Con man executed for $416 million ant-breeding scam

From the International Herald-Tribune:

China has executed a businessman convicted of bilking thousands of investors out of $416 million in a bogus ant-breeding scheme, state media reported Thursday. The official Xinhua news agency said Wang Zhendong, who had been found guilty of fraud and sentenced to death in February 2007, was executed in Liaoning Province on Wednesday.

Wang, chairman of Yingkou Donghua Trading Group, had promised returns of up to 60 percent for investors who purchased ant-breeding kits from two companies he ran.

Ants are used in some traditional Chinese medicinal remedies, which can fetch a high price. Wang sold the kits, which cost $25, for $1,300, the local news media reported earlier.

Wang attracted more than 10,000 investors from 2002 to June 2005, when investigators shut down his companies. The closure of his business set off a panic among small-time players who saw their life's savings disappear overnight.

Xinhua had reported that one investor committed suicide after realizing he had been duped. Investigators put the size of the fraud at $416 million. Only $1.28 million was recovered.

My published articles are archived at iSteve.com -- Steve Sailer

The Steve Sailer Man of the Year Award for Annoyingly Relentless Skepticism goes to ...

Harry Markopolos, who has been a complete pain-in-the-ass for the last nine years as he tried to alert a world that totally didn't want to hear about it that Bernie Madoff's money management business was actually a $50 billion pyramid scam. The WSJ reports:

Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.

"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.

Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.

In a statement late Friday, the SEC said "staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action." The SEC said it reopened the investigation Thursday. It's not clear what the focus of the 2007 investigation was, or why it was closed. A person familiar with the matter said it related to issues raised by Mr. Markopolos.

My published articles are archived at iSteve.com -- Steve Sailer

Obamajobs: yup, filling potholes

The Washington Post catches up to what I've been saying all along:

Stimulus Package to First Pay for Routine Repairs

President-elect Barack Obama calls it "the largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s." New York Mayor Michael R. Bloomberg compares it to the New Deal -- when workers built hundreds of bridges, dams and parkways -- while saying it could help close the gap with China, where he recently traveled on a Shanghai train at 267 mph.

Most of the infrastructure spending being proposed for the massive stimulus package that Obama and congressional Democrats are readying, however, is not exactly the stuff of history, but destined for routine projects that have been on the to-do lists of state highway departments for years. Oklahoma wants to repave stretches of Interstates 35 and 40 and build "cable barriers" to keep wayward cars from crossing medians. New Jersey wants to repaint 88 bridges and restore Route 35 from Toms River to Mantoloking. Scottsdale, Ariz., wants to widen 1.5 miles of Scottsdale Road.

On the campaign trail, Obama said he would "rebuild America" with an "infrastructure bank" run by a new board that would award $60 billion over a decade to projects such as high-speed rail to take the country in a more energy-efficient direction. But the crumbling economy, while giving impetus to big spending plans, has also put a new emphasis on projects that can be started immediately -- "use it or lose it," Obama said last week -- and created a clear tension between the need to create jobs fast and the desire for a lasting legacy.

"It doesn't have the power to stir men's souls," said David Goldberg of Smart Growth America. "Repair and maintenance are good. We need to make sure we're building bridges that stand, not bridges to nowhere. But to gild the lily . . . where we're resurfacing pieces of road that aren't that critical, just to be able to say we spent the money, is not what we're after."

Minneapolis Mayor R.T. Rybak is proud that his city was able to quickly rebuild the Interstate 35 bridge that collapsed into the Mississippi River in 2007 while making sure to include capacity for a future transit line on it. But he worries that many of the road and bridge upgrades around the country will not be done in a similarly farsighted way, given the time pressures.

"The quickest things we can do may not be the ones that have the most significant long-term impact on the green economy," he said. "Unless we push a transit investment, this will end up being a stimulus package that rebalances our transportation strategy toward roads and away from [what] we need to get off our addiction to oil."

In other words, under Obama's "use it or lose it" rule, we'll end up doing right away a whole lot of things like repainting bridges that didn't seem worth doing back when we had lots of money.

My published articles are archived at iSteve.com -- Steve Sailer

Sometimes, there are good reasons for a liquidity crisis ...

The revelation of the non-existence of $50 billion in funds supposedly managed by Bernie Madoff is a reminder of why there is a liquidity crisis, in which financial institutions are terrified to lend money because who knows which respected Wall St. entity will next turn out to be based on nothing?

Here's an interesting question: How many other Ponzi schemes and similar frauds of which we are as of yet unaware have managed to survive so far due to the trillions of bailout dollars handed out?

Can you see how this question undermines the effect of Helicopter Ben Bernake's strategy of dumping cash out of a helicopter -- why the effect of stimulus has widely been described as pushing on a noodle? With Madoff, the bailouts may have delayed the final reckoning by a couple of months. For less colossal scams, it may delay them for even longer. But there will be a reckoning, so who (besides the government) wants to pour good money after bad?

My published articles are archived at iSteve.com -- Steve Sailer

Is the balance of power shifting?

Rupert Murdoch once said in private, I am told on good authority, that the reason he decided to subsidize the neocons (a decision with substantial historical ramifications) was not because of any particular devotion to the tenets of neoconservatism. Instead, funding The Weekly Standard was simply to insure against being defenseless against vendettas by the American media and politicians against his American businesses. As a foreigner of generally conservative political views, he felt he needed to protect his huge investments in America by having at least one set of Jews staunchly on his side.

I doubt if Murdoch cares much about, say, West Bank settlements, but he understands that the small number of people in America who do care about them tend to be passionate, powerful, and rich.

Hillary Clinton seems to have absorbed a similar lesson. In 1991, George H. W. Bush was on top of the world. His Secretary of State James Baker expressed displeasure with West Bank settlements. The next year, Hillary's husband beat Bush 41. Coincidence? Perhaps, but I suspect Hillary wouldn't bet her career on it just being a fluke.

Similarly, Barack Obama has acted quite Murdochian recently, making Hillary Secretary of State and giving crucial insider jobs to Rahm Emanuel (who patriotically rushed off during the Gulf War to serve at an Army base, an Israeli army base) and Larry Summers, greatly reassuring AIPAC.

But are all these political calculuses a little too 2007? Is the assumption that the kind of guy in New York or Las Vegas who cares about Israel in the same way that rich guys in Oklahoma care about the Oklahoma Sooner football team -- but are just so infinitely rich that they must be pandered to -- getting to be out of date? What if the Sheldon Adelsons and Bernie Madoffs lose even more money in this crash then everybody else? How does that rearrange the political landscape?

I don't have any data, but I'm sensing anecdotally that the kind of man who funds Israel hardliners is losing money faster than the average. Today, the New York Times writes in "Standing Accused - A Pillar of Finance and Charity" about Bernie Madoff, the money manager who just admitted to the FBI that he had been running a giant Ponzi scam and had lost maybe $50 billion (billion!) of his investors' money:

“There was a joke around that Bernie was actually the Jewish T-bill,” the executive went on, referring to the ultrasecure investment of treasury bills. “He was that safe.”

Mr. Madoff had traveled far from his roots in eastern Queens, where as a young man he cobbled together a $5,000 grubstake from his earnings as a lifeguard and sprinkler installer to start the famed investment firm that eventually bore his name, Bernard L. Madoff Investment Securities.

He had come to move easily in the clubby Jewish world that iterates between New York City and its suburbs and southern satellites like Palm Beach.

