Mortgage crisis has Washington putting aside free-market ideology

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Mortgage crisis has Washington putting aside free-market ideology
By Nelson D. Schwartz, Sunday, September 7, 2008

Despite decades of free-market rhetoric from Republican and Democratic lawmakers, Washington has a long history of providing financial help to the private sector when the economic or political risk of a corporate collapse appeared too high.

The effort to save Fannie Mae and Freddie Mac is only the latest in a series of financial maneuvers by the government that stretch back to the rescue of the military contractor Lockheed Aircraft and the Penn Central Railroad under President Richard Nixon, the shoring up of Chrysler in the waning days of the Carter administration and the salvage of the U.S. savings and loan system in the late 1980s.

More recently, after airplanes were grounded because of the terrorist attacks of Sept. 11, 2001, Congress approved $15 billion in subsidies and loan guarantees to the faltering airlines.

Now, with the U.S. government preparing to save Fannie and Freddie only six months after the Federal Reserve Board orchestrated the rescue of Bear Stearns, it appears that the mortgage crisis has forced the government to once again shove ideology aside and get into the bailout business.

“If anybody thought we had a pure free-market financial system, they should think again,” said Robert Bruner, dean of the Darden School of Business at the University of Virginia.

The closest historical analogy to the Fannie-Freddie crisis is the rescue of the Farm Credit and savings and loan systems in the late 1980s, said Bert Ely, a banking consultant who has been a longtime critic of the mortgage finance companies.

The savings and loan bailout followed years of high interest rates and risky lending practices and ultimately cost taxpayers roughly $124 billion, with the banking industry kicking in another $30 billion, Ely said.

Even if the rescue of Fannie and Freddie ends up costing tens of billions of dollars, the savings and loan collapse is still likely to remain the costliest government bailout to date, said Lawrence White, a professor of economics at the Stern School of Business at New York University.

“The S.& L. debacle cost upwards of $100 billion, and the economy is more than twice the size today than it was in the late 1980s,” he said. “I don’t think this will turn out to be as serious as that, when over 2,000 banks and thrifts failed between the mid-1980s and mid-1990s.”

Most of those losses were caused by the shortfall between what the government paid depositors and what it received by selling the troubled real estate portfolios it acquired after taking over the failed thrifts.

In the Chrysler case, Carter and lawmakers in states with auto plants helped push through a package of $1.5 billion in loan guarantees for the troubled carmaker, while also demanding concessions from labor unions and lenders.

While Chrysler is remembered as a major bailout, White says it was minor compared with the savings and loan crisis or the current effort to shore up Fannie and Freddie.

The government did not have to give money directly to Chrysler, and it actually earned a profit on the deal because of stock warrants it received when the loan guarantees were provided. At the time, Chrysler had a work force of more than 100,000 people.

Still, Ely makes a distinction between the rescue of Fannie and Freddie and the thrifts versus the aid packages for Chrysler and other industrial companies. “They didn’t have a federal nexus,” he said. “They weren’t creatures of the federal government.”

This effort is also different from the others because of the potential fallout for the broader economy and especially the beleaguered housing sector if it does not succeed.

Unlike a particular auto company or even a major bank like Continental Illinois National Bank and Trust, which was bailed out in 1984, “we depend on Fannie and Freddie for funding almost half of our mortgage market,” said Thomas Stanton, an expert on the two companies who also teaches at Johns Hopkins University.

“The government,” he added, “has many less degrees of freedom in dealing with these companies than in the earlier bailouts.”

Visa planning largest IPO in U.S. history

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Visa planning largest IPO in U.S. history

By Eric Dash, Tuesday, February 26, 2008, IHT

Undaunted by recent turbulence in the financial markets, Visa, the biggest credit-card network in the United States, said Monday that it would forge ahead with what would be the largest initial public stock offering in the nation’s history.

Visa plans to sell as much as $17.1 billion of stock in late March, following in the footsteps of its smaller rival MasterCard, which went public in May 2006.

Visa and MasterCard are prospering as Americans increasingly flex plastic, rather than use cash, to pay for just about everything. The companies have not been hurt by the credit crunch, because they do not actually make credit-card loans. They merely processes transactions for banks that do.

If all goes as planned, Visa’s offering would generate a windfall for thousands of its so-called member banks, which own the company. The largest gains would go many of the nation’s biggest banks, which have been stung by losses stemming from mortgage-linked investments.

“Visa will be able to tell its story, even in an uncertain market, because its story is a good one,” said David Robertson, publisher of The Nilson Report, a payment industry newsletter. “If investors think MasterCard is a good story, Visa looks like the same thing on a bigger scale.”

Visa plans to sell 406 million Class A shares for $37 to $42 a share, with just over half going to the public and the rest to Visa’s member banks.

The first $3 billion will be placed into a special account to cover outstanding antitrust and unfair-pricing claims brought by merchants. Visa will use some of the new money to streamline its operations, expand in fast-growing emerging markets and invest in new technology like systems that enable people to make card payments using cellular phones. But the bulk of the capital will end up in the bank’s coffers, from repurchasing stock from them.

