More on 'Googlegate' and 'Climategate'

I knew something didn't smell right with the article by Lawrence Solomon (my yesterday's post).

Here's a better searched article on the issue by Danny Sullivan in December 2009, which I got from a LRC Blog post by Walter Block:

Of Climategate, Googlegate & When Stories Got Too Long
(12/1/2009, Search Engine Land)

Reading the article, I know now that:

1. It all started with U.K. Telegraph's James Delingpole when he found out that his colleague's article on 'climategate' disappeared from Google. Lawrence Solomon's article didn't even mention any of that.

2. If you search with +climategate to eliminate possible synonyms and alternative spellings, the result is different (see below for more).

3. The particular article by Delingpole's colleague got too long (1.3MB in HTML in December - that's huge for HTML) because of the rapidly expanding comment section that it was automatically dropped from Google News.

4. U.K. Telegraph had attacked Google in the past for showing its stories.

5. If you type the article title in Google regular search, it does show up.

6. As to 'climategate' not suggested with Google Suggest, it may be that, if not enough people are searching the term on that particular day or hour, Google Suggest doesn't suggest 'climategate' when you type in 'cli' or 'clima' or whatever. (Or it may be more personal; if you don't search that term often enough, Google Search won't suggest. More later.)

Now, let us try the qualified search +climategate (the entire word) on Google and Microsoft's Bing, and Yahoo and compare the results:

Google: 9,270,000
Bing: 286,000
Yahoo: 21,900,000

Or using the exact phrase search "climategate":

Google: 9,270,000
Bing: 57,400,000
Yahoo: 6,520,000

The winner, if just look at the search result numbers, is actually Google. Exact phrase or the entire word as is, in this case, shouldn't make any difference.

The articles that come to the top today:

Google: (top) Climatic Research Unit hacking incident - wikipedia; (2nd) Climategate: the final nail in the coffin.. - Telegraph U.K.
Bing: (top) Climategate Document Database; (2nd) Climategate: the final nail in the coffin... - Telegraph U.K.
Yahoo: (top) Climategate| Anthropogenic Global Warming, history's .... (2nd) Climatic Research Unit hacking incident - wikipedia

As to Bing's high number (57 million) when you search with "climategate", my guess is that the search engine picks up any article, any site out there that contains "climate" and/or "gate", whereas Google may pick up only "climategate" the scandal. Who knows. I don't. As I said in my previous post, I don't use Bing for my daily search.

Top 3 search suggestions that come up when I type "cli" today:

Google: clip art, cliff note, climategate
Bing: clintonbushhaitifund.org, clip art, clint eastwood (now that's funny)
Yahoo: clip art, kim clijsters, clinique

Top 3 search suggeestions that come up when I type "clim" today:

Google: climategate, climate change, climate
Bing: climbing gyms, climategate, climate change
Yahoo: clima, climate change, climb

So much for Solomon's article that I posted yesterday, which now looks to me like a rather uninformed smear piece on Google. His conclusion, "The bottom line? Google is as inscrutable as the Chinese, and perhaps no less corrupt. For safe searches, you’re best off with Bing", is simply absurd. There is no bottom line here, but his own flimsy conclusion from cursory observation or from emails from his readers. I am happy to know Mr. Solomon finds Bing excellent for his search, but no thank you, not for me.

How he can say Microsoft's Bing is safe, I have no idea. If the search engine is safe because it returns all the results that contains 'climate' or 'gate or both when you look up 'climategate', I have to infer that "safe" means "useless".

And shame on me for not researching further first.

Tweet

Google Censoring Its Own Results?

A friend sent me a link to the article by Lawrence Solomon titled "Better off with Bing" (1/16/2010 FP Comment). The article is about Google's own censoring of certain topics for the worldwide users, which many call "Googlegate", and Mr. Solomon uses "climategate " as an example. He contends that Bing, Microsoft's search engine, returns 'uncensored' results as opposed to Google.

That got me curious, so I searched "climategate" on Google, Yahoo, and Bing. Here's the result tonight:

Number of search results:

Google: 1,680,000
Yahoo: 22,600,000
Bing: 57,200,000

The site that comes up at the top:

Google: Climatic Research Unit hacking incident - wikipedia
Yahoo: Climategate| Anthoropogenic Global Warming, history's scam
Bing: (same as Yahoo's)

By the way, if you google "googlegate", the search returns 29,700. If you use Bing, the search returns 82,700,000. So for Microsoft, "googlegate" is a far bigger deal than "climategate". (That's so Steve Ballmer.)

I don't normally use Bing, so I am not familiar with its quirkiness if any. But I have suffered through Microsoft's products over the long years, and I don't want to use anything coming out of that company if I have an alternative. And "google" is a verb now, while "bing" isn't.

And I would still say "Good for Google for defying the Chinese authorities on censoring."

Tweet

WHO Wants to Tax Everyone on the Planet

Just about.

U.N.'s World Health Organization Eyeing Global Tax on Banking, Internet Activity (George Russell, 1/16/2010 Fox News)

"The World Health Organization (WHO) is considering a plan to ask governments to impose a global consumer tax on such things as Internet activity or everyday financial transactions like paying bills online.

"Such a scheme could raise "tens of billions of dollars" on behalf of the United Nation's public health arm from a broad base of consumers, which would then be used to transfer drug-making research, development and manufacturing capabilities, among other things, to the developing world.

