Monday, January 31, 2011

How Truly Revolutionary Is The Revolution In Egypt?

Gary North is out with a new piece today on the implications of the situation in Egypt. I liked his comments on "legitimacy" the most:
What is at stake is government legitimacy. When it becomes obvious to a growing minority of intellectuals that the government is corrupt, it is only a matter of time before these people begin to spread the word: the government is illegitimate. The only way that a government can keep control is to elicit voluntary compliance with its laws, rules, and official pronouncements. This can cease to work very fast.

A corrupt government is perceived as legitimate only because it is so expensive to get the word out to large numbers of people, especially people with educations and money, that the government is both corrupt and vulnerable. So, the only way for a despot to survive the kinds of things that have taken place in the North African autocracies is to extend political power, educational opportunity, and employment opportunities to the broad majority of the population. Western capitalist governments have been able to do this over the past century, but the autocracies have not been able to. They are the ones that are most at risk by the spread of the Internet and social networking. In other words, the best way to avoid revolution today is to have already created a system of political power in which large numbers of people believe that they have a stake in the system and a voice in the system.
The whole thing is worth reading and considering.

I am certainly not wedded to my comments in my earlier post. But I also am concerned by the idea of this kind of "New Era" thinking, where technology will heroically arrest the ability of governments worldwide to constrain their people, for good. I certainly see the decentralizing effects of technology like the internet, I appreciate North's point that these developments blend seamlessly with existing libertarian political and economic theory and that there is much reason to be optimistic.

At the same time, I am not certain why we can so easily trust the current news coverage and "narrative" that is being developed about these revolts. The concept of the "popular revolution" seems to be nothing more than a modern day Marxist pipe dream. Libertarian revisionist historians especially have done an outstanding job of demonstrating that even much heralded examples like the American Revolution were more likely events engineered by competing elites that eventually dragged the common man in, kicking and screaming, and ultimately made him responsible for paying the heavy burden of change in blood and treasure. How many political leaders of the American Revolution, or any other, ultimately gave their lives or their fortunes for their causes? Yet today, because of the internet, the revolution of "the people" is finally a reality?

Color me incredulous, for the time being.

I think it's also mistaken to view the institution of government as totally helpless in its ability to successfully react and adapt to this new technology. It would be the ultimate irony if, rather than providing the decentralized means of freedom and independence in a libertarian utopian outcome the internet proved to be the most binding, centralizing means of control and oppression in a throughly interventionist, authoritarian dystopian outcome.

The more we come to rely upon it, the more dependence we have upon a tool like the internet and the greater is the incentive for governments to find a way to use that dependence to pressure us into doing what they want us to do.

Either way, one thing is for certain-- listening to the clueless, arrogant and intellectually stultifying rhetoric coming out of Washington in reaction to events occurring in Northern Africa, politicians have yet again proven themselves to be the least visionary, least original and least inspiring thinkers on the planet.

I mean honestly, I'd rather play in traffic than listen to Dennis Kucinich, John Kerry and Hillary Clinton ramble on and on. Career politicians and freedom are completely incompatible. Where is the "Off" button on these boring, old-fashioned quacks? And who in this country really, deep down in their heart, feels like these losers represent them and their ambitions?

Book Review: F Wall Street

In today's age of renewed interest in, nay, obsession with, momentum-based quantitative investment strategies, Joe Ponzio's "F Wall Street" is like a breath of fresh air. Ponzio, an adherent of Buffettology, advises his readers to forget EPS, forget "you're not smart enough to manage your money", forget mutual funds and f... orget Wall Street. The message is clear: you're buying small parts of other people's businesses, you should think like an owner and focus on Owner's Earnings, a Warren Buffett-metric rooted in the value investing theology of Graham and Dodd.

"F Wall Street"'s greatest strength is that Ponzio is a good writer and an even better tutor. He's distilled down the wit and wisdom of generations of outstanding value and growth investment personalities like Graham, Buffett and Fisher into a final product whose length and organization are approachably practical. Though in the introduction Ponzio advises having familiarity with the rudimentary aspects of value investing the reality is that he leaves nothing to chance and fully and simply explains all relevant terms, concepts and calculations.

