Coyote Blog

Investors everywhere were shocked to see that MF Global seems to have lost over a billion dollars of their customers capital.  In most cases, this capital was cash customers thought was sequestered as collateral for their trading accounts.  MF Global took its customers money and used that money as collateral in making risky, leveraged bets on European sovereign debt, bets that fell apart as debt prices fell and MF Global faced margin calls on its bets that it did not have the liquidity to cover.

Certainly it strikes most folks as unethical to lose the assets in your customers' brokerage accounts making bets for the house.  But it turns out, it may have been entirely legal.  This article is quite good, and helps explain what was going on, what this "hypothecation" thing is (basically a fancy term for leveraging up assets by using them as collateral on loans), and why it may have been legal.

In short, the article discusses two regulatory changes that seemed to be important.  The first was a 2000 (ie Clinton era, for those who still think these regulatory screwups are attributable to a single Party) relaxation in how brokerages could invest customers' collateral in their trading accounts.  The second was a loophole where brokerages created subsidiaries in countries with no controls on how client money was re-used (in this case mostly the UK) and used those subsidiaries to reinvest money even in US brokerage accounts.

The increase in leverage was staggering.  Already, cash in most commodities trading accounts is leveraged - customers might have only 30% of the value of their trading positions as collateral on their margin account.  Then the brokerage houses took this collateral and used it as collateral on new loans.  Those receiving the collateral on the other end often did the same.

MF Global would be bad if it were fraud.  But it is even worse if MF Global is doing legally what every other brokerage house is still doing.

Here is the minimum one should do:  Diversify brokerage accounts.  We diversify between bonds and stocks and other investments, but many people have everything in one account with one company.  I am not sure anyone can be trusted any more.  My mutual funds are now spread across three firms and, if I grow my brokerage account for individual stocks and investments (right now it is tiny) I will split that as well.

It is interesting to study the contrast between the handling of the Toyota accelerator problems, which turned out to be pretty much all driver error, and the Chevy Volt fire issues.

In the case of the former, we had public hearings and government threats.  The government, without evidence at that point, demanded Toyota recall the vehicles and stop production.  Eventually, when the NHTSA determined that the panic and recall was in error and the issue was operator error and not with the car, the Obama Administration suppressed the results.

Now, Volts appear to have a fire problem with their batteries.  This time, the government is keeping things real quiet and, instead of exaggerating the safety issue, they are suppresing it

It now appears the fire hazard was first discovered back in June, when GM first heard about a fire in a Volt that occurred some three weeks after the vehicle had been crash tested.

Yet, almost five months went by before either GM or the US National Highway Traffic Safety Administration (NHTSA) told dealers and customers about the potential risks and urged them to drain the battery pack as soon as possible after an accident.

Part of the reason for delaying the disclosure was the “fragility of Volt sales” up until that point, according to Joan Claybrook, a former administrator at NHTSA.

Demagoguing a non-problem in the first case, covering up a real problem in the second.  Guess which one has a union that supported Obama's election and which does not.  Guess which one Obama bought equity in with taxpayer money?

My new column is up at Forbes, and discusses the proposal by a number of Congressmen for a Constitutional Amendment to strip corporations of speech and other rights.  The post is hard to excerpt but here is just a bit:

This is why this proposed Amendment is so absurd.  In effect, it would mean that we all enjoy the full range of Constitutional rights, except when we agree to assemble and cooperate -- then we lose them all.   If I as an individual bake bread in my kitchen for resale, I could still petition the state to modify regulations relevant to my activity.  If I then join together with my neighbor in a cooperative venture to bake and resell bread, does it really make sense that I would then lose my right to petition the government?

Worse, the proposed Amendment does not limit its scope to just the First Amendment.  It means that individuals, when on corporate property, might have no protection from unreasonable searches and seizures;  corporations would have no guarantee of due process or of a jury trial in civil suits;  corporate assets would no longer be protected from eminent domain seizure without compensation.  Under this provision, the Federal government could seize Apple Computer if it so desired (or even quarter troops in the Apple offices!).  This all sounds like a stalking horse for Socialism, which might seem overwrought until one realizes that Bernie Sanders is the sponsor of a similar proposal in the Senate....

Of all the possible approaches to reducing the ability of private citizens to manipulate government policy to their personal benefit, this is in fact likely the worst.  As mentioned above, there are many different avenues to exercising influence and power, of which election spending and advertising is just one.  But election spending is the most transparent of all of these approaches.  This proposed amendment would in effect substitute highly visible advertising and electioneering with backroom deals and political patronage that is far more hidden from the public eye.  A cynical person might argue that this is exactly the goal.