"The multibillion-dollar "indirect consumer tax" is only one of a "suite of proposals" for financing the rapid transformation of the global medical industry that will go before WHO's 34-member supervisory Executive Board at its biannual meeting in Geneva.

"... WHO's so-called Expert Working Group has also suggested asking rich countries to set aside fixed portions of their gross domestic product to finance the shift in worldwide research and development, as well as asking cash-rich developing nations like China, India or Venezuela to pony up more of the money." (The article continues.)

UN/WHO wants rich countries (i.e. developed countries who are not so rich any more) to set aside fixed portions of GDP to give to the poor countries under the guise of "global medical research and development". But that's not all. UN/WHO wants to tax citizens of the world, just about all of them.

How? This is from the executive summary of the scheme by WHO Executive Board, dated December 23, 2009 (page 9):

• a 10% tax on the international arms trade market, which might net about $5 billion per annum

• a digital tax or 'bit' tax [Fox article misquotes it as 'hit' tax]: Internet traffic is huge and likely to increase rapidly; this tax could yield tens of billions of U.S. dollars from a broad base of users
  
  
• Brazil's financial transaction tax: a tax on bank account transaction, set at 0.38% levied on paying bills online and major withdrawals, it was raising an estimated US$20 billion per year and funding some 87% of the Government's key social protection programme, before it was voted down [Good for Brazilians to vote that down!]
  
  
• UNITAID airline tax: an international solidarity micro-levy is well accepted by the public and causes no economic distortion [Solidarity levy on airline tickets raises almost all US$300 million UNITAID revenue.]
  

'Bit' tax proposal is nothing new. Back in 1999 during Clinton Administration, UN/WHO proposed the 'bit' tax to levy 1 cent per every 100 emails sent. They are at it again, and this time they may get away with it, at least in the U.S. where the proposals to tax every trade on financial instruments (stocks, options, futures, derivatives, etc.) and to tax the liabilities of nation's top 50 financial institutions are being considered and may be gaining support among the naive Congress who seem to think striking such a populist image would win them the support from their constituents. Both proposals are absurd, and will end up punishing the purported victims to be saved (i.e. the general public).

So, for the sake of transferring further wealth from developed and rich developing countries to the poor countries, everyone in the world who has Internet access and/or email account can be taxed. If your email account is hacked and someone is sending a million spam mails from your account, good luck to you. If you withdraw a chunk of money from your bank, you will be taxed. If you pay your bill online from your bank account, you will be taxed. If you fly, you will be forced to show international solidarity by paying additional airport tax.

I do not like the fact that these are being proposed by a supra-national organization like UN and WHO. IMF, another supra-national organization, has already floated the idea of global financial transaction tax. INTERPOL, whose U.S. branch is located within the U.S. Justice Department, now has full diplomatic immunity within the U.S. soil, thanks to President Obama. Though rebuffed for now, the Obama administration is pushing the new tax on financial institutions to be adopted worldwide. There is some uneasy theme here, isn't there?

Will it ever stop? We the proverbial frogs in a pot are being boiled very quickly and the heat are getting too uncomfortable. Will we able to stop this insanity?

Tweet

Massachusetts Senate Race Has Got Dems Scrambling

We sure live in an interesting time.

Massachusetts' special election on January 19 to fill the Senate seat of Ted Kennedy is turning out to be a "make or break" deal for the administration's health care "reform".

Scott Brown, the Republican candidate who trailed the Democratic candidate Martha Coakley by as much as 34 points in November, is now ahead in a poll by 4 points.

There are 60 Democrats in the Senate, one of them is the interim Senator from Massachusetts. If Mr. Brown wins, Democrats will lose super-majority in the Senate. And so the scramble has begun.

First, it was Secretary of State William Galvin, Massachusetts' top election official, who said on Wednesday certifying the election results could take weeks. (This, by the way, is the same official who was quite willing to bend the state's certification rule in 2007 so that the fellow Democrat could be quickly swear in to override the presidential veto.) During those "weeks", the Democratic interim Senator would be in the Senate, ready to vote for the health care "reform" bill.

Then, it was announced on Friday that President Obama, who had avoided campaigning for Coakley, would go to Massachusetts on Sunday to try to revive the Coakley's campaign which is described here as "the bottom fell out".

Then, as expected by many opponents of the health care bill, Chris van Hollen, a top Democrat in the House declared that the Senate could use "reconciliation" to pass the bill with a simple majority of only 51, despite the Senate Majority Leader Harry Reid's pledge in November that he wouldn't use the reconciliation process for the health care bill.

51% of people in Massachusetts oppose health care bill as proposed by the Obama administration and the Dem Congress. Nationally, 55% oppose (45% strongly oppose) vs 40% favor (19% strongly favor), even though 54% are resigned to the eventual passage of the bill. (Source: Rasmussen Report on health care reform, 1/11/2010)

I'm curious to see if the president can turn the Coakley's campaign around. Democrats must be hoping that his failed Chicago Olympic bid, his Asian tour that achieved little to nothing other than producing tons of carbon dioxide, and Copenhagen snub by China and India (and Russia too, by the way) are just aberrations.

This from Mish Shedlock's post "Massachusetts Upset in the Making":

I have no particular love for Brown. Nor do I hold any for Coakley. However, I am certainly tired of the Obama agenda. Bear in mind I hated the Bush agenda, too. I am probably doomed to be unhappy with presidents of either party.

