Category Archives: Uncategorized

The Fed: Enron’s “Raptors” for Government Finance

The Federal Reserve Balance sheet is to the Federal Government what Fastow’s Loss Hiding “Raptors” were to Enron Corporation.

The Federal Government has a debt of at least $14.7 Trillion. Additionally, the Federal Reserve has a debt of at least $2.5 Trillion.

According to Dean BakerCenter for Economic and Policy Research:

There is a simple way to avoid a sharp rise in the interest burden associated with a higher debt. The Federal Reserve Board can buy and hold the debt that is currently being issued by the Treasury to finance the deficit. The logic of this is straightforward. If the Fed holds the debt, then the interest on the debt is paid to the Fed. The Fed then returns the interest to the Treasury each year, meaning the net cost to the government is zero.

This technique is known as monetizing the debt.

In August, 2010 the FOMC (Federal Open Markets Committee) actually stated they would begin monetizing the debt with this anouncement:

“To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.”

Fed Gov’t Debt ($17.7T) + Fed Reserve Debt ($2.5T) = $20T. Debt is already over 140% of GDP.

The important lesson here, is that the Federal Reserve Balance Sheet can continue to absorb an infinite amount of Federal Gov’t debt, for Zero fee.

So, about Enron.

Enron created off balance sheet limited partnerships, these were named LJM1, LJM2 and Raptor I, I, III and IV. When Enron didn’t have enough money, it would borrow money from these off balance sheet partnerships. When it lost money, it could hide those losses in these partnerships.

Sound familiar?

The Federal Government doesn’t have enough money. Nobody wants to buy Treasuries to lend it more? No need to raise interest rates – just let the Federal Reserve hold the Federal Debt on it’s balance sheet, and since profits of the Federal Reserve are paid to the Federal Government, nothing is really owed, so we can keep this cycle up indefinitely.

Until the music stops.

The more junk stored on the Federal Reserve balance sheet, the less likely anyone outside of the Federal Reserve will buy treasuries – yet each time the Fed buys, it intrinsically expands the dollar supply and thereby devalues the dollar.

The Chinese Central Bank is determined to store overpay for large piles of US treasuries, and the US Central Bank is also determined to overpay for large piles of US treasuries, and other Toxic assets.

Future borrowing needs to move from easily devalued national currencies to a more difficult to devalue trans-national standard. I mentioned Special Drawing Rights two years ago, and they were really a pretty novel solution to the US debt problem at the time. Once the Chinese and Japanese central bankers come to their senses, if the Treasury wants to sell debt to anyone besides it’s Enron style Special Purpose Entity (the Fed), then it’s going to have to denominate debt in something more stable.

AdAge: Why Google wants out of China

My buddy Kevin Erwin put article together back in March. Interesting read.

Companies like General Motors have invested heavily to gain a foothold in China and only recently started to see profits. China now has plans to increase domestic vehicle market share. The road to Chinese revenue is paved with lots of dollars spent in vain as government restrictions and favoring domestic goods and services increase.

I remember an O’Reilly Media un-conference I attended in Beijing a few years back. One of the more memorable quotes from an audience member left me with a profound impression of business in China. He noted that western companies coming to China should take note their patents are meaningless.

It’s hard to get your hands on good research anywhere, but in China it’s a downright challenge. Cash is still king in China. Internet purchases have ramped up slowly. People have less disposable income so the dominant portion of purchases occurs for household items.

Today’s Pithy, Cautionary Note on Economic Trends – Politics – The Atlantic

Today’s Pithy, Cautionary Note on Economic Trends – Politics – The Atlantic: “Just now at the Aspen Ideas Festival, Bharat Balasubramanian — generally addressed as ‘Dr. Bharat,’ left — an engineering executive from Daimler AG in Germany, made an off-hand observation of what globalization and tech innovation will mean for the US economy:

‘I will state that there will be a polarization of society here in the United States. People who are using their brains are moving up. Then you have another part of society that is doing services. These services will not be paid well. But you would need services. You would need restaurants, you would need cooks, you would need drivers et cetera. You will be losing your middle class.

