Tuesday, August 31, 2010

Credit Analysis and Investigations by Sam Spade

It's about time for competitors to the Big Three Credit Rating Agencies to get serious. However, as Wall Streeters know, there are lots of small bond houses that perform credit analysis and exploit the weaknesses and inefficiencies of Standard & Poors, Moodys and Fitch.

Kroll Gets a License to Shoot (Bonds)

Onetime corporate sleuth Jules Kroll is reinventing himself as an investigator of bonds.

The 69-year-old mogul, who founded and later sold security firm Kroll Inc. for $1.9 billion, acquired boutique credit-ratings firm Lace Financial last week in an effort to build staff and get the licenses needed to compete with the three big rating firms, Standard & Poor's, Moody's Corp. and Fitch Ratings.

Jules Kroll made his name in corporate security, not securities.

"There's a need for a credible alternative," said Mr. Kroll, who last year started Kroll Bond Rating Agency Inc. to take on the incumbents. He poured about $5 million of his own money into the venture and hired about a dozen employees, including former executives from Moody's and Fitch, a unit of Fimalac SA of Paris. Then last week he decided with the help of new investors to spend more than $5 million for Lace, a 25-year old company with about a dozen employees that mainly rates banks and other financial-services firms.

One key attraction of Frederick, Md.-based Lace is that it has the regulatory licenses with the Securities and Exchange Commission to be a nationally recognized bond-rating firm. "A lot of investors have no choice but to use" a rating firm recognized by the SEC, said Mr. Kroll from his firm's new office in Midtown Manhattan.

Kroll's Plan

How Kroll's credit-ratings venture will try to stand out:

1. Perform more 'due diligence,' beyond data from bond issuers.
2. Accept much of its pay from investors who subscribe.
3. Provide ratings in some cases when issuers don't want one from Kroll.
4. Provide supporting materials with ratings so investors can see why a rating was given

Mr. Kroll's entry into the business is the latest move by an upstart trying to take advantage of perceived weakness from the three largest credit-rating firms, which have been around for decades and have long dominated their important niche of Wall Street: communicating a bond's risk to investors in a simple alphabetical code.

Regulatory advantages helped maintain the dominance of the big three ratings firms. But in recent years Congress has acted twice to reduce that dominance and open up the market to new entrants. In May, research firm Morningstar Inc. paid $52 million to buy Realpoint LLC, which held a license for its work specializing in rating structured-finance transactions.

"It's very clear that major rating firms have not served the market particularly well in the recent past, so it's wonderful that there's some competition for them," said Sean Egan, managing director at boutique rating firm Egan-Jones Ratings Co. "They obviously need it."

Egan-Jones, Lace and Realpoint were designated as licensed credit-rating firms after the SEC opened up the field to more players following the passage of a 2006 law.

But that move has done little to chip away at the market share of Moody's, Fitch and S&P, which is owned by McGraw-Hill Cos. The three industry leaders issued about 97% of all outstanding ratings across five major debt categories, such as corporate issuers and asset-back securities, in 2008, according to a 2009 report by the SEC.

Not much has changed since then, analysts said. "I don't think Moody's or S&P are losing any sleep on new entrants in this business," said Michael Meltz, an equity analyst at J.P. Morgan Chase & Co.

Kroll is still a minnow in the world of bond ratings. With Lace, which will maintain its name as a unit of Kroll, the firm will have about two dozen employees, compared with 1,300 credit analysts world-wide at S&P and more than 1,200 at Moody's. Lace had only about $1 million of revenue in 2009 compared with $1.2 billion for Moody's Investors Service and $1.7 billion for the rating unit of Standard & Poor's.

Mr. Kroll said he hopes he can change that market share. In 1972, he started an investigative firm that tapped into a growing need to chase down assets in foreign countries and research the financial strength of companies' suppliers, customers and merger partners. In 2004, he sold the company to Marsh & McLennan Cos. for $1.9 billion, and personally took home about $120 million in the deal. He remained chairman of the firm until 2008, when he left to pursue new business ventures.

At the time, the subprime-mortgage market was imploding, dragging down the rest of the credit markets and later the U.S. economy. At the center of the blame game that followed were the major rating firms, which had stamped thousands of mortgage related bonds with top triple-A marks, before changing course and cutting their ratings when many homeowners stopped paying their bloated mortgage bills.

"We were looking for public-policy problems that needed private-sector solutions," said Mr. Kroll, who is planning to rate residential- and commercial-mortgage bonds later this year. His new ratings business shares office space with the consulting firm he founded, and he expects to erect a wall to separate them.

With the deal last week to buy Lace, Kroll Bond Ratings also accepted $20 million in funding from investors including Bessemer Ventures Partners and RRE Ventures.

The investors are pouring money into a business that faces hurdles, from heavier regulation to efforts by users of bond ratings to find other methods to assess the risk in their portfolios. Mr. Kroll said, for instance, that he has met with representatives from insurance companies to discuss their efforts to rely less on bond ratings.

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Monday, August 30, 2010

Baltic Trading -- an equity to consider

Some investors may find this equity appealing. It promises volatility, but also income. At the current stock quote, the yield is about 5.4%.

Baltic Trading Limited owns drybulk vessels. The company trades in trip charters and vessel pools in the spot market. Baltic Trading Limited was incorporated in 2009 and is based in New York, New York. Baltic Trading Limited operates as a subsidiary of Genco Shipping & Trading Ltd.

We are a New York City-based company incorporated in October 2009 in the Marshall Islands to conduct a shipping business focused on the drybulk industry spot market. We were formed by Genco Shipping & Trading Limited (NYSE: GNK), a leading international drybulk shipping company that also serves as our Manager. On March 15, 2010, we announced the completion of our initial public offering ("IPO") of 16,300,000 shares of Common Stock at $14.00 per share, raising gross proceeds of $228.2 million before deducting underwriting discounts and commissions and estimated offering expenses.

With the net proceeds of our IPO, together with a $75 million capital contribution from Genco, we entered into agreements to acquire our initial fleet of six vessels, consisting of four Supramax vessels and two Capesize vessels. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.

In June 2010, we entered into agreements to acquire three Handysize drybulk vessels from affiliates of Metrostar Management Corporation ("Metrostar") for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010. We have used our $100 million revolving credit facility to fund the deposits and purchase price of the first vessel of this acquisition, and we intend to repay the incurred indebtedness with proceeds from this offering.

Our current fleet consists of drybulk vessels that transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. We operate all of our vessels in the spot market, on spot market-related time charters, or in vessel pools trading in the spot market.

We aim to grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow. We expect to finance future vessel acquisitions primarily with equity capital and borrowings under our revolving credit facility for bridge financing purposes, and to utilize little to no leverage.

We intend to distribute to our shareholders on a quarterly basis all of our net income less cash expenditures for capital items related to our fleet, other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, as further described below under "Our Dividend Policy and Restrictions on Dividends."

Our operations are managed, under the supervision of our board of directors, by Genco as our Manager. Upon the closing of our IPO, we entered into a long-term management agreement (the "Management Agreement") pursuant to which our Manager and its affiliates will apply their expertise and experience in the drybulk shipping industry to provide us with commercial, technical, administrative and strategic services. The Management Agreement has an initial term of approximately fifteen years and will automatically renew for additional five-year periods unless terminated in accordance with its terms.

We pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services. Please see "Our Manager and Management Agreement—Management Agreement" for further details of the Management Agreement.

Our Relationship with Genco Shipping & Trading Limited

One of our key strengths is our relationship with Genco, a leading international drybulk shipping company with a market capitalization of approximately $613.9 million as of August 9, 2010 which also serves as our Manager. Genco has developed strong relationships with major international charterers, shipbuilders and financial institutions through its seasoned management team. Genco's management team is based in New York City and includes several executives with extensive experience in the shipping industry, including managing the strategic, commercial, technical and financial aspects of shipping businesses.

Our Fleet

On February 19, 2010, we entered into agreements with subsidiaries of an unaffiliated third-party seller under which we agreed to purchase four 2009-built Supramax drybulk vessels for an aggregate price of approximately $140.0 million. In addition, on February 22, 2010, we entered into agreements with subsidiaries of another unaffiliated third-party seller under which we agreed to purchase two newbuilding Capesize drybulk vessels for an aggregate price of approximately $144.2 million. Five of these vessels have been delivered, and the remaining vessel is expected to be delivered in October 2010.

On June 3, 2010, we entered into agreements with Metrostar under which we agreed to purchase three Handysize drybulk vessels for an aggregate purchase price of approximately $99.8 million. The first of these vessels, namely the Baltic Wind, was delivered to us on August 4, 2010, and the remaining two vessels are expected to be delivered between August 2010 and October 2010.

Our fleet is currently comprised of Capesize, Supramax and Handysize vessels, but we will evaluate all classes of drybulk vessels for potential acquisition. We will seek to grow our fleet through timely and selective acquisitions of drybulk vessels. In evaluating vessel purchases, we plan to acquire modern vessels with high specifications that we believe will provide an attractive return on equity and will be accretive to earnings and cash flow based on anticipated market rates at the time of purchase. We intend to use most of the proceeds from this offering to repay borrowings under our credit facility which were used to finance the three vessels purchased from Metrostar.

We employ our vessels in the spot market, on certain spot market-related time charters or in vessel pools trading in the spot market. Our goal is to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market which utilizes little to no leverage and seeks to distribute regular dividends based on earnings.

Business Strategy

Our strategy is to employ a profitable fleet of drybulk vessels in the spot market and to grow our business through accretive vessel acquisitions.

As detailed below, our strategy largely relies on blending certain complementary elements of vessel employment with a capital structure that supports our operations. For example, we believe that by focusing on the drybulk spot market and seeking to pay quarterly dividends, we provide equity investors with the opportunity to gain exposure to the trends of the drybulk shipping industry, and are attractive to investors.

We believe that by relying primarily on equity financing, we will be in a better position to withstand the volatility of the spot market and will have more cash available to pay dividends than if we relied primarily on debt financing. Key elements of our business strategy include:

Deploy our vessels in the spot market.

We seek to provide shareholders with the opportunity to invest in a company with a strategic focus on the drybulk spot market by deploying our vessels on voyage or time charters or in vessel pools that are related to the spot market. The spot market is volatile and holds the potential for significant increases or decreases in shipping rates over time. Upward movements in spot rates have the potential to increase our revenues, and we will have opportunities to take advantage of these upswings by not locking our vessels into long-term, fixed-rate time charters.