I want a fiscal conservative, small government, small military, mind our own business agenda. That is the Libertarian platform but they seldom have a chance.

I voted for Ron Paul (a Libertarian currently masquerading as a Republican).. Nonetheless, I thought Obama would do some things right. I thought wrong. I have agreed with almost nothing he has done.

Right now, the way to stop his agenda cold turkey (and cold turkey seems to be the only thing clowns from either party understand), is to cram a vote down their faces.

A vote for Brown is a vote that will without a doubt a message down President Obama's throat that he better change his tune or he will be a one-term flash in the pan.

I say, send that message.

Tweet

Labor Unions Are For B.O's Health Care Reform, Again

after winning concession from the White House. Sounds too familiar.

The so-called health care "reform" as proposed by the administration and the Democratic Congress, which should be really called "the plan to force people to purchase health insurance plans at inflated price for the reasons known only to the politicians", is "on" again after all, because powerful labor unions are "on board" again after winning a major concession after the Wednesday's negotiation at the White House (what a surprise).

Under the concession, labor union members will be exempt from the so-called "Cadillac tax" (40% tax) on high-cost health care plans until 2018. The deal is worth $60 billion, and it will reduce the amount to be raised by "the Cadillac tax" from about $150 billion to $90 billion.

Why would labor unions care about "Cadillac" insurance plans (i.e. plans valued at $8,900 or more for individuals and $24,000 or more for families)? Because many of the plans for their members do fall into that category - older workers and women.

In 2008, the union membership rate for public workers was 36.8%, while the membership rate for private workers was 7.6%. The national average was 12.4% for all workers. Of public workers, the local government workers (teachers, librarians, fire fighters, police) had the highest membership rate at 42.2%. (Source: Bureau of Labor Statistics Union Member Summary, January 28, 2009)

So, this concession mostly benefit unionized public workers, particularly the government workers. Non-unionized, private-sector workers will get to pick up the tab in one form or another. It will make a nice gimmick to encourage more private workers to join the union or form a union at their workplace.

(Let me suggest how they would fill the gap of $60 billion: tax cosmetic surgeries (botox, hair transplant, etc.) done for the members of Congress at 100%.)

The Obama White House made concessions to the pharmaceutical industry and health insurance industry, and now the labor unions.

What are the concessions to the rest of us? Anything? (I'd love to have the right to not participate.)

For more on this concession to the labor unions, read:

Unions will dodge O's health tax (1/15/2010 New York Post)
White House scores key labor deal (1/14/2010 Politico)

Tweet

Ron Paul on Who Is to Blame for Financial Crisis

Not the bankers, not even the politicians and bureaucrats. It's the monetary system and the Federal Reserve.

"Fraud is in the money. It's fraudulent to steal from people by diluting the value of the money, debasing the currency is the big fraud, which destroys the economy and takes away the jobs and puts the burden of inflation on the little people... Everybody is cheated when you have a fraud in
the monetary system."

Tweet

Free-Market Capitalism at Work in Zimbabwe

Zimbabwe is a poster child for hyperinflation (the other one being Weimar Republic), always cited by inflationists as a warning of what could happen if the fiat money printing doesn't stop. But while the rest of the world keeps focusing on that aspect, the country has clearly moved on, to a debt-free, central-bank-free, free-market capitalism that provide jobs, feeds and clothes its citizens much better than the system they had had.

Zimbabwe gold production up 35% (1/11/2010 AFP)

"HARARE (AFP) – Zimbabwe's gold production surged 35 percent to 4.2 tonnes last year in a "remarkable recovery" for the mining sector despite erratic power supply, the Chamber of Mines said Monday.

"The 2009 figure was up from 3.1 tonnes the previous year, it said.

"It was a remarkable recovery for the gold and mining sector in general," Chamber of Mines chief economist David Matyanga told AFP.

""However the recovery process within the gold and mining sector in general was affected by the erratic power supply and the critical shortage of working capital," he said.

""The operating environment last year greatly improved when compared to the previous year," said a manager at foreign-owned mine who did not want to be identified.

""Last year we got a loan to revive some of our operations and expand operations which was something that could not be heard of in 2008 or 2007," the manager said." (The article continues.)

This encouraging story is made possible by the demise of the central bank in Zimbabwe.

The central bank effectively ceased to exist. No more lender of last resort. No more printing money at the behest of politicians. Zimbabwe allowed multiple currencies (U.S. dollar, Euro, British Pound, South African Rand) to circulate freely. Now, prices of money and goods are set by a free market. Price control and forex control are gone. Money flows freely into and out of the country. Shelves at markets are full again, people can feed and clothe themselves again. Zimbabweans who fled to neighboring countries to escape poverty and famine caused by astronomical inflation are returning.

Best of all, the country is debt-free, probably the one and only in the whole world. Government and private debt in old Zimbabwean dollar was repudiated. President Mugabe is still there, but it is hoped that he won't last very much longer (he is 85).

I read about the amazing transformation of Zimbabwe in this article posted at Kitco.com back in November last year:

Zimbabwe: A Fresh Start (Alf Field, 11/11/2009 Kitco.com)

Now the once-mighty gold mining industry in Zimbabwe is coming back, despite power shortage and shortage of working capital. All thanks to the death of their central bank, and return of a free-market capitalism.

