Saturday, September 5, 2009

Green Czar Van Jones Resigns - AP

US APNewsAlert (9/5/09 AP)

"WASHINGTON — Obama aide Van Jones resigns as environmental adviser amid controversy over past statements."

Bank Closures 1st Week of September 2009

The first week of September ends with five banks closed on Friday.

I do hope the July number was a blow-off top formation, but there are people calling for 1000 more bank failures in the next two years. That would be 10 failures per week for two years..

Van Jones on White Subsurban Boys (and It's Positive)

Van Jones, Obama's Green Czar, suddenly has a bright and unwanted spotlight on him. Articles on the Internet that he has a very radical past have been around since he was appointed , but they didn't catch much attention, until recently.

Now a Republican Congressman is calling for his resignation. There is a question how he or anyone in Congress could demand a resignation of a Presidential appointee, when he or anyone in Congress didn't have any say in the appointment. But that aside, Mr. Jones is being criticized for:

  • Being a 9/11 "truther"
  • Having called Republicans a**holes earlier this year

According to Congressman Mike Pence (R. Indiana), "His extremist views and coarse rhetoric have no place in this Administration or the public debate."

Having doubts about the official version of 9/11 is an extremist position? And calling Republicans a**holes coarse rhetoric? Well I have a surprise for you Congressman Pence. More than 1/3 of Americans suspect the government was involved in 9/11 or complicit in the affair, and there is no lack of Americans who want to call Republicans a**holes for what they have and haven't done particularly over the last 8 years.

(I wonder if he remembers then-Vice President Cheney's coarce rhetoric in 2004. Compared to that, "a**hole" is nothing.)

The latest attack is over a video clip from 2005 in which Van Jones is portrayed by the headlines in the news as saying "Only suburban white kids shoot up schools", the headlines implying he was trashing white kids, putting them in a very negative light.

The video clip is only 3 minutes long, and you don't know the full context of the speech. But contrary to what the news headlines were trying to convince us, I think what he was saying is POSITIVE. If anything, he was standing up for (hold your breath) white, suburban, boys. Not just kids, it's boys.

"Our young, white males are suffering in the society. Profoundly. PROFOUNDLY. And nobody is saying a word about it.

"We'll criminalize the black student, criminalize the black child, the Latino child, where there's whole discussion about whether they are animals, not animals, should we abuse them, should we help them, blah blah blah. And that young white boy sitting out there, suffering.

"You've never seen a Columbine done, by a black child. Never. They always say, "We can't believe it happened here, we can't believe that these were these suburban white kids." It's ONLY them.

"Now, a black kid might shoot another black kid. He ain't go shoot at the whole school. My cousin's up in here but I don't shoot up the entire school. I might hit my cousin. I might shoot your uncle.

"But these young white men, they are in so much pain and so isolated and so alienated that they will shoot up the entire school. Where is the concern? Where is the love? Where is the compassion for these young men?

"And it's doubling twisted because if anything that you're doing is wrong we wanna hurt you we wanna punish you we're not gonna help you we're not gonna love you, so rather than punish you and attack you and jump on you like we do to black kids we just ignore you and neglect you.

"We have got to begin to look at the idea of criminality, of evil, of wrong-doing, of mistakes as being a universal condition, requiring a universally loving response, and a universally embracing response, so that our society in trying to confront any evil in at any level does not in fact become evil.

"It is just as evil, in my view, to attack these young black and brown men. It is just as evil to neglect and ignore these young white men, who, as the best I can tell, have very little now in the way of loving, affirmative male leadership that can put the arm around, wipe away a tear, and show the kind of masculinity that is not brittle or mean-spirited."

There are a boat load of Obama Czars and advisers with some very "radical" ideas which should be examined and questioned vigorously before it's too late. (Science Czar, Safe School Czar, and Regulatory Czar come to my mind, as well as Dr. Emanuel on health care "reform".)

But this one particular view on young white boys from a former radical black activist doesn't look to be one of them. On the contrary, it's about time someone stood up for young white boys, and as a black, he can get away with it. Imagine if a white person said this, particularly a white man. He would be roundly condemned as "racist".

It would be very ironic and telling if he is forced to resign because he stood up for young white boys, because he doubted the official version of 9/11, because he called Republicans a**holes. All the wrong reasons, if I may say so.

(I found the youtube video of the original video that was posted at, as the embed code of the video at Breitbart keeps doing the disappearing act, for some strange unknown reason.)

Friday, September 4, 2009

Showdown Time: Swiss Bank Tells Clients to Sell U.S. Assets or Leave

Oldest Swiss Bank Tells Clients to Sell U.S. Assets or Leave
(9/2/09 Bloomberg) [emphasis is mine]

"Sept. 2 (Bloomberg) -- Wegelin & Co., Switzerland’s oldest bank, is telling wealthy clients to sell their U.S. assets, or switch banks, because of concerns new rules will saddle investors with tax obligations in the world’s biggest economy.

"U.S. proposals to extend reporting requirements for banks whose clients buy American stocks and bonds coupled with estate tax liabilities that may be inherited by the heirs of people who have such holdings prompted the advice from the St. Gallen, Switzerland-based bank, said Managing Partner Konrad Hummler.

