SJPD to San Jose: You Want to See Police Records? Go Stick It Where the Sun Don't Shine

I can't believe I missed this--in a narrow 6-5 vote, San Jose City Council rejected greater transparency into police records and stats. The following six council-members voted against government transparency: Chuck Reed, Nancy Pyle, Pete Constant, Pierluigi Oliverio, Judy Chirco, and Rose Herrera. Remember to vote them out come election time.

The council voted 6-5 against the Sunshine Reform Task Force proposal. The vote came after almost an hour of public testimony and an even longer discussion by the council on the issue, proposed one year ago. Mayor Chuck Reed voted against the proposal along with Vice Mayor Judy Chirco and council members Nancy Pyle, Pete Constant, Pierluigi Oliverio and Rose Herrera. [SJ Merc, by Tracy Seipel, 10/21/2009]

While most residents appreciate our city's rank-and-file officers, it is incredible that our city council can't appreciate transparency when it comes to a police department that has cost local taxpayers millions of dollars in legal settlements and that has been accused of using excessive force without due cause.

Speaking of police officers, wouldn't it be nice to know whether SJPD Officers Kenneth Siegel, Steven Payne Jr., Jerome Smith and Gabriel Reyes have attacked unarmed college students before? (These officers were involved in a much-publicized beating of SJSU student Phuong Ho.) Perhaps, but that's nowhere near the level of detail the San Jose Task Force initially recommended--at first, they only wanted general statistics:

A quarterly report on the SJPD's use of force in arrests, including the race and ethnicity of the person arrested, some geographic designation of the location of the arrest, the reason for the use of force by category...whether a warning was given prior to use of force, the type of force used by category (for example, firearms, Taser...), and the injuries sustained by the arrested party and officer, if any.

This recommendation may have been a response to the SJPD arresting numerous drunk persons, many of them Latino, in downtown San Jose. Later, the Task Force recommended that the SJPD and other local government agencies stop using a legal technicality to prevent the release of information:

Below, I am suggesting a new approach to the deliberative process issue. I continue to consider it critical that the city abandon its use of the deliberative process exemption, as Milpitas and San
Francisco have done, because the exemption undermines the very foundation of open government laws: The deliberative processes of government are precisely what citizens have a right and a need -- indeed, a responsibility -- to witness. If there is a vigorous debate among city staffers about the best approach to a controversial issue, that debate needs to be brought into the open so the residents of San Jose can participate in it--not cloaked by a dubious privilege.

The Task Force seems to believe the government is relying on technicalities to prevent full disclosure and is taking small steps to improve transparency. Seems simple enough so far, right? Later on, however, when the Task Force tries to extend transparency to police records, things get interesting. I wish I was a journalist covering the courthouse beat, but I have to tell you upfront I had a hard time figuring out exactly what happened. Although I read through some of these links, I am still a little confused, so take the rest of this post with a grain of salt.

First, let's give readers some basic legal background so they can understand the goals of the "Sunshine" Task Force. Ordinarily, a government agency may reject a citizen's request for information under a "balancing test": the "Balancing Test is a general exemption in the California Public Records Act (CPRA) that allows the City to withhold records only when 'the public interest served by nondisclosure clearly outweighs the public interest served by disclosure.'"

While the language seems clear, it is subject to wide interpretation. At the end of the day, some anonymous government employee gets to decide whether your request "clearly outweighs the public interest," and if s/he is against disclosure, s/he can reject your request under the "balancing test." (Although the balancing test was intended to balance the right to keep personal identifying information private vs. the public's right to a transparent government, in practice, it is often used to arbitrarily deny requests for information.)

It appears the "Sunshine" Task Force recommended only selective or minimal use of the arbitrary, subjective "balancing test" exemption. More specifically, the Task Force recommended replacing the subjective "balancing test" with other specific exemptions. In other words, either a public record fell under a specific exemption designated by the Task Force, or it didn't--and if it didn't, then the records had to be released. Problems arose when the Task Force extended its recommendations to police department records. Here is the specific section relating to police records:

Police records are already the subject of pervasive statutory exemptions (Government Code sections 6254(f) and 6254(k), Penal Code section 827 et seq., Government Code section 1040, etc.). They are also the subject of specific provisions of the proposed Sunshine Ordinance. There is no need for a balancing test.

The Task Force's recommendation is not to apply a balancing test when police records are involved. As I understand it, the recommendation, if implemented, would allow easy access to police records and statistics. For example--assuming the recommendation is accepted--if you request information asking for the number of people the SJPD arrested on September 2, 2009 on Market Street, the police must do its best to provide you with the information. It cannot rely on the "balancing test" and tell you to stick your request where the sun doesn't shine. (At the same time, the request is very broad, so the SJPD might charge you quite a bit of money for the staff research time or require you to be more specific. Most requests are usually very simple, like, "Provide me with all police reports from 2002 to 2009 relating to MY NAME.")

Why did the Task Force decide not to apply the balancing test exemption to police records? The Task Force reasoned that the law already provides plenty of exemptions that protect information relating to police records, so there is no need for additional layers of legal procedure. However, it appears that when the SJPD realized they might have to release records that included names of police officers or other information that would allow the public or a newspaper to verify their data, they probably raised holy hell.

After getting complaints from the police union, the City Council pushed back, saying it wanted to protect crime victims' personal information. This is a sensible concern, if applied to crime victims. After all, if I got mugged, I wouldn't want unfettered access to my name and contact information in a police report. The Task Force apparently agreed and created more restrictive guidelines for releasing information about crime victims; however, that wasn't good enough for the SJPD, who continued to push against open disclosure of records. The Council eventually sided with the police union, allowing them to use the arbitrary "balancing test" to deny access to police records.

Later on, it appears the Task Force tried to placate concerns about crime victims' privacy by emphasizing an additional factor: "the right to privacy afforded to victims by the California Constitution." However, the Council added two words to the Task Force's revised recommendation--"and others"--perhaps to further prevent access to records relating to police officers:

“…including the right of privacy afforded to victims and others by the California Constitution.”

Thus, it appears the Council allowed the SJPD to avoid releasing information relating to police officers (i.e., "and others") instead of addressing the original concern, which was to ask the SJPD to protect crime victims' information.

Thanks to the 6-5 decision rejecting some of the Task Force's recommendations, there's no sliver of sunshine when it comes to police records and statistics. Good night, and good luck.

Bonus I: Earlier this month, a court ordered Santa Clara County to pay a free speech group $500,000 for failing to disclose public records. See here.

Acting Santa Clara County Counsel Miguel Márquez "said that cost of the legal settlement is not expected to hurt programs in a county confronting massive budget shortfalls. 'I don’t think $500,000 in and of itself is going to impact programs.'”

Bonus II: Kudos to Bert Robinson, Assistant Managing Editor, San Jose Mercury News. He seems to be very active on the Task Force.

Update: follow-up with City Councilmember Pete Constant HERE.

Lockyer Calls Out State Legislature

California Legislators Got Drunk on Stock Market Gains

I've been studying California's budget. From 1998 to 2009, California added over 80,000 full time government employees. That means future taxpayers must pay for an additional 80,000+ pensions, lifetime medical benefits, and annual salaries. However, adding 80,000 more government employees is not the major problem, as long as we reform their generous long-term benefits.

The biggest problem is that starting in 1999, California's legislators assumed revenue/tax numbers based on stock market gains/sales and spent accordingly. From 1998 to 2000, spending jumped dramatically, but from 1999 to 2008, expenditures declined only once--right after the tech bubble popped, in 2003/2004. (Note: the tech bubble's peak was in 2000; hit a low in September 2002; and continued in a tight range until 2007.) Basically, it seems our legislators banked on an ever-increasing stock market to finance spending. Oops.

Public sector unions aren't helping. Even though the stock market money isn't there anymore, public sector unions are still acting like it's 2004. Behind closed doors, various unions have negotiated generous benefit packages, such as lifetime medical benefits and pensions. Unfortunately, it is difficult to project the cost of such benefits because no one knows how long a state employee will survive after retiring. As a result, if taxpayers desire consistently balanced budgets, it makes more sense to pay public sector employees higher salaries while reforming their generous benefits. (CalPERS, the state's public pension/health care fund, already has over $200 billion in assets.) Fiscal reform is possible without threatening state workers' job security, because government workers will continue to be unionized--reform would affect only the hard-to-project costs inherent in pensions and lifetime medical benefits.

As far as education is concerned, I am concerned we are spending too much money on it without seeing results. The state's website indicates that approximately 50% of the General Fund is reserved for K-14 education. In addition, California's Constitution requires that school coffers receive first crack at the largess:

"From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education."