Visa’s member banks can use the extra cash.

If Visa’s shares are valued at a midpoint price of $39.50, JPMorgan Chase, the company’s largest shareholder, would receive an estimated $1.1 billion for its stake. Bank of America would get about $545 million; National City would get about $380 million; and Citigroup, U.S. Bancorp, and Wells Fargo can each expect around $240 million or more.

“The credit crunch is pretty cyclical; the prospects for Visa are very strong long-term,” said Marc Abbey, the managing partner of First Annapolis, a consulting firm that works with many banks and payments companies. “I am sure it is convenient for them to have extraordinary gains at the same time they have extraordinary losses.”

Since going public nearly two years ago, MasterCard have soared 408 percent, closing at $198.45 on Monday. It now has a market value of $26 billion.

MasterCard’s successful IPO prompted Visa to move forward with owns plans to go public. Since October 2006, Visa has reorganized its sprawling management structure, bringing together all of its global operations with the exception of those in Europe. It has also hired Joseph Saunders, the former head of Providian Financial Corporation, as its chairman and chief executive, giving him a pay package worth $11.1 million in cash for 2007. Upon completion of the IPO, he is expected to receive an additional $11.5 million in stock and options, according to Equilar, a compensation research firm.

Visa transactions accounted for roughly 66 percent of all credit and debit card purchases in the United States in 2006, compared to about 26 percent for MasterCard, according to The Nilson Report data.

Growth in card transactions, the foundation of the companies’ businesses , has historically held up well, even when the economy and consumer spending slows.

“If you look back at the last recession, card transactions did not drop ? they took a dip in growth, but they didn’t fall below prior year,” Robertson said.

“There is no reason to think that growth in the United States is going to sink Visa’s boat,” he said. “Whatever lackluster growth in the U.S. should certainly be matched and exceeded by what occurs outside the U.S.”

The prospectus for the sale lays out a convoluted capital structure, with four classes of shares, including three which go to the banks. But the deal, which is underwritten by JPMorgan and Goldman Sachs, also raises potential conflicts for the banks underwriting the shares.

Both institutions have strong ties to the financial services industry. But JPMorgan is Visa’s largest shareholder and largest customer. It is a member of the bank syndicate that agreed to lend $3 billion to the company. And it could reap more than 1.1 billion in proceeds from the IPO

Goldman, meanwhile, will serve as the “qualified independent underwriter” in setting the price of the offering, according to public filings. Its independence is not deemed in question even though Suzanne Nora Johnson, a Visa director, used to be a vice chairman of Goldman Sachs.

International Herald Tribune Copyright © 2008 The International Herald Tribune | http://www.iht.com

Jerome Kerviel, French Trader Had an Accomplice

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Collaboration at Société Générale? 2nd person taken into custody

By Nicola Clark, Katrin Bennhold and James Kanter

Friday, February 8, 2008

PARIS: A French investigation into Jérôme Kerviel, the former trader who Société Générale says cost it nearly €5 billion, or more than $7 billion, last month, took on wider dimensions Friday as French financial police interrogated a second person in relation to the case, calling into question the bank’s assertion Kerviel had acted alone in setting up billions of euros worth of fictitious trades.The news came as a Paris court bowed to prosecutors’ arguments that Kerviel should be taken into custody, partly to prevent him from having contact with significant witnesses in the case.Legal experts said that the revelation that Kerviel – who courtroom observers said appeared shocked by the decision to detain him – might not have been the lone operator the bank has made him out to be suggested that oversight of Société Générale’s trading room may have been recklessly lax. That may put added pressure on Daniel Bouton, the bank’s chief executive, and other top managers to explain more fully the circumstances that led up to the losses.”

It really suggests a higher-level failure of risk management than we thought two weeks ago” when the bank initially disclosed its trading losses, said Christopher Mesnooh, an international business lawyer based in Paris.”It’s one thing to overlook one person, but if it’s two people then it begins to stagger the imagination,” he said. “It looks as if there was probably a greater deal of collaboration than has so far been disclosed, as well as oversight failure.”

According to two people with knowledge of the investigation, Société Générale has provided prosecutors with new evidence related to Kerviel’s fictitious trades, including a series of electronic message exchanges between Kerviel, 31, and Moussa Bakir, a 32-year-old broker at Newedge, Société Générale’s futures brokerage unit formerly called Fimat, that were sent using the bank’s internal computer system.

According to these people, who requested anonymity because they were not allowed to discuss the case, one such message, sent by Bakir to Kerviel on Nov. 30, read: “You have done nothing illegal in terms of the law.”

Both added that this message was only a “small part” of the communications linking the two men and that there was more “interesting” correspondence that had yet to be disclosed.

The message was sent four days after Eurex, the Frankfurt-based derivatives exchange, had sent a query to Société Générale’s compliance department on Nov. 26 demanding clarification of several suspicious trades of stock index futures that Kerviel had made.