"“We came to the conclusion that it’s a threat to our clients,” Hummler, who is also president of the Swiss Private Bankers Association, said in an interview yesterday during a conference in Zurich. “It’s also a threat to us as a bank because as a custodian we are an executor to the estate. We find this aspect discomforting, so we recommend selling all American securities whatsoever.” "

""If a client decides to keep his U.S. investments, “then finally he has to change banks,” Hummler said. "

According to the article, the bank, for now, is considering using European-made derivatives and index funds that have exposure to American market. The bank manages more than 20 billion Swiss francs ($18.7 billion) in client assets.

This is on top of the news that Hong Kong is pulling their physical gold holdings from London back to Hong Kong to be stored in their newly constructed gold vault. (I read the news and commentary at Gary North's Specific Answers - paid site- but the news link itself is here.)

I have read about persistent rumors in gold-related sites that Germany and some nations in Middle East are demanding their physical gold back from London and New York.

It looks like a showdown time is fast approaching. A sudden huge-volume breakout in gold, silver, and gold/silver mining stocks in the last two days may be a harbinger.

Thursday, September 3, 2009

OT: Swine Flu Fashion?

Left: Kremer look : A model presents a creation by French designer Romain Kremer during the 080 Barcelona fashion week in Barcelona.(AFP/Josep Lago) Sneeze into your shirt.

Right: A mask to guard against flu virus, with adhesives. You put directly on your face, press it tight, and look like a duck. A Japanese pharmaceutical company will start selling soon. (Picture from 9/2/09 Yomiuri Shinbun)

The left one looks good, but for practical purposes I'd rather look like a duck.

Health Care Bill Will Empower IRS

(Be sure to check out other health care "reform" posts on this blog.)

as if IRS needs any more empowering. Supporters of the administration's health care "reform", is that what you want?

Health care reform means more power for the IRS
(Byron York, 9/2/09 Washington Examiner)

"There's been a lot of discussion about the new and powerful federal agencies that would be created by the passage of a national health care bill. The Health Choices Administration, the Health Benefits Advisory Committee, the Health Insurance Exchange — there are dozens in all.

"But if the plan envisioned by President Barack Obama and Congressional Democrats is enacted, the primary federal bureaucracy responsible for implementing and enforcing national health care will be an old and familiar one: the Internal Revenue Service. Under the Democrats' health care proposals, the already powerful — and already feared — IRS would wield even more power and extend its reach even farther into the lives of ordinary Americans, and the presidentially-appointed head of the new health care bureaucracy would have access to confidential IRS information about millions of individual taxpayers."

"The presidentially-appointed head of the new health care bureaucracy" is none other than the Health Choices Commissioner, which is defined in Subtitle E Section 141 of H.R. 3200 heath care "reform" bill. Not just him/her/it, but people working in that bureaucracy would have access. And the Commissioner would not be accountable to anyone but to the president.

The article continues:

"Under the various proposals now on the table, the IRS would become the main agency for determining who has an "acceptable" health insurance plan; for finding and punishing those who don't have such a plan; for subsidizing individual health insurance costs through the issuance of a tax credits; and for enforcing the rules on those who attempt to opt out, abuse, or game the system. A substantial portion of H.R. 3200, the House health care bill, is devoted to amending the Internal Revenue Code of 1986 in order to give the IRS the authority to perform these new duties.

"The Democrats' plan would require all Americans to have "acceptable" insurance coverage (the legislation includes long and complex definitions of "acceptable") and would designate the IRS as the agency charged with enforcing that requirement. On your yearly 1040 tax return, you would be required to attest that you have "acceptable" coverage. Of course, you might be lying, or simply confused about whether or not you are covered, so the IRS would need a way to check your claim for accuracy. Under current plans, insurers would be required to submit to the IRS something like the 1099 form in which taxpayers report outside income. The IRS would then check the information it receives from the insurers against what you have submitted on your tax form.

"If it all matches up, you're fine. If it doesn't, you will hear from the IRS. And if you don't have "acceptable" coverage, you will be subject to substantial fines — fines that will be administered by the IRS."

and determined by the Health Choices Commissioner.

The section of H.R. 3200 this article mentions that would amend the IRS Revenue Code of 1986 is this:

Subtitle A--Shared Responsibility

(a) In General- Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

`subpart a. tax on individuals without acceptable health care coverage.
`Subpart A--Tax on Individuals Without Acceptable Health Care Coverage
`Sec. 59B. Tax on individuals without acceptable health care coverage.

The above is the cut and paste from the actual bill as posted on the Library of Congress THOMAS.

Now, this Section 59B defines the penalty tax if you don't have the coverage, and also lists exceptions. That alone makes an interesting and frustrating reading, but the section that has to do with IRS comes right after Section 59B. It's Section 6050X. (So... that's after 59B? There must be some higher order of reasoning behind numbering that I just can't perceive.) You can see, with some effort, that the information that the Washington Examiner writer gleaned out for his article is basically correct. [emphasis is mine, comments in Italic]


`(a) Requirement of Reporting- Every person who provides acceptable coverage (as defined in section 59B(d)) to any individual during any calendar year shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual. [This is the insurer part of the deal. Your insurer will have to file a report with IRS.]

`(b) Form and Manner of Returns- A return is described in this subsection if such return--
`(1) is in such form as the Secretary may prescribe, and
`(2) contains--
`(A) the name, address, and TIN of the primary insured and the name of each other individual obtaining coverage under the policy,
`(B) the period for which each such individual was provided with the coverage referred to in subsection (a), and
`(C) such other information as the Secretary may require.