Conversely, our revenues may decline if the spot market does, and we will not benefit from the stabilizing effect of fixed-rate time charters.

The spot market may be affected by whether the global economy declines or recovers, particularly with respect to economies outside the United States such as China and India, which have been the primary drivers of drybulk trade in recent years.

Further, while economic health is one factor influencing demand, supply of drybulk vessels is also an important factor affecting spot market rates. An undersupply of drybulk vessels could lead to higher spot market rates despite weak economic conditions, while an oversupply of drybulk vessels could lead to lower spot market rates despite strong economic conditions. Because we generate virtually all of our revenues in U.S. Dollars, the current weakness of the U.S. Dollar does not affect our revenues; however, as we may incur certain costs in other currencies, the weakness of the U.S. Dollar could affect our business if these costs are significant.

Return a substantial portion of our cash flow to shareholders through quarterly dividends.

We intend to pay quarterly dividends to our shareholders approximately equal to our net income minus cash capital expenditures for vessels, other than vessel acquisitions and related expenses plus non-cash compensation.

See "Our Dividend Policy." As we intend to primarily finance future vessel acquisitions through equity financing as well as internally generated cash flow and to maintain little to no leverage, we expect our cash flow to be sufficient to support quarterly dividends. By paying dividends in this manner, our goal is to make our common stock more attractive to investors to enhance our ability to conduct equity financings, which we intend to use primarily for our financing needs. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010, which represents our first full quarter of operation.

Maintain a strong balance sheet.

We believe that primarily using equity to finance our business will strengthen our balance sheet to help offset the volatility risk of trading our vessels in the spot market. We also believe that focusing on equity rather than debt financing will help us capitalize on opportunities if the spot market improves as well as reduce the impact debt covenant restrictions and scheduled debt payments would have on our business if the spot market declines.

In our view, this strategy is suited to the current global economic downturn, given the ongoing restricted flow of credit, and we intend to pursue this strategy whether the global economic downturn persists or abates. However, our use of equity rather than debt financing may result in substantial dilution to our shareholders.

Strategically expand the size of our fleet.

We intend to acquire modern, high-quality drybulk carriers through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow.

We currently view Capesize, Panamax, Supramax and Handysize vessel classes as providing attractive return characteristics but will evaluate all classes of drybulk vessels for potential acquisition. A key element of our acquisition strategy is to pursue vessels at attractive valuations relative to the valuation of our public equity. In the current market, asset values in the drybulk shipping industry are at cyclically low levels. We believe that these circumstances present an opportunity for us to seek to grow our fleet at favorable prices.

Operate a high-quality fleet.

We maintain a modern, high-quality fleet that meets or exceeds stringent industry standards and complies with charterer requirements through our technical managers' comprehensive maintenance program. In addition, our technical managers maintain the quality of our vessels by carrying out regular inspections, both while in port and at sea.

Maintain low-cost, highly efficient operations.

Under the Management Agreement, Genco coordinates and oversees the technical management of our fleet and utilizes qualified third-party independent technical managers. We believe that Genco is able to do so at a cost to us that is lower than what could be achieved by performing the function in-house. Genco's management team actively monitors and controls vessel operating expenses incurred by the independent technical managers by overseeing their activities.

Capitalize on our management's experience and reputation.

We intend to continue to capitalize on the reputation of the management at Genco and our company for high standards of performance, reliability and safety, and maintain strong relationships with major international charterers and other owners, many of whom consider the reputation of a vessel owner and operator when entering into charters and asset sales.

We believe that the track record of Genco's management team improves our relationships with high quality shipowners, charterers and financial institutions, many of which consider reputation to be an indicator of creditworthiness.

Our Dividend Policy

We have adopted a dividend policy to pay a variable quarterly dividend equal to our Cash Available for Distribution, which represents net income less cash expenditures for capital items related to our fleet other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our board of directors may from time to time determine are required for the prudent conduct of our business, taking into account contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of Marshall Islands law.

Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. Declaration and payment of dividends is at the discretion of our board of directors, and there can be no assurance that we will not reduce or eliminate our dividend. Please read "Our Dividend Policy and Restrictions on Dividends" and "Risk Factors" for a more detailed description of the calculation of Cash Available for Distribution and various factors that could reduce or eliminate our ability to pay dividends. Our board of directors has declared a dividend of $0.16 per share for the second quarter of 2010.

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Friday, August 27, 2010

Citigroup -- Its Books are on Fire

Perhaps Citigroup can claim Mike Mayo has no idea what he's writing about because Citigroup refuses to meet with him and he therefore has no credible information on which to base his opinions. But, this is Wall Street and we know that whenever managements have something to hide, they hide it.

Today investigators are wondering why managers of the Transocean rig in the Gulf of Mexico were ignoring some safety concerns that had been mentioned by rig workers.

In that case, we know it would have been better to take the safe route rather than the sorry route. In the case of Citigroup, its "deferred-tax assets" may be unstable and ready to explode. Someone should investigate before it's too late. Otherwise, more money will go down the drain as the government tries to repair the damage.

Analyst: Citigroup Is Cooking the Books

Published August 25, 2010

An all-out war has broken out between Citigroup CEO Vikram Pandit and a prominent securities analyst who is saying that the big bank may be cooking the books by inflating its earnings through an accounting gimmick, FOX Business Network has learned.

The analyst, Mike Mayo, of the securities firm CLSA, has been telling investors that Citigroup (C: 3.72 ,+0.06 ,+1.78%) should take a writedown, or a loss on some $50 billion of “deferred-tax assets,” or DTAs. That is a tax credit the firm has on its financial statement that Mayo says is inflating profits at the big bank by as much as $10 billion.

For that critique, Mayo has been denied one-on-one meetings with top players of the firm, including CEO Vikram Pandit, Chief Financial Officer John Gerspach, and any other member of management, while other analysts enjoy full access to the bank’s top executives, FBN has learned.

In fact, Mayo hasn’t had a meeting with Pandit or anyone in Citigroup management since around the time of the financial crisis, in the fall of 2008, when Citigroup was on the verge of extinction and needed an unprecedented series of government bailouts to survive.

Since then Citigroup has been profitable, albeit marginally. Though it posted a loss for the full year of 2009, after it repaid a government bailout loan during the fourth quarter and began to unwind Uncle Sam’s ownership stake. One reason Citigroup may be unwilling to write off its DTAs: to do so may sink the troubled bank back into unprofitability.

Analyst: Citigroup Is Cooking the BooksTen Worst Places to LiveBernanke?s Message: We can Get Out of this HoleDow Dips Below 10000 as Gloom PersistsHow to Transform a Good Credit Score to GreatNow, Mayo’s continued criticism of the firm’s accounting has turned a testy relationship between Pandit and Mayo into one of the most-bitter analyst-CEO confrontations seen on Wall Street for some time. When asked about the matter, a spokeswoman for Citigroup would only say “I have no comment on Mike Mayo.”

Mayo told FBN: “I’d like to know why all my competitors get meetings with Pandit and the key people there and I don’t.”

Stock research has been among the most controversial—and some would say—conflicted businesses on Wall Street. Companies employ a number of methods to force analysts to hype their shares, including as Mayo is charging, withholding access to key executives who can provide insight into the company’s operations. In 2003, big firms like Citigroup and others paid billions of dollars in penalties to settle regulatory charges that their analysts inflated stock ratings in order to win lucrative stock underwriting business from the companies they cover, leading to billions of dollars in losses for investors who relied on the dubious analysis to buy stock.

Mayo, meanwhile, has had a sometimes-testy relationship with the various companies he covers. While other securities analysts look to curry favor with management in order to gain access, or so their firm’s could do business with the companies they cover, Mayo is often confrontational during meetings and on analyst conference calls.

In September 2000, Mayo was let go from Credit Suisse, people close to the firm have said, because of his history of downgrading the big banks which made no secret of their displeasure with his work, even though it won him a No. 2 spot in the coveted Institutional Investor rankings of bank analysts.

In September 2002, Mayo launched a major broadside against Citigroup, slamming the bank for its regulatory problems, namely its relationship helping to prop up scandal-plagued companies like Enron and WorldCom, as well as the management style of then CEO Sandy Weill. Mayo referred to Citigroup as “Noah’s Ark ” because Weill kept packing layers of management into the bank, including appointing two senior executives to run each business when only one was necessary.

People close to Citigroup say one of the current problems between the company and Mayo is the analyst’s insistence that Citigroup is possibly violating securities laws by failing to take losses on its DTAs. During conference calls, Citigroup has maintained that its accounting is in full compliance with the law, though Mayo has told investors the Securities and Exchange Commission should investigate the matter.

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Wednesday, August 25, 2010

Obama -- Anti-Business, which equals Anti-American

What brings jobs to America? Simple. Giving businesses a stable operating environment with a productive labor supply and low corporate taxes. In other words, exactly what companies are finding in China, Korea and a number of other countries. Not here, however.

Is Obama too dumb to understand the simple fact that only people pay taxes? Is he too dumb to realize that only people with jobs pay taxes? It seems he's too dumb to realize that if he and his administration were to create a good operating environment for companies, then employment would soar. More people would have high paying jobs and they would pay taxes.

Putting it another way, let's open all US oil & gas bearing properties to energy companies. ANWR, the entire Gulf of Mexico, the waters off the East and West Coasts and lots of territory in between. The energy companies will hire a lot of people at high pay to get that oil and gas out of the ground and delivered to customers.

Let's permit US car companies build any car that buyers want. Who cares about mileage? Let the buyers make their own decision about whether to purchase a Cadillac Escalade or a Ford Escort.

It's time to restart the US nuclear power industry. France gets about 80% of its electricity from nuclear plants. We get 10%. We've got a Nuclear Navy that's been operating nuclear-powered surface ships and submarines for 55 years. We know how to build and run nuclear reactors.

As always, the obstacle to prosperity is government.

August 24, 2010

Intel CEO: U.S. faces looming tech decline

Intel chief executive Paul Otellini offered a depressing set of observations about the economy and the Obama administration Monday evening, coupled with a dark commentary on the future of the technology industry if nothing changes.

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience: Unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

The U.S. legal environment has become so hostile to business, Otellini said, that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth."

Not long ago, Otellini said, "our research centers were without peer. No country was more attractive for start-up capital... We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

The phenomenon of technology executives advancing dismal predictions and offering pointed critiques of Washington politicking isn't new, of course.

