aftermath

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Archive for December 2008

Too True To Be Good

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Today, you will give me a single grain of rice. Then, each day for thirty days you will give me double the rice you gave me the day before.

One Grain of Rice, a mathematical folktale by Demi

About 90 years ago, an Italian immigrant made essentially that same double-the-rice proposal to citizens of Boston: invest in my company, and I’ll double your money every 90 days. Do the math, people, do the damned math! Invest a million dollars in a scheme like that today, leave your money invested a mere five years, and you’ll be able to retire after that very brief period with upwards of one third of the current money supply of the entire U.S.!! Except . . . hmmmm, there seem to be more than two other financial idiots throwing into this scheme along with me, so how exactly are we going to be dividing up the country’s wealth between us all, pray do tell.

In the current re-run, the TV and the press and the politicians keep mislabeling the scheme’s investors as “victims.” The more accurate tag: “sucker.” And this time around, our scam artist’s biggest mistake was not turning his operation into a bank while he had the chance, in which case the U.S. taxpayer could have joined all the suckers by bailing him out.

So if these financial versions of chain letters are doomed to failure anywhere from as few as 15 to at most 30 iterations out into the future, might we not still see at least a near-term reality to them, temporarily without fraud, able to actually produce those get-rich-quick asset returns at first, simply not able to sustain it past some certain point, the exercise then becoming to know that point and get out before the scheme turns sour? No. That moment was back at the very initial point, at the origin of the idea.

Anything so good that it can’t be true will have its truth found out as not being all that good to begin with.

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Written by macheide

31 December 2008 at 10:30 am

Posted in whatev

Making It Not Work

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Just before I start approaching publishers to seek those rejection letters, I’ll need to go to my own employer for permission to proceed. This would be necessary even if I were to write this book as a children’s book (which might not be a bad idea). They simply need to make sure there is no questionable connection between my work and any outside enterprise in which I involve myself. As an easy and very relevant illustration, I would not be allowed to publish a revised edition of my nondiscrimination book, not while I am serving in the government in a position where such a book would too easily look like I am speaking on behalf of the government, or using my government position to improperly benefit myself outside my job, or prejudicing work I do for the government on cases involving what the book might express opinions about, or any of a truckload of other potential conflicts of interest.

This book I’m now working on would be about actuarial thinking. Which obviously is the basis of my work for the government. Yet I have every reason to hope that I will win approval to seek its publication while remaining in my current position, since the book is not really about what I do, but rather about how I do it. There will be nothing in the book that should affect or be affected by any specific work I do for the government, any more than if I were to write a book about breathing although obviously I need to breathe in order to perform my duties for the government.

But to make that line clearer, I’ve settled on a specific goal that will need some special attention: I plan to avoid discussing pension plans anywhere in the book. Not only in the conceptual chapters, but also in any background material about what actuaries do or used to do. In fact, I am going to aim toward not even having the word pension appear anywhere throughout the book’s text.

Stretching that a giant step further, the book would not be balanced well if it mentions insurance – life insurance, health insurance, or casualty insurance – without also at least waving a hand in the general direction of pensions. So I’ll take this goal to its extreme: I will plan to avoid discussing insurance, will avoid even using the word insurance.

A book about actuarial concepts without using the words “pension” and “insurance”? Yes, I think it can be done without having it feel distorted or silly. In fact, the discipline of the effort would help shift the focus precisely in the direction I want anyway: away from the standard job description and the traditional career path, concentrating instead on the person and the concepts. If I can discuss the future perspectives of financial risk and uncertainty as a broader universal concern without collapsing it into the pre-packaged notions of insurance and pensions, I might find more freedom to present my material without all the baggage that those specific “actuarial” topics carry.

Sure, any thoughtful reader is going to bring insurance and pensions to their understanding of my content. Like, if I were to ever go out on any post-publication speaking circuit on the book, questions about insurance and pensions would be inevitable. But I’m nowhere near needing to think any of that through. For now, in part because of the need to win my employer’s approval to proceed, but in equal part because it will help focus the material the way I feel I need to do, I will avoid insurance and pensions altogether in any of my writing for the book.

bumper sticker [www.internetbumperstickers.com] - littérateur

Written by macheide

31 December 2008 at 5:48 am

Posted in littérateur

Decorating It All Up

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When do you put your decorations up?

christmas meme from susan

A

The day after Thanksgiving. That’s one of our family traditions. With emphasis on the family, mom. It’s not about the decorations: it’s about the love shared throughout this season. Let others show us “what Thanksgiving is all about” by lining up at Walmart at 3am to stampede their separate ways fighting the crowds for those discounts they’d like Christmas to be about. We’re here spending the day with each other launching a season of spending time together.