Indeed, in the world of Jewish New York, where Mr. Madoff, 70, was raised and found success, he is largely still considered as a macher: a big-hearted big shot for whom philanthropy and family always intertwined with — and were equally as important as — finance. ...

As Mr. Madoff’s success increased, so too did his interest in philanthropy, which was often handled, much like his business itself, as a family enterprise. He sits on the board of trustees for Yeshiva, whose officials issued a statement on Friday saying they were “shocked” at the news of Mr. Madoff’s arrest. And with his wife, Ruth, he runs the Madoff Family Foundation, a $19 million operation that last year gave money to Kav Lachayim, a volunteer group that works in Israeli schools and hospitals, and to the Public Theater in New York.

Another NYT article reports:

The news was equally devastating for the Robert I. Lappin Charitable Foundation in Salem, Mass., which works to reverse the dilution of Jewish identity through intermarriage and assimilation by sending teenagers to Israel and supporting other Jewish education efforts.

The foundation was forced on Friday to dismiss its small staff and shut down its programs to cope with its losses in the Madoff funds, according to Deborah Coltin, its executive director.

“We’ve canceled everything as of today, everything,” she said tearfully.

Very anecdotal, but I'm definitely wondering if the Obama-Clinton-Murdoch consensus about where the power rests is becoming obsolete. Certainly, finance and casinos will be greatly downsized for years to come. The more liberal (but still connected) media business is harder to forecast -- Hollywood did well in the last Depression because movies are cheap entertainment -- but newspapers are obviously in trouble. (Of course, Sam Zell, another fairly hardline donor, didn't put much of his own money in his now bankrupt purchase of the Chicago Tribune and LA Times.)

Could there be a pattern where the most ethnocentric Jewish rich guys get hit hardest by the crash? John Kenneth Galbraith once said, "Recessions catch what the auditors miss," which certainly proved true in Bernie Maddof's case.

Anyway, even if there is a major rebalancing of wealth, that doesn't mean that political influence will rebalance. It's not just that Jews have more money, it's that they give more of their wealth to influence politics.

The amount of wealth devoted to influencing politics in this country is remarkably small. For example, Murdoch is said to spend about $3 million per year on The Weekly Standard, which adds up to a lot over the decades, but hardly a crippling cost for a billionaire.

What about politicians? The Exile had a lot of fun when Rep. William Jefferson was arrested with $90,000 in cash in his freezer. An American politician has an icebox with $90,000 in it, while a Russian politician, despite having a much smaller economy to loot, winds up with a few blocks of Mayfair or a Premiere League football team.

The news of how little Blagojevich was thinking of getting for selling Obama's U.S. Senate seat to Jesse Jackson Jr. should open some eyes. Do you imagine anybody in China is saying right now: "It only costs $1 million for a U.S. Senator? Are you kidding? Buy me a dozen!"

With an increasing portion of the American economy nationalized, the price of political influence will be increasing. Do you think any former shareholders of Lehman Brothers are kicking themselves right now for not donating more to the last Bush campaign and instead let their old enemy from Goldman Sachs get to put them out of business while propping up Goldman's allies?

That may be the most lasting influence of the Bush Administration: by vastly increasing the power of government, the price of government will eventually go up, too.

My published articles are archived at iSteve.com -- Steve Sailer

New info on the Rezko-Obama land deal

Back on October 18, a blog for the NY Daily News (via Kausfiles) reported that a Chicago real estate appraiser was claiming in his wrongful termination suit that his ex-employer had inflated the appraisal of the strip of land which Tony Rezko's wife bought at the same June 2005 closing at which Sen. Obama bought his stately home. The blog said:

We have no idea of the merits of the case ... But the fact that the suit has been filed brings back yet another item that Team Obama would rather not have to deal with in the closing days of the contest.

Of course, Team Obama didn't have to deal with it, just as they didn't have to deal with much of anything.

The Washington Times reported on Election Day:

A former Illinois real estate specialist says FBI agents have questioned him about a Chicago property that had been bought by convicted felon Tony Rezko's wife and later sold to the couple's next-door neighbor, Sen. Barack Obama.

The real estate specialist, Kenneth J. Conner, said bank officials replaced an appraisal review he prepared on the property and FBI agents were investigating in late 2007 whether the Rezko-Obama deal was proper.

“Agents and I talked about payoff, bribe, kickback for a long time, though it took them only a short number of minutes of talking with me while looking at the appraisal to acknowledge what they already seemed to know: The Rezko lot was grossly overvalued,” Mr. Conner told The Washington Times Monday.

“Rezko paid the asking price on the same day Obama paid $300,000 less than the asking price to the same seller for his adjacent mansion,” he said. “This begs the question of payoff, bribe, kickback.”

To be pedantic, it raises the question ...

According to his complaint, Mr. Conner reviewed the appraisal of the Rezko property by another firm, Adams Appraisal, which had set the value at $625,000. The complaint said he told his bosses the property had been overvalued by at least $125,000 and that a “reasonable and fair evaluation” should have been no greater than $500,000.

Mr. Conner said the removal of his appraisal “seemed understood as a crime with respect to the subpoena” of the Rezko property and the FDIC audit.

Well, who knows? There was a housing bubble going on and appraisers were doing a lot of screwy things in 2005.

But Blagogate has reminded the country that they just elected a Chicago politician to the White House.

And the appraiser's contention that his bosses inflated the value of the land Rezko purchased adjoining Obama's house at the same closing fits in with the low-level general fishiness of the deal.

As you'll recall, the Obamas got $300,000 knocked off the asking price of the house, while the Rezkos paid the full $625,000 asking price for their adjoining property. Think about it from your point of view. You see a house that you want to buy, but the price is steep. The sellers own both the house and a big side yard, which might be big enough to build another house on (or might not, depending on a complicated web of development rules in this historic district). They are willing to sell the two pieces of land separately and have published separate prices for them.

You call up an old friend and have him come look at the property with you. On closing day, his wife shows up and buys the side lot while you buy the big house, meaning that the sellers unload everything, which is obviously of interest to the sellers.

The sellers wind up with $300,000 less than their asking price for the two pieces of land together.

Question: How do you and your old buddy divvy up the $300,000 discount? I would assume that most friends would split it pro-rata based on the asking prices, which means that Rezko would have gotten about $70,000 off. If the discount was split unevenly, the normal thing would be for the person doing the favor to get more. And clearly, Obama was asking a favor of Rezko -- he called Rezko about the property, not the other way around. So, if you aren't going to split it pro rata, then Rezko should get more.

Instead, Rezko got none of the $300,000 and Obama got all of it.

The Chicago papers had reported back in March 2005, several months before Rezko and Obama bought the land at the same closing, that Rezko had illegally gotten the Panda Express franchises at O'Hare by claiming they were actually minority-owned and operated, that minority being Jabir Muhammad, the son of the notorious Black Muslim leader Elijah Muhammad. So, Obama would have known about Rezko being a crook just from reading the newspapers.

Of course, no doubt Obama knew far more about Rezko's Rezkoness than what was making the papers. But, still he went ahead with the deal. It's the Chicago Way.

This $70,000 isn't the biggest deal in the world. Bill Clinton doesn't get out of bed for $70,000. It's precisely its yuppie size that makes it interesting: What would you do for $70,000?

That's an interesting amount of money... It's not one of these hypothetical questions -- "Would you do something immoral for $100 million?" -- that sophomores like like to discuss. Instead, it's the kind of money that you can imagine having dangled before you at some point.