‘This I would not see in the same fashion in Europe, because the manufacturing base there today can compete anywhere, anytime with China or India. Because their productivity and skill sets more than offset their higher costs. You don’t see this everywhere, but it’s Germany, it’s France, it’s Sweden, it’s Austria, it’s Switzerland…. So I feel Europe still will have a middle level of people. They also have people who are very rich, they also have people doing services. But there is a balance. I don’t see the balance here in the US.’

Dr. Bharat was here mainly to talk about engineering developments at Mercedes, notably a car designed to respond to collisions just before they occur (via radar and other sensors to detect imminent crashes) and apply a variety of pre-protective, hunkering-down measures. Details on the ‘Pre-Safe’ system here. But his matter-of-fact observation of why companies in the United States might match any firms anywhere in raw innovativeness and profitability, while American society as a whole becomes more polarized and caste-like, was sobering to put it mildly. Not a new theme, obviously, but presented quite starkly. Andy Grove of Intel to the same effect here;  background from the Atlantic here and here.


Bonus ‘it’s a big world’ note: Dr. Bharat is originally from Madras/Chennai and is an alum of the storied Indian Institute of Technology/Bombay. But he went to work for Daimler as a very young man and (as he jokingly pointed out himself) now speaks English with a rich Jawohl!-style German accent rather than Indian English. This is a more charming combination than you might think.

The USA and Regional Security in Asia (Part 1)

In Does American Need a Foreign Policy, Henry Kissinger suggests that America’s best role in Asia is similar to the UK’s role in europe.

A hostile Asian bloc combining the most populous nations of the world and vast resources with some of the most industrious peoples would be incompatible with the American national interest. For this reason, America must retain a presence in Asia, and its geopolitical objective must remain to prevent Asia’s coalescence into an unfriendly bloc (which is most likely to happen under the tutelage of one of its major powers). Americas relationship to Asia is thus comparable with that of Britain toward the content of Europe for four centuries. Winston Churchill described that situation eloquently:

For four hundred years the foreign policy of England has been to oppose the stronger, most aggressive, most dominating Power on the Continent… These four centuries of consistent purpose amid so many chances of names and facts, of circumstances and conditions, must rank as one of the most remarkable episodes which the records of any race, nation, state, or people can show. Moreover, on all occasions England took the more difficult course. Faced by Philip II of Spain, against Louis XIV under William III and Marlborough, against Napoleon, against Wiliam II of Germany, it would have been easy and must have been very tempting to join the stronger and share the fruits of his conquest. However, we always took the harder course, joined with the less strong Powers, made a combination among them, and thus defeated and frustrated the continental military tyrant whoever he was, whatever nation led. Thus we preserved the liberties of Europe, protected the growth of its vivacious and varied society… It is a law of public policy which we are following and not a mere expedient dictated by accidental circumstances, or likes and dislikes, or any other sentiment.

In the twenty-first century, an analogous objective for the United States in Asia poses a more complex challenge. The European balance of power was sustained by nation states of substantially homogeneous ethnic composition (with the exception of Russia); many of the major Asian states (China, Russia, India, Indonesia) are continental in size and multiethnic in composition. The European equilibrium was seamless in the sense that all major states were part of it – that is, the interplay of their alliances constituted the balance of power; thus a crisis over Serbia in the Balkans escalated into the First World War. The Asian balance of power is more differentiated and therefore more complex.

In Europe, two world wars and the insufficient scale of the European nation-state in the face of global challenges have made the nineteenth-century balance of power irrelevant. The nations of Europe no longer treat one another as strategic threats; threats from outside Europe have been dealt with by the alliance with the United States.

By contrast, the nations of Asia have never acknowledged a common danger, having quite differing views about what threatens their security. Some have historically feared Russia; others worry mostly about China; still others are concerned about a resurgent Japan; some in Southeast Asia consider Vietnam the principal danger. India and Pakistan are each obsessed with the threat of the other.