We start putting it all back up in the closet and the garage the day after Christmas. Today we’ll be taking down the living room tree. (Tell me, if the raw commercialism of Black Friday’s stampedes for those early holiday discounts is what Thanksgiving is all about, then those malls crowded this past week with shoppers doing their gift exchanges to get what they really wanted, is that what Christmas is all about?)





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Written by macheide

31 December 2008 at 1:01 am

Posted in not meme

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Pro Not Con

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Yes, a spark that lit the keg of gunpowder on this book spun out of my reading of The Black Swan. But the gunpowder was there already and would have gone off sooner or later anyway.

Even so, I’m going to continue reading this other book, since I know I will be able to carry on my own writing without fear of that book overly influencing my own, certainly no more so than reviewing Descartes and actuarial textbooks and other background research I plan to conduct while writing.

Whereas I anticipate my consumption of most of the other background reading I’ll be doing on this project to be supportive, quite obviously I’ve had a very strong visceral reaction against Taleb’s superficial over-projection of his personal experience. But I aim to use Taleb’s insults of those he views as beneath him as a model of what I ought avoid in my own writing, little more.

I will be writing with the aim to describe what I believe can be understood and shared, that is, what actuarial thinking stands “for,” rather than to waste effort in a vain attempt to argue “against.”

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Written by macheide

30 December 2008 at 11:25 pm

Posted in littérateur

Mapping the Chapters

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When I wrote the book on pension nondiscrimination, I first mapped out all of the chapters I intended to do, extensively detailed, that outline itself a more valuable reference tool on the topic than most any other content, both then and even to this day over 15 years later.

Someday maybe I’ll write a book differently, perhaps build a chapter or two without knowing the full map, then just follow my nose. This book might even be that way a little within each chapter. But not for the overall layout of the whole book. Like with the nondiscrimination book, I’ve started by mapping out the chapters I’ll be writing.

Got 15 so far. Might add several more before all is written and packed up to go to print. But this first set of 15 pretty much scopes out the territory I plan to cover, plus the sequencing I want through that territory.

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Written by macheide

29 December 2008 at 10:51 pm

Posted in littérateur

Finding Its Voice

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This book moved from back burner to active boil in the instant I voiced out loud its working title: Releasing Your Inner Actuary. Whether or not I keep that title through to publication, what that title has in it that moves me from dream to action is the slightly tongue-in-cheek mix of the odd with the universal, the implication – which will be not only an implicit theme throughout the book, but also its hope for finding an audience – that there is really nothing all that unique in how an actuary addresses and manages uncertainty and risk, that the actuary’s ideas and methods are quite universal. At the same time, I intend a degree of lighthearted teasing of the actuary in any and all of this.

Even if I wind up changing the title, I anticipate aiming for the same feel, since that was the spark that launched this into turning active on me: just light enough or just strange enough to remain far clear of actually being an actuarial mathematics treatise, while still trying to reach out to common ground that brings the actuarial mind to the general public, as it were.

For the nondiscrimination book, I started with chapter 15, worked out from that core in both directions, and wrote the preface last. That felt so natural to me that I was picturing doing the same here, reserving work on any preface until after everything else had been written. It didn’t fall out that way: I opened the file for my writing on this book with a first draft of a preface. Alright, now I’ll probably write out 20 different variations of a preface as I proceed, so even portions of this first draft might never make it to the final proof. For now, it helps me find the voice I think I want. Mine. How I would say it if I were to write it. Which of course would be appropriate, since I am doing so – just, I know I may have to work on it to aim toward something anyone else might care to read.

But it’s a start. A good solid start.

bumper sticker [www.internetbumperstickers.com] - littérateur

Written by macheide

28 December 2008 at 10:16 pm

Posted in littérateur

BP Monitor

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Since I thought I’d lost this old equipment, Santa gave me a new machine to keep track of my BP. Eh, this old one had turned into a pathological liar anyway, isn’t even worth the trouble of remembering to save in a goodwill pile.