What's better is that after teaching the reader a lesson he follows it up by demonstrating the application of the new idea in a real-life scenario from the recent past. It makes the material seem fresh and interesting, though in time the examples may grow stale just as reading about Graham's railroad stocks of the 1920s and 30s seem a bit boring today. Luckily, the principle never changes even if the specifics of each situation do.

Ponzio's book has a few other strengths, as well. The opening discussion about the mismatched incentives between investors and their advisors on Wall Street is illuminating and does a good job of convincing the reader to maintain a level of healthy skepticism toward the constant noise emanating from that part of the financial world. The last chapter on special workout transactions is by no means an all-encompassing discussion of the subject but it still manages to be informative and helpful, nicely rounding out the value investing core and expanding the application of the basic principles of margin of safety and contrarian-oriented searching for value in odd places.

Finally, the book's website at, is simply put an outstanding additional resource and considering the fact that accessing it is free of charge, the value is nearly infinite. Whereas most book or author-related websites are nothing more than a place to further promote the content of the book without divulging the content of the book, is a goldmine of value investing education. Ponzio and a host of other guest investor-contributors talk principles, real-world applications, share investment ideas and more.

However, the book itself is not without its flaws. I am no bond market expert but the chapter on bond investing came across as simplistic and tacked-on, as if Ponzio felt compelled to talk bonds because his intellectual heirs, specifically Graham and Dodd, always recommended bonds play an important role in the portfolio of any intelligent investor. It's not that the advice is poor or wrong, it just doesn't seem sophisticated enough given the current context of real inflationary risks for fixed-income investors going forward. Furthermore, when it comes to economics, Ponzio and friends are certainly conventionalists and Austrian school readers will find themselves bemused by Ponzio's suggestions that US Treasuries are risk free. Sure, you may be "guaranteed" to get your money back on government debt, but what will it be worth at that point?

I give it a 4/5. If you want to read the Bible, go straight to the source and read Benjamin Graham's "The Intelligent Investor", otherwise Ponzio is hard to beat.

Buy F Wall Street from

Other books mentioned in this post:

Thursday, January 27, 2011

Is The Internet A Suitable Security Blanket?

Over at ZeroHedge, Tyler Durden (via HuffPo) is carrying allegations that the authorities in Egypt have "shut off the internet" in that country ahead of coming mass protests. Reports by various international news agency personnel on the ground covering these developments also mention a shutting down of text messaging networks and other communication capabilities.

The implication is that this will provide cover for the regime to brutalize and control the populace without word of the atrocities spreading as much or as quickly. It would also impact the protesters and their ability to coordinate their efforts.

This development comes on the heels of numerous central governments around the world pushing private communication and data network providers to filter or otherwise give ultimate control over their content to the central governments in question. Whether it's initially asked for in the name of protecting the public morality (as in Indonesia) or defending the people from the scourge of terrorism, the potential for further abuse during times of social unrest is obvious and being demonstrated right now in Egypt.

Today, Gary North penned a column at LRC in which he opined:
There is no national leader who commands the charisma of a Hitler, a Churchill, or a Roosevelt. The Web makes it unlikely that anyone like those men will appear again. If they do, the Web will take them down several notches. The Web pops messianic bubbles very fast. The economy pops any who survive the Web's assault. This is positive.
Unfortunately for Gary, whose thoughts and writings I otherwise greatly respect and enjoy, his timing couldn't be worse.

What we're seeing in Egypt is that the internet is useless as a deterrent against tyrannical violence when the tyrants in question have the ability to just shut it down when they're ready to start acting ruthlessly. What good is a wireless nation and its mighty internet-wall when, on the eve of the revolution, its tablets and smartphones go blank?