This was the second letter from Eurex in less than three weeks questioning Kerviel’s investment strategy and, in particular, asking about his habit of entering trades through a broker at Fimat, rather than from Société Générale directly.

In a letter Nov. 7 letter to Société Générale, Eurex even inquired whether Kerviel had entered the transactions automatically or manually.

“Please explain the background for this procedure,” two Eurex officials wrote.

Investigators are also examining Kerviel’s mobile phone bills, which Jean Veil, a lawyer for Société Générale, earlier this week described as unusually high, suggesting, he said, that there “could have been” others involved.

Veil emphasized the bank had found no evidence to suggest that Kerviel had accomplices.

“That said,” Veil said, “I am asking myself how he could have built up a €1,000 monthly cellphone bill given that he worked all day long in an office with telephones.”

A spokeswoman for the Paris prosecutor’s office, Isabelle Montagne, confirmed that the police had taken a male employee of Newedge into custody around midday on Thursday and that he was expected to be held for questioning until around midday on Saturday.

She added that the police had also raided Newedge’s offices on the Champs-Elysées in central Paris on Thursday, taking documents and computer files.

A spokeswoman for the Société Générale, Joelle Rosello, declined to comment, saying the bank was “cooperating closely with the investigation.”

Société Générale last month merged Fimat into Newedge, a joint-venture with the futures brokerage unit of Calyon, the investment banking arm of Crédit Agricole, another French bank. Spokespeople for Newedge referred all inquiries about the matter to Société Générale.

Stéphane Bonifassi, a business crime expert at the law firm Lebray & Associes in Paris, said the emergence of Bakir as a possible accomplice could have played favorably for the prosecution at the hearing Friday.

“The prosecution played it very subtly by having this other guy in the background,” Bonifassi said. “That there is this other guy may have strengthened the need to place Kerviel in pre-trial detention to avoid them talking together or coordinating their stories,” a risk often used to justify a request for pre-trial detention, he said.

Frédérik-Karel Canoy, a lawyer acting for small shareholders who was present as the ruling was read, said that when informed of the decision, Kerviel appeared as if “the sky had fallen on his head.”

“When he heard the words ‘placed in detention’ you could see his body crumple slightly as if it suddenly hit him that he really was going to prison,” Canoy said. Another lawyer who was present said that Kerviel was escorted away from the hearing room by three gendarmes but that he was not handcuffed. Kerviel’s lawyer, Elisabeth Meyer, wept, Canoy said.

Looking ashen-faced as she addressed a crush of cameras after the verdict, Meyer spoke in short, clipped sentences and vowed to appeal the decision.

“I cannot explain this decision,” Meyer said. “He’s met more than his match,” she said of Kerviel.

Ulrike Weiss, a spokeswoman for the Paris prosecution described the court’s decision as being “in line with our arguments.”

The Paris prosecutor, Jean-Claude Marin, last month requested that Kerviel be detained to protect him from media and professional pressure and because of concern about his mental health – and the possibility of suicide – before a trial.

Veil, the Société Générale lawyer, said the decision also reflected the concerns of prosecutors and the bank’s defense team that letting Kerviel go might risk interference with important witnesses or evidence in the case.

Kerviel, who was held by the police for two days of questioning last month was released under judicial supervision on Jan. 28. But that decision, by investigating judges in the case, was appealed by the prosecutor, Marin, which prompted Friday’s hearing.

Weiss, the prosecution spokeswoman, said that Kerviel could be detained for a period of between four and 12 months.

Kerviel was taken to La Santé prison, close to the center of Paris, where high-profile suspects like business leaders and politicians are often held while under investigation, according to Christophe Reille, his lawyer’s spokesman.

Kerviel is being investigated on allegations of forgery, breach of trust and illegal computer use, but he has not been formally charged with a crime.

In France, before formal charges can be brought, a judge must complete an investigation. If convicted, Kerviel could face a maximum sentence of three years in prison and a fine of €370,000.

jerome.kerviel.societe.general.banktrader

Bonifassi said that any chances of an appeal by Kerviel against an detention would be unlikely to succeed.

“I’d give an appeal extremely thin chances,” Bonifassi said.

He also said that the decision Friday represented a preliminary judgement on Kerviel’s guilt.

“Although judges will not admit it because pre-trial detention should not be based on feelings about someone’s guilt, the decision does show a feeling among the judges that he is guilty of something,” Bonifassi said.

The High Cost of Imprisonment in America

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U.S. Department of Justice
Office of Justice Programs
Bureau of Justice Statistics
Special Report

State Prison Expenditures, 2001[Download Full Report in PDF]

June 2004, NCJ 202949

————————————————————-
This file is text only without graphics and many of the tables.
A Zip archive of the tables in this report in spreadsheet format
(.wk1) and the full report including table and graphics in
.pdf format are available from:
http://www.ojp.usdoj.gov/bjs/abstract/spe01.htm

This report is one in a series. More recent editions may
be available. To view a list of all in the series go to
http://www.ojp.usdoj.gov/bjs/pubalp2.htm#spe
————————————————————-

By James J. Stephan
BJS Statistician

—————————————————–
Highlights

States spent $29.5 billion for prisons in 2001,
about a $5½ billion increase from 1996, after
adjusting for inflation

* Prison operations consumed about 77% of State correctional
costs in FY 2001. The remaining 23% was spent on juvenile
justice, probation and parole, community-based corrections,
and central office administration.