Tweet

Financial Crisis Commission Hearing on Capitol Hill

10-member Financial Crisis Commission headed by the ex-State Treasurer of California (well that gives a lot of credibility to the Commission, doesn't it?) is holding a hearing on Capitol Hill today and tomorrow.

Comments from people watching the proceedings are those of disappointment and sarcasm. The 9-11 Commission seems to come to most people's mind - i.e. grand-standing with no substance.

It's quite telling, to me, that the ex-banker (Merrill Lynch) sits right next to the commission chair and asks totally inane questions like why Goldman Sachs didn't offer to take less than 100 percent in payments from AIG.

Where does Brooksley Born sit? She sits at the end. She's about the only one in the commission that has credibility. I would have believed more in the seriousness of this commission if she were the chair.

Wall Street CEOs were "grilled" in the morning, and now it's financial analysts' turn. But did the Commission invite those analysts and economists who had long predicted the financial crisis that finally hit in September 2008? People like Peter Schiff and Meredith Whitney?

For those of you like me who don't have TV anymore, you can watch the hearing live on C-SPAN on the Internet.

If you want to let the Commission know how you feel about the hearing, you can write to them. (I was thinking of filling the comment section with "LOL LOL LOL LOL.....")

In one of the episodes of BBC's excellent comedy Yes Prime Minister, Sir Humphrey Appleby the Cabinet Secretary advises the novice Minister Jim Hacker thus: When we don't want to find out about anything, we form a committee.

Exactly.

Tweet

Financial Crises Brewing in Latin America

Venezuela's Hugo Chavez devalues the currency (bolivar) by 50%. And Argentinian President Cristina Kirchner wants to seize bank reserves at the country's central bank.

Constitutional Showdown in Argentina (MARY ANASTASIA O'GRADY, 1/10/2010 Wall Street Journal)

"Argentine President Cristina Kirchner's firing of the country's central bank president last Wednesday has provoked a constitutional crisis, not unlike the one that rocked Honduras last summer. As with then-Honduran President Manuel Zelaya, Mrs. Kirchner has tried to run roughshod over her nation's laws. She blithely ignored legal protections of bank independence.

"Not surprisingly, central banker Martín Redrado refused to go and challenged her reason for sacking him: his refusal to hand over to her $6.6 billion in bank reserves.

"In response, Mrs. Kirchner issued a decree to amend the bank's charter so that she could push Mr. Redrado out "legally." A federal judge then issued an injunction in favor of Mr. Redrado, and on Friday he returned to his bank post. The same judge froze the bank's reserves so Mrs. Kirchner couldn't take them. The constitutional battle lines were drawn.

"Mrs. Kirchner's insistence that the central bank's assets should be at her disposal is noteworthy. It reflects a primitive view, not unknown even in the U.S., that the role of a central bank is to print money for the government's use. Yet it is nonetheless surprising that even after the nation has suffered so much inflationary agony, it is still possible for an Argentine politician to pursue this line of reasoning without risk of being tarred and feathered." [emphasis is mine] (The article continues.)

Primitive, maybe, but that's exactly what the first central bank was set up for: to print money for the government's use, and that government was Britain in 1694. The reason why a politician like her is not "tarred and feathered" is because the general public remain ignorant of how the monetary system works. Many people, including Venezuela's Chavez, believe more money, however fiat, means wealth.

To be precise, "bank reserves" that the above article talks about is not the required reserves or excess reserves that you see on the Federal Reserve balance sheet but "foreign exchange reserve". "Mr. Redrado [central bank governor] argues that Congress should decide on whether the payment should be made and says he is defending the bank's independence." (Argentina's Bad Timing by Richard Barley, 1/12/2010 Wall Street Journal)

Maybe what we are witnessing in Latin America is the beginning of of an end of the central bank franchise and of fiat money. For now it's a wishful thinking on my part.

But in Venezuela, Mr. Chavez believes he can force the price to stay low, while he basically doubles the money supply. In the U.S., Mr. Bernanke has doubled the monetary base which could more than double the money supply, and he has been buying up agency bonds and MBS at the behest of the Obama administration to force down the mortgage rates.

In Argentina, Ms. Kirchner thinks the nation's banks including the central bank are her checkbook account to pay for her pet government projects. In the U.S., President Obama is reportedly thinking about a levy on financial institutions to replenish TARP fund and to help balance the budget. Not even a lip service to cutting government spending here. (See the story from AP.)

Now the difference between the U.S. and "primitive"-thinking Venezuela and Argentina is getting very cosmetic.

Tweet

Chinese Investors Seek to Double Their Bets on Dubai 'Crisis'

Investors in Zhejian Province, a region in China known for the sharp business acumen, are eyeing Burj Dubai, the tallest building on earth, to double down their bets. According to Yomiuri Shinbun (in Japanese) on 1/10/2010:

"According to Zhejian Daily, a tour is planned during the Chinese New Year holidays (starting February 14) to shop for investment properties within the building.

"'Merchants of Wenzhou [city located in southern Zhejian]' are known as shrewd merchants in China from ancient times, and they are known for investing in high-priced assets as a group. They have reportedly lost a huge amount of money (2 billion yuan, or about $292 million) because of the Dubai crisis. [Other reports put the figure near $440 million, on top of $2 billion loss on their investment in coal mines in China.]

