, folks.

Incompetence pays on Wall Street!?

2009-12-30T23:42:00.004+08:00

As this Washington Post report here documents, probably the first of many to come, AIG internally began to doubt as early as 2007 the risk profile of its own derivative products put on by its derivatives unit based in London. Yet, all the time the company presented a "don't worry" united front to the public until the dam broke.

The most pertinent and interesting issue raised by this report is this: when does incompetence or wishful thinking at AIG cross over to become criminal? In other words can we charge the principals with a crime when they were being merely stupid?

Lawyers will have a field day on this.

I am no lawyer. I do know when I park at the wrong place even though I didn't know it was illegal, I violated a law and have had to pay a fine. Ignorance, I am told time and again, is not an excuse to do something illegal.

If I killed a person without knowing what the heck I was doing, I would be charged with manslaughter or else plead insanity. If I were a teenage geek hacker having fun breaking into a Federal government server, maybe even the Pentagon's, I would be hauled into prison even if I were a certifiable red neck patriot ready to die for my country anytime of the day.

So, I guess if I were to play with the shareholders' money and then burned billions, the court would find me innocent as long as I had "agonized" over my strategies as the court did with 2 hedge fund managers let free? And if that were a precedent the responsible AIG guys would also be able to continue to enjoy their already received multi-million dollar compensations in their retirement in the south of France. It pays to be incompetent on Wall Street, it seems.

Interesting issue for a good law school.

Good Luck in Afghanistan, Mr President And a Happy New Year

2009-12-30T23:39:00.001+08:00

Huntington Post

DECEMBER 30, 2009

Afghan Army Rife With Corruption, Incompetence, U.S. Military Report Says

On the "Rachel Maddow Show" Tuesday night, NBC's chief foreign correspondent Richard Engel discussed a new Pentagon report that paints a sobering picture of the state of Afghan's security forces. The report, intended for military commanders and not for public distribution, concludes that Afghanistan's National Army is rife with corruption and incompetence, and that it will take far more than a year to rehabilitate the country's security forces.

"The main mission of the United States Army, all the different forces that are there, is to train the Afghan security forces so that American forces can ultimately leave," Engel said. "This report says that this priority is facing serious, serious problems, and the military knows it."

Engel goes on to say that the report would seem to call into question Obama's plan to begin "dialing back" the surge by the summer of 2011, given that it looks to be extremely unlikely that the Afghan security forces will "up and running and in place" by then.

Hong Kong Property Prices

2009-12-29T23:18:00.005+08:00

Anyone who wants to understand why property prices in Hong Kong are sky high and that the bubble is not necessarily about to burst should understand at least the following 3 factors:

1) New land is solely supplied by the government which likes to keep prices high by not releasing any meaningful amount of land for some years.

There is a long story behind that, but a hint: 5 property developers, all controlled by individuals who are now among the world's richest, are also sitting on enough land to meet the needs of new housing needs for the entire economy for at least 6-7 years. They are the de facto tax collectors for the government for which the latter ignores any possible anti-trust collusion practices. High government officials routinely get lucrative compensation packages after retirement working for the same developers they used to regulate, in theory.

2) Any mainland Chinese with HK$8 million (slightly more than 1 US$ million buying a property gets permanent residence. After 7 years the property owner is entitled to a Hong Kong passport. Unlike that of the PRC, a HK passport holder can travel to nearly all countries on this planet without a visa.

3) The latest NY Times report here scratches the surface of sources of funds for most of the mainland buyers of properties in Hong Kong.
Note the amount in the report referred to the first 11 months of 2009 only. "nuf said.

How Does One Destroy Hatred?

2009-12-29T09:56:00.002+08:00

The latest bomb incident in USA involving Al Qaeda raises fundamental questions, as if necessary, as to whether bombing Afghanistan or even killing Osama bin Laden is sufficient or even necessary to destroy the hatred among fundamentalists to hurt USA.

Let's look at the facts of the case described in this short report here:

Saudi Al Qaeda Wing Claims Responsibility for Thwarted Christmas Attack
12/28/09

Umar Farouk Abdulmutallab.Photo: U.S. Marshals Service
Even though it appeared at first that aspiring terrorist Umar Farouk Abdulmutallab acted alone when he tried to detonate a device on a Northwestern Airlines flight on Christmas Day, a terror group says they supplied him with materials. The Saudi wing of Al Qaeda posted notices on militant Islamist websites today stating that they gave him the explosive technology and boasted of his success. The group has organized attacks on Americans within Yemen and Saudi Arabia, and beheaded American Paul Johnson in 2004. Meanwhile, President Obama just spoke from Hawaii, where he is on vacation, and said that his administration "will not rest until we find all who were involved and hold them accountable." He added that "this was a serious reminder of the dangers that we face."
Qaeda-Linked Group Claims It Was Behind Bomb Attempt [NYT]

Read more: Saudi Al Qaeda Wing Claims Responsibility for Thwarted Christmas Attack -- Daily Intel http://nymag.com/daily/intel/2009/12/saudi_al_qaeda_wing_claims_res.html?mid=daily-intel--20091228#ixzz0b2SrFFGu

The inept suicide bomber is from Nigeria. Materials, know-how, money from Saudi Arabia and Yemen. Where is Afghanistan in this equation?