And the flip side of Gary's viewpoint is perhaps even more threatening. I'm not about to lower the credibility of my own analysis by comparing Obama to Hitler, but while he's certainly no Churchill either -- that's not a compliment to any of the parties in question, by the way -- it's a well known fact that Obama hopes to emulate FDR, presidentially and politically, along with his grim fascination with other American stalwart tyrants like Lincoln. Did the internet stop Obama?

Nay, in fact, many claim it was the tool most useful in bringing him to power! The NYTimes claimed that in a JFK-esque fashion, Obama's internet campaign changed politics. The website InformationWeek claims Obama's election ushered in the first internet presidency. The UK's Guardian carried an opinion piece asserting that Obama's triumph was the first election the internet won (whatever the hell that means). And this isn't even a recent phenomenon-- as Wired observed, much of the excitement around Howard Dean had to do with his campaign's ability to harness the power of the internet for fund-raising and community organizing efforts on the campaign trail.

I don't mean to bad-mouth North, but I don't know how he missed this. Politicians control other people for a living. They work hard everyday to find newer, better and more efficient ways to control people. They didn't ignore the gun, the newspaper, the internal combustion engine, the radio, money or any other human technology that was originally developed to make our lives better and they won't and aren't ignoring the internet. Believing that we can all sit back, relax and never have to worry about the rise of tyrants and demagogues because we're in the New Era of the messianic-bubble popping internet is wishful thinking, at best.

And if your response to that is, "This is America, it can't happen here," I hate to be the one to pop your bubble of ignorance (gee, been on the internet lately?) but it already is:
President Obama is planning to hand the U.S. Commerce Department authority over a forthcoming cybersecurity effort to create an Internet ID for Americans, a White House official said, according to CBS News TechTalk.

It's [the Commerce Department] "the absolute perfect spot in the U.S. government" to centralize efforts toward creating an "identity ecosystem" for the Internet, White House Cybersecurity Coordinator Howard Schmidt said.

The Obama administration is currently drafting what it's calling the National Strategy for Trusted Identities in Cyberspace, which U.S. Commerce Secretary Gary Locke said will be released by the president in the next few months.

CBS goes on, "We are not talking about a national ID card," Locke said at the Stanford event. "We are not talking about a government-controlled system. What we are talking about is enhancing online security and privacy and reducing and perhaps even eliminating the need to memorize a dozen passwords, through creation and use of more trusted digital identities."

Don't believe this for a nanosecond.
More from Robert Wenzel on the subject here.

This is a trend, it's developing and it's a big one. You need to be wise to it. You better believe that if and when the revolution cometh, it will not be televised, radioed, YouTube'd, blogged, BlackBerry'd, iPhone'd or in any other way mass communicated without some serious lever-pulling intervention from the authorities along the way.

North's "have no fear" reasoning is unsound. His ultimate conclusion is not and I certainly think it's worth heeding:
Get out your map. Get out a pencil and a sheet of paper. Go through the exercise of Map-n-Go.

Saturday, January 22, 2011

Was Robert Wenzel's Cabbie An Egyptian?

Some great weekend gold humor via Egypt on today:
After a week ago we learned that the central bank of Tunisia had parted with 23% of its gold stash courtesy of now deposed president who fled the country with a 1.5 ton shipment of gold, it appears that Egypt is preparing for a comparable spike in revolutionary activity. Only unlike the now former Tunisian president whose gold sequestering actions were retroactive and thus, quite lucky to succeed, Egypt has taken proactive measures. According to Egypt News, the country's airport has intercepted 59 shipments of gold directed for the Netherlands "worth tens of millions." The gold, as well as an indeterminate amount of foreign currencies, was hidden in pillow cases: uh, cotton may not show up on X-Rays, but gold sure does. We eagerly await to learn how big the decline in the country's official holdings 75.6 tonnes of gold will be after this most recent episode confirming that gold is precisely money. And all this happening despite gold's complete and thorough inedibility. [emphasis added]
Reminds me of the story of EPJ premier Robert Wenzel and his NYC cabbie, which now makes me wonder if Bob's cabbie happened to be an Egyptian-- the irony would be too much!