Apparently, while Sheriff Arpaio was busy raiding businesses and zip-tieing everyone with brown skin and distracted by his attempts to arrest judges that handed down unfavorable decisions, there was actual violent crime happening in Maricopa County.  With the Sheriff busy with celebrities raiding homes suspected of cockfighting with tanks, minor stuff like rape got put on the back burner.  The story has just been discovered by the AP but it has been kicking around town for a while:

The Maricopa County Sheriff's Office failed to adequately investigate more than 400 sex-crime cases, including dozens in El Mirage, over a two-year period because of poor oversight and former Chief Deputy David Hendershott's desire to protect a key investigator from bad publicity, according to documents pertaining to a recent internal investigation released by the Sheriff's Office.

The errors led to interminable delays for victims of serious crimes who waited years for the attackers to be brought to justice, if they were ever caught.

More than 50 El Mirage sex-crime cases, most involving young children reportedly victimized by friends or family, went uninvestigated after police took an initial report. The lack of oversight was so widespread in El Mirage that it affected other cases: roughly 15 death investigations, some of them homicides with workable leads, were never presented to prosecutors, and dozens of robberies and auto-theft cases never led to arrests.

The East Valley Tribune actually had details on this story over three years ago, in a story that won a Pullitzer, but the Sheriff never bothered to do anything until the story hit the AP.

Employees were preparing to close the 99 Cent Discount Store in El Mirage on Aug. 20, 2006, when a teenage girl ran inside.

Agitated and refusing to leave, the 15-year-old girl told the store's manager that two men had just raped her in a ditch outside, a police report says.

Paramedics took the girl to Del E. Webb Hospital in Sun City West, where medical staff found physical evidence of sexual assault, according to deputy chief Bill Knight, head of the sheriff's central investigations, who researched the case.

At midnight, a detective from the MCSO's special victims unit arrived at the hospital to begin an investigation, the report says.

But the investigation never really began.

The MCSO closed the case a month later by designating it "exceptionally cleared," which is supposed to be applied to cases where a suspect is known and there's enough evidence to make an arrest but circumstances prevent an arrest. That designation allows the MCSO to count the case in the same reporting category as investigations that end in arrest.

But in this case, the detectives didn't have a suspect and appear to have done no work on the case.

I would love to see a reincarnation of "the Wire" focused on our Sheriff's department.  All the same corruptions in the show are on display every day here in Arizona.

GM has announced it is willing to give a full refund to customers who bought Volts and are worried they will burst into flames.  My question is this:  In these refunds, does GM or the car buyer intend to reimburse the taxpayer for the $7500 subsidy we kicked in?

1.  I had thought that libertarians and conservatives were overwrought when they accused the Obama administration of using their own gun sales in the Fast and Furious program to argue for increased gun control.  Oops.  It appears that is exactly what they are doing.  This article is particularly fascinating, as we get to see a gun dealer, so often vilified by the Left, showing more concern about the guns winding up in the wrong hands than does the ATF.

2.  I had thought it an exaggeration when Conservatives accused Obama of being a Marxist.  I thought he was reinforcing a corporate state, but politicians of both parties play that game.  I assumed that, like much of the Left, he had socialist tendencies but basically accepted the core approach of free exchange and individual liberty.  Oops.  It is clear from his speech in Kansas that Obama has decided he is going to run in 2012 on a platform of proletarianising the middle class..

Every time we enter business in a new state, it is a constant challenge to figure out all the taxes we owe.  In Alabama, for a single campground, we file and pay

• Alabama lodging tax
• Alabama sales tax
• Alabama boat rental tax
• Marshall County lodging tax
• Marshall County property tax
• Marshall County sales tax
• Marshall County occupancy tax
• Marshall County health certification
• Alabama unemployment tax
• Alabama withholding tax
• Alabama personal and corporate income tax

So of course we got billed for a new one today, for the Alabama Business Privilege Tax, apparently a corporate net worth tax.  No forms or notices are sent for this tax until after it is due, when one owes about 80% in penalties.

By the way, pay the government for the "privilege" to conduct commerce is one of those government euphemisms that drive me up a tree.

More nominally intelligent people talking seriously about a Social Security trust fund as if such a thing exists.

The only thing supporting our ability to pay future Social Security benefits in full is the government's ability to print currency.

