Forbes.com web site has a very good interview with John Bogle, founder of the Vanguard Mutual Fund company.

Bogle always has sensible advice.  I only wish I had the courage to follow it.  I make this post so that I can remember the link to the interview.  I may go back and read it a few times so that I can contemplate really following his advice for once.

Chris Barth, Forbes: One of the topics you cover in your latest book is “What’s Wrong With Mutual Funds.” That seems like a strange idea to push, given that you are the founder of one of the world’s largest mutual fund companies. So what is wrong with mutual funds?

John C. Bogle: Well, let me start off by saying that’s the reason that in the subtitle of the book, I have the word mutual in quotation marks, and a lot follows from that. Because mutual funds are not mutual. That is, just in general. Vanguard happens to be the only exception to that rule–we can talk about that a little later on, maybe. But in any event, they’re not mutual. Entrepreneurs or international conglomerateurs, or large financial institutions buy or create mutual fund management companies to create a return on their own capital. It’s capitalism at work, where the rewards tend to go to the managers rather than the investors.

And that’s why we have a big problem with fees, we have a big problem with mutual fund governance, we have a big problem with mutual funds participating in the governance of our industrial corporations and other kinds of corporations in the U.S. They don’t take the responsibility for ownership, because that doesn’t produce any returns for the owners of the management companies. Curiously enough, that idea of “mutual” funds was originally mentioned in a speech by Emmanuel Cohen, who was a wonderful chairman of the SEC, a long, long time ago. His speech on mutual funds that’s referenced in the book was maybe in 1960 or something like that. So he saw it then, and I see it now. And the reason I created Vanguard was to create a truly mutual mutual fund.

There are also valuable comments on the state of the economy, politics, and this country.

Here is one quote that is not related to his usual advice of investing in low cost index funds.

Only in America can we name a loose monetary program after a mothballed luxury liner, the Queen Elizabeth II. And only in America can we name a panel to investigate the causes of the stock market collapse and pass a law six months before they make their report. Some of the stuff that goes on out there is a little bit nutty, let’s face it. And my guess is that quantitative easing is the wrong move. My own personal conviction is that we should be doing more fiscal stimulus than monetary stimulus. And we see in the performance of the market after the announcement that QE2 was coming along, that interest rates did not go down, they went up very perversely. And that story is still to be fully written, but the initial impulses are not good.

Apparently it is too hard to prove, in a court of law, the bribery of our Federal Government officials and staff members.  So there is probably little hope of reforming the system by toughening bribery laws.

President Obama has tried to impose rules for members of his administration from immediately upon leaving government  taking a job with a company with which they dealt while in the administration.  This is not enough, because it does not cover enough people and it is not a big enough deterrent.

I suggest that a law be implemented which says that any earnings a federal elected official, appointed official, or staff member gets from eventually working for a company that gained a benefit from legislation or executive or judicial rule making be taxed by the Federal Government at a rate of 90% with no deductions allowed.  It could also be made a federal crime to try to disguise any such earnings so as to try to make them appear to not be earnings from such a company.  There could be a separate bureau in the IRS to monitor the earnings of former federal  legislators, executives, and judges.

This rule alone would cut the sweetheart deals that corporations get to such an extent that our deficit problems would practically solve themselves.  Any money the Federal Government would earn from the tax would just be gravy.

By comparison to the case of the oil billionaire in Russia, Khodorkovsky, our outrage ought not be that he was prosecuted because he was a political foe of Vladimir Putin.  Our outrage ought to be that friends of Putin do not get prosecuted for similar crimes.  We then ought to turn our outrage on the prosecution of people in this country for being foes of the party in power or the lack of prosecution for friends of the party in power.

I was looking at theREALnews web site’s list of best stories in 2010. The first story I looked into was Obama Big Pharma Deal (Devastating Video) by Cenk Uygur of The Young Turks.

Perhaps the most galling part of this presentation is that a huge part of the $4 or $5 trillion dollars that needs to be cut from the budget in the next ten years was given away to the pharmaceutical industry in the health care “reform” bill just passed this year.

A quick second on the galling scale is the multiple ways that Congress, the President, and the staff of the executive and legislative branches are being bribed by industry, the phramaceutical industry in particular in this presentation.

I’d have to rate the third place on the galling scale to this behavior being exactly what Obama promised to stop while he was running for President. (The above video shows you Obama saying this in front of an audience.)

The story, EPA to natural gas companies: Give details on ‘fracking’ chemicals, from September 9, 2010, bears continued monitoring. The EPA report isn’t due to be published until 2012.

