Sunday, January 31, 2010

A Nation in Debt

Obama did an about-turn in spending after the Massachusetts voters sent a Republican to fill Ted Kennedy's seat. Exit polls show unease about the way Obama was spending money that would increase the role of the government in the economy and at the same time vastly increase the nation's debt. It was an ambiguous message since voters were also worried about unemployment that remains stubbornly high.

So Obama is now freezing his spending in some areas while maintaining the growth in others:

..."Exempted from the cuts, however, are national security, veterans programs, Medicare, Medicaid and Social Security — the most expensive and fastest-growing areas of the budget. By filling in the details behind the freeze, the administration hopes to show critics that it used a scalpel rather than an ax to keep spending for the targeted domestic agencies to $447 billion annually through 2013, saving $10 billion in the coming fiscal year"...

Source: NY Times

Anyone following the fiscal conditions of the US would or should be shaking his/her head at this "scalpel" exercise which is purely window dressing.

Why? Because the larger picture shows fine tuning the spending will not affect meaningfully the overall indebtedness of the nation.

To seriously de-leverage the nation would have to mean substantial cuts (by an axe, not scalpel) and higher taxes. Increasing taxes in the minds of US politicians has always been considered an act of political suicide.

So much so even when the nation went to war, the politicians refused to ask the nation to make an economic sacrifice. It is a curious mindset since the same leaders are asking their young people, the nation's future, to make the ultimate sacrifice by going to war to die for their country.

The economic consequence of war without raising taxes necessarily results in high national debt. It happened during the Vietnam war because LBJ wanted guns and his Great Society Programs fully funded -- by debt. This continued under Richard Nixon.

The 8 years of supposedly fiscally conservative Republican government under George Bush went over the fiscal cliff influenced by crackpot ideologue economists such as Arthur Laffer, among others. Bush believed in fighting wars (Iraq and Afghanistan) and cutting taxes at the same time. In fact most tax benefits accrued only to the very rich, his financial base of his political supporters.

By the time this Obama went into office, the indebtedness of USA was already off the chart:

But the government was not the only guilty party. Why? Take a look at household debt and national savings. The chart below marks clearly how the mentality of "instant gratification" of the American consumers has been a factor in the nation's high indebtedness.

Put simply, the consumers apparently believe in having a great life style NOW even if that meant going into debt. Put it another way, the American people have been living a great life even though they could not afford it -- without hocking their children's future to the bankers.

This larger picture paints a disturbing narrative.

Politicians are quick in sending citizens to battlefields to die without the honesty to ask their fellow citizens to pay for the wars. Even the "Yes We can" Obama bragged about his several tax cuts in his State of Union speech while Iraq and Afghanistan continue to drain the country's coffers. Perhaps we should change his slogan to "No, You Can't".

Citizens are so used to living the good life as the "pursuit of happiness" was so fixated in their minds as a God given right enshrined in the US Declaration of Independence that "saving for the raining days" as an idea has become Un-American!

But do the American people really believe that or perhaps they had gotten so lied to by their leaders that you can have both guns and butters -- followed by inevitable inflation cutting down their debt in real terms -- that they decided to go along for the ride?

During WWII the people in America, indeed everywhere, understood instinctively the need to tighten belt to finance that war. Why didn't their leaders after WWII decide to behave as if voters were self-centered, stupid and selfish who wouldn't give up some comfort to fight for a national cause?

Is it really the profligate US consumer the root of the fiscal problem or cowardly politicians who couldn't inspire the people to make the fiscal sacrifice. It is rather a small price to pay for "national security" if indeed the foreign wars were essential to that security.

Many would argue none of the wars after 1945 were essential. David Halberstam's heart wrenching account of the war in Korea "The Coldest Winter" showed how the ego and the madness of MacArthur's desire to take war to China that created the larger Korean conflict.

The Vietnam War was essential to national security? Even Robert (Mac the Knife) McNamara admitted it was unnecessary. Again Halberstam's "Best and the Brightest" is a classic in showing the hubris of the ruling elite. That war was unpopular. Neither LBJ nor Nixon had the spine to ask for a tax increase.

The Iraq invasion under George Bush because Saddam Hussein "possessed" weapons of mass destruction that would destroy Manhattan turned out to be just as ridiculous as the late Secretary of State Dean Rusk telling the Senate back then: "We are in Vietnam, Senators, because we don't want to fight one day in Los Angeles a billion Red Chinese armed with nuclear weapons".

OK, even if that might have been a possibility, and not a figment of over ripe imagination, you should have raised taxes to finance that war.

How ironic the billion Red Chinese are now the single largest creditor to the profligate American ruling elite, mostly educated at those universities elite families around the world want to send their own children to school? You know where they are. The three most prominent ones are located in Cambridge, Mass., New Haven and New Jersey.

The 20 Century was American.

Unless the American ruling elite stops its propensity to wage wars without asking for necessary but relatively small financial sacrifice from the people whose children must bear the life-n-death burden of actually fighting the country's supposed mortal enemies, then the 21st century will surely by default belong to someone else who has a stronger balance sheet.

That would be a result more of the US behaving fiscally irresponsibly than the other country being smarter, more creative, freer than the US.

The charts here contain a serious story of "national security". 

Saturday, January 30, 2010

Economic Recovery in the US?

Everybody, including Obama in his State of Union speech, talked about the biggest "recovery" since 2003 because during the last quarter in 2009 real GDP grew by 5.7%, higher than expected. Time to start pouring champagne? Not so fast. Devil is in the details, of course.

According to the Chicago Federal Reserve National Activity Index which tracks 85 economic indicators lumped into four categories: production and income (P&I); employment, unemployment, and hours (EU&H); personal consumption and housing (C&H); and sales, orders, and inventories (SO&I). The graph below explains how these categories performed in the second half of 2009. courtesy of Mish's Global Economic Trend Analysis, the growth was more inventory replenishment than recovery across the board.

Here are the chart and the numbers:

the chart suggests a big rebound last summer, but right now economy has hit a wall.

The table with numbers are downright discouraging. 4th quarter shows no meaningful growth whatsoever in the 4 categories nor in the overall index CFNAI, the Chicago Fed National Activity Index:

Eventually we are going to get out of this recession nicely...but not just yet.