`(c) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required- Every person required to make a return under subsection (a) shall furnish to each primary insured whose name is required to be set forth in such return a written statement showing-- [Then your insurer has to issue you a statement of your coverage so that you can file with your tax return. And these two'd better match.]

`(1) the name and address of the person required to make such return and the phone number of the information contact for such person, and
`(2) the information required to be shown on the return with respect to such individual.
The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

`(d) Coverage Provided by Governmental Units- In the case of coverage provided by any governmental unit or any agency or instrumentality thereof, the officer or employee who enters into the agreement to provide such coverage (or the person appropriately designated for purposes of this section) shall make the returns and statements required by this section.'.

[This segment refers to the specific sections in the IRS Revenue Code to be changed. To see what kind of penalty awaits the insurer and you, you'd better have a courage to dig through the IRS Code.]

How to prevent tax cheating? That comes in the following sections under Sustitle D, particularly Section 453:

Subtitle D--Other Revenue Provisions

(a) Penalty for Underpayments Attributable to Transactions Lacking Economic Substance-

(1) IN GENERAL- Subsection (b) of section 6662 of the Internal Revenue Code of 1986 is amended by inserting after paragraph (5) the following new paragraph:
`(6) Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(o)) or failing to meet the requirements of any similar rule of law.'.

(2) INCREASED PENALTY FOR NONDISCLOSED TRANSACTIONS- Section 6662 of such Code is amended by adding at the end the following new subsection:

`(i) Increase in Penalty in Case of Nondisclosed Noneconomic Substance Transactions-

`(1) IN GENERAL- In the case of any portion of an underpayment which is attributable to one or more nondisclosed noneconomic substance transactions, subsection (a) shall be applied with respect to such portion by substituting `40 percent' for `20 percent'.

`(2) NONDISCLOSED NONECONOMIC SUBSTANCE TRANSACTIONS- For purposes of this subsection, the term `nondisclosed noneconomic substance transaction' means any portion of a transaction described in subsection (b)(6) with respect to which the relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement attached to the return.

`(3) SPECIAL RULE FOR AMENDED RETURNS- Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.'.

So, the section is saying that if IRS thinks there's is not enough disclosed, it would double the penalty, whatever the penalty currently is in that particular section in the IRS Code.

I can really see now that the government is indeed trying so hard to blow as many bubbles as possible to resuscitate the economy. It is already successfully blowing and growing the bubble in government-sponsored and subsidized subprime lending. Cash for clunkers "worked" well enough for the first week of the program; it achieved the result of bringing the sales forward, if that's what they wanted to achieve just to get 3Q GDP into green.

But the most tantalizingly promising bubble is the bubble of fast-growing, self-replicating and self-referencing bureaucracy. If the administration manages to pass its health care "reform", climate change bill (aka cap and trade) and vast financial "reform", imagine how many people can be employed by government agencies to be created! And to think we will be asked to participate in these grand schemes by paying for them!

I highly recommend that you go to the linked article and read the entire article. If the townhall meeting is still ongoing in your area, ask about this IRS further intrusion into private life. The last thing I wanted to quote from the article:

"In either scenario, the IRS would be the key to making the system work. Before you could receive any subsidy, whether through the IRS or not, the Health Choices Administration would have to determine whether you are eligible for it. To do so, the bills under consideration would give the Health Choices Commissioner the authority to demand sensitive, confidential information from the IRS about individual taxpayers. The IRS would have to provide it.

"Under current law, it is a felony for a government official to release taxpayer information in all but the most limited of circumstances. One such exception is for law enforcement; the IRS is allowed to give taxpayer information to prosecutors in criminal cases. The information can also, in some instances, be released to the Social Security Administration and the Veterans' Administration for the determination of benefits. The health care bills would change the Internal Revenue Code to permit the IRS to give similar information to the vast, new health care bureaucracy."

Wednesday, September 2, 2009

Swine Flu "Fear" Coming Fast and Furious

Cops jump on swine-flu power: Shots heard 'round the world
(Chelsea Schilling, 9/1/09 World Net Daily)

"A "pandemic response bill" currently making its way through the Massachusetts state legislature would allow authorities to forcefully quarantine citizens in the event of a health emergency, compel health providers to vaccinate citizens, authorize forceful entry into private dwellings and destruction of citizen property and impose fines on citizens for noncompliance.

"If citizens refuse to comply with isolation or quarantine orders in the event of a health emergency, they may be imprisoned for up to 30 days and fined $1,000 per day that the violation continues."

