Best'O Greed Part 2

And a big "Boo-Yah" to you, too
Q: I'm trying to follow Jim Cramer and Mad Money to make big money in stocks. Will it work?
A: Fans of Jim Cramer and his Mad Money stock-picking television show on CNBC call in excited about stocks, usually starting their questions with Cramer's signature "boo-yah!" yell.

For an hour, Cramer plays up his hyperactive personality, barking out buy and sell recommendations on dozens of stocks. He is the evangelist of stock pickers and market timers. Fans see him as a fountainhead of information on gems other investors, traders, fund managers and analysts have somehow overlooked.

Is Cramer really a stock-picking genius?

When I asked Cramer for his picks, CNBC, after considerable prodding, provided a spreadsheet with Cramer's picks from two of the five segments of each show, excluding the lightning round, in which he answers questions from viewers.

Based on this incomplete list, Cramer's picks have gained 16.2%, on average, from the show's launch March 14, 2005, through March 27, 2006. That makes the Standard & Poor's 500 gain of 7.3% look pretty sad. Cramer says he's made his viewers lots of money. "I'm very proud of my record," he says.

I provided CNBC's list to third-party research firm Investars.com, which said, based on the incomplete list provided by CNBC, that the S&P 500 stocks picked by Cramer have performed much better than the S&P 500 at large and his picks of stocks in the small-cap Russell 2000 index have outperformed that index. Investars also found that small-cap stocks recommended by Cramer soar after being mentioned on Mad Money.

But before you get "Boo-Yah" tattooed on your forearm, let's take a closer look:

• Tracking the right benchmark. The median market value of the 606 stocks in the Cramer list was $6.8 billion, according to S&P's Capital IQ. Morningstar considers a portfolio with a median market value between $1.6 billion and $9.3 billion to be midcap. So it doesn't really make sense to compare Cramer's performance to the S&P 500, which is heavily weighted toward large-cap stocks.

What if we compare Cramer's results to a midcap index fund such as the iShares S&P MidCap 400 index exchange-traded fund (IJH)? Had you ignored Cramer and simply bought IJH on March 14, 2005 and held it until March 27, 2006, you would have been up 16.4%. That's dead even with Cramer's performance.

But it's not quite fair to compare Cramer to the IJH either. His picks include large- cap stocks and some foreign plays. So I asked IFA.com to calculate the return of the basket of index mutual funds it recommends for risk-tolerant, results hungry "mad money" type investors. The return of this portfolio, after fees, was 21.8%, trouncing Cramer's return. You can view the IFA portfolio here.

Cramer himself has described how hard it is to beat index funds. "After a lifetime of picking stocks, I have to admit that (Vanguard Group founder John) Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him," Cramer said on the dust jacket of Common Sense on Mutual Funds, Bogle's 1999 book.

• Time. Don't forget the cost of the time it take to follow Cramer. IFA.com's President Mark Hebner breaks it down this way: Imagine having $100,000 to invest in a ten-stock portfolio of Cramer's stock picks. Cramer recommends spending at least an hour a week researching each stock. That translates to more than 500 hours of homework a year. Even if all that work pays off and you beat the market by two percentage points, that's a return of $2,000 or $4 an hour. "Was it really worth it?" Hebner asks.

Time also tends to be cruel to stock pickers. The chances of a money manager outperforming the market in the long term, especially after fees and other costs, is small, says Bogle, whose Vanguard Group popularized index mutual funds and who is acquainted with Cramer. "I wish him well, but I'm not investing with him," Bogle says.

• Fees. Had you followed Cramer's advice, you would have had to buy more than 606 stocks, according to the CNBC data. Even if you use an online broker that charges just $5 a trade, you would have spent $3,030 in commissions.

In an e-mail, Cramer wrote: "Transaction costs are always a factor whether they are done within a mutual fund, a hedge fund or by an individual himself. I believe strongly that my figures clearly beat almost every relevant benchmark by a mile and that even if you put in transaction costs you would be well ahead of the game."

To be fair to Cramer, one year of performance is not adequate to judge a stock picker. And CNBC spokesman Kevin Goldman wrote in an e-mail to USA TODAY: "It is overly simplistic to measure year-to-year comparisons. Cramer can change his mind on a stock depending on a number of factors. He says each investor should do his or her own homework about a stock."

What's the lesson here? Be skeptical anytime someone claims to have the ability to predict short-term movements in stocks or the stock market and make them prove their returns to you. Almost always, the best thing to do is plug your ears and run away, fast.

Best Of Breed Part 1

Great new indexing tool just needs a better wrapper
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Titles and headlines sell stuff. In fact, my old marketing
professor told us that they are 88% of the reason why people read an advertisement or a column or pick
up a book. You gotta "GRAB!" your reader or customer. Make them stop in their tracks.
No grabber? No stop? No readers. No sale! Well, I just got a review copy of a new book by financial
adviser Mark T. Hebner, a colorful high-graphics beauty, loaded with fabulous charts, tables, data and
research. But the title is "Index Funds." I set it aside.
"Freakonomics!" Now that title's a show-stopper! The new "Bogleheads Guide to Investing!" Gotcha! A
must-read! But plain-vanilla "Index Funds?" Dull. Boring. A snoozer. So stick with me and read: For this
review I'm retitling Hebner's book "The Freakoindex Guide to Winning Portfolios!"
Folks, there's actually a big connection between the two: Freakonomic research says "experts" have an
"informational advantage" and use it against their clients. Which sure hints why index funds will never be
more popular than a mere 8% of the $8 trillion fund world, even though indexing consistently beats
actively managed funds. Index funds will always be the minority because the "experts" will invent jazzier
titles and headlines to sell nonindex funds that make more money for the "experts!"
So the media has a responsibility to get the indexing message out. And I believe Hebner's giving
American investors a great resource. Yet many will miss it because it lacks a jazzy "88%" title. And it's
pricey. But we've got a big surprise for you. After we review it we're going to show you how to get it for
free! So here's our summary of what we call "The Freakoindex Guide to Winning Portfolios:"
Step 1: Passive investors win
The game's fixed. Active investors try to pick the winners from among thousands of stocks and funds.
But prices are news-driven. And news is random and unpredictable. Worse yet, "experts" like Wall Street
brokers, portfolio managers and traders have an "informational advantage" that makes it impossible for
Main Street to beat them. They take advantage of naïve investors blindly throwing money at news tips.
Step 2: Nobel economists win
Hebner has the best survey I've seen of research by Nobel Prize-winning economists and other
academics. Unlike Wall Street plugging an IPO client or some brokers hustling commissions, they're
objective and unbiased. All this research proves conclusively that indexing and simple asset allocation
are the best way to win.
Step 3: Stock pickers lose
Wall Street brags about the stock-picking talents of active managers. Yet research says only 3% of them
beat their benchmark, and it's mostly luck. Stock-picking success is random. And today's winners are
rarely on top tomorrow.
Step 4: Market timers lose
Market timing is a fool's game. Over a 10-year period, 88% of your returns will come from a brief 40 up
days. Nobody can predict which 40 days. An academic study of 15,000 predictions by 237 timers
concluded: There's "no evidence that [market-timing] newsletters can time the market."
Step 5: Picking managers loses
Forget about picking next year's hot managers. You can't. The S&P 500 beat 97% of mutual fund
managers for a 10-year period ending October 2004. In two 30-year studies, the S&P 500 outperformed
97% and 94% of the managers. And only 12% of the top-100 managers repeated.
Step 6: Style drifters lose
Active managers love playing with your money, churning portfolios. They're gambling, it's fun. Their
average salary is more than $400,000 annually, even when they lose your money. One study proves that
40% of all funds drift from their stated objective. Reported holdings are months old, so you never really
know what's in any fund, or in your portfolio!
Step 7: Silent partners win
Before you make a dime invisible partners skim money off the top! They're silent because the SEC
doesn't require funds to disclose details about who's skimming: expenses, commissions, fees and taxes.
In one 15-year study of taxable accounts, actively managed funds returned 50% of the gross, while index
funds returned 85% to investors.
Step 8: Risk blindness
The sad truth is, most American investors don't know that what they're doing amounts to gambling. They
chase short-term returns, follow hot tips, never really understanding the impact that timing and risk-taking
have on their after-tax returns.
Step 9: History exposes
Managers come and go. Performance drifts unpredictably over the short term. Indexes are your only
reliable source going back 80 years. Raw indexes, not actively managed funds, are the best measure of
long-term portfolio risks.
Step 10: Risk capacity
What's your risk profile? Your risk "capacity" is a combination of five factors: Personal tolerance for risk
(anxiety level!), your investment IQ, net worth, income and savings rate, plus time to retirement or any
special withdrawal needs. This book has a ton of information on how to determine your risk profile!
Step 11: Risk exposure
Over 90% of a portfolio's returns are a function of asset allocation and not the specific funds, stocks and
bonds. Active management has a negative effect on returns, draining off a third or more. Over a 50-year
period, studies show that a diversified index portfolio will outperform the S&P 500.
Step 12: Invest and relax
Hebner says index and relax: The best way to maximize your returns is to avoid active trading, market
timing and actively managed funds. Create and build a portfolio of index funds that works for your unique
risk profile. Set it and forget it. Buy quality, rebalance periodically. And relax.
Now the best news of all: Hebner's hard copy is a museum piece, a work of art that ought to be on your
coffee table or framed on a wall. But if you think it's a bit pricey at $29.99, get it online free, right now!
See the virtual book.
You can return to this fabulous resource any time you need research, data (yes, Hebner's team does
update statistics regularily) and inspiration about investing, asset allocation and portfolio management.
So get it: "The Freakoindex Guide to Successful Portfolios" is perfect for America's 94 million Main Street
investors! Even if you only call it "Index Funds."

The Phelps Factor

Joseph E. Stiglitz

(NOBLE PRICE OF ECONOMICS)

On December 10, Edmund Phelps, my colleague at Columbia University, will receive the Nobel Prize in economics for 2006. The award was long overdue. While the Nobel Prize committee cited his contributions to macroeconomics, Phelps has made contributions in many areas, including the theory of growth and technological change, optimal taxation, and social justice.

Phelps’ key observation in macroeconomics was that the relationship between inflation and unemployment is affected by expectations, and since expectations themselves are endogenous – they change over time – so, too, will the relationship between unemployment and inflation. If a government attempts to push the unemployment rate too low, inflation will increase, and so, too, will inflationary expectations.

This insight holds two possible policy implications. Some policymakers have concluded from Phelps’ analysis that the unemployment rate cannot be lowered permanently without ever-increasing levels of inflation. Thus, monetary authorities should simply focus on price stability by targeting the rate of unemployment at which inflation does not increase, referred to as the “non-accelerating inflation rate of unemployment” (NAIRU).

But the NAIRU is not immutable. The correct implication, which Phelps repeatedly emphasized, is that governments can implement a variety of policies, particularly structural policies, to allow the economy to operate at a lower level of unemployment.

Policies that focus exclusively on inflation are misguided for several other reasons. As a practical matter, even controlling for expectations (as Phelps’ work insists that we do), the relationship between unemployment and inflation is highly unstable. It is virtually impossible to discern the relationship from the data except in a few isolated periods.