* State correctional expenditures increased 145% in 2001
constant dollars from $15.6 billion in FY 1986 to $38.2
billion in FY 2001; prison expenditures increased 150% from
$11.7 billion to $29.5 billion.

* Excluding capital spending, the average cost of operating
State prisons in FY 2001 was $100 per U.S. resident, up from
$90 in FY 1996.

* Outlays for new prison construction, renovations, equipment,
and other capital account activities amounted to less than 4%
of total prison expenditures in most States.

* Spending on medical care for State prisoners totaled $3.3
billion, or 12% of operating expenditures in 2001.
——————————————–

Correctional authorities spent $38.2 billion to maintain the Nation’s
State correctional systems in fiscal year 2001, including $29.5
billion specifically for adult correctional facilities. Day-to-day
operating expenses totaled $28.4 billion, and capital outlays for
land, new building, and renovations, 1.1 billion.

The average annual operating cost per State inmate in 2001 was
$22,650, or $62.05 per day. Among facilities operated by the
Federal Bureau of Prisons, it was $22,632 per inmate, or $62.01
per day.
In a followup to a study based on FY 1996 data, this report
presents unique statistics on the cost of operating State
prisons in FY 2001. Information was obtained by extracting
corrections data from each State’s responses to the U.S.
Census Bureau’s annual Survey of Government Finances. Item
categories were standardized across jurisdictions, and
reported figures were verified with State budget officials.

Expenditures are the total amounts paid for prison operations,
including interest on indebtedness. Figures are net of amounts
derived from revenue-generating activities such as farm and
industrial production and services.

The increase in cost of corrections outpaced
the cost of health, education, or natural
resources

State spending for corrections increased from $65 per resident
in 1986 to $134 in 2001. Per capita expenditures for State
prison operations alone rose from $49 in 1986 to $104 in 2001.

At an average annual increase of 6.2% for total State correctional
spending and 6.4% specifically for prisons, increases in the cost
of adult incarceration outpaced those of health care (5.8%),
education (4.2%), and natural resources (3.3%).

Although correctional spending grew at a faster rate than many
other State payments between 1986 and 2001, it remained one of
the smaller cost items. For example, the outlay for education,
at $374.5 billion, was nearly 10 times larger, and that for
welfare, at $260.3 billion, was nearly 7 times larger.

State correctional expenditures include the cost of operating
prisons and related institutions. Such institutions are
reformatories; prison farms; centers for the reception,
evaluation, and classification of inmates; and correctional
facilities exclusively for the criminally insane or for the
treatment of drug and alcohol addiction. State correctional
expenditures are primarily for operating adult facilities.
Other spending pays for juvenile correctional activities,
adult parole boards and programs (including court programs),
and correctional administration not associated with specific
penal institutions.

States spent $29.5 billion on prisons
in fiscal 2001

State prison expenditures totaled $29.5 billion in fiscal year
2001. Adjusted for inflation, this was approximately $5.5
billion more than was spent in FY 1996.

California reported the largest prison expenditure, $4.2
billion, and North Dakota the smallest, $26.8 million.

As a non-State activity, correctional spending by the Federal
Bureau of Prisons (BOP) was outside the scope of this report.
However, outlays for its operations in FY 2001 amounted to
$3.8 billion, or about 11% of the Nation’s prison expenditure.

Operating costs averaged $22,650
per inmate in fiscal year 2001

State prison operating expenditures totaled $28.4 billion in
fiscal year 2001. This total, divided by the number of
prisoners, produced a nationwide average annual operating
cost per inmate of $22,650. Adjusted for inflation, the
equivalent figure in 1996 was $22,515.

The average operating cost to incarcerate one inmate in the
Federal Bureau of Prisons system during FY 2001 was $22,632.

The $28.4 billion State operating cost, divided by the U.S.
resident population, resulted in a nationwide average
operating expenditure of $100 per person. The highest costs
per resident were recorded in the District of Columbia
($251), Alaska ($243), and Delaware ($204). The lowest costs
per resident were in West Virginia ($34), North Dakota ($38),
and New Hampshire and Minnesota ($48 each).

State correctional systems with integrated jail-prison facilities
may have higher operating costs than other jurisdictions because
the costs of housing jail inmates are included as State
expenditures. Of the six States with integrated jail-prison
systems in 2001, four had average annual operating costs per
resident above the average for States not operating integrated
systems.

Compared to 1996, prison spending in 2001 revealed a greater emphasis
on facility operation

Over three-fourths of the States spent 96% or more of prison funds
on current operations such as salaries, wages, benefits, supplies,
maintenance, and contractual services. In 1996 State spending on
current operations accounted for 94% of total expenditures.