For instance: In 2005, midway through the Bush administration, Microsoft's Bill Gates told a Washington audience that curbs on immigration and guest workers would provide a boost to research institutions in China and India. A year earlier, then-Intel CEO Craig Barrett warned that the U.S. must dramatically improve its education system.

That never happened. Nor did politicians follow Gates' advice to rethink laws that led to foreign engineers being kicked out of the country as soon as they finish their degrees.

And now, six years later with no significant reforms, it should come as no surprise that the predictions have become more dire.

Deep in a 'Do' loop

Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."

Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus -- but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.

"They're in a 'Do' loop right now trying to figure out what the answer is," Otellini said.

As a result, he said, "every business in America has a list of more variables than I've ever seen in my career." If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions "the wrong way, people will not invest in the United States. They'll invest elsewhere."

Take factories. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States," Otellini said.

The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose.

(Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but anti-business laws: "The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways.")

"If our tax rate approached that of the rest of the world, corporations would have an incentive to invest here," Otellini said. But instead, it's the second highest in the industrialized world, making the United States a less attractive place to invest--and create jobs--than places in Europe and Asia that are "clamoring" for Intel's business.

The comments from Intel's chief executive echoed statements made a day earlier by Carly Fiorina, the former HP CEO turned Republican Senate candidate.

America's skilled-worker visa system is so badly broken and anti-immigration that "we have to start from scratch," Fiorina said, adding that too many government policies push jobs overseas instead of making U.S. companies competitive against international rivals.

"Our corporate tax rates are the second highest in the world," and Congress has repeatedly failed to make an R&D tax credit permanent, Fiorina told the Aspen audience. It's time to start "acknowledging the reality that companies go where they're welcome," she said. (The effective U.S. corporate income tax is 35 percent, far over the industrialized-nation average of 18.2 percent.)

Chris Marangi, associate portfolio manager at Gamco Investors in Rye, N.Y., said Tuesday: "Capital is agnostic. It doesn't have a religion. It doesn't have a philosophy. It goes where it finds the highest returns." The problem, Marangi said, is that many other "countries have a more friendly regulatory regime than we do."

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Stockholder Democracy -- It's About Time

There's never been any doubt about the clubbiness that exists in the boardrooms of US corporations. As they say, change is long overdue. Maybe we're about to see it happen, and if we do, every company and the economy will benefit.

SEC moves toward making proxy ballot access easier

Regulators moving to make it easier for shareholders to get nominees on company ballot

Wednesday August 25, 2010

WASHINGTON (AP) -- Federal regulators are moving toward making it easier for shareholders to nominate directors of public companies, a change sought by investor advocates that is already sparking protest from the nation's biggest business lobby.

The action expected from the Securities and Exchange Commission on Wednesday will allow groups that own at least 3 percent of a company's stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders.

SEC Chairman Mary Schapiro says the change is "a matter of fairness and accountability."

But the U.S. Chamber of Commerce's president called it "a giant step backwards for average investors" and said the organization will fight it "using every method available."

WASHINGTON (AP) -- Federal regulators are moving to make it easier for shareholders to nominate directors of public companies, a major change long sought by investor advocates and buttressed by the new financial overhaul law.

The action by the Securities and Exchange Commission will allow groups that own at least 3 percent of a company's stock to put their nominees for director on the annual proxy ballot sent to all shareholders. Getting their candidates on the board gives them a better shot at influencing company policy. It likely will be in place in time for next spring's corporate elections season -- and observers say it may be used to target boards of some companies.

The five-member SEC was expected to adopt the change at a meeting Wednesday.

With more than 600 billion shares being voted each year, the proxy system is a key element of corporate governance. Under the current system, dissident investors must wage costly proxy fights and appeal to shareholders at their own expense if they seek new directors on a company's board or a bylaw change.

Business interests, such as the U.S. Chamber of Commerce, have bitterly opposed changing the proxy rules. And the SEC itself was split 3-2 along party lines when it voted in May 2009 to open the proposal to public comment. SEC Chairman Mary Schapiro has said it was one of the most contentious issues addressed by the agency.

The change comes at a time when investors, hurt by the financial crisis and recession, are angry about risky behavior by corporations looking for short-term profit gains and extravagant compensation packages for executives.

"This is groundbreaking," said Amy Borrus, deputy director of the Council of Institutional Investors, a group representing public pension funds. "Proxy access will make boards more responsive to shareowners, and more careful about how they oversee their companies and management in particular."

The new rules are likely to be used "only in egregious cases where boards have ignored shareowners' concerns," Borrus said. Yet the fact that the tool is there could make directors more responsive, she added.

But Bob Profusek, an attorney who heads firm Jones Day's mergers and acquisitions practice, said the question is "whether this is going to stimulate an even more short-term orientation in the boardroom."

"Are shareholders really the right stewards for making decisions about corporate America in a general way?" he asked. Shareholders like Warren Buffett and big mutual funds do advocate for companies' long-term benefit, Profusek suggested, but it's easy for hedge funds and other "renters" to accumulate a 3 percent position in a smaller company and then clamor for short-term interests.

Under the new rules, the shareholders would need to have held the minimum level of stock for at least three years.

Critics of the changes have said they would impose a "federal proxy regime" on state laws and that the SEC lacked the legal authority to make them. That authority came in the landmark financial overhaul legislation that was signed into law last month.

Also under the new law, shareholders will be able to weigh in on pay packages for top executives. Nonbinding votes on executive pay will be held at least once every three years.

Until now, the SEC hadn't made a thorough review of the proxy system in 30 years. In that time, there have been numerous changes in technology, shareholder demographics and the structure of share holdings.

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Monday, August 23, 2010

BP -- The Best Big Employer in Louisiana

How long will it take for the former Gulf of Mexico fishermen, who are now operating their boats as Vessels of Opportunity in service of BP, to get the idea they can artificially prolong their high paid employment while enjoying the light demands of their current jobs? They're going to milk this thing as long as possible. Maybe they'll do a little fishing on the side.

But the belief that fishermen lost their livelihoods is pure nonsense. The oil has nearly departed the Gulf waters. Some was dispersed through chemical action, some was skimmed off the water's surface, some was burned off the surface and some evaporated. But about 25% of the oil is unaccounted for. Where is it? some is undoubtedly mixed in the water of the Gulf, but most is probably heading out into the Atlantic in the Gulf Stream. It will be gone soon and by next year the water, the sea life will have returned to normal.

What does that add up to? One thing. Buy BP stock. As this issue fades and the company returns to normal operations, the price will rise. Moreover, the company will resume paying its dividend as soon as its politically possible. That means the stock will rise from its current price of about $36 a share to its $60 price before the rig explosion within the next two years. Combining capital appreciation and the reinstated dividend, the two-year gain is likely to reach 70%.

Louisiana fishermen net more cash working for BP

Venice, Louisiana

August 22 2010

A skiff prepares to go out at the start of the white shrimp season. Many shrimpers are employed cleaning up the BP oil spill

In the early afternoon, when the Louisiana sun begins its slow descent, the wide and shady bow of the Soul Mama provides an excellent place to hang a hammock, as Neil Foret has discovered over the past few months.

The white shrimp season officially began this week in Louisiana, and at this time of year 46-year-old Mr Foret, a hardened Cajun shrimper from Houma in the Mississippi delta, would normally be out on the water plying the trade that has kept him and his family since he was 13.

But now that he is a BP contractor through the oil company’s Vessels of Opportunity programme, designed to employ local fishermen in the oil spill clean-up operations, he earns more consistent money, and works a lot less than he used to.

“BP is a very nice fella, and this is a guaranteed cheque,” he says, pointing to a huge yellow skin or “bladder” on his boat that is used to collect skimmed oil. “I’m sticking with this for as long as I can.”

All over Louisiana, it is the same story: fishermen involved in the programme – according to BP, there are 2,000 vessels currently on active hire in the VoO – are discovering that hauling oil boom is far less taxing than shrimping, and they are in no hurry to return to their traditional way of life.

In Venice, Louisiana, the nerve centre of BP’s operation to remove the estimated 200m gallons of oil that gushed into the Gulf of Mexico after the blowout of Deepwater Horizon on April 20, the atmosphere is like a modern-day version of the Californian gold rush.

Pick-up trucks drive up and down the puddled road leading to BP’s command centre, and contractors of dozens of different companies offering a seemingly endless array of services line up to report on work as well as to seek out the latest opportunities. Captain Michael Owen, better known as the big “O”, has been doing pretty well out of BP. For the past three months, he and his 24-foot fishing boat have been ferrying clean-up workers to parts of the Gulf affected by the oil spill.

As a BP contractor, he does not have to worry about securing charter fishing contracts for small parties of tourists visiting the Mississippi delta, the business he ran until the oil spill. Nor does he have to stress over the pressure to find fish – redfish and speckled trout – for his demanding clients.

“I’m super happy with BP,” he says. “And I’m not taking a cut [in pay].”

Of course, for those fishermen who have not been able to get on the programme, the oil spill has been a devastating blow. They have been almost closed down for the past four months because of widespread fishing bans.

More worrying, perhaps, is that the oil spill has undermined the image Gulf seafood once had in the rest of the country.

In the first week of the white shrimp season, many fishermen complain that docks and processing plants throughout Louisiana remain closed because their customers no longer want to buy.

But for those commercial and charter fishermen on the programme, there has been little in the way of grumbling since the oil spill. As Chucky Farkas, a blond shrimper with piercing blue eyes and thickset shoulders, says, “Some people complain about BP but you ain’t going to hear me complaining.”

Between the rain showers that pass over the bayous of southern Louisiana during the summer months, Bobby Dugas relaxes with a cigarette and a beer on the deck of a nearby marina.

Mr Dugas, a lean and tanned 54-year-old with a bald head and a white tuft of hair under his lip, is officially contracted until about 5pm each day. But he says that he often finishes early.

It has been that way for many of the 74 days he has been on the oil company’s payroll. And at $1,500 a day – $1,200 for his boat and $300 for his time – he is reasonably happy with how his summer has gone.

“It takes you three days to make that charter fishing,” says a charter fisherman from Port Sulphur about 30 miles up the road. “Thank god for BP.”

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Sunday, August 22, 2010

Flying Iranians?

As the world knows, Iranians cannot operate aircraft without crashing. To overcome their airborne incompetence, the lunatic Ahmadenijad now claims the idiot nation of Iran has a unmanned drone aircraft it can use to attack other nations.