Put differently. Suppose you wanted to destroy Catholicism. Would bombing Vatican city do the "job"? How does one destroy Protestantism? Where does one bomb?

I am not equating Christianity with fundamentalist Islamic terrorism. The point remains that the terrorists are moved by an idea, however flawed, sick, self-destructive it maybe.

In the dark days of Chinese Communism between 1949 to 1979 roughly, the government supplied a daily dose of "hate America" propaganda. Yet, America's Chinese name "Beautiful Country" remained the name the Chinese people used. They knew America was a better and the country a beautiful country.

The only way to fight a bad idea is to make sure the good idea remains shining bright. The only way to ensure that is to make sure "nation building" starts at home.

America is physically badly maintained. Philosophically it is floundering having sacrificed its basic moral principles in the name of "national security", a theme Obama himself put in his inaugural speech, now forgotten in its expansion of a war in Afghanistan. And don't get me started on Wall Street where maximizing profits has taken precedence over all ethical business values for which America was once the standard bearer.

Are We Being Unfair to Goldman Sachs?

2009-12-28T16:41:00.004+08:00

The principle value held dear by those who believe a voluntary market transaction between 2 consenting adults is by definition "fair". Enough Nobel Prizes in economics have proved that if there is "asymmetry" in information, "fairness" is not what it may seem.

Asymmetry in information means in a transaction I know something you don't in whatever we are buying from or selling to each other.

You decide after reading this longish article in the current issue of Vanity Fair here whether world opinion is being fair to Goldman Sachs.

Efficient Market Hypothesis (EMH)

2009-12-27T14:12:00.002+08:00

EMH has been the Holy Grail of financial engineering ever since the late Paul Samuelson as a lowly graduate student of economics at MIT discovered Louis Bachelier, a French mathematician who wrote about speculation in his 1900 PhD thesis in Paris. Eugene Fama at Chicago later refined the theory making the Hypothesis famous establishing as more an axiom than a hypothesis as the theory itself is called. Burton Malkiel at Princeton popularized EMH for the lay reader in his best selling book: Random Walk Down Wall Street making him a millionaire several times over.

Briefly stated EMH posits that active fund management is futile to gain advantage over market moves because the "efficient" stock market prices incorporate, absorb, digest and, therefore, reflect all known information about them instantaneously. No human brain can possibly match that giant discounting machine. Ergo, no fund manager can possibly outperform the market.

Very few professional fund managers who have lived through at least one business cycle ever believed EMH was anything but an interesting idea whose time is yet to come.

However, it was the reigning ideology under the Bush administration where the market fundamentalists such as Greenspan and Christopher Cox, deliberately turning the other way "running" SEC, simply allowed the "market" do whatever it wanted to do, to a not very happy ending for which Greenspan and Cox both later apologized.

Most of the "high power" equity research is done by global sell-side firms -- the Goldman Sachs and the Morgan Stanley's of the world -- hence, there is negligible time delay between the hour of the publication of research and the time investors get it.

The largest investors, institutional or individual, usually even get a phone call as soon as a piece of important research is released informing them of new information that would go with a recommendation to act: sell, buy more or just hold.

Now, this study here suggests that the market does not discount all the information, even the most relevant one -- phone calls or no phone calls. Ergo, the idea that the all mighty "Market" is efficient leaves much to be fantasized by future generations of academics who can only think in obtuse mathematical equations.

Been There, Done that, Merry Xmas

2009-12-26T07:56:00.003+08:00

30 years after USSR went into Afghanistan, remembrance of a former Soviet general::

..."Afghans will fight foreign troops as long as foreign troops are there," said Lev Serebrov, whose time there was book-ended by the Soviet invasion and retreat. He arrived in 1979 and stayed through 1981 as a lieutenant colonel and deputy division commander, and returned from 1987 to 1989 as a major general and deputy to the Soviet operations commander for the Afghan war"....

Another general:

...""It's very hard to fight in Afghanistan. Your leadership will have to find a way out."

The excerpts are from this report here. well worth 2 minutes of your time reading in its entirely.