Tuesday, April 15, 2014

Recent Posts from Charles Hugh Smith

What, You're Surprised? ...

My Favorite Economic Indicator: The Baltic Dry Index

Good .... They Deserve It (and so do we for letting it happen)

The education bubble is bursting ... finally ... a racket, which I too bought into and worst of all, I KNEW it was bad, but did it anyway!  Well, at least my son isn't saddled with non-dischargeable debt ...

"Death Spiral" - Harvard Professor Predicts Up To Half Of US Universities May Fail In 15 Years

Here's a bit more: The Ongoing Inflation Of The Higher Education Bubble

No They Don't, But Politicians (aka "our leaders and representatives") Think So

Higher Taxes Don’t Make Capitalism “Work Better” by James E. Miller:

“Would Capitalism Work Better With Higher Taxes?”
That’s the title of a new Globe and Mail editorialwritten by Doug Saunders. The question is innocent enough. The article treads lightly on the topic without ideological moralizing. The dilemma of how to make capitalism “work better” is a common trope in mainstream rags. Saunders wants to come off as a moderate thinker who’s just trying to do what’s best for everyone. I suspect there’s something more sinister behind his motives.=
Anyone who understands the basics of capitalism knows taxation acts as a hindrance. There is no question about this. Capitalism is the free trading of goods and services; taxation is the violent extortion of the gains of voluntary trade. Anything that gets in the way of the capitalist process necessarily hinders it.
In no possible way will higher taxes make capitalism “work better.” Those who claim otherwise are either one of two things: ignorant of what capitalism is, or insidiously plotting its demise. I suspect Mr. Saunders knows what he is doing. In his piece, he gives slight deference to the orthodox view that higher taxes create a disincentive to produce. He even cites the fact that the James Bond flick Moonraker was shot all over the globe, except for the place where the Ian Fleming story takes place: England. The producers did everything they could to avoid paying Britain’s top income-tax rate of 83%. Hardly anyone could blame them for taking such measures. Even the Beatles and the Rolling Stones departedtheir home country for places with a softer tax burden.
Saunders understands this but it affects him not. He is convinced data disproves the idea that people want to keep more of their own income. Like any good news columnist, he has an academic to back him up. Thomas Piketty, a French economist, has focused much of his latest work on diving into the historic trends of income inequality. He discovered that wide income inequality acts as a large deterrent to raising living standards. Saunders, being the susceptible stooge waiting for an excuse to flex his statism, now has a scholar to throw in everyone’s face. Of Piketty’s theory, he writes,
“normal market economies, if left to themselves, will always enter a dangerous spiral in which previously existing wealth will grow in value much faster than either wages or sales.”
For Piketty, in unfettered markets, the rate of return on capital putatively outraces worker income. This is bad because it necessarily puts the rich capital owners in a privileged position when compared to the lower classes. The buildup of “dead wealth” is acting as an anchor on economic growth since too much capital remains underutilized. Therefore, Piketty proposes a number of methods to jolt life back into the capitalist class by forcing them to put their assets to work. Saunders is all for this approach and says it’s “bound to become mainstream policy sooner or later.” The only problem is, this approach to economic micromanagement has been in use since the days of Keynes. There’s nothing novel about using government authority to rid the rich of their wealth.
The underlying basis for the Piketty view is the positively Keynesian idea that idle resources are somehow bad; that if machinery, factories, plant equipment, and other forms of capital are going unused, then people are losing the opportunity to work. Economist William H. Hutt destroyed this entire notion in his The Theory of Idle Resources, where he pointed out that unused capital is never really worthless. There is always the possibility for future use. As he wrote,
“[R]esources may, however, be held up for some more wanted employment in such a way that they are not actually idle. The process of investment in them, or of continuous receipt of ‘availability’ services is still present.”
The idea that sitting capital is somehow a benefit to the wealthy is asinine. Sitting, functionless capital doesn’t get a return. It must be put to work. If it appears to be out of use, there is a good reason for it. Either the owner sees no profit opportunities presently or has bigger plans waiting to be implemented.
Economic central planners tend to think they know how to best use other people’s property. Their goal is accounted for in aggregate terms rather than individual preference. They see resources as things that exist to employ others. The very concept of personal ownership screws up their plans; so they attack it in the name of curing unemployment.
In Piketty’s work, he does his best to come off as friendly towards markets and claims to be apprehensive about increasing the size of government. But even so, his worry over capital’s dominance is tainted with Marxist thinking. His solution to the wealthy becoming too powerful is, according to Saunders, “targeting inheritance and extremely high salaries with deterrent taxes.” He even claims that inheritance – that is passing down the fruits of your labor to your children – actually “contradicts the basic principles of capitalism.”
If handing down your own property to your loved ones contradicts capitalism, then so does profit-making in general. People don’t invest, produce, work, and risk their wealth to make sure the trains run on time for everyone. They do so for their own benefit. The same goes for inheritance; which by its nature is a long-view approach to accumulating wealth.
Holding capital does not exact significant harm on the lower rungs of society. On the contrary, it provides the very basis of elongated production methods that produce intricate goods. Without the capitalist, there are no funds to pay workers. The capitalist, as economist Richard Ebeling writes, “saves, forgoing consumption or other uses of his wealth, and those savings are the source of the workers’ wages during the production process.” Punishing someone who saves capital for a later date is a good way to guarantee the stagnation of rising living standards. It’s hard enough for producers and investors to foresee consumer wants; academics and pundits are necessarily in a worst position to decide.
So do higher taxes make capitalism better? The answer is unequivocally “no.” But that won’t stop statist apparatchiks like Doug Saunders from cherry-picking data and sources to make the case for higher taxes. There can be a number of reasons for low economic growth. Low taxation and capital-hoarding businessmen are never one of them.