It also makes you wonder where the individual gold grams inside those gold stashes that were almost secreted out of the country have been since they were mined out of the earth. How many of those ounces were once in the belongings of ancient pharoahs attempting to flee the civil unrest and rioting they had caused in the Old Kingdom?

Tuesday, January 18, 2011

The Immorality Of Government Bonds

I thought about adding some commentary to this but I've decided against it because it truly stands better on its own. Chodorov perfectly captures the economic and moral concerns I've had with the purchase of government debt for some time now:
The State's excuse for borrowing is that it invests the proceeds of its bonds for the benefit of posterity. Instead of putting the entire burden of meeting the cost of its beneficial acts on the living, it proposes to demand of unborn children their share of the cost. Quite plausible! But is this not the impossible doctrine of control of the living by the dead? What would you think of a prospective father who deliberately put a debt load on his expected offspring? That is exactly what you do when you cooperate with the State's borrowing program. You are loading on your children and your children's children an obligation to pay for something they had no voice in, and for which they may not care at all. Your "investment for posterity" may earn you nothing but the curses of posterity.

The use of the word investment in connection with a bond issued by the State is a treacherous euphemism. When you buy an industrial bond you lend your money to a corporation so that it can buy a machine with which to increase its output of things wanted by the market. The interest paid you is part of the increased production made possible by your loan. That is an investment. The State, however, does not put your money into production. The State spends it – that is all the State is capable of doing – and your savings disappear. The interest you get comes out of the tax fund, to which you contribute your share, and your share is increased by the cost of servicing your bond. In effect, you are paying yourself. Is that an investment?

When you depart from this earth you pass on to your heirs both the tax-collecting bond and the tax-paying obligation it represents. Or, as is usually the case – for the history of bonds is that ownership tends to concentrate in a few hands – if you sold your bond, the new owner in due time passes on to his heirs a claim on the production of your offspring. Your great-grandchildren are called upon to labor for his great-grandchildren. The bond thus becomes a legacy of slavery.
Read the rest of this powerful, all-encompassing article at

Monday, January 17, 2011

What Is The WikiLeaks Ideology?

This morning I listened to the WikiLeaks press conference with bank Julius Baer whistleblower Rudolph Elmer with interest. The first news releases I heard about the then-coming leak was that Rudolph Elmer had names, including those of "approximately 40 politicians". These releases also quoted Elmer as stating that he believed privacy in banking was a good thing and that all he was out to do was expose the crimes and the secrecy of the elites.

This sounded principled and anti-establishmentarian on its face. Modern banking, based upon the fractional-reserve system, is wholesale fraud. Beyond specific issues of Swiss banking law, privacy and bank secrecy, a person claiming to be able to expose some of the scandalous elements of a system whose rampant fraud is based on secret-keeping sounded good. Forty or so politicians as collateral damage sounded even better.

Listening to the conference, however, gave me pause. I'm not sure I am on the same page as these WikiLeaks people now. Furthermore, I am beginning to wonder if they are at cross-purposes to myself and everyone else who is an advocate of the private property society.

