Category Archives: Uncategorized

When it comes to improving public understanding of tax policy, nothing has been more troubling than the deeply flawed coverage of the Wisconsin state employees’ fight over collective bargaining.

Economic nonsense is being reported as fact in most of the news reports on the Wisconsin dispute, the product of a breakdown of skepticism among journalists multiplied by their lack of understanding of basic economic principles.

Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to “contribute more” to their pension and health insurance plans.

Accepting Gov. Walker’ s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.



Well the inevitable remains inevitable. Talk about Israel and Egypt and some folks will become enraged and cast dark aspersions – there must be some evil reason why he discusses the topic. One reader responded to Mr. Rosner’s JPost column about me by remarking that I must be a professor of “traitors.” The readers who post comments on JPost columns tend to have strident views. Sadly, I have distressed at least one reader of our UMKC blog. “Anonymous” writes:

The context is that Anonymous is responding to my reply to his inquiry about why I was “obsessed” with JPost columnists. I explained that I was so interested because the JPost columnists were implicitly criticizing President Obama for not successfully bribing the Egyptian army to launch a wave of terror against the Egyptian people for the purposes of keeping Mubarak in power and keeping the Camp David Peace Accords in force. I explained why Israel refused to follow this strategy for moral and pragmatic reasons – and expressed the view that it was obscene to denounce the U.S. for refusing to adopt a strategy that Israel rightly refused to follow.

So let me go through Anonymous’ complaint. First, he thinks terror is as important as fraud and corruption. I said nothing about their relative “ranks.” Indeed, I pointed out that the suggested corruption was designed to produce a wave of terror by the Egyptian army against its citizens.

Second, he asks “were you turning a blind eye to PLO corruption?” PLO corruption is irrelevant to the strategy that the JPost columnists were implicitly advocating of the U.S. bribing Egyptian generals in order to induce them to murder and maim Egyptian civilians. No one was implying that Israelis were uniquely corrupt. The corruption at issue was Egyptian corruption.

Third, Anonymous thinks my posts are “anti-Israel” unless I can produce multiple posts attacking PLO corruption. Putting aside the fact that the “PLO era” (if I understand how Anon. is using that phrase) ended before I began making posts a bit over two years ago, the writer misses a more fundamental point. None of my columns are about Israel — they are about particular JPost columnists. My columns are distinctly pro-Israel (without being anti-Muslim). I stress that Israel has, despite its military dominance, refused for moral and pragmatic reasons to employ “Hama Rules.” I stress that Israel has refused to attempt to bribe Egyptian generals to induce them to launch a wave of terror against their citizens for the purpose of keeping Mubarak in power. Anonymous makes the error of conflating specific JPost columnists with Israel. Again, I stress that Israel refused to follow their strategy suggestions – Israel returned the Sinai to the nation from which it was taken by force of arms – Egypt. Israel refused to employ the bribery/terror strategy. I believe that the policies the columnists have recommended would have been anti-Israel, anti-Egypt, and anti-U.S. I think President Carter’s successful shepherding of the Peace Accords was pro-Israel, pro-Egypt, and pro-U.S. I think that if President Obama had employed the bribery/terror strategy that the JPost columnists advocate it would have been anti-Israel, anti-Egypt, and anti-U.S.

While I did not blog until fairly recently, I did write a letter to the editor of Al-Ahram, Egypt’s leading English-language paper, nearly a decade ago. I’ve set out the full text below.

But I add a caution. What if I didn’t have this letter to the editor? Would it be appropriate to write that I was a “traitor” or imply that I was “obsessed” about Israel for bigoted reasons? Why not respond to the substance of our arguments rather than our imagined motives?

Shmuel Rosner, in his Jerusalem Post column, criticizes Professor Telhami’s prediction in the New York Time’s “Room for Debate” feature that: “Benjamin Netanyahu will likely be seen by future Israelis as the prime minister who lost Egypt.” Rosner’s response: “you say ‘prediction’ – I say ‘wishful thinking.” Rosner explains:

Rosner’s comment brings to mind the famous joke. It is 1936. A German Jew stops just at the entrance to a meeting hall where a Nazi speaker is whipping up the crowd.