"However, as the average property value of Burj Dubai has dropped 50% from the level seen in the first half of 2008, the 'merchants of Wenzhou' are eager to double down on their bets that the bottom has been hit."

United Arab Emirates already has the Wenzhou Chamber of Commerce. There are currently 150,000 Chinese citizens living in Dubai, and 20,000 of them are merchants from Wenzhou. (For more, here is an English article from People's Daily.)

They may be doubling down on Burj Dubai, but at the same time they seem to be selling their investment properties in Beijing in a hurry. Rumor is that they are sensing the imminent burst of real estate bubble in China.

Tweet

Government Is Ready to Raid Your 401K and IRA

Another chance for equality (i.e. making everybody poor) coming our way via the Obama government. They've been quietly at it since after the election in 2008, and now finally they are coming out and asking for public comment. That means it may become a bleak reality pretty soon.

What is it? Well, your government wants to stuff your 401K and IRA with what they call safe "annuities". Who would provide those "annuities"? Probably none other than the Treasury Department, in the form of special Treasury bonds. For your own good, so that your money is "secure".

Americans Oppose Proposals to Limit 401(k)s, ICI Says (Update1)
(Jeff Plungis, 1/8/2010 Bloomberg)

If you simply look at the title of this article, you wouldn't know what is really about. But here it is:

"Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing lifetime payments, according to an institute-funded report today. The Washington-based institute represents the mutual-fund industry. "

"Lawmakers have proposed changes, and the Obama administration will seek ways to promote conversion of 401(k) accounts after their average value fell in the past three years alongside a 46 percent drop in the Standard & Poor’s 500 Index."

"The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are leading the effort."

Mark Iwry is from Brookings Institute who has been quietly working on the Obama administration's scheme of stuffing 401K and IRA with special Treasury bonds, and of mandating a national IRA for all employers. This blog has reported on this effective government takeover (albeit partially) of 401K and IRA in here and here.

Do not, for a moment, believe this is about the financial security for Americans. This is just another scam to siphon off wealth from the public. Remember the Treasury Department is fast running out of buyers for the government debt, willing or not. Therefore the government is turning to the least tapped source of buyers who have least say in just about everything: American public.

Tweet

Chinese Firm Sticks It to Morgan Stanley

Taste of things to come, probably.

China Haisheng Juice Holdings, a Chinese company that makes and exports apple juice concentrate, settled out of court with Morgan Stanley over the currency derivatives contracts.

Instead of $27 million that Morgan Stanley had insisted the company pay, China Haisheng Juice holdings got away with paying only $7 million, 26 cents on a dollar.

Morgan Stanley settles derivatives lawsuit with Chinese company
(1/7/2010 Financial Times)

"Morgan Stanley has ended a confrontation with a Chinese company over disputed hedging contracts in an out-of-court settlement that may be a model for ending similar disputes involving mainland enterprises.

"The Morgan Stanley dispute with China Haisheng Juice Holdings was the most public of many between foreign investment banks and dozens of mainland Chinese companies over lossmaking derivatives deals

"Under the settlement, Haisheng will pay Morgan Stanley $7m, far less than the $26m the investment bank had been fighting for in London's High Court after the Chinese company ceased payments on the hedges.

"Haisheng will dismiss its legal proceedings in Xian, Shaanxi province, where it was counter-suing Morgan Stanley for allegedly mis-selling the contracts.

"A legal battle in China would have subjected Morgan Stanley to financial and political risks, lawyers said, making the settlement the most attractive option.

"But the agreement could encourage other Chinese companies to take legal action against foreign banks at home as a tactic to escape lossmaking contracts, lawyers warned."

So they give up on pursuing the full payment on the derivatives that they sold, if the counterparty is Chinese. A stark contrast to what they did to AIG, with the help from then-Federal Reserve New York president.

By the way, a sublime irony in this Morgan Stanley case is the fact that this juice company is 20% owned by Goldman Sachs, as this article mentions. Vampire Squid is everywhere, and on the winning side. Well, almost always.

Tweet

Homebuyer Tax Credit Outperformed Cash for Clunkers

a huge negative bang for the money...

$8,000 homebuyer tax credit offered by the Obama administration is "exceptionally inefficient", costing taxpayers $80,000 per every additional house sold, according to an analyst at Stifel Nicolaus & Co.

That's quite a negative bang for the money. If you recall, $4,000 cash for clunkers cost taxpayers $24,000 per every additional car sold. This homeowner tax credit program is vastly outdoing the cash for clunkers in terms of loss for the U.S. taxpayers.

Homebuyer Tax Credits ‘Exceptionally Inefficient’: Chart of Day
(David Wilson, 1/7/2010 Bloomberg)

"Tax credits designed to revive the U.S. housing industry are costing taxpayers as much as $80,000 for every additional home sold, according to Michael R. Widner, a Stifel Nicolaus & Co. analyst.

"The federal program is “an exceptionally inefficient use of tax dollars,” Widner wrote yesterday in a report. He estimated the total cost through last November at $17 billion, “a high price to us for relatively little benefit.”

"The CHART OF THE DAY shows existing-home sales would have fallen at a 2 percent annual rate in the three months ended in November without the credits, based on his estimates. Instead, the pace rose 28 percent, according to data from the National Association of Realtors. Resales accounted for 92 percent of homes sold during the past 12 months.

