Year: 2008

Will KPMG go Arthur Anderson?

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It now appears that KPMG systematically helped New Century Financial, a mortgage lender, conceal its financial troubles.

New Century Financial, whose failure just a year ago came at the start of the credit crisis, engaged in “significant improper and imprudent practices” that were condoned and enabled by auditors at the accounting firm KPMG, according to an independent report commissioned by the Justice Department.

This is what killed Arthur Anderson.

The specifics:

  • KPMG auditors raised red flags, but KPMG partners rejected them because they, “feared losing a client.”
  • The accounting changes converted a loss ot a profit in the 2nd half of 2006.
  • These “profits” meant large executive bonuses
  • They also misled Wall Street about the status of the company and artificially inflated the stock price.

FWIW, I disagreed with the Supreme Court decision exonerating Arthur Anderson.

The only we get honest audits is if there is a threat of a corporate death penalty hanging over these folks heads.

Iraq Update

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First, we must mention that Tahsin al-Sheikhly, a spokesman for the Iraqi government’s security forces has been kidnapped by elements of the Mahdi Army (See here and here).

It makes one wonder if Maliki’s really the head of the Iraqi government, or a very subtle sketch comedy troupe.

The fighting continues, and we are seeing large protests in Baghdad over this.

It’s increasingly clear that Cheney wanted provincial elections to go forward, and signed off on operations against the Mahdi Army to do this, not because they would prevent elections, but because Maliki wants to take them out to prevent Sadr’s party from making political gains in the elections.

Of course, Maliki is vowing “no retreat” on the operations, but if this ends with a cease fire, he’s done, so it’s not like he has an alternative.

In the mean time, the Maliki forces are not doing well, and it appears that US Armored forces are now actively involved. The Iraqi army is not, as they say, “standing up”.

Finally, on the real reason that we are there, oil, we are seeing oil price spikes on pipeline sabotage.

France to Cut Nuclear Arsenal

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This is something that we should be doing too. Sarkosy has announced that the French nuclear arsenal will be cut to less than 300, about half of what it was at its peak.

This is a good step for everyone. Currently, according to the wiki, “[the USA] maintains a current arsenal of around 9,960 intact warheads, of which 5,735 are considered active or operational”.

I see no reason that we could not drop down to below 1000 operational warheads.

Zumwalt in Trouble

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The DDG-1000 class ships are losing Congressional support, with Rep. Murtha proposing that they be delayed for other needs.

There were originally supposed to be 24 of these, then 7, and now 2, and they are being delayed, and the price has gone through the roof, with it now being quoted at $3 billion each, with realistic estimates putting it at $5 billion.

It’s a bad program. 80%+ of any surface combatant’s benefits are simply a product of their being afloat and available, so going with what are very large boats and fewer numbers gets fewer boats in the water, and this does is not outweighed by the additional capabilities of the larger boats.

The problem is that the US Navy has a fixation on size.

Economics Update

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South Korea’s National Pension Service will no longer invest in US Treasuries. They are saying that the rates of return are too low.

Note that this is the 5th largest pension fund in the world, so this is a decision with consequences.

I have noted on a number of occasions that the Fed would find itself torn between keeping the economy afloat, and keeping the dollar strong, and this is the first leak in the dam.

This does not necessarily mean that they won’t be investing in the US though. While the rates treasuries are low, other interest rates are rising, with the London interbank offered rate (LIBOR) up about 1%. Mortgage rates are also not responding to Fed Rate cuts.

Search for the term “pushing on a string” in my archives. It’s a quote from Keynes.

The weekly jobless claims numbers are less than were expected, which is good news, but there is a lot of noise week to week, so I’m more concerned about Commerce Department’s final GDP numbers, which show the inflation adjusted growth of the GDP being 0.6% annually.

Additionally, investors initial reaction was to flee long term treasuries following the unemployment numbers, which implies an expectation of increasing inflation.

In terms of the market recovering trust, not so much, with asset backed commercial paper, short term asset backed debt, falling. There are no buyers for it.

Finally, Merrill will write down $4.5 billion on CDOs (collateralized debt obligations), and post a loss in Q1.

Al Wynn to Resign

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Wynn is retiring, effective June.

Nominally, the reason given is that he wants to give Edwards a leg up on the general, that she does not need, but I don’t buy that.

My guess is that either he wants to get a running start on his lucrative lobbying gig, or he is doing this as a way to shaft either Donna Edwards or his constituents.

My suggestion would for O’Malley to call a special election on the same day as the general. That way Edwards has a seniority edge on the rest of the 2009 Freshman class.

Siegelman Released by Appellate Court, Will Appear Before Congress

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The Appeals court has ordered former Alabama Governor Don Siegelman released from prison pending his appeal. They overturned the ruling of his judge at trial, Mark E. Fuller, who is also a political foe of the former governor.