To be sure, it is in the American national interest to resist the effort of any power to dominate Asia – and, in the extreme, the United States should be prepared to do so without allies. But a wise American policy would strive to prevent such an outcome. It would nurture cooperative relations with all of the significant nations of Asia to keep open the possibility of joint action should circumstances require it. But it would also seek to convey to China that opposition to hegemony is coupled with a preference for a constructive relationship and that America will facilitate and not obstruct China’s participation in a stable international order. Confrontation with China should be the ultimate recourse, not the strategic choice.

State of the People’s Republic

From President Obama’s State of the Union address.

We can’t afford another so-called economic “expansion” like the one from the last decade — what some call the “lost decade” — where jobs grew more slowly than during any prior expansion; where the income of the average American household declined while the cost of health care and tuition reached record highs; where prosperity was built on a housing bubble and financial speculation.

Interesting that this sounds a whole lot like the so-called economic “expansion” here in China…

Sec of State Clinton on Internet Freedom

Interesting excerpts. See the State Dept for full text. Clinton was very considerate of official Chinese reaction to the speech, and pointed out that the USA can’t really force China’s hand in this matter. In other locations, particularly the middle east, the US is prepared to take a more active role.

On their own, new technologies do not take sides in the struggle for freedom and progress, but the United States does. We stand for a single internet where all of humanity has equal access to knowledge and ideas. And we recognize that the world’s information infrastructure will become what we and others make of it. Now, this challenge may be new, but our responsibility to help ensure the free exchange of ideas goes back to the birth of our republic. The words of the First Amendment to our Constitution are carved in 50 tons of Tennessee marble on the front of this building. And every generation of Americans has worked to protect the values etched in that stone.

There are, of course, hundreds of millions of people living without the benefits of these technologies. In our world, as I’ve said many times, talent may be distributed universally, but opportunity is not. And we know from long experience that promoting social and economic development in countries where people lack access to knowledge, markets, capital, and opportunity can be frustrating and sometimes futile work. In this context, the internet can serve as a great equalizer. By providing people with access to knowledge and potential markets, networks can create opportunities where none exist.

States, terrorists, and those who would act as their proxies must know that the United States will protect our networks. Those who disrupt the free flow of information in our society or any other pose a threat to our economy, our government, and our civil society. Countries or individuals that engage in cyber attacks should face consequences and international condemnation. In an internet-connected world, an attack on one nation’s networks can be an attack on all. And by reinforcing that message, we can create norms of behavior among states and encourage respect for the global networked commons.

Taken in context, this reads to me like a veiled threat against China. Of course, the NSA’s job is cyber-espionage and cyber-terrorism, so it’s not really something new. Just part of The Great Game.

To use market terminology, a publicly listed company in Tunisia or Vietnam that operates in an environment of censorship will always trade at a discount relative to an identical firm in a free society. If corporate decision makers don’t have access to global sources of news and information, investors will have less confidence in their decisions over the long term. Countries that censor news and information must recognize that from an economic standpoint, there is no distinction between censoring political speech and commercial speech. If businesses in your nations are denied access to either type of information, it will inevitably impact on growth.

As it stands, Americans can consider information presented by foreign governments. We do not block your attempts to communicate with the people in the United States. But citizens in societies that practice censorship lack exposure to outside views. In North Korea, for example, the government has tried to completely isolate its citizens from outside opinions. This lopsided access to information increases both the likelihood of conflict and the probability that small disagreements could escalate. So I hope that responsible governments with an interest in global stability will work with us to address such imbalances.

And censorship should not be in any way accepted by any company from anywhere. And in America, American companies need to make a principled stand. This needs to be part of our national brand. I’m confident that consumers worldwide will reward companies that follow those principles.

In fact, I would like to see more governments, if you disagree with what a blogger or a website is saying, get in and argue with them. Explain what it is you’re doing. Put out contrary information. Point out what the pitfalls are of the position that a blogger might be taking.

In Memorial of Erwin, Battle Creek, Michigan

I was checking my email tonight and saw a google alert come in about “Erwin” on GoneTooSoon. My name isn’t that common.