Friday, January 29, 2010

Hope in Afghanisan

If President Karzai is serious about his intention to work out a compromise with the Taliban, then there is hope that the war could end much more nicely than I had feared. Reaching out to the Taiban is the only way out of the quagmire. Devil remains in the details of a possible truce. That truce has to include the Taliban as part of a governing coalition with meaningful power. Here is the latest news:

..."Afghanistan’s president declared Thursday that reaching out to the Taliban’s leaders should be a centerpiece of efforts to end the eight-year-old war there, setting in motion a delicate diplomatic process that will carry great risks for both Afghanistan and the United States.

Speaking to an international conference here on Afghanistan, President Hamid Karzai said “reconciliation” was one of his top priorities. “We must reach out to all of our countrymen, especially our disenchanted brothers,” he said...

Source: NY Times

Wednesday, January 27, 2010

Obama and Goldman Sachs

Even Tom Friedman, the "World is Flat" author who normally is only interested in global issues, is pissed off at Wall Street, in particular, Goldman Sachs. However, if you read between the lines, he was really pissed off at Obama who had not put in appropriate preconditions to save those guys before billions were being handed to the "too big to fail" fellows:

...."President Obama is so much better when he takes a heated, knotty issue, like civil rights or banking reform, and talks to the country like adults. He is so much better at making us smarter than angrier. Going to war with the banks for a quick political sugar high after an electoral loss will just work against him and us. It will spook the banks into lending even less and slow the recovery even more.

That said, part of me can’t blame the president. The behavior of some leading Wall Street banks, particularly Goldman Sachs, has been utterly selfish. U.S. taxpayers saved Goldman by saving one of its big counterparties, A.I.G. By any fair calculation, the U.S. Treasury should own a slice of Goldman today.....

The above excerpt is from his column today here.

Tim Geithner, AIG, Goldman Sachs

Tim Geithner's inconsistent narrative on why AIG was allowed to pay off 100% to some of its creditors including prominently Goldman Sachs is getting more and more negative reaction across the nation.

Here is a very good line of enquiry on this issue, courtesy of a fellow blogger, Mish, on his Mish's Global Economic Trend Analysis. I can't say it better:

...'Please consider The Question Geithner Can’t Escape: Why Pay Off AIG’s Partners?

The latest political clamor over AIG, poised to combust next Wednesday at a House hearing on backdoor payments to banks that made risky deals with the company, centers on the Federal Reserve’s effort to conceal details of those payments. But senior officials, including Treasury Secretary Timothy Geithner, have so far evaded a key question: Why were AIG’s trading partners fully paid with taxpayer money instead of being told to take a loss?

“They chose to pay some people off entirely,” Bill Black, an economics and law professor at the University of Missouri and a leading critic of the government’s bailout managers, said in an interview. “They have never given a coherent explanation of why those particular folks. Under their own logic, there was no reason to pay off these parties at 100 cents on the dollar.”

In November, bailout inspector general Neil Barofsky quoted Geithner as stating that AIG’s bank counterparties — including Goldman Sachs, Merrill Lynch and 10 foreign firms — were not at direct risk if the troubled company defaulted on its debts. “The direct effects of that failure would not have been particularly significant,” Geithner reaffirmed last month during testimony on Capitol Hill.

In May, however, Geithner suggested that AIG could not have negotiated lower payments to its trading partners without endangering the health of the whole financial system.

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”

So which explanation is true: Were AIG’s creditors hedged against the risk of a default — as Goldman has argued — or not? And if the banks had already mitigated the risk of losing their deals with AIG, why didn’t that allow Geithner’s Fed to negotiate a cut in repayments?"....

I have been saying for some time that Tim Geithner has to be fired. I very much that would happen. And that's one reason why Obama's presidency is in deep trouble for it seems the President still does not understand how unfair and shady his entire Wall Street bailout package had been executed.

Obama's Credibility Gap

Bob Herbert's column on this subject is excellent in capturing what's wrong with Obama's presidency. Read it here.

Readers' comments following the article show how much Obama has alienated his base. Readers of the NY Times are overwhelmingly Democrats.

In the following link you see how much Obama has even alienated the high profile public intellectuals who have been supporting him before he became president. Read that here and follow the links in it to get the full picture of those writings.

Miracles do happen in politics in that unpredictable events occur, such as the political earthquake in Massachusetts no one foresaw until just a few days before it happened.

Obama needs a miracle to save his presidency. His latest spending freeze proposal is an act of panic as many in the States correctly see. And dismissed as a PR exercise.

He is trying to do a "Clintonesque" triangulation by moving towards the Republic positions: spend less, cut taxes, etc. Well, we know how that ended with the Bush Administration: ballooning deficits among others.

Obama has failed utterly to lead. He failed to convince the nation why he had to increase spending to save the country. Instead he let Geithner/Summers go to the talk shows without appreciating the fact that these two have long become "hate figures" to the nation.

He failed utterly to allocate Federal bailout money fairly by focusing on saving banks "too big to fail" allowing a few Wall Street firms which the government had saved from collapse handing out on a silver platter to the smart traders at Goldman and JPMorganChase to make huge trading profits using risk free and zero cost taxpayers money.

He should have long ago asked for resignations of Wall Street tycoons BEFORE his government was handing out blank checks. He should have told them they were not victims of the bubble bursting but had been accessories to creating that firestorm. Instead, he bought the Wall Street's ridiculous argument that without them as copilots the economy would die.

He should have temporarily taken over those firms as he had done so with AIG, Freddy and Fanny with a team of good administrators to clean house. Instead he recruited the same tiresome insiders to run those firms.

Any wonder why voters in Massachusetts sent him a message telling him he was doing a lousy job by electing, for heavens sake, an unknown who has racist inclinations?

Yet Obama is still saying Geithner/Summers/Bernanke are doing a fine job.

Barring a miracle, Obama's presidency is fast becoming a lame duck and will be voted out before you know it.

Sad. So much for "change you can believe in".

Tuesday, January 26, 2010

Princeton and the World

There was a time, not long ago, we spoke of the First, Second and the Third World. It was a simple scheme. Easy to understand. However, it is too simplistic.

You can google Gini Coefficients of any number of important countries starting from USA, China, and so on and you see the trend of growing income disparities.

In the US the bottom 1/2, maybe more, has not seen its real income grow while the top 2%, especially in the financial industry, has seen steady, even explosive share in total national income.

You open the papers these days and you read about the astronomical salaries and bonuses paid to Wall Street fellas and increasingly so, some women. Not so on Main Street which employs most of the workers in America.

What is happening in the economy has its mirror image in education.

Name a country, and I will name you on average not more than half a dozen of the most elite high schools and universities where "every" parent wants to send his/her kids.