The District of Columbia, Hawaii, Alaska, Tennessee, and Utah
allocated all or nearly all prison expenditures to current
operating activities. By contrast, Nebraska spent the lowest
proportion (79%), followed by Missouri (83%), Wisconsin (84%),
and Wyoming (86%).

Salaries, wages, and benefits made up about two-thirds of State
prison operating expenditures, nationwide, in 2001. Other
operating costs comprised about a third. Other operating costs
covered a wide variety of outlays, such as inmate health care,
food, utilities, supplies, fees, commissions, and contractual
services.

A majority of States spent 4% or less of prison expenditures on capital projects

Thirty-seven jurisdictions used 4% or less of all prison dollars
to finance new construction, renovations, major repairs,
equipment, land, buildings, and other nonrecurring outlays during
FY 2001. Among this group, the District of Columbia, Alaska, Hawaii,
and Utah spent less than 1%. Four other States allocated significant
proportions of prison funds to capital projects: Nebraska (21%),
Missouri (17%), Wisconsin (16%), and Wyoming (14%).

Spending on State prison capital projects decreased 25% from 1996 to 2001

Total capital expenditures of State prisons, adjusted for
inflation, declined 25% from $1.5 billion in FY 1996 to
$1.1 billion in FY 2001.

———————————————–
Many factors associated with variation in prison costs

Much of the variation between States in the cost of operating
prisons was outside the influence of correctional officials:
differences in the cost of living, variation in prevailing
wage rates, climate, and other factors. Although important,
they were beyond the scope of this study.

However, certain corrections-related factors were possible to
analyze. For example, employee salaries, wages, and benefits
consumed more than half of prison operating expenditures.
Their influence was measurable by comparing inmate-to-staff
ratios with operating costs per inmate. High inmate-to-staff
ratios were most common in States reporting low average costs
per inmate, and low inmate-to-staff ratios predominated in
States with high average annual costs per inmate.

Cost savings may also have been made from the operation of
larger capacity prisons. Eight of the 10 States with average
annual operating expenditures per inmate over $30,000 had an
average number of inmates per facility under 800. By contrast,
3 of the 7 States with average annual operating expenditures
per inmate under $15,000 had an average number of inmates per
facility over 800.

Transfer payments, which included intergovernmental monies
from one government to another as well as intra-governmental
payments from one department or agency to another, varied
significantly by State. In the 1996 State prison expenditure
study, when these payments were last identified separately,
departments of corrections in the South received about 8% of
their total expenditures from transfer payments, compared to
about 4% in other regions.
——————————————-

More than three-fourths of State prison capital expenditures were
for new construction, renovations, and major repairs, including
fees and services of architects, engineers, appraisers, and
attorneys. In FY 2001 these components consumed nearly the
entire capital account in Missouri (99%) and Washington (97%).

The second-largest capital expenditure was for equipment purchases
and installations, including furnishings, office equipment, motor
vehicles, and other devices having a useful life of more than 5
years. The average outlay was approximately 23% of total capital
spending. In Alaska, Delaware, Nevada, and Utah, however, equipment
accounted for the entire capital spending category in FY 2001.

The purchase of land, rights-of-way, existing structures, title
searches, and related costs (not shown in table 4)included less
than half of 1% of State prison capital expenditures, nationwide.
Four States reported outlays in this category that exceeded 2%:
Oregon (4.6%), New Mexico (3.9%), Florida (3.4%), and Arkansas
(2.3%).

Over a quarter of prison operating costs for basic living expenses

Prisoner medical care, food service, utilities, and contract
housing totaled $7.3 billion, or about 26% of State prison
current operating expenses.

Inmate medical care totaled $3.3 billion, or about 12% of
operating expenditures. Supplies and services of government
staff and full-time and part-time managed care and fee-for-
service providers averaged $2,625 per inmate, or $7.19 per
day. By comparison, the average annual health care
expenditure of U.S. residents, including all sources in FY
2001, was $4,370, or $11.97 per day.***Footnote: U.S.
Department of Health and Human Services, National Center for
health Statistics, citing Centers for Medicare and Medicaid
Services in Health, United States, 2003, table 116.***

Five States reported annual medical costs per inmate above
$4,000: Maine ($5,601), New Mexico ($4,665), California
($4,394), Massachusetts ($4,049), and Alaska ($4,047).
Three States spent less than $1,000 per inmate: Louisiana
($860), Montana ($922), and Kentucky ($960).

Factors beyond the scope of this report contributed to the
variation in spending levels for prisoner medical care.
Lacking economies of scale, some States had significantly
higher than average medical costs for everyone, and some
had higher proportions of inmates whose abuse of drugs or
alcohol had led to disease. Also influencing variations in
expenditures were staffing and funding of prisoner health
care and distribution of specialized medical equipment for
prisoner treatment.

Food service in FY 2001 cost $1.2 billion, or approximately 4%
of State prison operating expenditures.