Inasmuch as the Iranians cannot build a car, there's no chance they've actually built a drone aircraft. But the leading Iranian screwball has probably got a lot of hapless Iranians believing this toy really exists.

Iran unveils 'ambassador of death' bomber
But unmanned aircraft has 'message of peace,' President Ahmadinejad

TEHRAN, Iran — Iranian President Mahmoud Ahmadinejad Sunday inaugurated the country's first domestically built long-range unmanned bomber aircraft, calling it an "ambassador of death" to Iran's enemies.

Speaking to a group of officials, Ahmadinejad said, "The jet, as well as being an ambassador of death for the enemies of humanity, has a main message of peace and friendship."

The goal of the aircraft is to "keep the enemy paralyzed in its bases," he said, adding that the jet is for deterrence and defensive purposes.

The president championed the country's military self-sufficiency program and said it will continue "until the enemies of humanity lose hope of ever attacking the Iranian nation."

The 4-meter-long unmanned plane, dubbed the Karrar, or striker, in Farsi, was inaugurated on the national day for the country's defense industry in a ceremony aired live on state TV.

No details were provided on the craft's capabilities.

In a speech at the unveiling ceremony, Ahmadinejad said Iran should seek the ability to make pre-emptive strikes against a perceived threat, although he said it would never strike first.

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Thursday, August 19, 2010

As we've seen since Obama's inauguration, the islamic world gives him no respect. In the eyes of muslims, he's the Rodney Dangerfield of US presidents.

May 12, 2008
Op-Ed Contributor

President Apostate?

Chevy Chase, Md.

BARACK OBAMA has emerged as a classic example of charismatic leadership — a figure upon whom others project their own hopes and desires. The resulting emotional intensity adds greatly to the more conventional strengths of the well-organized Obama campaign, and it has certainly sufficed to overcome the formidable initial advantages of Senator Hillary Clinton.

One danger of such charisma, however, is that it can evoke unrealistic hopes of what a candidate could actually accomplish in office regardless of his own personal abilities. Case in point is the oft-made claim that an Obama presidency would be welcomed by the Muslim world.

This idea often goes hand in hand with the altogether more plausible argument that Mr. Obama’s election would raise America’s esteem in Africa — indeed, he already arouses much enthusiasm in his father’s native Kenya and to a degree elsewhere on the continent.

But it is a mistake to conflate his African identity with his Muslim heritage. Senator Obama is half African by birth and Africans can understandably identify with him. In Islam, however, there is no such thing as a half-Muslim. Like all monotheistic religions, Islam is an exclusive faith.

As the son of the Muslim father, Senator Obama was born a Muslim under Muslim law as it is universally understood. It makes no difference that, as Senator Obama has written, his father said he renounced his religion. Likewise, under Muslim law based on the Koran his mother’s Christian background is irrelevant.

Of course, as most Americans understand it, Senator Obama is not a Muslim. He chose to become a Christian, and indeed has written convincingly to explain how he arrived at his choice and how important his Christian faith is to him.

His conversion, however, was a crime in Muslim eyes; it is “irtidad” or “ridda,” usually translated from the Arabic as “apostasy,” but with connotations of rebellion and treason. Indeed, it is the worst of all crimes that a Muslim can commit, worse than murder (which the victim’s family may choose to forgive).

With few exceptions, the jurists of all Sunni and Shiite schools prescribe execution for all adults who leave the faith not under duress; the recommended punishment is beheading at the hands of a cleric, although in recent years there have been both stonings and hangings. (Some may point to cases in which lesser punishments were ordered — as with some Egyptian intellectuals who have been punished for writings that were construed as apostasy — but those were really instances of supposed heresy, not explicitly declared apostasy as in Senator Obama’s case.)

It is true that the criminal codes in most Muslim countries do not mandate execution for apostasy (although a law doing exactly that is pending before Iran’s Parliament and in two Malaysian states). But as a practical matter, in very few Islamic countries do the governments have sufficient authority to resist demands for the punishment of apostates at the hands of religious authorities.

For example, in Iran in 1994 the intervention of Pope John Paul II and others won a Christian convert a last-minute reprieve, but the man was abducted and killed shortly after his release. Likewise, in 2006 in Afghanistan, a Christian convert had to be declared insane to prevent his execution, and he was still forced to flee to Italy.

Because no government is likely to allow the prosecution of a President Obama — not even those of Iran and Saudi Arabia, the only two countries where Islamic religious courts dominate over secular law — another provision of Muslim law is perhaps more relevant: it prohibits punishment for any Muslim who kills any apostate, and effectively prohibits interference with such a killing.

At the very least, that would complicate the security planning of state visits by President Obama to Muslim countries, because the very act of protecting him would be sinful for Islamic security guards. More broadly, most citizens of the Islamic world would be horrified by the fact of Senator Obama’s conversion to Christianity once it became widely known — as it would, no doubt, should he win the White House. This would compromise the ability of governments in Muslim nations to cooperate with the United States in the fight against terrorism, as well as American efforts to export democracy and human rights abroad.

That an Obama presidency would cause such complications in our dealings with the Islamic world is not likely to be a major factor with American voters, and the implication is not that it should be. But of all the well-meaning desires projected on Senator Obama, the hope that he would decisively improve relations with the world’s Muslims is the least realistic.

Edward N. Luttwak, a fellow at the Center for Strategic and International Studies, is the author of “Strategy: The Logic of War and Peace.”

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The New Alchemy

Some day, after we find the world's next Einstein, the breakthrough we've been dreaming about will occur. But until our next towering scientific genius arrives, we have to do what we can with what we've got, which is a lot.

Batteries have been around for 200 years. Cars have been on the road for over a century and the first cars were powered with batteries. After two centuries we've learned a few things about the physics and chemistry of batteries. Number one, they have a huge disadvantage that limits their appeal.

What is the limitation? The article explains. In short, batteries hold very little energy. Thus, makers of battery-powered devices have learned to design their devices around the limitations of the batteries rather than expect batteries to improve. Devices are made smaller and smaller, using the technology advances made almost daily in that end of thing. Thus, the improving devices need less and less power to do more and more.

But that strategy will not work with cars. They cannot shrink like semiconductors have. Therefore, we have to change something else. What? One option is to remove the import tariff on Brazilian ethanol. Brazil can meet its internal needs for ethanol and has the capacity to export. Using imported ethanol will lower the cost of the ethanol mixed into our gasoline. At the same time, using imported ethanol will take the pressure off the domestic corn market, which will lower the cost of corn used to feed livestock. Diverting domestic corn production to ethanol production has driven up corn prices and subsequently the food derived from corn-fed livestock.

Meanwhile, if the US were to end its embargo of Cuba, it's likely the island would become an ethanol producer. The ensuing prosperity and the arrival of Americans would destroy the Castro regime. What more could we want?

Beyond Fossil Fuels

Finding New Ways to Fill the Tank

CAMBRIDGE, Mass. — Most research on renewable energy has focused on replacing the electricity that now comes from burning coal and natural gas. But the spill in the Gulf of Mexico, the reliance on Middle East imports and the threat of global warming are reminders that oil is also a pressing worry. A lot of problems could be solved with a renewable replacement for oil-based gasoline and diesel in the fuel tank — either a new liquid fuel or a much better battery.

Yet, success in this field is so hard to reliably predict that research has been limited, and even venture capitalists tread lightly. Now the federal government is plunging in, in what the energy secretary, Steven Chu, calls the hunt for miracles.

The work is part of the mission of the new Advanced Research Projects Agency - Energy, which is intended to finance high-risk, high-reward projects. It can be compared to the Defense Advanced Research Projects Agency, part of the Pentagon, which spread seed money for projects and incubated a variety of useful technologies, including the Internet.

The goal of this agency, whose budget is $400 million for two years, is to realize profound results — such as tens of millions of motor vehicles that would run 300 miles a day on electricity from clean sources or on liquid fuels from trees and garbage.

One miracle would be a better battery. A pound of gasoline holds about 35 times more energy than a pound of lead-acid batteries and about six times more than lithium-ion batteries. Cars must carry their energy and expend energy to carry it, so the less weight per unit of energy, the better.

David Danielson, an Energy Department official, oversees a program to invest in start-up companies with new approaches to batteries, which is a new strategy; in the early 1990s, the department decided to concentrate all its efforts in lithium-ion research and gave up on other chemistries.

One new technology would allow every car, at modest extra cost, to shut down automatically at each stop sign or red light; when the driver tapped the accelerator, the battery would instantly get it going again. (Hybrids like the Prius do that, but at a substantial cost premium.)

A team at an infant company is using tiny carbon structures called nanotubes to store electricity. The goal is to create something the size of a flashlight battery, holding only about 30 percent as much energy, but able to charge or discharge in two seconds, almost forever.

The technology could form part of the battery pack for a car, cheaply delivering the energy for a jackrabbit start, without damaging conventional chemical batteries, which can store vastly more energy but can only accept or deliver it slowly.

It could also provide a cellphone battery that would charge in five minutes. That kind of battery is called a capacitor.

Joel E. Schindall, a professor at the Massachusetts Institute of Technology and a scientist on the project, pointed out that a capacitor was the original battery. Benjamin Franklin built a set of glass bottles that stored electricity and released it all at once; he called it a battery because, like guns, the bottles fired simultaneously.

But the nanotubes are modern. The walls of the tubes are about 12 atoms thick, and they grow, like leaves of grass, with just enough space between them to provide docking stations for charged particles. So a lot of charged particles can fit into a small space, with very light structures. He compares the device to a book shelf with very thin shelves placed exactly far enough apart to accommodate the books. Because the connection is physical, not chemical, the charged particles can attach and detach almost instantly. The result is a small, light, powerful package.

The project started out with a Ph.D candidate, Riccardo Signorelli, using tweezers to put tiny squares of aluminum into a vacuum chamber and then pumping in a hydrocarbon gas. When heated, the hydrogen burns away and the carbon atoms arrange themselves into tubes. The breakthrough was doing that on a surface that would conduct electricity.

Dr. Signorelli, now with his Ph.D, is chief executive of FastCap Systems, which, with government help, is converting an industrial loft into a factory.

In another M.I.T. lab, Gerbrand Ceder is developing a “materials genome,” using computers to predict the qualities of materials that could be used in batteries, and then fabricating the ones that the computer finds promising. A materials genome would speed the distribution of knowledge about materials and make development of new materials faster, he said, an idea that impresses officials at the Energy Department.

ARPA-E invested $3.2 million in a battery developed with a materials genome in a start-up company, run by Professor Ceder, that is exploring magnesium.