Education spending is probably a sacred cow that needs to be slimmed down before we see any real change in California's fiscal health.

See here for a detailed webpage outlining the major issues, with plenty of stat-porn for the political wonks.

Bonus: Meg Whitman promises to cut 40,000 government jobs--back to 2004 levels--if we elect her Governor; however, I am unclear how she will accomplish that goal without incurring massive litigation and settlement costs. Perhaps the 40,000 positions she wants to cut are non-union or part-time? If so, then it doesn't appear that cutting these positions will reform the problem of generous public sector benefits, which are typically reserved for full-time government workers.

Meg Whitman is probably the most successful female CEO in Silicon's Valley's history, but I wish she'd be more specific about how she plans on accomplishing her goals. If she does well in the Governor's race, expect to see her as the GOP's Vice Presidential candidate in 2012.

Keith Bardwell: What Century is This Again?

Reason #33847 you don't want the government meddling in your private affairs: openly racist judicial officers who don't think they're racist.

More here on Louisiana's Keith Bardwell. Someone should tell him that accepting the repeal of Jim Crow laws doesn't automatically make him non-racist.

My Favorite Part of the Bible

My favorite Bible verse is Psalms 139: 

O LORD, thou hast searched me, and known me; Thou knowest my downsitting and mine uprising; thou understandest my thought afar off; 

If I take the wings of the morning, and dwell in the uttermost parts of the sea; even there shall thy hand lead me, and thy right hand shall hold me; 

If I say, "Surely the darkness shall cover me"; even the night shall be light about me; For thou hast possessed my reins: thou hast covered me in my mother's womb; When I awake, I am still with you. 

When I was at UC Davis, a fellow English major shared the above verse with me. I can't remember her name, but I hope she's doing well. 

O LORD, thou hast searched me, and known me; Thou knowest my downsitting and mine uprising; thou understandest my thought afar off; 

If I take the wings of the morning, and dwell in the uttermost parts of the sea; even there shall thy hand lead me, and thy right hand shall hold me; 

If I say, "Surely the darkness shall cover me"; even the night shall be light about me; For thou hast possessed my reins: thou hast covered me in my mother's womb; 

When I awake, I am still with you.

See also, the Koran. Islam requires all believers to accept Jesus Christ's and Moses' teachings: 

Say, "We believe in God and what has been sent down to us, and what was sent down to Abraham and Ishmael and Isaac and Jacob and the Tribes, and what Moses and Jesus were given, and what all the Prophets were given by their Lord. We do not differentiate between any of them. We are Muslims submitted to Him." (Sura al-Baqara: 136) 

The messenger has believed in what was revealed to him from his Lord and so have the believers; each has believed in God, His angels, His scriptures and His messengers. We do not differentiate between any of His messengers. They say, "We heard and we obeyed; we seek your forgiveness, Our Lord, and unto You is our destiny" (Sura al-Baqara: 285) 

By the way, if anyone has insight on Biblical passages mentioning prophets after Jesus, please post a comment. The Bible seems to accept the possibility of future prophets. See Revelation 11:10 (read entire chapter for proper context); Matthew 10:40-41 & especially Matthew 23:34; John 13:20 & 15:20; and Acts 11:25-30, 13:1, and 15:32 (mentioning prophets born after Jesus's birth). More here.

Bonus: "Those who believe [in the Koran], and those who follow the Jewish [scriptures], and the Christians and the Sabians, any who believe in Allah and the Last Day [of Judgment], and who work righteously, shall have their reward with their Lord; on them shall be no fear, nor shall they grieve." -- Koran, Al-Baqarah, 2:62 

The Simpsons on Unions

The Simpsons show always has the best lines:

You can't treat the working man this way. One day, we'll form a union and get the fair and equitable treatment we deserve! Then we'll go too far, and get corrupt and shiftless, and the Japanese will eat us alive!

Oh, the tragedy.

Music Video re: Racial Profiling

Bad Arguments: "But What about That?"

Awesome quote from Johann Hari on bad arguments:

http://www.huffingtonpost.com/johann-hari/how-to-spot-a-lame-lame-a_b_185787.html

There is one particular type of bad argument that has always existed, but it has now spread like tar over the world-wide web. It is known as "what-aboutery."

When you have lost an argument -- when you can't justify your case, and it is crumbling in your hands - you snap back: "But what about x?" You then raise a totally different subject, and try to get everybody to focus on it -- hoping it will distract attention from your own deflated case.

Or, as my friend Slawek says, "Just 'cause you punched someone in the face, it means you should kick him in the b*lls too?" In other words, mentioning something unrelated to the specific issue cannot make your proposal okay by default. In fact, that kind of discourse is a mere distraction, like, "Sure, California is going bankrupt, but those drug dealers down the street are really terrible." My immediate mental response to this kind of "argument" is, "Sigh...yet another person who needs a symbolic logic course."

Anyway, below is an example of "what-aboutery," from an ordinarily very smart and witty person. I make a comment that government workers, including teachers, should view furlough days as necessary to prevent state employee layoffs. A state employee (and very well-respected former law school classmate) responds:

Teachers are not the culprits during these tough times, nor are government employees – except on the same level that all citizens of this nation are culpable for our years of willful ignorance.

Reflect on how we got into this mess. While you may consider anyone working outside the private sector as suckling at the public teat, your ire is misdirected: the biggest galactophages are those considered 'too big to fail.' How ironic that their peculiar form of 'socialism' is meant not to help the poor, but those who make Croesus appear the pauper. One wonders, how many teachers could have been paid a living wage out of the thinnest slice of that $700 billion wheel of government cheese?

The function of this government is not to drop and gobble when Wall Street snaps its fat fingers; to pay the rich and hope they pass the gristle down in the form of job creation and loans. (And Wall Street has shown it will not share: it has stopped lending, raised interest rates or retracted credit, and rewarded the destroyers for continuing the destruction.)

Properly, the function of this government is to allow its citizens the inalienable right to life, liberty, and the pursuit of happiness. Education is the singular cornerstone upon which these rights of self-determination are built.

To place this in your terms, think of how many self-propelled and self-augmented small business owners could arise from all that learnin' those teachers would provide – should they be given the proper resources. You should encourage those having an employment that serves the people to do just that: serve the people; as opposed to your stance that some are suffering, ergo, all* must suffer. (*read, excepting Wall Street).

Here's my response:

Listen, I don't like Wall Street's excesses any more than you do--but I am not going to excuse out-of-control gov spending (80% increase in the past 10 yrs!) and unusual public sector benefits just because someone says, "What about Wall Street?"

You say that education is the cornerstone of fundamental rights. But no one is trying to separate children from an adequate education. (This is called a "straw man" argument.) In fact, California's Constitution requires that school coffers receive first crack at the largess:

"From all state revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education."

Instead, we are questioning why certain workers have guaranteed benefits while others do not. We are questioning why state workers have access to $201.9 billion in pension assets while 12% of the state is unemployed. [And far more people lack any substantial retirement plan beyond Social Security.] We are questioning why state spending has increased 80% in the past ten years without a concomitant increase in liberty, life expectancy, and happiness. We are questioning why state workers--such as yourself--are complaining about furlough days when such days are necessary to prevent layoffs.

We want government workers to be on the same level as the people who pay their salaries and benefits. Is that too much to ask?

His rebuttal:

I question why you think a government worker has no right to express frustration at the present situation. It does not serve the state of California to furlough revenue collecting agency employees: save $60 million, but lose out on $600 million in uncollected revenue.

But this discussion is about a teacher furlough. Yet you shortchange a student by giving him or her only 92% of the days to learn 100% of the curriculum and then send them off to compete on standardized tests against students from other states without the furlough.

My response to his rebuttal:

Finally, someone pulls out the "Think of the children!" rhetoric. You are assuming that children who receive seventeen fewer days of instruction will end up worse off. Quality matters more than quantity. Think about it--17 extra days with a crappy teacher will harm a child, not help him.

Also, parents and their expectations matter far more in establishing academic success than any particular teacher or length of instruction. There are exceptions, of course. For example, see The Hobart Shakespeareans. Note, however, that one reason this program works is b/c it is non-traditional and isolates highly motivated students. Unfortunately, such programs are rare exceptions, in part due to pushback from unions and public school teachers, who fail to advocate innovation and who refuse to accept competition from charter schools.

Bottom line: any gov worker who complains about furlough days either fails to understand basic finance (i.e., if an employer doesn't have money, it can't pay its workers) or prefers state employee layoffs.

I don't question gov workers' right to complain, but I wish gov employees could see the frustration in the private sector now that unemployment benefits are expiring. When 12% of Californians--almost all of them non-gov employees--are in danger of losing their homes and don't know whether they can feed their kids, complaining about an 8% to 14% pay cut seems obscene.