As a percentage of total prison operating costs, South Dakota
and Hawaii allocated the largest proportions to food services,
11.3% and 8.2%, respectively, and North Carolina and Oregon
allocated the smallest proportions, 0.7% and 1.8%.

On average nationwide, State departments of correction spent
$2.62 to feed inmates each day. Pennsylvania ($5.69) and
Washington ($5.68) reported the largest amounts, followed by
Maine ($5.03), Hawaii ($4.87), and Iowa ($4.81). North
Carolina indicated the lowest cost ($0.52), followed by
Alabama ($0.72), Mississippi ($0.81), and Louisiana ($0.96).

Reports of low food costs often reflected prisoner-operated farm
and food processing operations. or example, Mississippi State
Penitentiary, Parchman, and South Mississippi State Penitentiary,
Leakesville, grew a wide variety of fruits, vegetables and grains,
and raised livestock for other Mississippi prisons. Prison
enterprises in North Carolina operated a cannery, a meat
processing plant, warehouses, and trucks to deliver food and
equipment to correctional facilities statewide.

Utility services for electricity, natural gas, heating oil, water,
sewerage, trash removal, and telephone in State prisons totaled
$996 million in FY 2001.

Utilities accounted for about 3.5% of State prison operating
expenditure. Among individual States, they consumed the most
in Alabama (5.7%), New Hampshire and Virginia (5.6%), and the
least in Rhode Island (0.5%), and Montana (1.5%).

Daily utility costs ranged from a high of $5.43 per inmate in
Massachusetts, $4.52 in Alaska, and $4.50 in Maine to a low of
$0.55 in Rhode Island, $0.89 in Louisiana, and $0.92 in
Montana.

40 State correctional systems paid others to house some prisoners

All but 11 States had expenses relating to the contract housing
of prison inmates in private facilities, local jails, other
States’ facilities, or Federal facilities. The 11 States not
reporting con- tract housing costs for inmates in FY 2001 were
Alabama, Iowa, Kansas, Illinois, Maine, Massachusetts, Missouri,
New Hampshire, North Carolina, Washington, and West Virginia.

Contract housing averaged 6% of operating expenses, nationwide.
However, seven States spent more than 3 times this proportion:

Montana spent $26.1 million, all of it to house inmates in
private facilities. Louisiana paid $171.1 million, 81% of
it to house inmates in local jails; and Tennessee spent
$150.7 million, about a third of it to hold inmates in
private facilities and two-thirds in local jails.

Methodology

Following a procedure similar to that used to produce State
Prison Expenditures, 1996, BJS asked government finance
specialists at the U.S. Census Bureau to identify each
State’s corrections function codes, as reported in the FY
2001 Survey of Government Finances. Census staff entered this
information into a data base, using a standardized format
provided by BJS.

——————————————–
The data to produce the graph in the Highlights on page 1 are
available with other tables of the report on the BJS
website <www.ojp.usdoj.gov/ bjs>. These data include inflation-
adjusted costs for total State corrections and prisons as well
as costs per U.S. Resident.
——————————————–

This data extraction procedure included both inter- and
intragovernmental transfer payments, and clarified missing,
repetitious, and out-of-range data items.

Both department of corrections and State central office budget
specialists were asked to review the originally submitted numbers.
These officials worked with the Census Bureau to eliminate
duplicate reports, interpret expenditure codes, and understand
organizational functions and accounting procedures.

Budget officials sharpened the scope of the study by including
expenditures for central office personnel who performed prison
activities and deleting outlays that pertained to probation and
parole services, juvenile corrections, and nonresidential
community corrections — areas outside the prison function.

Upon final approval by each State’s designated financial
reviewer, Census staff completed the data adjustment
phase of the project with a 100% response rate for total
and operating expenditures.

Underreporting

Correctional expenditures shown in the Highlights figure may be
underreported. As the result of discussions between State budget
officials and U.S. Census Bureau specialists in government
finance who collected the data for this report, the total cost
to operate State prisons in FY 2001 was 1.1% higher than
originally reported to the Census Bureau in the 2001 Survey of
Government Finances.

Factors which contributed to the revised FY 2001 State prison
spending figure included adjustments for central office staff
assigned to prison, probation, parole, and juvenile activities;
elimination of duplicate fund reporting; and access to final
numbers following State submissions of preliminary numbers in
the Survey of Government Finances.

Data limitations

Expenditure data published in State Prison Expenditures, 2001
and State Prison Expenditures, 1996 were reported by State
budget officials, based on categories established by the
Census Bureau’s annual Survey of Government Finances. Previous
State prison cost data published by BJS were reported by
correctional facility operators.

Adjusting for inflation

State government expenditures for fiscal years 1996 and 2001
were inflation-adjusted in 2001 constant dollars, as
appropriate for State and local government spending. The
following annual chain-type price indexes for gross domestic
product were employed as divisors and unadjusted
expenditures as dividends to produce inflation-adjusted
expenditures in 2001 constant dollars:

———————————————
The Bureau of Justice Statistics is the statistical
agency of the U.S. Department of Justice. Lawrence A.
Greenfeld is director.

