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December 31, 2004

The criminalization of investment banking

NY Times business columnist Floyd Norris hits the nail on the head in his column today in which he observes that the rebound in the investment banking industry this year must be tempered with the plight of Daniel Bayly, the former head of global investment banking at Merrill Lynch. Mr. Bayly was one of five defendants convicted in the Justice Department's questionable Enron-related prosecution known as the Nigerian Barge case. As Mr. Norris notes:

[T]he real man of the year on Wall Street - or at least the man whose plight is emblematic of the new Wall Street reality - will not be sharing in those bonuses. Instead, Daniel Bayly is awaiting sentencing in federal court in Houston, where he is likely to be ordered to spend a few years in prison for doing something that few on Wall Street would have seen as a crime.

Mr. Bayly, the former head of global investment banking at Merrill Lynch, was caught up in the Enron scandal. He signed off on a deal that Merrill did with Enron, in which Merrill "bought" the now-infamous Nigerian barges from Enron at the end of 1999, thereby allowing Enron to report phony profits. The government viewed the transaction as a disguised loan.

Mr. Bayly's role in all this was not a large one. His approval was needed for Merrill to go ahead, and he seems to have been principally concerned that there were safeguards to ensure Merrill would get its money back.

The amount of money involved inflated Enron's profits by only $12 million, just over 1 percent of the $893 million in profits Enron reported for the year. But it allowed the company to meet investor expectations.

The government persuaded the jury that Merrill officials understood the purpose of the transaction was to inflate Enron's profits and that the accounting was phony. Mr. Bayly's lawyers said he believed it was proper.

The result, notes Mr. Norris, is that prosecutors are now treating investment bankers as if they were bartenders:

To many on Wall Street, however, whether or not the client's accounting was proper was a question of little importance, just as a Porsche dealer has no reason to worry that he will get in trouble if a customer chooses to drive faster than the speed limit.

The risk that bankers now confront is that they will be treated the same way bartenders are in some states, where the man who sold the drunk driver his final drink can be held liable for the damages that result.

It used to be that when a company went bankrupt as a result of fraud, the only deep pocket available belonged to the auditor. The collapse of Arthur Andersen after the Enron fraud served as a warning that that pocket might not be so deep, a fact that has been reinforced by the limited insurance now available to auditors.

The current reality is that investment and commercial bankers are the new deep pockets. They used to get high fees for devising transactions whose primary purpose was to mislead investors. Now they will be sued by the Securities and Exchange Commission and by private lawyers if there is any evidence the bankers knew the company's accounting was suspicious. The Justice Department may even deem such an act to be a felony, and there is no assurance that it will not bring criminal charges against an investment bank as well as against its officials.

How does this new risk reality affect the market? Mr. Norris has a suggestion:

As the profits pour in from the rebound in investment banking fees, investors might hesitate in bidding up the industry's shares. As Mr. Bayly's conviction demonstrates, the risks of the investment banking business are much greater than they used to be.

Read the entire piece. And as you ponder the policy implications of the Justice Department's prosecution of businessmen such as Mr. Bayly over merely questionable business transactions, take note of the fact that Mr. Bayly is currently facing a prison sentence that could be longer than that of true business criminal Martin Frankel.

Posted by Tom at 7:25 AM | Comments (0) |

Judge Gilmore to instruct jury on Justice Dept. refusal to disclose death penalty analysis

Following on the matters addressed in this earlier post, U.S. District Judge Vanessa Gilmore ruled on Thursday that she will instruct the jury regarding the government's failure to comply with her prior order to disclose the basis of its decision to seek the death penalty against one of the defendants in the criminal case in Houston against against the two remaining defendants accused in the deaths of 19 illegal immigrants who were being smuggled into this country in the back of a blistering hot trailer.

Houston defense attorney Craig Washington accused the government of singling out one of the defendants for the death penalty because he is black. During a prior hearing in the case, Washington presented evidence that this case was the only one in which the government had sought the death penalty out of almost 70 illegal smuggling cases. Prosecutors denied that race was a factor, pointing out that they did not seek the death penalty for the other black defendant in the case and that the basis of the government's decision to seek the death penalty is subject to executive privilege.

I have not researched either the merits of Judge Gilmore's ruling or the government's claim of executive privilege in this matter. Nevertheless, Judge Gilmore's order appears to be nothing more than a mechanism to ensure a full and fair trial of all issues in a death penalty case. Her refusal to acquiesce quietly to the Justice Department's refusal to comply with her order is refreshing. Judges in the Enron-related criminal cases -- please take note.

Posted by Tom at 6:28 AM | Comments (0) |

Tech humbles Cal in Holiday Bowl

Before the fourth ranked Cal Bears football team complain too loudly again about being passed over by Texas for the Bowl Championship Series Rose Bowl game, they need to compare this game with this game.

Indeed, the Pac-10 Conference is fortunate that USC was left out of the BCS Championship Game last season. In my view, that's the only justification for choosing the undefeated Trojans for this season's championship game over Auburn, which is also undefeated and played a far tougher schedule than USC.

Posted by Tom at 6:15 AM | Comments (1) |

9th Circuit reverses big judgment in favor of Anna Nicole

Get ready for another round of jokes on the late night talk shows as the U.S. Court of Appeals for the Ninth Circuit overturned an $88 million bankruptcy court judgment in favor of former stripper, zaftig model, reality show star and current Trimspa spokeswoman Anna Nicole Smith against the estate of her late husband, Houston oilman J. Howard Marshall, II. Here is the Ninth Circuit opinion and the Chronicle story on the case is here.

E. Pierce Marshall of Dallas, the son of J. Howard Marshall, is the main beneficiary of the late Mr. Marshall's estate. Forbes estimates E. Pierce Marshall's net worth at $1.6 billion. Most of the late Mr. Marshall's fortune was generated through his stake in privately held Koch Industries.

Posted by Tom at 5:57 AM | Comments (0) |

December 30, 2004

Updating the Yukos case -- Gazprom will not get Yugansk after all

In a surprise move, the Russian government announced Thursday that Yuganskneftegaz ("Yugansk") -- the main oil production unit of bankrupt Russian oil giant OAO Yukos -- will not be conveyed to to Russian gas giant OAO Gazprom as widely anticipated. Rather, the Russian government announced that Yugansk will be used to create a new government-owned oil company and that a minority stake of up to 20% in that company will be offered to China's state energy company.

Here are the earlier posts on the Yukos chapter 11 case and related matters.

The new plan for Yugansk will be a major shot in the arm for China's efforts to obtain access to new fuel reserves for its burgeoning economy. China's economy has been the largest factor in the surging world oil demand of recent years, but the Russian government has heretofore always declined Chinese efforts to invest in the Russian oil and gas industry. The plan also confirm that the Russian government's campaign against Yukos will result in the re-nationalization (is that a word?) of a large part of what had been Russia's largest oil unit and one of the relatively few Russian companies that was able to attract foreign investors.

Gazprom is controlled by the Russian government but also has private shareholders. After a Houston Bankruptycy Court enjoined Gazprom and Western Banks two weeks ago from participating in the Russian government's controversial auction of Yugansk to pay for Yukos' alleged $28 billion tax debt, Gazprom appeared to have found a way around the TRO by using the Russian oil company OAO Rosneft to acquire Yugansk. Gazprom and Rosneft are in the process of merging.

Posted by Tom at 2:37 PM | Comments (1) |

Pros versus Amateurs?

In this Opinion Journal piece, Edward Jay Epstein reviews former KGB Col. Victor Cherkashin's new book, Spy Handler: Memoir of a KGB Officer (Basic Books, January 1, 2005). Although there is no assurance that the ongoing reform movement in the Central Intelligence Organization is going to remedy the longstanding problems that have evolved in that agency over the past generation, Col. Cherkashin's book makes clear that the U.S. has little to lose by seeking to correct the CIA's deficiencies. In short, the KGB played the CIA like a fiddle during the Cold War.

Mr. Cherkashin had a distinguished 40 year career in the KGB that began in 1952 under Stalin, included a hitch as deputy KGB chief at the Soviet Embassy in Washington from 1979 to 1985, and ended when the Soviet Union disintegrated in 1991. During that period, Col. Cherkashin primary mission was to organize KGB operations aimed at undermining the CIA's integrity, confidence and morale, and he was pretty darn good at his job:

Mr. Cherkashin describes in detail how he helped convert two American counterintelligence officers--one well-placed in the CIA's Soviet Russia Division, the other in the FBI--into moles. Their names are notorious now, but over the course of a decade Aldrich Ames and Robert Hanssen operated with anonymous stealth, compromising most of the CIA's and FBI's espionage efforts in the Soviet Union.

But Mr. Cherkashin does not attribute his success solely to his personal cleverness:

Mr. Cherkashin skillfully torments his former adversary, the CIA, by attributing a large part of the KGB's success to the incompetence of the CIA leadership, or its madness. He asserts, in particular, that the CIA had been "all but paralyzed" by the "paranoia" of James Jesus Angleton, the CIA's longtime counterintelligence chief, who suspected that the KGB had planted a mole in the CIA's Soviet Russia division.

Mr. Cherkashin is right that Mr. Angleton's concern retarded, if not "paralyzed," CIA operations in Russia. After all, if the CIA was indeed vulnerable to KGB penetration, as Mr. Angleton believed, it had to assume that its agents in Russia would be compromised and used for disinformation. This suspicion would recommend a certain caution or tentativeness, to say the least. Mr. Cherkashin's taunt about Mr. Angleton's "paranoia" echoed what was said by Mr. Angleton's critics in the CIA, who resented his influence, believing that polygraph tests and other security measures immunized the CIA against such long-term penetration.

But of course Mr. Angleton was right, too. On Feb. 21, 1994, Mr. Ames, the CIA officer who had served in the Soviet Russia division, was arrested by the FBI. He confessed that he had been a KGB mole for almost a decade and had provided the KGB with secrets that compromised more than 100 CIA operations in Russia. Mr. Hanssen was caught seven years later.

Since Mr. Cherkashin had managed the recruitment of Mr. Ames and helped with that of Mr. Hanssen, his accusation that Mr. Angleton was paranoid for suspecting the possibility of a mole has the exquisite irony of a stalker following his victim in order to tell him that he is not being followed. Mr. Cherkashin adds a further twist by suggesting that Mr. Angleton's "paranoia" made it easier for the KGB to recruit demoralized CIA officers as moles. According to this tortured logic, if the CIA -- and its counterintelligence staff -- had acted more ostrich-like, by denying the existence of moles in its ranks, the KGB would never have found Aldrich Ames or penetrated the agency in other ways.

Read the entire review.

Posted by Tom at 7:29 AM | Comments (0) |

Mack Brown's rich new deal

The University of Texas announced Wednesday that the UT System Board of Regents has approved a deal in which UT football coach Mack Brown's current contract -- which pays him $2.017 million annually -- will be replaced with the 10-year deal that will pay him $2.159 million in 2005 and $100,000 more than that amount each year through the 10 year term of the contract.

The new contract is the fourth most lucrative one for a college football coach. Only Bob Stoops at Oklahoma ($2.3 million), the departing Nick Saban at LSU ($2.3 million) and Tommy Tuberville at Auburn ($2.28 million) make more than Brown. Due to one-time $1.6 million bonus he received on his 53rd birthday this past August, Brown was the highest paid college coach in 2004 with earnings $3.6 million.

Geez, just think what Brown could make at UT if he could ever manage to beat Oklahoma -- to whom his teams have lost five straight times -- or win a conference championship, something that none of his teams has ever accomplished during Brown's 17 years of being a head coach on the major college level. Not to have won a conference championship at a school with the resources and talent of Texas is a major blemish on Brown's resume.

Moreover, Brown's Texas teams have had a history of playing poorly in big games. They have lost five consecutive losses to Oklahoma and Brown is clearly overmatched by his nemesis, OU Coach Stoops. Brown's Texas teams have lost both Big 12 championship games in which they have played, including the galling upset by Colorado in 2001 that prevented that Texas team from getting a BCS bowl berth.

The bowl record of Brown's Texas teams (3-3) is similarly tarnished. Last year's 28-20 loss to Washington State in the Holiday Bowl was particularly awful, as Texas made WSU's zone blitzs appear to be a new invention in football.

So, one certainly has to admire UT for keeping up with the compensation levels of the elite group of teams in college football, which is where UT aspires to be. However, a valid question remains as to whether Mack Brown deserves it.

In more troubling news for UT, assistant coach Dick Tomey, who is largely responsible for the development of the UT defense this season into an elite unit, will be departing the UT staff next season to take the head coaching job at San Jose State. Perhaps even more troubling from an emotional standpoint, Tomey is attempting to persuade UT graduate assistant coach and former QB great Major Applewhite to join him as an assistant on his San Jose staff.

Posted by Tom at 6:08 AM | Comments (3) |

Continental inks big deal for Boeing 7E7s

Houston-based Continental Airlines announced Wednesday that it will order Boeing Co.'s new high-efficiency 7E7 aircraft and accelerate the delivery of other Boeing aircraft that it previously ordered. Continental's 7E7 aircraft order is the first by a U.S. airline and is a shot in the arm for Boeing's marketing of the new aircraft.

Continental is buying 10 7E7s from Boeing with the first of the planes scheduled for delivery in 2009. The list purchase price on the aircraft is approximately $1.3 billion, although Continental will probably pay less than list.

The 7E7 deal illustrates that airlines are banking on reducing operating costs in an attempt to gain an advantage in the brutally competitive airline industry. The 7E7 is made of carbon-fiber composite materials instead of metals such as aluminum that are used on other aircraft, so Boeing is promoting the aircraft as being at least 20% cheaper to operate than older aircraft. Moreover, Boeing believes that the aircraft will be cheaper to manufacture.

Continental will use the 7E7s on international flights, and the purchase is part of a deal between Continental and Boeing under which Continental is attempting to increase the efficiency of its international flights, which are already more profitable than its domestic flights. Continental also will take delivery in 2006 of six Boeing 737-800 aircraft that were previously scheduled for delivery in 2008, and it will lease eight Boeing 757-300 aircraft next year. Continental will use those 737s and 757s on its domestic routes and deploy its 757s and 767s on its international routes.

Posted by Tom at 5:00 AM | Comments (0) |

December 29, 2004

Tsunami Relief Donation

I have added a hyperlink on the right side of the blog for Amazon's Red Cross Tsunami Relief Donation page.

The power of the Internet allows us to make a donation quickly and easily to help subsidize relief efforts for this disaster. If you are financially able to do so, please take advantage of this wonderful resource. As of this post, the Amazon page has generated $1.9 million in donations for the relief effort.

If you prefer to make your donation through another organization, The Command Post has provided this extensive listing of hyperlinks to various relief organizations.

Posted by Tom at 12:10 PM | Comments (0) |

Updating the Yukos case -- Yukos defaults on huge loans

OAO Yukos, the Russian oil company wallowing in a chapter 11 case in Houston, had its credit-rating slashed to default status yesterday after it failed to make the interest payments on a $1 billion loan from a syndicate of western banks and a $1.6 billion loan to Menatep, which is also its largest shareholder. Security for the loans was Yukos' interest in Yuganskneftegaz ("Yugansk"), the oil unit that the Russian government auctioned off earlier this month to defray Yukos' alleged $27 billion in overdue taxes. Here are the earlier posts on the Yukos chapter 11 case.

Meanwhile, in Houston, Deutsche Bank filed a motion to dismiss the Yukos chapter 11 case with the Houston Bankruptcy Court on Tuesday. Duetsche Bank was was one of a group of Western banks that had committed to finance OAO Gazprom's acquisition of Yugansk at the Russian government's auction before the Houston Bankrutpcy Court's temporary restraining order enjoined the bank and other Western financial institutions from participating in the auction.

In its motion, Deutsche Bank asserted that Yukos had tried to "artificially manufacture" a presence in the U.S. in order to seek bankruptcy protection. In obtaining the TRO earlier this month, Yukos had preliminarily persuaded the Bankruptcy Court that it had jurisdiction over Yukos based on, among other things, the fact that it had stablished a bank account in Houston, that its chief financial officer had recently moved to Houston and was working there, and that approximately 15% of Yukos is owned by investors from the United States.

Posted by Tom at 7:40 AM | Comments (0) |

My nomination for Sportsman of the Year

Oregon State's football team handed Notre Dame its seventh straight bowl loss last night in the Insight.com Bowl in Phoenix. However, for my money, the real story from that game is Oregon State's kicker, a 19 year old freshman named Alexis Serna, who walked on the Oregon State football team before this season without a scholarship.

Four months ago, after having attended just a few classes at Oregon State, Mr. Serna was the goat of college football after blowing three extra points in a one-point loss to then number one ranked LSU. As SI.com columnist John Walters writes in this wonderful article on Mr. Serna:

So imagine waking up as Alexis Serna in Corvallis, Ore., on the morning of Sept. 5. You don't have a scholarship. You've only dressed for one game in your college career and the entire country -- yourself included -- is blaming you for Oregon State's loss the night before. And someone at ESPN refers to any missed PAT as "pulling an Alexis Serna." You are 19 years old.

Remarkably, Mr. Serna overcame the humiliation of his first college football game to nail 40 of his next 41 kicks -- including 16 of 17 field goal attempts -- to make the second team All Pac-10 team. Late last month, Mr. Serna's coach rewarded him by giving him an athletic scholarship. From my vantage point, Mr. Serna ought to be awarded Sportsman of the Year.

Posted by Tom at 6:55 AM | Comments (0) |

More Ed Prescott on Social Security reform

2004 Nobel Prize in Economics recipient Edward C. Prescott wrote this earlier Wall Street Journal ($) piece advocating a restructuring of the current Social Security system to one based on mandatory individual retirement accounts.

In this op-ed from today's WSJ, Professor Prescott again makes the case for converting Social Security to a system based on mandatory savings accounts, and makes his case with powerful reasoning based on simple common sense:

Social Security was developed at a time when the number of workers paying into the system greatly outnumbered those who were receiving funds, and thus the promise made by government was easily kept. But times change while policies atrophy, and Social Security has evolved into a system that places an increasingly onerous burden on the young; the ratio of workers to elderly has shifted from 41-to-1 in the 1930s, to 3-to-1 today.

Professor Prescott points out that it is rational for young workers to protest having to pay a disproportionate amount to subsidize such a system by working less to support such a system. Thus, he argues, let's change the system to address such rational behavior:

Would such changes in tax rates and changes in government promises affect labor supply? Theory says "yes," the statistical evidence agrees, and common sense concurs. These young workers are rational. They make labor/leisure choices on the margin, and these marginal choices add up.

So what to do? How to move from a pay-as-you-go welfare system to a self-funding retirement system that benefits from individual maximizing incentives? Again, the answer begins with the insight that labor supply is responsive to tax rates. We simply cannot keep cranking up Social Security taxes with impunity. What we need to do is turn the present tax-and-transfer system into a bona fide individual retirement system that is in line with individual incentives.

In short, the answer is to establish a system of mandatory investment accounts for retirement. Why mandatory accounts? Because without mandatory savings accounts we will not solve the time inconsistency problem of people under-saving and becoming a welfare burden.

And Professor Prescott observes that private retirement investment accounts must be made mandatory precisely because people are rational with their money:

The reason we need to have mandatory retirement accounts is not because people are irrational, but precisely because they are perfectly rational -- they know exactly what they are doing. If, for example, somebody knows that they will be cared for in old age -- even if they don't save a nickel -- then what is their incentive to save that nickel? Wouldn't it be rational to spend that nickel instead?

So, indeed, people are acting rationally when they choose not to save. We have rational people making choices based on the rules. The trick is to get the rules right. A mandatory retirement system, properly designed, would establish effective rules.

And then with the wisdom that generated a Nobel Prize, Professor Prescott bores in on the main problem confronting Social Security reform and advises on how to overcome it:

No sooner did talk get serious about fixing Social Security in recent weeks than the political boo-birds went to work scaring people away from new ideas. It's rare to open a newspaper editorial page these days and not find some Cassandra screeching about evil policy-makers and cranky politicians who are trying to destroy Social Security. Why a politician from any party would want to intentionally destroy a retirement program meant to benefit the elderly is beyond me. Such political claptrap makes me glad I'm an economist. Granted, politics is a game with its own rules and incentives, and people will rationally play by those rules for political gain, but such political role-playing certainly complicates matters, at best, and makes for bad policy, at worst.

Maybe one way to help avoid ad hominem attacks and political labeling would be to recast the Social Security question from one of reform to one of reconstruction. Let's stop talking about reforming Social Security -- let's rebuild it. In other words, if we could wipe the slate clean, what kind of government retirement program would we build from scratch today? It's one thing to snipe at new proposals, but it takes a plan to beat a plan, and I'm willing to bet that the best minds of both political parties, given such a charge, would not come up with a government retirement program as it currently exists.

Read the entire piece. Ed Prescott is a true clear thinker.

Posted by Tom at 6:30 AM | Comments (0) |

WSJ profiles the Texas Pacific Group

This Wall Street Journal ($) article profiles the Texas Pacific Group, the Fort Worth-based investment fund founded by former bankruptcy lawyer David Bonderman and business whiz Jim Coulter in 1993.

Originally established to invest in and restructure Continental Airlines to avoid a third bankruptcy case for the airline, TGP has raised over $15 billion, with which it has bought control of companies ranging from Continental to the clothing retailer J. Crew to the Enron's Northwest pipeline subsidiary, Portland General Electric. TGP is now one of the busiest and most-successful private-equity boutiques, controlling companies with combined annual revenue of more than $40 billion. Before fees, TGP's return to investors have averaged 55% annually.

Interestingly, TGP's success is directly tied to its policy of never hesitating to take on troubled companies that its competitors avoid. Moreover, despite its strong reputation and track record, TGP prefers to play behind-the-scenes -- it is so invisible that it does not even have a Web site.

"The market often thinks we are crazy when we invest," Mr. Coulter told the WSJ. "We have, however, made a decent living proving the market can be wrong."

Read the entire article.

Posted by Tom at 5:36 AM | Comments (0) |

The mismanagement of the Houston Rockets

Although I have followed basketball most of my life, I find it difficult to generate any enthusiasm for the Houston Rockets.

It has not always been that way. I moved to Houston in 1972 at about the same time as the Rockets franchise moved to Houston from San Diego, so I have always felt a connection to the club. As noted in this earlier post, my late father and I used to attend Rockets games regularly, even back before the Rockets had their own arena. Until 1975, the Rockets played mostly at Hofheinz Pavilion on the University of Houston campus.

Then, in 1994-5, the magnificent Hakeem Olajuwon led the Rockets to two straight NBA titles, the second of which was achieved with the help of local legend Clyde Drexler, who originally burst on the scene with Olajuwon on the University of Houston's memorable Phi Slama Jama teams from 1982-84. With the demise of the Oilers before their exodus to Nashville, and before the Biggio-Bagwell era of the Stros led to multiple MLB playoff appearances, the Rockets were the toast of the town for most of the 1990's.

However, despite the two NBA titles, Rockets' management has always had a curious tendency to make poor personnel decisions. For example, after it was clear that Olajuwon would be a far better player than former number one draft pick, Ralph Sampson, the Rockets delayed trading Sampson until his value had eroded to the point that they could only get Sleepy Floyd and the eminently forgettable Joe Barry Carroll in return.

Even more galling is the fact that Rockets management overlooked talented local players such as Ricky Pierce (Rice), Bo Outlaw (UH), Rashard Lewis (Alief Elsik HS), and Damon Jones (UH), the last three of whom could be playing significant roles on the current Rockets club.

To make matters worse, the Rockets management decisions over the past several years have gone from dubious to just plain horrible. First, they used a second overall pick in the NBA draft on Steve Francis -- a good player who has limitations that will keep him from ever achieving elite stature in the NBA -- who they proceeded to trade over this past offseason to Orlando as a part of the deal for the overrated Tracy McGrady.

Rockets management used another number one draft choice on power forward Eddie Griffin, who was more interesting in the daily police report than the sports section during his short stay with the club. Finally, Rockets management either gave or acquired expensive long term contracts on such mediocre role players as Matt Maloney, Moochie Norris, Brent Price, Maurice Taylor, Kelvin Cato, Juwan Howard -- the list of bad personnel moves just goes on and on.

Comparing the public's waning interest in the Rockets to the popularity of the Texans, one Houston businessman put it to me in this way: "How would you like to be trying to sell luxury suites to the Toyota Center?." Had Rockets management not at least had the common sense to draft and sign Yao Ming, things might be utterly hopeless at this point.

So, it is against this backdrop that Peter Vecsey, the longtime NBA columnist based in New York, absolutely lays the wood to Rockets management over the team's latest move:

[I]t's beyond comprehension what [Rockets General Manager Carroll] Dawson and [Rockets coach] Jeff Van Gundy are thinking.

Acquiring [New Orleans Hornets guard David] Wesley, 34, isn't as irrelevant as the Mavericks swapping Dan Dickau (again, at least the Hornets got potential) for dead end Darrell Armstrong, but it's not much better. . . Wesley will take shots away from Tracy McGrady and Yao Ming, and maybe even Hakeem.

. . . Wesley doesn't loosely qualify as a pure point guard. Wherever he's roamed he's been a shoot-first, pass-as-a-last-resort type guard. Meanwhile, Jackson's a deadlier shooter. Moreover, Wesley doesn't give it up. I'll say! He wouldn't even make a pass at Kobe's wife.

If Wesley's arrival in Van Gundy's starting backcourt isn't opaque enough, this is the worst he's played since the bad old days in New Jersey and Boston, his first two pro seasons.

And Vecsey goes on to point out that the Wesley deal isn't the only bad one the Rockets have made lately:

Not to say Wesley, even in his current state of disrepute, isn't an improvement on what the Rockets have on playmaking patrol. On second thought, I will say it; at best, he's a Bob Sura clone and substantially superior to Charlie Ward, whose game is so shabby four houses of worship refused him sanctuary.

These are the two pointless guards management chose to sign last summer as free agents to "complement" Tyronn Lue, exchanged last week for Jon Barry, whose poisonous attitude and bad mouthing of coaches when not playing has led to his last three change of addresses.

Obviously, Van Gundy had some say regarding the recruitment of his perennial pet mistake. Ward got $1.7M and $1.8M guaranteed with a $2.04M team option. Why wait, Jeff? Pick it up right now. Nobody else was offering more than a 10-day contract. But Carroll, who helped Rudy Tomjanovich assemble Houston's two title teams ('94-'95), has the (last) sway.

Carroll has been groping since, overpaying ineligible receivers as if he were bidding against Warriors whiz Chris Mullin. Maurice Taylor, Shandon Anderson, Howard Eisley, Matt Maloney (on the Rockets' cap this season, his last, at last, for $3.237,250), Brent Price and Moochie Norris were all rewarded with senseless long-term contracts.

Sura was the latest to strike it rich without earning it, unless you deem last season's stats (7.5 points, 2.9 assists, 1.3 turnovers and 41 percent from the field) for the hopeless Hawks noteworthy. Thanks to the Rockets' tainted top talent scout, owner Les Alexander owes the 10-year rent-a-wreck $3.2M/$3.5M/$3.8M this year and the next two . . .

Thanks to Carroll (Van Gundy, too), the Rockets are being forced to restock, if not rethink. That might be asking too much.

So, Rockets owner Les Alexander is in a tough spot. Both of Houston's other major professional teams and their owners are far more popular among Houstonians than the Rockets and Alexander. While the Texans and Stros play in front of record crowds, the Rockets are regularly having trouble drawing 10,000 people to their games. Although I am a regular target of the Rockets' season ticket sales staff, I haven't attended a game in years and have little interest in doing so. Moreover, given the Rockets management's dubious track record in player evaluation, it's hard to be optimistic about the club's prospects. Yao and McGrady are the only players on the Rockets team around whom a playoff caliber club could be built.

Nearly a decade has passed since the Rockets' glory years. The club has declined dramatically since then, and the decline has accelerated over the past several years. Absent considerable improvement in the club's player evaluation process, my sense is that the Rockets will become even more of an afterthought on the Houston scene than they have already become.

Posted by Tom at 5:00 AM | Comments (3) |

December 28, 2004

Bernard Dow, RIP

A pillar of the Houston legal community -- Bernard O. Dow -- died on Sunday in Houston at the age of 74.

Bernie Dow was well-known in Houston for many years as one of the leaders of the real estate bar. In addition to being a first rate legal talent, Bernie was a gracious and courteous man who was a joy to be around regardless of whether he was on your side of the deal or not.

Funeral services will be held today at Congregation Beth Yeshurun, 4525 Beechnut, in Houston at 2:00 pm.

Posted by Tom at 10:17 AM | Comments (0) |

Bill Hinson, RIP

The Rev. William H. "Bill" Hinson, a nationally known Methodist preacher who rebuilt Houston's First United Methodist Church, died Sunday in Huntsville, Alabama at the age 68.

Reverend Hinson was a magnificent public speaker and a major spiritual presence in downtown Houston from 1983 through 2001. He will be sorely missed. Funeral services will be at 2 p.m. today at Huntsville's First United Methodist Church. Memorial services in Houston will be at 1 p.m. Saturday at First United Methodist Church downtown, 1320 Main, and 4 p.m. Sunday at the Westchase campus.

Posted by Tom at 6:51 AM | Comments (2) |

IRS Code overhaul being placed on backburner

Our politicians at work.

When my Republican friends ask me why I am not a Republican (I am assiduously independent politically), I pass along to them articles such as this.

Posted by Tom at 6:20 AM | Comments (0) |

The Las Vegas Monofail

Houston's light rail boondoggle has been the subject of several previous posts here. Given that misery loves company, this Washington Post article provides Houstonians with some comfort that Las Vegas may have managed to generate an even bigger rail boondoggle than Houston's:

When it debuted in mid-July, this city's sleek $650 million monorail was supposed to be the envy of the nation, a high-tech public transit system paid for without taxpayer money that would be so popular it could even turn a profit.

But during a busy convention season, bits and pieces of the trains started falling off, potentially endangering anything below, and the system was shut down indefinitely for major repairs. By Thanksgiving, newspaper cartoonists and tourists alike were dubbing it "monofail" and deriding the futuristic cars sitting idle on the costly tracks.

After being closed for 3 1/2 months, at a cost of more than $9 million in fare revenue, the system reopened over Christmas weekend, just in time for Las Vegas's busiest tourist week of the year. It was a Christmas gift from Clark County officials to monorail operators who hope to erase the memory of one of the city's most humiliating and expensive debacles.

However, the Las Vegas monorail has an interesting characteristic that is not shared by most rail systems -- it was not built with government funds and is not designed for commuters:

Unlike any of the nation's other transit systems, the Las Vegas Monorail is not designed to aid local commuters or even to alleviate roadway congestion. The traffic reduced by this train is in the casino corridor, making visitors its chief beneficiary.

The Las Vegas Monorail deal is unique . . . Transit Systems Management is a private entity that reports to the Las Vegas Monorail LLC, a board appointed by the governor. . . it is largely a privately operated venture funded by construction bonds sold to investors using the state's bond rating but with debt insurance so Nevada taxpayers are not liable in a default.

Nevertheless, the ubiquitous governmental subsidy of the system appears to be on the horizon:

[F]ederal and county funds will be used for future legs of the monorail -- including a $450 million, 2.9-mile stretch to the downtown casino center northeast of the Strip, planned to open in 2008 but now pushed back by the closure. The monorail also is slated to be extended to McCarran International Airport to the south by 2012, using taxpayer money.

Thus, as with publicly-financed stadiums, the scam of these publicly-financed rail systems lives on because the benefits of light rail are highly concentrated in a few interest groups such as elected officials, environmental groups, labor organizations, engineering and architectural firms, developers and regional businesses. On the other hand, the costs of such systems are widely dispersed among the general population. Consequently, the many who stand to lose will lose only a little while the few who stand to gain will gain a lot.

This is why a politically savvy minority can con a large group of taxpayers facing relatively small costs into voting for an uneconomic rail system based on perceived benefits such as helping the poor, reducing congestion and pollution, and fostering development. Even though these benefits are exaggerated, it is usually not worth the relatively small cost per taxpayer for most taxpayers to spend any substantial amount of time lobbying against the cost-ineffectiveness of the rail system. With political leadership usually more interested in reading tea leaves than balance sheets and pro forma operating statements, these uneconomic rail systems just continue to perpetuate like a bad virus.

Of course, if other public projects are proposed where the overall costs outweigh benefits, then the small cost to the taxpayer per project could add up to quite a hefty boondoggler?s bill after awhile. Las Vegans should think about that as they consider publicly financing both the extensions of the monorail and a stadium to attract a Major League Baseball team.

Posted by Tom at 5:36 AM | Comments (0) |

Put US Airways out of its misery

The airline industry in the United States is beset with an oversupply of airlines, a number of which have been wallowing in chapter 11 while unsecured creditors try to come to terms with the fact that their claims will never be paid. Here are prior posts from over the past year that examine the battered condition of the U.S. airline industry.

But US Airways Group Inc. may have done the rest of the American airline industry a favor -- its management and employees outraged thousands of its customers by providing inadequate staffing, canceling flights and losing large amounts of luggage over the hectic holiday weekend.

US Airways pulled this stunt while operating in a chapter 22 bankruptcy case that it filed earlier this year after emerging from its prior chapter 11 case less than two years ago. While a big winter storm in the Midwest and Northeast complicated travel, US Airways' incredibly poor performance alienated thousands of customers, many of whom will never even consider a US Airways flight again. Already faced with crucial financial deadlines in its bankruptcy case for reducing labor costs and persuading various lenders to provide additional forbearance, US Airways' weekend performance should be the straw that breaks the camel's back and pushes the company into a liquidation.

For its part, US Airways blamed more than 450 canceled weekend flights and thousands of pieces of stranded luggage on the winter storm and higher-than-usual numbers of sick calls during the crucial travel period. Over the weekend, US Airways' flight-attendant sick calls ran around 300 a day instead of the usual 100 and that staff shortages were common among ramp workers at its big Philadelphia hub. As a result, unclaimed baggage continued to sit at Philadelphia International Airport and Washington's Reagan National Airport, although the carrier had fewer than 1,000 pieces of luggage left to deliver on Monday, down from a peak of 10,000 lost bags over the weekend. The federal Transportation Department has already commenced an investigation into whether the staff shortages were a deliberate attempt by employee groups to undermine US Airways' operations over the holiday weekend.

Is there any compelling reason for US Airways to continue operating?

Posted by Tom at 4:45 AM | Comments (0) |

December 27, 2004

Updating the Yukos case -- Rosneft debt downgraded

OAO Rosneft, the Russian government-controlled oil company that has bought OAO Yukos' Yuganskneftegaz ("Yugansk") huge oil unit, has been put on credit watch by Standard & Poor's Ratings Services in a quintessentially Western financial assessment of the riskiness of the deal.

S&P observed that were "major uncertainties regarding the financing of the acquisition and the tax and litigation risks." S&P also continued its credit watch on OAO Gazprom, the Russian government-controlled natural gas company that is scheduled to merge with Rosneft by the end of January.

Gazprom and Rosneft are coordinating the acquisition in defiance of a Bankruptcy Court's temporary restraining order in Yuko's pending chapter 11 case in Houston that enjoined firms from participating in the Russian government's auction of Yugansk to pay for alleged Yukos' tax debts. Yukos' attorneys announced in open court last week that Yukos intends to sue whoever was involved in the acquisition of the Yugansk unit. Here are earlier posts on the Yukos case and the Russian government's auction.

Inasmuch as the deadline for Rosneft's purchase of Yugansk is January 2, the S&P cautionary assessment reflects the marketplace's skepticism that Rosneft will be able to raise the billions in financing necessary to close the deal that quickly.

Posted by Tom at 7:35 AM | Comments (0) |

Criminalizing auditors out of business

As a part of a management shakeup, Fannie Mae decided late last week to fire KPMG LLP as its outside auditor after 35 years of service because its financial statements from 2001 through mid-2004 can "no longer should be relied upon."

Oh well, announcements of accounting scandals are no longer any big deal in this post-Enron era where auditors are viewed by many as business cops that go on the take to cover up financial improprieties when they get too cozy with a client's management.

However, what is not as widely reported is that Fannie Mae's decision to dismiss KPMG is providing a glimpse of the big accounting firms' increasingly precarious state of affairs. Indeed, with the firing of KPMG, it is not at all clear which big accounting firm is in a position to take on Fannie Mae as a client.

For all practical purposes, of the Big Four accounting firms -- KPMG, Deloitte Touche Tohmatsu, Ernst & Young LLP and PricewaterhouseCoopers -- Fannie Mae is left with essentially two choices: Deloitte & Touche LLP and PricewaterhouseCoopers.

Ernst & Young likely will not be the choice because it has already been advising Fannie's audit committee and management in responding to various ongoing government probes. Similarly, Deloitte will not be the choice because it has been advising Fannie Mae's chief regulator, the Office of Federal Housing Enterprise Oversight's ("Ofheo") examination of Fannie's accounting practices.

Normally, PricewaterhouseCoopers might be the choice because it does not currently provide any services to Fannie Mae. However, PricewaterhouseCoopers is the auditor for Freddie Mac, for whom it identified numerous accounting violations after replacing the criminalized Arthur Andersen LLP in 2002. Fannie Mae regulator Ofheo might not approve of both major mortgage corporations using PricewaterhouseCoopers as their outside auditor.

Consequently, the Fannie Mae situation highlights one of the largely ignored consequences of the federal government's dubious decision to prosecute Andersen out of business over its role in the Enron accounting scandal: There are simply not enough big accounting firms left to provide audit services for the big companies that need them. Complicating matters even further is that each of the Big Four are literally under siege from civil lawsuits seeking large damage awards that could cripple any or all of them.

So, we already know that the government's regulation of Andersen through criminalization of their audit services cost the marketplace thousands of jobs and one of the relatively few accounting firms that could provide the specialized services that big companies need. Now, we are coming to understand that this dubious governmental policy of criminalizing auditors may result in big companies not being able to to find auditors capable of providing adequate audit services at all.

Remember that the next time that you read a Justice Department press release touting its "success" in its prosecution of Andersen in connection with the Enron scandal.

Posted by Tom at 5:56 AM | Comments (0) |

Kellner takes over at Continental

On Dec. 31, Larry Kellner -- Houston-based Continental Airlines' president and chief operating officer -- will take over as chief executive of Continental, replacing 63-year-old CEO Gordon Bethune, the former mechanic who pulled Continental from the brink of what would have been its third bankruptcy a decade ago.

This Wall Street Journal ($) article profiles Mr. Kellner and Continental, which is the nation's fifth-largest airline with revenues of $8.87 billion over the past year. It is a good introduction to the new CEO of one of Houston's largest employers. Check it out.

Posted by Tom at 5:37 AM | Comments (0) |

December 26, 2004

2004 Weekly local football review

Texans 21 Jaguars 0

The Texans defense laid the wood to Jags' QB Byron Leftwich in holding the Jags' offense to 126 total yards and the Texans' much maligned offensive line sprung RB Dominick Davis for 150 yards rushing and a TD as the Texans humbled the Jags in chilly Jacksonville, 21-0. The shutout was the first in Texans' franchise history.

The Texans defense gave Leftwich a concussion early in this one, and the Jags QB could never get untracked as the Texans forced three turnovers and held the Jags to 54 yards passing. Meanwhile, the Texans offense generated 333 total yards behind another average but adequate performance by QB David Carr (14-20, 122 yds., 1 TD, 2 INT). Actually, Carr's line would look better except that one of his interceptions came on a great play by Jags DB Dewayne Washington. Washington made a spectacular one-handed interception on a Carr pass that Andre Johnson probably would have taken to the house for his second TD catch of the game but for Washington's incredible play. About the only phase of the Texans' performance that was subpar on this day was the punt return team, which had one adventure after another while trying to cope with the absence of injured regular returner J.J. Moses.

The 7-8 Texans, who are clearly on a roll, could end the season with a .500 record with a win over the Browns at Reliant Stadium next Sunday. That would be quite an accomplishment for this third year franchise.

Cowboys 13 Redskins 10

Oh, how the might have fallen. In an excrutiatingly boring game between two teams with inept offenses, Cowboys QB Vinnie Testaverde somehow three a 39 yard TD pass to someone named Patrick Crayton with 30 seconds to go to pull out the win before a feisty crowd at Texas Stadium. The 6-9 Cowboys close this disastrous season next week at the Meadowlands against the Giants, and then the off-season process of revamping the Cowboys offense begins. It will not be an easy task.

Posted by Tom at 9:41 PM | Comments (5) |

December 24, 2004

Wishing you and your family Happy Holidays and Clear Thinking from the Kirkendall Family

Posted by Tom at 11:25 AM | Comments (3) |

Is your surgeon a "Nintendo surgeon?"

Following on this earlier post about video games being used as anesthetia for young patients, several of my surgeon friends, nephews, and my two sons are going to enjoy this latest finding:

Surgeons who play video games three hours a week have 37 percent fewer errors and accomplish tasks 27 percent faster, . . [based on] observation on results of tests using the video game Super Monkey Ball.

Link hat tip to Tyler Cowen, who hilariously suggests that maybe the surgeons and the patients could play each other?

Posted by Tom at 8:53 AM | Comments (1) |

What to do with the Astrodome?

Following on this earlier post on the dilemma posed by the obsolescent Astrodome, this Richard Connelly Houston Press article does a good job of reviewing the Astrodome hotel project and the other options that are being considered.

Given the constraints posed by regular events at Reliant Stadium and the use of Reliant Park by the Houston Livestock Show and Rodeo and other conventions, retrofitting the Dome into a commercial development is not feasible. The Dome is an important part of Houston's history, but its time is passed and the nostalgia is the only productive aspect of it that remains. It's time to recognize that the only viable option is to demolish the Dome and use the valuable land for better and more productive purposes at Reliant Park.

Update: Charles Kuffner has an interesting thought on the Dome dilemma.

Posted by Tom at 7:38 AM | Comments (0) |

Updating the Yukos case -- Gazprom confirms control of Yugansk

Russian gas giant OAO Gazprom confirmed yesterday what everyone in the international oil and gas business suspected -- that it will control Yuganskneftegaz ("Yugansk"), which was formerly the main oil-production unit of OAO Yukos. Here are the earlier posts about the Yukos chapter 11 case in Houston and the Russian government's auction of Yugansk.

Gazprom's control of the Yugansk unit -- which generated 60% of Yukos' oil and gas production -- is a key development in the Russian government's plan to transform Gazprom into a major international oil and gas company on the level of Exxon Mobil Corporation and other majors.

When the Russian government announced the auction of Yugansk earlier this fall in order to fund payment of a portion of Yukos' alleged $28 billion tax debt, Gazprom -- which is 60% owned by the Russian government -- was generally considered to be the odd's on favorite to be the winning bidder at the auction. However, Gazprom's financing for its bid through Western financial institutions was undermined last Thursday by the entry of a TRO in Yukos' surprise chapter 11 case in Houston. That TRO enjoined Western financial institutions from participating in financing an acquisition of Yugansk.

Nevertheless, Russian officials scurried around last Friday and Saturday to arrange alternative financing, and Baikal Finance Group -- a new special purpose entity controlled by Russian individuals with close ties to Gazprom -- submitted the winning bid at the auction. On this past Tuesday, Russian oil company OAO Rosneft -- a Russian government-controlled company that Gazprom is acquiring in a previously announced merger -- announced that it had purchased Baikal Finance. That announcement confirmed Gazprom's effective control of the Yugansk unit.

By controlling the Yugansk unit, Gazprom adds a prodigious oil production unit to its already formidable gas production unit. Already the world's largest producer of gas, Gazprom will now become one of the world's biggest oil and gas companies with combined reserves that are about six times more than Exxon Mobil's. Russia is second in world oil production after Saudi Arabia.

Nevertheless, the Kremlin's heavy-handed handling of Yukos and its valuable Yugansk unit may have far reaching implications for Russian business interests in the international business community. The Russian government's willingness to elevate its control of Russian oil and gas interests over the promotion of Western business interests is a serious deterrent to future Western investment in Russian companies. Yukos is now the poster boy of that policy -- once a darling of Western investors, the Russian government's actions have now rendered Yukos essentially worthless. It's hard for the Moscow Chamber of Commerce to put a happy spin on that story in attempting to attract Western capital.

Moreover, Gazprom faces huge obstacles in maintaining a presence as a major oil and gas company. Although it is currently pumping huge quantities of natural gas, replacing that gas is not easy. Inasmuch as most of Gazprom's reserves are in remote regions that require technological expertise that Gazprom does not currently possess, Gazprom will face increasing production costs as it attempts to maintain or increase its production levels. During the first half of this year, Gazprom's net income fell 13% to $3 billion even though its revenue rose 12% to $15.7 billion. By way of comparison, Exxon Mobil earned $11 billion in the same period on revenue of $138 billion. Consequently, if oil and gas prices dip, Gazprom's profit margins could be squeezed even further.

Meanwhile, Houston-based ConocoPhillips announced an agreement yesterday with Gazprom to study at development of the potentially lucrative Shtokman gas field in the Barents Sea. The study will evaluate the feasibility of producting and transporting liquefied natural gas from the field to the United States and European markets.

Discovered in 1988, The Shtokman field is estimated to contain more than 100 trillion cubic feet of gas. Inasmuch as it is located approximately 350 miles off the northwest coast of Russia in the South Barents Sea Basin in water depths of 1,000 feet, the Shtokman field will require at least three or four phases for full field development.

Earlier this year, ConocoPhillips became a large equity investor in Lukoil -- another Russian oil major -- and became a 30 percent partner in another exploration joint venture with Lukoil. ConocoPhillips announced earlier this week that it is increasing its equity stake in Lukoil to 10% by the end of the year.

Posted by Tom at 6:24 AM | Comments (0) |

December 23, 2004

The amazing Cubs

The Chicago Cubs Baseball Club has always been considered somewhat of a lovable laughingstock around Chicago. Consequently, although the club's swoon in this past baseball season's National League Wild Card playoff race did not sit particularly well with Cubs fans, it was at least expected.

But according to this scathing Jay Mariotti Chicago Sun-Times article, the legendary incompetence of Cubs management may have risen to heretofore unforseen levels. Consider this snippet:

We understand the Cubs have a feeble, hapless Charlie Brown existence. We know they're battling farm animals, perpetual paranoia and turtleneck-choked fans. But if they're also so internally incompetent that they employ an unlicensed head trainer, who was ratted out by the assistant trainer just months after they fired the previous head trainer, then riddle me this, Ronnie Woo-Woo:

How are they supposed to win a World Series in our lifetime? When management is appointing alleged quacks to heal injuries on a team that lost Mark Prior, Kerry Wood and too many other players to the most mysterious disabled list I've seen in sports -- remember the sneeze that toppled Sammy Sosa? -- isn't it time to dismiss the cause as hopeless and move on to junk bonds as a hobby?

Read on.

Posted by Tom at 11:25 AM | Comments (0) |

Death in Texas

Sister Helen Prejean is a member of the Sisters of St. Joseph of Medaille in Louisiana. She is America's leading abolitionist with regard to the death penalty and the author of Dead Man Walking, which was made into one of the best movies about the death penalty.

In the most recent issue of the New York Review of Books, this article is adapted from Sister Prejean's new book, The Death of Innocents: An Eyewitness Account of Wrongful Executions that Random House is releasing next month. Sister Prejean sharply criticizes then-Governor George Bush's denials of clemency to a large number of Texas death row defendants in Texas, noting that he distanced "himself from his legal and moral responsibility for executions." The entire article is compelling reading, as the following excerpt reflects:

George W. Bush during his six years as governor of Texas presided over 152 executions, more than any other governor in the recent history of the United States. Bush has said: "I take every death penalty case seriously and review each case carefully.... Each case is major because each case is life or death." In his autobiography, A Charge to Keep (1999), he wrote, "For every death penalty case, [legal counsel] brief[s] me thoroughly, reviews the arguments made by the prosecution and the defense, raises any doubts or problems or questions." Bush called this a "fail-safe" method for ensuring "due process" and certainty of guilt.

He might have succeeded in bequeathing to history this image of himself as a scrupulously fair-minded governor if the journalist Alan Berlow had not used the Public Information Act to gain access to fifty-seven confidential death penalty memos that Bush's legal counsel, Alberto R. Gonzales, whom President Bush has recently nominated to be attorney general of the United States, presented to him, usually on the very day of execution.[1] The reports Gonzales presented could not be more cursory. Take, for example, the case of Terry Washington, a mentally retarded man of thirty-three with the communication skills of a seven-year-old. Washington's plea for clemency came before Governor Bush on the morning of May 6, 1997. After a thirty-minute briefing by Gonzales, Bush checked "Deny" ? just as he had denied twenty-nine other pleas for clemency in his first twenty-eight months as governor.

But Washington's plea for clemency raised substantial issues, which called for thoughtful, fair-minded consideration, not the least of which was the fact that Washington's mental handicap had never been presented to the jury that condemned him to death. Gonzales's legal summary, however, omitted any mention of Washington's mental limitations as well as the fact that his trial lawyer had failed to enlist the help of a mental health expert to testify on his client's behalf. When Washington's postconviction lawyers took on his defense, they researched deeply into his childhood and came up with horrifying evidence of abuse. Terry Washington, along with his ten siblings, had been beaten regularly with whips, water hoses, extension cords, wire hangers, and fan belts. This was mitigation of the strongest kind, but Washington's jury never heard it. Nor is there any evidence that Gonzales told Bush about it.

The article concludes with the following observation:

As governor, Bush certainly did not stand apart in his routine refusal to deny clemency to death row petitioners, but what does set him apart is the sheer number of executions over which he has presided. Callous indifference to human suffering may also set Bush apart. He may be the only government official to mock a condemned person's plea for mercy, then lie about it afterward, claiming humane feelings he never felt. On the contrary, it seems that Bush is comfortable with using violent solutions to solve troublesome social and political realities.

Read the entire article.

Posted by Tom at 8:36 AM | Comments (0) |

Medical Center notes 50 year anniversary of first transplant operation

On the anniversary of the first kidney transplant in Boston 50 years ago, Eric Berger of the Chronicle does a fine job in this article of reviewing the accomplishments of Houston's Texas Medical Center doctors in contributing to the advancement of transplant procedures. Inasmuch as the Chronicle does not maintain online links to many of its articles for very long, check it out soon.

Posted by Tom at 6:07 AM | Comments (0) |

Update on Landry's acquisition search

Following on this earlier post regarding Houston-based restaurant company Landry's search for acquisition targets, the Chronicle reports that the company's target is probably a Las Vegas casino and not the Stros.

Landry 's is a national restaurant company that owns and operates 300 restaurants, including Joe's Crab Shack, Rainforest Cafe and Landry's Seafood House. Landry's CEO Tilman Fertitta, who founded the company and controls about a quarter of the company's outstanding stock, is the cousin of the Fertitta family that runs Station Casinos Inc., so the gaming industry is already in the Fertitta family.

What's particularly interesting is that Landry's is dipping into the junk bond market to fund its venture into the gaming industry. Last week, Landry's priced its inaugural $450 million speculative-grade issue in the high-yield market last Wednesday, and the resulting 7.50% rate for the offering of senior notes due in 2014 was about 50 basis points more than Landry's would have had to offer if it had a track record in the high-yield market. Nevertheless, wWith that kind of yield, Landry's bond offering received a warm reception in the high-yield junk bond market.

Landry's will use $300 million of the unrestricted proceeds of the offering to pursue its new acquisition and the remaining $150 million for restaurant operations. If Landry's makes a deal for a casino, it is likely that it would return to the junk bond market for additional financing.

In addition to its junk bond financing, Landry's is also arranging a new $450 million credit facility, which consists of a $300 million revolving credit facility and a $150 million term loan.

Finance market analysts are cautious with regard to Landry's financing moves. Standard & Poor's Ratings Services assigned its 'BB-' rating and a '2' recovery rating to the $450 million credit facility, which means that the expectation is that there would be an 80-100% chance of recovering principal in the event that Landry defaults on the loan. S&P also issued a 'B' rating to Landry's $400 million junk bond offering, and an overall 'BB-' corporate credit rating with a negative outlook.

S&P assigned the junk bond offering a rating two levels below the corporate credit rating because the junk bonds are subordinate to the of substantial amount of priority debt in Landry's capital structure. S&P provided the following cautionary comment on Landry's:

The ratings reflect Landry 's participation in the highly competitive casual dining sector of the restaurant industry, its growth-through-acquisition strategy, the inherent difficulties in operating multiple concepts, a very aggressive financial policy, and the high leverage that results from the recapitalization. These risks are only partially offset by the company's established presence in the causal seafood dining sector of the restaurant industry, good locations for its restaurants, and adequate financial flexibility.

Posted by Tom at 5:28 AM | Comments (0) |

Updating the Yukos case -- Rosneft buys Yugansk unit

Russian oil company OAO Rosneft announced today that it has acquired Baikal Finance Group, the purchaser of OAO Yukos' main production unit Yuganskneftegaz ("Yugansk") at a Russian government auction last Sunday. Here are the earlier posts covering the auction and the Yukos chapter 11 case.

The Russian government controls Rosneft, so the company's acquisition of the Yugansk unit gives the Russian government effective control over a substantial portion of the Russian oil and gas industry. Yukos believes that the Rosneft acquisition is preliminary to the ultimate transfer of the Yugansk unit to Russian government-controlled OAO Gazprom. Gazprom was expected to be the primary bidder at the auction until the U.S. Bankruptcy Court in Houston issued a TRO late last Thursday in Yukos' chapter 11 case that chilled Western financial institutions that were scheduled to provide financing for Gazprom's bid. When Gazprom could not finance its anticpated bid for Yugansk, Baikal Finance stepped into the breach and emerged on Sunday as the winning bidder at the auction by posting a $9.37 billion bid.

Gazprom and Rosneft announced a merger this past September, and many analysts of the Russian economy expect that the Russian government will use Gazprom as the vehicle to create Russia's major oil and gas company. Before Gazprom's bid was undermined by the TRO, Rosneft was expected to become part of Gazprom's new oil subsidiary -- OOO Gazpromneft -- and Yugansk was to be merged into that unit.

Adding to the quickly changing events of the past week, Gazprom earlier this week announced that it had sold the Gazpromneft unit last Friday to an unidentified buyer for an undisclosed sum. Gazpromneft took part in the auction on Sunday, but did not bid.

Meanwhile, Yukos announced in a Bankruptcy Court hearing in Houston on Wednesday that it is preparing a massive lawsuit against all parties that participated in the auction in violation of the Bankruptcy Court's TRO. In that regard, Yukos accused Gazprom of violating the Bankruptcy Court's TRO by participating -- although not bidding -- in the auction of the Yugansk unit.

In rattling this litigation saber, Yukos is clearly signaling that it will attempt to put the assets of Gazprom and any Western financial institution that participated in the auction at risk. In so doing, Yukos is attempting to gain some leverage in its battle with the Russian government by chilling the market for Western financing of the Russian companies' oil and gas ventures. It is a creative strategy, but it is far too early to predict whether it will have any meaningful impact on the Russian government's conduct toward Yukos and the rest of the Russian oil and gas industry.

Posted by Tom at 4:57 AM | Comments (0) |

December 22, 2004

Sports notes on UH bball, Jackie Sherrill, golf, Mack Brown, Gene Conley and Friday Night Lights, Houston style

The Houston Cougars men's basketball team had a nice win over LSU last night, as new coach Tom Penders continues to make my post on his hiring look bad.

Meanwhile, former Texas A&M, Pittsburgh, and Mississippi State head football coach Jackie Sherrill has teed off on the NCAA in a lawsuit over in Mississippi. The over/under bet on this lawsuit is $1 million.

On a more pleasant note, 55 year old Austin resident Tom Kite -- fresh off an impressive performance in the 2004 U.S. Open -- plans to rejoin the regular PGA Tour next month and become the oldest exempt player in Tour history.

Also on the golf scene, in concrete evidence that securities regulators do not have enough to do, this recent Wall Street Journal ($) article reports that regulators have embarked on sweeping inquiries into Wall Street gift-and-entertainment practices, particularly golf junkets that Wall Street firms provide to mutual-fund executives and other money managers they are trying to woo for trading business:

NASD regulators, for example, have started to examine golf outings that Bank of America Corp. provided to Fidelity Investments' head of stock trading, people familiar with the matter said. As the bank worked in recent years to win trading business from Fidelity, it hosted the executive, Scott DeSano, at the annual AT&T Pebble Beach National Pro-Am golf tournament several times, allowing him to play alongside the pros competing in the event, which raises money for charity.

What next? Eliot Spitzer to sue?

Also in the combat department, as the University of Texas football team and its supporters prepare for their trip to L.A. for the Rose Bowl on New Year's Day, the Dallas Morning News' Greg Fraley throws down the gauntlet and declares the run for the Roses a make or break game for Longhorn coach Mack Brown:

Texas and Brown must win a game on the main stage for once, or never again demand to play with the big boys.

It will be a real live put-up-or-shut-up game for a team notorious for underachieving in these moments. . .

It will be the Longhorns' highest-profile bowl appearance since they went into the 1978 Cotton Bowl ranked No. 1 but lost to Notre Dame.

This is not the Pacific Life Holiday Bowl, a regular stop off the main bowl draft for the Longhorns. . .

The only way the Longhorns' task could have been easier would have been if Pittsburgh had landed in Pasadena.

Michigan is 13th in the BCS standings. Only Pitt, the Big East co-champion, is worse among the eight schools in BCS bowls at No. 21.

Michigan, which shared the championship of the stodgy Big Ten with Iowa, has the name but not the chops this season.

The Wolverines lost to Notre Dame, which has fired its coach, and to Ohio State (7-4). San Diego State came within three points of the Wolverines, at Michigan.

This is not an opponent of the USC-Oklahoma-Auburn level. Michigan is not even Utah, which may be out of coaches before its bowl game.

The Longhorns must cleanly handle Michigan and prove they belong at this level, . . .

Brown asked for this chance. Now, he must do something with it.

And that would be a first, too.

Brown has been a convenient target of barbs because his teams promise so much and deliver so little under the spotlight.

In 17 seasons at North Carolina and Texas, Brown has never won a conference title. That is somewhat understandable at North Carolina, where basketball is king and Florida State was in the conference for part of his tenure.

An 0-for at Texas, flush with resources and talent, is unfathomable.

The bigger the moment, the worse Brown's Texas teams have played. Look at his big-game resume:

? Five consecutive losses to Oklahoma and uber-coach Bob Stoops.

This is as big a mismatch as there is in the college game. The thought of Stoops throws Brown into a panic. The gap is growing. Texas' dull offense does not even challenge Stoops and his staff.

? An 0-2 record in Big 12 championship games. Texas lost to Nebraska in 1999 and, with a BCS berth at hand, was upset by Colorado in 2001.

? A 3-3 bowl record. Last year's 28-20 loss to Washington State represented a dreadful showing by Brown and his staff. Texas acted as if it had no idea Washington State, which led Division I-A in sacks, would blitz. With the offense collapsing in the face of the heavy blitz pressure, Brown removed the mobile quarterback (Vince Young) for the stationary quarterback (Chance Mock).

Reputations are formed by a body of work. There are lots of wins but no landmark triumphs during Brown's seven seasons with Texas.

A win against Michigan would have substance because of the setting.

A loss to Michigan would make it easy not to take Brown seriously for a long time. . .

Moving to thoughts of Christmas, if you are looking for a gift for a sports-interested family member or friend, this Boston Globe article reviews the new book by Gene Conley, one of the last athletes to play two professional sports (Major League Baseball and the NBA) at the same time for much of his professional career. Conley's is a remarkable story, as reflected by this snippet from the article:

There was the time he struck out Ted Williams in the All-Star Game. Then there was the time he had to separate Tom Heinsohn from Wilt Chamberlain during a heated exchange in an NBA game. . . No one else ever won a championship ring in two major sports. No one else played against Jackie Robinson, Frank Robinson, and Oscar Robertson. No one else played with Carl Yastrzemski during the summer, then joined Bob Cousy for the winter. No one else lockered next to Hank Aaron and Bill Russell in the same calendar year.

Conley also confirms the truth about the legendary story in which he and a teammate got off the Red Sox team bus and Conley was not seen again for 68 hours. Ah, those were the days.

Finally, this Houston Press article provides an interesting analysis of the evolution of the high-powered suburban high school football programs in the Houston metropolitan area. Call it the natural evolution of Friday Night Lights.

Posted by Tom at 8:07 AM | Comments (2) |

The Mosul mess hall attack

The Belmont Club has this excellent initial analysis of the insurgent attack in Mosul yesterday that killed more than 20 people, including American military and civilian personnel.

The information and analysis that can be gleaned from blogs such as the Belmont Club puts the accounts of such incidents generated from the mainstream media to shame.

Posted by Tom at 6:39 AM | Comments (0) |

The Rice Prof who discovered Google security flaw

Dan Wallach is the Rice University computer scientist who, along with two of his his graduate students, discovered the security flaw in the Google search tool last week that could have allowed an attacker to search private data stored on personal computers.

In a computer security class, Professor Wallach and Rice graduate students Seth Nielson and Seth Fogarty discovered that an attack website could trick the Google program into believing it was communicating with the Google software and, in so doing, retrieve private data from PCs. Google disclosed the security problem over this past weekend and announced that it has begun distributing a new version of the search tool that repairs the security flaw.

Congratulations to Professor Wallach and his students for a job well done.

Posted by Tom at 5:24 AM | Comments (0) |

December 21, 2004

China? Bring it on!

Austin-based Dell, Inc. heaved a mighty yawn over the recent sale of IBM's computer manufacturing business to the Chinese entity, Lenovo. This NY Times article does a good job of reviewing Dell's remarkable story and current business plan, and includes such interesting tidbits as this:

Five years ago, it took two [Dell factory] workers 14 minutes to build a PC; it now takes a single worker roughly five minutes to do the same.

Posted by Tom at 8:04 AM | Comments (0) |

Prairie Home Companion is 30 years old

Time flies when listening to a good radio show.

Posted by Tom at 7:04 AM | Comments (0) |

Mistrial declared in trial of former Westar CEO

Although overshadowed by the Enron-related criminal cases, the business fraud criminal trial of former Westar Energy, Inc. CEO David Wittig and his right hand man has been making quite a bit of news over the past few months in Kansas. U.S. District Judge Julie Robinson on Monday declared a mistrial in the case when the jury could not render a verdict on most of the 40 count indictment against the defendants. Although the prosecution can (and probably will) re-try a case that ends in a mistrial rather than an acquittal, the result of the trial was a clear victory for the defense.

The mistrial comes a year and a half after another federal jury convicted Mr. Wittig of bank fraud charges in a case not directly related to Westar. Mr. Wittig remains free on bond pending his appeal of that conviction.

Mr. Wittig and former Westar Executive Vice President Douglas T. Lake each faced charges relating to allegations they tried to loot the largest electric utility in Kansas. The pair left Westar late in 2002 amid revelations of misuse of corporate funds. Subsequently, Westar under Mr. Wittig was implicated in the scandal surrounding corporate efforts to curry favor with Houston congressman Tom DeLay, the House majority leader. A Travis County, Texas grand jury continues to investigate Westar's contributions of funds during 2002 to the political action committee that Mr. DeLay created.

Mr. Wittig, who is a former star deal maker at Salomon Brothers, became CEO of Westar in 1998 and immediately turned the sleepy Midwestern utility into a deal machine. Mr. Wittig hired Mr. Lake, who worked with him at Salomon. Mr. Wittig was paid compensation of more than $25 million in his seven years Westar, and he had no reservations about showing it in normally conservative Topeka, where Westar is based. He bought the largest home in Topeka, which is a 17,000-square-foot mansion that former Kansas governor and one-time presidential candidate Alf Landon built, which he then outfitted in with over $2 million in art and interior decoration. Mr. Wittig also drove around Kansas in a $230,000 Ferrari 550 Maranello.

After some success, Mr. Wittig's fast deal plan at Westar faltered and the company's stock price fell from $44 to $9. As a result, Westar came under increasing pressure from shareholders and regulators, including the Travis County grand jury.

The trial has been particularly wild. Judge Robinson, who is a former prosecutor, and Mr. Wittig's defense attorneys -- Adam Hoffinger and Edward Little -- butted heads throughout the trial as the defense accused the judge of favoring the prosecution in her rulings. At several points during the trial, Judge Robinson angrily lectured the attorneys for their courtroom demeanor, which included rolling their eyes during witness testimony. Finally, a day before closing statements, the friction between the judge and the defense attorneys boiled over as Judge Robinson took the extraordinary measure of barring one of the attorneys on Mr. Lake's defense team from the courtroom for the remainder of the trial.

For excellent background on Westar's involvement with Rep. DeLay, the PAC, and the Travis County investigation, check out Charles Kuffner's comprehensive posts.

Posted by Tom at 5:39 AM | Comments (0) |

Updating the Yukos case -- who is Baikal Finance?

Parties involved in the Yukos chapter 11 case on Monday were attempting to discover information regarding Baikal Finance Group, which was the obscure winner of Sunday's Russian government auction of the Yukos oil unit Yuganskneftegaz ("Yugansk"). Several news services reported late Monday that at least two representatives of Baikal are employees of Siberian-based oil and gas major, OAO Surgutneftegaz. Although Surgutneftegaz announced after the Sunday auction that it had no ties to Baikal Finance, speculation is increasing that Surgutneftegaz is providing or backing financing in some manner for Baikal Finance.

Here is the Wall Street Journal's ($) more thorough coverage of the aftermath of the Russian government's auction of the Yukos oil and gas production unit.

Meanwhile, in this op-ed in today's Journal, former Russian chess champion Garry Kasparov pulls no purches regarding the implications from Western acceptance of the Russian government's handling of Yukos:

If the West won't stand up for basic human rights and democratic principles in Russia, one last hope was that it would come to the aid of free enterprise. But the only voice of protest against this weekend's auction of Russian oil giant Yukos's main asset came from Texas, and it wasn't George W. Bush -- it was a bankruptcy court in Houston. Needless to say, the auction of Yuganskneftegaz went forward on Sunday in Moscow despite the court order.

With the Russian state gas company Gazprom in a potential legal tangle over the injunction, the auction was won by a completely unknown entity from the Russian hinterlands that just happened to have $9.3 billion cash on hand. This company will soon prove to be the outer layer of a Russian matryoshka doll. We'll find a Gazprom doll inside of that one and, like every matrioshka today, at the center will be Vladimir Putin.

Mr. Kasparov concludes with the following insight:

Perhaps Western leaders agree with last week's New York Times editorial that made the stunning assertion that "a fascist Russia is a much better thing than a Communist Russia." I hope I am allowed to order something not on that menu. I am not ready to throw up my hands and surrender to the Putin dictatorship. It is still possible to stand up to the dictator and to fight for democracy.

In March, 1991, then-President George H.W. Bush and his European counterparts were still supporting Mikhail Gorbachev's futile domestic endeavors. I wrote then that if we were left alone we would soon have no Gorbachev and no communism. Now we need to say no to Vladimir Putin and no to fascism. If the United States and the European powers are not willing to help us in this new fight, at the very least they should stay out of the battle and stop giving aid to the forces of fascism.

Posted by Tom at 5:16 AM | Comments (0) |

December 20, 2004

Moneyball woes

The NY Times' Murray Chase in this article provides some humbling analysis of the economic disparity between the New York Yankees and everyone else in Major League Baseball:

If the Yankees' rotation is [Randy] Johnson, Mike Mussina, Kevin Brown, Carl Pavano and Jaret Wright, the combined 2005 salaries of the starters will be $67 million. That total is more than the 2004 payrolls of 18 of the other 29 teams.

And if the Yanks outbid the Stros for Carlos Beltran?:

If Beltran's agent gets what he wants, $20 million a year, make the Yankees payroll $230 million, nearly 30 percent higher than this year's.

By way of comparison, the Stros' 2004 salary budget was just a tad under $75 million.

Posted by Tom at 8:50 AM | Comments (1) |

Tales of woe from Texas' third largest city

We all know that the Cowboys are having horrible season. But it's really a bad turn of events when the NY Times runs an article about all of the problems that Dallas is having, not the least of which is that San Antonio has overtaken it to become Texas' second largest city behind Houston:

The losing Cowboys are fixing to defect again, the police chief and city manager were shown the door, a 350-pound gorilla made his own grand exit, and the hometown daily, former employer of the ex-reporter now ensconced in City Hall, is pinning Pulitzer Prize hopes on a pitiless exposé of everything gone wrong.

It has been that kind of year for Big D, Texas's second biggest - oops, third biggest - city; San Antonio gained a 6,000-person edge to slip in with just over 1.2 million, behind Dallas's longtime archrival, Houston.

The city was humbled in other ways as well, watching sourly as conventioneers thronged Houston's budding entertainment district while Dallas struggled to begin a master plan study and select a flagship hotel for its own convention hopes, which it did at its final City Council meeting of the year on Wednesday, giving a provisional go-ahead to a developer for a 1,000-room Marriott. (In fairness, the Dallas Convention and Visitors Bureau may have been distracted, some of its executives having been found earlier wooing clients at topless bars.)

Based largely on a wave of property crimes, Dallas once again leads the F.B.I.'s list of high-crime big cities this year. Efforts to cope with a growing homeless population by making it illegal to take a shopping cart off the property of the store it belongs to did not solve the problem, but instead produced bizarre fleets of cannibalized baby strollers and shopping carts. The dramatically slanted City Hall that attracted architectural plaudits when it was completed in 1978 has become a magnet for derelicts.

Dallas officials also spent part of the year trying to figure out how a handful of police narcotics informants were able to plant some 330 kilograms of gypsum and other harmless substances on 30 innocents, mostly Spanish-speaking immigrants, to frame them on drug charges in 2001.

Not to mention that the 6-8 Texans are on course to finish with a better record this season than that 5-9 Cowboys.

Posted by Tom at 8:34 AM | Comments (1) |

The corporate case of the decade

This NY Times article mostly misses the point about the key issues arising from the ongoing civil trial over the Walt Disney Co. board's decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney. The Times piece focuses on personalities and the changing nature of the executives who are running big media and entertainment companies, and observes that the days of the autocratic executive treating the corporation as a personal fiefdom are probably over.

However, as noted in this earlier post, the blogosphere has done a much better job of analyzing the larger issues arising from the trial, not the least of which is that any malfeasance of the Disney board in approving the Ovitz severance package pales in comparison to its failure to require Disney CEO Micheal Eisner to adapt Disney's corporate strategy to maximize value for Disney's shareholders.

Both Professor Ribstein and Professor Bainbridge have been particularly insightful in discussing the issues arising in the Disney trial. For example, in noting that the case should ultimately turn on the duty of care that the Disney board used in making its decision to ratify the Ovitz severance package, Professor Ribstein observed in this recent post:

The Disney case is also interesting in illustrating the cross-currents of recent corporate history. It was first decided for the board in the pre-Enron era, then allowed to go forward in the post-Enron era, and now may be decided in the post-post-Enron era in which many are having second-thoughts about whether regulation and distrust of business people have gone too far.

And Professor Bainbridge notes in a recent post here:

The facts suggest that Eisner hired his buddy Ovitz, fell out with Ovitz and wanted him gone, cut very lucrative deals for his friend Ovitz both on the way in and on the way out, all the while railroading the deals past a complacent and compliant board. The story that emerges is one of cronyism and backroom deals in which preservation of face was put ahead of the corporation's best interests. As such, the case does not necessarily presage the emergence of what Allen called "'"objective' evaluation of the decision" made by a board. Instead, this looks like another case in which "we have reason to disbelieve the protestations of good faith by directors who reach 'irrational' conclusions?" Michael P. Dooley, Fundamentals of Corporation Law 263 (1995). Once again, a seeming inquiry into the rationality of the decision arguably masks an underlying search for conflicted interests and self-dealing.

Finally, Professor Bainbridge provides the bottom line on the case in this post:

If the shareholders win, boards could be held liable "not just for big decisions like mergers but also compensation and other run-of-the-mill decisions."

Thus, in a business climate in which many companies are having increasing difficulty finding qualified independent board members, the outcome of the Disney trial may provide yet another reason for competent businesspersons to avoid such engagements altogether.

Posted by Tom at 5:16 AM | Comments (0) |

December 19, 2004

2004 Weekly local football review

Texans 24 Bears 5

In a game played in -10 wind chill conditions, the Texans' defense beat up on an utterly incompetent Bears offense as the Texans beat the Bears at Soldier Field in Chicago. The sixth win is the most that the Texans have won in a season during their first three in the NFL.

The tale of this game was turnovers, as the Bears lost four and the Texans none. Neither team could do much offensively under the difficult conditions, but the Bears were particularly atrocious, managing barely 200 yards total offense. The Texans' David Carr played reasonably well under the circumstances (13-28/208 yds/1 TD) and, most importantly, had no turnovers. Notably, Carr did a good job of throwing passes to wide receivers Jabbar Gaffney and Corey Bradford, which is the only way that the Texans are going to be able to force teams to loosen the now routine double coverage on the Texans' star receiver, Andre Johnson.

The entire Texans' defense was impressive, although this Bears offense is truly one of the worst of the past decade in the NFL. Particularly impressive for the Texans is rookie cornerback Dunta Robinson, who was one of the Texans' first round draft picks in the 2004 draft. This young player plays like a seasoned veteran 14 games into his professional career and, barring injury, looks as if he will hold down one of the Texans' cornerback positions for the next decade.

The Texans play the Jaguars at Jacksonville on the Sunday after Christmas Day and then play Cleveland at Reliant Stadium to finish up the season. Despite rather substantial problems in both the offensive and defensive lines, and a still unproven quarterback, it is a credit to the Texans' coaching staff that they have this club in a position to break even on the season.

Eagles 12 Cowboys 7

In perhaps the best reflection of the state of the Cowboys franchise, the Pokes were able to take solace in the fact that they were at least able to keep it close against the Eagles this time, as opposed to the 49-21 Monday Night Football disaster of earlier this season.

What is truly amazing is that the Cowboys were in a position to win this game at all after mustering barely 300 yards total offense and coughing up three turnovers. But the Eagles scored with less than two minutes remaining to seal the win and place the Cowboys in distinct peril of finishing the season with a worse record than the third year Texans. The Pokes wind up the season with the Redskins at home next Sunday and then the Giants the following week at the Meadowlands before beginning what is sure to be an eventful offseason as this once proud franchise faces a formidable rebuilding project.

Posted by Tom at 6:41 PM | Comments (4) |

Russian SPE wins Yukos auction

A special-purpose vehicle representing unknown Russian interests agreed to pay $9.34 billion for a controlling interest in Yuganskneftegaz ("Yugansk"), which formerly was Russian oil giant OAO Yukos' largest production asset. The interest purchased includes all of Yugansk's voting shares.

Here are the earlier posts on the Yukos chapter 11 case and the related TRO.

OOO Baikal Finance Group made the winning bid at an auction that the Russian Federal Property Fund carried out despite a temporary restraining order that a U.S. Bankruptcy Court in Houston approved in Yukos' chapter 11 case on Thursday. The TRO enjoined several Western financial institutions from participating in the financing of a bid in such auction.

The winning bid was far below what Yukos contends that its interest in Yugansk was worth. Yugansk constituted 60% of Yukos's producing output at the time of the auction.

Nothing is known about Baikal, which registered for the auction on Friday after entry of the TRO. The initial speculation is that it is a Russian government controlled entity that relies on domestic Russian financing for its bid.

Posted by Tom at 1:46 PM | Comments (0) |

December 18, 2004

Updating the Yukos case -- Gazprom appeals TRO

Gazprom, the Russian state-controlled natural gas giant, has appealed and requested a stay of a U.S. Bankruptcy Court's temporary restraining order that enjoins Western financial institutions from financing Sunday's scheduled government auction of Yukos' main production subsidiary Yuganskneftegaz ("Yugansk")in Moscow. An extraordinary Saturday afternoon hearing on Gazprom's motion for stay was scheduled before U.S. District Judge Nancy Atlas in Houston in civil case no. 04-04756. Here are the earlier posts on the fast-breaking Yukos case.

Gazprom, which is the expected to be the winner of Sunday's auction, may not be able to finance its winning bid after a consortium of Western banks -- including Deutsche Bank, ABN Amro, BNP Paribas, and Dresdner Kleinwort Wasserstein -- froze a credit line of about $13 billion it had agreed to loan Gazprom for its bid. With huge banking interests in the United States, each of the banks could face legal action if they violated the TRO and went ahead and financed Gazprom's bid.

Stay turned for late breaking developments in this fast moving case.

Update: Judge Atlas denied Gazprom's motion for a stay of the TRO.

Meanwhile, the largest shareholder in Yukos is planning a $100 billion lawsuit against various entities involved in the Russian auction of Yukos.

Posted by Tom at 4:31 PM | Comments (0) |

Clifford Chance settles with Brobeck trustee

London-based Clifford Chance agreed Friday to pay $5.5 million in a global settlement with the trustee of former tech law firm Brobeck, Phleger & Harrison's bankruptcy estate and retired partners and longtime employees of Brobeck. Houston's Lanier Law Firm, who represent the plaintiffs in the lawsuit, and Brobeck's liquidation committee also signed off on the settlement. Here is an earlier post on the rather interesting bidding for Brobeck's claims against Clifford Chance.

The settlement was finalized as the parties negotiated for three hours in two jury deliberation rooms next to U.S. Bankruptcy Judge Dennis Montali's courtroom Friday morning. The settlement mooted the necessity for an auction of Brobeck's claims against Clifford Chance, which Judge Montali had previously ordered. The KM Group, a coalition of asbestos plaintiff lawyers, had planned to bid against Clifford Chance.

The settlement resolves the lawsuit that retired Brobeck partners and employees had filed against Clifford Chance and former Brobeck Chairman Tower Snow Jr. that sought at least $100 million in damages. The lawsuit basically claimed that Clifford Chance's and Mr. Snow's agreement that Mr. Snow and and 16 other Brobeck partners would bolt to Clifford Chance in 2002 triggered Brobeck's 2003 collapse into bankruptcy.

The agreement also resolves a dispute between the plaintiffs in that lawsuit and the Brobeck trustee over the ownership of the claims against Clifford Chance. The Brobeck trustee had asserted in court pleadings that the claims primarily related to profits Clifford Chance received from unfinished business Brobeck partners had taken with them to the firm and, thus, the claims were property of Brobeck's estate.

The settlement resolves negotiations that have been ongoing for the past six months. Clifford Chance had agreed to pay $3.75 million to Brobeck's estate to settle the trustee's potential claims in July. However, the KM Group emerged and offered the trustee $4 million for the estate's claims againt Clifford Chance. The trustee then renegotiated the deal with Clifford Chance, which upped the settlement amount to $4.5 million. The KM Group's desire to increase its offer over that settlement amount had prompted the Bankruptcy Judge to schedule the auction of the Brobeck estate's claims.

Posted by Tom at 10:41 AM | Comments (0) |

Jenkens & Gilchrist ups settlement offer

The cost of Dallas-based law firm Jenkens & Gilchrest's legal problems resulting from its involvement in advising clients on tax shelters rose considerably yesterday. The the Dallas Morning News is reporting that the firm has increased its offer to a class of former clients to $85 million to settle a lawsuit over the firm's involvement in the matter. Here are earlier posts on the firm's involvement in the investigations and lawsuits that have arisen over the firm's tax shelter advice.

Posted by Tom at 10:09 AM | Comments (0) |

No holiday cards being exchanged between the Universities of Houston and Nebraska

Twenty-five years ago, the University of Houston football team was preparing to play the University of Nebraska in the Cotton Bowl game on New Year's Day. Houston won that entertaining game 17-14 on a last minute touchdown pass.

Thus, UH Athletic Director Dave Maggard's idea of scheduling a game between Houston and Nebraska at Houston's Reliant Stadium to open the 2005 football season seemed like a good one. That is, until Nebraska pulled out of the game yesterday in order to schedule a home opener against that traditional college football powerhouse, Maine. Mr. Maggard is not pleased, as the Chronicle reports:

"This is the most unprofessional thing I've dealt with in my 30 years in this business. I'm very, very surprised by all this. This is something that doesn't belong in Division I athletics. I'm very, very angry about this."

"This is absolutely unprofessional in every way." It's gutless. Spineless. They're going to have to live with it. I've lost a tremendous amount of respect for that program. I think that for college athletics, it's shameful."

"We're going to figure out a solution, but they are developing a reputation for hanging people out to dry. I think it's a sad commentary on the people running that athletic program."

On the heels of this earlier incident involving a Nebraska football player, this latest development makes one wonder just how low the University of Nebraska football program must fall before it bottoms out?

Posted by Tom at 9:43 AM | Comments (2) |

Fifth Circuit upholds vague Commodity Exchange Act reporting law

The Fifth Circuit Court of Appeals in New Orleans issued this decision on Friday in the case of former Dynegy trader Michelle Valencia that upholds a controversial law that the Justice Department has used to charge a group of Houston natural gas traders with reporting false information in an alleged scheme to manipulate prices. Here is an earlier post on this particular prosecution.

The Fifth Circuit decision overturns a previous ruling of U.S. District Judge Nancy Atlas of Houston that the law was vague and that someone could be charged in the trader cases with delivering "false and misleading" information even if the person did not know that the data was incorrect.

In January 2003, Ms. Valencia was charged with three counts of false reporting under the Commodity Exchange Act and four counts of wire fraud. The indictment alleges that Valencia fabricated natural gas trades for submission to the publication Inside FERC's Gas Market Report from November 2000 to February 2001. She pleaded not guilty to the charges.

This past August, a group of former natural gas traders received letters from the U.S. Attorney's Office in Houston advising them that are targets of a criminal investigation. Then, a couple of months later, four former El Paso traders pleaded guilty to false reporting charges in connection with the probe. Finally, in late November, three more former El Paso workers and a former Reliant trader were charged with false reporting, and Ms. Valencia was also charged with conspiracy and wire fraud charges.

All of these indictments follow a lengthy investigation into alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications such as the Inside FERC Gas Market Report use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular cases, it remains unclear whether the publication actually used the false information provided. Nevertheless, the government contends that it needs only to prove that fake trades were reported and not that they were actually published or affected the markets.

These cases -- along with the recent Enron-related Nigerian Barge criminal case -- are at the forefront of the controversial but increasingly common tactic of federal prosecutors and state prosecutors such as Eliot Spitzer criminalizing merely questionable business practices to regulate politically unpopular business interests. As noted in this earlier post, this tactic is resulting in absurdly unjust results, such as Martin Frankel's 25% shorter sentence than that of Jamie Olis.

Moreover, the inflexibility of the federal sentencing guidelines combined with the public animus toward business that the government's press releases often provoke, defendants in these cases are often faced with the untenable choice of copping a plea for a short prison term or defending themselves under politically-charged circumstances against a possible prison term that would amount to a life sentence.

With the Yukos bankruptcy filing in Houston this past week, much has been made in news reports regarding the Russian government's politically-motivated and unjust criminal prosecution of former Yukos CEO Mikhail B. Khodorkovsky. What is not as widely reported is that the current United States Justice Department policy of pursuing questionable criminal prosecutions of politically unpopular businesspersons is not much different.

Posted by Tom at 8:37 AM | Comments (0) |

Baker Hughes gets caught in Oil for Food scandal net

Houston-based oil services giant Baker Hughes Inc. announced Thursday that it has received a federal grand jury subpoena and a request from the Securities and Exchange Commission to provide information regarding its participation in the United Nations' oil-for-food program. Here is an earlier post regarding the investigation of other companies and individuals with Houston ties regarding their their involvement in the controversial program.

Among the other companies that have acknowledged receiving subpoenas from the SEC and the grand jury are conglomerate Tyco International Ltd., pharmaceuticals maker Wyeth and Houston-based El Paso Corp. The SEC's probe is parallel to the other investigations, which include an independent U.N. inquiry being headed by former Federal Reserve Chairman Paul Volcker, the federal grand jury in Manhattan and several congressional committees.

The SEC's investigative focus is the same as the other investigations -- whether any of the companies improperly conducted business with Iraq's oil-for-food program that Saddam Hussein operated in a typically corrupt manner. Specifically, the investigations are examining whether companies that issue stock or securities in the U.S. paid illegal kickbacks or bribes to politicians or businessmen to get Iraqi business or dealt with companies that may have committed such violations.

Posted by Tom at 8:24 AM | Comments (0) |

Judge Gilmore gets chippy with the Justice Department

U.S. District Judge Vanessa Gilmore is currently presiding over a rather ugly criminal case in Houston against against three people accused in the deaths of 19 illegal immigrants who were being smuggled into this country in the back of a blistering hot trailer. To say that the prosecution has not gone smoothly is an understatement.

On this past Thursday, after the prosecution closed its case in chief and the defendants chose not to put on any evidence in defense of the case, Judge Gilmore dismissed charges against one of the defendants, ruling that the government had failed to show that the defendant had benefited financially from an arrangement in which illegal immigrants were harbored and transported.

Then, on Friday, Gilmore threatened to hold one of the prosecutors in contempt if he failed to get a letter from U.S. Attorney General John Ashcroft by the end of the day explaining his refusal to disclose why the death penalty sought against one of the black defendants in this case is the first time that the death penalty has been sought against a defendant in an immigrant smuggling case. According to this Chronicle story on the matter, Judge Gilmore stated from the bench:

"They are taking the position that they can indict whoever they want to and charge the death penalty and not disclose the reason."

Judge Gilmore has not yet issued an order for the prosecutors to show cause why they should not be held in civil contempt for failing to disclose the information, which is a prerequisite for the enforcement of the civil contempt penalty.

Posted by Tom at 7:47 AM | Comments (0) |

Western bank backs off funding of Yukos auction bid

At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom's bid for the Yukos unit Yuganskneftegaz ("Yugansk") has decided to postpone its participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.

Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.

Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.

My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia's post-communist economic development will continue to be constrained by the lack of investment from the West.

Posted by Tom at 7:40 AM | Comments (0) |

Western bank backs off funding of Yukos auction bid

At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom's bid for the Yukos unit Yuganskneftegaz ("Yugansk") have decided to postpone their participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.

Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.

Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.

My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia's post-communist economic development will continue to be constrained by the lack of investment from the West.

Posted by Tom at 5:00 AM | Comments (0) |

December 17, 2004

This year's Super Bowl City

As noted in this earlier post, the city of Jacksonville has a tough act to follow in hosting the 2005 Super Bowl. With only a fraction of the facilities that Houston used in hosting the 2004 Super Bowl, Jacksonville officials are scrambling to accomodate the NFL's gargantuan requirements for putting on the biggest spectacle in U.S. professional sports.

However, despite the perk of hosting the Super Bowl, Professor Sauer observes that Jacksonville is not even a sure bet to keep its NFL team. Because of declining ticket sales, Jacksonville's ownership is artifically reducing the number of seats in the team's stadium. Professor Sauer notes:

In an open system of leagues, teams from smaller burgs occasionally get good, generate enthusiasm, and go on a run. In the US system of league monopolies, a town essentially gets a short term lease on a team, then it gets auctioned off to the next town starved for the sport.

Read the entire post.

Posted by Tom at 7:46 AM | Comments (0) |

UAL wins key concession

The Air Line Pilots Association agreed yesterday not to oppose United Airlines parent UAL Corp.'s effort to terminate the group's generous defined-benefit pension plan in return for UAL's agreement to issue to the union $550 million in convertible notes that the active pilots could sell in the capital markets to raise money to cover a portion of the pension shortfall.

The agreement is a key development in UAL's effort to meet conditions of its exit financing so that it can emerge from its now seemingly unending chapter 11 case. Here are earlier posts on UAL's bankruptcy case.

UAL is seeking to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasi-governmental agency that insures pension plans. Such a move would save UAL $4 billion in pension contributions through 2008 and is a condition to UAL's exit financing for emerging from its chapter 11 case. Although the PBGC opposes UAL's plan to terminate the pension plans, if UAL can persuade the bankruptcy court that it cannot emerge from bankruptcy with that financial burden, then the PBGC would likely be forced to take over the plans.

Inasmuch as lucrative defined-benefit pensions are a highly important component of compensation in legacy airlines' labor contracts, the fact that ALPA agreed to a deal over its pension with UAL indicates that the union understands that UAL really is on the brink of liquidation.

And that, folks, is the most important lesson that the parties-in-interest in the UAL case must understand if United Airlines is ever going to emerge from chapter 11.

Posted by Tom at 5:18 AM | Comments (0) |

Was there really any doubt about who would win?

Following on this earlier post regarding Dallas-based Southwest Airlines' effort to expand its operations at Chicago's Midway Airport, Southwest won the auction of bankrupt airline ATA's Holding Corp.'s Midway assets yesterday.

Posted by Tom at 5:09 AM | Comments (0) |

Updating the Yukos case -- Judge Clark issues TRO

U.S. Bankruptcy Judge Letitia Z. Clark issued a temporary restraining order late Thursday enjoining the Russian government's auction in Moscow on Sunday of the main production subsidiary of Russia's OAO Yukos. Here are the earlier posts on the Yukos chapter 11 case.

Although no one involved in the case really expects the Russian government to comply with a United States court order, the real purpose behind Yukos seeking the order in the first place is to chill participation by Western financial insitutions in financing an acquisition of the Yukos unit at the auction.

Russian natural-gas company Gazprom is expected to bid on the Yukos unit named Yuganskneftegaz ("Yugansk") and Deutsche Bank AG is leading a consortium of Western banks in financing Gazprom's bid for Yugansk. The Russian government owns 40% of Gazprom, which has extensive dealings with Western oil and gas firms. Consequently, the prospect of being held in contempt of the TRO is a serious consideration for the banks and Gazprom, both of which are quite likely to be found to be subject to the jurisdiction of U.S. courts.

Although a major issue in the Yukos chapter 11 case is whether a U.S. Bankruptcy Court can exercise jurisdiction over a Moscow-based business with tenuous American ties, Judge Clark concluded that she had jurisdiction in issuing the TRO. The fact that U.S. investors own 15% of Yukos' shares was an important factor in her decision, which stated in part:

"Participants in international commerce, in Russia, in the United States and elsewhere, need to have an expectation that when they invest in foreign enterprises they may do so without fear that their investments may be the subject of confiscatory action by agencies of the foreign government."

Judge Clark went on to find in her order that the events in Russia that led to the notice of the auction are "inconsistent with the regular application of Russian law within Russia" and that harm to Yukos from the sale would be "irreparable." In comparison, she noted that delaying the sale did not cause any material harm to the Russian government's ability to collect its tax claim.

Consequently, Yukos looks to have won the first round of this fight to take its case against the Russian government to the investing public. And make no mistake about it, this is really a high stakes public relations battle in which Yukos is attempting to embarrass the Kremlin in the international business community. Although the principles of sovereign immunity almost certainly protect the Russian government from any damage claims, the basis for damage claims against Western banks and Gazprom is far better. Many precedents exist for Western companies grabbing assets of Russian firms in the West to satisfy judgments issued by Western courts.