Quite frankly, gov unions should have volunteered for higher pay cuts instead of balancing the budget on the backs of the poor. Unfortunately, the Republicans/rich and the Democrats/gov unions put their own interests above the poor, the weak, and the disabled when they passed the budget. So much for public service.

His response:

What do you want? Everybody is frustrated. Should our employment go away, we are all in danger of losing our homes. Government unions did offer concessions, the contract did not pass the governor's desk. So rather than putting all on equal footing, the State has balanced the budget by targeting some state workers, as well as social service programs for the poor and underserved.

You speak of equal footing. How does working for the government place one on unequal footing? Should government workers to be allowed to accept gifts? Should they be allowed to invest, without disclosure, in any company they see fit? Should their salaries be made private and not published in the newspaper? Should they be allowed profit sharing and bonuses in good times? Make partner? Matching fund 401K plans? Should they go away on weekend 'team-building' retreats to Napa?

What do you want?

After ending the discussion by citing a Simpsons quote on unions, I sent him a message addressing his questions. Basically, I want a middle class (and a third viable political party).

Bonus: if you scroll down this post, you will find a discussion on the tragic Fort Hood shootings, where one person compares the shootings to 9/11, and I promptly expose her lack of reasoning.

Furlough Days = No Mass Layoff Days

"Furlough" days would be a lot more popular if we called them by their proper name, i.e. "Thank God We Didn't Lay Off Thousands of Government Employee" Days. The state doesn't have the money to pay all of its bills, including employee salaries. When a business runs into this problem, they lay off workers. California, on the other hand, gives its workers three day weekends and avoids mass layoffs. Somehow, government workers find reasons to complain.

When California discovers a money tree that pays 100% of everyone's salaries regardless of the state's fiscal condition, let me know. Until then, hooray for furlough--I mean, no mass layoff days!

In the meantime, let's keep looking for the special government-salary-and-benefits-tree, where money drops out of out thin air, unrelated to the state's economy and actual tax revenue.

Bay Area Association of Muslim Lawyers: Video

To Be a Muslim is to Be Jewish and Christian Also

Interesting article on European Muslims here.

If you call yourself a Muslim, I believe you must also consider yourself Jewish and Christian. The Prophet Mohammad has said that the three Abrahamic religions are essentially the same:

Abu Hurairah reported Allah's Messenger as saying, "I am the nearest of kin to Jesus, son of Mary, in this world and the next. The prophets are brothers, sons of one father by co-wives. Their mothers are different but their religion is one. There has been no prophet between us."

After the Prophet Mohammad died, non-progressive governments took over the religion and instituted practices inconsistent with the Prophet's vision. The Prophet's battle against non-progressive governments has existed from the day he received his vision. For more, see the 1976 Anthony Quinn film, The Message.

More here.

Bonus: from PBS: "Muhammad once came upon a group of Muslims arguing about which religion had primacy over all others. This was the occasion for one of the Qur'an's most often quoted revelations: 'If God had so willed, He would have made all of you one community, but he has not done so, in order that he may test you according to what he has given you; so compete in goodness. To God shall you all return, and He will tell you the truth about what you have been disputing.'" (Qur'an: 5:48.)

Bonus: "Those who believe [in the Koran], and those who follow the Jewish [scriptures], and the Christians and the Sabians, any who believe in Allah and the Last Day [of Judgment], and who work righteously, shall have their reward with their Lord; on them shall be no fear, nor shall they grieve." -- Qur'an, Al-Baqarah, 2:62 

Credit Freeze: a Cold Day for Consumer Protection?

A security credit freeze is one way to achieve peace of mind instead of worrying about identity theft. I just tried to extend a credit freeze and replace a lost PIN. I forgot my PIN, so I needed a new one in case I wanted new credit. I contacted all three credit bureaus--Equifax (EFX), Transunion, and Experian--to request new PINs.

I learned in California, a credit freeze is indefinite, so I didn't need to worry about "extending" my freeze. (In less consumer-friendly states, a freeze may be limited to seven years unless extended by the consumer.) If you are a victim of identity theft, you may receive a credit freeze without charge. If you are not a victim of identity theft, you may have to pay a fee to activate a credit freeze and to unfreeze your account later. When you apply, you are given a PIN that allows you to temporarily deactivate the freeze.

It appears each company protects and allows access to consumer information in different ways. I am now convinced Congress and a few good law firms need to extend their influence over credit bureaus to better protect consumers' personal data.

Transunion: I had a good experience with Transunion, which provided me a new PIN over the phone. An agent who spoke perfect English answered my call. She walked me through the process perfectly. I had to give her my SS# and basic information over the phone. She confirmed other personal information also, and I had to provide a credit card limit and the issuing bank to get a replacement PIN. It felt good to see so many different levels of security questions before Transunion would reset my PIN. When I checked to see whether I was listed as an identity theft victim, the representative told me I was not listed as such. After confirming more information, she told me she had fixed the issue. I was pleased with Transunion's professionalism.

Equifax: I had a harder time with Equifax. The agent gave me a different mailing address than the one listed on Equifax's own website, so I got worried. When I asked to talk to a manager, it took several minutes before I was connected to him, and he didn't seem to think there would be a difference between the two PO Box addresses.

In addition, Equifax (EFX) just wanted basic information--full name, SS#, date of birth, and address. This information isn't extremely difficult to get, so I was surprised. Smart identity thieves could probably reset my PIN and potentially open my credit to abuse. I asked if more information was needed (like a copy of my driver's license). The manager said no information beyond the basic information was necessary, and he provided me with a confirmation number to assist the transaction when I sent Equifax the information over snail mail. Overall, I did not get a good feeling about Equifax's commitment to protecting consumer information.

Experian: These guys are geniuses...when it comes to avoiding phone calls. Unless you have a specific code of some sort, you can't get through to a live representative. I tried every trick I could, including hitting zero and random numbers, and the system terminated my call each time.

At the same time, I couldn't help but appreciate Experian's method. Unlike Equifax and Transunion, I didn't see any information on Experian's website specifically about a replacement PIN. Experian's snail-mail process creates one significant upside: the company has more stringent requirements before it allows you to re-set your PIN. Experian requires a copy of your driver's license and recent telephone record before issuing a PIN. I sent the information over the mail. We'll see how quickly Experian responds.

Overall, I am surprised at the differences between the three companies. Laws relating to personal information ought to be more uniform and more stringent. As my experience shows, we have a long way to go in terms of protecting ourselves.

Disclosures: I do not currently own any Equifax (EFX).

eBay's Founder (2009)

Pierre Omidyar at eBay's 2009 shareholder meeting. Bonus points if you can correctly guess the ethnicity and birthplace of these two men.

Plus ca change, plus c'est le meme chose

From the 1938 Frank Capra film, You Can't Take It With You:

Lincoln said, "With malice toward none; with charity to all." Nowadays they say, "Think the way I do, or I'll bomb the daylights out of you."

The more things change, the more they stay the same. Military-industrial complex and animal spirits, 1; human wisdom, 0.

Beautiful Music Video

Teachers' Unions

The NYT on schools:

http://www.nytimes.com/2009/10/15/opinion/15kristof.html

The effort to remove the [allegedly incompetent] teacher is expected to cost about $400,000, and the outcome is uncertain. In New York City, with its 80,000 teachers, arbiters have removed only two for incompetence alone in the last couple of years.

Whoa.

Dow 10K: the Higher They Rise, the Harder They Fall?

The Dow Jones Index Average (DJIA) closed above 10,000 yesterday. Unfortunately, hardly any American understands the reasons for the increase and bounce off the March lows.

Most DJIA companies receive at least half of their revenues from abroad. Coca Cola, McDonald's, Proctor and Gamble have been expanding overseas for decades. Even Walmart--unfairly stereotyped as a rural, "red state" store--has been expanding aggressively in Mexico, the U.K., and the EU.

Why are these international forays relevant? Over the past year, the American dollar has collapsed. The Canadian dollar, once the laughingstock of the world, is almost at parity (again) with the American dollar. Almost every major currency, except for the Mexican peso (FXM), has increased approximately 30% against the greenback. Thus, as a result of international sales, most DJIA companies will receive an artificial boost in earnings per share due to the dollar's decline. For example, let's say GE sold 1,000 widgets in Germany in February 2008 and made 1,000 dollars. If GE sells 1,000 widgets at the same price one year later, it will record approximately 1,300 dollars. On paper, GE appears to be making 30% more money; in reality, nothing has changed except currency values.