Changes in education levels, unionization, and productivity are part of the explanation for this instability. But, whatever the reason, policymakers face considerable uncertainty about the level of NAIRU. Thus, they still face a trade-off between pushing unemployment too low, and setting off an episode of inflation, and not pushing hard enough, resulting in an unnecessary waste of economic resources.

How one views these risks depends on the costs of undoing mistakes, which in turn depends on other properties of the inflation-unemployment relationship that Phelps’ analysis did not address. The weight of evidence indicates that the cost of undoing the mistake of pushing unemployment down too far is itself very low, at least for countries like the US, where the relationship has been carefully studied. In this view, the Federal Reserve should aggressively pursue low unemployment, until it is shown that inflation is rising.

By contrast, inflation “hawks” argue that inflation must be attacked preemptively. While most central banks are inflation hawks, this stance is a matter of religion, not economic science. There is simply little or no empirical evidence that inflation, at the low to moderate rates that have prevailed in recent decades, has any significant harmful real effects on output, employment, growth, or the distribution of income. Nor is there evidence that inflation, should it increase slightly, cannot be reversed at a relatively minor cost – comparable to the benefits of additional employment and growth enjoyed in the excessive expansion of the economy that led to the increase in inflation.

In the early 1990’s, the Fed, and many others, thought that the NAIRU was around 6%-6.2%. Based on changes in the economy, I and the staff that worked with me on President Bill Clinton’s Council of Economic Advisers argued that the NAIRU was considerably lower. We were right. Unemployment fell to 3.8% without any surge in inflation.

This matters because, as the great economist Arthur Okun argued, reducing unemployment by two percentage points would increase output by 2%-6%, or $0.5-1.5 trillion dollars in the case of America. Even for a rich country, that is a lot of money. It could be used to put America’s social security system on a stable footing for the next 75-100 years. It could even pay for a substantial share of the cost for a war like that in Iraq!

Phelps’ work helped us to understand the complexity of the relationship between inflation and unemployment, and the important role that expectations can play in that relationship. But it is a misuse of that analysis to conclude that nothing can be done about unemployment, or that monetary authorities should focus exclusively on inflation.

That view belongs to a school of modern macroeconomics that assumes rational expectations and perfectly functioning markets. In other words, individuals – usually assumed to be identical – fully use all available information to forecast the future in an environment of perfect competition, no capital market shortcomings, and full insurance of all risks. Not only are these assumptions absurd, but so are the conclusions: there is no involuntary unemployment, markets are fully efficient, and redistribution has no real consequence. But, while government policies, according to this school, are ineffective, that matters little. Because markets are always efficient, there is no need for government intervention. More perniciously, many supporters of this view, when confronted with the reality of unemployment, argue that it arises only because of government-imposed rigidities and trade unions. In their “ideal” world without either, there would, they claim, be no unemployment.

For more than three decades, Phelps has shown that there is an alternative approach. He has tried to understand what we can do to lower unemployment and increase the well-being of those at the bottom. But he has also striven to understand what makes capitalist economies dynamic, what lies behind the entrepreneurial spirit, and what we can do to promote it further. Phelps’ economics remains one of action, not resignation.

Joseph Stiglitz is a Nobel laureate in economics. His latest book is Making Globalization Work.

4 ways you can fight greedy CEOs

( Michael Brush is doing for the individual shareholder what the SEC should be doing.)

Don't just fume about grossly overpaid execs and other corporate scams. You can make a concrete difference. Here are the people to contact and steps to take to get reforms under way.

By Michael Brush
The boss has always made a bundle. In 1940, U.S. corporations paid their chief executives 48 times as much as the average worker, on average. No small gap.

But that doesn't come close to today's great pay divide. CEOs earned $11.3 million on average last year, a 27% increase from the prior year and a huge 262 times more than the average worker. Barry Diller, the chairman and chief executive of the IAC/InterActiveCorp (IACI, news, msgs), took home $295 million last year, including pay, bonus and options cashed in, according to the Corporate Library.

What's worse? The CEOs don't seem to see anything wrong with that type of compensation. Diller recently said critics of his pay and similar packages are "birdbrains."

The momentum of CEO pay, obviously, isn't headed in the right direction. But you don't have to be a Democrat to appreciate that the party about to take power may give the little guy a bit more say in how much the big guy gets paid.

In a minute, I'll give you a set of four steps you can take to help get executive compensation back under control. First, another quick look at why such action is needed.

According to the Corporate Library, a corporate governance research firm, here's what the five highest-paid CEOs made last year:

1. IAC/InterActiveCorp's Diller got $295 million.

2. Capital One Financial (COF, news, msgs) CEO Richard Fairbank got $249 million by cashing in options.

3. Nabors Industries (NBR, news, msgs) CEO Eugene Isenberg got $203 million in pay, bonus, cashed-in options and restricted stock.

4. Yahoo (YHOO, news, msgs) CEO Terry Semel pocketed $183 million in pay, cashed-in options and restricted stock.

5. KB Home (KBH, news, msgs) chief Bruce Karaz got $156 million in pay, bonus, cashed-in options, restricted stock and incentive grants.

If these kinds of giveaways to CEOs tick you off, you don't have to just sit and fume about it.

Congress, regulators and companies themselves are considering a slate of reforms that would go a long way to correct the problem -- and you can take several concrete steps to support these changes.

Here's a list of whom to contact (click a name to send an e-mail):

SEC Chairman Christopher Cox's office. (Click the name to send an e-mail to Cox.)

Your representatives in the U.S. House and Senate.

Rep. Barney Frank, D-Mass., who will chair the House Committee on Financial Services, and Sen. Chris Dodd, D-Conn., who will head up the Senate Committee on Banking, Housing and Urban Affairs next year. (Please, e-mail MSN Money a copy of whatever you send to any member of Congress.)

And here's my quick list of reforms that you can try and do something about:

Boot the directors
The real culprits behind enormous salary increases for CEOs are boards that approve these egregious pay packages in the first place. So it's important to vote against board members on pay committees that let these bloated pay packages through. "Unless you boot off directors who agree to these outrageous pay plans, there is no way to stop it," says Nell Minow of the Corporate Library.

"Don't just discipline board members, change them," says Patrick McGurn, special counsel for Institutional Shareholder Services. Shareholders may soon get more power to do so -- but you'll need to support reform efforts aimed at getting greater "proxy access" for shareholders, as the reform effort is called.

The Securities and Exchange Commission recently sided with a company that rejected a shareholder proposal which would have given shareholders holding more than 3% of its shares the right to nominate board candidates. But a federal court has told the SEC to reconsider its ruling, which may give shareholders more say in policing boards that play too loose with corporate checkbooks.

Get a clearer view
What you can do -- Step #1: Contact the SEC and tell them you support the rights of shareholders to use the corporate proxy machine to propose changes in the rules on how board members are elected. "This should be on top of the list," says McGurn. Tell your representatives in Congress, too, since they have the power to influence SEC policy. The case involves American International Group (AIG, news, msgs) and the American Federation of State, County and Municipal Employees (AFSCME), which wants the bylaws change.

The good news is that it will be much easier to see how much executives make come springtime, when companies file proxy materials -- the documents containing details of executive pay.

The SEC recently adopted rules calling for better clarity, and pay experts are expecting some big surprises. "That in and of itself will have a chilling effect," says Minow, "although these people seem incapable of embarrassment."

But there's still room for improvement in disclosure. One shortcoming is that the SEC doesn't require companies to reveal the targets (such as company profits, revenues, etc.) executives have to hit to receive performance-based pay. This is a problem, since options often account for the lion's share of bloated pay packages.

Outgoing UnitedHealth Group (UNH, news, msgs) CEO William McGuire racked up an awesome $1.6 billion worth of exercisable options and $174.9 million out-of-the-money options during his tenure at the helm. That's on top of a salary, bonus and "other pay" package worth $10.6 million in 2005 alone, according to the Corporate Library.

Unmask the consultants
What you can do -- Step #2: Tell the regulators and your representatives that you want more detail about what targets CEOs have to hit to increase the size of their paychecks.

Companies hire compensation consultants to help determine how much to pay their executives. The question is whether that advice is objective. For instance, those same consultants try to get business from the companies to advise on their employees' retirement plans. If they give the CEO a healthy pay raise, does that help them land or keep other consulting jobs?

What you can do -- Step #3: Ask the SEC and your representatives to require disclosure of all relationships between compensation consultants and the companies whose executive pay packages they design.

Fantasy shareholding
If you hold just $2,000 worth of a company's stock for over a year, you have the right to submit votes to fellow shareholders. "For $2,000 you get a seat at the table with the board of directors and the CEO," says McGurn. "It's like fantasy baseball."


You can't force companies to ask shareholders to vote on anything (see Step #1). One area that's strictly off limits: votes that would constrain management on day-to-day business decisions. (That's fair enough. You wouldn't want shareholders micromanaging companies.)

But you can get proposals that ask shareholders to vote on several changes that can improve the quality of boards and help reign in executive pay, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

For several years, for example, Bristol-Myers Squibb (BMY, news, msgs) shareholder Dundas Flaherty filed proposals that asked shareholders if they wanted the office of chairman and chief executive to be split. Having the same person in both roles, some critics say, compromises board independence. About 40% of shareholders approved the proposal each time, says Cornish Hitchcock, a Washington D.C.-based attorney who helped Flaherty. In 2005, Bristol-Myers Squibb agreed to split the jobs.

What you can do -- Step # 4: As a shareholder, ask companies to put pay-related reforms to a vote -- or at least be sure to look for pay-related proposals from other activist shareholders and vote "yes."

For example, watch for proposals asking you to vote against excessive golden parachutes, excessive pay packages and the compensation committee reports that justify them, says Hitchcock, who also advises Amalgamated Bank's LongView index funds on how to use shareholder proposals.

Elson says proposals that require majority voting for directors are crucial. This change means that directors have to get a majority of all votes cast to win -- not just the largest number among several candidates. This makes it harder for boards and managers to get a rubber stamp on their favored candidates when the broader shareholder base is apathetic.

There are, of course, other steps to take. And anytime you go head to head with a corporation, it can be an uphill fight. But with the political winds swinging toward shareholders' favor, now's the time to give it a try.

Fear Mongering and Population Numbers

The graph below is from the Department of Labor & represents the number of Americans working from December 1948 until November 2006.
You will see the graph indicates a much larger segment of the population in the working force.
The consistent media in 55% of the working population until the Reagan revolution, in which salaries starting to feel the lack of purchasing power declining a 32% by 1986. At that point, is a clear that an increment coming from the women segment to integrate in the labor force at a much lower pay ratio.
The last ten years employment is running at 64% of the population that is a 17% increase in the labor force since 1948.
The next issue that affect employment ratios is Social Security, with a larger working population and increasingly lower pay outs from Social security it is clear that for the next 60 years, at least that is the real data at hand, Social Security has more contributors per person today that it had in 1985 with lower pay outs.
I think the present debate about teh solvency of social security has to do more with hos the contributions should be impose, managed and collected than the solvency of the Social Security system.
The proponent of Social Insecurity have a lot to gain from it but fear mongering is not a decent tool to change a system that supports our elders peace.