In the UK you are looking at Oxford, Cambridge, London, St Andrews plus maybe 3 more. In France not more than half a dozen. In China, same story. The latest is the Chinese want to form their own "IVY League" with maybe 8 or 9 of their top schools.

America is the sole exception with more exclusive schools but they are still a tiny minority relative to the sum total of all universities in that country. I recommend Jonathan Cole's "The Great American University" for an amazingly detailed look at US universities, their strengths and their problems.

A few years back I gave a lecture to a small group of Princeton undergraduates. I told them two simple statistics:
the % of successful candidates passing the ultimate Imperial Chinese examination in the Forbidden City in the presence of the Emperor himself. It was less than 1%. Something like 0.80% if I remember what Princeton Professor Benjamin Elman told me. He is the authority in America on Chinese exam system.

His magisterial "A Cultural History of Civil Examinations in Late Imperial China" is a must read, forbidding it is, to those who want to know Chinese history.

The other statistic I reminded those Princetonians was the admissions rate at Princeton: about 9%.

I told them in my lifetime getting into Princeton would be as difficult as passing the imperial exam in China and that admissions rate at Princeton would match that of the dynastic periods in ancient China.

The reasons are varied. Two stand out. Capacity at elite schools will not expand as fast the demand for admissions at a quality school as global incomes rise, in China, Russia, or Africa as English has become the global language.

The second reason is simply this: consumers want designer labels in buying handbags, electronics, cars. Princeton and its few peers have become, like it or now, the equivalent of a Bentley in autos, Rolex in watches, and so on.

Hence soon admissions rate will go below 1%.

This does not mean only Princeton can provide a quality education. In fact many smaller, less well-known do provide as good an education as Princeton. Some would say better.

But just as in consumption goods, brand name recognition is not just about vanity, though it definitely has that element. A Princeton degree translates easily into a better first job opportunity than a graduate from, say, Macalester or Reed, both excellent small colleges.

The article here is just confirming a trend of increasing demand outstripping demand. If Princeton is to accept the same number of freshmen in this year as in last at 2150, then given the number of applicants at 26166, the admission rate drops to 8.2%. In 30 years or less, that rate will be a small single digit and then will go below 1%.

My "punch line" to those "Princes" and "Princesses", as they are nicknamed by their counterparts in other schools, was that they should remember their privilege and do some seriously good deeds to wherever they hail giving some back to their fellow, less privileged fellow men and women. Their future, I told them, barring a careless and wanton waste, was guaranteed to be a comfortable one by virtue of their Princeton pedigree like few others.

What is also happening at elite universities is the growing disparity in endowment, or wealth.

The combined endowment of Harvard, Yale, Princeton, Stanford, MIT, Caltech will surpass the next 50, perhaps 100 of the best American universities. As this trend continues, these wealthy universities will basically corner most of the most sought after scholars and students and will further increase the brand gap between them and the "rest".

The unfortunate cliche about "the rich get richer" is getting truer and truer in terms of income disparity among countries, but most alarmingly within each country. An elite education is part of that wealth disparity equation.

How all that will end deserves serious thought.

The world is no longer meaningfully divided in First, Second and the Third World.

There is far more common ground between the elite in China, say, and USA than between the bottom 1/2 in China and that of the United States.

The article on Princeton admissions is here.

USA for Sale - 2

E.J. Dionne Jr., the veteran Washington Post columnist wrote: ..."The Supreme Court's 5-to-4 decision last week giving American corporations the right to unlimited political spending was an astonishing display of judicial arrogance, overreach and unjustified activism.

Turning its back on a century of practice and decades of precedent, a narrow right-wing majority on the court decided to change the American political system by tilting it decisively in favor of corporate interests"...

What Mr Dionne missed emphasizing is this: this ruling also allows US incorporated companies owned by foreign interest to finance openly US politicians.

This Supreme Court, headed by John Roberts, is a Bush court for during his 2 terms as president he managed to tilt the court by appointing a number of rightwing judges including Roberts.

Dionne's whole article is here.

Monday, January 25, 2010

USA for Sale

The latest US Supreme Court ruling (read here) freeing corporations from spending to promote their political candidates open the way for both domestic and foreign corporations to influence Washington policies -- as if the current incestuous relationships between Wall Street and Washington were not enough.

The US is continuing its way down to becoming a Third World country in terms of public governance.

What Next, President Obama?

The after-shock of seeing Massachusetts, the pen-ultimate liberal and democratic State, the State of the Kennedy's, losing to an unknown Republican continues to reverberate.

The verdict is clear to those, like yours truly, have been watching Obama throw away its political advantage after winning the presidency accepting bad advice from his experts while not showing any leadership of "change" we were told we could expect.

3 Items have totally alienated even Obama's most fervent supporters all over the country

Health Care

The bill has become a feeding frenzy of the usual lobbyists whose inputs have diluted the original intention turning it into another wasteful boondoggle.


Millions, including white middle class Americans, are living on food stamps. No jobs.

The people by and large understood why the government has had to print unprecedented amounts of money to save the economy. The deficit by itself was never the issue. It's the way the money was distributed that is making people angry. The bulk had gone into the big banks while the rest of country couldn't feel one darn thing.

Wall Street

This issue of favoring Wall Street is puzzling until you realize Obama and his crew got totally captivated by the dishonest "logic" of Wall Street -- "Save us the way we say or you face catastrophe".

The structure of the bailout package put together on the fly by both Hank Paulson/Bernanke under Bush and by Geithner/Summers/Bernanke team under Obama is more akin to Crony Capitalism in a third world corrupt country like Thailand or Argentina than we had naively gotten used to expecting from the United States of America.

The blatantly false logic of Wall Street telling the world that it never needed Federal money to survive and then made a fast buck using free taxpayers money to do a buy low/sell high trade in 2009 generating record profits and record bonuses is just another reminder of how the bailout package never contained any quid pro quo conditions to reform Wall Street. Having repaid the direct loans while still gaining access to zero cost Federal money via the discount window, Wall Street has the nerve to tell the country that it is doing "God's work" in the immortal words of Lloyd Blankfein, chair of Goldman Sachs whose alumni populate the higher echelons of both the Bush and the Obama adminstrations

These 3 reasons sank Obama's standing.

Now, Obama is desperate to address those issues. Playing tough with Wall Street now is frankly late.

You do not do retroactive contracts when you failed to put in the required conditions when you signed the first contract giving out billions.