While the dollar's weakness has caused an artificial boost to earnings per share, the DJIA has also increased because other countries' currencies are strong or artificially depressed. For example, despite some barbed words between China and America, China continues to depress the value of its currency. China is smart to do so--its manufacturing sector is still booming (while America's is declining), and a weaker currency gives Chinese companies an advantage in exporting their products. In the meantime, the euro and yen continue to be strong. The ECB, unlike the Federal Reserve, has a singular mandate to maintain a stable/strong currency, and Japan's Finance Minister doesn't seem interested in devaluing the yen.

Where does that leave the United States? It leaves American companies in a stronger position to sell products to Europeans, the Chinese middle class, and the Japanese. In fact, I would not want to own any Japanese or EU-based stocks right now. European and Japanese companies now have to compete against American products, which will be cheaper because of the dollar's decline. Although American products used to have quality issues when compared to European and Japanese products, most American companies have closed the quality gap. Thus, I see American products cutting into "home-team" sales in Europe and Japan, especially with Germany being more willing to open up its markets to outside competition. One exception to increasing American dominance will be European healthcare companies, because European governments subsidize healthcare. Thus, if you own Sanofi-Aventis (SNY), Roche, or Novartis AG (NVS), you may ignore this paragraph. Meanwhile, the Chinese will continue diversifying away from the American dollar by buying hard assets and commodities. The Australian and Canadian dollars will continue to benefit, and the American dollar will continue to seek support.

Why should American investors care about these currency-based developments? The DJIA has increased because companies and investors expect the weak American dollar to boost spending by Europeans, British and Japanese consumers. If the foreign consumers fail to buy, the market's gains may perish.

What about Indian and Chinese consumers? Although both countries have increased the size of their middle class, Indian and Chinese consumers tend to save money, not spend it. While this cultural predilection towards saving may change in ten or twenty years, it is naive to believe that Chinese and Indian consumers will spend enough now to return the world economy to its glory days. Although it is easy to imagine Americans (and Russians) spending like drunken sailors, it is more difficult to imagine Chinese and Indian consumers spending money they don't have. (Note: I said spending money they don't have, so please don't cite Indian gold-buying binges and opulent weddings, which are usually paid with cash or some other non-credit source.)

Why do I lack faith in the Chinese and Indian consumer? Currently, Chinese and Indian culture tend to focus on family and tradition, not unbridled individualism. Such a family-oriented, traditional approach dampens unreasonable or wild materialism. Of course, this is changing, but for now, I believe my hypothesis holds true. If I am correct, that means Mr. Market expects Europeans, Russians, and Japanese to spend enough to boost the world economy, and this expectation is already priced in the DJIA. God help the DJIA if this anticipated spending fails to occur.

There are other signs Mr. Market has gotten ahead of himself. First, look at the price of gold. Gold is an excellent barometer of consumer sentiment. Right now, gold is above $1,000 an ounce, which tells you that consumers are skeptical about any long-term economic recovery.

Second, don't forget the U.S. unemployment rate. It keeps getting worse, and the BLS numbers don't seem to accurately record people working multiple jobs or people who've given up looking for work. Also, as an employment lawyer in Silicon Valley, I'm seeing some unique layoff notices, which might disrupt any steadily improving employment numbers. For example. some major companies are informing employees that they will be laid off in six months unless they find another position within the company. (This unique form of notice is done partly to comply with the federal and state WARN acts.) In addition, a small business came to me yesterday for advice on laying off one employee. My limited personal experience indicates the unemployment rate is getting worse, not better. Why does the unemployment rate matter if it's a "lagging indicator"? Without a lower unemployment rate, wages will stagnate or decline, and consumers cannot and will not spend. If American consumers do not spend, then businesses will not spend or hire. Surely, you see the problem: if the Europeans, Chinese, and Russians don't come through, and the United States continues to have a high unemployment rate, no one will be left with the financial capacity to boost the world economy.

What, then, is a conservative investor supposed to do?

1. Recognize that the DJIA's recent gains are due in part to artificial reasons, not organic reasons like increased sales or better margins.

2. Understand that cash is still king, even though it may not feel like it. I, too, grit my teeth over abysmal money market rates, but I also own foreign currencies (FXA, FXC, CYB) to earn more interest.

3. There is some debate about deflation versus inflation. I have hedged my bets by buying a seven year Treasury note paying 3% and also iShares Barclays TIPS Bond (TIP); T. Rowe Price Inflation-Protected Bond Fund (PRIPX); and Pimco 1-5 Year U.S. TIPS Index Fund (STPZ). Months ago, I added a GNMA fund (PRGMX) to earn a higher yield. Even with these investments, most of them in retirement accounts, I am still cash-heavy.

Mr. Market's recent euphoria--caused by currency fluctuations, expectations of foreign spending, and stimulus money--should subside in time. While everyone else seems happy to party like it's 2006, I will be ready to take advantage of opportunities in 2010. As the DJIA rises day by day, I am reminded of Shakespeare: "Only / Vaulting ambition, which o'erleaps itself, And falls on th'other..."

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Judge Sanctions "Obama Birth Certificate" Lawyer

A Republican-appointed judge has sanctioned Orly Taitz, "birther movement" lawyer, 20,000 dollars. See opinion here. Apparently, Ms. Taitz clearly lacked standing to bring the motion and publicly criticized the court. At the same time, her motions may have produced a favorable result for her client--the military withdrew her client's deployment order, deeming him a distraction. Basically, because of Orly Taitz's frivolous motions, the officer does not have to go to Iraq or Afghanistan.

I've been sanctioned before, and so I generally disfavor sanctions. In this case, however, the judge warned the lawyer not to do something, and she went ahead and did it anyway. In addition, she compared herself with Thurgood Marshall and failed to comply with several procedural requirements. In the case where I was sanctioned, the federal judge--Samuel Conti--sanctioned me without a hearing and without any prior judicial warning. When I called to request a hearing, the court immediately moved the case file back to state court (opposing counsel had filed a motion to remand).

Even a lawyer like me, who generally favors pushing the envelope, has to agree that Orly Taitz got what she deserved.

Bonus: Ms. Taitz had a previous run-in with this judge. See here for details.

Kudos to Hulu.com

I just wanted to thank www.hulu.com. As I pointed out at the Netflix shareholder meeting, I watch all of my Simpsons episodes on Hulu because it has excellent online captioning.

Recently, after I was watched yet another Simpsons episode, I noticed Hulu allows users to search for shows that have captions. Awesome. Simply awesome. Thank you, Hulu. By the way, I am now watching my first episode of Heroes. I found it using the captioning search feature.

Here is my favorite part of the latest Simpsons episode, a parody of the UFC:

Lenny: "3 hours of half-naked guys fighting like animals."

Carl: "Just like the ancient Romans."

Lenny: "Yeah, except their empire was falling apart."

Carl: "Stupid Romans."

I love the Simpsons. Looks like they are back on track.

The Decline of the GOP

I long for the day when the GOP returns to its glory days of Eisenhower and Goldwater. As it stands, the Republican Party is in disarray. See here:

Both of Ronald Reagan's natural children, Ron and Patti, endorsed Obama. President Dwight Eisenhower's granddaughter, Susan, addressed the Democratic National Convention in Denver just moments before Barack Obama appeared to accept his party's nomination.

I've already explained why the GOP needs to split up into two separate parties--one for the religious right (Bible, families first, pro-life, etc.), and another for the classical economists (low taxes, pro-business, pro-freedom). See here.

Government Workers Double-Dipping

The LA Times' Patrick McGreevy exposes public sector double-dipping here.

David Turner retired as a state fire chief in 2004, went back to work for the state firefighting agency two days later and is still employed there. He collected $65,229 in salary in the last fiscal year in addition to a state pension of $105,000.

Paul W. Anderson is a psychiatrist at Napa State Hospital who retired two years ago from the state Department of Mental Health. His pension is $117,840. He also received $104,200 in state wages in the last fiscal year.

"Public service" work now allows some people to earn almost a quarter of a million dollars a year. Astounding, isn't it?

Clip from The Castle (Aussie Film)

1.57 Billion Muslims

Here is an interesting report on the number of Muslims worldwide.

Does this mean I can no longer impress/shock Americans by asking them to name the most populated Muslim country? Sigh. 

The Pew Forum has published lots and lots of good stuff. If you're interested in religious discussion, check them out.

[Editor's note: links have been updated.] 

Awesome Music Video

California Dreamin' Over?

The Guardian has a somber story on California's decline here. Read it and weep. And then do something about it. Here's a short "To-Do" list:

1. Do not pass any more propositions that require taxpayer funds [without accountability]. In the alternative, make sure you read the actual text of any proposed laws/propositions before you vote in favor of them. If you can't understand a proposition's actual language, vote against it. Force legislators to use plain language statutes.

