Author: Matthew G. Saroff

Fannie and Freddie and Shady Accounting

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It appears that both firms grossly overstated their capital using accounting tricks, and the Morgan Stanley auditors hired caught the problems:

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

Some techniques used:

  • Not writing down their subprime and alt-A loans to market prices.
  • Counting deferred tax credits, which are worthless until a company generates a profit, as capital. (Only Fannie and Freddie have the right to do this)
  • Extending the default period on a loan before declaring a loss from 90 days to two years.

This is all stuff that only Fannie and Freddie could do. No other US bank is allowed to.

This is why the elimination of political and lobbying activities is important. The mess uncovered will become even bigger as normal accounting is applies.

It’s Official, GSEs Nationalized

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Upper management has been replaced, and Fannie Mae and Freddie Mac are under US government control.

They are calling it a conservatorship, but its nationalization.

Here is the story that everyone is missing though:

At the same time, dividends on both common and preferred shares will be eliminated in an effort to conserve about $2 billion annually. All of the firms’ lobbying and political activities will be halted immediately and charitable activities reviewed.

The GSEs dropping dividends is not surprising, to do otherwise would political suicide, but terminating their lobbying and other political activities changes the environment under which they operate, because it is their lobbying and other political activities that has allowed them to have such a favorable legislative and regulatory regime.

They are done.

Oh I Give Up! Let’s Just Call it the Sarah Palin Clown Show

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I’m sick and tired of coming up with new medical sounding names, OK? It takes more time than it does to write the articles, because this sh%$ really writes itself.

First, it appears that Palin is taking a week or so, the nominal explation is that she is spending time with her son before he ships out to Iraq, but the real reason is that she is taking time off to “get ready”, and you have to love the snark from Josh Marshall of Talking Points Memo

Isn’t Palin supposed to move to Cheney’s undisclosed location after she gets elected, not before?

The good Mr. Marshall owes me a screen cleaner…big time.

Howard Finemannotes that senior McCain officials have said that they are using the time to bring her up to speed, and Todd Harris, who is working with the McCain campaign admits that she is not ready, and probably needs two weeks to get her act together, explaining that, “If she goes out and makes a mistake, that is something that [voters will] care about, and that’s something that will haunt [McCain] for awhile, so I think this is a smart move.”

Jed, or the Jed Report has even created a “where’s Sarah” widget for inclusion in your web site.

On earmarks, even the Moonie Times is calling out Palin on her double-talk on earmarks….And when you’ve lost the Washington Times on this issue…….Well, you’ve lost the Moonie Times.

And we still have the gift that keeps on given, Troopergate, we have

CREW saying that Palin is attempting to subvert the investigation of her through back door channels, the Anchorage Daily News says that she is stonewalling the investigation, and Newsweek is reporting that John McCain allies are throwing up roadblocks into the investigation too.

Meanwhile, it appears that the bipartisan committee investigating the matter will push up the date of its report from October 31 to around October 10, which is not an unreasonable response to stonewalling.

Additionally, Alaska lawmakers will plan to issue subpoenas to seven witnesses, though not to Palin, because the seven canceled interviews with the investigator, reportedly after, “Ms. Palin’s lawyer, Thomas V. Van Flein, had forbidden members of her administration to have any contact with the investigator.”

We also have the State Police Union filing a formal complaint that Palin and Her Evil Minions&trade improperly released information from Wooten’s (the guy she wanted fired) private personnel records.

Finally, Mikew Wooten has finally gone public in this matter, talking to CNN and giving a brief interview.

Oh My God, They are Nationalizing Fannie and Freddie

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It appears that regulators have sent a letter notifying the GSEs of this, here and here, and the details will be announced tomorrow.

It won’t be called a nationalization, my money would be on “conservatorship”, but the share holders are rumored to get little to nothing, and management will be replaced by people who answer to the government

One of the interesting dynamics here, and one that is barely covered in the financial press is the fact that Fannie and Freddie have been aggressive lobbyists and soft money contributors (their employees are big hard money contributors) for years, and with a nationalization, that will stop.

This means that Congress will stop writing laws, and pressuring regulators, for the benefit of Fannie and Freddie, which is apt to lead to major changes in said laws, regulation, and oversight.

Have You No Sense of Decency, Sir?

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Olbermann apologizes, but what he should have done is ask, “Have you no sense of decency, sir? At long last, have you left no sense of decency?“

Sasha Issenberg notes that this is the death of a taboo, and it does not bode well for our political discourse:

One of the most enduring taboos in American politics, the airing of graphic images from the September 11 attacks in a partisan context, died today. It was nearly seven years old.

Republicans, at least the idealogue ones who grew up sucking at the tit of Ayn Rand, believe that there is no role for government in public life….None at all, so all that running for office is an attempt to grap power.