The bill is called "Pandemic Response Bill" 2028 . The article lists some of the sections in the bill, and they are downright frightening. Not the supposed danger of the swine flu itself but extremely militaristic response procedure of the state [the bullet points are copied from the article]:

  • to require the owner or occupier of premises to permit entry into and investigation of the premises;

  • to close, direct, and compel the evacuation of, or to decontaminate or cause to be decontaminated any building or facility, and to allow the reopening of the building or facility when the danger has ended;

  • to decontaminate or cause to be decontaminated, or to destroy any material;

  • to restrict or prohibit assemblages of persons;

  • to require a health care facility to provide services or the use of its facility, or to transfer the management and supervision of the health care facility to the department or to a local public health authority;

  • to control ingress to and egress from any stricken or threatened public area, and the movement of persons and materials within the area;

  • to adopt and enforce measures to provide for the safe disposal of infectious waste and human remains, provided that religious, cultural, family, and individual beliefs of the deceased person shall be followed to the extent possible when disposing of human remains, whenever that may be done without endangering the public health;

  • to procure, take immediate possession from any source, store, or distribute any anti-toxins, serums, vaccines, immunizing agents, antibiotics, and other pharmaceutical agents or medical supplies located within the commonwealth as may be necessary to respond to the emergency;

  • to require in-state health care providers to assist in the performance of vaccination, treatment, examination, or testing of any individual as a condition of licensure, authorization, or the ability to continue to function as a health care provider in the commonwealth;

  • to waive the commonwealth's licensing requirements for health care professionals with a valid license from another state in the United States or whose professional training would otherwise qualify them for an appropriate professional license in the commonwealth;

  • to allow for the dispensing of controlled substance by appropriate personnel consistent with federal statutes as necessary for the prevention or treatment of illness;

  • to authorize the chief medical examiner to appoint and prescribe the duties of such emergency assistant medical examiners as may be required for the proper performance of the duties of office;

  • to collect specimens and perform tests on any animal, living or deceased;

  • to exercise authority under sections 95 and 96 of chapter 111;

  • to care for any emerging mental health or crisis counseling needs that individuals may exhibit, with the consent of the individuals

"State and local agencies responding to the public health emergency would be required to exercise their powers over transportation routes, communication devices, carriers, public utilities, fuels, food, clothing and shelter, according to the legislation.

"Local public health authorities will be required to keep records of reports containing the name and location of all people who have been reported, their disease, injury, or health condition and the name of the person reporting the case. In addition, citizens may be subject to "involuntary transportation." "

And it is not just Massachusetts, in case you are wondering.

Zero Hedge has an article "CDC H1N1 forced quarantine docs leak", in which they show a blank 'forced quarantine' order forms from Florida and Iowa which they obtained from the CDC (Center for Disease Control) website. The Zero Hedge article also reminds us that "the NIH and CDC just held an H1N1 conference in DC -- August 19-21 2009 -- that focused on 'mass fatality management'". The Massachusetts state plan seems to closely follow the CDC guidelines presented at the conference.

My questions are:
  • Why does the government need quasi-military authority and command structure to address what is basically a health care problem?

  • What the hell is the government, federal and state, planning for? Riots and ensuing Martial Law?

Zero Hedge's take is:

"we are expecting a flock of economic black swans soon, and a pandemic -- whether real or hyped -- may be part of this flock. An economic collapse will be no doubt be triggered soon , and it will be convenient for the political elites to blame the collapse on an external factor, such as a pandemic or a war. Furthermore, the fall H1N1 pandemic may be a convenient pretext by which dangerous levels of expanding social control can be established by elites which have proven themselves utterly corrupt and morally bankrupt."

There is another take, I think: That the nation's health care system has been hollowed out and become so inefficient and ineffective because of excessive government intervention, not lack thereof. So, in case of emergency the only system left for the government to use that is still effective (in comparison) is police and military.

CDC sells swine flu virus as cute little fuzzy thing (see the picture) while discussing forced quarantine and forced vaccination. The Department of Health and Human Services is holding a youtube contest of swine flu ads with the prize money of $2500.

Vaccines, whether it's a Baxter one or Novartis one, don't look safe at all. Severe neurological damage and auto-immune diseases (MS, rheumatoid arthritis, lupus, etc.) are among those feared by health care specialists. Tamiflu is known to have rather nasty side effect problems especially among young people. Not just physical but psychological. Japan has reported cases of adolescents jumping off a tall building or throwing themselves in front of speeding vehicles to their deaths after taking the drug for their flu/cold symptoms and becoming delusional and/or depressed.

CDC is giving out $40 gift card to young children who bravely volunteer for vaccine testing. And the government is planning for a social disturbance that will require police and military.

Things quite don't add up, do they?

More on Fed's Use of Excess Reserves

The Federal Reserve uses repo/reverse repo agreements. Repo (or repurchase) agreements to make collaterized loans to Primary Dealers, and reverse repo agreements to borrow money from Primary Dealers. (Here's information from the New York Fed.)

Might the New York Fed's president (see the video on my previous post) be referring to the reverse repo agreements when he said the Fed was using the excess reserves to buy Treasuries?

I checked the Fed's balance sheet (or what they are trying to pass as balance sheet). They have reverse repo agreements on the liabilities side about $67 billion worth. The footnote (15) says it is an estimate. Estimate. No one at the Fed is willing to disclose how much and what duration and with which Primary Dealer (if they know). The NY Fed says on their site that repo/reverse repo is usually overnight, but can be longer.

The official reverse repo amount is too small to account for POMO (Permanent Open Market Operation). The Fed has $1.5 trillion Treasuries, agencies, MBS. Currency component of M1 has been rising since the beginning of 2008 (see the chart; it was created at St. Louis Fed's FRED), so I do think the Fed has been printing money and quietly putting into circulation. They also get money about $100 billion each month from the Treasury through CMB sale (Supplementary Financing Program, or SFP, which started last September at the request of the Fed), and they are not saying specifically what they are using it for. If they are using the excess reserves for POMO, that sure sounds like a totally under-the-table operation.