James J. Stephan wrote this report and coordinated
data collection, under the supervision of Allen J.
Beck. Tracy L. Snell provided statistical
verification. Tina Dorsey and Tom Hester produced
and edited the report. Jayne Robinson prepared the
report for final printing.

Howard Trott, Shelley Blake, and James Batton of the
U.S. Census Bureau, Governments Division, Finance
Branch coordinated the data extraction process and
verified the information reported by State officials,
under the direction of Steven Owens. Pamela Butler
prepared the data for review by State contacts, under
the direction of Charlene Sebold.

June 2004, NCJ 202949 C
———————————————

The Wooden Bowl – Life Lessons

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The Wooden Bowl

I guarantee you will remember the tale of the Wooden Bowl tomorrow, a week from now, a month from now, a year from now.

A frail old man went to live with his son, daughter-in-law, and four-year old grandson. The old man’s hands trembled, his eyesight was blurred, and his step faltered. The family ate together at the table.

But the elderly grandfather’s shaky hands and failing sight made eating difficult. Peas rolled off his spoon onto the floor. When he grasped the glass, milk spilled on the tablecloth.

The son and daughter-in-law became irritated with the mess. ‘We must do something about father,’ said the son. ‘I’ve had enough of his spilled milk, noisy eating, and food on the floor.’

So the husband and wife set a small table in the corner. There, Grandfather ate alone while the rest of the family enjoyed dinner. Since Grandfather had broken a dish or two, his food was served in a wooden bowl!

When the family glanced in Grandfather’s direction, sometime he had a tear in his eye as he sat alone. Still, the only words the couple had for him were sharp admonitions when he dropped a fork or spilled food.

The four-year-old watched it all in silence. One evening before supper, the father noticed his son playing with wood scraps on the floor. He asked the child sweetly, ‘What are you making?’

Just as sweetly, the boy responded, ‘Oh, I am making a little bowl for you and Mama to eat your food in when I grow up.’ The four-year-old smiled and went back to work .

The words so struck the parents so that they were speechless. Then tears started to stream down their cheeks. Though no word was spoken, both knew what must be done. That evening the husband took Grandfather’s hand and gently led him back to the family table. For the remainder of his days he ate every meal with the family. And for some reason, neither husband nor wife seemed to care any longer when a fork was dropped, milk spilled, or the tablecloth soiled.

On a positive note, I’ve learned that, no matter what happens, how bad it seems today, life does go on, and it will be better tomorrow.

I’ve learned that you can tell a lot about a person by the way he/she handles four things: a rainy day, the elderly, lost luggage, and tangled Christmas tree lights.

I’ve learned that, regardless of your relationship with your parents, you’ll miss them when they’re gone from your life.

I’ve learned that making a ‘living’ is not the same thing as making a ‘life..’

I’ve learned that life sometimes gives you a second chance.

I’ve learned that you shouldn’t go through life with a catcher’s mitt on both hands. You need to be able to throw something back.

I’ve learned that if you pursue happiness, it will elude you. But if you focus on your family, your friends, the needs of others, your work and doing the very best you can, happiness will find you.

I’ve learned that whenever I decide something with an open heart, I usually make the right decision.

I’ve learned that even when I have pains, I don’t have to be one.

I’ve learned that every day, you should reach out and touch someone.

People love that human touch – holding hands, a warm hug, or just a friendly pat on the back.

I’ve learned that I still have a lot to learn.!

I’ve learned that you should pass this on to everyone you care about.

I just did

Jerome Kerviel Testimony Transcript – French Police

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Transcript: Interrogation of Jérôme Kerviel

Wednesday, January 30, 2008

French financial police have questioned Jérôme Kerviel, the trader whom Société Générale says lost billions in unauthorized trading bets using its money, at length about his role in the alleged fraud. Following are translations, by the International Herald Tribune, of verbatim excerpts published in Thursday editions of Le Monde, a leading French daily, from the verbal interrogation, which took place in six interviews from Saturday through Monday.His position within the bank JÉRÔME KERVIEL: I was hired by Société Générale in August 2000, in charge of the middle-office…. During the second half of 2004, I was assigned to be assistant to a desk…. Since I was on the same row of desks as the traders, I became more and more interested in the trading activity…. At the beginning of 2005, I was transferred to trading on the desk….

When I was hired by Société Générale [in August 2000], my gross salary was about 35,000 a year plus variable bonuses…. For the year 2007, I haven’t yet been told of the amount of my gross variable yearly revenue,… I was asking for 600,000, they offered me 300,000. To this day, I have not received anything for 2007.

….I understood during my first interview in 2005 that I was far less considered than others because of my degree course and my professional and personal paths…. But I don’t take it personally, I assure you….