Here is a short list of stand-out themes conveyed in the press conference that raised red flags for me:
  1. Swiss banking secrecy must end (this was a point-blank, unconditional statement made by one of the various handlers during the press conference)
  2. Western government public welfare systems are threatened by tax evasion enabled by bank secrecy; people ask "where is the money?" for these programs and the answer is the wealth has moved offshore to bank secrecy havens (this is a decidedly pro-welfare, statist reason for attacking bank secrecy)
  3. All wealth the State has arrogated to itself via tax laws rightfully belongs to the State; bank secrecy allows Swiss banks and other 3rd party regional jurisdictions to set Western government tax rates, an unacceptable circumstance (bank secrecy has no place in open, transparent and progressive democratic systems because it allows for concentrated wealth to be passed down through families by avoiding schemes like the inheritance tax)
  4. Regulators and legal authorities in the past have not been accommodative when accusations of criminal wrong-doing have been brought to them in the past, but the specific information contained in these leaks -- bank Julius Baer -- will be delivered to "competent legal authorities" for them to decide how to handle it, rather than made public (an obvious and inexplicable contradiction)
  5. Journalists can not be trusted to serve the public interest because they are often pressured and compromised by those perpetrating anti-social schemes to serve as accomplices, knowingly or unknowingly; we will use the mainstream press as our partners in leaking this information (another obvious and inexplicable contradiction)
  6. Today, money and capital are international, which means they can flee the tax regimes of their host States at whim-- this is a social bad (another of the handlers implied that international capital mobility was problematic for Western welfare States, where "any currency can be exchanged into any other" and the world financial system was "truly fluid" and interconnected, allowing people to move and hide their wealth beyond the reach of grasping local politicians)
WikiLeaks is sounding less and less like a freedom-oriented outfit and more and more like a bunch of well-intentioned but ultimately gullible and therefore dangerous statist dupes.

If they're not an outright fraud and a simple front for the very elites they're supposedly working against.


Below is the video embed, if the link above is no longer active:

Monday, January 10, 2011

Bernanke Gains Clueless Backer In Kocherlakota

The is out with a short profile on Minneapolis Fed president Narayana Kocherlakota, pumping him up as a strong supporter of Ben "QE2'in' the recession away" Bernanke:
Narayana Kocherlakota gets his first crack at voting at Federal Reserve policy meetings later this month, and the wonky former academic said he is likely to support the Fed's controversial $600 billion bond-buying program.
"The bar for dissent from the committee is going to be pretty high for me," Mr. Kocherlakota, 47 years old, said in an extensive interview last week, his first with the national media.
Translation: [in robot voice] "I can't think for myself."

And what is this talk about "former academic"? Once a man climbs into that Ivory Tower he never comes back down. For one, he doesn't need to because this nation is WIRELESS now, he can transmit his "wonky" thinking far and wide with very little effort. Also, despite the lack of oxygen, it's actually much easier to breathe with ones head stuck firmly in the clouds because there's a lot more moisture up there.

These guys are like gang members, once an academic, always an academic, until the day your policies are adopted by the leading political party and they quickly lead to mass social upheaval and economic turmoil. But even then, only if you belong to the "Right" will you be so disgraced and your academic street cred withdrawn. Lefties are free to rep themselves as hardcore academics all they want, no matter how bad they screw things up.
The question of a formal dissent is important given the divisions inside the Fed that emerged as it launched the bond buying in November. Dissent would make it harder for Fed Chairman Ben Bernanke to stick to the program or to expand it if the economy weakens anew.
Unless you're Ben Bernanke, or Hank Paulson. Then you just spook dissenters with end-of-the-world rhetoric if you don't get your way. Or baseball bats.

Caption: Ben Bernanke, up to bat.

Could Kocherlakota get kookier? Sure he could!
Mr. Kocherlakota has come out of his shell slowly since succeeding Gary Stern at the Minneapolis Fed in October 2009. He maintains a strong interest in research, regularly attending Minneapolis Fed seminars conducted jointly with the University of Minnesota, in a research department conference room that the local PhDs call their "inner sanctum."
Great, an FOMC chairperson with a taste for divine-right monetary policy. Man, hanging around in a research alcove with nerdy local monks discussing the finer points of interpreting the entrails of recently sacrificed goats, aka Fed scientistic statistical "research"-- this guy has really found a way to come out of his shell.