Then I found this from the New York Fed's website in the press release on October 6, 2008 discussing the interest payment on reserves: [emphasis is mine]

"The payment of interest on excess reserves will permit the Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to support financial stability while implementing the monetary policy that is appropriate in light of the System's macroeconomic objectives of maximum employment and price stability."

So... was this an oblique admission that the Federal Reserve would be using the excess reserves to do POMO, and the interest payment on the excess reserves had little to do with establishing "a lower bound on the federal funds rate" as the Fed said in the above press release but it was simply an interest the Fed would pay to borrow money from the member banks?

Remember, if the Fed is indeed using the excess reserves for Treasury and agency bond purchase, the Fed is borrowing 24-hour money to invest in notes (2 to 10 years) and bonds (up to 30 years).

New York Fed President: Excess Reserves at the Fed Are Put to Good Use

This video was one of the three that were posted on Zero Hedge on Monday. It is a video of CNBC's Steve Liesman interviewing the New York Fed president Bill Dudley.

About 3 minutes into the interview, the NY Fed president admits that the Fed is using the excess reserves to purchase Treasuries, agency bonds, and mortgage-backed securities for its Open Market Operations.

The Fed is doing what?

The excess reserves belong to the member banks (national and regional commercial banks). Since the near-collapse of the financial system last September, banks park their excess reserves at the Federal Reserve instead of lending them out as loans, and earn interest. The excess reserves sit on the LIABILITIES side of the Fed's balance sheet. The banks are "lending" money to the Fed by parking their reserves, but it is an extremely short-term lending: 24 hours.

Now the NY Fed president says they've been "borrowing" this short-term money and "lending" it to the Treasury Department, by purchasing Treasury notes, bonds, agency bonds (that no one in the world wants to touch at this point), and MBS. They are all longer-term investment, the shortest being 2-year note, the longest 30-year Treasury or agency bond.

Naturally, he downplays the risk of higher "borrowing" cost. He doesn't seem to think that the economy will recover in a meaningful way any time soon for the short-term rate to rise.

Why do they need to do this? They can simply print money to buy Treasuries, and a lot of people already think that's what they've been doing. Just to technically avoid the dreaded word "monetization"?

Borrowing short and lending long is what banks do, and what killed Bear Stearns and Lehman Brothers when the short-term liquidity simply vanished from under them. And they didn't have $2 trillion balance sheet that the Federal Reserve has.

Does Tim Geithner know that the Federal Reserve has been using the excess reserves to buy Treasuries? Do the member banks know? They must and they must have agreed. They just didn't bother telling us, because there's nothing to worry about. Right? (Bear Stearns? Lehman Brothers?)

Between the Fed acting like a highly leveraged investment bank and FDIC outdoing AIG with its paltry $10 billion (reserve ratio of 0.22%) to cover nearly $5 trillion deposits (not to mention hundreds of billions of dollars of loan guarantees and loss-sharing agreements), we are somehow supposed to feel secure that we're in good hands.

Tuesday, September 1, 2009

Tyranny in Your Front Yard

from blog.

Tyrrany in Your Front Yard (Butler Shaffer, 9/1/09 LRC Blog)

"A news report advises that federal agents are beginning to swoop down on neighborhood yard sales, allegedly for the purpose of discovering whether federally-banned products are being resold by unsuspecting homeowners. This comes in the wake of local governments arresting and fining children who operate unlicensed lemonade stands. What next? Will federal SWAT teams descend on children’s birthday parties to inspect gifts to see if any violate product safety standards for toys? “And as long as we’re there, bring along some government nurses to vaccinate the little brats.”"

Yard sales, kids' "unlicensed" lemonade stands. The government doesn't know where and when to stop, does it?

For news of federal agents descending on yard sales which is yet to happen, click here. (The operation has a code name of course, and it is "Resale Roundup" (I wonder if it was named after the herbicide developed by Monsanto. Kill off those weeds like yard sales, unless we extract some tax out of the sales.)

For news of local governments arresting and fining children for unlicensed operation of selling lemonade, click here and here.

President Obama to Address Students Across America

and the Department of Education issues a to-do list for teachers across the country.

President Obama’s Address to Students Across America September 8, 2009 (posted on Docstoc) [emphasis is mine, my comment in italic]

PreK-6 Menu of Classroom Activities: President Obama’s Address to Students Across America Produced by Teaching Ambassador Fellows, U.S. Department of Education
September 8, 2009

Before the Speech:
 Teachers can build background knowledge about the President of the United States and his speech by reading books about presidents and Barack Obama and motivate students by asking the following questions: Who is the President of the United States? What do you think it takes to be President? To whom do you think the President is going to be speaking? Why do you think he wants to speak to you? What do you think he will say to you?
 Teachers can ask students to imagine being the President delivering a speech to all of the students in the United States. What would you tell students? What can students do to help in our schools? Teachers can chart ideas about what they would say.
Why is it important that we listen to the President and other elected officials, like the mayor, senators, members of congress, or the governor? Why is what they say important?

During the Speech:
 As the President speaks, teachers can ask students to write down key ideas or phrases that are important or personally meaningful. Students could use a note-taking graphic organizer such as a Cluster Web, or students could record their thoughts on sticky notes. Younger children can draw pictures and write as appropriate. As students listen to the speech, they could think about the following: What is the President trying to tell me? What is the President asking me to do? What new ideas and actions is the President challenging me to think about?
 Students can record important parts of the speech where the President is asking them to do something. Students might think about: What specific job is he asking me to do? Is he asking anything of anyone else? Teachers? Principals? Parents? The American people?
 Students can record any questions they have while he is speaking and then discuss them after the speech. Younger children may need to dictate their questions.