Admitting to fake trades. I do not formally question the facts that I am being blamed for. I admit having created fictitious operations, I admit the cancellation of fictitious operations; concerning the unauthorized stand I took on the futures, I am a little less affirmative. My mandate was clear: it consists in ensuring that the market-making of products…. presented no volatility: certificates, warrants, trackers…. It was about earning money for the bank only, and in no way to enrich myself. What is more debatable, I admit, are the ways used to achieve this.

When the coverup began. My first experience in this field goes back to 2005, I took a stand on Allianz stock, making the bet that the market would drop. It just so happens that shortly after the market drops following the London attacks, and there it was, a 500,000 jackpot. This time corresponds more or less to when I started as a trader at Société Générale. I then already have the idea of a deal to cover my position. I have mixed feelings about this because I am proud of the result and altogether surprised. It generates the desire to continue, there is a snowball effect.

….At the end of July [2007], the market snaps because of subprimes and the markets are shook up. My result goes up: 500 million, and I find myself in the same situation as before, in an even bigger way, and do not declare this result which doesn’t appear in the books of Société Générale. I hide this with a fictitious operation….

As of the 31st of December [2007], I no longer have a “pose” and my “mattress” [profits set aside] has gone up to 1.4 billion, still not declared to the bank. At this point, the situation is beyond me and I don’t know how to tell the bank about it, this represents unreported cash of 1.4 billion. So I decided not to declare this to the bank and to cover up this amount, I create an offsetting fictitious operation….

How he played the markets. At the beginning of 2008, I change my position to “long” [the status of a buyer] because I know that the market has evolved a lot, and I see the market coming back up in the next three months, and I am still to this day convinced that it’s going to bounce back up in the next three months…. [It] was only at the closing of the session of the 18th [January 2008] that I was negative. I then think that I will see the evolution of the market when I come back on Monday and count on the market rising on Tuesday. What I couldn’t assume is that Monday I would no longer be an employee of Société Générale.

….In November 2007, on intra-day successive operations, I went back and forth on the DAX [the German stock market index] and seeing it was juicy, took positions from coworkers’ automated machines at the same time and this everyone saw and knew. On that day alone, I made 600,000. My manager then wanted to know the reasons for my investment choices….

How he covered his tracks. Now for the bank, since I am not supposed to have earned this money, I reported a result of only 55 million…. I then provided fake evidence of the recording of these operations, i.e. fake e-mails. I created a fake e-mail with a function that allows me to reuse the heading of an e-mail that is sent to me and change the contents….

The techniques that I used are not sophisticated at all, in my opinion, any correctly executed inspection is able to detect these operations….

Red flags raised. I remain persuaded that they [his supervisors] were aware of these positions and by saying this I inform you of the existence of warnings that got to my hierarchy. In 2007, several questioning e-mails…. were sent to several of my coworkers in order to get explanations…. Another warning could have consisted in calculating the ratio between the ?55 million result that I reported in 2007 and the number of operations I processed. Two requests for information in November 2007, coming from Eurex in Germany, are sent to question the volume of operations I processed…. Following this investigation I am questioned…. and am able to justify myself. At the beginning of January 2008, I max out my credit limit…. I then receive questioning e-mails…. To justify myself, I then create a forged e-mail.

….The fact alone that I didn’t take any days off in 2007 [4 days] should have alerted my supervisors. It’s one of the elementary rules of internal control. A trader who doesn’t take any days off is a trader who doesn’t want to leave his book to another….

I was generating cash, so the signals weren’t that alarming. As long as we earn and it doesn’t show too much, as long as it’s convenient, no one says anything….

INVESTIGATOR: Did anyone comment on the 50 billion that you took during the first fifteen days of January?

A: I had a feeling the market was going to bounce back up.

Q: Caught in the gearing, how did you imagine you would be able to announce this without risking losing your salary?

A: I thought the simple fact of announcing a 1.4 billion profit would satisfy them.

Q:Without imagining the way they were covered up would result in a penalty/sanction?

A: How do you justify a penalty given to a trader who generates a positive result of 1.4 billion?

Q: Let’s suppose that your positions on the futures had been detected by Société Générale,… what would have been your defense?

A: My justifications would have been the same. The hope of the market turning over. However, I’ll say it again, from March to July my supervisors received a number of warnings that makes me think that the size of my stands was known.

Q: Why didn’t the checking services try to stop you?

A: It was in their interest to let me make money….

In the event that anything was detected during this period the whole team would have been fired. Including my higher-ups, one after the other. And that is what’s happening today. In both cases, it was in Société Générale interest to close its eyes. Whether I’m winning or losing….

No matter what, I was risking in one case just as in the other case losing my salary if my commitments were detected. It certainly was in my interest to hide my commitments to my supervisors.

International Herald Tribune

International Herald Tribune

Dubai is on Steroids

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It’s said that the highest concentration of cranes in the world can be found just in one city – Dubai, in the United Arab Emirates (UAE). Take a look at the photos and videos below and you will see why the construction industry over there seems to be on Steroids.

Who is financing this boom in building? They don’t seem to be experiencing the same down turn in the real estate market in Dubai as in the United States? Abu Dhabi and the other emirates are on the same path.

 

 

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