Caption: Kocherlakota gives an interview to the WSJ in front of the empty bookshelf where he derives most of his great ideas via intense research. When asked what genre he finds most influential for crafting monetary policy, Kocherlakota replies, "Fiction, undoubtedly." (image courtesy of

And what does Wall St think of Our Man in Minneapolis?
"He's smart but relatively new to the practical aspects of reading the economy and implementing monetary policy," said J.P. Morgan economist Michael Feroli. "You can almost see his thinking evolve as he acquires more on-the-job learning."
Does a witty joke even need to be made in the case of a man with near-consular power over monetary policy decisions who is learning on the job? "[pressing button marked "INFLATION"] Ohh, whoops! That didn't work, let's try this one..." And again we have reference to this occult divination Kocherlakota and other Fed officials are known for in that he has yet to prove his capabilities in "reading the economy."
Mr. Kocherlakota was born in Baltimore to two statisticians; reared in Winnipeg, Manitoba, and enrolled as an undergraduate at Princeton University when he was 15 years old. When asked what it was like to go to college at such a young age, the theorist responded that "it's hard to do the counterfactual."
Indeed, it is, Mr. Kocherlakota. Yet, somehow, this difficulty hasn't prevented you or the other Fed braniacs from insisting the economy would've been far worse in the long run without your wise and timely interventions in the market. No doubt the soothsaying that preceded it all was even more challenging.

The son of two statisticians... I almost feel sorry for him, the poor boy never had a chance.
His assertion in August that the nation's unemployment problem might be at least partly immune to Fed action drew fire from Paul Krugman, the New York Times columnist and Princeton economist.

"The Fed does not have a means to transform construction workers into manufacturing workers," Mr. Kocherlakota said. Mr. Krugman assailed the argument as a flawed excuse not to act.
Finally, the man demonstrates some aspect of a winning personality! Not only did Kocherlakota manage to piss off the world's preeminent politician masquerading as a thoughtful economist with mass appeal, Paul Krugman, but he accidentally stumbled upon Austrian economic theory in so doing by verbalizing the truth that labor is not merely the letter L in some aggregate equation but in fact consists of specific individuals with specific skills and talents, a manifestation of the division of labor which Fed monetary policy is powerless to do anything about.
In some places and sectors, he said, that could mean upward wage and inflation pressure, even with high unemployment rates nationally. An unemployment rate somewhere between 6.5% and 8% could be inflationary in this environment, he says. As unemployment starts moving toward that range, he says, the Fed will need to start moving toward raising interest rates.

By the end of the year, he expects unemployment at 9% and inflation at about 1.5%, up from today's 1%. He sees unemployment staying above 8% through 2012, too.

So action, using his calculations, looks a long way off. But he says the links between unemployment, inflation and the next tightening cycle could become a hot topic by year end.
As always, Mr. Kocherlakota, we'd love to see your calculations, and even better if they were subject to our critical review prior to implementation.

Bernanke has lucked out. I can't think of a more feeble-minded person suitable for the glorious role of Human Footstool To The Great Fed Chairman. For a man who likes geeking out with PhD students in the inner sanctum, however, getting down on hands and knees for "the most powerful nerd on the planet" will likely be quite the honor.

Friday, January 7, 2011

Bernanke As Keynes

Prior to his death, F.A. Hayek asked Keynes if he was alarmed at the misuse of his fallacious theories by his various disciples:
His reply was that these theories had been greatly needed in the 1930s; but if these theories should ever become harmful, I could be assured that he would quickly bring about a change in public opinion. (from Hayeks' "Personal Recollections of Keynes and the Keynesian Revolution", pg. 287)
Two weeks later, Keynes died. He never did find the time to turn public opinion around with a snap of his fingers.

Recently, Ben Bernanke was interviewed on 60 Minutes and asked if he was worried about the potential for surprising, rapid price increases following his monetary policies. Here was his reply:
We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Earlier in the interview, Bernanke insisted that decreases in current unemployment levels would take some time:
The unemployment rate is just not going down. Unemployment is just about the same as it was in mid-2009, when the economy started growing. So that's a major concern. And it looks that, at current rates, it may take some years before the unemployment rate is back down to more normal levels.
You know, it's funny because Bernanke, like Keynes before him, insists he will have the ability to stamp out any ill side-effects of his policies instantaneously. For the one part of his "dual mandate" (low unemployment, stable prices), Bernanke claims omnipotence. But when it comes to his ability to effect any positive influence over the other part of his "dual mandate", he is strangely powerless and must patiently wait for time to play its role in healing all wounds.