Staying Safe from Financial Predators

by Robert Kiyosaki
Tuesday, November 14, 2006
Ken Lay, the disgraced former chairman of Enron, found a way to escape his legal problems: He died after being convicted of fraud and conspiracy charges. His onetime CEO and partner in crime, Jeffrey Skilling, wasn't so "lucky": He was sentenced to 24 years in prison last month.

I'm not gleeful about Lay's death or Skilling's sentencing, partly because I'm afraid true justice hasn't been carried out. Similarly, when Martha Stewart was convicted and went to prison in 2004, I was shocked. Not because I condone insider trading or attempting to cover up illicit activities, but because she was hardly the criminal the justice system should have been after.

Between 1995 and 2005, literally trillions of investor dollars were stolen from ordinary people with hopes for a secure retirement or a college education for their kids.

Wealth Instead of Jail Time
Many of the crooks responsible for such acts have never been caught and some remain in business. In the same vein, while the savings of average people across the country were being wiped out, the New York Stock Exchange "inadvertently" awarded CEO Dick Grasso a $187 million dollars in compensation.

While Martha was baking cookies in jail, Grasso was richly rewarded for presiding over one of the most corrupt eras of the stock exchange. Was the $187 million Grasso's sales commission for the $7 to $9 trillion the "little" investors lost?

Thank goodness Elliot Spitzer, the New York State attorney general, had the guts to take him to court and win. It looks like Grasso may have to pay back $100 million, but he won't do any time behind bars.

This raises all sorts of questions. Who are the guys who awarded Dick Grasso so much money in the first place? Is someone going after them? Do you still want to trust your money to these people? Does Martha doing time make you feel more confident? Is Jeff Skilling the last crook?

Out of Sight, Out of Mind
It is true that people, especially investors, tend to have short memories. As soon as a market heats up, greed takes over and caution is forgotten.

For instance, the real estate market hit bottom in 1992. Property prices were horrible, the savings and loan industry went bust, and dishonest bankers and real estate developers like Charles Keating were going to jail. Scandals were everywhere, and the federal government had to step in for a bailout.

But in less than 10 years, memories of that horrible disaster were erased, crooks and corruption were forgotten, and people were pouring their money back into real estate.

Today, such corporate giants such as Enron, Tyco, WorldCom, Arthur Andersen, and others are gone -- taking trillions of investor dollars with them. But with the Dow over 12,000 memories of these offenders (and of Martha in jail) have vanished just as surely, and investors are once again flocking to the stock market.

Where Are They Now?
At the height of the Enron mania, the company's market value was $65 billion. Once the dust cleared, the final value was $0. As you know, Ken Lay, Jeffrey Skilling, and CFO Andrew Fastow were all convicted of crimes -- but what happened to the rest of the predators?

What about Enron's board of directors who were supposed to supervise Lay, Skilling, and Fastow? What about the accountants and the analysts? What about all the pension and mutual fund managers who were buying the worthless Enron stock with their investors' money? Were they asleep as Enron executives were robbing and lying? Aren't they still out there investing other people's money?

And what about all the stockbrokers and financial planners who recommended the mutual funds that were buying the Enron, Tyco, and WorldCom stock for their investors? Are they still in business? Were they investigated? If medical doctors can be sued for malpractice, shouldn't financial professionals practice under the same safeguard?

And what about all the financial journalists on television and in print who failed to alert investors to Enron's shady practices? Only a few years ago they were cheering on the dotcom stocks, and today are cheering on the Dow reaching 12,000.

A Rogue's Gallery
Some of the people who made off with millions of investor money are still being celebrated rather than questioned. For example, former General Electric CEO Jack Welch is still considered a leadership guru.

Yet if you look at the facts, Welch took a lot of investor money and left GE in worst shape than ever. When he was exposed for an extra-martial affair, his retirement compensation also came to light. His work at GE netted him nearly $1 billion. His retirement benefits include use of company jets and a lavish New York apartment, and his stipend is $734,000 a month.

Now, if he'd left GE a stronger company, I wouldn't have much to criticize. But the hard facts are that the 2000 value of GE was $600 billion and by early 2005 it was down to $379 billion.

There's also Steve Case of AOL fame. When AOL acquired Time Warner, Time Warner's stock went to $90 a share before falling to a low of less than $10. Market value of the merger was $240 billion, but by 2005 it was less than $82 billion. Thanks to Case, I have a number of friends at Time Warner who are wondering what happened to their retirement.

The Takeaway
Most of the people who were responsible for one of the biggest market crashes in history are still in the system today, doing many of the same things today that they were doing then.

So, as the Dow continues its upward march past 12,000, remember that Martha Stewart is now out of jail -- but so are many of the other characters who actually did run off with the money and never served a day or jail time.

Your mind is still your most important asset, so be careful who you take your advice from and what you believe is true. Remember that all financial markets are filled with good but not necessarily innocent people looking after their own self-interests before they look after yours.

Alarm over radioactive legacy left by attack on Lebanon

Robert Fisk: Mystery of Israel's secret uranium bomb
Alarm over radioactive legacy left by attack on Lebanon
Published: 28 October 2006
Did Israel use a secret new uranium-based weapon in southern Lebanon this summer in the 34-day assault that cost more than 1,300 Lebanese lives, most of them civilians?

We know that the Israelis used American "bunker-buster" bombs on Hizbollah's Beirut headquarters. We know that they drenched southern Lebanon with cluster bombs in the last 72 hours of the war, leaving tens of thousands of bomblets which are still killing Lebanese civilians every week. And we now know - after it first categorically denied using such munitions - that the Israeli army also used phosphorous bombs, weapons which are supposed to be restricted under the third protocol of the Geneva Conventions, which neither Israel nor the United States have signed.

But scientific evidence gathered from at least two bomb craters in Khiam and At-Tiri, the scene of fierce fighting between Hizbollah guerrillas and Israeli troops last July and August, suggests that uranium-based munitions may now also be included in Israel's weapons inventory - and were used against targets in Lebanon. According to Dr Chris Busby, the British Scientific Secretary of the European Committee on Radiation Risk, two soil samples thrown up by Israeli heavy or guided bombs showed "elevated radiation signatures". Both have been forwarded for further examination to the Harwell laboratory in Oxfordshire for mass spectrometry - used by the Ministry of Defence - which has confirmed the concentration of uranium isotopes in the samples.

Dr Busby's initial report states that there are two possible reasons for the contamination. "The first is that the weapon was some novel small experimental nuclear fission device or other experimental weapon (eg, a thermobaric weapon) based on the high temperature of a uranium oxidation flash ... The second is that the weapon was a bunker-busting conventional uranium penetrator weapon employing enriched uranium rather than depleted uranium." A photograph of the explosion of the first bomb shows large clouds of black smoke that might result from burning uranium.

Enriched uranium is produced from natural uranium ore and is used as fuel for nuclear reactors. A waste productof the enrichment process is depleted uranium, it is an extremely hard metal used in anti-tank missiles for penetrating armour. Depleted uranium is less radioactive than natural uranium, which is less radioactive than enriched uranium.

Israel has a poor reputation for telling the truth about its use of weapons in Lebanon. In 1982, it denied using phosphorous munitions on civilian areas - until journalists discovered dying and dead civilians whose wounds caught fire when exposed to air.

I saw two dead babies who, when taken from a mortuary drawer in West Beirut during the Israeli siege of the city, suddenly burst back into flames. Israel officially denied using phosphorous again in Lebanon during the summer - except for "marking" targets - even after civilians were photographed in Lebanese hospitals with burn wounds consistent with phosphorous munitions.

Then on Sunday, Israel suddenly admitted that it had not been telling the truth. Jacob Edery, the Israeli minister in charge of government-parliament relations, confirmed that phosphorous shells were used in direct attacks against Hizbollah, adding that "according to international law, the use of phosphorous munitions is authorised and the (Israeli) army keeps to the rules of international norms".

Asked by The Independent if the Israeli army had been using uranium-based munitions in Lebanon this summer, Mark Regev, the Israeli Foreign Ministry spokesman, said: "Israel does not use any weaponry which is not authorised by international law or international conventions." This, however, begs more questions than it answers. Much international law does not cover modern uranium weapons because they were not invented when humanitarian rules such as the Geneva Conventions were drawn up and because Western governments still refuse to believe that their use can cause long-term damage to the health of thousands of civilians living in the area of the explosions.

American and British forces used hundreds of tons of depleted uranium (DU) shells in Iraq in 1991 - their hardened penetrator warheads manufactured from the waste products of the nuclear industry - and five years later, a plague of cancers emerged across the south of Iraq.

Initial US military assessments warned of grave consequences for public health if such weapons were used against armoured vehicles. But the US administration and the British government later went out of their way to belittle these claims. Yet the cancers continued to spread amid reports that civilians in Bosnia - where DU was also used by Nato aircraft - were suffering new forms of cancer. DU shells were again used in the 2003 Anglo-American invasion of Iraq but it is too early to register any health effects.

"When a uranium penetrator hits a hard target, the particles of the explosion are very long-lived in the environment," Dr Busby said yesterday. "They spread over long distances. They can be inhaled into the lungs. The military really seem to believe that this stuff is not as dangerous as it is." Yet why would Israel use such a weapon when its targets - in the case of Khiam, for example - were only two miles from the Israeli border? The dust ignited by DU munitions can be blown across international borders, just as the chlorine gas used in attacks by both sides in the First World War often blew back on its perpetrators.

Chris Bellamy, the professor of military science and doctrine at Cranfield University, who has reviewed the Busby report, said: "At worst it's some sort of experimental weapon with an enriched uranium component the purpose of which we don't yet know. At best - if you can say that - it shows a remarkably cavalier attitude to the use of nuclear waste products."

The soil sample from Khiam - site of a notorious torture prison when Israel occupied southern Lebanon between 1978 and 2000, and a frontline Hizbollah stronghold in the summer war - was a piece of impacted red earth from an explosion; the isotope ratio was 108, indicative of the presence of enriched uranium. "The health effects on local civilian populations following the use of large uranium penetrators and the large amounts of respirable uranium oxide particles in the atmosphere," the Busby report says, "are likely to be significant ... we recommend that the area is examined for further traces of these weapons with a view to clean up."

This summer's Lebanon war began after Hizbollah guerrillas crossed the Lebanese frontier into Israel, captured two Israeli soldiers and killed three others, prompting Israel to unleash a massive bombardment of Lebanon's villages, cities, bridges and civilian infrastructure. Human rights groups have said that Israel committed war crimes when it attacked civilians, but that Hizbollah was also guilty of such crimes because it fired missiles into Israel which were also filled with ball-bearings, turning their rockets into primitive one-time-only cluster bombs.

Many Lebanese, however, long ago concluded that the latest Lebanon war was a weapons testing ground for the Americans and Iranians, who respectively supply Israel and Hizbollah with munitions. Just as Israel used hitherto-unproven US missiles in its attacks, so the Iranians were able to test-fire a rocket which hit an Israeli corvette off the Lebanese coast, killing four Israeli sailors and almost sinking the vessel after it suffered a 15-hour on-board fire.

What the weapons manufacturers make of the latest scientific findings of potential uranium weapons use in southern Lebanon is not yet known. Nor is their effect on civilians.