"Widner estimated that 1.83 million new and existing homes were sold to first-time buyers last year through November, and only 303,000 of them changed hands because of the tax benefit. The $80,000 figure reflects his assumption that 30 percent of the added sales would have been made this year, not in 2009."

In other words, 70% of 303,000 houses changed hands in 2009, for $17 billion tax credit. That is indeed $80,000 per additional house.

Talk about taking the money from the poor and give it to the rich. In this case, take the money from the taxpayers who have little to no political clout, give it to the housing industries with huge lobby and political connections.

That's the way the (government) money goes, pop goes the weasel...

Tweet

M3 Contraction and Japanese Sovereign Bond Crisis?

I don't think so.

Amrose Evans-Pritchard of Telegraph UK is known for writing cheerful topics like global depression and deflation (he is a deflationist) and coming fiscal, economic, and social crises if not downright catastrophe. In this article from January 4, 2010, probably intended as his New Year prediction, he argues that the sovereign debt crisis will be triggered by Japan, and that will finally stop the bear market rally of the global stock markets.

I regularly follow and read his writings (as you see the box to the left that has the feeds). But I have some problems with this one.

Global bear rally will deflate as Japan leads world in sovereign bond crisis (Ambrose Evans-Pritchard, 1/4/2010 Telegraph)

"The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises – the final error that triggered the implosion of Lehman, AIG, and the Western banking system. "

Right off the bat, I have a problem. He talks about M3 contraction in US and Europe. As you may know, the Federal Reserve stop publishing M3. But that's not my problem. Is M3 really contracting, as he says?

ECB (European Central Bank)'s definition of M3 is slightly different from the U.S. counterpart. It includes:

• Currency in circulation (M1, 2, 3)
• Overnight deposits (M1, 2, 3)
• Deposits with an agreed maturity up to 2 years (M2, 3)
• Deposits redeemable at a period of notice up to 3 months (M2, 3)
• Repurchase agreements (M3)
• Money market fund (MMF) shares/units (M3)
• Debt securities up to 2 years (M3)
  (Source: ECB's definition of Euro area monetary aggregate)

And here's the latest Euro area M3 numbers compiled by ECB. Do you see "contraction"? It was pretty much flat all year, but to call that a "contraction" is like calling a flat day in the stock market a rally because it didn't go down.

How about M3 in the U.S.? M3 is M2 plus large time deposits, institutional money market mutual fund balances, deposits of eurodollars and repurchase agreements (Wikipedia.org). Let's take a look at M2 chart at St. Louis Fed:

In both Europe and the U.S., monetary aggregates didn't contract in the last six months at all. The rate of change may have been decreased or gone slightly negative (in case of EU), but to call that a contraction is really stretching it.

My next problem is this:

"Weak sovereigns will buckle. The shocker will be Japan, our Weimar-in-waiting. This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time. Every auction of JGBs will be a news event as the public debt punches above 225pc of GDP. Finance Minister Hirohisa Fujii will become as familiar as a rock star.

"Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE. The country will flip from deflation to incipient hyperinflation. The yen will fall out of bed, outdoing China's yuan in the beggar-thy-neighbour race to the bottom..."

Too bad Fujii just resigned, and the post has gone to probably the worst possible person (in my opinion) in the administration: Naoto Kan. While Mr. Kan may be just the right person for Evans-Pritchard (extremely temperamental Mr. Kan wants weaker yen, more deficit spending), again that's not my problem. It's about Evans-Pritchard's contention that Japanese government cannot sell bonds at 1%.

Who buys Japanese sovereign bonds?

Unlike US Treasury notes and bonds, almost all Japanese sovereign bonds are purchased in Japan by Japanese financial institutions (banks, postal banks, insurance companies, pension funds). Overseas buyers make up less than 4%, compared to over 30% for the U.S. Treasuries. The Japanese government has been trying to push "Kokusai" (sovereign bonds) to the general public, but the reception has been cool mostly due to the super-low interest rate. The issuance of the bonds more than doubled in the past 10 years, but the rates hardly budged.

If indeed the government has to raise rates to attract more buyers, then the general public may finally start to buy. It may finally drive up the rates for bank CDs, and people may be able to save again. Inflation? What inflation? Japan's population is decreasing, and the rate of decrease will accelerate. I don't think much inflation can happen without population pressure.

In the past 20 years, much household wealth was destroyed in Japan not from ongoing recession and deflation but from super-low interest rates. In their effort to preserve and increase their wealth as best they could, ordinary people were forced to chase the high-yielding investments such as CDs in US dollar. That carry trade by numerous households has spectacularly backfired. They were also driven into mutual funds that invested in U.S. commercial real estate, as these funds were sold by neighborhood banks as "safe and high yielding".

They would welcome bonds and CDs that would yield 5%. That would absorb money in circulation, therefore non-inflationary.

For Japan to flip from deflation to hyperinflation, it would need some other disaster than the government issuing more debt or Mr. Kan becoming the finance minister.

Tweet

Basis for 'Barbarous Relic' Won, over Dow and Dollar

Gold that is, and silver is not far behind.

Over the past 10 years, Dow Jones Industrial Average is pretty much flat to slightly down, U.S. dollar has lost about 25%. Gold is up almost 300%, silver is up about 230%.

