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Media Infiltrations: Deadly Rescue  National Review November 17, 2008 Krugman’s Posthumous Nobel National Review Online October 14, 2008
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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!
Friday, November 02, 2007
NAME YOUR SOURCE! Reader Rich Mirabella notes that in his New York Times column today, Paul Krugman writes:"My chance of surviving prostate cancer ¬ and thank God I was cured of it ¬ in the United States? Eighty-two percent," says Rudy Giuliani in a new radio ad attacking Democratic plans for universal health care. "My chances of surviving prostate cancer in England? Only 44 percent, under socialized medicine."Rich says,...Mr. Giuliani got his numbers from a recent article in City Journal, a publication of the conservative Manhattan Institute. The author gave no source for his numbers on five-year survival rates ¬ the probability that someone diagnosed with prostate cancer would still be alive five years after the diagnosis. And they’re just wrong. You see, the actual survival rate in Britain is 74.4 percent.
Krugman never tells us his source for the "Britain is 74.4 percent" even though he criticizes Manhattan Institute for not citing a source - while the basis of his article is the assertion that Guiuliani's numbers are wrong (in liberal speak - "lies" - the tone of the rest of his column).Update... The author of the City Journal article rebuts Krugman brilliantly.If Krugman has an authoritative source, why doesn't he tell us his source? He clearly believes in the importance of knowing your source. Krugman does not challenge the US 82% rate - does his secret source confirm the US rate or even show a higher success rate in the US?
Or is this another case of arrogance in his thinking people should trust Krugman's numbers because he is Krugman?
Posted by Donald L. Luskin at 12:31 PM | link
RECESSION? HELL NO, WE'RE IN A DEPRESSION Reader Shawn Mercer points to a post yesterday by Peter Schiff, a former sparring partner on CNBC's "Kudlow & Co." (hmmmm... wonder why the producer never pairs me with Peter anymore?). Shawn says, "I think our buddy Peter Schiff's head is going to explode trying to rationalize away the GDP report yesterday." Indeed. Yesterday's report showing blazing growth in the third quarter, despite a credit crisis and a housing downturn, has got to make the bears wonder what planet they've been living on. Here's Schiff's reaction. I have to say, I think in principle he makes a valid point, noting that inflation is surely underestimated in the numbers (if it were more realistically portrayed at higher levels, that would make the reported growth numbers somewhat lower). But Schiff just can't resist taking it way too far -- and being way too pompous about it.
...the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration.First, thanks for explaining to all the stupid people out there (perhaps he knows his audience well) that .8% is lower than 1%. But let's get our facts straight before we presume to teach the dummies what's what. It's simply not true to say it's the lowest rate since the Eisenhower administration. Let's look at the data. Lower rates occurred in the second quarters of 1962, 1997 and 1998. Data? Schiff woulud rather go with guesses. He says, "My guess is that inflation is actually running at an annualized rate closer to 10%." Such a rate applied to the GDP calculations would show the economy to be not just in a recession, but a depression. Which pretty much lines up with Schiff's prejudices, and explains his "guess."
I agree with Schiff that there is an inflation problem. And we both support Ron Paul for president. But can't he get his facts straight, and can't he tone down his end-of-the-world rhetoric a little?
Posted by Donald L. Luskin at 9:50 AM | link
Thursday, November 01, 2007
ACCOUNTABILITY? NOT FOR THE INHERITOR In an editorial yesterday, the New York Times pontificated thus:In any world other than the one created by Wall Street, the resignation of E. Stanley O’Neal, the chief of Merrill Lynch, would have been a foregone conclusion. A week ago, the firm reported the largest quarterly loss in its 93-year history, as a staggering $8.4 billion write-down on investments in junk mortgages and tricky debt obligations contributed to an overall loss in the third quarter of $2.3 billion.What exactly is the Times complaining about? After all, O'Neal was ousted. The complaint seems to be that the ouster was not expected. But indeed why should it be? The New York Times Company's stock performance has been far worse than Merrill Lynch's. As reader Brian Briody points out, why isn't the ouster of Times scion Arthur Sulzberger Jr. the kind of "foregone conclusion" that is preached on the editorial page that he himself controls?
