Catch Him If You Can!

The talented Mr. Madoff…Wall Street Journal, Ruth Madoff, White Collar Crimes

According to NY Times reports, Mr. Madoff expressed remorse for having hurt thousands of people.   He asked for 12 years in prison, which allows him to leave at the ripe age of 83.  The judge Denny Chin gave him 150 years.  Let’s all toast to Judge Chin!

There will be Madoff-type people anywhere we go, and in any tier of society.  That’s an inescapable fact.  But my question is: where were the regulators and employees?  As someone who’s been looking for a job and evaluating her own qualifications every day, I find it hard to believe that someone who is talented enough to work at one of the world’s largest (albeit fraudulent) investment firms was so naive and oblivious that they couldn’t smell something fishy going on right under their nose!  Did they literally believe that their investments were yielding double-digit returns for 20 straight years?  Anyone with a shred of common sense should know that such a feat is not possible.  And if they did know…should they be prosecuted as an accomplice?  This is a lose-lose situation for all involved…either you are too dumb or you are a criminal.

And of course there’s the SEC…where were they for the past 20 years?  All the smart and qualified folks at the SEC should be very fearful of their jobs because they have lost all credibility in the eyes of the US citizens.  We need a new set of regulators with a new world view.   We need to replace the SEC altogether!   Clearly they either lack the skills or the moral compass to sniff out the largest and longest Ponzi scheme in history!   Earlier I posted a blog about how our media is so focused on  politicians’ affairs, sex scandals, and what they’re wearing than their performance in office.  Well here’s another great example of that.  Not only did the SEC mess up the subprime mortgage system, they also messed up the credit system and Wall Street.  Wall Street is like a kid who had great genes and great potential, but due to negligent parents and bad play buddies, grew up to be failure and disgrace.  I believe it still has those same great genes and potential, but it needs some foster parents and some new friends.  Perhaps a new neighborhood would be good too…I recommend Iowa or Kansas.

Let us forget about Michelle Obama’s dresses and Iran’s political turmoil.  We need to straighten up our own backyard before straightening out others’.  Sentencing after the fact is not enough.  It’s like dieting: you have to prevent from getting fat, rather than get fat and then try to lose it.  We are simply not demanding enough of our independent regulators to do a better job on a daily basis.   Where’s the media in exposing those incompetent regulators?  Where’s the media in exposing Madoff’s office accomplices who saw the fake numbers and didn’t utter a word?

Here’s a take-home lesson for all of us:  To maintain our integrity, we must not only do the right thing ourselves, but we must make sure that any observed wrongdoing is also dealt with appropriately.   We must actively prevent another Kitty Genovese, or another Bernie Madoff.

Apartment scams!

Check out the New York Times article on recent apartment scams and how to protect yourself:  NY Times Article.

This morning I surfed the Times for some light and fun articles.  I came across one about renters being scammed by middle-men who claim to be subletting, or are renting out an apartment at a huge discount.   According to many of the victims, the scammers would advertise on Craigslist and ask for an upfront cash payment that can range from a few hundred bucks to over $1400!   They would even meet with customers in person to talk about the details, show them photos (obtained from another agent’s website), or even show them around the apartment!  This makes it extremely hard for shoppers to smell the fraud before losing money because most legitimate agents also go through this process.  The Times article recommends that renters protect themselves by asking for some references and/or speak to others in the apartment before committing any amount of money.  Don’t rush into something just because it’s cheap!  In many cases, it’s cheap for a reason…and if it seems too good to be true, then it probably is.

This sadly reminds me of the real estate fraud in China that saw it’s peak about two years ago.  Like in the U.S., home prices in China (which are usually condos rather than suburban houses) were increasing faster than inflation and any other growth measure.  The 3-bedroom condo that my grandparents bought in an upscale neighborhood cost 1.1 million yuan!  Hard to believe right?   Well, it’s definitely a ripe market for fraudulent agents who serve as middlemen…take your money (often the deposit is 500,000 yuan or a large percentage of the sale value) and disappear.   This trick almost duped my aunt when she was in the middle of making a bank funds transfer (at the bank) for an apartment.  She got a brief glimpse of the account name and number that she was supposedly depositing her money into, and realized that it wasn’t the same person she was meeting with for all those weeks!   Even with so many things being “confidential” these days, she DEMANDED more information on that account and on the account holders.  The bank gave her some info that still didn’t add up so she just canceled the transfer only to find out a week later that the agent was fake.   Thousands of others fell victim to these types of scams and lost everything!  Typically the result is that the seller of the condo parts with their property (gives rights to the agent), then the agent sells it and gains a hefty payment from the buyer, but the buyer never gets the house and the seller never gets the money.  The middle man gets everything!  In the year that this happened to my aunt, 18 people committed a mass suicide by jumping off the building that their condo was supposedly in because they had literally lost all of their life savings!  Thousands of others were affected, and many more continue to be victims today!