It's just awful to see hope embodied in Obama's youthful campaign dissipate right in front of you like the morning mist when the sun rises.

Obama would need a miracle to save his presidency. MIracles do happen, especially in politics. The Massachusetts upset was a miracle to the Republican Party that was in the doghouse. Now, let's see whether Obama will get one.

Sunday, January 24, 2010

Where Should We Send our Kids to College? Part 2

Last year I wrote here that choosing college is a difficult exercise. There are so many good ones. Irrespective of rankings done by this or that magazine, one should choose one that is "right" for you. And each "you" is different.

That said, if your family balance sheet is not remotely close to that of a senior Goldman Sachs managing partner, the first cut could well be based on the size of university endowment per student. The reasons are rather obvious: those richly endowed universities (per student) will be able to do at least 2 things: provide more generous financial aids that the average, and secondly, those colleges are more likely able to provide lots of TLC in variety of concrete manifestations on campus ranging from counseling to professorial contact than those not so well endowed.

One reader took me to task for giving "bad" advice.

Well, if you read this article, lots of students and parents are agreeing with me by their action. Ignore the misleading attention grabbing headline and read the real message of the article.

I gladly stand by my initial position.

Thursday, January 21, 2010

Google Land

I am off-line for 3 days to travel to a country where blogging, among other stuff we take for granted, is banned. I should be back online on/before Jan 24.

Wednesday, January 20, 2010

Obama - one term president?

Massachusetts has just elected a little-known Republican who once suggested Obama was a foreigner disqualified to become president.

This seat had been held by the late Ted Kennedy for 46 years -- that's 5 decades or nearly 2 generations. Massachusetts has always been "liberal". IT was the only state who voted for George McGovern in his failed attempt to run for Presidency. It is the home to Harvard, MIT, Tufts, Wellesley, Boston University, Brandeis University (just to name the obvious) that are as "liberal" as they come. It is a highly educated state. So, why did they vote for a Republican whose party these days stands for backward looking, somewhat racist policies?

The answer, my friends, is NOT blowing in the wind. The answer is this: Main Street has been angry at how the White House, guided by the Summers/Geithner/Bernanke crowd had handed out near blank checks to Wall Street with little accountability while Main Street gets the shaft.

Never mind Hank Paulson under Bush first started the handout. One reason Obama won big was the overwhelming desire by the people to right the wrongs under Bush.

I have been writing on this for sometime. In fact, the entire raison d'etre of this blog was to write about how Wall Street had been accessories to the financial firestorm while the White House, both under Bush and now Obama, has been treating that crowd as victims.

Obama has to take the blame for the disaster in Massachusetts as the buck stops there. He never should have hired Summers and Geithner as many had warned but their criticisms fell on deaf ears. Geithner and Summer continued Paulson's policy of handing out blank checks to save those "too big to fail". That crowd shooed away Paul Volcker who had been preaching a different tune reigning in Wall Street.

Now, its too late. Mega money had already gone into Wall Street's pockets, in fact, to a relatively few hands. And Obama's Health Bill maybe in jeopardy which was to his mind going to be the jewel in his political crown.

How quickly has the fortune of the Democratic Party turned sour to everyone's surprise. The Republican Party was to be a permanent minority party after 2 disastrous terms under Bush. But now the entire equation has been turned upside down. Will Obama understand his failure and then try to redress his problems?

Until I see him firing Geithner and Summers, frankly, I doubt it.

Tuesday, January 19, 2010

Will China Clash with USA?

..."Both Bill Clinton and George W. Bush firmly believed that free trade and, in particular, the information age would make political change in China irresistible. On a visit to China in 1998, Mr Clinton proclaimed: “In this global information age, when economic success is built on ideas, personal freedom is essential to the greatness of any nation.” A year later, Mr Bush made a similar point: “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy ... Trade freely with the Chinese and time is on our side.”

The two presidents were reflecting the conventional wisdom among America’s most influential pundits. Tom Friedman, New York Times columnist and author of best-selling books on globalisation, once proclaimed bluntly: “China’s going to have a free press. Globalisation will drive it.” Robert Wright, one of Mr Clinton’s favourite thinkers, argued that if China chose to block free access to the internet, “the price would be dismal economic failure”.

So far, the facts are refusing to conform to the theory"...

Source: FT here

As the world once again moves back to a bipolar world with China replacing the defunct USSR as the other superpower at some point soonish in this century, are we going to have some unpleasant clashes?

What do you think?

Monday, January 18, 2010

Shades of the Tet Offensive?

Back in the Vietnam War the Vietcongs in 1968 staged a multi-point offensive right in the heart of Saigon to make the point that they were far from being beaten by the overwhelming American forces. In fact they wanted to show they had the initiative to strike wherever, whenever they wanted. It was a major political-military success.

Now, as the US is escalating by increasing troops to cover more mountainous areas away from the Kabul, the Taliban is clearly making the point that they too could move anywhere they wanted by striking Kabul itself as shown in the report. Read here.

The headlines these days are all taken up by the disaster in Haiti and Google in China. Yet what's happening in Kabul has far more geopolitical implications than the other stories put together. News out of Afghanistan is not good, mate.

Boards of Directors on Wall Street

"IT sounds like good work if you can get it, and thousands of people in corporate America do. On average, they attend 8 to 12 meetings annually. Although they are supposed to have fiduciary obligations, they often appear simply to warm their assigned seats, and to raise their hands when their leader calls for a vote. For that, they can receive as much as $640,000 a year.

Who are these people? Company directors, who are typically handpicked from other companies, banks, academia and, in some cases, social directories.

But underworked, overpaid corporate boards are doing serious harm to the shareholders of public companies and the economy as a whole, according to “Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions” (Free Press, $27), by John Gillespie and David Zweig"...

This sounds like a book I wish I had written for one of the first thoughts I had when the bubble burst taking down Wall Street firms and sucking billions out of taxpayers money was this: "The most guilty parties were the boards of directors to whom the CEO had to report to. Yet through the years of bubble creation and then bubble bursting, not one beep came from the boards admitting their own negligence.

One should remember the boards in theory represent the interest of the shareholders "out there". In fact, they knowingly and shamefully decided to remain in the good graces of the management who pay them, cuddle them with many corporate freebies.

The quote came from the New York Times Sunday Business section here.

Saturday, January 16, 2010

Goldman Sachs Acknowledges Mistakes?

Read this to be sure.