Truly Scary Sh*t

US Households To Withdraw $430 Billion From Stocks In 2014 - Most Since Last Bubble:

When it comes to the conventional wisdom of who owns the bulk of corporate stock in the US equity market, the consensus is simple: at 36% of total, the answer is the US household. This is shown in the chart below.
As an aside we disagree from this simplistic analysis because as is well known, the "Household" category, which is pulled from the Fed's quarterly Flow of Funds report, is merely a placeholder plug, designed to balance out all the other member categories. What is less known is that entities such as hedge funds use extensive "off the books" leverage (just ask Citadel and its nearly 9x regulatory leverage) to hold far more equities than their capital allows them. Which means that in reality the US household owns far less stock than is believed.
But even if one takes the Fed's data at face value, what becomes clear is that having owned virtually the entire stock market in 1945, households are now down to nearly their lowest fractional ownership in history, with the rest allotted to mutual, pension and retirement funds.
And it is only going to get worse.
According to a recent analysis by Goldman, in 2014 the US household is on track to withdraw a whopping $430 billion from US corporate stocks. i.e., sell. This will be the biggest net outflow by the Household group, which has constantly withdrawn cash from equities over the past decade, since the last market peak.
It is understandable why: with baby boomers retiring in droves, and with interest income non-existent, investors are forced to liquidate positions in order to generate, well, liquidity.
Perhaps a more disturbing question is why is the household outflow not bigger? After all it surpassed $1 trillion during the last market peak. Could it be because households just don't have all that much equity left in a market which is now dominated by a mere tiny fraction of the entire US population?
But the biggest question is with household pulling cash out, who will provide the offsetting inflow into stocks? The answer: corporations of course - the same entity that injected a record $500 billion in stocks in the form of buybacks is set for another bumper year of net inflows, and according to Goldman companies are on par to match their 2013 buyback activity by buying back some $450 billion of their own stock in the coming year.
This also explains why for one more year, there will be no capex rise - quite simply in order to maintain the illusion of the stock market ponzi, corporations have to keep buying back ever greater amounts of their own stock in order to keep reducing the denominator in the EPS fraction and perpetuate the myth that Net Income is growing when in reality only the number of outstanding shares is declining. So for all those hoping for that so long overdue CapEx bounce, may we interest you in some 1000+ forward PE multiple stocks.
After all in a ponzi which has already likely passed its Minsky moment, the only "trade" that works is to bet on the greatest fool of all, the Fed.

Three From The Sage, Thomas Sowell

Always an education ....

A classic quotes from A Halo for Selfishness:
Those unfamiliar with political rhetoric may not know that "special interests" mean people who support your opponents. One's own organized supporters -- such as labor unions supporting President Obama -- are never called "special interests.
and this one:
If truth-in-packaging laws applied to Congress, a campaign finance law would have to be labeled an "Incumbents Protection Act."

In Chuck Stone (1924-2014), Sowell writes about a man whose columns I remember reading in the Philadelphia Daily News back in the late '70s early '80s.  I learned  much about the man I did not know in this short column, namely that he was a navigator with the famous WWII Tuskegee Airmen squadron.

Lastly, here's Statistical Frauds with Sowell's views on the "war on women" and other such nonsensical bullshit that passes for intelligence in various political circles.

Walter E. Williams: Equality in Discipline

Equality in Discipline:

George Leef, director of research for the North Carolina-based John William Pope Center for Higher Education Policy, authored a Forbes op-ed article titled "Obama Administration Takes Groupthink To Absurd Lengths." The subtitle is "School Discipline Rates Must Be 'Proportionate.'"  Let's examine some of the absurdity of the Obama administration's take on student discipline.
Last January, the departments of Justice and Education published a "guidance" letter describing how schools can meet their obligations under federal law to administer student discipline without discriminating on the basis of race, color or national origin. Its underlying threat is that if federal bureaucrats learn of racial disproportionality in the punishments meted out for misbehavior, they will descend upon a school's administrators. If schools cannot justify differentials in rates of punishment by race or ethnic group, they will face the loss of federal funds and be forced to undertake costly diversity training.
The nation's educators can avoid sanctions by adopting a racial quota system for student discipline. So as Roger Clegg, president and general counsel of the Center for Equal Opportunity, predicts, "school officials will either start disciplining students who shouldn't be, or, more likely, will not discipline some students who ought to be." I can imagine school administrators reasoning this way: "Blacks are 20 percent of our student body, and 20 percent of suspensions this year have been of black students. In order to discipline another black student while maintaining our suspension quota, we will have to suspend some white students, whether they're guilty or not." Some administrators might see some injustice in that approach and simply ignore the misbehavior of black students.
Leef cites Manhattan Institute's Heather Mac Donald, who wrote in City Journal that "the Departments of Education and Justice have launched a campaign against disproportionate minority discipline rates, which show up in virtually every school district with significant numbers of black and Hispanic students.
The possibility that students' behavior, not educators' racism, drives those rates lies outside the Obama administration's conceptual universe." She quoted Aaron Benner, a black teacher in a St. Paul, Minn., school who abhors the idea that school officials should go easy on black students who act up because (as a "facilitator" said) that's what black culture is. "They're trying to pull one over on us. Black folks are drinking the Kool-Aid; this 'let-them-clown' philosophy could have been devised by the KKK." Benner is right. I can't think of a more racist argument than one that holds that disruptive, rude behavior and foul language are a part of black culture.
If Barack Obama's Department of Justice thinks that disproportionality in school punishments is probative of racial discrimination, what about our criminal justice system, in which a disproportionate number of blacks are imprisoned, on parole or probation, and executed? According to the NAACP's criminal justice fact sheet, blacks now constitute nearly 1 million of the total 2.3 million people who are incarcerated. Blacks are incarcerated at nearly six times the rate of whites. The NAACP goes on to report that if blacks and Hispanics were incarcerated at the same rate as whites, today's prison and jail populations would decline by approximately 50 percent.
So what to do? For example, blacks are 13 percent of the population but over 50 percent of homicide victims and about 46 percent of convicted murderers. Seeing as the Obama administration is concerned about punishment disproportionality, should black convicts be released so that only 13 percent of incarcerated murderers are black? Or should the Department of Justice order the conviction of whites, whether they're guilty or not, so that the number of people convicted of murder by race is equal to their number in the general population? You say, "Williams, that not only is a stupid suggestion but violates all concepts of justice!" You're absolutely right, but isn't it just as stupid and unjust for the Obama administration to seek punishment equality in schools?

The Latest From Walter E. Williams: How To Assist Evil

How to Assist Evil: [emphasis mine]

"Engineering Evil" is a documentary recently shown on the Military History channel. It's a story of Nazi Germany's murder campaign before and during World War II. According to some estimates, 16 million Jews and other people died at the hands of Nazis.
Though the Holocaust ranks high among the great human tragedies, most people never consider the most important question: How did Adolf Hitler and the Nazis gain the power that they needed to commit such horror? Focusing solely on the evil of the Holocaust won't get us very far toward the goal of the Jewish slogan "Never Again."
When Hitler came to power, he inherited decades of political consolidation by Otto von Bismarck and later the Weimar Republic that had weakened the political power of local jurisdictions. Through the Enabling Act (1933), whose formal name was "A Law to Remedy the Distress of People and Reich," Hitler gained the power to enact laws with neither the involvement nor the approval of the Reichstag, Germany's parliament. The Enabling Act destroyed any remaining local autonomy. The bottom line is that it was decent Germans who made Hitler's terror possible — Germans who would have never supported his territorial designs and atrocities.
The 20th century turned out to be mankind's most barbaric. Roughly 50 million to 60 million people died in international and civil wars. As tragic as that number is, it pales in comparison with the number of people who were killed at the hands of their own government. Recently deceased Rudolph J. Rummel, professor of political science at the University of Hawaii and author of "Death by Government," estimated that since the beginning of the 20th century, governments have killed 170 million of their own citizens. Top government killers were the Soviet Union, which, between 1917 and 1987, killed 62 million of its own citizens, and the People's Republic of China, which, between 1949 and 1987, was responsible for the deaths of 35 million to 40 million of its citizens.
In a distant third place were the Nazis, who murdered about 16 million Jews, Slavs, Serbs, Czechs, Poles, Ukrainians and others deemed misfits, such as homosexuals and the mentally ill.
We might ask why the 20th century was so barbaric. Surely, there were barbarians during earlier ages. Part of the answer is that during earlier times, there wasn't the kind of concentration of power that emerged during the 20th century. Had Josef Stalin, Mao Zedong and Hitler been around in earlier times, they could not have engineered the slaughter of tens of millions of people. They wouldn't have had the authority. There was considerable dispersion of jealously guarded political power in the forms of heads of provincial governments and principalities and nobility and church leaders whose political power within their spheres was often just as strong as the monarch's.
Professor Rummel explained in the very first sentence of "Death by Government" that "Power kills; absolute Power kills absolutely. ... The more power a government has, the more it can act arbitrarily according to the whims and desires of the elite, and the more it will make war on others and murder its foreign and domestic subjects." That's the long, tragic, ugly story of government: the elite's use of government to dupe and forcibly impose its will on the masses. The masses are always duped by well-intentioned phrases. After all, what German could have been against "A Law to Remedy the Distress of People and Reich"? It's not just Germans who have fallen prey to well-intentioned phrases. After all, who can be against the "Patient Protection and Affordable Care Act"?
We Americans ought to keep the fact in mind that Hitler, Stalin and Mao would have had more success in their reign of terror if they had the kind of control and information about their citizens that agencies such as the NSA, the IRS and the ATF have about us. You might ask, "What are you saying, Williams?" Just put it this way: No German who died before 1930 would have believed the Holocaust possible.