After the Speech:
 Teachers could ask students to share the ideas they recorded, exchange sticky notes or stick notes on a butcher paper poster in the classroom to discuss main ideas from the speech, i.e. citizenship, personal responsibility, civic duty. [citizenship??]
 Students could discuss their responses to the following questions: What do you think the President wants us to do? Does the speech make you want to do anything? Are we able to do what President Obama is asking of us? What would you like to tell the President?
 Teachers could encourage students to participate in the Department of Education’s “I Am What I Learn” video contest. On September 8th the Department will invite K-12 students to submit a 2 video no longer than 2 min, explaining why education is important and how their education will help them achieve their dreams. Teachers are welcome to incorporate the same or a similar video project into an assignment. More details will be released via

Extension of the Speech:
Teachers can extend learning by having students
Create posters of their goals. Posters could be formatted in quadrants or puzzle pieces or trails marked with the labels: personal, academic, community, country. Each area could be labeled with three steps for achieving goals in those areas. It might make sense to focus on personal and academic so community and country goals come more readily.
Write letters to themselves about what they can do to help the president. These would be collected and redistributed at an appropriate later date by the teacher to make students accountable to their goals.
 Write goals on colored index cards or precut designs to post around the classroom. Interview and share about their goals with one another to create a supportive community.
 Participate in School wide incentive programs or contests for students who achieve their goals.
Write about their goals in a variety of genres, i.e. poems, songs, personal essays.
Create artistic projects based on the themes of their goals. [See my post on National Endowment of Arts; 3rd topic in the post]
 Graph student progress toward goals.

Who are the Teaching Ambassador Fellows? Here's the link to the Department of Education. There are 13 of them. They were appointed on August 4, so this announcement must be their very first job.

This is downright creepy to me. But the parents who have their children in public schools may tell us that this is totally in line with what the schools have been doing.

You may want to check:

Talk of Transaction Tax on Stock Trading Is Back Again

The game is on again. Let's tax those greedy traders! We have to curve this, uh..what is it, High Frequency Trading, whatever that is, but since Wall Street guys are doing it it must be bad. (And incidentally it will dramatically increase the government's tax revenue.) Hard-working Americans win! Right?

The idea has been promoted several times in the past year, as a way to raise tax revenue for the increasingly cash-strapped federal government. This time around, it has a unique twist. The one who's pushing for it is AFL-CIO, the largest federation of labor union in the U.S. and Canada.

AFL-CIO, Dems push new Wall Street tax (Alexander Bolton, 8/30/09, The Hill)

"The nation’s largest labor union and some allied Democrats are pushing a new tax that would hit big investment firms such as Goldman Sachs reaping billions of dollars in profits while the rest of the economy sputters.

"The AFL-CIO, one of the Democratic Party’s most powerful allies, would like to assess a small tax — about a tenth of a percent — on every stock transaction.

"Small and medium-sized investors would hardly notice such a tax, but major trading firms, such as Goldman, which reported $3.44 billion in profits during the second quarter of 2009, may see this as a significant threat to their profits."

Oh really? The writer probably doesn't trade much on his 401K or IRA. Small and medium-sized investors would indeed notice significant increase in transaction cost. Who is he kidding?

Let's look at an example.

You are a small retail investor who watches the market and trades fairly frequently, say 2 times a week. You decide to buy 100 shares of AAPL (that's Apple, Inc.). It will be $16,600 or so at today's price. On top of this amount, you normally pay a commission to your online broker, anything from $0 to $13 per transaction, plus ECN fee. These days, the total transaction cost of online brokerages rarely goes above $15.

Now, AFL-CIO wants to impose 0.1% tax on your transaction. $16,600 times 0.1% equals $16.60. Add that to the normal transaction cost, and you now have to shell out between $16.60 to $31.60 for your purchase. That's a 111% to near-infinite (in case your transaction cost is zero) increase.

Suppose AAPL jumps in price after the announcement of new iPod or tablet notebook, and now it is $190. You decide to sell. Now, 0.1% of $19,000 is $19. Your total cost to sell AAPL is now between $19 and $34.

Without this tax on your transaction, your total cost of buying and selling AAPL is between $0 and $30. With this tax, your total cost will be between $35 and $65, of which this transaction tax is $35.

After one year of trading AAPL twice a week, you will end up paying $1,750 in additional tax, more or less, depending on the stock's price movement. The tax you are not paying at all today, and the money you could be putting to good use elsewhere. Instead, it will go to the government. Whether you make money or lose money, you will have to pay the tax on the transaction.

Now, back to this article:

"“It would have two benefits, raise a lot of revenue and discourage speculative financial activity,” said Thea Lee, policy director at the AFL-CIO.

"“The big disadvantage of most taxes is that they discourage some really productive activity,” she said. “This would discourage numerous financial transactions. People flip their assets several times in an hour or a day. They make money but does it really add to the productive base of the United States?”"