That is the essential point that Alan Riley, an expert on European law, makes in this Wall Street Journal ($) op-ed:

Mr. Putin now may well find that in lands with independent courts and respect for the rule of law, the title of Gazprom to Yukos's assets will come under serious legal attack. Yukos has a very strong property rights argument in most Western jurisdictions to persuade the courts that Gazprom has no title to its assets and then seek compensation in the form of seizing Gazprom tankers, bank accounts and subsidiaries. If Yukos can prevail in the Western courts, Gazprom's revenues are likely to fall sharply as a result. Oil and gas arriving in the West will be seized and Gazprom, for fear of further seizures, will be unwilling to ship more oil and gas abroad. Given Gazprom's size, such a disruption will have a knock-on effect on the flow of oil and gas to the EU, and a serious negative impact on the Russian economy. If Yukos prevails in the courts of the West, Mr. Putin, however bitter he may find it, may realize that he has to settle if he wants to protect Gazprom and keep the oil flowing.

So, bankers -- lend at your peril and stay tuned.

Posted by Tom at 4:24 AM | Comments (4) |

December 16, 2004

Noble Energy makes big acquisition

Houston-based independent exploration and production company, Noble Energy Inc., has agreed to acquire Denver-based Patina Oil & Gas Corp. for $2.76 billion in cash and stock. The deal, which is scheduled to be completed by April, is expected to raise Noble's reserves and production by more than 50%.

Noble will pay approximately $1.1 billion in cash and 27 million of its shares, and assume some of Patina's debt. Based on Noble's closing share price of yesterday, the deal values Patina at about $37.89 a share, which is about a 20% premium over its closing price of yesterday.

Noble is acquiring Patina to add to its inventory of development opportunities. Patina's assets are located primarily in the Rocky Mountain and mid-continent regions of the U.S., which are regions in which Noble already has substantial operations.

Noble's Charles D. Davidson will remain chairman, president and chief executive of the merged company. Thomas J. Edelman, Patina's chairman and CEO, will take a seat on Noble's board along with one other director from Patina's board. Mr. Edelman will also serve in a special advisory capacity to facilitate the integration of the two companies.

Posted by Tom at 2:37 PM | Comments (0) |

What would you give to see the Red Sox World Series victory?

Priceless, from Comedy Central.

Posted by Tom at 8:35 AM | Comments (0) |

The truth about Tiger's swing change

This Jaime Diaz Golf Digest article is the flat out best analysis of Tiger Woods' recent swing change that I have read and a must read for any student of the golf swing.

Posted by Tom at 8:11 AM | Comments (0) |

UMass Law Dean tees off on Harvard over plagiarism

Lawrence R. Velvel, the dean of the University of Massachusetts Law School, lays the wood to Harvard over its handling of the recent plagiarism of Harvard professors Laurence Tribe and Charles Ogletree. The entire piece is hard-hitting academic criticism at its best, and here is a snippet to arouse your interest in reading the rest:

The continued silence of [Harvard] President Summers and Dean Kagan gives wings to what until recently has been only a slight suspicion. It promotes the idea that they are simply saying nothing -- are lying low -- in the hope that the story will simply disappear with time. They are, after all, old Washington hands. They cannot help but be familiar with the two-day-wonder nature of the media. They cannot fail to know, that is, that generally speaking the press jumps on a story for one or two days and then forgets about it as reporters and anchormen turn to and jump on other stories. They know that the febrile minds of the press, minds based not on principle but on sensationalism and the new new thing, are usually unable to stick with something for longer than 48 hours.

So our flagship university, like the rest of American society, which it purports to lead by example, appears to be condoning dishonesty instead of punishing it in clear, public and no uncertain terms. Bravo President Summers. Bravo Dean Kagan. Your failure to act accords with the dishonesty that is rampant in society today. And the actions of a flagship should accord with those of the society it leads, shouldn?t they?

Care to respond, Harvard?

Posted by Tom at 7:27 AM | Comments (0) |

New Orleans attorney accused of embezzling $20 million

Jamie Perdigao, a former partner with the New Orleans office of Adams & Reese, has been accused of embezzling $20 million. Read about the case here.

Posted by Tom at 6:49 AM | Comments (1) |

Updating the Yukos case -- TRO hearing proceeding

On the heels of Yukos' chapter 11 filing late Tuesday in a Houston, U.S. Bankruptcy Judge Letitia Clark will continue hearing testimony on Yukos' request for a temporary restraining order this morning. The TRO request is Yukos' last ditch attempt to create a some type of legal impediment to the Russian government's scheduled auction of Yukos' primary oil and gas unit this Sunday.

The Russian government has already announced that it intends to proceed with the auction regardless of the outcome of the TRO hearing. However, my sense is that Yukos' real intent in pursuing the TRO is to create hesitation in the business planning of Western financial institutions that may be planning on financing an acquisition of the Yukos' unit in Sunday's auction. Yukos has named a number of those financial institutions as defendants in the lawsuit in which it is seeking the TRO.

The threshold issue in the Yukos' case is whether a U.S. Bankruptcy Court has jurisdiction because nearly all of Yukos's assets and most of its creditors are outside the United States. In the court hearing yesterday, Yukos' attorneys stated that Yukos did not file for bankruptcy protection in Russia because the company fears it would not get a fair hearing there. Although that it probably correct, that is not a basis for jurisdiction in an American federal court. Moreover, lawyers for various defendants pointed out yesterday that Yukos successfully argued in obtaining dismissal of a federal lawsuit two years ago that Yukos had virtually no ties to Texas.

Yukos countered by contending that it has a greater stake in Texas and the United States now. Yukos contended that it is U.S. investors own more than 10% of the company and that Yukos has about $10 million in domestic banks. Moreover, Yukos' chief financial officer is now working out of his Houston home after fleeing Russia because of government intimidation, although I doubt that making Yukos a home-based business in Houston will have any effect on Judge Clark's decision on jurisdiction.

The sale of Yukos' main oil and gas unit -- Yuganskneftegaz, but thankfully nicknamed "Yugansk" -- is the latest chapter in Yukos' ordeal with the Russian government over the past year and a half. The company's troubles -- which include an ongoing criminal corruption case against its former CEO and main shareholder, Mikhail Khodorkovsky -- is part of a campaign by the Kremlin to deter Russia's new wealthy capitalists from opposing the Putin government and to regain government control over strategic assets that were privatized during the demise of Russia's communist economic system in the early 1990s (see well-time Wall Street Journal ($) op-ed here). Given the reduction in Yukos' equity value during the past year and a half, the Russian government's handling of Yukos is likely to have a lingering effect on Western capital investment in Russia, which the Russian government still desperately needed.

During the hearing on Wednesday, Judge Clark told Yukos lawyers that they would have to establish in the TRO hearing that the Russian government was attempting to to undervalue Yugansk in the auction, and commented that, for starters, Yukos should be prepared to show that that Yugansk is worth at least twice the $8.6 billion starting price that the Russian government has established for the auction.

Longtime Houston bankruptcy lawyer Hugh Ray, who is representing Deutsche Bank AG (which is financing Gazprom's bid for Yugansk), generated chuckles in the courtroom yesterday when he observed that Yukos's chapter 11 filing and request for a TRO is the equivalent of a "legal Hail Mary."

Posted by Tom at 5:08 AM | Comments (0) |

December 15, 2004

Russian oil giant files chapter 11 in Houston

The Russian Government is being challenged with the rule of law, United States Bankruptcy Code style.

In a stunning development, embattled Russian oil giant Yukos has filed a chapter 11 case in Houston late Tuesday and requested a temporary restraining order against the Russian government's auction of its main production unit that is currently scheduled for this Sunday.

H'mm. How would you like to try and enforce that TRO?

Here are earlier posts on the problems that Yukos has been experiencing with the Russian government. On one hand, Yukos' defenders claim that the Russian government's campaign against Yukos and its owners -- particularly jailed CEO Mikhail Khodorkovsky -- is an effort to silence political opposition to Russian president Vladimir Putin, while Putin and his supporters claim that the government is simply cracking down on Yukos because of shady bookkeeping and corruption. Mr. Khodorkovsky has been in jail over a year and is currently being tried in Russia on charges of fraud and tax evasion.

Russian tax authorities claim that Yukos owes the government a total of $27.8 billion in unpaid taxes, so the government is auctioning Yukos' subsidiary Yuganskneftegaz (how's that for mouthfu?) -- which produces about 60% of Yukos' oil production -- on Sunday to pay at least a portion of the indebtedness. Yukos supporters contend that the government auction is a sham that is intended to transfer the unit to a government favored company such as state gas giant Gazprom. The starting price for the auction is $8.6 billion.

In its initial chapter 11 pleadings, Yukos claimed that its total assets are worth approximately $12.25 billion and that its total debts were about $30.75 billion.

The case information for the chapter 11 case is case no. 04-47742, Yukos Oil Company, Debtor and is pending before U.S. Bankruptcy Judge Letitia Z. Clark. A hearing on Yukos' request for the temporary restraining order is scheduled for 11:15 a.m. this morning in Houston. Zack Clement of Fulbright & Jaworski is representing Yukos.

Posted by Tom at 5:29 AM | Comments (0) |

Thinking about football statistics

While Bill James and his Sabermetrian disciples revolutionized analysis of baseball over the past generation, no similar movement took place in regard to analysis of football. However, as this NY Times article reports, football at the highest levels is increasingly embracing Sabermetric principles:

Now the sabermetric revolution may be gaining a toehold in football as well. And here too the center of the revolution can be found in Massachusetts, where Coach Bill Belichick has led the New England Patriots to victories in two of the last three Super Bowls.

Belichick is known for his unorthodox strategies: being more willing than most to not punt on fourth down; running the ball far more than average in certain crucial situations; and eschewing two-point-conversion attempts in situations when orthodox doctrine recommends them.

Not coincidentally, experts in the world of football statistical analysis endorse all these strategies. For example, David Romer, an economist at the University of California at Berkeley, published a working paper arguing that conventional football wisdom led to far too much punting. Romer analyzed thousands of plays and calculated the chance of scoring from any position on the field. Based on that, he gauged the relative worth of the field position gained by punting against the lost opportunity to score. Romer found that football coaches punt far more than they ought to -- perhaps acting out of fear of the worst outcome (going for it on fourth down and failing), rather than rationally balancing risk and reward.

Romer's paper, "It's Fourth Down and What Does the Bellman Equation Say? A Dynamic Programming Analysis of Football Strategy," is far from light reading, so it came as a shock to Romer when he learned that Belichick, who was an economics major at Wesleyan University, had read it.

The main thrust in football statistical analysis is the development of a metric known as "defense-adjusted value over average," or "DVOA." The statistic takes into account that not all yards gained in football are created equal. For example, gaining 5 yards on third down and 4 is more beneficial, on average, than gaining eight yards on third and 10. Aaron Schatz over at FootballOutsiders.com is doing the best analysis with DVOA:

Just as it is in baseball sabermetrics, context is crucial to Schatz's analysis. Schatz rates every play a team runs by comparing it with the league average performance for plays in as close to that situation as possible. In Schatz's analysis, the relative success of a play is determined by, among other things, the down and distance, the current score, the field position and the opponent's strength. DVOA, in short, is an attempt to create a tool of analysis for football similar to such Jamesian baseball statistics as offensive winning percentage, runs created and OPS (on-base percentage plus slugging percentage).

Meanwhile, the lack of refined football statistics obscures just how phenomenal a season Peyton Manning this seasons. Although Manning has received a fair amount of publicity over the fact that he will break Dan Marino's record of 48 touchdown passes in a season, Allen St. John in this Wall Street Journal ($) piece observes that Mannings' excellence is better reflected by another key passing statistic -- yards per pass:

For pro quarterbacks there's no statistical Holy Grail. The conventional milestones Mr. Manning is approaching don't quite resonate. We have developed a benchmark of our own that should make watching the rest of Mr. Manning's historical season all the more compelling.

10 Yards per Attempt: What's the essence of football? Almost every time the referee spots the ball on first down, a team has one goal -- move the ball 10 yards and earn another set of downs. In a game of variables, it's the one near-universal. By the Numbers has long touted YPA as the game's most revealing passing stat because it factors in all the qualities that a great quarterback needs. Accuracy is important, but so is the ability to go deep.

And 10 yards per attempt is near perfection. It means that almost every time a quarterback throws, the linesmen move the chains. And while it's been achieved in the past by greats like Sid Luckman and Otto Graham, it's a goal that has become elusive in the modern NFL. Mr. Manning's YPA of 9.41 is the best single-season mark of any post-merger quarterback with more than 350 attempts in a season. Indeed, just topping nine yards per toss puts Mr. Manning in some pretty heady company. Only four other post-merger QBs have been able to top nine yards per throw for a full season, and three of them made the Super Bowl in the year they did it.

The three Super Bowl QB's who topped nine yards per pass were Marino, Joe Montana, and Boomer Esaison. Who was the other quarterback who averaged more than nine yards per pass in a season?

Lynn Dickey of the Packers in 1983!

Posted by Tom at 5:10 AM | Comments (0) |

A Fight at the Opera

Herbert Breslin became master tenor Luciano Pavarotti's publicist in 1967 and ultimately dumped Placido Domingo from his client list so that he could become Pavarotti's manager. He lasted as Pavarotti's manager for 35 years.

However, now Mr. Breslin is Mr. Pavarotti's ex-manager, and he has written a book about Pavarotti that is the subject of this hilarious NY Times Book Review by Jane and Michael Stein. Here are a couple of delicious snippets:

As Pavarotti got bigger in every way, Breslin's adoration shrank. By the time of the Three Tenors, a pop phenomenon engineered not by Breslin but by the impresario Tibor Rudas, Breslin was miserable. "A big, big, big mistake" is how he describes Pavarotti's original deal to sing with Placido Domingo and Jose Carreras for charity, lamenting that "Once, I had been Luciano's creator. . . . Now I had been reduced to his foil. My role was to act as a buffer and, most important, to get him more money." Finally he bemoans that "managing an artist can be like serving a life sentence in Alcatraz."

And what of Pavarotti's legendary appetite?:

Gluttony is a big theme in Breslin's demystification. "It's not just that he likes to eat," he snipes. "He loves to smell food, to touch food, to prepare food, to think about food, to talk about food. When he comes into a room, he begins sniffing like a dog, and his first question is, 'What smells so good?'" We are treated to scenes of him using a tablespoon to gobble up caviar to the point of nausea and of his "swaying belly flowing over the edge of the chaise longue."

Not only is Pavarotti a pig, but he has bad taste, and his house in Modena "looks like something on Queens Boulevard, crammed with trinkets, tchotchkes, anything and everything." When Pavarotti falls in love with the decor of his suite at Caesars Palace in Las Vegas, he makes Breslin buy all the furniture, drapes and bedspread, and ship it to Modena. "It looks like a big blood clot," Breslin observes.

Read the entire review. What a hoot!

Posted by Tom at 5:09 AM | Comments (0) |

"Million Dollar Baby"

Clint Eastwood's new movie is getting rave reviews. Here is the NY Times review and Roger Ebert's is here.

Posted by Tom at 5:08 AM | Comments (0) |

December 14, 2004

Jumping to conclusions on steroid use in MLB

Will Carroll is an expert in sports medicine who writes a column for Baseball Prospectus($) regarding injuries to baseball players. Following up on thoughts expressed in this earlier post, Mr. Carroll notes in this NY Times op-ed that, from a clinical perspective, it is far too early to jump to the conclusion that Barry Bonds' phenomenal performance over the past several seasons is attributable to steroid use:

While there is no doubt that these chemicals are effective at their stated goal, albeit with significant complications, the question of how their effects manifest themselves in a baseball game has not been answered. There are no credible studies that connect drug use to improved performance, nor any that determine what cost these athletes may be paying. In 2004, Major League Baseball financed its first research grants with the pathetic sum of $100,000. The league values science about as much as one-third of the salary of the last player on the bench.

Mr. Carroll points out that Bonds' recent production may simply be the anecdotal performance of a top baseball player:

What of this late-career surge? Certainly we can point to that with an accusing finger, sure that Bonds's numbers in the record books have been written with some "cream" or "clear" substance. It's much easier to point than to find facts.

According to Clay Davenport, a researcher at Baseball Prospectus, Hank Aaron's best year for home runs - when he had the most homers per at bat - was 1973, when he was 39. His second best was in 1971, at age 37. Willie Stargell had his best seasons after age 37. Carlton Fisk put his best rate in the books when he was 40. Even Ty Cobb had his best home run rate at age 38, though the end of the dead-ball era helped that. It is not uncommon, according to Mr. Davenport, for a slugger to change his mechanics as he ages, swinging for the fences as his ability to run the bases declines.

And Mr. Carroll concludes by noting Hank Aaron's recent comments:

Perhaps Hank Aaron said it best: "I know that you can't put something in your body to make you hit a fastball, changeup or curveball."

Without more scientific studies on the effects that steroids and other drugs have on the game, we're left with appeals to emotion, finger-pointing or worse.

Finally, in another off-season baseball post of interest, don't miss Professor Sauer's fascinating post on how research is proving that the designated hitter in baseball is proving to be a moral hazard.

Posted by Tom at 8:54 AM | Comments (0) |

New Texas criminal law blog

South Texas of Law Professor Dru Stevenson is now blogging over at South Texas Law Professor.

Posted by Tom at 8:09 AM | Comments (0) |

Cheapening the death penalty

University of Iowa Law Professor Tung Yin observes persuasively that jury's assessment of the death penalty on Scott Peterson is not in the public interest.

Posted by Tom at 7:47 AM | Comments (0) |

Pizza Inn CEO canned for cause

The simmering dispute of control of Colony, Texas-based Pizza Inn, Inc. boiled over yesterday as the Pizza Inn board fired CEO Ronald W. Parker for cause, which is a nice legal way of saying that he's being canned with no severance payment. This move comes on the heels of this earlier move by the board to authorize a company lawsuit against the Dallas-based law firm of Akin Gump Strauss Hauer & Feld LLP for $7.4 million in damages for allegedly breaching its duties to the company in writing "golden parachute" severance package agreements for four senior Pizza Inn executives.

Posted by Tom at 6:08 AM | Comments (0) |

Penders reborn at UH

This Austin-American Statesman article profiles former University of Texas and current University of Houston basketball coach Tom Penders. It's an interesting story about the grinding nature of college basketball. Check it out.

Posted by Tom at 6:00 AM | Comments (0) |

Is the worm turning on Bush Administration policies toward business?

In his Wall Street Journal ($) Political Capital column today, Alan Murray reports that certain business interests that supported President Bush's re-election are conducting a quiet campaign to persuade the White House to dump Securities and Exchange Commission chairman, William Donaldson:

The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn't.

The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year's election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.

In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. . . [business leaders are] particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges.

But Mr. Murray notes that such matters are not discussed publicly because businessmen have become popular whipping horses:

The effort isn't discussed much in public, and probably won't get any attention at this week's economic summit. That's because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.

As noted in prior posts such as this one, the Bush Administration has not been particularly friendly to business interests. In addition to the wayward SEC, the Bush Administration's Justice Department has been particularly poor in exercising prosecutorial discretion regarding business matters. If the Administration is not responsive to business interests over this clear abuse of power, the Democratic Party will have a great opportunity to modify its traditionally anti-business policies and win over a business community that is increasingly disenchanted with the Bush Administration's regulation of business through criminalization of merely questionable commercial transactions.

Posted by Tom at 5:17 AM | Comments (0) |

December 13, 2004

What steroids scandal?

My old friend David Chesnoff's law partner -- Las Vegas mayor Oscar Goodman -- has been lobbying Major League Baseball owners at the Winter Meetings in Anaheim to allow for the move of the Florida Marlins to Las Vegas. Argus Hamilton comments that such a move could resolve MLB's public relations problem relating to its players' steroid use:

"The Florida Marlins met with Nevada officials Tuesday about moving to Las Vegas. It could save the game. Expose entire baseball teams to round-the-clock strip bars and escort services and in no time they will make Barry Bonds look like Bishop Tutu."

Posted by Tom at 6:26 AM | Comments (0) |

Icahn tees off on hedge fund

Following on this earlier post about a hedge fund beating Carl Icahn at his own game, this NY Times article reports that Mr. Icahn is now doing what any red-blooded American businessman would do when he ends up on the wrong end of an investment strategy -- hire uber-lawyer David Boies and file a lawsuit.

Note to Mr. Icahn -- if you lose your case in the trial court, make sure that Mr. Boies' paralegal calendars your appeal deadline correctly.

Posted by Tom at 5:41 AM | Comments (0) |

H.R. "Bum" Bright, RIP

H.R. "Bum" Bright, a longtime Dallas-based businessman, died Saturday night at his Highland Park home after a long illness. Mr. Bright was 84 at the time of his death.

Although Mr. Bright was best known for his ownership of the Dallas Cowboys NFL football club from 1984 to 1989, Mr. Bright was one of Dallas' most prominent businessmen for many years and also a longtime member of the Texas A&M University Board of Regents, of which he was chairman from 1981 to 1985. A&M was one of Mr. Bright's main philanthropic causes and the beneficiary of a $25 million gift from Mr. Bright during the mid-1990s'. Mr. Bright's other main charitable cause was the Children's Medical Center Dallas, to which he made a key $5 million donation in 1999 that led to the creation of a facility at the hospital that specializes in treating ear, nose and throat ailments.

Mr. Bright was trained as a petroleum engineer, received his degree from A&M in 1943, and made his first forture as the independent exploration and production sector of the oil and gas business. However, Mr. Bright proceeded to build an even bigger fortune in a nationwide trucking business, real estate, banks, and savings and loans. It was the investments in financial institutions that led to some of Mr. Bright's most notorious business failures.

Mr. Bright lost about $30 million in the failure of RepublicBank Corp. in the late 1980's, and another $200 million in the 1989 failure of Bright Banc Savings Association. Federal regulators seized control of Bright Banc during the costly cleanup that followed the collapse of the Texas savings and loan industry. Years of litigation over the failures ensued.

Mr. Bright's influence was also substantial in the sports world. Mr. Bright engineered the process that resulted in the firing of Texas A&M football coach Tom Wilson and the hiring of Jackie Sherrill to a then record contract in 1981. Although Coach Sherrill returned A&M to prominence in the Southwest Conference and college football, he was forced to resign five years later under the spectre of NCAA violations that ultimately landed the A&M program on probation.

Similarly, Mr. Bright's sale of the Cowboys to Jerry Jones in 1989 was the beginning of the end for legendary Cowboys coach Tom Landry, who was unceremoniously canned by Jones immediately after closing of the deal.

To say that Mr. Bright's politics drifted toward the conservative side is an understatement. Not well known is that Mr. Bright was one of the co-sponsors of a full-page newspaper ad written by local members of the John Birch Society that sharply criticized President John F. Kennedy on the morning of the President's visit to Dallas on Nov. 22, 1963. Lee Harvey Oswald shot and killed the President in downtown Dallas later that day. Mr. Bright later stated that, despite the unfortunate assassination, he had no regrets about the ad because it simply reflected his political views.

Subsequently, Mr. Bright was one of the main financial supporters of fellow Texan John Connally's Presidential campaign in 1980, which raised and spent $11 million but flamed out after a few primaries. That $11 million expenditure could garner only one binding commitment from a GOP convention delegate. Mr. Connally left politics for good after that fiasco.

A private burial for Mr. Bright will be held at 2 p.m. Thursday, and a memorial service will be conducted at 4 p.m. Thursday at The Chapel of the Cross, 4333 Cole St. in Dallas.

Posted by Tom at 4:56 AM | Comments (1) |

The Frugal Traveler gives Houston a favorable review

Christopher Soloman, the NY Times' Frugal Traveler, noticed an earlier Times article referred to in this post on the unusual "Houston. It's Worth It" public relations campaign. As a result, he decided to travel to Houston for the first time and, in a first for the Times, actually gives Houston a favorable review.

Posted by Tom at 4:47 AM | Comments (0) |

December 12, 2004

2004 Weekly local football review

Colts 23 Texans 14.

The Texans actually made a game of it against high-powered Peyton Manning and the Colts, but Manning methodically picked away at the Texans defense for six 4th quarter points to salt this one away for the Colts. The Texans closed to within 17-14 with about six minutes to go in the 3rd quarter, but the Texans could not mount any meaningful offense against an average Colts defense for the rest of the game (only two first downs and 35 yards in the 4th quarter). No team is going to beat this Colts team scoring 14 points.

Texans' QB David Carr continues to be unimpressive in his development, which is best reflected by the Texans' sputtering offense the past two weeks under his control. Although the mainstream media continues to fawn over Carr, he simply is not performing at the level that a top draft choice should be in his third season in the NFL.

Carr's recognition skills continue to be mediocre, and his unorthodox throwing motion makes it difficult for him to take full advantage of the passing lanes. Moreover, Carr'statistical performance has been mediocre. Carr was 16-21 for 167 yards and an interception against the Colts, which means that his yards-per-pass -- the key statistic for evaluating an NFL QB's performance -- was a pathetic 5.5 yards today. For the season, his yards-per-pass is about 6.3 yards, and he has thrown for only 13 TD's against 12 interceptions.

By way of comparison, check out the statistics of Drew Brees, a QB with comparable experience to Carr who plays for a team that was about equal in stature to the Texans coming into this season. Brees has thrown for 23 TD's against only 6 interceptions, and his yards-per-pass is over a half yard per pass better than Carr's. As a result, Brees' QB rating is over 103, while Carr's rating is less than 85. More importantly, the Chargers are 10-3 and the Texans are 5-8.

Inasmuch as the rest of the Texans' team played well enough to win for the second week in a row, the Texans' management has a huge problem developing with Carr. The Texans have a ton of money invested in him, but it's becoming clearer with each game that Carr is nothing more than an average NFL QB, at best. With games at Chicago and Jacksonville the next two Sundays before closing at home on January 2nd against the Browns, the Texans' management must begin addressing whether they have a bust on their hands with Carr. Inasmuch as the Texans' offensive line still has not completely recovered from the failed Tony Boselli transaction, the Texans can ill-afford to have their overall offensive development stunted by a QB that is not developing at the same rate as the rest of the unit. And at this point, Carr certainly is not.

Saints 27 Cowboys 13.

The Cowboys are the only organization in the NFL that begins printing playoff tickets with a 5-7 record. However, after the woeful Saints humiliated the Pokes at home on Sunday, the 5-8 Cowboys will now simply be playing out the string in their last three games against the Eagles, Redskins and Giants. The Cowboys have more personnel problems overall than the Texans, so this is a franchise that is clearly in a serious rebuilding mode.

It's going to take at least two seasons for the Cowboys to have a realistic chance for the playoffs, and that assumes that they acquire a top flight QB as soon as possible. If they draft a QB, then this team is a good three seasons away from being a playoff team. It will be interesting to see if the Big Tuna has the stomach to stick around during a long rebuilding phase. My bet is that he does not.

Posted by Tom at 7:15 PM | Comments (7) |

Video games as anesthesia?

A true medical breakthrough.

Posted by Tom at 7:38 AM | Comments (1) |

December 11, 2004

Those pesky free lunches

This post from Anne Linehan of blogHouston.net shows what happens when the Chronicle bases its investigative reporting regarding the new Houston Independent School District superintendent on the school district's press release.

Posted by Tom at 12:25 PM | Comments (0) |

A man with "the Right Stuff"

Earlier this week, Astronaut John Young resigned from NASA. I was dismayed with the short shrift that the local newspaper gave to the retirement of this legend in spaceflight -- indeed, there is not even a mention of Mr. Young on the Chronicle's spaceflight section.

But make no mistake about it, John Young is an American hero. Mr. Young served as a NASA astronaut for an incredible 42-year career, which included spending more than 800 hours in space. His unprecedented career began with the first manned flight of the Gemini program in 1965, included two Apollo moon missions, and concluded with two flights on the space shuttle, including its first flight. John Young is the longest serving astronaut of them all.

Mr Young was a US Navy test pilot when he signed up for the second astronaut class in 1962. His first mission was to pilot the first manned voyage of the Gemini program -- Gemini 3 -- which was the first American space flight to have more than one astronaut on board. In 1966, Mr. Young commanded Gemini 10, which performed the first dual rendezvous procedures during a single mission.

Three years later, and two months before Neal Armstrong set foot on the Moon, Mr Young performed the test mission to the Moon in Apollo 10, in which he orbited the Moon in the command module. He subsequently returned to the Moon in 1972 as commander of Apollo 16 in which he piloted the lunar module to its perfect landing and drove a mooncraft 16 miles across the surface of the Moon. Including the liftoff from the Moon's surface, Mr. Young was the the first man to blast into space seven times.

In 1981, Mr. Young piloted the space shuttle?s inaugural flight and guided the Columbia to a perfect runway landing, which was also a first. Two years later, Mr. Young commanded the Columbia in his sixth and final mission. He is also the only astronaut to pilot four different kinds of spacecraft.

And although a NASA lifer, Mr. Young never compromised his aviator principles for his position in the agency. In 1987, he was abruptly removed as NASA's chief astronaut when he accused NASA's chiefs of putting "launch schedule pressure" ahead of safety in the wake of the Challenger accident. His criticism was later vindicated by the report of the Presidential Commission that investigated the Challenger accident.

Just like the late astronaut Gordon Cooper and his fellow Mercury astronauts, John Young has "the Right Stuff." Here's hoping for a long and fulfilling retirement for this local Houston and American hero.

Posted by Tom at 11:29 AM | Comments (0) |

Remember Martin Frankel?

Given the federal government's increasing propensity to regulate business through criminalizing questionable business transactions, it's easy to overlook the instances where the criminal justice system actually punishes a real bonafide business crook.

Martin Frankel was a small-time New York money manager in the early 1990's who was paralyzed with fear from trading stocks. Accordingly, rather than trade equities, Frankel arranged for the acquisition of a group of financially-troubled insurance companies throughout the 1990's. He then used the assets of those insurance companies to pull off a several hundred million dollar scam, which is one of the largest insurance frauds in American history.

With investigators closing in on him in May, 1999, Frankel bought millions of dollars worth of diamonds, wired money to accounts all over the world, torched any remaining paper trail, and fled the country for Germany under a blaze of publicity. He was apprehended in Germany several months later, spent a year and a half in a German prison, and then was extradicted to the United States to face criminal charges here.

Although largely forgotten in the wake of Enron and other large business meltdowns, Frankel turned out to be a fascinating character. He was a gawky misfit with an obsessive terror of germs who nevertheless was able to induce attractive young women to fight over him. Although intensely reclusive, Frankel was able to build an intricate Ponzi scheme that was in no small part attributable to his talent for luring prominent people -- such as Texas Democratic powerbroker Robert Strauss -- into his scam. He even created a phony Catholic charity that went into business with a group of priests with close Vatican ties.

The Wall Street Journal's Ellen Joan Pollock was a lead writer on the reporting team that covered the FBI's four-month international manhunt for Frankel, and she eventually wrote a good book about the affair called The Pretender. With the right treatment (are you listening Professor Ribstein?), Frankel's story of risky business deals, duplicitous businessmen, con artists, jewelry traders, women looking for love, women looking for money, revengeful husbands, and slick private detectives is a potential blockbuster movie just waiting for the right screenplay.

At any rate, as this NY Times article reports, Frankel's affair came to a typically bizarre close yesterday, as he was sentenced to almost 17 years in the slammer:

The most bizarre 45 minutes took place when the judge allowed Mr. Frankel to address the court. He used the opportunity to settle old scores, quote the Bible, crack a joke and plead for leniency. He said most of his misdeeds were caused by his love for a co-conspirator, Sonia Howe, and his desire to earn enough money to protect her two children from harm. The judge was a bit incredulous.

"So, you stole $209 million in order to take care of the children?" she said.

"No," he said. "Can I explain it to you?"

"I'm begging you to explain it to me," the judge said.

Meanwhile, as the admitted perpetrator of one of the largest insurance scams in American history was sentenced to 17 years in prison, a mid-level accountant who did what his bosses told him to do in regard to a merely questionable business transaction continues to serve a 24 year prison sentence.

Folks, you cannot ask for a starker example of the injustice that results from government criminalizing dubious business transactions to assuage public animus toward business failures such as Enron. If government cannot tell the difference between Martin Frankel and Jamie Olis, then it is unlikely that it can tell the difference between Martin Frankel and you or me.

Posted by Tom at 9:37 AM | Comments (0) |

Southwest Airlines attempts to expand Chicago operation

You gotta love Southwest Airlines, Inc.

While most of the legacy airlines are trying to figure out either how to avoid bankruptcy or find financing to exit bankruptcy, Dallas-based Southwest just continues to execute its methodical business plan of expanding its low-cost operations in markets that respond to it.

Yesterday, Southwest bid more than $100 million for some key assets of bankrupt airline ATA Holdings Corp., including six of ATA's 14 gates at Chicago's Midway Airport.

The addition of the six ATA gates would increase Southwest's capacity at Midway by nearly a third. The airline operates about 150 daily flights from Midway and has already announced it would add 25 more by the middle of next year even without the ATA asset acquisition. The company has more than 2,500 employees in Chicago, which is its fourth largest operation.

Southwest is battling for ATA's assets with another low-cost airline, AirTran, which has submitted a $90 million bid. The Midway gates would give either carrier an increased presence in Chicago, which is the key high-traffic city in the central United States. The fight over Indianapolis-based ATA's holdings began last October when it filed its Chapter 11 case, which is the first large low-cost carrier to file bankruptcy during this latest period of carnage in the always tumultuous American airline industry.

Posted by Tom at 8:41 AM | Comments (0) |

HUD freezes City of Houston housing funds

The federal Department of Housing and Urban Development took the extraordinary step yesterday of freezing $48 million of federal funds allocated to the City of Houston until the City corrects over two dozen serious problems in its administration of a program to assist low income families to purchase homes.

The City's administration of HUD funds has been scandalous for as long as I can remember. Rather than encouraging responsible persons in the private sector to become involved in providing quality low income housing to Houston's citizens, multiple City administrations have traditionally allowed the HUD funds to be misused in lining the pockets of political hacks and flighty businessmen interested only in making a quick buck. It is going to take more than Mayor Bill White's platitudes to clean up this mess, which has now become firmly engrained in the fabric of the City of Houston government.

Houston is home to dozens of superb and creative and developers of income-producing residential real estate. Mayor White should tap that civic resource and create an advisory committee to oversee a complete overhaul of this den of corruption. Until that occurs, expect that the federal funds that could be used to subsidize well conceived and constructed low-income housing will continue to be used in Houston to line the pockets of the swindlers who would leach off of those who can least afford it.

Posted by Tom at 8:10 AM | Comments (0) |

Is Landry's making a play for the Stros?

As noted in this earlier post, Drayton McLane may be quietly trying to sell the Stros. This Chronicle article speculates that Landry's announcement yesterday that it has completed arrangements for almost $850 million in debt may portend a move by Landry's CEO Tilman Fertitta to buy the club. During spring training earlier this year, Mr. McLane denied publicly that he was negotiating to sell the team to Mr. Fertitta. Stay tuned. Scott Boras will be watching this development carefully.

Posted by Tom at 7:49 AM | Comments (0) |

December 10, 2004

Well, what do you think about J.D. Drew?

On the heels of the news earlier this week that the Stros had offered Carlos Beltran a seven year deal worth $81 million, Baseball Prospectus' Joe Sheehan was asked about Beltran in a recent chat session:

Question: How much is Carlos Beltran really worth for what he's going to give you and his likelihood of staying healthy?

Joe Sheehan: Beltran has a lot of value that doesn't show up in his Triple Crown stats, with a good walk rate, top-tier defense, and one of the best SB success rates in history. Put it all together with a good health record and his age, and I'd be comfortable exceeding Vlad Guerrero's 5 yrs/$70MM deal, conceding that Guerrero's numbers were held down by the speculation over his back.

I expect Beltran to get much more than that, something like 7 yrs/$126MM, or even 8 yrs/$144MM if the Yankees win the bidding.

As for the question in the subject of this post, here are Drew's statistics.

Posted by Tom at 2:15 PM | Comments (0) |

Want to buy a lawsuit against a law firm?

The bankruptcy judge in the bankruptcy case of former tech law firm Brobeck, Phleger & Harrison has decided to conduct an auction of Brobeck's cause of action against old line law firm Clifford Chance.

The theory of Brobeck's case is that Clifford Chance caused Brobeck's decline by inducing 17 key Brobeck partners to defect to Clifford Chance.

The idea of the auction arose earlier this week when the trustee in Brobeck's bankruptcy case attempted to settle the lawsuit against Clifford Chance for $4.5 million. At the hearing on approval of the settlement, a group of creditors objected to the settlement when a coalition of plaintiff's lawyers (including several from the Houston area) offered $4.8 million for the lawsuit, and the bankruptcy judge decided simply to sell the lawsuit to highest bidder. Both Clifford Chance and the plaintiff's lawyers group appear poised to participate in the "lawsuit auction."

Interestingly, there has been no outcry from tort reformers regarding this unseemly trading in outlandish damage claims. ;^)

Posted by Tom at 8:12 AM | Comments (0) |

The List-Eater

And just in case anyone thinks that Notre Dame has the market cornered on over-the-top football fans, check out this story about a dispute that broke out at Texas A&M University over buying Cotton Bowl tickets:

A woman, who is a senior at Texas A&M, who asked that her identity be withheld, shoved a paper copy of a waiting list for SBC Cotton Bowl tickets into her mouth to secure her place in line while waiting to pull tickets for the sold-out game at about 6 a.m. Thursday.

"The piece of paper doesn't justify a spot in line to me if no one is standing there," she said. "If they wanted a spot, they should've woken up."

Aggie blogger Chris Elam over at Safety for Dummies is all over the story, and even identifies the notorious List-Eater.

Lawsuits certainly to follow.

Posted by Tom at 6:16 AM | Comments (1) |

The trouble at Notre Dame

Having followed college football my entire life, I would have never thought that the University of Notre Dame would have a hard time hiring a head football coach.

Until now.

A week or so ago, Notre Dame fired Tyrone Willingham -- a highly-regarded coach within the profession who will not be without a job for long -- after three seasons and a 21-15 record. Since that time, both the retiring Notre Dame president and its athletic director have stated publicly that they did approve of the firing.

But, as the Washington Post's Sally Jenkins points out in this op-ed, if they did not approve of Coach Willingham's termination, who did?:

Now, the only thing that has taken a hit here is Notre Dame's affectations. [President] Malloy's statement begs the question: If the school president isn't responsible for Willingham's firing, then who is? . . . [I] have to wonder if this pale after-the-fact confession is what passes for administrative support at Notre Dame these days. Malloy's statement was easy enough to say a week later and 700 miles away. He was in the room where Willingham's fate was being determined. But he deferred, citing his impending retirement.

As Ms. Jenkins notes, for all its nostalgic value, the Notre Dame football program is simply not all that attractive to good football players anymore:

Notre Dame has become a creaking old fraud. That's why people don't want to go there anymore. Its integrity is based on yellowing old cinema reels. Its facilities are outmoded (although it does still have that stadium.) Its recruiting pitch is no longer persuasive: as a destination for coaches and blue-chip recruits, its appeal falls somewhere between those of sleek warm-weather football schools, and the more elite educational institutions such as Stanford and Duke. It's not just old; it's cold.

[Moreover,] the Irish have struggled on the field for nearly a decade and a half now. It's been 16 years since they won the last of their record eight titles, and 10 seasons since they won a bowl game. They've lost four straight to Boston College, three to Tennessee and two in a row to Purdue. And they've had just two NFL first-round draft picks since 1999 -- compared with nine for Ohio State and 21 for Miami.

Which leads me to pass along an old joke among college football aficionados:

Q. What do you call Notre Dame without a football program?

A. Creighton.

At any rate, Notre Dame will eventually find a good football coach, although it is far from certain that the new coach will fair any better than Coach Willingham, who remains a good coach. Rather, Notre Dame's real problem is reflected best by the hypocrisy of the statements made by its president and athletic director decrying the termination of Coach Willingham.

You see, these two administrators have negotiated the most lucrative television contract of any university athletic program in the nation and have overseen the raising of tens of millions recently to expand Notre Dame's historic stadium. Then, after having a key role in creating this swamp of financial expectations, these two fellows criticize a move that was made precisely because the football program was not meeting those high expectations. Frankly, a much better case can be made that the firing of Coach Willingham was utterly consistent with the values that have become most important in the Notre Dame football program.

Notre Dame is relearning the hard lesson that you reap what you sow. The timing of Notre Dame's realization of that enduring truth will have much more to do with the re-emergence of its football program than whoever the Domers choose as their next football coach.

And it would help to find another Joe Montana out there somewhere. ;^)

Posted by Tom at 5:03 AM | Comments (0) |

December 9, 2004

Fifth Circuit issues mold coverage decision

The Fifth Circuit issued an opinion yesterday in Fiess v. State Farm Lloyds in which the primary issue was whether mold damage was covered under a homeowner's policy. In reversing a summary judgment in the insurer's favor, the Fifth Circuit applied the doctrine of concurrent cause in concluding that the insureds might be able to segregate covered losses from uncovered losses. In so doing, the Fifth Circuit also certified the following question to the Texas Supreme Court:

Does the ensuing loss provision contained in Section IExclusions, part 1(f) of the Homeowners Form B (HO-B) insurance policy as prescribed by the Texas Department of Insurance effective July 8, 1992 (Revised January 1, 1996), when read in conjunction with the remainder of the policy, provide coverage for mold contamination caused by water damage that is otherwise covered under the policy?

Posted by Tom at 7:42 AM | Comments (2) |

On privatizing Social Security

The Onion is on a serious roll.

Posted by Tom at 7:34 AM | Comments (0) |

A refuge from family rejection

This NY Times article tells the interesting story of a heartbreaking conflict within a family and the Point Foundation's efforts to attempt to mitigate the damage that such conflicts can cause. Check it out.

Posted by Tom at 6:40 AM | Comments (0) |

Bobby Cox buys Schlotzsky's

Bobby Cox Companies, Inc. of Ft. Worth -- owner of the Rosa's Cafe, Taco Villa and Texas Burger chains among its other far-flung assets -- bought the assets of Schlotzsky's franchise deli sandwich company out of bankruptcy yesterday in San Antonio. The purchase price was about $28.5 million. Here are the earlier posts on the Schlotzsky's bankruptcy case.

Posted by Tom at 6:19 AM | Comments (0) |

Milton Friedman on socialism and the course of free markets

When Milton Friedman writes about economic history, people listen. Writing in today's Wall Street Journal ($), Professor Friedman observes the following:

To summarize: After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas (though no such battle is ever won permanently); we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion.

Read the whole piece.

Posted by Tom at 6:11 AM | Comments (0) |

More Econoblog

The Wall Street Journal has revived its Econoblog series, this time with Cal economics professor Brad DeLong replacing Jon Irons in discussing topics with George Mason University economist Tyler Cowen. The subject today is the Bush Administration's surprising decision to retain John W. Snow as Treasury Secretary. From this first round, Mr. DeLong looks to be a better choice to serve as Mr. Cowen's counterpart in this discussion. Check it out.

Posted by Tom at 5:49 AM | Comments (0) |

Another major change in the Medical Center

As these earlier posts reflect, a huge Texas Medical Center rift arose earlier this year between Baylor College of Medicine and the Methodist Hospital over Baylor's decision to terminate its 50 year relationship with Methodist and make St. Luke's Episcopal Hospital its primary teaching hospital.

The Baylor-Methodist split has now officially replaced the longstanding acrimony between the world reknowned heart surgeons -- Dr. Michael DeBakey of Baylor's DeBakey Heart Center and Dr. Denton Cooley of St. Luke's Texas Heart Institute -- as the most severe professional turf war in the always tumultuous world of academic medicine in the Medical Center.

The signal for the change in the relative positions of these two heartfelt disputes was the announcement yesterday that Dr. Cooley had appointed a Baylor heart surgeon -- Dr. Joseph Coselli -- as the chief of adult cardiac surgery at the Texas Heart Institute.

Longtime observers of Medical Center politics expected dogs and cats to live together as best friends before such a development would ever occur.

This development will revitalize the Texas Heart Institute, which used to be one of the nation's premier heart centers before lagging behind the top national centers over the past decade or so. The appointment also means that the Texas Heart Institute will be led by an unusual management team comprised of doctors from both of the Medical Center's medical schools, Dr. Coselli from Baylor and Dr. James Willerson from the UT Health Science Center at Houston, who is the institute's president-elect, medical director, chief of cardiology and director of cardiology research.

Here is the Chronicle story on this development.

Posted by Tom at 5:01 AM | Comments (0) |

December 8, 2004

Favoring public transit

The Onion hits home with an insight about public transportation that Houston's Metropolitan Transit Authority has been taking advantage of for years.

Posted by Tom at 9:49 AM | Comments (1) |

Make consumer health insurance tax deductible

In this Wall Street Journal ($) op-ed, economists John Cogan, Glenn Hubbard and Daniel Kessler make their pitch to make all health insurance tax deductible, not just employer-provided health insurance. This earlier post noted Messrs. Cogan, Hubbard, and Kessler's earlier proposal on this topic, and it is a simple and common sense component of any overhaul of the American health care finance system. That's probably why we did not hear either candidate propose it during the just completed Presidential campaign.

Messrs. Cogan, Hubbard, and Kessler note that the discrimination in the tax laws regarding health insurance has the following negative market effect:

The most important effect of tax deductibility would be to reduce unproductive health spending. Under current law, medical care purchased through an employer's insurance plan is tax-free, while direct medical care purchased by patients must be made with after-tax income. As we and many others have observed, this tax preference has given patients the incentive to purchase care through low-deductible, low-copayment insurance instead of out-of-pocket, which in turn leads to cost-unconsciousness and wasteful medical practices. In addition, the tax preference for insurance creates incentives for the health-care system to rely on gatekeepers rather than deductibles and copayments when it does try to control costs. The cost of gatekeepers are financed out of insurance premiums that are paid with before-tax dollars; deductibles and copayments are paid with after-tax dollars.

On the other hand, Arnold Kling notes that providing a tax deduction for individual health insurance policies may simply change the problem. By allowing individuals to deduct health care expenses, a trend would likely occur toward disintermediation in health insurance -- that is, more young and healthy workers will opt out of company-provided health insurance, which will leave businesses covering a relatively high-risk population that cannot afford individual policies.

Posted by Tom at 6:34 AM | Comments (1) |

Fourth time a charm?

So, the board of Hewlett-Packard Co. has discussed breaking up the company three different times, but decided to keep it intact, according to CEO Carly Fiorina. Asked at an analysts' conference in Boston yesterday how the company's board viewed a breakup, Ms. Fiorina said that each time the HP board discussed a potential breakup, it came to "the same unanimous conclusion" to remain one entity.

If you are interested in why this questions keeps coming up for HP, then read here and here.

Posted by Tom at 6:13 AM | Comments (1) |

Joe Jachimczyk, M.D., RIP

Joseph A. Jachimczyk, Harris County's medical examiner from 1960 to 1995, died Tuesday in Houston. Dr. Jachimczyk had battled hypertension and Parkinson's Disease for a number of years.

Dr. Jachimczyk was Harris County's first medical examiner and really built the medical examiner's office from scratch. He was generally well-regarded among law enforcement officials, although medical examiners are invariably remembered more for their mistakes than their achievements. That was certainly true for Dr. Jachimczyk, who badly blew two sets of autopsies six years apart in the late 1970's and early 80's in the Diana Wanstrath case that investigators eventually ignored in solving several murders involved in that case.

A vigil service will be held for Dr. Jachimczyk at 7 PM this evening in the chapel of The Settegast-Kopf Co., 3320 Kirby Drive. A funeral mass will be held at 10 AM Thursday at St. Vincent de Paul Catholic Church, at the corner of Buffalo Speedway and Bellaire.

Posted by Tom at 5:48 AM | Comments (0) |

December 7, 2004

Global Crossing case drawing to a close

The Securities and Exchange Commission is expected to fine at least three former executives of Global Crossing Ltd., the fiber-optic company that went bust in the business downtown earlier this decade.

The fine on the executives -- including the company's founder and former chairman, Gary Winnick -- stems from alleged accounting fraud at the company that spiraled into an Enron-like bankruptcy three years ago under $12.4 billion of debt. Although Global Crossing was also accused of fraud, the reorganized company is currently struggling to obtain financing from key shareholders to remain solvent, so it will not be fined in the settlement.

However, what is most remarkable about all of this is that Global Crossing was forced into its chapter 11 case only a month after Enron and under similar circumstances as Enron. For example, Mr. Winnick sold $734 million in stock as the company plummeted into bankruptcy protection. Nevertheless, as analyzed in more detail in this earlier post, no one associated with Global Crossing has ever been indicted in a criminal case.

So long as we allow government to criminalize business behavior, such arbitrary results will be common. Not only does such governmental action dilute the moral force of law, it will eventually discourage beneficial risk taking that generates economic development and job creation.

Remember that, New York voters, as you decide whether to vote for Eliot Spitzer.

Posted by Tom at 8:19 PM | Comments (0) |

"AG" means "Aspiring Governor"

New York Attorney General Eliot Spitzer - for whom New York Governor George Pataki's press secretary once noted that "AG" stood for "Aspiring Governor" - confirmed today what everyone who has not lived the past few years on a deserted island already knew -- that he will run for governor of New York in 2006.

Mr. Spitzer's political agenda is downright frightening for anyone trying to make a living running a business, as his investigations into investment banking, mutual-fund trading, and business insurance have shaken those industries to their core. Indeed, those investigations have arguably made him a more powerful regulatory force than the federal and state agencies that are chartered to regulate those industries.

Consequently, Mr. Spitzer will likely portray himself in the governor's race as the crusading protector of the common investor against the Republican-backed behomeths of Wall Street. However, it's far from clear at this point that Governor Pataki will even seek a fourth term in 2006. Interestingly, early polls show that Mr. Spitzer would beat Governor Pataki in a head-to-head race, but that former New York City Mayor Rudolph Giuliani would beat Mr. Spitzer handily in head-to-head polls. Nevertheless, Mr. Giuliani may well not not run for governor in order to keep his options for higher political office open.

Meanwhile, as far as horse races go, I'm pulling for Dick Grasso to kick Mr. Spitzer's ass in their upcoming lawsuit over Mr. Grasso's compensation and severance from the New York Stock Exchange. In fact, I hope that Mr. Grasso kicks Mr Spitzer's rear decisively.

For a particularly good archive of well-reasoned analysis of Mr. Spitzer's damaging methods of regulation, check out Professor Bainbridge's resources on the topic.

Finally, if you want a taste of how the fawning mainstream media naively views Mr. Spitzer, check out this ludicrous Loren Steffy column from the Houston Chronicle.

Posted by Tom at 6:54 PM | Comments (0) |

Hey, it's working

On the heels of last week's public disclosure of Barry Bonds' use of steroids, humorist Argus Hamilton defends the Major League Baseball Players' Union's policy on performance enhancement drugs:

"Major League Baseball players' union counsel Gene Orza maintained Sunday that the current steroid crackdown is working. It's not that strict. The first year you get counseling, the second year you get fined, and the third year you get the MVP."

Posted by Tom at 8:24 AM | Comments (0) |

Roland Thatcher survives Q School

Roland Thatcher, the professional golfer who plays out of the Carlton Woods Golf Club here in The Woodlands, survived the PGA Tour's Q School over the past weekend and was awarded a 2005 PGA Tour card.

Although 35 players are awarded Tour cards out of the Q School Tournament each year, there are many more excrutiating stories of failure, such as this one involving Tour veteran Joel Edwards:

Joel Edwards, another past PGA Tour champion, was on the cut line until hitting his tee shot into the water and taking double-bogey. He took a long walk to the parking lot, letting out guttural screams and pounding his bag along the way, paying his caddie and slamming his car door as he drove off.

Posted by Tom at 8:01 AM | Comments (0) |

"Kiddie Cocaine"

This Christian Science Monitor article reports on Adderall, the prescription medication normally used to treat attention deficit disorder (ADD) and attention deficit hyperactivity disorder (ADHD), but which is now becoming the study amphetamine of choice on college campuses.

Posted by Tom at 7:05 AM | Comments (0) |

DeLay delivers for NASA

This Washington Post article reports on how Houston congressman and House Majority Leader Tom DeLay secured NASA's $16.2 billion portion of the $388 federal omnibus spending bill that Congress passed on November 20:

NASA was identified as a major sticking point when Senate and House conferees sat down to craft the final version of the omnibus spending bill near midnight Nov. 19, but Bolten, Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) and DeLay were holding out for more money.

The negotiators appeared to agree on $15.9 billion for NASA, but that wasn't good enough, DeLay said later at the Space Center. "The main responsibility of the majority leader is to set the agenda for the House floor. I wouldn't schedule the bill until NASA was taken care of," he said.

And it was.

"Once you get into an omnibus bill, the leadership takes over, and you need to have an advocate in that circle," Walsh said. DeLay "was getting me more allocation every time he stepped up to the plate. He made the difference."

Posted by Tom at 6:42 AM | Comments (0) |

A positive sign in airline financing

This NY Times article reports on the growing concern within the lending industry regarding the long-term ability of several of the legacy airline companies to service their existing financing. This follows the move last week reported on here of one of United's lenders taking steps to repossess a portion of United's fleet during the busy Thanksgiving travel season. The article notes:

Where once the idea of losing an airline was unthinkable, both the government and lenders now seem perfectly willing to let that happen. The mood swing was foretold in June, when a federal loan board turned down an application by United Airlines that the airline had thought was a sure bet. Since then, lenders have sat on their hands, watching the company take a chainsaw to its operations, refusing to commit until the airline's final shape is known.

Aircraft lenders, who did their part after the attacks by loosening the terms of some deals, are tightening up again.

What is different now, experts say, is the growth of markets outside the United States, like Europe and Asia, where new airlines are forming, attracting passengers and expanding, making them far more attractive to lenders and airplane leaseholders.

This is a positive development for the airline industry, where allowing a couple of legacy airlines to go belly up would do wonders for the long term health of the industry. Now will the politicians allow it to happen?

Posted by Tom at 6:02 AM | Comments (0) |

December 6, 2004

Calvin Murphy acquitted

Calvin Murphy was acquitted of sexual assault charges late this afternoon by a Houston jury that deliberated for only about two hours.

Final arguments were completed earlier today in the sexual assault criminal trial of the former Basketball Hall of Famer and Houston Rocket.

If he had been convicted, Murphy would have faced a sentence of anywhere between probation to what would amount to a life prison sentence. Even though acquitted, Murphy still faces an uncertain future in Houston, where his public persona has basically been trashed by this trial. From revelations about his fathering 14 children with nine different women to living out of his automobile while working his job as a color man on Rocket broadcasts, suffice it to say that not many Houston businesses are lining up to hire Murph as a spokesperson these days.

Rusty Hardin -- one of Houston's many fine criminal defense lawyers -- represented Murphy in the trial.

Posted by Tom at 3:01 PM | Comments (0) |

The Becker-Posner Blog gets cranked up

Second Circuit Judge and scholar Richard Posner and University of Chicago economist Gary Becker are now posting on their long awaited blog. Check it out here.

Posted by Tom at 6:18 AM | Comments (0) |

December 5, 2004

SCOTUS whacks Fifth Circuit

In this extraordinary NY Sunday Times article, U.S. Supreme Court sources provide highly unusual and scathing public criticism of the Fifth Circuit Court of Appeals and the Texas Court of Criminal Appeals' handling of appeals of Texas Death Row inmates. The Houston Chronicle chimes in with a similar article here.

My sense is that the Fifth Circuit judges will not be exchanging Holiday Greeting cards this year with the SCOTUS Justices. And with good reason. The Fifth Circuit must attempt to decipher SCOTUS's almost indecipherable standards for setting aside death penalty convictions while administering hundreds more of such cases each year than SCOTUS. Although excess volume certainly does justify sloppy adjudication, SCOTUS's difficult-to-ascertain standards -- coupled with prisoners' easy access to the appellate process -- is the real culprit here, not any disrespect for SCOTUS or political agenda, as the NY Times article suggests.

Posted by Tom at 9:30 PM | Comments (0) |

2004 Weekly local football review

Jets 29 Texans 7.

After leading 7-6 at halftime, the Texans folded in the second half to allow the Jets to win easily. In another miserable performance during a season of inconsistent outings, Texans' QB David Carr (12/25 for 157 yds, no TD's and 2 ints) threw into coverage the entire day and once again provided considerable evidence that he lacks even average recognition skills after 2.5+ seasons in the NFL.

With Carr totally ineffective, the Jets gradually began to dominate the line of scrimmage in the second half and ended up rushing for more than 200 yds against the Texans' beleaguered defense. Nevertheless, other than Carr, the rest of the Texans played reasonably well and this loss is squarely attributable to Carr's inability to find the hot receiver against the Jets' stout defense.

With young AFC QBs such as Brees, Roethlisberger, Leftwich, and Palmer all outperforming Carr, the Texans' management has to be getting nervous that they blew the first pick in their first draft on what is appearing to be, at best, a barely above-average NFL quarterback.

The 5-7 Texans return to Reliant Stadium next Sunday to be sliced into small pieces by Peyton Manning and the Colts.

Cowboys 43 Seahawks 39. The Cowboys scored 14 points in the final two minutes of the game to edge the Seahawks on Monday Night Football. The Pokes' running back from Notre Dame -- Junius Jones -- looks pretty darn good and has placed Eddie George so far down the Cowboys' bench that he is not even mentioned anymore. The 5-7 Cowboys take on the 4-8 Saints next Sunday at Texas Stadium in Dallas.

College Bowl Game Selections

The final games of the regular season worked out well for Texas and Texas A&M, as the Longhorns moved into a BCS Bowl game against Michigan in the Rose Bowl, and the Aggies moved up into the Cotton Bowl on New Year's Day in Dallas against Tennessee.

However, the EV1.net Houston Bowl on Dec. 29 was a loser in the bowl selection process as the Independence Bowl selected Iowa State, leaving the Houston Bowl with Colorado, which was pummeled by Oklahoma 42-3 in the Big 12 Championship game on Saturday night. The Houston Bowl wanted to match already selected UTEP with Iowa State because the Cyclones improved dramatically over the last part of the season and their fans travel well. On the other hand, Colorado's supporters are notorious for being the worst traveling fans in the Big 12. Indicative of that trait is the fact that they bought a total of 1,700 out of 8,000 alotted tickets for the Big 12 Championship game.

The other Texas bowls have interesting matchups. San Antonio's Alamo Bowl has Ohio State playing Oklahoma State on December 29, while Arizona State and Purdue will fling it around El Paso's Sun Bowl on New Year's Eve.

Posted by Tom at 8:42 PM | Comments (0) |

December 4, 2004

Islam and Freedom

James Q. Wilson is the Ronald Reagan professor of public policy at Pepperdine University. In this must read Commentary article, Professor Wilson explores the prospects for the emergence of liberal democracies in Muslim countries such as Iraq. His introduction to the topic foretells the depth with which Professor Wilson treats this important issue:

What are the prospects for the emergence of liberal societies in Muslim countries? Note my choice of words: ?liberal,? not ?democratic.? Democracy, defined as competitive elections among rival slates of candidates, is much harder to find in the world than liberalism, defined as a decent respect for the freedom and autonomy of individuals. There are more Muslim nations?indeed, more nations of any stripe?that provide a reasonable level of freedom than ones that provide democracy in anything like the American or British versions.

Freedom?that is, liberalism?is more important than democracy because freedom produces human opportunity. In the long run, however, democracy is essential to freedom, because no political regime will long maintain the freedoms it has provided if it has an ironclad grip on power. Culture and constitutions can produce freedom; democracy safeguards and expands it.

This is what lies at the heart of our efforts to make Afghanistan and Iraq into liberal states. . .

There are certainly grounds for pessimism. For centuries, only Great Britain and its former colonies?Australia, Canada, New Zealand, and the United States?could be called democratic. And even in those countries, the struggle to acquire both liberal and democratic values had been a long and hard one. It took half a millennium before England moved from the signing of Magna Carta to the achievement of parliamentary supremacy; three centuries after Magna Carta, Catholics were being burned at the stake. The United States was a British colony for two centuries, and less than a century after its independence was split by a frightful civil war. Elsewhere, Portugal and Spain became reasonably free only late in the 20th century, and in Latin America many societies have never even achieved the stage of liberalism. The late Daniel Patrick Moynihan once remarked that, of all the states in existence in the world in 1914, only eight would escape a violent change of government between then and the early 1990?s.

Nevertheless, liberal regimes have been less uncommon than democratic ones. In 1914 there were three democracies in Europe, but many more countries where your neck would be reasonably safe from the heel of government. You might not have wished to live in Germany, but Belgium, Holland, Luxembourg, Norway, and Sweden offered reasonably attractive alternatives even if few of them could then have been called democracies in the modern American or British sense.

As for the Middle East, there have been only three democracies in its history: Lebanon, Turkey, and of course Israel. Israel remains free and democratic despite being besieged by enemies. But of the two Muslim nations, only one, Turkey, became reasonably democratic after a 50-year effort, while Lebanon, which has been liberal and democratic on some occasions and not on others, is today a satellite of Syria and the home of anti-Israel and anti-Western terrorists; Freedom House ranks it as ?not free.?

Is the matter as universally hopeless as this picture might suggest? Suppose, as a freedom-loving individual, you had to live in a Muslim nation somewhere in the world. You would assuredly not pick Baathist Syria or theocratic Iran or Saddam?s Iraq. But you might pick Turkey, or Indonesia, or Morocco. In what follows, I want to explore what makes those three countries different, and what the difference might mean for the future.

Professor Wilson's following conclusion also reflects the wisdom with which he addresses his subject:

The good news is that, as compared with support for democracy, support for a liberal regime [in Iraq] is very broad. Over 90 percent want free speech, about three-fourths want freedom of religion, and over three-fourths favor free assembly. Freedom is more important than democracy?a fact that might well have been true in America and England in the 18th century.

And here is where an important lesson lurks for us. Scholars at the RAND corporation have studied America?s efforts at nation-building in the last half-century, ranging from our successes (Germany and Japan) to our failures (Haiti and Somalia) and to all the uncertain outcomes in-between (Afghanistan, Bosnia, Kosovo). One of the most important things we should have learned, they conclude, is that ?while staying long does not guarantee success, leaving early ensures failure.?

In order for freedom to have a chance of developing in Iraq, we must be patient as well as strong. It would be an unmitigated disaster to leave too early. Our Iraqi supporters would be crushed, terrorists and Islamic radicals would have won, and our own struggle and sacrifices would have been for naught.

Liberalism and democracy would bring immeasurable gains to Iraq, and through Iraq to the Middle East as a whole. So far, the country lacks what has helped other Muslim nations make the change?a remarkably skilled and powerful leader, a strong army devoted to secular rule, an absence of ethnic conflict. If we may nevertheless be cautiously optimistic, it is because of the hope that we will indeed stay there as long as we are needed.

Read the entire piece.

Posted by Tom at 8:32 AM | Comments (0) |

The Grand Robert Del Grande

Cafe Annie is one of Houston's finest restaurants. Gourmet magazine named Cafe Annie one of "America's Top Tables" in 1997, 1998, 1999 and 2000, while Food & Wine named it the "Best Restaurant in Houston" in 1999. Zagat rated it the "Top Restaurant in Houston" each year from 2000 to 2003. And Cafe Annie received the DiRoNa Award as one of the Distinguished Restaurants of North America in 1997.

In this Houston Press article, Rob Walsh reports on the life and times of Cafe Annie's owner and chef, Robert Del Grande, as he turns 50. It's an interesting update on the originator of the modern "Southwestern cuisine" of Cafe Annie and the "fast-casual" restaurant concept that he originated in the Cafe Express restaurants. The article is an interesting read about yet another of the creative people that makes Houston a special place.

Posted by Tom at 7:49 AM | Comments (0) |

December 3, 2004

That's one helluva conspiracy

The Enron-related criminal cases just seem to get more bizarre by the day.

This Chronicle article reports that the Enron Task Force has named 114 unindicted co-conspirators in the Task Force's criminal case against former Enron executives Ken Lay, Jeffrey Skilling and Richard Causey.

The Task Force has apparently set a record with the number of its named co-conspirators. The next largest number of co-conspirators named in a case that anyone can recall is the one involving former Louisiana governor, Edwin Edwards, where the government named 61 co-conspirators.

Messrs. Lay and Skilling are requesting that the Court require the Enron Task Force to disclose the identities of the alleged co-conspirators so that their counsel can talk with them in preparation of their defense. However, the purpose of the Task Force's abuse of naming such a large number of co-conspirators is transparent -- they want to chill any potential witness for Messrs. Lay, Skilling and Causey from testifying during their upcoming trial. The tactic worked like a charm for the Task Force in the recently completed Nigerian Barge trial, in which none of the two dozen or so co-conspirators who had not already copped a plea deal with the government testified during the trial. All of those alleged co-conspirators asserted their Fifth Amendment privilege.

However, that the tactic works does not make it right. Given the apparent lack of adult supervision in the Enron Task Force in making these types of decisions, here's hoping that the federal judges involved will provide it for them. If not, one has to wonder how Messrs. Lay, Skilling and Causey are supposed to mount an effective defense when the 100 or so people who worked most closely with them are effectively precluded from testifying on their behalf?

Posted by Tom at 9:05 AM | Comments (0) |

Golf's Jackie Robinson

Argus Hamilton is a funny fellow, as reflected by this entry from his daily observations from November 30:

Annika Sorenstam competed with the men in the Skins Game Saturday. Last year at the Colonial she broke the barrier and became the first woman to play in a PGA tournament. Somehow you knew the Jackie Robinson of golf would be a Swedish blonde.

Posted by Tom at 8:41 AM | Comments (0) |

Seize the moment in the Israeli-Palestinian conflict

Longtime Houstonian and former Secretary of both the State and Treasury Departments, James A. Baker III, opines in this NY Times op-ed that the time is now to begin substantive discussions for resolving the Israeli-Palestinian conflict, and he provides some concrete thoughts on how to accomplish that goal:

Stability in Iraq and peace between Palestinians and Israelis can be pursued at the same time. In fact, working toward the latter improves the chances of attaining the former. . .

The so-called quartet (the United States, the European Union, Russia and the United Nations), which has been working on a "road map" for peace between the Palestinians and Israelis for several years, supports a two-state solution, as do the vast majority of both Palestinians and Israelis. President Bush certainly favors this goal, and Prime Minister Ariel Sharon of Israel has publicly supported it as well, . . .

So the real question is how to take advantage of this window of opportunity to achieve that two-state solution. Specifically, what steps should be taken? Who needs to do what?

First, it is critical that negotiations resume. For this to happen, of course, Israel must have a negotiating partner on the Palestinian side. That partner will best emerge from free elections. Elections have been scheduled for Jan. 9, and all who support peace between Israel and the Palestinians have an obligation to do all within their power to see that those elections are successfully held.

Palestinian candidates should clearly and unequivocally renounce terrorism as a means of achieving a political result - and call upon their supporters to do likewise. And those Palestinians should commit themselves to an unequivocal, good-faith effort to crack down on terrorist groups that make a target of Israel.

In exchange, Israel should announce that upon the election of a Palestinian negotiating partner, it is prepared to resume substantive negotiations for peace without requiring that all terrorist activities cease in advance. To require the absence of any terrorist act in advance simply empowers the terrorists themselves to prevent the resumption of peace negotiations.

The United States should itself clearly embrace and articulate the unequivocal, good-faith standard for the resumption of dialogue. The United States should further prevail upon Israel to cease settlement activity in the occupied territories pending Palestinian elections and during the resumption of peace negotiations. Washington should also do everything else that it can to encourage both sides to resume meaningful talks. And it should serve, where necessary, as a direct participant in the talks, offering suggestions, brokering compromises and extending assurances.

We cannot, of course, prejudge the final outcome of any talks. But the plan presented by President Bill Clinton and Prime Minister Ehud Barak at Camp David in 2000 - and rejected by Yasir Arafat - surely offers one plausible place to start.

While the United States cannot dictate the terms of peace to either party, it can and should actively promote the resumption of negotiations. The time to start is now.

Read the entire piece. Mr. Baker is certainly correct that conditioning talks on the cessation of terrorist attacks simply empowers the radical Islamic fascists whose only goal is the destruction of Israel.

However, the legacy of failed negotiations with Arafat is the fact that he supported such attacks, on one hand, while negotiating with Israel on the other. The lack of trust that resulted from that duplicity has permeated Israeli-Palestinian relations for the past generation. Whether the new Palestinian leadership is capable of standing up to the forces within its leadership that foment that lack of trust will ultimately be the key element to the success or failure of any new initative.

Posted by Tom at 6:46 AM | Comments (0) |

Bonds took steroids

This San Francisco Chronicle article reports that Barry Bonds, one of the best baseball players of all-time, admitted to a grand jury that he had taken steroids and human growth hormone.

The typical media reaction to this development will be self-righteous outrage, but I find my reaction to be one of sadness. I mean, how sad is it that one of baseball's all-time greats resorted to illegal and dangerous drugs to enhance his career? Well, probably about as sad as the fact that supposedly secret grand jury testimony ends up on the front page of the local paper. Even sadder (and not even mentioned by the mainstream media) is that there is no study that has been done to date that indicates there is any competitive advantage to be gained by use of anabolic steroids in baseball. In other words, it is clearly cheating, but it may not actually enhance performance even though Bonds' career statistics may be anecdotal evidence of enhancement.

Also lost in the media firestorm over the revelations about Bonds is the even sadder stories of Jason Giambi, the former MVP who now has serious health issues that are likely a result of his steroid use and of his brother Jeremy, who has also admitted to using steroids but whose baseball performance has eroded dramatically while he has been taking them. Consequently, apart from the mainstream media's drumbeat to implicate the stars with steoroids, the real substantive story here may be that using steroids is unrelated to top-tier performance in baseball. At very least, the net effect of baseball players using steroids remains decidedly unclear.

The bottom line on all of this is that professional sports in general, and Major League Baseball in particular, has not done a good job of drawing the line with regard to what should constitute illegal use of drugs and other alleged performance enhancing substances. As a result, the league rules (as well as our nation's laws) governing which substances are legal and illegal are often arbitrary and hypocritical. Indeed, the libertarian part of me tends toward the position that true freedom means that professional athletes are ultimately responsible for their physical condition and that they should assess the risks and costs of such activities themselves.

Moreover, professional sports teams (as well as their fans) often encourage their players to risk their health. Players who "play with pain" are the subject of adulation in all levels of sport, as are players who risk injury by running into walls, taking cortisone shots to be able to perform with reduced pain (see Roy Oswalt this season), and undergoing risky surgeries to lessen pain in order to play in a big game (see Curt Schilling in the World Series).

Consequently, the difference between a ballplayer taking pain-reducing drugs to get through a season and a slugger using performance enhancing drugs in an attempt to be more productive is not as wide as it may appear on first glance.

If cooler heads prevail, professional sports should address this public relations fiasco by commissioning a study that would determine in a clinical fashion the impact, if any, that steroid use has on athletic performance. Then, in a manner that is sensitive to the rights of all parties involved, Major League Baseball should use the findings of the clinical research to establish a clear regulatory system governing the use of all types of performance enhancing drugs. Perhaps then the mainstream media would even begin to address the issues in a balanced manner rather than the inflammatory style that it currently uses on the subject to sell newspapers.

As to the possibility of this mess being handled in such a manner? Next to zilch. So it goes.

Posted by Tom at 5:19 AM | Comments (0) |

December 2, 2004

Peggy Noonan on Dan Rather

In this Opinion Journal piece, Peggy Noonan writes the best and most balanced epilogue on Dan Rather's career that I have read to date. Ms. Noonan, who used to write Mr. Rather's daily radio commentary, has some particularly insightful personal observations about Mr. Rather, including the following:

Dan was a great boss. He was appreciative of good work and sympathetic when it wasn't good. He was one of the men--Douglas Edwards and Dallas Townsend were two others--to whom I am indebted, for they taught me how to write for the ear, how to write for people who are listening as opposed to reading. He was generous with praise. Someone who did a good job on a story got flowers and a note. Someone in the newsroom once knocked Dan in a magazine profile, saying he was insecure, always sending too many flowers. Dan thought, Really? Life's tough, you can't send too many flowers! He was open to ideas, he was democratic and not hierarchical in his management style, and he tried to be fair in his dealings with people in spite of a personal emotionalism that was deep, ever present and not entirely predictable.

For three years, from 1981 through 1984, I wrote his daily radio commentary, a four-minute essay with a one-minute spot that went out to all the CBS affiliates and network-owned stations. It was a great job. We did some good work. Here's how it got done: When I had been doing the show for a few weeks I could see that my work was not good--uneven, without voice, without a clear point of view. I thought I knew the reason. I had become increasingly a political conservative. Dan, it was obvious to me, was a sort of establishment liberal--not a wild leftist and not an ideologue, but whatever smart liberals thought was more or less what he wound up thinking, and saying. I couldn't write his views well, because I didn't buy them and didn't fully understand them. I couldn't write my views, because the show had to reflect his thinking. So I went to him and told him my problem. He was great. He said: On any given issue that we discuss, give the liberal point of view fairly and give the conservative point of view fairly, and then we'll end it with my opinion, because it's my show. I thought that sounded good.

And it worked. "Dan Rather Reporting" actually got something of a conservative following, not because it was a conservative show--it wasn't--but because it actually put forward the conservative point of view in what might be called a fair and balanced way.

Read the entire piece.

Posted by Tom at 9:15 AM | Comments (0) |

More on the Wrong Amendment

Following up on this earlier post, Virginia Postrel disassembles the Wright Amendment in this NY Times piece.

As noted in my earlier post, the Wright Amendment is so clearly obsolescent and contrary to the interests of the public that the controversy over its proposed repeal provides a useful barometer to measure a politician's true motivations. Be wary of any politician who contends that the Wright Amendment serves a useful public interest. That's another way of saying that "the supporters of the Wright Amendment contribute more to my campaign war chest than the folks who overpay for airline tickets."

Posted by Tom at 8:06 AM | Comments (0) |

The Myth of Vioxx

Dr. Rangel analyzes in posts here and here the dilemma raised by Merck's decision to pull Vioxx from the market. Definite clear thinking. Check his thougts out.

Posted by Tom at 7:53 AM | Comments (1) |

More on the addictive nature of governmental subsidies

This post from awhile back explored the phenomena that governmental subsidies - even ones that are the product of good intentions - eventually generate obsolescence.

Following up on that thought, the Washington Post's Steve Pearlstein makes the point in this op-ed that governmental subsidies in college funding, housing, and health care have caused serious distortions in the market place, starting with college funding:

And one of the big reasons [that college administrators] can [continually raise tuition] is the ever-increasing amount of public money pumped into the system in a losing effort to keep college "affordable." In effect, these well-intentioned subsidies have the perverse effect of shielding colleges from the kind of market discipline that would have forced them to hold down prices by constantly improving their productivity and efficiency, as happens in just about every other industry.

And how about health care?:

In health care, the big culprit is the tax deduction for employer-paid health insurance, which has hard-wired into the American psyche the expectation that companies should pay for their employees' health insurance. . . Unfortunately, the unintended effect of this $112 billion-a-year tax deduction is to make insured consumers largely indifferent to how much health care they consume or what it costs. And in the face of such indifference, doctors and hospitals and drug companies have done what any profit-maximizing industry would do: push prices and utilization up 7 to 10 percent each year until so many people are priced out of the market that government is forced to pump in even more money, spurring a whole new round of spending increases.

Finally, the home ownership subsidy:

And then there is homeownership, which has somehow become synonymous with "the American dream." The mortgage interest deduction already costs the Treasury $62.6 billion a year, supplemented by billions more in implicit subsidy provided via Fannie Mae, Freddie Mac and the regional Home Loan Banks. To a large degree, however, this money has rewarded those already with homes while making it harder for everyone else to afford one.

The home mortgage deduction is no different than a monthly rebate. Over time, its effect is to boost the price of the house until it incorporates most of the subsidy. And the more the house appreciates, the bigger the tax deduction, creating a dynamic of ever-increasing house prices.

Read the entire piece. All of which re-emphasizes that government subsidies are strong medicine with serious side effects. As such, they should be deployed infrequently and with great care.

Posted by Tom at 6:30 AM | Comments (0) |

Beating Icahn at his own game

This NY Times article reports on an interesting twist to the current takeover battle involving Mylan Laboratories' bid for the generic drug maker, King Pharmaceuticals and legendary takeover expert Carl C. Icahn's typical strategy to extract some ransom from Mylan's takeover bid. Mr. Icahn owns about 10% of Mylan and, of course, opposes the bid for King.

Turns out that a New York-based hedge fund called the Perry Corporation owns seven million shares of King and is attempting to profit from the spread between the price Mylan offered for King shares ($16.49) and King's actual share price (closed yesterday at $12.42). If Mylan's bid is successful, then Perry would make a cool $28 million on the deal.

However, in making its play, Perry appears to have set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that Perry now controls about 10 percent of Mylan's votes with limited or no exposure to fluctuations in Mylan's share price. Perry appears to have accomplished this by buying 26.6 million shares of Mylan while having Bear Stearns and Goldman Sachs "short" the same number of shares. The result of the transaction is that it removes any risk of price fluctuations for either side.

The move leaves Perry as the largest, albeit indirect, shareholder of Mylan and most likely means that Mylan will receive enough shareholder votes to approve the deal for King. As a high school football coach once told me while describing the reaction of his booster club to a failed trick play, "that went over like a turn in a punchbowl" with Mr. Icahn, who the Times quotes with self-righteous fury:

"If this is true, in our opinion, this maneuver is rigging an election, plain and simple, and robbing shareholders of the right to have a meaningful vote - one of the few rights they have left. If hedge funds or any other investors are permitted to dictate the outcome of corporate elections without having economic interest in the companies, then any semblance of corporate democracy we still have in our country would become a travesty."

Translation of the above quote from Mr. Icahn:

"I sure wish I had thought of that!"

Posted by Tom at 5:39 AM | Comments (0) |

December 1, 2004

Thinking about the Second Coming

Check out these interesting thoughts about the Second Coming of Christ from J.D. Walt and a student over at Asbury Theological Seminary's Web Parish blog.

And on a lighter note, my nephew Richard passes along an excellent and funny story about the Talmudist.

Posted by Tom at 7:08 AM | Comments (1) |

More on basketball, hockey style

Following on Professor Sauer's excellent post noted here regarding the recent Pacers-Pistons fight at Auburn Hills, the Washington Post's Richard Cohen has one of the best op-eds that I have read on the affair to date:

Much attention continues to be paid to Artest, as if he is such a mystery. He is a rough kid from a rough part of the world with what are known as anger management issues. These are the same issues that bedeviled the late Lizzie Borden and now afflict road ragers across the land. Artest has a record when it comes to such matters -- this is not his first suspension -- and he appears (although I am not personally acquainted with him) a couple of cards short of a full deck. It is authoritatively reported, for instance, that while playing for the Chicago Bulls at the usual multimillion-dollar salary, he applied for a Sunday job at Circuit City so he could get an employee discount.

Be all that as it may, you can surely appreciate the sort of anger that erupts in a man when a fan hits him with a cup full of liquid. . . Sure, Artest should not have reacted the way he did, but you can appreciate what angered him -- and why. He deserves to be punished, but he is not all that hard to understand.

But Mr. Cohen finds the people who participated in the brawl almost incomprehensible:

But the fans? What is wrong with them? They are idiots, being played for suckers by a bunch of millionaires who own ball teams. Because they happen to live in a certain area, they root for a certain team. Never mind that the players usually don't live in the area and they would, for either a buck or a whim, go somewhere else. The fans for some reason identify so passionately with a team that they are willing to risk physical injury on its behalf. Freud, I am sure, had a term for such people: jerks.

Being nicer, I see them differently. They are mere fools being manipulated by teams in ways that would make Pavlov salivate in appreciation. The noise, the choreographed cheering, the booming announcer and, not least, the constant acceptance or encouragement of what used to be called poor sportsmanship -- for instance, thunder sticks used to rattle players at the free-throw line -- are attempts to bond fans to a team that would, in a flash, desert them for a better arena in another city. It works. Vast numbers of people have turned over a piece of their self-worth to a team. They feel good when it wins and bad when it loses and, in some cases, will risk or inflict injury in a cause so worthless that their children should be raised by foster parents for their own good.

I understand wanting to belong to something and I understand a keen appreciation of the game. But the fan, like "the voter" and "the stockholder," has become so hypocritically venerated that it has become virtually sacrilegious to call him (or her) a chump and an idiot when they go too far. So, please, sportswriters of the world, spare me any more analysis of Artest and throw some light on the world of the fan. It must be a dim one, indeed.

Read the entire piece.

Posted by Tom at 6:20 AM | Comments (0) |

Turmoil at Calpers

The political activism in business affairs of the California Public Employees' Retirement System ("Calpers") -- one of the nation's most powerful institutional investor -- is leading to a nasty public fight over its leadership.

Sean Harrigan, the president of the Calpers, is expected to be fired today. The move comes amid a growing controversy over Calpers' boardroom-governance crusades in regard to companies in which it invests and its interference in operational affairs not directly related to protecting its investments.

I'm betting that the primary source of the problem with Mr. Harrigan is his advocacy of a new conflicts-of-interest policy for corporate boards' outside auditors that prompted Calpers to cast proxy votes against even popular company directors, such as Warren Buffett. Mr. Harrigan also pushed for such out-of-place causes as aggressive investigations into the prisoner-abuse scandal in Iraq and rationalized that move because of Calpers' small stake in a company that was involved in providing support services in Iraq. Finally, Calpers led the effort to oust Richard Grasso as head of the New York Stock Exchange and campaigned for Walt Disney Co. Chief Executive Officer Michael Eisner's resignation as chairman earlier this year.

Despite the rather odd approach to corporate governance issues, Calpers posted solid investment returns for the year ended June 30. It reported a 16.7% one-year return on its global investments and a 20.8% return on its U.S. stock holding, which is better than its benchmark index (the Wilshire 2500).

Nevertheless, Mr. Harrigan's legacy will be of attempting to micromanage the affairs of several companies in which Calpers invested. Such a policy gets a lot of press in the short run, but does not make many friends in the business world in the long run.

Posted by Tom at 5:29 AM | Comments (0) |

Calvin Murphy's trial is winding down

You know that the defense attorneys in the Calvin Murphy criminal trial are running out of witnesses when the owner of the tatoo parlor takes the stand.

Murphy is expected to take the stand this afternoon, and he will likely be the final defense witness. The prosecution will probably not offer much in terms of rebuttal, so expect the case to go to the jury by the middle part of next week.

Whatever the outcome of this sad affair, Murphy is through as a local celebrity.

Posted by Tom at 5:11 AM | Comments (0) |

November 30, 2004

K-rations and dieting

Ancel Benjamin Keys, PhD., the inventor of the K-rations that kept Allied troops alive and reasonably well fed on the battlefield during WWII, died last week at the age of 101.

But the greater contribution of Dr. Keys is even more interesting. As Sandy Szwarc notes in this TCS op-ed, Dr. Keys' greatest scientific contributions are to our understanding of the human body and eating.

Inasmuch as the mainstream media in America is obsessed with dieting and a svelte figure, few Americans who read Dr. Keys' obituary know that, over half a century ago, he conducted the soundest clinical studies ever done on the adverse effects of dieting. His findings -- which have been confirmed many times since -- proved that dieting can actually cause severe physiological and psychological harm, often results in people becoming fatter, often leads to eating disorders, and even increases the risk for heart disease and life shortening illnesses.

As Ms. Szwarc notes:

The extreme physical and mental effects [of restricted diets that] Keys observed led to his famous quote:

"Starved people cannot be taught democracy. To talk about the will of the people when you aren't feeding them is perfect hogwash."

Read the entire article.

Posted by Tom at 7:24 AM | Comments (0) |

Merck is parachuting

Merck's board has approved golden parachutes from 230 of its top executives.

On the heels of the problems noted in earlier posts here and here, my sense is that Merck's board did not have particularly good timing in approving these parachutes.

Posted by Tom at 6:29 AM | Comments (4) |

A hedge fund for sports gamblers

Dallas Mavericks owner Mark Cuban is fed up with the what he thinks is the roulette nature of the stock market. He has concluded that stock investing is not much different than gambling in Vegas, so for those who like to wager, he has come up with a better idea -- a hedge fund that bets on sporting events.

"The goal of the fund would be to make money and to prove that the current equity markets are more Ponzi scheme than efficient markets," Mr. Cuban said in his blog post announcing the hedge fund. "There is far more hypocrisy in equity markets than there is in non-traditional markets and that impacts those markets' ability to be fair."

"I've decided to start a new hedge fund. However, this hedge fund won't invest in stocks or bonds. It's going to be a fund that only places bets ? a gambling hedge fund."

Mr. Cuban reasons that stock investing is generally unfair and that most gamblers have better information about their local sports team than investors do about a company. Inasmuch as the media reports on every hangnail suffered by a member of a local sports teams, Mr. Cuban contends that the media releases much more and better information than publicly traded companies.

Mr. Cuban has not yet provided many details about the venture, such as when the fund will be up and running, which sports the fund will bet on or what it will be called. He does say he will not pick the bets and that professionals will run the fund.

While a hedge fund run by professional gamblers may sound a bit far-fetched, the hedge fund industry has a long history of engaging in rather unusual trading strategies. Until recently, hedge funds were lightly regulated on the theory that people participating in them were sophisticated investors and able to take care of themselves. But in recent years, there has been an substantial increase in the number of hedge funds and the SEC has adopted more stringent rules. Accordingly, if Mr. Cuban's fund raises more than $30 million in assets and has at least 15 investors, the advisers of the fund will have to register with the SEC by February 2006. This means that the advisers would have to disclose to the SEC their identities, the amount of money that they are managing, and the identiay of the fund's compliance officer. Mr. Cuban will probably set up his fund so that it is open only to accredited investors, which normally have at least $1 million in assets.

Mr. Cuban concludes his blog post with his real purpose in starting the fund:

"By showing that gambling in the traditional sense is less of a gamble than gambling in the stock market, traditional markets will hopefully have to change to the benefit of investors."

My sense is that this fund is going to be a bit more sophisticated -- although no more competitive -- than the traditional Kirkendall Family Bowl Game Pool that takes place each holiday season. ;^)

Posted by Tom at 5:58 AM | Comments (1) |

November 29, 2004

More gas trader indictments

U.S. prosecutors charged five former natural gas traders for allegedly supplying fake trade data to publishers that produce indexes used to value natural gas contracts. This post and this post refer to earlier indictments of the same nature against other El Paso Corp. traders.

Prosecutors alleged that two of the traders - Donald E. Burwell and James P. Phillips - operated as part of a conspiracy at El Paso Merchant Energy run that the government alleges was run by the head of gas trading. The executive who allegedly ran the conspiracy was not identified in the indictments.

Messrs. Burwell and Phillips, along with former El Paso trader Greg Singleton and former Dynegy Inc trader Michelle Marie Valencia were all charged with conspiracy, wire fraud and false reporting. A fifth trader -- Jerry A. Futch Jr. -- formerly of Reliant Energy Corp, was charged with four counts of reporting false transaction data. All five defendants pleaded innocent at an arraignment Monday and were released on $50,000 bond.

In an interesting twist, all the defendants except Mr. Futch were allowed to turn themselves in to the U.S. Marshal's Office Monday morning, as is typical in white collar criminal cases. However, for some reason, Mr. Futch was not allowed to do so and was arrested at his home as he was getting ready to take his two children to school. No word yet on the reason for the government's heavy handed handling of Mr. Futch.

The indictments follow a lengthy investigation into alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular trader cases, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.

Moreover, in an earlier case involving Ms. Valencia in which she was charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad and vague. That ruling is currently on appeal at the Fifth Circuit Court of Appeals in New Orleans, which has already conducted oral argument in the case and is currently preparing its decision.

Posted by Tom at 7:13 PM | Comments (0) |

More on basketball, hockey style

On the heels of this earlier post on the fight that occurred on November 19 at the Pistons-Pacers game, do not miss Professor Sauer's analysis of the affair, with a Stros twist:

The Pacers' brawl is not the first instance of a fan being leveled by a player-thrown haymaker. In one memorable incident in 1999, a fan raced onto the field at Milwaukee County Stadium and jumped on Billy Spiers in right field. Spiers' Astros teamates were quick on the scene to defend him. I recall Mike Hampton landing a series of blows to the head of that bozo. Billy Spiers (a former Tiger in addition to being an Astro) was one of my favorite players. Put me in Hampton's shoes and I'd have done the same thing, though not so effectively. Thanks for that, Mike.

Now, how different is Hampton's defense of his teammate from Jermaine O'Neal and Stephen Jackson's defense of Ron Artest? While there are differences, they are mostly a matter of degree. The common thread between the two incidents is the out of control fan.

Many issues are highlighted by the fight in Detroit. The NBA paid service to the media with swift and draconian punishment for the players involved. But to me, fan control is a more serious and more difficult problem than player control. Each time fans rush the court or the playing field after a game, they illustrate the raw power inherent in a crowd that no level of security short of an armored division can manage. The trick for sports management is to short-circuit the potential for a crowd to turn into a mob.

Definite clear thinking. Read the entire post.

Posted by Tom at 7:14 AM | Comments (0) |

Houston's bull on oil prices

This earlier post reported on an interview of Matt Simmons, the Houston-based investment banker who is an expert on forecasting oil supplies. Following that interview, this Barron's interview of Mr. Simmons warns that the Saudi oil supplies are not what they appear to be and that, because the Saudi oil industry is state-run, there is no independent auditor of national reserves who can verify just how large -- or small -- the Saudis' reserves are. As Mr. Simmons notes, that makes a big difference for the following reasons:

With global demand for oil on the rise, and prices hovering near $50 a barrel, the Saudis' production profile is more than academic. The No. 1 oil producer, Saudi Arabia pumps 13% of the world's oil and boasts 23% of its oil reserves. Moreover, the Saudis alone claim to have excess production capacity and the ability to increase output if demand continues to rise.

If the Saudis' numbers are correct, the kingdom could continue to produce at current levels of about 10 billion barrels a day for the next 50 years, or more. That would give the industrial world time to develop alternative energy sources and prepare for a graceful transition.

If Simmons is right, however, the world could face a dangerous imbalance between rising oil demand and diminishing supply, perhaps within the next 10 years. Oil prices could soar, economies could suffer, and oil-dependent nations, such as the U.S., China and Japan, would be forced to scramble for additional energy sources.

Matt Simmons' opinions are not to be taken lightly. Read the entire article.

Posted by Tom at 6:34 AM | Comments (0) |

November 28, 2004

2004 Weekly local football review

Texans 31 Titans 21. My younger son and I went to the Texans game today with a couple of friends and we all enjoyed an entertaining game. The Texans began the game in a coma and found themselves trailing 21-3 midway through the second quarter as Titans' QB Steve McNair sliced and diced the Texans' secondary. The Texans then pieced together their only drive of the first half to narrow the score to 21-10, but still looked overmatched as they could not stop McNair's pinpoint passing. Then, seemingly without reason, the Texans offense woke up in the third quarter, David Carr began to look like a top level NFL QB, and the Texans' defense started getting pressure on McNair. Before you knew it, the Texans had scored two TD's to take the lead 24-21. The remainder of the game pretty much involved the Texans playing it close to the vest on offense while defending furiously against the Titans' fourth quarter thrusts. Finally, a McNair fumble and interception in the fourth quarter thwarted the Titans' final drives, and then the Texans' Domanick Davis ran in a late TD from 41 yards to seal the victory for the hometown crew. The bottomline on this one was that the Texans' offensive line did a much better job of establishing a running attack for Davis and in protecting Carr, and that's the primary reason that the Texans (now 5-6 on the season) were able to beat the former Oilers for the second time this season. Next week's game for the Texans is at the Meadowlands against the Jets.