Did Rezko owe Obama a favor? Sure, Obama had been chairman of the Illinois Senate committe on Health and Human Services for the past two years, during which time Rezko had come to corruptly control the Illinois Health Facilities Planning Board, which picked winners in the contest to build big hospitals. Obama played a helpful role in Rezko's gang getting picked to build a hospital. See, Rezko owned 5 of the 15 board members, so he wanted the board "streamlined" from 15 to 9 in the interests of "efficiency," which gave him a majority of 5 of 9. RezkoWatch pointed out:

A review of senate records shows Obama played a major role in pushing through Senate Bill 1332, that led to the "Illinois Health Facilities Planning Act," which reduced the number of members on the Board from 15 to 9, making the votes much easier to rig.

Democratic Senator Susan Garrett sponsored the bill, and the co-sponsor was Republican Senator Dale Righter. These two senators were also on the Human Services Committee with Obama. The bill was assigned to the Committee for review on February 27, 2003. As chairman, Obama sent word to the full senate that the bill should be passed on March 13.

Blagojevich made the effective date June 27, 2003, and the co-schemers already had the people lined up to stack the Board and rig the votes with full approval from Obama.

A June 2003 email exchange produced in the trial shows Obama received the names of the nominees for the Board ahead of time, from the office of David Wilhelm, who headed Blagojevich's 2002 campaign. Rezko's attorney made the point to the jury that the email was from Blagojevich's general counsel and Wilhelm's office, and indicated the appointees were recommended by Wilhelm and supported by those who received the memo.

The new Senate bill said, the “Board shall be appointed by the Governor, with the advice and consent of the Senate." But the Senate Confirmation Hearings were a joke. For instance, the Feds recorded Levine talking to co-schemer, Jon Bauman, the day Levine learned he was approved by the Senate from the executive secretary of the Board.

He told Levine Senate President, Emil Jones [Obama's godfather in the Senate], only allowed 2 members to be approved and "that was you and the other person he just put in."

"Isn't that hysterical 'cause you know they had this big battle going on," Levine told Bauman, "don't you just love it."

"I'm one of those independents and not part of the block."

"Well, good, you know it's good to be just a true independent civil servant," Bauman said laughing along with Levine.

"Is, is that a good thing," Levine replied, "I've never been that."

The corrupt new appointees were all contributors to the presidential hopeful, Rod Blagojevich, and the US senate hopeful Obama. The Board’s then sitting-chairman, Thomas Beck, appointed by a Republican governor, testified under a grant of immunity that he brought a $1,000 check to Rezko on July 15, 2003, to make sure Blagojevich reappointed him.

Beck also testified that Rezko told him Blagojevich was set to appoint Rezko’s three doctor friends to complete the rigged voting bloc.

Dr Michel Malek gave Obama $10,000 a little over a month before the first Board meeting on June 30, 2003. He also donated $25,000 to Blagojevich three weeks later on July 25, 2003, and gave Obama another $500 in September 2003.

Dr Fortunee Massuda donated $25,000 to Blagojevich on July 25, 2003, and gave a total of $2,000 to Obama on different dates. Massuda's husband, Charles Hannon, is a co-schemer in the pension fund case and testified against Rezko in the trial.

Dr Imad Almanaseer contributed a total of $3,000 to Obama after he landed the appointment. On March 13, 2008, Almanaseer testified against Rezko and told the jury he was an investor in Rezko's fast-food businesses.

You'll notice the Middle Eastern flavor to Rezko's flunkies. In Chicago, Arab operators like Rezko don't control enough votes to matter, so they have to pay to play.

We're not used to thinking of health as a corrupt field. Yet, as bankrobber Willie Sutton answered when asked why he robs banks: That's where the money is. The health industry is, what, $2 trillion per year. So, it naturally attracts operators like Tony Rezko ... and politicians like Barack Obama.

You can read more about what attracted Obama to Chicago -- of all places -- to make his political career in my new book, a reader's guide to Barack Obama's autobiography, America's Half-Blood Prince: Barack Obama's "Story of Race and Inheritance," which you can buy here.

My published articles are archived at iSteve.com -- Steve Sailer

Height and weight

In October, the government published the latest version of their National Health and Nutrition Examination Survey (NHANES) study of sizes, "Anthropometric Reference Data for Children and Adults: 2003-2005," which is of great interest to clothing manufacturers. And you might find it interesting too.

Let's look just at the medians for people ages 20-39, since they are most likely to be in the marriage market.

		Height
Age 20-39	Males	Females	Diff
NH White	70.4	64.8	-8%
Black	70.0	64.2	-8%
Hispanic	67.1	62.6	-7%

So, the average Non-Hispanic white man between 20 and 39 is 5'-10.4" tall (178.9 cm.).

People are measured while wearing foam slippers.

As you can see, whites are a little taller than blacks, with Hispanics lagging more than a standard deviation behind.

The average height of the Hispanic population is probably bipolar, depending upon whether they were born in the U.S. or not. At the illegal immigrant march I observed in Van Nuys, CA in 2006, the average participant was very short, with men averaging well under five and a half feet tall. (This suggests, by the way, that U.S.-born Hispanics didn't care enough about illegal immigrants to turn out in large numbers.)

The male-female gaps are similar for all three groups, with women averaging 92%-93% of the height of their menfolk.

The 95th percentile for younger white males is 6'-2.9", for blacks 6'-3.1", and for Hispanics is 6'-0.3" For both white and black women, age 20-39, the 95th percentile is 5'-8.7", while for Hispanics its 5'6.5".

The standard deviation for white males appears to be a little more than 2 1/4th inches and for other males around 2 1/2 inches. The average NBA player is between 6'-7" and 6'-8" (and has been for the last 20 years). I believe that's measured in socks rather than in shoes, although college heights tend to be exaggerated. For instance, last year's UCLA All-American center Kevin Love was listed by UCLA at 6'-10" but was measured by the NBA for the draft at 6'-7.25.

Assuming a black median of 5'-10" and a standard deviation of 2.5", that means that 6'-8" is four standard deviations from the mean. Assuming that height is normally distributed (a big assumption),then one standard deviation above the mean is 6'-0.5 and that is the 84th percentile. Two s.d.'s up is 6'-3" and that is the 97.7th percentile. Three s.d.'s up is 6'-5.5" and that is the 99.87th percentile. And four s.d.'s at 6'-8" would be the 99.997th percentile.

Five s.d.'s would be 6'-10.5" (a seven-footer in recruiting parlance) and if the population is normally distributed, only one would be born in America, black or white, each year. So, the population probably has "fat tails" when it comes to height.

Still, it's worth noting how rare truly tall men are. When Colby Cosh asked who was the tallest man famous for something not height-related, his readers mostly came up with novelist Michael Crichton at around 6'-10" and economist John Kenneth Galbraith at maybe 6'-9". (The pretender to the throne of Albania is often said to be 7 feet tall, but I can't say how accurate that is.)

When I was young and naive, I said to a friend who had gone to three colleges, "Even if you are really tall, you have to be a good athlete to play college basketball." He said, "No, you don't. You just have to be tall. On every campus I've been on, there were two seven footers, and they were the starting and back-up centers on the basketball team." When I was at Rice, there were two guys on the basketball team listed at 6'-11" and, sure enough, they were the tallest people on campus. When I was at UCLA with 35,000 students, there were two seven footers, the starting center Stuart Gray at 7'-0" (who spent 8 years in the NBA as a backup center) and the 25 year-old backup center, a clumsy-looking ex-auto mechanic named Mark Eaton, who is said to be 7'-4" and 290. Eaton kept improving as he aged into his height and eventually made the NBA All-Star game. But I don't recall anybody else on campus close to them in height.

