Year: 2008

Hank Paulson Needs to Go to Jail

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Well, we already know that Hank Paulson is a big fan of large Wall Street banks taking over their smaller brethren, and now it appears that he broke the law to provide an additional subsidy for bank M&A activity.

Specifically, he “reinterpreted” an obscure section of the tax code, by tax code, I mean law as written by Congress, not regulations issued by the IRS, Section 382, which limits the amount of prior losses you can write down when you take over a company:

More than a dozen tax lawyers interviewed for this story — including several representing banks that stand to reap billions from the change — said the Treasury had no authority to issue the notice.

Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.

(emphasis mine)

This is something that Hank Paulson and His Evil Minions&trade have been lobbying to get for years, and anyone who is not a paid shill of the bank is saying that this was illegal.

He broke the law, and he knowingly did so.

You can talk all you want about criminalizing official behavior, but his behavior is plainly criminal.

Economics Update

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Let’s start with retail, where the inestimable Barry Ritholtz points us to a pretty picture on the retail collapse from the NY Times (click on image for the NY times article):

I would note that the 4 weeks before November 1 are now firmly part of the Christmas season, and the Christmas season is typically 40% of revenue, and 80% of profits.

In related news Circuit City files chapter 11, this should come as no surprise for the people who have followed this sad tale, as was predicted when they laid off senior sales staff and replaced them with clueless low wage drones while issuing large executive bonuses: (Story dated December 22, 2007)

Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing with the Securities and Exchange Commission.

If you don’t have competent sales staff, then why won’t your customers go to the Amazon and Walmart?

Karma, Neh?

In the world of mortgages, we have Fannie Mae Posting a ecord $29 billion loss for the quarter, which is actually worse than it seems, since the last quarter’s profits were largely from banking losses as tax breaks.

It will likely never see those tax breaks, because a profitable year is so far off.

Yesterday, it was monoliner Ambac, today, Moody’s cuts MBIA. No surprise….dead insurers walking.

Meanwhile, in energy, it appears that the House of Saud is actually adhering to the OPEC oil production cuts, which along with China’s announcement of a $586 billion stimulus package should drive commodities up.

The Russians are hoping that it will work, as falling oil prices seems to indicate a devaluation in the Ruble.

So far, it appears to be working, oil finished the day up $4.52/bbl….Good for them, bad for us.

In any case the Chinese stimulus package has had the effect of driving the dollar down, though I’m not sure why…I just don’t know the underlying theory.

Carnegie Taken Over by Swedish Government, to Be Sold

Finally, we have a report from Calculated Risk on credit crisis indicators:

  • Libor down (good)
  • 3 month treasury yields down (bad)
  • TED spread up a smidgen (a smidgen bad)

They also have a nice scare picture of the Federal reserve balance sheet here:

Basically, it’s how much of the sh%$pile that the Fed owns, and this is fracking terrifying.

Zimbabwe

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Well, with the election, I’ve taken my eye off the ball with regards Zimbabwe.

It appears that there are two camps in the Zimbabwe crisis among the Southern African Development Community (SADC), led by former South African President Thabo Mbeki, who generally cuts Mugabe infinite slack, and President Ian Khama of Botswana, whose opposition to Mugabe is best described as vociferous.

I agree with Mr. Khama.

In any case, the SADC summit was held, and both parties attended, though Tsvangerai made it clear that he would not sign an agreement just to satisfy mediators, which is a not so thinly veiled swipe at Mbeki’s disasterous involvement in the process.

Of course, while this is all going on, ZANU-PF is still engaged in a broad ranging program of harassment, violence and intimidation….Same old, same old….

In any case, it’s refreshing to see that Jacob Zuma, who had Mbeki ousted as South African president, Zuma says SADC summit must force Zimbabwe deal | International | Reuters
is making it clear that he will not accept Mbeki’s do nothing style:

“As far as I’m concerned SADC must make those Zimbabweans reach an agreement,” Jacob Zuma told Reuters after a speech to the Cape Town Press Club. “They must force them.”

So it now appears that there may be a full summit of the SADC, which is pretty much a recognition that Mbeki is simply not up to the task here.