Did Israel use a secret new uranium-based weapon in southern Lebanon this summer in the 34-day assault that cost more than 1,300 Lebanese lives, most of them civilians?

We know that the Israelis used American "bunker-buster" bombs on Hizbollah's Beirut headquarters. We know that they drenched southern Lebanon with cluster bombs in the last 72 hours of the war, leaving tens of thousands of bomblets which are still killing Lebanese civilians every week. And we now know - after it first categorically denied using such munitions - that the Israeli army also used phosphorous bombs, weapons which are supposed to be restricted under the third protocol of the Geneva Conventions, which neither Israel nor the United States have signed.

But scientific evidence gathered from at least two bomb craters in Khiam and At-Tiri, the scene of fierce fighting between Hizbollah guerrillas and Israeli troops last July and August, suggests that uranium-based munitions may now also be included in Israel's weapons inventory - and were used against targets in Lebanon. According to Dr Chris Busby, the British Scientific Secretary of the European Committee on Radiation Risk, two soil samples thrown up by Israeli heavy or guided bombs showed "elevated radiation signatures". Both have been forwarded for further examination to the Harwell laboratory in Oxfordshire for mass spectrometry - used by the Ministry of Defence - which has confirmed the concentration of uranium isotopes in the samples.

Dr Busby's initial report states that there are two possible reasons for the contamination. "The first is that the weapon was some novel small experimental nuclear fission device or other experimental weapon (eg, a thermobaric weapon) based on the high temperature of a uranium oxidation flash ... The second is that the weapon was a bunker-busting conventional uranium penetrator weapon employing enriched uranium rather than depleted uranium." A photograph of the explosion of the first bomb shows large clouds of black smoke that might result from burning uranium.

Enriched uranium is produced from natural uranium ore and is used as fuel for nuclear reactors. A waste productof the enrichment process is depleted uranium, it is an extremely hard metal used in anti-tank missiles for penetrating armour. Depleted uranium is less radioactive than natural uranium, which is less radioactive than enriched uranium.

Israel has a poor reputation for telling the truth about its use of weapons in Lebanon. In 1982, it denied using phosphorous munitions on civilian areas - until journalists discovered dying and dead civilians whose wounds caught fire when exposed to air.

I saw two dead babies who, when taken from a mortuary drawer in West Beirut during the Israeli siege of the city, suddenly burst back into flames. Israel officially denied using phosphorous again in Lebanon during the summer - except for "marking" targets - even after civilians were photographed in Lebanese hospitals with burn wounds consistent with phosphorous munitions.

Then on Sunday, Israel suddenly admitted that it had not been telling the truth. Jacob Edery, the Israeli minister in charge of government-parliament relations, confirmed that phosphorous shells were used in direct attacks against Hizbollah, adding that "according to international law, the use of phosphorous munitions is authorised and the (Israeli) army keeps to the rules of international norms".

Asked by The Independent if the Israeli army had been using uranium-based munitions in Lebanon this summer, Mark Regev, the Israeli Foreign Ministry spokesman, said: "Israel does not use any weaponry which is not authorised by international law or international conventions." This, however, begs more questions than it answers. Much international law does not cover modern uranium weapons because they were not invented when humanitarian rules such as the Geneva Conventions were drawn up and because Western governments still refuse to believe that their use can cause long-term damage to the health of thousands of civilians living in the area of the explosions.
American and British forces used hundreds of tons of depleted uranium (DU) shells in Iraq in 1991 - their hardened penetrator warheads manufactured from the waste products of the nuclear industry - and five years later, a plague of cancers emerged across the south of Iraq.

Initial US military assessments warned of grave consequences for public health if such weapons were used against armoured vehicles. But the US administration and the British government later went out of their way to belittle these claims. Yet the cancers continued to spread amid reports that civilians in Bosnia - where DU was also used by Nato aircraft - were suffering new forms of cancer. DU shells were again used in the 2003 Anglo-American invasion of Iraq but it is too early to register any health effects.

"When a uranium penetrator hits a hard target, the particles of the explosion are very long-lived in the environment," Dr Busby said yesterday. "They spread over long distances. They can be inhaled into the lungs. The military really seem to believe that this stuff is not as dangerous as it is." Yet why would Israel use such a weapon when its targets - in the case of Khiam, for example - were only two miles from the Israeli border? The dust ignited by DU munitions can be blown across international borders, just as the chlorine gas used in attacks by both sides in the First World War often blew back on its perpetrators.

Chris Bellamy, the professor of military science and doctrine at Cranfield University, who has reviewed the Busby report, said: "At worst it's some sort of experimental weapon with an enriched uranium component the purpose of which we don't yet know. At best - if you can say that - it shows a remarkably cavalier attitude to the use of nuclear waste products."

The soil sample from Khiam - site of a notorious torture prison when Israel occupied southern Lebanon between 1978 and 2000, and a frontline Hizbollah stronghold in the summer war - was a piece of impacted red earth from an explosion; the isotope ratio was 108, indicative of the presence of enriched uranium. "The health effects on local civilian populations following the use of large uranium penetrators and the large amounts of respirable uranium oxide particles in the atmosphere," the Busby report says, "are likely to be significant ... we recommend that the area is examined for further traces of these weapons with a view to clean up."

This summer's Lebanon war began after Hizbollah guerrillas crossed the Lebanese frontier into Israel, captured two Israeli soldiers and killed three others, prompting Israel to unleash a massive bombardment of Lebanon's villages, cities, bridges and civilian infrastructure. Human rights groups have said that Israel committed war crimes when it attacked civilians, but that Hizbollah was also guilty of such crimes because it fired missiles into Israel which were also filled with ball-bearings, turning their rockets into primitive one-time-only cluster bombs.

Many Lebanese, however, long ago concluded that the latest Lebanon war was a weapons testing ground for the Americans and Iranians, who respectively supply Israel and Hizbollah with munitions. Just as Israel used hitherto-unproven US missiles in its attacks, so the Iranians were able to test-fire a rocket which hit an Israeli corvette off the Lebanese coast, killing four Israeli sailors and almost sinking the vessel after it suffered a 15-hour on-board fire.

What the weapons manufacturers make of the latest scientific findings of potential uranium weapons use in southern Lebanon is not yet known. Nor is their effect on civilians.

Losers, A Mental State

The majority of people supports the war in Iraq, bold statement, as the war grows more controversial and some say extremely expensive. I assert this is just temporary and based in the American mentality of winning and repudiating the foreign mentality of losing.

Who wants to join a losing team.
Today, the Iraq invasion and its consequences has put a majority of people in a state of mind: the loser’s mind.
No one wants to be with the losing team.
That is pessimistic and we live in an optimistic all the time social state, if not forget about it and go shopping.
The perception of losing as occurring with “Operation Iraqi Freedom” is making most people uncomfortably to be near the losers, most folks are bailing out, no losing team for them.
The many all weather optimists, interested and ideologues alike, there is some light of hope, so far, is all make believe, but in the soul of all there is a sorrow for losing.
If the endeavor of Iraq would have the most minimal signal of been in a winning track, many will rapidly jump in the bandwagon and become sudden winners.
Although with the past three years of disastrous actions and diatribes full of lies, it seems that the optimists are starting in the four inning with a handicap of seventeen homeruns.
Do not despair, yet, it is possible with a few billions thrown in propaganda, which it will not the first time, the idea of winning in Iraq can be accomplished.

Psychoanalysts will tell you that those perpetual optimists will gain back the company of those who feel the Bush-Cheney junta has put them with a forever no end in sight losing team.

I am confident the invasion of Iraq has many more supporters than those out of the closet losers copying with denial.
For most people can be argued that sticking with the present state of political power, is also a sad losing proposition, but this is only temporary unmanaged perception.

Some say money is the culprit, the argument is, we are mortgaging the future of the next generation. Well, that was never a consideration when people cheered in the bars when we bomb the hell out of Iraq, or for that matter, no one protests the 50% of all taxes spent in the government war machine, so money is not the culprit.

Some say that too many American soldiers have already died, one is too many, but I hear only attacks and treason claims when the invasion was televised, so there is not much concern over lives and the consequences of invasions.

The number one reason why four years latter people are mad and discouraged is because the junta failed to make the Iraqis and American proud of the invasion.
It would have been a lesson to other dictators if the invasion of Iraq would have the ingredients of pride, altruism, and seriousness. Sadly, the invasion of Iraq is proven to be was about oil and class warfare from the corporatists to the rest of American citizens.
Thus, from the beginning was a losing proposition, many told us this war was about oil and personal revenge, they say it loudly, and they were label traitors losers etc. Today, those same one are saying : I told you so.” The next reality is that most people are recognizing that this is a class warfare, and it was the purpose from the get go.
Lou Dobbs has taking these arguments flag and making a serious and honest reporting in the subject of destroying American working class.


Most people get caught in the demagoguery of the new dukes- Senators, counts-Congressman and king, President. The fact of the matter is that Washington is the Versailles of Louis XIV and all the ideological filth that emanates from there is just that: filth of the powerful and their loud-mouths in the media.

As Lou Dobbs, Bill Moyers and other truth tellers will tell you, there is a very well-off group who understands the process and controls it very well. This group have created the laws to favor them, allowing them to pilfer the rest 95% of people’s money. This monarchy loves this war and its faith based arguments, for this cadre all looks really nice. I will say, all looks extremely rosy if you are near Halliburton or any other war profiteer, the monarchy is doing a great job.

A Shot in the Arm for 401(k) Investors

by Suze Orman
September 11, 2006
Last month, Congress passed and President Bush signed new legislation that affects your 401(k) and IRA savings.


The Pension Protection Act of 2006 also includes some changes on how traditional pensions -- known as defined benefit plans -- are run, but given that fewer and fewer firms offer those types of accounts, I'll focus on what most of you are relying on for retirement: your 401(k)s and IRAs.


There's a lot to commend in the new legislation, but that doesn't mean you should just sit back and settle for the new federal guidelines. Many of the changes simply create minimum "floors" for your retirement savings. To save enough to retire on comfortably, you need to aim for the ceiling, not the floors.


Automatic Isn't Automatically Perfect


Let me explain. A major provision of the legislation encourages employers to automatically enroll their employees in the company 401(k) plan rather than requiring employees to "opt in."


Furthermore, the law suggests setting the base contribution level at no less than 3 percent of an employee's salary, and to increase that contribution rate by 1 percentage point a year until it reaches 6 percent and no more than 10 percent.


I'm all for auto enrollment (amazingly, up to 30 percent of employees eligible for a plan don't participate), but I don't want employees to assume that a 3 percent contribution rate -- or 6 percent for that matter -- is enough.


The first rule of 401(k) investing is to always invest enough so that you'll get the maximum company matching contribution. If that requires you to invest more than 3 percent of your salary, do it. It's simply the best move you can make: Every penny your employer pours into your 401(k) account is akin to a bonus. You don't want to turn down bonus money, do you?


Contribute to the Max


It's no secret that my favorite type of retirement account is a Roth IRA. And I've said repeatedly that if you're eligible for a Roth but don't have enough money to invest in both a Roth and a 401(k), the best strategy is to sock away whatever amount you need to qualify for the maximum 401(k) employer match -- but not a dollar more -- and then concentrate on building up your Roth.