The Jew yells an answer before the rest of the crowd can react: “the bicyclists!” The Nazi speaker and the crowd are stunned. The bewildered Nazi finally asks, “why the bicyclists?” The Jew responds: “why the Jews?”

I understand and agree with Rosner’s criticism of Telhami’s prediction. It makes no sense to blame Bibi (Netanyahu’s popular nickname) for something “on which he had no control.” But the JPost is chock full of columns, including one by Rosner, that blame President Obama for Mubarak’s fall. Unlike Telhami’s column, which is respectful, the tone of the JPost columns attacking Obama is exceptionally strident. Why doesn’t Rosner recognize that it is absurd to blame either the bicyclists (Obama) or the Jews (Netanyahu) for Mubarak’s loss of power? Why not blame Mubarak and his cronies and family – who the Egyptians came to despise?

The efforts by JPost columnists to blame Obama for Mubarak’s fall are less coherent than Telhami’s critique of Netanyahu. Ms. Honig claims “Obama ushered in chaos even if he chose Cairo as his venue for the 2009 speech in which he sucked up to Islam [sic].” Obama gave a speech on June 4, 2009 that supposedly caused street revolts in Cairo 18 months later. In reality, the revolt in Tunisia sparked the protests in Cairo and the revolt in Tunisia was caused by the usual combination of corrupt, failed, and autocratic leadership plus a random event. As even Honig concedes, Mubarak could not remain in power in any event because “Mubarak is old and ill.” He also had no successor with legitimacy that Israel would find desirable. Honig projects magic powers onto Obama – a speech, in English, by an American produced a national movement in Egypt.

But Rosner asks the right question, though he fails to ask it of his JPost colleagues: how was Netanyahu or Obama supposed to “control” either the Egyptian military or the protestors? Rosner finds the answer to that question about Netanyahu so obvious that it is clear that he considers the question foolish. Netanyahu could not “control” either the Egyptian military or the protestors. Netanyahu had no magic button he could push that would give him such control. Rosner sees all this with clarity. But he and his colleagues cannot see that Obama had no magic button. No one seriously believes that Obama can give a speech and cause the residents of Cairo to start or to end a revolt. The only conceivable magic button is bribery of senior Egyptian generals.

There are three crippling problems with the hypothesized Obama magic bribery button. First, what is supposed to happen if the bribe succeeds? “Successful” bribery would require the Egyptian army to kill, torture, and imprison enough Egyptians to terrorize the protestors to the point that the protests ended and did not resume. Even if the bribe and the repression succeeded, how long would Mubarak live and what destabilizing forces would the campaign of terror against Egyptians unleash? Second, the bribe would likely fail and blow up in the face of the nation offering the bribe. Imagine Al Jazeera interviewing an Egyptian general explaining that a foreign government offered him a $200 million bribe in return for a promise to order the Egyptian army to attack the protestors. Third, if Obama has a magical bribery button that can create a “successful” Egyptian army war of terror against the Egyptian people – then Netanyahu does as well. Mossad can run a “false flag” bribery operation of an Egyptian general by representatives of a pseudo-Saudi prince. Indeed, since JPost columnists have long employed their most derisive and insulting prose to demonstrate that the American government is hopelessly incompetent in understanding and influencing Arab and Iranian officials, Mossad should be dramatically superior to our CIA in arranging such bribes and directing the resulting campaign of terror against the Egyptian people. If Obama “lost” Egypt by failing to bribe the Egyptian generals, then Netanyahu “lost” Egypt. (Indeed, every major nation with a intelligence service “lost” Egypt under this “logic.”)