Posted by Donald L. Luskin at 10:10 AM | link
KUDLOW REPLAY Here's the YouTube replay, in which I have to hand it to Michael Metz for a display of humility all too rare on financial television. It's hard to admit you don't know everything about everything.
Posted by Donald L. Luskin at 12:19 AM | link
Wednesday, October 31, 2007
THOSE HARD-WORKING CEO'S This is an embarrassment to the business community, reinforcing stereotypes of tycoons as pig-faced old men in vests with dollar signs on them, holding money-bags in both hands. Here's the record of Merrill Lynch CEO Stan O'Neal's golf scores this summer. While Merrill was racking up losses that exceeded $8 billion, O'Neal was golfing just about every day.And remember, Bear Stearns' top brass were in Nashville at a bridge tournament while their mortgage hedge funds imploded, setting off the summer's extreme bout of financial turbulence. Shameful.
Update [11/1/2007]... Reader Ray Mahr cools my jets:
O'Neil was golfing "just about every day". Oh really. I checked the link and from the index shown I would surmise the guy is an avid golfer that plays every weekend (including holidays), he took a one week golf vacation and only baled work two days over a 7 week period. But only O'Neil and the guys in his foursome will ever really know.Update 2 [11/1/2007]... Not so fast, says reader Steve Bourg:
O'Neal must have played many many rounds during workdays, and since the courses weren't very close to Merrill's Manhattan office, he'd be away from the office for at least 1/2 the workday. Shinnecock is way out on Long Island!Update 3 [11/2/2997]... Ray replies,Here's what's happening: As many golfers do, he enters his scores into the system from his home computer and usually does it on a Saturday or Sunday -- logs on to post scores. But he says the dates are Sat or Sun when they're obviously not 3 rounds on Saturday or 4 rounds on Sunday...he just puts that date down so it won't look like he played so many workday rounds! Check it out...you can tell by the dates. He's either sneaky about it, or he just clicks "Today" when it asks when the round was played.
I still say O'Neal (the sneaky bastard) did not play "...many many rounds during workdays..." as Steve Bourg contends.Update 4 [11/3/2007]... Steve rebuts further,O'Neal posted 20 rounds in 50 days. 10 were done at the course, of which 2 were weekday rounds. 10 were done over the internet. Absolute worst case is 12 weekday rounds in 7 weeks. But there are 6 rounds posted between 8-12 and 8-19 (Bourg has obviously never taken a golf vacation) so that leaves 6 weekday rounds in 6 weeks. So what?
One guy in my foursome regularly plays 2 or 3 rounds a week and never misses work. I'd wager Merrill Lynch didn't oust O'Neal because he wasn't putting in enough hours.
The real question is with that many rounds, why isn't the guy a scratch golfer (a zero index)?
Now I know how Luskin must feel, being publicly refuted by someone in an embarrassing manner. As Merrill was imploding with $8b in investment writedowns during the 3rd quarter, CEO O'Neal was certainly playing many rounds of golf, and not exactly around the corner from his Wall Street office. His home course is Purchase CC, which is way out near Westchester! He almost always entered scores as if he played his rounds on weekends, except for his ~8 day trip to Martha's Vineyard where he played at the prestigious Vineyard Club 4 times during a vacation week before Labor Day. But the week before he left, he entered an away round on Sat 8/18 and 4 away rounds on one day, Sun 8/19. And yes, I've been on golf vacations, but if that was a golf vacation, then it certainly included several weekday rounds, not 1 rd. Saturday and 4 rds. on Sunday! Then 2 weeks after Labor Day he "played" 3 rds on a Saturday....Purchase, Shinnecock which is way out on Long Island, and another NY club.....no those weren't all on Sat...........2 had to be during the week. Conclusion's that he was fiddling while Rome burned AND he wasn't even honest on the dates he did his "fiddling". Go ahead Ray, rebut some more but I'm done.Update 5 [11/4/2007]... Ray takes the last word:
It pisses me off to no end all of the people whining about excessive CEO compensation, perks and golden parachutes (the media) or golf outings (Bourg) when in fact O'Neal was an asset to Merrill Lynch over the past 5 years.Actually, I'll take the last word. I've never been a Fortune 500 CEO, but I've held some pretty heavy executive responsibilities during my career. And I can tell you that whenever there were times of trouble and risk, I was at my desk every day, including weekends, working with my team to understand and solve the problems. O'Neal may have added value on balance during his tenure -- I have no actual idea how much of Merrill's gains to attribute to his performance. But when the ship hits an iceberg, the captain needs to be in the control room -- not sunning himself on the deck. O'Neal's golf-time last summer is, in my view, unconscionable, even under Ray's interpretation.It took me all of 10 minutes to find that Merrill Lynch had $22.7B net income on $243.8B total revenue between Q1 '03 and Q3 '07 (latest filing) with O'Neal at the helm - he became CEO Dec '02 and Chairman April '03.