The maximum annual IRA contribution is $4,000 this year, or $5,000 for individuals at least 50 years old. (Quick review: individuals with incomes below $110,000 and married couples filing a joint tax return with income under $160,000 are eligible to fund a Roth.)


The maximum annual employee 401(k) contribution this year and in 2007 is $15,000 ($20,000 if you're at least 50 years old). The good news is that the new legislation makes those high contribution levels permanent; up until now they were scheduled to phase out after 2010 and revert to the lower limits put into place back in 2001.


So let me be clear: If you have the ability to max out your contributions to both your Roth IRA and 401(k), go for it. Don't assume that the 3 percent or so contribution rate your employer automatically signed you up for is all you need. You can and should invest more if you're able.


A New Kind of 401(k)


The new law also gives "permanent" status to the Roth 401(k), which could be a huge win for you. Employers have been somewhat slow to offer these new types of 401(k)s, in large part because they were only temporary; without an act of Congress, Roth 401(k)s were scheduled to disappear in 2010.


The fact that Congress acted and made these 401(k)s permanent should encourage more employers to offer them to employees. If yours doesn't, start making a fuss.



The Roth 401(k) is a fantastic saving opportunity if you're young, and if you happen to think that your tax rate in retirement will be higher than it is today. That's likely for many of us given that rates today are near historical lows, even though our federal budget is under tremendous strain.


With the Roth 401(k) you don't get any tax break on your initial contributions, but just like a Roth IRA you'll never pay a penny of tax on the money you withdraw in retirement, assuming you meet some basic requirements. That can be a huge advantage over a traditional 401(k), where all your withdrawals are taxed at your income tax rate and you don't even get to take advantage of the typically lower capital gains rate.


Taking Stock


A recent survey of 401(k) plans by Vanguard found that among plans that offered company stock, about 70 percent of participants had more than 20 percent of their assets invested in their employer's stock.


That's way too much. No single stock should be more than 5 percent to 10 percent of your invested assets. This doesn't just protect you from Enron-like debacles, it's also basic diversification common sense: Your retirement shouldn't ride on a single investment.


The new legislation addresses the fact that many employers use company stock to make matching contributions to their employees. In a sense, these employers force their employees to own the stock. The new law provides some relief here, pushing employers to make it easier for employees to unload company stock they get as a match or profit sharing.


The change is good, but doesn't really help address the real problem -- the fact that participants aren't quick to take action. Study after study shows that inertia, not action, tends to run our 401(k) behavior. We tend to stick with what we have, rather than make changes that will help us.


So the pressure is still on you to protect yourself. If you have more than 10 percent of your money in one stock -- regardless of how much you love your company and are optimistic about its future -- you're putting your retirement in danger. You owe it to yourself to diversify.


A Boon for Beneficiaries


Congress just gave your heirs a very nice tax break. Under the old rules, any 401(k) beneficiary other than a spouse had limited options in how to take the payout; the reality was that most took it as a lump sum that triggered a big tax hit. (Remember, 100 percent of 401(k) withdrawals are taxed as ordinary income.)


With the new law, beginning in 2007 beneficiaries can instead move the 401(k) into a special IRA specifically designated for beneficiaries, and make annual withdrawals over many years based on their own life expectancy.


That means heirs will be able to leave more of the money invested in the tax-deferred account for longer. And that's a great way for your heirs to build their own sizeable retirement nest egg.


No Charity Tax


Finally, the new law also has a great break for IRA investors older then 70-1/2 who face making required minimum distributions (RMD) even though they don't need the income.


In 2006 and 2007, you'll now be allowed to donate up to $100,000 each year from your IRA to a public charity and not owe any tax on that money. That is, you won't first have to claim the money as a taxable RMD before you make the donation.


This can be a useful way to support a charity and meet your RMD requirements without boosting your adjusted gross income. The donation can't also be claimed as a deduction, so it makes the most sense for those of you who don't itemize.

The Soul of Money and Consciousness

There is not doubt, as we look into our own abilities, money becomes a unique measure of our capabilities. Our talents and material goods is the method of choice for exchanging the currency of abilities. But what about our internal measures of success? Pleasure of knowledge, fear from a bad trade or any other “gut feeling” we experience when we approach measurable points.

As in the prior consciousness post, the more we look into success, the more we look inward the person behind that success.
The same applies to money.
Now, the opposite seems to occur to crave for money, the more money is craved the less individuals look inward -into their conciousness- for money.
We say “money does not get you happiness” or “money is not everything” many more popular sayings about the limited capability of money. Still, we have not learn how to teach inward rewarding with outward results in a proficient manner.

In Maslow hierarchy of needs:
1. Physiological (biological needs)
2. Safety
3. Love/belonging
4. Status (esteem)
5. Actualization

**If you need to browse about Maslow, I'll suggest a quick browsing at:
http://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs

If we look were we stand in our present society.
Some of us are stuck in a range from 3-4 and very few get into 5 in a real way. But it seems we have regress to #2 as a society. This is not a personal choice but the result of leaders choice, many are coy about challenging this regression.

The big step begins understanding how we pass from a linear left side of the brain thinking to a right side the brain thinking in a coordinated manner and obtain superior results.
This is what the book “A New Whole Mind” explores.
As we read present religious books and other motivational books.
We encounter the content travelling from the left side linear thinking to take-over actions in a non-linear way but forgetting to touch in how this is measured. These books usually fault at respecting and open some light into measuring equally both capacities of the brain, with its right and left side thinking.
Usually, the mantra is expressed in the common line “do what you love and you will be reward it.”
The intended meaning of reward is monetary, a total left brain approach, and the acting of love is no measurable nor can be taught in a clear way, what we need is a right brain treat of consciousness to be able to actually apply the content of those "self-help, God-help" books.

We are not taught to think in tangled non-connected manner, when in fact this is what we need in most of our human and non-human interactions. At the same time, we expect tangible measurements, if we are in love, usually it means we are somehow a little bit irrational. We do most things in search of these “irrational feelings” and demand tangible measurements.
We often for some unknown reason get a strong physical reaction to something or someone. It can come from influence of thinking or by the influence of our actions, but how do we is coming from a good place, where is this coming from?

If I feel great when I have a great stock trade or I feel awful when I have a bad one, does that means that stock trades –my actions- as a subject of many –trades- doing the same thing have a soul?

Thus, today’s tangled question: do stock trades have a soul?

Consciousness The Last Great Frontier

If you are interested in the present, and want to know what is shaping the future, you must be interested in the research about CONSCIOUSNESS.
This incredible piece is by R. J. AUMANN a Nobel Price Winner of Economics.

Discussion Paper # 391 May 2005
תוילנויצרה רקחל זכרמ
CENTER FOR THE STUDY OF RATIONALITY
THE HEBREW UNIVERSITY OF JERUSALEM
URL: http://www.ratio.huji.ac.il/
Abstract

(Note: due to software translation of symbols you might find some duddles in the text. I will correct those as I work with the original text.)