The three crippling problems with the magic bribery button theory also prompt a question: why do the JPost columnists think that Obama has a duty to act as Netanyahu’s “Shabbos Goy”? Is there some secret codicil to the Israeli-Egyptian Peace Accords under which America agreed to bribe the Egyptian military to terrorize and murder Egyptian civilians should they ever revolt? How many Egyptians did we agree to kill? If Israel felt it was essential to its national security to use bribery to spark a wave of terror against the Egyptian protestors then it was Israel’s responsibility to undertake that murderous strategy and to take the moral and strategic consequences of unleashing the terror. It is obscene for Israelis to criticize the U.S. for refusing to act despicably when Israelis (correctly!) refuse to engage in those same despicable acts. We should never act as Israel’s or any other nation’s Shabbos Goy.

Why didn’t Bibi order Mossad to bribe the Egyptian generals to order the army to attack Egyptian civilians? Because doing so would have been morally depraved, unsuccessful, and harmful to Israel. I am a white-collar criminologist. I study fraud and bribery by elites and have helped conduct investigations to detect it and systems to reduce it. Corruption is a severe problem in Egypt (and Israel), and corrupt senior leaders pose a risk to national security. But bribery has great limitations even in corrupt nations. A general who grows rich through kickbacks from defense contractors will typically refuse even huge bribes that would require him to murder fellow citizens who are peacefully demonstrating for change. It is easier to bribe the military to engage in terror when the nation is fighting a vicious civil war along ethnic divisions in which terror is the norm. That is not the situation in Egypt – and no Western nation understood that fact better than Israel. I predict that the Mossad did not present using bribery to instigate a wave of terror against the Egyptian protestors as an option to Netanyahu. I predict that the same is true of the CIA and Obama.

The CIA, contrary to JPost columnists’ typical derision, combined bribery, small units of special forces, and smart air strikes brilliantly in the initial campaign in Afghanistan in response to the 9/11 attacks. But the CIA also learned early in that campaign the limits of relying on bribery (and financial incentives such as rewards) to capture or kill the most senior Taliban and al-Qaeda leaders. Afghanistan also demonstrates the typical weakness of trying to create a reliable national government – seen by the population as legitimate – through bribery and the provision of ample opportunities for corrupt gain.

Mubarak lost Egypt – to the Egyptian people – who no longer feared or respected him or his children. None of us know what will come next. Mubarak’s successors could be far worse. Neither the U.S. nor Israel has a magic button to push that will determine his successors. There are great limits to U.S. and Israeli power and life is uncertain. That is the nature of the real world.

The Jerusalem Post’s columnists’ consuming hatred of President Obama has prompted several of them to make clear their vision of Israel’s future.  That vision is so grim, so self-destructive for Israel, and so dangerous for America that it behooves Americans to find out the direction in which some of the most influential Israeli columnists have been successfully, and dramatically moving Israel’s policies.  Mubarak’s fall from power has caused several JPost columnists to excoriate Obama, claiming that he acted like President Carter (who these columnists claim “lost” Iran).  The fear of these columnists is that Mubarak’s successor might abrogate the 1978 Camp David Peace Accords, which produced the “cold peace” between Egypt and Israel that has endured for over 30 years and which the IDF considers to have been an enormous strategic benefit to Israel’s national security.  The embarrassing problem for these JPost columnists is that it was President Carter who worked so successfully to broker the Peace Accords.  It is inconvenient that one of the JPosts’ favorite demons is in fact the man who produced the Peace Accords.  The JPost columnists that support the Peace Accords typically deal with the inconvenience by ignoring Carter’s role.    also has columnists, however, who attack Carter – for bringing peace between Israel and Egypt!  These columnists favor eternal war against Muslims.  Indeed, they explicitly favor conquest through war.  Israel should seize other nations’ oil (and beaches!).  Ms. Honig complains:

Freddie Mac made a terse announcement Wednesday in a securities filing about the resignation of its chief operating officer, Bruce Witherell. Freddie said that Witherell resigned “for personal reasons.” His departure was effective immediately and he received no termination benefits. He had been receiving several millions of dollars in annual compensation from Freddie. The Wall Street Journal reporter commented:

It is true that pay at Fannie and Freddie used to be even more criminogenic. According to the Los Angeles Times:

Those were the days, when you could in a single year be made wealthy for destroying a company and causing scores of billions of dollars of losses to the taxpayers. The title of Akerlof & Romer’s famous 1993 article has never looked more prescient — “Looting: the Economic Underworld of Bankruptcy for Profit.”