In batteries today, whether they are lithium-ion or old-fashioned lead-acid, an atom shuttles between the positive and negative terminal, carrying a single electron, as the battery charges and discharges. But a magnesium atom would carry two electrons, so a battery storing a given amount of energy could be nearly halved in size and weight.

Another approach being financed by ARPA-E is to convert the tremendous amount of energy stored by plants and trees to a car fuel.

Scientists are tantalized by plants and trees because they store far more energy than is consumed by cars, trucks, trains and planes, and they do it by taking carbon out of the atmosphere. But they do not give that energy back in an easy-to-use form, at least not without taking millions of years to turn into oil. Instead, they make energy-bearing sugars in a form called cellulose, which forms the sinew or skeleton of the plant.

Cellulose is hard to break down. “Cotton is pure cellulose,” said Eric Toone, who is Mr. Danielson’s counterpart for biofuels at the Energy Department. “When you take your cotton shirt and put it in a washing machine, it still comes out as a cotton shirt.”

Engineers have tried using steam, acids and enzymes to break cellulose into useful sugars. The enzymes are usually made by gene-modified bacteria or fungi and resemble the saliva of termites, which is notoriously good at dissolving cellulose. So far, none are commercial, but with Energy Department help, some researchers are trying new methods.

Take Michael Raab, whose start-up, Agrivida, in Medford, Mass., is tinkering with the genes of grass and sorghum to develop plants that make the enzymes internally and digest their own cellulose on cue, leaving behind a murky brown concoction of sugars that can be converted into gasoline, diesel or jet fuel.

Deep inside their cells, his plants produce a smooth, nonreactive molecule, but when the plant is exposed to heat and a change in acidity, the molecule breaks open, like a beer bottle smashed against the bar. The jagged edges are enzymes. They rip apart cell walls and leave fragments that are useful sugars.

Sugars — both the common kind that comes in paper packets for coffee and some more exotic types — can be converted by yeast into ethanol, a technology known since ancient times. Or they can be fed to gene-altered bacteria that will excrete diesel or gasoline components. Or they can be converted chemically, with catalysts.

All these steps, including the tricky one of recovering sugar from cellulose, can be done already, but not cheaply enough to produce tens of billions of gallons a year.

The Energy Department is putting $4.6 million into Agrivida, and similar sums into other start-up firms, many of them intent on finding gasoline substitutes. It is, said one department official, “real science fiction stuff,” ideas promising enough to attract a few million dollars for research but not quite promising enough to draw the private capital required for small-scale production.

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Wednesday, August 18, 2010

Pelosi -- Investigate Mosque Critics -- HERE I AM

Nancy Pelosi and most members of Congress need a lot of schooling in two subjects: Economics and islam.

Economics Lesson One: This capitalist economy will grow IF government gets out of the way.

IF Congress were to permit oil & gas drillers to drill where the oil & gas are, THEN the energy industry will hire lots of high-paid American workers to get the oil & gas from the ground to consumers.

IF the government were to get out of the way and permit the nuclear industry to re-start, THEN lots of Americans would get jobs designing and building those plants, which would decrease our use of gas for electricity production.

IF the government were to get out of the auto industry and permit automakers to build any vehicle desired by consumers, THEN the domestic auto industry would hire more people to build those cars -- as long as wage and benefit packages were within reason.

When it comes to islam, Congress needs to understand that islam is a multipurpose system of beliefs. It is a religion, a government and a military, all rolled into one.

IF Congress were to acknowledge islam's role as a government, THEN it would have to ban islam from America because islam stands absolutely and resolutely against all the freedoms granted Americans by the Constitution and Bill of Rights. It's that simple.

Hence, IF taking a stand against a religion/government/military that aims to take away every freedom and right that forms the essence of America makes me suspicious and needing investigation, THEN probe away.

AUDIO - Rep. Pelosi calls for investigation of WTC mosque opposition

August 17, 2010

House Speaker Nancy Pelosi, California Democrat, called for an investigation of those who are protesting the building of the Ground Zero Mosque on Tuesday. She told San Francisco's KCBS radio:


"There is no question there is a concerted effort to make this a political issue by some. And I join those who have called for looking into how is this opposition to the mosque being funded," she said. "How is this being ginned up that here we are talking about Treasure Island, something we've been working on for decades, something of great interest to our community as we go forward to an election about the future of our country and two of the first three questions are about a zoning issue in New York City."

Calls to investigate the funding for those proposing the $100 million "Cordoba House" have fallen on deaf ears, though, as New York's Mayor Mike Bloomberg has described such an investigation as "un-American."

Ms. Pelosi called the Ground Zero mosque an "urban development decision" for New Yorkers to work through. Her remarks happened on the heels of Senate Majority Leader Harry Reid, Nevada Democrat, parting ways with President Barack Obama on the issue. Mr. Reid suggested the mosque should be built somewhere else.

More to come...

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The Conversions of Islam

In the same way muslim terrorists converted commercial jetliners into flying bombs, muslims are converting our Freedom of Religion into another weapon of mass destruction. Now they're getting support from our ex-muslim president who has declared that muslims have a right to build a mosque two blocks from Ground Zero.

Last year, when another situation dear to Obama's heart arose he declared "the Cambridge Police Department acted stupidly." When an officer responding to a dispatcher's call informing him a crime of breaing-and-entering was in progress the officer detained a black Harvard professor the president concluded the professor's civil rights have been violated by the officer. As he later conceded, weakly, he was wrong.

Obama is at it again. He has again inserted himself into an issue that clearly shows his willingness to let his emotions rule. This time he wants to allow muslim terrorists another opportunity to gain ground in the US. He is a threat to the republic.

Cordoba or Tours?

Islam is using the values of the West to fight the West.

By Emmanuel Navon

In today’s France, Jewish items are being burnt on the streets again. Not Jewish books by the Church, but Jewish food by the Mosque. Food items are publicly thrown out of stores and burnt on the street if they are imported from Israel or simply if the package indicates that they are kosher. At least, the French Government publicly condemned this phenomenon and Interior Minister Brice Hortefeux promised to prosecute the authors of what he called a criminal act of racial discrimination.

In Britain, by contrast, the court system has capitulated to the hatred and violence.

A few weeks ago, a London court acquitted the members of a gang who broke into a weapons factory and mostly tore it down. Their defense line was that they suspected that this factory had sold weapons to Israel during the Cast Lead Operation. The Judge ruled that their version was acceptable and set them free without even fining them for the damage they had caused to the factory. Similarly, four militants were acquitted by a British court last week for breaking into a retail store of the Israeli company Ahava.

In other words, you are allowed to destroy property (and maybe, tomorrow, to kill) based on political opinions or even based on the unproved suspicion that your victim is acting against your political opinions. This is the rule of intimidation and terror, not the rule of law.

In Norway, it is not the court system but the government itself which has become accomplice to Jihad.

Norway’s Minister of Education Kristin Halvorsen was recently photographed in front of a demonstration sign saying that the US and Israel are the real Axis of Evil. Her boss, Prime Minister Jens Stoltenberg, expressed public support for two doctors who helped Hamas during the Cast Lead Operation. Those two doctors are the authors of an anti-Semitic book that has been praised by Norwegian Foreign Minister Jonas Gahr StØre. Norway’s State Secretary for Environment and International Development Ingrid Fiskaa has declared that the UN should bombard Israel.

Europe’s descent into dhimmitude is a tragedy for those who care about Western civilization and about freedom. Alas, even the shining city upon a hill on the other side of the Atlantic no longer seems to be a safe heaven. President Obama’s endorsement of the Ground Zero Mosque indicates that America is capitulating to cynicism in the name of freedom.

On the face of it, President Obama is right: As he said, because America is committed to religious freedom, Muslims have the same right to practice their religion as anyone else in the United States, and that includes the right to build a place of worship and a community center on private property in lower Manhattan.

President Obama, however, is missing two points.

The first point is that Islam rejects religious freedom and the founding principles of the US Constitution.

If Islam were not a religion protected by the US Constitution, it would be banned because of its ideology of hatred and discrimination. No other religion has produced 9/11. True, Christianity is responsible for the Crusades and for the Inquisition. But Christianity has integrated some elements of modernity, and it no longer condones murder in the name of faith. Islam does.

The second point is that the proponents of the Ground Zero Mosque are being purposely offensive and cynical, and that they intend to set a historical precedent full of symbolical significance.

By building an Islamic site and symbol a few yards away from the place where 3,000 people were murdered in the name of Islam, they are intentionally insulting the memory of these people and are pushing bad taste to its limits. But, mostly, they want to declare victory. That is no speculation or conspiracy theory: The mosque will be called Cordoba. Do you get it? Cordoba was the first European city conquered by a Muslim army (in 711). Then a mosque was built there, and the rest of Spain was conquered. This is an accepted Islamic practice, and the proponents of the Ground Zero Mosque are note even hiding their intentions.

Islam is using the values of the West to fight the West. Saying that is not politically correct, but it is true. 70% of Americans are against the Ground Zero Mosque precisely because they understand that this mosque is not about religious freedom. It is about the use of freedom to fight freedom and to progressively impose an ideology of hatred, discrimination, and violence. Either President Obama doesn’t see that –which is bad. Or he does but lacks the courage to say it –which is worse.

The American people should build a huge Church near Ground Zero and call it the Tours Church. Why Tours? Because Tours is the French city where Charles Martel defeated an invading Muslim army in 732, thus halting the Islamic expansion to Europe (actually, the battle was fought in an area between the cities of Poitiers and Tours, located in north-central France, near the village of Moussais-la-Bataille.

But the battle is known as "Battle of Tours" in English and as the "Battle of Poitiers" in French. Incidentally, "Tours" happens to mean "towers" in French). By doing this, Americans will not only show that they too know History. They will also prove to themselves and to the world that they learned from it.

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Tuesday, August 17, 2010

The Dark Night of Islam and America

It's remarkable how easy it is for humans to fool each other. One of the most compelling deceptions ever perpetrated on humans was the product of one man. Muhammad, the L. Ron Hubbard of Islam. Humans who have embraced this suicidal religion have misled each other for 1,400 years, and their numbers keep growing. Clearly too many humans, especially those who fall under the influence of Islam, are deluded.

Joys of Muslim Women

by Nonie Darwish

Here are a handful of disturbing facts about life in an Islamic theocracy, which is what muslims want to create in America.