Consciousness is the last great frontier of science. Here we discuss what
it is, how it difers fundamentally from other scientific phenomena, what
adaptive function it serves, and the difculties in trying to explain how it
works. The emphasis is on the adaptive function.
1. Introduction
Consciousness is the last great frontier of science. Sixty years ago, life was not
understood; it was a mystery. With the discovery of DNA, that mystery was
solved; today, we more or less understand, at least in principle, how life works.
But we do not at all understand how consciousness works.
We start by deÞning our terms; already there, there are dificulties. By con-
sciousness, we mean, in the Þrst instance, the ability to experience. To see, hear,
smell, feel, taste, desire, enjoy, sufer, like, dislike, love, hate, fear, become excited by an idea, be saddened by a loss. We do not mean to sense. A machine can
"sensor" also senses. Machines read; record sounds; detect odors, touches, and
favors; win at chess. They can even be programmed to exhibit a frownie, or
emit downbeat sounds when something isn't right. But presumably they do
not experience.
What, exactly, does "experience" mean? Ah, that is where the dificulty lies.
The word cannot be deÞned in technical terms that do not refer to the concept
itself. Experience cannot be defined in terms that a machine can understand.
If you yourself are not conscious have never experienced something then you
will not understand what the term means; just as little as congenitally deaf people
∗Center for the Study of Rationality, and Departments of Mathematics and Economics, The
Hebrew University of Jerusalem, 91904 Jerusalem, Israel
understand what music means. To be sure, they can understand about the vibra-
tions of taut strings, about air waves, about the workings of musical instruments,
and even about musical notation and rhythm; but they can never understand what
music is. For that, one must hear it. Similarly, someone who is not conscious
cannot understand experience.
Ernst Mayr, in The Growth of Biological Thought,1 distinguishes between two
fundamental questions in biology: “how” and “why”. “How” refers to mechanism,
“why” to function. The question “how do we digest food?” is answered by
describing the process, involving saliva, chewing, swallowing, processing in the
stomach and intestines, absorption into the bloodstream, and so on; and, disposing
of wastes. The question “why do we digest food?” is answered by saying that
food must be digested in order to provide vital ingredients for the functioning of
the body, particularly energy.
To these questions, we add a third, which logically comes before the other
two: “what”. This refers to the descriptive aspect of biology, and of science
in general. The answer to the question “what is digestion?” is that it is the
process whereby food is transformed to a state that the body can use. “What”
questions also include observational, descriptive, and classifying matters, and also
methodological or conceptual matters, like “what is a species?”
The remainder of this essay is divided into three sections: “What”, “Why”,
and “How”. In the Þrst, we discuss what consciousness is, and how it differs
radically from other scientiÞc phenomena. In the second, we discuss a possible
function of consciousness, from the evolutionary viewpoint; and the third discusses
the mechanism. Unfortunately, the “How” section is particularly short: We really
have nothing to say about this, other than to describe the difficulties.
2. What
We have deÞned consciousness as the ability to experience. This puts the phe-
nomenon into a completely different category from other scientiÞc phenomena, in
several ways.
(i) Unlike almost every–indeed every–other scientiÞc phenomenon, conscious-
ness is completely subjective. No veriÞable outside characteristics of consciousness
are known. No matter how complex an organism’s behavior is, a computer could
conceivably be programmed to mimic that behavior. An individual can observe
1Cambridge, Massachusetts: Belknap Press, 1982.
2
consciousness only in himself.
SpeciÞcally, I can observe consciousness in myself only; I cannot be certain
that anybody else really is conscious. To be sure, since other people appear
roughly similar to me, and act similarly, I may surmise that they, too, are con-
scious; but I’m not certain. Each individual can be certain of consciousness only
in himself, where he directly observes it.
(ii) Whereas the phenomenon of consciousness is highly subjective, it is, para-
doxically, the only phenomenon of which the observer is absolutely certain. All
other phenomena and observations could conceivably be attributed to hallucina-
tions, dreams, and/or mental illness. But also hallucinations, dreams, and the
ravings of a madman are experiences; in each case, the observer is sure that he
is experiencing–is “conscious”–and he is right (we include dreams under the
heading of consciousness).
(iii) Sometimes, people express perplexity as to the nature of the problem.
They do not see anything mysterious about consciousness, and do not understand
in what way it is different from other neurological functions like, say, the regulation
of breathing. Asked whether a computer could in principle be conscious, they
answer, “why not?”
We are dumbfounded by this reaction, and can only conjecture that these
people are themselves not conscious. To me, it is evident that no combination
of silicon chips and wires could conceivably “experience” in the sense that I do.
Consciousness involves something beyond the merely physical and mechanical.
(iv) It seems only slightly less evident that no combination of off-the-shelf
chemicals could experience in the sense that I do. But here, we are entering a
gray area. By all indications, the day is not far off when it will be possible to
synthesize a human being.2 Will such a golem be conscious?
Each of the possible answers–“yes” and “no”–is problematic. “Yes” is prob-
lematic because a combination of chemicals is in principle no different from a
combination of silicon chips and wires, which we intuitively feel cannot experi-
ence. But “no” is also problematic, because there is no reason to believe that a
golem that is identical, molecule for molecule, with a live human being would not
in all respects–including consciousness–be like that human being.
2In an email message dated March 22, 2005, the U.S. National Academy of Sciences an-
nounced that “The U.S. National Academy of Sciences and other members of the InterAcademy
Panel, a worldwide organization of science academies, have stated that a worldwide ban on hu-
man reproductive cloning–a technique that attempts to produce a child–is justiÞed.” If it is
being banned, it is presumably within reach; and then, no bans can prevent it from happening.
3
(v) Are animals conscious? On the face of it, there is no reason to suppose
that they cannot be. But as stated above (in (i)), it is not even clear that all
humans–other than me–are conscious. By analogy with me, I can surmise that
other human beings are conscious; but the analogy is less compelling in the case
of animals. The further one gets from human beings on the evolutionary scale, the
less compelling the analogy. So the short answer is, “possibly; we don’t know.”
(vi) Consciousness may have levels. For example, dreaming is certainly an
expression of consciousness, but perhaps at a lower level than waking conscious-
ness. Newborn children, and the mentally impaired, may be conscious at a lower
level. In the opposite direction, people taking certain drugs sometimes report a
“heightened state of consciousness.”
Here again, we are at a loss, because we cannot really imagine what it is like to
be, say, a newborn child. We personally have never taken drugs, so cannot make
a judgment in the opposite direction either. We are stuck in our own conceptual
prison: Consciousness is about subjective experience, so it is difficult to imagine
levels of consciousness other than our own.
Though it may have various levels, its existence at any level already poses the
conceptual problems discussed here.
(vii) Conscious experience appears to be associated with certain physiological-
neurological processes in the brain, like the simultaneous Þring of many neurons
in a well-deÞned group of neurons.3 This, however, does not explain how con-
sciousness works–just as little as noticing that human reproduction is associated
with sexual intercourse explains how reproduction works.
(viii) Up to now we have discussed only the “input” component of conscious-
ness: experience. There are also two other vital components. One is the “process-
ing” component: thought, including intention. The other is the “output” compo-
nent: volition–consciously choosing to do something, and doing it. True, a person
could be conscious, but have no power to take any action–as when asleep, or as
a result of a totally debilitating stroke. But under most normal circumstances,
thought and volition are intimately associated with consciousness. Indeed, as
we shall presently see, it is the combination of all three elements–experience,
thought, and volition–that enables consciousness to perform its function.
3Communicated by Prof. Rafael Malach of the Weizmann Institute of Science, Rehovot.
Based on this observation, Professor Malach makes the fascinating suggestion that a group of
individuals acting in concert may also be conscious.
4
3. Why
We next address the issue of “why”: What is the function of consciousness, from,
say, the evolutionary viewpoint?
The answer we propose is based on the two related notions of decentralizing
and decoupling–roughly speaking, splitting a difficult or complex task into several
easier or less complex tasks, often with the aid of an auxiliary “driving force.”
Here are some examples:
(i) Tearing a Manhattan telephone book in two–perhaps the grand-
daddy of all decoupling processes. Taken as is, it is very difficult. But if one Þrst
separates the book into a number of thinner parts, then one can easily tear each of
these parts in two, thus accomplishing the task. Here the difficult task is tearing
the whole book; the easier tasks are tearing each of the thinner parts; and the
decoupler is separating the entire book into the thinner parts.
(ii) Operating an economy. An economy can be centrally planned, as in a
Kibbutz (Israel cooperative village). A central planner decides how much of each
good will be allocated to each individual, how much–and where–each individual
will work, and so on. In theory, the entire economy of a whole country could be
planned in this way. That is the conception behind socialist economies, like that
of the former Soviet Union.
Centrally planning an entire economy is enormously complex and difficult. To
start with, the informational requirements–Þnding out what each person wants
to consume and what he is capable of producing–seem utterly beyond reach.
But even if that could somehow be achieved, the problemof getting the people to
do what you want them to do, and the sheer complexity of the task, makes the
efficient central planning of an entire economy practically unachievable. Indeed,
socialist economies like that of the Soviet Union achieve levels of efficiency that
are far below those of advanced “free” economies.
What enables free economies to work more efficiently is that they are, by and
large, decentralized. Within limits, each person seeks to acquire the goods and
services that he wants, and to work at the tasks that he wants and that he is
able to perform. There is no problem in getting the people to do what you want
them to do, as each individual makes his own choices. And, the complexity of the
task is greatly reduced, as the task of operating the economy is transferred from
a central planner to individuals, each planning only the segment of the economy
that interests him–usually, his own consumption and production. Instead of one
planner (or planning agencies) planning many billions of transactions, we have
5
several million planners planning thousands of transactions each. The total size
of the task is perhaps roughly the same, but the task is decoupled into millions of
individual tasks–and so is much more easily accomplished.
The driving force that makes the whole process work is individual motivation.
Each individual is motivated to seek for himself the best “deal” that he can get–
the goods and the work that he likes most–and it is this that operates the entire
economy. That is Adam Smith’s “invisible hand.”
(iii) Money and prices. Primitive decentralized markets work by barter:
Two or more people get together and exchange goods or services, to the mutual
beneÞt of all parties to the transaction; the process may be repeated as often
as desired. One may hope that the Þnal outcome is optimal, in the sense that
no traders could have done better by trading with each other.4 In practice, in
reasonably large markets–or even in fairly small ones–identifying the bartering
groups, and deciding on the barters to be implemented, is so complex, involved,
and fraught with uncertainty that barter is unlikely to achieve an outcome that
is anywhere close to optimal.
Enter the institutions of money and prices. Rather than bartering, each trader
sells his goods at market prices; with the proceeds he buys the goods he desires,
again at market prices. Then if the prices are “right,” the market “clears”: the
demand for each good exactly matches the supply. Moreover, the resulting reallo-
cation of goods is optimal (in the above sense); and in large markets, all optimal
outcomes are achievable in this way.
Thus, the unsophisticated but highly complex, involved, and uncertain bar-
tering process is replaced by the price mechanism, which, though a lot more so-
phisticated than barter, is far easier to execute: it requires only that each trader
buys what he likes,5 given his budget.6 Here the complex task is achieving opti-
mality; the simpler tasks are for each trader to decide what he wants, given his
budget; and the decoupler is the price mechanism. And again, the driving force is
individual motivation. Each individual is motivated to “maximize over his budget
set”–sell and buy, at the given market prices, so as to be left with those goods
and services that he most prefers.
4More precisely, no group of traders could have improved the welfare of all its members by
trading within the group only. In economic theory, such outcomes are called core outcomes.
5Unlike barter, where each trader needs some knowledge about the preferences of the traders
with whom he trades, and also about at least some of the others, so that he will know with
whom to trade.
6The proceeds from the sale, at market prices, of the goods that he brought to the market.
6
An interesting aspect of this decoupling is that historically, it has emerged by
itself in every reasonably advanced society, without being imposed by any plan-
ning entity. Not only has the price mechanism emerged by itself, but the market
prices themselves also usually emerge by themselves–determined by supply and
demand–without being imposed by planning entities. And when planning enti-
ties do enter the process of price determination, as in the former Soviet Union or
with rent control in various cities, they often wreak havoc, causing shortages and
other distortions.
Whereas this example is related to the previous one (Example ii), they are
not the same. In the previous example, the point was decentralizing the economy,
letting each individual see to himself. In the current example, the point is the
formation of a price system. Logically, the examples are independent; a centrally
planned economy can have a price system, and a decentralized economy can work
on barter.
(iv) Chess. The ideal way to play chess is to plan the entire course of play
from the beginning, taking into account anything the other player might do. In
practice, this is beyond the power of any man or machine. Instead, the players
“evaluate” the situation at each move, using numerical indices for the various
pieces; e.g., 8 for the queen, 5 for a rook, 3 for a bishop or knight, 1 for a pawn.
They also take account of the general characteristics of the position: develop-
ment of the pieces, castling, passed pawns, and so on. Using such criteria, each
player “looks ahead” for a few moves, trying to maximize his valuation of the
position at the end of that period, and taking into account that the other player
is doing likewise. Weaker players often do not look ahead more than a move or
two, and even that only partially. Stronger players may look as much as Þve or
six moves ahead, and sometimes even more; but they, too, do not examine all
possibilities–all “branches of the tree”–in the process. Human players do not
use a precise numerical valuation, but take a generalized view. Chess-playing com-
puter programs7 basically do use a precise numerical valuation function; though
even there, the “depth” of the look-ahead varies, with some branches of the tree
being examined more thoroughly than others.
Here the complex task is planning the whole game beforehand; and the simpler,
decoupled tasks are playing move by move, with a more or less modest look-
ahead. The overall, macroscopic driving force is, of course, the desire to win; but
7Like IBM’s “Deep Blue,” which several years ago defeated World Chess Champion Gary
Kasparov in a tournament (though there have been allegations that “Deep Blue” cheated by
enlisting human aid during the course of play).
7
“microscopically”–at each separate move–the driving force is to maximize the
valuation several moves ahead.
In Examples (ii) and (iii) above, the decoupling is achieved by spreading the
task over many individuals, each with his own motivation. In contrast, in this
case the decoupling is achieved by spreading the task over time. There is a single
overall motivation–winning–which is expressed at each move by looking ahead
a few moves and maximizing valuation.
(v) Solomon’s judgment. Rather than rendering his judgment (1 Kings 3,
16-28), King Solomon could have entered into a complex factual investigation of
the women’s claims. He “decoupled” the process by motivating them unwittingly
to reveal the truth themselves. Here the complex task is determining which woman
is the live baby’s mother; the simpler tasks are for the women to express their
preferences given the judgment; and the driving force is the women’s motherly
love.
(vi) Fair division. This may be achieved by cumbersome methods of direct
measurement. Alternatively, the process may be decoupled by the method of “one
cuts, the other chooses,” which motivates the parties themselves to divide fairly.
(vii) Evolution. Suppose a Creator had wanted to create the living world
as we know it. He could have designed each individual organism separately, to-
gether with the appropriate interactive adaptations. This would have been enor-
mously complex. Alternatively, He could have decoupled the process by means
of evolution–survival of the Þttest–which runs by itself, automatically, with no
need for “hands on” direction. Here the complex task is creating the world; the
decoupled alternative tasks are for each organism–or even each gene–to adapt
to its surroundings; and the driving force is survival of the Þttest.
These examples should give the reader some idea of what we mean by decou-
pling. What we now suggest is that consciousness serves as a decoupler that allows
human beings to perform tasks that otherwise would be unachievable because of
their complexity. Let us illustrate.
(a) Food. The body needs food for energy and other vital purposes. The
process of supplying food may be divided into two parts: (1) before it enters the
mouth, and (2) afterwards. Part 1 consists of triggering the individual to seek
food, and acquiring, preparing, and eating it. Part 2 consists of digesting it, i.e.,
transforming it into a state that the body can use (see Section 1, above).
Both parts are extremely complex, but Part 1 is by far the more so. We must
choose the food to buy, shop for it, store it, clean it, cook it, and serve it. We must
8
also choose and buy closets and a refrigerator to store it; sinks to wash it; stoves,
ovens, gas tops, microwaves, pots, pans, cake forms, pie dishes, utensils, mixers,
vegetable peelers and so on to prepare it; plates, bowls, platters, and utensils, to
serve it. We must earn money to buy the food and all the auxiliary items we have
mentioned, and those we have not mentioned. Earning money usually involves
various skills–not the least of them social–which must be acquired.
There is another fundamental difference between the two parts. Part 2 is
“hard-wired”: It works “automatically,” by mechanical, chemical, and electrical
means, with no conscious, voluntary component. Part 1 is precisely the opposite:
all conscious, all volitional. To start with, when the body runs short of the
required nutrients, it must be prompted to eat. Once this is done, the food must
be acquired, prepared, and eaten. Conceivably, parts of the process could be hard-
wired: A gauge could tell the brain when the stomach is empty; the eye and brain
could identify food, then send signals to the hand automatically to take it and
put it in the mouth. But it seems unlikely that acquiring the food and preparing
it, and earning the necessary money, could all be hard-wired.
How, then, does the process work? What drives it?
The answer is simple, even obvious: hunger. And, the other side of the same
coin: enjoyment of food.
Hunger does not mean an empty stomach. An empty stomach by itself will
not prompt us to eat. We need the pain or discomfort of hunger, and/or the
pleasure of food, to make us eat. Pain and pleasure depend on consciousness. If
you are not conscious, you cannot experience pain or pleasure. So consciousness
is an important component of the mechanism that supplies us with nutrients.
Moreover, it decouples the nutritive process into the two parts we have described:
until the food reaches the mouth, and afterwards.
Indeed, it does much, much more: The entire process of acquiring, preparing,
and serving food is decoupled into many small steps. Each step is conscious,
with a well-deÞned goal; it is motivated. Going to market, picking the items to
buy, standing in line at the check-out counter, bringing the items to your car,
unloading, putting in the refrigerator, all the myriad tasks involved in cooking,
all the myriad tasks involved in earning the money with which to buy the food,
all the myriad tasks involved in all stages of the process–all together, and each
one separately–are driven by hunger, through the medium of consciousness; they
are motivated.
More precisely, the experiences of hunger and food enjoyment are the overall,
macroscopic driving forces, like the desire to win in chess (Example iv above). The
9
thought process, which is the second component of consciousness (see Section
2, Item viii), translates this into many small tasks–making money, baking a
cake, and so on–each with its own driving force, like valuation-maximizing in
chess. And then volition–the third component of consciousness–comes into play,
enabling the individual actually to carry out these individual tasks.
It is important to note that while “hard-wired” processes like digestion may be
highly complex, they are fairly repetitive. Digestion works on the same materials,
in the same way, every day; there are few, if any, surprises. The processes of food
acquisition and preparation are much less repetitive; they require a good deal
of instantaneous adaptation to various different environments, environments that
may be unfamiliar. Consciousness is particularly important for motivating and
carrying out these non-repetitive tasks.
Finally, we remark that themechanisms provided by nature to facilitate eating–
hunger and the enjoyment of food–may sometimes “misÞre.” It is well known
that severely undernourished people whose hunger leads them to overeat may
well die as a consequence; there are documented cases of people who survived
the concentration camps during the Holocaust, only tragically to die in this way.
Even better known is that the enjoyment of food may cause people to overeat or
to eat foods that are not nutritious. While not immediately fatal like with the
concentration camps, this may nevertheless be detrimental to health; or at least,
serve no useful adaptive purpose.
(b) Sex. Biologists identify two basic drives in living organisms: nourishment
and reproduction.8 What we have said about food applies, mutatis mutandis, also
to sex. It is hunger and the enjoyment of food–not the need for nourishment!–
that makes people eat. Similarly, it is not the desire for offspring that makes
them have sex; it is the sex drive–the enjoyment of sex. Enjoyment is a function
of consciousness. You cannot enjoy if you are not conscious. Many people do
consciously want offspring, but that is not why they have sex.9
As with nourishment, the process of reproduction has several distinct parts:
(1) before the semen enters the woman’s body; (2) conception and pregnancy;
8It is interesting that in several places, the Talmudic literature identiÞes these two basic
drives. In the biblical verse relating how Joseph’s master, Potiphar, “left everything in Joseph’s
hands, except for the bread that he (Potiphar) eats” (Genesis 39, 6), the Midrash takes the
“bread” to mean Potiphar’s wife. And when Jethro’s daughters tell him that “an Egyptian man
saved us,” and Jethro says, “where is he? Call him and let him eat bread” (Exodus 2, 19-20),
the Midrash takes the “bread” to mean the daughters themselves.
9Thus, homosexuals will usually not have relations with persons of the opposite sex. When
they want offspring, they prefer adopting, or artiÞcial insemination.
10
and (3) childhood, when the offspring cannot fend for itself. The Þrst two parts
are decoupled by the sex drive. The second part, though highly complex, is hard-
wired; once sex has taken place, there is no conscious intervention until birth.
After birth, parental love takes over; like hunger and the sex drive, this depends
on consciousness. As with food, the Þrst and third parts of the process–which
are not hard-wired–split up into a myriad of distinct small steps, starting with
dating and earning the required money; each is conscious, each has a well-deÞned
goal, each is motivated.
Like with food, the hard-wired part of the process is fairly repetitive, the other
parts not.
Unlike food, sex is programmed to be proßigate. In a single season, a single
ßowering tree produces many hundreds of thousands of blossoms, and billions
of grains of pollen. It is doubtful if even one of these comes to fruition. In
each ejaculation there are hundreds of millions of sperms, at most one of which
is used. Many sexual episodes lead nowhere, many relationships lead nowhere,
many dates lead nowhere. The sex drive leads to many activities that have no
chance of producing offspring: sex with birth control, sex after the reproductive
age, homosexuality, masturbation, oral sex, bestiality, pornography, and so on.
Love and sex play dominant roles in advertising, literature, Þlm, music, painting,
photography, dance, almost all cultural activity. In the case of food, we used the
term “misÞre” to describe situations in which food does not provide nourishment.
In the case of sex, the corresponding situations are so ubiquitous that they must
be considered a part of the process.
(c) Pain. It has long been recognized that pain calls attention to something in
the body having gone wrong, so that it can be attended to. Again, pain depends
on consciousness; if you are not conscious, you cannot experience pain. Machines
cannot suffer.
As before, we have here a decoupling process. Pain motivates the individual to
seek medical or surgical treatment. Unlike with food and sex, though, the effect of
treatment is not entirely automatic; repeated intervention may be required. Pain
decouples the treatment process into many distinct small steps, motivating the
individual at each step to do what is required in order to alleviate his condition.
It, too, may “misÞre,” as when a medical or surgical treatment causes more pain
than what the patient can suffer.
To summarize: Consciousness enables the decoupling of highly complex,
non-repetitive tasks into many simpler tasks, mainly through the element of mo-
tivation.
11
4. How
This is the shortest of our sections: We have little to contribute on this score,
other than to say that the neurological phenomena that have been observed to be
associated with consciousness do not explain how it works; the “how” remains a
deep mystery.
One last remark is worth making. “How” questions are usually answered
by analogy with something else, with which we are familiar. For example, the
workings of the circulatory system are explained by analogy with plumbing. But
consciousness is unique; there is nothing else in the world that is even remotely
like it. Since there is nothing like it, what analogy can we use to explain it? And
if not by analogy, how else can it be “explained?”
12