Eugene Fama and the Chicago Mindset

Eugene Fama, that famous Efficient Market guru at Chicago B School talked to john Cassidy, a good writer on economics for the lay people about the Crisis. Read it here and then decide for yourself whether he is out to lunch or whether his critics are.

Krugman on Wall Street

Read his latest column here.

I must say professional investors can recognize easily the mentality of the Lloyd Blankfeins of the world. Theirs is the mindset of a trader.

Stuff, like a cycle, happens. Who cares there is a serious structural issue. As long as prices move up and down, and up and down, that's just perfect. Why fix it? Good traders thrive on such movements.

So what if those ups and downs cause ex-Wall Street phenom: such as huge unemployment, bankruptcies, recessions? They are only variables in those "ups and downs" of market prices. A Goldman Sachs would die if there were no market ups and downs. That's how serious traders make their fortunes.

Once you understand that mindset, then you understand why those guys testifying right now in DC are "clueless", Paul.

You just haven't been a trader.

Friday, January 15, 2010

Tim Geithner in Deep Denial

Geithner in this interview here said a number of things that are just incredible to my eyes. You have to read and watch it to soak in what he was saying:

1) He was not personally involved in the NY Fed's directive to AIG not to disclose relevant information so as not to upset market sentiments.
2) He was deeply offended by the fact that the Fed had to save AIG.
3) Paying 100% on the dollar by AIG for its payables was the correct thing to do
4) US government had no legal means to prevent AIG from doing so anyway.

Why do I find his remarks "offensive"? For one thing, he was saying he, as the head of NY Fed was not really responsible for what his underlings did. So, does that mean no one is accountable anymore?

Second, if AIG was going down with plenty of worthless assets, why should the taxpayers be forced to make good on all those payables? the only immediate beneficiaries were the shareholders of AIG and not the nation.

No legal means? In the real world of liquidation, it is an impossibility for the payables to be made good 100%. Why should this case be different?

I know, I know. Geithner and company thought allowing AIG to go under was a NO NO.

That's why the government had to step in first to "nationalize" AIG and then reorganize its balance sheets. In that case, no payables had to be so financed 100%. Paul Volcker among others urged the government to do so -- falling on deaf ears because Summers/Geithner who got Obama's ears were against that. Had the government done so, a lot less tax payers money would have to be spent. And many Wall Street honchos might have to lose their jobs. And these honchos had a direct line to Summers/Geithner/Paulson/Bernanke who talk to Obama.

Oh, the interviewer didn't offer the obvious explanation. AIG had a big payable to Goldman Sachs. If Goldman Sach's receivable was not made good 100%, GS would fold. Guess who was the Treasury Secretary then writing checks to bail out AIG? Hank Paulson, former Goldman Sachs chairman.

Geithner famously dismissed the suggestion that USA should learn from the Swedish model saying "USA is not Sweden". Sweden nationalized a number of failing banks in a financial crisis in the early 90's in order to instill confidence in the market since after nationalization the financial system became "sovereign". Sweden then went on to reorganize the banks's balance sheets. AFter that the banks were re-privatized.

USA is not of course Sweden. It is more like Thailand in the Asia financial crisis when the government acted to help out its cronies in the private sector. The proper rebuttal to Geithner was this: "Yes, USA is not Sweden. It is Thailand." See my article I wrote back in April 2009 here.

Thursday, January 14, 2010

Cyber warfare = shape of WWIII?

..."Google’s description of the attacks closely matches a vast surveillance system called Ghostnet that was reported in March by a group of Canadian researchers based at the Munk Center for International Studies at the University of Toronto.

They found that an automated espionage system based in China was using targeted e-mail messages to compromise thousands of computers in hundreds of governmental organizations. In each case, after the computers were controlled by the attackers, they were able to scan for documents that were then stolen and transferred to a digital storage facility in China.

The researchers stopped short of directly accusing the Chinese government of masterminding the attacks. However, for years there have been reports of attacks planned by so-called patriotic hackers in China, and many American security specialists argue that these are simply irregular elements of the People’s Liberation Army....

Independent security researchers said that at least 34 corporations had been targets of the attacks originating in China"...

The full New York Times report is here.

Google in China - 2

Nicholas Kristof, fluent in Chinese, Pulitzer winner has written a fine column here.

In it he said, among other things, he could offer no proof that the Chinese officialdom was behind the global cyber attack by hackers traced back to China. He was being a bit too circumspect. I am sure he knew better. etter.

Two items. No cyber attacks could be launched on a global basis without powerful computers and a small army of hackers working together. In China that means official backing. If these geeks were "independents", they would be reading novels in prisons and writing confessions.

Second. Anyone familiar with the software industry and Chinese education should know the Chinese government, more precisely the military and the intelligence departments, have been recruiting and grooming young talents all over the country putting them through special software schools, normally 3 years in duration, with the focused agenda of turning them into world class hackers.

These schools only take the best. Money, scholarships, living allowances, all that are not an issue.

They are likely prodigy schools. If this reminds you of how the former USSR and China, still, recruit athletes to compete in the Olympics, you get the idea.

Newsweek had a cover story a few years back documenting how the Pentagon servers had been hacked into for over 20 years before that leak was discovered and plugged. This is just one incident to suggest how much more advanced China officialdom is vis-a-vis US officialdom in applying computer science to national security! Surprised? Don't be.

US has been selling sophisticated hardware to China and its universities have been training many PhDs in computer sciences many of whom return to China to serve the country.

But more to the point, the government in China is putting money and effort to build a cyber army the world has never imagined possible. In this US is "primitive" by comparison.

Harvard and the Nation

The role of Harvard graduates in the history of America is the stuff of legend. There have always been more of them in running the State than alumni of any other single university by a long shot.

However, lately Harvard's reputation has been stained by the action of a small number of them. Their role in the creation and then the bursting of the financial bubble is, frankly, shameful.

In that process you see the role of many Harvard graduates from either the College or from some parts of the university: Hank Paulson is a Harvard Business School alumnus, who used taxpayers money to save some of his Wall Street pals principally his old firm without putting in appropriate checks and accountability. Bob Rubin made himself a fortune on the board of Citicorp while the bank itself went to pot. Larry Summers, Lloyd blankfein, Jamie Dimon each played a significant role in the continuing drama of how Wall Street is unduly influencing Washington policy at the expense of taxpayers on Main Street.

This report here penned by Harry Lewis, former Dean of Harvard College is not about the financial crisis but on a small number of Harvard graduates who have been managing, or to many, mismanaging Harvard itself.