They believe that they can do evil to seize power, because they believe that all government is evil.

Comcast to Overturn FCC Order, and Lies About It’s Bandwith Limitations

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Comcast has filed suit in federal court, claiming that the FCC has no authority to require network neutrality.

Interestingly enough, one of their claims is that they had to institute their new hard bandwidth limitations because of the FCC ruling, which as Harold Feld notes, is another bald faced lie from them.

It turns out that the new 250 GB/month limit is as a result of a consent decree with the Florida Attorney General, who had taken action because Comcast was kicking off heavy users in an arbitrary and capricious manner.

As stipulated in the decree:

Comcast simply knocked off the highest 1000 users regardless of their actual bandwidth usage or geographic location.

While the top 1000 users out of 14.m million will doubtless be very high bandwidth users, the bell curve being what it is, this is a policy that is a complete mind f%$#.

Comcast is so evil that they make Verizon look nice.

Turkey to Buy Russian SAMs

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It appears ht they will be plunking down about $100 million for, “ SA 10 Grumble, SA-12b Giant and SA-15 Gauntlet missiles from Belarus and Ukraine, so that they can practice counter measures against the Russian double digit SAMs.

This is separate from the $4 billion bid they have out for long range SAMs for use by the military in operations, which has the US Patriot competing with the Chinese HQ-9, Israeli Arrow, and Russian S-400.

I love this quote from the article:

The United States has raised concerns that if NATO-member Turkey were to purchase Russian missiles it would create an inter-operability problem with NATO.

Because, I guess, US operators using Patriot missiles are more than capable of shooting down an RAF Tornado during the invasion of Iraq.

While all militaries support their national defense industries, the degree to which the US does is particularly whorish.

Solid Fuel Ramjet HARM

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Well, it’s beginning to look like the west is finally catching up to the former Soviet Union in solid fuel ramjet technology, with the British working on their Meteor, and the US looking at adding the technology to the HARM anti-radiation missile (it homes in on SAM radars).

Note that the Soviets had fielded the SA-6 “Gainful” with this technology starting in the late 1960s, and had been sufficiently confident in the technology that it was extensively exported to Egypt and Syria in time for the Yom Kippur War in 1973.

The picture is of a test launch of a missile with an AGM-88E HARM guidance system and a integral rocket ramjet (IRR) propulsion system launched at White Sands in August.

What is in advance of the system deployed by the Soviets in the late 1960s is that the booster does not have a separate nozzle, and the thrust can be throttled, which would allow the missile to loiter in the area waiting for an emitter to switch on.

Weapons-Grade Electrically Powered Lasers Seem Near

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The dividing line is 100 KW, and it looks like we will be seeing this in the next year or so.

Basically, they are focusing together multiple “strings of solid state lasers in order to boost the power of the beam.

This is far more useful, and much less expensive, than the chemical lasers that have been tested by the military previously, which typically involve the use of exotic, expensive, and highly toxic chemicals to achieve the necessary results.

Northrop-Grumman is claiming that they achieved 30 KW for 5 minutes continuously recently.

One other technology that might benefit from this is advanced capacitor technology, as to get the desired 100 KW, you are looking at putting in at least 500 KW (about 670 hp), and when one considers the power required for cooling and other issues, you could see the total power requirements during firing be in the 1000 KW range, which is a big generator, but storing the energy in capacitors would eliminate much of that problem.

I would expect the the first military application to be something like a laser to intercept things like mortar rounds and Katyusha rockets.

Navy Already Shifting Away from Shallow Waters? | Danger Room from Wired.com

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It appears that the US Navy will be shifting strategy away from littoral (coastal) operations.

The article makes some grandiose statements about how a new networked battlespace will require naval ships to operate further offshore, but I think that this is bunk. Rather there are two imperatives driving this decision:

  • Having a ship run aground ends a career in the Navy, even if it was really unavoidable, and littoral operations, because they are in shallower water, increase the possibility of a ground by at least an order of magnitude.
  • Because of the US history of separation from enemies by oceans, there is a myopic focus on a blue water navy

Let’s Be Clear on This: There is No Autism-Vaccine Link, Just Scientists On One Side and Liars On the Other

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That’s the truth and Washington Post reporter Shankar Vedantam manages to ignore the fact that there is no correlation between vaccines and conditions on the autism spectrum.*

The author mentions that the new study contradicts a 1998 study by Andrew Wakefield, but ignores the fact that he was accused of, “suppressing and falsifying data”, that his co-authors of this study have disavowed his reasearch, and at this time is under investigation for serious professional and financial misconduct.

He faces removal of his medical license as a result.

If there is any justice in the world, he will end up in to jail too.

*There is some dispute as to whether Aspergers is mild Autism, or a different condition on the Autism spectrum, a distinction which I would generally expect a reporter to miss.