Dallas 21 Chicago 7. After a horrid first half display from both teams that almost set back NFL offenses from several decades of development, the Pokes' Vinnie Testaverde made the first of what will likely in coming weeks be several appearances in relief of current Cowboys savior Drew Henson and engineered two second half drives to secure the win for the Cowboys on Thanksgiving Day. Henson -- who curiously has gotten rich off of unrealized potential in both professional baseball and professional football -- stunk in his first start for the Pokes, going 4 of 12 for 31 yards with 1 interception that was run back 45 yards for a Chicago TD. Thus, in his first outing, Henson passed for more yardage and touchdowns to the other team than his own. The 4-7 Cowboys go to Seattle for the Monday Night game next week against the Seahawks. The Texans have a real chance of finishing this season with a better record than the Cowboys, which would not go over well with Pokes' owner Mr. Jones at Valley Ranch.

Texas Longhorns 26 Texas Aggies 13. In a game that was not as close as the score indicates, the Horns calmed down after a first half near-disaster to pound the Aggies into submission in the second half and come away with their fifth straight win in the storied series between the two programs. The Horns were about ready to take a 13-7 lead at the end of the first half when Texas QB Vince Young had a brain fart and fumbled the ball while attempting to stretch his arm over the goal line. Aggie safety Jonte Buhl picked up the fumble and raced 98 yards for an Aggie TD and a stunning 13-7 Aggie lead at halftime, which did not go over well with the Horns. That incident appeared to make the Longhorns downright ornery as the Horns' defense suffocated Aggie QB Reggie McNeal in the second half, holding the Aggie offense to a total of about 60 yards total offense. In one series during the fourth quarter, Texas took complete control of the line of scrimmage and sacked the elusive McNeal on three straight plays before the exasperated Aggie QB threw an interception on the fourth play. Meanwhile, Young and Cedric Benson kept pounding on the overworked Aggie defense and methodically scored 19 second half points to put the game away. The 10-1 Horns now await the outcome of the league championship games, but it is looking more and more like the best Texas team of the Mack Brown era will again miss out on a Bowl Championship Series game on New Year's Day. That's a shame, became this Horns team -- particularly its fast and strong defense -- is pretty darn good. The Aggies look like they are headed for the Holiday Bowl in San Diego against Arizona State for the Ags' first bowl game in three seasons.

Louisiana Tech 51 Rice 14. Rice's disappointing season ended on Monday night in a 51-14 loss to Louisiana Tech before a "crowd" of friends and family members of 8,317 at Reliant Stadium. The Owls finished with a record of 3-8 on the season.

The 3-8 Houston Cougars' season finished last week (mercifully).

And finally, don't miss Kevin Whited's final Big 12 wrap-up.

Posted by Tom at 6:49 PM | Comments (2) |

More on the wild world of Equatorial Guinea

The latest news from the wild world of Equatorial Guinea is not good for Mark Thatcher, the son of former English Prime Minister Margaret Thatcher. Here are the previous posts on this lurid affair. Movie rights to be sold soon.

Posted by Tom at 7:28 AM | Comments (0) |

UAL, we have a big problem

Most of news over the past two years about the United Airlines chapter 11 case has focused on the legacy airlines operating losses, its unfunded pension obligations, and its need to overhaul or reject its collective bargaining agreements. Here is a series of posts on those various issues.

So, United has established that a legacy airline can lose money for a long time while floundering in chapter 11. However, can United continue meandering in chapter 11 without aircraft? Look at this seemingly innocuous press release that United issued late this past Friday:

A U.S. federal bankruptcy court judge has blocked a group of creditors from repossessing up to 14 airplanes from UAL Corp.'s United Airlines, saving the bankrupt carrier tens of millions of dollars.

Judge Eugene Wed off issued a temporary restraining order Friday barring the group, represented by the Chicago-based law firm Chapman & Cutler LLP, from seizing up to eight Boeing 767s and six 737s.

The group of financiers, which controls about one-third of United's fleet, had threatened to seize the planes as early as Dec. 1 because of an impasse over their leases.

United, the nation's No. 2 airline, is seeking to lower aircraft operating costs by renegotiating its leases with creditors. However, it argued that the Chapman group was violating antitrust laws by renegotiating as a bloc instead of as individual leaseholders, forcing United to accept higher lease rates.

Well, you say, what's so unusual about that? Secured creditors in chapter 11 cases are automatically stayed from repossessing their collateral until they petition the Bankruptcy Court to modify the automatic injunction under Bankruptcy Code section 362 to allow them to exercise their contractual rights. Isn't the Bankruptcy Judge simply enforcing the stay against United's aircraft lenders?

Not exactly. Aircraft collateral is treated differently under the Bankruptcy Code than other types of collateral (financial institutions that make aircraft loans lobby well in Congress). Under section 1110 of the Bankruptcy Code, the above-described TRO is on quite shaky grounds:

(a)(1) . . . , the right of a secured party with a security interest in [aircraft] equipment, . . . or of a lessor or conditional vendor of such equipment, to take possession of such equipment in compliance with a security agreement, lease, or conditional sale contract, and to enforce any of its other rights or remedies, under such security agreement, lease, or conditional sale contract, to sell, lease, or otherwise retain or dispose of such equipment, is not limited or otherwise affected by any other provision of this title or by any power of the court.

In plain English, that says "a bank that has aircraft collateral cannot be enjoined from repossessing and selling its collateral in a chapter 11 case." Section 1110 goes on to provide that the only limitation on an aircraft lender's collateral rights is during the first 60 days of the chapter 11 case and that the debtor must cure any defaults under its agreement with the aircraft lender if the debtor wants to continue using the aircraft that is collateral for the lender's loans to the debtor.

Consequently, it looks like the financial institutions that control a third of United's fleet have had enough. As United's management, unions, and other parties-in-interest continue to fiddle while Rome burns, I wonder whether they have examined pro formas on operating an airline without a substantial portion of its aircraft fleet? Inasmuch as the Bankruptcy Court's decision to approve a TRO in the face of section 1110 is almost certainly in error, United's dithering parties-in-interest better get ready to deal with a few less aircraft sooner rather than later.

Posted by Tom at 6:37 AM | Comments (0) |

November 27, 2004

Ken Lay's lawyer hammers the Chronicle and the Enron Task Force

The public relations contest that the Enron case has become continued today. In this Chronicle op-ed, Mike Ramsey -- former Enron chairman and CEO Kenneth Lay's criminal defense attorney -- levels a blast at the Chronicle for adhering to the government's witch hunt theme in regard to a recent Chronicle editorial critical of Linda Lay's involvement in the sale of a Lay Family charity's Enron stock days before the filing of Enron's bankruptcy case:

As the tabloids demonstrate, there is money to be made by jumping onto the popular side of a public frenzy. However, one can still hope that major newspapers will refuse to become mouthpieces for those who prefer strong-arm tactics to public trials.

Just maybe it is time to get to the truth by a public trial instead of in the backrooms of the Enron Task Force and Houston Chronicle. (One might even wonder if those backrooms have adjoining doors.)

Then, Mr. Ramsey gives the Lay side of the story regarding the stock sale:

Linda Lay sold Enron shares as president of the family's charitable foundation. They were shares that Ken and Linda had given to that foundation prior to the end of 2000 and every penny of the money from the sale went to such charities as United Way, YMCA, DePelchin Children's Center, Star of Hope, Holocaust Museum Houston, and Open Door Mission, among many others.

The sale was made on the day, Nov. 28, 2001, when the share price was in free-fall. Linda salvaged what she could, as was her duty as president of a charitable foundation. (The sale price was $2.37, off from a high near $85 earlier that year and a closing price the day before of $4.01.) More remarkable, during that market panic neither Ken nor Linda sold any of their personal shares.

Indeed, after Ken's return as CEO in August 2001 they held all their shares as the market plunged from near $40 per share to near $0.

The only shares that Ken and Linda ever sold during that tragic three and one-half months were sold to prevent margin calls from triggering a forced sale of all their shares. They never voluntarily sold a dime's worth after Ken's return. In fact, at bankruptcy they still held more than 1 million shares and more than 4 million vested stock options.

The dubious nature of the government's insider trading case against Mr. Lay has been examined in many previous posts here, including this one and this one. But Mr. Ramsey sees something far more sinister than a government investigation:

While it is true that Andrew Weissmann and his Enron Task Force have chosen not to comment publicly [on the investigation of Linda Lay's stock sale], I cannot accept that after nearly three years of investigation, the press and a secret grand jury happened, by coincidence, upon this particular event at the same time.

Perhaps I am cynical, but this is not exactly my first rodeo.

No, there was a calculated leak done to produce an unfavorable story in aid of a shamefully false accusation.

Mr. Ramsey is undoubtedly correct that the Linda Lay story was a calculated leak by the government, and I am sympathetic to the argument that the prosecution has no business engaging in this type of public relations. However, the fact remains that Linda Lay's sale of this stock days before Enron's bankruptcy was a stupid move. Here's hoping that no lawyer advised her to do it.

Posted by Tom at 1:41 PM | Comments (0) |

Profiling radical Islamic fascists

Marc Sageman was a CIA case officer in Afghanistan between 1987?89 and is now a forensic psychiatrist in Philadelphia. His book, Understanding Terror Networks, was published by the University of Pennsylvania Press earlier this year.

After the attacks on New York and Washington of September 11, 2002, Dr. Sageman noticed the lack of systematic data on the perpetrators, so he began to apply the principles of evidence-based medicine to terrorism research. He gathered terrorist biographies from various sources, relying most heavily on the records of various criminal trials. After matrixing approximately 400 biographies, Dr. Sageman began a social-network analysis of this group.

This Foreign Policy Research Institute article provides a summary of Dr. Sageman's findings and conclusions. Inasmuch as the entire article is fascinating, I had a difficult time deciding which excerpts to pass along, but here are a few.

First, Dr. Sageman notes that the key period of development for the current radical Islamic fascists was the time in the late 1980's and early 1990's when their leadership gathered in Khartoum, Sudan to hatch their dream of indepedent "Salafi" states:

The Khartoum period is critical, because what these violent Salafists basically want to do is to create a Salafi state in a core Arab country. Salafi (from Salaf, ?ancient ones? or ?predecessors? in Arabic) is an emulation, an imitation of the mythical Muslim community that existed at the time of Mohammed and his companion, which Salafists believe was the only fair and just society that ever existed. A very small subset of Salafis, the disciples of Qutb, believe they cannot create this state peacefully through the ballot-box but have to use violence. The utopia they strive for is similar to most utopias in European thought of the nineteenth to the twentieth centuries, such as the communist classless society.

Moreover, Dr. Sageman points out that the background of the radical Islamic fascist leadership is similar to that of the "best and the brightest" of the societies from which they have emerged:

Most people think that terrorism comes from poverty, broken families, ignorance, immaturity, lack of family or occupational responsibilities, weak minds susceptible to brainwashing - the sociopath, the criminals, the religious fanatic, or, in this country, some believe they?re just plain evil.

Taking these perceived root causes in turn, three quarters of my sample came from the upper or middle class. The vast majority?90 percent?came from caring, intact families. Sixty-three percent had gone to college, as compared with the 5-6 percent that?s usual for the third world. These are the best and brightest of their societies in many ways.

Al Qaeda?s members are not the Palestinian fourteen-year- olds we see on the news, but join the jihad at the average age of 26. Three-quarters were professionals or semi- professionals. They are engineers, architects, and civil engineers, mostly scientists. Very few humanities are represented, and quite surprisingly very few had any background in religion. The natural sciences predominate. Bin Laden himself is a civil engineer, Zawahiri is a physician, Mohammed Atta was, of course, an architect; and a few members are military, such as Mohammed Ibrahim Makawi, who is supposedly the head of the military committee.

Mr. Sageman notes that there really is not one profile for a radical Islamic fascist:

So what?s in common? There?s really no profile, just similar trajectories to joining the jihad and that most of these men were upwardly and geographically mobile. Because they were the best and brightest, they were sent abroad to study. They came from moderately religious, caring, middle-class families. They?re skilled in computer technology. They spoke three, four, five, six languages. Most Americans don?t know Arabic; these men know two or three Western languages: German, French, English.

When they became homesick, they did what anyone would and tried to congregate with people like themselves, whom they would find at mosques. So they drifted towards the mosque, not because they were religious, but because they were seeking friends. They moved in together in apartments, in order to share the rent and also to eat together - they were mostly halal, those who observed the Muslim dietary laws, similar in some respects to the kosher laws of Judaism. Some argue that such laws help to bind a group together since observing them is something very difficult and more easily done in a group. A micro-culture develops that strengthens and absorbs the participants as a unit. This is a halal theory of terrorism, if you like.

These cliques, often in the vicinity of mosques that had a militant script advocating violence to overthrow the corrupt regimes, transformed alienated young Muslims into terrorists. It?s all really group dynamics. You cannot understand the 9/11 type of terrorism from individual characteristics. The suicide bombers in Spain are another perfect example. Seven terrorists sharing an apartment and one saying ?Tonight we?re all going to go, guys.? You can?t betray your friends, and so you go along. Individually, they probably would not have done it.

In fact, the lack of these social networks is one of the reasons why Dr. Sageman believes that another 9/11-type attack has not occurred in the United States:

Indeed, there are not that many terrorists in America. There have never been any sleeper cells. All the terrorists are fairly obvious. The FBI cases we see in the press tend to unravel. The Detroit group has been exonerated, and the prosecutor is now being prosecuted for malfeasance on the planted evidence. He allegedly knew exculpatory facts that he did not present to the defense. The only sleeper America has ever had in a century was Soviet Col. Rudolf Abel, who was arrested in the late 1950s and exchanged for Gary Powers, the U2 pilot. Eastern European countries did send sleepers to this country, men fully trained who ?go to sleep??lead normal lives?and then are activated to become fully operational. But they all became Americans.

In order to really sustain your motivation to do terrorism, you need the reinforcement of group dynamics. You need reinforcement from your family, your friends. This social movement was dependent on volunteers, and there are huge gaps worldwide on those volunteers. One of the gaps is the United States. This is one of two reasons we have not had a major terrorist operation in the United States since 9/11. The other is that we are far more vigilant. We have actually made coming to the U.S. far more difficult for potential terrorists since 2001.

But Dr. Sageman warns that the radical Islamic fascists have adapted and changed the way in which they will plan future attacks:

We hear that Al Qaeda plans its attacks for years and years. It may have before 9-11, but not anymore. Operatives in caves simply cannot communicate with people in the field. The network has been fairly well broken by our intelligence services. The network is now self-organized from the bottom up, and is very decentralized. With local initiative and flexibility, it?s very robust. True, two-thirds to three- quarters of the old leaders have been taken out, but that doesn?t mean that we?re home free. The network grows organically, like the Internet. We couldn?t have identified the Madrid culprits, because we wouldn?t have known of them until the first bomb exploded.

So in 2004, Al Qaeda has new leadership. In a way today?s operatives are far more aggressive and senseless than the earlier leaders. The whole network is held together by the vision of creating the Salafi state. A fuzzy, idea-based network really requires an idea-based solution. The war of ideas is very important and this is one we haven?t really started to engage yet.

Read the entire article.

Posted by Tom at 10:26 AM | Comments (3) |

"Alexander the Turkey"

My younger son, who is a serious film buff, went to see Oliver Stone's Alexander the Great yesterday. He passes along that it is an unmitigated disaster, and predicts that it will be out of the theaters in less than a month, a prediction that is supported by the woeful early financial performance of the $210 million film (there were few people in the audience of the showing that he attended). The Washington Post's Stephen Hunter agrees in this hilarious review, and passes along this gem on the performance of Angelina Jolie as Alexander's mother, Olympias:

Then there's Angelina Jolie as Mom. Really, words fail me here. But let's try: Give this young woman the hands-down award for best impression of Bela Lugosi while hampered by a 38-inch bust line. Though everyone else in the picture speaks in some variation of a British accent, poor Jolie has been given the Transylvanian throat-sucker's throaty, sibilant vowels, as well as a wardrobe of snakes. She represents the spirit of kitsch that fills the movie, and with all her crazed posturing and slinking, it's more of a silent movie performance than one from the sound era. Theda Bara, call your agent.

The blogosphere's foremost film critic -- Professor Ribstein -- passes along his thoughts in this post. And even Victor Davis Hanson chimes in with this review, in which he concludes:

There is also irony here. If we remember the embarrassing Troy, we are beginning to see, that all for all the protestations of artistic excellence and craftsmanship, Hollywood has become mostly a place of mediocrity, talentless actors and writers who spout off about politics in lieu of having any real accomplishment in their own field. I?ve heard so many inane things mouthed by Stone that I would like someone at last to address this question?why would supposedly smart insiders turn over $160 million to someone of such meager talent to make such an embarrassing film? Alexander the Great is third-rate Cecil B. Demille in drag.

Posted by Tom at 9:06 AM | Comments (0) |

For Seinfeld fans

The Chronicle's Ken Hoffman will like this -- The Jerry Seinfeld Dictionary of Terms and Phrases. An example:

Must-Lie Situation - when a person feels that they cannot tell the truth to someone else for fear of offending them (ex #1 calling one's baby "Breathtaking", ex #2 not being able to tell someone that their hairdo is pre-1960's or just plain hideous)

Posted by Tom at 8:25 AM | Comments (0) |

November 26, 2004

The politics of statutes at UT

This NY Times article reports on the squabble that has arisen over the University of Texas at Austin's decision to honor famed Houston trial lawyer Joe Jamail with his second statute on the UT campus:

Of the more than a dozen statues peppering the University of Texas campus here, one glorifies the first native-born governor, two pay tribute to deceased American presidents, and others honor Confederate leaders.

Another statue is poised to join the cast on Friday, honoring a graduate who is a successful trial lawyer.

The subject, Joe Jamail, a Houston alumnus who has donated $21.7 million to the university and its athletic programs, already has one bronze likeness at the law school and his name is on several campus sites. The newest statue of Mr. Jamail, who won billions of dollars for Pennzoil in a landmark suit in the 1980's, is scheduled to be unveiled inside the football stadium before the annual game against archrival Texas A&M.

But not everyone looks forward to another likeness. The statue, . . makes Mr. Jamail the only person with two on the 350-acre campus, university officials say, and that distinction has rankled some faculty members.

"One is enough, with due respect to whoever," said a journalism professor, Gene Burd.

The 78 year old Jamail is most famous (notorious?) for persuading a Houston state court jury in 1985 to award a record $11 billion in damages against Texaco for tortiously interfering with Pennzoil's attempted acquisition of Getty Oil. The subsequent judgment prompted Texaco to file a chapter 11 case, which eventually resulted in a settlement of Pennzoil's claim for $3 billion in 1987. Already a wealthy plaintiff's lawyer, Mr. Jamail took the case on a contingency fee, so his piece of the settlement made him one of the wealthiest attorneys in the world.

Over the past 20 years, Mr. Jamail has become a philanthropist, and UT has been the main beneficiary of his philanthropy. Sites at the university named for Mr. Jamail include the swim center, the football field, the law school pavilion that contains the first statute of him, and the law school's legal research center. The newest statue of Mr. Jamail planned for a corner of the football stadium will be placed near a new statue of the former national champion football coach and UT legend Darrell Royal. By the way, Mr. Jamail paid for the statute of Coach Royal.

To this day, the Pennzoil-Texaco case is most remembered in Houston legal circles for the catastrophic trial decision that Texaco's general counsel made. Texaco's main defense was that it was justified in competing with Pennzoil for Getty Oil and, thus, could not have tortiously interfered with Pennzoil's takeover attempt. However, in support of an alternative defense, Texaco's trial counsel recommended that Texaco put on expert testimony that would contradict Pennzoil's evidence of alleged damages. Texaco's general counsel decided that putting on countervailing damages testimony would be a signal to the jury that Texaco did not confidence in its primary defense, so he directed Texaco's trial counsel not to put on any expert damages testimony.

Consequently, when the jury found in favor of Pennzoil on the liability issue, the only damages evidence in the trial record was Pennzoil's. Thus, the $11 billion jury verdict ensued, and the trial record contained inadequate evidence upon which an appellate court could base a decision to reduce the damages.

As they say in defense circles, "Ouch!"

Posted by Tom at 7:35 AM | Comments (1) |

Oh great! Cell phone viruses?

Your cell phone may be the victim of the next wave of viruses.

Posted by Tom at 7:03 AM | Comments (2) |

Krispy Kreme = Boston Market

This Floyd Norris' NY Times column does a nice job of explaining the developing debacle of Krispy Kreme, the share price of which peaked at $49.74 in the summer of 2003, but which has fallen as low as $9.35 recently. An earlier post on the company's developing troubles may be reviewed here.

What happened? Easy. Most Krispy Kreme franchises don't make money:

Krispy Kreme's company-owned stores report an operating profit, but not one large enough to cover corporate overhead. The real profits have come from the company's dealings with its franchise vendors. The franchises pay royalties of 4.5 percent to 6 percent of sales, plus 1 percent for advertising and public relations. And they must buy all their supplies from the parent - paying hefty markups that provide 20 percent profit margins for Krispy Kreme.

All that would be fine if the franchises were doing well. But many are not, and some are turning to Krispy Kreme as the lender of last resort. Some of these borrow from the parent and others sell their franchises back to it. One lucky operator had a deal that forced Krispy Kreme to buy at a price set in more optimistic times. In other cases, the parent bought for reasons the S.E.C. may be looking into, since its insiders held stakes in franchises the company purchased.

Until recently, it had been hard to tell how the franchises were doing. But the combination of additional investments in franchises and new accounting rules - imposed as a result of the Enron scandal - has forced the company to disclose more. In the quarter ended in October, the joint ventures lost $2.1 million after coming close to breaking even a year earlier.

The lesson of Krispy Kreme is simple, and it is the same one that the Boston Market bankruptcy of the 1990's should have taught us. If the people who actually sell the product are not doing well, then neither is the enterprise.

Put Krispy Kreme on your bankruptcy watch list for 2005.

Posted by Tom at 6:35 AM | Comments (0) |

United finally seeks to reject CBA's

Two years into its aimless chapter 11 case, UAL Corp. finally requested that the Bankruptcy Court allow it to reject its existing labor contracts with six unions if the company cannot reach consensual agreements on modifications to the contracts by January, 2005.

Better late than never, but geez United, let's get on with it.

In its motion, United disclosed that it needs an additional $725 million in annual savings from its 62,000 workers in order to maintain sufficient liquidity to avoid a default under its interim bankruptcy financing even though United employees provided wage cuts valued at $2.5 billion a year earlier in the case. United now needs to generate additional savings because the airline business has been hammered even further by a compbination of low ticket prices, competition from discount airlines, high fuel prices, and unfunded pension obligations.

Moreover, UAL used the filing to remind the Court that it must also reduce its pension liabilities in order to secure exit financing to fund a plan of reorganization in its chapter 11 case. Consequently, unless consensual modifications of those liabilities are obtained, United will request that the Court approve United's termination of its four pension plans, which would foist a substantial portion of the unfuned pension liabilities onto the federal Pension Benefit Guaranty Corp., which is not exactly in great shape itself.

United's proposals are meeting with angry opposition in its chapter 11 case from the various unions and the PBGC. As a result, it appears that United will probably be required to endure a prolonged court battle on its motion to reject the labor contracts. Under the Bankruptcy Code, United has to prove that the rejections are necessary to permit the company to reorganize, that they are fair, and that the company bargained in good faith with the unions.

Legacy airlines are doomed to failure in the current airline industry absent change that will allow them to compete with the discount airlines. Nevetheless, the glacial progress in United's chapter 11 case reflects the difficulties involved in changing a legacy airline's culture. Although perhaps not best for United and its various parties-in-interest, the best thing that could happen to the airline industry as a whole would be for the Bankruptcy Judge in United's case to issue an order requiring United's parties-in-interest to show cause why United should not be liquidated. Only that type of industry shattering event is likely to shake the intractable view of airline unions that the past largesse of the legacy airlines is sustainable in the future.

Meanwhile, in this Wall Street Journal ($) op-ed, three authors involved in airline industry/bankruptcy issues provide the following proposal for dealing with unfunded pension obligations of the various legacy airlines:

We believe that the airlines, airline unions and the administration should work together to propose to the Congress a new alternative to the "lose-lose-lose" Chapter 11 approach. This would present an airline and unions with the following new choice: First, management and a union would need to agree collectively to freeze an existing defined-benefit pension plan. Importantly for the PBGC, its liability as guarantor of the plan would be capped as of the freeze date and would decrease over time. Second, the unfunded liability of the frozen plan then would be amortized over a specified time period that would be longer than what current law allows. Here's where compromise is needed -- the PBGC will want a shorter period for the unfunded pension liability to be paid; the airlines will want longer. One thing is clear: The existing pension funding law, particularly the so-called deficit-reduction contribution provisions, so accelerate the funding of significantly underfunded pension plans as to make the freeze option unrealistic absent a longer time period to satisfy the unfunded liabilities. Finally, management and labor would negotiate and agree upon a new, replacement defined-contribution pension plan.

Posted by Tom at 5:21 AM | Comments (0) |

November 25, 2004

Rathergate is rather fine for CBS

This NY Times article reports that CBS executives are smiling these days, and Dan Rather's recent resignation as CBS anchorman does not really have much to do with it.

This is further confirmation that the mainstream television networks are really just entertainment venues, and that their news divisions have turned into just another entertainment show that they feel compelled to run for public relations purposes. Thus, so long as the news divisions are marginally profitable or do not lose much money, the networks don't really care much about the quality of the product.

My sense is that this is not the way that Edward R. Murrow thought that television network news was going to develop.

Meanwhile, this editorial provides The Economist's view of Mr. Rather's resignation, including the following observation:

Mr Rather's retirement epitomises two broader shifts of power. First, the old media are losing power to the new. And, second, the liberal media establishment is losing power to a more diverse cacophony of new voices.

Posted by Tom at 8:41 AM | Comments (0) |

Spreading Holiday Cheer through Amazon

If you, like me, purchase a boatload of holiday gifts through Amazon.com, then you can help support this blog by clicking the "Holiday Shopping @ Amazon" link on the right side scroll bar. At no additional cost to the purchaser, Amazon's Associates program pays a small commission to this blog for any items purchased while accessing Amazon through that link. A number of other fine blogs are also in the program, (Virginia Postrel and Marginal Revolution to name just two), so I encourage you to use Amazon by clicking such a link and help support your favorite blogs during this Holiday Season. Thanks!

Posted by Tom at 8:16 AM | Comments (0) |

Bill Moyers is retiring

Bill Moyers will retire next month from full-time broadcasting at the age of 70. This Rocky Mount Telegram article explores the life and work of Mr. Moyers, who has been one of the most thoughtful journalists regarding public affairs during his long career in journalism. Raised in Marshall, Texas, Mr. Moyers met Lyndon Johnson during his 1954 Senate campaign and then served as deputy director of the Peace Corps under President Kennedy and as President Johnson's chief advocate for the Great Society and the War Against Poverty from 1963-67.

Although I have not always agreed with Mr. Moyers' views, I have always appreciated the thoughtful manner in which he has presented them. During these times of increasingly polarized views, such an advocate of reasoned debate will be missed.

Posted by Tom at 7:47 AM | Comments (0) |

November 24, 2004

Is the Disney trial a precursor for change in corporate governance?

Don't miss Professor Ribstein's post about the ongoing trial over the Walt Disney Co. board's decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney.

The trial is an interesting one because it combines Hollywood largesse with knotty issues of corporate law, such as the limits of judicial supervision over the business judgment rule. However, Professor Ribstein wonders whether something even more basic is unfolding:

But I wonder whether something more basic is at stake -- the future of the corporate enterprise as we know it. After all that we have seen in the last few years, can we really be optimistic that things are changing?

He goes on to point out that Disney could well be the product of an obsolescent business model:

Think about this in the Disney context. Why do we need this Disney behemoth? The brand? Synergy? Michael Powell recently wondered "if Walt Disney would be proud," speculating on the disastrous cross-promotion of Disney's Desperate Housewives on Disney's Monday night football. Does this sort of thing make people want to go into Disney's family-oriented amusement parks? Even the film business has gotten away from the Disney brand -- Pixar was providing the meat until Eisner chased it away.

Professor Ribstein points out that there is a better way:

I've argued in Why Corporations? for the dismantling of the corporate entity and the greater use of partnership-type forms for publicly held business. This could be spurred by a change in the tax laws that puts more emphasis on distribution rather than retention of earnings.

How about spinning the amusement parks into a real estate limited partnership, divesting the television properties, and focusing on the movie business? Aside from giving Eisner less to play with over his remaining two years, what would be lost?

In short, the Disney Board's foible of approving the Ovitz severance package pales in comparison to its failure to require Michael Eisner to adapt Disney's corporate strategy to maximize value for Disney's shareholders. This is true clear thinking, so check out the entire post.

Posted by Tom at 7:06 AM | Comments (0) |

The political landscape for tax reform

This Washington Post article does a good job of describing the political landscape that confronts the Bush Administration in proposing and enacting tax reform legislation. The sponsors of the 1986 Tax Reform legislation -- Dan Rostenkowski and Robert Packwood -- are not particularly optimistic that the administration's approach to the issue will result in successful reform. Check it out.

Posted by Tom at 6:51 AM | Comments (0) |

The real Oskar Schindler

This NY Times book review examines Holocaust historian David M. Crowe's authoritative new biography of Oskar Schindler, the German businessman who saved more than 1,000 Jews from the Nazis during World War II.

Interestingly, Mr. Crowe's book -- Oskar Schindler: The Untold Account of His Life, Wartime Activities and the True Story Behind the List (Westview Press 2004) -- differs sharply with the idealized portrayal of Schindler in the Oscar-winning 1993 Steven Spielberg movie Schindler's List and Thomas Keneally's 1982 historical novel that inspired the movie.

One of the particularly interesting differences between the book and the movie is how Schindler's Jewish workers are depicted as Schindler prepares to flee in the face of the Russian invaders. In the movie, the Jews are depicted as worn down and overwhelmed. Mr. Crowe contends that the Schindler had in fact prepared the Jews to be "an armed guerilla group. "They were armed to the teeth, ready to fight till the death."

Check out the review.

Posted by Tom at 6:24 AM | Comments (0) |

An annuity for auditors

Don't miss Holman Jenkins, Jr.'s Business World column this week in the Wall Street Journal ($) in which he reviews the rather remarkable effects of the Sarbanes-Oxley legislation, which was Congress' knee-jerk public relations reaction to the WorldCom and Enron scandals:

No wonder that the annual bill for Sarbox is going through the roof, with the latest estimates being about $6 billion for the Fortune 1000 alone. One investment banker estimates that a small company nowadays would have to generate $150,000 in free cash annually just to cover the additional paperwork before it can even consider going public. Then there's upwards of $100,000 each to insure all who sit on its board, if any can be found. Oh yes, and the fact that audit fees, for the average company, have risen about 50% in a single year.

No wonder, too, that the number of companies alerting the SEC that their latest financial reports will be late doubled last quarter, adding to a backlog of late filers that recently topped 600. One strategic-investor type who sits on the boards of a number of companies called a few weeks back to gripe in detail about what all this was costing the economy. Under the SOX regime, something as slight as an anonymous letter alleging accounting irregularities can effectively deliver a company entirely into the control of outside auditors. Directors, so fearful about their own liability that they stop thinking about what's good for the business and worry only about securing their own alibis, write a blank check with shareholders' money to do whatever the auditor dictates.

And though Sarbox compliance has become a gravy train for auditors, Mr. Jenkins points out that it has come with a "Faustian Caboose:"

But, ahem, Sarbanes-Oxley has at least fixed a lot of real problems, right? Let's recall that the Internet and telecom bubbles were occasioned by investors who weren't interested in published financial accounts -- they were interested in the speculative potential of new technologies and new business models.

Secondly, there was the problem of how company promoters and CEOs behaved in the presence of a stock market willing to throw money at such speculative endeavors. Neither of these issues is addressed by Sarbanes-Oxley. Nor does any legislative solution for the inherent risks and foibles of market capitalism suggest itself.

Sarbox, rather, is the last gasp of a corporate governance kludge in which auditors became, in the public's eye, something they've never been in their own eyes: namely proof against fraud. In the audit industry's eyes (or at least in its behavior), the mandatory audit is a welcome gravy train that has gradually revealed an unwelcome Faustian caboose. Whenever a company blows itself up in an accounting scandal, the accountants pay for their gravy train by serving as an additional set of deep pockets for trial lawyers to sue.

So rather than encouraging beneficial risk taking that spurs economic development and job creation, Congress gives us Sarbones-Oxley, which is nothing more than a regulatory straightjacket that could well chill markets in the long run. This is a common occurrence when our elected officials pass legislation to facilitate public relations for their re-election campaigns rather than to provide a real benefit for their constituents.

Posted by Tom at 5:40 AM | Comments (0) |

Car line terror

My wife has spent a fair amount of time in school car lines over the years, and she passes along the result of this serious breach of car line etiquette reported by the Chronicle:

A spat that started almost a year ago, in the line to pick up children after classes at the Village School, will move into a Houston municipal court today as a 40-year-old mother faces a misdemeanor assault charge.

Sandra Chiang denies reaching into Shannon Rechter's sport utility vehicle and slapping her in the face afterRechter cut in line while other parents were waiting and chatting outside the school. Chiang could be fined up to $500 if convicted.

The incident ignited a yearlong feud that has included the assault charge, a counterclaim of vandalism, allegations of harassment and the removal of Rechter's two children from the school.

The two stay-at-home mothers had never met before Dec. 13, 2003, when Chiang left her car idling as the carpool line moved forward, and Rechter, 38, wedged into the space ahead of her.

"She immediately began yelling at me for cutting in line, and the more I tried to explain the madder she became," Rech-ter said.

"At that point, she reached in, struck me across the face and quickly ran back to her car as if nothing happened."

Chiang contends that her SUV was "keyed" by Rechter several weeks later. The hood and a door were scraped, causing an estimated $1,600 in damage, she says.

For some reason, the case is not high on the radar screen of the Harris County District Attorney's Office:

Rechter says school officials and law enforcement authorities didn't take her seriously when she first reported the incident.

It took numerous calls to police and the city prosecutor's office to get the case scheduled for trial, she says.

My wife's question: If I was defending this case, would I try to strike for cause anyone on the jury panel who regularly has to sit in a car line?

My answer: Only if they don't cut in line. ;^)

Posted by Tom at 5:13 AM | Comments (0) |

November 23, 2004

Unleashing the power of markets in health care

Regular readers of this blog know of my skepticism that the costs attributable to America's reliance on third party payors in its health care finance system are commensurate with the benefits of paying for medical service in that fashion.

Following up on that thought, Alex Tabarrok over at Marginal Revolution notes in this post that one of the most popular types of medical procedure has declined in cost recently precisely because it is not generally covered under America's third party payor system:

Everywhere we look it seems that health care is more expensive: prescription drug prices are increasing, costs to visit the doctor are up, the price of health insurance is rising. But look closer, even closer, closer still. Don't see it yet? Perhaps you should have your eyes corrected at a Lasik vision center.

Laser eye surgery has the highest patient satisfaction ratings of any surgery, it has been performed more than 3 million times in the past decade, it is new, it is high-tech, it has gotten better over time and... laser eye surgery has fallen in price. In 1998 the average price of laser eye surgery was about $2200 per eye. Today the average price is $1350, that's a decline of 38 percent in nominal terms and slightly more than that after taking into account inflation.

Why the price decline in this market and not others? Could it have something to do with the fact that laser eye surgery is not covered by insurance, not covered by Medicaid or Medicare, and not heavily regulated? Laser eye surgery is one of the few health procedures sold in a free market with price advertising, competition and consumer driven purchases. I'm seeing things more clearly already.

Touche!

Posted by Tom at 8:22 AM | Comments (12) |

A new form of business regulation

Don't miss George Mason University law and economics whiz Henry G. Manne's brilliant Wall Street Journal ($) op-ed from yesterday in which he criticizes Eliot Spitzer's latest assault on business. Dean Manne cuts through the fog of Spitzer's public relations blitz to bear in on the true nature of Spitzer's campaign against the big insurers:

In an era of general acceptance of deregulation and privatization, Mr. Spitzer has introduced the world to yet a new form of regulation, the use of the criminal law as an in terrorem weapon to force acceptance of industry-wide regulations. These rules are not vetted through normal authoritative channels, are not reviewable by any administrative process, and are not subject to even the minimal due-process requirements our courts require for normal administrative rule making. The whole process bears no resemblance to a rule of law; it is a reign of force. And to make matters worse, the regulatory remedies are usually vastly more costly to the public than the alleged evils.

Professor Manne goes on to point out that Marsh's contingent commissions were as innocent as payola, which is widely misunderstood with regard to its market effect:

Nobel Laureate Ronald Coase once famously showed (Journal of Law and Economics 1979) how kickbacks in the so-called radio DJ payola scandal were really a legitimate, albeit superficially confusing, competitive device. Payola was essential, Coase explained, to preserving competition between record companies, and its demise was only sought by competitors who were injured by the practice -- not by consumers. There are eerie similarities between the two situations.

If the Coasian analysis is correct -- and no serious rebuttal has ever appeared -- we may witness the demise of specialized insurance-brokerage firms like Marsh & McLennan in favor of more integrated insurance companies who will do their own marketing. This is already rumored to have begun. Or we may see insurance brokerage firms beginning to acquire and operate insurance companies. In either case we would be witnessing a decrease in market specialization with a commensurate loss of economic efficiency. Mr. Spitzer would have succeeded in making the industry less competitive and less efficient, and insurance buyers will eventually pay higher not lower premiums.

With his usual insight, Professor Ribstein succiently points out in this post that governmental regulation of payola is misguided because of the valuable market benefits that it provides:

The problem is that, whenever government interferes with the market, it can create more problems than it solves. When government banned payola . . , it blocked a practice that was, after all, getting more air time for new kinds of music. (In general, regulation hurts the newcomers more than it hurts the established players.) But it didn’t stop payola. . . .“[N]ew payola” (spot buys) arose in response to the banning of the old payola. The new payola, . . . creates a less informed market than the old payola.

Payola's effect in making the music market less transparent is analogous to the effect of insider trading regulation. Insider trading, like payola, helps disseminate information. Regulation forces the trading underground, making markets less informed.

The criminalization of business practices exemplified by Spitzer's tactics and most of the Enron-type prosecutions combines the worst elements of business regulation with overt miscarriages of justice. Although the prosecutions play well as superficial morality plays in the mainstream media, I fear that the damage being done to America's business and justice systems will ultimately exceed even the tragic destruction of individual lives that has, and will continue, to occur.

Posted by Tom at 7:22 AM | Comments (0) |

The theological dilemma of moderate Islam

In this Asia Times op-ed from the Asia Times, Spengler explores the the theological challege that moderate Muslims face in siding with the West in its war against the radical Islamic fascists. The entire piece is a must read, but this excerpt gives you a taste of the dilemma that moderate Muslims face:

Smugness oozes from European politicians who demand that Muslims repudiate violence as a precondition for residence in the West. To repudiate the death sentence for blasphemy would be the same as abandoning the Islamic order in traditional society in favor of a Western-style religion of personal conscience. The West spent centuries of time and rivers of blood to make such a transition, and carried it off badly. Whether Islam can do so at all remains doubtful.

Read the entire piece.

Posted by Tom at 7:11 AM | Comments (0) |

Benihana killer shrimp

This New York Law Journal article reports on the wrongful death case against Benihana that grew out of a customer's reaction to a chef's playful toss of a shrimp:

A piece of grilled shrimp flung playfully by a Japanese hibachi chef toward a tableside diner is being blamed for causing the man's death.

Making a proximate-cause argument, the lawyer for the deceased man's estate has alleged that the man's reflexive response -- to duck away from the flying food -- caused a neck injury that required surgery.

Complications from that first operation necessitated a second procedure. Five months later, [the customer] was dead of an illness that his family claims was proximately caused by the injury.

What a way to go.

Posted by Tom at 6:58 AM | Comments (0) |

The Heisman Trophy winning faith healer

This Austin American-Stateman article reports on the latest undertakings of former University of Texas Heisman Trophy and NFL running back Ricky Williams. The quixotic Mr. Williams -- who retired from the NFL earlier this year at the relatively young age of 27 -- is now training to be a faith healer:

Williams has turned up about as far from professional football as you can get, as a student of the ancient Indian medical system known as Ayurveda. In the Sierra foothills, no less.

"I realized a while back that I have an innate ability to be compassionate," he said, "and I saw that the strength of compassion is something that healers have and healers use."

Williams is now a month into a 17-month course at the California College of Ayurveda (pronounced I-yur-vay-da) in Grass Valley, a city of 12,000 about 45 miles northeast of Sacramento. He's renting a one-bedroom cottage in nearby Nevada City.

Reluctant at first to talk, [Williams] soon started describing his old life in football and his new life in holistic healing.

"Ayurveda deals with using your environment to put yourself in balance," he said. "I've realized, both on a psychological and physical level, that the things we do in football don't bring more harmony to your life. They just bring more disharmony."

Is he happier now that he's removed from the game?

"I'm closer to being happy. I'm doing things that make me happy," Williams said. "In football I loved to practice and I loved to play, but I hated to be in meetings, hated to talk to the media, hated to have cameras in my face, hated to sign autographs. I hated to do all those things."

But then Ricky -- how do you explain this?

Earth to Ricky, over and out.

Posted by Tom at 6:26 AM | Comments (3) |

Political hack alert

This earlier post noted that the brewing controversy in Dallas over the Wright Amendment provides a ripe field for politicians to reap financial windfalls so long as they are willing to make bad policy decisions that favor certain private business interests.

It appears that their is an inexhaustible supply of issues in which politicians can parley the sale of their political soul into a nice financial return for their campaign war chests. This Wall Street Journal ($) article reports that telecom companies are lobbying elected officials around the country to rationalize support for legislation that restricts free or inexpensive WiFi service for their constituents:

Dozens of cities and towns across the country are rushing to provide low- or no-cost wireless Internet access to their residents, but the large phone and cable companies, fearful of losing a lucrative market, are fighting back by pushing states to pass legislation that could make it illegal for municipalities to offer the service.

Philadelphia announced during the summer that it would hook up the entire city with Wi-Fi. Its current Wi-Fi service is free, but it hasn't decided whether that would continue with wider deployment; it may charge a small fee. "There are some very specific goals that the city has that are not met by the private sector: affordable, universal access and the digital divide," says Dianah Neff, the city's chief information officer. She says that less than 60% of the city's neighborhoods have broadband access.

However, last week, after intensive lobbying by Verizon Communications Inc., the Pennsylvania General Assembly passed a bill with a deeply buried provision that would make it illegal for any "political subdivision" to provide to the public "for any compensation any telecommunications services, including advanced and broadband services within the service territory of a local exchange telecommunications company operating under a network-modernization plan." Verizon is the local exchange telecommunications company for most of Pennsylvania, and it is planning to modernize the region using high-speed fiber-optic cable. The bill has 10 days for the governor to sign it or veto it.

The Pennsylvania bill follows similar legislative efforts earlier this year by telephone companies in Utah, Louisiana and Florida to prevent municipalities from offering telecommunications services, which could include fiber and Wi-Fi.

Rather than encouraging municipalities to provide free or inexpensive broadband internet access for its citizens, telecom companies argue that legislators should be more concerned with protecting the telecom companies from competing with local governments to provide WiFi service. Even such palpably superficial reasoning is resonating with Pennsylvania legislators, who apparently need to replenish their campaign war chests:

The Pennsylvania bill, first introduced in 2003, was passed by the state Senate late Thursday night and then passed for a second time by the state House of Representatives late Friday night by wide margins. Senate supporters agreed with Verizon's view of the legislation. Don Houser, a spokesman for Senator Jake Corman, the Senate sponsor of the bill, said "the thinking was the telephone companies didn't want to have local municipalities using tax dollars to compete with private dollars."

Well, citizens are perfectly capable of replacing their elected officials if they do not want their local municipalities competing with private business in providing WiFi service. Pennsylvania Gov. Edward G. Rendell has until November 30 to act on this legislation and has not yet declared which route he will choose. It's not a close cal that he should reject the legislation, but money talks in politics and the telecome companies are willing to throw it around. Keep an eye on this one.

By the way, have you noticed that elected officials do not seem to mind having government compete with private financiers in connection with providing governmental financing for a new stadium?

Posted by Tom at 5:30 AM | Comments (0) |

November 22, 2004

James A. Baker, III gets results

This NY Times article reports on the agreement of The world's leading industrial nations to cancel 80 percent of the nearly $40 billion of debt that Iraq owes them, which is a critical step in rebuilding the country's devastated economy and an important precedent for placing pressure on Saudi Arabia, Kuwait and Iraq's other Middle Eastern neighbors to forgive Iraq's obligations owed to them.

Longtime Houstonian and former Secretary of both the State and Treasury Departments, James Baker III, who President Bush appointed last year as a special envoy to press Iraq's creditors to write off money owed them, toured the world over the past year persuading various foreign governments to sign on to the debt forgiveness plan. Kudos to Mr. Baker for a job well done.

Posted by Tom at 6:43 AM | Comments (1) |

2004 Weekly local football review

Packers 16 Texans 13. On ESPN Sunday Night Football, the Pack handed the increasingly hapless Texans their third straight loss on a last second field goal despite the fact that they were down to their third string running back and could do nothing but pass. As usual, the Texans could not mount a pass rush, so Brett Favre methodically drove the Packers to 13 fourth quarter points to overcome a 10 point Texans' lead. Meanwhile, the Texans' offense continues to struggle as David Carr was only 5-for-11 for 49 yards in the second half and the Texans were so bad on offense against a mediocre Packers' defense that the capacity Reliant Stadium crowd started booing. Although the Texans' offensive line has not provided consistent protection over the past three games, Carr continues to fail to live up to his stature as the number one pick in the 2002 NFL Draft. In looking at the other 15 AFC teams, only five of them -- Baltimore, Buffalo, Miami, Cleveland, and Oakland -- would clearly trade their starting QB right now for Carr. For the first pick in the draft, Carr should be a better player than that, and his slow development is becoming a big problem for the Texans.

Baltimore 30 Dallas 10. Dallas actually led 3-0 after the first half, which was so bad that it almost placed the development of NFL offensive systems back several decades. The Cowboys next hope (maybe prayer?) at quarterback, Drew Henson, got some mop up duty in the fourth quarter, so maybe he will get the start against the Bears on Turkey Day. The Cowboys are simply a very bad football team right now, even worse than the Texans.

Louisville 63 Houston 27. The Coogs actually pulled to within eight points in this one just after the start of the fourth quarter, but then the Cardinals turned on the afterburners and left them in the dust (mud?) at Robertson Stadium. The Cougars finish 3-8 and, after two seasons of the Art Briles' era, still show no signs of developing a decent defense. Add in the need to re-develop the offensive line and the Cougars have their work cut out for them in this upcoming off-season.

The Aggies and Longhorns were idle this past weekend as they prepare for Friday's big game, and the Rice Owls were also off as they prepare for their last game of the season against Louisiana Tech that I believe is now scheduled for the Monday (?) after Thanksgiving at Reliant Stadium.

And, as usual, check out Kevin Whited's always insightful Big 12 Wrapup over at PubliusTx.net.

Posted by Tom at 5:17 AM | Comments (2) |

November 21, 2004

"The triumph of an uncluttered mind"

This Dallas Morning News article catches up with former Dallas Cowboy quarterback and folk hero Clint Longley, who as a 22-year-old rookie out of Abilene Christian University replaced a woozy Roger Staubach early in the third quarter and led the Cowboys to a dramatic 24-23 comeback victory over George Allen's Redskins 30 years ago on Thanksgiving Day.

Longley was a live wire, so his remarkable performance generated more than the usual amount of interest throughout Texas and the NFL. One of the best comments on the game came from Cowboys offensive lineman, Blaine Nye, who described Longley's performance (11-20 for 203 yards and 2 TD's) as "the triumph of an uncluttered mind."

Longley's three year professional career was utterly undistinguished except for that one magic game and one other incident -- when he sucker-punched Staubach during training camp in 1976, prompting the Cowboys to trade Longley to San Diego. By the end of that season, the Chargers waived Longley and he never played for another NFL team.

Charlie Waters, a former Cowboy teammate, noted that Longley's unpredictable nature manifested itself in the Staubach sucker-punch:

Waters knew how unpredictable Longley could be. The season before, Waters had agreed to let Longley keep his new pony on three acres of land he'd purchased near the team's practice facility.

"He pulls up in a 1957 Cadillac," said Waters, "and the horse's head was sticking out one of the back windows and its ass was hanging out the other side."

Over the past 30 years, Longley has refused all interview requests and now lives quietly -- albeit idiosyncratically -- in Corpus Christi. He did not grant an interview for the story, but DMN reporter Matt Mosley did a good job in the article, anyway. Read the entire piece.

Posted by Tom at 9:03 PM | Comments (0) |

TV Azteca - Supporting the legal profession

One of the more interesting articles stories in today's NY Sunday Times is this one regarding the travails of Ricardo B. Salinas Pliego, the chairman of TV Azteca, in trying to find an American law firm that would support his position that there is no duty to disclose to the market that he and a partner had turned a $218 million profit from discounting TV Azteca debt that they purchased from third parties and then selling it to the company at the full amount of the indebtedness:

The Securities and Exchange Commission is investigating whether Mr. Salinas Pliego or TV Azteca properly disclosed his personal financial interest in a deal involving the company, where he serves as chairman. . .

The investigation stemmed from reports about a dispute over the need to disclose that Mr. Salinas Pliego and a partner had turned a $218 million profit from buying company debt at a deep discount and reselling it to the company for full price. [A] lawyer from a prominent firm, Akin, Gump, Strauss, Hauer & Feld, took the unusual step of quitting as counsel to TV Azteca and reporting his dispute with management to the board of directors.

However, if one firm doesn't agree with you, Mr. Salinas Pliego's approach is "to try, try again":

As it turns out, Mr. Salinas Pliego and his management team rejected the advice of two other American law firms on the same matter, according to a nearly final draft report of an internal investigation. The draft, which was provided to The Times, was compiled by Munger, Tolles & Olson, a law firm in Los Angeles that was hired early this year by a committee of independent directors of TV Azteca . . . Munger Tolles's investigation found that the company's managers withheld important information from their board, failed to correct a false public statement by Mr. Salinas Pliego and gave explanations for their actions that the law firm concluded were not credible.

Apparently, the Munger Tolles reports provides an entertaining account of how Mr. Salinas Pliego traversed from law firm to law firm in trying to find someone who agreed with his position that his profit on the company's debt need not be disclosed:

[The report] traces TV Azteca's journey from corporate law firm to corporate law firm in a search for lawyers sympathetic to its position. After Akin Gump backed away, it says, TV Azteca sought a second opinion from lawyers at Cleary, Gottlieb, Steen & Hamilton, a big New York firm. When Cleary Gottlieb also recommended disclosing Mr. Salinas Pliego's financial interest in the transaction, the company turned to another firm, Hogan & Hartson. That firm advised disclosure, too.

But when lawyers from Munger Tolles, as part of their investigation, sought to speak to the lawyers from the three firms whose advice had been rejected, they were rebuffed.

(In a particularly absurd twist, the report said Akin Gump declined to make its lawyers available in part because TV Azteca had not yet paid its bills, but lawyers representing Akin Gump did tell the Munger Tolles investigators what the Akin Gump lawyers would have said if they had consented to interviews.)

And in a delicious twist, the Munger Tolles report has now required the company to hire yet another law firm to help it respond to the report:

After splitting with Akin Gump, TV Azteca hired yet another American law firm, Mayer, Brown, Rowe & Maw, to recommend responses to the Munger Tolles report. A recent company filing said the recommendations included the creation of nominating and audit committees and the adoption of a rigorous code of ethics. But it was left to the regulators to decide whether to punish Mr. Salinas Pliego and his team.

My sense is that TV Azteca's legal fees will continue to be a rather large budget item for the near future.

Posted by Tom at 3:40 PM | Comments (0) |

November 20, 2004

GOP Doublespeak

Professor Bainbridge continues to do a good job of criticizing the Republican Party for its rather shameless lack of leadership in its indulgence of House Minority Leader Tom DeLay that was the subject of this earlier post.

What is most curious about the GOP's witch hunt allegations regarding Travis County District Attorney Ronnie Earle -- whose office is prosecuting three former DeLay aides -- is that Mr. Earle is a well-regarded prosecutor in the legal community who has traditionally been quite even-handed. In fact, 12 of 15 elected officials who Mr. Earle has prosecuted over the years have been fellow Democrats, including former Attorney General Jim Mattox, former Speaker Gib Lewis, former Treasurer Warren G. Harding and former Lt. Gov. Bob Bullock.

As an aside, a funny anecdote arose after Mr. Earle's unsuccessful prosecution of the late Mr. Bullock, who became a somewhat beloved figure in his declining years and a confidant of GOP Governor George W. Bush. After Mr. Bullock's death, Mr. Earle -- who clearly enjoyed the colorful former Lieutenant Governor -- disclosed that Mr. Bullock had subsequently confided to him that he was "guilty as hell."

Posted by Tom at 11:00 AM | Comments (0) |

Basketball, NHL style

The Daily Recycler has the video of the hockey game that broke out last night at the Pacers-Pistons NBA game.

The typical reaction to the incident will be outrage and self-righteous indignation. However, I must admit that the riot made me somewhat nostalgic of the bygone days of the NBA when such fights were quite common.

Back in the 1970's, my late father and I would often go over to The Summit (my folks' house was nearby) at halftime of the Rockets' game of the night and get in free to watch the second half of the game (I was a poverty-sticken law student; my father was just, might we say, parsimonious). Even back then, the first halves of NBA games didn't make much difference.

On one particular evening, we went to the second half of a game between the Rockets of the Calvin Murphy, Rudy Tomjanovich, Mike Newlin era against the Celtics of the Sidney Wicks, Dave Cowens, and Charlie Scott era. It was a close game and by the 4th quarter, the players on both sides were getting a bit chippy. Finally, Wicks threw an elbow at Murphy, and all hell broke loose.

Unfortunately for Wicks, Murphy was a professional caliber fighter and never lost any of his half-dozen or so fights during his NBA career. Combining amazing quickness with a rapid fire delivery, Murphy was on top of Wicks within seconds, had him down on the floor, and was delivering a devastating series of punches to the bridge of Wicks' nose, opening up a broad cut in the process. It took four players -- each taking one of Murphy's limbs -- to extract Murphy from Wicks, who frankly didn't know what had hit him.

After order was restored and Wicks was carted off to the dressing room for stitches, the game continued in a rather heated fashion. A few minutes later, after a rough exchange under the Rockets' basket, a big, fat fan sitting in the courtside seats took offense to Cowens' actions, walked out on to the court, and pushed Cowens. Cowens proceeded to place his right hand on this idiot's neck and then started hammering him to the chops with a series of lefts that would have made Rocky Balboa proud. Just for good measure, Scott blazed in like a streak of light and did his best Murphy imitation, pummeling several adjacent fans with a deft series of combination blows.

About this time, Wicks returned to the court with a large bandage on the bridge of his nose. My father, a respected Professor of Medicine with a long career at both the University of Iowa and University of Texas Medical Schools, used all of his long years of medical research in analyzing the situation for me: "Murphy really kicked Wicks' ass, didn't he?"

After "order" (we're talking generally here) was restored for the second time, the Rockets went on to score a satisfying victory over the Celtics. None of the combatants in the various brawls were even thrown out of the game as I recall, and certainly no arrests were made and no civil lawsuits were filed.

Ah, those were the days. ;^)

Posted by Tom at 9:54 AM | Comments (1) |

Texas Childrens Hospital Heart Unit celebrates 50th year

One of many benefits of living in Houston is the extraordinary Texas Children's Hospital located in Houston's famed Texas Medical Center. Texas Children's -- as Houstonians call it -- is truly one of the most remarkable medical facilities for children in the world.

This Chronicle article reports on a reception that Texas Childrens held on Friday to celebrate the 50th year of service by the hospital's pediatric heart unit, which reflects Texas Childrens' overall excellence:

Texas Children's Hospital . . . opened in February 1954. Pediatric cardiology was the hospital's first subspecialty. Today, as many as 12,000 patients are treated and 700 surgeries performed annually at the heart center.

More than 35,000 children a year are born with congenital heart defects, a primary cause of first-year death of infants. Since the 1960s, . . . survival rates in such cases have increased to nearly 95 percent from 70 percent.

Dr. Ralph Feigin, the hospital's physician-in-chief, said the hospital's heart center has been a "cradle of innovations since its inception."

"The center has pioneered numerous pediatric cardiology procedures and maintains one of the nation's highest success rates in treating patients with congenital heart abnormalities," he said.

Increasingly, the hospital has moved into high-tech medicine. About 550 fetal echocardiograms are performed each year to identify heart problems before birth. Such early detection can ensure that babies receive immediate care, including surgery, for their problems.

In another high-tech development, heart center surgeons have performed 158 pediatric heart transplants ? 17 of them this year ? since the program began 20 years ago.

Texas Children's Hospital is a treasure of the Houston community.

Meanwhile, in other Medical Center news, Methodist Hospital announced on Friday the Methodist Board's approval of an initial $30 million endowment to launch the creation of the Southwest's first neurological institute to advance the discovery of the origins of neurological disease and to provide comprehensive care for patients with disorders and injuries of the brain and spinal cord.

The creation of the institute is the latest step in Methodist's plan to become an academic institution in the aftermath of this year's acrimonious split with Baylor College of Medicine, its partner and supplier of physician-scientists and residents for the past 50 years.

Posted by Tom at 7:58 AM | Comments (0) |

Prosecution rests in Calvin Murphy trial

The prosecution rested on Friday in the sexual assault trial of former Houston Rocket and Basketball Hall of Famer Calvin Murphy in which five of his daughters have testified that Murphy sexually molested them years ago. Here are earlier posts on the indictment and trial of Murphy in this matter.

Although I have not sat in on any of this trial and Murphy is ably represented by Houston criminal defense attorney Rusty Hardin, my sense is that the case has not gone particularly well for Murphy to date. Press accounts have described the jury members as being visibly affected by the searing testimony of Murphy's daughters, and the jury will almost certainly hold Murphy's prodigious promiscuity (14 children by nine different women) against him.

Nevertheless, Mr. Hardin has plugged away at creating reasonable doubt by highlighting the daughters' ulterior motives and inconsistencies in their stories. His defense strategy apparently will center around testimony from Murphy's other children and Murphy's testimony. This may be a case in which Murphy's performance on the stand will ultimately determine whether the jury decides to convict or acquit. I expect the trial to last another week or so.

One thing is for sure -- this trial has been bloody for Murphy, who is finished in his career as a media personality in Houston regardless of the outcome of the trial.

Posted by Tom at 7:37 AM | Comments (1) |

Apollo to buy Goodman Global

New York-based investment firm Apollo Management LP announced on Friday that it has agreed to acquire Houston-based Goodman Global Holdings Inc. for $1.43 billion. Goodman Global is a maker of air conditioners and heating equipment and one of Houston's largest privately-owned businesses.

Goodman Global manufactures brands such as Amana, Janitrol, GmC and QuietFlex, and it has factories in Houston, Fayetteville, Tennessee and Dayton, Tennessee. It employs about 4,000 employees, of which about 2,500 are in Houston.

Apollo has received debt commitments from J.P. Morgan Securities Inc., UBS Securities LLC and Credit Suisse First Boston to finance the deal, which will leave in place the senior management of Goodman Global. Moreover, the Goodman family will retain an unspecified "significant" investment in the company. Goodman Global President and Chief Executive Charles A. Carroll will retain his positions, and Goodman Global principal John B. Goodman will remain chairman.

The deal is expected to close the deal in the first quarter, subject to customary regulatory approvals.

Posted by Tom at 7:19 AM | Comments (0) |

November 19, 2004

An incredibly bad idea

2004 Democratic Presidential nominee John Kerry has been accused of having questionable judgment on certain matters. But if the following piece from The New York Post's Page Six of November 18 is true, this would take the cake in the bad judgment department:

LIBERAL loser John Kerry might be planning to strike back at John O'Neill, the "Unfit for Command" author who claims some of the credit for Kerry's defeat, sources say.

In the book, published by Regnery not long before the election, O'Neill ? who, like Kerry, commanded swift boats in Vietnam ? attacked Kerry's war record and branded him a traitor.

O'Neill sold over 800,000 copies and his group, Swift Boat Veterans for Truth, raised $25 million to battle the Kerry campaign and ran TV ads trashing the candidate. Former Sen. Bob Dole endorsed the group.

O'Neill says he wrote the book because Kerry called his fellow Vietnam vets monsters, terrorists and war criminals, for which he has never apologized. Kerry has called O'Neill's charges lies, though he made some of the comments in front of the Senate Foreign Relations Committee in 1971.

"I will leave it to the professionals to decide whether we played a crucial role in defeating Kerry, but I am very satisfied," O'Neill crowed to the London Sunday Telegraph days after George W. Bush's victory.

The paper reported Kerry was "furious" at staffers who advised him not to fight back against O'Neill and noted that the nominee was "enraged" over the book.

Now, "the Kerry camp is thinking about filing a libel lawsuit against Regnery and O'Neill," a source close to the candidate's inner circle tells PAGE SIX. "I don't know if they will actually go forward, but consideration is serious. If Kerry plans on running again in 2008 ? and I'm hearing he will ? it would make sense that he'd file the suit."

Kerry's rep, David Wade, said he hadn't heard about any proposed lawsuit, but promised to look into it.

"It would be a lot smarter of Kerry to just apologize," O'Neill told PAGE SIX. "No lawsuits are going to change the testimony he gave and the impact it had on POWs."

This defamation lawsuit idea was actually trotted out during the Presidential campaign. "Noted" legal scholar, John Dean -- the convicted felon who somehow crafted his legacy of testifying to Congress against his client (former President Richard M. Nixon) into a job as an expert legal commentator -- wrote this article opining that Senator Kerry would have a pretty good defamation claim against Mr. O'Neill, who is a longtime and well-regarded Houston attorney.

An unsolicited piece of advice for Senator Kerry -- if you thought that the Swift Boat Vets' accusations were bad and things could not get any worse, then go ahead and sue John O'Neill. That will likely generate a nightmare of Biblical proportions for you. Mr. O'Neill was reasonably effective as an advocate against you during the campaign even though he was out of his element on the public stage. However, Mr. O'Neill is quite comfortable and completely in his element inside a courtroom. Trust me on that one.

Posted by Tom at 7:59 AM | Comments (0) |

The Old Ball Coach is headed to Augusta National . . . er, I mean, South Carolina

This Washington Post article confirms that former University of Florida and Washington Redskins football coach Steve Spurrier is headed to the University of South Carolina to replace Lou Holtz as football coach there. South Carolina apparently sealed the deal with Coach Spurrier -- who does not allow his coaching duties to get in the way of playing golf -- in the following manner:

Spurrier, 59, agreed to the deal Wednesday, after he and his agent, Jimmy Sexton, met with Holtz and South Carolina alumnus William "Hootie" Johnson at Augusta National Golf Club, where Johnson is chairman . . . Sources close to Spurrier have said Johnson's role at Augusta National and Spurrier's desire to be a member at the exclusive club approximately 70 miles from Columbia, S.C., were a factor in the coach's decision. Holtz is also a member at the club and Johnson is a former Gamecock fullback. Spurrier received a tour of the club's facilities Wednesday.

Posted by Tom at 6:16 AM | Comments (1) |

Continental requests employee concessions

Houston-based Continental Airlines -- one of the city's largest employers -- announced Thursday that it is asking employees for reductions in pay and benefits effective Feb. 28 of next year as a part of a plan to reduce its annual costs by half a billion dollars.

Continental expects the savings to be generated from a combination of productivity enhancements, benefits changes and wage reductions with each employee group. The cuts would be in addition to $1.1 billion in annual cost savings and revenue enhancements that Continental announced previously this year.

However, even with the cuts, Continental does not expect to return to profitability unless there is a change in the current economic conditions that are depressing the airline industry. Continental has lost about $160 million through the first three quarters of this year and will likely lose more in the fourth quarter. All airlines have been coping with a glut of seats and high fuel prices over the past year, and traditional hub-and-spoke carriers such as Continental have been facing increased competition from discount airlines such as JetBlue Airways and Southwest Airlines. Although relatively healthy in comparison to the reeling legacy airlines, Continental is the last of the "big six" hub-and-spoke airlines to request such employee concessions after the terrorist attacks of 2001 on New York and Washington.

As a part of the plan, Continental President and Chief Operating Officer Larry Kellner agreed to cut both his base salary and annual and long-term performance compensation by 25% effective Feb. 28. Mr. Kellner will replace Gordon Bethune as chairman and CEO of Continental at the end of this year. Likewise, other top Continental management personnel will take similar reductions in compensation and benefits as a part of the plan.

Posted by Tom at 5:18 AM | Comments (0) |

November 18, 2004

Scappleface: Bush on Arafat

Priceless.

Posted by Tom at 7:09 AM | Comments (0) |

More on playing both sides off against the middle in Washington

This Washington Post article follows up on this earlier post regarding Congressional hearings over Washington lobbyist Jack Abramoff and public relations consultant Michael Scanlon's shenanigans in 2002 involving the Tigua Indian Tribe's casino in El Paso.

Playing both sides off against the middle, Messrs. Abramoff and Scanlon originally worked with conservative religious activist Ralph Reed to help the State of Texas shut down the Indian tribe's casino, and then Messrs. Abramoff and Scanlon's turned around and persuaded the the tribe to pay them $4.2 million to try to get Congress to reopen it. Messrs. Abramoff and Scanlon are now embroiled in Congressional and grand jury investigations over an incredible $82 million in lobbying and public relations fees they collected from six tribes that operate gambling casinos.

By the way, Mr. Scanlon, 34 is a former aide to House Majority Leader Tom DeLay, whose name seems to be bandied about in just about every Congressional scandal in Washington or Austin these days.

Charles Kuffner has been all over this story, so check out his blog for more analysis of the situation.

Posted by Tom at 6:38 AM | Comments (0) |

The Lord of Tax Havens

This NY Times article interviews Jerome Schneider, who for the past 20 years or so made a fortune setting up offshore banks and phony investments in tax havens such as the Cayman Islands, Grenada, Montserratt, Vanuatu, the Cook Islands, and the Pacific Island of Nauru to assist wealthy U.S. citizens in avoiding income taxes.

His handbook, "The Complete Guide to Offshore Money Havens," became quite popular among wealthy folks who are willing to take such risks. The 2000 edition of the book even carried an endorsement from Louisiana Republican Representative Billy Tauzin, who also spoke at a conferences in which Mr. Schneider promoted his tax evasion schemes.

In at least the understatement of the month, a spokesman for Mr. Tauzin conceded that Mr. Tauzin's involvement with Mr. Schneider was "a stupid mistake."

Well, the gig is up for Mr. Schneider, who pled guilty in February to conspiring to help his clients evade the tax laws. And those who invested with Mr. Schneider just might receive an invitation of sorts soon:

Mr. Schneider, who pleaded guilty in February to conspiring to help his clients evade the tax laws, said that he expected "every single one" of his clients to be prosecuted or sued for the taxes they evaded. He said clients sought to evade taxes on incomes ranging from $100,000 to $40 million, though most were from a third to half a million dollars.

Some of those who benefitted from Mr. Schneider's schemes could prove to be fairly interesting:

[Mr. Schnieder] said that all his clients had two things in common - they were rich and they wanted to escape taxes.

Most of the nation's major accounting firms worked with one or another of his clients, he said, and he named two law firms that he said were central to his business.

He said one prominent actress sent money to the United International Bank in Nauru, which he said he created. He said the actress paid $50,000 for a legal opinion asserting that the arrangement was legal.

Mr. Schneider also said that in 1988 he arranged for a prominent motivation coach to place $250,000 in an offshore bank without reporting the money to the I.R.S.

In addition, Mr. Schneider said that a billionaire media businessman, one of several clients who he said were on the Forbes 400 list of the wealthiest Americans, sent $40 million to a sham bank in Nauru to pay for a nut-processing company in 1994.

What is perhaps most amazing about Mr. Schneider's scheme is how long it took federal authorities to investigate Mr. Schneider, even after he plopped the basis for such an investigation in their lap:

The Senate Permanent Investigations subcommittee called Mr. Schneider as a witness in 1983 hearings on offshore tax evasion, and two years later the Comptroller of the Currency warned American banks about dealing with some of the offshore banks Mr. Schneider created.

Mr. Schneider said his undoing began the day more than a decade ago when he asked Jack Blum, a former United States Senate investigator, to speak at one of his offshore seminars. Mr. Blum, who specializes in exposing international financial crimes, wrote a letter to the Justice Department that prompted the investigation that led to Mr. Schneider's guilty plea.

Mr. Blum said, "That Schneider could operate openly for years, buying ads in the Wall Street Journal and the American Airlines flight magazine, shows the utter failure of tax law enforcement." He said law enforcement had known about Mr. Schneider for years, but failed to act.

The I.R.S., in court papers, said it began investigating Mr. Schneider in 1997, 14 years after his Senate testimony, because of the letter from Mr. Blum. It took five more years to obtain an indictment.

Oh well, better late than never. Read the entire article.

Posted by Tom at 5:59 AM | Comments (0) |

The 2004 Scientific American 50 Award

You can review them here.

Posted by Tom at 5:42 AM | Comments (0) |

November 17, 2004

Enron pipeline sales close

Enron Corp.'s liquidating chapter 11 plan accelerated on Wednesday when the company closed the $2 billion sale of its prized remaining assets -- its interest in three natural gas pipelines.

Enron's Bankruptcy Court approved the sale in September of Enron's interest in the three natural gas pipelines to CCE Holdings LLC, a joint venture of Southern Union Co. and a unit of GE Commercial Finance. CCE Holdings will assume $430 million in debt as a part of the deal.

A $1.25 billion sale of Portland General Electric, which is Enron's Pacific Northwest utility, is still up in the air pending regulatory approval. If approved, a Texas Pacific Group-backed holding company will acquire the utility and assume $1.1 billion in debt.

Once the Portland General deal closes, the scraps of Enron will become Prisma Energy International Inc., which will own Enron's remaining pipeline and power assets. When that happens and sufficient claims objections have been resolved (probably sometime in mid to late 2005), Enron will begin distributing dividends to its unsecured creditors. The total amount to be distributed is expected to be approximately $12 billion comprised of 92% in cash and 8% in Prisma stock. That computes to about a 20% dividend on unsecured claims against Enron.

Meanwhile, the Enron name will live on primarily for the benefit of lawyers, who will continue to pursue litigation claims on behalf of the Enron estate for years to come.

Posted by Tom at 6:55 PM | Comments (0) |

TigerHawk pans the St. Regis

The St. Regis Hotel near the Galleria better watch out -- the TigerHawk is not pleased.

TigerHawk and other business travelers, next time that you need to stay in that area of Houston, I recommend either The Omni Hotel off of Woodway (which has high speed internet access in all of its rooms) or The Houstonian, but note that the Houstonian has high speed internet access in only their third and fourth floor rooms. Both are better bets than the St. Regis.

Posted by Tom at 10:27 AM | Comments (3) |

Enron's legal tab

This Atlanta Constitution-Journal (free registration required) article takes the first stab at an issue that deserves more scrutiny -- the nearly $1 billion legal fee tab that the attorneys involved in the Enron chapter 11 case are charging the estate in that case:

The lead law firm, Weil, Gotshal & Manges of New York, is seeking $158 million in fees and expenses. Some New York lawyers are charging $15 a minute ? $900 an hour ? for their work. And other law firms have billed hundreds of dollars an hour for time their lawyers spent reading newspapers to keep up with the case.

One of [Atlanta's] most venerable law firms, Alston & Bird, has billed Enron nearly $90 million for its 18-month examination of the company's bankruptcy.

If that number seems staggering, consider this: Just preparing its bills in the case took Alston & Bird employees nearly 1,700 hours, for which the firm billed $496,000, according to documents filed with the bankruptcy court.

All told, more than 200 Alston & Bird lawyers, many billing at least $500 an hour, worked on the Enron examination, according to documents the law firm filed with the court. Nineteen of the firm's attorneys submitted bills for more than $1 million apiece in legal fees.

Eighty-nine of the firm's paralegals, librarians, analysts and clerks worked on the Enron case. The firm's lawyers and support staff calculated they spent 264,332 hours on the examination, . . .

The professionals interviewed in the story fall over themselves defending the amount of fees incurred in the Enron case, and the reporter does not try to challenge their assertions much. Certainly the Enron case justified some premium over the normal legal cost of a typical large chapter 11 case because of the size and emergency nature of the case. Moreover, the fact that the Enron Bankruptcy Judge in New York declined early in the case to transfer venue of the case to Houston also contributed to the high cost attributable to attorneys' fees. Those $900 per hour fees that were routinely approved in New York likely would not have passed muster in Houston.

Nevertheless, the $1 billion legal tab to date is scandalous, and is particularly galling because that tab does not include the additional legal cost that lawyers will incur in the future pursuing claims on behalf of the Enron estate. Moreover, apart from the attorneys' fees charged to the Enron estate, there are hundreds of millions of additional charges attributable to other professionals (such as accountants and management and investment banking experts) that are being charged to the Enron estate. It would not surprise me to see the ultimate legal tab attributable to lawyers feeding from the Enron trough to climb another 25% before the case is closed.

Here's hoping that an enterprising investigative reporter or law professor takes on this subject. My sense is that an objective cost-benefit analysis would reflect that the value of benefits truly derived for the Enron estate from the high legal cost incurred is far less than the attorneys involved in the case would lead us to believe.

Posted by Tom at 8:16 AM | Comments (1) |

Scramjet rocks

Following on these earlier posts here and here, this Washington Post article reports on yesterday's test of the unmanned X-43A "scramjet" that broke the aircraft speed record for the second time this year. The X-43A flew at nearly 10 times the speed of sound as scientists continue their quest for "hypersonic" flight.

Posted by Tom at 7:13 AM | Comments (0) |

The GOP's idea of leadership?

If this is the Republican Party's idea of wise leadership, then we are in for a long four years. Professor Bainbridge provides his usual insightful thoughts.

Posted by Tom at 7:10 AM | Comments (0) |

Schlotzsky's proposes an auction of its assets

Schlotzsky's, the Austin-based sandwich franchisor that filed a chapter 11 case earlier this year, has proposed in its bankruptcy case that its assets be sold at an auction next week.

This proposal comes on the heels of a $88 million quarterly loss, large operating deficits as a debtor-in-possession, and tepid interest from reorganization investors. The auction sale will essentially liquidate the company, and almost certainly means that neither unsecured creditors or shareholders in the company will receive any dividend on their claims or equity interests.

Absent a "white knight" investor, restaurant reorganizations almost always fail. The margins are just too thin, and the competition so robust, for management to make enough headway from an operations standpoint in chapter 11 to persuade creditors to take a stake in a reorganized company that comes out of chapter 11 without substantial new capital.

Posted by Tom at 6:46 AM | Comments (2) |

Former Seitel CEO indicted

Paul A. Frame, Jr., the former CEO of Houston-based geophysical seismic provider Seitel, Inc., has been indicted of defrauding the company of $750,000 to settle a lawsuit by his former fiancee. The criminal case against Mr. Frame is pending in U.S. District Court in Houston.

Seitel emerged earlier this year from a chapter 11 case that was commenced in 2003 several months after Mr. Frame had been terminated as CEO amidst revelations of Mr. Frame's use of corporate assets for personal purposes and accounting issues regarding the value of Seitel's primary asset, which is its library of geophysical seismic data. The indictment against Mr. Frame consists of two counts of mail fraud, two counts of wire fraud, money laundering and making a false statement to the Securities and Exchange Commission.

Mr. Frame is accused of using $750,000 from Seitel without Board of Directors' authorization to settle a lawsuit that his former fiancee brought against him. The colorful allegations in that lawsuit asserted that Mr. Frame took back $1 million in gifts that he had given his former fiancee, including sable, lynx and chinchilla jackets, expensive jewelry and two wedding dresses, and that Seitel was responsible for Mr. Frame's alleged wrongdoing as well. In addition to the settlement with his former fiancee, the SEC has also alleged in a civil complaint that Mr. Frame used Seitel funds without Board approval to race a Ferrari and to install an expensive security system in his tony River Oaks home.

After Seitel's reorganization, Mellon Financial holds a 21.8% stake in the company, and ValueAct Capital owns a 12.3% stake. Shares of Seitel closed Tuesday at $1.07.

Posted by Tom at 6:07 AM | Comments (0) |

Enron Task Force targets Linda Lay

Enron Task Force prosecutors are investigating whether Linda Lay, the wife of Enron's former Chairman and CEO, Kenneth L. Lay, engaged in illegal insider trading by selling Enron stock days before Enron filed its chapter 11 case on December 2, 2001.

The particular sale in question involved 500,000 shares of Enron stock that was sold through a Lay family foundation. The foundation proceeded to distribute the $1.2 million in sales proceeds to various charitable organizations.

The investigation of Mrs. Lay is a part of the Task Force's scrutiny of the Lays' actions during the weeks immediately preceding the filing of Enron's bankruptcy case. Sources close to the case indicate that other transactions that have not yet been publicly disclosed are also a focus of that investigation.

Mr. Lay's lawyer, Michael Ramsey of Houston, responded to the embarrassing disclosure by publicly criticizing the Task Force's motives and alleging that the disclosure is simply the latest ploy by the government to to bring pressure against Mr. Lay to plead guilty. "This is the last gasp of a dying prosecution,'' Mr. Ramsey said. "This is an attempt at extortion. If I tried something like this, I would be indicted."

Don't give this bunch of prosecutors any ideas, Mike.

The investigation of Mrs. Lay is focusing on a sale that she placed on behalf of the foundation on the morning of Nov. 28, 2001. That morning, Mrs. Lay apparently placed an order for the foundation to sell its Enron shares sometime between 10 and 10:20 a.m. At 10:30 a.m. that morning, Dynegy and Enron issued press releases informing the public that Dynegy was calling off its proposed purchase and merger with Enron. The news hammered the value of Enron shares as they sunk by more than $1.50 a share almost immediately after the press releases and closed at $.60 per share by the end of the day. The foundation sold its shares at a price of $2.38, which generated proceeds of about $1.2 million. Had the sale occurred the next day, it would have generated about $300,000.

As noted above, this transaction is only one of several others in which the Lays engaged that the Task Force is currently examining that could result in an indictment of Mrs. Lay and additional counts against Mr. Lay. Public disclosure of the other transactions being investigated would be just as embarrassing for the Lays as this one. The Task Force is putting the pressure on Mr. Lay to turn on his co-defendants in his pending criminal case -- former Enron CEO and COO Jeffrey Skilling and former Enron chief accountant Richard Causey -- and the level of that pressure will continue to increase over the next several months.

Posted by Tom at 5:13 AM | Comments (0) |

November 16, 2004

The $300 Million Cowboys Victory

Lest anyone think that the Big Tuna is in any hot water with Dallas Cowboys' owner Jerry Jones over the rather pathetic turn in the Cowboys' season, Reid Slaughter of the Frontburner makes a persuasive case to the contrary:

THE $300 MILLION FOOTBALL GAME

This morning, as Cowboys fans reach for the Prozac to stave off another post-game grief hangover, you have to wonder: just how HUGE was that thrilling October 31 win over the Detroit Lions at Texas Stadium? It put the 'Boys at 3-4 on the season, and you had the feeling that somehow the home team might pull out a decent season. So, let's go to the polls Nov. 2 and give our gridiron warriors a nice new stadium to play in.

Then come the next two games. Absolute, total butt-kickings. Humiliation. On TV, many shots of Jerry Jones up in the owner's booth, arms folded, stroking his chin with that "What the hell is wrong with us?" look on his face. I don't know about you, but such scenes do not inspire me to ante up half of $600 million to make that man richer.

During last night's 49-21 loss to the Eagles, John Madden said of a disconsolate Bill Parcells, "Sometimes you just need a win." At no time was the more true than Oct. 31. And The Tuna delivered a whopper for his boss.

Posted by Tom at 10:24 AM | Comments (0) |

The Diplomad on Colin Powell

I regularly read an interesting blog called The Diplomad, which is authored by several Republican U.S. Foreign Service officers who describe themselves as being "in an institution (State Department)in which being a Republican can be bad for your career -- even with a Republican President!"

In this recent post, the Diplomad passes along an analysis of Colin Powell's tenure at the State Department from a former Foreign Service Officer. It's an interesting and balanced piece, and I recommend that you give it a look, along with this interesting blog.

Posted by Tom at 10:01 AM | Comments (0) |

Former KLOL-FM listeners can take solace in this

This London Telegraph article reports the following soothing news for former listerners of Houston's KLOL-FM:

Eric Clapton has astounded the music world by finally agreeing to reform Cream, rock's first supergroup, 36 years after they split up at the height of their worldwide fame.

John Mayall, the veteran leader of the Bluesbreakers, the British band from which Clapton defected to create Cream in 1966, said yesterday: "I'm amazed. But Eric is always doing something unexpected. He moves in so many directions, always out front with his music."

Sources close to the musicians said that reunion plans were under way, with Clapton, 59, Jack Bruce, 61, and Ginger Baker, 65, talking of "probably two gigs, or maybe more" at the Royal Albert Hall in May, although that venue, where Clapton staged his traditional blues stint this spring, has yet to be booked.

"A reunion of Cream would be a classic show," Mayall went on to say. "The band was so influential. They helped pave the way for me in America. The Beatles were first. The Rolling Stones were next. Then there was Cream. I had my first US tour in 1968, and moved there a year later."

Cream members are staying silent at the moment about their plans. A spokesman for Clapton said that he had no comment. Bruce was on holiday, and there was no reply from Baker's farm in South Africa, where he raises polo ponies.

Posted by Tom at 8:31 AM | Comments (0) |

Debating the quality of law review articles

Following on this earlier post regarding Judge Richard Posner's criticism of law review articles, Judge Posner and Randy Kozel debate the issue over at Legal Affairs this week. Hat tip to The Volokh Conspiracy for the link to this interesting disussion.

Posted by Tom at 8:15 AM | Comments (0) |

An endorsement for Judge Edith Jones

Professor Ribstein provides a nice endorsement for 5th Circuit Judge Edith H. Jones of Houston as the next Associate Justice for the U.S. Supreme Court, and I wholeheartedly concur.

Judge Jones is widely recognized as an outstanding jurist and one of the nation?s leading experts on bankruptcy law. A 1974 graduate of the University of Texas Law School, Judge Jones served as an editor of the Texas Law Review and, upon graduation, she joined the law firm of Andrews, Kurth, Campbell & Jones, L.L.P. (now Andrews & Kurth, L.L.P.), where she was the first woman to make partner in the history of the firm. While at Andrews & Kurth, Judge Jones became involved in the small but emerging Texas Republican Party and, in so doing, created her strong political ties with the Bush Family.

Judge Jones was nominated by President Reagan to become a judge on the Fifth Circuit, and she was confirmed by the U.S. Senate on April 3, 1985. During her almost 20 years on the bench, Judge Jones has written nearly six hundred opinions and she has served as a member of the Advisory Committee on Bankruptcy Rules for the Judicial Conference of the United States and the National Bankruptcy Review Commission. Judge Jones has also authored or coauthored more than 15 publications on the topics of bankruptcy law, mass tort litigation, arbitration, religion and the law, judicial workloads, and the judicial selection process. When Justice William J. Brennan, Jr. resigned from the Supreme Court in 1990, President George H.W. Bush considered Judge Jones for the Supreme Court before he ultimately nominated Justice David H. Souter to replace Justice Brennan.

If Judge Jones is nominated, then there is little question that opposition to her candidacy will coalesce arround her recent concurring opinion in McCorvey v. Hill, No. 03-10711 (5th Cir. Sept. 17, 2004). In that opinion, Judge Jones wrote both a panel opinion turning aside a new challenge to abortion rights by the original "Jane Roe" -- Norma McCorvey -- and a passionate concurring opinion in which she recommends that the Supreme Court reconsider its controversial decision in Roe v. Wade.

Although she was the original plaintiff in Roe, Norma McCorvey has since become an anti-abortion activist. In that role, she began a new challenge to Roe in U.S. District Court in June 2003. McCorvey filed a Rule 60(b) motion, which allows a federal court to relieve a party from an earlier judgment under certain limited circumstances.

In the District Court case, McCorvey's lawyers offered more than 5,000 pages of affidavits and other written evidence in seeking to undermine the foundation of the decision in Roe v. Wade. Included among the materials were 1,000 affidavits from women who had had abortions expressing regret over their choice. The District Court summarily denied the motion on the grounds that it was simply too late to revisit the original judgment.

The appeal of that decision went to the Fifth Circuit and oral argument on the appeal was scheduled for this past February. However, oral argument was cancelled and the Fifth Circuit panel promptly issued its decision, which was written by Judge Jones. The panel decision upheld the District Court's denial of McCorvey's motion, but not on the finding that she was pursuing her case too late. Rather, the panel held that the controversy had become moot -- inasmuch as Texas no longer seeks to criminalize abortion after Roe, the panel reasoned that there is no current controversy giving a court power to decide McCorvey's motion.

However, attached to the panel's rather straightforward opinion is Judge Jones' separate concurring opinion (it is somewhat unusual that the author of the panel's opinion also writes a concurring opinion, but not unheard of). In her concurring opinion, Judge Jones points out that the evidence supporting McCorvey's motion "goes to the heart of the balance Roe struck between the choice of a mother and the life of her unborn child." Judge Jones also notes that the evidence suggests that women may suffer for years after an abortion, that several other Supreme Court assumptions in Roe are probably wrong, and that new medical science suggests how much pain a fetus suffers:

"In sum, if courts were to delve into the facts underlying Roe's balancing scheme with present-day knowledge, they might conclude that the woman's 'choice' is far more risky and less beneficial, and the child's sentience far more advanced, than the Roe Court knew."

Nevertheless, Judge Jones goes on to point out that the Supreme Court's decision in Roe to constitutionalize abortion policy has had the consequence of creating a situation in which the Supreme Court likely will not be able to re-examine the factual assumptions of Roe in the context of a court record because no 'live' controversy can arise over the issues involved. As Judge Jones notes, "the Court's constitutional decisionmaking leaves our nation in a position of willful blindness to evolving knowledge. . ."

Opinions such as this may make Judge Jones politically untenable for the Supreme Court confirmation process. But change does not come easily, and here's hoping that the Bush Administration has the political courage to nominate this independent thinker to our country's highest court.

Posted by Tom at 6:51 AM | Comments (3) |

Signs of growing dissent in North Korea

This Der Spiegel article notes the signs.

Posted by Tom at 6:38 AM | Comments (0) |

The Godfather Returns

This NY Times book review tells us about The Godfather Returns, the latest book in the Godfather series that the late Mario Puzo began in the 1960's.

Before Mr. Puzo died in 1999, he signed off on the hiring of someone to continue the Godfather saga. So, in 2002, Random House ran a contest to pick the successor to Mr. Puzo, and the winner was Mark Winegardner, who is chairman of the creative writing program at Florida State University.

The review basically says that the book is decent, but lacks the originality of the original book and the first two Godfather films. Stated another way, the book is not as good a story as the first Godfather novel, or the Godfather and Godfather II films, but is better than Francis Ford Coppolla's abomination, Godfather III. Thank goodness for that.

Posted by Tom at 6:06 AM | Comments (0) |

November 15, 2004

Supreme Court declines to hear Kmart "key vendor" case

The Supreme Court declined on Monday to consider whether retailer Kmart Corp. should have been allowed to pay more than $300 million to about 2,500 "key vendors" immediately after filing its chapter 11 case in January, 2002.

The Kmart case stemmed from Kmart's decision immediately after the filing of its chapter 11 case to request that the Bankruptcy Court approve emergency payments to its key vendors (including over 1,000 newspapers) on the grounds that such payments were essential to preserving Kmart's going concern value for the ultimate benefit of all of its creditors.

Absent such payments, key vendors of bankrupt companies often refuse to do business and provide trade credit with a debtor even though their post-bankruptcy claims receive a higher priority of payment than pre-petition unsecured claims. Bankruptcy Courts often authorize such payments to key vendors, and the Bankruptcy Court in Kmart's case elected to do so.

However, the District Court and the the 7th U.S. Circuit Court of Appeals reversed the Bankruptcy Court's key vendor ruling and held that Kmart had failed to establish that business from its designated key vendors was any more necessary to the survival of Kmart than business from certain companies that were excluded from key vendor status.

The effect of the Supreme Court's refusal to review the 7th Circuit's decision is that the lower courts remain split on the issue of key vendor payments. Some courts deny such payments on the grounds that the Bankruptcy Code contemplates that any such payments to the debtor's creditors should only be made under a confirmed plan of reorganization. However, the better view is that, under appropriate circumstances, a debtor should be allowed to pay key vendors at the outset of a case to hedge the risk that the debtor would otherwise meltdown into liquidation to the detriment of creditors before a reorganization plan can even be proposed.

Kmart's "key vendor" motion was unusally aggressive and neither the 7th Circuit's decision nor the Supreme Court's refusal to review that decision prevents a Bankruptcy Court from approving key vendor payments under appropriate circumstances. But it is clear that from these rulings that debtors will be required to tailor such key vendor programs more carefully than Kmart did.

Posted by Tom at 7:48 PM | Comments (0) |

Football is taken seriously in the Big 12

This earlier post referenced Kansas Coach Mark Mangino's comments after Saturday's controversial ending to the Texas-Kansas game in which Coach Mangino alleged that the officials were favoring UT to preserve the Horns' stature for a lucrative Bowl Championship Series Bowl game.

Well, it turns out that Lawrence, Kansas was not the only place where passions were bubbling out of control in Big 12 country this past Saturday. This article from Husker.com indicates that Darren DeLeone, a 6'4", 315 lbs. offensive tackle hauled off and whacked a member of of the Oklahoma spirit before Saturday's Nebraska-OU game in Norman:

During pregame warmups, an incident allegedly occurred involving Nebraska offensive lineman Darren DeLone and a member of the Ruf/Neks, an Oklahoma sideline spirit group.

According to Sunday's editions of The Oklahoman, Adam Merritt, a Ruf/Nek, was transported from Owen Field on a medical cart and taken to Norman (Okla.) Regional Hospital after having several teeth knocked out and suffering facial lacerations in what witnesses described as an assault by the 6-foot-4, 315-pound DeLone.

Merritt was treated and released before the game ended.

DeLone was not arrested and was allowed to leave the stadium with the team, according to The Oklahoman.

The Nebraska athletic department Sunday released a prepared statement saying it was "aware of a collision that occurred on the field of play during the official pregame warmup period."