I have said many times that protection of individual liberties is a far more important metric for the quality of governments than the quality of a country's elections.  We are about to get an object lesson in this in Egypt, where a really marvelous, open, and transparent election is going to lead to enormous losses of individual liberties, particularly for women.

California voters -- unskeptical, unrealistic, and gullible -- nevertheless trusted their elected and unelected technocrats in Sacramento to be telling them the truth when they agreed to a $9.95 billion bond issue for high speed rail.  It turns out, even according the HSR's most fervent supporters, that the numbers that were used to sell the bond issue were total crap, and they knew it at the time

In September, I was one of several journalists who interviewed top officials with the California High Speed Rail Authority. Here is board member Lynn Schenk’s response to my question about accountability:

Q: In 2008, this project was sold to voters with the claim that when it was done there would be 117 million annual riders, which is more than four times what Amtrak now has, and it operates in 46 states. It was sold with claims of a $100 round-trip ticket and many other claims that no one believes anymore. If we had known then what we know now, it might not have passed. So when do we get accountability?

SCHENK: This deserves as much of a direct answer as I can maybe possibly give. And that is about the first business plan and those early studies. These gentlemen were not there at the time. I was there. We had one professional and two half-professionals, who were constantly being furloughed because of the state budget issue. That first plan, much to the regret of many of us, was pulled together with Scotch tape and hairpins because we had to get something to the Legislature, but we didn’t have the money, the resources, the people to pull together, so there were a lot of errors. You’re right. But there were also things in there that still stand true today. And we have new studies, a new business plan coming out. The ridership study that we had it is not as bad as the opponents would say. But there are tweaks. And there are things that need to be adjusted and we are looking to do that.

Because the last thing a bureaucratic is ever going to say is "we don't know."   So they told they public the rail line would have 117 million annual riders, when even an estimate of 5 million is probably high.  Jeff Skilling is in jail for a far less substantial exaggeration of his business prospects.

Of course voters were idiots to accept these numbers, when 5 minutes of research would have shown them absurd (the media did nothing to help, of course).  One relevent factoid:

The current air passenger traffic between LAX and SFO is 2.7 million a year

But we are going to have tens of millions of rail customers.  Right.

Arnold Kling has one of the best statements on modern political incentives I have seen lately

Salmon complains that as far as the latest [European debt] plan is concerned, "the commitment is still vague." What I want to suggest is that for the politicians, vagueness is a feature rather than a bug. This reflects a fundamental misalignment between political incentives and economic requirements.

What markets and the economy need are policies that resolve uncertainty. That way, people know who is going to take a hit. Most important, they know where they can invest with confidence going forward.

What politicians need are vagueness and opacity. Having a clear, well-defined policy exposes the politician to the people who are hurt by that policy. Thus, instead of producing a balanced budget today, you produce a plan to produce a plan to balance the budget down the road. Instead of restructuring sovereign debt, you make a commitment that everyone will be made whole, without explaining how that commitment will be honored.

It is December, 2005.  The Gulf Coast had just been pounded, in succession, by Katrina, Rita, and Wilma.  Everyone was talking about how global warming seemed to be intensifying hurricanes.  In a speech just after Katrina, Al Gore said

 When the corpses of American citizens are floating in toxic floodwaters five days after a hurricane strikes, it is time not only to respond directly to the victims of the catastrophe but to hold the processes of our nation accountable, and the leaders of our nation accountable, for the failures that have taken place....

There are scientific warnings now of another onrushing catastrophe. We were warned of an imminent attack by Al Qaeda; we didn't respond. We were warned the levees would break in New Orleans; we didn't respond. Now, the scientific community is warning us that the average hurricane will continue to get stronger because of global warming. A scientist at MIT has published a study well before this tragedy showing that since the 1970s, hurricanes in both the Atlantic and the Pacific have increased in duration, and in intensity, by about 50 percent....

Two thousand scientists, in 100 countries, engaged in the most elaborate, well-organized scientific collaboration in the history of humankind, have produced long-since a consensus that we will face a string of terrible catastrophes unless we act to prepare ourselves and deal with the underlying causes of global warming....

At about the same time, the IPCC was in the process of preparing its fourth report, later released in 2007.  It said, in part:

Several peer-reviewed studies show a clear global trend toward increased intensity of the strongest hurricanes over the past two or three decades. The strongest trends are in the North Atlantic Ocean and the Indian Ocean. According to the 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC-AR4), it is “more likely than not” (better than even odds) that there is a human contribution to the observed trend of hurricane intensification since the 1970s. In the future, “it is likely [better than 2 to 1 odds] that future tropical cyclones (typhoons and hurricanes) will become more intense, with larger peak wind speeds and more heavy precipitation associated with ongoing increases of tropical [sea surface temperatures].”