He’s been in custody for some time, one of the reasons that Judge Fuller has dragged his feet on releasing the transcript, without which you can’t even start filing an appeal.

Also, the House Judiciary Committee is requesting his testimony.

Guns for What?????????

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India is now giving firearms permits to men who get vasectomies.

A scheme that trades one male status symbol for another has achieved a large rise in the number of men undergoing vasectomies in a bandit-ridden region of central India.

Shivpuri district in the state of Madhya Pradesh, an overpopulated area renowned for its machismo culture, has started to offer fast-tracked gun licences for those who agree to be sterilised.

There has to be a crude joke here, but I’m not seeing it.

Remember, Stocks are Always the Best Long Term Investment

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Except, of course when they are not, as has been the case in what the Wall Street Journal so evocatively calls the Lost Decade, where stocks have provided no return over the past decade.

This is not surprising, seeing as how we are coming off a bubble, tech stocks segueing into real estate, and this is when stocks don’t do well.

Dean Baker asks the question the WSJ won’t, “What if your social security was invested in this?

The answer is that we, and our parents and grand parents, would be completely screwed.

Neat Tech: Satellite Swarms

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Basically, as opposed to launching one big satellite, like the one that the navy had to shoot down, you launch fractionated satellites, basically a cluster that orbit close to one another, and together provide the capabilities of a single larger satellite.

It means that a launch or satellite failure won’t remove the capability, though it may reduce performance somewhat.

The program is from DARPA, and it’s called “System F6” (future, flexible, fast, fractionated, free-flying spacecraft united by information exchange).

McCain Clueless on Financial Crisis

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He’s saying that, “leavint the door open“, but that really means that he doesn’t know what to do.

Not surprising, since his number one and two economic buddies are Alan Greenspan, whom McCain once famously said that if he died, he put sun glasses on him and do the Weekend and Bernie’s thing, and Phil Gramm, who spent his career making wall street safe for scam artists.

They are numbers one and two on the “who f%&$ed Wall Street up” hit parade.

Scare Quotes of the Day

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Courtesy of that communist rag, the Financial times of London, where they ask Why we should fear a McCain presidency?

It may seem incredible to say this, given past experience, but a few years from now Europe and the world could be looking back at the Bush administration with nostalgia. This possibility will arise if the US elects Senator John McCain as president in November.

Emphasis mine.

Of course, this quote is no where near as disturbing as Harold Meyerson’s in the Washington Post:

It is 3 a.m., and the stillness of the White House night is shattered by the ringing of the red phone. President John McCain, rousing himself from a deep sleep, turns on the light and picks up the receiver. A U.S. embassy in a Middle Eastern country, he is told, has been blown up, and al-Qaeda is taking credit.

McCain takes a deep breath. “Character counts, my friend,” he says. “Bomb Iran. Bomb, bomb Iran.”

There is a rustling of blankets, and, brushing aside Cindy McCain, a concerned Joe Lieberman rises from the bed. “Not Iran, Mr. President,” he says. “They hate al-Qaeda.”

“That’s right,” the president says. “I remember now.” He sighs with relief. “Good thing you’re here every night, Joe.”

But suppose, dear reader, that John McCain becomes president and Joe Lieberman doesn’t bunk with the McCains on a nightly basis. How easily should the rest of us sleep? It’s anything but an academic question after McCain’s bizarre performance in Jordan last week.

As disturbing as the last image is, it’s clear that McCain’s solution to anything short of unstopping a toilet is to launch a military strike.

Military strikes against the DPRK and Iran would be almost certain, and I’d offer even money for shooting between Russia or China and the US.

More Toxic Exports

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We are not talking Chinese toys, or Mexican lettuce, we are talking about “Anglo-Saxon” financial products.

Increasingly the rest of the world is looking at the US and UK system of regulation, more accurately a system of no regulation, and seeing the downside, and becomind disenchanted with the US-UK model.

Henry Farrel cites articles by Wolfgang Münchau, and Steve Clemons about the change in attitude.

They both make the point that this is an ongoing, and IMHO accelerating, loss of power for the US, though Münchau is rather more stark, first because he has been an unabashed fan of what I call US style klepto-capitalism, but also because of his the points that me makes:

  • The Euro would replace the dollar as the world’s largest reserve currency within the next 10 or 15 years. (I rather believe that it will be in 5-10 years, but I’m not an economist)
  • If yours is a global reserve currency today, it is likely to be one tomorrow too. But this works only up to a point – a tipping point.
  • But the Euro is a real alternative. [to the dollar as a reserve currency]
  • This has been a crisis of Anglo-Saxon transaction-based capitalism.
  • Losing the dollar as the world’s leading international currency not only leads to a loss of political power. It constitutes loss of power.

What happens when your bank starts demanding Euro denominated mortgages?