The one-paragraph statement ? which doesn't identify DeLone or any other Husker player ? said several members of the Nebraska football team, including two coaches, "witnessed the collision and immediately summoned a member of Nebraska's medical staff to assist. Players and coaches spoke with officials immediately following the game."

The Nebraska athletic department and football team "are sorry the accident happened and wish the young man a quick and full recovery," the statement said.

However, there might just be more to the story than the Nebraska officials are letting on:

According to The Oklahoman, witnesses in the Sooner student section at Owen Field and on the sideline said DeLone head-butted Merritt in the face with his helmet and shoved him into the 3-foot brick wall.

Well, I guess that could be construed as a "collision."

But that was only the "before game" incident. After the game, Nebraska coach Bill Callahan came unhinged as he was leaving the field and began yelling obscenities at several boistrous OU fans. The AP wire story on the incident relates the following:

While acknowledging he used a poor choice of words in a profane outburst directed at Oklahoma fans Saturday, Nebraska coach Bill Callahan said he was upset because a group of hecklers were allowed so close to his players during warmups and oranges were thrown onto the field late in the game.

As he walked toward the Nebraska locker room after a 30-3 loss, Callahan looked into the stands and called OU fans "[expletive] hillbillies."

"I'm an emotional guy, and I'm a competitive coach, and on the field I stick up for my players," Callahan said Monday on the Big 12 coaches teleconference. "I don't think any team should be subjected to the type of treatment we were subjected to in that particular contest."

Callahan also said he could not comment on what Nebraska called a
"collision" between a player and an Oklahoma student fan incident because the coach did not see it.

Welcome to the Big 12, Coach Callahan.

Posted by Tom at 2:39 PM | Comments (1) |

The effect of the Swift Boat Vets

One of the stories from the just completed Presidential campaign that historians will debate for many years is the effect that the Swift Boat Veterans had on the just completed Presidential campaign. Here are earlier posts on the Swift Boat Veterans.

This John Fund article on OpinonJournal.com is a useful review of the story of these Vietnam veterans groups that raised doubts during the campaign about John Kerry's fitness to serve as commander in chief. The setting for the story is the Restoration Weekend, an annual gathering of political activists that David Horowitz organizes. Mr. Horowitz is a former left-wing radical who opposed the Vietnam War effort as an editor of Ramparts magazine, but who is now conservative writer and political activist.

The article does a good job of summarizing the Swift Boat Veterans' activities during the campaign, and includes the following insightful observation:

As the evening proceeded and one Vietnam veteran after another shared the story of how veterans felt compelled to attack Mr. Kerry for his 1971 testimony branding fellow veterans as war criminals, former CBS News correspondent Bernard Goldberg leaned back in his chair in amazement.

"I think some of them are too intense," he told me. "But screwing with these guys by accusing them of atrocities was one of the biggest mistakes John Kerry ever made. Thirty years later he woke a sleeping giant."

Read the entire piece.

Posted by Tom at 10:10 AM | Comments (0) |

November 14, 2004

The Wrong Amendment

After years of remaining neutral on the Wright Amendment -- that law that restricts flights from Dallas's Love Field Airport -- Southwest Airlines is now calling the rule "anticompetitive" and "outdated".

It's about time.

The Wright Amendment was enacted in 1979 to facilitate the success of the then new Dallas-Fort Worth International Airport, which was built in a rural area in the northern part of the Metroplex between Dallas and Ft. Worth. Dallas' other airport -- Love Field -- enjoys a near-downtown location. In order to funnel air traffic to DFW, the Wright Amendment banned interstate service from Love Field on jets with more than 56 seats to all but seven states near Texas.

When DFW was built, Southwest did not want to move to DFW and has never had any service at the bigger airport. DFW is the dominant hub of AMR Corp.'s American Airlines, which has enjoyed the respite from competitive pressures that the Wright Amendment provides. That anti-competitive effect has been part of the reason why American has been slow to adapt to the rapidly changing airline industry, in which discount carriers such as Southwest have brought an era of lower fares and additional seats. The "legacy airlines" such as American, Delta, and United are reeling as a result.

The Wright Amendment -- which was questionable policy at best at the time it was enacted -- is clearly obsolescent. The area around DFW is no longer rural and the airport is now literally in the center of the northern part of the Metroplex. Moreover, Southwest is now a national airline, and it is inhibited from servicing that national network of flights from its hub at Love Field.

At DFW, Delta Air Lines recently announced that it is abandoning its unprofitable hub, which is cutting 250-plus daily flights to about 45. Although that move will increase American's dominance at DFW in the short run, industry observers expect some of the discount carriers to make a play for some or all of Delta's old gates at DFW.

Nevertheless, Southwest contends that it is going to remain at Love Field despite the galling Wright Amendment restriction on long haul flights from that airport. But Southwest is using Delta's exit as proof that DFW does not need the Wright Amendment's protection anymore. Southwest notes that many cities -- including New York, Chicago, Houston, and Los Angeles -- enjoy the benefits of two airports without any need of the "protections" afforded to DFW by the Wright Amendment.

As you would expect, American Airlines disagrees. In a statement issued Friday, American stated that the Wright Amendment is just as relevant today as it was when it first passed and helps preserve DFW's position as the principle aviation gateway for North Texas.

Folks, that type of thinking is a big part of the reason why American Airlines is in the poor financial shape that it currently finds itself, particulary in comparison to that of Southwest. It will be interesting to watch the politicians line up in regard to this particular issue. The issue will be a good barometer for determining whether a particular politician is attempting to protect the public's best interests or simply interested in keeping the money flowing into a campaign chest from legacy airlines such as American. Stay tuned.

Posted by Tom at 7:53 PM | Comments (0) |

2004 Weekly local football review

Colts 49 Texans 14. In a game that was not as close as the score indicates ;^), the Texans reinforced the fact that last week's debacle at Denver was no aberration. Peyton Manning toyed with the Texans secondary as he threw five TD passes in the first three quarters. He would have had a couple more had the Colts not called off the dogs. On the other hand, David Carr continued his up and down season with a horrid performance (22-41/215 yd./3 picks) behind an offensive line that looked like a sieve against one of the weakest defenses in the NFL. Carr spiced his poor performance by giving up a fumble and an interception that were returned for TD's. Meanwhile, the Texans' defense would have had a hard time stopping a hard charging marching band as Manning sliced and diced them for 320 yards on just 18 completions. Things do not get any easier for the 4-5 Texans as the red-hot Packers come to town next week for the ESPN Sunday night game at Reliant Stadium. That could be very ugly.

Eagles 49 Cowboys 21. In another game not as close as the final score indicates, the Eagles overwhelmed the hapless Cowboys at Texas Stadium, again increasing the chances that the Big Tuna will explode at any time. The Eagles' 35 first-half points were more than they had scored in any game this season as Eagles' QB Donovan McNabb was 15-of-28 for 345 yards with four TD passes and no interceptions. It was the Cowboys' fifth loss in six games, and they have lost the last three by 21, 23 and 28 points. The Pokes now get the pleasure of going to Baltimore next Sunday to have Ray Lewis and the Ravens defense hand their hat to them.

Texas Longhorns 27 Kansas 23. For the second straight week, the Horns flirted with a disastrous upset loss, but pulled it out with a last minute TD drive spiced by QB Vince Young's incredible 22 yard run for a first down on 4th and 18. The game was spiced with controversy as the Horns benefitted from an offensive pass interference call that forced the final Kansas punt and allowed the Horns one more chance at pulling it out. Based on the following post-game comments, Kansas Coach Mangino did not think much of the offensive pass interference call:

"You know what this is all about, don't you? The BCS. That's right. That's what made the difference today in the game. That's what made the difference on the call in front of their bench ? dollar signs."

After conferring with the Kansas Athletic Director and his investment banker over the probable amount of the fine from the Big 12 Conference stemming from those comments, Coach Mangino issued the following "public statement" later on Saturday afternoon:

"After an emotional loss, in our seniors' last home game, I made remarks that I regret. Any implications that BCS standings played a role in Saturday afternoon's game was inappropriate. I have always supported the BCS system and will continue to do so."

At any rate, the 9-1 Horns are now off until their annual rivalry game with the Aggies on the day after Thanksgiving. I do not expect the Horns to play as soft against the Ags as they did in parts of their last two games. If they do, then the Aggies have enough firepower this year to beat the Horns.

Texas Aggies 32 Texas Tech 25 OT. In a hugely entertaining game, the Aggies played their third overtime game in their last four in finally beating the Red Raiders, who have tormented the Ags in recent seasons. Everybody was betting the over before this game (it was 66), but these two high-powered offenses combined for 13 points in the first half, and only 19 through three quarters, so the under bet looked golden. Then, almost as if each team turned on a switch, both offenses started scoring almost at will in the fourth quarter and, as the overtime commenced, the over bet looked within reach. Alas, Tech's offense sputtered in overtime, handing the Ags the win before a delirious crowd of over 82,000 in College Station. The 7-3 Aggies (5-2 in the Big 12) are now off until their annual showdown with the Horns in Austin on the day after Thanksgiving. The Aggies have lost four straight games to the Longhorns and seven of the last nine, but this one is shaping up to be a serious battle. I give the Horns the edge because of their superior defense and running game, but the Ags will likely make a game of it.

UAB 20 Houston 7. You can stick a fork in the Coogs. Even though they must endure one more beating at the hands of high-powered Louisville at Robertson Stadium next Saturday, the Coogs have packed it in. The probable 3-8 mark in Coach Art Briles' second season is highly disappointing, and will be the subject of much soul searching over at UH.

UTEP 35 Rice 28 OT. The Owls almost pulled off the upset of their season against the Mike Price-rejuvenated Miners, but a fumble near the goal line in the second OT doomed the Owls' hopes. The game was played in a cold drizzle and the finish was a madhouse. After UTEP grabbed a 35-28 lead on the first play of the second overtime, the Owls appeared to have tied the game again when the Owls' Ed Bailey was tackled at the goal line by his facemask. However, the official closet to the play ruled Bailey was down inches from the end zone even though Bailey clearly hit the pylon following the infraction on the UTEP defender. On first and goal, the Owls handed the ball to Bailey again and he appeared to cross the goal line, but he fumbled on the play and UTEP recovered. The refs ruled it a fumble and that was the game. The 3-7 Owls now have a week off before finishing their season on the Saturday after Thanksgiving at Rice Stadium against Louisiana Tech.

And Kevin Whited has his weekly Big 12 wrap-up over at PubliusTx.net

Posted by Tom at 6:27 PM | Comments (0) |

November 13, 2004

Check out "Hairspray"

If you are looking for a fun evening in the next week or so, I highly recommend checking out the Tony Award-winning Broadway musical Hairspray, the latest event in Houston's Broadway Series at the Hobby Center. Even the Chronicle's notoriously tough theatre critic Everett Evans gave the performance a hearty thumbs up.

My wife, daughters and I attended Friday night's show, and we all thoroughly enjoyed ourselves. Although the entire cast and production is magnificent, Keala Settle's peformance in the lead role is absolutely incredible -- she sings and dances with a dynamic combination of clarity, agility, and spunk that is truly infectious. Don't miss it.

Posted by Tom at 8:48 AM | Comments (0) |

That's sure not Led Zeppelin

When I moved to Houston over 33 years ago as a young college student, 101.1 KLOL-FM was the rock station to listen to "heavy" rock music as opposed to the "bubblegum" rock music that my little sisters enjoyed. KLOL was the rebel station -- it played Jimi Hendrix while other rock stations were playing the Bee Gees. Cameron Crowe captured this rebel nature of rock and roll wonderfully in his 2000 film, Almost Famous.

My first exposure to an obscure rocker from New Jersey named Bruce Springsteen came from KLOL. Back in the early 1970's, KLOL played some bootleg tapes of Springsteen performing his song "The Fever" at the old downtown bar, Liberty Hall, which was located on Chevenert near where Minute Maid Park stands now.

Over the years, as Baby Boom rockers aged, KLOL became more mainstream, but still retained its heavy metal and "reasonable rebel" format. Thus, as my sons reached their rebellious teenage years, they would switch the car radio to KLOL whenever they wanted to make the point that they were now listening to heavy rock music rather than say, Huey Lewis and the News. It's fair to say that longtime Houston residents who listen to rock music considered KLOL a local institution.

Well, that all changed yesterday, as this Chronicle article reports:

In a clear signal of the growing media clout of Houston-area Hispanics, radio behemoth Clear Channel Communications has yanked legendary rock station KLOL-FM (101.1) off the air and replaced it with a format that radio insiders call "Spanglish Top 40."

The switch took place Friday morning when the new station ? now called Mega 101 FM (with the tag line "Latino and Proud") ? began playing 10,101 songs in a row.

The new format is a mixture of Spanish hip-hop, reggaeton and pop/dance music aimed at listeners between 18 and 34 years old. Music in Spanish by artists ranging from the rapper Pitbull to pop star Shakira will be accompanied by DJs using a combination of English and Spanish.

Shakira rather than Johnny Winter? Longtime KLOL listeners are not taking the change well:

The move caught longtime KLOL listeners by surprise.

"There was no warning at all," said Chris Beck, a 32-year-old cook.

"I'm 35 and it's been on the air as long as I can remember," said a real estate salesman who did not want to be identified. "It's quite a shocker."

He called Clear Channel headquarters in San Antonio to complain and is encouraging his friends to do the same.

When I informed my 16 year old son of the change this morning, his response probably reflects that of thousands of other KLOL listeners from around the Houston area:

"Spanglish? -- I don't think that means we'll be hearing Led Zeppelin in Spanish on KLOL."

Houston's younger bloggers are already all over this format change. Charles Kuffner reacts here, and Kevin Whited's response is here.

As one of KLOL's most played singers would say -- "These times are a'changin."

Posted by Tom at 7:50 AM | Comments (13) |

November 12, 2004

CIA's "Anonymous" author hits the talk shows

This prior post reviewed one of the books by the CIA counterterrorism agent who authored two books under the alias "Anonymous" that were highly critical of the Bush Administration's approach to battling the radical Islamic fascists.

Now, Michael Scheuer, who turns out to be Anonymous, has decided to resign from the CIA and violate the trench-coat oath by going public with his criticism of the government?s war against the radical Islamic fascists. His views are interesting, but made less credible by his decision to cash in on them at the expense of the trench-coat oath.

Posted by Tom at 7:49 AM | Comments (0) |

Interesting developments in aviation

This BBC News article describes something that Houston's Katy Freeway commuters would support enthusiastically:

Commuters could soon be taking flying taxis to work instead of waiting in line for a street cab, experts suggest. British developers Avcen say Jetpods would enable quick, quiet and cheap travel to and from major cities. The futuristic machines will undergo proof-of-concept flight tests in 2006 and could be ready for action by 2010.

As well as taxis, which would use a network of specially-built mini runways, there are military, medical and personal jet versions as well.

London-based Avcen say Jetpods would be able to travel the 24 miles from Woking, Surrey, to central London in just four minutes.

And because it could make so many trips, fares for a journey from Heathrow to central London could cost about £40 or £50.

Meanwhile, this Washington Post article reviews ongoing research into scramjet technology, which is already achieving incredible speed levels:

Next week, NASA plans to break the aircraft speed record for the second time in 7 1/2 months by flying its rocket-assisted X-43A scramjet craft 110,000 feet above the Pacific Ocean at speeds close to Mach 10 -- about 7,200 mph, or 10 times the speed of sound.

The flight will last perhaps 10 seconds and end with the pilotless aircraft plunging to a watery grave 850 miles off the California coast. But even if the X-43A doesn't set the record, it has already proved that the 40-year-old dream of "hypersonic" flight -- using air-breathing engines to reach speeds above Mach 5 (3,800 mph) -- has become reality.

Under NASA's $250 million Hyper-X program, engineers at Langley Research Center here and the Dryden Flight Research Center in Edwards, Calif., designed and built three aluminum scramjet aircraft, each one 12 feet long and weighing about 2,800 pounds. . .

[The second scamjet flight] on March 24, reached Mach 6.83 (5,200 mph), shattering the world speed record for air-breathing, non-rocket aircraft, previously held by a jet-powered missile. The highest speeds by manned aircraft were achieved by SR-71, the U.S. spy plane known as the "Blackbird," capable of flying in excess of Mach 3 (2,300 mph).

Posted by Tom at 6:30 AM | Comments (0) |

Why are there so many corporate crime laws?

If corporations are so big and powerful, then why are there so many corporate crime laws? Doesn't it make more sense that corporations would lobby to restrict enactment of such laws?

Maybe not, according to University of Michigan law professor Vikramaditya S. Khanna. In this interesting paper (download required), Professor Khanna argues that corporate executives may reasonably believe that consenting to enactment of corporate crime laws is the least risky course:

One of the fundamental puzzles of corporate crime legislation is how does so much of it get enacted given that it targets corporations that are considered some of the most powerful and effective (if not the most powerful and effective) lobbyists in the country. My analysis suggests that corporate crime legislation may grow because it is a preferred response for corporate interests when some congressional action is inevitable. Corporate criminal liability?s growth could then be explained by the following: Some degree of ?punishment? is necessary, as a political matter, to satisfy public desires during recessions when revelations of corporate wrongdoing are numerous, and corporate crime legislation achieves that while imposing lower costs on business interests relative to other measures that could be undertaken (e.g., increasing corporate civil liability or managerial criminal sanctions).

The normative implications depend on one?s priors about the world and on which political account(s) one finds persuasive. However, one thing appears clear regardless of the preferred political account(s): If we start with the notion that corporate wrongdoing is under-deterred, then we would want to argue for curtailing corporate criminal liability and increasing the focus on corporate civil liability and managerial liability. That raises serious questions about how we regulate this area.

Posted by Tom at 6:09 AM | Comments (0) |

November 11, 2004

Jimmy Carter's sabotage of the Democratic Party

Jimmy Carter's laudatory remarks today about the dubious leadership qualities of Yasser Arafat reminded me of this pithy book review that the Weekly Standard's Noemie Emery wrote earlier this year regarding Steven F. Hayward's book about Mr. Carter, The Real Jimmy Carter: How Our Worst Ex-President Undermines American Foreign Policy, Coddles Dictators and Created the Party of Clinton and Kerry. The gist of Ms. Emery's review and Mr. Hayward's book is that, as bad as the Carter Presidency was for America generally, it was absolutely devastating to the Democratic Party.

First, Ms. Emery stands in awe of Mr. Carter's incredible ability to take either the wrong position on a political issue or alienate those on his side even when he was on the right side of an issue:

Carter is surely one of the worst failures in the history of the American presidency, but he is a failure of a special sort: He did not overreach, as did Lyndon Johnson, or seek to deceive, as did Richard Nixon. Rather, like Herbert Hoover, he seems a well-meaning sort overcome by reality. But while Hoover was blindsided by the depression, Carter failed on a broad range of matters and faced few crises he didn't first bring on himself. Most presidents, even the good ones (sometimes especially even the good ones) leave behind a mixed record of big wins and big errors, but with Carter, the darkness seems everywhere: He is all Bay of Pigs and no Missile Crisis, all Iran-contra and no "Mr. Gorbachev, tear down this wall."

PBS, whose American Experience series on the presidents has done some fascinating things with such novelistic lives as those of Reagan, Kennedy, Nixon, Johnson, and both the Roosevelts, seemed (in a two-part series first aired two years ago and now reappearing) at a loss for how to handle this long dirge-like story, and, to its credit, the program did not flinch from portraying his actual presidency as the total disaster it was.

Ms. Emery notes that Mr. Carter's domestic policies were an utter mess:

As a domestic manager, his crowning achievement was to take the old liberal creed of big government and hitch it to the new liberal creed of "limits to growth" and create incoherence. "We have learned that 'more' is not necessarily 'better,' and that even our great nation has its recognized limits," he scolded, taking on two hundred years of the American temperament. Thus he tried to damp down the consumption machine that drives the economy, while balking at the tax cuts that might have spurred on investment. The result was stagflation, a condition economists had once thought impossible, of soaring inflation and no growth in jobs. Interest rates soared, and Carter's approval ratings sank into the thirties. For this he blamed the American people, for being too immature to realize the good times were over for good.

And even though Mr. Carter's domestic policies were bad, his foreign policy was even worse:

In an address at Notre Dame on May 22, 1977, [Carter] denounced the "inordinate fear of communism" that had produced the containment theory that had kept the peace for three decades. In his first month in office he announced his intention to withdraw nuclear weapons and ground troops from South Korea, cut six billion dollars from the defense budget, cancel development of the Trident nuclear submarine, and defer construction of the neutron bomb.

All of these proposals were made unilaterally, with no effort to induce concessions by the other side. Cyrus Vance, Carter's first secretary of state, was described by Democrat Morris Abram as the closest thing to a pure pacifist since William Jennings Bryan, and by Defense Secretary Harold Brown as a man who believed the use of force was always mistaken. Paul Warnke, Carter's chief arms-control negotiator, held views described by George Will as "engagingly childlike"--believing that if we disarmed, the Soviet Union would follow us. . .

Even Carter's much vaunted human-rights effort, which gave some people hope he would use it as a moral weapon against the Soviet Union, quickly lost much of its power and luster when it became evident that he intended to use it less against Communists than against the more marginal despots in the non-Communist orbit. Thus he embraced Soviet leader Leonid Brezhnev at the 1979 arms-control summit and assured an assemblage of East Europeans that "the old ideological labels have lost their meaning," even as they remained under the Soviet boot. In Carter's State Department, the Sandinistas were thought to be moderates and the Ayatollah Khomeini a saintlike figure surrounded by "moderate, progressive individuals" with a notable "concern for human rights."

Ms. Emery goes on to mention many of the other debacles of the Carter Presidency that Mr. Hayward's book addresses, but then points out that Mr. Carter has perhaps exceeded the incompetence of his presidency by being arguably the worst former president in American history:

Carter the ex-president has been more destructive than Carter the president, and, if possible, still more annoying, undermining later presidents with the ruthless ambition that marked his career.

Herbert Hoover accepted the verdict of history when he lost in 1932 to Franklin Roosevelt, keeping a profile so low he was all but invisible. Carter instead reacted as if he had retired by choice with the thanks of the nation. He did some good work for general charities, and he was useful at least twice in his international forays: in Panama in 1986 when he faced Noriega, and unexpectedly in 2002 in Cuba when he went against type to tell Castro off. He also acquired a lengthy record of criticizing, weakening, and undercutting a series of American presidents.

He publicly attacked Reagan's morals and competence. In 1990 and 1991, as George Bush was assembling the Gulf War coalition, Carter wrote secretly to Margaret Thatcher, Francois Mitterrand, Mikhail Gorbachev, and a dozen others, asking the U.N. Security Council not to back Bush. (Bush only found out what had happened when a stunned Brian Mulroney called Dick Cheney up to complain.) Bill Clinton soured on the ex-president after Carter's trip in 1994 to North Korea, in which he publicly embraced the dictator Kim Il Sung and negotiated a wholly worthless treaty banning production of nuclear weapons, which that country proceeded to break.

Carter of course made the same vehement objections to George W. Bush's war on terror as he had made to his father's war in the Gulf ten years earlier, going so far as to happily accept an award from the Nobel Prize committee that was given to him solely for the purpose of giving a black eye to America. "It should be interpreted as a criticism of the line that the current administration has taken," the Nobel committee chairman said helpfully, "a kick in the leg to all those that follow the same line as the U.S." Carter's "Lone Ranger work has taken him dangerously close to the neighborhood of what we used to call treason," Lance Morrow wrote in Time. As Hayward notes, Carter's successors have done far more than he did for human rights and for the nation's security. Iran and Nicaragua, the twin targets of his attention as president, turned on his watch into hell holes. And we can safely say that had he been reelected, or had his way afterward, the Soviet Union might still be in existence, and the oil fields of Kuwait and possibly Saudi Arabia might be in the hands of Iraq.

Finally, Ms. Emery notes that the Democratic Party has ultimately borne the brunt of the consequences of Mr. Carter's monumental lack of judgment:

No man has done more than he to create and empower the modern Republican party, which, when he became president, seemed down for the count. If he had been the man he seemed when he was running for president--an integrationist but a social conservative, a small businessman and ex-naval officer, a Rickover protege with a keen sense of power--he might have recreated the party of Truman and Kennedy. As it was, his incompetence and his blundering, coming after McGovern's extremism and the implosions of Humphrey and Johnson, was the last straw for a great many Democrats, who decided the chances they were willing to give to their party had more or less run their course. Under his goading, millions who had never believed they could vote for a Republican president crossed over to vote for an ex-movie actor.

The end of the Democrats as the national majority begins with Carter--as does the end of liberalism as the national creed. A lot has been written about the maturation of the conservative movement from Goldwater to the present day, but this of course is only one half of the story. It was not enough for the Republicans to become more poised and accessible. The Democrats had to collapse, freeing millions of voters to look at an alternative. No one symbolized this collapse more than did Jimmy Carter, victim of rabbits and America's muse of malaise.

Read the entire review. Ms. Emery and Mr. Hayward may be too harsh on Mr. Carter, who at least had the good sense to promote Paul Volker for the Federal Reserve chairmanship late in his term in office. But there is no question that his presidency was an unmitigated disaster for the Democratic Party in this country, and one from which the party is still attempting to recover to this day.

Posted by Tom at 7:29 PM | Comments (0) |

Tax reform debate

By the way, in case you have not been following the Wall Street Journal Econoblog discussion this week between Marginal Revolutions Tyler Cowen and Argmax.com's John Irons, do not miss today's edition on tax reform. In my view, Mr. Cowen runs rings around Mr. Irons, but decide for yourself.

Posted by Tom at 4:50 PM | Comments (0) |

A profile of Carlos Beltran's agent

This NY Times article profiles Scott Boras, the agent who the Stros must deal with if they are going to sign free agent Carlos Beltran. Although the Yankees can easily outbid the Stros for Beltran, the article at least suggests that some things not associated with playing baseball in New York may be more important to Beltran than the premium that the Yankees would pay for him:

Does Beltran really want Boras to put him in pinstripes or does he need Boras to create that illusion? This winter, the Yankees may come to find out that they are not the ultimate destination for players anymore, not when a World Series is no longer a guarantee, not when free agents like Jason Giambi fizzle in New York, not when Steinbrenner is the resident curmudgeon. This year, the Yankees may be artfully used as decoys by Boras - particularly in Beltran's case.

In June, Beltran was craving anonymity, not the New York market.

"I pray to God I can be a great player, but I want to keep my life," Beltran told Sports Illustrated. "I don't want to be hiding from people. It would be difficult to be recognized everywhere, so that I couldn't do things ordinary people can do. I love to go to the grocery store or the movies or go to the mall and be just an ordinary person. In Kansas City they don't know who I am. Same thing when I'm home in Puerto Rico. I like that."

By the playoffs, Boras seemed to be a ventriloquist for a bolder Beltran.

"When I see an owner who cares about winning, I like it," Beltran said in an obvious reference to George Steinbrenner.

Is Beltran bluffing? Is Boras? Everyone will know in April how sentiment and comfort are rated by Boras's clients when the Yankees and the Red Sox line up for opening day at Fenway. Will Varitek be there? Will Beltran?

My sense is that Beltran will end up in New York or Anaheim, but we Stros fans can dream, can't we?

Posted by Tom at 10:30 AM | Comments (0) |

Prescott on Social Security

2004 Nobel Prize in Economics recipient Edward C. Prescott writes this outstanding Wall Street Journal op-ed in which he makes a persuasive case that the time for transition of the current Social Security system to one based on mandatory individual retirement accounts is now:

The time is right to act, and we don't need a special commission to analyze the problem and recommend solutions because we already had one, and it submitted its report three years ago next month -- The President's Commission to Strengthen Social Security. The trouble is that little has happened since. It's time to dust off that report, sharpen our policy pencils and get to work on reforming our Social Security system before it's too late.

The main contribution of that 2001 bipartisan commission was to propose the establishment of a system of voluntary personal accounts, which would increase national savings as well as increase labor-force participation -- more on that later. But this contribution is also the commission's main flaw, for the proposal does not go far enough. We need to establish a system of mandatory savings accounts for retirement, not voluntary. Without mandatory savings accounts we will not solve the time-inconsistency problem of people under-saving and becoming a welfare burden on their families and on the taxpayers. That's exactly where we are now.

Professor Prescott debunks the notion that individual retirement acccounts are somehow riskier than the current Social Security system:

Some politicians have vilified the idea of giving investment freedom to citizens, arguing that those citizens will be exposed to risks inherent in the market. But this is political scaremongering. U.S. citizens already utilize IRAs, 401Ks, PCOs, Keoghs, SEPs and other investment options just fine, thank you. If some people are conservative investors or managing for the short term, they direct their funds accordingly; if others are more inclined to take risks or looking at the long run, they make appropriate decisions. Consumers already know how to invest their money -- why does the government feel the need to patronize them when it comes to Social Security?

It would be one thing if the government's Social Security system paid a decent return, but as the President's Commission reported, for a single male worker born in 2000 with average earnings, the real annual return on his currently-scheduled contributions to Social Security will be just 0.86%. And for a worker who earns the maximum amount taxed (then $80,400), the real annual return is a negative 0.72%. A bank would have to offer a pretty fancy toaster to get depositors at those rates of return.

Indeed, as Professor Prescott points out, the trend internationally is to such individual retirement accounts:

Further, about two dozen countries have reformed their state-run retirement programs, including Chile, Sweden, Australia, Peru, the U.K., Kazakhstan, China, Croatia and Poland. If citizens in these countries can handle individual savings accounts, especially citizens in countries without a history of financial freedom, then U.S. citizens should be equally adept. At a time when the rest of the world is dropping the vestiges of state control, the United States should be leading the way and not lagging behind.

In fact, Professor Prescott notes that the economic benefits of such accounts are substantial:

The benefits of such reform extend beyond the individual retirement accounts of U.S. citizens (although that would be reason enough for reform) -- they also accrue to the economy. As noted above, national savings will increase, as will participation in the labor force, both to the benefit of society. On the first point, more private assets means there will be more capital, which will have a positive impact on wages, which benefits the working people, especially the young. More capital also means that the economy will have more productive assets, which also contributes to more production.

Regarding labor supply, any system that taxes people when they are young and gives it back when they are old will have a negative impact on labor supply. People will simply work less. Put another way: If people are in control of their own savings, and if their retirement is funded by savings rather than transfers, they will work more. And everyone is better off. These are the type of win-win situations that politicians and policy makers should be falling over themselves to accomplish.

And what about the horrendous "transition costs" that we hear would undermine the transition from the current Social Security system to one based on mandatory individual retirement accounts? Professor Prescott keenly dispenses with that objection:

Some analysts have suggested that we can't move from a transfer system to a saving system because current retirees will be left in the lurch. Who will pay for them if workers' money is suddenly shifted to individual savings accounts? There will indeed be a period of time, likely no more than 10 years, when narrowly defined government debt relative to gross national income would increase before decreasing. But government debt is small relative to the present value of the Social Security promises that currently exist. Further, the sum of the value of government debt and the value of these promises will start declining immediately.

Under a reformed system there will always be some individuals who, owing to disabilities or other reasons that prevent them from working, will not have sufficient savings in their old age. The solution is to include a means-tested supplement to ensure that those citizens receive a required payment -- just like they receive today. Nobody gets left behind under this new system, and most will move ahead. U.S. citizens deserve more than a minimum payment, and the U.S. economy deserves more than to have its savings, capital and labor weighed down by an increasingly costly tax-and-transfer system.

And how would such a system work? Professor Prescott touts one:

Have three-quarters of employer and employee Social Security contributions (currently 12.4% of wages, salaries and proprietors' income up to $87,900) put into an individual savings account. This would be deferred income with taxes paid when people receive their retirement benefits. The other one-quarter of Social Security contributions would finance welfare and increase the labor supply, resulting in higher output and an increase in tax revenues.

Read the entire piece. Ed Prescott is definitely a clear thinker.

Update: Tyler Cowen at Marginal Revolution makes the case against forced savings accounts and for turning Social Security into a welfare program for the elderly.

Posted by Tom at 6:09 AM | Comments (0) |

Alberto R. Gonzales is nominated to be U.S. Attorney General

Former Houston attorney (former partner at Vinson & Elkins) and current White House counsel Alberto Gonzales was nominated by President Bush Wednesday to succeed Attorney General John Ashcroft, who announced Tuesday that he is stepping down after serving as attorney general during the first Bush Administration.

Mr. Gonzales is a close, longtime adviser to President Bush. The 49-year-old Mr. Gonzales has been frequently mentioned as a possible nominee to the U.S. Supreme Court, but my sense is that there are numerous more qualified jurists for that position. The AG post is a much better fit for Mr. Gonzales. Mr. Gonzales would be the nation's 80th attorney general and the first Hispanic to hold the job.

Mr. Gonzales has a remarkable background. The son of Mexican immigrant parents, Mr. Gonzales was born in San Antonio and grew up sharing a two-bedroom house in Houston with his migrant-worker parents and seven siblings. From there, he went on to graduate from Houston's Rice University and Harvard Law School, and then to become a prominent Houston attorney who was involved in many community and state affairs. Mr. Gonzales has been with President Bush virtually from the start of his political career, as he served with then-Gov. Bush in Texas as general counsel, secretary of state and then as a Texas Supreme Court justice before becoming White House counsel.

Inasmuch as the Texas Supreme Court handles only civil cases, Mr. Gonzales had little experience in international law, national security law, or in criminal law when he came to Washington. But boy, did that change after the Sept. 11, 2001 attacks on New York and Washington. As White House counsel, Gonzales transformed that office from one that concentrated on domestic issues to one increasingly focused on fighting the war against the radical Islamic fascists. Under Mr. Gonzales's leadership, administration lawyers in the National Security Council, the Pentagon and the Justice Department elaborated on views that the war against the radical Islamic fascists was a new arena not covered by domestic laws or the Geneva Conventions and other treaties.

In particular, one potential blip in the confirmation process could be the Jan. 25, 2002 legal memo to the President in which Mr. Gonzales described the Geneva Convention on humane treatment of prisoners of war as "quaint" and "obsolete" in the war on terror. That legal opinion was intended to advise the President on the handling of al Qaeda and Taliban prisoners captured in the war in Afghanistan. The Bush administration views those combatants as not covered by the Geneva protections and other treaties.

Nevertheless, most political pundits believe that Mr. Gonzales will be confirmed with little trouble, probably early in 2005.

Posted by Tom at 5:25 AM | Comments (0) |

November 10, 2004

Arafat's fatal flaw

As noted in these previous posts, Richard Chesnoff is one of America's foremost commentators on Middle East affairs. He is also one of the relatively few American journalists to have interviewed and spent time with Palestinian leader, Yasser Arafat.

With Arafat near death, Mr. Chesnoff writes this NY Daily News op-ed in which he notes what could have been:

If anyone had the ability to forge a Palestinian state then, it was Arafat. He had the political power, the money and the military force.

Tragically, like other Palestinian leaders before him, he wasted his chance. He used his political power to gain more power and the money to corrupt and control. Worst of all, instead of using his military force to squelch terrorism, he financed it, bringing more destruction to his people as well as to Israelis.

Then, Mr. Chesnoff zeros in on Arafat's fatal leadership flaw:

Why did a man who had both the opportunity and the intellect to deliver his people a state of their own fail to do so?

He lacked the realism, the vision and, most important, the courage to make the shift from terrorist to statesman. He spoke (in Arabic) not of peace with Israel but of a truce, something he could always break. And he refused to tell his people that Israel never would commit demographic suicide by letting millions of Palestinians return.

He also feared that if he ever told his people to accept a state that was less than what he had promised, he would lose stature, popularity and the place he believed he deserved in Arab history.

False pride is often a fatal error in the Arab world - a character flaw born not of heroism but of cowardice.

Read the entire piece. Would not it be ironic if Arafat's legacy is a new generation of Palestinian leadership that understands the destructive futility of Arafat's strategy towards Israel and embarks on a new, realistic path toward a Palestinian state?

Meanwhile, Max Boot writes of Arafat in this L.A. Times piece:

There has been no more successful terrorist in the modern age. Yet his biggest victims were not Israelis. It was his own people who suffered the most. If Arafat had displayed the wisdom of a Gandhi or Mandela, he would long ago have presided over the establishment of a fully independent Palestine comprising all of the Gaza Strip, part of Jerusalem and at least 95% of the West Bank. In fact, he seemed well on his way toward this goal when I met him in 1998 as part of a delegation of American scholars and journalists.

The place was his Ramallah compound, the time after midnight (Arafat was a night owl). He was wearing his trademark fatigues, and his hands and lips were shaking uncontrollably. Much of the session was conducted via translator, but Arafat broke into English when asked a question about Palestinian violations of the Oslo accords. It was the kind of query a democratic statesman would have batted away without a second thought.

Arafat, however, grew visibly agitated and stammered: "Be careful when you are speaking to me! Be careful, you are speaking to Arafat!" The threat of violence hung in the air as we left. Clearly Arafat had not quite mastered the art of being a politician or, rather, he was a politician in the mold of Mugabe or Mao.

Posted by Tom at 6:29 PM | Comments (0) |

VC's fight AG disclosure opinion

An interesting fight is brewing in Austin over investment policy for public funds in Texas.

Venture capitalists are opposing Greg Abbott, the Texas Attorney General, in regard to his opinion that they must publicly disclose information about their investments on behalf of public institutions.

Austin Ventures, a prominent Texas venture firm, has threatened to end its relationship with two limited partners -- the Teacher Retirement System of Texas and University of Texas Management Corp. (Utimco) -- if they do not join a lawsuit that is contesting the attorney general's opinion that would require release of fund-performance data and other information about venture-backed companies.

The dispute stems from requests filed under state open-records laws by several newspapers seeking information about private-equity investments by the teacher-retirement fund and the Texas Growth Fund, which is a state-run investment trust. The funds denied the requests, and asked Attorney General Abbott to back them up. The funds argued that the information was confidential under the terms of their partnership agreements and that releasing the proprietary information could put venture-backed companies and their investors at a competitive disadvantage.

Nevertheless, in a June, 2004 opinion, Mr. Abbott said the funds had failed to show how releasing the information "would bring about specific harm to their marketplace interests." In a subsequent letter to Utimco and the teachers' fund, Austin Ventures said that the disclosures could "sabotage under-performing companies" and force start-ups to raise additional capital on unattractive terms. Moreover, Austin Ventures claimed that entrepreneurs would spurn investments from Austin Ventures or any other VC fund that could not maintain the privacy of their confidential information.

Sequoia Capital, one of Silicon Valley's top venture-capital firms, last year terminated two longstanding investors -- the universities of Michigan and California -- from its latest fund because it did not want information about the performance of its closely held investments to be disclosed under those states open-records laws. The Texas case potentially has bigger stakes because the information that would be disclosed includes data about the performance of individual portfolio companies and the value that venture backers place on them.

Texas Growth Fund filed the Texas case in state court and requests that the court overturn the attorney general's opinion. The teachers' retirement fund joined the suit after receiving the August letter from Austin Ventures. Utimco, which already releases performance data for the fund but not for its underlying investments, wrote to the attorney general objecting to his ruling, but has not decided whether to join the suit.

As of May 31, Utimco had $76 million committed to Austin Ventures, less than 1% of its $16.2 billion portfolio. On the other hand, Austin Ventures has $2.4 billion under management, so the Utimco investment is a larger percentage of that portfolio, but still not a substantial portion of it. TRS currently has committed $55.3 million of its $84.4 billion endowment to Austin Ventures. Consequently, we are talking about very small parts of the public funds' portfolios here.

Quare: Should trustees and investment management of Texas public and quasi-public funds be restricted from diversifying the investment portfolio of such funds by legislation that effectively denies such funds from investing in potentially profitable venture capital funds that limit information about their investments? If so, why should public funds be restricted from investing an appropriate amount of their portfolios in potentially the most profitable investments?

Posted by Tom at 8:59 AM | Comments (0) |

The intangible value of professional sports franchises

These prior posts have been following Jerry Jones' efforts throughout this year to obtain lucrative public financing for a new stadium in the Dallas area, which resulted in Arlington voters approving a financing deal for Jones and the Cowboys this past eletion day.

Economist Craig Depken has done a good job of criticizing the dubious economic arguments in favor of the stadium deal, and has compiled a good list of articles regarding the pros and cons of the transaction. Professor Sauer over at the Sports Economist has also chimed in often on the questionable basis of claimed economic benefits derived from public financing of such stadium deals.

Nevertheless, despite the evidence of relatively nominal economic value, publicly-financed stadium deals continue to be popular. Noting this, economists Jerry Carlino and Ed Coulson claim in this recent paper that opponents of such stadium deals have tended to underestimate the intangible value that people derive from their sports teams:

We found that once quality of life benefits are included in the calculus, the seemingly large public expenditure on new stadiums appears to be a good investment for cities and their residents.

The authors go on to compare an NFL team to an old-growth forest for a city, which is another way of saying that the stadium is something that people enjoy even if they never visit it. In addition, citizens enjoy a certain amount of civic comraderie that results from supporting and discussing the team.

I will leave a review of the authors' methodology to those more qualified than I in such matters, but my sense is that reasoned opponents of publicly-financed stadium deals will not really quibble much with the conclusions contained in this paper. Rather, most economists who oppose publicly-financed stadium deals do so because of the way such deals are pitched, not because they are necessarily critical of the public's love of their professional sports team.

If proponents of a stadium deal admitted in campaigning for the deal that the economic benefits of the deal were questionable, but that the intangible benefits to the community overrode the financial risk of the deal, then most reasoned opponents of such deals would be satisfied. They might not be persuaded to support the deal on that basis, but at least they would have the comfort that voter assessment of the deal would be based upon an honest presentation of the issues. As it stands now, the presentation of the economic issues in most stadium campaigns is muddled by well-financed and highly questionable assertions of direct economic benefits derived from such deals.

In short, let's just have truth in advertising in regard to such deals.

Meanwhile, Daniel Akst over at Marginal Revolution also makes an interesting observation about the intangible value of a sports team in relation to the size of a city:

. . . my guess is that the intangible value of an NFL team would be inversely proportionate to the importance of a city. You can't take the Packers out of Green Bay, but Los Angeles doesn't seem to mind having no team at all. Then again, maybe it's just the weather.

Update: Professor Sauer's typically insightful post is here on the Carlino and Coulson piece, with cites to other resources on the issues relating to public financing of stadiums.

Posted by Tom at 7:46 AM | Comments (0) |

The new Dallas sheriff

Lupe Valdez is a woman, a Hispanic, a Democrat and a lesbian. She is also the new sheriff of Dallas County. Read about here here in this Washington Post profile.

Posted by Tom at 7:42 AM | Comments (0) |

Paying more for pain relief than necessary

Holman W. Jenkins' WSJ ($) Business World column this week explores how the miplaced incentives of America's health care finance system contributed to Merck over-marketing -- and doctors over-prescribing -- Vioxx despite its well known side-effects:

[Vioxx was never supposed to be] a better pain reliever. Its unique selling proposition was simply a lower incidence of stomach bleeding, a real benefit but one mainly relevant to the 15% of arthritis sufferers who can't safely take conventional pain relievers.

Merck pulled the drug two weeks ago based on a study showing that, after 18 months of daily use, Vioxx subjects began experiencing heart attacks and strokes at twice the rate of a placebo group. Yet, on balance, this might have seemed mildly less alarming than the 2000 study that kicked off the Vioxx controversy. Also done by Merck, it showed that Vioxx users, from day one, suffered two or three times as many cardiovascular "events" as a control group using naproxen (the ingredient in Aleve).

. . . [But] Merck is in hot water now not because Vioxx was excessively risky but because the wrong people were taking it -- a problem for which doctors and the insurance system are also to blame.

. . . Marketing alone doesn't cause patients to shell out $2 for a pill that doesn't work any better than a five-cent aspirin. Bruce Stuart of the University of Maryland has showed that the biggest determinant of whether a patient takes a Cox-2 or a cheaper drug is whether an insurance company is paying.

Likewise, we've heard two schools of complaint from patients since Vioxx was yanked. Some patients are irate at Merck for depriving them of a drug they found genuinely useful, but others are mainly irate at their doctors for never mentioning that Advil or Tylenol work just as well.

The Vioxx debacle is symptomatic of a system that shields consumers from price signals and sometimes actually discourages them from making the right health-care choices. Forget pain relievers. In certain common breast cancers, women opt for expensive, risky, miserable chemotherapy even though it doesn't significantly improve an already high survival rate. They have a hard time waving it off, though, precisely because an insurer is picking up the tab.

In any case, Big Pharma is well along in being corrupted by third-party payership, just like the rest of the health-care industry. Drug makers increasingly aim their development efforts at the aches, pains, insecurities, heartburn and erectile dysfunction of price-insensitive, over-insured baby boomers because that's where the money is.

Read the entire piece.

Posted by Tom at 7:28 AM | Comments (1) |

November 9, 2004

Nigerian Barge jury finds $13.7 million market loss

The jury in the Enron-related criminal trial known as the Nigerian Barge case concluded the market loss hearing by determining today that the sham barge sale that was at the center of the trial cost Enron shareholders $13.7 million.

In a case that was largely dubious from the beginning, the jury's conclusion on the market effect of the transaction was just as questionable as many other aspects of the case. In reality, there was no market loss resulting from the sham barge transaction. The fact that Enron did not account for the Nigerian Barge transaction properly actually made Enron's earnings look better than they really were. Thus, that accounting helped to increase Enron's share value for the benefit of investors who were buying and selling the stock at the time. Moreover, there is no evidence that the decline in Enron's share value during its demise into bankruptcy in 2001 had anything to do with revelations regarding the barge transaction. Indeed, the alleged faulty accounting on the barge deal was not even discovered until well over a year after Enron went into bankruptcy and its equity value had become essentially worthless.

Nevertheless, the prosecution trotted an expert on to the stand who testified -- apparently with a straight face -- that the market loss from the sham barge transaction was $43 million. The defense countered with its own expert who testifed that, at most, the market loss attributable to the barge transaction was $120,000. In all likelihood, the jury was hopelessly confused by the entire matter and, as juries commonly do in such situations, split the baby and arrived at the utterly baseless number of $13.7 million. At least that number bears some resemblance to the $12 million profit that Merrill made on the deal, which of course has no bearing on the market loss. Oh well.

U.S. District Judge Ewing Werlein also asked the 6-women, 6-man jury in the Enron barge case to make findings on seven aggravating factors involved in the alleged offense that the Judge can use under current federal sentencing rules to increase or decrease the range of prison time an individual might receive. Two of the defendants -- ex-Enron finance executive Dan Boyle and former Merrill Lynch banker William Fuhs -- waived any right to have the jury advise the judge on their sentencing and were excused from the proceedings late last week. So, the jury's findings only apply to the three other Merrill bankers who the jury found guily earlier, Daniel Bayly, James A. Brown and Robert Furst. Based on the jury's findings, those three Merrill defendants could be facing considerable jail time depending on how Judge Werlein interprets the sentencing guidelines. All of the defendants are scheduled to be sentenced by Judge Werlein in March 2005.

Posted by Tom at 4:03 PM | Comments (0) |

The Rocket wins No. 7

Roger Clemens has won his record seventh Cy Young Award. At age 41, he is the oldest player ever to win the award.

Posted by Tom at 1:40 PM | Comments (0) |

The Battle of Fallujah

The Belmont Club is providing an excellent and often updated thread on the Battle of Fallujah.

Posted by Tom at 9:43 AM | Comments (0) |

Ray Fair assesses the election results

Yale professor Ray Fair's model for predicting Presidential elections were the subject of these prior posts here and here. In this new piece, Professor Fair tries to explain why his model predicted that President Bush would win 57.4% of the two-party popular vote when he actually got only 51.5% (he speculates that the war hurt Bush more than projected), and provides this early prediction regarding the 2008 race:

It is possible to use the current vote equation to make a prediction for 2008. There will be no incumbent running again (PERSON = 0), and the Republicans will have a negative duration effect (DURATION = 1). If, say, GROWTH is 3.0, INFLATION is 3.0, and GOODNEWS is 2, which is a moderately good economy, the vote prediction for the Republicans is 50.1 percent, a dead heat. So the main message for 2008 is that the election will be close if the economy is moderately good. It would take a quite strong economy for the equation to predict a comfortable Republican win, and it would take a quite weak economy for the equation to predict a comfortable Democratic win. The Democrats clearly have a much better shot in 2008 than they had in 2004 according to the equation.

Posted by Tom at 8:57 AM | Comments (0) |

Could you pass a maggot, please?

My late father -- Dr. Walter M. Kirkendall -- was a master internist who was a legend among his students for his diagnostic skills and conservative views toward use of many medicines. For one of the reasons supporting his skepticism regarding the use of clinically untested medicines, take a look at Alex Tabarrok's post over at Marginal Revolutions on Jerry Avorn's new book, Powerful Medicines.

Posted by Tom at 8:38 AM | Comments (0) |

JP Morgan Chase unit buys big stake in Texas properties

A JPMorgan Chase & Co. subsidiary is paying almost a billion dollars to buy a piece of some of the state's biggest buildings, including three in Dallas and two in Houston.

Ft. Worth-based Crescent Real Estate Equities Co. announced Monday that it is selling a stake to JPMorgan Investment Management in the Trammell Crow Center, Fountain Place and Crescent buildings in Dallas, and the Houston Center and Post Oak Central projects in Houston. Together, the properties have 7.9 million square feet of office space.

JPMorgan will buy a 60 percent stake in the Crescent in Dallas and the Houston Center and Post Oak Central projects in Houston. Those buildings are valued at almost $900 million. JPMorgan is also buying a 76 percent share of the Trammell Crow Center and Fountain Place skyscrapers in downtown Dallas, which are valued at about $320 million. Crescent said it will generate about $316 million in cash from the sales, and disclosed that it is negotiating with another buyer to reduce its ownership in the Crescent and the two Houston properties further to 24 percent. Upon completion of the sales, Crescent will be the general partner in the ventures and will continue to manage and lease the buildings.

Crescent endeared itself to many in Houston real estate business circles several years ago for managing to put itself in the position of prosecuting a highly publicized and unpopular lawsuit against Houston-based Lakewood Church. As the owner of Greenway Plaza, Crescent objected to the church's leasing from the City of Houston of the Houston Rockets' former home, The Summit a/k/a Compaq Center in Greenway Plaza, which the church is turning into a mega-church facility. Crescent and the City eventually worked out a settlement, and Crescent dropped the lawsuit against Lakewood, exiting the litigation with its tail squarely between its legs.

Posted by Tom at 7:50 AM | Comments (0) |

The least surprising motion of the year

In an expected move, former Enron Corp. CEO and COO Jeffrey Skilling, former Enron Chairman Kenneth Lay and former Chief Accounting Officer Richard Causey filed a motion Monday stating that Phoenix, Denver or Atlanta would be fairer places in which to try their criminal case than Houston.

Because of the intense negative publicity and public feelings in Houston surrounding Enron, the defendants contend that they cannot receive a fair trial in Houston. The three men have been charged with leading a wide-ranging conspiracy to hide extensive financial problems at Enron.

The first criminal trial involving Enron's business operations recently was concluded in Houston in what is commonly known as the Nigerian Barge case, where the jury found four former Merrill Lynch & Co. executives and a former Enron vice president guilty of participating in a scheme to manipulate Enron's earnings. A sixth defendant -- Sheila Kahanek, a former Enron accountant -- was acquitted.

In the motion to change venue, the Skilling legal team supplied results from surveys they had commissioned of public attitudes in Houston toward the former Enron president. According to the surveys, nearly 32% of the people surveyed in Houston used negative statements to describe Skilling, which was roughly three times the number in Phoenix or Denver. The survey revealed that Houston residents used such terms as "despicable," "deceitful," "thief," "weasel," "the devil" and "guilty as sin" to describe Mr. Skilling, in particular.

A request to change venue is not uncommon in high-profile cases such as this one. However, there is substantial risk in requesting one. U.S. District Judge Sim Lake will decide the issue and, if he is inclined to grant the motion, he will choose the new location for the trial. So, for example, if Judge Lake decides to move the venue of the trial from Houston to another location within the Southern Federal District of Texas, the case could be transferred to an even more unfriendly venue for the defendants, such as the Rio Grande Valley of Texas along the U.S.-Mexico border. In the Valley, a predominantly Hispanic jury pool will likely not take kindly to a group of wealthy white executives on trial for defrauding investors. Accordingly, like almost everything associated with the case, the motion to change venue is high risk, a lesson that Mr. Lay learned recently in regard to another motion that he had filed.

On the other hand, if there was ever a case for a change of venue, it's an Enron defendant in Houston. Inasmuch as the prosecution batted .833 on a flimsy case in the recently concluded Nigerian Barge trial, the government would be justified in concluding that they are shooting fish in a barrel by prosecuting Enron defendants in Houston.

Posted by Tom at 7:02 AM | Comments (0) |

NFL remains the most valuable Reality-based TV

The National Football League has demonstrated again that it is the most valuable reality-based programming in the television industry today.

The NFL announced on Monday that Viacom Inc.'s CBS, News Corp.'s Fox, and satellite broadcaster DirecTV Group Inc. agreed to pay the incredible total of $11.5 billion to retain television rights to NFL games for the remainder of this decade. The deals represent an overall 40% increase compared with current contracts and reflect that professional football remains America's most popular sports league despite the overall decline of broadcast-TV viewership.

The two broadcast networks will pay $8 billion combined over six years, through the 2011 season. Fox's payments under its $4.3 billion pact will average $712.5 million annually, a 30% increase over the current deal's $550 million average. CBS's $3.7 billion deal averages out to $622.5 million a year, up 25% over its current $500 million average. Each network will air two Super Bowls under the new contract.

Moreover, the satellite-TV deal was a key to the renewals. DirecTV, which News Corp. controls, will pay the NFL $3.5 billion over five years through 2010 ($700 million a year), which is a substantial increase from the $400 million a year it pays now. The "NFL Sunday Ticket" package gives subscribers access to as many as 14 games a week.

The NFL's current deals with Fox, CBS and Walt Disney Co.'s ABC and ESPN expire after the 2005 season. The league hasn't announced extensions with ABC, which airs "Monday Night Football," or ESPN, which shows a game on Sunday nights. ABC and ESPN have declined to negotiate new contracts until after the season ends.

The increase for the Sunday afternoon games on CBS and Fox is less than the the 72% increase that the NFL received under the most recent renewal of the contracts in 1998. However, in the current television market, the increase is considered remarkable. Although ratings for regular-season NFL games declined 10% overall from 1999 through 2003, this decline occurred against much sharper ratings declines for other television programming. And despite that decline, the Super Bowl remains the most-watched TV show of almost any year.

In fact, the two networks are paying more money for a potentially less desirable game inventory. CBS and Fox agreed to let the NFL sell a package or packages of as many as eight games a season for Thursday and Saturday nights and to cherry-pick late-season games to showcase on "Monday Night Football."

CBS and Fox renewed their deals despite what most analysts describe as enormous losses on current contracts. ABC's "Monday Night Football" has been estimated to post losses of as much as $250 million a year, and Fox wrote off $397 million from its current $4.4 billion deal in 2002. Viacom executives contend that CBS has not lost money on their deal with the NFL.

Posted by Tom at 6:40 AM | Comments (0) |

Pete Cokinos, RIP

Houston's business community lost another of its longtime oil and gas entreprenuers on Sunday when Geneos P. "Pete" Cokinos of Beaumont died at the age of 88. Mr. Cokinos died a day after another famous Houston wildcatter, Michel T. Halbouty, who was a friend and contemporary of Mr Cokinos. Mr. Cokinos' obituary is here.

Mr. Cokinos was the oldest of five children of the P.D. Cokinos family, which included a sister and four brothers. Mr. Cokinos and his three brothers were all veterans of the U.S. Army in World War II and graduates of Texas A&M University, and Mr. Cokinos was the first of an incredible seventeen members of that family to attend and graduate from Texas A&M. Mr. Cokinos and his brothers subsequently funded an academic Presidential Scholarship at A&M in memory of their parents.

Mr. Cokinos was the uncle of well-known Houston attorney, Greg Cokinos. Funeral services are scheduled for this evening and Wednesday in Beaumont.

Posted by Tom at 6:16 AM | Comments (0) |

David Medina to be named to Texas Supreme Court

Former former Harris County state district court judge David Medina is expected to be named today to the Texas Supreme Court by Governor Rick Perry during a ceremony at 10:30 a.m. at the South Texas College of Law in Houston. Mr. Medina is currently serving as the Governor's general counsel.

The appointment will fill the second of two vacancies on the nine-member court. Mr. Medina will replace Michael Schneider, who was confirmed as a U.S. District Judge in Tyler in September. The other vacancy was filled by Wallace Jefferson, a Supreme Court justice who Governor Perry recently promoted to chief justice. Chief Justice Jefferson replaced former Supreme Court Chief Justice Tom Phillips, who retired to enter private practice.

Mr. Medina, who is 46, was born in Galveston and grew up just to the north in Hitchcock. He graduated in 1980 from Southwest Texas State University (now Texas State University-San Marcos), where he was a member of the baseball team and the state-championship karate team. He subsequently received his law degree from South Texas, where he was on the dean's list and was a member of the American Bar Association Regional Moot Court National Championship Team.

From 1996 to 2000, Mr. Medina served as judge of the 157th District Court in Harris County, during which time the Houston Bar Association members consistently cited him as one of the top jurists in Harris County. Before and after his tenure on the bench, Mr. Medina worked for Cooper Industries, a worldwide manufacturer of electrical products, tools and hardware. He has served as Governor Perry's general counsel since January of this year.

Before becoming Governor Perry's general counsel, Mr. Medina was involved in a controversy when he was arrested in June 2002 and charged with driving while intoxicated. His trial ended in a hung jury, and then Medina pleaded guilty to making an improper lane change, paid a fine, and the original DUI charge was dismissed.

Upon appointment to the Supreme Court, Mr. Medina will have to through the Texas Senate's confirmation process next year. To remain on the bench, Mr. Medina would have to run for election in 2006.

Posted by Tom at 5:41 AM | Comments (0) |

November 8, 2004

An interesting economics debate

This week, Tyler Cowen of the Marginal Revolutions blog and Jon Irons of the Argmax.com blog will be debating various economics issues over at the Economics page of the on-line Wall Street Journal, WSJ.com. The Journal page is usually gated for use of paying customers only, but for this week it is open to all visitors.

The first discussion concerns social security privatization. On Tuesday comes outsourcing and trade, followed by the future of Europe and China. Tyler is far more persuasive in the first installment on Social Security, in which Mr. Irons largely ignores the costs of the current Social Security system while waxing eloquent about its hard to value benefits.

Check it the debate this week as it should be interesting.

Posted by Tom at 6:39 AM | Comments (0) |

The Rovenian Candidate

Professor Ribstein of Ideoblog -- whose broad expertise in business law includes extensive knowledge on how business is portrayed in cinema -- continues development here of a sure-fire winning screenplay on how President Bush won the 2004 election. Enjoy.

Posted by Tom at 6:23 AM | Comments (0) |

Euro reaction to America's new Ryder Cup captain

From the complaining contained in this London Telegraph op-ed, it sounds as if the PGA of America may have finally chosen the right captain in Tom Lehman to revive America's flagging Ryder Cup fortunes:

Lehman's record in the Ryder Cup is statistically good - won five, lost three, halved two - but behaviourally bad.

In 1995, at Oak Hill, Lehman was a rookie and he was first out in the singles against Seve Ballesteros. On the 12th hole Seve asked Lehman to mark his ball, but instead the American tapped in his short putt. This, of course, was pounced on by Ballesteros, who said: "What are you doing? You play out of turn. Where is the referee?" The crowd then began booing and Lehman became unjustifiably angry. He was in the wrong. . .

[F]our years later at Brookline, Lehman was involved in a series of inexcusable incidents. On the second afternoon he holed a putt and indulged in all manner of vertical fist-pumping while Darren Clarke still had to hole out. Later on in the match, he looked on while his playing partner drove off before Clarke and Lee Westwood had arrived on the tee.

But Lehman saved the worst for the final afternoon. Before his singles against Westwood he began conducting the crowd in a reprise of God Bless America. He literally ran off the 13th green after holing a putt and began high-fiving the spectators. And then he led the infamous charge across the 17th green when Jose Maria Olazabal still had his putt to keep the match alive.

Perhaps most unforgiveable of all, Lehman has never properly apologised for any of this. It only required a letter saying he had become caught up in the exuberance of the moment, but that was no excuse and he apologised unreservedly for his conduct. Lehman couldn't bring himself to write such a letter and so he will always be haunted by Sam Torrance's charge of, "calls himself a man of God. That was the most disgraceful thing I have ever seen". . .

. . . Lehman should never have been appointed captain. His behaviour at Brookline and subsequent unwillingness to apologise should have disqualified him for eternity. The PGA's refusal to recognise these facts shows either they are out of touch with the rest of the world or too desperate and arrogant to care.

Come on, Brits. No American Ryder Cup captain has ever come close to the absurdly bad behavior of European captain Ballesteros during the 1997 Ryder Cup competition. Lighten up.

Posted by Tom at 6:09 AM | Comments (0) |

The politics of tax policy

This NY Times article reviews the growing consensus within the Bush Administration that something needs to be done with the federal government's absurdly complex and special interest-riddled income tax system. There is no real economic analysis of the alternatives here, just a review of the political implications of such a movement. The most hopeful quote in the article comes from a Democrat:

"It strikes me that there's consensus in the country, and hopefully in Washington, that the tax system is too complex, that it's full of loopholes that are exploited by special interests and that we need to simplify them," said Senator-elect Barack Obama of Illinois, a Democrat who won easy election to an open seat.

Mr. Obama, speaking on "This Week" on ABC, said, "If we can arrive at a tax simplification agenda that is not resulting in a shift toward a more regressive tax system, but is instead genuinely making it simpler for ordinary Americans to file their tax returns without a lot of paperwork and gobbledygook, then I think that's something we could work together on."

Amen.

Posted by Tom at 5:53 AM | Comments (0) |

Trying to avoid living like a poor student at 70

Ben Stein writes this personal finance op-ed for the NY Sunday Times in which he illuminates the mounting retirement finance problem that is confronting the Baby Boomer generation:

This is the bore of the gun pointed right between the eyes of the baby boomers. With the low interest rates of today and tomorrow, with the lavish way we have come to expect to live, with a stock market that is sluggish, let us say, what on earth are we going to do about retirement?

Unfortunately, this is not just a paranoid fantasy about my own life. This is going to be the reality of millions, maybe tens of millions of baby boomers unless they get their backsides into gear and make some serious changes in their lives.

You can look at it anecdotally, or you can look at it statistically. Anecdotally: If you are a woman in your mid-50's living on a salary of $150,000 a year, and if you wish to maintain your living standard when you retire at age 65, you will need about $200,000 a year to live on, assuming inflation raises prices by 3 percent a year. If you assume you will get about $15,000 a year from Social Security, you will need about another $185,000 a year. To have that much income with today's interest rates, you will probably need about $4.6 million in the bank. Do you have it?

Or, we can look at it statistically. About 77 million baby boomers are racing toward retirement. That's people roughly between 40 and 60 years old. More than 34 percent of the ones over 55 report having financial savings (not counting their home equity) of less than $50,000. Only 21 percent have more than $100,000. The average Social Security benefit as of 2003 was only $895 a month. Only roughly one in eight workers as of 2001 had a pension with a defined benefit (as opposed to a defined contribution).

We can look at it another way. If you had to retire in 10 years with (now let's be really generous here) twice the savings you now have, and would receive interest of 4 percent on it, how close would you be to having a living income, i.e. an income you could live on at your present style of life? Be honest.

You can look at it still another way. The average family in the New York area earns roughly (and I mean really roughly) $50,000 a year. You would need to have at least $1.25 million in principal to yield that income at 4 percent. Do you have it?

And the solution?

Major league retirement planning right here and now. Right this second. Make a plan with an adviser you trust and for whom you have gotten superb references. Make it a plan with a lot of diversification of stocks, bonds, mutual funds, foreign, domestic, emerging, variable annuities (but study them carefully - there are immense variations among them), real estate and even cash.

The plan has to allow for expensive, long-term medical care. It has to provide for the possibility of losing your job at some point before you reach retirement age. The plan cannot count on miracle cures from the federal government. The federal government is just a means of transferring money from wage earners to retirees - and the wage earners are not going to want to bankrupt themselves for the baby boomers (who got all of the good music anyway).

Read the entire piece.

Posted by Tom at 5:34 AM | Comments (0) |

November 7, 2004

2004 Weekly local football review

Broncos 33 Texans 13. After a month of strong performances, the Texans looked absolutely awful against the Broncos. The offensive line play was horrible, and David Carr -- who does not throw particularly well under pressure -- was mediocre (22/41 for 245 yds, no turnovers) as he was sacked four times. Meanwhile, the offense's incompetence left the Texans' shaky defense over-exposed, and Broncos' QB Jake Plummer took advantage, flinging four TD passes on the day. Just to give you an idea of how bad it was, the Texans' best player -- receiver Andre Johnson -- had three catches for 28 yards. Things don't get any easier for the 4-4 Texans as they travel to Indianapolis next week to be lit up by Peyton Manning and Co., and then return to Reliant Stadium for games against Green Bay and Tennessee the following two weeks.

Bengals 26 Cowboys 3. Not to be outdone, the Cowboys looked even worse than the Texans as the Bengals pummeled them in Cincy. Making things worse was that the Bengals were wearing possibly the worst looking uniforms in NFL history while administering this whipping on the Pokes. Cowboys QB Vinnie Testaverde looked all of his 41 years, spraying three interceptions to go along with a fumble in the pocket. The 3-6 Cowboys are a horrible football team right now. An over-the-hill QB, no top flight running back, and a questionable defensive secondary. This could end up being the Big Tuna's worst professional football team since his first Giants team in 1983, which finished 3-12-1. The Pokes get Philly at home and Baltimore on the road in their next two games before hosting the Bears in what is stacking up to be a forgettable Turkey Day game.

Oklahoma 42 Texas Aggies 35. Like a champion heavyweight fighter, the Sooners got off the mat before a wild crowd in College Station after the Aggies had taken 14 point leads on three occasions in the first half. OU systematically took the lead in the third quarter, and then hung on for dear life as a final Hail Mary pass fell just short of an Aggie receiver at the buzzer. OU's Jason White showed again that he is a marvelous college QB, as he shredded the Aggie secondary for five TD passes. This was simply a whale of a college football game in which the Aggies threw the kitchen sink at the Sooners, scoring TD's on a fake punt and a fake field goal. Meanwhile, both teams' secondaries looked a bit shell-shocked as both teams combined for almost 700 yards of passing yardage. OU has two relatively easy games (Nebraska and Baylor) before the Big 12 Championship game against one of the Big 12 weak sisters, so it is looking like OU and USC will meet in the BCS National Championship game. The Sooners are a top flight team, but my sense is that Coach Stoops will really have to coach around their defensive limitations to beat USC. Meanwhile, The 6-3 Aggies have no time to feel sorry for themselves, as they face tough Texas Tech in College Station next Saturday before their finale in Austin against the Longhorns on the day after Thanksgiving.

Texas Longhorns 56 Oklahoma State 35. A tale of two halves. As my wife and I went into a charity gala dinner on Saturday night, I turned off my car radio with the score Oklahoma State 35 Texas 7 with just a minute left in the first half. After the salad at dinner, a friend with a son text messaging him from the game told me it was 35-21. Then, midway through the entree, it was tied, and just as we were getting dessert, Texas was leading 49-35. You gotta love college football. The 8-1 Horns play at Kansas next Saturday before entertaining the Aggies in their finale on the day after Thanksgiving. The Horns are finally looking like a BCS bowl team to me.

Houston 34 East Carolina 24. The Coogs continued their mini-recovery after a 1-6 start by beating mediocre East Carolina at Robertson Stadium in Houston. The Coogs were behind 17-14 at halftime, but put this one away by scoring 20 straight points in a 10 minute span at the end of the third quarter and beginning of the fourth. The 3-6 Cougars have two tough games remaining, next Saturday at 5-3 Alabama-Birmingham and then the following week at home against nationally-ranked and Louisville (6-1), so a 3-8 finish for the Coogs is still a distinct possibility.

Fresno State 52 Rice 21. The bottom has fallen out of the season for the Owls, who are now 3-6 and bleeding badly. Fresno just manhandled the Owls at Rice Stadium in Houston, as the Owls trailed 28-7 at the half and 52-7 after three quarters. Rice (3-6) should get ready for more of the same next week as they must go to El Paso to take on the Mike Price-revived UTEP(6-2)squad before finishing at home the following week against 4-5 La Tech.

By the way, in a reflection of the continued polarization of college football, the Longhorn and Aggie games on Saturday drew a combined total of about 165,000 fans. UH and Rice's games drew a combined total of barely 30,000.

And, as usual, Kevin Whited has his excellent review of Big 12 games over at PubliusTx.net.

Posted by Tom at 6:42 PM | Comments (0) |

Michel Halbouty, RIP

One of the characters the local business community that make Houston a special place -- Michel T. Halbouty -- died on Saturday in Houston after a long battle with cancer. He was 95 at the time of his death. His obituary is here.

As founder, president and chairman of Michel T. Halbouty Energy Co. in Houston, Mr. Halbouty was one of Houston's famed wildcatters who made and lost millions in the wild and wooly Texas oil and gas business over the past 70 years.

With his trademark bushy mustache, Mr. Halbouty cut quite a swath in business circles. An expert in Gulf Coast salt dome prospecting, Mr. Halbouty was inducted into the Texas Science Hall of Fame in 2002 for his contributions to geoscience. He authored four books and more than 300 articles on geology and petroleum engineering, and among the well-known oil and gas fields that Mr. Halbouty either discovered or developed were the South Boling Field in Wharton County, the South Liberty Field in Liberty County, the West Saratoga Field in Hardin County, the Pheasant Field in Matagorda County, and the Fostoria Field in Montgomery County.

Mr. Halbouty was also an important figure in the development of Texas A&M University over the past two generations. After graduating from A&M in 1930 with a degree in petroleum engineering, Mr. Halbouty earned masters' degrees in geology and petroleum engineering the following year, and, in 1956, was the first recipient of Texas A&M?s professional degree in geological engineering. Mr. Halbouty was also a recipient of distinguished alumni awards from the A&M Association of Former Students and A&M?s Dwight Look College of Engineering. He was a an A&M Visiting Centennial Professor and a founding member of the President?s Endowed Scholars Program. For his service and contributions to the university, the building that houses the A&M's department of geology and geophysics is named for him.

Finally, Mr. Halbouty is widely credited with persuading former president George H.W. Bush to locate his presidential library on the Texas A&M University campus in College Station.

Mr. Halbouty was also widely involved in civic affairs in the Houston area. Mr. Halbouty also served on the boards of the Houston Symphony Society, Houston Grand Opera, Greater Houston Council of Camp Fire Girls, Texas Children's Hospital, and Houston's Museum of Fine Arts.

Funeral services for Mr. Halbouty are pending.

Posted by Tom at 7:17 AM | Comments (0) |

November 6, 2004

Another Mark Cuban first

Mark Cuban is the young and dynamic owner of the National Basketball Association's Dallas Mavericks, which he has reshaped into one of the NBA's winningest franchises over the past several seasons.

Cuban is a live wire, and he undoubtedly leads the NBA in the past few seasons in the amount of fines that the NBA front office has levied against an owner for criticism of various aspects of the league, particularly in the area of referee evaluation.

For several months, Mark has been running an interesting blog called Blog Maverick. In another first, Mark notes in this blog post that the NBA front office has fined him again, this time for criticizing the league in a blog post.

Posted by Tom at 10:48 AM | Comments (0) |

John Edwards' political future, RIP?

No astute political analyst am I, this Economist article reflects my amateur political analysis towards John Edwards' political future:

Mr Edwards is well on the way to becoming a man with a brilliant future behind him. What did he add to the Democratic ticket other than a boyish smile and a well-honed stump speech? He failed to deliver either of the Carolinas to the party (even though he was born in the southern one and represented the northern one in the Senate). He has no clear ideological constituency.

In addition to the foregoing, Edwards' Senate seat was won by a Republican, he was surprisingly poor in his debate performance against Dick Cheney, and he made an incredibly inept gaffe late in the campaign after the death of Christopher Reeve. In view of all of this, my sense is that a decent case can be made that Edwards cost Kerry the election in a reasonably close race. That's not much of a foundation upon which to build a political future.

Posted by Tom at 9:16 AM | Comments (1) |

The Disease of the Century

Colleen Carroll Campbell, a fellow at the Ethics and Public Policy Center, is the author of The New Faithful: Why Young Adults Are Embracing Christian Orthodoxy (Loyola, 2002). She is working on a book based on her father's experience of Alzheimer's disease, and this New Atlantis article provides an outstanding overview of her research into the subject. There is no question that Alzheimer's is becoming an increasingly important health care issue:

. . . [E]very once in awhile, we face a situation that forces us to collectively consider what it means to be human persons who grow old, suffer, and die.

The looming Alzheimer's epidemic is just such a situation. This disease embodies everything we fear most about aging -- weakness and dependence, humiliation and oblivion. Its insidious onset and relentless progression have penetrated our collective consciousness, and nearly half of Americans over the age of 35 know someone personally whose brain has been ravaged by it. As Americans are living longer and more physicians are recognizing dementia as a disease to be diagnosed, Alzheimer's is claiming more victims. Some 4.5 million Americans suffer from Alzheimer's today, more than double the number who had the disease in 1980. Alzheimer's has become the eighth-leading cause of death in America, and its impact is expected to mushroom as 77 million Baby Boomers head into retirement. By 2050, if no cure is found, 16 million Americans could have Alzheimer's. As they bid their long goodbye -- Alzheimer's can take up to 20 years to run its devastating course -- we will no longer be able to ignore the human questions raised by this disease. Such questions, about the basis of our human dignity and our identity as persons, cannot be answered by science or technology. We must grapple with them the old-fashioned way, drawing on both reflection and lived experience to find the meaning in this way of dying.

For anyone dealing with the onset of dementia in a loved one, this piece is essential reading. Read the entire article.

Posted by Tom at 8:30 AM | Comments (0) |

Cancer in the House

Jamie Malanowski, a New York-based writer, pens this Washington Monthly op-ed on Houston congressman Tom DeLay and provides the following overview to a discussion of the various ethics complaints and criminal investigations that are currently dogging Mr. DeLay:

Tom DeLay is the most odious character in American politics today. He does not lack for competition, of course, but what sets him apart is that all of his perversions have been accomplished under the radar screen. Apart from his colorful name ?the Hammer,? DeLay has no public identity, and even that nickname will more likely inspire people outside the Beltway to think of old jocks like Fred Williamson or Dave Schultz than the beady-eyed former exterminator who terrifies Capitol Hill. . . Tom DeLay is a cancer cell, silently metastasizing.

Statesmanship is not a word that comes to mind when thinking about Tom DeLay.

Posted by Tom at 7:30 AM | Comments (0) |

Liberal Dutch question Muslim assimilation

This Economist article addresses the second political murder in the Netherlands in the space of two years. The murder of outspoken and provocative film director, Theo van Gogh, by a Muslim radical has shocked Dutch society, which has long been the European epitome of tolerant and liberal values. Dutch people fear that they may now live in a place where violence has become a way of settling differences of opinion, especially over rocky relations with a growing Muslim minority. The article is an insightful account of the difficulties that even the most liberal Western culture faces in assimiliating intolerant Muslim fascism.

Posted by Tom at 7:14 AM | Comments (0) |

November 5, 2004

Lance Berkman suffers ACL injury

Lance Berkman -- the Stros' best hitter over the past four seasons -- has torn the anterior cruciate ligament in his right knee and will undergo surgery at Methodist Hospital in Houston within the next ten days. Although the Stros' initial announcement this afternoon did not disclose how Berkman suffered the injury, it was disclosed later that Berkman suffered the injury playing flag football.

Normal recovery time from this type of injury is at least six months, so it is unlikely that Berkman will be ready for the start of the 2005 regular season. May or June is probably more realistic.

Just to give you an idea of how just how good a player Berkman is, Over the past 4 years, Berkman ranks 6th in the majors in runs created against average ("RCAA", explained here):

1 Barry Bonds 597
2 Todd Helton 284
3 Albert Pujols 281
4 Jim Thome 250
5 Manny Ramirez 240
6 Lance Berkman 236
7 Jason Giambi 225
8 Alex Rodriguez 218
9 Jim Edmonds 216
10 Gary Sheffield 210

That's pretty heady company.

Posted by Tom at 3:59 PM | Comments (0) |

Election map analysis

William J. Stuntz is a smart professor at Harvard Law School, and in this Tech Central Station article, provides an excellent and non-biased analysis of the voting patterns from Tuesday's Presidential election, including the following observation:

The best way to see how the two sides stack up is to look at one of those red-and-blue maps that seem to breed these days. Divide the country into three parts: Kerry's base, Bush's base, and the Midwest. Kerry's base is the Northeast -- everything North of the Potomac River and East of Ohio -- together with the Pacific Coast and Hawaii. (They don't call it the "left coast" for nothing.) Kerry swept his base 194-0. Bush's base is the South and the rest of the West. Bush swept his base too, by an electoral score of 237-0, assuming the New Mexico vote holds up. But Bush's base is bigger. Which means Kerry needed to nearly sweep the Midwest to catch up. He did carry the Midwest, but not by much: 58-49 in the electoral college. Bush carried Ohio, Indiana, Missouri, and Iowa -- and he could have lost any of the last three without changing the result.

Read the entire article.

Posted by Tom at 8:37 AM | Comments (0) |

Perilous Times

In this New York Times review, Michiko Kakutani reviews Perilous Times, the new book about American restrictions on civil liberties and free speech by Geoffrey R. Stone, the Harry Kalven Jr. distinguished service professor of law at the University of Chicago. As the review notes, the restrictions of civil liberties under the recent Patriot Act are not unusual in time of war in the United States, regardless of whether the President is a Republican or a Democrat:

Impassioned yet methodical, [Professor Stone] lays out the vital role that free speech plays in a healthy system of self-governance, using lots of case studies to illustrate his arguments while creating a devastating portrait of those public figures whose commitment to free speech has been weak or hypocritical. Woodrow Wilson, who tried to squelch any disharmony that might impede his mission of making "the world safe for democracy," comes off especially poorly, and Franklin D. Roosevelt emerges as a president who would support civil liberties in the abstract, "but not when they got in his way."

However, Professor Stone is reassuring that America's commitment to civil liberties is strong, and that each period of restriction has been followed by a period of stronger restoration:

After each period in which the nation went too far in restricting civil liberties, Mr. Stone argues, "the nation's commitment to free speech rebounded, usually rather quickly, sometimes more robustly than before." A Congressional report declared that the Sedition Act of 1798 had been passed under a "mistaken exercise" of power and was "null and void." The Sedition Act of 1918, which was repealed two years later, helped give birth to the modern civil liberties movement. And in 1976, President Ford formally prohibited the C.I.A. from using electronic or physical surveillance to collect information on domestic activities of Americans, and the new F.B.I. director, Clarence Kelly, publicly apologized for F.B.I. abuses under J. Edgar Hoover.

Such developments buttress Mr. Stone's argument that "the major restrictions of civil liberties of the past would be less thinkable today than they were in 1798, 1861, 1917, 1942, 1950 or 1969," and that "in terms of both the evolution of constitutional doctrine and the development of a national culture more attuned to civil liberties, the United States has made substantial progress." Mr. Stone writes that in its 1971 Pentagon Papers decision (which held that the government had not met its "heavy burden of showing justification" for a prior restraint on the press), "the Supreme Court, for the first time in American history, stood tall - in wartime - for the First Amendment." That case was only one in a series of Vietnam-era decisions in which the court suggested its understanding, in Mr. Stone's words, "that dissent is easily chilled, that government often acts out of intolerance when it suppresses dissent, and that it is essential to protect speech at the margin."

Read the entire review.

Posted by Tom at 7:58 AM | Comments (4) |

Justice goes after doctor accounts in tax avoidance investigation

This New York Times article reports on a San Diego federal judge's order on Thursday that froze almost $600 million in investment accounts as the Justice Department probes charges of illegal tax avoidance involving California-based xélan, a company that markets tax-savings plans to doctors. The company's Web site says it was founded 32 years ago by doctors to help other physicians with financial matters, ranging from pension plans to disability and long-term care insurance. It calls itself "the Economic Association of Health Professionals."

The Internal Revenue Service estimates that some 4,000 doctors are involved in what it alleges is a fraudulent tax-reduction scheme, and they could owe as much as $420 million in taxes, interest and penalties. The Justice Department alleged that "persons and entities affiliated with xélan" have advised thousands of doctors and other medical professions to invest in "various fraudulent tax avoidance schemes," including purported supplemental-insurance products and improper charitable-deduction schemes involving a xélan-related foundation. The government's complaint said more than $500 million is held in investment accounts controlled by xélan-related and Barbados-based Doctors Benefit Insurance Co.

I don't know whether the government's charges against xélan have any validity, but it has been my experience that doctors are generally easy prey for promoters of investment scams and tax avoidance schemes. With a lot of money and not much time to analyze such matters, doctors are tailor-made for making bad investment decisions. As a result, I have represented many doctors over the years in extracting them from poor investment decisions that they have made.

My first experience with this phenomena is instructive. Over 25 years ago, while still in law school, my late father -- noted Professor of Medicine Walter M. Kirkendall -- called me one day to ask me to accompany him to a breakfast meeting at Houston's old Shamrock Hilton to advise him regarding an investment "opportunity" that was going to be pitched to him and a number of other Texas Medical Center doctors at the meeting.

So, my father and I attended the meeting, along with about 50 other Medical Center doctors. During the meeting, a group of slick promoters from Dallas promoted limited partnership interests (at $75,000 a pop) in an entity that would own the rights to a movie. The movie was being filmed at the time and was called "Coming Back," a preposterous tale about the adjustments that several Dallas Cowboy football stars had to make in playing professional football after returning home as Vietnam veterans. The promoters even played a few film clips from the movie, which were absurdly bad.

"We expect this to be hit throughout the country, particularly among professional football fans," commented the promoters. But the real money to be made, the promoters assured in hushed tones, was in the overseas markets. "The Dallas Cowboys are simply huge in Japan," they exclaimed breathlessly.

Through the presentation, my father and I were actually having a wonderful time, enjoying the free breakfast while rolling our eyes at each other and chortling about the absurdity of it all. At the conclusion of the meeting, the promoters asked that any doctor interested in investing to come up to the front of the conference room and they would make arrangements for giving them a discount on their investment in the film. That pitch brought a final chortle from my father and me, as we simply could not believe that anyone would be so gullible to invest any money in such a surefire scam as this movie. So, as the meeting concluded, we stood up and proceeded to leave.

As my father and I made our way out of the conference room, we were almost stampeded by the dozens of doctors literally sprinting to the front of the conference room to make their investment in the film.

About a year and a half later, the promoters of the film were convicted of securities fraud in federal court in Dallas.

To this day, no word on how "Coming Back" ever did in the Japanese market. ;^)

Posted by Tom at 6:17 AM | Comments (2) |

Herskowitz on Stros GM's

Longtime Houston sportswriter Mickey Herskowitz, who I have mentioned frequently in these earlier posts, is my favorite sportswriter. Mickey's blend of insight, humor and historical perspective is sadly lacking in much of the sportswriting that we must endure these days.

Earlier this week, fellow Chronicle sportswriter Richard Justice blasted Stros' owner Drayton McLane for Gerry Hunsicker's recent resignation as the Stros' general manager. Although most everyone agrees that Hunsicker was the Stros' best GM in history, I believe that McLane had reasonable reasons for not providing him a long term deal (noted in this earlier post). So, I thought that Justice's piece disparaging McLane as the "boss from hell" was way out of line, particularly given the fact that McLane is also the best owner that the Stros have ever had.

In this column, Herskowitz -- without mentioning Justice's blast at McLane -- places the decision to let Hunsicker go in historical perspective and reminds us that McLane's support of Hunsicker was the best that any Stros owner has ever provided for any Stros GM. In so doing, Herskowitz gives us this entertaining and brief "GM tree" of Stros general managers over the past 43 years:

The Astros have an interesting history with general managers. Does anyone remember Gabe Paul? He was their first, coming and going the year before the team took the field. Gabe had held the same position in Cincinnati, but left Houston when he did not want Judge Roy Hofheinz breathing on his neck.

But Gabe left a legacy -- two bright, young staffers named Tal Smith and Bill Giles. The latter would one day become the owner of the Phillies.

Paul Richards drafted and molded the team that finished ahead of the Cubs and Mets in its first season, 1962. Richards signed the first wave of prospects, including Rusty Staub, Larry Dierker and Joe Morgan.

The torch was passed to Spec Richardson, who had paid his dues with the Houston Buffs but did not have a big imagination. Smith returned from New York, after getting a graduate degree at the Steinbrenner Institute for Pain.

Tal hired Bill Virdon as his manager and raised the Astros out of the primeval muck, 43 games out of first place (in 1975) to within three outs of the World Series in 1980. The Sporting News would name Smith as the executive of the year for '80, but John McMullen, the new owner, fired him anyway.

McMullen lived in New Jersey, but he knew how to use a phone. He wanted a general manager who would not make moves or express an opinion without consulting him.

Into the breach came Al Rosen, who had set home run records as a third baseman in Cleveland. Rosen was good-natured and considerate. He lasted until 1985 and received the news of his dismissal not with anger but puzzlement.

"I don't understand why I was fired," he said to a friend.

The friend did not offer him sympathy.

"If you don't know," he said, "imagine how Tal Smith must have felt."

Replied Rosen: "I don't know why he fired Tal, either."

At that point, there seemed to be something in the air that created turmoil among Houston's sports teams, possibly spillage from the chemical plants in Pasadena.

But turmoil appeared to be our destiny. In this context, the new GM was Dick Wagner, the man who dismantled the Big Red Machine and fired Sparky Anderson in Cincinnati.

The Astros did not leave the plantation for Bill Wood, an intense, studious type whose life was baseball. Wood gave way to Bob Watson, a slugging first baseman and fan favorite in the 1970s.

Feeling he had not suffered enough here, Watson went to New York, guided the Yankees to a world championship and resigned. He is now with the commissioner's office.

Hunsicker filled the opening in Houston, . . .

And with the depth of having seen many Stros GM's and owners come and go, Herskowitz notes the bottom line of Hunsicker's resignation:

After nine years, Gerry Hunsicker leaves on a high note, and by his choice -- which is the best way.

Posted by Tom at 5:47 AM | Comments (2) |

Dan Cogdell profiled

After winning the only acquittal for any of the defendants in the Enron-related Nigerian Barge trial, Houston-based defense attorney Dan Cogdell is profiled in this Houston Chronicle article. Cogdell did a magnificent job in the trial and clearly was the one lawyer in the crowded courtroom who won over the jury. As noted in this earlier post, Cogdell is one of a group of local criminal defense attorneys that gives Houston as formidable a Criminal Defense Bar as any city in the United States.

Posted by Tom at 5:24 AM | Comments (0) |

November 4, 2004

The Nigerian Barge market loss hearing

After convicting four former Merrill Lynch executives and a former Enron executive of wire fraud and conspiracy charges yesterday, the jurors in the Enron-related trial known as the Nigerian Barge case heard from opposing expert witnesses today regarding the market effect that the Nigerian Barge transaction had on Enron.

Today's hearing was held to allow the jury to consider the evidence of market loss that is used in determining sentences under the federal sentencing guidelines. As noted earlier in these posts, the U.S. Supreme Court's recent decision in Blakely v. Washington has called the Constitutionality of the federal sentencing guidelines into question, particularly if the jury is not allowed to consider the issue of market loss.

Anthony Saunders, chairman of the finance department at New York University testified on behalf of the prosecution and estimated -- with a straight face -- that Enron's sham sale of three power-generating barges to Merrill Lynch led to damages suffered by Enron shareholders of about $43.8 million. Professor Saunders came up with this damage assessment despite the fact that Merrill Lynch booked only a $12 million profit on the deal, Enron lost no money on the transaction, and the alleged sham nature of the transaction was not even discovered until a year and a half after Enron's equity value had become worthless upon the company filing bankruptcy.

At any rate, Professor Saunders speculated that the 1 cent per share that the barge deal contributed to Enron's 1999 earnings translated to about 47 cents per share of the company's stock price of $53.50 at the time the company's financial result were announced in January 2000. Take that 47 cent figure times the number of outstanding Enron shares at the time and wallah -- you get a $43.8 million figure. Whether that number bears any reasonable resemblance to the value that the barge deal contributed to Enron's stock price is another issue entirely.

The prosecution's market effect reasoning here is so flawed that it borders on the preposterous. In reality, the fact that Enron did not account for the Nigerian Barge transaction properly made Enron's earnings look better than they really were. Thus, that accounting increased Enron's share value for the benefit of investors who were buying and selling the stock. Moreover, the prosecution has presented no evidence -- because there is none -- that he decline in Enron's share value during its demise into bankruptcy in 2001 had anything to do with revelations regarding the accounting on the barge transaction. This is because the alleged improper accounting for the barge deal was not even discovered until well over a year after Enron went into bankruptcy and its equity value had become essentially worthless.

At any rate, Dan Fischel, a law professor at the University of Chicago who testified for the defense, countered with a more realistic market loss evaluation and concluded that the loss was closer to $120,000. He also noted that Professor Saunders' methods were "inconsistent with the real world," and that Professor Saunders' methodology relied too heavily on academic models that are not generally used in evaluating a company's value in the business community. That is a charitable understatement, to say the least.

The market loss hearing will conclude on Friday, and the jury is expected to present its findings to U.S. District Judge Ewing Werlein shortly thereafter. If the jury buys Professor Saunders' absurd market loss calculation, the defendants could be facing the equivalent of life sentences under the applicable federal sentencing guidelines. If that occurs, then this prosecution will officially cross the line from being a "mere" injustice to becoming a modern day witch hunt.

Posted by Tom at 6:05 PM | Comments (0) |

Scandal in the House of Representatives

This Washington Post editorial examines the scandal that is the self-perpetuating nature of the House of Representatives:

Out of 435 House races, incumbents lost only seven -- an even more impressive survival rate than that of two years ago, when eight incumbents were defeated. In nearly all House races, moreover, there was no serious doubt about the outcome: 95 percent of races were decided by a margin of more than 10 percent, according to the Center for Voting and Democracy, and an astonishing 83 percent were decided in 20-point-plus landslides.

How has this happened? Just take a look at the way in which we allow our Congressional districts to be established:

The main cause of the incumbents' success is the country's scandalous system for designing voter districts. Instead of entrusting the design to nonpartisan technocrats, the U.S. system entrusts it to state legislatures, allowing the majority party to promote partisan ends. The partisans feed demographic and polling data into their computers and come up with district boundaries that give their sides as many safe seats as possible. Because this process involves crowding opposition voters into a handful of opposition districts, it creates safe seats for both parties and an incentive for incumbents on both sides not to rock the boat.