2. Do not allow the state government to get bigger--it's big enough already. If you don't believe me, look here and here.

3. Whenever someone starts talking about California's so-called education crisis, remind them about Proposition 98. Prop 98 requires California to use a large portion of the growth in General Fund revenues for K-14 education. Basically, Prop 98 forces California to use at least a certain percentage of its revenue for education, even if California needs funding for other projects, and even if it constrains funding for other portions of the state's budget. Prop 98 passed (barely) with a 50.7% vote and amended the state Constitution, Article 16, Section 8. Here's subsection (a):

From all state revenues there shall first be set apart the moneys [sic] to be applied by the State for support of the public school system and public institutions of higher education.

Read that Constitutional provision carefully, and don't ever let anyone whine about California education--not only are the kids set, the Constitution puts them first in line for money. And if any government employee--including a teacher--starts whining about pay, remind him/her that state employees' pensions and health care benefits are helping bankrupt California. Side note: it's not like government workers, including teachers, are going to be destitute if we cut their medical benefits and reduce their pensions--CalPERS already has almost $200 billion for state workers' pensions. Yes, that's "billion" with a "b." Guess who paid all that money? If you work in the private sector and paid taxes, you did. Do you have a pension, a relatively safe job, and the possibility of lifetime medical benefits? I'm just sayin'.

4. Stop trying to divide the state by race or immigration status. We're all in this together. No one's going to be happy if we try to deport millions of people, because mass deportation would require us to separate mothers from their American-born kids. It won't happen anyway, so what's the point of bad-mouthing your neighbors? Turn your attention to helping everyone assimilate, regardless of race.

5. Spend your money on local businesses. Use yelp.com to separate the wheat from the chaff. 6. If you're really brave, consider a Treasury Note or a California bond. These investments will hurt you if inflation hits, but some of the bonds are yielding more than average money market rates.

That's all for now. Vaya con dios. We may need divine intervention to help get us out of this mess, but we'll get through it.

Bonus: The LA Times' Patrick McGreevy exposes public sector double-dipping here. Interesting stuff, isn't it?

Muslim Themed T-Shirt or Bumper Sticker?

Idea for a t-shirt to be worn by Muslims:

I'll apologize for 9/11 when white people apologize for Timothy McVeigh, Jews apologize for Bernie Madoff, and Mormons apologize for Glenn Beck.

The point? It's ludicrous to demand someone apologize for an event or person just because someone of his/her religious or racial background happens to be involved.

Debate on Mahmoud Ahmadinejad

In case anyone is interested in my latest attempt at reasoned discourse, check out the comments section of this post.

Excepting Ken's comments, I call it, "The Triumph of Rhetoric over Reason." It's not a pretty day for logic.

Neil Postman, author of Amusing Ourselves to Death, would be both proud and sad that his predictions have come true.

Fascinating Discussion on Iran, the U.S., and Nuclear Weapons

Interesting discussion on Iran, the United States, and aggression.

Thomas More and The Law

Roper: So now you’d give the Devil benefit of law!

More: Yes. What would you do? Cut a great road through the law to get after the Devil?

Roper: I’d cut down every law in England to do that!

More: Oh? And when the last law was down, and the Devil turned round on you–-where would you hide, Roper, the laws all being flat? This country’s planted thick with laws from coast to coast -- man’s laws, not God’s -- and if you cut them down -- and you’re just the man to do it -- d’you really think you could stand upright in the winds that would blow then?

Yes, I’d give the Devil benefit of law, for my own safety’s sake.

–Robert Bolt, A Man For All Seasons

Now, replace the "the Devil" with "terrorist," and think about the Patriot Act's loosening of government/legal restrictions.

Islam and Economics

Not sure how I missed this post about Islam and economics.

Not that surprising, if you ask me. Islamic traders/businessmen seem to have prospered in almost every time period in the world.

Tax Policy

The NYT had an interesting chart that showed--at least in 2003--total tax distribution:

http://graphics7.nytimes.com/images/2003/01/20/business/21DOUBLE.chart.jpg

The breakdown, by percentage of income, was similar, supporting the idea that American tax policy was equitable.

If anyone finds a similar chart for 2008, please leave a comment with a link.

Satire: Healthcare Reform

Awesome post on healthcare reform here. My fav?

The government is incapable of running anything efficiently, and if allowed to offer a health care option, will run health care so efficiently that it will put private insurers out of business.

And I thought satire was dead.

Franklin Templeton Limited Duration Fund's Shareholder Meeting (2009)

I attended Franklin Templeton Limited Duration Income Trust’s (FTF) annual shareholder meeting on September 24, 2009. This meeting was held by the specific fund, not Franklin Templeton (BEN) itself.

I was the only shareholder attending. No refreshments were available. There was no prepared informal presentation.

Four other persons, all from the mutual fund, attended the meeting. Glenn Voyles (Portfolio Manager); Helen Dong (Inspector of Elections); VP Karen Skidmore; and Sr. Corporate Counsel Jason Venner. I was most impressed with Mr. Venner. After the meeting’s formal portion concluded, I asked several questions.

Some background is necessary before explaining my first question. FTF is a closed-end mutual fund. Such funds typically trade at either discounts or premiums due to several factors, including potential liquidity issues. More specifically, unlike open-ended mutual funds, buyers may only purchase shares from existing owners. I asked about FTF’s approximately 8% discount to its net asset value (NAV). I also asked whether FTF’s approximately 20% Fannie Mae and Freddie Mac bond holdings might be the reason for the discount.

Mr. Voyles said there was “no fundamental reason for” the discount. He said during the last fiscal year, there were “more sellers than buyers,” meaning the fund's price was affected by supply/demand issues. He did not believe Fannie Mae and Freddie Mac had anything to do with the discount. He indicated he did not believe the fund would reduce its exposure to Fannie Mae or Freddie Mac.

Mr. Voyles also talked about “mortgage dollar rolls.” I’ve never encountered this term before. According to FTF’s 10K, page 30, mortgage dollar rolls are “agreements between the Fund and a financial institution to simultaneously sell and repurchase mortgage-backed securities at a future date...The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.” Did you get that? I didn’t, so I asked what they were.

Mr. Voyles said that these rolls were a form of leverage. He said that before investing in these rolls, the Fund’s leverage was in the form of auction rate preferred shares. He explained that the rolls were a form of leverage backed by mortgage-backed securities and increased the fund’s liquidity. However, he also said he could not tell me exactly how it works because he was involved in a different research department. (Mr. Voyles is on the high yield bond team, not the mortgage or leveraged loan team.) Mr. Venner was kind enough to show me the exact page in the 10K that defined the term.

When I asked about the auction rate securities (ARS) market, Mr. Voyles said Franklin Templeton was not experiencing any problems. The problem, he said, was that the secondary market (for ARS) has frozen.

Interestingly enough, Mr. Voyles said the “use of leverage has helped returns” by approximately 5 to 6 percentage points (from June 2008 to June 2009). FTF currently holds approximately 100 million dollars in ARS, down from 190 million dollars.

At this point, VP Karen Skidmore seemed concerned I was asking so many questions and told me I could ask only one more question.

I asked why anyone should choose Franklin Templeton over Vanguard or another investment firm. Mr. Voyles said that FTF had a large, experienced team, and its “fundamental research” was outstanding.

I don’t think FTF was prepared to have shareholders attend their annual meeting. I was pleased FTF’s senior counsel was able to show me the definition of mortgage dollar rolls, but I was concerned that even after the meeting, I still didn’t understand how FTF was using mortgage dollar rolls as leverage. My investor "spidey-sense" started going off when no one seemed to be able to explain exactly what the heck these things were.

Investors interested in preferred shares ETFs may also consider PGF, PFF, or PSK, but these investments seem heavily supported by financial companies. In addition, it is unclear whether these ETFs have been paying out dividends consistently.

Overall, I wish FTF was more prepared for its annual meeting. Other than Mr. Venner, I was unimpressed with everyone else at the meeting.

Disclosures: I own an insignificant number of FTF shares. I sent this article to FTF's corporate counsel prior to publication but did not hear back from him.

Wise Words from Neil Postman

From Neil Postman's Amusing Ourselves to Death: 

George Orwell feared those who would deprive us of information. Aldous Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. 

I love the centrifugal bumblepuppy, even though I have no idea what it means. I highly recommend Amusing Ourselves to Death. 

Bonus: "The law is what legislators and judges have written. In our culture, lawyers do not have to be wise; they need to be well briefed." -- Neil Postman 

Bonus II: hat tip to Popehat's Patrick for finding THIS incredible visual graphic/comic of the Huxley-Orwell divide.