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Written by macheide

28 December 2008 at 12:50 pm

Posted in discard

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Releasing My Inner Blah Blah Blah

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So yeah, I’m doing it again: working on writing a book. At any given moment, I’ve got several dozen rolling around in the cement mixer atop my neck; but this one is starting to pave some serious road, I think.

If I do it right, this one’s got the two key elements I look for. First, nobody else has ever written this book, at least not in the way I plan to go about laying things out. Nobody else has ever been crazy enough to, one might say. But conversely, it’s got a real chance of finding an audience, people who might actually find reason to read it.

This one is not completely new on my project list: I’ve at least two other concrete book projects I could point to that this might succeed in combining and moving off the stove. But now I see where I want to go, and I’m giving it serious attention, and it’s moving, and I won’t let go my grip on its throat.

So like some of my dreams, I heard myself saying out loud what a working title might be for this book, and at the beginning of that sentence I was half joking, but by the end of the sentence I knew this one to be dead serious.

Except I promise not to put myself in the hospital doing so, like the last time.

bumper sticker [www.internetbumperstickers.com] - littérateur

Written by macheide

27 December 2008 at 8:57 pm

Posted in littérateur

Decorate How?

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dsc01620No offense, but this local job of exterior holiday decor reminded me of those science experiments of spiders on caffeine.

But at least they did make the effort. Most all the houses in this cul de sac (nudge nudge, Carol) didn’t bother this year. Even Green Tee, usually so well-known around here for lavish yard and house decorations, was mostly dark, with the brightest lights coming from the line of cars still performing the traditional drive-through tour through the mostly meager display of those who did display at least something.

We ourselves didn’t bother with the lights along our house roof. Heck, let’s just call that blue tarp our rooftop decoration for the year, let it be a landing pad for Santa perhaps. And our yard snow people finally bit the dust this year, yielding to real snowmen.

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Written by macheide

24 December 2008 at 10:22 pm

Posted in vagblanc

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Lit Up

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Colored lights on tree/house or white?

christmas meme from susan

A

I prefer small white lights, both inside and out.

I do also like colors, but generally in monochromatic designs, such as small blue lights on an indoor tree with blue and silver ornaments.

The tree we had when I was growing up had large multi-colored light bulbs. No bad memories or anything. That just doesn’t happen to be what I prefer.

Anyway, I’m not convinced it matters anymore. These days the companies that make Christmas lights send them back to be fixed if they stand any chance of surviving an entire single holiday season without failing. And a burned out string of white lights doesn’t really look all that different from a burned out string of colored lights.

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Written by macheide

24 December 2008 at 1:01 am

Posted in not meme

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APM Below 80

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APM 8-16-2006 to 12-19-2008

Although equity prices have recently taken a breather after freefall through autumn, December 2008 has not been kind to the funded status of pensions, as measured by the Aftermath Pension Index, shown above for August 2006 through the weekend before Christmas 2008. Erosion the past several weeks, arising primarily from increases in pension liability measurements on declines in corporate bond interest rates, has taken the aggregate funded ratio of global defined benefit pension plans of S&P 500 companies below 80%.

Although 80% is a critical threshold for funding rules, remember that the funded status measured for funding purposes differs from measurements made for the accounting purposes that are reflected in the APM. Moreover, as is frequently noted in these posts, the APM reflects financial reporting that includes foreign pension plans, which are frequently less well funded than are U.S. pension plans, and non-qualified supplemental executive retirement programs, which typically are completely unfunded. In contrast, the 80% funding threshold’s relevance is solely with respect to qualified U.S. pension plans, which would generally be better funded by about 7-8 percentage points above the APM. Even so, since the APM is an aggregate indicator, combining well funded pension plans with plans that are severely underfunded, an APM below 80% does suggest the likelihood of a material increase in the number of individual qualified U.S. pension plans that have actually slipped below the threshold.