Friday, April 4, 2014


What A Loan Officer Would Say To The US Government: Denied! by Michael Lombardi:

For a moment, consider yourself a loan officer at a major bank. Would you approve a loan for a customer who says they earn $1,000 a month and spend $1,300 a month? They also tell you they have unpaid debts of $17,000.
I don’t think anyone would authorize that kind of loan because the chances of getting the money back are next to zero. The individual spending more than he earns is a prime example of a financial disaster waiting to happen. It is unsustainable living; when someone does this, they break the most basic principles of Personal Finance 101.
So why does the U.S. government get away with it?
The United States Department of the Treasury, Bureau of the Fiscal Service reported the budget deficit for the month of February was $194 billion. The U.S. government received $144 billion in revenues and spent $338 billion; the government spent 134% more than what it earned. (Source: Bureau of the Fiscal Service, March 14, 2014.)
So far for fiscal year 2014 (which began in October of 2013), the U.S. government has incurred a budget deficit of $380 billion on revenues of $1.10 trillion and expenses of $1.48 trillion. Since the beginning of its current fiscal year, the government has been spending 34% more than what it takes in.
The U.S. national debt, which has now surpassed $17.0 trillion, has skyrocketed since the Credit Crisis of 2008.
There are two important facts about our rising national debt that don’t get a lot of mainstream attention (and I certainly don’t hear the politicians talking about them):
Point #1: With higher national debt come higher interest payments.
Point #2: Interest rates are rising.
So far this fiscal year, the U.S. government has paid $166 billion in interest payments alone on its national debt. For the entire year, it expects to pay about $420 billion in interest. The more debt we pile on as the years go by, the more interest we will be paying on that debt.
As for interest rates themselves, they have been rising. Since mid-2012, the yield on the 10-year U.S. Treasury has gone up from 1.4% to 2.7% today, a whopping increase of 92%.
When a family is in trouble, it tries to make at least the minimum payments on its debt. Right now, the U.S. government isn’t even making a minimum payment. It is covering its interest payments on its debt by borrowing more; something the individual in our example above cannot do.
In fiscal 2013, the U.S. government registered a budget deficit of $680 billion. The politicians were very quick to say, “Look, it’s not the $1.0-trillion budget deficit we’ve been running for each of the past five years…we’ve come in lower!” They pat themselves on the back. But they don’t talk about the massive national debt we have created, how we are borrowing more money simply to pay our interest costs on our debt, how rising interest rates in 2015 and 2016 will just propel the national debt higher.
Maybe the amount of national debt no longer matters because we’ve all concluded it simply can’t be paid back. Or maybe it doesn’t matter because Japan’s national debt is equal to 205% of its gross domestic product (GDP), and Japan’s not broke yet. (Our national debt-to-GDP stands at 105%.) I guess that, according to the Japanese example, the size of a country’s national debt, or its relationship to GDP, really doesn’t matter anymore.
I am skeptical. What happens when one day the Japanese and China, which have already cut back on buying U.S. Treasuries, say “We want our money back”? Oh, that’s right. That won’t be a big deal because the Federal Reserve will just get the printing presses going again and buy all the new U.S. bonds coming on the market with newly printed money. Yeah, that will work. By Michael Lombardi, Profit Confidential.

Two Worthy Reads on American Political Dynasties (Bush vs. Clinton in '16?)

Two excellent articles on the same topic from Cato's Gene Healy and Michael D. Tanner.  The American people get exactly what they deserve by continually electing the Kennedy's, Clinton's, Bush's, etc..  Then again, our nation's continued love affair with these families says much about the uselessness of voting in general, since the political parties are but two and both ultimately control who gets their respective nominations.  Americans "voted" only once for "independence" and that was via revolution in the late 18th century.  We're too comfortable now to consider anything that would make us think.  Enjoy the reads, and brace yourselves for 2016.

If U.S. Is Going to Have Dynasties, at Least Have Good Ones by Gene Healy

Jeb v. Hillary? by Michael D. Tanner

Wednesday, April 2, 2014

The Latest From The Sage, Thomas Sowell

I'm not on board with all the Sage has to say here, but, he says it well, and, he makes me think ...

How Foreign Is Our Policy?

How Foreign Is Our Policy?: Part II

The NSA Exploits Loopholes - Go Figure. Who'd 'a 'thunk it?

Still cannot believe that James Clapper has not been indicted for perjury, but then again, I can.  Here's the latest revelation from the felon, entitled NSA exploiting loophole to search for Americans’ communications

Monday, March 31, 2014

Truly Scary Sh*t

Stress Tests for TBTF: A Joke of a Test, and One the USG Would Fail Itself

Been reading about the latest round of 'stress tests' for our nation's banks?  You know, the test that just by sheer coincidence, all the too-big-to-fail (TBTF) banks passed, well, then again, there's been some concern about CitiBank.  Stress tests: read Nassim Nicholas Taleb's opinion on such tests in his book, The Black Swan.  Let's put it this way: they're a waste.  Here are a few good pieces on the latest such tests:

A Political History of “Too Big to Fail”

Stress Test Dummies: It's All About Interest Rate Risk, Right?

Fed Needs To “Stress Test” Itself As Balance Sheet Balloons To $4.3 Trillion

Citi Tumbles Below $5/Share On A Split-Adjusted Basis After Failing Another Fed Stress Test

Citi Fails Fed Stress Test … The REAL Story

Is the Citigroup Stress Test Rejection Really a Surprise? Really?