Riots in Pittsburgh

Here is sgtrob88 commenting on a youtube video of police tear-gassing students at the University of Pittsburgh:

I would imagine 75% or more of these kids are liberal, yet going through this will probably not dissuade any of them of the notion that over-sized government is BAD. Like their hippy parents they will continue to allow government to increase in size and power all in the name of "caring for the little guy," while ignoring their own experiences in governmental abuse. While corporations are no saints, government is the one able to beat your *ss and get away with it.

Makes sense to me, except we need to differentiate between government actions that have the power to harm citizens (police, unnecessary laws, etc.) and government actions that can protect the public (public defenders, VA hospitals, etc.). Of course, since few people will agree on which government actions will either harm or protect the public, it seems appropriate to have a bias against broad laws or power of any kind.

Reason #15,473 Not to Go into Law: You Might Become a Real Prostitute

Reason number 15,473 not to go to law school: if you don't pass the bar, you might end up becoming a high-priced escort. See here for the story of a Stanford Law graduate who ran a high-priced call girl service.

If the link doesn't work, try googling "Cristina Warthen," "Brazil," and "Stanford Law." From the SJ Merc article:

Warthen gained notoriety when she was busted as a jet-setting call girl who sold her services to pay off her Stanford Law School debts. She got her law degree from Stanford in May 2001.

I wonder if she ever met Eliot Spitzer...

Movies and Special Effects

Hat tip to CollegeHumor.

Guess Who?

Guess who made the following comment:

You’ve got to cut spending, you’ve got to balance the budget, you’ve got to stop fighting these wars, you’ve got to bring our troops home, you’ve got to quit expanding the welfare state here at home...

Hint: it's one of the few honest members of Congress.

Unusual Tax Deduction

No joke--a lawyer tries to deduct expenses relating to prostitutes and pornography:

http://taxprof.typepad.com/taxprof_blog/2009/09/tax-court-denies-.html

The Tax Court shoots down his argument, of course.

Educational Discrimination: Race Baiting?

I just had a major argument with someone about educational benefits. It got so bad, her boyfriend was ready to fight me inside a Marie Callender's.

Apparently, this woman's friend had complained that a school district denied her white child benefits because of his race. This woman then said her friend raised this issue at a public school meeting and was "brave" for doing so. This woman specifically said that "only minorities could apply for these benefits," which riled me up. (Later, in an online discussion, she wrote, "my friend's child was not allowed to obtain government assistance because an administrator determined that the program was for minority groups only.")

I said several times that the government could not deny public educational benefits to anyone based on race. She reiterated that only minorities could apply for these benefits. After several minutes of heated back-and-forth discussions, I heard her say the law and reality were two different things. In other words, the law itself might not discriminate against white kids, but in reality, the school district wasn't allowing white kids to apply for certain benefits. (I guess what she meant to say earlier was, "In practice, school districts allow only minority children to apply for certain benefits.") I asked for the name of this anti-white program. She couldn't tell me the name of the program.

Then, some other people at the table jumped in. One person said teachers were giving undeserving minorities passing grades so their schools could get funding. I said it sounded like teachers were passing stupid people (of all races) to get funding. He agreed. I said if stupid people are being passed, we're not necessarily talking about minorities--we're talking about stupid people. He clarified that a certain percentage of minority students had to be passed each year to get funding. Once again, no one was able to cite a specific law or program.

Afterwards, I thought about "No Child Left Behind." The law apparently rewards school districts for retaining children from disadvantaged groups, including disabled kids and economically disadvantaged kids. I suppose a teacher who wanted to game the system would pass an ever-increasing percentage of black kids each year. My friend's husband probably meant to say that teachers are unfairly promoting stupid kids who happen to be black, not black kids because they are black. Maybe it's a subtle difference, but it's an important difference. I didn't see any federal funding tied to ensuring a certain number of minority kids pass a particular grade. (If I am wrong, I hope someone will leave a comment citing a U.S.C. or C.F.R. section.)

Someone else then mentioned a school program that allows black kids from a poor section of town to attend an affluent Atherton, California school. The problem? These black students live outside Atheron's mainly white and rich county, so their parents don't pay the same amount of local property taxes as the white Atherton parents. In essence, it seems these black kids are getting a free ride, i.e., a special benefit because they are black--or at least that was the insinuation.

After a few questions, I found out these black kids live in a county (maybe an unincorporated area?) without a school. Because they don't have a school in their county, the nearby Atherton school allowed them to attend. I pointed out that these kids weren't getting a free ride because of their race--they had to go to school, and their county didn't have a school. It sounded like someone saw a bus dropping off a bunch of non-white kids at the mainly white Atherton school district and assumed there was a pro-minority government program. In the alternative, perhaps there was a busing program to help desegregate various schools. In these programs, both white kids and minority children may attend schools in other districts. [See below for more information on this Atherton busing program. The Tinsley Act/Program, aka VTP, does create more opportunities for minorities; in fact, the district's own webpage specifies that "Students of Color living in the Ravenswood City School District entering kindergarten, first, or second grade" are eligible. Minority students, aka "students of color," are assigned limited placements through a lottery system; however, white children from the better-performing Atherton schools may apply to attend the poorer-performing Ravenwood School District.]

If anyone knows of any government program that denies benefits to anyone because of race, s/he should contact this legal foundation (Pacific Legal Foundation). In America, the government cannot legally prevent anyone from receiving educational benefits because of their race. See here for a relevant U.S. Supreme Court decision, and my analysis of the decision here.

In six years of legal practice, I have seen legitimate complaints about anti-white government programs only in two instances: allegedly improper promotions or unqualified hires in government jobs, especially in police departments. If, however, you believe the government is denying educational benefits to white children because of their race, you should know that such programs may be illegal. Again, see here.

I find this notion of anti-white government programs ludicrous. I mean, an entire swath of teachers, parents, lawyers, boards, PTAs, and administrators would have to knowingly violate the law (or stay silent) for schools to deny "special" benefits to white children because they are white. We're talking about tens of thousands of people involved in a de facto conspiracy to violate the law and prevent white children from applying for public benefits.

Now, there may be special programs to assimilate Spanish-speaking children in schools, but such programs are not based on race. For example, an Argentinian immigrant of German ancestry could benefit from such a language-assimilation program. In addition, I favor opening the desegregation program to all poor children, including white children, from East Palo Alto.

Once again, to the extent there are programs that assign special benefits to children because of their non-white race, you should contact the Pacific Legal Foundation or the Cato Institute. You may also contact me. I am very interested in learning whether widespread anti-white discrimination exists in the administration of educational benefits in California.

Anyway, whew! Not what I expected on a Friday night. In the future, I hope all children and adults study Occam's razor--the idea that in most cases, the simplest explanation is the right one.

Update: I researched the law extensively to see whether I could find something on point. Here is what I found: see 20 USC 1703: "No State shall deny equal educational opportunity to an individual on account of his or her race, color, sex, or national origin..." After Brown v. Board of Education, this country has taken numerous steps to ensure that all children have equal access to educational benefits.

I thought about the idea that some teachers were passing kids who didn't deserve to pass. I looked up the No Child Left Behind law again. It doesn't force teachers to pass kids of any race; however, it does establish vague goals, like "closing the achievement gap between high- and low- performing children, especially the achievement gaps between minority and nonminority students, and between disadvantaged children and their more advantaged peers." It appears to authorize programs for lessening the achievement gap, but it is unclear who is funding these programs.

In one section, however, NCLB establishes a specific grant for "students with disabilities, ethnic minority students, and students with migrant parents" for the sole purpose of visiting Washington, D.C. (It looks like more of a pro-tourist grant than a race-based grant.)

There are other sections of NCLB that focus on children with disabilities and "ethnic minority groups," but every single provision provides a reward for adult teachers and government workers of *any* race if they improve "retention" of low performing kids, including minority kids. I did not see any benefits that were restricted to minorities only. All educational programs must be open to all students, but schools appear to be rewarded for boosting the academic performance of ethnic minorities. In any case, it is unclear to me how a white student is negatively affected if a minority student unfairly passes a grade. If anything, the undeserved promotion probably hurts the minority student.

Outside the educational sphere, I did see some government programs that favored minorities over non-minorities. For example, certain government contracts are open only to minorities--see 10 U.S.C. § 2323. However, within the educational sphere, it appears that teachers and administrators of *all races* may get more school funding if they promote academic achievement for economically disadvantaged children, including minorities and disabled children.

This country has racial issues and a major economic divide, but playing up "white victimization" isn't the way to solve anything. Just my humble opinion.