And who has been at the forefront of this wrangling of Congressional districts? Of course, Tom DeLay and his friends:

The darkest wizardry occurred in Texas. There, the state Republican Party redrew the districts of five white Democrats, hoping to unseat all of them so that the Democrats would become identified as the party of minorities. The plan succeeded in four cases (outside Texas, a grand total of three incumbents were defeated anywhere). Rep. Charles W. Stenholm, a long-serving conservative Democrat who had been forced to run in a Republican-leaning district against a Republican incumbent, went down in defeat, as did three others who had pulled the Democratic caucus toward the center.

The Texas redistricting faces a court challenge. But whatever the legal outcome, it's clear that these schemes are an inversion of democracy: Politicians get to choose their voters, rather than the other way around. Incumbent members of Congress face little threat of being unseated and so have little reason to be responsive to voters; their chief vulnerability lies in the threat of a primary, which encourages them to play to party activists.

The upshot of all of this is increased polarization in the political process:

[I]ndependent moderates are a shrinking force in the House of Representatives. In the 1970s, on the partisan roll calls, the average member backed the party position 65 percent of the time. In the 1980s, the average degree of partisan loyalty rose to 73 percent; in the 1990s, 81 percent; and in 2001-02 the partisanship index hit a remarkable 87 percent.

Quare: Is it time for judicial intervention over the legislative gerrymandering of Congressional districts?

Posted by Tom at 6:07 AM | Comments (4) |

Calvin Murphy goes to trial

Former Houston Rockets star and Basketball Hall of Famer Calvin Murphy trial on sexual assault charges stemming from claims he molested five of his daughters when they were children cranks up today in Judge Mike McSpadden's criminal state district court in Houston. Here are the earlier posts on the case.

The trial is expected to last about two weeks. Murphy, 55, is charged with three counts of indecency with a child and three counts of aggravated sexual assault. Each charge is punishable by up to life in prison, so Murphy's freedom for the remainder of his life is literally at stake.

This trial is going to be ugly and very sad.

Posted by Tom at 5:23 AM | Comments (0) |

November 3, 2004

Nigerian Barge Jury convicts five out of six defendants

The federal jury in the Enron-related criminal case known as the Nigerian Barge case acquitted a former Enron accountant today and found her five co-defendants guilty of wire fraud and conspiracy charges.

The jury cleared former Enron accountant Sheila Kahanek of all charges, but returned guilty verdicts on all charges against former Enron Vice President Dan Boyle and four former Merrill Lynch bankers, William Fuhs, Robert Furst, James A. Brown and Daniel Bayly. Messrs. Brown and Boyle were also convicted of lying to investigators.

Ms. Kahanek's acquittal is not surprising. The prosecution's case against her was extremely weak and relied almost entirely on testimony regarding an alleged argument that Ms. Kahanek had with another Enron employee regarding the Nigerian Barge transaction. Moreover, Ms. Kahanek testified during the trial, something that three of her co-defendants chose not to do. Finally, Ms. Kahanek's attorney -- Houston-based criminal defense lawyer Dan Cogdell -- performed brilliantly during the trial and clearly connected with the jury better than any other criminal defense attorney involved in the trial.

The conviction of Mr. Fuhs is somewhat surprising. By all accounts, he did a good job of testifying during the trial and the prosecution's case against him was not much stronger than its case against Ms. Kahanek. However, Mr. Fuhs was undoubtedly prejudiced by the failure of the three higher-ranking Merrill executives -- Messrs. Bayly, Furst, and Brown -- to testify during the trial. Juries in white collar criminal cases want to hear what defendants have to say and the failure to address that jury desire is a huge risk.

Finally, the conviction of Mr. Boyle was not particularly surprising. His defense was a curious mix of appealing for jury sympathy (a questionable tactic given the public animus toward Enron) and relying on his seemingly poorly-prepared testimony during the trial. At one point during his testimony, Boyle said he knew the deal was wrong even as he continued working on it. If a white collar criminal defendant is going to testify during trial, then it helps to do so effectively. Mr. Boyle did not.

Now, the trial moves on to its second phase, in which the government will attempt to prove the effect on the market of the fraudulent transaction in which the defendants participated. Included in the indictment against the Nigerian Barge defendants is an allegation that the transaction caused the loss of more than $80 million, which is an allegation that can add years to a sentence under existing federal guidelines. This allegation was recently included in a superceding indictment of the Nigerian Barge defendants as a result of the U.S. Supreme Court's Blakely decision (prior posts here), which held that the state of Washington's sentencing laws were unconstitutional because they allowed only judges (and not juries) to consider factors that increased sentences. Some legal experts have speculated that the decision calls the Constitutionality of federal sentencing guidelines into question for the same reason.

The Enron Task Force has not yet explained how the Nigerian Barge deal -- which was a relatively small transaction involving about $12 million in allegedly illegal profit for Merrill Lynch -- could have possibly caused $80 million in market loss to investors in Enron. In fact, neither Enron nor Merrill Lynch lost a dime on the transaction, and the allegedly questionable accounting on the deal was not even discovered until well after Enron had filed bankruptcy and its equity value had already become worthless. Where does the prosecution come up with $80 million in market effect from that?

During his distinguished legal career as a defense attorney before becoming a federal judge, Nigerian Barge Judge Ewing Werlein often defended corporate clients against dubious damage claims in civil cases. It will be interesting to watch how he deals with the government's equally questionable market loss allegations in this trial. Stay tuned.

Posted by Tom at 3:10 PM | Comments (0) |

Houston's Great Wall of China

Gordon Marino, a philosophy professor at St. Olaf College, writes this Opinion Journal article on the Houston Rockets' center Yao Ming. It's an interesting look at Yao, in which Mr. Marino observes:

I asked Yao to compare his life in China with the one he leads in the U.S. He observed: "In China everything was taken care of for me, and every day was planned out. Here I am more on my own." Though he does not warm to the task of talking about his inner life, Yao acknowledges that his two years in the NBA "have made me more open about my emotions both on and off of the court." The language difficulties notwithstanding, Yao has gelled well with his American teammates; nevertheless, the basketball version of the Great Wall of China has a shy streak that cannot make it easy for him to be one of the most famous people on the planet. According to his revealing memoir, Yao has often found succor in the invisible world of cyberspace. And true to his book's word, Yao ended our conversation with a polite handshake and a fast break for the computer.

Under extraordinary pressures ever since he arrived in Houston to begin his NBA career, Yao has acted in an exemplary and classy manner. His parents have done a wonderful job in raising him and should be extremely proud of the way in which Yao has handled the adjustment to the American and NBA lifestyle.

Posted by Tom at 6:51 AM | Comments (0) |

Pokes get municipal funding approved for new stadium

The Dallas Cowboys won easily their biggest victory of the season Tuesday as Arlington voters approved a $325 million proposition to help build the team a new stadium.

The proposition authorizes tax increases to pay for half of a $650 million stadium for the Cowboys. The proposition will raise the city sales tax by a half-cent, its hotel occupancy tax by 2 percentage points and its car rental tax by 5 percentage points. A tax of up to 10 percent on tickets and up to $3 on stadium parking will also likely be levied, but proceeds from those taxes are earmarked for retiring a portion of the Cowboys' debt on the project.

Opponents of municipal funding for the stadium kept the race reasonably close despite being widely outspent by stadium proponents. The Cowboys funded a political action committee funded that spent $4.6 million on the campaign through the end of October. Opponents raised only about $120,000.

The site of the stadium, which is scheduled to open in 2009, will be in the area adjacent to the Six Flags of Texas Amusement Park and Texas Rangers' Ameriquest Field. A couple of weeks ago, the Cowboys and the Rangers announced that they were working on a joint master planned development, similar to Southlake Town Square, for the area near the football and baseball stadiums.

Stadium supporters estimated that the 75,000-seat retractable-roof stadium would provide the city an additional $5 million in rent and sales tax revenue from spending at the facility, plus other economic activity throughout the city. Stadium backers pointed to a city-commissioned study by Economics Research Associates projecting that the venue would pump $238 million into Arlington's economy each year.

Opponents of the stadium contend that the project would cost far more than it injects into city coffers and would hamstring efforts to attract other businesses. They also said that other economists have criticized the city-commissioned report for being unreasonably optimistic. Virtually all academic research -- summarized nicely by Craig Depken here -- has concluded that major sports facilities typically do little to boost local economies.

One of the civic motivations for the stadium project is Dallas' desire to attract a future Super Bowl game, which was not possible so long as Dallas area relied on Texas Stadium as its professional football venue. Although Dallas stadium and convention facilities are not as well coordinated as Houston's, the new stadium will undoubtedly attract a Super Bowl for Dallas, probably between 2010-12.

Posted by Tom at 5:37 AM | Comments (0) |

November 2, 2004

Dynegy agrees to buy energy plants

Houston-based Dynegy Inc. has entered into an agreement to purchase from Exelon Corp. all of the outstanding shares of ExRes SHC Inc. Through the acquisition, Dynegy will acquire a 1,042-megawatt, 7,211-Btu heat rate, combined-cycle independence power generation facility near Scriba, N.Y., four natural gas-fired merchant facilities in New York, and four hydroelectric generation facilities in Pennsylvania.

As a part of the deal, Dynegy will also acquire controlling interest in a 750-megawatt firm capacity sales agreement with Con Edison, a subsidiary of Consolidated Edison Inc. The sales agreement, which runs through 2014, provides annual cash receipts to Dynegy of about $100 million. The financial terms of the agreement include the payment by Dynegy of $135 million and the consolidation of $919 million in project debt, and Dynegy projects that the principal and interest payments related to the consolidated debt will be substantially funded through 2014 by the proceeds from the long-term capacity sales contract with Con Edison.

The deal is the first major purchase that Dynegy has made since it underwent a massive restructuring in 2002. That restructuring was prompted by the crisis in the energy trading industry that followed industry leader Enron's spiral into bankruptcy in late 2001.

Posted by Tom at 2:59 PM | Comments (0) |

November 1, 2004

Gerry Hunsicker resigns as the Stros' GM

Gerry Hunsicker -- the most successful general manager in the history of the Houston Astros -- resigned Monday after nine years as the club's general manager.

Hunsicker's tenure as Stros GM coincided with the most successful decade in Stros' history. During the past nine years, the Stros won four National League Central titles and finished second three times, including this past season in which the Stros won their first post-season playoff series in club history. Over that span, the Stros had a won/loss record of 701-595 for a sixth-best winning percentage of .541 in Major League Baseball. Only three MLB GMs have served in their current job for more seasons than Hunsicker.

Hunsicker will be replaced by his long-time assistant, Tim Purpura.

The Stros hired Hunsicker as GM in 1995 from the New York Mets organization, where he worked for seven seasons, first as director of minor-league operations and then as assistant GM. Hunsicker and Purpura are credited in baseball circles with revamping the Stros' farm system over the past decade to produce such star players as Lance Berkman, Richard Hidalgo, Bobby Abreu, Roy Oswalt, Brad Lidge, and Wade Miller. In addition to building the Stros' farm system, Hunsicker also traded for or signed such talents as Randy Johnson, Jeff Kent, Octavio Dotel, Moises Alou, Carl Everett, Jose Lima, Carlos Beltran and Roger Clemens.

Consequently, by any reasonable measure, Hunsicker's tenure with the Stros has been a successful one. However, the margin for error is razor thin with a mid-market club such as the Stros, and Hunsicker's two major failures contributed to the Stros' inability to break into the elite level of MLB clubs.

Hunsicker's first mistake was the decision to sign Jeff Bagwell and Hidalgo to high dollar, long-term contracts after the 2000 season. That error in judgment reverberates through the Stros organization to this day. Although those signings were popular from a public relations standpoint, Bagwell had already begun his decline in production and Hidalgo had shown only streaks of high production at the time of those contracts.

Now, almost five years later, the Stros are obligated to pay Bags a total of $39 million over the next three seasons, which is about $25 million greater than his market value. Similarly, the club remains responsible for a multi-million portion of Hidalgo's contract, all at a time when the Stros are trying to sign free agents Beltran and Clemens, and arbitration eligible stars Berkman and Oswalt. Moreover, because the overpaid Bags remains tethered to first base, the Stros have been unable to move the more productive Berkman to his natural position of first base and open up an outfield spot for MLB-ready Jason Lane. It was Hunsicker's job to forsee the problems that the Bags and Hidalgo contracts would have on the Stros and point owner Drayton McLane in another direction. He did not and that failure has -- and will continue for the next several years -- to affect the Stros negatively.

Hunsicker's other big mistake was in failing to secure a quality catcher for the club. Actually, the Stros had developed a potential star catcher in their minor league system -- Mitch Melusky -- but a combination of emotional and physical problems undermined his Major League career after only one promising season. When Melusky flamed out, Hunsicker seemed to give up on the position as he overpaid the consistently unproductive Brad Ausmus to an absurdly overmarket contract in 2001 while waiting for the farm system to produce another MLB-quality catcher. Alas, the system did not produce such a player, leaving the Stros with Ausmus and Raul Chavez as their catchers this season. That duo was the weakest catching unit of any team in Major League Baseball this past season.

Despite these failures, Hunsicker has been unquestionably the most successful GM in the 43 year history of the Stros franchise. Which begs the question: Why did he decide to quit?

Based completely on speculation, I think the reason is that McLane is quietly trying to sell the club. As a result, McLane does not want to be forced to eat a large portion of an extended Hunsicker contract if he finds a someone in the next year or two who is willing to buy the club, but who is not interested in retaining Hunsicker as GM. With McLane unwilling to provide him with long term security, Hunsicker elected to take a year off, review his alternatives, and then, on the first day after the remaining year on his Stros contract expires, accept the best GM job available at that time.

One thing is for sure -- Hunsicker will not remain unemployed very long after the remaining year on his Stros contract expires. He was a big part of a very good past decade for the Houston Astros, and this talented man will land on his feet in another GM position in Major League Baseball.

Best of luck, Gerry Hunsicker.

Posted by Tom at 7:00 PM | Comments (0) |

The future of American health care finance

This NY Sunday Times article profiles Kaiser Permanente, the huge health maintenance organization. The article suggests that those who are reviewing ways to revamp the American health care finance system should follow Kaiser's lead in attempting to increase the quality of care and to spend health dollars more wisely by using technology and incentives tailored to those goals. The entire article is well worth reading, but I was particularly drawn to the following summary of the American system of health care finance, which is spot on:

Health care systems in most industrialized countries are in crises of one form or another. But the American system is characterized by both feast and famine: it leads the world in delivering high-tech medical miracles but leaves 45 million people uninsured. The United States spends more on health care than any other country - $6,167 a person a year - yet it is a laggard among wealthy nations under basic health measures like life expectancy. In a nutshell, America's health care system, according to many experts, is a nonsystem. "It's like the worst market system you could devise, just a mess," said Neelam Sekhri, a health policy specialist at the World Health Organization in Geneva.

Read the entire article.

Posted by Tom at 7:25 AM | Comments (0) |

Ray Fair's updated prediction on the Presidential race

This earlier post from several months ago passed along an article about Yale Economics Professor Ray Fair's interesting model for predicting the results of Presidential elections. Here is Professor Fair's updated prediction, which forecasts President Bush winning 57.50% of the two-party vote.

On the other hand, Professor Bainbridge points out a less complicated indicator that favors Senator Kerry.

Posted by Tom at 7:01 AM | Comments (0) |

The Santa Maria Cougars

It's not everyday that a Texas high school football team makes the Washington Post. Read about the inspiring tale of the Santa Maria Cougars here.

Posted by Tom at 6:29 AM | Comments (1) |

Site upgrade

I'm in the process of upgrading the site to Movable Type 3.121, so please excuse a few blips as I finalize matters. Thanks.

Posted by Tom at 6:09 AM | Comments (0) |

October 31, 2004

2004 Weekly local football review

Texans 20 Jaguars 6. In their most impressive overall performance to date, the Texans beat the Jags decisively at Reliant Stadium in Houston. The Texans actually should have had another TD except that Jabbar Gaffney somehow fumbled the ball out of the endzone in the second quarter without being hit a moment before reaching the goal line. The Texans' often shaky defense was outstanding in this game, holding the Jags to a paltry 39 yards rushing and about 3.5 yards per pass, and tacking on a TD on DeMarcus Faggins' fourth quarter interception return to ice the game. Meanwhile, David Carr had probably his best game as a pro, hitting on 26-34 throws for 276 yards, a TD, and most importantly, no turnovers (well, actually he did have a fumble, but the refs blew the call). The Texans are now an improbable 4-3, but face tough road games at Denver and then Indianapolis over the next two weekends.

Cowboys 31 Lions 21. Meanwhile, the our north, the Cowboys avoided sending the Big Tuna toward another coronary infarction with a win over the visiting Lions at Texas Stadium. The Cowboys finally found a run defense in this one, something that has been strangely absent this season for their usually formidable run defense. The 3-4 Pokes have a winnable game next Sunday at Cincinnati before returning home the following week for a showdown with the NFL East-leading Eagles.

Texas Longhorns 31 Colorado 7. The Horns' increasingly formidable defense keyed this win, as Colorado could muster only 3 yards rushing and 221 yards total offense. The Horns still can't pass a lick, which will be a problem against teams that have the defensive strength to stuff their rushing attack. However, a big difference in Texas this season is that their defense is good enought to win low scoring games. My friends in college coaching told me before the season that Dick Tomey would make a difference in Texas' defensive unit, and I am now a believer.

Baylor 35 Texas Aggies 34. The Aggies almost laid an egg at home last week against Colorado, but they went ahead and laid a whopper in Waco against the Bears. Frankly, I was not surprised that Baylor gave A&M a game, as I had been on the sidelines of the Baylor-Iowa State game the weekend before and concluded then that the Bears -- although undermanned at several line positions -- were very well motivated and well-coached. The Ags put the ball on the ground a few times and, before you now it, the Bears determined that they could win the game. The decision of Baylor coach Guy Morris to go for two points after pulling to within 34-33 in the first overtime is one of those decisions that anyone who enjoys college football just has to admire. The 6-2 Aggies must now try to regroup before Oklahoma comes to College Station next Saturday night. Given the performance of the Aggie defense over the past two games, here is a betting recommendation on that game -- take "the over."

Houston 24 Tulane 3. The Coogs, who really have played a brutal schedule this season, finally caught a break and pounded a poor Tulane team at Roberston Stadium in Houston. This one was over by halftime as the Coogs coasted in the second half against either a dominating defensive effort or an imcompetent Tulane offensive performance, depending upon your viewpoint. The 2-6 Coogs have another winnable game next Saturday at home against 2-5 East Carolina.

Tulsa 39 Rice 22. The Owls' once promising season has now officially fallen apart as they lost decisively to a bad Tulsa team in Tulsa. The 3-5 Owls now face Fresno State and the Mike Price-revived UTEP in two of their final three games. Those games could be very ugly for the Owls.

And remember to review Kevin Whited's excellent weekly review of Big 12 games.

Posted by Tom at 7:46 PM | Comments (2) |

More business crime? Or just more prosecutions?

Readers of this blog know that I am critical of several recent "popular" prosecutions of business executives, and this NY Times article reports on the opinions of several experts who agree with my view:

"It is exaggerated to say that there is much more corporate malfeasance than in the past," said Luigi Zingales, a professor of economics at the University of Chicago. "Malfeasance is just more likely to be revealed in recessions."

"Prosecutors are going after white-collar crime with an eagerness we hadn't seen before," said James D. Cox, a professor of law at Duke University. "The state attorneys general realized that the governor-in-waiting, otherwise known as the attorney general, can get a lot of headlines."

"In a bubble, people want to be lied to," said John C. Coffee Jr., a professor at Columbia Law School. "It was more than a conflict of interest - securities analysts boosted stocks because people wanted them to."

The article concludes by noting that the investing public's attitudes often changes with which way the investing winds are blowing, and that such changes have an effect on the resulting prosecutions of business executives:

[W]hen the market went south, . . . faith in self-regulation took a beating, and new regulations like the Sarbanes-Oxley rules for corporate governance were passed. Suddenly less prosperous, Americans became much more willing to catch and punish abuses, and admiration for high fliers turned to suspicion.

"The social dynamics are sometimes more important than the law," Mr. Coffee said.

And we should all be concerned about that. For when we allow the law to be twisted to appeal to the "social dynamics" of a particular situtation, then the law becomes just another convenient political tool and the rule of law erodes.

And for those who would respond -- "So what? What's the problem with eroding the rule of law a bit to nail some greedy business executives?" -- I would remind them of Thomas More's advice to his son-in-law-to-be Will Roper from A Man for All Seasons:

"Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down -- and you're just the man to do it, Roper! -- do you really think you could stand upright in the winds that would blow then?"

"Yes, I'd give the Devil the benefit of law, for my own safety's sake!"

Posted by Tom at 7:21 AM | Comments (0) |

October 30, 2004

Was Abe gay?

This LA Weekly article reviews the late C.A. Tripp's forthcoming book -- The Intimate World of Abraham Lincoln (Free Press 2005) -- in which the author concludes that there is a reasonable probability that Abraham Lincoln was gay. There actually has been speculation about Tripp's conclusion in historical circles for quite some time. Indeed, I recall Gore Vidal stating in television interviews years ago that, in researching his 1984 historical novel Lincoln, he began to suspect that Lincoln was gay. Give the article a look, and then wait for the return volleys from the more traditional Lincoln biographers.

Posted by Tom at 10:38 AM | Comments (1) |

Enron's mismanagement of trust

R. Preston McAfee is the J. Stanley Johnson Professor at the California Institute of Technology and formerly held the Murray S. Johnson Chair at the University of Texas at Austin. In this concise and insightful article for The Economists? Voice entitled The Real Lesson of Enron?s Implosion: Market Makers Are In the Trust Business, Professor McAfee explains in plain terms that, in the end, Enron's demise was caused by a loss of trust:

How did Enron, a firm worth $60 billion, collapse over the discovery of a billion or so in hidden debt and fraudulent accounting? It didn?t. Or, at least, not directly. Market makers like Enron and Ebay are in the ?trust? business, just as banks and insurance companies are. Once trust was lost, the rest of Enron?s value quickly disappeared. The maintenance of customer trust is an important, and frequently mismanaged, aspect of business strategy.

Professor McAfee begins by pointing out that the disclosures of financial problems at Enron were insufficient along to bring Enron down:

At the time of its collapse, Enron?s market capitalization exceeded $60 billion, after growing at over 50% per year for a decade. The company collapsed after the revelation of $1.2 billion in hidden debt. This represented the visible portion of something over $8 billion in total hidden debts, a fraction of the value of the enterprise.

Moreover, the Enron business model provided real value to its customers, permitting them to contract over longer time horizons and to improve risk
management. So why did a company that was making a profit and providing real value to customers vanish so abruptly? Why aren?t the profitable lines of
business operated by Enron thriving today?

After pointing out that Enron was hardly along among major corporations in engaging in questionable accounting practices, Professor McAfee addresses why Enron's irregularities caused a meltdown when others did not:

So why did Enron collapse, when other firms with questionable accounting survive? The answer is that Enron?s business-model was hostage to the trust that customers placed in Enron?s financial integrity. Once confidence in Enron waned, as I will explain, participants in Enron?s innovative markets were unwilling to engage in the purchasing or selling of a long-term contract that might not be fulfilled. Bid-ask spreads diverged, and Enron?s markets unraveled.

Read the entire piece. Inasmuch as the mainstream media struggles to keep something as seemingly broad as Enron's demise in perspective, analysis such as this is quite helpful to a proper understanding of Enron's failure.

Posted by Tom at 10:00 AM | Comments (0) |

Another financial institution settles in Enron class action

Confirming a deal noted here earlier, Lehman Brothers announced on Friday that it has agreed to pay $222.5 million to settle the the Enron class-action litigation against it in which the plaintiffs claimed that Lehman and other financial institutions helped Enron mislead investors.

The Lehman settlement is the third and the largest since the case was filed in late 2001 just before Enron went into chapter 11 during the first week of December 2001 amid public disclosure of hidden debt, inflated profits and accounting improprieties. As noted in this earlier post, Bank of America agreed to pay $69 million to settle similar allegations of liability for loss of value to securities it underwrote for Enron. The Enron class action plaintiffs also reached a $40 million settlement in July 2002 with Andersen Worldwide, the former parent company of the accounting firm Arthur Andersen.

Despite these settlements, the Enron class action plaintiffs continue to make overall settlement demands in the $30-40 billion range, so it appears that -- based on the total sum of the three settlements to date -- the plaintiffs' lawyers have some work left to do with the remaining financial institution defendants in the case. Bank of America and Lehman were underwriters in just a handful of Enron-related deals, so attorneys involved in the case believe their roles (and thus their settlement payments) are small in comparison to firms like Citigroup Inc. and J.P. Morgan Chase & Co. who did more Enron-related deals. Citigroup and J.P. Morgan are among the firms that have reserved billions of dollars to cover Enron-related exposure.

Posted by Tom at 9:27 AM | Comments (0) |

October 29, 2004

Chess players -- check this out

Thinking Machine 4. Play a computer that shows you the various moves that it is considering. Very, very cool.

Posted by Tom at 11:12 AM | Comments (0) |

You gotta love the European Tour

Not only do they kick the American team's rear in the Ryder Cup, the European Tour is much more interesting than the usually staid American Tour.

First, this article reports on Seve Ballesteros going nuclear on a European Tour official, apparently over some rules controversy that occurred years ago. Are you taking your medication, Seve?

And this piece reports on the efforts of the first transsexual to attempt to obtain a card on the women's European Tour. Does this portend a call for hormone analysis on competitors on the women's tours?

Posted by Tom at 10:34 AM | Comments (0) |

Stros' first off-season moves

In two moves that surprised no one familiar with the Stros, the club announced that it was exercising its option on the contract of outfielder Craig Biggio and declining its option on second basemen Jeff Kent. As a result, the Stros will pay Bidg $3 million next season and will pay Kent $700,000 rather than pick up the option to pay him $9 million for next season.

Bidg enjoyed his second straight solid season after several seasons of decline. After -11 RCAA/.734 OPS in 2002 and 1 RCAA/.763 OPS season in 2003, Biggio hit .469 SLG, .337 OBA, .806 OPS, 8 RCAA in 156 games in 2004 (RCAA, or "runs created against average" is explained here, courtesy of Lee Sinins). He has a .807 career OPS, compared to his league average of .756, and 346 RCAA in 2,409 games. Bidg is the first true Stro Hall of Fame candidate.

Kent is a player in decline, although he is still one of the better hitting second basemen in MLB. After 46 RCAA/.933 OPS and 13 RCAA/.860 OPS seasons, Kent hit .531 SLG, .348 OBA, .880 OPS, 12 RCAA in 145 games. He has a .858 career OPS, compared to his league average of .769, and 237 RCAA in 1,777 games. Kent also has a decent shot at the Hall of Fame.

Both of these moves were the right ones. The Stros are probably overpaying Bidg a bit, but he will likely be at least an average National League hitter next season and he brings valuable leadership to the ballclub. Bidg's restructuring of his batting swing this season -- at the ripe age of 38 -- is one of the more remarkable athletic achievements that I have seen this year. That type of dedication and work ethic is worth paying a reasonable premium to retain.

However, Bidg in the outfield is causing some problems. Although he has gamely done whatever the Stros have asked him to do in the outfield, he remains a below average fielder with a far below average arm. Moreover, Bidg's continued role as a starter is blocking the development of Jason Lane, who is ready for a starting role in the Stros' outfield. If the Stros are able to retain Beltran's services (probably a longshot, but we can dream, can't we?), then my sense is that the best role for Bidg next season would be as a fourth outfielder/backup second baseman utilityman.

On the other hand, not picking up the option on Kent's contract was clearly the right move. Kent is simply no longer a $9 million a year player and the Stros can use the money saved on Kent's contract to go after Beltran. Moreover, the Stros' best minor league player this season -- Chris Burke -- is ready to take over at second base next season. Inasmuch as Kent's lack of range at second may make a shift to third base a smart move in the autumn of his MLB career, the Stros should entertain negotiating a new contract with Kent in the same range as Bidg's so long as he would agree to such a move. However, the Stros should have no interest in JK if he insists on remaining a second baseman.

Finally, my sense is that the Stros enter this off-season in decent shape. Although Berkman and Oswalt are both arbitration eligible and are due for big contract increases, and signing Beltran and Clemens will command big bucks, the Stros were able to ditch the big Hidalgo and Kent contracts this past season. Thus, the Stros have only the Bagwell contract as the last remnant of the big early decade contracts that are much higher than the existing market prices of player contracts.

Unfortunately, Bags' contract is really out of whack -- $39 million over the next three seasons: $15 million in 2005, $17 million in 2006, and a $7 million buyout of an $18 million 2007 contract. After his fifth straight season of declining offensive numbers, Bags is, at best, a $4-5 million a season player. Consequently, the Stros are overpaying Bags by probably about $25 million (or about $8.3 million per year) over the next three seasons.

So, what to do? Here's my strategy. Either persuade Bags to restructure his deal to allow the Stros to pay it out over a longer term or trade Bags to an American League team and pay that club up to $20 million to take on Bags' contract. Increase the team payroll to $100 million (certainly justified by the record attendance and popularity of the club) and dedicate $50 million of that payroll to signing Beltran, Berkman, Oswalt and Clemens. That leaves roughly $50 million for the other 21 roster players, who provide solid alternatives at each position with the exception of catcher.

If the Stros could pull the foregoing off, then my sense is that we could all feel pretty darn comfortable going into the 2005 season. At least so long as the Stros do not re-sign Ausmus as the starting catcher! ;^)

Posted by Tom at 10:13 AM | Comments (3) |

October 28, 2004

Nigerian Barge case goes to the jury

Final arguments ended today in the Enron-related criminal trial of four former Merrill Lynch executives and two former mid-level Enron executives in what has become known as the Nigerian Barge trial. Earlier posts on the trial may be reviewed here, here, here, and here.

As noted in the earlier posts, this has been a mess of a trial, which likely would have never been pursued at all had not the pariah known as Enron been involved. Remarkably, all of the main prosecution witnesses had copped pleas bargains with the government, were not primary players in the transaction that was at the heart of the trial, and could not personally implicate any of the defendants in the alleged wrongdoing. In a normal case, this ledger would be a prescription for acquittal of all the defendants.

However, the extraordinary public bias against anything having to do with Enron -- a bias that the Enron Task Force repeatedly appeals to in its public statements -- makes this a much tougher case to call. Add to that mix that three (former Merrill execs Bayly, Furst and Brown) out of the six defendants chose not to testify and there is a decent probability that the prosecution will obtain at least a few convictions out of the trial.

My bet is that Sheila Kahanek, the mid-level Enron accountant who testified, and William Fuhs, the lowest-level Merrill executive of the defendants and the only one to testify, will be acquitted. Daniel Boyle, the other former Enron executive on trial, has a decent shot at acquittal, but frankly did not do as good a job as either Kahanek or Fuhs on the witness stand. The other three Merrill execs -- Messrs. Furst, Bayly, and Brown -- did not testify and I believe have a higher risk of facing convictions. As Martha Stewart learned, juries in white collar criminal cases want to hear from the defendant.

Posted by Tom at 5:03 PM | Comments (0) |

Where is your polling place?

Tom Mighell points us toward My Polling Place, where you can input your address and zip code, and the site provides you the address of the polling place where you are to vote and a map to the the polling place. Very handy. Check it out.

Posted by Tom at 9:25 AM | Comments (0) |

Arnold Kling on the Four Myths of Social Security

In this Tech Central Station essay, Arnold Kling of EconLog does a good job of explaining four myths about Social Security: The Pension Myth, the Transition Cost Myth, the Baby Boomer Myth, and the Medicare Myth.

Posted by Tom at 9:00 AM | Comments (0) |

Reflecting on personal investing

Jonathan Clements has written The Wall Street Journal's ($) Getting Going personal finance column since October 1994. In this week's column, he reflects on ten years of providing personal finance advice, and his views are quite interesting and somewhat surprising for a columnist of a newspaper that advocates investment:

The fact is, over the decade I have written this column, my optimism has taken a beating. Yes, I still believe it is possible for ordinary investors to make decent money on Wall Street. But it has become increasingly clear to me that the odds are stacked against us.

First, Mr. Clements notes that gains in stock prices are almost certainly going to slow over the next several decades:

[T]he collapse in stock prices has made me look harder at historic market returns -- and I don't like what I see. According to Chicago's Ibbotson Associates, the Standard & Poor's 500-stock index has clocked an impressive 10.4% a year since 1925.

A significant part of that gain, however, came from both rich dividend yields and rising price/earnings multiples. Today, with dividend yields so low and P/E ratios so high, long-run returns will almost certainly be lower -- even assuming robust economic growth.

The nosebleed valuations are especially worrisome given the aging of the U.S., Europe and Japan. In 30 years, 20% of the U.S. population will be age 65 or older, up from 12% today. With fewer workers per retiree and massive government spending needed for Social Security and Medicare, we are going to face some grim financial choices.

Thanks to their younger population, developing nations should post faster economic growth. That is why I am a big fan of emerging-market stock funds. . . These funds, however, aren't a sure thing, in part because the countries involved don't offer the political stability and commitment to property rights that we enjoy in the U.S.

Indeed, when the costs attributable to investing are assessed, the potential gains look even slimmer:

If the markets' raw results are a tad slim in the decades ahead, the gains may all but disappear after figuring in investment costs, taxes and inflation.

Suppose you own a balanced portfolio of stocks and bonds that scores 6% a year. Knock off two percentage points for investment costs, and you will be down to 4%. Lose 25% to taxes, and that 4% will become 3%. Wouldn't mind earning 3%? Problem is, that 3% could easily be devoured by inflation, leaving you with no real return.

Faced with such potentially meager results, the solutions are obvious enough, and I find myself advocating them ever more stridently. Want to make your investment portfolio grow? You need to save like crazy, make the most of tax-sheltered retirement accounts, trade sparingly and favor low-expense funds, especially market-tracking index funds.

After ten years of reviewing the travails of the individual investor, Mr. Clements is no fan of the Bush Administration's proposal to privatize Social Security:

Unfortunately, during the past decade, my confidence in the investment acumen of ordinary investors has been shaken. I have come across too many serial blunderers, folks who jumped from technology stocks in the late 1990s, to bonds in the bear market, to real-estate investment trusts in 2004, always buying after the big money has already been made.

These investors have neither the education nor the emotional fortitude to invest sensibly. That is one of the reasons I believe replacing traditional company pension plans with 401(k) plans has been a mistake. Similarly, I fear that the privatization of Social Security will be a disaster unless it is accompanied by a slew of safeguards.

And perhaps most surprisingly, Mr. Clements levels his harshest criticism for the industry that makes its living off of advising people on how to invest:

Of course, wayward investors could be straightened out with sound investment advice. But that isn't exactly a safe bet.

Over the years, I have met some fine brokers and financial planners. I have also, however, heard too many horror stories. As e-mail has spread, journalists have become more accessible to readers -- and that means I get a steady stream of e-mails from aggrieved investors who were taken to the cleaners by unscrupulous advisers.

To make matters worse, Wall Street appears to have scant interest in fixing this mess. In theory, we should be entering a golden age of investment advice, with brokers and planners helping legions of aging baby boomers to manage their burgeoning nest eggs.

Yet rather than helping investors, Wall Street seems more intent on profiting from them. Brokerage firms could refuse to sell bad investment products and ruthlessly weed out rotten brokers. Instead, they appear content to let their brokers loose on the unsuspecting public. What about the legal problems that inevitably follow? That, it seems, is viewed as simply the price of doing business.

Read the entire column.

Posted by Tom at 8:01 AM | Comments (0) |

October 26, 2004

And if you want to know what I really think . . .

Writing in this National Journal op-ed, Stuart Taylor is not particularly impressed with the quality of the two major parties' Presidential candidates this year:

One candidate is an intellectually shallow, closed-minded, strangely smirking, free-spending, hard-right culture warrior who combines smug ideological certitude with stunning indifference to facts and evidence, who is obsessed with shifting the tax burden from the wealthiest Americans to future generations, who claims virtually unlimited power to suspend constitutional liberties, who has alienated millions of America's onetime admirers abroad, and who has never made a mistake he would not repeat.

The other is a both-sides-of-tough-issues, unlikable, aloof, cheap-shotting, free-spending political careerist whose domestic policies might make the Bush deficits even worse, whose Iraq policy shifts with every political wind, and who has long been close to his party's quasi-pacifist, lawsuit-loving Left.

Ouch!

Posted by Tom at 3:50 PM | Comments (1) |

The Houston Open - consequences of bad decisions

This Chronicle article about the downturn in the Houston Golf Association's charitable donations after a less than stellar Shell Houston Open this past spring brings to mind how even well-intentioned people can bungle a good thing through a series of bad decisions.

The HGA has operated the Houston Open PGA Tour golf tournament for about 60 years. Although Houston has a rich golf tradition, the Houston Open has not always been a resounding success. Indeed, I vividly recall a time in the 1970's when, after a particularly unfulfilling Houston Open, the Houston Post's cranky golf columnist, the late Jack Gallagher, penned a controversial column in which the basic thrust was "if this is the best you can do, then why don't we just forget about having the Houston Open." The HGA's members were not pleased with Gallagher's column, but what he had to say had some merit.

To the HGA's credit, however, it turned things around. In 1975 or so, the HGA entered into a long term agreement with The Woodlands Corporation, which at the time was in the early stages of developing a master-planned suburban community on the far northside of Houston's metropolitan area. For the next 26 years, the Houston Open and The Woodlands enjoyed a mutually beneficial relationship as the golf tournament rode The Woodlands' extraordinary success and growth to become one of the top tournaments on the PGA Tour in terms of the amount of money raised for charity each year. That status was cemented when Royal Dutch/Shell Corporation stepped up in the 1990's to become a stable title sponsor for the tournament.

However, in the late 90's, the partnership between the HGA and The Woodlands Corporation began to have problems. The HGA believed that the tournament needed to move from the Tournament Players Course in The Woodlands, which had parking problems and was not a particularly popular venue with many of the top players. After The Woodlands Corporation developed the outstanding Carlton Woods Golf Club on the westside of The Woodlands, the HGA concluded that The Woodlands Corporation had reneged on its commitment to build a new Tom Fazio-designed TPC Course on the westside of The Woodlands to host the Houston Open. The Woodlands Corporation -- now owned by different owners than the ones who had struck the original deal with the HGA -- concluded that the HGA did not sufficiently appreciate how much the growing attractiveness of The Woodlands had contributed to the success of the tournament and that The Woodlands really did not need the golf tournament to continue its phenomenal success.

Consequently, in 2002, the HGA decided to leave The Woodlands and relocate to Redstone Golf Club on the northeast side of Houston. Although the local media typically mimics the HGA's endlessly positive pronouncements regarding the move to Redstone, the decision is beginning to look like a monumental blunder.

First, despite HGA protestations to the contrary, the Redstone Golf Course is not a PGA Tour-quality golf course. Redstone is the renovated result of the old El Dorado Country Club course and, although the redesign improved that old course significantly, it is still not close to as good a tournament venue as the TPC in The Woodlands.

Second, Redstone Golf Club is out in the middle of nowhere with no nearby quality hotels and other accomodations to attract the Tour players or visitors to the golf tournament. Consequently, the Tour players must stay in either second rate Intercontinental Airport-area hotels or far away quality hotels in either the downtown or Galleria-areas of Houston.

In the meantime, The Woodlands has developed the Houston area's best destination resort, along with a beautiful downtown riverwalk area dotted with quality restaurants, entertainment venues, shops, and hotels. As one anonymous Tour player commented to me after viewing the latest commercial developments in The Woodlands: "They [meaning the HGA] left this for that [meaning Redstone]?"

The short terms results tend to support that view. Not only are charitable donations generated by the tournament down for the first time in 12 years, this year's Houston Open attracted only 3 of the top 20 money-winners on the PGA Tour. Prospects for next year's tournament do not look much better.

Meanwhile, the HGA is valiantly attempting to make the best of the situation. The HGA-Redstone partnership hired noted golf course designer Rees Jones to design a new tournament course at Redstone that will become the tournament course in 2006. Also, the HGA is lobbying the PGA Tour hard for a more attractive date for the tournament when the Tour's existing television contract expires in 2006. The HGA has long believed that the current date just two weeks after The Masters Tournament has been a deterrent to attracting the best players to participate in the Houston Open.

However, my sense is that the move to Redstone has blown the HGA's opportunity to turn the Houston Open into one of the premier non-major tournaments on the PGA Tour. Playing on a mediocre golf course in an isolated part of Houston with a less than stellar field, the Houston Open has little to attract either the best professional golfers or golf fans. The situation may improve if the new Rees Jones course turns out to be popular with the Tour players, but unless a more attractive date for the tournament is obtained and quality accommodations closer to the course are arranged for the players, any improvement in the overall situation will likely be temporary and marginal. In short, the Houston Open has probably seen its better days.

What is sad about all of this is that it did not have to occur. The HGA and The Woodlands had a great partnership going and, with reasonable compromises on both sides, the Houston Open could have continued to prosper in The Woodlands. Now, the HGA is back to square one, and it is going to be a long, tough road to make the Houston Open more than a blip on the radar screen of the PGA Tour.

Posted by Tom at 10:40 AM | Comments (1) |

October 25, 2004

Hard to get a word in edgewise

As noted in this earlier post, John O'Neill is a prominent Houston attorney and Swift Boat Veteran who is a co-author of Unfit for Command that is highly critical of John Kerry's Vietnam War service and subsequent anti-war activities. Mr. O'Neill had a hard time getting a word in edgewise in this hilarious television interview with MSNBC analyst and Kerry supporter, Lawrence O'Donnell.

I must say that it is impressive that Mr. O'Donnell's performance made moderator Pat Buchanan appear to be absolutely moderate! ;^) Hat tip to the TigerHawk for the link to this interview.

Posted by Tom at 8:34 AM | Comments (0) |

Checking in again on the Nigerian Barge trial

The first Enron-related criminal trial -- the mess known as the Nigerian Barge trial (previous trial posts here, here, and here) -- will conclude its evidentiary phase today and U.S. District Judge Ewing Werlein will complete the charge to the jury. Final arguments are scheduled to begin on Tuesday, and likely will extend into Wednesday. Stay tuned for updates.

Posted by Tom at 7:39 AM | Comments (0) |

More on Bush Administration's discretionary spending policies

Following up on the analysis noted in this previous post, Victor over at the Dead Parrot Society has posted the second part of his analysis on the Bush Administation's record on domestic, non-defense, non-homeland security, discretionary spending. Inasmuch as the Bush Administration has come under criticism (including here) for its apparent profligacy in this area, I highly recommend reviewing Victor's analysis, which concludes as follows:

Bush's record on discretionary spending is not nearly as clear cut as the conventional wisdom would suggest. Bush has dramatically increased discretionary spending in certain specific areas like education. But if we are to try to glean information from his first-term record in order to predict his second term, the evidence is mixed. He isn't as frugal as Reagan, but isn't necessarily profligate, either. Upon examining his record in this much detail, I truly cannot say with much certainty whether a second Bush term would be fiscally conservative or whether his view of "compassionate conservatism" necessarily means more spending.

(All of this analysis, of course, ignores the elephant in the room which is the Medicare Prescription Drug bill. But again, there, I'm not sure he'll do something like that again.)

Posted by Tom at 7:22 AM | Comments (0) |

Joseph Ellis on George Washington

Brandeis history professor David Hackett Fischer -- author of Washington's Crossing and (Oxford 2003) and Paul Revere's Ride (Oxford 1994) -- provides this favorable book review of Mount Holyoke College history professor Joseph J. Ellis' (author of Founding Brothers (Vintage 2002) and biographies on Thomas Jefferson and John Adams) new book, His Excellency: George Washington (Knopf 2004).

Professor Fischer notes that Professor Ellis' book is skeptical of the "conventional idea of Washington as a leader who won the trust of others by honesty, virtue, dignity, and character; a man not consumed by ambition or avarice, but driven by his ideals, and devoted to the principles of the Revolution:"

He dismisses it as a fiction and even a deliberate falsehood, "fabricated" in large part by Washington himself. In its place, he argues that the true Washington was a man of "tumultuous passions," "aggressive instincts," "bottomless ambition," "personal avarice," and "a truly monumental ego with a massive personal agenda."

Many men who knew Washington agreed on the passions but believed that he gained full control of them. Ellis argues to the contrary that Washington never mastered himself, and "his aggressive instincts would remain a dangerous liability" through his career. The thesis of this book is that Washington's life was a continuing struggle against dark inner forces, which led to an "obsession with control," which in turn caused him to favor control mechanisms for America, including a highly disciplined regular army, strong central government, and hierarchical society. . .

Some elements of Ellis's conflict model are solidly confirmed by other sources. Jefferson wrote of Washington, "his temper was naturally high toned, but reflection and resolution had obtained a firm and habitual ascendancy. If however, it broke its bounds, he was most tremendous in his wrath." Adams added, "He had great self-command. It cost him great exertion sometimes, and a constant constraint."

Read the entire review. Professor Ellis' latest book is yet another in a long line of fine books over the past decade that have focused on America's Revolutionary War-era leaders.

But wait a minute. Just how good are these books? In this review, Matthew Price reviews University of Georgia historian Peter Charles Hoffer" new book, Past Imperfect: Facts, Fictions, Fraud -- American History from Bancroft and Parkman to Ambrose, Bellesiles, Ellis, and Goodwin (PublicAffairs 2004) contends that the history profession has condoned sloppy scholarship and an "anything-goes" ethical climate:

Hoffer revisits the now-familiar cases of a quartet of historians brought low by scandal in 2002: former Emory University professor Michael Bellesiles, who was accused of falsifying data in "Arming America," his controversial 2000 study of 18th- and 19th-century gun culture; Stephen Ambrose and Doris Kearns Goodwin, who were both found to have used material from other scholars without full attribution; and Mount Holyoke's Joseph Ellis, who was rebuked for spinning tales of his nonexistent Vietnam combat record in classes and newspaper articles. According to Hoffer, these were not just isolated incidents but symptoms of a wider problem -- one that goes far beyond the headlines to the very way history is written and consumed in America.

. . . Hoffer is particularly harsh on Bellesiles, who resigned from his job at Emory and was stripped of the Bancroft Prize in the wake of the controversy over "Arming America."

To his defenders, the former Emory historian was the victim of a conservative plot, spearheaded by the National Rifle Association, to discredit Bellesiles' conclusion that, contrary to the image of the musket-wielding patriot, few early Americans owned functional guns. But in Hoffer's telling, Bellesiles engaged in deliberate "falsification" of his data. Furthermore, Hoffer asserts, Bellesiles published his book with the trade publisher Knopf (which eventually withdrew the book from circulation) rather than a scholarly press "in order to claim . . . immunity from close professional scrutiny." (While an investigative panel formed by the AHA found no outright falsification, they condemned Bellesilles' evasiveness about his source records, many of which could not be traced.)

As for Goodwin and Ambrose, who are also published by trade presses, Hoffer brushes aside their claims that the instances of missing footnotes or insufficient citations were just unintentional and isolated lapses in otherwise sound work. Whatever the intention, Hoffer writes, the end result is the same: "plagiarism," which under AHA standards, he notes, does not require actual intent to deceive. (He brings greater sympathy to the case of Joseph Ellis, whose scholarship itself was not questioned, suggesting that the same imaginative powers that led him to lie about his life story may have helped him write more subtle and nuanced books.)

Read the entire review.

Posted by Tom at 6:10 AM | Comments (2) |

October 24, 2004

2004 Weekly local football review

The Texans were off in Week 7 of the NFL season. They play the Jags at Reliant Stadium in Houston next Sunday.

Green Bay 41 Dallas 20. If there was any doubt that the Cowboys were in deep trouble to date, then this game removed all doubt. The Packers toyed with the Cowboys, who were incapable of stopping either the Pack's ground or aerial game. In the meantime, the Cowboys have no rushing attack and no real deep threat in the passing game. This 2-5 Cowboy team is a good bet to reach 10-12 losses this season. The improved Lions are up next for the Pokes at Texas Stadium next Sunday.

Texas 51 Texas Tech 21. The 6-1 Horns proved again that they can dominate a team that cannot stop the run. Unfortunately, Texas' problem is with the teams that can stop the run and force the Horns to rely on their questionable passing game. None of the Horns next four games are going to be picnics -- at Colorado, home against Okie State, at Kansas, and the annual Thanksgiving weekend grudge match against the Texas Aggies. Interestingly, it may be Texas' relatively unnoticed but much improved defense that pulls the Horns through these next four games.

Texas Aggies 29 Colorado 26 (OT). After back-to-back impressive road wins over the past two weeks, the Ags came home and almost laid an egg before winning their sixth straight. The Aggies came out flat in the first half of this game, but mounted a couple of impressive second half comebacks to tie the game in regulation. The Buffs sprayed the ball all around Kyle Field in generating almost 400 yards of passing offense, so the Aggies' secondary better shore up quickly if they want to stay on the same field with OU's high-powered offense in two weeks. The 6-1 Ags tune up for the OU showdown by taking on Baylor next week in Waco.

TCU 34 Houston 27. The Coogs are in a clear freefall as their record deteriorates to 1-6 in a game that was not as close as the score reflects. Houston is looking like a 1-10 or 2-9 team to me. What a comedown after Art Briles' magical first season as UH's coach.

Navy 14 Rice 13. The Owls made a nice fourth quarter comeback against a strong Navy squad only to undermine their chance for victory in overtime by blowing the PAT after the second TD. The 3-4 Owls are just a couple of breaks away from being 5-2 and in the thick of the race for a minor bowl appearance, but the Owls are now facing a brutal final month of the season beginning next Saturday at Tulsa. Rice will struggle to finish with a .500 record this season.

And, as usual, Kevin Whited has his excellent weekly review of Big 12 games.

Posted by Tom at 8:06 PM | Comments (0) |

October 23, 2004

Daniel Drezner is voting for Kerry

Daniel Drezner, the assistant professor of poli sci at the University of Chicago who runs the smart Daniel W. Drezner blog, has decided to vote for John Kerry for president, albeit unenthusiastically. His post in which he publishes his decision links to a series of posts over the past several weeks in which Professor Dresner evaluates the pros and cons of each candidate. The series of posts is a highly informative resource for evaluating the positions of the candidates, particularly in the foreign policy arena.

I believe that Professor Drezner places too much emphasis in making his decision on criticism of the Bush Administration's tactical decisions in Iraq. History instructs us that even successful battlefronts rarely are without significant tactical errors -- unfortunately, such is the essential nature of the messy business of war. However, Professor Drezner's point about the lack of reasoned policy analysis and lack of intellectual flexibility in the Bush Administration is a valid criticism and reflects my biggest reservation about the current administration.

Posted by Tom at 9:04 AM | Comments (0) |

Delta Airlines Chapter 11 filing imminent

Reports the Washington Post.

Posted by Tom at 8:39 AM | Comments (0) |

Posner on law review articles

Seventh Circuit Judge Richard Posner takes dead aim at law review articles in this Legal Affairs article, and the hilarious sub-headline sums up his viewpoint:

Welcome to a world where inexperienced editors make articles about the wrong topics worse.

Any article by Judge Posner is well worth reading and this one is no exception. He notes the result of the system of law review articles:

The result of the system of scholarly publication in law is that too many articles are too long, too dull, and too heavily annotated, and that many interdisciplinary articles are published that have no merit at all. Worse is the effect of these characteristics of law reviews in marginalizing the kind of legal scholarship that student editors can handle well?articles that criticize judicial decisions or, more constructively, discern new directions in law by careful analysis of decisions. Such articles are of great value to the profession, including its judicial branch, but they are becoming rare, in part because of the fascination of the legal academy with constitutional law, which in fact plays only a small role in the decisions of the lower courts. Law reviews do extensively analyze and criticize the constitutional decisions of the Supreme Court, but the profession, including the judiciary, would benefit from a reorientation of academic attention to lower-court decisions. Not that the Supreme Court isn't the most important court in the United States. But the 80 or so decisions that it renders every year get disproportionate attention compared to the many thousands of decisions rendered by other appellate courts that are much less frequently written about, especially since justices of the Supreme Court are the judges who are least likely to be influenced by critical academic reflection on their work.

Read the entire article. Also, U.T. Law Prof Brian Leiter has some interesting comments on Judge Posner's views.

Posted by Tom at 8:00 AM | Comments (0) |

October 22, 2004

The Bush Administration's discretionary spending

Victor over at the Dead Parrot Society has performed this interesting analysis of this earlier American Enterprise Institute study (linked in this earlier post via Marginal Revolution) in which the author of the AEI study -- Virginia de Rugy -- concluded that the Bush Administration compares poorly with other administrations over the past 40 years in terms of reducing the amount of major governmental agency or department spending. Victor focuses on comparing the second Clinton Administration's spending with the Bush Administration, and concludes as follows:

The numbers are ambiguous. By focusing only on discretionary expenditures, much -- but not all -- of the cyclical impact of the recession has been removed from the data. When you do this, Bush's spending looks much better outside of the well documented cases where he has made a conscious push to increase spending (like education). However, he still has not achieved a real reduction in any federal agency.

But if you look at the actual Budget Authority levels, his administration actually has achieved a few reductions.

In both cases, of course, this has occurred in an environment where many agencies are adding homeland security requests to their budgets; I have only anecdotally adjusted for that. Regardless, the overall spending picture isn't quite as dreary as implied by DeRugy's original analysis.

Read the entire post. And as noted in this previous post, the prospect is remote that a Kerry Administration would be more restrained in terms of governmental spending than a second Bush Administration.

Quare: Is the difference between the increase in discretionary spending that would likely occur during the next four years under a second Bush Administration as compared to the increase that would likely take place under a Kerry Administration so marginal that it is not really a meaningful reason to favor one administration over the other?

Posted by Tom at 8:37 AM | Comments (2) |

October 21, 2004

Cards top Stros to win NLCS

Scott Rolen hit a two out, two run yak in the sixth off of Roger Clemens to break a 2-2 tie and lead the Cardinals to a 5-2 win over the Stros in Game 7 of a thrilling 2004 National League Championship Series on Thursday night in St. Louis. The win propels the Cards into their 15th World Series against the American League Champion, the Boston Red Sox.

The loss was a bitter one for the Stros, who improbably got within 10 outs of the World Series after struggling for much of the season. A late season surge in which they won 36 of their last 46 games allowed the Stros to win the National League Wild Card spot, and then the Stros won their first post-season series over the Braves in the Divisional Series. The Stros accomplished all of this without two of their starting pitchers -- Andy Pettitte and Wade Miller -- and lost in the seventh game of the NLCS to the club that had the best record in Major League Baseball this season. Those are remarkable accomplishments.

However, the Stros' bugaboo during their struggles for much of the season has been lack of consistent hitting, and that trait reappeared over the last three games of the NLCS to undermine the Stros' chances of getting to the World Series. In the final three games of the NLCS, the Stros had only 11 runs and 16 hits, and 11 of those hits were singles. The Stros could only eke out 3 hits in Game 7, including Bidg's lead off tater, and none of the Stros' hitters looked comfortable the entire game. The bottom line is that two of the Cards' top hitters -- Rolen and Pujols -- came through in the clutch, and the Stros top hitters -- Berkman, Beltran and Bags -- were held without a hit in Game 7. The Cards deserved to win the game and the series.

The Rocket was great through five innings, but clearly tired in the sixth when Pujols doubled in the tying run on an inside fast ball that did not have Clemens' usual bite, and then Rolen cranked a letter high fast ball on the first pitch to put the Cards ahead 4-2. If the Stros' bats had been clicking, then the Rocket's performance might have been good enough. Alas, it was not to be.

Oh, but what a ride it's been. The city of Houston came alive for the past two months as this team jelled and came within a nose of the first World Series for Houston and Texas. The Stros have been one of Major League Baseball's most successful clubs over the past decade, and now their task is to transition from the Bagwell and Biggio Era to the Berkman and (hopefully) Beltran Era. After the run that this club made at the end of this season and into the playoffs, I'm not betting against the Stros figuring out a way to get this done and remain among the elite clubs in the National League.

Posted by Tom at 10:57 PM | Comments (1) |

Keeping the price of oil in perspective

Vaclav Smil is Distinguished Professor of Geography at the University of Manitoba, Canada, and is the author of many books on energy and the environment. In this Tech Central Station op-ed, he reminds us of something that the mainstream media generally fails to report regarding the recent run up in the price of oil:

The years of the highest oil prices were 1980 and 1981 (thanks to Ayatollah Khomeini and fall of the Pahlavi dynasty in Iran) when the Arabian Light/Dubai crude traded at nearly $36/bbl and when the West Texas Intermediate went for almost $38. In 2004 monies this is, rounded for easy memorization, between $ 70-75. The peak of the last few days -- $ 55/bbl -- is obviously well above what will be the annual mean for the year 2004 and it is no more than 73-78% of the record averages. But this is a wholly inadequate adjustment. Between 1980 and 2003 the amount of oil that the US economy used to generate an average dollar of its GDP fell by 43% as its oil intensity declined somewhat faster than the overall relative energy use.

And so in order to get an approximate but realistic comparison of how much today's prices impact an average manufacturer or average household purchases, we should multiply the current high price of $55/bbl by 0.57 to get an effective comparable price of around $30, or no more than 40% of the average record price we paid in 1980. Moreover, between 1980 and 2003 average hourly earnings in services, where most new jobs were created, rose by about 30% and so another adjustment taking into account this higher earning power reduces the comparable price to just over $20. Other, more sophisticated adjustments, are possible but this one is easy to execute and easy to remember: the effective -- that is inflation-, oil/$GDP- and earning power-adjusted -- cost of oil at $(2004)53-55 is no more than about 30% of the average record price we paid in 1980 and 1981. That is why recent "record" oil prices have not had any substantial effect on the way this continent uses, and wastes, the most convenient of all fossil fuels.

Posted by Tom at 5:40 AM | Comments (0) |

October 20, 2004

Cards force Game 7

Well, I think it's safe to say that Dan Miceli will not be pitching for the Stros tomorrow.

Miceli served up a walk off gopher ball to Jim Edmonds in the 12th inning as the Cardinals edged the Stros 6-4 in Game 6 on Wednesday at Busch Stadium in St. Louis to force a seventh game in this extraordinary 2004 National League Championship Series. Since the advent of the NLCS about 20 years ago, there had never been a walk off dinger in any NLCS game. Now, there has been one in the last two games of this series. Unbelievable.

The Stros were behind for most of this game, as the Cards racked Stros starter Pete Munro for 4 runs and eight hits in 2 1/3rd innings. However, the Stros bullpen was extraordinary, as Harville, Qualls, Weaver, and then Lidge held the Cards at bay for the next nine innings. After Mike Lamb's solo yak in the 4th brought the Stros to within 4-3, it was not until Bags' clutch base hit with two out in the ninth that the Stros were able to catch the Cards and send the game into extra innings.

Even though Lidge was magnificent in retiring the Cards in order in the ninth, tenth, and eleventh innings, the Stros really lost the game in the ninth. After Bags' hit and a double steal, the Stros had Beltran on third and Bags on second with two out and Berkman batting. Berkman worked the count to 2-2 against Cards' closer Isringhausen before striking out on a low inside pitch that would have been ball three if he could have laid off it. The Stros never threatened after that.

So, this series goes to Game 7, and anything less would not do it justice. This incredible series simply deserves a heart-pounding Game 7. As with the final game of the Braves' series, I feel reasonably good about Game 7 with the Rocket starting on full rest and Roy O also available for relief duty on three days' rest. Although I'm concerned that Lidge is pitched out after pitching in the past four games, the Cards' best relievers Isringhausen and Taveras have also been extended.

So, I like the Stros' chances. But hang on tight because it's going to be one wild ride!

Posted by Tom at 7:51 PM | Comments (1) |

WaPo on Justice's Corporate Task Force

This Washington Post article does a decent job of reviewing the work over the past two years of the Justice Department's Corporate Task Force that was created as a result of the meltdown of Enron Corp.

Posted by Tom at 7:41 AM | Comments (0) |

Paul Johnson on tough Presidential campaigns

British historian Paul Johnson (author of "Modern Times," "History of the Jews," "History of Christianity," "A History of the American People," and his more recent "Art, A New History," among others) is one of my favorites. In this WSJ ($) op-ed, Mr. Johnson notes that the nastiness of the 2004 Presidential Campaign really does not hold a candle to the campaign of 1928 between Andrew Jackson and John Quincy Adams:

[The 1928 campaign] inaugurated the habit of long campaigns, since Tennessee nominated Jackson for president as early as Spring 1825, more than three years before the vote. . .

Adams's supporters retaliated by the campaign poster known as the Coffin Handbill, listing 18 murders Jackson was supposed to have committed. Those who claim the current election is the dirtiest know little about 1828. An English visitor, shown a school in New England (where Adams was paramount), put questions to the class, including "Who killed Abel?" A child promptly replied "General Jackson, Ma'am." An Adams pamphlet accused Jackson of "trafficking in human flesh," another accused his wife of being a bigamist and adulterer. After seeing it, she took to her bed and died shortly after the election. To his dying day Jackson believed his political enemies had murdered her. On his side, pamphlets accused Adams of fornication, procuring American virgins for the Tsar while serving as ambassador in Russia, and being an alcoholic and sabbath-breaker. A White House inventory listing a billiard-table and a chess-set led to the accusation that Adams had introduced "gambling furniture." (His most curious presidential habit, of taking a daily swim in the Potomac stark naked, went unnoticed.)

Jackson won the popular vote in this first razzmatazz election, 647,276 to 508,064, and the College by a clear majority. His inauguration was followed by a saturnalia in which thousands of his supporters invaded the White House and engaged in a drinking spree. The Spoils System (a new term) was inaugurated by the ejection of Adams's men from public offices, a process called The Massacre of the Innocents.

And what does Mr. Johnson think about the qualitiy of the current campaign? Apparently, not much:

In recent decades the most significant election was 1980, when Reagan beat Jimmy Carter and so inaugurated the policies which demolished the "Evil Empire" of the Soviet Union, and ended the Cold War in a Western victory. Reagan won this election, which I covered closely, with wit and one-liners. The current election is likely to be significant, too, in deciding the strategy and tactics of the war against terrorism. But wit, alas, will play little part.

Posted by Tom at 7:19 AM | Comments (0) |

More on Kerry's income taxes

This post from last week addressed the hypocrisy of John Kerry's political position that the federal government should raise taxes on the wealthiest Americans while his wife continues to use loopholes in the tax laws to pay a lower percentage of taxes than most other Americans.

In this editorial, the Wall Street Journal ($) takes deal aim at the issue and points out the advantages that super-rich folks such as Mrs. Heinz-Kerry have over working stiffs, starting with Ms. Heinz-Kerry's avoidance of the payroll (i.e., Social Security) tax:

One point we failed to mention is that Mrs. Kerry paid only a token Social Security tax. That's because the payroll tax is assessed on wages, and Mrs. Kerry declared very little wage income. She gets most of her income from dividends and interest, as many wealthy people do. This is fine by us, but it is one more advantage she has over the vast majority of Americans who draw a weekly paycheck and must (with their employer) cough up the 15.3% payroll levy.

And that advantage is just one of many that super-rich folks such as Ms. Heinz-Kerry enjoys under that income tax system that Mr. Kerry seeks to perpetuate:

Our main point is that this is one more advantage Mrs. Kerry would have over working stiffs on salary if her husband wins the White House and follows through on his plan to raise taxes.

It's very hard to dodge a tax increase on salary income, especially for middle-class folk who need the money. Many couples who earn more than $200,000 a year are non-wealthy Americans who happen to be at the peak of their earning years and have big bills (such as college educations) to meet now or down the road. They haven't had time -- or been lucky enough to marry rich -- to build up the assets to be able to live off tax-free investments the way Mrs. Kerry can. The super-rich, as opposed to the merely successful, are the ones who are really able to avoid taxes -- which, come to think of it, may be why so many billionaires are supporting John Kerry.

The data on average tax rates actually reflects the highly progressive nature of the tax system, except for the super-rich who can hire lawyers and accountants to avoid paying taxes:

As it happens, the IRS has just released its data on individual income tax returns for 2002. And they reinforce our point about average tax rates. Recall that Mrs. Kerry paid an average tax rate of 12.4% on her declared income of $5.07 million. In 2002, even after the first round of Bush tax cuts, the average rate paid by all taxpayers was still higher than that at 13.03%.

As for the folks in her wealthy neighborhood, in 2002 the top 1% of taxpayers paid an average rate (also known as the effective tax rate) of 27.25%. By the way, the income threshold for getting into that 1% group was only $285,424, down substantially from 2000 and 2001. And that same top 1% of earners paid 33.7% of all income taxes in 2002. The way to think about these numbers is that, despite the Bush tax cuts that allegedly so favored the rich, the tax code remains highly progressive. And these people kept paying the lion's share of all taxes even though their earnings declined amid the recession and stock-market slump.

But the most interesting question in regard to Ms. Heinz-Kerry's tax return is the following:

But back to Mrs. Kerry: Some readers wondered how she could be worth nearly $1 billion (as the Los Angeles Times has estimated) and earn only $5.07 million in 2003. Good question. It's impossible to tell given that Mrs. Kerry has disclosed only two pages of her 1040 form and declines to explain how her assets are deployed. But we agree with those readers who suggest that much of her wealth must be tied up in trusts and estates that don't require a declaration of income. Like many of the super-rich, Mrs. Kerry can afford to hire lawyers and accountants to create these shelters for her and her heirs.

The late, great Wall Street Journal editor Barney Kilgore used to say that the rich don't mind high taxes because they already have their money. Mrs. Kerry and her husband are cases in point.

Inasmuch as the Bush Administration has done nothing during its first four years on making the income tax system in the U.S. simpler and more transparent, it is disappointing to me that the Democratic challenger's platform in this area is a hypocritical and demogogic appeal for votes rather than a substantive proposal for reform of a broken system.

Posted by Tom at 6:55 AM | Comments (0) |

Continental posts big 3rd quarter loss

Houston-based Continental Airlines reported a net loss for the third quarter on Tuesday as high fuel prices and competition from low-cost carriers continued to savage the "legacy carrier" segment of the airline industry. In announcing the loss, the fifth-largest U.S. airline in terms of passenger traffic predicted that it expects to report a significant loss for this year and will do the same next year if conditions persist

As with other reeling legacy carriers such as United Airlines and Delta Airlines, Continental continues to fare badly in competing with the widespread fare discounting of such low-cost carriers as JetBlue Airways and Southwest Airlines. Continental has slashed costs through layoffs and negotiating better deals with suppliers, but it has had insufficient liquid reserves to be able to hedge high fuel prices and now there there is not much they can do about the soaring fuel costs.

Despite the loss, Continental is actually faring better than many of its traditional competitors, which are expected to report even steeper losses later this week. Continental's revenue continues to grow at a steady rate because its hubs such as Newark, N.J. have particularly strong local traffic bases. Revenue in the latest quarter rose 8.4% to $2.56 billion as Continental boosted capacity, flew more miles and filled more of its seats.

Continental's unit costs, which are expenses spread over each seat mile flown, rose 4.9% to 9.45 cents mostly because of a higher fuel bill. Had fuel prices been at year-earlier levels, Continental's unit costs would have fallen 2.1%.

Posted by Tom at 6:20 AM | Comments (0) |

October 19, 2004

Lay's bid for a separate trial backfires

U.S. District Judge Sim Lake >ruled unexpectedly on Tuesday that former Enron Chairman and CEO Ken Lay will face two separate criminal trials -- one with former Enron CEO Jeff Skilling and former chief Enron accountant Richard Causey, and another one in which he will be the sole defendant.

To put it mildly, this is not the result that Lay's lawyers expected.

Judge Lake refused to separate Lay, Skilling and Causey into three discrete trials as all three had requested. But Lake did separate the government's four criminal charges against Lay relating to his personal banking into a second trial that would be tried separately from the Enron-related charges against the three former executives.

Causey and Skilling are each accused of 35 or more counts of conspiracy, fraud and insider trading in a scheme to manipulate the earnings of Enron to enrich themselves. Lay is accused of only 11 charges, seven of which relate to fraud and conspiracy at Enron and four of which relate to his personal banking.

In all likelihood, unless Lay presses the issue, the trial of the banking charges against Lay will be postponed until after the trial of the three former executives takes place, which means that they likely will never be tried. Regardless of the outcome of the first trial as to Lay, the government will likely cut some type of deal with Lay on the banking charges. My best guess at this point is that the trial against Lay, Skilling and Causey will crank up in mid-2005.

In another Enron-related development, the ongoing trial of the Nigerian Barge criminal case has been postponed for the rest of the week because U.S. District Judge Ewing Werlein became ill. Assuming the trial begins again next Monday, there is a good chance that the trial will conclude by the end of next week.

Posted by Tom at 9:32 PM | Comments (0) |

Oscar Wyatt's deal with the devil

This NY Times article follows up on last week's news that longtime Houstonian Oscar Wyatt is one of three individuals and four companies that federal investigators are focusing on for who allegedly receiving vouchers for oil from Saddam Hussein as he sought to flout United Nations sanctions. The Times article notes the close relationship between Mr. Wyatt and Saddam:

Mr. Wyatt . . . traveled to Baghdad as recently as early 2003, as the United States was preparing for war, to meet with officials in Mr. Hussein's government. Mr. Wyatt - once called in Texas Monthly magazine "the most hated oilman in Texas" - met Mr. Hussein in 1972, just after Iraq's oil industry had been nationalized, and eventually became one of the biggest United States importers of Iraqi oil.

The two met again in 1990, after Iraq invaded Kuwait and Mr. Wyatt flew to Baghdad on a company jet to help negotiate the release of nearly two dozen American oil workers whom Mr. Hussein had turned into "human shields."

The relationship was so close that when the United Nations authorized Iraq in 1996 to begin selling oil again, under the Oil for Food program, Mr. Wyatt and Coastal secured the first tanker shipment to leave the country.

And that close relationship is at the heart of the criminal investigation into Mr. Wyatt's activities:

The years of effort on Mr. Wyatt's part to court Iraqi officials and build a venture to export Iraqi oil to the United States produced ample rewards: he and companies that he has been linked to earned an estimated $23 million in profit in the seven years of the Oil for Food program, according to sales and profit estimates included in the C.I.A. report by Charles Duelfer; Mr. Wyatt disputes that figure.

And, lest we forget, Mr. Wyatt's used his relationship with Saddam to attain a humanitarian achievement:

By the late 1980's, Coastal was importing as much as 250,000 barrels of oil a day from Iraq. As these oil imports became more and more important to Coastal's operations, Mr. Wyatt became more outspoken in his opposition to any threatened or standing trade sanctions by the United States in the Middle East, . . . including a move by Congress to impose restrictions on trade with Iraq after Mr. Hussein used poison gas against the Kurds.

It was Mr. Wyatt's surprise trip to Baghdad in December 1990, however, that finally brought his relationship with Iraq into the spotlight. He met then with Mr. Hussein to negotiate the release of American hostages. The effort was opposed by the administration of George H. W. Bush, but Mr. Wyatt came home a hero and he wept at a meeting of the released hostages and their families.

"It was not a stunt," said Bobby Parker, a drilling rig electrician who had been held for 128 days before being rescued. "Oscar Wyatt is just not that type of person."

The hostages were safe, but ultimately, Mr. Wyatt's goal had not been fully achieved. He had hoped to prevent a military move by the United States on Iraqi-occupied Kuwait, a war that, he said, the United States had no reason to start.

Five years later in 1996, Mr. Wyatt's relations with Iraq were again in the news:

Mr. Wyatt's ties to Iraq again raised eyebrows, when the first tanker laden with crude oil sailed out of Mina al-Bakr, Iraq's main export oil terminal, in December 1996, in Iraq's legal return to global oil markets.

The ship had been chartered by one of Mr. Wyatt's companies.

This was the start of the Oil for Food program, which ultimately would result in the export of 3.4 billion barrels, earning $65 billion for the Iraqi government over the next seven years, money that was used to buy food and medicine, maintain oil fields and pay reparations from the first gulf war, among other spending.

My Wyatt, through spokespersons, declines to comment on any of this other than to deny that he engaged in any wrongdoing with regard to his business relations with Iraq. However, the Times article notes that one competitor characterized Mr. Wyatt's propensity to enter into difficult business deals in the following manner:

"He is not afraid of the devil."

Read the entire article.

Posted by Tom at 4:12 PM | Comments (1) |

On Brad Lidge

Please excuse me for having a hard time getting the Stros off of my mind. Amid the incredible performances over the past several days of Beltran, Berkman, Backe and Kent, Baseball Prospectus' ($) Joe Sheehan reminds us of the following:

Backe's tremendous work enabled Phil Garner to skip over the questionable pitchers on his staff and go right to Brad Lidge in the ninth inning. Garner finally used Lidge in a tie game, and was rewarded with an insanely dominant outing. Lidge pitched in all three games in Houston, throwing five innings, allowing one hit and two walks, and striking out nine. He threw 56 strikes in 77 pitches, going after every hitter he faced.

There's no better pitcher in baseball right now than Brad Lidge, and I say that with apologies to Johan Santana.

Posted by Tom at 2:28 PM | Comments (0) |

Bush's trouble with Treasury Secretaries

The WSJ's ($) Alan Murray is spot on with regard to his analysis in his weekly Political Capital column that the Bush Administration's second Treasury Secretary -- John Snow -- has been just as ineffective as the Bush Administration's first Treasury Secretary, Paul O'Neill:

Even some of the administration's closest allies wonder: Why has Mr. Bush failed in his first four years to find an effective Treasury secretary? And can he be expected to do any better in a second term?

Messrs. O'Neill and Snow have proved the least effective in recent memory. And it is worth asking: Why? Part of the answer comes from the fact that national-security concerns have pushed economic matters to the back burner. The secretaries of state and defense have been in the spotlight in this administration, and economic policy has been secondary.

But much of the answer comes from the fact that, for this administration, economic policy has been a direct extension of political strategy. The tax cuts that characterized President Bush's first term were forged during the campaign, and were as much a plan for election and re-election as for economic reinvigoration. The Treasury secretary's job was taken over, in effect, by political adviser Karl Rove.

If Mr. Bush is re-elected, that could change. He won't be running for a third term and he won't be pushing tax cuts. Yawning budget deficits make that certain. And unless Brother Jeb Bush signs him on, Karl Rove will have lost his client.

That could be the chance for a new approach to economic policy. President Bush has suggested an ambitious agenda for his second term. He wants to rewrite the tax code, to encourage savings and eliminate loopholes. He wants to give Americans more control over their health-care plans. And he wants to remake the Social Security system, restoring its finances while creating private accounts for younger workers. If he is serious about all this, he will need a very strong Treasury secretary at his side.

Quare: Each of the policy initiatives mentioned in the foregoing paragraph make sense and would be supported by the vast majority of Americans. Given the Bush Administration's track record, is it more likely that such initiatives would be seriously pursued in a second Bush Administration or in a Kerry Administration?

Posted by Tom at 11:32 AM | Comments (0) |

State AG's and the Plaintiffs' Bar

Longtime Wall Street Journal editorial writer John Fund has written this article for the Institute for Legal Reform in which he addresses the conflict of interest issues that arise in the context of state attorney generals hiring plaintiffs' attorneys to represent states in tort litigation. Mr. Fund's executive summary frames the issue in the following manner:

Increasingly, activist AGs are hiring outside plaintiffs? attorneys to represent their states on a contingency-fee basis. Very often, they hire attorneys who have given them major campaign contributions. . .

This pinstripe patronage is not merely unseemly, it represents a dangerous conflict of interest and distortion of incentives. Not only can AGs reward their contributors with no-bid contracts, but the plaintiffs? attorneys, once hired to pursue a lawsuit, have different incentives than the elected officials who hired them. While the AG is sworn to protect the interests of the people of his or her state, an attorney working on contingency has an incentive to pursue only monetary remedies, even if another outcome might best serve the people of the state. And because these attorneys are paid out of the amounts they cover rather than by taxpayers, taxpayers and legislators have no control over them.

At the very least, large state contracts with outside lawyers should be subject to the same sorts of public disclosure and bidding requirements applied to other state contracts. The Private Attorney Retention Sunshine Act ? model legislation drafted by the American Legislative Exchange Council ? has been adopted by five states to restore some measure of democratic control and void a replay of the scandalous back-room deals that plagued the tobacco settlement. That?s a good start.

Read the entire piece.

Posted by Tom at 10:25 AM | Comments (0) |

The Birthplace of Bush Paranoia

Several months ago, Professor Ribstein commented on the phenomena in this election of Bush-bashing, which the Professor observed is premised on "an assumption that Bush and his supporters are not credible -- that they are all idiots or worse."

Along those lines, this Weekly Standard article by Andrew Ferguson examines how the political culture of Austin, Texas facilitated the Bush-bashing phenomenom. As Mr. Ferguson notes, Austin is . . . well, different from most other places in Texas:

With its university-town origins, its large population of musicians and artists, its long tradition of political liberalism, Austin is, as Jeff says, the "anti-Texas," where "Texans who don't really like Texas" choose to live. More important, it has also, in a larger sense, exported its own peculiar brand of Bush hatred to Democrats from one coast to the other.

And Mr. Ferguson points out that Austin's brand of political opposition to President Bush may backfire big-time:

Austin has a lot to answer for, whether you're a Democrat or a Republican. Ponder for a moment the strange course the presidential campaign has followed these last 18 months. Judged by the simplest, crudest criterion--comparing the state of the world as it was the day he took office with the world as it will be on the day he stands for reelection--George W. Bush should be the most easily beatable presidential incumbent since Jimmy Carter. A frontal assault on Bush's record, repeated endlessly and packaged cleverly, might well have resulted in a walkaway win for whoever the Democrats had chosen to oppose him.

It hasn't worked out that way, as we know. Bush's opponents instead find themselves in a tight race they well might lose. There are lots of reasons why, but one surely is that instead of mounting a substantial critique of what the president has done and hasn't done, his Democratic adversaries have obsessed over piecing together odd, paranoid caricatures of the man who's driving them nuts--Bush as the agent of Halliburton, Bush as the idiot son of Robber Baron privilege, Bush the religious crank, the right-wing ideologue, the draft-dodger, the front man for Enron or Rove or the Saudi royals or J.R. Ewing.

Interestingly, Mr. Ferguson notes that the trouble with the Austin-style of opposition to Mr. Bush is the underlying insecurity of those who promote it:

[An essential characteristic of the Bush-haters is] hatred for themselves as Texans. "Keep Austin weird" is the cute, self-congratulatory, semi-official motto the city's residents repeat insistently, and there is, sure enough, something weird here. But the city isn't weird in the way Austinites think it is. No matter where in Austin you find yourself--the waiting room of an auto body shop, the men's room of a beer joint--you'll be confronted with a community bulletin board coated thickly with fliers announcing a poetry contest or some new development in Hatha Yoga technique. In that way Austin is no weirder than any other college town. It's weirdness lies in the fact that, unlike every other college town--Madison, Wisconsin; Lawrence, Kansas; Eugene, Oregon--it has never made peace with its home state. Texas progressivism sets itself in opposition to its surroundings, defines itself by what it isn't. It depends on a blend of boosterism (for Austin and for a few progressive neighborhoods in Houston) and contempt (for everything else north of the Rio Grande Valley and south of the Mason Dixon line). "The feeling you get in Austin sometimes," Nathan Husted told me, "is like we're all living in West Berlin during the Cold War."

Even the flap over the now infamous 60 Minutes segment that relied on a untested forged document regarding Mr. Bush's National Guard service has its genesis in the Austin culture of hatred toward Mr. Bush:

For our purposes, however, what was most interesting about the 60 Minutes imbroglio was the light it shed on the tiny, hermetic world of Texas Bush-hating. Rather himself--perhaps the world's most prominent Texas Bush-hater--has a daughter, Robin, who is an activist in, and future contender for the chairmanship of, Austin's Travis County Democratic party, which Rather once helped raise money for and whose chairman at that time, David Van Os, now serves as the attorney for Bill Burkett, who gave 60 Minutes the bogus documents and who has worked as a source for James C. Moore, who discovered the Austin4Kerry tape and whose book, Bush's Brain, was co-written by Wayne Slater, Austin bureau chief of the Dallas Morning News, whose News colleague, Mark Wrolstad, is married to Mapes, who produced the 60 Minutes segment and who knew Moore when both were TV reporters in Houston, where Mapes still lives. It's dizzying to think what Bush-haters would do with this web of intimacies if they were on the other side.

Read the entire piece. Quare: Is the Bush-bashing phenomena the natural result and counterbalance to the proliferation of demogogic right wing pundits that have arisen over the past decade (i.e., Rush Limbaugh, Sean Hannity, etc.)? Or did the latter naturally evolve in response to the former?

Posted by Tom at 10:10 AM | Comments (2) |

October 18, 2004

Stros stun Cards to take NLCS lead

Brandon Backe pitched eight innings of one-hit, shutout ball and Jeff Kent hit a three run walkoff yak in the bottom of the ninth as the Stros beat the Cardinals 3-0 on Monday night at a deafening Juice Box to take a 3-2 lead in the National League Championship Series.

Backe was magnificent as he took a no-hitter into the sixth inning before giving up a single to Womack. Backe ended up pitching eight innings of one hit, shutout ball, struck out four and walked only two in pitching the game of his life. For the third straight day, Brad Lidge relieved and threw a perfect ninth, including an inning ending strikeout of Pujols that generated a near volcanic eruption from the Juice Box crowd. The Cards' Woody Williams was equally brilliant as he threw seven innings of one hit, shutout ball as Bags' first inning single was the only Stros hit until Beltran led off the ninth with a single.

And oh, what a ninth it was. After Beltran's single, Bags flew out to deep right center, which brought up Berkman. After Berkman fouled off a couple of pitches, Beltran stole second easily, which left first base open. So, the Cards' closer Isringhausen promptly walked Berkman to pitch to the righthanded hitting Kent, who promptly cranked the blue darter to deep left field on the first pitch to give the Stros the most significant home run in their 43 year history and the most dramatic since Billy Hatcher's improbable game tying home run in Game 6 of the 1986 NLCS. The Juice Box crowd went utterly haywire.

By the way, Beltran continues to display his marvelous talents to the national television audience in this series. As if his hitting was not enough, his diving catch in center to to rob Renteria of an extra base hit in the seventh will make every highlight reel for the rest of the playoffs. It was simply a big-time play by a budding superstar.

I doubt the Stros really need a jet, but they will fly to St. Louis on Tuesday to prepare for Game 6 on Wednesday. Although the Cards have announced that Matt Morris will start that game for the Redbirds, there is still no work on who the Stros will start. My vote is to try to win Game 6 with Munro starting, and then have Clemens on full rest and Roy O on three days rest available for Game 7, if necessary.

By the way, these two games over the past two days have been undoubtedly the most exciting sporting events that I have attended in my 45 or so years of regularly attending such events. Wow, what a weekend of baseball!

Posted by Tom at 11:51 PM | Comments (1) |

The best hamburger commercial in history

See it here.

Posted by Tom at 8:06 AM | Comments (0) |

Primer on health care finance issues

Uwe Reinhardt is the James Madison Professor of Political Economy at Princeton University. He has written this Primer for Journalists on health care finance issues, and it is quite helpful for anyone wanting to understand the issues that we are confronting in the area of health care finance. Check it out.

Posted by Tom at 7:10 AM | Comments (0) |

DeLay's bid to buy the Texas Legislature

Lou Dubose -- co-author of The Hammer: Tom DeLay, God, Money, and the Rise of the Republican Congress (Public Affairs 2004) and Shrub: The Short but Happy Political Life of George W. Bush (Vintage 2000) -- pens this LA Weekly article summarizing the development of the multiple criminal and Congressional investigations into U.S. Representative Tom DeLay's allegedly illegal campaign fund-raising scheme that had as its goal the Republican takeover of the Texas Legislature. Mr. Dubose notes the background of DeLay's fundraising effort:

For 10 years the Republican Party had been trying to capture the Texas House. Party operatives aimed for 2000 so the House, the Senate and the state?s Republican governor could have absolute control of redrawing the state?s congressional district lines when the Legislature met after the 2000 census. Despite years of spending record sums on campaigns, in 2000 they fell short. And the Democratic House speaker refused to go along with the governor and Senate?s effort to reconfigure the state?s district lines so that a half-dozen more congressional seats could be won by Republicans.

That?s when Tom DeLay came home to Texas. Working with one of his Washington operatives, he created a political-action committee in Texas, modeled on his own national PAC. Texans for a Republican Majority was spectacularly successful. It raised $1.5 million and elected 17 new Republican members of the state House, seizing control of the body for the first time in 130 years. With his handpicked Texas House speaker in place, DeLay personally presided over the redrawing of the state?s congressional districts. The map he put in place will provide the Republicans five to seven new seats in Congress.

As Mr. Dubose notes, there is a small problem with Mr. DeLay's fundraising efforts:

Since 1905, it?s been against state law to raise or spend corporate money in Texas [political campaigns]. And DeLay?s Texas PAC raised three-quarters of a million corporate dollars. They reported their corporate contributions only with the IRS in Washington, avoiding disclosure to the state agency that regulates elections in Texas. Ronnie Earle, a D.A. with statewide prosecutorial authority, caught them. He also found they were doing some odd things with their money, like sending $190,000 corporate ?soft? dollars to the Republican National State Election Committee in Washington in exchange for $190,000 non-corporate ?hard? dollars that can be legally spent in Texas.

Mr. Dubose also does not find Mr. DeLay's protestations about his relative non-involvement with Texans for a Republican Majority to be particularly credible:

DeLay insists he had little to do with Texans for a Republican Majority, which seems odd since he founded it. And the PAC?s Texas director said under oath that DeLay was consulted on PAC activities. DeLay has said he raised no corporate money himself, but a June 24, 2002, letter I found in the exhibits of a civil suit filed in Austin suggests otherwise:

Dear Congressman DeLay:

On behalf of the Williams Companies Inc., I am pleased to forward our contribution of $25,000 for the [Texans for a Republican Majority] that we pledged at the June 2 fund-raisers.

With best wishes . . .

Read the entire piece. Regardless of whether DeLay fades an indictment over his campaign fundraising, his designs on the Speaker of the House's chair in Washington are (thankfully) no longer viable.

Posted by Tom at 6:07 AM | Comments (0) |

SBC launches WiFi service

SBC Communications Inc. begins a major Wi-Fi broadband internet service today by offering its broadband Internet customers $2-a-month access to its wireless hotspots. The $2-a-month charge is only for customers who have an SBC digital subscriber line connection. SBC charges non-DSL subscribers $20 a month for the service and sells day passes on its network for $8 in most location

The plan gives SBC customers access to its FreedomLink wireless Internet service in nearly 4,000 locations across the country and 262 in Texas, including UPS Store locations. Including the UPS Stores and many Barnes & Noble bookstores. The company has a full list of its FreedomLink locations at www.sbc.com/freedomlink.

Posted by Tom at 5:30 AM | Comments (0) |

October 17, 2004

2004 Weekly local football review

Texans 29 Titans 10. In the sweetest win for the young Texans franchise since the win against Dallas in the team's first NFL game, the Texans defense picked off four Steve McNair passes and beat the Titans 20-10 in Nashville. The Texans defense -- which has looked pathetic for much of the season -- held the Titans to 210 passing yards on 41 attempts. I know it's juvenile, but how can one not feel good about kicking the collective butts of a Bud Adams team? Here's hoping the Texans make a habit of it. The Texans have an off week next Sunday before taking on the Jacksonville at Reliant Stadium in Houston on October 31.

Steelers 24 Cowboys 20. Rookie Pittsburgh QB Ben Roethlisberger cuts up the Pokes with 14 points in the fourth quarter to pull out the win. Uh, Big Tuna, have you noticed that the Texans have a better record than your Cowboys? The Pokes play at Green Bay next Sunday.

Texas Aggies 36 Oklahoma State 20. This was the resurgent Ags most impressive win to date as they extended their winning streak to five. Okie State is pretty good, and they had no answer for the Aggies offense under Reggie McNeal, who ran up almost 400 yards total offense. The Aggies take on Colorado at College Station next Saturday.

Texas Longhorns 28 Missouri 20. The Horns overcame their increasingly mediocre passing game to hold off Mizzou at Austin. Texas is a good team with a solid rushing attack and a quick and generally effective defense. However, the lack of any meaningful passing attack is a huge problem, particularly against good teams. The Horns take on Tech next week in Lubbock, which will be no picnic, and both Oklahoma State and the Aggies will be difficult games for the Horns. This team could easily end up 8-3, which will not go over well in Austin.

Nevada 35 Rice 10. The big bugaboo of the triple-option oriented attack is that it does not play well from behind -- it simply takes to much time running the ball to overcome a big deficit. That's what happened to Rice in this game as Nevada took a big lead and Rice's offense simply could never get on track. This is a disappointing loss for the Owls because Nevada was a team that they should have beat and the Owls' next game is against a very tough Navy squad next Saturday at Annapolis.

The Houston Cougars were off this week as they prepare to go 1-6 against TCU next Saturday in Ft. Worth.

And remember, for a more thorough weekly review of Big 12 games, check out Kevin Whited's analysis over at PubliusTX.net.

Posted by Tom at 10:46 PM | Comments (2) |

Stros pull even in NLCS

Carlos Beltran and Lance Berkman continued their incredible post-season hitting, and Brad Lidge and Dan Weaver provided clutch relief pitching as the Stros came back to edge the Cardinals 6-5 in a heart-pounding National League Championship Series thriller at a raucous Juice Box on Sunday afternoon.

With the win, the Stros pulled even with the Cards in the NLCS with each team having won two games. Game 5 is tomorrow evening at the Juice Box and Game 6 is Wednesday in St. Louis. Game 7, if necessary will be Thursday evening in St. Louis.

This was one of the most thrilling games in Stros' history, right up there with Game 6 of the 1986 NLCS against the Mets and the Game 5 of the NLCS against the Phillies in 1980. However, unlike those two games, the Stros won this nailbiter, which may just vault it to the top of Stros' memorable games.

The game started badly for the Stros, as Roy O was not sharp and had trouble spotting his fastball all game. Pujols, who -- like Beltran and Berkman -- is having a tremendous NLCS, popped a two run Crawford Box tater in the first, which was quickly followed by another run to put the Stros in a 3-0 hole before they had even batted.

Bags got one back in the bottom of the first by knocking in Beltran with a double, but the Cards extended the lead to 4-1 in the third. Then, in the bottom of the third, Berkman nailed a double to the base of the wall in deep right center to drive in Beltran and Bags to close to within 4-3. However, the Cards added another run in the fourth off of Oswalt to increase the lead to 5-3. Could the Stros ever catch them in this one?

The answer was a resounding yes. In the sixth, after Bidg was called out to end the fifth on a questionable call at second on a steal, Berkman led off by hammering a massive yak to left to cut the lead to 5-4. Then, with two outs, Viz nailed an opposite field double down the line, and the unlikely Raul Chavez blooped a single over second base to drive in Viz and tie the game at 5. The Juice Box crowd -- which was deafening the entire game -- exploded.

Weaver took over in the seventh for Oswalt, who battled like the gamer he is through six innings without his best stuff. After giving up the customary hit to Pujols to lead off the inning, Weaver mowed down Rolen, Edmonds and Rentaria in succession to the roaring approval of the Juice Box crowd.