Eminent Domain Abuse: Par For The Course With Politicians and Their Cronies

One of the events that raised my awareness about the true nature of politics was the Kelo vs. City of New London eminent domain case, in which private land was confiscated by the government in order to be given to private investors.  Most people are familiar with the textbook version of eminent domain, i.e., when the government confiscates private property in order to build a public good, such as a road, railroad, school, etc. But today, it means just about the opposite: the rich use the power of government to take from others that which they cannot buy.  The usually accomplish this by having local government declare the property or parcel of land as 'blighted'.  It's a disgrace.  Few people understand how the Brooklyn Nets 'acquired' the land upon which their new arena sits. Simply put, it was stolen.  Damon Root reminds us that he told us so in Eminent Domain Fails Again: Pathetic ‘Community Benefits’ From Brooklyn Nets Arena:

In 2003 the city and state of New York partnered with a real estate tycoon named Bruce Ratner and began work on a massive redevelopment scheme known as the Atlantic Yards. The idea was to transform a 22-acre spot near downtown Brooklyn into what Ratner called an “urban utopia,” replete with a luxury hotel, multiple high-rise office and apartment towers, and a shiny new sports arena for the NBA Nets, then partially owned by Ratner, to play ball.
The only problem was that more than half of the proposed site happened to be privately owned and occupied, and many of those owners and occupants had zero interest in selling their homes and businesses. So New York turned up the heat and invoked its power of eminent domain. If the holdouts still refused to get with the program, in other words, they’d be evicted and the bulldozers would follow.
Because it never looks good when the government forcibly seizes private property for the benefit of a rich developer, a few public relations sweeteners were also added to the deal, such as promises to build “affordable housing” and other “community benefits.” In 2009, New York’s highest court upheld the land grab, even though, as the court itself admitted, Atlantic Yards was most likely the product of a rigged system characterized by “political appointees to public corporations relying upon studies paid for by developers.” One year later the new arena, now known as the Barclays Center, opened its doors to ticket buyers.
The promised “community benefits,” on the other hand, have failed to appear—with one exception. As Andrew Keh reports in The New York Times, the Barclay’s Center recently introduced something called the meditation room, “a locked, windowless, cinder-block room tucked near the arena’s first aid office and a sushi stand.” What’s it doing there? As Keh explains, “the meditation room counts essentially as an asterisk in the long list of promises that Forest City Ratner, the project’s developer, made to the borough.” That pathetic asterisk represents the sum total of the “community benefits” delivered by Ratner and his government allies.
Is it time to say “we told you so” about this eminent domain swindle? Yes, it is. In fact, back in October 2009, Daniel Goldstein, the lead plaintiff in the legal challenge against the Atlantic Yards, basically predicted the outcome. Let's give Goldstein the last word:
When eminent domain is used in service of building a school, a railway, or a hospital, we know what we'll get. But when "economic development" is the justification, we have no idea what we'll get except for false hopes, false dreams, and happy talk, along with a land grab windfall for the developer and theft of homes.
In the case of Atlantic Yards the so-called "benefits" are illusory at best. No attempt has been made by the condemning authority or the lower court to weigh the public versus private benefits; meaning there has been no cost-benefit analysis of the project and no analysis of the developer's benefit. But it doesn't take a degree to see who gets the very short end of the stick.

The Continuing Public/Private Surveillance Partnership

Bruce Schneier's penned another excellent piece entitled The Continuing Public/Private Surveillance Partnership:

If you've been reading the news recently, you might think that corporate America is doing its best to thwart NSA surveillance.
Google just announced that it is encrypting Gmail when you access it from your computer or phone, and between data centers. Last week, Mark Zuckerberg personally called President Obama to complain about the NSA using Facebook as a means to hack computers, and Facebook's Chief Security Officerexplained to reporters that the attack technique has not worked since last summer. Yahoo, Google, Microsoft, and others are now regularly publishing "transparency reports," listing approximately how many government data requests the companies have received and complied with.
On the government side, last week the NSA's General Counsel Rajesh De seemed to have thrown those companies under a bus by stating that -- despite their denials -- they knew all about the NSA's collection of data under both the PRISM program and some unnamed "upstream" collections on the communications links.
Yes, it may seem like the the public/private surveillance partnership has frayed -- but, unfortunately, it is alive and well. The main focus of massive Internet companies and government agencies both still largely align: to keep us all under constant surveillance. When they bicker, it's mostly role-playing designed to keep us blasé about what's really going on.
The U.S. intelligence community is still playing word games with us. The NSA collects our data based on four different legal authorities: the Foreign Intelligence Surveillance Act (FISA) of 1978, Executive Order 12333 of 1981 and modified in 2004 and 2008, Section 215 of the Patriot Act of 2001, and Section 702 of the FISA Amendments Act (FAA) of 2008. Be careful when someone from the intelligence community uses the caveat "not under this program" or "not under this authority"; almost certainly it means that whatever it is they're denying is done under some other program or authority. So when De said that companies knew about NSA collection under Section 702, it doesn't mean they knew about the other collection programs.
The big Internet companies know of PRISM -- although not under that code name -- because that's how the program works; the NSA serves them with FISA orders. Those same companies did not know about any of the other surveillance against their users conducted on the far more permissive EO 12333. Google and Yahoo did not know about MUSCULAR, the NSA's secret program to eavesdrop on their trunk connections between data centers. Facebook did not know about QUANTUMHAND, the NSA's secret program to attack Facebook users. And none of the target companies knew that the NSA washarvesting their users' address books and buddy lists.
These companies are certainly pissed that the publicity surrounding the NSA's actions is undermining their users' trust in their services, and they're losing money because of it. CiscoIBMcloud service providers, and others have announced that they're losing billions, mostly in foreign sales.
These companies are doing their best to convince users that their data is secure. But they're relying on their users not understanding what real security looks like. IBM's letter to its clients last week is an excellent example. The letter lists five "simple facts" that it hopes will mollify its customers, but the items are so qualified with caveats that they do the exact opposite to anyone who understands the full extent of NSA surveillance. And IBM's spending $1.2B on data centers outside the U.S. will only reassure customers who don't realize that National Security Letters require a company to turn over data, regardless of where in the world it is stored.
Google's recent actions, and similar actions of many Internet companies, will definitely improve its users' security against surreptitious government collection programs -- both the NSA's and other governments' -- but their assurances deliberately ignores the massive security vulnerability built into its services by design. Google, and by extension, the U.S. government, still has access to your communications on Google's servers.
Google could change that. It could encrypt your e-mail so only you could decrypt and read it. It could provide for secure voice and video so no one outside the conversations could eavesdrop.
It doesn't. And neither does Microsoft, Facebook, Yahoo, Apple, or any of the others.
Why not? They don't partly because they want to keep the ability to eavesdrop on your conversations. Surveillance is still the business model of the Internet, and every one of those companies wants access to your communications and your metadata. Your private thoughts and conversations are the product they sell to their customers. We also have learned that they read your e-mail for their own internal investigations.
But even if this were not true, even if -- for example -- Google were willing to forgo data mining your e-mail and video conversations in exchange for the marketing advantage it would give it over Microsoft, it still won't offer you real security. It can't.
The biggest Internet companies don't offer real security because the U.S. government won't permit it.
This isn't paranoia. We know that the U.S. government ordered the secure e-mail provider Lavabit to turn over its master keys and compromise every one of its users. We know that the U.S. government convinced Microsoft -- either through bribery, coercion, threat, or legal compulsion -- to make changes in how Skype operates, to make eavesdropping easier.
We don't know what sort of pressure the U.S. government has put on Google and the others. We don't know what secret agreements those companies have reached with the NSA. We do know the NSA'sBULLRUN program to subvert Internet cryptography was successful against many common protocols. Did the NSA demand Google's keys, as it did with Lavabit? Did its Tailored Access Operations group break into to Google's servers and steal the keys?
We just don't know.
The best we have are caveat-laden pseudo-assurances. At SXSW earlier this month, CEO Eric Schmidt tried to reassure the audience by saying that he was "pretty sure that information within Google is now safe from any government's prying eyes." A more accurate statement might be, "Your data is safe from governments, except for the ways we don't know about and the ways we cannot tell you about. And, of course, we still have complete access to it all, and can sell it at will to whomever we want." That's a lousy marketing pitch, but as long as the NSA is allowed to operate using secret court orders based on secret interpretations of secret law, it'll never be any different.
Google, Facebook, Microsoft, and the others are already on the record as supporting these legislative changes. It would be better if they openly acknowledged their users' insecurity and increased their pressure on the government to change, rather than trying to fool their users and customers.

What, You're Surprised?

Obamacare Isn’t about Health, It’s about Wealth Redistribution by Robert A. Levy:

The Hobby Lobby case now before the Supreme Court will test whether private, for-profit corporations, acting through their owners, can claim a religious exemption from ObamaCare’s mandate to cover contraception as part of employee health insurance.