Now, why is it the business of AFL-CIO if people flip their assets several times in an hour or a day? Besides, what does it have to do with High Frequency Trading at all? People who flip their assets several times in an hour or a day are not Goldman Sachs or Citadel. They are more likely to be small, retail investors trying to recover what they have lost in the past year.

High Frequency Trading trades 100 times or more in a second.

So, confusing (intentionally or out of ignorance) the active retail investors and big financial firms that do High Frequency Trading, AFL-CIO, if it has its way, would actually punish the small investors who no doubt include AFL-CIO members whose 401K or pension fund has plummeted.

Back to the article:

"The AFL-CIO and some allied Democrats would like to cut down on the overall level of trading, or at least give the U.S. government a piece of the action, which would likely tamp down trading."

Give the U.S. government a piece of the action?? A-ha. But they already are active, through Working Group on Financial Markets, a.k.a. Plunge Protection Team. Or do they mean that the government should gamble taxpayers money in the stock market against the likes of Goldman Sachs, Morgan Stanley (who's hiring a lot of traders), and numerous hedge funds? Good luck with that.

Cut down on the overall level of trading?? Why don't they just shut down the stock market, then? Soviet Union didn't have a stock market.

Things are getting more hilarious by the day, on all fronts. What's next? That the government will decide the price of any publicly traded stock, as they see "fair" to whatever principle that they want to uphold?

I have a sinking feeling though, that this time around this idiocy will become law under the Obama administration. Unintended consequences that I can think of are numerous: stock market crash because the liquidity, however contrived and artificial, disappears; small investors are crushed, yet again, with their portfolios plunging in value and taxed when they try to get out of the positions; traders big and small desert the publicly traded markets, with big traders moving to dark pools, small traders stopping altogether; lack of transactions causes this proposed tax to collect far less than anticipated, and the government may actually lose money as it has to pay for the new bureaucracy to handle the new tax; the U.S. will lose the global financial center status.

Lastly, what has a trade union got to do with stock trading, you may ask. You've seen the news, I'm sure, but in case, here it is: the most powerful of the Federal Reserve banks, New York Fed, just announced that the president of AFL-CIO New York State branch will be the new chairman of the New York Fed.

New York Fed Names AFL-CIO Leader as Chairman of the Board (8/25/09 Washington Post)

AFL-CIO may be emboldened more than ever, as one of them presides over the most powerful Federal Reserve bank.

Monday, August 31, 2009

Vanity Fair: "Henry Paulson's Longest Night"

It looks like a campaign is on at CNBC with the help of Vanity Fair to exonerate the former Treasury Secretary Hank Paulson, or at least paint him in a very sympathetic color. According to this video that was posted at Market Ticker, Paulson was very pleased with Nancy Pelosi, and Barney Frank had a high respect for him.

The Vanity Fair writer then reveals that 10 days before he was to present the TARP plan to Congress to buy troubled assets from the nation's banks, Paulson told him that he would use the TARP money to inject capital into the banks.

(Of course) CNBC crew pay absolutely zero attention to what he's just said.

And here's the link to the Vanity Fair article, "Henry Paulson’s Longest Night" (Vanity Fair, October 2009 issue).

Japan's Democratic Party Already Feels Like the U.S. Democratic Party

under President Obama.

The Democratic Party of Japan, or DPJ, won 308 seats out of 480 in the powerful Lower House in the August 30 election. A landslide bigger than anticipated, it is indeed a historic event. The Liberal Democratic Party, or LDP, who held the grip on the Japanese politics since the end of World War II, has only itself to blame for the crushing defeat. DPJ, whose leadership is mostly made up of ex-LDP members, is understandably ecstatic.

However, what is rapidly emerging in post-election political scene in Japan should be disturbing to the proponents of free market economy and of smaller government.

DPJ won in a landslide, and in their euphoria they may think they have the mandate. However, I suspect many of the DPJ votes were the votes against LDP, similar to the 2008 U.S. election where many voters voted against George Bush.

About the very first thing that the DPJ leadership announced after the election was the creation of the National Strategy Bureau (Kokka Senryaku Kyoku 国家戦略局), which will be placed in the Cabinet and under the direct control of the Prime Minister. The head of the Bureau will have the same power as a Cabinet Minister. The Bureau will be in charge of deciding on "important national strategies and policies" including budget, which has long been the domain of the bureaucrats in the government ministries. 30 people will be appointed to this Bureau, and they will include politicians, experts from private sector and bureaucrats (a token gesture). The Bureau will be created initially by a Cabinet Order, which only requires the approval by the Cabinet, two signatures (of the Minister in charge and of the Prime Minister) to become a law.

Can you feel, see, smell the Obama administration here? DPJ seems intent on creating the equivalent of Obama's "czar" system, except the Japanese version will be created with the equivalent of the U.S.'s executive order.

The very name of the "National Strategy Bureau" sounds oddly dictatorial, coming from a party that is supposed to be left of center.

With the creation of the National Stretegy Bureau, DPJ makes it clear that the important policies, even down to the details, will be led by politicians, not bureaucrats. As if these career politicians, often 2nd or 3rd generation, more often than not from well-connected, wealthy families, actually know what to do. For good or bad, Japan has functioned because of the career bureaucrats who know how the system really works, without the meddling from the bumbling politicians. Now DPJ proposes to create an organization that sits on top of the sprawling bureaucracy to impose the DPJ leaders' vision.