So they held the summit over the weekend, but which came to nothing.

It appears that there was an offer to “co-manage” the home affairs ministry, but I think that it’s clear that the MDC “co-manager” would have no voice in the matter, which they rejected.

In any case, it appears that Mugabe is now saying that he will unilaterally allocate cabinet positions.

One final note is that we now have confirmation of one of the more bizarre aspects of this whole affair, that the ZANU-PF for signing at altered the prior agreement document

Before any progress can be made the SADC leaders will have to resolve the controversy over the documents that were signed by the three Zimbabwean leaders. In an earlier report The Zimbabwean stated that they had been doctored behind Tsvangirai’s back by Zanu (PF)’s Patrick Chinamasa, MDC-M’s secretary-general, Welshman Ncube and one of Thabo Mbeki’s representatives.

We now understand Ncube had nothing to do with the doctoring and we apologise to him unreservedly. Patrick Chinamasa has admitted to tampering with the documents and to “accidentally” deleting two paragraphs which alter the document substantially.

I’m not sure exactly how you deal with people who see this as a legitimate negotiating ploy, and, short of declaring ZANU-PF a terrorist organization, and while it it is actively terrorizing its populace, this would be a misuse of the statute, I’m not sure what the US can do.

Election Updates

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Well, the statistics whiz at fivethirtyeight.com notes that with over 80,000 votes to count, and a 3,000 vote margin, the Alaska Senate race still too early to call it.

In fact the number of uncounted votes has grown to 81,000.

Interestingly enough both Stevens and Begich believe this too, because they are both soliciting donations for lawyers.

At this point, there looks to be some sort of official vote tally in a fortnight.

Minnesota is even closer, with things down to a 204 vote margin, and most of the under votes coming from Democratic leaning precincts, so I think that it is even money as to whether Coleman or Franken wins.

An official count should be finished in about a week, and then you have the state mandated recount.

This is very funny.

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There have been any number of Youtube mashups of the scene in the Downfall (Der Untergang), where you hear the original German dialogue, and you see English subtitles about something different (the one about being banned from the XBox network was prize).

Well, Barry Righoltz found this on Youtube, and it’s very funny, at least it’s funny if you do not know German, which I don’t.

The Question is, What are They Covering Up

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The Bloomberg News has filed suit in federal court to require the Federal Reserve to disclose the securities received in what I call it’s sh^%pile for cash program.

The Fed is claiming that it’s, “confidential commercial information,” which is (my guess) lawyer speak for worthless garbage.

The Bloomberg followup story notes that, “The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression,” which is a pretty damn good reason for some openness here.

You have to remember that these programs have created new and not fully understood markets, and that the programs in question are directing money toward entities whose business model is to use information asymmetries to generate profits.

A lack of transferency is not the fox running the hen house, it’s Colonel Sanders running the hen house.

The Post is Interesting, But the Snark is Prize

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Over at Ares, Bill Sweetman has a post noting the similarities in weights and fuel loads between the Navy’s F-35C and the A-5 Vigilante series.

It’s an interesting read, but his takedown of the Vigilante linear bom bay is just prize:

The A3J-2 or A-5B was designed without that restriction, and had usefully more internal fuel, but by the time it came along two things had happened. The Polaris missile submarine had taken over the Navy’s nuclear strike mission and tests had shown that there was only one version of the Vigilante where the unique linear bomb bay – which shot the bomb out of the tail – actually worked.

Unfortunately, it was this version:

Mr. Sweetman owes me a screen wipe.

Now This is a Breath of Fresh Air

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Well, it looks like President Elect Barack Obama has decided to tighten ethics rules, and it will hit the pentagon hardest, “No political appointees would be able to work regulations or contracts directly and substantially related to their prior employer for two years. And no political appointee will be able to lobby the executive branch after leaving government service during the remainder of the administration.”

It’s a very good start. It will have the effect of reducing the so called “Tron Triangle.”