We are now seeing such despicable fraudulent activities in the United States as well.  When making any transactions, NEVER give cash upfront, or any type of account information without asking for the seller’s information.  Instead, ask for as much of the seller’s credentials as possible, including outside character references because it is your right to know who is getting your hard-earned money!   Caveat emptor!!

A solution for our slumped market.

According to a recent Bloomberg news article, the former CEO of IBM, Louis Gerstner, wants to propose an 80% tax on short-term capital gains.   This is in an effort to eliminate day-trading and a transaction-based Wall Street that cares nothing about the investment itself.  Gerstner also suggests a 60% tax on investments held 6 months or more, and 0% tax on investments held 5 years or more. Below is the current breakdown of capital gains taxes from about.com.

Type of Capital Asset	Holding Period	Tax Rate
Short-term capital gains (STCG)	One year or less	Ordinary income tax rates up to 35%
Long-term capital gains (LTCG)	More than one year	5% for taxpayers in the 10% and 15% tax brackets (zero percent starting in 2008)
		15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets

Now without getting into the merits of specific percentage numbers, I would just like to say that this is a great idea.  This will decrease short-selling and allow companies to pursue R&D without worrying about institutional investors selling off their stock!  The reason I say this is because right now tech companies and research institutions are having to cut back on long-term investments in R&D and other ventures because it decreases their cash account, which lowers their earnings ratios.  Wall Street hates this because their investment horizon usually lasts for only a few months!  Companies are scared to death of this adverse effect on their stock prices!

Personally I wonder why our corporate credit system is so closely tied to a company’s equity (meaning stock price).  We all know that stocks fluctuate daily due to irrational behaviors so why build a system that relies on irrationality?  This problem is like the mark-to-market accounting that practically destroyed the balance sheets of most banks and investment houses.  The way mark-to-market works is that your assets are valued based on their going market rate, so if there’s a bubble out there, your assets are worth a lot.  When there’s a bust, such as in the housing decline, all your assets will drop in value and you will be forced to sell because your creditors have a legal right to demand repayment of funds when your collateral assets become worthless to them.  Basically your debt-to-equity ratio cannot exceed a specified threshold.   Now of course people will also start selling your stock, which lowers your equity value even more…causing you to continue selling more assets.  It creates a positive feedback loop of forced-selling because of how everything is tied to equity value.  And equity is in turn based on irrational investor psychology!

So in response to Mr. Gerstner’s suggestion for increasing the ST capital gains tax, I think it would be much more effective if coupled with a change in the way credit is allocated to corporations.  We must either do away with mark-to-market, or free some corporate activities from equity value so as to eliminate the cyclical effects of undulating stock prices.  The Emergency Economic Stabilization Act of 2008 has already initated an investigation on the effects of mark to market accounting, and has subsequently eased the mark to market rules.  Financial institutions are still required to mark transactions to market prices, but more so in a steady market and less so when the market is inactive.  Personally, I think this is crap.  Essentially this is saying that when the market is good and high, mark to market.   But when the market is down (which is inevitable), you don’t have to mark down your assets.  Are you kidding me?  This will drive up prices in the long run by so much!

Instead we need a hybrid of market and book values.  For instance, 30% of the asset will be the current market price while the other 70% will be the book value.  This way, the company’s assets can fluctuate with the market, but it will be supported by the fundamental book value regardless of market activities.   This should be instituted along with Mr. Gerstner’s suggestion for increasing the 6-month capital gains tax to 80%.

Info about the car rebate.

There is a $1 billion limit for this program, so hurry if you would like to get a trade-in credit!  Check out the official details here: http://www.cars.gov/

After doing some research on the various car options, the most cheapest trades are (in rough order) the Honda Fit, Corolla, Mazda3, Civic, Camry, Mazda6, Altima, and Chevy Malibu.  All of these will net you at least the $3500 rebate, and some will earn you $4500!  Of course all the hybrids will net you the $4500 rebate because of its incredible fuel efficiency, but they are more expensive and therefore will cost more to insure.   The best and cheapest hybrid is the Prius which starts at 22,00.   I didn’t even consider the Ford or Nissan hybrids because they’re not that fuel efficient and cost a great deal more than the Prius.  Hope this helps!