Suspicious Trading

Whispers of Mergers Set Off Suspicious Trading
By GRETCHEN MORGENSON
The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem.

It is against the law to trade on inside information about an imminent merger, of course.

But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.

The study, conducted for The New York Times by Measuredmarkets Inc., an analytical research firm in Toronto, scrutinized mergers with a value of $1 billion or more that were announced in the 12-month period that ended in early July. The firm analyzed the price, the total number of shares traded and the number of individual trades in each stock during the weeks leading up to the announcement and looked for large deviations from trading patterns going back as far as four years.

Although any number of factors can lead to spikes in trading, deviations of the kind observed by Measuredmarkets are among the data used by regulators to spot insider trading. Of the 90 big mergers in the period, shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed.

Christopher K. Thomas, a former analyst and stockbroker who founded Measuredmarkets in 1997, said that his company’s analysis led to the conclusion that the aberrant activities most likely involved insider trading. Measuredmarkets provides examples of unusual trading to institutions, individuals and a regulatory organization in Canada.

It is always possible that a company’s stock moves because of developments in a particular industry or business sector, or because a prominent newsletter, columnist or blogger has written something that could prompt investors to take action. But in the companies that were analyzed, no such influences seemed to be at work. The companies were not the subject of widely dispersed merger commentary during the periods of abnormal trading, nor did they make any announcements that would seem to explain the moves.

The analysis by The New York Times found that, in a handful of the mergers, significant progress toward a deal was being made on the days unusual trading occurred. For example, the day that four bidders were putting together buyout offers for Amegy Bancorp, a Houston bank company, trading in its stock quadrupled.

Attempts to quantify the amount of potential insider activity in deals have come up short in the past, in part because the regulators with access to detailed information do not release it. The Securities and Exchange Commission does not disclose, for example, the percentage of referrals it receives from exchanges that wind up as cases.

The S.E.C. would not comment on the study but said that it had looked at Measuredmarkets’ system and concluded that surveillance techniques of self-regulatory organizations like the New York Stock Exchange were more sophisticated.

Securities regulators, traders and academics agree that merger waves lead to more illicit trading on nonpublic information. In Britain, regulators have made insider trading a primary focus and have shifted their scrutiny to brokerage firms and institutional investors, rather than individuals, involved in mergers.

Like Measuredmarkets, the Financial Services Authority in British has found a pattern of stock trading ahead of mergers. In 2004, 29 percent of companies involved in mergers experienced abnormal trading before public announcements, according to a March 2006 study of large British companies subject to takeovers. In 2001, the comparable figure was 21 percent.

The British study compared the stocks’ price movements with previous returns, adjusted for overall market moves. The comparison period was 240 trading days, ending 10 days before the merger announcement.

In this country, the S.E.C. has focused more on individuals than on institutions in its investigations. And even though merger activity has rocketed in recent years, the number of its cases involving insider trading has held in a range of 40 to 59 annually since 2000, the S.E.C. said.

Some economists and academics assert that insider trading is essentially a victimless crime and therefore not worth deploying regulatory armies to battle. But there are losers, including small investors who miss out on gains, when such trading moves markets.

Moreover, many investors are troubled by what they now see as rampant insider trading, saying it fosters the perception that insiders can profit in the markets at the expense of outsiders.