So what happened?  Since Wilma in 2005, we have gone 6 full years without a category 3+ hurricane making landfall in the US, the longest span since 1900 without such an event.  And the clock is still counting.  When alarmists of all stripes were breathlessly predicting hurricane after hurricane in late 2005, the reality is that we wouldn't see another in the US for  over six years.

Of course, US landfall is in fact a terrible indicator of hurricane activity.  Its relevant to us, but it is a pretty random metric.  I said this when there were a lot of landfalls and I say it again since there have been so few.

A better metric is accumulated cyclonic energy, a sort of time integral of all large cyclonic storms worldwide.  Here is the most recent ACE figures:

As it turns out, the total strength of hurricane and hurricane-like storms has been falling almost since the exact day of Al Gore's speech in 2005 (another Gore effect!)  In fact, of late, it has hit numbers close to all-time lows.

Of course this chart will go back up some day, and then back down, and then up ... because hurricane activity has always been cyclical over decadal time scales.

The media loves to trumpet end-of-the-world predictions from folks like Al Gore and Paul Ehrlich, but they never go back five years later and back-check their predictions.  And despite their horrendous record for accuracy, the media eagerly publishes the next one.  Here is a proposed editorial rule for the MSM -- no breathless publication of anyone's next prediction without first revisiting the last one.

Apparently European leaders are close to an agreement that countries cannot run budget deficits higher than 3% of GDP.  If you are left to wonder, "hey, didn't they already have that rule before" the answer is yes.  Everyone had to promise a really, really stern oath not to run higher deficits before joining in the Euro group.

Of course, these promises meant nothing as there was no penalty for breaking the promise, and so the EU is proposing a new enforcement mechanism

Governments whose debts exceeded three percent of their GDP would be cited by the European Court of Justice, after which a super-majority of 85 percent of European governments would have to agree to impose some sort of sanction against the offending country.

I am not clear if the 85% is of the whole EU  (which would require a vote of 23 of the 27 members) or of just the Euro zone (which would require 15 of the 17 countries that use the Euro as currency).  Either way, I disagree with Drum and can't see how there is any hope at all here.  I am left with a number of questions

• What is the likelihood that European countries will adopt this Constitutional provision and precedent for reduced sovereignty?  Don't treaty changes have to be unanimous?
• Even if ratified, does anyone imagine the penalties will be high?  Imagine Greece today if such penalties exist.  How much are they going to worry about fines when they are already bankrupt?  And what will be the optics of the EU adding new costs to countries that are in financial crisis?  If a country in the future is doing things to endanger the euro from too much debt, the last thing the EU is going to be able to do is add to that country's burdens -- in fact, it is doing the opposite now, sending huge checks to all these countries
• How are they every going to get the votes when this comes up?  Again, think about today.  Would Italy, Belgium, Spain, Ireland, etc. vote to sanction Greece, when they know they are next?

I just can't see this going anywhere.  And I would be surprised if the folks involved do either.  My guess is that they hope this will settle the bond markets so they can kick the can down the road.  Sure, we will have to deal with this all over again the first, inevitable time a country breaches the 3%, but that is later and right now they will accept a few years, even a few months, of survival.

Via Zero Hedge

today, in a unanimous vote, "The U.S. futures regulator approved on Monday a rule that puts tighter limits on how brokerage firms can use customer funds, a measure that the now-bankrupt MF Global had encouraged the agency to delay." In other words, while before commingling client accounts was assumed to be a clear violation of every logical fiduciary imperative, now it is set in stone. For real. The CFTC means it.

In the past, I believed that a lot of financial regulations were honest (though often misguided) attempts to create transparent and trustworthy markets.  I am increasingly being pushed to the cynical conclusion that financial regulations, like, say, licensing of funeral homes, are mainly aimed at making it impossible for small competitors to survive, while larger competitors either have the scale to pay for compliance departments, or in the case of MF Global, have the political muscle to get themselves exempted (by Administrations of both parties, I should be clear, though the current one certainly gets a hypocrisy award for standing beside OWS while handing out finance and health care law exceptions to the powerful).

MF Global is far worse in my mind than, say, Enron.  In Enron's case, the management was at least mostly pursuing the activities and investments that they were supposed to be pursuing.  They were making bets of the type shareholders expected, though they were likely masking the cost and risk of these bets by aggressive pushes at the margins of accounting rules.