Wednesday, January 13, 2010

Google in China

So, Google in China got hacked by "sophisticated" hackers as reported by Bloomberg News here and by others here. Well, Silicon Valley companies have been anxious and willing suppliers of sophisticated hardware and the MIT's and the Stanford's have been anxious and willing recruiters and trainers of large number of Chinese computer and electronic engineers.

Lies, Damn Lies and Statistics

Government officials lie about all kinds of stuff. Even data. Why data? The most boring sort of things, right? Wrong.

Everybody in one way or another relies on statistics. Are we going broke? Well, that depends of income, debt service, and future incomes, right? That's statistics. Is inflation increasing or decreasing? That's important in setting prices of products, wages, and the foreign exchange markets adjust your currency up or down depending on future inflation, interest rates move. That's statistics.

So, an important European country such as Greece is caught lying, that's serious. Read the report here.

If you think that's outrageous. Let me tell you about Argentina, a country I like for its culture. The current president didn't like the inflation numbers (in double digits) a couple of years ago, she decided to fire the director of statistical bureau and then closed it down. She set up her own bureau, a team of several people, in her presidential office, to supervise the distribution of economic numbers. Not surprising, her numbers show only single digit inflation.

How long can she keep fooling everyone? Well, few I met in Buenos Aires got fooled. Most transactions now are done only in US$. Retailers adjust their product prices on the basis of double digit inflation.

So market didn't fooled. Guess who is the bigger fool?

Iran vs China?

If what is behind this headline gets out of hand, China would find itself on the side of the "infidel" US of A in dealing with Iran, one of the 3 "Axis of Evil" countries!

The headline in today's FT reads:

Iranian hackers deface top China website

The full article is here.

Tim Geithner is in deep trouble - 4

The blog sphere is practically pronouncing Geithner "dead". Here is yet another on Huffington Post, one of the most read blogs in Washington DC:

Who Will Succeed Tim Geithner as Next Treasury Secretary?

The article is here.

The Jews

i have often told those who care to listen that Adolf got it backwards. The Jews were the superior, if not the super race. Aryans ain't. I then rattled off some rough data to prove my point. A friend with a macabre twist of wit promptly replied, "Yes, that's why he wanted to kill them".

Read this article for some official eye-opening statistics.

I have not read the book referenced in Brooks' column, but I do remember seeing official US data showing the two highest per capita income ethnic groups in America are the Jews and the Chinese.

While the Chinese have had a good representation in the Nobel sweepstakes, concentrated mainly in physics, they are nowhere near in other intellectual accomplishments compared to the Jews.

It has been said the 21st Century belongs to, well, you-know-whom. However, until and unless the Chinese as a cultural nation begin to de-emphasize conformity as the "golden mean", they will not be able to match the Jewish mind that prizes contentious arguments in the interest of sharpening one's logical reasoning to get to the bottom of "truth". Maybe the Indians one time might be a serious contender. That country has produced two of the most sophisticated systems of thoughts: Hinduism and Buddhism, both extremely dialectical. Indians are well-known for their propensity to argue out their thoughts, similar to the Jews. These are pre-requisites to innovative thinking.

We shall see.

Goldman Acknowledges Conflicts With Clients

Is this so surprising that the so-called "Chinese Wall" at any investment banker separating one division from another in theory to avoid conflict of interest has been more often than not a fiction than a fact?

Read the whole report here.

Tuesday, January 12, 2010

Tim Geithner is in deep trouble - 3

Main Street is mad. MSNBC news anchor is practically calling him a "thief" and then goes on to list the counts why Geithner should be fired. Very strong language for mass media. Watch it here.

Monday, January 11, 2010

A Pair Trade to Consider

This year, a "no brainer" pair trade could be shorting US Short and Medium bills and buying German Bunds.
Why? US fiscal deficits, current account deficits, huge overhang of excess liquidity the Fed will feel compelled to start mopping up should make the US Short-medium bills a good short relative to the German papers.

What is the Greenspan and now the Bernanke "put"?

To refresh your memory read this.

The Greenspan "put" is still in force

Astute financial types recognize the Greenspan "put", now renamed the Bernanke "put", remains as Fed under Bernanke reassures the market that higher interest rates are now in the cards any time soon, as far as the Fed is concerned. But as John Cassidy observes...

"Unlike his predecessor, Mr Bernanke recognises the problem of excessive speculation and the massive externalities its sudden reversal can impose. In that sense, intellectual progress has been made. But he and his deputy, Donald Kohn, still refuse to acknowledge the Fed’s role in motivating reckless behaviour.

Take its current commitment to maintaining rock bottom rates for “an extended period”. Hedge funds and Wall Street dealing desks view this as an open invitation to borrow as much as they can and invest it in risky assets. As former Citigroup chief executive Chuck Prince might have put it, the music is playing, and it is time to dance. (The danger of being left without a chair when the music stops is greatly mitigated by the Fed’s promise to provide ample warning of it unplugging the sound system.)"...

Cassidy's full report is here.

Tim Geithner is in deep trouble - 2

The "Fire Geithner" movement is getting traction as information on his role as head of the NY Fed asking AIG to withhold pertinent financial information before the bailout continues to shock the public.

NY Post (read here) has joined the bandwagon calling for his head.

CIA betrayed?

An old CIA hand laments:

..."Sacrificing intelligence operatives out of political expediency is a bipartisan sport. Officials in the George W. Bush administration did not hesitate to blame the spies when it suited them — as though the decision to invade Iraq really depended on intelligence — and the Obama administration is proving, if anything, worse. Last spring’s decision to release secret Justice Department memos on the interrogations of suspected terrorists was a blatantly partisan act. It was designed to win political advantage by holding intelligence officers — whose offense was to follow faithfully their lawful orders — up to opprobrium and scorn. Members of Congress who had enthusiastically encouraged aggressive interrogations in the wake of 9/11 suddenly suffered amnesia when the political zeitgeist shifted"...

Read the whole essay here.

Sunday, January 10, 2010

Fraternity on Wall Street

Exclusivity is what makes Skull n Bones, Ivy, Porcelain clubs at Yale, Princeton and Harvard, well, exclusive. Many of the graduates end up on Wall Street and reproduce or prolongate their fun fraternity shindigs as in this yet another exclusive Wall Street club. Read this here.

Saturday, January 09, 2010

Goldman Sachs Responsible for AIG collapse!