The $8B write-down for a company worth $39B (shareholder equity) is indeed unfortunate, but it certainly isn't an implosion. The comment that O'Neal was "... fiddling while Rome burned... " is asinine. The fact O'Neal used a default posting date for his golf scores is neither sneaky nor dishonest, and it appears those statements were made solely to besmirch O'Neal's character.
Not to embarrass anyone, but I seriously doubt Bourg could carry O'Neal's jock. There, I am done as well.
Posted by Donald L. Luskin at 9:39 AM | link
CRACKED! Responding to my post yesterday, in which I noted that Charles Rangel thinks that paying taxes is voluntary, reader T. Alan Younker reminds me that Rangel is hardly alone in this:
After quoting from Charles Rangel's article you commented :"Huh? "Voluntary"?! Since when is anything about our tax system voluntary?" The IRS has certainly put a lot of hardworking taxpayers through the ringer. But recently I bought a book called Cracking the Code by Peter Eric Hendrickson. On page 107 he offers the following quotes:Update... Reader Bill Hesson has it straight:"The IRS's primary task is to collect taxes under a voluntary compliance system" - Jerome Kurtz, IRS Commissioner
"Our tax system is based on individual self-assessment and voluntary compliance" - Mortimer Caplin, IRS Commissioner
"Each year American taxpayers voluntarily file their tax returns..." - Johnnie Walters, IRS Commissioner
I think I figured out what the IRS Commissioners mean by "voluntary." They mean that the US Public is a lot more honest than it really needs to be given the level of resources available to enforce compliance.Update 2... My DC-insider pal "Mick Danger" points to Warren Buffett bloviating about how he "wants to pay more taxes." Hey, buddy, feel free -- it's "voluntary" after all:
The United States' second-richest man has delivered a blunt message to the Bush administration: he wants to pay more tax.Update 3... Reader Liv Douglas adds,Warren Buffett, the famous investor known as the "Sage of Omaha", has complained that he pays a lower rate of tax than any of his staff - including his receptionist. Mr Buffett, who is worth an estimated $52bn (£25bn), said: "The taxation system has tilted towards the rich and away from the middle class in the last 10 years. It's dramatic; I don't think it's appreciated and I think it should be addressed."
Seems like U.S. citizens who "voluntarily" don't pay their taxes are "voluntarily" checking themselves into their nearest Federal Penitentiary for a few years...
Posted by Donald L. Luskin at 7:46 AM | link
IT'S MY DAY TO GET QUOTED! In USA Today:
Nothing in the just-completed quarter has caused panic. Wall Street analysts are calling for earnings growth over the next year of 15%, says Donald Luskin of Trend Macrolytics.Even if the forecasts are overly optimistic, earnings are still in an uptrend, Luskin says.