In the muslim faith a muslim man can marry a child as young as 1 year old and have sexual intimacy with this child, consummating the marriage by 9. The dowry is given to the family in exchange for the woman (who becomes his slave) and for the purchase of the private parts of the woman, to use her as a toy.

Even though a woman is abused, she can not obtain a divorce. If she has been raped, she must give proof. To prove rape, the woman must have (4) male witnesses.

Often after a woman has been raped, she is returned to her family and the family must return the dowry. The family has the right to execute her (an honor killing) to restore the honor of the family. Husbands can beat their wives 'at will' and the man does not have to say why he has beaten her.

The husband is permitted to have 4 wives and a temporary wife for an hour (prostitute) at his discretion.

The shariah muslim law controls the private as well as the public life of the woman.

That control is coming to the Western World (America). Muslim men have begun to demand shariah law to prevent wives from obtaining divorces, thereby giving husbands full and complete control of wives. It is amazing and alarming how many of our sisters and daughters attending American Universities are now marrying muslim men and submitting themselves and their children unsuspectingly to the Shariah law.

By passing these comments to as many people as possible, enlightened American women may avoid becoming slaves under Shariah Law.

Ripping the West in Two

Author and lecturer Nonie Darwish says the goal of radical Islamists is to impose Shariah law on the world, ripping Western law and liberty in two.

She recently authored the book, Cruel and Usual Punishment: The Terrifying Global Implications of Islamic Law.

Darwish was born in Cairo and spent her childhood in Egypt and Gaza before immigrating to America in 1978, when she was eight years old. Her father died while leading covert attacks on Israel. He was a high-ranking Egyptian military officer stationed with his family in Gaza.

When he died, he was considered a "shahid," a martyr for jihad. His posthumous status earned Nonie and her family an elevated position in muslim society.

But Darwish developed a skeptical eye at an early age. She questioned her own muslim culture and upbringing. After hearing a Christian preacher on television she converted to Christianity.

In her latest book, Darwish warns about creeping sharia law - what it is, what it means, and how it is manifested in Islamic countries.

For the West, she says radical Islamists are working to impose sharia on the world. If that happens, Western civilization will be destroyed. Westerners generally assume all religions encourage a respect for the dignity of each individual Islamic law (Sharia) teaches that non-muslims should be subjugated or killed.

Peace and prosperity for one's children is not as important as assuring that Islamic law rules everywhere in the Middle East and eventually in the world.

While Westerners usually believe all religions encourage some form of the golden rule, Sharia teaches two systems of ethics - one for muslims and another for non-muslims. Building on tribal practices of the seventh century, Sharia encourages the side of humanity that wants to take from and subjugate others.

While Westerners tend to think in terms of religious people developing a personal understanding of and relationship with God, Sharia advocates executing people who ask difficult questions that could be interpreted as criticism.

It's hard to imagine, that in this day and age, Islamic scholars agree that those who criticize Islam or choose to stop being muslim should be executed. Sadly, while talk of an Islamic reformation is common and even assumed by many in the West, such murmurings in the Middle East are silenced through intimidation.

While Westerners are accustomed to an increase in religious tolerance over time, Darwish explains how petro dollars are being used to grow an extremely intolerant form of political Islam in her native Egypt and elsewhere.

In twenty years there will be enough Muslim voters in the U.S. to elect the President (says Darwish. However, today, muslims account for 1% of the population. Even if muslim birthrates are extreme and muslims immigrate to America at a high rate, it's unlikely their numbers will carry a presidential election. On the other hand, Obama is an ex-muslim, which means the general pool of voters are capable of extraordinary foolishness)! Rest assured they will do so... You can look at how they have taken over several towns in the USA .. Dearborn Mich. is one... and there are others.

I think everyone in the U.S. should be required to read this, but with the ACLU, there is no way this will be widely publicized (this claim is simply silly. Noting will stop the facts from circulating. But willful blindness to the muslim agenda will take all the sting out of the facts), unless each of us sends it on!

It is too bad that so many are disillusioned with life and Christianity that they accept Muslims as peaceful. Some may be but they are part of an army that is willing to shed blood in the name of Islam. The peaceful muslims support the warrior muslims with money and their own form of patriotism to their religion. While America is removing Christianity from all public sites and erasing God from the lives of children, the muslims are planning a great jihad on America.

This is your chance to make a difference! Pass the word through your email list.

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Friday, August 13, 2010

Obama has Surrendered and Submitted to islam

Has anyone read the Koran? Muslims consider it the infallible world of their god. They prove their belief by basing their governments on the same book, codifying its proclamations into law. It's clear from their belief that islam is a religion AND a government that one of our most important principles -- Separation of Church and State -- contradicts the will of their god. Thus, muslims cannot follow their faith AND support the Constitution.

Obama stands up for Ground Zero mosque

President Obama says plans to build a mosque near Ground Zero should go forward.


President Barack Obama on Friday endorsed a controversial plan to build a mosque and Islamic center just blocks from Ground Zero in Manhattan, despite the strong objections of conservatives, civic groups and those who lost loved ones in the September 11 attacks.

“Ground Zero is, indeed, hallowed ground,” according to prepared remarks Obama was to deliver at a White House dinner celebrating the Muslim holiday of Ramadan. “But let me be clear: as a citizen, and as President, I believe that Muslims have the same right to practice their religion as anyone else in this country. That includes the right to build a place of worship and a community center on private property in lower Manhattan, in accordance with local laws and ordinances.”

“This is America,” Obama said.

Having steered clear of the controversy for weeks, Obama took on opposition to the mosque directly — a move that many other Democratic lawmakers had been hesitant to do in the face of highly emotional appeals against its construction. But polls indicate the issue could be a high-voltage third rail for politicians who support the project: a recent CNN poll found that 68 percent of those surveyed did not approve of building a mosque so close to where the World Trade Center towers fell, killing more than 2,000 people.

In recent weeks, Press Secretary Robert Gibbs had deflected questions on the issue, insisting it is “a matter for New York City and the local community to decide.” But Obama had been criticized for being slow to weigh in on the controversy, especially in light of his past statements in support of religious freedom and tolerance for Muslims in the United States.

In his speech Friday, Obama called for sensitivity with respect to developing in lower Manhattan, but cautioned against drawing comparisons between mainstream Islam and the ruthlessly violent ideology of al Queda, which he said is a “gross distortion” of the faith.

“Our capacity to show not merely tolerance, but respect to those who are different from us – a way of life that stands in stark contrast to the nihilism of those who attacked us on that September morning, and who continue to plot against us today,” he said.

Earlier this week, in a statement recognizing the onset of the Muslim holy month, Obama said that the rituals of Ramadan “remind us of the principles that we hold in common, and Islam’s role in advancing justice, progress, tolerance, and the dignity of all human beings.”

The event is this White House’s second annual recognition of Ramadan, the Islamic month of fasting, with a traditional iftar dinner—a communal event that traditionally marks the breaking of the fast at sundown.

The project, spearheaded by the Cordoba Institute, an organization that works to improve the relationship between Muslims and the West, proposes that a 152-year old building be demolished two blocks away from Ground Zero to make way for the new Muslim community center and mosque.

Opponents have argued that, if constructed, the mosque would be a painful insult to survivors, rescue workers and families of those who died on 9/11. Proponents counter that the presence of a mosque so close to the center of the attacks would be a powerful signal of American religious tolerance – a counterweight to the terrorist attack. At the same time, they argue, blocking its construction violates the Constitutional right to freedom of religion.

A number of prominent conservatives, including GOP presidential hopefuls Sarah Palin and Newt Gingrich, and moderate Sen. Joe Lieberman (I-Conn.), decried plans for the mosque.

“There should be no mosque near Ground Zero in New York so long as there are no churches or synagogues in Saudi Arabia,” Gingrich wrote on his website. “The time for double standards that allow Islamists to behave aggressively toward us while they demand our weakness and submission is over.”

Rep. Peter King (R-N.Y.) followed suit late Friday, releasing a ststement saying Obama is “wrong” to endorse an “insensitive and uncaring” project.

“While the Muslim community has the right to build the mosque they are abusing that right by needlessly offending so many people who have suffered so much,” he said in a statement Friday. “The right and moral thing for President Obama to have done was to urge Muslim leaders to respect the families of those who died and move their mosque away from Ground Zero. Unfortunately the President caved into political correctness."

Prominent conservative columnist Charles Krauthammer even compared the proposed mosque to construction of German heritage center at the Auschwitz concentration camp.

But some Democratic law makers from New York have been reluctant to address the issue.

A spokesman for Sen. Chuck Schumer has said only that the New York senator is “not opposed” to the controversial proposal.

Rep. Anthony Weiner – who is said to have mayoral ambitions and who gained notoriety last month for railing against Republican opposition to a bill supporting medical funds for 9/11 first responders – has declined to talk specifically about the mosque.

Most on the left have preferred to deal with a more concrete issue: whether the government can lawfully stop the project.

“I feel strongly that the constitutional protection of freedom of religion from the overreach of government means that elected officials should endeavor to stay out of the business of deciding where houses of worship may or may not be,” Weiner said in a letter to Bloomberg that praise the mayor’s defense of religious freedom.

Imam Feisal Abdul Rauf, the religious leader for the mosque and head of the Cordoba Institute, has been sent by the Bush and Obama administrations to parts of the Muslim world to speak about religious tolerance in the United States.

The New York City Landmarks Preservation Commission voted unanimously to allow the project to move forward. But that vote is likely to only spark further litigation on the issue.

A group affiliated with conservative religious leader Pat Robertson, American Center for Law and Justice, said that it would challenge the vote by the Landmarks Commission in court.

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BP 10 -- Barack's Problems, Top Ten

The stunning decline of Barack Obama: 10 key reasons why the Obama presidency is in meltdown

August 12th, 2010

The last few weeks have been a nightmare for President Obama, in a summer of discontent in the United States which has deeply unsettled the ruling liberal elites, so much so that even the Left has begun to turn against the White House. While the anti-establishment Tea Party movement has gained significant ground and is now a rising and powerful political force to be reckoned with, many of the president’s own supporters as well as independents are rapidly losing faith in Barack Obama, with open warfare breaking out between the White House and the left-wing of the Democratic Party. While conservatism in America grows stronger by the day, the forces of liberalism are growing increasingly weaker and divided.