To be sure, John Maynard Keynes called the gold standard 'barbarous relic', not gold itself.


James Turk, founder of GoldMoney, writing more than 5 years ago in this article, says the real 'barbarous relic' is central banking. I tend to agree.

Tweet

To Deflationists: Don't Cite Japan as America's Future

Japan may have no choice, with dwindling population.

There is a battle going on, increasingly on the blogsphere, between so-called deflationists and so-called inflationists. Most of them talk about price inflation/deflation, while others talk strictly about monetary inflation/deflation. Some switch between the two to fit their argument of the moment.

One of the arguments by so-called deflationists is Japan. Look at Japan, they've been doing for two full decades what the U.S. has started to do (QE, near-zero interest rate to help big banks repair their battered balance sheet, etc.) and what have they got? Price deflation!

It doesn't quite matter to them that price deflation in Japan (called "price destruction" in Japan) has never been more than 2% on the annual basis.

The new Japanese administration, just like the old one and just like the new one in the U.S., is frantically trying to re-inflate, calling deflation "unacceptable". But Japan, compared to the U.S., has one fatal (I think) disadvantage in their misguided effort to re-inflate: Population decline.

Population in Japan decreased for the 3rd straight year
(1/1/2010 Yomiuri Shinbun; original is in Japanese)

"According to the estimate by the Ministry of Health, Labor and Welfare, the number of deaths in Japan in 2009 exceeded the number of births by 75,000, making it a third straight year of population decline.

"The difference of 75,000 is the largest since the end of World War II.

"In 2009, there were 1,144,000 deaths (increase of 2,000 from previous year) and 1,069,000 births (decrease of 22,000 from previous year). Japan's population started to decrease in 2005 for the first time since the end of World War II.

"The Ministry officials believe the pace of population decline will accelerate further."

With ever-decreasing population, demands for goods and services naturally decline. What could the providers of goods and services do, other than to lower the prices to entice the dwindling number of buyers?

I wouldn't be surprised if Prime Minister Hatoyama tried to spin this population decline as a "wave of the future" for a sustainable, greener world.

Tweet

More on Diplomatic Immunity to INTERPOL

More on the amendment of Executive Order 12425, done very very quietly by President Obama on December 16, 2009, as this blog mentioned in this post on December 31, 2009. The amendment, if you recall, will give full diplomatic immunity to INTERPOL.

Executive Order Amended to Immunize INTERPOL In America - Is The ICC Next? (Steve Schippert, Clyde Middleton, 12/23/09 ThreatsWatch.org)

The article, in its "Conclusion" section, has this to say:

"....... In light of what we know and can observe, it is our logical conclusion that President Obama's Executive Order amending President Ronald Reagans' 1983 EO 12425 and placing INTERPOL above the United States Constitution and beyond the legal reach of our own top law enforcement is a precursor to more damaging moves.

"The pre-requisite conditions regarding the Iraq withdrawal and the Guantanamo Bay terrorist detention facility closure will continue their course. meanwhile, the next move from President Obama is likely an attempt to dissolve the agreements made between President Bush and other states preventing them from turning over American military forces to the ICC (via INTERPOL) for war crimes or any other prosecutions.

"When the paths on the road map converge - Iraq withdrawal, Guantánamo closure, perceived American image improved internationally, and an empowered INTERPOL in the United States - it is probable that President Barack Obama will once again make America a signatory to the International Criminal Court. It will be a move that surrenders American sovereignty to an international body whose INTERPOL enforcement arm has already been elevated above the Constitution and American domestic law enforcement.

"For an added and disturbing wrinkle, INTERPOL's central operations office in the United States is within our own Justice Department offices. They are American law enforcement officers working under the aegis of INTERPOL within our own Justice Department. That they now operate with full diplomatic immunity and with "inviolable archives" from within our own buildings should send red flags soaring into the clouds." [emphasis is mine]

American law enforcement officers working within the U.S. Justice Department? That I had to check.

It turns out that the article is correct. Within the U.S. Justice Department, there is indeed the U.S. National Central Bureau of INTERPOL (USNCB). On its "Who We Are" page, they say:

"The USNCB is a component of the U.S. Department of Justice, and is co-managed by the Departments of Justice and Homeland Security pursuant to a memorandum of understanding between the Departments.

"The USNCB is comprised of permanent employees of the Department of Justice and staff detailed from other agencies. Agents, including the USNCB Director and Deputy Director, are detailed to the USNCB from federal and state law enforcement agencies for specified terms. Agents at USNCB are assigned to work in divisions dedicated to specific investigative areas." [emphasis is mine]

The law enforcement agencies detailed to the USNBC are also listed, and they are:

• Bureau of Alcohol, Tobacco Firearms, and Explosives (ATF)
• Bureau of Customs and Border Protection (CBP)
• U.S. Immigration and Customs Enforcement (ICE)
• Drug Enforcement Administration (DEA)
• Environmental Protection Agency (EPA)
• Federal Bureau of Investigation (FBI)
• Transportation Security Administration (TSA)
• U.S. Coast Guard (USCG)
• U.S. Department of State (DOS)
• U.S. Food and Drug Administration (FDA)
• U.S. Marshals Service (USMS)
• U.S. Postal Inspection Service
• U.S. Secret Service

(EPA and FDA?? Why not throwing in the rest of the executive branch? )

These American agents working for INTERPOL will now have full diplomatic immunity and won't be accountable under the U.S. Constitution.