Posted by Donald L. Luskin at 7:29 AM | link
Tuesday, October 30, 2007
SHOULD I BE FLATTERED OR INSULTED? I really can't tell, but I suppose it's nice to be mentioned by one's favorite Wall Street Journal columnist. Holman Jenkins today:A bit of bumf came across your desk recently from economist Donald Luskin, who says that though some banks may be in trouble, "other investment banks such as Goldman Sachs have thrived on the recent chaos and have emerged in superior competitive positions, poised to accelerate their profit growth. We're seeing not the impairment of a sector, but rather the realignment of the competitive landscape -- which is usually a healthy thing."Okay, so what the hell is "bumf"? According to this, it's one of two acronyms -- one seems irrelevant, the other unkind.He makes a valid point. If contributing to the superfund were a patriotic and profitable duty to help protect the broader economy, that's one thing. But contributing just to save a few banks from having to own up to their slippery dealings with a few SIVs?
BUMF Brakes Undercarriage Mixture Fuel (pilot mnemonic for takeoff/landing check list)I can't see how my comment had anything to do with piloting an airplane -- on the other hand, if I make "a valid point," then why is it "information developed without an accurate basis"? Maybe my information is deemed correct despite its putative lack of accurate basis. I'm lost...BUMF Bum Fodder (toilet paper; chiefly British military slang for information developed without an accurate basis)
Posted by Donald L. Luskin at 11:50 PM | link
ONE LITTLE LETTER, BUT WHAT A WHOPPER What's wrong with this paragraph, from an October 22 New York Times story about Joint Chiefs head Mike Mullen?
Assessing the impact of long, repeated deployments for the ground forces in Iran and Afghanistan, he said, “The ground forces are not broken, but they are breakable.”Bet you saw it right away. It took the New York Times four day to correct it, though.
Correction: October 26, 2007What took so long to correct this error? Simple -- it takes lots of staff hours trying to rationalize not correcting it, to spare the Times yet another humiliation. It took four days before they realized there was no way out of this one.An article on Monday about the goals and priorities of Adm. Mike Mullen, the new chairman of the Joint Chiefs of Staff, misidentified a country where American troops have been serving lengthy deployments. It is Iraq, not Iran.
Posted by Donald L. Luskin at 9:58 PM | link
FACTORS OF TEN Paul Krugman seems to have problems with tens. Sometimes he forgets to divide by ten. Other times he multiplies by ten when he shouldn't. For an economist that's, well, pretty damn sloppy. Here's an example of the multiply category, courtesy of the highly respected BankStocks.com site:
Did Paul Krugman actually write that “the bursting of the housing bubble means that someone, somewhere, has to accept several trillion dollars in losses.”?Thanks to reader Richard Strype for the link.Several trillion? Really? Numbers, please!
Here goes: Inside Mortgage Finance reports that total 1-4 family mortgage debt outstanding—prime, subprime, Alt-A, you name it—stands at $10.4 trillion. Let’s say that when he says “several trillion,” Krugman really expects just $2 trillion in mortgage-related losses. But to get to $2 trillion in losses, you have to, after allowing for partial recoveries via foreclosure sales and foregone borrower equity, assume something like $4 trillion in mortgage defaults, or around 40% of all mortgage debt outstanding. I don’t buy that. You shouldn’t buy that. I can’t believe anyone in his right mind would buy that.
Meanwhile, back here in the real world, the estimates I’ve seen for eventual losses in subprime mortgage (which is where virtually all the losses will occur) range from $75 billion to $150 billion, or around the aggregate price change of the combined U.S. equity markets in a single day.
Posted by Donald L. Luskin at 5:53 PM | link
WHO SAYS RON PAUL ISN'T ELECTABLE? Anyone is electable, if they run against Hillary Clinton. According to the Wall Street Journal's "Political Diary" email alert (no link available),
Pollster Scott Rasmussen notes that when he surveys head-to-head matchups between Hillary Clinton and any of the eight potential GOP candidates, Mrs. Clinton scores between 46% and 49% against all of them."When we polled her against Rep. Ron Paul, a non-mainstream libertarian, she got 48% of the vote. When we polled on Ron Paul among people who knew who Ron Paul is, she got 48% of the vote. When we polled among people who didn't know who Ron Paul is, she got 48% of the vote," he says.