Against this backdrop, the president’s approval ratings have been sliding dramatically all summer, with the latest Rasmussen Daily Presidential Tracking Poll of US voters dropping to minus 22 points, the lowest point so far for Barack Obama since taking office. While just 24 per cent of American voters strongly approve of the president’s job performance, almost twice that number, 46 per cent, strongly disapprove. According to Rasmussen, 65 per cent of voters believe the United States is going down the wrong track, including 70 per cent of independents.

The RealClearPolitics average of polls now has President Obama at over 50 per cent disapproval, a remarkably high figure for a president just 18 months into his first term. Strikingly, the latest USA Today/Gallup survey has the President on just 41 per cent approval, with 53 per cent disapproving.

There are an array of reasons behind the stunning decline and political fall of President Obama, chief among them fears over the current state of the US economy, with widespread concern over high levels of unemployment, the unstable housing market, and above all the towering budget deficit. Americans are increasingly rejecting President Obama’s big government solutions to America’s economic woes, which many fear will lead to the United States sharing the same fate as Greece.

Growing disillusionment with the Obama administration’s handling of the economy as well as health care and immigration has gone hand in hand with mounting unhappiness with the President’s aloof and imperial style of leadership, and a growing perception that he is out of touch with ordinary Americans, especially at a time of significant economic pain.

Barack Obama’s striking absence of natural leadership ability (and blatant lack of experience) has played a big part in undermining his credibility with the US public, with his lackluster handling of the Gulf oil spill coming under particularly intense fire.

On the national security and foreign policy front, President Obama has not fared any better. His leadership on the war in Afghanistan has been confused and at times lacking in conviction, and seemingly dictated by domestic political priorities rather than military and strategic goals. His overall foreign policy has been an appalling mess, with his flawed strategy of engagement of hostile regimes spectacularly backfiring.

As for the War on Terror, his administration has not even acknowledged it is fighting one.

Can it get any worse for President Obama? Undoubtedly yes. Here are 10 key reasons why the Obama presidency is in serious trouble, and why its prospects are unlikely to improve between now and the November mid-terms.

1. The Obama presidency is out of touch with the American people

In a previous post I noted how the Obama presidency increasingly resembles a modern-day Ancien Régime, extravagant, decaying and out of touch with ordinary Americans. The First Lady’s ill-conceived trip to Spain at a time of widespread economic hardship was symbolic of a White House that barely gives a second thought to public opinion on many issues, and frequently projects a distinctly elitist image. The “let them eat cake” approach didn’t play well over two centuries ago, and it won’t succeed today.

2. Most Americans don’t have confidence in the president’s leadership

This deficit of trust in Obama’s leadership is central to his decline. According to a recent Washington Post/ABC News poll, “nearly six in ten voters say they lack faith in the president to make the right decisions for the country”, and two thirds “say they are disillusioned with or angry about the way the federal government is working.” The poll showed that a staggering 58 per cent of Americans say they do not have confidence in the president’s decision-making, with just 42 per cent saying they do.

3. Obama fails to inspire

In contrast to the soaring rhetoric of his 2004 Convention speech in Boston which succeeded in impressing millions of television viewers at the time, America is no longer inspired by Barack Obama’s flat, monotonous and often dull presidential speeches and statements delivered via teleprompter. From his extraordinarily uninspiring Afghanistan speech at West Point to his flat State of the Union address, President Obama has failed to touch the heart of America. Even Jimmy Carter was more moving.

4. The United States is drowning in debt

The Congressional Budget Office Long-Term Budget Outlook offers a frightening picture of the scale of America’s national debt. Under its alternative fiscal scenario, the CBO projects that US debt could rise to 87 percent of GDP by 2020, 109 percent by 2025, and 185 percent in 2035. While much of Europe, led by Britain and Germany, are aggressively cutting their deficits, the Obama administration is actively growing America’s debt, and has no plan in place to avert a looming Greek-style financial crisis.

5. Obama’s Big Government message is falling flat

The relentless emphasis on bailouts and stimulus spending has done little to spur economic growth or create jobs, but has greatly advanced the power of the federal government in America. This is not an approach that is proving popular with the American public, and even most European governments have long ditched this tax and spend approach to saving their own economies.

6. Obama’s support for socialised health care is a huge political mistake

In an extraordinary act of political Harakiri, President Obama leant his full support to the hugely controversial, unpopular and divisive health care reform bill, with a monstrous price tag of $940 billion, whose repeal is now supported by 55 per cent of likely US voters. As I wrote at the time of its passing, the legislation is “a great leap forward by the United States towards a European-style vision of universal health care, which will only lead to soaring costs, higher taxes, and a surge in red tape for small businesses. This reckless legislation dramatically expands the power of the state over the lives of individuals, and could not be further from the vision of America’s founding fathers.”

7. Obama’s handling of the Gulf oil spill has been weak-kneed and indecisive

While much of the spilled oil in the Gulf has now been thankfully cleared up, the political damage for the White House will be long-lasting. Instead of showing real leadership on the matter by acing decisively and drawing upon offers of international support, the Obama administration settled on a more convenient strategy of relentlessly bashing an Anglo-American company while largely sitting on its hands. Significantly, a poll of Louisiana voters gave George W. Bush higher marks for his handling of the aftermath of Hurricane Katrina, with 62 percent disapproving of Obama’s performance on the Gulf oil spill.

8. US foreign policy is an embarrassing mess under the Obama administration

It is hard to think of a single foreign policy success for the Obama administration, but there have been plenty of missteps which have weakened American global power as well as the standing of the United States. The surrender to Moscow on Third Site missile defence, the failure to aggressively stand up to Iran’s nuclear programme, the decision to side with ousted Marxists in Honduras, the slap in the face for Great Britain over the Falklands, have all contributed to the image of a US administration completely out of its depth in international affairs. The Obama administration’s high risk strategy of appeasing America’s enemies while kicking traditional US allies has only succeeded in weakening the United States while strengthening her adversaries.

9. President Obama is muddled and confused on national security

From the wars in Afghanistan and Iraq to the War on Terror, President Obama’s leadership has often been muddled and confused. On Afghanistan he rightly sent tens of thousands of additional troops to the battlefield. At the same time however he bizarrely announced a timetable for the withdrawal of US forces beginning in July 2011, handing the initiative to the Taliban. On Iraq he has announced an end to combat operations and the withdrawal of all but 50,000 troops despite a recent upsurge in terrorist violence and political instability, and without the Iraqi military and police ready to take over. In addition he has ditched the concept of a War on Terror, replacing it with an Overseas Contingency Operation, hardly the right message to send in the midst of a long-war against Al-Qaeda.

10. Obama doesn’t believe in American greatness

Barack Obama has made it clear that he doesn’t believe in American exceptionalism, and has made apologising for his country into an art form. In a speech to the United Nations last September he stated that “no one nation can or should try to dominate another nation. No world order that elevates one nation or group of people over another will succeed. No balance of power among nations will hold.” It is difficult to see how a US president who holds these views and does not even accept America’s greatness in history can actually lead the world’s only superpower with force and conviction.

There is a distinctly Titanic-like feel to the Obama presidency and it’s not hard to see why. The most left-wing president in modern American history has tried to force a highly interventionist, government-driven agenda that runs counter to the principles of free enterprise, individual freedom, and limited government that have made the United States the greatest power in the world, and the freest nation on earth.

This, combined with weak leadership both at home and abroad against the backdrop of tremendous economic uncertainty in an increasingly dangerous world, has contributed to a spectacular political collapse for a president once thought to be invincible. America at its core remains a deeply conservative nation, which cherishes its traditions and founding principles. President Obama is increasingly out of step with the American people, by advancing policies that undermine the United States as a global power, while undercutting America’s deep-seated love for freedom.

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Obama to Attend Start-Up of Iranian Nuclear Plant

Michelle and Sasha were looking for rain in Spain. Instead, they found sun and fun on Spanish beaches during a trip largely covered by taxpayers.

Meanwhile, Barack decided on a trip of his own. After the success of his new approach to diplomacy with Iran, he's scheduled to attend a ribbon-cutting ceremony at Iran's first nuclear reactor. He, Iran's President Ahmadenijad and Russia's Prime Minister Vladimir Putin will jointly hold the scissors and then head off for a private lunch.

Russia: Iran's nuclear plant to start next week

Aug 13, 2010

MOSCOW (AP) - Russia's nuclear agency said Friday that it will load fuel into Iran's first nuclear power plant next week, defying U.S. calls to hold off the start of the launch.

Rosatom spokesman Sergei Novikov said Friday that uranium fuel shipped by Russia will be loaded into the Bushehr reactor on Aug. 21, beginning the startup process.

"From that moment the Bushehr plant will be officially considered a nuclear-energy installation," he told The Associated Press.

The United States has called for Russia to delay the startup until Iran proves that it's not developing nuclear weapons. Russian officials said that the latest U.N. sanctions against Iran won't affect the Bushehr project.

Russia signed a $1 billion contract in 1995 for building the Bushehr plant, but it has dragged its feet on completing the project for years.

Moscow has cited technical reasons for the delays, but analysts say Moscow has used the project to press Iran to ease its defiance over its nuclear program.

Novikov said that Rosatom chief Sergei Kiriyenko will travel to Bushehr in southern Iran for the Aug. 21 ceremony, which will also be attended by the Iranian Vice President Ali Akbar Salehi, who also heads the Atomic Energy Organization of Iran.

Prime Minister Vladimir Putin said in March that the Bushehr plant would begin operating this summer. Some Iranian lawmakers have accused Russia of delaying the project under the Western pressure.

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Wednesday, August 11, 2010

Dump the Mortgage Interest Deduction

Is it possible there's an outbreak of Common Sense underway?

Feds rethink policies that encourage home ownership

With Fannie Mae and Freddie Mac on shaky ground, a restructuring of the mortgage giants is in the works.


Federal support for housing in 2009, in billions:

Homeownership: Tax breaks $127; Spending $103; Total $230

Rental housing: Tax breaks $13; Spending $47; Total $60

Source: Congressional Budget Office

RISE, FALL AND REBOUND? : Charts show the housing industry's boom and bust this decade and forecast the possible course of its recovery the next three years.


National overnight averages Today +/-
30 yr fixed mtg 4.53%
15 yr fixed mtg 3.96%
5/1 ARM 3.56%
$30K home equity loan 7.55%
$30K HELOC 5.03%


Canada, where home buyers are required to make bigger down payments than in the United States, still has a higher homeownership rate than the U.S. How different countries stack up:

Country Homeownership rate -- Year

Spain 86.3% -- 2005

Italy 80.0% -- 2002

United Kingdom 70.0% -- 2005

Canada 68.4% -- 2006

U.S. 66.9% -- 2010

Russia 63.8% -- 2003

France 56.5% -- 2004

Germany 43.2% -- 2002

Sources: Statistics Canada, EMF Hypostat, U.S. Census Bureau

Just how much should Uncle Sam do to help Americans buy their own homes?
For 70 years — and for the last 15 in particular — the answer has been: Whatever it takes.