MF Global was doing exactly what everyone supposedly knew to be an absolute no-no, ie using client funds to make leveraged bets for their own account.  If Joe Schmoe in Florida did the same thing, he would already be incarcerated.  In the case of MF Global, no one even seems to be interviewing Corzine and so far the bankruptcy committee has put a higher priority on repaying JP Morgan and Goldman for Corzine's bad bets than on getting investors' money back.

Apparently, it is becoming increasingly impossible to produce traditional gut strings for musical instruments, due to EU regulations designed to prevent mad cow disease in humans.  Apparently, if one were to eat a few yards of a few meters of violin strings that were made from an animal with BSE (which are routinely destroyed when found rather than used for any products), he or she might get sick.

I know some of you live in Phoenix.  I am offering a deal to get rid of some B&W Nautilus 805 speakers that are in great shape.

Update:  sold

Here is what I remember from the late 1980's - just about every technocratic pundit of the leftish bent, and a number on the right, all hailed Japan as the government economic planning model the US should follow.  One fawning essay after another lauded Japan's MITI and its top-down approach to economic investment.

Practically within hours of when these editorials peaked, the Japanese economy began to crumble.  We know now that MITI and other Japanese officials were creating gross distortions and misallocations in the economy, and inflating an economic bubble with gobs of cheap credit.  These distortions have still not been entirely cleared from the Japanese economy 20 years later, and the country experienced what was called "the lost decade" which may become the lost two decades.

For over a year, it has appeared to me (and many other observers more knowledgeable than I) that China was headed for a crash for many of the same reasons as Japan.  I am now sure this is true,

The current debates about China's currency, the trade imbalance, our debt and China's excessive use of pirated American intellectual property are evidence that the Global Revolution—coupled with Deng Xiaoping's government-led, growth-oriented reforms—has created the planet's second-largest economy. It's on a clear trajectory to knock America off its perch by 2025....

There is no doubt that China will pass the US in total economic size -- it has three times more people than we do.  But their success is clearly due to the small dollops of free enterprise that are allowed in a statist society, and advances are made in spite of, not because of, the meddling state.

Exactly how much economic progress had China made before its leaders brought in the very free market ideas Stern says are dead?  None, of course.  To read China as a triumph of statism and as the death nell of capitalism, when in fact it is one of the greatest examples in history of the power of capitalist ideas and how fast they can turn around a starving and poverty-stricken country, is just willful blindness.

I will include just one other excerpt

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

My first thought on reading this was that Houston used to look exactly like this, with cranes all over the place building things, until we had an Administration that actively opposed expansion of domestic oil production.  My second thought is that this reads so much like the enthusiast essays written by leftists when they used to visit the Soviet Union and came back telling us Russia was so much superior to the US -- just look at the Moscow subway!

The emergence of hundreds of millions of people in China and India from poverty is exciting as hell, and at some level I don't blame Stern for his excitement.  But I fear that what he is seeing is the US housing bubble on steroids, a gross misallocation of capital and resources driven by a few technocrats who think they can manage a billion person economy from their office in Beijing.

Disclosure:  I seldom do anything but invest in generic bond funds and US stock funds, but right now I am out of US equities and I have a number of shorts on Chinese manufacturing and real estate.

In our house, I am the milquetoast that accepts offers as presented and my wife is the one who challenges and negotiates.  But apparently that's not typical.

Good advice from Popehat

Hence, the government’s chickenshit false statement trap works — even though the government agents set it up from the start. Now, however weak or strong their evidence is of the issue they are investigating, they’ve got you on a Section 1001 charge — a federal felony. In effect, they are manufacturing felonies in the course of investigations.

You think this is an improbable scenario? You think I’m talking about rare and extreme cases to color the entirety of federal law enforcement? To the contrary, as a federal defense attorney, I’m encountering this more and more often. Not to sound like an old fart, but we never indulged in such bullshit when I was a federal prosecutor (cue the scoffing from many defense attorneys). But in the last 12 years, I’ve seen it in a dozen cases, and heard about it from colleagues across the country. It’s now routine for federal agents to close out an investigation with a false-statement-trap interview of a target in an effort to add a Section 1001 cherry to the top of the cake.

The lesson — other than that criminal justice often has little to do with actual justice — is this: for God’s sake shut up. Law enforcement agents seeking to interview you are not your friends. You cannot count on “just clearing this one thing up.” Demand to talk to a lawyer before talking to the cops. Every time.