Posted by Donald L. Luskin at 1:55 PM | link
ORWELLIAN? NO, THIS IS KAFKA-ESQUE From an op-ed today by Charles Rangel in the Wall Street Journal,
By adjusting the top rates and reducing windfalls paid out to some of the wealthiest individuals in the nation, we can help restore a sense of equity and fairness that is critical to the success of our voluntary tax system.Huh? "Voluntary"?! Since when is anything about our tax system voluntary?
Thanks to reader Dewan Rohit.
Posted by Donald L. Luskin at 11:26 AM | link
THE AYN RAND LEXICON It's on the web! Check it out!
A couple samples for all you economists out there. Here's "inflation":
"Inflation" is defined in the dictionary as "undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie" (Random House Dictionary). It is interesting to note that the word "inflated" is defined as "distended with air or gas; swollen."Here's "money":This last is not a coincidence: in regard to social issues, "inflation" does not mean growth, enlargement or expansion, it means an "undue"—or improper or fraudulent—expansion. The expansion of a country's currency (which, incidentally, cannot be perpetrated by private citizens, only by the government) consists in palming off, as values, a stream of paper backed by nothing but promises (or hot air) and getting actual values, the citizens' goods or services, in return—until the country's wealth is drained. A similar activity, in private performance, is the passing of checks on a non-existent bank account. But, in private performance, this is regarded as a crime—and most people understand why such an activity cannot last for long.
Today, people are beginning to understand that the government's account is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an automobile, or a loaf of bread—and that if you attempt to falsify monetary values, you do not achieve abundance, you merely debase the currency and go bankrupt.
Money is the tool of men who have reached a high level of productivity and a long-range control over their lives. Money is not merely a tool of exchange: much more importantly, it is a tool of saving, which permits delayed consumption and buys time for future production. To fulfill this requirement, money has to be some material commodity which is imperishable, rare, homogeneous, easily stored, not subject to wide fluctuations of value, and always in demand among those you trade with. This leads you to the decision to use gold as money. Gold money is a tangible value in itself and a token of wealth actually produced. When you accept a gold coin in payment for your goods, you actually deliver the goods to the buyer; the transaction is as safe as simple barter. When you store your savings in the form of gold coins, they represent the goods which you have actually produced and which have gone to buy time for other producers, who will keep the productive process going, so that you'll be able to trade your coins for goods any time you wish.Here's "economic growth":
Economic growth" means the rise of an economy's productivity, due to the discovery of new products, new techniques, which means: due to the achievements of men's productive ability.Thanks to reader Manfred F. Schieder for the link.
Posted by Donald L. Luskin at 7:46 AM | link
Monday, October 29, 2007
NANCY PELOSI'S TAX BRACKETS Charlie Rangel has jumped off a political cliff with his "mother of all tax reforms," and Nancy Pelosi is realizing now that she's getting dragged with him. The Hill reports:House Speaker Nancy Pelosi (D-Calif.) is finessing her support of Rep. Charles Rangel’s (D-N.Y.) controversial new tax bill, highlighting Democrats’ concern about how Republicans plan to use it in the 2008 elections.Following the unveiling of arguably the most politically explosive domestic policy bill of the 110th Congress last Thursday, Pelosi seemed to wholeheartedly support the tax overhaul authored by Ways and Means Committee Chairman Rangel.
“I certainly support his plan,” Pelosi (D-Calif.) said to the assembled reporters.
But when the transcript of the briefing came out, words were inserted — highlighted by brackets — clarifying that she supported his goal, if not his specific proposals.
The final transcript read: “I certainly support his plan [to begin tax reform.]”
Posted by Donald L. Luskin at 9:27 PM | link
THE CLUB FOR GROWTH GRADES RON PAUL It's a mixed report card. As a friend at the Club puts it,
His ideological purity is extremely admirable, but his opposition to free trade agreements is counterproductive (Cato and Reason don’t even agree with him on this point). And his support for pork is inexcusable. Other issues like school choice and tort reform are tougher to measure.