Then Beltran went to work. With one out, Beltran literally golfed a two strike pitch into the Stros' bullpen to send the Juice Box into utter hysteria. The Stros now led for the first time in the game, 6-5.

There was going to be no Game 2 managerial mistakes in this one as Garner went to Lidge in the eighth. The Stros' stopper used just six pitches to retire the bottom of the Cards order in that inning.

However, the ninth inning was wild. Womack led off by hitting a screaming liner to Bags' right, and he made a nifty grab just off the infield dirt for the first out. After Walker walked on four pitches, Lidge worked the count to two strikes on Pujols, who then half-swinged one of Lidge's nasty sliders and hit a high drive to left that looked like it might be the two run yak that would give the Cards the lead. However, Lane caught the ball on the warning track against the Crawford Box left field wall for the second out as the Juice Box crowd heaved a collective sigh of relief in unison. That's all Lidge needed as he proceeded to whiff Rolen for the third out and the save. The Juice Box crowd almost blew the roof off the stadium.

Brandon Backe goes for the Stros in Game 5 against the Cards' Woody Williams. It's the best two out of three now, folks. We got us a series!

Posted by Tom at 10:06 PM | Comments (0) |

October 16, 2004

Stros beat Cards in Game 3 of NLCS

JK, Carlos Beltran, and Lance Berkman cranked key yaks and Roger Clemens pitched seven strong innings to hand the ball to closer Brad Lidge as the Stros beat the Cardinals 5-2 in Game 3 of the National League Championship Series at a rockin' Juice Box on Saturday afternoon. With the win, the Stros closed to within a game of tying the series, which the Cards lead two games to one.

After Larry Walker's solo yak in the first staked the Cards to a 1-0 lead, JK's two out, two run bomb in the bottom of the first keyed a three run rally that put the Stros in front to stay. After Edmonds whacked a solo tater in the second, the score remained 3-2 until the eighth, when Beltran and Berkman's massive solo cranks gave the Stros a three run cushion going into the ninth.

Meanwhile, the Rocket was magnificent and seemed to grow stronger as the game wore on. In his seven innings, he gave up just two runs on four hits, two walks, and fanned seven. He threw 116 pitches in a remarkable performance for any pitcher, much less one that is 42 years old. Lidge was equally effective in relief, giving up a single, a walk, and a hit batter in two innings while getting five of his six outs on strike outs.

A fully rested Roy O goes for the series tie in Sunday's game against the Cards' Jason Marquis. Inasmuch as Lidge threw 41 pitches today, the Stros need Oswalt to pitch deep into this one. The best approach would be to score some runs early and allow Oswalt to pitch with a lead, which he does well. Hold on tight for this ride because the Juice Box will be rockin' again tomorrow.

Posted by Tom at 7:01 PM | Comments (0) |

The man known as "C.T."

Chris Tomlin is one of the emerging stars in the world of contemporary Christian worship music, and this Austin American-Statesman article profiles this outstanding Texan on the start of his 70 city tour with fellow Christian rocker, Steven Curtis Chapman.

Chris and I became good friends and golfing buddies when he was just starting his career at my church in The Woodlands about 10 years ago, and I have watched in admiration as his music career has continued to ascend after his move to Austin several years ago. This is truly one of those success stories that could not have happened to a nicer guy.

Coincidentally, I put in a call to Chris (or "C.T." as he is known in golfing circles) yesterday afternoon to see if he could swing into Houston and play with me in a golf game on Saturday morning with Capitol Records country music recording artist, Dierks Bentley, who is in The Woodlands to perform at the Pavilion on Saturday night. Dierks is the younger brother of another old friend of mine, Bart Bentley, who is a longtime Houston real estate attorney.

C.T. was always quite a hearthrob to many of the teenage girls at our church during his time in The Woodlands, and he apparently has not lost any of his charm in that regard. The female reporter from the Statesman gushes as follows:

With this tousled blond hair, gleaming teeth and elfin face, he's the stuff of teeny-bopper magazines. He's 34 but looks a decade younger. And of course he's sporting cool shades.

Give me a break. That adulation will cost C.T. several strokes of punishment on the first tee of our next big golf game. ;^)

Posted by Tom at 7:16 AM | Comments (0) |

October 15, 2004

Enron-related extradition of British bankers approved

A British judge ruled Friday that three British bankers indicted in the U.S. on Enron-related fraud charges could be extradited to stand trial in Texas. Here is a prior post that reports on the background of this case leading up to the recent extradition hearing.

District Judge Nicholas Evans found that there was a "good and proper basis" for prosecuting David Bermingham, Giles Darby and Gary Mulgrew in the United States and ruled the case should be sent to Home Secretary David Blunkett for a decision on whether to extradite them. Under British law, Home Secretary Blunkett can only halt the extradition if the men might face the death penalty or are likely to face further charges once in the U.S.

Despite the Justice Department's dubious handling of the Enron-related criminal investigation and prosecutions to date, the Justice Department is likely "only" to seek a prison sentence against each of the bankers that is tantamount to a life sentence, but not the death sentence. ;^)

The three former employees of National Westminster Bank ("Natwest") were charged in the U.S. in 2002 with bilking the bank of $7.3 million in a Andrew Fastow-designed scheme. Prosecutors allege that Messrs. Mulgrew, Darby and Bermingham conspired with Mr. Fastow and Michael Kopper in 2000 to defraud Natwest of millions of dollars. They allegedly advised the bank to sell its interest in a subsidiary of LJM (one of Fastow's off balance sheet partnerships) to another Fastow-created entity for $1 million when it was really worth much more. However, based on the way Fastow manipulated Enron and his partnerships, I do not know how the prosecution could know what the interest was really worth.

At any rate, the government says that Fastow arranged for Enron to pay $30 million to unwind the energy company's transactions with the LJM subsidiary and that Natwest received only $1 million of that amount, while Fastow, Kopper, and the bankers divvied up $19 million between themselves. Of that, the bankers allegedly pocketed $7.3 million and, as a result, each of the bankers has been charged with seven counts of wire fraud.

The bankers' case has been one of the first tests of the new fast-track British extradition procedures introduced in 2003 to deal primarily with terrorist cases. The Extradition Act lessens the burden of proof in some cases, allowing certain countries such as the U.S. to provide mere information rather than evidence that a crime has been committed.

Inasmuch as Kopper pleaded guilty to two counts of conspiracy in August 2002 and Fastow pleaded guilty to two counts of conspiracy in January of this year -- and Kopper just finished being one of the prosecution's main witnesses in the ongoing Nigerian Barge trial -- the bankers can expect that both Kopper and Fastow will be witnesses against them in any U.S. trial.

Posted by Tom at 12:42 PM | Comments (0) |

Crossing the line

Charles Krauthammer thinks John Edwards crossed the line, and he supports his argument with wisdom generated from personal experience:

This is John Edwards on Monday at a rally in Newton, Iowa:

"If we do the work that we can do in this country, the work that we will do when John Kerry is president, people like Christopher Reeve are going to walk, get up out of that wheelchair and walk again."

In my 25 years in Washington, I have never seen a more loathsome display of demagoguery. Hope is good. False hope is bad. Deliberately, for personal gain, raising false hope in the catastrophically afflicted is despicable.

Where does one begin to deconstruct this outrage?

First, the inability of the human spinal cord to regenerate is one of the great mysteries of biology. The answer is not remotely around the corner. It could take a generation to unravel. To imply, as Edwards did, that it is imminent if only you elect the right politicians is scandalous.

Second, if the cure for spinal cord injury comes, we have no idea where it will come from. There are many lines of inquiry. Stem cell research is just one of many possibilities, and a very speculative one at that. For 30 years I have heard promises of miracle cures for paralysis (including my own, suffered as a medical student). The last fad, fetal tissue transplants, was thought to be a sure thing. Nothing came of it.

As a doctor by training, I've known better than to believe the hype -- and have tried in my own counseling of people with new spinal cord injuries to place the possibility of cure in abeyance. I advise instead to concentrate on making a life (and a very good life it can be) with the hand one is dealt. The greatest enemies of this advice have been the snake-oil salesmen promising a miracle around the corner. I never expected a candidate for vice president to be one of them. . .

Politicians have long promised a chicken in every pot. It is part of the game. It is one thing to promise ethanol subsidies here, dairy price controls there. But to exploit the desperate hopes of desperate people with the promise of Christ-like cures is beyond the pale.

There is no apologizing for Edwards's remark. It is too revealing. There is absolutely nothing the man will not say to get elected.

My sense is that the Kerry-Edwards Campaign staff will be deploying a trap door device for Mr. Edwards if he does this Benny Hinn imitation again before Election Day.

Posted by Tom at 7:21 AM | Comments (0) |

Spitzer is at it again

New York Attorney General Eliot Spitzer cranked up his questionable litigation propaganda machine again yesterday and sued the world's largest insurance broker -- Marsh & McLennan Cos. -- on the grounds that it cheated its corporate customers by rigging bids and collecting huge fees from major insurance companies in return for guiding insurance business their way.

The charges were included in the civil lawsuit and in two plea bargains of criminal charges against two insurance executives from American International Group, Inc. ("AIG"). In addition to AIG, Spitzer named Hartford Financial Services Group Inc. and Munich-American Risk Partners in the civil suit as participants with Marsh in the bid rigging and improper fee-paying charges.

This is the latest in Mr. Spitzer's use of the New York attorney general's office to sue large companies in an effort to trigger reform in business practices, although some grizzled observers contend that the lawsuits are more about promoting Mr. Spitzer's political ambitions than reforming business. Earlier posts on Mr. Spitzer's other lawsuits are here, here and here.

Mr. Spitzer's latest lawsuit depicts the insurance industry as a corrupt business in which bid rigging and payment of improper fees have become accepted practices. Unlike markets for securities, commodities and other financial products, commercial insurance is bought and sold in private, so most of the business passes through the hands of insurance brokers, who are middlemen who match buyers and sellers in return for a cut of the transaction.

Normally, a company that is shopping to buy insurance advises its insurance broker on the type and amount of coverage that it is seeking and the broker then solicits bids from insurance companies. The broker usually is paid by commission, which is calculated as a percentage of the insurance buyer's premium payments. It is not unusual for the insurance purchaser to send its premium check to the broker, who then deducts its commission before passing the premium payment on to the insurance company.

Spitzer's lawsuit does not appear to take direct aim at the system described above. Rather, the lawsuit is going after the brokers from accepting what are called "contingent commissions," which are payments that insurance companies make directly to brokers based on factors such as the total volume of business a broker does with that insurer or the profitability of that business. Big insurance brokers such as Marsh have been able to demand and receive such contingent commissions in recent years because of the large amount of insurance business that they control.

Spitzer contends that the contingent commissions prompt brokers to book their business where it is most profitable to the broker rather than where it best serves the interest of the customer. client. On the other hand, it's not like the companies buying such insurance do not know about the contingent commissions and cannot take their business to another broker if they are uncomfortable with such arrangements. Mr. Spitzer's lawsuit appears to overlook that rather obvious market truth.

As noted in the previous posts, Spitzer has become controversial figure in the financial services industry. This insurance industry lawsuit follows high-profile lawsuits into conflicts of interest that allegedly taint the research of Wall Street analysts and into special trading privileges that big mutual-fund investors enjoy. The probes have tarnished the reputations of some of the country's best-known and largest corporations, and although the facts differ in each lawsuit, they all have a common theme -- the alleged wrongdoing has been going on for years and the corrupt industry is unwilling or incapable of correcting it.

Inasmuch as the state governments handle regulation of insurance, differing regulation standards, controls, and disclosure requirements apply from state to state. Although large insurers and brokers for years have resisted federal regulation of insurance, lawsuits such as Spitzer's latest may have them rethinking that position.

Wouldn't that be rich? Big insurers and brokers lobbying with consumer groups for federal regulation of insurance? Politics certainly makes for strange bedfellows!

Posted by Tom at 6:47 AM | Comments (0) |

October 14, 2004

Cards top Stros to take 2-0 lead in NLCS

The Stros' bullpen could not hold a lead again as the Cards' scored two runs in the eighth to break a tie and beat the Stros 6-4 and take a 2-0 lead in the NLCS on a cold, rainy night at Busch Stadium in St. Louis on Thursday night.

The Stros took a 3-0 lead in this one on solo yaks by Beltran and Ensberg, and Berkman's run scoring single. Pete Munro pitched brilliantly for 4 2/3 innings and actually had the third out in the fourth, but the ailing JK (bruised knee and calf) could not get to the bag in time to turn a sure fire double play ball to end the inning.

After that, Munro gave up a walk, a two run tater to Larry Walker and a base hit to Pujols to cut the lead to 3-2, and then Harville served up his second big hit in two nights as Rolen took him out of the yard. Presto, the Cards led 4-3. The Stros came back to tie it in the seventh on Berkman's double and Ensberg's single, but then Miceli served up a back-to-back gopher balls to Pujols and Rolen in the eighth to allow the Redbirds to head to Houston with a 2-0 series lead. Game, set, match.

I was talking to a friend earlier today in which I proposed that the Stros simply walk Pujols and Edmonds (and maybe Walker, too) when anybody other than The Rocket, Roy O or Lidge is pitching and see what happens. Frankly, my sense is that the Stros could not do much worse than they did in past two games pitching to these guys.

Clemens and Oswalt are ready to go next for Games 3 and 4 on Saturday and Sunday at the Juice Box in Houston. This is a plucky Stros' team, so I am not ready to count them out, yet. But Clemens and Oswalt really need to pitch long into each of these games so that they had the ball directly to Lidge. We'll worry about who pitches after Backe in Game 5 later.

Posted by Tom at 10:54 PM | Comments (1) |

Dick DeGuerin's Durst annuity

It never ends.

Posted by Tom at 9:21 PM | Comments (0) |

Cards-Stros NLCS Series Blog

The Chronicle's Richard Justice is blogging the Stros-Cards National League Championship Series.

Posted by Tom at 1:15 PM | Comments (0) |

New book on Mark Rothko

One of Houston's most fascinating places is the Rothko Chapel (map here) on the campus of St. Thomas University in the Montrose area, which is one of the most peaceful places in Houston. The chapel houses fourteen paintings of the late American abstract expressionist Mark Rothko, who committed suicide in 1970. Rothko and architect Philip Johnson collaborated on the design of the chapel, which opened in 1971 and is a part of the art empire of the late John and Dominique de Menil, who were Houston's primary art patrons over much of the past half century.

This NY Times article reviews a new book on Rothko based on some recently discovered writings of Rothko -- "The Artist's Reality: Philosophies of Art" (Yale University Press). The book was writted by Rothko's son, who was six years old at the time of Rothko's suicide, and addresses the philosophical underpinnings of the Color Field paintings, which are generally considered to be Rothko's greatest breakthrough. The review provides a decent overview of Rothko's fascinating life, and also of the infamous decade-long battle over the Rothko estate that erupted after Rothko's death.

The Rothko Chapel is a special place, and it never fails to generate interesting reactions when I introduce friends and visitors to it. If you have never visited the chapel, I highly recommend that you do so and learn more about this interesting part of Houston art culture.

Posted by Tom at 7:04 AM | Comments (2) |

A&M to name Robert D. McTeer, Jr. as its new chancellor

This Chronicle article reports that Texas A&M University is preparing to name Dallas Federal Reserve Bank president Robert D. McTeer, Jr. as its new chancellor in the near future. This Dallas Morning News article profiles Mr. McTeer.

Posted by Tom at 6:09 AM | Comments (0) |

Hiding the true cost of health care

In his latest WSJ ($) Business World column, Holman Jenkins, Jr. again addresses America's broken health care finance system. Mr. Jenkins is an unusually gifted writer on business issues, and his prior columns in this area (here, here and here) have been typically insightful. In this week's column, Mr. Jenkins addresses one of the main economic problems with America's health care finance system that is dominated by third party payors for health care services and products -- i.e., the system's propensity to hide the true cost of such services and products from the consumer:

The problem is we hide from consumers what their health care is costing them, though hiding the cost in no way relieves them of having to pay the cost.

This is not the fruit of anybody's design but of dumb acceptance of a system that has evolved unplanned over half a century. In 1940's, the IRS allowed companies to pay their workers in untaxed health-care benefits, a subsidy that means a high-end worker now gets a 40% discount on health insurance and a low-end worker gets nothing. Then there's Medicare, now grown out of all expectations, in which the richest generation of seniors in history gets "free money" to spend on health care, though the free money is actually provided by the involuntary contributions of workers.

Mr. Jenkins then points out that politicians, being adaptable sorts, have come to embrace the third party payor system as a means for political handouts and cost shifting:

Though a product of nobody's explicit plan, politicians have learned to love the incentives implicit in this hidden-cost economics. To take an example more or less at random, Connecticut legislators recently voted to mandate that health insurers cover at least $350 a year in wigs for chemotherapy patients. Who wouldn't want chemotherapy patients to have wigs? But now everybody in Connecticut who wants health insurance has to pay for wig coverage.

Duke University's Clark Havighurst, one of the true sages of the health-care debate, has noted that "the systematic hiding of health-care costs from those who pay them" gives rise to the ultimate "moral hazard," allowing politicians to spend the public's money on health care in ways the public would never choose for itself either in the marketplace or the voting booth. "The consequence of the shell game in which costs are moved wherever employees/consumers/voters are not looking" is that health care is regulated in ways "that make sense only because price tags have been generally removed. Several whole percentage points of the nation's gross domestic product are thus diverted wastefully to health care from other uses."

He also notes the seldom-emphasized regressive nature of the transfer: "The United States has structured things so that lower and middle-income premium payers bear heavy burdens so that the elite classes can continue to enjoy the style of health care to which they are accustomed."

You don't hear this much from policy wonks and health-care economists. Treating cost as a factor in medical choices is considered somehow illiberal, though it's the poor who've been priced out of the health-insurance market. But, say it again, in the final analysis there's nobody to "shift" costs to. The health-care bill always comes home to working Americans in the form of higher taxes, lower take-home pay or unaffordable health care.

Indeed, Mr. Jenkins points out that the current political discourse over health care finance in the Presidential campaign reflects the politicians' intransigence in changing the third party payor system:

Democrat John Kerry's plan is astonishingly banal in the way it re-enacts the original sin, throwing yet more tax money at health spending while avowing disingenuously that "the rich" will pay for it. But our indictment here is of the conditioned cowardice of the health-care policy community at large. How can you expect better of Mr. Kerry when the arbiters of good policy (like, say, a recent Washington Post editorial) judge candidate health plans by a single criterion: Which would commit the most resources to health care?

There not being unlimited funds to spend on health care, Mr. Kerry's plan would only speed the day when politicians, no longer able to write blank checks with the private sector's money, would face directly the choice of whether to curb consumption or raise taxes to pay for it. That's the job description of Europe's national health systems, which are not exercises in beautiful egalitarianism but exercises in rationing for those not rich enough to jet off to a private clinic and get the treatment they seek.

Yet the same health-care wonks who mumble around the real problem of hidden costs are happy to be quoted finding fault with Health Savings Accounts, the heart of the Bush approach, which has the intolerable advantage of actually being aimed at the problem.

Better than HSAs, in our view, would have been flatly eliminating the tax deductibility of employer-paid health insurance and letting the system adjust. But HSAs are a much-better-than-nothing strategy, a way of rebalancing the tax incentives to encourage consumers to buy some or all of their health care directly from providers, demanding value for money.

An example of the type of mainstream skepticism toward HSA's that Mr. Jenkins mentions above is this recent NY Times article. Although insurance will always be a substantial component of America's health care finance system, Mr. Jenkins is correct that the current system's failure to allow consumers to shop and determine what health care services and products to purchase is at the root of our spiraling health care costs.

Along these lines, I shook my head in amazement as I read President Bush's comments on health care finance from last night's debate. He started out pretty well:

I think government- run health will lead to poor-quality health, will lead to rationing, will lead to less choice. Once a health-care program ends up in a line item in the federal government budget, it leads to more controls.

And just look at other countries that have tried to have federally controlled health care. They have poor-quality health care.

Our health-care system is the envy of the world because we believe in making sure that the decisions are made by doctors and patients, not by officials in the nation's capital.

But then, in response to Kerry's promises of gifts to various voter groups, the President reverses field and touts his administration's own give-aways:

We've increased VA funding by $22 billion in the four years since I've been president. That's twice the amount that my predecessor increased VA funding. Of course we're meeting our obligation to our veterans, and the veterans know that.

We're expanding veterans' health care throughout the country. We're aligning facilities where the veterans live now. Veterans are getting very good health care under my administration. . .

Which only serves to underscore Mr. Jenkins' point -- so long as we continue to allow the health care finance system to mask the true cost of health care services and products to the public, the more the politicians will manipulate that system to troll for votes. Hat tip to Alex Tabarrok of Marginal Revolution for pointing out the above contradiction.

Posted by Tom at 6:01 AM | Comments (4) |

October 13, 2004

Cards down Stros in NLCS Game 1

The Cardinals took advantage of the Stros' shaky middle relief to overcome yaks by Beltran, JK, Berkman, and Lamb in beating the Stros 10-7 in the first game of the 2004 National League Championship Series at Busch Stadium in St. Louis on Wednesday night.

The Stros had a couple of leads in this one after Beltran's yak in the first and JK's in the fourth, but neither lead lasted long. Brandon Backe pitched reasonably well for 4 2/3rd's innings, but the roof fell in on Chad Qualls -- who was dinked to death in the Cards' 6 run sixth -- and then on Chad Harville, who gave up the Edmonds' three run double that put the game away for the Redbirds.

One thing I did not understand about this game is why Manager Garner pitched Backe on three days rest when he could have started Pete Munro tonight and allowed Backe to pitch on his regular rest cycle in Thursday's Game 2. As noted above, Backe pitched reasonably well, but ran out of gas quickly in the fourth. My sense is that the Stros would have gotten more out of him in the Thursday game.

Oh well. Game 2 is Thursday night as the Stros try to steal one from the Cards in St. Louis. And steal it that will have to do given that Munro is the unlikely starter in this one. Hope that the Stros' bats keep crankin' because it is almost certain that the Cardinals' bats will.

Posted by Tom at 10:53 PM | Comments (0) |

Reviewing the track record of an urban boondoggle

Earlier posts here and here explored the economic absurdity of urban rail systems in modern American cities, which is a hot topic in Houston these days given the recent launch of Metro's Light Rail System earlier this year.

Now, the long-range empirical data refuting the economic basis of such systems is emerging. In this article, Wendell Cox analyzes the $10 billion cost relating to creation and maintenance of the Washington, D.C. "Metro" rail system over the past 30 years. His findings are insightful:

No US urban area has built more new high-quality urban rail than Washington, DC, which spent $10 billion, most of it from national taxpayers, on a more than 100 mile system. Of course, it would be unfair to have expected Washington?s ?Metro? subway to have made a difference in area-wide traffic, since, as noted above, transit is about downtown. Predictably, at the metropolitan area level, Metro?s impact has been virtually absent. In 1970, before the first section of the system opened, the Census Bureau reported that 15.3 percent of area workers used transit to get to work. By 2000, transit?s work trip market share number had dropped 29 percent, to 10.9 percent. Perhaps even more astounding is the fact that Census data indicated a five percent reduction in actual work trip usage from 1990 to 2000, a period during which the system was expanded more than 25 percent.

Over the past 20 years, traffic in the Washington area has become the fourth worst in the nation, following only Los Angeles (which has opened a metro, light rail and commuter rail), San Francisco (where BART has made no difference) and Chicago (with the nation?s second most extensive rail system). The problem in Washington is that so many planned freeways were cancelled. In Houston, where capacity has been built to keep up with demand, traffic is better than in 1986, and the area has improved to 10th worst traffic in the nation from having been the worst in 1985.

Read the entire article. As we ponder why these public boondoggles continue to proliferate despite the increasingly clear evidence of their enormous cost relative to their relatively small public benefit, I pass along an astute commentator's observation regarding the politics of such systems from one of my earlier posts:

Concentrated benefits and dispersed costs are one economic reason for the existence of inefficient public projects. The many who stand to lose will lose only a little, whereas the few who stand to gain will gain a lot. Of course, if other public projects exist where overall costs outweigh benefits, then $6 a year per project could add up to quite a hefty boondoggler?s bill.

Posted by Tom at 11:04 AM | Comments (1) |

Wingwomen?

I continue to be amazed at the entreprenurial spirit of some young folks. This NY Times article reports on a new business that brokers attractive young women to accompany young men to social gatherings for the purpose of making the young men appear more attractive to other women at the gathering. Amazing.

Hat tip to Marginal Revolution's Tyler Cowen for the link to the article, and Tyler's point that women judging a man by the quality of his girlfriend or wife is known in economic circles as a "sufficient statistic."

Posted by Tom at 9:36 AM | Comments (1) |

Stros 2004 Review: NLCS Series Preview

The Stros and the Cards tee it up tonight in Game 1 of the NLCS in St. Louis, and it you go by the statistics from the season to date, the Cards should win in a cakewalk.

However, statistics are merely indicators of probable performance, and the season-to-date statistics fail to take into consideration two key factors. First, although they lagged earlier in the season, the Stros' statistics over the past two months have been every bit as good as the Cardinals' statistics during that period. Second, the Stros have been playing "on edge" for the past two months in their unlikely drive for the playoffs while the Cards, who put away the NL Central title for all practical purposes shortly after the All-Star break, have been on cruise control. Some teams find it difficult to regain that competitive edge in a playoff series after a long stint of relatively meaningless games.

So, I look for this series to be closer than most pundits believe, although the gaudy Cardinals runs created against average statistics ("RCAA," explained here, courtesy of Lee Sinins) this season certainly reflect the fact that the club had the best regular season record in the Major Leagues:

Albert Pujols 75
Jim Edmonds 73
Scott Rolen 57
Larry Walker 12
John Mabry 7
Reggie Sanders 4
Tony Womack 3
Ray Lankford -1
Colin Porter -1
Bo Hart -2
So Taguchi -4
Roger Cedeno -5
Yadier Molina -5
Hector Luna -6
Cody McKay -6
Edgar Renteria -12
Marlon Anderson -14
Mike Matheny -23

To compare, here are the Stros players' final regular season RCAA:

Lance Berkman 69
Carlos Beltran 46 (28 with the Stros, 18 with the Royals)
Jeff Bagwell 17
Jeff Kent 12
Mike Lamb 11
Craig Biggio 8
Jason Lane 3
Eric Bruntlett 2
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Chris Burke -3
Orlando Palmeiro -4
Richard Hidalgo -9
Adam Everett -11
Morgan Ensberg -12
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26

The Cardinals' 152 RCAA was the highest in Major League Baseball this season by over 40 runs, and over 100 runs better than the Stros' team performance. The Cards' top three hitters -- Pujols, Edmonds, and Rolen -- were among the top ten hitters in the National League this season, and no other team came close to matching that kind of top hitting performance.

However, that performance is in the past and what's important is right now, and there appear to be a few kinks in the Cardinals' machine. Rolen has a gimpy knee that did not respond to rest over the last month of the season, and he is coming off an 0-12 performance in the Cardinals' divisional series victory over the Dodgers. Accordingly, if Rolen is unable to perform in the NLCS at his performance level for most of the season, the Stros' hitting lineup actually matches up quite well with that of the Cards -- i.e., two top hitters who are slightly better than the Stros' top hitters (Pujols and Edmonds versus Berkman and Beltran), but the Stros have more above-average hitters than the Cards (Bags, Kent, Bidg and Lamb versus Walker, Mabry and maybe Sanders).

The pitching matchup is similar. Again, the Cardinals' pitching staff overall had an extraordinary season, garnering a 68 runs saved against average score ("RSAA," explained here), which is over 20 runs better than the Stros pitching staff's solid performance. Here are the Cardinals pitchers' RSAA through the end of the regular season:

Chris Carpenter 14
Steve Kline 13
Julian Tavarez 13
Jason Isringhausen 11
Ray King 11
Jason Marquis 10
Kiko Calero 7
Al Reyes 5
Cal Eldred 3
Randy Flores 3
Cody McKay 1
Josh Pearce 0
Jeff Suppan 0
Woody Williams 0
Rick Ankiel -1
Danny Haren -2
Mike Lincoln -2
Jason Simontacchi -2
Carmen Cali -4
Matt Morris -12

And, for comparison purposes, here are the Stros pitchers' RSAA:

Roger Clemens 32
Brad Lidge 26
Roy Oswalt 22
Wade Miller 10
Dan Miceli 6
Octavio Dotel 5
Andy Pettitte 4
Chad Qualls 3
Russ Springer 3
Dan Wheeler 3
Darren Oliver 1
Brandon Backe 0
Mike Gallo -2
Chad Harville -2
David Weathers -2
Jeremy Griffiths -3
Ricky Stone -3
Kirk Bullinger -6
Jared Fernandez -6
Pete Munro -9
Carlos Hernandez -10
Brandon Duckworth -11
Tim Redding -15

Again, one can see possible kinks in the Cards' pitching armor, too. Although they have six pitchers with double digit RSAA's, the Stros top three pitchers (Clemens, Oswalt and Lidge) have performed signficantly better than the Cards' top three pitchers, the best of whom (Carpenter) is injured and not pitching. Moreover, the Cards continue to trot out Matt Morris as a starter and he is having a Redding-like horrible season, and even the Cards' closer Isringhausen has been showing signs of late-season fatigue. Thus, a good case can be made that the Stros' pitching staff comes into this series in better shape than the Cards' staff, even with Clemens and Oswalt being relegated to Games 3 and 4. The fact that Lidge comes into the NLCS relatively well-rested is big advantage for the Stros.

So, where does that leave us? Well, the Cards are probably the better team overall, but the Stros are plenty good and playing with boatloads of good karma right now. My sense is that the Cards will prevail in a six or seven game series, but that it would not be shocking if the Stros win the series. Let's get ready to rumble and hang on for a wild ride!

Posted by Tom at 8:12 AM | Comments (0) |

Checking in again on the Nigerian Barge trial

The defendants began putting on their cases this week in the Enron-related Nigerian Barge trial in Houston federal court, and already there have been some significant developments.

Attorneys for defendants and former Merrill Lynch executives James Brown and Daniel Bayly rested their cases on Tuesday without putting their clients on the stand. In white collar criminal cases, this is a highly risky move. Juries in such trials generally expect to hear the defendant's story. Even though they are not supposed to hold the defendant's decision not to testify against the defendant, juries nevertheless often do so.

In recent high profile white collar cases, neither Martha Stewart nor Jamie Olis testified, and their juries both voted for conviction. On the other hand, Frank Quattrone did testify during his trial and his jury voted to convict, anyway. So, electing to testify certainly does not ensure an acquittal in white collar cases, but my experience is that electing not to testify in such cases ratchets up the risk of conviction significantly. Meanwhile, William Fuhs, one of the Merrill Lynch defendants in the Nigerian Barge case, did elect to testify yesterday. He will be subjected to the prosecution's cross-examination today.

Left unstated in the mainstream media's accounts of the trial is the continued dubious nature of the government's case in this trial. The government spent three weeks putting on its case in chief, which consisted almost entirely of testimony from former Enron executives who admitted that they were liars and cheats. Each of these witnesses stated that they had lied about the Nigerian Barge transaction to prosecutors initially, but now allege -- after copping plea bargains with the government -- that they are telling the truth in supporting the government's theory that the Nigerian Barge transaction was a sham.

The government's theory of the case is that Enron orally promised Merrill Lynch through its main liar -- Andrew Fastow -- that Enron would either buy the barges back or broker a deal for the barges in six months at an agreed rate of return for Merrill Lynch. Therefore, reasons the government, Merrill Lynch was not truly at risk with regard to the transaction and, thus, Enron's booking of the deal as a sale was fraudulent.

However, it is undisputed at the trial that the deal documents -- entered into after Fastow's oral inducements to Merrill -- did not include any such Enron agreement to repurchase or broker the barges. Likewise, it is undisputed that the written agreement between the parties includes the standard provision that Merrill could rely only on Enron's written representations in the deal documents and could not rely on any prior oral representations (such as Fastow's oral promises) in electing to enter into the deal. Consequently, it is undipusted that Merrill Lynch could not have enforced Fastow's oral promise against Enron in civil court had Fastow not arranged to have one of his off balance sheet partnerships buy the barges from Merrill.

So, where does all that leave us? The government's case relies on the theory that the unenforceable oral promise of someone who the government says is a liar and cheat -- i.e., Fastow -- rendered Merrill's risk in buying the barges non-existent. Or, stated another way, the moral obligation of a liar and cheat to do something that he is not legally required to do is such a sure thing that Merrill was not at risk in entering into the transaction.

Quare: Inasmuch as it is undisputed that Fastow is a liar and a cheat, and that the deal documents did not obligate Enron to buy or broker the barges for Merrill's benefit, how could Merrill not be at significant risk of having to hold the barges for a long term where its only known exit strategy from the deal was a liar and cheat's unenforceable moral obligation to take Merrill out?

I have said it once, but I am compelled to say it again -- this case is an abomination that would not be prosecuted but for the fact that the government believes that they can obtain a conviction against anyone who associated with the disgraced Enron. That is a dangerously poor reason for the government to exercise its awesome power to take away the freedom of citizens.

Posted by Tom at 7:00 AM | Comments (0) |

October 12, 2004

Malibu, OU style

What is the world coming to if a Texan cannot even look for a vacation spot in Malibu these days without the risk of bumping into this particular agent? Hat tip to Craig Depken for the link.

Posted by Tom at 10:44 AM | Comments (0) |

Presidential candidates and Econ 101

Edward Lotterman is a Twin Cities-based economist who writes a smart column for the Twin Cities Pioneer. Earlier posts have referred to his thoughts on the addictive nature of governmental subsidies and the market's superior ability to react to OPEC's attempts to manuever the market to its advantage.

In this article, Mr. Lotterman addresses the candidates' statements regarding economic policy, and he finds little to be enthusiastic about in either candidates' positions:

This election, most economists are dismayed by the economic positions espoused by Republican President Bush and Sen. John Kerry, D-Mass. Their campaign ads and stump-speech clips frustrate most of us. Many of their proposals would make our nation worse off, rather than better. Still, there are differences in how each man's proposed policies are harmful.

In 2004, Kerry is wrong on many different economic things, including trade, employment, Social Security and health care, among others. Bush is wrong on one enormous thing: tax cuts and their effects on budget deficits and the national debt. Bush's positions on some other issues are more pleasing to economists than Kerry's, but often skirt core questions to focus instead on peripheral matters that have great symbolism but little import.

First, Mr. Lotterman examines the candidates' positions on Social Security reform:

In response to news about Social Security, Kerry recently thundered, "When I am president there will be no decrease in Social Security benefits and no increase in (Social Security) taxes." This stand is just another way of saying, "I am a coward who is going to push this issue forward into someone else's presidency, even if it means any eventual solution will be much more difficult." I know of few economists who could endorse Kerry's position.

On Social Security, Bush advocates personal accounts as a panacea for all problems. Many economists see some form of mandatory personal accounts as one component of a reformed retirement system. But the economic arguments for personal accounts are subtle. Moreover, they would do next to nothing in solving the most pressing problem, the impending retirement of tens of millions of baby boomers.

Turning to health care, Mr. Lotterman also does not much like what he hears:

On health care, Kerry says he will do great things: lower health care premiums, cover all uninsured households and lower drug prices. But he presents no realistic plan for financing these expensive options. He implies these are freebies that will spring from reductions in "waste and inefficiency" in health care.

He doesn't say how he will eliminate such "waste and inefficiency." This position is as intellectually bankrupt as those borrow-and-spend Republicans who say they will close deficits by eliminating "waste and inefficiency" in government. Somehow, no one ever seems to do it.

Bush wants to broaden health care savings accounts and limit damages in malpractice lawsuits. A majority of economists probably would endorse these measures. Even so, most would see them as tangential to more fundamental factors driving health costs.

And on issues of free trade and environment? Again, Mr. Lotterman is skeptical of the candidates' positions:

On trade, a strong majority of economists would opt for Bush's espousal of trade liberalization over Kerry's implicit protectionism. Yet, many are skeptical of the president's true commitment to opening trade, given his quick resort to steel tariffs in his first term and their doubts about his willingness to confront domestic sectors such as cotton and sugar that will be hurt in any serious new trade agreements.

While Bush claims credit for much environmental improvement, most objective observers are critical of his administration's record. Even Russell Train, a Republican who headed the Environmental Protection Agency under Presidents Richard Nixon and Gerald Ford, has come out against him for this reason. Environmental economists also would fault his heavy reliance on poorly targeted subsidies to traditional energy sources. And, like his father, George W. is passing up the opportunity to shift pollution control from command-and-control regulation to widespread use of emissions taxes or tradable permits.

Kerry essentially promises more of the same regulatory approach that has prevailed in the past four decades. His environmental and energy platforms contain many glowing promises, but no policy specifics. Moreover, when he makes sweeping promises like, "As long as I am president, there will be no nuclear storage at Yucca Mountain," he is just pushing a growing problem onto someone else's watch -- at a cost to society as a whole.

So, is this a Presidential election in which there is a viable candidate for sound economic policies? Or are we simply left with evaluating which candidate is "less bad" in terms of economic policy?

Posted by Tom at 10:37 AM | Comments (1) |

October 11, 2004

Stros finally conquer the Braves

Carlos Beltran hit two key yaks and then Bidg and Bags keyed a five run outburst in the seventh to put the game away as the Stros beat the Braves 12-3 in the fifth and deciding game of their National League Divisional Series on Monday night at Turner Field in Atlanta.

For the first time in their 43 year existence, the Stros now move on to the next playoff series, which is the National League Championship Series against the Cardinals. The first two games are Wednesday and Thursday nights in St. Louis, and then the next three games will be in Houston at the Juice Box on Saturday through Monday. I expect Pete Munro and Brandon Backe to pitch Games 1 and 2 in St. Louis, so the Stros need to keep their hitting shoes on.

Roy O battled like the gamer he is on three days rest and left the Stros with a 3-2 lead after five innings on the strength of Beltran's first yak and two runs that were keyed by JK's second inning double.

However, this game was won in the sixth inning and the top of the seventh after the Braves had closed to 3-2 in the bottom of the fifth. First, in the top of the sixth, Beltran answered the Braves rally with his second solo yak to extend the Stros lead to 4-2. Then, in the bottom of the sixth, Chad Qualls came back from the trauma of blowing the Game 4 lead and put down the Braves in order for the first time in the game.

In the top of the seventh, Bidg keyed an incredible two out rally with a two strike single to plate a completely juiced Viz from second, who knocked down Estrada, allowing Bidg to race around to third when the throw to the plate got away. Beltran promptly knocked in Bidg for a 6-2 lead, and then Bags lifted the burden of failed playoffs past with a massive two run tater to left to give the Stros an insurmountable 8-2 lead. The Stros tacked on three more in the eighth (including Beltran's fourth and fifth RBI's) just to make sure that the Braves knew that their prior playoff dominance of the Stros was over for good. The Stros ended up with 17 hits as they continue their remarkable late season run to the next stage of the playoffs.

I have been a Stros fan for all the time I have lived in Houston, which is over 32 years now, and I have been a season ticket holder for the past 20. I get up on Tuesday mornings at 3 a.m. to help cook for a large Christian men's breakfast group at my church in The Woodlands, but I found myself watching this game until the very end at almost 11:00 p.m. despite my early wakeup call and the fact that the game was already well in hand. When the final pitch made the win certain, I called my older son at college -- who is a lifelong Stros fan and was watching the game just as intently as I was -- and we laughed with each other on just how good it felt for Bags, Bidg and the rest of the Stros finally to win a playoff series after we had pulled for them together for so many years.

That one magic, joyous conversation between a father and a son made enduring every disappointment of the Stros' past failures well worth it.

Posted by Tom at 10:55 PM | Comments (0) |

Iraq Oil-for-Food Probe hits Houston

This New York Times article reports that federal investigators are focusing on four American oil companies and three U.S. citizens with Houston connections who allegedly received vouchers for oil from Saddam Hussein as he sought to flout United Nations sanctions.

The U.S. companies include Exxon Mobil Corp., ChevronTexaco Corp. and Houston-based El Paso Corp. Exxon, El Paso, and Chevron previously confirmed that they were among companies to receive subpoenas. The Times also reported that the U.S. attorney's office in Manhattan is investigating corruption allegations against the former head of the U.N. Oil-for-Food program, Benon Sevan.

The companies and the individuals were identified in the Central Intelligence Agency's 1,000-page report on the Hussein regime's campaign, although the names were redacted from the publicly released version. While confirming that sanctions had prevented Iraq from obtaining weapons of mass destruction, the report by arms inspector Charles Duelfer's report describes efforts by the Hussein regime to manipulate the Oil-for-Food program in its favor by circumventing U.N. mandates and federal law. Others identified in the Duelfer report as receiving the vouchers include Bayoil, a closely held Houston oil company, and three individuals who campaigned to end the Iraq sanctions, including long-time Houstonian Oscar Wyatt. Together, the Duelfer report alleges that the companies and individuals received vouchers from the Hussien regime valued at 111 million barrels of oil.

The U.N. Security Council blocked Iraqi oil sales to punish Hussein following Iraq's 1990 invasion of Kuwait. During the 1990s, U.N. Security Council members such as France and Russia sought to end sanctions by contending that they were primarily harming Iraq's civilian population. As a compromise, the U.S. and Britain agreed to the Oil-for-Food Program, which was intended to allow carefully monitored sales of Iraqi oil to pay for humanitarian supplies.

Consequently, the allocation of vouchers -- which are negotiable instruments that could be traded for Iraqi oil -- was not necessarily criminal in nature and that no one has been charged with a criminal offense in connection with the investigation. However, a May 2002 Wall Street Journal ($) article reported that the Hussein regime had skimmed hundreds of millions of dollars and that several U.S. companies had been major consumers of Iraqi oil.

Relying on captured Iraqi documents and interrogations of Mr. Hussein and other Iraqi officials, the Duelfer report estimates that the Hussien regime illegally collected $11 billion through selling the oil below market price and receiving the difference through kickbacks. The report alleges that Mr. Hussein peddled influence through giving oil vouchers to powerful foreigners and foreign organizations.

Major oil companies have been under increasing pressure to line up new supplies as reserves in more-stable regions have declined, and this search often puts them in contact with countries with rampant corruption and unstable governments. As a result, it is not unusual for such companies to receive subpoenas and be the subject of such investigations.

The Duelfer report lists hundreds of foreign companies and individuals who allegedly received Iraqi oil vouchers -- including Mr. Sevan -- but not the U.S. companies and citizens. However, the names were included in versions sent to congressional committees and officials have confirmed their accuracy. Many of the names were disclosed in January when documents purportedly taken from Iraqi oil-ministry files were published in an Iraqi newspaper.

Posted by Tom at 12:14 PM | Comments (0) |

The Purpose of the Sword

As readers of this blog know, I am not enamored of many Bush Administration policies, but I am a supporter of the Administration's overall policy in prosecuting the war against the radical Islamic fascists despite the fact that the Administration has made tactical errors and not always presented the proper case for the war. Apart from the disingenuousness reflected by his his questionable record on defense matters generally, my sense is that Mr. Kerry's criticism of the Administration's war policy is somewhat akin to sniping at FDR's decision to invade North Africa early in World War II rather than opening up the key European front or confronting the Japanese directly in the South Pacific.

However, what really underlies Mr. Kerry's criticism of the war against the radical Islamic fascists is the belief that this is not truly a just war. Addressing that issue head on in this recent review of Jean Bethke Elshtain's book, Just War Against Terror: The Burden of American Power in a Violent World, one of my favorite political philosophy professors -- the Reverend James V. Schall of Georgetown University -- persuasively refutes those who argue against the morality of the Bush Administration's decision to wage war on the radical Islamic fascists:

The last time we were up in arms, so to speak, about "just war" was when we were all overly wrought about nuclear proliferation, piously denying that deterrence could not work. Little did we know at the time that this nuclear worry, with all its subtle distinctions, would not be our most pressing war problem a few decades later?unless the terrorists get nuclear weapons, which they well might. The latter possibility makes it even more immoral not to do all we can to stop them now.

Professor Schall then addresses the muddled thinking of those who rationalize inaction in the face of pure evil:

A surprisingly few determined Muslims, none poor or uneducated, have made every airport and public building in the world a potential inferno, one at a time. They have made every airport and train station, most public buildings, small armed camps on constant look out for disaster. The "suicide bomber" turns out to be more dangerous by far than Soviet missiles. And instead of international outrage at the very idea of religious sources encouraging this suicide weapon, we even have those who claim it might be "justified" for sociological reasons. We are in danger of losing sight of common-sense principles: "The best preparation for peace," it used to be said, "is to prepare for war." The trick is to know what kind of a war is before us. All nations have a record of preparing diligently for the last war. This book warns against that sort of preparation.

. . . [C]ertain types of ideological and religious mind will not stop their aggression unless their minds are changed voluntarily or unless they are taken out before they carry out their plans. We do not like to hear this. We are little prepared with our own tolerant ideology even to imagine such minds. But they exist and to deny it is a form of blindness. Elshtain does not deny their existence. We are "ecumenical" at our peril when we fail to engage in debates about suicide bombings. The killing of the innocent by this terrible method is more than just the killing of the innocent. It is the bankruptcy of a theology that supports it, a proof that it cannot be true.

Professor Schall notes that the main problem is in the nature of Islam itself, something that the liberal West is loathe to admit:

This endeavor requires a much more careful look at Islam and its long, disturbing record than many would like to face. It is not that there are no "peaceful" Muslims, but as Elshtain recognizes, even the peaceful ones are under threat in their own world from those more bent on pursuing the ancient Islamic goal of world domination usually by military means. What most of us, with our more liberal bent, are loathe to admit, is that any historical movement can seek century after century to pursue a single goal of world domination. Our memories are shorter than many Muslim visionaries.

Belloc, in his writings on Islam, understood this likelihood, this persistency over time. We have to have a certain begrudging admiration, as well as fear, for this determination. But it is an aberration and needs to be called such. Moreover the lack of freedom and independence within actual Muslim societies needs to be much more honestly faced and described. Few are willing to recall that Europe is not Muslim today because it was stopped in France and before Vienna by the sword. At bottom, the Crusades were classic defensive war against an aggressive power, without which Europe would have been absorbed centuries ago.

And although good intelligence is the first line of defense, the will to exercise force remains the key to overcoming "the determined wrath of wrongdoers:"

But though the first line of defense is intelligence in the sense of knowing the enemy, the situation, we need force. We cannot doubt that some individuals and movements cannot be stopped except by force. Force means army, navy, air power, technology, and above all will and brains. But it also means intention. It cannot be lost in legalities or institutions that prevent action on an immediate danger. If there is anything new about this situation, it is found in the very title of the Elshtain book, Just War Against Terror. Something can and must be done about terror, beginning with its proper identification as to its source and cause. This "doing something" requires that potential threats be stopped where they are by armed force acting justly.

Professor Schall concludes by noting that, lest we forget, another 9/11-type attack can happen:

[More radical Islamic terrorist attacks] can happen again, are intended to happen again, and that they not only can be stopped, but can be stopped morally. The fact is, since 9/11, because of our military and security efforts, terrorists have been stopped. All we do not know is the full record of this success that has saved things we cannot imagine, as we can now imagine the World Trade Center destroyed. This prevention, after all, is the purpose of the "sword"?"he is the servant of God to execute his wrath on the wrongdoer." Jean Elshtain understands this use of mind and force and her book is a comfort for those who, in honor and justice, have to carry out, often at the cost of their lives, the rugged work that prevents the determined wrath of the wrongdoers from falling on us all.

Read the entire piece. And here is Professor Schall's website.

Posted by Tom at 8:14 AM | Comments (1) |

Nice primer on health care finance

For those of you looking for an explanation of the sometimes numbing concepts used in discussions of health care finance issues, check out this useful Introduction to Health Economics.

Posted by Tom at 6:38 AM | Comments (2) |

On the politics of income taxes

Count me as one who is skeptical of John Kerry's position that soaking the rich with more income taxes is the way to relieve middle class tax rates and to reduce the federal government's deficit. Similarly, I am not particularly sanguine about the prospects for income tax reform and simplification in a second Bush Administration. However, it is somewhat galling to listen to Mr. Kerry decry income tax "loopholes" for wealthy Americans while, at the same time, taking advantage of those loopholes personally.

In this Wall Street Journal op-ed, Stephen Moore of the Club for Growth takes dead aim at the hypocrisy of Senator Kerry's position on the income tax:

According to the Kerrys' own tax records, . . . the couple had a combined income of $6.8 million in income last year and paid $725,000 in income taxes. That means their effective tax rate was a whopping 12.8%.

Under the current tax system the middle class pays far more than the Kerry tax rate. In fact, the average federal tax rate -- combined payroll and income tax -- for a middle-class family is closer to 20% or more. George W. and Laura Bush, who had an income one-tenth of the Kerrys', paid a tax rate of 30%.

Of course, there is delicious irony in the Kerry family tax-return data. Here is the man who finds clever ways to reduce his own tax liability while voting for higher taxes on the middle class dozens of times in his Senate career. He even voted against the Bush tax cut that saves each middle-class family about $1,000.

The Kerrys have unwittingly made the case for what George W. Bush says he wants to do: radically simplify and flatten out the tax code. Dick Armey and Steve Forbes have persuasively argued over the years that America should have a flat tax with a rate of 17% to 19%. John Kerry has consistently opposed a flat tax, because he says it would be a tax break for the rich. But the truth is with a 19% flat tax, some rich people with lavish tax shelters, like John Kerry, would pay more taxes. I calculate that the Kerrys would pay another $500,000 of taxes if we had a flat tax.

Meanwhile, Steven Pearlstein in this Washington Post op-ed takes a look at the current corporate tax bill in Congress and throws up his hands:

It remains a mystery why Congress feels such a need to reduce corporate tax burdens even further. Despite what you hear from politicians and the National Association of Manufacturers, there is precious little economic evidence linking reductions in corporate profit taxes to job creation. Struggling firms don't have profits, while successful ones with ample cash flow are likely to base hiring decisions on whether the new employees will generate new profits.

This is largely a Republican bill reflecting the majority party's tax-cutting philosophy and increasingly strong corporate ties. But it says something about the moral and intellectual bankruptcy of congressional Democrats -- and their lack of political imagination -- that they haven't rallied behind a Senate filibuster of this legislative abomination. If, at a time of record federal budget deficits, a self-proclaimed "party of the people" can't take a principled stand against the biggest corporate tax giveaway in a generation, maybe it doesn't deserve to be the majority party.

And finally, check out Professor Maule's analysis of the candidates' statements in regard to taxation policy, a part of which follows:

Listening to these two candidates spar over taxes was unpleasant. They toss about sound-bite phrases but I would be shocked if they really understood the underlying issues.

Though each candidate tried to paint the other?s tax philosophy as bringing a significantly different approach to the table, neither one persuaded me that they get it. Both hold philosophies that complicate the code. Neither one addressed the flaws inherent in taxing capital gains and dividends at lower rates; the plans advocated by each candidate would continue to treat these types of income as less deserving of taxation than are wages.

Update (10/12-13/04): Trent, a reader of the blog, points us to this Kerry-Edwards Campaign press release from May of this year regarding Ms. Heinz-Kerry's tax return, and Buster points us to another site that purports to refute Mr. Moore's analysis.

The press release and the website analysis are both somewhat ambiguous because they make assertions that cannot be verified without reviewing the actual tax returns (or at least having an independent expert review them). However, Trent fairly points out that the Mrs. Heinz-Kerry paid taxes equal to a more reasonable 32% of their taxable income, and that Mr. Moore's 12.8% rate appears to be based on total income, which includes non-taxable income. The other website's analysis -- i.e., that the Kerrys' lower taxable income was purely the result of the Kerrys' charitable donations -- is not at all clear to me from the available information.

However, the fact remains that the Kerrys take advantage of loopholes in the tax laws by sheltering roughly half of their income in tax-exempt investment vehicles. Frankly, I see nothing wrong with this as the Kerrys are simply doing what our antiquated tax laws allow. Nevertheless, Mr. Kerry would be more credible to independent voters such as me if he would advocate reasonable income tax reform and simplification -- an area in which the Bush Administration has failed miserably -- rather than engaging in divisive demagoguery regarding tax loopholes while enjoying the benefits of those same loopholes.

Posted by Tom at 6:10 AM | Comments (1) |

The sad life of Ken Caminiti ends

Former Stros third baseman Ken Caminiti, who was a unanimous pick for the 1996 National League MVP while playing with the Padres, died Sunday at the age of 41 of a heart attack in the Bronx. Caminiti is survived by three daughters from a marriage that ended in divorce several years ago.

Caminiti had a .794 career OPS (on base average + slugging percentage), compared to his league average of .746, and 154 RCAA in 1760 games (RCAA explained here), mostly with the Astros and Padres, from 1987-2001. His best year was a .621 SLG, .408 OBA, 1.028 OPS, and 66 RCAA with the 1996 Padres.

The three-time All-Star led often a troubled life the past few years after retiring from baseball in 2001. Last Tuesday, he admitted in a Houston criminal court that he violated his probation by testing positive for cocaine. State District Judge William Harmon sentenced Caminiti to 180 days in jail for violating his probation, but gave him credit for the 189 days he already served in jail and a treatment facility since he was sentenced to three years probation for a another cocaine arrest in March 2001.

In May 2002, Caminiti generated national media interest when he told Sports Illustrated magazine that he had used steroids during his MVP season and speculated that half of the Major League Baseball players were also using them.

Caminiti was beloved by his teammates for his strong work ethic and willingness to play hurt, but he was a poster child for the professional athlete who knows of no other way to live than to play the game in which they excel. Once Caminiti's abilities eroded below the Major League level, he became lost and was never able to find his way into a meaningful way of life after baseball. His death will weigh heavily on Bags and Bidg, who played with Cammy for many years in Houston.

Posted by Tom at 5:33 AM | Comments (0) |

October 10, 2004

2004 Weekly local football review

Vikings 34 Texans 28 (OT). Down 21-zip midway through the third quarter, the Texans came charging back to tie the game at 28 behind a gutty performance from QB David Carr and extraordinary efforts from WR's Andre Johnson and Derick Armstrong. Unfortunately, the Texans defense could not stop a hard chargin' marching band, so early NFC Pro Bowl QB candidate Dante Culpepper threw for over 400 yards, five TD's, and the hit the 50 yard gamewinner in overtime. And Dom Capers is supposed to be a defensive coach? The Texans go to Nashville next Sunday to play the well-balanced (at least if Steve McNair is playing) Titans.

Giants 26 Cowboys 10. With no passing offense, 11 penalties, and two turnovers, this performance will not be on Bill Parcells' career highlight film. The Cowboys remind me of the NFL version of the Texas Longhorns. The Pokes play the Steelers next Sunday in Dallas.

Oklahoma 12 Texas Longhorns 0. As noted in earlier weekly reviews, Texas simply does not have the passing game to force OU's DB's to play defensive back rather than linebacker. Consequently, OU stuffed the Horns' running game and Vincent Young was incapable of making the Sooners pay for stacking their defense to stop Ced Benson. Texas' defense did an admirable job stopping OU's vaunted passing game, but OU freshman phenom Adrian Peterson shredded the Horns' rushing defense for 232 yards. Based on their performance on this game, the Horns are going to have tough games against Tech, Oklahoma State, and A&M, although they get Okie State and A&M at home, which will help. However, Bob Stoops continually outcoaches Mack Brown while Texas continues its mystifying inability to develop their quarterback talent -- Major Applewhite is the only UT QB in recent memory to develop reasonably well over his career. If the Horns slip to third or fourth in the Big 12 South this season, how long will UT's alums -- who have invested an enormous amount into the UT program over the past five years -- put up with this obvious inability to reach the top tier of college football? The Horns get Missouri next week in Austin, which should be reasonably easy, but Tech looms in two weeks in Lubbock.

Texas Aggies 34 Iowa State 3. The Ags are starting to gain some confidence as they reel off their fourth straight win. Next week is a tougher test -- Okie State at Stillwater. Man, is the Big 12 South looking tough this season or what?

Southern Miss 35 Houston 29 (OT). The Coogs beat the spread in this Thursday night ESPN game, but allowed USM to score the last 14 points of the game to grab the loss from the jaws of victory. The Coogs somewho lost this game despite almost 520 yards of total offense and no turnovers. Oh, well, the Coogs are off next weekend before trying to avoid a 1-6 record at TCU the following weekend.

Rice 44 SMU 3. The Owls crushed the Ponies while racking up 501 yards of total offense, 496 of which was on the ground. The word in the coaching community is that SMU head coach Phil Bennett is in hot water, and performances like this one will only make the hot seat even warmer. The Owls go to Nevada next week for another WAC game that they should win.

And remember, for a more thorough weekly review of Big 12 games, check out Kevin Whited's analysis over at PubliusTX.net.

Posted by Tom at 9:16 PM | Comments (0) |

Braves force Game 5

The Braves fought back from a 5-2 deficit and J.D. Drew had the game winning hit in the top of the ninth as Atlanta forced a fifth game on Monday at Turner Field by beating the Stros 6-5 on Sunday afternoon in a heart-pounding thriller at the Juice Box. The Braves win broke the Stros' 19 game winning streak at the Juice Box that had propelled the Stros into this National League Division series.

Craig Biggio's three-run yak in the second and Roger Clemens gutty pitching performance on three days rest had given the Stros a 5-2 lead going into the sixth inning, but the Stros' Chad Qualls gave up a massive 3 run tater to Adam Larouche in the sixth that tied the game. The clubs remained knotted through the next three excrutiating innings of wonderful playoff baseball until Drew knocked in the winning run in the ninth.

The Stros placed two men on in both the eighth and ninth innings only to have John Smoltz make two incredible plays to keep the Stros from scoring. In the eighth, with two outs and runners on first and third, Marcus Giles made a great play in the hole between first and second on Orlando Palmeiro's grounder and made a perfect off balance throw to Smoltz, who barely beat Palmeiro to first base for the third out. Then, in the ninth, after Berkman's clutch single put runners on first and third with one out, Smoltz induced JK to hit into a GIDP that sent the series back to Atlanta for Game 5.

Clemens was running on fumes today as he never could gain a rhythm, giving up two runs on six hits and two walks in his five innings. Still, the Rocket put the Stros in a position to win the game, and that's all anyone could reasonably ask of a 42 year old man starting his second game in a week while recovering from a stomach virus. The key to this game turned out to be the Braves' superior depth in the bullpen, as that group pitched six scoreless innings after the Stros' five run second inning to give the Braves a chance to come back.

Despite the trauma of the loss to Stros' fans, the Stros actually are in pretty good shape going into Game Five tomorrow in Atlanta. Roy O is ready to start and Lidge was limited to seven pitches in Sunday's game, so he should be reasonably fresh, too. The Braves counter with Jaret Wright, who was no mystery for the Stros hitters in Game 1 of the series, and their bullpen has been stretched in both of the last two games. So, keep the faith, Stros fans, the Stros still have a good chance to pull this one out.

Posted by Tom at 8:01 PM | Comments (0) |

October 9, 2004

Stros close to within one game of NLCS

Brandon Backe pitched the best six innings of his life and the Stros plated five runs with two outs as they pulled to within one game of advancing to the National League Championship Series with an 8-5 win over the Braves on Saturday afternoon in front of a deafening sellout Juice Box crowd. The win was the Stros 19th straight at the Juice Box, and the club's 38th win in their last 49 games.

Based on the outcome of the other two division series games on Saturday, the Stros and Braves will play on Sunday at either noon or 6:30 p.m. The Rocket will pitch for the Stros on three day's against the Braves Russ Ortiz.

Backe continued to show the same extraordinary poise that he displayed when he stepped in for the ailing Clemens last Sunday to lead the Stros to their Wild Card playoff clinching win in the regular-season finale. In Saturday's game, Backe worked his way out of a bases-loaded jam in the second by getting the third out with a 94-mph heater, and retired the final seven batters he faced. Backe's final numbers were solid -- two runs, five hits, five strikeouts and two walks in six innings.

Carlos Beltran's two run yak got the Stros started in the third inning, and then the rest of the Stros put it away with five runs in the fifth and sixth innings as Jeff Kent, Lance Berkman, and Morgan Ensberg all had key hits in the rallies. But for a couple of baserunning errors, the Stros would likely have had a couple of more runs, and the final score was closer than the game really was. The Braves' Andruw Jones cranked a three run tater off of hard luck Russ Springer in the eighth to bring the Braves within three runs after the Stros gave the Braves an extra out in that inning by failing to catch J.D. Drew's popup that hit one of the Juice Box roof supports. Brad Lidge pitched a dominating ninth to nail down the victory.

Finally, the Juice Box crowd was tuned into every pitch, and almost blew the roof off the place when Lidge struck out the final hitter. The Juice Box should be totally juiced when Clemens takes the mound on Sunday to try and bring Houston its first win in a Major League Baseball playoff series. Tune in and hang on for a wild ride!

Posted by Tom at 5:42 PM | Comments (3) |

October 8, 2004

Checking in again on the Nigerian Barge trial

I was in federal court yesterday, so I had occasion to drop in again (here is my earlier report on the trial) on the ongoing Enron-related Nigerian Barge trial, which was concluding its third week. The prosecution's second star witness -- former Enron treasurer and Andy Fastow favorite son, Ben Glisan -- finished his testimony and the prosecution rested. Despite the mainstream media's continued simplistic analysis of everything related to Enron generally and this trial in particular, the prosecution's case has not gone well.

There are huge holes in the prosecution's case. First, the prosecution's case relies almost entirely on the testimony of former Enron executives Michael Kopper and Glisan, who both admitted that they are prodigious liars and that they copped deals with the Justice Department to hedge their risk of lengthy jail sentences. Moreover, the government inexplicably failed to call the person -- that is, Fastow -- who supposedly originated the sham side deal between Enron and Merrill. Indeed, the prosecution did not even call an independent expert witness to testify on a key issue in the trial -- i.e., that Fastow's legally unenforceable oral inducement to Merrill that Enron would either buy the barges back or broker a deal for them rendered false Enron's accounting of the deal and, thus, misleading to Enron's investors.

For what it's worth, Glisan's testimony dovetailed generally with that of Kopper, although Kopper thought Merrill was at real risk with regard to the barge deal while Glisan downplayed that risk. Similar to Kopper, Glisan dumped on former Enron treasurer Jeffrey McMahon, who Glisan contends told him he was "was comfortable" with Fastow's oral inducement to Merrill. Consistent with its approach to this case, the prosecution failed to elicit from either Glisan or Kopper that Fastow and them did not get along with McMahon, who was not involved in receiving any of the millions of dollars that Fastow, Kopper and Glisan received from "investing" in Fastow's off-balance sheet partnerships. In fact, Fastow ultimately engineered both McMahon's firing as Enron's treasurer (because of McMahon's criticism of Fastow's off-balance sheet partnerships to former Enron CEO, Jeff Skilling), and Glisan's replacement of McMahon as Enron's treasurer. That the prosecution would allow the Fastow cabal to defame the unindicted McMahon in such a manner without pointing out their well-established acrimony toward him is just one example of how the Justice Department is willing to dispense with a balanced presentation of the facts to obtain convictions in this case.

Meanwhile, two of the Merrill defendants appear to have pretty darn good grounds for a directed verdict of acquittal. Tom Hagemann, defense counsel for Merrill defendant Daniel Bayly, argued persuasively that the prosecution's case against Mr. Bayly consisted solely of testimony that Mr. Bayly participated in the telephone call in which Fastow made the oral inducement to Merrill to buy the barges, and then that Mr. Bayly directed the Merrill representatives to send an engagement letter to Enron that included Fastow's oral representation that Enron would take Merrill out of the barge deal within six months. Inasmuch as the prosecution presented no further evidence that Mr. Bayly was involved in the deal in any respect after that point and did not attempt in any way to cover up the fact that Fastow had made the oral inducement, Mr. Hagemann pointed out that it is simply impossible for the prosecution to meet its burden of proof that Mr. Bayly was involved in a wide-ranging conspiracy with Enron to cover up the true nature of the deal.

Equally persuasive was David Spears' motion for a directed verdict of acquittal for Merrill defendant William Fuhs. Incredibly, the prosecution did not present even one witness who knew or had ever talked with Mr. Fuhs regarding the barge transaction! Consequently, the prosecution's case against Mr. Fuhs relies totally on about a half dozen documents and emails that the prosecution could not prove that Mr. Fuhs ever read and which are subject to various interpretations. As Mr. Spears pointed out, based on that evidentiary record, the prosecution cannot sustain its burden of proof that Mr. Fuhs was involved in any type of conspiracy with Enron or that he was involved in fraud on Enron's investors.

Finally, in a devastating cross-examination of Glisan, Lawrence J. Zweifach, Merrill defendant James Brown's attorney, elicited that Fastow's supposed promise to buy back the barges from Merrill made no economic sense and, thus, is of dubious credibility. Inasmuch as such a buy back would have required Enron to restate earnings and endure the market's bad reaction to such a restatement, Glisan admitted that it would have been far less damaging to Enron in terms of the investor market not to sell the barges to Merrill and simply to take the one penny-per-share earnings hit in the fourth quarter of 1999. In short, reasoned Mr. Zweifach, why would Fastow risk the much worse market effect of a restatement by making the oral side deal when simply holding the barges would not result in much of a market effect in the first place? Glisan had no answer to that question.

Of course, as noted in my earlier post, no one really knows how all of this plays out with either Judge Werlein or the jury. But one thing is crystal clear -- the Justice Department believes that it is shooting fish in a barrel even when it puts on as flimsy a case as this because it figures that most jurors will be biased against any defendant having anything to do with the cultural pariah Enron.

Beyond the effect on the individual lives involved in this case, that's the real societal significance of this case. For if the government can use its power to obtain convictions and long jail sentences in a case as weak as this one, then business executives everywhere should be concerned that the risk of doing business in the United States will have just risen to an entirely new level.

Posted by Tom at 8:53 AM | Comments (0) |

KPMG agrees to record malpractice settlement

KPMG LLP and its Belgian affiliate agreed to pay $115 million to settle a shareholder lawsuit in Boston claiming they had failed in their audit work for Lernout & Hauspie Speech Products NV, the defunct Belgian maker of speech-recognition software. The proposed settlement is one of the largest ever by an auditing firm.

As with many software firms, Lernout & Hauspie soared to prominence in the late 1990's in the field of speech recognition software. The company had a market capitalization of nearly $10 billion on the Nasdaq exchange at one point. But in all to familiar a story, Lernout collapsed in 2000 and later admitted to a massive fraud, which included falsifying approximately 70% of sales in its largest unit. The company has been liquidated.

The suit alleged that KPMG was responsible for Lernout's false and misleading financial statements and sought damages on behalf of the company's shareholders. As usual in such settlements, KPMG and its Belgian affiliate publicly stated that they settled to avoid "protracted legal battles" and that they "deny all allegations and any liability."

However, the settlement does not end KPMG's nightmare with regard to the Lernout account. Earlier this year, KPMG and its Belgian unit were sued for $340 million by the trustee in Lernout's bankruptcy case, who is attempting to recover that sum for Lernout's creditors. Moreover, the Belgian liquidator for Lernout piled on by filing a separate claim for $427.5 million against KPMG's Belgian affiliate. Finally, KPMG's work in the Lernout case also remains subject to a Securities and Exchange Commission investigation.

The settlement is the latest in a string of such large settlements for KPMG and other big auditing firms. Last year, KPMG paid $125 million to settle shareholder claims related to its audit of drugstore chain Rite Aid Corp., and $75 million related to its audit of Oxford Health Plans Inc. The largest amount that an accounting firm has paid in settlement of a private shareholder class-action suit remains Ernst & Young LLP's $335 million settlement in 1999 related to its audit of Cendant Corp.

In the meantime, many relatively good size companies are finding that they cannot hire the services of the Big Four accounting firms because of the firms' staffing problems attendant to their larger audit clients.

Posted by Tom at 5:22 AM | Comments (0) |

October 7, 2004

Braves outlast Stros

The Braves jailbird-to-be Rafeal Furcal hit a two-out, two-run walkoff homer in the 11th inning off of Dan Miceli that propelled the Braves to a 4-2 victory over the Stros Thursday afternoon at Turner Field in Atlanta. The Braves' win tied their NL playoff series with the Stros at one game each.

Furcal was in court just hours before Game 1 of the series where he was sentenced to 21 days in jail and 28 days in a treatment center for violating probation with his second drunken-driving arrest in four years. However, the judge -- obviously a Braves fan -- put the sentence off until the day after the season ends.

With the Stros on the verge of taking a commanding lead, manager Phil Garner brought closer Brad Lidge into the game in the seventh inning when the Stros had a 2-1 lead, but the Braves rallied to force extra innings. The Braves outhit the Stros 14-4 and held the Stros without a hit for the final 5 1/3 innings.

Realizing the importance of the game, the Braves kept closer John Smoltz on the mound for three innings, which was his longest outing since September 2001. Similarly, Lidge went 2 2/3 innings, which was his longest outing of the season.

Both starters for the respective teams pitched well. Roy O gave up eight hits and a run in 6 2/3 innings while Mike Hampton gave up just four hits in 6 1/3 innings, including solo yaks to Bags and Raul Chavez. Hampton left in the seventh because of tightness in his left forearm, but the injury is not believed to be serious.

The series now moves to the Juice Box on Saturday where the Stros have won 18 straight games with the Stros' Brandon Backe going up against the Braves' John Thomson. Game time has been moved to noon on Saturday.

Posted by Tom at 10:11 PM | Comments (0) |

The public policy failure of the Texas Robin Hood school finance system

Virginia Postrel of Dallas, who runs the smart Dynamist.com blog, does an excellent job of explaining in this NY Times article the public policy failure that is the current Texas Robin Hood public school finance system.

As Ms. Postrel notes, the problem is not with equalizing benefits between rich and poor school districts, but rather the structure under which such equalization was to be achieved:

Robin Hood does not just move money from rich school districts to poor school districts. It does so in a way that destroys far more wealth than it transfers, and that erodes the tax base on which school funding depends.

To understand why Robin Hood is so destructive, consider the market price of a given house. The home's value depends not just on how big the house is or whether it has walk-in closets and granite countertops.

Property taxes depress the value of a house. The amenities those taxes buy, including good schools, increase the value. The final price reflects the net value of the taxes the homeowner pays.

Robin Hood essentially raises taxes while reducing benefits, creating a downward spiral in home values and property tax receipts. For each district, the state divides the total assessed value of property in the district by the number of pupils. (Districts get higher per-pupil weightings for such factors as students with learning disabilities or limited English proficiency.)

The state then compares this number with a confiscation threshold. The district keeps the taxes on the property base below the threshold. But every single penny collected on the property value above the threshold goes to the state.

Not surprisingly, Ms. Postrel notes that, when homebuyers no longer get as much education for their taxes, buyers will not pay as much for houses:

During the 1990's, "a period of unusually rapid income growth for the wealthy," the economists note, the property value per pupil actually fell in the state's wealthiest 5 percent of school districts, even without accounting for inflation.

That drop was bad news for everyone. Robin Hood assumed that house prices would stay pretty much the same, so that property-rich districts would continue to provide ample tax dollars to the rest of the state. Instead, every year the tax base became smaller in the rich districts.

To meet its commitments to poor districts, the state effectively lowered the real value of the confiscation threshold. Corrected for inflation, the threshold was $340,000 per weighted pupil in 1994, when the system was established. By 2002, it had fallen to $305,000.

But lowering the threshold further depresses home values. A death spiral sets in.

As homebuyers switch from the once-rich districts into moderately priced districts, property values hit the threshold in those districts, setting yet another spiral in motion.

And while the state is pushing down the confiscation threshold, districts try to keep up by raising their property tax rates, pushing down home values even more.

Ms. Postrel notes that correcting the system is certainly not impossible:

[The solution is to bring] well-established principles of efficient taxation to bear on school finance. Transfers . . . should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, . . . the state could take a much smaller percentage of the whole tax base.

"One of the principles of public finance is that having a high tax rate on a small base is very inefficient, whereas having a lower tax rate on a larger base is less distortionary, " observes Ilyana Kuziemko, a Havard University economist who co-wrote with Caroline M. Hoxby a new working paper for the National Bureau of Economic Research entitled Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan.

As noted in this earlier post, the handling of public school finance by the Republican-dominated Texas Legislature has been so inept that it gives rise to reasonable questions regarding whether a Republican-controlled state government is capable of addressing such public policy issues in a responsible and effective manner. However, Professors Hoxby and Kuziemko note that the primary reason for the public policy failure of the Robin Hood public school finance system is much simpler than poor political leadership:

"Lawyers, not economists, designed the system.''

Posted by Tom at 9:16 AM | Comments (3) |

A great post-debate line

Former Republican senator from Wyoming Alan Simpson attended Tuesday's debate between Vice-Presidential candidates Dick Cheney and John Edwards. During an interview after the refreshingly contentious debate, Mr. Simpson waxed nostalgic about the bygone days in which such contentiousness was the norm in such political exchanges, such as the time that Republican Sen. Wayne Morse of Oregon in 1957 called his "distinguished colleague" Republican Sen. Homer Capehart of Indiana "a tub of rancid ignorance."

Posted by Tom at 7:37 AM | Comments (0) |

Understanding terrorism

Although I am generally supportive of the way in which the Bush Administration has conducted the war against the Islamic fascists over the past three years, I have never been comfortable with the Administration's characterization of the war as the "War on Terror." Not only does that moniker obscure the real enemy -- radical Islamic fascism -- but its vagueness risks inclusion of legitimate rebel movements against tyrannical regimes. I mean, really -- would the United States be siding with the Iranian or North Korean governments if rebel movements in those countries began to use tactics to undermine those tyrannical regimes similar to those that are used by Islamic fascists against America and Israel?

Dr. Philip Jenkins is a prolific author and an outstanding professor of history and religious studies at Penn State University. He is best known for his recent books The Next Christendom: The Coming of Global Christianity (New York: Oxford University Press, 2002) and The New Anti-Catholicism: The Last Acceptable Prejudice (New York: Oxford University Press, 2003), which are outstanding works on the changing nature of Christianity in the world. The Next Christiandom explores the emergence of Third World countries as the future demographic and cultural center of global Christianity, and The New Anti-Catholicism examines how modern political correctness toward minority groups has not deterred major media outlets from casting the Catholic Church and its teachings in the worst possible light.

However, Professor Jenkins is also an expert on the concept of terror, and his new book Images of Terror: What We Can and Can?t Know about Terrorism (Aldine de Gruyter, New York 2003) explores the social construction of terrorism as a concept and problem. In this review of Images of Terror, reviewer Daniel McCarthy notes that Professor Jenkins asks the salient question: What makes a particular incident an example of terrorism, rather than a conventional crime? Although a generic definition of terrorism is possible to develop, the application of that definition to a particular event is much more difficult as a variety of social forces and media interpretations shape our understanding of the event:

[A]s a new understanding of the problem [of terrorism] takes hold, older interpretations may be forgotten entirely and even retroactively discredited. The interpretation that was plausible in the 1980s became, under the influence of a changing ideological climate, a thing that only crackpots believed in the 1990s. This, says Jenkins, is what happened to the theories of those who warned of the dangers of Islamic terrorism during the Clinton years. In the 1980s, when terrorism was understood as a phenomenon connected to outside dangers?to the Cold War and the Iran-Iraq War, for example?such warnings might have been taken seriously. In the 1990s, however, terrorism increasingly came to be understood as something associated with domestic far-right militants, and those who talked too much about Islamic terrorism risked being dismissed as racists or Islamophobes. After 9/11, the prevailing understanding changed again, and people who may have sounded like cranks five years earlier were now experts on a real and obvious danger.

Indeed, as Professor Jenkins points out, the concept of terror is neither new nor particularly unusual in American history. However, the social and political forces that shape our understanding of terror events make it seem that way:

[W]hile the images of terror shift, the reality of terror may remain constant. Terrorism in United States is certainly not a recent development. Jenkins provides a chart enumerating more than forty-nine major acts of terrorism in the United States between 1939 and 2001; he notes, however, that despite this long history of terrorism, news media would often react to a major terrorist strike within the country as if it were the first time terror had come to the United States. The media, however, are not alone in their forgetfulness and revisionism. Jenkins argues that intelligence agencies and government departments also change the way terrorism is understood, prompted by changing diplomatic and political realities.

As one example, Professor Jenkins points out how the government's handling of the information that 9/11 hijacker Mohamed Atta probably met with Iraqi intelligence agent in the Czech Republic in early 2001 reflects the conflicting interests within the U.S. government at the time:

Czech intelligence originally claimed that [Atta met with Iraqi intelligence agent in the Czech Republic in early 2001], but the Czech government later disavowed that report. Might the government have had other reasons for discrediting the story? An Iraqi connection to 9/11, no matter how tentative, would have been cause for war, something that Jenkins says the U.S. State Department was eager to avoid at the time.

Professor Jenkins maintains that we can reach a better understanding of terrorism and its implications by asking specific questions that undermine the political or social twists that a societal force may attempt to place on a particular terroristic event:

There may be things we can never know about terrorism, certainly about specific acts. In general, however, consumers of news and information can adopt strategies to arrive at the clearest understanding possible. First, says Jenkins, readers must ask, ?How do we know this?? (p. 193). They must evaluate the sources?and the sources' sources?carefully. Second, they must ?realize that claims have consequences? (p. 193), asking cui bono while considering also how a certain piece of information may harm the interests of various actors. Finally, ?the greatest weapon for the critical consumer of terrorism claims is memory? (p. 194). Images of Terror as a whole is concerned with that third point: the purpose of a social constructivist analysis, after all, is to show that things have not always been understood the way they now are and that other interpretations are possible. Memory provides some context and some grounds for hope in the effort to understand terrorism.

Thus, the "War on Terror" paints with a broad brush where a more measured stroke is needed. The sooner that we understand that the war is against radical Islamic fascists who seek state power to effectuate totalitarian control similar to what occurred in Iran in 1979 and in Afghanistan in the 1990's, then the quicker we will be able to develop the military and political policies necessary to defeat these tyrannical forces against progress.

Posted by Tom at 7:15 AM | Comments (0) |

Former El Paso traders cop pleas

Following on this earlier post on the subject, four former Houston-based El Paso Corp. natural gas traders have agreed to plead guillty under cooperation agreements with the Justice Department after being been charged with making false reports used to calculate the index price of natural gas.

Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In this particular case, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.

Each of the traders worked for the Houston company's El Paso Merchant Energy division and were charged with one count of false reporting. They will enter their guilty pleas later this month. The four who were released on personal recognizance bonds were Christopher Bakkenist, 41; Dallas Dean III, 60; Donald J. Guilbault, 51; and William L. Hamm, 45.

Wednesday's indictments came nearly two years after former El Paso trader Todd Geiger was indicted for wire fraud and reporting fake trades to an industry publication. He pleaded guilty in 2003 to the fake-trade-reporting charge and agreed to cooperate with prosecutors in the probe.

Earlier this year, ten former El Paso Corp. traders and supervisors received targe letters from the U.S. Attorney's Office in Houston alerting them that they were targets of a criminal investigation into manipulation of natural gas prices. Moreover, in the last two years, the Commodity Futures Trading Commission has filed civil charges against several companies and subsidiaries in which the CFTC alleges that traders knowingly reported false data to industry publications in an effort to manipulate natural gas prices. So far, the CFTC has settled such allegations against approximately 25 companies for more than $250 million, and El Paso settled such CFTC charges for $20 million in March 2003.

However, in a recent case involving another trader who had been charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad. That ruling is currently on appeal, and the Fifth Circuit Court of Appeals in New Orleans conducted oral argument on the case earlier this week.

Posted by Tom at 5:46 AM | Comments (0) |

October 6, 2004

Stros cruise by Braves

The Stros glided into Atlanta and easily took the first game of their National League Divisional Series with the Braves 9-3 behind Lance Berkman, Carlos Beltran, Jason Lane, and Brad Ausmus' yaks and the gutty pitching performance of Roger Clemens.

The Stros won this one with a solid hitting display as they cranked out nine hits in addition to the four above-mentioned taters, including run scoring doubles by Bags and JK. A four run uprising in the third and then three more runs in the fifth put this one away.

Unfortunately, the Stros' strong hitting display prompted Braves reliever Juan Cruz to nail Beltran in the ribs with a pitch in the seventh, and Lane replaced Beltran in the field for the final two innings. Post-game x-rays on Beltran's ribs were negative, but the contusion restricted the his arm's range of motion, so it is unclear whether he will be able to play in today's game. If Beltran cannot play today, Lane would replace him in the lineup.

Inasmuch as Cruz clearly was throwing at Beltran on purpose (although the umps did not issue any warnings), the bottom half of the frame provided one of the comic moments of the season. With two outs and nobody on, the Braves' centerfielder Andruw Jones came to the plate against Clemens, who is notorious for being "old school" with regard to retribution for one of his teammates being hit by a pitch on purpose. Inasmuch as Jones is the Braves' centerfielder and Beltran is the Stros' centerfield, there is logic in a baseball sense for Clemens to throw at Jones in response to Cruz throwing at Beltran.

At any rate, Clemens worked the count to two strikes against a very antsy Jones. Clemens then started a two strike curveball at Jones that broke over the plate but in the dirt. Jones took the worst swing at the pitch that I've seen since I coached my last T-Ball game in striking out, and looked like the most relieved person in the ballpark as he tossed his bat, grabbed his glove and retreated to the relative safety of centerfield.

According to the ESPN reporter near the Stros' dugout, Clemens' directive to his teammates as he left the dugout for the clubhouse after finishing seven innings: "Keep kickin' their ass."

Clemens showed the effects of the stomach virus that knocked him out of the final game of the regular season. He walked six, which is the most he has given up in a game in over five years. However, Clemens was the quintessential gamer, stranding nine Braves runners in the first four innings. The Rocket lasted seven innings, throwing 117 pitches while giving up two earned runs and striking out seven.

The Stros now hand the ball to Roy O in Game 2 against former Stro Mike Hampton, who has been an average National League pitcher this season. However, Hampton is a gamer just like Clemens and Oswalt, so do not expect another easy game like today's. But it sure would be nice to steal two games in Atlanta before the series returns to the Juice Box on Saturday afternoon.

Posted by Tom at 7:11 PM | Comments (0) |

More trouble in one of John Moores' California investments

The Justice Department announced Wednesday that a federal grand jury has indicted eight former Peregrine Systems Inc. executives with taking part in a massive conspiracy that inflated the company's revenue by more than $500 million over several years. Peregrine is in the business of developing software to track corporate assets.

Former Houstonian John Moores -- who founded Houston-based BMC Software, has been a major philanthrapist for the University of Houston and is currently the owner of the San Diego Padres Baseball Club -- is the former chairman of the board of Peregrine. Dozens of shareholder lawsuits filed over the past several years allege that Mr. Moores and his entities sold over 14 million Peregrine shares worth $630 million from 1999 to 2001 during a time in which Peregrine's financial reports were being falsified. Mr. Moores denies any knowledge of the falsity of Peregrine's financial statements and has never been charged criminally in regard to Peregrine or any other venture.

The indictment charged former Peregrine CEO Stephen Gardner and former President and COO Gary Lenz, and other executives involved in sales, finance and accounting at the company. The indictment also charged a former Arthur Andersen LLP audit partner, who oversaw Peregrine's bookkeeping. Messrs. Gardner and Lenz, and four other executives also face related civil fraud charges filed by the Securities and Exchange Commission.

Peregrine filed for bankruptcy protection in 2002 after announcing an internal probe of its accounting. It later restated financial results for 11 quarters from 2000 through 2002 in which it reduced its previously reported revenue of $1.3 billion by over a half a billion dollars. Peregrine had reported 17 consecutive quarters of rising earnings from 1997 through 2002, and its stock price reached nearly $80 in March, 2002. The plaintiffs in the civil lawsuits against Mr. Moores and others -- and now the Justice Department -- are taking the position that those results were the result of the Peregrine executives' cooking of the company's books.

In the meantime, a former Peregrine sales executive on Wednesday agreed to plead guilty to charges of obstructing justice and will join several others who are cooperating in the government's ongoing investigation of the company. Moreover, Peregrine's former chief financial officer previously pled guilty to conspiracy and securities fraud charges, and two other former Peregrine executives also pled guilty to conspiracy charges.

Posted by Tom at 1:54 PM | Comments (1) |

Akin, Gump sued for Pizza Inn golden parachutes

Colony, Texas-based Pizza Inn Inc. has sued Dallas-based Akin Gump Strauss Hauer & Feld LLP -- the company's former law firm -- for $7.4 million in damages alleging that the firm breached its duties to the company when it wrote "golden parachute" severance package agreements for four senior Pizza Inn executives. The lawsuit alleges that the potential payout under the golden parachute agreements was more than twice Pizza Inn's 2003 net income of $3.1 million and that the firm's legal services benefited the executives, but not Pizza Inn.

The lawsuit is the latest crossfire in a fight for control of Pizza Inn, of which Dallas-based Newcastle Partners LP owns 32.5 percent. In February, company shareholders approved a plan that gave Pizza Inn board control to Newcastle, including replacing the Pizza Inn chairman with Newcastle's sole general partner and adding the Newcastle president and two other Newcastle backed members to the board. That development coincided with a Thompson & Knight LLP opinion to the board that that adding the Newcastle-backed board members to the Pizza Inn board did not constitute a change in control. A month later, one of the Pizza Inn executives resigned and sought a $605,882 severance payment under his golden parachute agreement. The other three other Pizza Inn executives with similar severance deals still work at the firm.

Posted by Tom at 6:31 AM | Comments (0) |

DuPont Photomask acquired

Japanese technology and printing company Toppan Printing Co. announced on Tuesday that it will acquire Round Rock, Texas-based DuPont Photomasks Inc. for about $650 million. The deal will create the world's largest maker of photomasks, which are like stencils that are used to etch circuits onto silicon and, thus, are key components in semiconductor production. The transaction is expected to close in early 2005.

Under the deal, DuPont Photomasks shareholders will receive $27 a share. After the completion of the deal, the U.S. company will become a wholly owned Toppan unit named Toppan Photomasks Inc. DuPont Co., which is DuPont Photomasks' largest shareholder with about a 20% stake, has agreed to the deal.

Posted by Tom at 6:11 AM | Comments (0) |

October 5, 2004

Stros 2004 Review: Stros-Braves Playoff Preview

The media is all aflutter with the fact that the Stros have never beaten the Braves in three previous playoffs (in 1997, 1999, and 2001), but that fact is irrelevant to the current series. Only five of the Stros' 25 man roster were even on the 2001 club (Bags, Bidg, Ausmus, Viz, and Berkman) and the same roster turnover is true for the Braves. So, these are different teams at a different time, and what has occurred in the past is largely just the stuff of baseball myths that media types enjoy discussing while trying to figure out something perceptive to say.

In its essence, baseball is a simple game. While at bat, a club tries to score more runs than its opposition. While in the field, the club tries to get three outs each inning before the opposition scores as many runs as the club has scored. Thus, creating runs while hitting, and saving runs while pitching and playing defense, are the most important indicators of success in baseball. That's why I like the statistics of runs created against average ("RCAA") and runs saved against average ("RSAA" and RCAA are explained here) -- they are solid reflections of how a player and a team stacks up against an average player and an average team in their league at any particular point in time.

Based on RCAA and RSAA, the Braves should beat the Stros in this series, but not by much. Moreover, based on RCAA and RSAA, the Cubs and the Giants should have beaten out the Stros for the Wild Card Playoff spot, so the statistics are simply indicators of probable performance, not dispositive predictive tools. The nature of human performance generally and the charm of baseball in particular is the unpredictability of it all.

Since my most recent periodic review of the Stros hitters' RCAA and the pitchers' RSAA, the Stros overtook both the Giants and the Cubs in the NL Wild Card playoff race, and the clubs' final RCAA and RSAA bear out what happened. Here are the Stros hitters' final RCAA numbers, courtesy of Lee Sinins, through the end of the regular season:

Lance Berkman 69
Carlos Beltran 46 (28 with the Stros, 18 with the Royals)
Jeff Bagwell 17
Jeff Kent 12
Mike Lamb 11
Craig Biggio 8
Jason Lane 3
Eric Bruntlett 2
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Chris Burke -3
Orlando Palmeiro -4
Richard Hidalgo -9
Adam Everett -11
Morgan Ensberg -12
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26

After falling back to ninth a week before the end of the regular season, the Stros' seven game winning streak to close out the season was bolstered by another surge in hitting that resulted in the Stros finishing seventh out of the 16 National League teams in RCAA (50), while the Braves finished fifth (60 RCAA). Frankly, that means the teams are about equal in hitting, as the Stros RCAA would be 8 points higher than the Braves had Beltran played with the club the entire season.

Insmuch as the Stros were at 17 RCAA a week ago, their hitting over the last week of the season was flat remarkable. Berkman and Beltran concluded monster years, and Bags and Bidg rebounded nicely after their lull following the earlier 12 game winning streak. Moreover, after being essentially an average National League hitter for the entire season, Jeff Kent went nuclear in the last week of the season and improved his RCAA from 1 to 12. Jason Lane also improved notably over that time, raising his -2 RCAA to a plus 3 by the end of regular season.

Now, here are the Braves' individual RCAA figures:

J.D. Drew 66
Eli Marrero 14
Marcus Giles 13
Chipper Jones 11
Johnny Estrada 9
Julio Franco 6
Charles Thomas 5
Adam LaRoche 2
Rafael Furcal 1
Damon Hollins 1
Andruw Jones 0
Dewayne Wise -5
Wilson Betemit -6
Nick Green -8
Jesse Garcia -9
Mike Hessman -9
Eddie Perez -11
Mark DeRosa -20

In effect, the Braves have an outstanding hitter in Drew, who is almost equal to Berkman, but then a big dropoff to their second best hitter -- there is clearly no Beltran-caliber second best hitter on the Braves. That is an advantage for the Stros, but it is offset by the fact that the Stros are pulled down by the amount of play that deficient hitters Ausmus, Chavez, Viz, and Ensberg receive. Stros manager Phil Garner would be well-advised to play the much more productive Lamb during the playoffs over Ensberg.

The big difference in the Braves and the Stros is in pitching, where the Braves are stronger even though the Stros' pitching staff is quite good. Here are the Stros pitchers' RSAA:

Roger Clemens 32
Brad Lidge 26
Roy Oswalt 22
Wade Miller 10
Dan Miceli 6
Octavio Dotel 5
Andy Pettitte 4
Chad Qualls 3
Russ Springer 3
Dan Wheeler 3
Darren Oliver 1
Brandon Backe 0
Mike Gallo -2
Chad Harville -2
David Weathers -2
Jeremy Griffiths -3
Ricky Stone -3
Kirk Bullinger -6
Jared Fernandez -6
Pete Munro -9
Carlos Hernandez -10
Brandon Duckworth -11
Tim Redding -15

The Stros are fourth among the 16 National League teams with a team RSAA of 46, which is the position that the Stros' staff has been for most of the second half of the season. On the other hand, the Braves staff's RSAA is a stout 89, which is second only to the Cubs' staff that measured a heady 121 on the season (how again did the Cubs blow their lead in the Wild Card Playoff race?).