Fracking for natural gas involves pumping a slurry of sand, water, and chemicals deep underground at high pressure – cracking open natural-gas-bearing shale deposits and allowing the gas embedded there to emerge. The process has been hailed as a boon for US energy supplies and has single-handedly boosted US natural-gas reserves in recent years.

But a growing number of residents in Texas, Pennsylvania, Colorado, and other states say the technique has fouled their drinking-water wells and even caused the tap water coming out of their faucets to smell like industrial chemicals.

In March, the EPA announced it would study the “potential adverse impact” that hydraulic fracturing might have on drinking water. The agency is holding public meetings in major oil and gas production regions to get citizen, industry, and expert input. First results of the study are expected in late 2012.

Of course it was too good to be true.  The sudden increase in natural gas produced in this country held out the promise of lowering our dependence on foreign oil.  We had to realize that this good news couldn’t come without consequence.

To add to the worries enumerated in the above story, I recall the troubles that came to light many years ago in Rocky Mountain Arsenal in Colorado.  There was a sudden rise in minor earthquakes that was attributed to the pumping of industrial waste into underground storage.  The threat was so serious that such pumping was halted.  I’m off to track down the story of the earthquake in Indiana, Indiana earthquake strikes in rare location, to see if it is near any natural gas wells that have been subject to fracking.

The above map on the left is from the WikiPedia article Indiana Gas Boom. The map on the right shows Howard County which contains Greentown, near the epicenter of the quake.

This gas boom started in the late 1800s. The WikiPedia article seems to be written in 2008.  Here is an excerpt relating to the current situation.

Smaller pockets of natural gas exist in Indiana at depths that could not be reached in the boom era. The state has a small natural gas producing industry in 2008, but residents and industry consume about twice as much natural gas as the state produces. In 2005 there were 338 active natural gas wells on the Trenton Field. In 2006 Indiana produced more than 290 million cubic feet (82 million cubic meters) of natural gas. This made it the 24th largest producing state, far below the major producers.[9]

It is estimated that only 10% of the oil was drilled from the Trenton Field, and approximately 900 million barrels (140,000,000 m3) may remain. Because of the size of the field, pumping gas back into the well to increase pressure, as is commonly done in smaller fields, is impossible. Because of the depth and limitations of hydraulic pumps, it was never cost effective to use them to extract oil. It was not until the 1990s that efficient methods of artificial lift were discovered. This has allowed some of the oil to extracted, but at far higher costs than when sufficient natural gas is present.

The report Hydraulic Fracturing: Short-Term Key Issues for Industry notes the following:

Several other prominent shale plays include the Barnett Shale in Texas with proven reserves of 2.5 tcf and potentially up to 30 tcf; the Haynesville Shale in Northern Louisiana, Southern Arkansas and Eastern Texas with an estimated 250 tcf of natural gas resources; and the New Albany shale in Illinois and Indiana, with reserves estimated at 160 tcf.

According to the www.energyindustryphotos.com,

Among the major players in the New Albany shale are Atlas Energy, which holds leases of over 284,000 acres. It has announced in a press release that it plans to drill over one hundred wells on leases that it holds in southwestern Indiana by the end of 2009.

The leases that Atlas Energy holds are located in Sullivan, Knox, Greene, Owen, Clay and Lawrence counties of southwestern Indiana.

I notice a reference to this post from another blog. I return the favor of this blog post being referred to in the article Indiana struck by earthquake in Trenton gas field vicinity on TheDailyBite‘s Blog.

The other blog post refers to another possibility for the cause of the Indiana earth Quakes. The blog writer is concerned about this structure described below becoming ‘unhinged.’

Evidence of Unconformity at the Top of the Trenton Limestone in Indiana and Adjacent States in BULLETIN OF THE AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS, VOL. 50, NO. 3 (MARCH. 1966). PP. 533-545

August 30, 2011

I finally found the reference to the Rocky Mountain Arsenal history that ties it to earthquake activity. Colorado Earthquake History on the USGS site says the following:

In 1961, a 12,000-foot well was drilled at the Rocky Mountain Arsenal, northeast of Denver, for disposing of waste fluids from Arsenal operations. Injection was commenced March 1962, and an unusual series of earthquakes erupted in the area shortly after.

…

During 1968, ten slight shocks were felt in Colorado. Only one, on July 15, caused minor damage at Commerce City. In September of that year, the Army began removing fluid from the Arsenal well at a very slow rate, in hope that earthquake activity would lessen. The program consisted of four tests between September 3 and October 26. Many slight shocks occurred near the well during this period.

