Okay, so I didn’t really have a Part I, but I alluded to it in my last posting, in which I incorrectly reported that the fair market accounting rule, born of Sarbanes-Oxley (which was born of Enron), had been eliminated.  It wasn’t, and we’re paying for it now as the markets crash all around us.

What I did note correctly in my last posting, however, was that if we looked too closely at how all companies are run, we’d freak out, and that’s exactly what’s happening right now.  Investors are looking at the companies they invest in and freaking out at what they see and sense, especially in the financial sector (though techs were hit hard too yesterday).

And this is exactly how the world as we know it ends–by investors finally figuring out how companies have been run for the past 100 years.

The good news is that this should lead to deflation in prices as the markets tank.  The bad news is that you, as I already have done involuntarily, may soon join the ranks of the unemployed and socially discarded.

I guess we can call the tents where the chronically unemployed and hopelessly broke seek refuge "Bush Bunkers," just as the tent cities were called "Hoovervilles" in the Great Depression.

I guess when all is said and done, when you need big government initiatives, you have to have a Republican president.

Can you imagine the outcry–coming from Republicans–had a Democratic president tried to open relationships with China as Richard Nixon did in the 1970s?

Likewise, were a Democrat in the White House today, the effort to bail out the nation’s financial institutions by socializing huge parts of them (and in AIG’s case, almost all of it) would be stillborn.

Therefore, always elect Republicans as president.

(That being said, I do agree with the Democrats on the addons they’re proposing for the Henry Paulson bailout plan–both the cap on executive compensation and the plan to rewrite the bankruptcy code to allow judges to reduce mortgage obligations.  The oversight bit is a nonstarter since no one watches anything in Washington even when paid to do so.  Exhibits A and B are Fannie Mae and Freddie Mac.)

In the beginning, liberals looked upon Enron and called it corporate corruption.  Fear of corporate corruption begat Sarbanes-Oxley, and Sarbanes-Oxley begat the fair value accounting rule, and the two together begat this week in Wall Street.

Strange how so-called good intentions can backfire.  Ol’ Murphy, hnorable relative and mentor of mine, had it correct: "No good deed goes unpunished."

That is if you truly believe Sarbanes-Oxley and the fair value accounting rule were even necessary in the first place, which I don’t.  When Enron imploded, I thought to myself: "You’d better not start looking at every company’s books.  They’re all cooked to well done already."

Unfortunately, the fair value accounting rule adopted post Enron tinkered too much with the recipe for business success.  On the surface, it seemed like a good idea to force companies not to overvalue their assets as Enron had, but as it turned out, that one rule–built into the computer accounting programs of every financial institution in the U.S.–ran amok this week. 

To be brief, Wall Street institutions holding mortgage-based instruments in their portfolios (it’s a weird science how many times one mortgage can be morphed into other financial products–called derivatives–and wagered on by Wall Streeters) soon found their computers saying those mortgage-based assets were worth zero.  This ruined the firms’ balance sheets.

One would think that a 20-percent decline in real estate values and a 5-percent foreclosure rate would result in either a 5-, 20- or 25-percent drop in these derivative instruments, but oh no, one must adhere to the fair accounting rule, which calls that "over-valuing."

Thus, needless to say, values of venerable Wall Street institutions soon declined, some to the point of extinction, and debt and obligations soared to cover these "worthless" assets, which Uncle Sam is now agreeing to purchase, lock, stock and barrel.

Lehman Brothers deserved to fall, greedy bastards that they were, but the rest of the carnage could have been ameliorated or eliminated had the hysteria over Enron not led to new rules.

Funny, but just yesterday the fair value accounting rule was eliminated.  Strange how reality has a way of stepping in and correcting things.

By George Friedman
Courtesy of Strategic Forecasting

The Russo-Georgian war continues to resonate, and it is time to expand our view of it. The primary players in Georgia, apart from the Georgians, were the Russians and Americans. On the margins were the Europeans, providing advice and admonitions but carrying little weight. Another player, carrying out a murkier role, was Israel. Israeli advisers were present in Georgia alongside American advisers, and Israeli businessmen were doing business there. The Israelis had a degree of influence but were minor players compared to the Americans.
 
More interesting, perhaps, was the decision, publicly announced by the Israelis, to end weapons sales to Georgia the week before the Georgians attacked South Ossetia. Clearly the Israelis knew what was coming and wanted no part of it. Afterward, unlike the Americans, the Israelis did everything they could to placate the Russians, including having Israeli Prime Minister Ehud Olmert travel to Moscow to offer reassurances. Whatever the Israelis were doing in Georgia, they did not want a confrontation with the Russians. 

Demofiend operatives, secure in their belief that High Priest Obama will be installed for life next January, are already scouring photos of Camp David for the site of the first of many high teas, this inaugural one between Barack Obama and Osama bin Ladin to end once and for all the silly misunderstanding between East and West caused by George Bush and Karl Rove.

Afterward, Osama will be appointed the first secretary of International Cultural Affairs in the Obama dictatorship.

In preparation, Barack and his operatives have been studying the teachings of Timothy Treadwell, who proved that treating grizzly bears with kindness would result in reciprocal benign behavior by the huge beasts.

Last seen, Treadwell and his girlfriend Amy Huguengard were not seen, but identified through Treadwell’s video camera after a bear had mauled and disposed of the two of them in an ultimate act of kindness at Katmai National Park, Alaska.

Demofiends immediately blamed Alaska Gov. Sarah Palin for the unfortunate incident of misunderstanding.

An investigation of Palin is under way (even though Palin was not governor when the dismemberments took place in 2003).

US magazine is featuring the scandal on its cover this week.

By Fred Burton and Scott Stewart
Courtesy of Strategic Forecasting

A lot has been written about last month’s conflict between Russia and Georgia, and the continuing tensions in the region. Certainly, there were many important lessons to be gleaned from the conflict relating to the Russian military, Russian foreign policy and the broader geopolitical balance of power.

One facet of the Russian operations in Georgia that has been somewhat overlooked is the intelligence aspect. Clearly, the speed with which the Russian military responded to the Georgian invasion of South Ossetia indicates that they were not caught off guard. They knew in advance what the Georgians were planning and had time to prepare their troops for a quick response to the Georgian offensive.
 
It is important to remember that the Russian operation in Georgia did not happen in a vacuum or without warning. It was a foreseeable outcome of the resurgence of Russian power that began in 1999 when Vladimir Putin came to power, and an outward demonstration of Russia’s increasing assertiveness. 

if I lived in Russia, you’d probably find my bullet-in-head-riddled body lying next to an isolated road somewhere, someday.

That’s how the country Barack Obama wants to snuggle up next to treats its critics.

NEWS ITEM:  Russian journalist and critic Magomed Yevloyev yesterday was picked up by police at an airport in Southern Russia, near or in a place called Ingushetin, and was shot in the temple while being transported to the police station.

The New York Times report called the shooting "an accident" while an unattributed Orange County Register account labeled it "an incident."  There is a big difference, of course.  (The OCR also described the man as a "Web site owner" rather than as a journalist per se.)

Now, let’s give the Ruskies the benefit of the doubt.  We all know it’s common practice for police in all civilized countires to hold a gun to journalists’ heads as they transport them to police headquarters for questioning on their political beliefs.

Anything can happen, you know.

Oops, sorry.  One less critic.