Supposedly, the case is about birth control and religious freedom. That’s the legal issue, but it’s not the underlying policy issue. ObamaCare, at its root, is about wealth redistribution.
The economic rationale for health insurance (and other insurance as well) is to pool individual resources, thereby spreading the risk associated with unexpected events that could impose painful financial burdens on victims.
That’s why we don’t insure against running out of gasoline: The event is anticipated and the expense is manageable. We do, however, insure against house fires: The event is unpredictable and the cost could be onerous.
Health-related illnesses and injuries are a mixed bag. Some costs — such as medical care arising out of a major automobile accident — fall into the unpredictable-and-potentially-burdensome category. Other costs — such as contraception — are known in advance and tolerable by nearly everyone.
We decide up front if childbirth is a possible and desirable outcome, we are aware whether and when contraception might be needed, and we can afford the cost. Accordingly, rather than pay an insurance company to bear those risks, we typically pay out of pocket.
Are there instances when the need for contraception cannot be forecast? Yes; cases of rape, for example.
But inexpensive, ex post birth control is available. Moreover, those cases are infrequent, uncorrelated with one another and, therefore, insurable at trivial cost.
In a rational insurance market, with policies tailored to customer needs, medical coverage would reimburse expenditures associated with such events and the additional insurance premiums would be inconsequential. There’s no need to mandate universal contraception coverage to guard against outlays for unforeseen tragedies such as rape.
What about less-affluent persons for whom the cost of contraception can be significant? Indeed, that could be a problem. ObamaCare’s solution is wealth redistribution — by forcing some people to cover the cost that others might not be able to afford.
That’s the reason government-approved health insurance must cover contraception, even though coverage of ordinary expenses is a money-losing proposition for most individuals.
Unfortunately, government has long been a major player in redistributing wealth. Many Americans — myself included — don’t believe that’s a legitimate function of government. But at least there’s been a semblance of transparency so voters could express their preferences.
Taxes are levied to fund food stamps, welfare, housing, Medicare, and numerous other redistributive programs. Similarly, if a tax had been levied to fund contraception coverage for those who needed it and couldn’t pay the bills, voters could have opted to approve or not.
Instead, ObamaCare has erected a complex, opaque, costly and wasteful structure that forces businesses to cover contraception for all employees — the vast majority of whom do not require it and would not buy it. Such is the nature of government mandates.
Adding insult to injury, proponents of ObamaCare assert, without substantiation, that compulsory coverage of contraception will save money in the long run. Presumably, insurance companies won’t have to pay for medical care related to pregnancies that contraception would have prevented.
In other words, executives running a multibillion-dollar industry — until they were enlightened by government bureaucrats — were too ignorant to understand that providing “free” contraception to everybody costs less than covering a few pregnancies.
In reality, however, if there were no contraception mandate in ObamaCare, insurers would have to pay incrementally only for pregnancies of those people who had policies covering childbirth, got pregnant because they didn’t use contraception and would have used contraception but for their inability to afford either birth control or contraception insurance.
Of course, that hypothetical saving is wholly illusory. What’s really at work is breathtaking arrogance of power by the federal government — a Washington, D.C., takeover of health care.
Americans deserve better. First, expedite competition by allowing interstate sales of health insurance. Second, encourage the states to reform their medical malpractice laws. Third, eliminate constraints on health savings accounts with high-deductible coverage.
Fourth, charge higher premiums for those who enroll with pre-existing conditions; or, alternatively, do not cover high-cost procedures until a specified number of months elapse after enrollment.
Fifth and most important, change the tax treatment of health insurance, which discriminates against individually customized policies in favor of employer-provided coverage.
In lieu of those sensible improvements, the Obama administration has given us wealth redistribution deceptively camouflaged as insurance reform.

Walter E. Williams on Sex and Race Equality

Always an education in reason and rationality from Walter Williams and his latest, Sex and Race Equality is no exception:

There are several race and sex issues that need addressing. Let's look at a few of them with an ear to these questions: Should we insist upon equal treatment of people by race and sex or tolerate differences in treatment? And just how equal are people by race and sex in the first place?
According to the National Institutes of Health, male infants 1 to 3 months old should be fed 472 to 572 calories per day, whereas their female counterparts should receive 438 to 521 calories per day. That's an official sex-based caloric 10 percent rip-off of baby females. In addition to this government-sanctioned war on women, one wonders whether the NIH has a race-based caloric rip-off where they recommend that black newborns receive fewer calories than white newborns.
Anyone who watches "Lockdown" on television will see gross racial segregation in California prisons — such as Pelican Bay, Corcoran and San Quentin — where prisoners are housed by race. Colored signs have hung above living quarters — for example, blue for black inmates, white for white, red, green or pink for Hispanic, and yellow for others. Sometimes inmate yard times are racially segregated. Being 78 years old and having lived through an era in which I saw signs for white and colored water fountains, waiting rooms and toilets, I find California's racial segregation practices offensive. Prison Law Office, a public interest law firm that seeks justice for prisoners, criticizes such flagrant racial segregation policy, but I question its sincerity. Criticizing racial segregation while not uttering one word about flagrant prison sex segregation is at the minimum, two-faced. In my book, if the all-male military bastion is being eliminated, it stands to reason that prison segregation by sex should be eliminated. No decent American would accept the idea of a prison for blacks and another one for whites. If we value equality, we shouldn't accept one prison for men and another for women.
There should be integration.
Speaking of sex segregation, there have been recent calls to end the ban on women in combat units, but there's no mention of the Army's sexist physical fitness test. For a male 17-21 years of age to pass, he must do 35 pushups, do 47 situps and run 2 miles in 16 minutes, 36 seconds. His female counterpart, who receives the same pay, can pass the fitness test by doing a mere 13 pushups, doing 47 situps and running 2 miles in 19 minutes, 42 seconds. How can anyone who values equality and self-respect tolerate this gross discrimination? You say, "Williams, what's your solution?" I say we should either force women to come up to the physical fitness standards for men or pass men who meet the female standards of fitness. Maybe we should ask our adversaries which is better — raising female fitness standards or lowering those of males.
There are a couple of other inequalities that cannot be justified, much less tolerated, in a society that values equality. Jews are only 3 percent of the U.S. population, but they take 39 percent of U.S. Nobel laureates. That's a gross disparity, for which there is no moral justification. Ask any academic, intellectual, or civil rights leader and he'll tell you that equality and diversity means that people are to be represented across socioeconomic lines according to their numerical representation in the population. The fact that Jews are 39 percent of U.S. Nobel laureates can mean only one thing — they are taking the rightful Nobel laureates of other racial groups.
Jews are not the only people taking more than their fair share of things. Blacks are 13 percent of the population but have taken nearly 80 percent of the player jobs in the National Basketball Association. Compounding that injustice, they are highest-paid NBA players. Blacks are also guilty of taking 66 percent, an unfair share, of professional football jobs.
Any American sharing the value of race and sex equality and diversity should find these and other differences offensive and demand that the liberal and progressive elements in society eliminate them.