Clemens, Lidge and Oswalt are three of the best pitchers in baseball, and that's a good nucleus for a short series. Miceli has bounced back well from his three week stint on the DL with pink eye, but beyond those four pitchers, the Stros are relying on a slew of young and not so young pitchers who are average or barely above average. Inasmuch as all of those pitchers seem to be pitching well right now (particularly the irrepressible Backe), the Stros may be able to bob and weave through a five game series with this bunch. However, in the longer seven game series in the LCS and the World Series, that lack of quality depth might get exposed. Unless, of course, these fellas simply step up on this national stage and continue to improve as they have over the past couple of weeks. I'm through doubting this bunch of competitors.

Here are the Braves pitchers' individual RSAA:

Jaret Wright 21
Antonio Alfonseca 14
John Smoltz 14
Horacio Ramirez 13
John Thomson 13
Juan Cruz 12
Kevin Gryboski 8
Paul Byrd 5
Russ Ortiz 4
Roman Colon 2
Chris Reitsma 2
Tom Martin 1
Dan Meyer 1
Tim Drew 0
Mike Hampton 0
Sam McConnell 0
C.J. Nitkowski 0
Armando Almanza -2
Will Cunnane -4
Jose Capellan -6
Travis Smith -9

Jaret Wright, the Braves first game pitcher against Clemens, has pitched basically as well as Oswalt this season, so he is darn good pitcher. But interestingly, the rest of the Braves staff is essentially a bunch of well above-average and just above average pitchers, but none which had the seasons of Clemens, Lidge or Oswalt. Thus, the depth of the Braves' pitching gives them an advantage, but the starting pitching matchups for the first three games favor the Stros:

Game One: Clemens (32 RSAA) v. Wright (21 RSAA)
Game Two: Roy O (22 RSAA) v. Mike Hampton (0 RSAA)
Game Three: Brandon Backe (0 RSAA) v. John Thomson (13 RSAA)

So, despite the Braves greater depth in quality pitching, this is really a very even series based upon the production of the respective teams' players at this time. That's why small adjustments such as playing Lamb over Ensberg and perhaps giving the emerging Lane some swings for Bidg could be the difference between winning and losing this series. Here's hoping that Manager Garner can continue to pull the right strings that he so effectively selected during the drive for the Wild Card playoff spot.

Now, here are some other observations on the final statistics from the regular season:

Although the Cubs pitching was the best in the National League by far, their hitting went into the tank. As the Stros climbed from an RCAA of 18 to 50 in the last week of the season, the Cubs' RCAA fell from 17 to 2 during the same week. Say bye-bye, Sammy!

Although the Giants' 90 RCAA was stout and second best in the league behind the Cards' astronomical 152, they lost the Wild Card Playoff race because of their lack of balance. The Giants' pitching staff's RSAA was only 16. And even the Giants' RCAA is somewhat deceptive because of how top-loaded it is -- the incredible Barry Bonds had a league-leading RCAA of 152 alone!

And let's take a look at the key players that the Stros traded away either before or during this season:

Billy Wagner: 10 RSAA or slightly better than Dan Miceli.

Octavio Dotel: 3 RSAA or about like Chad Qualls.

Richard Hidalgo: -20 RCAA or worse then Raul Chavez (19). Ugh!

John Buck: -9 RCAA or about like Adam Everett.

Inasmuch as the Stros essentially got Beltran in return for Dotel and Buck, even a numbskull could evaluate that as a good trade. However, GM Gerry Hunsicker and Stros' owner Drayton McLane both came under severe media criticism for the Wagner and Hidalgo trades, which got rid of huge salaries on players of declining production. Those critical media types owe Messrs. McLane and Hunsicker an apology, but I doubt that they will even get an objective evaluation of the trades in the mainstream media, much less an apology. So it goes.

Posted by Tom at 8:00 PM | Comments (0) |

Another Enron-related plea deal

Timothy DeSpain, Enron's assistant treasurer from 1999 to 2002, was arraigned before a federal magistrate Tuesday and released on a $100,000 bond in connection with securities fraud criminal charges that he conspired with other Enron executives to present Enron's financial picture in a false light to investors.

Late Tuesday, Mr. DeSpain entered into a plea agreement (his statement in support of the plea deal is here) in which he pled guilty to a single count of securities fraud in return for the Justice Department's agreement to grant him immunity from prosecution for any other crimes that he committed at Enron or his subsequent employer so long as Mr. DeSpain truthfully testifies in Enron-related criminal trials and cooperates with the Justice Department's on-going Enron criminal investigation.

According to the Justice Department criminal information pleading, Mr. DeSpain was in charge of keeping Enron in touch with credit-rating agencies and was involved in schemes intended to make Enron appear healthier than it was to pump and maintain investment-grade credit ratings. Low or below investment-grade credit ratings make it expensive for companies to borrow money, which was critical to Enron's online energy trading business. Under his plea agreement, Mr. DeSpain alleged that, at the direction of Enron treasurers, he and others frequently misrepresented cash flow from operations in order to hide the nature of the transactions and benefit from the pumped-up credit rating.

Mr. DeSpain worked for three treasurers at Enron. Ben Glisan, who is currently serving a five year prison sentence after pleading guilty to one count of conspiracy to commit wire and security fraud in September 2003; Raymond Bowen, who resigned last week as Enron's chief financial officer and treasurer and who has never been charged with a crime; and Jeffrey McMahon, who has never been charged with a crime, but whose name was recently mentioned by Michael Kopper during his testimony in the ongoing Enron-related Nigerian Barge criminal trial as Andy Fastow's proposed "fall guy" if Enron's accounting treatment of the barge transaction were ever to fall apart.

Another transaction mentioned in Mr. DeSpain's plea bargain involves Project Nahanni, an Enron deal that arose in 1999 when Enron was at least short of its cash flow target. Enron reported cash from the sale of Treasury securities as a result of Profect Nahanni, but Mr. DeSpain alleges in his plea bargain that he was aware of no business purpose for the transaction other than to create cash flow. As a result, Mr. DeSpain claims that Enron falsely advised credit agencies that Project Nahanni was the sale of a merchant asset rather than explaining the true nature of the transaction, which Mr. DeSpain contends would have undermined Enron's credit rating.

Finally, in his plea bargain, DeSpain also alleges that he was involved in fraudulent conduct in connection with Enron's "prepay" strategy where the company reported that it had sold an asset and generated cash, but did not disclose that it had incurred a future debt obligation. Mr. DeSpain alleges that Enron's treasurers ordered him no to reveal to the credit rating agencies the true nature of the prepay transactions.

The Justice Department's plea deal with Mr. DeSpain is consistent with the strategy for generating witness testimony that the prosecution is currently using in the Nigerian Barge trial. Four of the prosecution's first six substantive witnesses in that trial intially denied any wrongdoing in connection with the transaction. However, after reaching plea bargains with the Justice Department, those witnesses now contend that they were involved in a coverup of an alleged "side deal" between Enron and Merrill Lynch. The prosecution contends that the alleged side deal, if disclosed to Enron's auditors, would have required Enron to restate earnings that it booked from the transaction with Merrill Lynch.

Posted by Tom at 4:41 PM | Comments (0) |

Tough night

Talk about a tough night!

Posted by Tom at 10:30 AM | Comments (1) |

R.I.P., Gordo Cooper

Gordon Cooper, one of the original Mercury Space Program's astronauts, died of natural causes on Monday at his home in Ventura, California at the age of 77.

Mr. Cooper's death leaves just three of the original seven Mercury astronauts still living -- John Glenn, the former senator from Ohio, Walter M. ("Wally")Schirra, and M. Scott Carpenter. Virgil I. ("Gus") Grissom was one of three astronauts killed in a 1967 fire inside an Apollo capsule on the launching pad, and Donald K. ("Deke") Slayton and Alan B. Shepard died of natural causes several years ago.

As the pilot of the last Mercury mission, Mr. Cooper was the last American astronaut to fly alone in space. His mission on May 15-16, 1963 covered 34 hours and 20 minutes, which was more than all five of the previous Mercury flights combined. When the automatic system that was supposed to control the descent of his Mercury capsule failed, Mr. Cooper took control manually and made a bull's-eye landing just 7,000 yards from aircraft carrier that picked up the Mercury capsules.

Mr. Cooper subsequently flew a long mission in the Gemini Space Program in which he demonstrated that a trip to the moon was feasible. Mr. Cooper's second and last trip into space was on Gemini 5, a two-man, eight-day mission in August 1965 that set a space endurance record of over 190 hours.

Among the many firsts in spaceflight that Mr. Cooper achieved was that he was the first person to sleep in space (seven and a half hours like a log, he reported). He was also the first astronaut to fly twice, and the first American to be televised from space.

Mr. Cooper was also immortalized in film by former Houstonian Dennis Quaid's excellent portrayal of him in the wonderful 1983 film of Tom Wolfe's equally superb book, "The Right Stuff." For anyone who grew up during the early days of the American space program, "The Right Stuff" is a must see. I recently watched it again with one of my teenage sons, and we thoroughly enjoyed watching how the original astronauts took enormous risks to do something that is considered commonplace by many in my son's generation. I also enjoyed sharing with him many of the stories of the original Mercury astronauts that are now an essential part of Houston folklore.

Rest in peace, Gordo Cooper.

Posted by Tom at 9:27 AM | Comments (0) |

October 4, 2004

IRS demands a big tip from Brinker

In this Form 8-K filing with the Securities and Exchange Commission today, Dallas-based Brinker International Inc. -- the operator and franchiser of Chili's Bar & Grill and a number of other popular casual-dining restaurants -- said the Internal Revenue Service has demanded "the employer's share of FICA taxes on unreported tips during the examination period totaling $31.4 million." It is not clear from the statement in the filing whether the $31.4 million represents the taxes owed or the amount of unreported tips.

The company also disclosed that the the IRS is alleging that alleged that Brinker has failed to fulfill its obligations under a 1996 tip-reporting alternative-commitment agreement with the IRS and has retroactively revoked the agreement. As a result, the IRS is alleging that some portion of the unreported tips should have been treated as service charges subject to employment taxes. The proposed assessment is based on the assumption that the cash-tip reporting rate should have been about two percentage points less than the charge-tip reporting rate.

In the filing, Brinker asserted that it has complied with all of the terms of the January 1996 agreement and with the law pertaining to the employment-tax treatment of service charges, and that it is "vigorously" contesting the accuracy of the proposed assessment related to unreported tips.

Restaurant owners and their counsel should watch this situation carefully. Brinker is a big fish in the restaurant industry, and a successful IRS assessment on this issue will send shock waves through the industry.

Posted by Tom at 11:25 AM | Comments (0) |

Fannie Mae Enron?

This Wall Street Journal ($) editorial examines the recent report issued by the Office of Federal Housing Enterprise Oversight (Ofheo) in regard to Fannie Mae's accounting machinations and what it found is troubling, to say the least.

By improperly delaying the recognition of income, Fannie Mae created a cookie jar of reserves and by improperly classifying certain derivatives, it was able to spread out losses over many years rather than recognizing them immediately. Accordingly, Fannie Mae's managers in any quarter could reach into the cookie jar of reserves to compensate for poor results or add to it to lessen good ones. As the WSJ notes, this arrangement gave Fannie Mae "inordinate flexibility" in reporting the amount of income or expenses over reporting periods, which allowed it to manipulate earnings in order to hit target numbers for executive bonuses for Fannie Mae executives:

Ofheo details an example from 1998, the year the Russian financial crisis sent interest rates tumbling. Lower rates caused a lot of mortgage holders to prepay their existing home mortgages. And Fannie was suddenly facing an estimated expense of $400 million.

Well, in its wisdom, Fannie decided to recognize only $200 million, deferring the other half. That allowed Fannie's executives -- whose bonus plan is linked to earnings-per-share -- to meet the target for maximum bonus payouts. The target EPS for maximum payout was $3.23 and Fannie reported exactly . . . $3.2309. This bull's-eye was worth $1.932 million to then-CEO James Johnson, $1.19 million to then-CEO-designate Franklin Raines, and $779,625 to then-Vice Chairman Jamie Gorelick.

The WSJ concludes:

Fannie Mae isn't an ordinary company and this isn't a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie's implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk. That's quite a confidence game -- and it's time to call it.

Posted by Tom at 5:31 AM | Comments (0) |

October 3, 2004

2004 Weekly local football review

Texans 30 Raiders 17. With the Stros winning the Wild Card playoff spot at the Juice Box downtown, the Texans did their part at Reliant Stadium to make Sunday a very good day for Houston sports fans. David Carr easily had his best game of the season as he was 14-22 for 238 yards, one TD pass in finding Andre Johnson as a secondary receiver on the play, no interceptions or fumbles, and 35 yards rushing on 8 carries. The Texans offensive line played well, protecting Carr sturdily and allowing third team running back Jonathan Wells to run for 105 yards. On the defensive side, the Texans were able to turn a Jamie Sharper sack into a TD and, while they did not ever really stop the Raiders' offense, they did pick off three Kerry Collins' passes and force two fumbles. The high-scoring Vikings come to town next Sunday, so the Texans' defense better plug the holes or else the Texans offense may need to score 40 just to stay in the game. Will the over/under on that game break 60?

Longhorns 44 Baylor 14. The Horns endured their final scrimmage of the pre-season before the real season begins next weekend in Dallas against Oklahoma. Although the Arkansas win from three weeks ago was a solid one, the three other teams that the Horns have played are not remotely comparable to Oklahoma's talent level. Similarly, Oklahoma's only reasonably tough game to date was this past weekend's win over Texas Tech, which was not particularly impressive. So, to a certain extent, next week's Red River Shootout will involve two talented, but largely unproven, teams. Although I think the addition of Dick Tomey to UT's defensive coaching staff will improve that unit, I'm not sure that the improvement will be sufficiently developed at this stage of the season for the Horns to hold the Sooners under 28 points, which I think is a requirement of beating them. And the Horns still have to figure out now to deal with the fact that the Sooners head coach Bob Stoops is a far superior game day tactician to UT's head coach Mack Brown.

Texas Aggies 42 Kansas State 30. This was a strange game. The Aggies really never stopped Kansas State, but four Wildcat turnovers allowed the Ags to have a short field for several of their scoring drives. Moreover, the Wildcats were behind for much of the game by double figures, so they abandoned their potent rushing attack behind Darren Sproles, despite the fact that it appeared to be working quite well. Nevertheless, with two and a half minutes to go, the Wildcats were driving the ball in Aggie territory and down only 35-30. Then, the KSU coaching staff inexplicably makes several questionable play calls and, for one of the only times in the game, the Aggie defense holds and KSU turns the ball over on downs with a minute and a half to go. As the Ags are running out the clock, Reggie McNeal takes off around left end and scoots 62 yards for a TD to put the game away. The Ags travel to Ames, Iowa next Saturday to play the Iowa State Cyclones, who are coached by my old friend Dan McCarney.

Memphis 41 Houston 14. On their way to a 1-6 record, the Coogs lay an egg against a good Memphis team. The problem with junk offenses such as the one the Coogs run is that, once the opposition's defensive coordinators have seen it, they make adjustments and force the offense to do something else. If the junk offense does not have something else that it can do well, then it gets ugly in a hurry, and that's where the Coogs find themselves now. Art Briles' second season is quickly turning into a rocky one. The Coogs play Southern Miss next on this week's ESPN Thursday night football.

San Jose State 70 Rice 63. When I first heard this score, I thought that Rice's basketball season had started early. The Owls uncharacteristically blew leads of 34-7 and 63-49, and somehow figured out a way to lose despite gaining 634 yards. In case the Owls had any doubts that their decision to move to Conference USA is the correct one, the attendance at this game was only 4,000, which means that this game drew less than a large number of Texas high school football games each week. Rice plays SMU next Saturday night at Rice Stadium.

And remember that Kevin Whited has the best weekly review of Big 12 games over at PubliusTx.net.

Posted by Tom at 9:21 PM | Comments (3) |

Stros 2004 Review: A playoff drive for the ages

The Stros charged into the playoffs on Sunday afternoon with their 18th consecutive home victory by beating the Colorado Rockies 5-3 to win the National League WildCard playoff spot.

The win capped an incredible late season turnaround for the Stros, who were a season-worst 56-60 on Aug. 14. From that point on, the Stros won 36 out of their next 46 games, which included a 12 game winning streak. They then closed the season out in a tight race with the Giants and Cubs by winning nine out of their last 10 and their final seven straight. The Stros now go to Atlanta for Game One of the National League Division Series on Wednesday against the Braves, who have eliminated Houston three times in the past seven postseasons. The first playoff game in Houston will be next Saturday, October 9.

Brandon Backe filled in admirably on Sunday for the ailing Roger Clemens, who came down with a stomach virus last night and could not pitch today as expected. Backe -- who slept in today thinking that Clemens was starting and thus, did not learn that he was starting until a couple of hours before game time -- pitched five strong innings and drove in the Stros' first two runs.

After closer Brad Lidge's final pitch in the ninth, the Stros ran out of the dugout to meet near the mound for hugs and high-fives while red and white confetti rained down on the fans from the Juice Box roof.

Assuming he recovers from his stomach virus, Clemens is scheduled to pitch game one of the division series against the Braves, with Roy O slated to start game two. I will break down the matchup between the Stros and the Braves in a post in the next day or so.

Posted by Tom at 4:58 PM | Comments (0) |

"We'll Getcha & Mangle Ya"

New York-based Weil, Gotshal & Manges is a major international law firm that is particularly well-known in bankruptcy and reorganization circles. The firm is counsel for the debtors-in-possession in both the Enron and MCI/WorldCom reorganization cases, which are two of the largest chapter 11 cases in history. Over the past 20 years, Weil has built upon its reorganization expertise to become a well-regarded and well-balanced full service firm.

However, the firm's nickname within the legal profession -- which is the title of this post -- makes fun of the firm's traditionally high fees charged to its clients, and this New York Sunday Times article reports on two pending lawsuits against the firm that reflect another image problem at Weil and other big law firms -- i.e., that the firm is more incentivized to make money than to protect the interests of its clients:

Weil Gotshal is embroiled in two lawsuits by former clients who contend that the firm breached its duty to provide them with its undivided loyalty, as state rules on ethics require. The cases - one by the owners of a luxury shop, now defunct, in the Mall at Short Hills, N.J., and one by the pop singer Michael Bolton - stem from very different circumstances. But each case is a cautionary tale for big law firms, experts say.

The fashion boutique's allegations against Weil are particularly troubling:

[The owners of] Fashion Boutique of Short Hills [are pursuing] their contention that the law firm represented them in a suit against the fashion house Fendi even as it also agreed to represent Prada in another case. A few months earlier, Prada had teamed up with LVMH Möet Hennessy Louis Vuitton to buy a 51 percent stake in Fendi.

Weil Gotshal did not tell the owners, Annette C. Fischer and her daughter, Randi Fischer, that it was also representing Fendi's new owner until seven months after it started working with Prada; by then, a jury was already deliberating the Fischers' contention that Fendi had used unfair business practices to run them out of business to protect its new flagship store on Fifth Avenue in Manhattan. In the case against Weil Gotshal, Fashion Boutique is seeking $15.5 million, an estimate of the value of lost business.

Despite these troubling allegations, Weil, Gotshal is not shying away from the fight -- the firm has asserted a counterclaim against the firm's former clients in the Fashion Boutique lawsuit for $2.7 million in unpaid attorneys' fees.

And Mr. Bolton's allegations against the firm stem from the firm's attempt to represent the conflicting interests of co-defendants who have potential claims against each other if the claim against them is established:

Mr. Bolton . . . sued Weil Gotshal in New York Supreme Court in Manhattan last December, seeking $30 million. The firm had defended him, along with his publisher, Warner-Chappell Music Ltd. of Britain, and his record label, Sony Music Entertainment Inc., in a 1994 suit contending that Mr. Bolton had infringed someone else's copyright with his 1991 hit "Love Is a Wonderful Thing." When a jury found that the song was too much like a 1964 tune of the same name by the Isley Brothers, [Mr. Bolton and the other defendants] were ordered to pay more than $5 million in damages. Mr. Bolton, however, soon learned that he was personally responsible for the entire judgment because his contracts with both Warner-Chappell and Sony said that he would indemnify them in the event of a judgment of copyright infringement.

Expect both of these cases against Weil to be resolved or settled before trial. If Weil cannot resolve the cases through summary judgment, then the firm will not risk allowing a jury to tabulate the damages against the firm. Jurors tend to get out their calculators when assessing damages against a law firm defendant.

Posted by Tom at 1:10 PM | Comments (0) |

October 2, 2004

Stros clinch tie for Wild Card playoff spot

Roy O became the National League's first 20-game winner, and JK and Bidg each cranked two yaks to lead the Stros to a 9-3 victory over the Rockies and move the club to within one win from completing a late-season playoff drive for the ages.

The Stros are now a game ahead of the Giants, who lost 7-3 to the Dodgers on Sunday. The Braves eliminated the Cubs from the playoff race on Saturday afternoon by handing the Cubbies their fifth straight loss.

With a win in the regular-season finale Sunday or a Giants loss to the Dodgers, the Stros will clinch the National League's final playoff spot. This was unimaginable a little over a month ago when the Stros were struggling four games below .500 and seven games behind the Cubs. Since August 15th, the Stros are an incredible 35-10.

Roger Clemens was set to take the mound against the Rockies on Sunday afternoon after only three days' rest, but he came down with the stomach flu on Saturday night, so Brandon Backe gets the nod in the potential clinch game. Inasmuch as the Dodgers clinched the National League West Division title with their dramatic win on Saturday over the Giants, they have little to play for in the last game and thus, the Giants are likely to win the Sunday game between those two clubs. So, the Stros really need to pull out all the stops to win on Sunday, because it is not clear whether Clemens will be well enough to pitch in the Monday afternoon playoff game in San Francisco if the Stros lose and the Giants win their Sunday games.

Morgan Ensberg and Eric Bruntlett also hit solo taters as the Stros set a season high with six homers and extended their record home winning streak to 17 games.

Oswalt (20-10) won 20 games for the first time in his career, while allowing only one run and five hits in seven innings. His 20 win season is the eighth 20-win season in club history. Larry Dierker, Mike Hampton, Jose Lima, J.R. Richard, Mike Scott and Joe Niekro (who did it twice) are the other Stros 20 game winners.

Over 110,000 people will be attending the Stros game and the Texans game tomorrow afternoon in Houston. It might just be quite a party!

Posted by Tom at 11:48 PM | Comments (0) |

ConocoPhillips' ambitious Russia play

Houston-based ConocoPhillips announced earlier this week a $2.36 billion "strategic alliance" with Moscow-based OAO Lukoil under which Conoco will buy a 7.6% stake in the Russian oil company and get a share in joint projects. The deal provides Conoco access to Russia's enormous but largely undeveloped oil and natural-gas reserves and opens a possible avenue for it to become the first Western petroleum producer to return to Iraq.

For energy producers looking to increase reserves, Russia represents one of the few places in the world where large reserves are available to private investors.The agreement will contribute to Conoco's proved reserves and production, which are closely watched market measures of an oil and gas company's prospects.

The move catapults Conoco ahead of most of the other major oil companies, which have have been largely unsuccessful in seeking a Russian partner. The deal also reflects the strong interest in Russia from foreign investors despite increasing concern over a recent Kremlin clampdown on political life and control over the energy industry. To ensure Conoco's minority stake is protected, Lukoil agreed to give the company one seat on the 11-member board and change its corporate charter to require unanimous board approval of top corporate decisions.

Conoco plans to raise its stake to 10% by year end and to 20% within two to three years, which would cost about $3 billion at current prices. As Conoco's stake rises, it would gain another board seat. This corporate governance arrangement addresses a problem that has tubed earlier Western investments in Russian oil and gas companies. For example, BP PLC sold its 7% ownership in Lukoil in 2001 because the stake was too small to have an effective voice in company decisions.

Although Lukoil was overshadowed in recent years by faster-growing Russian competitors such as Yukos, Lukoil is run by Russian oil and gas veterans, and its management maintains extraordinarily close ties with the Kremlin. That political stroke has come in handy lately since Yukos and its founder Mikhail Khodorkovsky ran into trouble with the Kremlin and Russian President Vladimir Putin last year, as related in these earlier posts. Those troubles scuttled Yukos' negotiations with Exxon Mobil Corp. over a large investment in the Russian company.

The deal also gives Conoco an interest in Iraq's vast oil fields. A part of the deal gives Conoco a 17.5% interest in a 1997 contract granted to a Lukoil-led group to develop Iraq's West Qurna oil field, which is a major prospect with estimated reserves of 15 billion barrels. Although the contract was canceled just before the U.S.-led invasion in March 2003, all such Saddam Hussein-era contracts are currently being reviewed by Iraqi oil and gas officials.

Meanwhile, the stampede to gain a foothold in the Russian oil and gas market continued on other fronts this week as Royal Dutch/Shell Group executives met with Russian oil and gas officials in The Hague. Shell has recently expressed interest in a joint venture with OAO Gazprom, the big Russian natural-gas company. Those discussions have become more serious since Gazprom's announced merger with Russian oil company OAO Rosneft, which will transform the company into a huge state-controlled oil and gas company.

Stephen Kotkin, a Princeton history professor who specializes in the business politics of Russia, analogizes doing business in Russia right now to a rugby scrum with market reformers, hard-line security advisers and members of Mr. Putin's inner circle all wrestling for the upper hand in policy making. If market reforms are allowed to gain traction, then the rule of law will become established and likely supersede Russia's notorious security apparatus. However, I remain skeptical that such reforms will take place so long as Mr. Putin remains in power.

Posted by Tom at 7:45 AM | Comments (0) |

October 1, 2004

Stros get closer; Giants keep pace

Jeff Bagwell hit a massive two-run Crawford Street yak and the Stros overcame some jittery fielding with solid relief pitching as they remained on top of the NL Wild Card standings with a 4-2 victory over the Rockies on Friday night at a rocking Juice Box. The Stros have now won a team record 16 straight games in the increasingly friendly confines of the Juice Box, have won seven of their last eight games, 11 out of their last 14, and are an incredible 34-10 since August 15.

The Stros entered the game tied for the Wild Card lead with the Giants, and they remained tied as the Giants won their game against the Dodgers late Friday night. However, with their wins, the Stros and Giants moved two games ahead of the fading Cubs, who have lost four straight, six of their last seven, and have been reduced to bitching at their television color man. I maintain that they should be blaming Michael Barrett.

During this final weekend of the season, the Stros are trying to avoid a repeat of last season when they needed to win three of their final four games against last-place Brew Crew to force a division tiebreaker with the Cubs. The Stros went 2-2 against the Brewers, which allowed the Cubs to win the NL Central title.

Mike Gallo (2-0) earned the win on Friday night against the Rockies by getting the last out of the third inning, and Brad Lidge nailed down the last three outs for his 28th save. They were two of seven Stros pitchers to scatter 12 Rockies' hits. The Rockies' starter Joe Kennedy (9-7) actually pitched very well, allowing four runs on eight hits in eight innings.

In addition to Bags' heroics, Jason Lane again contributed mightily to the Stros' win. Pinch hitting in the seventh, Lane first knocked in pinch running Adam Everett with an insurance run. Then, the following inning, Lane played the rebound of a line drive adroitly off of the Crawford Box wall and then made a perfect throw to nail Brad Hawpe trying to stretch a single into a double.

Finally, with the capacity Juice Box crowd tonight, the Stros have now drawn 3,001,511 fans through 80 games this season, which is the second time that the club has drawn over 3 million in attendance. The other time was in 2000, the Stros first season at Enron Field, er, I mean, Minute Maid Park a/ka/ the Juice Box.

The hottest ticket in Major League Baseball will be tomorrow night at the Juice Box as Roy O goes for his 20th win while attempting to put the Stros in even a better position in the Wild Card race. Still no decision on the Sunday starter, but rest assured that the Rocket is getting ready to return on three days rest.

Posted by Tom at 10:44 PM | Comments (0) |

It's Texas Renaissance Festival time!

The Texas Renaissance Festival outside of Magnolia northwest of Houston begins its annual month and a half long run this weekend for the 30th straight year (has it really been that long?). Even if interacting with Renaissance characters is not your thing, a trip to the festival is worth it just to admire the festival location, which is a huge city from several centuries ago that has been built gradually over the past 30 years in the middle of a huge Texas pasture. Moreover, the food at the festival is exquisite and also well worth the trip -- where else can you enjoy a lunch of a turkey leg polished off with a dessert of fried ice cream?

Posted by Tom at 8:05 AM | Comments (4) |

The hypocrisy of the Feds suing Big Tobacco

In his WSJ ($) Business World column this week, Holman Jenkins, Jr. addresses the Justice Department's latest lawsuit against the big tobacco companies, and notes that the public relations benefit of such lawsuits far outweighs any meaningful public benefit:

Were there a single element of human or policy interest in the trial launched by the Justice Department last week, it would be the department's conspicuous pride in admitting that it had spent an unprecedented $139 million preparing the case. To what end? In its dubious interpretation of racketeering law, the government seeks "disgorgement" of profits earned over half a century from selling cigarettes to smokers who started before age 21 -- a newly identified demographic category that Justice calls the "youth addicted population."

But those 50 years of profits were long ago distributed to shareholders. They won't be found around the premises in a vault at Philip Morris, er, Altria.

Indeed, just who is the real owner of the big tobacco companies? It might surprise you to find out:

[G]overnment already gets the lion's share of the proceeds of their continued smoking. Consider: A pack costs about $2.15 at the factory gate, of which the industry's after-tax profit is about 17 cents. Federal excise tax takes 39 cents, while state taxes range from Virginia's 37 cents to New Jersey's $2.73.

Then there's the additional, and novel, new "tax" imposed by the 1998 settlement with 46 states, which comes to about 50 cents a pack, though no legislator was ever obliged to cast a vote to impose this price hike on smokers.

Bottom line: The industry's shareholders long ago were reduced to the role of cutouts, allowed to keep collecting a small piece of the pie so politicians can go on posing as scourges of "Big Tobacco" even as government has become, effectively, the "beneficial owner" of the major tobacco companies.

And the public relations benefit to the federal government from these lawsuits also has a rather stark cost:

Revenuers, after all, have imbibed a great deal of free-lunchism from the Campaign for Tobacco-Free Kids, which shouts in one of its press releases: "Raising State Tobacco Taxes Always Increases State Revenues." Ditto the World Bank, which officially estimates that a 10% tax hike causes only a 4% decline in consumption. The bank goes out of its way to applaud governments like Greece's and Turkey's, which get upwards of 10% of their revenue from cigarette taxes.

Of course, a less decorous way of saying the same thing is that governments have learned to be calculating exploiters of the "inelastic" demand of addicted cigarette smokers.

But Mr. Jenkins points out that this ruse likely will not on much longer, but for economic reasons, not good public policy ones:

What might torpedo it politically, if not legally, however, is evidence that the lines are crossing and higher prices are leading to lower revenues.

We're already there: Revenues under the state settlement have lately begun declining at 4.5% a year, twice as fast as predicted and faster than can be explained by smuggling or smokers switching to renegade brands or roll-your-own.

If this keeps up, we may find out whether the government is really interested in curbing smoking -- or in profiting from it.

Read the entire piece. This reminds me a bit of the Texas Republicans' proposal earlier this year to subsidize state public school finance through an increase in notoriously volatile taxes on gambling within the state. Republicans should be wary that independent voters will figure out that something is terribly skewed about government raising money from activities such as gambling and smoking that it really ought not to be promoting.

Posted by Tom at 6:08 AM | Comments (0) |

Cubs lose, Giants win, Rockies arrive

The Cubs lost Thursday afternoon again (that's five out of the last six, folks) and the Giants won their late game, so the Stros enter the final weekend of the regular season tied with the Giants for the Wild Card playoff lead and the Cubs are a game behind the Stros and the Giants.

The Stros' Pete Munro starts the biggest game of his career in the Friday night game against the Rockies, while Roy O starts the Saturday night game and goes for his 20th win. Developments over those two games will dictate who starts the Sunday afternoon finale as the Rocket looms in the shadows to start on three days rest, if necessary.

The Rockies come in finishing up another woeful season (68-91) and are 4-6 in their last ten games. But they will be "loose as a goose in a bucket of juice," so the Stros likely will not have it easy. The best approach for the Stros is to take early leads in each game so that the Rockie players become distracted with dinner plans rather than baseball. The Rockies have one great hitter (Todd Helton, who is comparable to Berkman), one decent hitter (Jeremy Burnitz, who has similar stats to Bags), and then a bunch of average and below average hitters, including ex-Stro, Vinnie Castilla, who Milo will describe as having a great season despite an Ensberg-like -10 RCAA (RCAA explained here).

The Giants play three with the Dodgers in L.A. and the Cubs play the Braves at Wrigley over the weekend, so neither of those clubs will have it easy, either. It's going to be a wild weekend, so hold on tight.

Posted by Tom at 5:21 AM | Comments (0) |

September 30, 2004

An interesting observation about the Stros

Joe Sheehan of Baseball Prospetus ($) observed the following regarding the Stros' sweep of the Cardinals:

The Astros took advantage of the losses by the Cubs and Giants, completing a sweep of the Cardinals to tie those two at 70 defeats. If they run the table this weekend against the Rockies--and they've won 15 straight home games--they can do no worse than a tie for the wild-card slot.

What a waste of two-and-a-half years. Someone owes Larry Dierker an apology.

Ouch!

Posted by Tom at 5:12 PM | Comments (5) |

El Paso finally files 10-K

As expected, Houston-based El Paso Corp. disclosed a huge loss for 2003 and restated previous financial results in a delayed Form 10-K filing with the Securities and Exchange Commission.

El Paso posted a full-year 2003 loss of $1.93 billion, or $3.23 a share, on revenue of $6.7 billion. The loss from continuing operations was $616 million, or $1.03 a share. The company also restated its financial results for every year since 1999 as a result of an investigation into its reserve accounting and accounting for hedging transactions. The overall impact of the restatements was to cut shareholder equity by about $2.4 billion at Sept. 30, 2003. Of this amount, about $1.7 billion related to the restatement of El Paso's historical reserve estimates and about $700 million related to the restatement of its historical accounting for hedges. Here are the earlier posts on El Paso's mounting financial problems.

The 10-K also disclosed that one of El Paso's units has been subpoenaed by a grand jury from the U.S. District Court for the Southern District of New York to produce records regarding the United Nations' Oil for Food Program governing sales of Iraqi oil. The unit, El Paso CGP Company, was formerly Coastal Corp., which the company acquired in January 2001. The former chairman of Coastal -- Oscar Wyatt -- was an unabashed critic of Operation Desert Storm in the first Persian Gulf War and has been a vocal public critic of El Paso's management over the past several years.

El Paso also received a subpoena from the SEC earlier this year relating to its reserve revisions, which are also being investigated by the U.S. attorney. Moreover, the company's hedge accounting is also the subject of an investigation by the U.S. Attorney and may become the subject of a separate inquiry by the SEC.

Man, is El Paso a white collar criminal defense attorney's dream or what?

Finally, El Paso reported that it expects to meet its November 30 deadline for filing its delayed Form 10-Q's for the first two quarters of 2004. El Paso remains on my reorganization watch as a likely candidate for a chapter 11 case in the near future, so stay tuned.

Posted by Tom at 4:55 PM | Comments (0) |

Durst case finally comes to a close

After killing his neighbor three years ago and dumping the butchered body into Galveston Bay and then winning an acquittal in his subsequent 2003 murder trial, Robert Durst -- an heir to a New York family's real estate fortune -- pleaded guilty Wednesday to two counts of bail jumping and one of evidence tampering that will allow Durst to get out of prison in less than a year. Here are earlier posts on the Durst case.

The deal came just two hours after state appellate judge Judge Jackson B. Smith Jr. had removed removed Galveston State District Judge Susan Criss from the case. Judge Criss had refused the plea deal earlier in the week, which was yet another strange twist in a case. Judge Criss had been rebuked by the appellate court earlier this year for setting Durst's bail at $3 billion dollars on the three relatively minor charges after Durst had been acquitted in the murder trial (the appellate court reduced the bail to $450,000). With credit for time served both before and after his murder trial, Durst will likely be freed from prison early next year under state prison system rules.

The recusal came after sheriff's investigators testified before Judge Smith that Judge Criss had given them information in December that prompted an investigation into possible jury tampering during Durst's murder trial. Although the investigators found no evidence of criminal activity by jurors or anyone involved in the trial, they did secretly tape-record conversations between Durst and a juror who visited him in jail after the trial. Nevertheless, Durst did admit in the taped conversation that he skipped a court appearance after he posted a $300,000 bond in the murder case in September 2001.

As a result, Durst's defense attorneys Dick DeGuerin and Mike Ramsey maintained that Judge Criss' involvement in the jury tampering investigation that led to Durst's taped admission made her a potential witness in Durst's bail-jumping case, and that such involvement required her to be removed from adjudicating the case. When Judge Criss refused to recuse herself from the case earlier this week, Judge Smith did so in about 10 minutes on Wednesday.

Posted by Tom at 5:31 AM | Comments (0) |

September 29, 2004

Stros take Wild Card playoff lead

Bags singled in the go ahead run and Berkman doubled in Bags with the insurance run in the seventh inning as the Stros beat the Cards 6-4 on Wednesday night at a rollicking Juice Box. The win completed an unlikely Stros sweep of the Cards, who sport the best record in Major League Baseball. The Stros have now won a record 15 straight at the Juice Box and are 33-10 over the past month and a half. What a ride it's been!

With the Cubs blowing another one on Wednesday afternoon to the Reds and the Giants losing to the Padres late Wednesday, the Stros have now moved into sole possession of the lead for the Wild Card playoff berth, a half game ahead of both the Cubs and the Giants. The Cubs play the Reds and the Giants play the Pads again on Thursday, which is an off day for the Stros, so the worst shape that the Stros will begin play on Friday is that they will be tied for the Wild Card lead.

The Rocket gave yet another remarkable performance, going six innings and giving up 4 runs on 4 hits while striking out 8 and walking only one. The big blow was Scott Rolen's two out, two run yak in the sixth after Clemens thought that he had struck out the hitter before Rolen (that hitter eventually walked). Clemens had some choice words for the home plate umpire as he walked off the field at the end of the sixth.

Qualls, Miceli, and Lidge were again money for the Stros in relief, although the entire Juice Box crowd audibly gasped when Mabry toyed with a game tying yak while flying out deep to right with one on to end the game. When Berkman caught Mabry's fly, I couldn't tell whether the resulting Juice Box roar was one of joy or relief. The Stros hitters also battled gamely against tought Cards starter Suppan and managed 9 hits, including a two run Ensberg yak and Kent's solo shot.

The Stros have a well deserved day off on Thursday before the Rockies come in for the final weekend series of the season. Pete Munro and the rest of the bullpen pitches in the Friday game, Roy O comes back for the Saturday game, and then I would not be surprised if Clemens comes back on three days rest to pitch on Sunday if the Stros still have a chance. The upcoming weekend is shaping up to be a wild one, something that I had discounted as recently as a few days ago. I am thoroughly enjoying being wrong on that one!

Posted by Tom at 10:24 PM | Comments (2) |

Enron prosecutors pursue extradition of English bankers under U.K. terrorism law

Three former Natwest Bank bankers appeared in a London court yesterday to fight extradition to the United States, where they are facing fraud charges in connection with a deal with Enron Corp.

Natwest bankers David Bermingham, Giles Darby and Gary Mulgrew, are accused of conspiring with Enron's former CFO, Andrew Fastow and his colleague Michael Kopper, to fleece their employer, Natwest Bank, of around 4 million pounds, which equates to about $7.3 million. The three face extradition to stand trial in Houston on seven counts of wire fraud and illegally gaining money via international banking systems. Messrs. Fastow and Kopper have already admitted involvement in the alleged scheme as part of a plea bargain.

Interestingly, none of the British bankers have have ever been charged with a criminal offense in England. In fact, Natwest Bank is still lending the defendants money to cover their legal defense costs. The defendants contend that they will not receive a fair trail in Texas in the aftermath of the Enron scandal, which is likely true given the adverse publicity regarding Enron that the Government has promoted throughout the Enron investigation.

The Government claims that the bankers conspired with Messrs. Fastow, Kopper and other senior Enron executives in 2000 to sell a stake in a Cayman Island company for $1 million when the true value was much higher. A month later, the company was re-sold and the trio each made a large profit while Messrs. Fastow and Kopper pocketed $12 million each.

Remarkably, if the three are extradited, they could face an extended period of time in a U.S. federal penitentiary before their case gets to court because, as foreign citizens, they could be held without bail until trial. The controversial three-day extradition hearing in London is the first under the new British Extradition Act, which was promoted by British politician David Blunkett to trap suspected terrorists.

Meanwhile, as the Government continues prosecution of its flimsy case in the Nigerian Barge case in Houston federal court, this Wall Street Journal ($) article reports that the Enron Task Force has elected not to pursue criminal charges against Citigroup executives in regard to an Enron-Citigroup transaction that was much larger and strikingly similar to the Nigerian Barge transaction that prompted the Government to indict four former Merrill Lynch executives and two mid-level former Enron executives.

The lack of any meaningful prosecutorial discretion of the Bush Administration's Justice Department in regard to the prosecution of alleged business crimes continues to be highly troubling. Is this what the Republican Party suggests is a "business-friendly" administration?

Posted by Tom at 7:48 AM | Comments (1) |

September 28, 2004

Stros pull within a hair of Wild Card playoff lead

Jeff Bagwell drove in both of the Stros' runs, Brandon Backe and Chad Qualls set the table for Brad Lidge, and Lidge shut down the Cards in the ninth to lead the Stros to a 2-1 heart-pounding win over the Cardinals on Tuesday night at the Juice Box. The Stros have won five of its last six and tied a franchise record with their 14th straight home win, equaling a mark set in 1980.

The Stros moved within a half-game of the Cubs, who lost to the Reds 8-3 at Wrigley Field and the Giants, who beat the Padres 7-5 in San Diego, for the lead in the Wild Card playoff race.

Carlos Beltran and home plate umpire O'Nora prevented the Cardinals from taking the lead in the fifth when Beltran caught a no out line drive, then threw out Reggie Sanders at the plate for a double play. Home plate umpire O'Nora clearly blew the call, but the Stros are accepting charity from any quarter at this point.

In the most important game of this season, the Rocket takes the hill Wednesday night against the Cards to attempt to pull the Stros even in the Wild Card playoff race. The Juice Box will be one juiced place on Wednesday night.

Posted by Tom at 11:03 PM | Comments (0) |

Trouble in Cambridge

How can anyone on the Harvard faculty or in the Harvard administration not view as a troubling trend this latest episode of, at best, academic sloppiness? To make matters even more dreadful, I'm not sure what's worse, Tribe's plagiarism or Dershowitz's disingenuous defense of it.

Meanwhile, the Harvard Plagiarism Archive has popped up to keep us abreast of these developments.

Posted by Tom at 8:01 AM | Comments (0) |

September 27, 2004

Stros and Cubs win

The Stros beat the Cards 10-3 at the Juice Box on Monday night behind Roy O's solid pitching and a 14 hit attack that included five doubles, a Beltran triple and a Jason Lane pinch hit yak.

Unfortunately, the Cubs won, too. Stros hold serve. Backe starts the Tuesday night game.

Posted by Tom at 10:06 PM | Comments (0) |

Checking in on the Nigerian Barge trial

I had a hearing on Monday afternoon in federal court, so I went a bit early and sat in on the ongoing trial of the first Enron-related criminal case to go to trial -- the Nigerian Barge case. Today was a big day during the trial because one of Andy Fastow's most trusted lieutenants -- Michael Kopper -- took the stand as the Government's main witness.

The first four days of the trial that took place last week were remarkable only because the testimony of the initial Government witnesses confirmed that there is not all that much dispute between the prosecution and the defense about the salient facts of the case. The big difference is in the interpretation of the facts, and that's why Kopper is an important witness for the Government.

In effect, Kopper is standing in for Fastow, who the Enron Task Force prosecutors do not want to call in this trial of two low-level Enron executives and four Merrill Lynch executives over a relatively small deal. Kopper is testifying under a plea bargain deal in which the Government has agreed not to prosecute Kopper's gay lover for profiting off of Enron's off-balance sheet partnerships and to recommend a minimum prison sentence for Kopper if he testifies in accordance with the government's theory of the case in this trial and others.

Kopper makes a good impression as a witness -- young, handsome, courteous, articulate, bright, and soft-spoken. And apparently, he testified this morning in support of the government's theory of the case -- i.e., Enron induced Merrill Lynch to buy the barges at the end of 1999 by orally guaranteeing through Fastow that Enron would arrange a sale of the barges for Merrill by the end of June 2000 at a pre-arranged profit. If such an Enron guaranty existed, then the Government contends that Enron's booking of the profit from the deal was improper and the Defendants engaged in a fraud on Enron's investors.

But if the morning went according to the Government's form, the afternoon was a different story. Kopper was ravaged during cross-examination, first by Lawrence Zweifach, who represents Merrill Defendant James Brown, and then by David Spears, who represents Merrill Defendant William Fuhs.

Kopper readily admitted to Mr. Zweifach that the barge transaction was such a risky deal that he would not approve it originally as an asset purchase for one of Fastow's now infamous off balance sheet partnerships that Enron used liberally to buy assets from Enron. Inasmuch as the Government's theory of the case is based largely on the allegation that Merrill's purchase of the barges was not a risky deal because of Enron's guaranty, this line of cross-examination of the Government's primary witness did not go over well with the prosecution lawyers. They objected often and ineffectively throughout the cross-examination as U.S. District Judge Ewing Werlein overruled almost every Government objection.

Then, Mr. Spears took over and Kopper admitted the truth of a mid-2000 memo written by an Enron analyst that openly stated that Enron faced a dilemma with regard to the barges and Merrill -- either Enron needed to broker a sale of the barges to an investor to preserve Enron's client relationship with Merrill or Enron should simply buy the barges back and restate its financial statements to account for the deal as a loan rather than a sale. There was no mention whatsoever in the memo of any Enron "guaranty" to Merrill or that restatement of earnings was all that big of a deal for Enron. Again, you could almost hear the air leaking from the Government's balloon as Kopper's cross-examination proceeded.

However, no one really knows how all of this plays out with the jury, which is the only reason that this case is being prosecuted in the first place. The Government figures that it can get convictions on such a flimsy case because most jurors will be biased against anything having to do with the cultural pariah Enron.

Based on what I know about this case and what I witnessed today, if the Government gets convictions in as weak a case as this one, then the Government will have little disincentive to bring equally dubious cases against business executives. Accordingly, if you represent business clients, stay tuned to developments in this trial.

Posted by Tom at 9:56 PM | Comments (0) |

The decision to die

THis long NY Times article about end-of-life decision making provides an excellent overview of the issues that confront families and health care professionals in making those decisions. Check it out.

Posted by Tom at 6:37 AM | Comments (0) |

Kerry's management style

My sense is that the upcoming Presidential election is going to be a much closer race than many Bush Administration supporters currently think, so this NY Sunday Times article on John Kerry's management style is timely in that it provides some insight into how a President Kerry would go about making decisions.

Mr. Kerry, who is a former prosecutor, is a four term senator without any meaningful management experience in terms of running a business, so his management style is primarily reflected on how he runs his campaign:

Mr. Kerry is a meticulous, deliberative decision maker, always demanding more information, calling around for advice, reading another document ? acting, in short, as if he were still the Massachusetts prosecutor boning up for a case.

He stayed up late last Sunday night with aides at his home in Beacon Hill, rewriting ? and rearguing ? major passages of his latest Iraq speech, a ritual that aides say occurs even with routine remarks.

In interviews, associates repeatedly described Mr. Kerry as uncommonly bright, informed and curious.

But Mr. Kerry's curiousity brings with it an indecisiveness borne of a tendency to become deluged in what I refer to as "data dumps:"

But the downside to his deliberative executive style, they said, is a campaign that has often moved slowly against a swift opponent, and a candidate who has struggled to synthesize the information he sweeps up into a clear, concise case against Mr. Bush.

Even his aides concede that Mr. Kerry can be slow in taking action, bogged down in the very details he is so intent on collecting, as suggested by the fact that he never even used the Medicare information he sent his staff chasing.

His attention to detail can serve him well on big projects, as it did when he sent aides scurrying across the country to find long-lost fellow Vietnam veterans who could vouch for his war record. But sometimes, his aides say, it is a distraction, as it was in early 2003, when they say he spent four weeks mulling the design of his campaign logo, consulting associates about what font it should use and whether it should include an American flag. (It does.)

His habit of soliciting one more point of view prompted one close adviser to say he had learned to wait until the last minute before weighing in: Mr. Kerry, he said, is apt to be most influenced by the last person who has his ear.

And whereas President Bush rarely makes management changes in his top circle of advisors, Kerry often does:

Mr. Kerry has also, in this campaign and earlier ones, repeatedly upended his staff, edging longtime advisers aside or dismissing aides outright when things threatened to run off the tracks. As a result, while some stalwarts from Mr. Kerry's first campaign have stuck with him since 1972, the senior staff of his campaign includes few people who call themselves his friends or are personally loyal to him.

And there is a hint of the Jimmy Carter micromanager management style in Kerry's approach:

Mr. Kerry's circle is as wide and changing as Mr. Bush's is constricted and consistent. He is always calling one more friend, and the campaign lineup has shifted so often that rumors of staff changes have become part of the daily gallows humor at Kerry headquarters on McPherson Square in downtown Washington.

Instead of delegating authority to a single adviser, Mr. Kerry relies on different people for different advice. And, he made a point of saying in the interview, none of them have too much authority. "I am always in charge," he said.

And though he is constantly seeking out advice, Kerry does not always follow it:

For all his eagerness to seek advice, Mr. Kerry does not always take it.

After he delivered a 35-minute speech at the University of Pittsburgh last spring, Gov. Edward G. Rendell of Pennsylvania gently tried to reinforce a message Mr. Kerry's aides had been struggling to impart.

"I said I thought it was a little long for an outdoor speech," Mr. Rendell recalled. "My rule of thumb for an outdoor speech is 15 to 20 minutes."

That night at the Philadelphia Convention Center, Mr. Rendell prepped Mr. Kerry by saying the crowd was full of party veterans and urging him to keep his speech short. He talked for 32 minutes.

When Mr. Kerry arrived in Allentown early this month for a rally at the fairgrounds, Mr. Rendell did not even mention his 20-minute outdoor rule. "I've given up," Mr. Rendell said. "He listens sometimes, and he doesn't listen sometimes."

Mr. Kerry spoke for 38 minutes.

Posted by Tom at 6:23 AM | Comments (0) |

September 26, 2004

2004 Weekly local football review

Texans 24 Chiefs 21. In the biggest upset of the young NFL season, the Texans took advantage of a Trent Green blunder that resulted in Marcus Coleman's 102 interception return for a touchdown to edge the Chiefs at Arrowhead on Kris Brown's 49 yard field goal with 2 seconds to play. The Chiefs really should have won this game, as they were about to go up 21-6 when Coleman picked off Green. But David Carr overcame another mediocre performance for three quarters and played well down the stretch along with receivers Johnson, Gaffney, and newcomer Derick Armstrong to pull out in impressive victory. The Texans have the Raiders and Vikings the next two weeks at home, and the Texans have a shot in both games if they can slow the offenses of the opposition as they did in the Chiefs game.

The Cowboys play the Redskins on Monday Night Football this week.

Texas 35 Rice 13. The Horns pounded the gritty Owls in what amounted to a scrimmage as Texas continues to prepare for their October 9th showdown in Dallas with OU. As of now, I don't think Texas can throw well enough to move the ball consistently on OU and the Horns do not seem strong enough defensively to keep OU's offense in a low scoring game. But Texas does have serious offensive talent in Young and Benson, so a surprise in Dallas is possible. However, at this point, I just don't see how the Horns win that game. OU plays their first tough game of the season this coming Saturday against Texas Tech, while the Horns tune up against Baylor. Rice goes to San Jose State this Saturday, which is a very winnable game for the Owls.

Miami 38 Houston 13. THe Coogs improbably made a game of it with the Hurricanes into the third quarter, but the Miami defense ultimately proved too strong for the Coogs to score enough points to really worry the Canes, although the Coogs beat the spread comfortably. As usual, Miami's defense is big-time good, but the Canes' offense is not National Championship caliber this season. The Coogs go to Memphis this Saturday, which is definitely no picnic. Expect the Coogs to be 1-4 after this Saturday.

The Texas Aggies were idle as they prepare for their Big 12 opener against Kansas State in College Station next Saturday.

Posted by Tom at 9:49 PM | Comments (2) |

Stros continue to tease

Raul Chavez improbably drove in a career-high five runs, Jason Lane went 3-for-4 with and scored twice, and Morgan Ensberg went 4-for-5 with two runs scored as the Stros hung on to their slim playoff hopes with an 11-7 win over the Brewers on Sunday afternoon at Miller Park in Milwaukee. I also think that the fact that my nephew Richard -- a huge Stros fan -- attended the game gave the Stros some good karma that contributed to the victory.

Jeff Kent and Lance Berkman also homered for the Stros to keep the heat on the Cubs and the Giants, who both lost on Sunday. The Stros are 1 1/2 games behind the Cubs and one game behind the Giants with six games to go at the Juice Box against the Cards and the Rockies this week.

Tim Redding (5-7), the third of eight Stros pitchers, was credited with the win after throwing a scoreless fourth inning in relief of Carlos Hernandez, who lasted only 2 1/3rd innings and appears to be fading as the season closes. Brad Lidge once again slammed the door with a 1-2-3 ninth to secure the win.

It's been three weeks since my last periodic review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here), and the updated statistics reflect why the Stros have not been able to overtake the Cubs and the Giants in the NL Wild Card playoff race. Here were the Stros hitters' RCAA numbers, courtesy of Lee Sinins, through Saturday, September 25:

Lance Berkman 65
Carlos Beltran 26
Jeff Bagwell 13
Mike Lamb 11
Craig Biggio 4
Jeff Kent 1
Eric Bruntlett 0
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Jason Lane -2
Chris Burke -3
Orlando Palmeiro -3
Richard Hidalgo -9
Adam Everett -12
Morgan Ensberg -13
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26

Berkman and Beltran continue to be among the league leaders (Beltran's RCAA would be 41 if his Royals number is included), and Lamb has really had a remarkable season overall, but the rest of the Stros hitters are now lagging. After a brief surge that pumped his RCAA to 16 at one one point, Bags has cooled off to a 13, ensuring that this will be his sixth straight season of declining production and that he will officially become the most overpaid player in terms of current production in the National League.

Similarly, after being the club's third best hitter for much of the season, Bidg has faded badly down the stretch (he is in the midst of an 0-22 trough) as his RCAA has declined to 4. None of the other Stros regular hitters are even average National League hitters, and Ensberg, Viz, Chavez and Ausmus are among the worst hitters among regular National League hitters. The lack of run production during the just concluded road trip reflects this lack of punch in the Stros lineup.

After topping out at 6th during their late August-early September surge, the Stros have fallen back to 9th in RCAA among the 16 National League teams. The Stros (17) are comparable to the Cubs (18) in RCAA, but are way behind the Giants (85), who are riding the crest of another incredible season by Bonds (a remarkable 152 RCAA!).

However, the Stros fading hitting has been picked up by the Stros' pitching staff, which has improved its RSAA signficantly over the past three weeks. The following are the pitchers individual RSAA:

Roger Clemens 35
Brad Lidge 23
Roy Oswalt 20
Wade Miller 10
Dan Miceli 6
Octavio Dotel 5
Andy Pettitte 5
Dan Wheeler 4
Chad Qualls 2
Darren Oliver 1
Russ Springer 1
Brandon Backe -1
David Weathers -1
Mike Gallo -3
Jeremy Griffiths -3
Chad Harville -3
Ricky Stone -3
Kirk Bullinger -6
Jared Fernandez -6
Carlos Hernandez -7
Pete Munro -9
Brandon Duckworth -10
Tim Redding -15

Clemens, Lidge and Oswalt all continue to be among the top pitchers in the National League, and Miceli has had a nice bump up since returning from the his bout with pink eye. Wheeler and Qualls have been unexpectedly solid contributors, and even Backe's -1 is remarkable given that he had never started a MLB game until a few weeks ago. Hernandez and Munro have faded, but that's to be expected of two pitchers that the Stros were really not counting on this season.

The Stros (45) remain in fourth among the 16 National League teams in RSAA,
but the Cubs (117) remain far ahead of the Stros in runs saved against average. Given the difference between the Stros and the Giants in RCAA, and between the Stros and the Cubs in RSAA, it really is remarkable and a testament to the Stros' resilience that they have remained in the Wild Card race all the way to the final week of the season. Based on the numbers, both the Cubs and the Giants should be well ahead of the Stros in the race.

Oh, and by the way, before you think about criticizing Gerry Hunsicker or Drayton McLane for the trades of Hidalgo and Dotel earlier this season. Please note that Hidalgo is currently sporting a negative 20 RCAA. That's worse than Chavez for goodness sakes and puts him among the ten worst hitters among regular players in the National League. I liked Hidalgo as much as the next fellow, but he's on the brink of playing himself out the league at this level of production.

And Dotel? His RSAA for the season is 7, which is about as good as Miceli, nowhere near Lidge's RSAA, and a significant drop in Dotel's production from the past three seasons. Inasmuch as it is always better to trade a pitcher before they bottom out so that you can get some real value for him (in this case, Beltran), Hunsicker and Drayton should be applauded for this move, too.

Roy O opens the Cardinal series on Monday night and Brandon Backe is scheduled to pitch the Tuesday game before the Rocket steps up on Wednesday. If the Stros can win the first two against the Cards, then this week could get interesting.

Posted by Tom at 8:51 PM | Comments (0) |

Playing both sides against the middle

This Washington Post story reports on Washington lobbyist Jack Abramoff and public relations consultant Michael Scanlon's efforts in 2002 working with conservative religious activist Ralph Reed to help the state of Texas shut down an Indian tribe's El Paso casino, and then Messrs. Abramoff and Scanlon's incredible activities in persuading the tribe to pay $4.2 million to try to get Congress to reopen it once it had been closed. In the end, Messrs. Abramoff and Scanlon failed to get the casino reopened. Here is an earlier post from Charles Kuffner on the early stages of the investigation into the matter.

H'mm, let's see now. Work the political process to get a casino closed so that you can then work the political process to get the casino reopened. Not bad work if you can get it.

Posted by Tom at 7:16 AM | Comments (0) |

September 25, 2004

Going, going, gone!

The Brewers' Wes Obermueller pitched a six-hitter for his first career shutout and the Brewers for all practical purposes finished the Stros' fragile playoff chances with an 8-0 victory over the Stros on Saturday at Miller Park in Milwaukee. The Stros are now 2.5 games behind the Cubs and 1.5 games behind the Giants in the Wild Card playoff race with seven games to go. Folks, it's over.

It is fitting that this type of game was the one that sealed the Stros' fate. Except for the first month of the season and then the late August-mid September streak that got the Stros back in the playoff race, the Stros -- with the exception of Berkman and Beltran -- have struggled hitting generally and with power in particular. Five singles and a double off of Wes Obermueller is simply not going to win many games during a race for a playoff spot.

Pete Munro (4-7) gave up three runs -- two earned -- and five hits in four innings, and then Tim Redding came in and showed why he was demoted to AAA ball for much of this season.

Carlos Hernandez gets the start in the Stros' last road game of the season on Sunday afternoon against the Brewers. Then the Stros return to the Juice Box for three games series against the Cards and then the Rockies to finish the season that could have been.

Posted by Tom at 4:16 PM | Comments (0) |

Perots hand reins of Perot Systems to next generation of management

In a surprise move, Plano, Texas-based Perot Systems Corp. announced Friday that Ross Perot Jr. had dropped CEO from his title at the Plano, Texas computer services firm and given up the founding family's operational control of the company.

Peter Altabef, 45, the company's general counsel, succeeds Mr. Perot as president and chief executive. Mr. Altabef has been a Perot Systems executive for 11 years, since joining the company from the Dallas office of law firm Hughes & Luce LLP, which has long been the Perot family's law firm. Del Williams, a longtime Perot family friend, succeeds Mr. Altabef as general counsel.

Mr. Perot, 45, will become chairman of the company, succeeding his father, Ross Perot, Sr., 74, who becomes chairman emeritus. The changes in top management allow the Perots to maintain input into the strategic direction of the company while leaving day-to-day management decisions to others.

Mr. Perot Sr. founded Perot Systems in 1988 after leaving his first company, Plano-based Electronic Data Systems Corp, which he sold to General Motors in 1984 in a $2.5 billion deal. Mr. Perot is generally credited with inventing the computer services industry.

Mr. Perot, Jr. is also chairman of the real estate investment company he founded, Hillwood Development Corp. He took the Perot Systems reins from his father in 2000 and earned generally positive performance reviews from on Wall Street.

Posted by Tom at 8:05 AM | Comments (0) |

Fake Doc assaults female patients at Methodist

This Chronicle article reports that a man wearing hospital scrubs and a white lab coat sexually assaulted three female patients at Methodist Hospital in Houston's Texas Medical Center over the past two weeks.

Disguised as a medical professional wearing blue scrubs and a stethoscope, the man entered the rooms of female patients on Sept. 15, 19 and 20 and asked them several questions before saying he wanted to perform pelvic examinations on them. The women were sexually assaulted under the guise of the false exams, and each episode lasted about ten minutes.

Posted by Tom at 7:22 AM | Comments (0) |

September 24, 2004

Stros keep scratching

Roger Clemens pitched 7 plus innings of five hit, shutout ball and the Stros finally scratched out a run in the top of the 10th to beat the Brew Crew 1-0 on Friday night at Miller Park in Milwaukee.

The win allowed the Stros to keep pace with the Wild Card playoff race leading Cubs, who beat the Mets. Things are looking increasingly bleak for the Stros as they remain 2 1/2 games behind the Cubs with 8 games to go. The Stros would have to win at least 7 of those final 8 games to win a playoff berth if either the Giants or the Cubs just split their final 8 games. Although the Stros have won 7 of their last 10 games, the 8-2 Cubs have gained ground on them and the 7-3 Giants have also kept pace with them.

Nevertheless, Clemens was magnificent again as he dominated the Brewers for the second time in a week. The Rocket struck out 12 while walking three before giving way to Lidge and Miceli, who closed the game without giving up a hit. The Stros finally broke through with the winning run in the 10th as pinch-runner Willie Taveras went from first to third on Carlos Beltran's bloop single and then scored on Bidg's sac fly.

After a lull of over a week now, the Stros need to start hitting the ball and scoring runs quickly as Pete Munro takes the mound in the Saturday afternoon game against the Brewers' Wes Obermueller(5-8/6.35). The Stros have penciled in Carlos Hernandez to start the Sunday afternoon game.

Posted by Tom at 10:37 PM | Comments (0) |

Decisions during the fog of war

Max Boot is a Senior Fellow of National Security Studies at the Council of Foreign Relations, and an award-winning author and former editorial features editor of The Wall Street Journal. Mr. Boot is an expert on national security policy and U.S. military history and technology.

In this LA Times op-ed, Mr. Boot gives an interesting historical perspective to the criticism levied against the Bush Administration recently for its tactical decisions in the war against the Islamic fascists:

Reading the depressing headlines, one is tempted to ask: Has any president in U.S. history ever botched a war or its aftermath so badly?

Actually, yes. Most wartime presidents have made catastrophic blunders, from James Madison losing his capital to the British in 1814 to Harry Truman getting embroiled with China in 1950. Errors tend to shrink in retrospect if committed in a winning cause (Korea); they get magnified in a losing one (Vietnam).

Despite all that's gone wrong so far, Iraq could still go either way. (In one recent poll, 51% of Iraqis said their country was headed in "the right direction"; only 31% felt it was going the wrong way.)

Mr. Boot then reviews the blunders that two of our most revered Presidents -- Lincoln and FDR -- made in connection with their wars:

Lincoln is remembered, of course, for winning the Civil War and freeing the slaves. We tend to forget that along the way he lost more battles than any other president: First and Second Bull Run, Fredericksburg, Chancellorsville, Chickamauga?. The list of federal defeats was long and dispiriting. So was the list of federal victories (e.g., Antietam, Gettysburg) that could have been exploited to shorten the conflict, but weren't.

As the Union's fortunes fell, opponents tarred Lincoln with invective that might make even Michael Moore blush. Harper's magazine called him a "despot, liar, thief, braggart, buffoon, usurper, monster, ignoramus." As late as the summer of 1864, Lincoln appeared likely to lose his bid for reelection. Only the fall of Atlanta on Sept. 2 saved his presidency.

Most of the Union's failures were because of inept generalship, but it was Lincoln who chose the generals, including many political appointees with scant military experience. He ultimately won the war only by backing Ulysses Grant's brutal attritional tactics that have often been criticized as sheer butchery.

FDR had some doozies, too:

Roosevelt had more than his share of mistakes too, the most notorious being his failure to prevent the attack on Pearl Harbor, even though U.S. code breakers had given him better intelligence than Bush had before Sept. 11. FDR also did not do enough to prepare the armed forces for war, and then pushed them into early offensives at Guadalcanal and North Africa that took a heavy toll on inexperienced troops. At Kasserine Pass, Tunisia, in 1943, the U.S. Army was mauled by veteran German units, losing more than 6,000 soldiers.

The Allies went on to win the war but still suffered many snafus, such as Operation Market Garden, a failed airborne assault on Holland in September 1944, and the Battle of the Bulge three months later, when a massive German onslaught in the Ardennes caught U.S. troops napping.

Though FDR bore only indirect responsibility for most of these screw-ups, he was more directly culpable for other bad calls, such as the decision to detain 120,000 Japanese Americans without any proof of their disloyalty. Like Lincoln, who jailed suspected Southern sympathizers without trial, Roosevelt was guilty of civil liberties restrictions that were light-years beyond the Patriot Act. And, like Bush, Roosevelt didn't do enough to prepare for the postwar period. His failure to occupy more of Eastern Europe before the Red Army arrived consigned millions to tyranny; his failure to plan for the future of Korea and Vietnam after the Japanese left helped lead to two wars that killed 100,000 Americans.

Mr. Boot closes by placing the current criticism of the Bush Administation's tactical decisions in Iraq into historical perspective:

None of this is meant in any way to denigrate the inspired leadership of two great presidents. Both Lincoln and Roosevelt were brilliant wartime leaders precisely because they were able to overcome adversity and inspire the country toward ultimate victory with their unflagging will to win. That's what Bush is trying to do today.

And, no, I'm not suggesting Bush is another Lincoln or Roosevelt. But even if Bush hasn't reached their lofty heights, neither has he experienced their depths of despair. We are losing one or two soldiers a day in Iraq. Lincoln lost an average of 250 daily for four years, Roosevelt 300 daily for more than 3 1/2 years. If they could overcome such numbing losses to prevail against far more formidable foes than we face now, it's ludicrous to give in to today's fashionable funk.

"Colossal failures of judgment" are to be expected in wartime; I daresay even John Kerry (whose judgment on Iraq changes every 30 minutes) might commit a few. They do not have to spell defeat now any more than they did in 1865 or 1945.

Read the entire piece.

Posted by Tom at 6:59 AM | Comments (0) |

Stros hang by a thread

After scoring five runs in the first 26 innings of their key series with the Giants, the Stros imporbably rallied for five runs in the ninth around Lance Berkman's three run yak to pull out a dramatic 7-3 win over the Giants in a wild one on Thursday night in San Francisco.

With the win, the Stros are 2½ games behind the Cubs, who took a half-game lead over the Giants in the National League Wild Card race by winning on Thursday. The Giants also dropped 1½ games behind Dodgers in the National League West Division race, which is about to get very interesting as the Giants play the Dodgers in six of their final nine games.

The home run was sweet for Berkman, who had several adventures while pursuing balls hit by Barry Bonds during the game. He badly misplayed Bonds' triple to right in the fifth and then fell on his backside while catching Bonds' drive in the seventh. Although Berkman's natural position is first base, he actually is an above-average outfielder. But man, he sure does look funny sometimes going after balls in the outfield.

Even Berkman's tater was unusual, as he lifted it high in the air and it barely reached the first row of seats in the elevated arcade on the right-field wall. Jason Lane then followed with an RBI pinch hit single and Raul Chavez's sacrifice bunt also plated a run. Carlos Beltran also busted out of a mini-slump with three hits for the Stros, who ended up with 10 hits despite only having five through eight innings against Giants starter Jason Schmidt.

The game got a bit chippy after Berkman's yak in the ninth when Giants reliever Dustin Hermanson and manager Felipe Alou were ejected after Hermanson hit Jeff Kent with the first pitch after Berkman's tater. Both clubs had been warned after a bench-clearing incident in the third, when Stros' starter Brandon Backe dusted off Bonds with a low pitch. Though there were no punches or ejections in that incident, Bonds went nuclear over the low throw, gesturing and yelling at Backe and nearly sticking his fingers in the mask of the home plate umpire.

Dan Miceli got the win by getting one out in the eighth, and Brad Lidge secured the win by striking out three in the ninth as a parade of six Stros relievers bailed starter Backe out after he could last just 2 1/3rd innings.

The Stros now go to Milwaukee for a weekender with the Brew Crew as the Rocket opens the series in going for this 19th victory. Pete Munro and then "who knows" follow in the next two games of the Brewers series before the Stros return to the Juice Box to close out the season with six games against the Cards and the Rockies.

Posted by Tom at 4:51 AM | Comments (1) |

September 23, 2004

Best of Houston: Best Blog

The Houston Press names Charles Kuffner's Off the Kuff as Houston's best blog in its annual Best of Houston series. A worthy selection. Congratulations, Charles!

Posted by Tom at 8:03 AM | Comments (1) |

Lehman Brothers settling Enron claims

The Wall Street Journal ($) is reporting today that brokerage house Lehman Brothers Holdings Inc. is close to a $220 million settlement to resolve a class-action lawsuit alleging that it and other big brokerage firms participated in a scheme with Enron Corp. executives to mislead shareholders. Lehman's propoed settlement follows a similar settlement in July in which Bank of America Corp. agreed to pay $69 million to settle similar allegations.

Bank of America and Lehman were underwriters in just a handful of Enron-related deals, so attorneys involved in the case believe their roles (and thus their settlement payments) are small in comparison to firms like Citigroup Inc. and J.P. Morgan Chase & Co. who did more Enron-related deals. Citigroup and J.P. Morgan are among the firms that have reserved billions of dollars to cover Enron-related exposure.

Posted by Tom at 7:04 AM | Comments (0) |

Dan Duncan gives $35 million to Baylor College of Medicine

Kicking off a capital campaign, Baylor College of Medicine announced Wednesday it has received a $35 million gift from Baylor trustee and longtime Houstonian Dan Duncan to kick off the building of a new Baylor-operated clinic in the Texas Medical Center.

Mr. Duncan's donation will be paid over 10 years and represents about a third of the clinic's estimated cost. The clinic will be between 250,000 to 350,000 square feet and finished by late 2007 at a cost of about $90 million. The clinic will offer a full range of medical services from cardiology to ophthalmology, checkups, lab tests, and day surgery. The clinic will also allow patients to receive diagnosis and treatment in one place for conditions that cross specialties.

The University of Texas Health Science Center at Houston earlier this month announced the purchase the Hermann Professional Building to use as its outpatient clinic and Methodist Hospital has plans to build such a clinic, a plan that was part of the reason that Baylor and Methodist ended their 50 year relationship earlier this year.

Posted by Tom at 6:48 AM | Comments (2) |

New plan for the Astrodome

With the construction of the Juice Box and Reliant Stadium, one of the local political footballs that is lobbed around Houston from time to time is the following issue: What should we do with the Astrodome?

The local sports and convention corporation spends about $1.5 million annually to host a small number of events at the Astrodome and, even if the facility were to be mothballed, the corporation would spend $500,000 annually in maintaining it. Even razing it would be expensive, probably costing $10 million to $20 million. Moreover, Harris County still owes more than $50 million on bonds issued to pay for renovations at the Astrodome during the 1980s (remember Bud Adams?), and that debt will mature in 2012.

Consequently, The Astrodome is a knotty problem. It's expensive to maintain and, quite frankly, the County is not spending the money to maintain it properly. As a result, it is a dump at this point, and it looks haggard next to gleaming Reliant Stadium and the new Reliant Convention Center that are next door neighbors to the Dome in Reliant Park. Unless something can be done to make some other use of the grand ol' dame of Houston sports facilities, most Houstonians would rather see it blown up so that the space it uses could be transformed into more parking at Reliant Park.

However, this Chronicle article reports that the company looking to redevelop the Astrodome is planning on converting it into a 1,000 room convention hotel. The Astrodome hotel would be the second largest hotel in town, second to the 1,200 room Hilton Americas Convention Hotel next to the George R. Brown Convention Center in downtown Houston.

Although the Gaylord Texan Hotel in Grapevine near DFW Airport in the Dallas-Ft. Worth area is an existing prototype of what a retrofitted Dome could be, my sense is that this proposal for the Astrodome is not likely to occur without a substantial subsidy from Harris County. Consequently, let's see if the Chronicle or any other Houston news media discloses the true taxpayer cost of retrofitting and maintaining the Dome in comparison to alternative uses of the property. Given the Chronicle's abysmal performance in providing accurate information regarding the cost of the Streetcar Named Disaster, my expectations are not high.

Posted by Tom at 6:32 AM | Comments (0) |

Keegan on the Iraq War

John Keegan is England's foremost military historian and, for many years, was the Senior Lecturer at the Royal Military Academy at Sandhurst. His book -- The Second World War -- is arguably the best single volume book on World War II and his book The Face of Battle is essential reading for anyone seeking an understanding of the history of warfare. His newest book -- The Iraq War -- was published earlier this year, and here is a post from June on one of Mr. Keegan's earlier op-ed's on the Iraq War.

In this London Telegraph op-ed, Mr. Keegan weighs in on the current situation in Iraq, which has been the subject of these Victor Davis Hanson and James Fallows posts from over the past several days. Essentially, Mr. Keegan notes that mistakes have been made, but points out that the situation could be far worse than it is.

Inasmuch as England's Prime Minister Tony Blair is currently bearing the same criticism over the Iraq War that President Bush is enduring from similar forces in the U.S., Mr. Keegan first addresses the motives behind such criticism:

It is difficult to understand the motives of those who are making life difficult for the Prime Minister. Some are legalists who continue to insist that the war was launched without justification in international law and wish to punish those responsible for their transgressions.

T hey belong to that tiresome but increasingly numerous tribe who seem to think that men are made for laws and not laws for men. In any case, their arguments are contested, since many (including the Attorney General) hold that UN Resolutions 678, 687 and 1441 do in fact provide justification for the taking of military action against Saddam.

Some of Tony Blair's castigators are old-fashioned anti-militarists, usually with a strong anti-imperialist tinge, who deprecate the use of force as an instrument of foreign policy in almost any circumstances. They ignore the fact that Saddam was in breach of at least nine UN resolutions and flaunted his defiance. They also failed to explain why they in effect would support Saddam's continuance in power and the maintenance of his cruel and dictatorial rule over the Iraqi people.

Some anti-Blairites are, of course, simply playing internal Labour Party politics. They dislike the Prime Minister's unwritten contract with the middle classes, his refusal to institute progressive taxation and his disinclination to take back into public ownership any of the denationalised industries. They are usually anti-American as well, and take pleasure at the spectacle of President Bush's failure to translate the victory of 2003 into a successful transition to stable government.

Mr. Keegan then goes on to point out one of the big mistakes that the American military made during the occupation of Iraq:

It was a serious mistake to dissolve the Iraqi police force and to disband the Iraqi army. The reasons for doing so seem to have been based on distant memories of the occupation of Nazi Germany in 1945. The Ba'ath party was identified as the Iraqi version of the Nazi party and the view taken that no supporters of the old regime should be allowed to exercise power under a new regime.

That policy may also have drawn on an idealistic but naive American belief in the existence of a potential democratic majority inside any repressed population, ready to elect an enlightened government if given the chance to vote. The effect in practice was to throw into unemployment hundreds of thousands of young Iraqi males, instantly discontented but skilled in the use of weapons. As almost every Iraqi male has access to weapons, the result was to make for disorder.

However, the disorder in Iraq is isolated to the Sunni Triangle, and Mr. Keegan notes that there is precedent in the Islamic world for this type of disorder:

The trouble that persists is centred on the so-called Sunni triangle, west of Baghdad, and is fomented by ex-Ba'athists who fear that properly conducted elections will exclude them from the position of dominance they were accustomed to enjoy in the Saddam years. Such elections are scheduled for January and that timetable is the spur to the current spate of bombings and shootings, which take as their principal targets those Iraqis who are brave enough to seek enlistment in the new police force and the new army.

Other dissidents are Shia militants, many followers of the cleric Moqtada al-Sadr, who fear a revival of Sunni dominance through American-sponsored governmental means and who, in any case, regard Western forms of democratic government as un-Islamic. Their aims, if not their beliefs, are supported by the foreign infiltrators, particularly from Syria but also from Iran and the anti-royalist regions of Saudi Arabia, who want nothing less than the restoration of the seventh-century caliphate and a return to the rule of God on earth.

Britain has been here before. In the 1920s, at the beginning of its exercise of the League of Nations Mandate over Iraq, it had to pacify a disturbed ex-Turkish Ottoman territory in which, as the first British governor complained, every man had a rifle. Then, as now, Shia and Sunni were at loggerheads and the whole Muslim world was disturbed by the fall of the caliphate, brought about by Kemal Ataturk's dissolution of Islamic rule in Turkey.

Nevertheless, Mr. Keegan notes that Iraq is a secular state and that its population is one of the best educated in the Middle East, and concludes by pointing out an essential truth regarding the calculated use of force:

When not silenced by the threat of violence from extremists and criminals, [most Iraqis] are also ready to say that they continue to regard the Western troops in their midst as liberators. Western so-called progressives who denounce the war of 2003 as a mistake are in fact illiberal and reactionary. They should be ashamed of themselves. Denunciation of war-making is much more fun than the recognition of the truth that the calculated use of force can achieve good. The United States and Britain must not be deterred.

Read the entire piece.

Posted by Tom at 5:56 AM | Comments (0) |

Stros are officially toast

Noah Lowry pitched a five hitter as the Giants won their ninth game out of their last 10 as they beat the Stros for the second straight game in San Francisco, 5-1.

The win allowed the Giants to remain a half game in front of the Cubs in the NL Wild Card playoff race and to pull within a half game of the Dodgers in the NL West Division. With the loss, The Stros fell three games behind the Giants and two and a half games behind the Cubs in the Wild Card race. For all practical purposes, the Stros late season surge to make the playoffs is over.

Roy Oswalt -- pitching despite a rib cage injury -- had won his last five decisions, but never got into a rhythm Wednesday night. He allowed 10 hits, five earned runs, struck out three and walked four in 5 2-3 innings.

Meanwhile, the Stros biggest bugaboo for most of this season -- lackluster hitting -- has reappeared with a vengeance during this series. Three runs on nine hits in two games is simply not going to get it done against the Giants.

The Stros take a flyer on Brandon Backe this afternoon against the Giants' Jason Schmidt, which looks like the mismatch of the week. Schmidt has not been as dominant over the past month as he has for most of the season, but the way the Stros are hitting, they are a convenient cure for Schmidt's problems. The Stros go to Milwaukee for a weekender with the Brew Crew after the game. When does OktoberFest begin?

Posted by Tom at 5:15 AM | Comments (1) |

September 22, 2004

Ivan reappears in Gulf

Look who's probably coming to the Houston Metro area.

This is one resilient storm.

By the way, Check out these cool aerial before and after Hurricane Ivan photos.

Posted by Tom at 8:09 PM | Comments (0) |

Three DeLay aides indicted in Austin

A Travis County, Texas grand jury indicted three people closely linked to Houston-based U.S. House Majority Leader Tom DeLay Tuesday along on charges of illegally using corporate money to help Republican Texas House candidates during the 2002.

The indictments focused on the DeLay-founded Texans for a Republican Majority Political Action Committee, which raised corporate money to help Republicans take control of the Texas House for the first time since Reconstruction. TRMPAC chief John Colyandro, fund-raiser Warren RoBold and DeLay political director Jim Ellis were the DeLay aides that were indicted. Travis County District Attorney Ronnie Earle, who is a Democrat, said the investigation continues into possible campaign-finance violations by TRMPAC, the Texas Association of Business and the election of GOP Texas Speaker Tom Craddick of Midland. This was the third grand jury to hear the investigation and Earle disclosed the investigation will continue when a new grand jury is impaneled in October. He would not say whether DeLay is a target of the investigation.

TRMPAC raised almost $600,000 from corporations, which usually contributed at fund-raisers in which DeLay was the featured guest. The money was used to pay for additional fund-raising and political activity to help Republican candidates win about 20 House seats. Texas Ethics Commission opinions have said corporate money can be used only to pay a political committee's basic expenses, such as rent and utilities. However, TRMPAC supporters contend that the state law is trumped by the First Amendment of the U.S. Constitution and applicable federal law at the time.

Posted by Tom at 6:23 AM | Comments (0) |

Giants trounce Stros

The Stros' chances for the Wild Card playoff spot were pushed to the brink of extinction Tuesday night as the Giants pounded the Stros decisively 9-2 in City by the Bay.

The loss puts the Stros two games behind the Giants in the Wild Card race, and 1.5 games behind the second place Cubs in that race. The loss stopped the Stros' four-game winning streak and also allowed the Giants to to close within 1½ games of the NL West-leading Dodgers, who lost 9-4 to the Padres. The Giants are now 23-8 against the Astros since the 2000 season.

After Bags and Berkman nailed back-to-back yaks in the Stros' first inning, Brett Tomko (11-6) dominated the Stros as he pitched 8 2/3rds innnings of four hit ball and struck out five and walked three.

The Giants responded to the Stros mini-uprising in the first with three runs in the bottom half on three hits. Incredibly, Stros manager Phil Garner elected to have Carlos Hernandez pitch to Bonds with runners on second and third, and Bonds' hard roller got past shifted shortstop Jose Vizcaino for an error and two runs. The Giants then batted around in their four-run fourth to put the game away.

Hernandez, who has not won in his last four starts, lasted only only 2 1/3 innings, which is his shortest outing of the season. Brandon Duckworth came in to pitch a couple of innings just to make sure that the Giants would put this game out of reach.

Sore-ribbed Roy O takes the mount tonight in a must win game for the Stros if they are to stay in the Wild Card race. If they can pull this one out, then they can try and figure out how Brandon Backe can outpitch Jason Schmidt in the Thursday afternoon game.

Posted by Tom at 5:20 AM | Comments (0) |

September 21, 2004

James Fallows on the Iraq War

James Fallows is the National Correspondent for The Atlantic Monthly, where he has worked for more than twenty years. He is one of the most important and gifted investigative reporters of our time. During his long and storied career, Mr. Fallows has written extensively on such diverse topics as defense policy, economics, computer technology, politics, and immigration.

Over the past two years, Mr. Fallows has written a series of investigative articles in The Atlantic in which Mr. Fallows argues that the Bush Administration has squandered valuable resources and opportunities as a result of its drive to war against Iraq. In this Atlantic Monthly ($) interview, Mr. Fallows elaborates on his views regarding the mistakes that he believes that the Bush Administration has made in pursuing the Iraqi front in the war on Islamic fascism. It is a valuable and thought provoking piece from a serious reporter and thinker, and the following are several tidbits of the interview to arouse your curiosity.

On why Mr. Fallows contends that 2002 was the Bush Adminitration's "lost year:"

I was trying to get at what happened in one surprisingly short period, a little over a year. This was the time between America's immediate reaction to being attacked on 9/11, and its situation barely a year later, when so much of the treasure of the country�its military manpower, its government, its international influence�was concentrated on the single goal of removing Saddam Hussein.

At the beginning of 2002, the U.S. had a vast range of resources and opportunities at its disposal. But over the course of that year, we lost or traded away a number of those, including: the ability to conceive of the terrorist threat in the broadest possible terms; the ability to draw upon deep reserves of international support; the ability to rely upon national unity; the ability to field a strong and agile military; and the ability to put government financial resources to effective use. It's the loss of all those opportunities that amounted to a lost year.

On dissent within the Bush Administration regarding the Iraq policy, and the failure of such dissent to be passed up to the President:

My own personal judgment is that for decades into the future, political scientists and historians will study the decision-making process that led to the Iraq war as a case study in failure. Or at least deliberative disfunction.

You have a president who has made a point of neither inviting challenge on points of detail nor himself seeking out significant facts. John Kennedy was famous for picking up the phone and calling a third-level person in the State Department to ask, "What's really going on in Laos?" Bush has never shown an inclination to do that kind of thing and, in fact, has prided himself on not being bogged down by the details.

The result of all this is a kind of path of folly where the people who could say, "Wait a minute, is this a good idea?" were systematically excluded from the decisions, and a smaller and smaller group of people reassured each other on the basis of hope rather than evidence. As a procedural matter, it started with the president's own personality and intellectual traits and radiated out from there.

On the failures relating to the post-war occupation of Iraq:

Historically, a tremendous strength of the United States was that it would start thinking about what would happen after a war while the war was still going on. I mentioned in my previous article that by 1942, when the U.S. had barely gotten into the European war and was still on the losing side of the Pacific war, it set up a school of military government for postwar Japan and Germany. Within the military this same tradition was very much honored in the Iraq war. There were very, very careful efforts to plan for a postwar occupation. Through a combination of arrogance and failure of imagination, none of those plans was put to use until now, when they're suddenly being looked at. One of many things I still find puzzling is why the people who were most determined that the war succeed and that Iraq become a successful example were so totally uninterested in those efforts to make the occupation work. Of course I'm thinking of people like Paul Wolfowitz, Dick Cheney, Condoleeza Rice, and President Bush.

On whether America is a safer place as a result of the war in Iraq:

The most impressive thing to me in reporting this article is that there is virtually no dissent among national security professionals on the idea that invading Iraq has made America much less secure. I think that's an underappreciated point in the general public�to put it mildly. Except for those who have an occupational obligation to support the Administration's policy, everybody in the national security business says, "Of course, this has made the U.S. more vulnerable than it was before." Our army is more overextended and weaker; our allies are much less on our side; the source of opposition is much, much, much more intense than it was before. And we've lost time in dealing with Iran and North Korea.

Mr. Fallows is lengendary in media circles for the Pentagon sources that he developed during the weapons system battles of the early 1980's that challenged many of the Pentagon's conventional theories of how the American military should fight wars, and he continues to cull similar networks regarding his research on the Iraq war:

Two of the long pieces I've done in the last two years ("The Fifty-first State" and "Blind Into Baghdad") and one short one ("The Hollow Army") have brought a lot of people out of the woodwork. A lot of people have written to me after those articles appeared, saying, "Oh, you don't know the half of it." Email really is wonderful! There has also been a nucleus of people I've known for a long time as they've risen through various ranks of the military and the national security community. There has been a kind of ongoing conversation among these people about the way America responds to different foreign policy threats. The fact that these people proved to be right early on about Iraq has made their view increasingly interesting to me, so I've kept in close touch with them. There are networks of people who, as they gain confidence, know they can talk to you without having their views distorted or, in certain cases, their cover blown. You're able to have more sustained talks with them.

Mr. Fallows comments on criticism of Donald Rumsfeld's "light and fast" military, a theory that Mr. Fallows has reported on extensively for much of his reporting career:

What is behind Rumsfeld's "light and fast" military ethos? It seems like there's a lot of evidence that it doesn't seem to be able to stabilize a country in the long term. I'm just wondering, why are we still seeing troop reassignments in that same model?

The "light and fast" approach in general is a good one, and I think that part of Rumsfeld's reform doctrine has been a valuable part of the fight he's been trying to lead. The difficulty is that he has apparently cared more about winning that symbolic battle than thinking carefully about this particular war in this particular country�Iraq. It's certainly the case that these light, fast units are wonderful for destabilizing regimes or for lighting strikes. But the job in Iraq, as it was conceived by the administration, was a different one. It wasn't just about getting rid of Saddam Hussein and then leaving. It was about transforming the country altogether. That's a very different undertaking. Rumsfeld apparently has a longstanding disagreement with the Army establishment. He thought they were too slow in changing their ways. He let that spill over into ignoring, disregarding, and overruling their very prescient warnings about what it would take to actually run Iraq. In his past life, he would have ridiculed pointy-headed theorists, but his regime within the Pentagon has meant the triumph of the pointy-headed theorist over the people who actually have to occupy territory and pacify neighborhoods.

Mr. Fallows comments on the festering problem of Iran:

Iran is in a very, very unstable area. It's a major power in that area, and it's acquiring weapons while it's surrounded by also very well-armed powers. So there are a number of dangers: will Israel feel it needs to take preemptive action against Iran? Will the Saudis feel they need to get nuclear weapons if Iran has them? It's just an inherently unstable area compared even to Asia.

And on allegations that Mr. Fallows' series of articles on Iraq have been a partisan attack against the Bush Administration?:

What I've been doing over the last two years is looking at America's military and diplomatic response to the pressures it's come under since September 11. This article is a logical continuation of the other work I've been doing about how Iraq happened, how things could have gone better, how they could have gotten worse. Part of The Atlantic's historic role has been to explain, as best we can understand, the big issues of our time. During the Vietnam War, The Atlantic was not a partisan magazine, but it published an increasing number of articles saying, "How could this war have happened? How could it have unfolded in just this way? How is it likely to end?" The magazine's coverage of that war was not partisan, even if the governments then in power�first Democrats, then Republicans�were unhappy about some of its implications.

As I said a while ago, I think the road to Iraq will be studied as a specimen of a failure of decision-making. And while that is a hostile judgment about the nature of the current administration, I'm not intending it as a partisan judgment. If Democrats had done the same thing I would be just as critical. What I'm saying is that in carrying out the public trust and committing the nation to war, the current Administration did not perform well. They ignored crucial information, they fooled themselves on certain important points, and they did not, based on the available evidence, consider the broadest possible view of America's strengths and weaknesses and how to defend them.

Read the entire interview. Regardless of your position on the Bush Administration's handling of the war against the Islamic fascists (and mine is more sympathetic than Mr. Fallows'), Mr. Fallows' views are well-reasoned and worthy of serious consideration. Interestingly, the flawed decision-making process that Mr. Fallows contends took place in regard to the Iraq war is similar to the lack of policy analysis in developing and finalizing domestic policy that former Bush Administration Treasury Secretary Paul O'Neill described in his earlier book, "The Price of Loyalty."

By the way, my dream debate on the war against Islamic fascism: James Fallows and Victor Davis Hanson.

Posted by Tom at 7:27 PM | Comments (0) |

Charlie Beckham named chairman of the State Bar Bankruptcy Law Section

Charles A. ("Charlie") Beckham Jr., a partner with Haynes and Boone LLP in Houston, has been elected as chair of the bankruptcy law section for the State Bar of Texas for a term running through June 2006.

Deborah D. Williamson, a shareholder with law firm Cox Smith Matthews in San Antonio, will serve as vice-chair and will take over the chair position after Mr. Beckham's term expires.