One final observation to carry me up through the close of this crazy year: during a year such as we have seen during 2008, when interest rates for measuring pension liabilities and the investment returns during the year have carried the funded status for individual pension plans far from where they were as recently as even a month ago, realize that the APM (or any comparable index) leads the figures that would be compiled for an annual update, where the update relies solely on the data reported in corporate financial statements, without updating those numbers for subsequent economic activity. For instance, various annual reports of pension funded status for S&P 500 companies – the same universe as is used for the APM – rely on corporate financial statements for the most recent fiscal year, without update for subsequent activity. So, for example, for an S&P 500 company with a June 30 fiscal year end, such a study would use the 6/30/2008 pension data, whereas the APM has already incorporated that 6/30/2008 data, but then updated those amounts to reflect the adverse economic experience since 6/30/2008. In other words, given the experience in the APM throughout the year, I expect the APM as of 12/31/2008 to be materially lower – perhaps 3 percentage points – below the funded status that would be reported by a standard annual study. For instance, if the APM closes out the year at 77, then expect a standard annual study to report a funded status in the neighborhood of 80.

Further details on APM methodology are provided in the APM document.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

23 December 2008 at 11:34 am

Posted in άctuary

Help Hanging My Shirts

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Actually, they were busy digging a secret tunnel out of their prison.

bumper sticker [www.internetbumperstickers.com] - monarda

Written by macheide

19 December 2008 at 1:41 pm

Posted in monarda

Hide & Seek

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Talking much about oneself can also be a means to conceal oneself.

Friedrich Nietzsche

So I haven’t said near enough about me, then. Stick around. There’s more.

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Written by macheide

19 December 2008 at 7:07 am

Posted in huckleberry

Merging Pension M&A Data

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H-P without EDSFor fiscal years ending on or around October 31, peeking through the pension disclosures for companies that have filed their 2008 financial statements produces this preliminary chart for pension assets (blue diamonds) and projected benefit obligations (red triangles) for the five years ending 2004 through 2008. As expected, the surplus pension assets of 2007 have disappeared.

But this chart should look wrong to anyone who knows what’s been going on during 2008. For although pension assets do drop back below pension obligations, both the assets and obligations appear to be increasing quite vigorously during 2008. Pension assets up?? That can’t be right.

And it’s not. That preliminary chart includes a very huge chunk of assets and obligations for 2008 that is not included for any of the earlier years in the chart, as though billions of pension matter just exploded on the scene out of nowhere. Except it’s not exactly difficult to locate the source of the “magic” appearance: as of August 26, 2008, Hewlett-Packard completed its purchase of Electronic Data Systems Corporation. H-P includes the huge EDS pension numbers within its 2008 year-end numbers, but of course does not restate prior years’ numbers to reflect EDS.

So those 2008 “increases” in pension assets and liabilities seen on that preliminary chart do not reflect solely the investment return and actuarial gains or losses and benefit payments and plan amendments and other transactions with respect to the previous year’s assets and liabilities. Rather, you get an amalgamate of those changes mixed in with the superimposed jolt of pension plans that had not been reflected at all in the earlier years’ data used for the chart. Although that technically reflects the real situation to a degree – after all, H-P did not in fact have the EDS pensions for the previous years, and this chart consists almost entirely of H-P data – still, the conclusions drawn from such a chart with respect to just the pension experience can be quite misleading.

H-P with EDSAdding the EDS pensions back into the data for pre-2008 years gives us a clearer picture of what happened to the pension plans themselves, as illustrated by this revised chart. Indeed, this “clearer picture” relatively closely mirrors the overall experience that is expected to emerge for either the entire universe of global pension plans for all companies, or for the typical single pension plan within any given company. Here, as before, pension assets drop below pension obligations. But the crossover comes as pension assets and pension obligations both decline from 2007 levels: the assets declining primarily due to poor investment experience during 2008, while the obligations dropping via a combination of re-measurement at higher interest rates and pension plan freezes.

Throw enough “elephants” like General Motors, IBM, Ford, GE, and Exxon into the bath – all companies where any corporate mergers or acquisitions have not been as material as the H-P/EDS transaction – and the distortion to your charts can elude detection, as has been the case for one of the most widely publicized pension studies for years (no Marjorie, not yours, unless they’ve forgotten the original practices). So expect that faulty study’s 2008 edition to report a drop in pension assets and liabilities that is less than the real drop, only because its analyst will be pretending that the EDS pension plan (and others like it, for all the other companies – think “banks” here – that were swallowed up by 2008 M&A activity) did not exist before 2008. The peculiar footnote being that most if not all of the data like that of the EDS pension plan was in that study’s 2007 edition and earlier editions, yet will be excluded from pre-2008 years for the 2008 edition, simply because it was not labeled “H-P” (or whoever the new parent is) for those earlier editions.