(And since USNCB is conveniently located within the Justice Department, it would be very easy to move data/documents from the Justice Department to INTERPOL, thus making such data/documents protected by full diplomatic immunity. Oh but they wouldn't do such a thing, would they?)

Tweet

Now We Have HAFA within HAMP to Stem the Housing Crisis

In plainer language, we have the Home Affordable Foreclosure Alternatives Program, a new program announced on November 30, 2009, which is part of the Home Affordable Modification Program courtesy of the U.S. Treasury Department under Obama Administration.

Home Affordable Foreclosure Alternatives Program (HAFA)
(National Association of Realtors)

"On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP is available at MakingHomeAffordable.gov.

"HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks."

HAFA seems to be in response to the criticism that the administration's loan modification program (HAMP) is not working. The article lists the program features of HAFA in bullet points. They include:

• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

The 2nd bullet point looks like the result of lobbying effort by the realtors. But that aside, my question is: What's in it for investors?

Other than up to $1,000 for giving some scraps for the 2nd lien holders?

I think I know the answer.

Many investors who bought distressed mortgages may be already backstopped by FDIC. If a house is foreclosed or sold on a short-sale, and if the realized amount from foreclosure/short-sale is less than the amount the borrower owes on the house, the investors of the loan will receive 80 to 95% of the difference from FDIC under loss share agreement like the one FDIC has with the investors who purchased IndyMac. (FDIC is, by the way as you know, broke).

The kicker here is that these investors probably paid for a fraction on a dollar for these mortgages. If FDIC's asset liquidation is any indication, they are sold at anything from 3 cents on a dollar (non-performing) to 70 cents (performing) on a dollar.

Let's say here's a house in danger of foreclosure. The mortgage outstanding on the house is $500,000. The market value is determined to be $350,000. Now the investors agree to a short sale at that price. To compensate for the loss, FDIC will give $120,000 (80% of $150,000 loss) to the investors. But wait! These investors purchased this mortgage at $250,000 (50 cents on a dollar). So by agreeing to sell the house at $350,000, they will already have made $100,000. On top of that, FDIC will give another $120,000. Total of $220,000 profit on $250,000 investment. 88% return. The return would be much higher if they used leverage (PPIP anyone?).

With such a perverse incentive in place, investors don't have much interest in loan modification; they would rather foreclose and pocket the quick money than going through a slow process of loan modification. So now the government has stepped in again and is telling the servicers/investors to be a little less greedy; instead of foreclosing, how about short-sale? "You will still get compensated for your "loss", but it may just take a bit longer. It will make you look good in the eyes of distressed homeowners, you know, if you give the appearance of taking some hit ..."

Now, the next question is: Who are these investors?

Or put it another way: Do you know who owns your mortgage?

At this point, it is very safe to assume the bank who gave you the mortgage no longer owns it. It's been sold long time ago. Occasionally, you may get to know who owns your mortgage when there's a change of a loan servicer. Then you may get to know that your loan is actually owned by a bank other than the originating bank, Fannie Mae or Freddie Mac (the wards of the state who have just been given an unlimited ATM card by Uncle Sam), a hedge fund that manages billions of dollars, or that your loan has probably been turned into some kind of securities (MBS, CDO, squared, cubed, who knows) as you may see a combination of alphabets and numbers as the investor.

A hedge fund manager has this to say in a New York Times article ("U.S. Loan Effort Is Seen as Adding to Housing Woes" 1/1/2010) about "clearing the housing market" by allowing foreclosure and short sale:

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

Yes, that may be all true. But it is probably a good bet that his firm is invested in residential mortgages outright or in a securitized form, which they probably purchased on the cheap. He'd rather see his fat profit sooner than later, wouldn't you think?

So, again and again, the government is there for the big boys, making sure that they profit handsomely.

What will the distressed homeowners get after the short sale under this HAFA? No house, battered credit record, and $1500 for relocation. Oh and the peace of mind that the first lien holder cannot come after you for deficiency. No guarantee though of the 2nd lien holder...

Here's the link to the November 30, 2009 Supplemental Directive announcing HAFA within HAMP (27 pages of the total 43 pages are sample forms and exhibits).

Tweet

How to Stick It to the Too-Big-To-Fail Banks

Move your money.

"Withdrawal Tax": How to Stick It to the Big Banks That Got Bailed Out, and Make Money While You're at It. Pass It On! (Gary North, 1/2/2010 Gary North's Specific Answers)

"The Huffington Post has come up with a nice little protest movement. Let's pull our money out the the bailed-out banks and put it in local banks that lend to locals. Who are the locals? People just like us.

"This makes sense economically. If you ever want a loan, get it from your own banker. If it's a local bank, you will be treated well.

"The FDIC insures all accounts up to $250,000. Your money is as safe in a local bank as a bailed-out mega-bank.

"The folks at Huffington are on the Left. But we can all agree when we see insider bailouts like the ones in September and October 2008.

"They have produced a video. This video is biased, mean-spirited, and simplistic I love it! The more of these low-budget YouTube videos on the Big Bank bailout, the better.

"The bankers are on the defensive. Let's keep them there."

The article continues. The Huffingto Post article is this, and the video Huffington Post created is this:

Tweet

Happy New Year!

Tweet