Among whites, the median man 20-39 is 0.4" taller than the median man age 40-59 and 1.6" taller than the median man 60 or over (however, old people shrink).

		Weight
Age 20-39	Males	Females	Diff
NH White	186	148	-20%
Black	190	171	-10%
Hispanic	176	155	-12%

People are weighed wearing disposable paper medical gowns.

At 148 pounds, younger white women average only 80% as heavy as younger white men, but black women weight 90% as much as their menfolk, so the male-female gap is only half as large among blacks. And Latinas weight 88% as much as Latinos.

		Waist
Age 20-39	Males	Females	Diff
NH White	37.0	33.5	-9%
Black	36.4	36.8	1%
Hispanic	37.1	36.1	-3%

So, the median white man age 20-39 has a 37 inch waist, and the median younger white woman has a 33.5 inch waist, 9% smaller. (Pregnant women are excluded.) Among blacks, however, the typical younger woman has a wider waist than her male counterpart.

		BMI
Age 20-39	Males	Females	Diff
NH White	26.4	24.5	-7%
Black	27.8	29.4	6%
Hispanic	27.7	27.7	0%

The oft-criticized Body Mass Index (BMI) reflects the same findings: whites are the skinniest, with black women considerably fatter than black men.

The total sample size who were subjected to quite a few measurements were an impressive 19,593, so subgroup sample sizes were quite adequate. (The smallest subgroup shown below numbered 361.)

My published articles are archived at iSteve.com -- Steve Sailer

Penny Ante Stuff

Prominent NYC lawyer Marc S. Dreier, head of a high-flying 250 lawyer firm on Park Avenue, was arrested earlier this month for stealing something like $380 million by selling forged promissory notes from other institutions to hedge funds by ... pretending to be somebody else. According to the NYT:

Mr. Dreier was initially arrested in Canada on Dec. 2 after an elaborate ruse to sell $45 million of the phony promissory notes there collapsed, according to a Toronto police department document.

After meeting with a lawyer for a teachers’ pension plan on another matter and obtaining that man’s business card, Mr. Dreier asked to use a phone and was ushered into a conference room by a secretary, according to the document. A short time later, he used the room to meet with the representative of a hedge fund whom he had previously invited to the offices, and impersonated the lawyer whose card he had just been handed.

But the scheme quickly unraveled, authorities said, when the hedge fund representative and the secretary felt something was amiss, and Mr. Dreier was arrested soon after.

By this point, I'm kind of disappointed that this guy only stole $380 million. Now, stealing $380 billion using other people's business cards, well, that would be impressive. But $380 million in this day and age is nothing.

My published articles are archived at iSteve.com -- Steve Sailer

So much for bailing out the automakers ...

USA Today reports:

Federal authorities have charged a Wall Street veteran with running a Ponzi scheme that prosecutors allege lost a staggering $50 billion.

Bernard Madoff, founder of Bernard L. Madoff Investment Securities, 70, was charged on Thursday by the Manhattan U.S. Attorney's office and the Securities and Exchange Commission with securities fraud. The charge comes a day after the complaint says Madoff told some high-level employees that his investment management business was a "fraud" and "basically, a giant Ponzi scheme."

The U.S. Attorney's complaint accuses Madoff of losing some of his investors' money on bad trades, then attempting to hide it by replacing that lost money with cash from his other investors. Madoff's investment management business had between 11 and 25 clients and $17.1 billion in assets as of a Jan. 7 filing, the complaint says, and one of Madoff's senior employees had "several million" under his management.

The scheme finally came unraveled because Madoff's clients asked for $7 billion in redemptions as of the first week of December, the complaint says, and Madoff couldn't come up with the cash to cover the requests.

Authorities say Madoff told senior employees at a private meeting at his apartment in New York that he planned to turn himself in within a week and that he was "finished" and had "absolutely nothing." Madoff estimated he had lost at least $50 billion but first wanted to pay out his remaining $200 million to $300 million to employees, family and friends, the complaint says.

Fifty billion here, fifty billion there, pretty soon we're talking about real money.

The government will presumably have to bail out Madoff's investors, so that's all the money that could have gone to bailing out Detroit (after all, Madoff's investors don't actually make anything, so they come first).

Oh, I forgot, we can just make up more money at no expense. Never mind!

Anyway, that reminds me of what a brilliant career move I made from changing from being a corporate executive to being a writer. Sure, it may not have seemed like that smart a switch from the perspective of my net worth and all that, but here's the thing: writers don't retire, thus positioning me perfectly for our coming Work Until You Die economy.

In other kinds of jobs, you reach a point where you just feel too old to keep making the 7am flight to Dallas, so you want to retire. But writers can keep shuffling from their bedroom to their home office indefinitely.

Sure, when I'm 80, I won't have as many original insights as I do now. But, I have too many now. I'll be more popular then.

My published articles are archived at iSteve.com -- Steve Sailer

OMG, we just elected a Chicago politician to be President!

As John Kass of the Chicago Tribune points out, the media in 2008 devoted far more attention to a Vice-Presidential candidate's career in a small town in Alaska than to a Presidential candidate's career in the transportation hub of the United States.

The best antidote for the media miasma about the next President of the United States is ... my book, America's Half-Blood Prince: Barack Obama's "Story of Race and Inheritance," which you can buy here. I get a really nice cut of out of each book sold, so I'd greatly appreciate it if you'd pick up a copy or two.

My published articles are archived at iSteve.com -- Steve Sailer

The Fundamental Flaws of Obamanomics

The two basic shortcomings of Obamanomics are that Obama is planning for 2009 with ends that are very 2007 (compact fluorescent lightbulbs! carbon! inequality! health insurance for everybody! spiff up inner city schools!) and means that are very 2008 (Carnival in Rio spending!).

Obama's thinking is still stuck in the 2007 mindtrap, the assumption that the fundamental problem of scarcity has been solved so now all we have to do is redistribute wealth and reorganize society in a more Stuff White People Like fashion. Instead, it turns out the Bush Boom was really a Bush Bubble and we actually have much bigger problems than the conventional wisdom of 2007 assumed.

My published articles are archived at iSteve.com -- Steve Sailer

Save GM: Bring back the Hummer!

The Democrats are now going to run the American auto industry, and they've got a foolproof plan to restore GM's profits: GM should stop making so many big, high-profit vehicles and start making more small, low-profit vehicles. They're going to lose money on each little car but make up for it on volume! You can see now why investors could never come up with such an idea. It just took a business genius like Barack Obama, with his extensive experience at making a profit in so many private industries, to make the auto industry come to its senses.

(By the way, Obama, personally, bought a 4,000 pound Chrysler 300 land yacht when he got rich -- his family's safety is a high priority to him -- but who's checking?)

You might think that with gas at $1.75 per gallon, the smart response would be to suspend temporarily the CAFE rules and let GM make more big high-profit big cars and fewer low-profit little cars. That seems more likely to bring in enough cash flow to get them through the next couple of hard years than insisting that they right now switch over to building go-karts powered solely by the owner's sense of enlightened superiority.

And, why does anybody think that even after GM spent years of government-mandated retooling to make small cars that it would even then be competitive with Toyota and Honda at making small, well-engineered cars? It's not like Toyota and Honda are going to be getting worse over the intervening years. I don't understand how that would work without slipping dumb pills to Toyota's and Honda's engineers. The only policy that would make sense would be a high tariff on the car parts that are imported from Japan (transmissions?).