Straight from the horse's mouth. Recriminations have begun in earnest. Lots of reputation are going to fall, starting already with Tim Geithner's role in the AIG bailout per my previous posts. Now read this!

Obama must fire Tim Geithner to save his wobbling Presidency

When news broke 2 days ago on how Geithner's NY Fed which he headed during the Bush Administration advised AIG to withhold pertinent information on how it was using public bailout money part of which went straight to Goldman Sachs and other banks, I wrote in my January 2 blog that he had a lot of explaining to do.

Now public outrage is building momentum. Cries to get him fired are getting traction. Here is one such argument circulated widely in the US blog sphere:

..."For five reasons, Geithner must go:

Geithner was directly responsible for the most appalling corporate bailout in U.S. history, in which tens of billions of taxpayer dollars were secretly funneled to some of the richest corporations in the world. The terms of this bailout, and the associated cloak of secrecy under which it was conducted (the details of which continue to leak out) have hurt the public's confidence in the government.

Geithner's ongoing decision to save banks at any cost was predicated on the theory that this would keep the banks lending. This policy has failed: The banks have not continued to lend. What the banks HAVE done is coin billions of dollars of profits risk-free at taxpayer expense, fueling even more public outrage.

Geithner's policy of "too big to fail" has created a banking system whose bets are guaranteed by the US taxpayer, and it has distorted lending and market forces across the entire economy. This policy, which has now been all but written into the Constitution, is grossly unfair. Big banks can do whatever they want with no concern about the consequences; small banks have to hunker down or they'll get taken over and shut down.

Geithner's role in the AIG bailout, which the current administration bears no responsibility for, continues to destroy confidence in his current boss, President Barack Obama. If AIG stays in the headlines, and Geithner does not accept responsibility for what happened. Obama's agenda and influence will continue to suffer.

Geithner's consistent decision to put Wall Street first has helped fuel a populist rage that will make it very difficult for the government to do anything more to help the financial system. If the recovery continues, such help might never become necessary. If it falters, however, Geithner's policies will have severely curtailed the government's ability to do anything about it"...

source: Huntington Post Blog here.

Friday, January 08, 2010

Goldman Sachs Sued by Shareholders

One institutional and one individual shareholder have sued Goldman Sachs for effectively hurting shareholders' interests by paying out mega bonuses to the senior executives of the firm. Read the report here.

I have long lamented the fact that the various boards of directors on Wall Street, which in theory were there to save guard the interests of shareholders never uttered one beep before, during and after the Wall Street bubble debacle and never once decided to fire a few top executives to punish them for their negligence or their excesses in fueling the bubble in the first place.

As the report from Bloomberg indicates, finally some shareholders are taking action without any help from those directors. And by the way none of these directors ever got ashamed enough of their own negligence, incompetence or their own active role in aiding and abetting the managements in the creation of toxic assets while knowing or not understanding the intrinsic riskiness of those products.

Read that Book!

Joseph Stiglitz, Nobel economist, has a new book: "Freefall".

Do buy and read it for it provides an analysis of what has happened on Wall Street and Obama's response in a manner not frequently seen in public debates. Read a book review in Bloomberg News

Wrong Side of Financial Reforms

..."there’s a populist rage building in this country [USA], and President Obama’s kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage. If Congressional Democrats don’t take a tough line with the banks in the months ahead, they will pay a big price in November"...

Source:Paul Krugman's latest column here.

Thursday, January 07, 2010

Geithner's Past Catching Up on Him!

If what this Bloomberg News report here is correct, Geithner will have a lot of explaining to do as to why he told AIG to hide from its bankers relevant information that would put AIG in a bad light.

In fact, it is incredible that Geithner as the then head of the NY Fed would do such a thing in the first place.

Ageless Wisdom

My friend Charles in Hong Kong drew my attention to what a Roman philosopher and politician said a long time ago:

..."The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must lean to work, instead of living on public assistance"...

- Cicero 55 BC


Wednesday, January 06, 2010

Affirmative Action at Elite French Universities?

France has the largest minority population in continental Europe but you would never have known it when you look at the elite in all fields except in soccer. Only when you watch the national soccer team play you get the inkling that France is not a lilly white country. It made history when a black woman made cabinet officer under Sarkozy.

The article here here. reminds one how backward the public debate in France remains concerning how to bring its under-privileged minority citizens into the "mainstream".

The elite universities' so 1960's argument that by having Affirmative action programs to aggressively recruit minority students would lower academic standards was the same you heard back in USA.

Yet it is precisely the concerted effort by some of the more enlightened admissions offices at the elite American universities that had allowed talented young people of "color" to show up their white counterparts that given a chance they could do just as well, and not just in sports.

At places such as Harvard, Stanford or Princeton you now have 10-15% black students, 30-45% students of "color". The standards of academic achievements remain as high as ever belying those reactionaries who once claimed Affirmative Actions would destroy quality of education.

For those French who still think in those archaic terms, they should look no further than 1600 Pennsylvania Avenue inhabited by a couple who jointly have 2 Harvard, one Princeton and one Columbia degrees.

Banks Not Lending

In case any of you are still wondering why US banks are not lending despite President Obama's public pressure on them to do so, the simple answer is the Economic Team Obama has been negating Obama's intention with concrete action:

The Federal Reserve – for the first time in history – is paying the banks interest on excess reserves. They can earn 0.25% risk free on nearly $1 trillion. This is more than the banks can earn on 1, 3 or 6 month T-Bills right now. This helps prop up the financial sector while keeping long-run inflation expectations low, and hence, it is deflationary.

May I humbly suggest Obama quiz Summers/Geithner/Bernanke before he badgers the bankers again? And that's why Main Street which needs bank credit to do business is getting the shaft while Wall Street continues to get freebies courtesy of Team Obama on behalf of taxpayers.

Bernanke is not serious, of course.

Yesterday I posted parts of Bernanke's speech to the American professional economist association asserting that low interest rates in years past, a policy he approved as a member of the Fed board of governors, were not a factor in the housing bubble. He quoted John Taylor's rule, named after a Stanford professor, to make his point. Now, straight from the horse's mouth -- Taylor himself.

...“The evidence is overwhelming that those low interest rates were not only unusually low but they logically were a factor in the housing boom and therefore ultimately the bust"...

Full report is here.

Monday, January 04, 2010

Is Bernanke serious?

Bernanke argued:

1)..." that trends in other countries demonstrated a “quite weak” connection between housing price appreciation and monetary policy....

2) ...when historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment...