Posted by Donald L. Luskin at 12:10 PM | link
TAX CUT? TAX INCREASE? WHO KNOWS, WHO CARES? NOT THE WAPO Here's so-called "business columnist" Steven Pearlstein in the Washington Post:
Leave it to Charlie Rangel to come up with a tax bill that is both good policy and great politics... But because Rangel proposes to pay for his AMT fix by repealing the Bush marginal income tax cuts for households with incomes above $200,000 a year, and by closing tax loopholes enjoyed by managers of private equity and hedge funds, Republicans immediately cranked up their Big Lie machine and attacked Rangel's proposal as the "biggest income tax cut in history."Well, actually, er... no. What Republicans are calling it is what it is "the largest single income tax increase in American history." You hear that, Pearlstein, you blithering fool? Increase, not cut. Do you know the difference between an increase and a cut? Do you know what Republicans are actually saying? Do you know anything at all when you write one of your so-called "business columns"?
My DC-insider pal "Mick Danger" comments,
I guess it's in the water here in Washington: lies, damn lies and lying about lying. No wonder the rest of the country tunes us out.Update... And speaking of the AMT, here's a great letter from Don Boudreaux to the New York Times (which they will surely never publish):Pearlstein praises the "Mother of all Tax Reforms" by Charlie Rangel as a complete tour de force of redistributive economics. He got that part right. Pearlstein then twists the knife and the truth with it by condemning the Democrats for lacking the political courage and political skills to push it, as if Rangel can’t stand up in that wind without support from Pearlstein.
Pearlstein doesn't mention that Rangel is more powerful than any other committee chair in the House or the Senate; perhaps Pearlstein doesn't know this. The party ratio on the Ways & Means Committee is stacked 2-to-1 in favor of the majority by a long-standing tradition in the House. (The Republicans also stacked the Way & Means Committee during their majority.) Pearlstein wants to blame someone, or something, for the fact that Rangel’s big bill is not on the real agenda. Hey, Steve, it’s only intended to get the hard corps liberals excited about “possibilities.” If Charlie Rangel wanted to pass the Manhattan phone book, he could do it. (Forget about the Senate.)
Leading up to all that silliness, Pearlstein rattles on about the Republican "Big Lie" campaign, asserting, as if he was only stating the obvious, that Republicans would rather impose a tax on emergency room doctors than on hedge fund traders*. Sigh. Note to Steve: emergency room doctors are covered in the Rangel plan -- their tax bill goes up.
Republicans are against raising taxes per se; Republicans are even against raising taxes on biased political writers pretending to be business columnists.
There's widespread agreement that the alternative minimum tax - because it is not indexed to inflation - is mistakenly raising the taxes of millions of Americans ("House Democrats Propose Tax Overhaul," October 25). Happily, there's also widespread agreement that this mistake should be corrected..Thanks to reader Richard Sinda.So, given that the current operation of the AMT is a mistake, why do Rep. Charles Rangel and so many others talk of the need to "pay for" fixing the AMT? A merchant who mistakenly overcharges customers is obliged to refund the money and stop overcharging, period. This obligation kicks in whether or not the merchant devises some way of replacing the revenue that he loses by correcting his mistake
Posted by Donald L. Luskin at 12:35 AM | link
SMALL PEOPLE ARE SATISFIED WITH SMALL ACCOMPLISHMENTS Paul Krugman, in an interview with someone from the tinfoil hat wing of the Democratic party, named Rory O'Connor:
ROC: In your book, you talk about the media's use of "storylines" and what you've called the "Rambofication of history."As if to demonstrate the use of "storylines" in political propaganda, Krugman spins some rather absurd tales about the conservative bias of the media, and how that cost Al Gore the 2000 election.PK: Yes, I'm rather proud of the term "Rambofication."
Look at the 2000 presidential campaign, for example, where the media were so heavily biased against Al Gore. That's what brought Bush to within a Supreme Court decision of the White House... The media's bias, a large part of it is in fact right-wing bias, because they are effectively part of the right wing.Thanks to reader Richard Ridgeway.
Posted by Donald L. Luskin at 12:29 AM | link