The reason that Japanese car companies build cars in America is because the Reagan Administration imposed import quotas on them in 1982, which is roughly the equivalent of a tariff.

If we are serious about Detroit carmakers surviving, then protectionism seems like the only alternative. Think about the recruiting problems the Detroit carmakers must have getting young engineers and designers out of college to move to the Detroit area, which a giant ring of suburbs around a central void. If I was a 22 year-old Purdue engineering grad, I'd much rather take a job in Chicago than in Detroit.

My published articles are archived at iSteve.com -- Steve Sailer

Obama rumors miss the truth about Obama's life

From my VDARE.com column:

Many wild rumors have circulated about Barack Obama, such as

• That he was really born in Kenya and thus isn’t eligible to be President.

• That he isn’t black because his father was 7/8ths Arab.

• That he is a practicing Muslim.

• That his real father was a Communist poet, Frank Marshall Davis.

• That Bill Ayers ghostwrote his 1995 autobiography Dreams from My Father.

And finally, the most popular and yet most self-evidently implausible rumor of all, assiduously promoted by Obama’s media handler David Axelrod:

• that Obama refuses to be defined by his race, that he transcends race, that he’s not interested in race, blah blah.

What do all these assertions have in common?

First, they betray a lack of awareness of the facts of Obama’s life.

Second, they tend to reflect the widespread desire among whites of all political stripes to not think about race anymore, and to imagine that Obama doesn’t either.

In truth, the big secret about Obama is that there’s no secret: as Obama explains at vast length in his memoir, what he himself calls his “racial obsessions” have dominated his life.

I document in my new book America’s Half-Blood Prince (which you can purchase here) how the President-Elect spelled out exactly what he considered the central mandates of his existence in the subtitle of Dreams From My Father. To Obama, his autobiography is most definitely not a postracial parable. Instead, it is (as he helpfully says in his subtitle) A Story of Race and Inheritance.

You can read all about it in my new book, America's Half-Blood Prince: Barack Obama's "Story of Race and Inheritance," plus why Obama chose the city of Blagojevich and Rezko in which to pursue political power.

My published articles are archived at iSteve.com -- Steve Sailer

I'm shocked, SHOCKED ...

Headline of the Day from Slate:

Widespread Corruption Charges Shock Illinois

My published articles are archived at iSteve.com -- Steve Sailer

The Blagojevich-Obama link and the Black Muslims

Everybody knows by now that one big link between the President-Elect and the now-arrested Governor of Illinois is Tony Rezko. What a lot of people still don't know about is that Rezko, who is a white Christian immigrant from Aleppo, Syria, has been intimately tied to the Black Muslims for a quarter of a century. Here's part of my VDARE.com column from 9/1/08, "Obama's Kind of Town, Chicago Is:"

Strikingly, the Nation of Islam in particular and Chicago black politics in general were Rezko's launching pad for his decades-long takeover of quite a bit of the government of the State of Illinois.

James L. Merriner wrote in Chicago magazine in November 2007:

"When Harold Washington was running for mayor of Chicago in 1983, Rezko held a fundraiser after Jabir Herbert Muhammad, who was Muhammad Ali's business manager, urged him to get involved in the campaign. Subsequently, Rezko also joined Ali's entourage, traveling the world with him for five years. Rezko apparently took little interest in boxing—he says he and Ali did watch a few matches together—but he relished putting together business and endorsement deals for the champ."[Mr. Inside Out]

I bet he did. A rich punchdrunk pugilist and Tony Rezko—what could possibly go wrong? In the 1990s, Ali's latest wife forced out both Jabir and Tony.

Strange as it seems, the relationship between Rezko and the Black Muslims is not unique. Chicago-based columnist Ray Hanania of the Arab Writers Group explained:

"Like many Arab Americans, Rezko had close ties to the Nation of Islam, which sympathized with the Palestinian and Arab causes. He became close to the inspiring icons like Muhammad Ali and even young Obama, a little-known state legislator who later rose to stardom."

Rezko is representative of a recent trend in Chicago politics: the rise of Arab wheeler-dealers as corruption catalysts.

The elites of the African-American and Arab communities may tend to agree on foreign policy. But down on the street, relations are hostile. The Arab immigrants, who are best known in Chicago as middle-man merchants operating liquor stores and the like in the ghetto, much like the Koreans in South Central Los Angeles at the time of the 1992 riots, are too hated by black voters to win political power for themselves through the ballot box. Hence their leaders tend to play shadowy roles in Chicago politics.

Rezko kept a sharp eye out for upcoming black political talent who could provide a politically correct front for him. Rezmar offered Obama a job in 1990. He didn't take it, but that was the beginning of a long and mutually beneficial friendship between Rezko and the man who is now the Democratic Presidential nominee. Rezko paid for 15 percent of Obama's first campaign, and Obama looked out in the state senate for Rezko's interests in low-income housing and in packing the state's hospital construction board.

Contract set-asides for minorities provide a lucrative opening for crooks like Rezko. The demand for "diversity" provides an excuse for a thumb on the scales, a justification for diverting the contract from the lowest bidder to a political ally who employs a minority frontman. Most of America's pundit class hasn't figured this out yet, but Rezko grasped how "diversity" works soon after getting off the plane. (Indeed, multicultural America is becoming ever more like the Ottoman Empire, giving an advantage to immigrants from old Ottoman mercantile minorities.)

Chicago explained: "Rezko ran Jabir Muhammad's firm, Crucial Concessions. Under Mayor Washington [remember that fundraiser?], Crucial won the concessions to sell food at city beaches."

Now I know why Chicago beach concession food in the 1980s was so untasty. The municipal hot dog stands were managed by the Nation of Islam and Tony Rezko!

Muhammad and Rezko worked the same minority set-aside scam with several high-grossing Panda Expresses at O'Hare airport. The Chicago Sun-Times reported on March 17, 2005:

"Two restaurants at O'Hare Airport have been allowed to rake in millions of dollars, even though the Daley administration learned back in 2002 that the company running them was probably a phony minority "front" for Panda Express and Antoin "Tony" Rezko, a top fund-raiser for Gov. Blagojevich. Crucial Inc. won the O'Hare concessions in part because it was certified as a minority-owned business. Its largest shareholder was listed as Jabir Herbert Muhammad, son of the late Nation of Islam founder, Elijah Muhammad. … The [Chicago minority contractor] program has been tarred by a relentless string of scandals…"[City ignored possible O'Hare 'front' for years, By Chris Fusco, Fran Spielman And Michael Sneed]

Jabir and Tony also got a $10 million affirmative action contract from SBC, the giant phone company whose president was William Daley, Mayor Richie Daley's brother, to run the payphones at the Cook County jail. Their designated owner-operator was a twofer under the quota of 35 percent of contracts reserved for minority and women-owned businesses: a black woman named Deloris Wade, although she happened to be dead.

Building on these black Chicago roots, Rezko eventually became the statewide power behind the throne when the Democrats swept to victory in the 2002 elections. Chicago Magazine reported:

"Rezko became a virtual one-man headhunting firm for staffing the Blagojevich administration, sending along recommended candidates, many of whom ended up getting appointments. … (The U.S. attorney here has charged that Rezko schemed to pack the government with his cronies so that they could peddle their influence.)"