Nobody will notice the distortion. And even fewer (yes, fewer than nobody) will care. And some will actually make decisions based on the faulty report and its misleading analysis. Yet the second chart, not the first, is the one that matters most to pension policy and practice.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

18 December 2008 at 9:48 pm

Posted in άctuary

A Welcome S&P500 Change

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As of December 18, the S&P 500 includes Equitable Resources Inc. in lieu of Transocean Inc.

S&P says that Transocean is in the process of “redomesticating” (ummm, who stole S&P’s dictionary of real words?) to Switzerland, which would render the company ineligible to remain in the S&P 500. That won’t change its U.S. pension exposure unless and until it freezes or terminates its U.S. pension plans. And won’t change my own interest in including the company among the many off-list companies I do keep track of.

Still, it will be nice not having Transocean taking up a desk in my S&P 500 classroom. And my fare-thee-well has nothing to do with the fact that the aggregate funded ratio of global pension plans sponsored by the S&P 500 edges up a smidge with Transocean’s departure. My pet peeve with them: among S&P 500 companies that sponsor defined benefit pension plans, Transocean had been among the worst for attempting to collect detailed information about their pension plans from their corporate financial statements. (The prize for the absolute worst goes to Sprint Nextel, hands down.) Does the second S in the acronym SFAS 87 hold any meaning at all, one has to wonder.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

18 December 2008 at 6:24 pm

Posted in άctuary

Nearly Settled

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Only two more weeks to go in this wild year. In fact, we’re already seeing some of the financial statements for fiscal years ending on or around October 31 (e.g., Hewlett-Packard). But although usually by this point we’d have a fairly good idea where pension funded status for the full year might likely steer by December 31, the past few months we’ve seen many a two-week period that can significantly move the numbers.

Even so, it’s highly improbable that the fog will suddenly lift to reveal that springtime has burst upon us. So it’s not reaching too far to acknowledge that 2008 will have delivered us the worst drop in pension funded status ever witnessed. For S&P 500 companies, the decline will likely exceed $200 billion (although the majority of that drop has come after September 30, so not justifying a heavily publicized exaggerated estimate that pegged the loss as exceeding $200 billion even before September 30). And remember, that $200 billion hit is charged immediately and directly against shareholder equity.

The Fed’s recent aggressive moves to combat our economic woes, including dropping interest rates to the zero percent floor, has probably erased any foreign plan offset we might have expected from the dollar’s gains earlier during the year. And as I’ve previously speculated, don’t expect to see many employers pony up extra contributions to their pension funds, even via company stock, at least not in 2008. Last but far from least, as stock prices have floated up ever so mildly from the dark basements visited in November (possibly signaling that at least for now, current assessments of higher economic risk have been priced in) while Treasury yields have continued downward, corporate bond yields have reflected those two forces by slipping, thereby erasing or reversing any help on the pension liability side of the equation.

All pointing toward an aggregate funded ratio for global pensions in the low 80s, perhaps even down to the high 70s, to close out 2008. Of course we’ll know that better after 2008’s final fortnight.

(Remember, as I’ve previously disclaimed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

18 December 2008 at 5:39 pm

Posted in άctuary

Cellmates

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Blue and Cuddles are napping the afternoon away on their prison bed. Else I might have to play the goalie at the door or chase them down through the rest of the house.

True, one of the principal functions on any kitten’s job description is to find the toy in anything that moves. And since every other kitten we’ve raised has been content to break a ball on the tree, I’ve always hung the most worn-out balls ready to be trashed on the low branches.

This pair must have thought they hit the kitten toy lottery when we decorated the house for Christmas this year. Let’s just say, they obviously have no intention of making Santa’s nice list. And as for that implicit agreement involving breakable decorations, I’ve warned Susan that our kittens would likely consider the ceramic nativities, the snowman and Santa collections, the trees, and just about every other holiday trapping to be fair game.

We’ve given them several chances since Thanksgiving, and they’ve never gone long before tag team wrestling the kitchen table tree, grabbing one of the snowmen hanging from the sewing machine, breaking another ball from one of the trees, or getting into other holiday mischief.

So now with just over a week to go, they’ve lost all chance at any further parole hearings. Maybe by next Christmas they’ll at least have learned to play Christmas when everyone’s asleep.

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Written by macheide

17 December 2008 at 3:20 pm

Posted in monarda

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