1981 – 2009

Location Battle Creek, Michigan
Age 28 years
Born Jan 27th 1981
Death July 27th 2009

Erwin was loved by everyone who ever got the chance to truly get to know him. He was a very talented rapper and enjoyed being around his friends and family. He was very intelligent, taking college courses in sociology and psychology and reading self improvement books. He leaves behind his loving mother Kim, father Raymond, grandma Edeith and grandpa Norman and his brother Deon along with a host of cousins, aunts and uncles and friends along with Sandy a family friend. To carry on his legacy he has a son, whom he cherished. Erwin is greatly missed but will NEVER be forgotten. We love you Erwin.

Please accept my sincerest condolences. I hope the Erwin family of Battle Creek, Michigan is able to be together during this holiday season.

Macau: More gambling than Vegas?

I was recently surprised to hear that Macau gambling revenues have overtaken Las Vegas. The explanation is that Chinese people love to gamble, and when they hit the tables they simply play much bigger than people in America. There is some truth to this. In the USA, the overall rate of “pathological gambling” is 1.8% for Chinese Americans, and 3% for Chinese immigrants. However, that doesn’t seem to explain the entire picture.

One trip to Macau and you’ll probably be asking yourself what the numbers really mean. In typical China Fashion, it means less than you think.

'07 Gambling Revenues: Macau  $7.0B   Vegas   $6.5B
VIP Rooms: Macau 65% Vegas 0%
Slot Machine Revenue: Macau 5% Vegas 60%
Gambling % of Revenue: Macau 95% Vegas 40%
Length of Avg Visit: Macau 1 Vegas 4
Hotel Rooms: Macau 13,000 Vegas 130,000

65% of money bet in Macau is in the “VIP Rooms”, which typically equals money laundering. Without that, Macau is at about $2B/year. In terms of pure table games, Macau and Vegas are nearly equal – around $2B/Y, but Slot Machines contribute more than double table game revenues, and the vacation/convention business accounts for 2.5x the gaming total. In summary:

Macau: $2.5B (less money laundering)
Vegas: $16B (including slots and retail)

Those numbers basically match what you feel when you’re in Vegas.

You may be wondering how VIP Rooms work. James Fallows’s new book “Postcards from Tomorrow Square” explains.

The Chinese government doesn’t allow rich people to take their money out of the country easily, it allows them to convert only small amounts of renminbi each year. So a factory owner from the Pearl River Delta or a corrupt public official who has grown wealthy, will head to Macau.

One Western banker with extensive experience in Macau pointed out that the city functions as one big, quasi-official money-laundering site via the numbers gold dealer’s shops on either side of its border with mainland China.

Chinese visitors buy bold with RMB from shops on their side of the border and then sell to dealers on the Macau side for Hong Kong dollars – a ‘hard’ currency that can be converted into U.S. dollars or euros and sent anywhere in the world.

Something similar can go on when wealthy Chinese visit a VIP room. The room’s operator lends them money for gambling – often large sums, worth thousands or millions of U.S. dollars. The loan is in Hong Kong dollars, the main betting currency of Macau (its own currency is the pataca). If the Chinese gambler wins, he now has hard currency. If he loses, he settles the debt back in China, in RMB. A related practice is “doubling down” which the bets are made in one currency, say Hong Kong dollars, but the players agree to settle later in another, like U.S. dollars. Exactly how the debts are paid, and just where the touts get their substantial operating capital, is obscure. But the rooms and other Macau-based services are assumed to be a major channel for money flowing illegally out of China – and North Korea.

Fallows also wrote one of my favorite quotes ever summarizing doing business in China:

“These standards include such vague-sounding principles as rule of law, transparency, and accountability, which in practice mean: Can you trust a contract? Can you win a lawsuit? Do you know who’s really making a decision? Will the decision be made in favor of whoever provides a “red envelope” containing the biggest bribe? How many sets of books should a company be keeping, anyway? How much money laundering is too much?”
“Postcards from Tomorrow Square” p108

Using SSH to bypass The Great Firewall/GFW

This looks like a long process, how does it work after I’m done?