I do not know why Witherell resigned. I hope he is not facing a family emergency. I write to ask why he was hired. Witherell’s principal experience was with Lehman. In particular, he was chief executive officer of Aurora Loan Services from 2003 to 2006. Lehman owned Aurora. Aurora specialized in purchasing and reselling “liar’s” loans.

I testified before the House Financial Services Committee on April 21, 2010 about Lehman and Aurora’s pervasive accounting fraud. A copy of that testimony can be found here.

The key point is that Aurora was a massive fraud — purchasing and selling often fraudulent mortgages. It is virtually certain that Freddie purchased material amounts of Aurora’s fraudulent mortgages (directly, or by purchasing collateralized debt obligations (CDOs) that were supposed to be backed by Aurora’s liar’s loans). As my colleague Randy Wray has emphasized, we need a new term for the toxic MBS (mortgage-backed securities) because they often weren’t backed by mortgages due to lender fraud.

The proverbial bottom line is that a global search for talent, after Fannie and Freddie’s second descent into accounting control fraud bankrupted both firms, Fannie and Freddie (with its regulators’ blessing, chose Witherell. (Heidrick & Struggles, which describes itself as the leading executive search firm, issued a press release praising itself for finding Witherell.) When Obama knew he had to clean up the Stygian Stables that were Fannie and Freddie — knew that their senior managers and their regulators had failed catastrophically — he left in charge the failed regulatory leadership team. The regulator team allowed Freddie to select as its COO one of the leaders in the creation of the liar’s loans that were the greatest single contributor to Freddie’s failure and the financial crisis. This was bizarre politics — the senior regulator Obama left in power until his voluntary resignation was a Republican chosen because he was George Bush’s close friend since their days together in prep school. It was even more insane regulatory policy.

Freddie (and Fannie) should be suing Aurora/Lehman for their frauds. Freddie and Fannie should be making thousands of criminal referrals against Aurora’s fraudulent loans. Witherell would be a key witness in the cases. Freddie placed him in impossible positions due to his conflicts of interest.

Aurora was notorious — why would anyone, much less Freddie, hire a top official from one of the firms most responsible for the frauds that destroyed Freddie and cost the taxpayers billions of dollars in losses? Is there anything that a business leader can do that disqualifies him from receiving millions of dollars annually — paid for by the taxpayers? It’s bad enough that our elites now loot with impunity. Do we really have to make them even richer?

Fannie and Freddie have no need to pay these high salaries to senior managers. It was the perverse executive compensation that drove the accounting control frauds at Fannie and Freddie — as the SEC explicitly charged. Executive compensation created the perverse managerial incentives that destroyed Fannie and Freddie. This was an unanticipated consequence of their privatization. Because Fannie and Freddie were privatized, their officers designed their compensation system in the same perverse manner as most firms (Bebchuk & Fried 2004). The mangers stood to gain enormous compensation if they inflated short-term accounting income, and as Akerlof & Romer famously observed, accounting fraud is a “sure thing.” Mr. Raines explained in response to a media question what was causing the repeated scandals at elite financial institutions:

If we are going to continue Fannie and Freddie’s existence then the business model they should follow is simple and requires modest executive pay. Fannie and Freddie should purchase only prime loans and it should promptly package those loans to form MBS and sell the MBS. This will minimize credit and interest rate risk. Fannie and Freddie can hedge the modest interest rate risk created by the “pipeline” of inventory without the need for any esoteric derivatives. The safe business turns out to be a simple business.