Sunday, March 30, 2014

And You Wonder Why I Detest American Politics?

Truly disgusting, seriously.  And there are excuse-makers for our politicians and the system they perpetuate that support and defend this - You Can't Make This Up: MF Global Sues PWC, Blames It For Its Collapse:

File this one in the "you can't make it up" category. Over two years after the MF Global collapse, in which the primary dealer headed by Jon "I don't recall" Corzine all but admitted it had engaged in the cardinal sin of any financial intermediary, i.e., commingling money, to cover up a trade gone horribly bad and which resulted in the disappearance of some $1 billion in client funds until such time as the bankruptcy process managed to "liberate" funds from other part of the company, MF Global has suddenly figured who is at fault: not the CEO, not his brown-nosing lackey, not some janitor meant to be scapegoated precisely in a situation such as this, not even the infamous "glitch" - no, the party that is accountable for the firm's theft of client funds, and horrible investing decisions that led to its bankruptcy, are the accountants.
No really: yesterday MF Global Holdings sued PricewaterhouseCoopers LLP for $1 billion, alleging accounting malpractice helped bring down the brokerage company.
Like we said, you can't make this up. From Bloomberg:
PwC, which provided outside auditing and accounting experts, failed to advise the firm to account properly for its European sovereign debt holdings, leading it to over-invest in them, MF Global Holdings said in a complaint filed today in Manhattan federal court.

But for PwC’s erroneous accounting advice, MF Global Holdings could not have -- and would not have -- invested heavily in European sovereign debt to generate immediate revenues and would not have suffered the massive damages that befell the company in 2011,” MF Global Holdings said in the complaint.

MF Global filed for bankruptcy on Oct. 31, 2011. Customers have claimed in lawsuits against the firm’s former executives that more than $1.6 billion of their funds that should have been segregated went missing, transferred to other parts of the company during the liquidity crisis.

Christopher Atkins, a PwC spokesman, didn’t immediately return a voice-mail message seeking comment on the suit.
In retrospect: almost brilliant. MF Global, or what's left of the estate, is using the old tried and true "Enron defense", where if there was corporate criminality, the accountants were surely involved. And they most probably were. There is one problem though: in the case of Enron, all of its key executives, Lay, Skilling and Fastow, got prison sentences. In MF Global's case of Jon Corzine... not so much.

Why? The answer:

Two Words I Detest: American Exceptionalism ...

... and here's why as told by Logan Albright - Exceptionalism as a Foreign Policy Justification:

American exceptionalism is a common theme in any policy debate surrounding the United States. We have to protect American manufacturing, protectionists ignorant of economics argue, because America is exceptional. We have to pass expansive welfare programs to care for the poor, because America is exceptional. Most recently, we have to intervene in the conflict between Russia and Ukraine, because America is exceptional. Why the imputed exceptionalism requires one country to police the world and meddle in matters that do not concern them remains unexplained.
As an American myself, I do not dispute that claim that the it is, in many ways, an exceptional country. What I do object to is the use of that claim to justify bad policy. America is exceptional because of policy, not as a justification for it.
The exceptional situation America finds itself in is a result of the exceptional circumstances of its founding and the way it has treated its people throughout the years. No other country was created under the specific intention to limit government and preserve individual liberty.
These circumstance are what allowed the country to grow into an economic powerhouse, a world superpower, and a bastion of freedom that draws immigrants from all over the planet, seeking a better life.
But every time the government cites these exceptional qualities as the reason to curtail liberty, to expand government, or to drop bombs around the world, all the things that make America great are subtly diminished.
Those who are advocating for the U.S. to take military action in Ukraine, either directly or indirectly, seem to think there is a moral duty to so, and that to do otherwise somehow diminishes the nation’s greatness. But it must be remembered that these international interventions would not be voluntary, and therefore could not properly be described as moral. The people who make the decisions about whether to act or not are not the ones who do the actual fighting. They do not volunteer their own money to support the cause. They are not the ones who face the consequences of economic sanctions such as embargoes, imposed on others against their wills. All of these policies involve a few designated potentates using force and coercion to dictate what others should do. It’s hard to take the moral high ground in such a situation.
But even if we overlook the rather major point that the lives in play are the unwilling pawns of government force, what does exceptionalism have to do with moral duty? Does great power, as the Spider Man films assert, come with an obligation of great responsibility? Or to put it another way, does weakness excuse inaction? If exceptionalism uniquely demands action, then surely we must also conclude that ordinariness absolves a nation of moral responsibility. That does not seem to me to be a logical conclusion.
A weak man is not excused for failing to stand up to injustice when he sees it. Similarly, a powerful man is not uniquely obligated to take action simply because he can. Morality is a constant that doesn’t depend on the relative power of a moral agent vis a vis his circumstances.
None of this is meant to comment on the relative justice or injustice of Vladimir Putin’s actions or the situation in Crimea – I am not in a position to know the extent to which the peninsula’s secession was voluntary as opposed to coerced – but I am merely making the point that “American exceptionalism” is not a sufficient justification for an interventionist foreign policy.
When discussing American exceptionalism, we should always frame it in the context of the statement: “America is exceptional because we don’t tell people what to do.” Not: “America is exceptional, so we should get to tell people what to do.” The more public policy is guided by the latter statement, the less true the former becomes.