Duke Business School

Apparently I just got accepted into Duke business school…the master’s program!   Woohoo!

Our focus is all wrong…

South Carolina’s governor just admitted that he cheated on his wife!  (WSJ article).    The Republicans really need to get their personal lives in line if they want to continue to hold office.  I’m sure we all have our opinions on the morality of this act, but more interestingly, I wonder why Gov. Sanford decided to come clean and literally ruin his family’s lives.   Is this courage or stupidity?

Like celebrities, political figures are often put in the spotlight and held to unattainably high standards in all aspects of life.   Professionally, they must be smart, eloquent, charismatic, politically correct, law-abiding, etc…all of which are understandable.  Yet personally, they must be happy, normal, sane, good-looking, and possess the fruits of “The American Dream” (a normal and happy family).   Are you kidding me??  Who has ALL of that in today’s day and age?  We’ve all seen the massive publicity surrounding Sarah Palin’s daughter’s teen pregnancy scandal.  We’ve heard tabloid rumors about McCain’s daughter being “too fat” (which she’s not).   Bush’s daughters used to party too much.   My point is this–politicians and their families are so closely scrutinized that it’s impossible for these people to live normal lives!   Once they do slip (which we all do at times), the media latches on like a blood-sucking leech!   If so many every-day folks can’t even get their jobs and personal lives under control (including their finances, their kids, their health, etc.), why should we work so hard to bring down the lives of our politicians?   Is this going to alleviate the overall pressure so they can do the job that they were elected for?   Heck NO!

In Governor Sanford’s case, he did a terrible thing by being unfaithful, by lying, and by being bad at his job.   Of these three, we elected him to be honest and to fix the state.  Yet he is slammed for his affair instead.  His poor job as a governor did not warrant scrutiny for 6 years (even though that’s what we elected him for), but his personal life becomes a the key determinant of how good of a person/governor he is.   I’m starting to think that I should run for office because my personal life is pretty swell!

As more news stories unfold in the next few days regarding his affair, we must remember that the politicians must ultimately be judged for the job they did while in office, rather than in their own private time.   As a public, we must not fall into hypocracy as we accuse politicians such as Eliot Spitzer of being hypocrites.  I’m sure many of the tabloid writers and media reports have personal problems and/or professional problems.   I myself am unemployed right now, so that’s a HUGE professional problem!  If Governor Sanford does resign, he must do so because he’s lied and has done a bad job as governor.  His personal life and “infidelity” issues are his own problems that we should not mingle in.    Nonetheless, his admittance of a mistake regarding something that’s really none of our business is admirable.

StickWars 1.5 Live–finally!

Check out the latest development on StickWars!  http://johnehartzog.com/category/stickwars/

StickWars 1.5 Live after nearly a Month

Posted by Eric in StickWars on June 24th, 2009

After nearly a month of delay, StickWars 1.5 is live with important bug fixes and a few new features, including a few achievements. Luckily I’m all ready to push out v1.6 which includes a new boss enemy, the giant stick figure. I also added a lot of small fun features, so as the ability to throw and slam stick figures into one another to kill them. You can also now kill the more powerful enemies by slamming many small stick figures into them. I think this adds yet another way for talented players to save money and reach higher levels and scores .

In addition, I’ve re-written parts of the code for the basic functions behind levels and sound, and somehow I managed to fix a bug that I didn’t know existed. The game no longer crashes sometimes when you attempt to load a new level–the bug before was due to my background sound engine, except none of my debugging tools had located it there. Basically the last crash bug has been fixed, and since I’ve been adding features to this version for the past week I have not seen it crash once. I’m really proud of the stability of the game now.

There is a new loading screen that I’m particularly proud of–it allows me to include short hints that answer the most common questions I get from users based on reviews, emails, and forum posts. It’s a lot nicer to be able to read a short hint while you are waiting 3-6 seconds for the level to load, and maybe help out your gameplay, rather then just looking at the word ‘loading’ over your current screen. I can also throw in a few words about upcoming versions, such as my brief request for feedback about charging in game $0.99 for the new multi-player challenges coming in the next version. I’d love to get some player feedback on this–I feel most people are happy paying only $0.99 for StickWars, and I don’t want to raise the price for the same basic game (campaign mode), but these multi-player challenges are a whole new ballpark that I feel deserves another $0.99. However, I’m willing to listen to my users who feel strongly enough about this to contact me. I will be providing a few of the challenges free so a player can test them out.

The bad news is StickWars has fallen off the top 10 for the first time since it first rose up there in April. But sitting at #11, I’m hoping these new features and fixes will bring new life back to the game and drive more players to it.