Diversity sensitivity also provides a convenient justification for corruption. Blagojevich said he sought Rezko's

"advice on recommendations for agency directors for two reasons. Number one, I had every reason to think he was honest and independently successful in business and that he was able to bring us people who were not part of state government before. And he has connections and roots in the African American community, and he could help us with candidates . . . because part of what we wanted to do was to have a diverse administration." [More, in which I explain why Chicago, and thus Obama, is the way it is]

My published articles are archived at iSteve.com -- Steve Sailer

Up to a point, Lady Copper

Former Vanity Fair editrix Tina Brown has started a website modeled on the Huffington Post, which she calls The Daily Beast, after Lord Copper's newspaper in Evelyn Waugh's great Scoop. (I guess that makes the Huffington Post the equivalent of The Daily Brute and Ariana would be Lady Zinc.) Personally, I think it would be droll if instead of being on the Internet, The Daily Brute was on paper and distributed via messengers carrying cleft sticks, but Lady Copper doesn't seem to get the joke.

In today's Daily Beast, Max Blumenthal, the son of former Clinton White House consigliere Sidney Blumenthal, gets upset about a VDARE.com column I wrote in December 2005 praising the large Jewish contribution to the great American Christmas songbook. I pointed out:

Pop songwise, most of the 20th century Christmas hits we hear this time of year were written between 1934 and 1958. They keep alive the higher standards of songwriting that prevailed before rock music made youth, self-expression, and authenticity more important than craftsmanship. Tin Pan Alley was the commercial heir to the great Continental musical tradition, with its incomparable mastery of technique....
And, strange as it may seem during today's War Against Christmas, a very large fraction of the best Christmas songs were written by Jews.
For example, looking at a fairly recent ASCAP list of the most played Christmas pop tunes, it appears to me that of the top ten songs, Jews wrote five and co-wrote two more. ... But this long, amiable tradition of Jews helping to enliven a Christian feast day seems, sadly, to be drawing to an end.

One paragraph in Blumenthal's carefully researched piece caught my eye:

VDare’s 2005 War on Christmas winner, Steve Sailer [I won? Where's my prize?], a Eugenics enthusiast [my consistent lack of enthusiasm for eugenics notwithstanding] and author of the new biography of Barack Obama, America’s Half-Blood Prince [which, by the way, makes the perfect Christmas, Hannukah, Kwanzaa, or Winter Solstice gift], picked up where Piatak left off. “American Jews,” Sailer wrote, “those exemplars of successful assimilation now seem to be de-assimilating emotionally, becoming increasingly resentful, at this late date, of their fellow Americans for celebrating Christmas.” Sailer went on to quote at length from a column by the purportedly Jewish writer, Bert Prelutsky, called “The Jewish Grinch Who Stole Christmas.”

I love Max Blumenthal's description of veteran TV writer Burt Prelutsky as "purportedly Jewish." I guess that makes Max "Sidney Blumenthal's purported son."

My published articles are archived at iSteve.com -- Steve Sailer

Infrastructure Stimulus Spending, Illinois-Style

Aren't we all glad today that half a trillion or more of "infrastructure" spending will be in the hands of a Chicago politician?

To see where Obama's coming from in terms of infrastructure stimulus, here's an excerpt from the indictment of Gov. Rod Blagojevich, who was arrested today for trying to auction off Obama's Senate seat:

According to Individual A, after Individual B left the meeting on October 6, 2008, ROD BLAGOJEVICH told Individual A that he was going to make an upcoming announcement concerning a $1.8 billion project involving the Tollway Authority. ROD BLAGOJEVICH told Individual A that Lobbyist 1 was going to approach Highway Contractor 1 to ask for $500,000 for Friends of Blagojevich. ROD BLAGOJEVICH told Individual A that, “I could have made a larger announcement but wanted to see how they perform by the end of the year. If they don’t perform, [bad word] ’em.”

As I've been saying all along, Obama wants to spend his hajillion dollars worth of infrastructure stimulus fast (before the November 2010 elections ideally), so he can't wait around for solar powered magnetic levitation Toontown trolleys and other SWPL fantasy green projects to pass all their environmental hearings. Instead, he's going to do what politicians in Chicago do -- that's what he knows how to do because that's what he is: a Chicago politician. They hand out huge contracts to fill potholes and the like to campaign contributors and other supporters.

My published articles are archived at iSteve.com -- Steve Sailer

Chicago politicians

As a former Chicagoan, the notion of electing a Chicago politician to national office on an image of reform and general refinement always struck me as comic. The notion that Barack Obama, with the whole world to choose from, decided to become a Chicago politician always struck me as bizarre. It would be like me deciding to move to Serbia and become a politician. And keep in mind that Obama's goal for much of his Chicago career was not some high-faluting national office. He told everybody at Harvard Law School that he was going back to Chicago to get elected Mayor of Chicago, to take the job away from Richie Daley and vindicate Harold Washington's legacy as the first black mayor. (Becoming mayor of Chicago must have seemed to his fellow Harvard Law students as peculiar an ambition as if Obama said he was going back to Chicago to replace Mike Ditka as coach of the Bears.) But Obama wanted to be Mayor of Chicago because that job embodies "power," and power obsesses Obama.

Obama was trying to follow Washington's career path (state legislature, House of Representatives, mayor) when he ran for ex-Black Panther Bobby Rush's House seat in the 2000 Democratic primary. But his rejection by black voters for not being black enough crushed his spirit and plunged him into a depression that he only got out of when he resolved in 2001 to that his future lay not in black districts but with appealing to the Stuff White People Like voting bloc.

From the NYT:

CHICAGO — Gov. Rod R. Blagojevich of Illinois was arrested by federal authorities on Tuesday morning on corruption charges, including an allegation that he conspired to effectively sell President-elect Barack Obama’s seat in the United States Senate to the highest bidder.

Mr. Blagojevich, a Democrat, called his sole authority to name Mr. Obama’s successor “golden,” and he sought to parlay it into a job as an ambassador or secretary of health and human services, or a high-paying position at a nonprofit or an organization connected to labor unions, prosecutors said in a 76-page affidavit by the United States Attorney’s office in the Northern District of Illinois.

He also suggested, the affidavit said, that in exchange for the Senate appointment, his wife could be placed on corporate boards where she might earn as much as $150,000 a year, and he tried to gain promises of money for his campaign fund.

If Mr. Blagojevich could not secure a deal to his liking, prosecutors said, he was willing to appoint himself.

“If I don’t get what I want and I’m not satisfied with it, then I’ll just take the Senate seat myself,” the governor said in recorded conversation, prosecutors said.

Federal authorities recorded Mr. Blagojevich speaking with advisers, fundraisers, a spokesman and a deputy governor, using listening devices placed in his office, home telephone, and a conference room at the offices of a friend, the affidavit said. In its detail, it paints a vivid picture of influence peddling and bare-knuckle politics inside the Blagojevich administration, evoking the heyday of Chicago’s political machine.

At an appearance to address climate change, Mr. Obama said he had not had any contact with Mr. Blagojevich (pronounced bluh-GOY-uh-vich) or his office, and did not know about any machinations involving the Senate seat. He said it was a “sad day” for Illinois, but declined to comment further. ...

At a news conference on Tuesday, Patrick J. Fitzgerald, the United States Attorney for the Northern District of Illinois, said that Mr. Blagojevich had gone on a “political corruption crime spree,” and that his actions had “taken us to a truly new low.”