The lead that let me track down the above info came from the article 5 things the media isn’t telling you about human activity and earthquakes.

This video is the first outline I have seen of exactly what criminal acts Khodorkovsky’s has been charged with doing.

I know that the RT in the source of this video used to stand for Russia Today, so you can decide for yourself whether or not you want to believe what you hear. Of course the reporters are only saying that this is the prosecution’s case. They are not passing judgment on the veracity of the case.

At least we have some specific accusations that the defense can choose to refute or not. It gets us a little ways away from the argument that this case is just political versus no, it’s not.

To summarize, Khodorkovsky has been accused of transferring oil amongst his domestic companies at low prices until a final transaction got the oil out of Russia into a foreign company owned by Khodorkovsky. That company sold the oil at world market prices, the same oil it had acquired at cheap collusive prices.

This is the kind of thing for which Ken Lay and his Enron associates were convicted and sentenced to jail.

No wonder the people in this country who want to defend such practices are so dead set on claiming this was but a political trial.

Can you imagine if officers of U.S. companies had to work under this type of threat or the threats in China where some financial shenanigans garner a death sentence?

Now it is up to the people claiming this was a political trial to give us a defense against the specific acts with which Khodorkovsky has been charged.

Also note this report titled, Former oil tycoon ‘admits fraud’, may get lighter sentence. The ‘admits fraud’ part is in quotes, meaning this is the prosecution charge, not necessarily something borne out by the report.

Here is an answer to a non-question. No economist who has escaped the clutches of Milton Friedman thinking would say or has said that stimulus and tax-cuts are a long-term solution. The interviewer and the headline writer are obviously no match for the interviewee. The interviewee quickly debunks the premise of the headline by stating the obvious.

I think the interviewee has a good understanding of our economic problems and even manages to get some information out despite the distracting questions from the interviewer.

I apologize for the fund-raising that precedes the actual interview. You can read the transcript at Real News while muting the fund-raising appeal.

Russia’s Oligarchs on Trial is the heading that the U.K. Guardian gave to three letters to the editor. The first letter to the editor pretty much spells out my initial reactions to the story of the conviction of Mikhail Khodorkovsky.

The ownership of large tracts of the Russian state by the oligarchs is a poisonous legacy of Yeltsin, … In an ideal world, the oligarchs, who achieved their fabulous personal wealth through their grossly immoral carpetbagging during the chaos of the breakup of the USSR, should all be dispossessed and slung in jail.

The last letter put it in terms of an analogy comparing criticism of the “selective prosecutions”:

is like saying that because a supermarket cannot prosecute all shoplifters, it should not prosecute any.

As I said, this mirrors my own initial reaction.  I don’t know the details of the case against Khodorovsky nor the details of his acquisition of wealth.  However, I would have to find out that his acquisition of wealth was due to the great economic value he added to Russia and the facts of the case against him were not true before I would change my attitude.  I know our politicians and our media would rather that we believe Khodorkovsky is being picked on because of his political dissent, but I am not buying it without the requisite proof that what they say is borne out by facts..

In the article The Era of Instability: Where We Went Wrong, Paul Krugman discusses a little bit of economic theory.

Witnessing the failure of economic policy over the past three years has led me to suspect that the kind of moderate economic policy regime that Mr. DeLong and I support – one that largely takes a hands-off approach to the markets, but where the government is always standing by to rein in excesses and fight slumps – is inherently unstable.

It can last for a generation or two, but not much longer. And I am not only referring to financial instability – intellectual and political instability are equally crucial.

In discussing Paul Samuelson’s contributions to economic theory of combining traditional microeconomics with Keynesian macroeconomics, he concludes:

It’s a deeply reasonable approach – but it’s also intellectually unstable, because it requires some strategic inconsistency in how you think about the economy. On the micro scale, you must assume that individuals are rational and markets will rapidly clear (that markets will adjust so that supply is equal to demand); on the macro scale, you must assume that there will be market frictions and individuals will sometimes behave irrationally.

Economists were bound to push at the dividing line between micro and macro -which in practice has meant trying to make macro more like micro, basing more and more of the theory on optimization and market-clearing. And it was probably inevitable that a substantial number of economists would simply ignore the realities of the business cycle that didn’t fit their models.

Fortunately we have the relatively new field of behavioral economics that might be making micro more like macro.  Behavioral economists study the way people actually behave economically rather than the way the theory says they should behave.  We find that even at the micro level there is some behavior that is far from rational and optimal.

If only the politicians and business people could catch up to the behavioral economists before our economy is sent to ruin, we might all survive the current Great Recession.