My research article online.

While honing my resume the other day, I decided to re-read some of my past works.   I came across this online publication of my research paper written in the summer of 2006.   Wow I was one smart kid!   The other article is published in the  Journal of Cutaneous Pathology (Jan. 2007) and isn’t available online.   Now I have to pay to read my own published article…woohoo!

Invitation

Hey guys, I just want to put this out there—anyone who wants to contribute to this blog is welcome to do so!   I love to hear comments from folks about all kinds of stuff.   Thank you to Johny and LA for contributing comments.   Please keep them coming and debate my posts as you see fit.   I can even set you up with an account to be a regular contributor!

Right now I’m drinking ginger & cinnamon water.   I read that ginger is great for digestive health so I just boiled a few chunks of it and added cinnamon and Stevia.   It’s super tasty!   I suspect that part of my enjoyment from this odd concoction is due to the psychological satisfaction of knowing that it is super good for my health.   The ancient Chinese used to drink this stuff for medicinal purposes, so it can’t be bad for you.   It’s definitely better than diet coke.   Hehe.

Okay, I’m off to reading some more news and educating myself.   The situation in Iran is particularly intriguing right now and reminds me of Tiananmen Square.   Perhaps I’ll blog about that next…we’ll see.   Cheers!

New Credit Card Law–everyone must check this out!

Today I was surfing the White House’s website and read about the recent Credit Card Act (“CARD Act”) that was passed on May 22, 2009 and will take effect in Feb 2010.   The goal is to protect consumers from undisclosed fees, double-cycle billing, billing traps, and other loopholes that were previously unfavorable to the consumer.  This Act was led by House Chairman Barney Frank and Representatives Carolyn Maloney and Luis Gutierrez, as well as Senators Chris Dodd, Shelby & Levin (I don’t know their first names).

According to the White House, about 80% of American families own credit cards (and many with multiple cards).  About 44% of these carry a balance on their cards, and the average cardholder pays about $15 billion in fees each year.   I don’t think this law will solve all of our problems, because banks will simply innovate other measures to get around the new laws.   Nonetheless, it’s a fabulous start.  Here are some of the highlights.

1.  Bans unfair and random rate increases due to that “any time, any reason” clause on most disclosure statements.  Also, contract terms must be stable for the first YEAR!   Firms may continue to offer promotional rates, but these must last for 6 months!  (However I anticipate that this 6-month requirement will severely lower the number promotional offers.  This will hurt those consumers who are vigilant about their contract terms…).  Also, I sense that issuers will significantly hike rates or impose penalties after this 12-month term if you have a bad track record during this time…this was what happened in the subprime mortgage market.

2.  Fair Interest Rate Calculation – Ever wonder why your balance never seems to decrease?  Well, card companies were applying your excess payments to the lowest interest rate balance first, leaving your most expensive accounts still accumulating interest!   This law will force companies to apply your excess payments to the highest interest rate account first, thereby significantly decreasing some people’s debt accumulation rate.

3.   Ends Late Fee Traps such as weekend deadlines (when all banks are closed), due dates that change monthly, and too-short due dates (this law will give you at least 21 calendar days from the time of bill mailing).

4.   Restricts fees on subprime and low-limit credit cards.  (This is great because poor people should be helped out by accessing credit.  They should not be put into further bankruptcy with unbearably high interest rates!).

5.   Lets consumers choose whether they will go over their credit limit when purchasing, so as to avoid over-the-limit fees.   (I anticipate that the fees associated with over-the-limit purchases will increase a LOT after this law takes effect).

6.   Issuers must show how long it would take to pay off the existing balance plus interest cost if the consumer pays only the minimum due.   Issuers will also have to display the payment amount and interest cost to pay off the existing balance in 36 months (although I don’t yet know where this number comes from).

7.   The government will provide template disclosure statements so that all terms and fees will be highlighted/disclosed clearly.   No more fine print that requires a magnifying glass!  Regulators will be required to obtain public feedback and market research on a biennial basis to improve these models (and other credit card issues).

8.   AND MY FAVORITE – Issuers that violate these new rules will face tougher penalties.   (I hope these penalties are as harsh as those high interest rates and dangerous loopholes that issuers have historically used on consumers!)

So that’s the law in a nutshell.   One thing I dislike about it is the 36% interest rate cap (according to a Wall Street Journal report).  I would prefer this to be lower, but a senior policy counsel for the Consumers Union says that the value was derived using mathematical models….too bad I have no interest in reviewing these models at the moment.

You can take a look at the Act from the White House’s site.   Cheers!