There's been one honest politician in recent Chicago history, the Republican Peter Fitzgerald, who was elected U.S. Senator in 1998. (I never met him, but I was friends with his brother, who was the outside lawyer for the marketing research firm where I worked in Chicago.) Peter Fitzgerald chose to bring Patrick Fitzgerald (no relation) from New York to be the federal prosecutor in Chicago, where he went to work putting the last governor, Republican George Ryan, in jail for giving truck drivers licenses to bad drivers in exchange for campaign donations. One of those guys who couldn't pass the driver's test but got a truckdriver's license anyway slammed into a minister's vehicle, killing his six children. I haven't voted for many Democrats, but I voted for Ryan's opponent in 1998. (Patrick Fitzgerald has also won cases against Tony Rezko and Scooter Libby.)

The Republican Party of Illinois didn't appreciate Peter Fitzgerald consciously selecting such a pit bull prosecutor, so they didn't back him for a second term, and he retired. Barack Obama was elected to his seat, and made sure not to make Sen. Fitzgerald's mistake of doing a damn thing about the rampant corruption in Illinois.

Sen. Fitzgerald wouldn't play ball, so he's out of office. Sen. Obama played ball, so he's heading to the White House.

And now Obama has brought Chicago insiders like Rahm Emanuel into the White House.

The power behind the throne in the Blagojevich administration was Tony Rezko, who of course has been Barack Obama's good friend for lo these many years. Rezko did lots of favors for Obama. What did Obama do for Rezko in return? Well, one possibility is this, as I wrote in August:

Rezko is going to prison in large part for packing the Illinois Health Facilities Planning Board with five of his lackeys so they would approve hospital construction in which he had an interest. That Board used to have 15 members, making it hard for Rezko to corrupt it, but in 2003, a bill passed the Illinois legislature reducing the number of members from 15 to 9. And who was the chairman of the Illinois Senate Health and Human Services committee that recommended that bill? Why, Rezko's $250,000 friend, the Presidential nominee ...

My published articles are archived at iSteve.com -- Steve Sailer

America's Full-Blood Princess

Washington Post op-ed columnist Ruth Marcus gushes in "A Vote for Senator Caroline:"

On the question of Caroline Kennedy for Senate, my head says no, on balance. My heart says yes! Yes! Right now, as you might guess from the hedging on the former and the exclamation points on the latter, my heart is winning. ...

There are any number of intriguing subplots at work here. Her uncle's illness, and the "dream will never die" emotion of having Caroline in place to carry on his work. The don't-mess-with-my-family payback dynamic of putting in for the job to shove aside Andrew Cuomo, her cousin Kerry's former husband.

Imagine, by the way, how Hillary Clinton must be feeling. After all that work, after all those years, she not only lost the presidential nomination to Barack Obama, she now may be yielding her Senate seat to a woman who emerged from the political shadows to give Obama the benediction of the Kennedy legacy.

What really draws me to the notion of Caroline as senator, though, is the modern-fairy-tale quality of it all. Like many women my age -- I'm a few months younger than she -- Caroline has always been part of my consciousness: The lucky little girl with a pony and an impossibly handsome father. The stoic little girl holding her mother's hand at her father's funeral. The sheltered girl, whisked away from a still-grieving country by a mother trying to shield her from prying eyes.

In this fairy tale, Caroline is our tragic national princess. She is not locked away in a tower but chooses, for the most part, to closet herself there. Her mother dies, too young. Her impossibly handsome brother crashes his plane, killing himself, his wife and his sister-in-law. She is the last survivor of her immediate family; she reveals herself only in the measured doses of a person who has always been, will always be, in the public eye.

Then, deciding that Obama is the first candidate with the inspirational appeal of her father, she chooses to abandon her previous, above-it-all detachment from the hurly-burly of politics.

I know it's an emotional -- dare I say "girly"? -- reaction. But what a fitting coda to this modern fairy tale to have the little princess grow up to be a senator.

Dynasticism is one of the dominant emotions in 21st Century American politics. Barack Obama just found a more sophisticated way to position himself as a rightful dynastic heir than all the Bushes, Clintons, and Kennedys.

My published articles are archived at iSteve.com -- Steve Sailer

Ex-Chief Risk Officer of Freddie Mac: Hispanics particularly likely to default

A Washington Post article by Zachary A. Goldfarb on Rep. Henry Waxman's hearings today on Freddie Mae and Fannie Mac going bust mentions the Hispanic connection in the mortgage meltdown:

Internal Freddie Mac documents show that senior executives at the company were warned years ago that they were offering mortgages that could pose dangers to the firm, hurt borrowers and generate more risky loans throughout the industry.

At Fannie Mae, top executives were told it was necessary to develop "underground" efforts to buy subprime mortgages because of competitive pressures, although there were growing risks and borrowers often didn't understand the terms of the loans, documents show.

The House Committee on Oversight and Government Reform, which has the documents, is holding a hearing now to discuss Fannie and Freddie's downfall. The companies were seized by the government three months ago after nearly collapsing in the wake of billions of dollars of losses on mortgages.

In a memo to former Freddie chief executive Richard Syron and other top executives, former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear "to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed."

Andrukonis warned that these mortgages could be particularly harmful for Hispanic borrowers, and they could lead to loans being made to people who would be unlikely to pay them off. "The potential for the perception and the reality of predatory lending with this product is great," Andrukonis wrote.

The documents, which were released by the committee today, show that Fannie and Freddie, two linchpins of the nation's mortgage market, continued to push into new, risky markets despite internal debate over whether the efforts were prudent.

Fannie and Freddie declined to comment yesterday, as did Andrukonis. In testimony today before the House oversight committee, Syron acknowledged he was warned about risky loans but said that executives thought they had made the right decision, balancing profit motives, public policy goals and safety concerns.

Syron sponsored the disastrous 1993 Boston Fed "study" claiming discrimination against minorities that served as justification for a whole series of steps to funnel more mortgage dollars to minorities. He was rewarded for this by being appointed head of Freddie Mac, where he received $38 million in compensation.

Fannie and Freddie's distress has its roots in the new, risky mortgages the companies bought and guaranteed in increasing numbers, largely from 2004 through 2007. These new products included home loans made to people with blemished credit histories, called subprime loans, and mortgages made without verification of income, assets or employment, often called Alt-A.

As Mudd's and Syron's decisions have been called into question, they have described their push into these new areas of the mortgage business as an inevitable consequence of dueling mandates to support affordable housing and maximize profit for shareholders. And they've said that the collapse of the housing market was unforeseeable and the primary reason behind the company's fall.

But the documents show how top executives at both companies were told that the new subprime and Alt-A loans were dangerous both to the companies and to the borrowers they were charted by Congress to help.

At Fannie, chief credit officer Adolfo Marzol wrote to chief executive Mudd in March 2005 to warn that entering new areas of the mortgage market represented significant risks. The industry was pushing new types of loans, he wrote, including those that required little documentation and those that carried rates that would adjust in a few years.

"The combination of these risks may be difficult for subprime borrowers to understand," Marzol wrote.

Marzol also warned that securities backed by these loans might not be as safe as they seemed. Fannie reported them as carrying the top grade given by credit-rating agencies, AAA, but Marzol cast doubt on that. "Although we invest almost exclusively in AAA rated securities, there is concern that rating agencies may not be properly assessing the risk in these securities," he wrote.

Despite these concerns, Fannie continued to push into this new market. A business presentation in 2005 expressed concern that unless it didn't, Fannie could be relegated to a "niche" player in the industry. Mudd later reported in a presentation that Fannie moved into this market "to maintain relevance" with big customers who wanted to do more business with Fannie, including Countrywide, Lehman Brothers, IndyMac and Washington Mutual.