Read it all.  He explains how easy it is to fall into this trap, and how even non-material statements get spun as felonies.   Remember, Martha Stewart went to the slammer for lying to investigators, not for stock fraud or insider trading.

It is possible for the theory that the climate has a high sensitivity to CO2 (ie that a doubling of CO2 concentrations will lead to global temperature increases of 2.5C or higher) to be correct while still having ten years of flat to declining surface temperatures.  That is because Earth's great surface heat reservoir is the oceans, not the atmosphere, and so the extra heat from the greenhouse effect could be going into the oceans rather than into near-surface air.

However, it is NOT possible, as least as we (and by "we" I mean everyone, skeptics and alarmists alike) understand the climate, for CO2 to be holding a lot of extra heat and it not show up either in surface temperatures or ocean heat content.  The greenhouse effect does not turn off -- its effects may be masked in the chaotic weather systems, perhaps for years, but if the climate sensitivity to CO2 is really as high as the IPCC says, there has to be new heat going somewhere.

That is why a number of folks, including Roger Pielke, have argued for years that the best way to monitor whether we are truly seeing an additional forcing or heat input to the climate is to look at ocean heat content.  Understand, changes in ocean heat content would not tell us where the heat is coming from (e.g. anthropogenic CO2 vs. solar activity).  But it is pretty much impossible for us to imagine a new heat input to the Earth's surface, like greenhouse gas forcing from anthropogenic CO2, without observing its effect in ocean heat content.

I will turn over the story to Jo Nova, who has a good post on the new tools we have to measure ocean heat content since 2003.  In short, though, we have seen no rise in measured ocean heat content since we started measuring with technology dedicated to the task.  This means, if those who believe the climate has a high sensitivity to CO2 are right, something like 50,000 quintillion joules of energy have gone missing since 2003.  This is the "missing heat", and though climate scientists sometimes discuss it in private, they almost never do so in public.  Ocean heat is the dinosaur bone fossil that the creationists simply don't want to acknowledge.

Read the whole thing.  It is very simple and well-written and written.

PS- note in the chart above, the y-axis is mis-labelled a bit, it is not absolute heat content but changes in heat content from some base period.  Scientists call this the "anomaly."  This is typical of many climate charts.

The unindicted co-ejaculator.    I'll let Radley Balko explain it.

The LA Times talks about the trash and litter cleanup at the OWS site in LA.  For reasons I don't fully understand, the absolute worst trash and litter problems we have in running campgrounds around the country are around LA.  For some reason, the closer a recreation area is to LA, the more trash we get dumped on the ground.  Nowhere else in the country comes close.

Jackalope Pursuivant takes off from my post yesterday about Pearl Harbor.  If I were to give it a theme, I would call it "shock of the new."  From time to time folks, for example in the military, may say that they understand a new technology, but the fact that a few smart staff officers "get it" does not mean that the military has really adjusted itself to it.  Like any large organization, it has a culture and set of expectations and people who have been successful based on the old model of things.   They may say they understand that naval aviation has changed things, but they don't really adjust themselves until Pearl Harbor and Clark Field and Guam and Singapore are full of smoking ruins of planes and ships.

Dan's observation about how quickly the US dusted itself off and recognized that the world had changed is a good one.  One could argue that no one did this in WWI.  The Europeans had every chance to see what the machine gun could do even before the war in a few African wars.  Heck, the final year of the American Civil War around Petersberg was a preview of WWI, as was the ill-fated charge of the light brigade.  But armies were still dominated by cavalries and plumed hats and bayonet charges and elan vital. Even in 1916 and 1917, when they should have learned their lesson, commanders were still obsessed with making full frontal charges.  The Americans had the chance to watch the war for four years before they entered, and then promptly began committing the exact same mistakes based on the exact same faulty assumptions as in 1914.  (Neal Stephenson has a great take on American flexibility to craft radically new combat doctrine based on new facts in WWII in Cryptonomicon, absolutely one of my favorite books).

As for Pearl Harbor, I am reminded of a quote that was attributed to Frank Borman (at least in the From the Earth to the Moon documentary) when he was testifying about the Apollo 1 fire.  He called it "a failure of imagination" -- no one was even thinking about danger on the ground, all the focus was on space.  At the end of the day, the ultimate answer for Pearl Harbor's negligence in readiness was a failure of imagination.   They may have had war games and studies discussing Pearl Harbor attacks, and they may have addressed the possibility intellectually, but no one in command really believed that a couple of hundred aircraft would suddenly appear over peacetime Honolulu dropping bombs and torpedoes.