One day, Bernanke may only wish he could be so lucky as Keynes as to drop dead before anyone comes begging him to snap his fingers and make the world less crazy than it was before his policies were enacted.

Sunday, January 2, 2011

Book Review: Fooling Some Of The People All Of The Time

So much could be said about Einhorn's Fooling Some Of The People All Of The Time that I'll necessarily have to ignore much of it to keep this review to the point. And let me say up front that I believe the main point of Einhorn's book is that frauds may not be transparent, but the people perpetrating and enabling them often are and on that note I believe it's clear that Einhorn is the hero and the Allied Capital crowd are the villains. If the opposite be true, Einhorn certainly has me "fooled."

For what amounts to a legal caper (not a crime caper, a legal caper) involving all kinds of humorless characters, including the liars at Allied Capital attempting to perpetrate a fraud, the duplicitous analysts and journalists seemingly working on their behalf to help cover it up and a menagerie of lawyers, government officials and SEC investigators -- can you get any more humorless than that group? -- "Fooling" is darned entertaining. Funny, too. I found myself chuckling at the outrageous prevarications of the guilty parties on more than one occasion.

It's not just a good story, though, it's something of an instructive modern parable, political, financial and even economic in nature.

Einhorn's sojourn into the bowels of the Allied Capital fraud began before the current financial crisis but carried into it. Knowing this, it's both fascinating to see the struggles of someone who had come upon the margins of the crisis before it had become a crisis as well as frustrating to see that the Allied Capital saga is yet another facet of that crisis and one which, despite Einhorn's having published a whole book about it, has yet to see much coverage in the mainstream press. Three years into what is becoming a growing pile of frauds and wasted resources, many politicians and interest groups are unabashedly calling for the expansion of the Small Business Administration and its various loan programs, rather than the shutting down of a completely compromised institution.

Financially, "Fooling" tells two tales: one is of a bold, dedicated individual (Einhorn) and his small band of loyal followers (Greenlight Capital staff) and friends (private citizens like Jim Brickman) who, despite the odds and the constant doubting of the hoi polloi nevertheless persevered in their struggle for truth and were ultimately vindicated by the facts and their profitable short position; the other is the story of that same man and his merry band who put an ungodly amount of time and resources into investigating a fraud that ultimately represented only about 8% of their portfolio, begging the question, "How much of this was about ego-gratification versus responsibly representing the interests of Greenlight's partners?"

Knowing that Einhorn and Greenlight continued to make other successful investments along the way, more than once you find yourself wondering if Allied Capital would prove to be some kind of a Pyrrhic Victory. Certainly it's reasonable to question whether Greenlight wouldn't have fallen victim to another fraud they had invested in at Tyco if they had spread their attention and energies more equally amongst their various positions.

In the end, it is the economic parable which reigns supreme, however. The Allied Capital case is one of those seeming empirical confirmations of free market economic tenets. One by one, the various watchdogs and regulators prove either useless, incompetent, disinterested or entirely corrupted, from the federal SBA, SEC and even FBI, to the ratings agencies, to the Wall Street establishment analysts to the sacred Fourth Estate itself. It is only Greenlight Capital, and finally the market place at large, motivated by the profit principle, which has any incentive to actually root out and expose the fraudulent financial activities at Allied.

Einhorn's triumph demonstrates that it isn't about people but processes, the fundamental and natural incentives of the two competing and mutually exclusive principles of profit versus welfare.

I give it 4/5. This book is not perfect but it's enlightening in more ways than one. "Fooling" does an excellent job of revealing the way modern capital markets work and while Einhorn mostly manages to stay above the vulgarity of his opponents, the Allied feud proves that to win a confidence game it's helpful to have both the truth, and some talented lawyers and public opinion-setters, on your side.

Buy Fooling Some Of The People All Of The Time on