Update: I started looking at California state laws, too. One Education Code section is interesting:

54402. For purposes of this chapter, a "disadvantaged minor" is a minor who is potentially academically able but scholastically underachieving, and must compensate for inability to profit from the normal educational program. He is a minor who...(c) Is, because of home and community environment, subject to such language, cultural, economic, and like disadvantages as will make improbable his completion of the regular program leading to graduation without special efforts on the part of school authorities...

Sections 54403 and 54405 allow the State Board of Equalization to establish K-12 programs to assist "disadvantaged" minors. The word "race" isn't used anywhere, so the law does not prevent linguistically slow or culturally disadvantaged white kids from participating in the programs; however, it is clear that many minorities will participate in these programs. The reason many minorities will participate in these programs is because their parents, unlike domestic-born kids of any race, probably have no idea how to help their kids with homework. If your parents don't speak English and haven't been to school here, then obviously, they will have difficulty helping their kids understand their homework.

I realize single or poor white mothers may also lack the time to help their children with their homework. Under the law, no school may deny disadvantaged or low performing white children entry into these remedial/extra programs.

By the way, other sections authorize programs to assist "migrant" workers, but these are remedial programs and are not based on race. For example, Swedish kids who came to California in September and knew they wouldn't stay a long time would be able to participate in these programs. Fishing migrants and many other categories of migrant workers are included, not just agricultural migrants.

Update: I just thought of something that might clarify the discussion. Some people might argue ESL and other language-assimilation programs are anti-white b/c they sap resources from schools that would otherwise go to native-born kids, many of whom happen to be white. I can see why some people think this way; after all, 99% of the kids in ESL programs are probably non-white. Perhaps if you walk into a class with 99% minorities, it's easier to believe that your white child, who isn't getting special language classes, is somehow harmed (even if your white child is taking advanced English).

In reality, language-assimilation programs are not race-based; for example, German immigrants who don't speak fluent English would be allowed to enter ESL programs. It just so happens that a lot of our recent immigration has been from so-called non-white countries. In the future, if most of our immigration comes from Sweden, and we spend lots of money on ESL programs, I have a hard time believing that anyone would say such "special" programs are anti-white or deny benefits to white children.

I already mentioned language-assimilation programs earlier, but I'm not sure if I was clear. I really don't see any evidence that schools discriminate against white kids because they are white. I rest my case on the inability of anyone to specify a single specific program where schools deny benefits to white kids (who, by the way, don't need remedial English courses). I do understand that someone may argue that desegregation or busing programs discriminate against white children to the extent white children cannot apply for these programs.

I'd appreciate seeing some specific evidence of harm to white children as a result of desegregation programs. Without specific evidence, it is hard to have a productive discussion. For example, at the dinner, I felt like Richard Dawkins, trying to refute creationists--no matter how many times I demanded proof, someone expected me to accept allegations of anti-white K-12 discrimination on faith. Sigh.

Update: here is a friend/teacher, who sheds some more light about the Atherton issue:

I am glad that someone is taking the time to dispel the many misconceptions people have about society and education. You are correct about NCLB. It is essentially an unfunded federal mandate that actually has nothing to do with grades. It has to do with scores on standardized tests but has no bearing on passing or failing classes or moving on to the next grade.

Also, there is a desegregation program that allows East Palo Alto minorities to attend Palo Alto, Atherton, Mountain View schools (some others too). Our district (Palo Alto Unified) does bus in minority kids from East Palo Alto every day in what we call the Voluntary Transfer Program which is only available to minority students even though they have a district of their own (Ravenswood). It was a court mandated ruling from the 70's called the Tinsley Act. You should look into it. It was designed to provide equal opportunity to minority kids from East Palo Alto in the form of better teachers, books, etc. I do think that white children can apply even though there aren't many in East Palo Alto.

Fascinating. See here, here, and here for more on the Tinsley Act. The district's own page states, "Students of Color living in the Ravenswood City School District entering kindergarten, first, or second grade" are eligible for the program. At the same time, California's Constitution allows voluntary desegregation programs. See Article I, Section 7:

Nothing herein shall prohibit the governing board of a school district from
voluntarily continuing or commencing a school integration plan after the effective
date of this subdivision as amended.

There is also controversy about whether the Atherton school is subsidizing the students from the other side of town. For example, one person commented, "The [Palo Alto/Atherton] district gets $3,500 per student in return. But Palo Alto spends approximately $10,300 per student, so it is 'subsidizing' these students by about $6,800 apiece for a total of $3.7 million a year." If anyone has more information about the Tinsley Program, please leave a comment.

Bonus: according to John Barton, while "California is ranked near the bottom in student test scores, the state is 25th in per-pupil spending for the current K-12 operations, according to the National Center for Education Statistics, part of the U.S. Department of Education. It is No. 1 in teacher salaries nationwide -- the U.S. average is $45,810 while the California average is $56,283 (2002-03)."

Symantec's Annual Shareholder Meeting (2009)

I attended Symantec’s annual shareholder meeting on September 23, 2009. The company offered shareholders a goodies bag that included a complimentary copy of Norton Online Backup; a zip-up notebook; a nice pen; and a small padlock (symbolizing Symantec’s security focus). Approximately thirty attendees were treated to coffee, juice, and pastries.

I was looking forward to this meeting for two reasons: one, the Investor Suffrage Movement asked me to move Proposal No. 3 on behalf of another shareholder; and two, this would be new CEO Enrique Salem’s first year handling the annual meeting.

Chairman and former CEO John Thompson opened the meeting and introduced various Board and executive team members. After Mr. Thompson was done, Executive VP and General Counsel Scott Taylor allowed me to move Proposal No. 3 (sponsoring shareholder: Kenneth Steiner) and to provide a short explanation of the proposal. I’ve been to many shareholder meetings, but this was my first time moving a proposal. I delivered a short summary about the proposal and then sat down.

One quick aside: I attended Symantec’s meeting last year and was very impressed with then-CEO John Thompson. I was looking forward to seeing him again this year, but had forgotten that corporations tend to despise outside shareholder proposals. Responding to such proposals takes up attorney time and internal resources. The usual corporate attitude is that if shareholders don’t like the way the executives run the company, they can sell their shares. So perhaps I should not have been surprised that while I was reading the presentation, Chairman John Thompson, seated only several feet from me, was staring at me with a “Make My Day” expression. (To his credit, Mr. Salem recognized me from last year and skipped the stare-down.) Thankfully, after the meeting, Mr. Thompson was his usual charismatic self, entertaining various attendees with some stories. Mr. Thompson appears to be in great shape and has lost some weight since last year.

After I moved the proposal and delivered the short summary, Mr. Taylor closed the polls and announced preliminary results. Proposal No. 3 passed. After Symantec takes additional steps--such as amending its bylaws--the threshold for calling special meetings will be 10% ownership, down from 25% ownership.

Mr. Taylor then introduced President and CEO Salem, who delivered a brief presentation about Symantec’s accomplishments. I’ve listed what I consider to be the most interesting information below:

1. 120 million consumers use Symantec’s software.

2. Symantec’s customer base is 30% consumer, 70% enterprise.

3. Symantec wants to “commoditize infrastructure,” which means driving costs out of the environment (I asked Mr. Salem to clarify this term after the meeting. He gave me an example of a consumer choosing between two hard drives--Symantec wants to give the consumer the same capabilities in each product so the consumer can choose based on price. For more information, see page 3 of the Annual Report, under “Enable our customers to simplify their heterogeneous environments and reduce costs...”)

4. Symantec is growing its data loss prevention and “online backup” business. Symantec anticipates a lot of growth from its “online backup” business.

5. Symantec’s growth comes from both “organic innovation and acquisitions.” For example, Symantec is testing “reputation-based” analytics (i.e., should this software run on my computer?) and has an impressive R&D budget. (Note: Symantec's reputation-based analytics feature is live in Norton's 2010 products.)

After the informal presentation, Mr. Salem opened the meeting to questions. A shareholder made several comments about Proposal No. 3, which he opposed. He said that labor unions hated Mr. Robert Miller (who was singled out several times in the proposal) because he was a tough CEO. He said American corporations are being “denigrated” by activists.

Mr. Salem, like most corporate executives, is no fan of outside shareholder proposals. He could have taken the bait and criticized the proposal; instead, he showed admirable diplomatic skills. He indicated he would work with Symantec’s largest shareholders, and he was committed to shareholder success. I immediately realized Symantec had chosen a CEO with excellent PR skills, which is important for any service-oriented company.