3) ...Regulatory failure, not lax monetary policy, was responsible for the housing bubble and subsequent financial crisis of the last decade"...

I have just 3) "stupid" questions.

Dr Bernanke:

1) if the connection between housing bubble and monetary policy were as week as you claim, does not mean housing prices do not respond to sky high interest rates?

2) Indeed, if low interest rate + very lax monetary policy, something you are doing right now, have "weak" connection with housing policy, why are you doing that right now if not to help ALL asset prices stabilize?

3) Would you raise interest rates and put in a tight monetary policy right to stabilize the dollar since in your logic doing so would have "weak" connection with housing prices, and by extension, other asset prices?

Seriously, we know you are defending the Fed for its irresponsible excesses in the past, but please don't insult our intelligence further to start off a new year!

The entire new report is here.

Sunday, January 03, 2010

Can you spare a dime, brother?

...."About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card"...

Source: NY Times here.

Islamic "dominoes".

It is a case of "poetic" but macabre justice. Pakistan as a nation was always anti American, sympathetic to the Islamic "cause", spreading hatred around the world. The following is an excerpt from a Reuters report:

..."The Taliban has extended its reach from its strongholds to major Pakistani cities, including an attack on a mosque near the headquarters of the powerful military.

Karachi’s streets were nearly empty on Friday. The stock exchange, which normally operates on the first day of the year, was closed. Security forces carried out patrols. But residents were taking no chances.

”We are already losing business and can’t take the risk of going out today and opening our shops,” said Saleem Ahmed, who sells electronics at one of the city’s markets"...

The full report is here.

Recall Pakistan's nuclear scientist, Dr Abdul Qadeer Khan, father of Pakistan's nuclear bomb, sold secrets to such "civilized" countries as North Korea and Iran is still considered a national hero in Pakistan.

After getting caught, the former "pro" West president, Musharraf, who had previously appointed Khan as his "special scientific advisor", merely put him under house arrest in Khan's huge luxury villa. He was later pardoned by the Supreme Court.

Pakistan's madrassas that train young boys to become islamic clerics are a hotbed of radicals. They are taught to believe religious studies are all human beings need to become "educated". These future religious leaders are also taught to believe women are inferior beings.

Now, the real radicals are calling and if we believe what we read, they have a huge chance of taking over Pakistan. Unfortunately, given the slapdash way the US is "winning" hearts and minds supporting the corrupt Karzai in Afghanistan and given what its slapdash military in Iraq is mindlessly hurting Iraqi civilians via its proxy, Blackwater, US is not winning any hearts and minds throughout much of the Islamic world, and definitely not in Pakistan either.

As usual the West again mindlessly substitutes $$ and hardware and not focusing on the far harder task of "soft" power by giving Pakistan, and now Yemen, money and equipment.

If Pakistan teeters towards a collapse, it will inevitably draw the US into that military conflict for Pakistan is a nuclear power. India will not allow Pakistan to be Taliban-ized since India itself has a huge population of Muslim. 14% roughly or 161 million of them. India cannot afford to have a maniacal nuclear power jointly run by Taliban and Al Qaeda next door.

US will not allow it. The West will not allow it. But what can they do? Start another war to fight the Taliban and Al Qaeda in Pakistan? Short of re-enacting a national draft in the US there are not enough troops to do al that fighting! And even if you could send more troops to Pakistan, what is the likely outcome? Picture the US fighting in Afghanistan and in Pakistan while Iraq is still unstable?

Until and unless the Pakistani's themselves want to reject Taliban and Al Qaeda, there can only be yet another military disaster for any foreign power to get involved in Pakistan's domestic violence.

Goldman Sachs to the Rescue?

US taxpayers have lost $400 billion and counting in saving Freddie and Fannie. Goldman Sachs, rescued from a probable collapse, is setting aside many billions for its senior staff. Should they not be asked to help out their deficit-ridden Uncle Sam by giving up part of their multibillion dollar bonuses?

Read this report here on how unfair this whole rescue operation has been managed by those Washington DC geniuses.

Media and Reporting

The Washington Post's opening paragraph regarding the 14 civilian Iraqi deaths caused by 5 Blackwater operatives was about the US judge finding evidence not conclusive. I posted that article earlier. The UK paper here goes right into the heart of this war which is to win hearts and minds. See the difference?

Saturday, January 02, 2010

Winning Hearts & MInds in Baghdad?

Remember Blackwater? Straight out of Hollywood's TV series "24". Remember 5 Blackwater types shot and killed 14 Iraqi civilians and wounded 20 more and got sued?

From today's Washington Post: --

..."The shootings, in which the guards allegedly opened fire with grenade launchers and machine guns on civilians in a busy Baghdad traffic circle, became to many Iraqis a symbol of U.S. disregard for their lives. Seventeen people were killed in the attack and 27 were wounded, but prosecutors said they did not have sufficient evidence to press charges on behalf of all the victims...

..."U.S. District Judge Ricardo M. Urbina threw out the indictments because he found that prosecutors and agents had improperly used statements the guards had provided to the State Department with the understanding that the statements would not be used against them. An attorney for the guards has said they fired in self-defense.

Iraqis described the decision as unfathomable.

"They're letting the criminals who killed and burned people inside their cars escape? How can I forget what they did to my body with bullets, and the dear part of me that they took," said Mahdi Abdul Khudor, 45, who lost an eye in the shooting and suffered other wounds. "I'll be ready to reconcile with the Americans when they bring me back my eye."

The Iraqi government also protested and said it will pursue legal action.

"What happened yesterday confirms that the trial was biased," said Ali Adeeb, a lawmaker and top adviser to Prime Minister Nouri Al-Maliki. "This was an unreasonable, criminal operation, and there should have been justice."

The entire report is here.

Hong Kong - Beijing's Political Albatross?

Hong Kong has a population of 8 million, +/-. Mainland China has 1.3 billion, soon to be world's second largest economy. You wouldn't think whatever happens in Hong Kong would be viewed as threatening to the political foundation of the ruling party in China, would you?

Well those nervous and paranoiac leaders in Beijing obviously think so. They have been blocking democratic reforms in Hong Kong, one of the world's most educated, sophisticated and wealthiest first world communities, because "it is not ready yet".

C'mon. why don't you just come out and say what's so obvious to anyone with half a brain. You are afraid that the 1.3 billion would demand the same reforms if democracy were to be "granted" to the population in Hong Kong.

Read the latest report here on Hong Kong's amazing patience demanding their political rights to elect their own leaders.