The documents suggest than Fannie and Freddie knew they were playing a role in shaping the market for some types of risky mortgages. An e-mail to Mudd in September 2007 from a top deputy reported that banks were modeling their subprime mortgages to what Fannie was buying.

At Freddie, risk officer Andrukonis expressed concern about a new mortgage product called stated-income, stated-asset that the company was considering buying. The loans required borrowers to state their incomes and assets, but not prove them.

In a memo to Syron and others, Andrukonis warned that in 1990 Freddie called this product "dangerous" and stopped offering it. "I'm not convinced we aren't leading the market into this product," Andrukonis wrote.

Freddie offered to buy the stated-income, stated-asset loans anyway.

Andrukonis and others expressed concern about another type of mortgage Freddie was buying, where neither income nor assets were stated on the loan application. Andrukonis said these were popular with Hispanic borrowers, but the delinquency rates of 8 to 13 percent were much higher than on conventional loans. People familiar with the matter said Freddie was being pushed by advocacy groups to come up with new loan products to offer to low-income and minority borrowers.

Andrukonis acknowledged that getting out of this business could cost $50 million annually and draw criticism. "On the other hand, what better way to highlight our sense of mission than to walk away from profitable business because it hurts the borrowers we are trying to serve," he wrote.

At times, Andrukonis grew frustrated with the response he got from Freddie leadership about his concerns as he registered worries about low-documentation loans.

... In October 2004, May ultimately recommended continuing no-income, no-asset loans, though with some changes. Through Freddie Mac, May declined to comment. Syron signed off on continuing with the loans. Bisenius, now part of new Freddie chief executive David Moffett's inner circle, formally opposed the decision.

There is some mystery surrounding Andrukonis's ultimate role. In one document sent to Syron, he joined a group of people neither supportive of nor opposing the decision to continue no-income, no-asset loans, but registered as "neutral."

However, a person familiar with the discussions said Andrukonis and other risk officers continued to oppose the product until the very end. Freddie executives asked him to leave the company, according to people familiar with the matter, which he did in 2005.

Mentioning the H-word in regard to mortgage defaults is evidently not good for your career. Is it any wonder so many blundered?

My published articles are archived at iSteve.com -- Steve Sailer

"Outliers"

I haven't managed to finish Malcolm Gladwell's new #1 bestseller, Outliers, yet, because it's so full of snarkworthy goodness. Here's a taste from p. 80:

“What Hudson is saying is that IQ is a lot like height in basketball. Does someone who is five foot six have a realistic chance of playing professional basketball? Not really. You need to be at least six foot or six one to play on that level, and all things being equal, it’s probably better to be six two than six one, and better to be six three than six two. But past a certain point, height stops mattering so much. A player who is six foot eight is not automatically better than someone two inches shorter. (Michael Jordan, the greatest player ever, was six six after all.) A basketball player only has to be tall enough — and the same is true of intelligence.”

So that explains Yao Ming's career! See, he's at least 6'-6" -- so he's over the NBA threshold ... by 11 inches, granted, but once you are over the threshold, according to The New Yorker's expert on everything, it doesn't much matter how much taller you are than 6'-6."

My published articles are archived at iSteve.com -- Steve Sailer

How many hundreds of billions of dollars does it take to screw in a lightbulb?

Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Barack Obama
Youtube address, 12/7/08

Help me out here. I'm a little lost on how having the federal government change all the lightbulbs in government buildings is going to massively stimulate the economy.

Don't government agencies pay people to routinely change lightbulbs anyway? And don't incandescent bulbs notoriously burn out in a year or so? And aren't we constantly told by the Great and the Good that Compact Fluorescent Lightbulbs (CGwill save us money (that was the justification given when Congress recently outlawed incandescent bulbs as of 2012). So, wouldn't government agencies have changed anyway?

By the way, my impression of government offices is that they have been lit, overwhelmingly, by fluorescent light rather than incandescent light for many decades -- cold, clammy-looking fluorescents have been considered good enough for government work lighting for my entire life.

Or is there some problem that was keeping the government from changing as a matter of course ... like they don't always fit in fixtures, and (perhaps less so in the last couple of years than earlier in the decade) they sometimes seem to burn out in very short periods, and that they are ugly and cast ugly light?

I think Obama should pledge to have all of his personal television and video appearances lit solely by Compact Fluorescent Lightbulbs. And he should get all the Democratic movie stars in Hollywood to pledge that their next movies will be lit only by CFLs.

My published articles are archived at iSteve.com -- Steve Sailer

A wiki solution to the credit crunch?

The conventional wisdom is that our economic woes are due to a credit crunch, and the credit crunch is due to the inability of financial institutions to figure out what mortgage-backed or derived financial instruments are actually worth. "Securitization" (a.k.a., "secretization" in Travis Talk) makes it hard to figure out whether the entity asking you for a loan is bankrupt or not. So, financial institutions are reluctant to lend money to each other.

If this really is the problem, then there is a potential solution. During the credit crunch of 1907, J.P. Morgan had the leaders of all the major corporations bring their books to his mansion, where his men reviewed them and then J.P. told the executives what they must do -- you and you merge, you sell your Midwestern rail lines to him, etc.

The books are a lot more complicated these days, but our technology is better too.

What if the government posted all the details of all financial assets online and encouraged citizens to post comments on the assets, such as mortgaged properties.

This is a desperate step since it would involve colossal invasions of privacy. ("The Jones have a $600,000 mortgage! Are you kidding? There's no way their income is $180,000 like they claimed. She drinks and got laid off from her last job. And the house if full of termites. Plus I hear he has cancer. Their son is supposed to be a drug addict so you won't see that money. You won't get paid a dime back on this one.")

But, maybe there is some way to work this idea out so that it would work?

My published articles are archived at iSteve.com -- Steve Sailer

The Regional Recession

One of the oddities of the standard narrative of the Housing Bubble is how it glosses over just how regional it was. In large expanses of America, there wasn't much of a Bubble at all. The New York Times reports on the economy in North Dakota, where there was no Housing Bubble, no subsequent Mortgage Meltdown, and no Financial Catastrophe ... so far.

I suspect that North Dakota is, like everywhere else, in for hard times and that its current prosperity is an afterglow of the now vanishing Commodities Bubble of 2007. When the Fed discovered in the middle of 2007 that the economy had become a house of cards built on subprime and/or pay option mortgages in the "Sand States" (FANC -- Florida, Arizona, Nevada, and California -- as in "FANCs for the mortgages, suckers!"), it "printed" a lot of money to try to head off recession. That new money, with nowhere else to go, flooded into commodities, causing oil to hit ridiculous prices last summer (so ridiculous that even I wrote about them), and inflating a lot of other commodities such as grains.

Nonetheless, North Dakota still has a big long-run advantage: a high ratio of land and resources to people. Ben Franklin pointed out in 1751 that this is exactly why life was happier for the average person in America than in Europe.

More than anything else, the Housing Bubble was a bet that rapid Hispanicization of the population of the Sand States was compatible with high and continually rising home prices. This meant, in effect, that either Hispanics could earn enough money to pay off these huge mortgages or that they could find Greater Fools willing to pay even more money to live amidst ever increasing numbers of Hispanics.

As we can see now, neither assumption has proven valid. Home prices in the Sand States are dropping like a stone back to levels at which the increasingly Latino population might possibly be able to afford them.

Of course, the government is now trying to come up with ways to re-inflate housing prices.

My published articles are archived at iSteve.com -- Steve Sailer