“Martha Stewart got hurt very badly for something that happens every single day on Wall Street,” said Herbert A. Denton, president of Providence Capital, a money manager and an adviser to minority shareholders. “It’s a falseness and a hollowness to the capitalist system when you are pretending that things are pristine and they are not. Either the S.E.C. should get very, very serious and prosecute a lot of people or forget about it.”

Although Ms. Stewart was investigated for insider trading, she was found guilty of other related charges.

The S.E.C.’s handling of one insider-trading investigation is the subject of scrutiny by Congress after the firing last September of Gary J. Aguirre, a former staff attorney at the agency. Mr. Aguirre contends that his investigation into possible insider trading by Pequot Capital Management, a prominent hedge fund, was thwarted for political reasons by his superiors. He was fired after complaining, even though he had just received a merit pay increase.

Mergers and acquisitions present particularly rich opportunities for profiting on insider information, a violation of the securities laws written to keep all investors on a level playing field. That is why all those involved in corporate unions, from law firms to investment banks to those in between like printers, are supposed to keep quiet during the process.

Officials from the nation’s top securities regulators met on Aug. 18 to discuss emerging trends in insider trading, said Joseph J. Cella, chief of the office of market surveillance at the S.E.C. “We are certainly cognizant of the uptick in merger-and-acquisition activity,” he said.

The companies identified by Measuredmarkets represented many industries and received bids not only from corporate rivals, but also from private investor groups and management-led buyout teams. They included Amegy Bancorp, the subject of a $1.7 billion takeover announced last September by Zions Bancorp, the large Utah bank; CarrAmerica Realty, a real estate investment trust acquired for $5.6 billion by the private investment company Blackstone Group after a March announcement; Dex Media, a directory publisher whose $9.5 billion purchase by the R. H. Donnelley Corporation was disclosed in October; the IDX Systems Corporation, a health care systems company whose $1.2 billion acquisition by General Electric was announced in September; and Texas Regional Bancshares, which the Argentinian bank BBVA said it would acquire in June for nearly $2.2 billion.

In each of the five cases, the abnormal trading occurred during periods of significant behind-the-scenes progress in the mergers, as outlined by the companies themselves in regulatory filings long after the deals were struck.

In the Amegy bank deal, the volume of shares traded more than quadrupled on a day when four of the bank’s bidders were analyzing its financial records and preparing offers. Volume jumped in CarrAmerica’s shares on Feb. 17, the day the real estate investment trust struck a confidentiality agreement with a potential bidder and Goldman Sachs began providing the bidder with an analysis of CarrAmerica’s books.

Trading in Dex Media increased sharply last Sept. 14, the day that management, legal teams and financial advisers representing the company and Donnelley met. And the price and the number of shares traded in IDX jumped on Sept. 7, when its chief executive and a G.E. executive talked and G.E. agreed to increase its bid by 5 percent.

Officials at the companies said that they were unaware of unusual trading in advance of the deals and declined to speculate on reasons for the action.

Measuredmarkets has no way to identify who might have been behind the anomalous trading. But a few of the deals that it flagged are already under scrutiny by regulators.

In June, for example, the S.E.C. froze $1 million in trading gains of South American investors who profited on the June 12 buyout announcement of the Maverick Tube Corporation, an oil equipment maker, by Tenaris SA, a steel company with headquarters in Luxembourg. Anadarko Petroleum’s June bid for the Kerr-McGee Corporation, a smaller rival, is also being investigated, according to a July 13 report in The Houston Chronicle; the transaction closed in August. The S.E.C., following its usual practice, declined to comment on the report.

The takeover crowd includes corporations, management-led buyout teams as well as private equity firms, which represent wealthy private investors. Companies’ directors are reaching out to many potential bidders these days to ensure shareholders get the best price. In the process, they are expanding the number of people with knowledge of the deals.

Still, it is undeniable that brokerage firms, with their varied businesses all under one roof, remain particularly well-positioned to capitalize on inside information. Not only do these firms advise buyers and sellers in mergers, giving them immense access, they also have proprietary trading desks that invest the firm’s money in stocks and other securities, money management units that invest for clients and trading desks that profit mightily by executing trades for hedge funds.

Brokerage firms contend that barriers within their operations keep deal information from seeping out. But regulators at the Financial Services Authority in Britain are challenging these assertions.

In a July 7 speech, Hector Sants, managing director of wholesale and institutional markets at the F.S.A., described why his focus was shifting to institutions. “Our spotlight will shine in particular on relationships between investment banks and their clients,” he said, “because we believe the risk of market abuse is highest where a client can be made an insider on a forthcoming deal.”

The fast and furious pace of deals this year is increasing the opportunities for mischief. In each of the last three months, according to Thomson Financial, the value of announced mergers has exceeded $100 billion — the longest stretch of such volume since 2000.

Although the number of deals in the first seven months of this year slipped to 685 from 763 in the same period in 2005, the dollar amount of transactions rose 31 percent in that time, Thomson Financial said.

Regulators on the front lines also seem to be spotting more irregularities. Officials in the market surveillance unit of New York Stock Exchange Regulation Inc. have made more referrals to the S.E.C. this year than they did in the comparable period last year. As of last month, those regulators had referred 76 cases for possible investigation, up from 60 a year earlier. In 2005, the surveillance unit referred 111 cases, 63 percent more than the previous year.

The number of insider-trading cases filed by the S.E.C., though, has been relatively static. Walter G. Ricciardi, deputy director of enforcement at the S.E.C., said that 9 percent of the cases filed by the commission since Feb. 1 have been based on insider trading, which can encompass merger or any other news that would affect a company’s market price. On a percentage basis, the cases have ranged from 7 percent to 12 percent of the agency’s total since 2000.

“The yield is less probably than in comparable areas,” Mr. Ricciardi explained of insider-trading inquiries. “A lot of times the trading may look like something crazy, but you’ve got to have evidence.”

Recent cases have centered on some relatively small players. In late December, for example, the S.E.C. sued Gary D. Herwitz, an accountant, and Tracey A. Stanyer, an executive vice president at Sirius Satellite Radio, for trading ahead of news in late 2004 that Sirius was going to award a $500 million contract to Howard Stern, a radio show host.

Each settled with the S.E.C., without admitting or denying wrongdoing. Mr. Herwitz paid $52,000. Mr. Stanyer paid $35,000 and was barred from serving as officer or director of a public company. Mr. Herwitz pleaded guilty to insider trading in federal court in Brooklyn and was sentenced to two years’ probation and a $20,000 fine earlier this year.

In May, the S.E.C. sued Jason Smith, a letter carrier in New Jersey, contending he leaked grand jury information to a 14-person ring that included low-level employees of Merrill Lynch and Goldman Sachs, a worker for a printing company and a retired seamstress in Croatia. Regulators say that scheme generated $6.7 million in profits.

What about cases involving larger or more sophisticated investors? “We certainly see institutional-type accounts that have come into the market with extraordinarily good timing on a repeat basis; we have investigated those,” said Mr. Cella of the S.E.C. “But to get the evidence to prove a violation of the statute under which we allege insider trading is difficult.”

And that is true whether the case involves individuals or institutions.

The British securities regulator, for its part, has cited the possibility of hedge funds profiting on insider information as a foremost concern. David Cliffe, a press officer at the F.S.A., said that hedge funds must be keenly watched because they have extensive and close relationships with investment banks that are in a position to provide nonpublic information in exchange for lucrative trading commissions.

Spotting abnormal trading is far simpler than bringing a successful insider-trading prosecution, as Mr. Cella of the S.E.C. noted. Still, the trading anomalies identified by Measuredmarkets are intriguing.

Consider Koch Industries’ bid for Georgia-Pacific on Nov. 13. Senior officials of the companies first met to discuss a merger on Oct. 5. Koch Industries proposed to limit its purchase to certain Georgia-Pacific assets after the company, which makes forest products, had spun off other businesses to the public. Subsequent company filings noted that Danny W. Huff, Georgia-Pacific’s chief financial officer, told Koch officials on Oct. 7 that such a deal would “probably not” be acceptable to his company’s board.

Merger talks continued through October and into November. Both sides conducted corporate analyses — known as due diligence — from Nov. 8-11. Koch Industries’ board voted to approve a bid on Nov. 10.

That day, volume in Georgia-Pacific shares jumped 37 percent above its 2005 average and the number of trades in the stock rose significantly as well, Measuredmarkets found. On Friday, Nov. 11, volume increased yet 66 percent more from the previous day’s high level. Georgia-Pacific shares rose 5.5 percent over the period. The company made no announcements either day, and the overall market rose 1.3 percent over the two days.

On Sunday, Nov. 13, Koch Industries announced that it would pay $21 billion for Georgia-Pacific, or $48 a share, a 39 percent premium to the closing price the previous Friday. Anyone who bought Georgia-Pacific shares on either Nov. 10 or Nov. 11 stood to gain 40 percent in just a few days.

A spokeswoman for Koch Industries did not return phone calls seeking comment.

Another case in point is the surprise merger, announced May 7, between the Wachovia Corporation, a bank holding company based in North Carolina, and Golden West Financial, a West Coast savings and loan. This time the unusual trading showed up both in the stock of Golden West Financial and in its call options.

Traders buy call options, giving them the right to purchase shares of the underlying company at a set price within a specified period, when they expect the stock to rise. Options provide the potential for a sharp profit because each option represents 100 shares.

On May 3, the number of Golden West’s call options that changed hands was triple the daily average. Subsequent filings show that was the day Wachovia’s board met to review a possible acquisition of Golden West and the day after Golden West’s board met to weigh the bid.

Officials at Wachovia and Golden West said they did not know why the volume rose.

The probability of detection appears small, based on the number of cases brought in the United States, and the penalty for insider trading is often a negotiated settlement that may not involve much more than giving up the gains.

An example is the S.E.C.’s conclusion of a case in 2004 with an employee of Fleet Boston. The employee, the S.E.C. said, made $473,000 by trading on knowledge of the bank’s buyout by Bank of America. The commission exacted $525,000 in a settlement, which included his profits, prejudgment interest of $1,576.67 and a civil penalty of $51,842.36.

The penalty portion of such settlements, Mr. Ricciardi said, typically equals the illegal profits. The Insider Trading Sanctions Act of 1984 allows for a penalty of up to three times those profits.

The S.E.C. dispenses a reward, up to 10 percent of the penalties, Mr. Ricciardi said, to tipsters whose information leads to a successful case.

When stocks gyrate because nonpublic information about deals has leaked out, many people are harmed. The most affected are those who sell shares in the company before it is taken over at a significant premium. An investor who sold Georgia-Pacific shares on Nov. 9, just before the unusual trading, missed a 46 percent gain. Those who sold the Andrx Corporation, just before unusual trading began last February missed, a 36 percent gain.

Others also lose. The company that makes the acquisition, for example, may wind up paying more. Investment advisers typically include a company’s target share price and total market capitalization in the analysis of what an acquirer should be willing to pay. If a stock rises in the days or weeks during negotiations, the purchase price could be driven higher. A rising price could even scuttle a merger if the deal becomes too costly to the prospective buyer.

Jenny Anderson contributed reporting for this article, and Donna Anderson contributed research.