  • You’re ssh tunnel to your server outside the GFW will be active *whenever* your online
  • When you need to bypass the GFW, simply select “SSH” from your locations menu
  • When you don’t need to use your proxy, simply switch your location back to Automatic

What you need:

Configuring SSH key based authentication can be very difficult if you haven’t configured it previously. The idea is:

  • Generate a key set on your local computer (with ssh-keygen on the local system)
  • The Key Set will make two files on your hard drive, a “Private Key” and a “Public Key” (~/.ssh/ on the local system)
  • Note that the “Private Key” is many “lines” long, but the “Public Key” is a single line (no newlines/returns)
  • The server that you’re logging into keeps a list of keys that are authorized to access the system (in ~/.ssh/authorized_keys on the server)
  • Copy the single line of your “public key” file onto any line of your “authorized keys” file.
  • Make sure the permissions of both your public keys and private keys are “correct”. “Insecure” file permissions are the most common cause of SSH key’s failing to authenticate.
  • Always keep your .ssh dir and all your keys chmodded to 700 and 600 respectively.
  • Use “ssh -vvv” if you have trouble logging in, this will give you diagnostic output.

Verify that you’re able to connect to the system you’ll be using to proxy via SSH.

If you’ve got the Apple Developer Tools installed, then go directly to the AutoSSH website, download the source, compile and install. In case you don’t, I’ve complied a copy that you can download here.

Just extract with: [shell]tar zxvf autossh.tgz -C /[/shell]

Use foreground mode to verify that you’re able to connect to the system of your choice via AutoSSH.

[shell]autossh -M 19999 -D 9999 -N[/shell]

Use cURL to verify that your proxy is working

[shell]curl —socks4a localhost:9999 -v[/shell]

Now that your proxy is online, the next step is to define a new location in your Mac OS X “Network” Profiles.

In System Preferences / Network:

  • From the Locations dropdown choose “Edit Locations” then add a new location called “SSH”
    Screen shot 2009-12-01 at 上午01.07.36.png
  • Return to the main Network window and choose “Advanced” then “Proxies”
    Screen shot 2009-12-01 at 上午01.07.28.png
  • Enable “SOCKS Proxy” setting the proxy server to “localhost” and port “9999”
    Screen shot 2009-12-01 at 上午01.08.09.png
  • Under bypass proxy setting for these hosts and domains, you can enter any sites that will be slowed down by proxing via your SSH connection:
    [plain]*.local, 169.254/16, *.cn, *, *, *, *, *, *[/plain]

Last, we just need to configure autossh to start when our Mac boots up. We’ll use a Login Hook so that the script will run regardless of which user logs in.

You’ll need to create the shell script to use as the Login Hook, save it as /usr/local/bin/loginhook, and make it executable (chmod 755).

[shell] #! /bin/bash

if [ "$(ps ax | grep autossh | grep -vc grep)" -lt 1 ]; then
  sudo -u {USER} /usr/local/bin/autossh -f -M 19999 -D 9999 -N -o ServerAliveInterval=3 {SERVER}


If you have trouble connecting and need to debug the autossh line, first try disabling the “-f” so that the program runs in the foreground and returns output. If you need to send the output to a log file, you can edit the loginhook script to something like:

[shell]sudo -u {USER} autossh -M 19999 -D 9999 -N {SERVER} 2&>1 >> /tmp/loginhook.log[/shell]

(Note that you’ll need to replace {USER} with the short name of the user account that is providing the SSH public key and {SERVER} with the host your connecting to)

[shell]sudo defaults write LoginHook /usr/local/bin/loginhook[/shell]

If your ever in doubt as to weather or not your new Proxy is running correctly, save the following script as /usr/local/bin/gfw. Run this script to instantly check on the status of your proxy.

[shell]curl –socks4a localhost:9999 -v[/shell]

Reboot, Test and Enjoy!



-万圣节 (Oct 31st Halloween)
-圣诞夜 (Dec 24th Christmas Eve)
-圣诞节 (Dec 25th Christmas Night)
-元旦前夕 (Dec 31st New Years Eve)
-情人节(Feb 14th Valentines)
-国庆节(Oct 1st)