Yukio Hatoyama, ex-LDP leader of DPJ who is himself a 4th-generation politician from a prominent family that has produced a Speaker of the Lower House, a Prime Minister, and a Foreign Minister in the past 120 years, is positioning himself as a champion (for the mass, I suppose) to battle the entrenched bureaucracy. Good luck with that.

Another DPJ leader, Naoto Kan, declared that DPJ may nullify the budget proposals that were coming up from the ministries (deadline for submission was 8/31) and that the new administration under DPJ may create the budget from scratch through this Bureau of National Strategy.

Their party's stated policies read like those of the Obama administration. A few examples:

Global warming:

  • Create "cap and trade" carbon exchange market
  • Create new tax to combat global warming


  • Comprehensive, structural reform to protect investors

Crisis management:

  • Create a new agency to manage crisis, natural and man-made (terrorism, cyber-attack), under the control of the Cabinet

Community renewal:

  • Modify tax law to benefit non-profit organizations

So it even has policies for "community". (I have a feeling that they don't know what "community" means these days in the U.S.)

Stanford-educated Yukio Hatoyama, who is slated to become the Prime Minister in the new administration, is also a proponent of giving a voting right to foreigners who live in Japan; he also wants to make Japan more "liveable" for foreigners.

These all suggest to me that the fear in the U.S. that Japan will distance herself from the U.S. in policies is overblown. After all, the leadership of DPJ is made up of ex-LDP members. Even on the defence and foreign policy front, I don't see much difference from the previous administration. On the contrary, the Obama administration should be comforted that at least one U.S. ally is very closely following his footsteps. He may regret, though, having appointed a virtual nobody to the position of ambassadorship to Japan.

(Links, except the last one, are in Japanese.)

Sunday, August 30, 2009

FDIC Update: August Bank Failures 15, DIF $10 Billion (Do They Have A Plan?)

So FDIC closed three banks on Friday, bringing the August bank closure numbers to 15. "What an impressive improvement from July, when 24 banks failed!" would be the "green shooters" remark.

On Thursday FDIC finally released its Quarterly Banking Profile for the 2nd Quarter. It must have been a much-awaited event, because I couldn't get on to the FDIC's website for quite a while after the release of the report at 10:00 AM EST. All I was interested in was to find out what happened to the DIF (Depositors Insurance Fund), which was barely $13 billion or 0.27 reserve ratio at the end of March 31, 2009.

At the end of 2nd quarter that ended June 30, the FDIC's DIF, O miracle of all miracles, decreased by only $3 billion from the 1st quarter because, according to Sheila Bair, her institution managed to collect $6 billion from the member banks as additional assessment fees. Still, FDIC has only $10 billion of DIF, or 0.22 reserve ratio, and this is before the massive (so far) bank failures in July and very costly ones (Colonial Bank and Guaranty Bank, $6 billion) in August. FDIC estimates that bank failures will cost them $70 billion through 2013. But the chairwoman had this to say on Thursday's news conference:

"The FDIC was created specifically for times such as these," Sheila C. Bair said. "Our resources are strong. Your insured deposits are safe."

She also said this:

Asked about a possibility of tapping the Treasury, FDIC Chairman Sheila Bair said: "Not at this point in time. I never say 'never,' but not at this point in time, no."
Now, the congressionally mandated minimum reserve ratio for FDIC is 1.15%.

With that in mind, please take a look at this table. It shows the DIF balance and DIF-insured deposits over the 3 years, and the reserve ratio calculated from the two numbers. The reserve ratio dipped below the mandated minimum in the 2nd quarter of 2008, well before the banking crisis hit in earnest in September.

Why didn't the chairwoman act then? Why didn't Congress require that FDIC raise the assessment to the banks or force it to take the line of credit to replenish the fund? Why isn't Congress demanding that FDIC replenish the fund now? And why does Bair still refuse even now to recognize this 0.22% reserve ratio as danger beyond critical stage and refuse to use the line of credit?

She just keeps repeating the mantra "No one has lost the money with us."

Meanwhile, the emergency assessment fee imposed on smaller banks are taking the toll on their bottom line. FDIC has a line of credit of up to $500 billion with the Treasury Department, yet she refuses to draw from it. The only way to raise additional funds for DIF then is to assess another emergency fee, that will further penalize small banks disproportionately.

If I become more cynical than I already am, I would say Ms. Bair is doing it on purpose - to kill off as many small banks as possible to feed the big banks, even the foreign ones, as cheaply as possible. I can easily think of worse possibilities but those are not the good ones to contemplate right before going to bed...

OK, I found more details about DIF and the congressionally mandated minimum reserve ratio. I couldn't believe my eyes.. This is from March 2009 Journal of Accountancy Highlights:

"With the DIF reserve ratio at 1.01% at the start of the third quarter, the FDIC is required by the Federal Deposit Insurance Reform Act of 2005 to establish a restoration plan to raise the ratio to 1.15% no later than five years after establishing the plan. The plan to restore the ratio includes a combination of uniform higher assessment rates and other risk-based adjustments that place a greater burden of increased assessments on riskier institutions."

All the law requires is that FDIC devise a plan, and raise the ratio to 1.15% within 5 years after they devise the plan. So, by law, the chairwoman can simply sit on her hands doing nothing as long as she has a plan. And she doesn't even seem to have a plan, but she assures us "No one has lost money with us."

This is getting surreal.