Of course, you get the complaints:

“You can understand the motivation behind it, but it’s not clear that you will get the best and brightest people who understand what needs to be done to serve in the government. As you know previous administrations have had great difficulty attracting people under the existing guidelines,” a procurement expert with experience in and out of government told me this morning.

But the, “procurement expert with experience in and out of government,” is the problem, not the solution.

It’s this kind of self dealing that gets us a JSF that runs nearly $1/5 billion a plane.

Your Defense Dollars at Work

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Yes, the U.S. Air Force has paid to become the exclusive sponsor of the Xbox LIVE short film series ‘Horror Meets Comedy’:

As the sole sponsor of the series, Air Force will create custom intro billboards that will run with each pilot and interactive media placements that will live across the Xbox LIVE online entertainment network and the Xbox.com website. Users can click on these custom units and engage directly with the Air Force Brand Destination which offers users the opportunity to learn more about the Air Force through video downloads, gamer pictures and theme packages. GSD&M Idea City, the Air Force’s advertising agency orchestrated the sponsorship.

Barney Frank is right, we are spending way too much money on defense.

Japan Eying a Larger Stealth Aircraft Project

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I mean a physically larger aircraft than the F-5 sized ATD-X that I have written about before.

I had theorized that this was an attempt to pressure the US Congress to change the law forbidding exports of the F-22, but now It now appears that they are considering a stealth aircraft in the that is significantly larger. (paid subscription required)

They are talking about two engines in the 22,000 lb thrust range, which appears to put the new aircraft in the Superbug and Typhoon size range, though if it is a strike fighter, it could be larger still, as attack aircraft generally have lower thrust to weight.

It’s clear from the pictures above, that the Japanese are very serious about stealth, which is about attention to detail.

It’s clear that Japan’s immediate need, replacement of its F-4EJ, will not be filled by any such aircraft, the need is too immediate.

The leading candidates for an F-4 are the F/A-18 E/F, Typhoon, and Rafale.

If it weren’t so damn slow, I’d bet on the Japanese buying the Superbug, but I have no clue as to where they are going on this.

USAF Playing Budget Make-Believe on JSF

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The USAF is trying to boost JSF funding to move forward development and production.

This is not achievable:

The JSF program has set itself some lofty goals. Even with the new mid-2014 date for the completion of operational testing (OT) the flight-test team has to average 70-plus sorties per month, starting yesterday, to get there. (This is based on the 5100 total sorties mentioned in a GAO report early this year.)

That’s as many flights as the program has notched up in the past two years.

So,what is going on?

I think that they art either looking at a larger buy, or they want to make sure that they have spent so much money that cutbacks are simply not viable.

When you consider that military spending is the highest that it has been since the end of WWII, with fewer troops, ships, and planes than at any time since WWII, this is an indicator of profound dysfunction/

Zhuhai Air Show Picture Pr0n

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Well, let’s start with the UAVs, and the Chinese are clearly looking at matching US capabilities with large UAVs:


This rather looks like any number of low observability UAVS


The Tian Yi-3 looks like a Global Hawk


As does the Soar Dragon.

We also see new antiship missiles and a trainer, which looks a lot like the russian Yak-130 trainer.


These look identical to missiles that Iran have shown, which gives a pretty good idea as to the provenance of those.


Clearly separated at birth from the Yak.

It also looks like it’s not just the US and Israel that are seriously considering truck mounted SAMs based on currently fielded air to air missiles:

That being said, the highlight of the show tends to be the aircraft that actually, of which the canard delta J-10 was the star of the show.

There is a very good collection of pictures here, which in addition to the J-10 has pics of the henyang J-8II fighter aircraft (above), a Xian JH-7A strike aircraft, and the Xian H-6U (Beagle derivative?) tanker. But here is some canard:


Thankfully, we also get some pictures of the J-10 in flight:

A ‘chute for landing…That’s unexpected….In a 1970s way.

We also have a review of the demonstration flights at the airshow.

What is interesting is that the review of its performance by Vladimir Karnozov is very positive, “The pilot rarely used afterburner and the degrees of canard deflection were small. Still, the airplane flew very well. I reckon it will beat F-16C or MiG-29/SMT easily.”