Now, policymakers are pausing to reconsider. In the next few months, they'll weigh whether there can be too much of a good thing when it comes to helping families finance the American Dream.

The rethink could mean a shake-up for a mortgage market addicted to government subsidies.

"This process of figuring out the government's role is going to involve some hard choices," says Alyssa Katz, author of Our Lot: How Real Estate Came to Own Us. "The moment you start changing the nature of what is guaranteed by the government, what is subsidized, you start to change the alignment of winners and losers. ... We took for granted that anyone could get a mortgage."

Using guarantees and tax breaks, the government pushed homeownership past 69% in 2004. Then it all came crashing down.

Housing prices started crumbling in 2007, panicking financial markets, forcing the government to seize mortgage giants Fannie Mae and Freddie Mac, and pushing the economy into the worst recession since the 1930s. Homeownership has fallen below 67%.

Now, Washington is preparing to rebuild the national mortgage market atop the ruins of Fannie and Freddie. The proposal, due early next year from the Obama administration, could make it harder to buy a home by reducing available credit or requiring bigger down pay-ments. Low-income renters might get more government help.

BAILOUT: Freddie Mac, Fannie Mae ask for more aid after 2Q losses
OWNING: Homeownership rate continues to slide

Congressional Republicans doubt the administration has the nerve to make bold changes. They say the White House squandered an opportunity to deal with what they see as the No. 1 problem — limiting taxpayer losses on Fannie Mae and Freddie Mac — in an overhaul of financial regulations Congress passed last month. "What you've seen is two years of lip service," says Rep. Spencer Bachus of Alabama, ranking Republican on the House Financial Services Committee. "The administration and the congressional Democrats have not shown any willingness to address the issue other than to talk about it and have planning sessions."

Other critics say eliminating or overhauling Fannie and Freddie isn't enough: The government must reconsider such bedrocks of housing policy as the mortgage interest deduction and the tax exemption of most capital gains from home sales.

They say these misguided or outdated government policies encourage the United States to massively overinvest in housing, shortchanging other parts of the economy. "There's only so much subsidy to go around at the end of the day," Katz says.

The administration isn't tipping its hand in advance of a conference next Tuesday on housing finance reform in Washington. But officials insist that big changes are coming to housing finance. Treasury Secretary Timothy Geithner has said the reforms must: continue to make mortgage credit widely available; promote affordable housing for home buyers and renters alike; protect consumers from predatory lending; and promote financial stability.

"We have committed to having a proposal in place by early next year," says Federal Housing Administration Commissioner David Stevens. "This is not about delaying. This is about being thoughtful."

Policymakers are moving cautiously because the housing market is on government life support two years after the worst of the financial crisis. "Even today, private capital has not yet fully returned to this market," Jeffrey Goldstein, the Treasury Department's undersecretary for domestic finance, wrote recently. "Fannie Mae, Freddie Mac and other government entities guarantee more than 90% of newly originated mortgages. They are practically the only game in town." (In 2005, they accounted for just a third of the market.)

Square 1: Fannie & Freddie

Whatever Washington does in the next few months will likely focus on Fannie and Freddie.

The housing giants buy mortgages from banks and other lenders. Usually, they package the mortgages into securities and sell them to investors. Sometimes, they keep the mortgages in their own portfolios. The idea: to create a thriving secondary market in mortgages. By selling their mortgages to Fannie and Freddie, banks clear room on their balance sheets to make more loans, ensuring a plentiful supply and making it easier for home buyers to find financing.

Fannie (established by Congress in 1938) and Freddie (1970) were private, profit-seeking companies, but they operated with the implicit understanding that taxpayers would bail them out if they ran into trouble. That assumption gave them access to low-cost financing. They made enormous profits, paid their top executives extravagant salaries and accumulated outsize influence in Washington. They used their clout to lobby for bare-minimum levels of capital to cushion against losses.

Thin capital proved lethal when Fannie and Freddie caught the virus that infected the rest of the financial system in the mid-2000s: irrational exuberance about housing prices. The mortgage giants had strayed from conventional mortgages. In 2000, they held few securities backed by subprime or undocumented Alt-A loans from private lenders; by 2007, those mortgages accounted for nearly a quarter of their portfolios.

When housing prices collapsed, Fannie and Freddie were sitting on huge losses. The government seized the two companies, making explicit Uncle Sam's implicit guarantee. Geithner says regulators couldn't just let the mortgage giants fail without risking "devastating consequences for the housing finance system and the broader economy." The Congressional Budget Office estimates that bailing out Fannie and Freddie will cost taxpayers $389 billion between 2009 and 2019.

Just about everyone agrees that Fannie and Freddie, known as government-sponsored enterprises or GSEs, were built around a fatally flawed model — one in which investors and executives pocketed profits and taxpayers absorbed losses. "After reform, the GSEs will not exist in the same form as they did in the past," Geithner told Congress in March. "Private gains will no longer be subsidized by public losses."

House Republicans are calling for Fannie and Freddie to be put out of business within four years. Democrats don't go that far: "We know we have to replace them," says Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. Whatever supplants Fannie and Freddie in the mortgage business, Frank says, should be either 100% private or 100% public, not a hybrid.

In April, Treasury and the Department of Housing and Urban Development asked various players in the housing market, from lenders to advocates for the homeless, to weigh in on reform proposals. Many call for Fannie and Freddie to be replaced by private firms that enjoy straightforward government support but have a narrower mission and are far more tightly regulated than the failed housing giants.

Tinkering with housing finance is like playing with political dynamite, says Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy. Fannie and Freddie "actually do provide a very large subsidy to homeowners who borrow money," he says. "Here's the thing about upper-middle-income suburban homeowners: They vote. When you take away a huge housing subsidy, they notice."

30-year mortgages

One example: Freddie and Fannie, with their government backing, allowed the proliferation of 30-year, fixed-rate mortgages — a product that lenders would otherwise shun. Reason: Long-term, fixed-rate loans struggle in any interest rate scenario. If rates rise, banks are squeezed, because their revenue remains fixed even though they have to pay more for deposits and other funding. If rates fall, homeowners refinance. "No rational market participant is going to bear that risk," Date says.

Long-term fixed-rate mortgages make sense only if the government is absorbing some of the risk. Reforming housing finance, Date says, could jeopardize the future of long-term, fixed-rate mortgages or raise interest rates on them, perhaps a quarter to half a percentage point.

Even if the government doesn't make radical changes in the way housing is financed, it likely will shift emphasis away from encouraging homeownership and toward helping low-income families find affordable apartments to rent. "We have to be very pro-homeownership," Housing Commissioner Stevens says. But "we strongly believe in a balanced housing policy. ... Not everybody was prepared to own a home."

Until now, government policy has been lopsided in favor of putting people into houses of their own. The Congressional Budget Office reports that government subsidies for homeownership, including the mortgage interest deduction, reached $230 billion last year. That compares with $60 billion in tax breaks and federal spending programs supporting the rental market.

A lot of renters could use the help, the CBO says. In 2007, 45% of tenants spent more than 30% of their incomes on shelter — the threshold for affordable housing — compared with 30% of homeowners.

Things are worse for the poorest renters, households earning 30% or less of the median income in their area: The National Low Income Housing Coalition found that 71% of the poorest households spent more than half their income on rent in 2008.

Rent consumes half of Dorotha Allamand's $1,300 monthly Social Security check. The retired nurses' aide lives in Gridley, Calif., alone except for her three cats. She's on a two-year waiting list for Section 8 rental housing assistance and faces a three-year wait for a senior citizens' housing program. "So here I am, hoping from month to month that I have a roof over my head and enough to eat," she says.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., asked recently "whether federal policy is devoting sufficient emphasis to the expansion of quality affordable rental housing." Owning a home, she said, might not work for everybody.

A post-WWII push

Before World War II, would-be home buyers faced huge obstacles. Banks demanded 50% down payments for mortgages that would last just five or six years; then, the homeowners would have to cough up the balance in a balloon payment. Homeownership remained mired around 40%.

Then came government support for homeownership through Fannie, Freddie, the Veterans Administration and the Federal Housing Administration, a government agency that insures mortgages. The new long-term, fixed-rate mortgages, encouraged by Fannie and later Freddie, made housing payments affordable to ordinary families. The mortgage interest deduction, which cost the Treasury $80 billion in 2009 alone, made homeownership even more attractive.

Housing has an enormous impact on the economy: Harvard University's Joint Center for Housing Studies reports, for instance, that cutbacks in home building and remodeling slashed a full percentage point off economic growth in 2007 and almost that much in 2008.

But urban studies specialist Richard Florida, author of The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity, says that federal programs to promote homeownership don't make as much economic sense as they used to. When families bought suburban homes after World War II, the benefits rippled throughout the economy: U.S. manufacturers cranked out refrigerators and ovens for the kitchen, televisions and sofas for the living room, dressers and vanities for the bedroom, cars to carry Dad from the suburbs to his office downtown.

"It worked fabulously," says Florida, a professor at the University of Toronto's Rotman School of Management. "It really primed the pump of America's industrial machine."

These days, not so much: Appliances and furniture usually aren't Made-In-America anymore. Neither, increasingly, are cars. A housing boom doesn't deliver the bang for the buck that it used to, Florida argues.

High homeownership rates also impose economic costs. They lock workers into houses that can be tough to sell, especially in recessions, so it's harder for them to move to find new jobs. The percentage of Americans changing addresses hit a record low 11.9% in 2008 before bouncing up a bit last year; the so-called moving rate exceeded 20% as recently as 1985.

Florida has found that U.S. cities with high homeownership rates tend to lag behind other cities in job creation and earnings. He argues that the government should nudge the homeownership rate lower, perhaps to around 55%, by cutting the subsidies that prop it up.

Would anyone in Washington risk political hara-kiri by killing housing subsidies to the middle class?

"What really causes the decline of nations is when they become sclerotic, when they get locked into public policy approaches that don't work," Florida says. "I'm an optimist. ... We have reinvented ourselves before."

But for now, he says, "Everybody is talking around the problem. We need to wake up."

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