Another shareholder, Tony Mazzapelle, questioned a large goodwill writedown. Mr. Salem acknowledged the unusually large writedown of approximately $7.4 billion and explained that at one point, the dislocation of the stock market had caused Symantec’s goodwill to be valued more than the corporation itself. The company recognized the issue and complied with SEC rules to resolve the matter. He also clarified that the large goodwill was the result of several acquisitions, not just one.

Mr. Mazzapelle then raised an issue dear to my heart, which is non-GAAP vs. GAAP accounting. Personally, I hate non-GAAP results. Even though it’s legal and common to use them, non-GAAP numbers allow accountants too much leeway. Here, for example, using non-GAAP numbers allowed Symantec to report operating income of approximately $1.88 billion for Fiscal Year 2009. During the same time period, however, using GAAP, Symantec reported an operating loss of approximately $6.5 billion. Slight difference, no?

Mr. Mazzapelle rightfully complained that publishing both sets of numbers was confusing, and he asked whether the company would continue to publish both sets of numbers. Mr. Salem responded that Symantec would be using both GAAP and non-GAAP methodologies in the future. He said if shareholders wanted a clear vision of the company’s finances, they need only to review Symantec’s cash flow, which is approximately $1.5 billion annually. His response left even a skeptic like me satisfied.

Another shareholder questioned Symantec’s marketing costs. Mr. Salem indicated the company was aware of the issue and was focused on growth (which naturally entails significant marketing costs).

Was Symantec gaining or losing market share against McAfee (MFE)? Mr. Salem said Symantec was gaining in the large enterprise segment, but not in the small business segment. He also said, the “quality of our products has never been better.”

I asked my usual question: what is Symantec’s competitive advantage in the marketplace? Mr. Salem said that Symantec’s software could run on almost any platform (Linux, etc.) and protected consumers “against the widest range of threats.”

Overall, I was very pleased with Mr. Salem’s demeanor, knowledge, and delivery. Prior to the meeting, I was concerned that after having a CEO as charismatic as Mr. Thompson, Symantec’s next CEO would have difficulty measuring up. My concerns were clearly misplaced.

As I mentioned earlier, this is my second year attending a Symantec annual meeting. Once again, Symantec ran its annual meeting professionally. It deserves kudos for delivering a pleasing shareholder experience. Its ability to run a great meeting is especially notable because its local competitor, McAfee, doesn’t seem to emphasize its annual meetings. For example, in recent years, McAfee (MFE) hasn’t bothered with an informal slide presentation. To make matters worse, when I last attended McAfee’s annual meeting, shareholder relations staff treated me like an intruder (I appeared to be the only non-employee shareholder there, which might have bothered them). Although McAfee's stock has done better than Symantec's recently, once Symantec digests its massive (and perhaps ill-timed) acquisitions, it may outperform McAfee. In the meantime, long-term, patient shareholders may want to consider buying Symantec stock.

Disclosure: I own an insignificant number of SYMC shares. If I do add shares, I expect to hold them for several years. Also, I provided a copy of this article to Symantec prior to publication. Consequently, I incorporated some minor changes in my sole discretion. Almost all the changes related to correcting numerical values, such as changing $7.7 billion to $7.4 billion (I originally wrote $7.7 billion because that's the number I heard the shareholder say).

Why Newspapers Are Dead

Barry Ritholtz beautifully sums up the declining newspaper business:

I would argue that mainstream newspapers haven’t just lost readers because of the Internet as an abstract new medium, but that they lost readers because they became – with some exceptions – nothing but official stenographers for the powers-that-be. No wonder people have lost all faith in them.

Years from now, anyone who wants to know why newspapers died need only review the paragraph above. Also, I'm not sure why Barry used the plural form of "exceptions"--he probably meant the New York Times.

John Mauldin Interview

Just a short post today.

Here is a great interview with John Mauldin. The interviewer is Wall St Cheat Sheet's Damien Hoffman. More from Mauldin here.

Will Ferrell on Health Care Reform

Protect Insurance Companies PSA from Will Ferrell

Magma Design's Shareholder Meeting (2009)

I attended Magma Design Automation Inc.’s (LAVA) shareholder meeting on September 17, 2009. The company offered attending shareholders coffee, water, untoasted bagels with cream cheese, and assorted pastries. There was no prepared informal presentation.

CEO and Chairman Rajeev Madhavan handled most of the meeting. CFO Peter Teshima also answered several questions. Both CEO Madhavan and CFO Teshima responded to my questions with energy and confidence. I asked several tough questions, and I received good answers. Some quick points:

1. Some of the information provided in the 10K is now outdated. Although Magma’s 10K states, “There is substantial doubt about our ability to continue as a going concern,” (page 11) Magma recently secured financing and will be able to satisfy its May 2010 bond obligations. According to statements made at the meeting, management waived the original 70% voting requirement (page 59). About 54% of the 2010 bondholders participated in the 2010 note exchange offer. This new development allows Magma to avoid distributing all of its cash to the May 2010 creditors.

2. Magma derives a significant percentage of its revenue from outside North America. See 10K, page 24: “we generated 41% of our total revenue from sales outside North America.” Consequently, Magma’s future revenues may not entirely depend on the American consumer.

3. Magma may have patent infringement issues. See 10K, page 27: We believe the patent portfolios of our competitors are far larger than ours, and this may increase the risk that they may sue us for patent infringement...” (To be fair, many tech companies face the possibility of patent infringement litigation.)

4. Other bloggers have said they expect Cadence (CDNS) to buy out or merge with Magma; however, CEO Madhavan seemed mildly upset that his company wasn’t getting the same respect as Cadence and was somewhat dismissive of Cadence’s financial position. In contrast, he had high praise for Synopsys, Inc. (SNPS).

According to a Magma company employee, CEO Madhavan seems to admire Synopsys’ financial profile due to its 90/10 revenue model, where 90 percent of revenue during a given quarter stems from backlog and only 10 percent from same-period deals. On the other hand, according to the same internal Magma source, Cadence and Mentor Graphics (MENT) have not yet achieved this preferred 90/10 revenue model (Magma points out that it achieved this 90/10 ratio two quarters ago). To be clear, CEO Madhavan did not express an opinion of a possible or a preferred merger or acquisition scenario.

I asked CEO Madhavan my usual question: “What is your competitive advantage in the marketplace?” CEO Madhavan answered that Magma software offered a “value proposition.” Using Magma’s software, semiconductor companies could save one million dollars in the process of designing a single chip. My understanding is that Magma’s software streamlines various aspects of chip design, which allows semiconductor companies, especially analog chip companies like Maxim (MXIM) and Linear Tech (LLTC), to use fewer engineers. Obviously, fewer engineers means less overhead for a semiconductor company, and less overhead means more financial flexibility. That’s the short version of Magma’s purported advantage. The following is the long version, based on my conversation with an outside engineer:

Designing chips is expensive because designs usually go through several modifications before they actually work. Engineers first design a circuit on a computer (called schematics). Then, they run modeling/simulations to make sure the circuit runs properly on the computer. After computer testing, the engineers transfer their design from the software/abstract to a physical layout for fabrication. The final step is sending the layout to the fab to make the actual chip. However, even after the manufacturer/fab creates the chip, work is not done. Engineers still have to test the chip in their lab in real-life scenarios. Sometimes the chip doesn’t work to the proper performance specs. This gap in expected performance requires the engineers to go back and re-work the design. The company must go through all the design stages again prior to sending a new, improved design to the fab. Unfortunately, every iteration (i.e., modifying the schematics) costs the company money. Depending on the skill level of their engineers, a company may have to fund several more iterations. Magma is saying that its software reduces the number of iterations and therefore saves chip design companies money and resources.

I questioned the CFO’s reliance on non-GAAP accounting numbers, citing pro forma accounting gimmicks used by Enron. CFO Teshima countered by saying that only “one or two acquisitions were the primary difference between GAAP and non-GAAP numbers.” CEO Madhavan left the meeting saying that Magma was the “new kid on the block,” implying that it wasn’t getting the respect it deserved.

I enjoyed the energy Magma’s executive team brought to the table. The CEO seemed unafraid of his competitors and prepared to compete. Magma’s current share price, which is under two dollars, reflects the company’s recent financial problems. Magma indicates that such financial problems are behind it, and it is confident about the future. In my opinion, Magma has several high risk factors, but also the potential for major upside. Personally, I am going to wait until Magma’s balance sheet improves before making any major purchases, but I will be following the company more closely.

Disclosures: I own an insignificant number of LAVA shares. A Magma employee also had an opportunity to review this post prior to publication and submitted some comments to me. I incorporated a few of his comments, mainly relating to the 90/10 revenue model and paragraph 1, which starts, "Some of the information provided..."