Mr. Beckham has worked for over 20 years in bankruptcy law in both El Paso and Houston, and has represented primarily lenders and other parties in many Chapter 11 bankruptcy cases, particularly in the oil and gas industry. He currently represents the co-chair of the Creditors Committee in the Enron Corp. chapter 11 case in New York.

The bankruptcy law section of the State Bar of Texas is an 800-member organization and is one of the most active sections of the State Bar of Texas in terms of providing education programs for the legal profession and the public.

Congratulations, Charlie!

Posted by Tom at 3:21 PM | Comments (0) |

"War is a series of catastrophes that results in victory"

Victor Davis Hanson's latest NRO op-ed reminds us that the fog of war often makes it difficult to evaluate progress during war. However, Professor Hanson points out that the difficulties of battle should not deter us from focusing on finishing the Iraqi stage of the war against Islamic fascism:

It is always difficult for those involved to determine the pulse of any ongoing war. The last 90 days in the Pacific theater were among the most costly of World War II, as we incurred 50,000 casualties on Okinawa just weeks before the Japanese collapse. December 1944 and January 1945 were the worst months for the American army in Europe, bled white repelling Hitler's last gasp in the Battle of the Bulge. Contemporaries shuddered, after observing those killing fields, that the war would go on for years more. The summer of 1864 convinced many that Grant and Lincoln were losers, and that McClellan alone could end the conflict by what would amount to a negotiated surrender of Northern war aims.

It is true that parts of Iraq are unsafe and that terrorists are flowing into the country; but there is no doubt that the removal of Saddam Hussein is bringing matters to a head. Islamic fascists are now fighting openly and losing battles, and are increasingly desperate as they realize the democratization process slowly grinds ahead leaving them and what they have to offer by the wayside. Iran, Syria, Lebanon, and others must send aid to the terrorists and stealthy warriors into Iraq, for the battle is not just for Baghdad but for their futures as well. The world's attention is turning to Syria's occupation of Lebanon and Iran's nukes, a new scrutiny predicated on American initiatives and persistence, and easily evaporated by a withdrawal from Iraq. So by taking the fight to the heart of darkness in Saddam's realm, we have opened the climactic phase of the war, and thereupon can either win or lose far more than Iraq.

The world grasps this, and thus slowly is waking up and starting to see that if it walks and sounds like an Islamic fascist ? whether in Russia, Spain, Istanbul, Israel, Iraq, or India ? it really is an Islamic fascist, with the now-familiar odious signature of car bombings, suicide belts, and incoherent communiqués mixed with self-pity and passive-aggressive bluster.

For all these reasons and more, something like "See ya, wouldn't want to be ya" is the absolute worst prescription for Iraq ? both for America and those Iraqis who are counting on us in their historic efforts to reclaim their country from barbarism. Amid the daily car bombings in Iraq, murder in Russia, and slaughter in the Middle East, we cannot see much hope ? but it is there, and we are winning on a variety of fronts as the world continues to shrink for the Islamic fascist and those who would abet him.

Read the entire article.

Posted by Tom at 1:17 PM | Comments (0) |

Rangers' disappointing attendance

While the Stros are enjoying a banner year at the gate, the Texas Rangers -- despite their best season on the field in years -- continue to struggle at the gate. This Dallas Morning News article explores why.

Posted by Tom at 10:06 AM | Comments (0) |

September 20, 2004

WSJ analyzes Rice football program

In an interesting special section on the business of football in today's Wall Street Journal ($), one of the section's articles addresses the controversy generated earlier this year when a McKinsey & Company report bolstered longtime Rice University faculty advocacy for downgrading Rice's expensive NCAA Division I athletic program to Division III (i.e., no athletic scholarships). As the WSJ article notes, Rice's legacy in intercollegiate athletics is formidable:

Rice has a long football tradition. It began playing other schools in 1912, and it helped form the Southwest Conference in 1914. In several ways, its standards serve as a model for other schools. It has had no major violations cited by the National Collegiate Athletic Association, and its athlete graduation rate of 81% in 2003 was one of the highest in Division I-A. Its baseball team won the College World Series last year.

But the development in the big-time college and professional football over the past 40 years has not been kind to Rice:

But questions about the high costs of big-time sports and the admissions trade-offs necessary to bring in star athletes have gained momentum since the 1960s. Around that time, rivals such as the University of Texas and Texas A&M University exploded in size, gaining huge recruiting advantages, according to the McKinsey report. The birth of the Houston Oilers professional team in 1960 drew fans away from Rice games. In the 1960s and '70s, faculty members voiced concerns about athletes' academic caliber.

More recently, schools in the conferences that participate in the college Bowl Championship Series -- the Rose, Sugar, Orange and Fiesta Bowls -- have received a much larger share of the football revenue from bowl-ticket sales and TV-broadcasting rights than schools such as Rice, gaining further advantages.

Rice's small size exacerbates the burden of competing with much larger schools in Division I athletics:

To understand just how large Rice University's 70,000-seat football stadium is, consider this: It could seat all the school's undergraduate alumni, living and dead -- and it wouldn't even be half full.

And to understand the financial burden that football places on the private Houston university, consider this: Largely because of the football team, the school's athletic department runs annual deficits in the millions of dollars.

While the dilemmas at Rice are magnified because of its size -- with about 2,850 undergraduates, it is the smallest school in Division I-A after the University of Tulsa in Oklahoma -- and high academic standards, they illustrate problems other colleges and universities face as they grapple with the admissions pressures and skyrocketing budgets of big-time athletics.

The McKinsey & Co. report's conclusion is bleak regarding Rice's future in Division I:

Without improved gate receipts, better support from a group of alumni who are already contributing more than ever, or membership in a [Bowl Championship Series] conference with its much larger annual payouts, the economic outlook is bleak.

And the report is not optimistic regarding the prospects for change in the financing or purpose of Division I athletics:

The large and growing financial incentives among NCAA teams (whether formally controlled by the NCAA or not), combined with multimillion dollar coaching salaries, make Division I athletics look increasingly like a business instead of an extracurricular activity.

The report calculates that, including the increased financial aid an athlete receives compared with an average Rice student, the deficit between revenue and expenses in the athletic department has ballooned to more than $10 million a year. Football takes the largest share of the blame: While it produces about $2 million in annual revenue, it was responsible for nearly $4 million of that deficit in 2002, McKinsey calculates.

Rice is not alone. The McKinsey report notes that fewer than a dozen schools, regardless of their division, profit from their sports programs. And on average, a football team costs more than three times as much to support as a basketball team, and more than nine times as much as a baseball team.

William C. Friday, chairman of the Knight Foundation Commission on Intercollegiate Athletics, a sports-reform group, cited a NCAA study showing that overall Division I-A schools have seen athletic department expenses exceed revenues in each year from 1993 to 2002, according to his testimony in May before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection.

The commission's last comprehensive report, in June 2001, said that at more than half of Division I-A schools in 1999, athletic department expenses exceeded revenue by an average of $3.3 million, a margin that widened by 18% from 1997.

Read the entire article. The Rice Board of Trustees ultimately decided to continue making a go of it in Division I. But the problem will not go away. As the University of Chicago (a former Big 10 member) and several other great private institutions have proven, Division I athletics is unnecessary to maintain financial support and public relations benefits for top flight universities. Although Rice's Board of Trustees is dominated by many older Houstonians who remember the bygone days of Rice's Division I football glory, those members need to realize that those days are gone and that the marginal benefits of running large deficits in the athletic department are not commensurate with the benefits of maintaining a Division I program. Division III is the answer for Rice, and the sooner, the better.

Posted by Tom at 5:49 AM | Comments (1) |

September 19, 2004

The Rocket steps up

With the Stros knowing that the Giants and the Cubs had already won their games on Sunday afternoon, Roger Clemens threw eight innings of two hit ball in leading the Stros to a 1-0 win over the Brew Crew on Sunday night at the Juice Box.

In sweeping the Brewers in the three game weekend series, the Stros kept pace in the National League Wild Card playoff race in which they trail the Giants by a game and the Cubs by a half game. The Stros are off on Monday as they travel to San Francisco for their big three game series with the Giants beginning on Tuesday.

Clemens was magnificent in winning his 18th game of the season, tying teammate Roy O for the most wins in the National League, striking out 10, and walking two. Brad Lidge struck out the three Brewer batters in the ninth in gaining his 25th save in 29 attempts.

Carlos Hernandez will pitch the first game for the Stros in the Giants series, and then it's anyone's guess who the Stros will pitch in the next two. Keep your fingers crossed that Roy O's rib cage feels good enough for him to pitch one of those final two games of the Giants series.

Posted by Tom at 9:51 PM | Comments (1) |

2004 Weekly local football review

Lions 28 Texans 16. "Uh-oh" is the barely audible sound that you will hear emanating from Reliant Park this week. Not only did the Texans lose their second straight, but they once again showed the inconsistency that could really make this a long season. The offense -- particularly QB David Carr -- was horrible in an excruciating first half that mercifully (for the fans, anyway) ended with the Lions ahead 7-3. Then, in the second half, Carr played reasonably well and threw his first two TD passes of the season only to have the Texans' defense go into the tank and the kickoff return team give up a 99 yard kickoff return for a Lions' TD. Given that the Texans play the Chiefs, Raiders, Vikings and Titans in the next four games, a 1-5 or 0-6 start is looking quite likely. My sense is that the Texans' honeymoon with Houston is quickly coming to an end.

Cowboys 19 Browns 12. Incredibly, the Cowboys turn it over four times and still win, primarily because the Browns' QB Jeff Garcia was 8-28 for 78 yards passing. I'm glad I resisted the urge to take him as my reserve QB in my Fantasy Football League draft.

The Texas Longhorns were idle this weekend, and most of the Horn players were probably here.

Texas Aggies 27 Clemson 6. The Ags finally won a game under Coach Franchione against a reasonably tough opponent, although Clemson does not appear to be comparable to top Big 12 caliber opposition. However, the Ags rolled up over 500 yards total offense, committed no turnovers, and held Clemson QB Charlie Whitehurst to under 200 yards passing. Certainly progress for a program that has been in steady decline -- much to the consternation of its rabid fan base -- for the past four seasons. The Aggies have an off week before taking on Big 12 North rival Kansas State on October 2 in College Station.

Houston 35 Army 21. Coogs finally get their offense cranked up and pull out the win after the Cadets tied it at 21 at the beginning of the fourth quarter. UH should be about a 60 point underdog in this Thursday evening's ESPN game at Reliant Stadium against Miami.

Rice 41 Hawaii 29. I don't know why, but I always enjoy it when a triple option team such as Rice beats a Run 'n Shoot team such as Hawaii. The Owls now try to beat a spread that will be around 35 next week in Austin against the Longhorns.

Posted by Tom at 9:21 PM | Comments (0) |

September 18, 2004

Stros gain ground

Jeff Bagwell cranked a two run yak and drove in three runs as the Stros gained ground in the National League Wild Card playoff race by beating the Brew Crew 4-3 on Saturday nigth at the Juice Box. The win was the Stros' 11th straight at the Juice Box.

Both the Giants and the Cubs lost on Saturday, so the Stros' win moves them within a game of the Giants for the lead in the NL Wild Card race and within a half game of the Cubs, who remain between the Giants and the Stros at this point. The Marlins lost again, which pretty well makes them toast in the NL Wild Card playoff race.

With his yak tonight, Bags became only the 29th player in major league history to both score and drive in 1,500 runs. As has been their custom over the past 30 games whenever Roy O and the Rocket are not pitching, the Stros cobbled together pitching performances from four pitchers before Brad Lidge secured the win by pitching the ninth. It was Lidge's 24th save in 28 chances.

The Rocket takes the pill in a rare Sunday evening game (it is the ESPN Sunday night telecast) against the Brewers' Doug Davis, and then it's a travel day on Monday as the Stros go to San Francisco for their big showdown series with the Giants beginning next Tuesday.

Posted by Tom at 9:53 PM | Comments (0) |

September 17, 2004

Stros hang tough

Roy O aggravated his sore ribcage but pitched seven strong innings, Mike Lamb hit a seventh inning go-ahead yak off of Stros-killer Ben Sheets, and Brad Lidge pitched two innings of brilliant relief to lead the Stros to a dramatic 2-1 victory over the Brew Crew at the Juice Box on Friday night.

The game ended on an incredible play. The Brewers' Chad Magruder led off the ninth with a pinch hit single off of Lidge and was on second with two outs when Scott Podesednik lined a single to right on a 3-2 count. With the near capacity Juice Box going nuts, Bags cut off Lance Berkman's throw from right field as Magruder stopped at third. On an absolutely magnificent play, Bags flipped the ball to Jeff Kent, who had snuck behind Podesednik, who had rounded too far at first base. Kent got Podesednik in a run down toward second base, but alertly stopped and started crossing the infield toward Magruder when Magruder started toward home plate while Kent was running at Podesednik. When Magruder took off for home, Kent threw to catcher Chavez, who ran Magruder back toward Lamb, who finally made the the tag on Magruder for the third out and the win. The Juice Box crowd was going bonkers.

The win was the Stros fourth in the past eight games following their 12-game winning streak. The Stros ended their night one and a half games behind the Giants in the NL wild-card race, who are playing the Padres in a late game. The Cubs also won on Friday night to remain in between the Giants and the Stros in that race, and the Marlins lost on Friday night to fall 4.5 games behind the Giants in the wild card playoff race.

Oswalt (18-9) now who leads the National League in wins and improved to 9-1 in 13 starts since July 17. He allowed one run and eight hits in seven innings, but his ribcage ribcage injury -- which has been bothering him for most of the season -- flared up again in the eighth. Lidge replaced Oswalt with a man on second and no outs, and worked out of the jam, and then participated in the wonderful chaos described above in the ninth. It was Lidge's 23rd save in 27 chances.

Sheets (11-12) was brilliant in the loss, striking out nine and not walking a batter as he hurled his fourth complete game of the season. Other than Lamb's yak, Berkman's run scoring double in the fourth was the only other major hit that Sheets allowed.

Pete Munro (4-6) takes the hill for the Stros on Saturday night against the Brewers' journeyman Gary Glover (1-0) as the Stros try to keep pace with the Giants and Cubs.

Posted by Tom at 10:59 PM | Comments (0) |

By the way, don't forget this!

The best competition of the year.

Posted by Tom at 9:15 AM | Comments (0) |

High school senior picture day

On Saturday, one of my assignments for the day is to accompany one of my daughters to the appointment with a photographer in which her high school senior pictures will be taken.

I am not going to show her these high school senior pictures before we go.

Posted by Tom at 9:04 AM | Comments (1) |

San Diego public financing emulates Enron

This post from earlier this year pointed out the similarity between the federal government's accounting and financing of Medicare and Social Security benefits with Enron's accounting and financing of its infamous off-balance sheet partnerships.

This NY Times article reports that San Diego's municipal government is now facing a municipal reorganization under chapter 9 of the Bankruptcy Code because of its dubious accounting and financing of public pension fund earnings.

Consistent with the government's prosecution of former Enron executives involved in such questionable accounting and financing schemes, can we now expect criminal prosecutions of San Diego public officials who condoned the same type of accounting and financing practices that have caused San Diego's current dance with municipal insolvency?

Posted by Tom at 8:33 AM | Comments (2) |

Are you ready to rumble? -- First Enron criminal trial begins Monday

After three years from Enron Corp.'s demise into bankruptcy, dozens of indictments and plea bargains, and an unprecendented government and media campaign to demonize former Enron executives, the first criminal trial against former Enron executives will begin Monday in Houston before U.S. District Judge Ewing Werlein in the case that has been dubbed "the Nigerian Barge case." Here are earlier posts about this case.

The trial is about a relatively small Enron deal with Merrill Lynch & Co. involving three electricity-producing barges off Nigeria's coast. But the outcome of the trial is likely to have much larger implications on the government's other Enron-related criminal prosecutions and future prosecutions of investment bankers and corporate executives generally.

Two former midlevel Enron executives and four former Merrill executives face conspiracy and fraud charges. One of those charged is Merrill's former head of investment banking, Daniel Bayly, the highest-ranking securities industry figure to be criminally charged in the corporate scandals that emerged after the stock market bubble burst earlier this decade.

The government contends that Enron's 1999 sale to Merrill Lynch of an interest in the barges was a sham that and that the energy company improperly booked about $12 million in pretax profit as a result of the deal.

Merrill Lynch got into the barge deal because it was trying accomodate Enron, with which it wanted to do more business. As 1999 came to a close, Enron wanted to sell an interest quickly in the barges and book the profit in the fourth quarter. Such end-of-the-quarter deals are routine at big companies. So, Enron turned to Merrill, which concedes that it invested $7 million in the deal as a favor to Enron. As an inducement to make an investment that it would not make but for accomodating a valued corporate custormer, former Enron CFO Andrew Fastow orally represented to the Merrill executives that Enron would either buy or broker a sale of the barge interest the following year for a nice profit to Merrill.

Mr. Fastow's oral inducement is the key fact in the case. If that promise was truly a part of the deal, then Merrill's investment was never truly at risk, the transaction was not a "true sale," and Enron's booking of the $12 million in profit from the transaction was illegal. On the other hand, if Mr. Fastow's oral representation was simply encouragement to a relunctant investor to do the deal and Enron had no legally enforceable obligation to repurchase or broker a deal for the interest in the barges the following year, then Enron's booking of the transaction was entirely proper and no crime occurred.

So, Merrill decided to buy the interest in the barges and the deal closed in the fourth quarter of 1999. The parties entered into typical deal documents for such a transaction that specifically provide that neither party relied on any prior oral representations in entering into the transaction, that any such prior oral representations are void, and that the parties are relying solely on the written representations contained in the deal documents in entering into the deal. Mr. Fastow's oral inducement to Merrill during the prior negotiations was not included in the deal documents, which were approved by both Merrill and Enron's lawyers.

Nevertheless, in mid-2000, Mr. Fastow followed through on his oral promise by arranging for Merrill to sell its barge interest at a profit to one of the off-balance partnerships that Mr. Fastow operated and partly owned. As a result, the government contends that the Merrill purchase was never a legitimate transaction because of Mr. Fastow's oral guarantee that Merrill would not lose any money. With Merrill never at risk, the government argues that no true sale actually occurred and, thus, Enron's booking of the earnings from the deal was fraudulent.

After Mr. Fastow pleaded guilty to committing crimes at Enron and agreed to cooperate with prosecutors earlier this year, you would expect that the government would make him their star witness in the barge trial. However, the government has indicated that it does not even plan to call Mr. Fastow to testify in the upcoming trial. Rather, the government's primary evidence of the alleged sham nature of the deal appears to be the "nervousness" that Merrill executives openly expressed about the deal in emails both before and after the transaction was consummated. The government interprets that nervousness as evidence that the Merrill executives knew that the deal was a sham and that they could be caught participating in a fraud with Enron.

However, there is a much more reasonable interpretation of Merrill's nervousness regarding the deal -- that is, that they really were nervous about the business risk of the deal, not because they thought it was a sham and a fraud, but because they knew that they could not rely on Mr. Fastow's unenforceable oral assurance that Enron would broker a sale of the barges the following year. Accordingly, they were understandably concerned they might be making a bad investment that would result in Merrill having to hold the barges for a long time rather than the short term they preferred.

Stated another way, the Merrill executives were nervous because they knew that this was a real deal in which the deal documents controlled the rights of the parties, and that Mr. Fastow's oral assurances to get them out of the investment could not be enforced if Enron failed to live up to them.

Under normal circumstances, it is highly unlikely that the government would have even pursued an indictment in a case of such marginal criminal liability. Inasmuch as the written deal documents would have dispostively undermined any attempt by Merrill Lynch to enforce through the civil justice system Mr. Fastow's oral promise for Enron to repurchase or broker a deal for the barges, how does the government expect to prove beyond a reasonable doubt that such an unenforceable promise was really a part of the deal?

But Enron has become such a corporate pariah in American culture that nothing is normal that has anything to do with Enron. The barge trial will test the extent to which the pool of potential jurors in Houston has been tainted by Enron's collapse. Given the extraordinary media coverage -- much of which has been fueled by governmental officials' public statements -- private polls that the barge defendants' defense attorneys have conducted reflect that over 75% of the jury pool would not be impartial in deciding a criminal case against a former Enron executive.

Thus, rather than using prosecutorial discretion to pass on prosecuting a case of dubious merit, the government in the barge case continues to pursue convictions because it knows that the public bias against Enron -- partly stoked by the governmental officials' derogatory public statements about Enron -- gives it a good chance of obtaining convictions, anyway.

Moreover, the barge case took another twist recently after the U.S. Supreme Court's recent decision in Blakely v. Washington (prior posts here), which held that the state of Washington's sentencing laws were unconstitutional because they only allowed judges, not juries, to consider factors that increased sentences. Some legal experts have speculated that the decision calls the Constitutionality of federal sentencing guidelines into question for the same reason.

As a result of the Blakely decision, Enron prosecutors re-indicted the barge defendants to include new allegations that the barge deal caused market loss of more than $80 million, an allegation that can add years to a sentence under existing federal guidelines.

Not explained in the new indictment is how the Nigerian Barge deal -- which was a relatively small transaction involving about $12 million in allegedly illegal profit for Merrill Lynch -- could have caused $80 million in market loss. In fact, neither Enron nor Merrill Lynch lost a dime on the transaction, and the allegedly questionable accounting on the deal was not even discovered until well after Enron had filed bankruptcy and its equity value had already become worthless. During his distinguished legal career as a defense attorney before becoming a federal judge, Judge Werlein often defended corporate clients against dubious damage claims. It will be interesting to watch how he deals with the government's equally questionable market loss allegations in this case.

Thus, watch this trial closely. If the criminal justice system works properly and the trial results in either a judge-directed or jury acquittal, then hopefully such a result will prompt the government to concentrate on its clearer cases of fraudulent conduct against former Enron officials and wrap up the investigation in reasonably short order. But if the government obtains convictions in this remarkably weak case, then the government will understandably believe that it can obtain a conviction against virtually any person having anything to do with Enron, and many others will come into the government's sights for indictment.

Although it's hard to emphathize with former Enron executives, Martha Stewart or Frank Quattrone, we should all be concerned about the increasingly common abuse of the criminal justice system that is disguised in popular prosecutions of unpopular corporate executives. For if we allow the government to abuse its power against unpopular defendants, it is a small step for the government to use that same power against you and me.

Meanwhile, here are the Houston Chronicleand NY Times stories on the barge trial and this Washington Post article speculates that recent plea bargains of former Enron executives have improved the government's chances of obtaining convictions agaisnt former Enron chairman and CEO Kenneth Lay and former COO and CEO Jeffrey Skilling.

Posted by Tom at 7:36 AM | Comments (0) |

More on the bizarre tale of C. Tom Zaratti

This earlier post passed along this Houston Press story on the bizarre story of C. Tom Zaratti, a fringe player in the local criminal defense bar.

This Chronicle story reports that a Harris County jury assessed the maximum 10 year sentence to Mr. Zaratti after convicting him yesterday of downloading and maintaining child pornography on his home computer in violation of child predator laws. Mr. Zaratti's legal team was not able to mount much of a defense, as the jury deliberated for less than an hour before convicting Zaratti and less than two hours before agreeing on the sentence.

Posted by Tom at 5:13 AM | Comments (1) |

September 16, 2004

Stros rebound to beat Cards

After blowing one on Wednesday night, the Stros took advantage of four Redbird errors and two JK doubles to beat the Cards junior varsity (no Rolen, Renteria, or Walker) 8-3 on Thursday night in St. Louis.

The win allowed the the Stros to remain two games behind the Wild Card playoff-leading Giants, who beat the Brew Crew again. The other two primary competitors in the Wild Card race -- the Cubs and the Marlins -- also won, so the contenders are all bearing down as the race hits the home stretch.

In this game, the Stros threw their AAA pitching staff at the Cards and it was good enough to secure the win. Stros starter Backe was mediocre over four innings, but at least did not allow matters to get out of hand while the Stros built their lead. Reliever Harville was phenomenal in bailing Backe out of a jam, and Qualls, Wheeler, and Miceli all did workmanlike jobs in keeping the Redbirds under wraps for the final five frames. Given the Cards' errors, the Stros needed only 8 hits to generate their 8 runs, four of which came home on Kent's doubles and another on Mike Lamb's solo yak.

The Stros return to the Juice Box for a weekender with the Brew Crew as Roy O and the Brewers' ace Ben Sheets match up for first game on Friday night. After three with the Brewers, the Stros then take off to San Francisco on Sunday evening for the key series of the stretch run with the Giants.

Posted by Tom at 10:06 PM | Comments (0) |

Fat but fit

Sandy Szwarc is an editor and a prolific writer on food, health and science issues for various print and internet media. She is also a registered nurse with a science degree from the University of Texas at Austin, and over twenty years in critical-care nursing, emergency triage, and medical outreach education with a focus on nutrition, weight and eating issues, and preventative health. Ms. Szwarc is a leading advocate in debunking junk science as it pertains to food and health, and she is currently completing an upcoming book entitled "The Truth About Obesity and Dieting-Dangers and Good News We're Never Told."

In this Tech Central Station op-ed, Ms. Szwarc takes dead aim at the junk science industry and the mainstream media for providing muddled information to the public regading the health risks of obesity:

Consumers were left more confused than ever when the media reported on two obesity-related studies from the Journal of the American Medical Association last week. One seemed to find it was more important to be fit than thin for your heart health; the other that it was more important to be thin than fit to prevent diabetes . . .

But in fact, the controversy has already been repeatedly answered in the scientific literature. The trouble is, it's not what a lot of people want to hear...and others without science backgrounds don't realize.

These side-by-side JAMA studies provided an invaluable opportunity for the media to help consumers sort through medical information and come away with a very important message: not all studies are created equal.

Ms Szwarc goes on to explain how some medical researchers are misleading the public with spurious conclusions drawn from "dredge data research," and that the conclusions of such studies are of dubious merit:

Sadly data dredge studies are increasingly being misused and misinterpreted. Most noteworthy is that [the Weinstein study correlating obesity with diabetes] findings contradict many stronger clinical and epidemiological studies that have found that exercise reduces type 2 diabetes and improves insulin resistance, unrelated to weight.

For example, researchers at the Cooper Institute in Dallas, Texas led by Timothy S. Church, MD, PhD, followed over 2,000 diabetics for 25 years, using a range of health assessments, including treadmill tests to gauge their fitness levels. They found that premature deaths from all causes were significantly lower among the fit. Weight was irrelevant. Researchers at the Veterans Affairs, Palo Alto Health Care System, Stanford University studied over 6,000 men for six years and found exercise capacity was more important in risks of dying than "known" risk factors including obesity, cholesterol, hypertension, smoking and even diabetes. Even a small clinical study at Queen's University, Kingston, Ontario, Canada following 54 obese women found daily exercise, without dieting or weight loss, substantially reduced insulin resistance in just 14 weeks.

In the mainstream media's rush to embrace the American delusion that a svelte physique equates with good health, Ms. Szwarc points out that the media ignores scientifically proven reality:

Most significant, [another recent study] is just one of dozens of clinical studies over decades which have found the exact same thing in men and women: when fitness is considered, weight is irrelevant to long-term health, heart disease, diabetes or premature death from all causes.

The list is too extensive to cite here, but clinical studies concluding 'fitness not weight is what counts' include the Harvard Alumni Health Study of 12,516 men followed for 16 years; the St. James Women Take Heart Project of 5,721 women studied for 8 years; and the Aerobics Center Longitudinal Study, an ongoing study that includes 25,389 patients examined at the Cooper Clinic in Dallas from 1970 to 1989. Even the Women's Health Study published findings in 2001 that found merely light to moderate activity was dramatically associated with lowered heart disease in women, including those who were overweight, had high cholesterol or smoked.

Ms. Swzarc concludes by pointing to a recent op-ed by two researchers at the Dallas-based Cooper Institute, which has an outstanding record of performing landmark research on fitness and preventative health:

[Drs. Blair and Church, the Cooper researchers] chastised today's obesity researchers, saying that "failure to adequately quantify physical activity when examining the risks of obesity is similar to exploring risk factors for cancer and misclassifying tobacco use."

Drs. Blair and Church emphasized that death rates and heart disease among obese people, with just moderate fitness, are half that of "normal" weight people who aren't fit. The amount of exercise to attain this health-giving level of moderate fitness isn't much, either, and has been proven in 24 clinical studies: it's merely 150 minutes of moderate-intensity activity a week. They say that's equivalent to 30 minutes, 5 times a week of: walking, gardening, housework, bicycling, swimming or other activities enjoyed in daily life.

Read the entire article.

Posted by Tom at 6:55 AM | Comments (0) |

What type of insolvency did you say?

From the always insightful Stu's Views:

Posted by Tom at 6:15 AM | Comments (0) |

The view from inside the CIA

The Houston World Affairs Council was formed about 15 years ago to provide a forum for all sides of current global issues, to promote better understanding of international relations and to contribute to national and international policy debates. The Houston World Affairs Council is an affiliate of the World Affairs Councils of America and is the now fifth largest such organization with over 4,000 citizen, corporation and foundation memberships.

Ted Barlow over at Crooked Timber reports on a recent HWFC forum in which Marty Peterson, deputy executive director of the Central Intelligence Agency, was the guest speaker. Mr. Barlow's entire post is a must read, and the following are a few of the observations that Mr. Peterson made at the forum, beginning with the CIA's record regarding the situation in Iraq leading up to the U.S.-led invasion:

He was also defensive about the CIA record regarding missing WMDs in Iraq (Note: Mr. Barlow notes in his post that the word ?defensive? has a negative connotation that he did not mean to convey here). In his recounting, the CIA underestimated Saddam?s missile programs, which were more advanced than anyone realized; they overestimated his biological and chemical weapons programs, which he described as ?more capabilities than functioning programs?; and they were approximately right regarding his nuclear weapons programs, which hadn?t restarted. In response to a question, he said that he doubted that Saddam had smuggled out WMDs to other countries before the war.

He made the point that the CIA wasn?t involved in the policy decision to invade Iraq, without expressing an opinion about whether it was the right decison. In general, I felt that he was making a good-faith effort to be non-partisan.

And do not expect quick returns on greater governmental investment in intelligence gathering:

He felt that excessive peace dividend cuts in the 90s had starved the CIA of resources. (Interestingly, he said that the underfunding reversed in 1998.) He also said that it takes him a year to hire an agent, and six or seven years to train and season him or her to the point that they can be trusted to try to recruit a foreign intelligence source. So the hiring boom that?s currently underway won?t pay off for years to come.

And what about the CIA's being held responsible for its misinterpretations of intelligence data:

He resented being asked to answer for policies that the CIA didn?t create, and being judged for past actions based on the standards of the day. At one point, he said that he only asked for two things- sufficient resources to do his job, and a clear set of rules that he could expect to be judged by. ?In thirty years, I?ve never had either of those.?

As with Judge Posner, Mr. Peterson is not a supporter of the proposed election year reforms being bandied about regarding intelligence gathering and analysis:

He?s not a fan of the proposed reorganization of the nation?s intelligence services. He mentioned a point when another higher-up at the CIA (I don?t remember who) was discussing the issue with Congress. The CIA guy asked, if there was another catastrophe, who would be held accountable? None of the Congressmen could answer the question. (A cynic might ask who was being held accountable for September 11th, but I suppose that that?s why the reorganization is necessary.)

A detailed discussion of his preferences in intelligence reform was probably not in the cards, as he wasn?t even allowed to say how many employees the CIA has. As general principles, he favored (a) short lines of communication and (b) taking our time to think about things. He clearly was concerned that intelligence reform was being rushed to fit an election-year schedule.

Finally, Mr. Peterson's views on the current "hottest spots:"

He?s very concerned about China and Taiwan. He says that China is investing heavily in their military, and that we can tell that they?re doing drills that show that they?re learning how to use their new hardware. He thinks that the end result of this activity is likely to be a crisis over Taiwan.

North Korea (he says that he believes that they have at least one nuclear weapon), Pakistan (he praised Musharraf?s participation in the war on terror, but is concerned that he might be assassinated) and Saudi Arabia (he?s concerned about a coup there, too.)

Read the entire post and, if you are a Houstonian, support the The Houston World Affairs Council

Posted by Tom at 5:53 AM | Comments (1) |

TXU Energy: "After further review . . ."

TXU Energy Co. LLC, Dallas-based TXU Corp.'s subsidiary and the largest electric utility company in Texas, has postponed implementation of its controversial pricing plan that would set electric rates for customers who live outside of North Texas based on their past credit scores.

Posted by Tom at 5:11 AM | Comments (0) |

September 15, 2004

Stros blow one

The Stros wasted a fine pitching performance by Carlos Hernandez as Russ Springer was absolutely awful in relief as the Cards took the second game of this key three game series on Wednesday night at Busch Stadium in St. Louis, 4-2.

With the loss, the Stros fell two games behind the Giants in the Wild Card race and a 1 1/2 games behind the Cubs. At least the Marlins lost twice to the Expos.

Hernandez gave his best performance of the season, giving up only four hits and two runs in six innings. Simply a gutty performance from a pitcher who is still rehabbing from serious shoulder surgery. Springer, on the other hand, was awful in blowing the game in the eighth, giving up three hits, two runs, and throwing a two base wild pitch to boot. Not a great move by Manager Garner in pitching Springer for the second straight night.

After JK's two run yak in the second, the Stros offense was ineffectual. After the Pirates series last weekend, it's not comforting watching the Stros struggle at the plate. Too much like most of the season and not enough like the great streak that got them back in the Wild Card race.

Brandon Backe goes for the Stros in the rubber game on Thursday night before the Stros return to the Juice Box for a quick weekender against the Brew Crew. The big Giants series at San Francisco looms next week.

Posted by Tom at 9:54 PM | Comments (0) |

Analyzing airline woes

The Wall Street Journal's Holman Jenkins, Jr.'s Business World ($) column today addresses the mess that is the American airline industry, and notes that this is not a problem that has just arisen recently:

Today's crisis is not materially different from the airline crisis of the early 1990s, or the crisis of the early 1980s with the onset of deregulation.

Airlines have shown an ability to mint short-term profits in an economic bounceback when demand grows faster than they can lay on more jets and gates. But that's not the same thing as being able to make profits consistently enough to pay back the capital invested in the industry. The airlines have never been able to do this, at least not since deregulation.

Kenneth Button, a professor at George Mason University and head of its transportation center, finds the same feature present in Europe's increasingly deregulated market, an inability to price above cost. But before giving up on capitalism, airlines or both, perhaps we should look more closely at the problem.

Airlines are selling a highly perishable product, thus tempted to fill seats for any fare that will cover a bag of peanuts, several gallons of fuel and the cost of processing a booking. That means, when their competitive dander is up, airlines sell seats for a price far below their long-term costs. And competition is never in short supply -- barriers to entry are low. Anyone can lease a couple of jets with no money down, sell tickets over the Internet and join the fray. Even if an airline fails, its lenders repossess the planes and find someone else to put them to work.

Airports, meanwhile, are local monopolies and, ahem, seldom leave money on the table for their airline customers. Ground services and catering also enjoy sufficient local market leverage to make money off the airlines even as the airlines can't make money off their own customers. And the industry's biggest suppliers of all, its own employees, demonstrably have the upper hand when it comes to divvying up the revenues of the business. Notice that workers at United and US Airways (both in bankruptcy) as well as at American, Northwest, Delta and Continental (each losing money and flirting with Chapter 11) still manage to hang on to wages substantially higher than those paid by the industry's few profitmakers, such as JetBlue and Southwest.

If the cut-throat competition between carriers results in low fares, should we care? Mr. Jenkins suggests that we should:

Instability in the airline industry produces an irresistible urge for activity in politicians, who've already dumped $7 billion in taxpayer money on the airlines since 9/11.

Mr. Jenkins then goes on to suggest that consolidation of the industry would likely be helpful to consumers:

Airlines are not incompatible with capitalism so much as incompatible with modern antitrust policy, which assumes that "more competitors" is the same thing as "more efficiency." That's why, whenever the industry's parlous finances start making news, carriers plop another "code-sharing" deal in front of regulators. These instruments of cooperation between competitors have the potential to blunt the industry's urge to bleed itself to death during travel downturns. The latest embraces Delta, Northwestern and Continental and this week added foreign partners Air France, Alitalia, Aeromexico and Czech Airlines.

Don't expect airlines to advertise their alliances thusly, but neither should passengers fret unduly. Fewer crazy fares might turn up on the Internet, but average fares would likely continue their long-run decline even if antitrusters wisely looked away for a while and let these experiments flower. The most notable outcome would be less financial chaos and less pressure on politicians to "fix" the airline problem in ways that make it worse.

Read the entire piece.

Meanwhile, in the latest example of the law of unintended consequences, this NY Times article reports on how the Air Transportation Stabilization Board -- which Congress created to "save" the airlines after the 9/11 attacks -- may decide to pull the plug on US Airways.

Posted by Tom at 5:04 AM | Comments (0) |

Stros keep pace

Roger Clemens shut down the Cardinals' potent hitters and then Brad Lidge came in to get the final out of the game after Darren Oliver and Dan Miceli almost screwed the pooch in the bottom the ninth as the Stros took the first game of their three gamer with the Cards in St. Louis on Tuesday night, 7-5.

Clemens won his 327th game with seven strong innings of five hit, one run pitching while improving to 3-0 with a 1.64 ERA in four starts against the Cardinals this year. He's now tied with Roy O and the Marlins' Carl Pavano for the National League lead in wins and is tied for the major league lead in winning percentage with the As' Mark Mulder, who is also 17-4.

Lance Berkman had four hits, including a three-run double that highlighted the Stros' five-run fourth. The Astros have won 15 of 18 and remained a game behind in the Wild Card race to the Giants, who beat the Brew Crew, and a half-game back of the Cubs, who beat the Pirates 3-2 in 12 innings. The Marlins also won to remain a game and a half back in the race.

Although Clemens was dominant through seven innings and Russ Springer pitched a scoreless eighth without any problem, Manager Phil Garner's effort to give the previously injured Oliver some game time experience for the first time in over a month almost blew up in his face in the ninth as Oliver gave up three hits and a walk before being relieved by Dan Miceli with two outs.

The Cards' Cody McKay then greeted Miceli with a two-run double to make the score 7-4. Miceli induced a popup from the next hitter, but then shortstop Eric Bruntlett and third baseman Mike Lamb collided, letting the ball drop for an error and allowing McKay to score to make the score 7-5. Lidge entered with a runner on second and intentionally walked Pujols after falling behind in the count. The runners advanced to second and third on a wild pitch before Lidge struck out the final Card hitter to secure his 23rd save in 26 chances.

Whew! After that adventure, I don't think Oliver is going to be seeing too many key relief roles down the stretch.

Carlos Hernandez pitches on Wednesday night as the Stros go for two in a row over the Cards. The Stros' hitters better keep their crank hats on because seven runs will probably not be enough to win this one.

Posted by Tom at 4:42 AM | Comments (0) |

September 14, 2004

The pork barrel of "homeland security"

UCLA School of Public Policy professor Amy Zegart is the author of "Flawed by Design" that examines the flawed national security process in the United States government. This earlier post on the 9/11 Commission hearings provided her astute insights into the problems that arise from failing to establish clear priorities in the intelligence gathering process.

In this Newsday op-ed, Professor Zegart -- who had Condi Rice as her thesis adviser -- examines how far we have come in terms fo homeland security since September 11, 2001, and she does not find the results encouraging:

Homeland security funds are flowing, but not to the right places. Since 9/11, Congress has distributed $13 billion to state governments with a formula only Washington could concoct: 40 percent was split evenly, regardless of a state's population, targets or vulnerability to terrorist attack. The result: Safe places got safer. Rural states with fewer potential targets and low populations, such as Alaska and Wyoming, received more than $55 per resident. Target-rich and densely populated states like New York and California received $25 and $14 per person respectively. Osama bin Laden, beware: Wyoming is well fortified.

It gets worse. Over the past three years, the federal government has spent 20 times more on aviation security than on protecting America's seaports, even though more than 90 percent of U.S. foreign trade moves by ship, but less than 5 percent of all shipping containers entering the country are inspected. One recent study showed the odds of detecting a nuclear bomb inside a heavy machinery container were close to zero. As the 9/11 Commission concluded, such a lopsided transportation strategy makes sense only if you intend to fight the last war.

And on the intelligence front -- which is Professor Zegart's area of expertise -- the lack of progress is equally appalling:

Then there is our intelligence system, a dysfunctional family of agencies that have proven uniquely adept at resisting reform, getting the wrong information into the right hands and the right information into the wrong hands. The past three years have witnessed the two greatest intelligence failures since Pearl Harbor. Yet Bush has held no one accountable for these results, and has avoided leading the charge for reform.

The president grudgingly embraced one of the 9/11 Commission's key recommendations - creating a national intelligence director with "full budgetary authority" - only under strong pressure and finally, last Wednesday, after opposing the idea for weeks. There is urgency and boldness for you.

Not only has Bush shown tepid support for the 9/11 Commission's ideas, he seems to have none of his own. For instance: How can we fix the cultural pathologies that cripple our intelligence system? Bush has said nothing about this and the Commission identified the problem but left it to the national intelligence director to solve.

While Bush has placed the biggest burden on his own record in the campaign, it's important to note that Kerry has offered only a lackluster alternative that can be summed up as, "I'm for whatever the 9/11 Commission says." This is like a diner who orders the entire menu because there's nothing he really wants except to avoid making a choice. The commission's recommendations are good, but far from perfect.

And Ms. Zegart is not one to criticize without providing constructive proposals on how to improve intelligence gathering in the federal government:

Building new organizational arrangements with more people and more power will not make us safer if intelligence officials still view the world through the same old lenses and hoard information in the same old stovepipes.

The FBI, for example, faces a daunting cultural challenge: transforming a crime-fighting culture that prizes slow and careful evidence gathering after-the-fact into an intelligence culture that takes fast action to prevent future tragedies. Training programs are crucial to this effort. Today, however, counter-terrorism training constitutes only two weeks out of the 17-week required course for all new agents. That's less time than agents get for vacation.

Then there is the unspoken 11th Commandment operating inside the CIA, FBI and the other 13 intelligence agencies: Thou Shalt Not Share. Here, too, the core problem is cultural - the reluctance to pass information across agency lines is deeply engrained, based more on habit and values than policy or organization charts. And here, too, training is key.

Creating a "one-team" approach to intelligence requires developing trust and building informal networks between officials in different agencies. This is best done by requiring cross-agency training programs early in officials' careers. By current policies, however, most intelligence professionals can spend 20 years or more without a single community-wide training experience. Dots will always be hard to connect when intelligence agencies do not trust or understand each other.

Read the entire piece.

Posted by Tom at 9:01 AM | Comments (3) |

Justice Jefferson to be named Chief Justice of Texas Supreme Court

Justice Wallace B. Jefferson of San Antonio, the first African American to serve on the Texas Supreme Court, will be named chief justice of the Court today by Governor Rick Perry.

Governor Perry appointed Justice Jefferson to the court in 2001, and he won election to the Court the next year. Justice Jefferson will replace former Chief Justice Tom Phillips, who resigned earlier this summer after serving on the court since 1987.

Justice Jefferson will lead the all-Republican Supreme Court during a tumultuous time. A coalition of school districts has challenged the constitutionality of the state's school finance system, and a decision in that case is expected shortly from the state District Court in Travis County. No matter how that decision turns out, the decision will be appealed and the Supreme Court is expected to review it.

Governor Perry created somewhat of a stir earlier this year when he predicted to a crowd of supporters in Dallas that the Supreme Court would not force the Legislature to change the school finance system. At the time, Justice Jefferson publicly defended the Supreme Court as vigorously independent and stated that no justices spoke to Governor Perry about the case. Governor Perry later backed off his prediction and confirmed that he had not lobbied any Supreme Court justices on the matter.

Justice Jefferson grew up in San Antonio, the son of a hard-working military family that stressed education. He won a scholarship to an honors program at Michigan State University before attending the University of Texas Law School. After earning his law degree, he went into private practice in San Antonio, where he opened his own law firm in 1991.

Posted by Tom at 8:16 AM | Comments (2) |

September 13, 2004

Did TXU commit securities fraud?

This Texas Observer article provides an interesting analysis on how Dallas-based TXU Corp dealt with the carnage in the energy industry resulting from the demise of Enron Corp.

Posted by Tom at 9:03 AM | Comments (0) |

2004 Weekly local football review

Given the over-analysis of football that takes place in Texas, I am going to institute a brief review of each local team's game from the past weekend with links to more thorough analysis:

Chargers 27 Texans 20. In their first game as a betting favorite, the Texans lay an egg as four turnovers (2 fumbles, 2 David Carr interceptions) undermine the Texans' chances to pull out the win. The Chargers' fourth year QB -- Drew Brees from Austin -- who the Chargers have been trying to get rid of since the end of last season, threw two TD passes to none for the third year QB Carr, who was the first pick in the 2001 draft. As noted earlier here, Carr has shown very little to date to indicate that he is a talent worthy of taking with the first pick of the NFL Draft. That he was outplayed by Brees in the first game of the season is telling.

Minnesota 35 Dallas 17. Vikes culpepper Pokes. Big Tuna will not be pleased.

Horns 22 Arkansas 20. A quality road win for the Horns, who received productive games from both QB Vincent Young and RB Ced Benson. UT's defense looked improved over last season's unit, as new defensive coaches Dick Tomey and Gregg Robinson appear to be making an impact. One major problem for the defense against Arkansas was a poor pass rush and containment, which better be fixed before the Horns tee it up in three weeks with OU in the Red River shootout. Offensively, it is still unclear to me whether UT can throw the ball well enough to force OU's safeties to play safety rather than linebacker, which is essential if a team wants to beat the Sooners. Unfortunately, neither Rice nor Baylor -- the Horns' next two opponents before the OU game -- will provide quality competition in which UT can develop that part of their offense.

Oklahoma 63 Houston 13. In a game that was not as close as the score indicates, the Cougars were in it all the way through the coin flip. In glancing at the Coogs' schedule, it appears reasonably likely that UH will be 1-6 (Army appears to be the only likely win) by the end of October unless dramatic improvement occurs. Quite a comedown from Art Briles' first season magic.

A&M 31 Wyoming 0. The Aggies take care of business against a patsy at home, which is an accomplishment for A&M the way they have been playing for the past couple of seasons. The Ags get a better test this Saturday night a home against a decent Clemson team, which is coming off a close loss to Georgia Tech.

Rice was idle this past Saturday. The Owls play the Run N' Shoot Hawaii Warriors this Saturday at Rice Stadium. If Rice plays defense as well as they did against Houston's junk offense a week ago, then the Owls could be 2-0 before becoming sacrificial lambs to Texas in Austin the following week.

For more information on Texas Tech, Baylor, and other Big 12 teams, Kevin Whited does a good weekly analysis of Big 12 games over at PubliusTx.Net.

Posted by Tom at 8:15 AM | Comments (2) |

Class Action Industrial Complex

This Forbes article addresses a trend noted in these earlier posts -- public pension funds becoming the lead plaintiffs in securities fraud litigation. And the public policy implications are not pretty:

And so it goes in the cozy confines of the class action racket. Plaintiff lawyers give handily to the politicians who hire them. They hire ex-insiders to woo pension funds, fete clients at cushy conferences and pay referral fees to powerbrokers who hook them up with new pension plaintiffs. None of this is illegal per se; nor does it violate existing rules of legal ethics. But even some lawyers have problems with it.

"This is corruption on a grand scale," says class action lawyer Howard Sirota of New York, who says payola by his rivals may force him out of the game. Contributing cash to the officials who oversee your business "is illegal in municipal finance. The American Bar Association [discourages] it. A grand jury is investigating it (see Forbes, Feb. 16). And absolutely nothing happens," Sirota says.

Last year plaintiff shareholders won $3 billion in class actions against the companies they had invested in, says Institutional Shareholder Services. (Let's ignore, for now, that often they drain money from companies in which they still hold a stake; see box on this page.) The take was distributed in small chunks to thousands upon thousands of recipients. But $800 million of it will go to a small circle of very lucky people: securities plaintiff lawyers.

The plaintiff lawyers had help in amassing their $800 million take-from pension fund trustees who are oblivious, defense attorneys who won't challenge the fees because it might prompt the other side to push for an even bigger settlement and insurers who are happy to charge higher premiums to cover the rising costs of litigation.

How did this happen? As usual, the law of unintended consequences of regulatory "reform" had a lot to do with it:

The Republican-controlled Congress hoped to smash this lawsuit cabal when it passed the Private Securities Litigation Reform Act in 1995.

The reform law hands control to big institutional investors. Nicknamed the "Anti-Milberg Weiss Act," it requires that lead plaintiff status must go to the investor who suffered the greatest loss. Big investors, Congress hoped, would shun frivolous suits and push to cut legal fees.

But the act has morphed into an industrial-strength shakedown. Trial lawyers reached out to new partners: the boards of public and union pension funds. They often include union veterans unabashed about suing corporations. These boards, rather than cutting back on lawsuits and pressing lawyers for lower fees, have jumped into bed with them.

And the results of the reform legislation? Take note:

All told, public and union pension funds were lead plaintiffs in 28% of investor class actions last year; in 1996 they led just 3% of cases, says PricewaterhouseCoopers. Yet they have done nothing to improve shareholder recoveries or reduce significantly the lawyers' cut."We have a system where the courts consistently allow law firms to file cases on behalf of figureheads," complains University of Arizona law professor Elliott Weiss. Translation: The lawyers still run the show. It is a pointed criticism, for Weiss did the research on class action settlements that helped shape the reform act.

Read the entire article. Hat tip to the 10b-5 Daily for the link to this article.

Posted by Tom at 7:09 AM | Comments (0) |

Krispy Kreme looking like Dunked Doughnuts

Krispy Kreme Doughnuts Inc. announced that its auditor, PricewaterhouseCoopers LLP, refused to complete a review of the company's financial statements for the latest quarter until an outside law firm hired by the company's board is finished performing, ahem -- "certain additional procedures" -- that the auditors have "requested."

This is not looking good for the mercurial Winston-Salem, North Carolina-based doughnut chain. Given its high profile since going public in 2000 and the current anti-business climate in the U.S. Justice Department, it would not be surprising to see a criminal inquiry emerge from Krispy Kreme's current financial problems. I wonder if the grand jurors can bring a box of Krispy Kremes into the grand jury deliberations?

Krispy Kreme's latest regulatory filings indicate that it had $19.3 million in cash as of Aug. 1, which is less than a third of what it raised in its 2000 initial public offering.

The company's latest disclosure sparked new questions about Krispy Kreme's accounting and a series of acquisitions that included the repurchase of several franchises, including two owned that Krispy Kreme insiders owned. The company recently reported a sharp falloff in growth and declining earnings, and already faces an informal SEC inquiry focused on its franchise repurchases and a profit warning it gave in May.

Posted by Tom at 6:30 AM | Comments (0) |

US Air tanks

As expected, US Airways Group Inc. filed its chapter 22 case (i.e., chapter 11 for the second time) in the U.S. Bankruptcy Court in Alexandria, Virginia. US Air's previous case concluded a little over two years ago.

Like its larger competitors, US Air continues to be hammered by high fuel prices, competition from discount carriers, anemic revenue and a heavy burden of debt and operating-lease commitments. With the filing, two of the nation's six "legacy" carriers -- those whose costs and cultures are rooted in the pre-deregulation era -- now wallow in bankruptcy, although a number of other legacies could end up in the same court. The other legacy already in bankruptcy is UAL Corp.'s United Airlines, and Delta Air Lines is struggling to avoid the similar fate.

US Airways will maintain normal operations and honor all customer-service agreements and marketing arrangements with other carriers. US Airways' current schedule consists of nearly 3,300 daily flights in about 180 airports in the U.S., Europe and the Caribbean.

The company's theory of the case in its reorganization is to propose a reorganization plan by year-end that will transform the legacy carrier into a discount airline. Traditional labor and regulatory agencies will undoubtedly oppose the old-line, hub-and-spoke carrier attempting to shed its rigid work rules, inefficient work practices and richer benefits to make the transformation to a discount airline. If that occurs, then US Air may be forced into a liquidation under the weight of its massive debt obligations and lack of profitable operations, although previous legacy airline reorganizations indicate that such a liquidation will not come without creditors enduring even more losses during the reorganization case.

Another big complication in US Air's reorganization is financing. Unlike the usual big reorganization, US Air did not file an emergency debtor-in-possession financing motion on Sunday to bolster its cash position. Because all of its assets are already pledged, the company did not even try to arrange such interim financing. However, US Air did disclose that it had reached an agreement with its lenders to give the airline access to an undisclosed portion of $750 million of cash it has on hand to use as working capital in lieu of a debtor-in-possession financing. The company said it currently has $1.45 billion in cash, cash equivalents and short-term investments.

The US Air filing gave Democratic Presidential nominee John Kerry an opportunity to comment intelligently on a business policy issue, and his campaign screwed the pooch on that opportunity. Check out the following gibberish:

"It is a tragedy that the employees of US Airways, who have already made great sacrifices to help the company stay afloat, will now suffer more harm. And it's unforgivable that the Bush administration has sat on the sidelines rather than act to address this crisis."

The Kerry Campaign failed to mention that the Bush administration authorized the dubious post-September 11, 2001 federal loan-guarantee program that was supposed to help the ailing airline industry, but really just delayed the inevitable in regard to such carriers as US Air. As for the real reason behind the Kerry Campaign's above statement -- US Air employs thousands in the key battleground state of Pennsylvania.

Posted by Tom at 5:52 AM | Comments (0) |

September 12, 2004

Stros gut one out

Jason Lane's pinch-hit double drove in the go-ahead run in the 10th inning and Chad Qualls came in with two on in the bottom of the 10th and induced a dramatic game-ending double play for his first career save as the Stros, held hitless by the Pirates Dave Williams for six innings, rallied in the late innings to beat the Pirates 5-4 Sunday night at PNC Park in Pittsburgh.

How's that for an opening sentence? Whew!

By winning this "must" game following three losses in four games in Pittsburgh, the Stros stayed a game behind the Giants in the NL wild-card race. The Giants beat the Diamondbacks 5-2. Even after losing three of five games over the weekend to the Pirates, the Stros have won 22 of 28 and 15 of 20 overall, and still finished 12-5 against the Bucs this season.

Roy Oswalt left with a 4-2 lead after seven innings and was in position to become the NL's first 18-game winner, but the Pirates rallied for two runs against Brad Lidge, who had previously converted 21 of 24 save opportunities. The Stros trailed 2-0 and had only a walk through six innings against the left-handed Williams until breaking through for two runs in both the seventh and eighth.

After a well-deserved day off on Monday, the Stros gear up for a key three game series with the Cards on Tuesday in St. Louis. The Rocket starts the first game of the series, and then its almost anyone's guess who Manager Garner will trot out for the next two games. The Stros return to the Juice Box this Friday for a weekend series against the Brew Crew before taking off for San Francisco for the season's biggest series to date next Tuesday-Thursday against the Giants.

Posted by Tom at 9:37 PM | Comments (0) |

Chuck Cook on Tiger Woods' swing changes

Chuck Cook is one of Texas' many fine golf teachers, and he runs the Chuck Cook Golf Academy at the Barton Creek Resort in Austin. Mr. Cook has trained under several notable teaching professionals, including Bob Toski, Jim Flick, Peter Kostis, Davis Love Jr., Paul Runyan and Jack Lumpkin, has authored two books, "Perfectly Balanced Golf" and "Tips from the Tour", as well as the video "How to Stop your Slice and your Hook." Mr. Cook's students have included three U.S. Open champions, the late Payne Stewart, Tom Kite and Corey Pavin.

In this NY Sunday Times article, Mr. Cook provides an insightful account of how the golf swing needs to be adapted to each player's attributes, and how this process sometimes breaks down based on the respective natures of the teacher and the student. First, Mr. Cook notes the two different types of golf instructors:

In golf, as in all sports, there are two styles of teachers, method and matchup.

A method instructor teaches a particular style of swing or play and tries to mold all of his players into that style. A matchup teacher takes his players' natural tendencies and matches up a set of compatible fundamentals to best use those tendencies.

Two basketball coaches illustrate this difference. Bob Knight, the controversial but competent coach who won three N.C.A.A. championships at Indiana, is a method coach. He made every team play the same style of tenacious man-to-man defense and motion offense. Consequently, Knight would recruit players who fit that style of play.

Dean Smith, Knight's counterpart at North Carolina, was more of a matchup coach. He would recruit the best players available and adjust his style to suit them. He used a formula based on points scored per possession. If he had a good offensive team, he would play a more up-tempo style, and if he had a good defensive team, he would use a more deliberate style of play.

Then, Mr. Cook points out the peculiar nature of golf--the students pick the coaches rather than the process in most sports in which the coaches pick the students:

In golf, however, teachers don't recruit players; players recruit teachers. This is where it gets dicey. No method fits all players. Swing styles must fit a player physically and psychologically. To name two of many examples, tall players must swing differently than short players, and aggressive players have different needs than conservative players.

Thus, Mr. Cook points out that not all golfers pick the right teacher for them:

Certain types of players succeed with teachers whose method is compatible. The problem is that most method teachers think their approach is superior for all players. To compound the problem, most top players think they can adapt to any method.

Bad things happen when a headstrong player tries to adapt to an incompatible style.

And, in Mr. Cook's view, that is precisely what has happened to Tiger Woods, who last week lost the No. 1 World Golf ranking for the first time in more than five years:

The style of swing [Woods] had when he came on tour was good for producing distance but not accuracy. The adjustments he made working with Butch Harmon - to his great benefit - were meant to improve accuracy and enhance control of distance rather than producing distance.

Woods is without question the most talented person to play the game, and at his peak no one has played at a higher level. Once a golfer reaches this level, there is little room to improve. One or two things may help, but hundreds of things can hurt.

Woods is the most aggressive player in pursuit of perfection. He continually tinkers with his game. But he has adopted a style of swing that is not compatible to his tendencies. His new teachers are convinced that this style is superior, and Woods is convinced he can adapt to it. It is a conundrum of considerable proportions.

With his new swing, Woods rotates his arms so much on the backswing that it requires a corresponding "rerolling" on the downswing. But his strength is the speed of his body. To accommodate this rolling and rerolling of the arms, the body must be very quiet, which is not instinctive for Woods.

In addition, golf requires that you swing on a plane that is a blend of uprightness and flatness. Most top players (including Woods when he was coached by Harmon) swing their arms up and turn their body, creating this blend. Woods, though, has gone the other way. The rolling of his arms go around; consequently, his shoulders have to tilt to get the needed "up" in his swing. This tilting, instead of turning, requires Woods to pull up through impact, causing his arms to swing to the right of the target and creating wild shots to the right.

Mr. Cook concludes by observing that sometimes swing adjustments help a player and sometimes they hurt:

There are many players who improved thanks to compatible instruction. Nick Faldo, Curtis Strange, Nick Price, Mark O'Meara, Jack Nicklaus, Tom Kite, Payne Stewart, David Toms, Mickelson, Woods and others won major championships after making fundamental adjustments.

On the other hand, Chip Beck, Bill Rogers, Seve Ballesteros, Ian Baker-Finch, David Duval and Woods have struggled in trying to adapt to swing techniques that don't fit.

Mr. Cook has hit the nail on the head with regard to Mr. Woods' swing problems. Mr. Woods should not be faulted for firing Mr. Harmon, who was teaching Mr. Woods' competitors without Mr. Woods' approval. But he has replaced Mr. Harmon with method instructors (such as his neighborhood buddy Mark O'Meara) who have prompted Mr. Woods to adopt a flatter swing that is a poor fit for Tiger's lanky physique. Whereas Mr. Woods was hitting a controlled, long fade when he was under Mr. Harmon's tutelage, Tiger is now hitting an even longer draw, but he has not been able to control it consistently. My sense is that, unless he returns to hitting a fade, Mr. Woods will continue to struggle in comparison to his brilliance over the first five years of his pro career.

As Lee Trevino observed some years ago:

"I can talk to a fade, but a hook doesn't listen."

Posted by Tom at 5:16 PM | Comments (9) |

Fantasy Football headaches

Geez, I have enough problems just deciding on my Fantasy Football team's lineup each week without having to worry about this.

Posted by Tom at 7:23 AM | Comments (0) |

September 11, 2004

Uh, oh II

The Stros hitters continued to scruff this afternoon in Pittsburgh against someone named Ryan Vogelsong as he limited the Stros to one run over six innings in the Pirates' 5-2 victory at PNC Park. It was the Stros' third loss in four games following their 12-game winning streak that got them back in the race for the Wild Card playoff spot.

Bidg homered on the second pitch of the game and drove in both Houston runs. but the rest of the Stros' hitters managed only two doubles and five singles. Biggio's homer was his 22nd, which tied his season high and extended his National League record to 40 homers leading off games.

Roy O needs to play stopper on Sunday night in the final game of this disappointing series. The Stros get an off day in St. Louie on Monday before beginning their three game series with the Cards on Tuesday with the Rocket pitching the first game.

Posted by Tom at 4:03 PM | Comments (0) |

The demise of the Southwest Conference

Kevin Whited has this interesting post over at PubliusTX.net about the demise of the old and beloved (at least in Texas) Southwest Conference, and how former University of Houston Athletic Director Bill Carr flubbed the chance to shoehorn UH into the Big 12 Conference.

I was quite close to the Jack Pardee-John Jenkins coaching staffs at UH, and I ended up representing Jenks in the settlement of his contract with UH (but that's the subject of an entirely longer post!). The info in Kevin's post is pretty much the way I remember it and his point about Baylor's acceptance into the Big 12 as being a booby prize is right on the mark.

For most of their existence, UH's athletic programs have generally competed very well despite fewer resources than most of their competitors. For years, several of the old Southwest Conference schools refused to agree to admitting UH until Darrell Royal and the few other statesmen in the SWC lobbied for UH's admission. I'm sure that UH will continue to face similar obstacles in attempting to join one of the BCS Conferences (the Southeastern Conference probably makes the most sense). But it would be great for Houston to have UH's athletic programs back in a major conference.

Posted by Tom at 11:32 AM | Comments (1) |

The Massachurian Candidate

Professor Ribstein is already a formidable business law and business movie expert. However, from this post, it appears that he may also be a budding Hollywood screenwriter.

Posted by Tom at 8:56 AM | Comments (0) |

Anadarko nears completion of asset sale

The Woodlands, Texas-based Anadarko Petroleum Corp. announced that it is selling a large number of its smaller oil and natural-gas properties in Texas and Oklahoma in return for $850 million and a stake in two Wyoming producing fields. Merit Energy Co., a Dallas-based privately held company, is buying the majority of the properties.

With the sale, Anadarko is nearing its previously announced goal of selling off $2.5 billion in North American assets. It plans to use the proceeds to lower debt and refocus on a plan to develop overseas and deepwater Gulf of Mexico exploration.

The properties Anadarko is selling represent 30% of its fields world-wide, but only 4% of proven reserves and 7% of current production. The deal is scheduled to close by the beginning of December.

Merit owns and operates oil and natural-gas fields with $2.1 billion in oil and natural-gas reserves. The company had raised $2.5 billion for additional purchases of oil and gas properties.

It's too early to say whether Anadarko's ambitious plan to restructure the company is going to work. However, I am pulling for them. It's always refreshing to see management of a company address a daunting problem -- i.e., the uninviting future of an independent E&P company treading water while living off of declining reserves -- and come up with a creative plan to redirect the company toward a potentially more profitable goal. The plan is not without substantial risk, but given Anadarko's alternatives, it makes a lot of sense to me.

Posted by Tom at 5:29 AM | Comments (0) |

September 10, 2004

Uh, oh

The Stros are starting to scruff in Pittsburgh as Pirates rookie John Van Benschoten won his first major league game in allowing only five hits in eight innings as the Bucs beat the Stros 6-1 Friday night at PNC Park.

Stros starter Pete Munro (4-6), who beat Van Benschoten at the Juice Box last Sunday, allowed four runs and nine hits in five innings. The only positive out of this rather dreary Stros performance was Brandon Duckworth, who pitched two innings of scoreless relief while giving up only one hit and no walks. Given the way that Duckworth pitched earlier in the season, that is a major accomplishment.

It appears that the Stros' bats are cooling off a bit. After averaging almost 10 runs a game during their recent winning streak, the Stros have now scored just 11 runs and had just 19 hits in their last three games. While not as bad as some earlier droughts during this season, the Stros' hitters will probably have to get back to producing at a considerably above-average level for the remainder of the season for the Stros to have a reasonable shot at the Wild Card playoff spot. The backend of the Stros' pitching rotation requires a rather large run buffer to have a reasonable chance of winning games in which any member of that group is pitching.

Surprising Brandon Backe pitches the fourth game of the Pirates series on Saturday and Roy O goes for his 18th win during the Sunday matinee. Sure would be nice to lock those two games up with wins.

Posted by Tom at 9:13 PM | Comments (0) |

WSJ: Eisner to retire at end of contract term

The Wall Street Journal is reporting that Walt Disney Co.'s CEO, Michael Eisner, will retire in 2006 at the end of the current term of his contract with the company.

Here is the Journal ($) article on Mr. Eisner decision, which is also an excellent overview of his tenure at Disney. My sense is that Mr. Eisner is similar to a good football coach who builds a solid program from one that was floundering, but who holds on to his job for too long, creating disunity among supporters of the program, some of whom remain loyal to him for his past successes and others who recognize that he does not know when to quit and want to fire him.

Posted by Tom at 5:33 AM | Comments (0) |

September 9, 2004

Stros split twinbill as streak ends

The Stros magic winning streak ran into the buzzsaw of the Pirates' Oliver Perez, but the Stros rebounded to win the second game as they split their doubleheader with the Pirates this evening at PNC Park in Pittsburgh, 3-1 and 9-2.

Perez is one of the best young pitchers in baseball, so the Stros loss was not particularly surprising. The Stros could manage only three hits off of him and they whiffed 14 times. I'm not sure that the Padres made such a good move in giving up Perez for what appears to be a fading Brian Giles. Carlos Hernandez was only marginally effective again in taking the loss as he continues to rebuild arm strength from his shoulder surgery of last year.

The Stros cranked it back up in the second game, peppering various Pirate pitchers for 10 hits, including five doubles and a triple. That was good enough to gain the win even though Tim Redding pitched ineffectively again after his exile to AAA New Orleans. Having to pitch Redding at the backend of the rotation is a big impediment to the Stros winning the National League Wild Card playoff spot.

Pete Munro takes the hill in the Friday game in Pittsburgh as the Stros attempt to start another streak to keep pace in what is going to be a tight Wild Card race with the Giants, Cubs, and Marlins.

Posted by Tom at 10:20 PM | Comments (1) |

A new Hyatt Hill Country Resort in Austin

One of the favorite resorts of Texas families is the Hyatt Hill Country Resort in San Antonio.

Now it appears that another Hyatt resort project between Austin and Bastrop will become a reality. Dallas-based Woodbine Development Corp. has closed a $74.3 million construction and permanent loan with Prudential Mortgage Capital for the construction of the $135 million Hyatt project.

The resort will be located on 656 acres of Bastrop County land that Woodbine bought from the Lower Colorado River Authority in March. The resort site, which adjoins LCRA's 1,110-acre McKinney Roughs Nature Park, will utilize 405 acres of this land, including one mile of Colorado River frontage. The remaining 251 acres are being reserved for future development.

The Hyatt site is 13 miles from Austin-Bergstrom International Airport. It will include a 500-room hotel, an 18-hole golf course, a manmade river pool, and hiking and equestrian trails.

Posted by Tom at 6:50 AM | Comments (1) |

Quattrone sentenced to 18 months in prison

Former CSFB Silicon Valley investment banker Frank Quattrone was sentenced to 18 months in prison for obstructing a probe of how IPO stocks were doled out. The sentencing follows his obstruction conviction in May, which was largely based on an e-mail he sent underlings that encouraged them to obey document-management procedures that prosecutors alleged would have destroyed evidence sought by investigators.

The punishment was well above federal guidelines, which called for no more than 16 months, and from a probation department recommendation of 10 months, half on supervised release.

Mr. Quattrone, who is 48, is the highest-profile Wall Street figure to face prison since junk-bond king Michael Milken was given a 10-year sentence (later reduced) for alleged securities-fraud violations nearly a decade ago.

In handing down the sentence, U.S. District Judge Richard Owen granted a prosecution request to lengthen Mr. Quattrone's sentence to between 15 and 21 months on the grounds that he had committed perjury when he testified at his trial. The judge based his decision on Mr. Quattrone's denial before the jury that he intended to obstruct investigations by the Securities and Exchange Commission and a federal grand jury. Mr. Quattrone's attorneys argued that the alleged perjury was not proved before a jury. But Judge Owen ruled that it was clear to him that Mr. Quattrone's denial that he intended to obstruct justice was not true and commented that Mr. Quattrone could have avoided the perjury issue by not taking the witness stand.

H'mm. A criminal defendant should not take the stand to defend himself from a criminal charges because he might commit another criminal offense that the judge will convict him of during sentencing without a trial? Let's see how that proposition plays out on appeal.

At any rate, at least Judge Owen agreed to allow Mr. Quattrone to serve his time at the federal minimum-security prison camp in Lompoc, Calif. However, Judge Owen denied Mr. Quattrone's request to remain free pending appeal and ordered him to surrender on October 28.

A jury convicted Mr. Quattrone in May of obstructing a government investigation into how CSFB allocated shares of hot IPO stocks. Prosecutors charged that Mr. Quattrone obstructed the investigation when he forwarded a single e-mail to his subordinates advising them to clean-up files per the bank's document-management policies soon after he learned about the federal grand-jury investigation. A first trial last October ended in a hung jury.

Mr. Quattrone still faces a possible lifetime ban from the securities industry under charges pending against him by the National Association of Securities Dealers and the SEC. His former firm CSFB paid $100 million in 2002, without admitting wrongdoing, to settle charges that the SEC and NASD had brought against the firm.

Posted by Tom at 6:37 AM | Comments (0) |

TXU Utility charging rates based on creditworthiness

TXU Energy, the unregulated arm of Dallas-based TXU Corp., last month notified 185,000 of its Texas electricity customers that increases in natural-gas prices would require the company to adjust rates. But in a new rate-setting tactic for the electric-utilities industry, TXU Energy also plans to impose a bigger rate increase for its customers with the lowest credit scores based on numeric rankings of credit-worthiness that take into account a customer's history of paying electricity, telephone and cable bills.

Predictably, consumer advocates are not pleased. "If they get away with this, others will follow," said Randy Chapman, executive director of the Texas Legal Services Center, a legal-aid program that helped uncover TXU's credit-scoring practice, which was reported by the Dallas Morning News. Another state-funded consumer advocate in Texas is reportedly preparing to file a formal complaint with the Texas Public Utility Commission asking it to issue an emergency order preventing TXU, which is both the biggest utility and biggest competitive supplier in the state, from implementing the rate changes.

Imagine the audacity of a company trying to take away the right of people who do not pay their bills timely to have people who do subsidize the cost of their tardiness.

The Texas electricity market was deregulated in 2002, allowing customers to jump from one provider to another where available. The new TXU pricing arrangement doesn't affect customers that get service from TXU Corp. in its traditional territory in the Dallas-Fort Worth area. Rates there continue to be regulated by the state during the transition from a fully regulated to a deregulated market.

Instead, the credit scoring has been applied to TXU Energy customers in portions of the state where TXU is seeking new customers. TXU Energy lured many of those customers away from utilities with the inducement of discounts.

The insurance industry has for years used credit scores as a tool to predict losses and help set premiums. A study prepared last year for the state of Texas by the Bureau of Business Research at the University of Texas in Austin found a correlation between insurance claims and low credit scores. Credit tools have been used by the electric industry to set deposits but haven't been used to set actual rates. Traditionally, rates were based on the cost of furnishing service to broad customer classes, such as residential ratepayers.

However, under the federal Fair Credit Reporting Act, companies that use credit information as a basis of adverse decisions often are required to disclose that fact to consumers. It does not appear that TXU has complied with the Act, at least yet.

Many states that have deregulated their retail electricity markets still require incumbent utilities to offer rates that serve as a benchmark for prices offered by competing suppliers. But those government-mandated rates expire in Texas in 2007 for residential customers.

Under the TXU program, electricity rates will be raised for 185,000 customers, based on higher gas prices. But they will be raised most sharply for roughly 55,000 residential and small-business customers with poor credit scores. That's about 30% of the accounts that TXU Energy now serves in competition with incumbent utilities.

Stay tuned as this football begins to be tossed around the political playing field.

Posted by Tom at 5:48 AM | Comments (4) |

September 8, 2004

Stros streak hits 12 as they take the lead for the NL Wild Card

Roger Clemens won his 326th career win as the Stros cranked four first-inning yaks to beat the Cincinnati Reds 5-2 Wednesday afternoon and tie a club record with their 12th straight win.

The Stros have now won 13 of their last 14 games, 20 of their last 23, and have, with the Cubs' loss to the Expos, taken at least a share of the lead for the National League Wild Card playoff spot. The Stros have also won eight straight against the Reds while outscoring them 68-25 in those games.

Clemens (16-4) won his fourth straight start, allowing only four hits in seven innings. He gave up his only run in the first on a sacrifice fly, and the Reds could manage only three singles over Clemens' next six innings. The Rocket finished with six strikeouts and two walks.

After three of the Stros AAA relief corps pitched in the eighth, Brad Lidge pitched the ninth to gain his 21st save in 24 chances. With runners at the corners and two outs, Lidge struck out Juan Castro to end the game as the Juice Box crowd went nuts.

After the Reds scored their only run off of Clemens in the top of the first, Bidg led off the bottom of the frame with his yak, then Bags and Berkman hammered back-to-back taters, JK walked, and Mike Lamb hit a two run round tripper for his third home run in the past three games. Although the Stros did not score again, they cranked out 11 hits against seven Reds' pitchers.

So now its off to Pittsburgh for a twinbill tomorrow and then three more over the weekend before the club moves on to St. Louis for a three game series with the Cards early next week. Looks like Carlos Hernandez and either Tim Redding or Brandon Duckworth will get the starts in the doubleheader tomorrow. Bullpen, get ready.

Posted by Tom at 5:43 PM | Comments (0) |

U.S. Air prepares for chapter 22 filing

Inasmuch as its labor negotiations with the pilots' union are not going well, the Washington Post reports that US Airways Group Inc. confirmed yesterday that it has retained the restructuring advisors Seabury Group and the Washington, D.C.-based law firm of Arnold & Porter LLP to provide restructuring advice for its upcoming chapter 22 filing (US Air filed its first chapter 11 case two years ago; thus, its second case is dubbed a chapter "22" in legal circles).

With few exceptions, the management of U.S. airlines has a desultory record in creating value for shareholders. Given that poor track record, you would think that management and creditors in these companies could at least reorganize the companies in a manner that gives the reorganized company a competitive advantage after coming out of chapter 11. However, as these chapter 22 and 33 reorganizations of airlines reflect, the parties involved in these airline reorganizations often cannot even reorganize the airline companies effectively.

Makes one wonder when some Bankruptcy Judge, in exasperation with it all, will decide that Professor Ribstein's solution, at least in the most intractable cases, is the correct one?

Posted by Tom at 6:26 AM | Comments (0) |

The prospects for real Social Security reform

In his weekly Business World column today, the Wall Street Journal's ($) Holman Jenkins, Jr. lays out the case that a second Bush Administration may be the one time that realistic reform of Social Security could actually take place:

People become inordinate risktakers to protect something they have. Once voters figure out the true extent of the entitlement morass, even those summering Nantucket editors might be expected to rush to the barricades and, whatever their cultural affinity, cast their vote for Mr. Bush for the simple reason that entitlement reform is inescapably a second-term activity.

. . . President John Kerry would be sure to lay back too while re-election sugarplums still danced in his head, and who'd want to bet on him to beat the Democratic curse and win a second term? If not, nine years would be the soonest reform could start, by which time another $18 trillion in unfunded retirement obligations would have piled up.

Nope, it's Mr. Bush or bust. Congress is no help. Wonder why, in the dog days of August, GOP House Speaker Denny Hastert became a sudden convert to a flat tax? He was hoping to divert the Bush White House's attention from Social Security reform. His members, facing re-election every two years, still believe that Social Security is an untouchable "third rail," notwithstanding a few GOP thrillseekers who've lately done handsprings on the third rail and lived to tell the tale.

Democrats, of course, can be expected to resist ferociously, and for reasons going beyond mere sentimental attachment to the FDR/LBJ welfare state. Anything that turns the adult population into wealth holders would change voting behavior forever, and not to Terry McAuliffe's advantage.

All this makes Mr. Bush's apparent willingness to tackle entitlements a once-in-a-generation planetary alignment, not to be passed up by a society that cares about its future.

Mr. Jenkins goes on to explain the "creative" accounting that the federal government engages in to mask the true cost of its Social Security obligations:

[A]dvocates need to get busy helping the public master a peculiarity of federal accounting. To wit, promises made to bondholders show up in the national debt. Promises made to future retirees don't.

Thus the officially recognized national debt is about $3.9 trillion, while the unfunded Social Security obligation alone represents an IOU of $10 trillion in present value. Throw Medicare onto the bonfire and that's another $62 trillion.

Keep in mind these figures represent only the "unfunded" portion, not the part covered by monies already credited to notional federal trust funds or to be collected in payroll taxes from now till eternity. It would take $3.9 trillion today to retire the visible national debt, and $72 trillion today to pay off unfunded promises to retirees. Yet only the first debt is reported to voters. That's the kind of accounting "oversight" that, in the private sector, leads straight to a cellblock.

That makes Enron's shifting of a mere $40 billion of debt into off balance sheet transactions look rather trivial, doesn't it? And why are these huge hidden costs important to understand? Mr. Jenkins answers:

Because suddenly the $1 trillion in "transition costs" to finance the creation of the Bush-touted private retirement accounts for younger workers doesn't seem so outlandish compared to the real federal debt, visible and invisible.

Interestingly, Mr. Jenkins then focuses on the main impediment to true Social Security reform -- risk aversion:

Unreasoning risk aversion is a hallmark of the human mind, and Democrats and their pet economists are already doing all they can to encourage the stand-pattism of certain voting blocs, especially single women and oldsters. John Kerry never tires of frightening these voters with the Satans of Wall Street and Ken Lay. He says instead a "tweak here, tweak there" will tide Social Security over without any "risky" reforms.

Here we must summon the heavy guns of "behavioral economics," whose adherents have been winning Nobel Prizes lately. Their most firmly established insight is that real people, as opposed to the rational maximizers of the economic texts, suffer from an excess of caution. "Prospect theory," pioneered by Daniel Kahneman and Amos Tversky, shows that people overvalue their fear of loss and undervalue the prospect of gain, leaving themselves worse off than they would be if they were willing to entertain reasonable risks.

I agree with Mr. Jenkins that real Social Security reform is more likely in a second Bush Administration than in a Kerry Administration. But given the Bush Administration's aversion to balanced policy analysis, I question whether there is really much of a prospect for reform even in a second Bush Administration. I guess we can dream, can't we?

Posted by Tom at 5:55 AM | Comments (1) |

AIM and Invesco settle favored investor trading charges

Affiliated mutual-fund companies Invesco Funds Group Inc. and Houston-based AIM Investments reached a tentative $450 million settlement with federal and state regulators of allegations that they allowed favored investors to trade rapidly in their funds at the expense of long-term shareholders. The firms are both units of Amvescap PLC of London.

Under the deal, Invesco and AIM agreed to pay a combined $375 million in penalties and restitution to settle with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. They also agreed to reduce mutual-fund fees charged to investors by $75 million over the next five years. In a separate deal with Colorado regulators, Invesco will pay an additional $1.5 million to cover attorneys fees and "investor education," whateever that means. As usual in such settlements, neither firm admitted the civil fraud charges.

The Invesco-AIM settlement is one of the largest in the fund-trading scandal that has descended upon the huge mutual-fund industry over the past year. Only Bank of America Corp. agreed to pay more in fines and restitution, though Alliance Capital Management Holding LP agreed to a larger settlement if reduced fees are included in the settlement calculation.

The settlement pact also marks the first time regulators have linked AIM Investments to allegations of improper trading. The Houston firm was not charged late last year when regulators sued Denver-based Invesco and its former chief executive. But during the investigation, regulators discovered that AIM had at least 10 arrangements with select investors that allowed them to trade AIM funds rapidly (or "on market time," as they say in the industry). Invesco and AIM, which merged to form Amvescap in 1997, merged their operations last year.

Market-timing isn't illegal, but Invesco and other funds said in their prospectuses that they limited investors' transactions. Market timing is designed to take advantage of discrepancies between a fund's share price and the value of its underlying securities. The practice can raise expenses and reduce the profits of long-term fund investors.

Invesco's tech-stock-heavy funds did well in the bustling 1990s, but fell hard during the resulting bear market. Investors in the Invesco and AIM funds have withdraw more money than they invested in each of the past three years. Through the first seven months of this year, net redemptions from the firms' stock and bond funds totaled more than $8.3 billion.

Posted by Tom at 5:31 AM | Comments (1) |

September 7, 2004

Streakin' Stros keep winning

Carlos Beltran cranked a triple and a mighty upper deck yak, Mike Lamb chipped in with another two run tater, and new Daddy Roy O hurled 7 2/3rd's strong innings as the Stros continued their utterly incredible late season surge by pounding the Reds again at the Juice Box on Tuesday night, 9-7.

The Stros have now won 11 straight games, 13 of their last 14, 19 of their last 22, and now trail the Cubs by a half game in the National League Wild Card playoff race. The Stros have also won seven straight against the Reds while outscoring them 63-23 in those games.

The Stros again took extra batting practice on the pathetic Reds' pitching staff, cranking out 11 hits for 23 total bases and enjoying 8 walks in between. Meanwhile, Roy O did his usual number on the Reds, controlling the game efficiently until he left with two outs and two on in the eighth. Springer's three run gopher ball after relieving Oswalt and Lidge's uncharacteristic two run gophie in the ninth made the score of the game closer than it really was.

The Rocket goes for the Stros 12th straight and his 16th win of the season in Wednesday afternoon's Businessman's Special before the Stros take off for a six game swing through Pittsburgh and St. Louis. Right now, this club will not even need an aircraft to fly into those cities.

Posted by Tom at 9:55 PM | Comments (3) |

Matt Simmons on oil supplies

Matthew Simmons is the chief executive officer of Simmons & Co. International, which is a Houston-based investment bank that specializes in investment in oilfield service and related companies. Mr. Simmons is one of Houston's most knowledgeable experts on the oil and gas industry, and in this Chronicle interview, challenges the conventional wisdom that the recent spike in oil and gas prices is temporary:

Q: What do the fundamentals [of oil production and consumption] look like? Are supply and demand out of whack?

A: The fundamentals, to me, look scarier than hell. Demand ... is having the smell of a runaway train, downhill on a one-way track. The consensus forecast for 2004 fourth-quarter demand is 83.6 million barrels a day, an increase of over 2 million from where we are this summer. And if you look at the consensus for the fourth quarter of 2005, demand is 85.6 million barrels a day, another 2 million increase from the fourth quarter.

Q: What about supplies?

A: There are very few companies that are showing any ability to grow their global oil supplies by more than 1 or 2 percent a year. If you take all the announced projects of any significance, and if they all come on and peak in the first year, they account for ? at best ? 6 to 8 million a day of fresh supply by 2009. And we just talked about needing 4 of that over the next 14 months.

The missing piece of data in this tight equation is the rate of decline of the existing base. Over 70 percent of the current output is coming from fields that were discovered, at their most recent, 30 years ago. If the global decline rate is only 3 percent per annum, then we lose 11 million barrels by 2009 and add 6 to 8. I don't see how we balance this market, unless we have a stunning depression.

And Mr. Simmons has always been skeptical about Saudi Arabia's claims that it owns a quarter of the world's reserves and can simply increase production to meet rising world demand:

Q: Most analysts accept Saudi Arabia's claims that it holds about a quarter of the world's oil reserves. You have challenged the Saudis over their reserve estimates?

A: The grim fact about Saudi Arabia today is that, at the Saudis' own admission, the Ghawar Field, the king of all kings, is still producing about 5 million of their 8 to 9 million barrels a day of oil. That's all you need to know to be scared.

Here is a more extensive interview with Mr. Simmons. These are well-supported views of a formidable expert in the oil and gas industry. Take note.

Meanwhile, this Wall Street Journal ($) article reports that the prominent energy-stock analysts John S. Herold Inc. has issued a report contending that Exxon Mobil is overvalued when compared with a group of smaller energy companies that collectively mirrors the capitalization of the energy giant. The Herold report lumped the group of smaller energy companies into a single theoretical stock called "Synthetic Exxon Mobil," or "SXOM." Designed to resemble Exxon Mobil both in market capitalization and operational scope, SXOM includes six companies that, during the past three years, would have have generated a 31% return on investment. In comparison, an investment in Exxon Mobil would have yielded just 12%. The report tends to support the notion that the recent spike in energy prices is making the less-expensive stocks of more-aggressive energy companies look better than the more established giants.

Posted by Tom at 5:27 AM | Comments (1) |

September 6, 2004

The saga of David Duval and a few other golf notes

A few notable developments from the wonderful world of golf:

Vijay Singh finished his long climb to overtake Tiger Woods as the world's top golfer as he beat Woods in a head-to-head matchup on Monday to win the Deutsche Bank Championship by three strokes and become the new the top-ranked player in the world. The victory was Singh's sixth victory of the year and was enough finally to vault Singh over Woods as the number one golfer in the World Golf computer ratings.

Woods had been No. 1 for more than five years -- a record 264 consecutive weeks -- in the rankings that consider performance over the past two years and factor in the strength of the field in each tournament. The new numbers released later Monday had Singh at 12.72 points to Woods' 12.27, making Singh the first player other than Woods to hold the No. 1 ranking since Aug. 8, 1999, when David Duval was number one.

And what of Mr. Duval? Well, after a slide from the top of professional golf the likes of which had not been seen since the demise of Ian Baker Finch, Duval made the cut for the first time in 15 months in the Deutsche Bank Championship and finished tied for 13th for a payday of $93,750 -- more than he has made in 24 events that he has entered in the past two years.

Duval is an interesting man. He lost his only brother to leukemia in his early teens after a bone marrow transplant with Duval as the donor failed, and the loss affected Duval and his family dramatically. Duval's parents seperated and divorced, and Duval went into a shell in which he found his only outlet in the isolation of golf. He developed an idiosyncratic swing in which he offset a strong grip and a closed club face at the top of the backswing with an incredibly well timed blocking action through his downswing that allowed him to hit a long and accurate fade. He also developed an introverted personality that struck many as conceited.

A stellar player as a collegian, Duval quickly rose to the highest levels of professional golf after winning the 2001 British Open. However, Duval hurt his back, and the blocking action that Duval used in his downswing to offset his strong grip and closed clubface aggravated the injury. When Duval attempted to swing without the blocking action, he started duck hooking everything, which was the natural result of his strong grip and closed clubface. When he started attempting to correct the duck hook, he started blocking everything to the right.

From the pinnacle of his profession after the British Open victory in 2001, Duval fell to 80th on the PGA Tour money list in 2002 and things only got worse from there. Duval made only four cuts in 20 tournaments last year and finished 211th on the money list. As Duval's golf world collapsed around him, many of his fellow Tour pros who had once considered him to be a conceited jerk saw that Duval was actually living a life of quiet desperation.

Earlier this year, Duval started to attempt to put his golf game back together again by retaining well-known golf teacher David Leadbetter. Duval's finish this week in the Deutsche Bank Championship is an indication that Leadbetter's instruction may be helping Duval. Most people who follow golf closely are hopeful that Duval can make it back to the top echelon of professional golf.

Finally, legendary golf swing savant Moe Norman died Saturday at the age of 75 from heart failure. Along with Ben Hogan, many in golf considered Norman to be among the best ball strikers ever.

Tour pros everywhere marveled at Norman's unusual yet effective swing. He assumed a wide, stiff-kneed stance far from the ball and took the club back with barely any body rotation, and then swung through the ball, finishing with his hands high and in front of him. Norman's method was the basis of the Natural Golf style, which has achieved a moderate following among amateur golfers over the past decade or so. However, no golfer other than Norman has won a professional tournament using the Natural Golf method.

Posted by Tom at 9:10 PM | Comments (1) |

Stros continue incredible roll

Brandon Backe hit his first Major League yak and allowed only one run in seven innings to keep the Stros in the thick of the National League wild-card chase with an 11-5 rout of the Reds at the Juice Box on Monday afternoon.

The Stros have now won 10 straight games, 12 of their last 13, 18 of their last 21, and now are only 1 1/2 games behind the Cubs and Giants for the National League Wild Card playoff spot. The Stros have also won six straight against the Reds while outscoring them 54-16 in those games.

Making only his fourth career start, Backe (3-2) virtually shut down the Reds after giving up three hits and a run-scoring single in the first inning. He gave up only four singles and a walk from that point on, and finished with a career-high eight strikeouts. Backe's unlikely two-run yak prompted a stancing ovation from the Juice Box crowd of 40,581 that did not cease until Backe re-emerged from the dugout to take a bow.

Bags, Berkman and JK also cranked taters for the Stros, who peppered the horrendous Reds pitching for 12 hits. The Stros have averaged nearly 10 runs a game during their streak.

If Roy O can get take a break from a new baby watch, then he will pitch the Tuesday night game against the Reds with the Rocket following in Wednesday afternoon's Businessman's Special. After the Reds close the homestand, the Stros travel to Pittsburgh and St. Louis for a key six game road trip as the Wild Card race approaches the home stretch.

Posted by Tom at 5:19 PM | Comments (0) |

September 5, 2004

Stros are officially unconscious

After creating the go ahead run in Saturday night's game, Mike Lamb went nuclear on the Pirates on Sunday afternoon at the Juice Box in leading the Stros to their ninth straight win, 10-5.

The Stros have now won 11 of their last 12 games, 17 of their last 20, and now are only 1 1/2 games behind the hurricane idled Cubs for the National League Wild Card playoff spot. The Stros have also won 10 of their last 11 games against the Pirates and 19 of 21.

Lamb went 4-for-5 with a yak and four RBIs. Carlos Beltran added three hits as the Stros are now on their longest winning streak since the club won a franchise-record 12 straight from September 3-14, 1999. Pete Munro (4-5) allowed five runs and four hits in five innings to gain the win, as the suddenly steady Stros relief corps of Chad Qualls, Mike Gallo and Dan Wheeler finished up with four scoreless innings of relief.

What a difference twos weeks can make! Our periodic review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here) reflects the Stros' incredible surge over the past two weeks into a legitimate contender for the the National League Wild Card playoff spot. Here were the Stros hitters' RCAA numbers, courtesy of Lee Sinins, as of Sunday, August 22:

Lance Berkman 45
Carlos Beltran 12
Mike Lamb 6
Jeff Bagwell 5
Craig Biggio 5
Eric Bruntlett 2
Chris Burke -1
Jeff Kent -1
Jason Lane -2
Orlando Palmeiro -3
Richard Hidalgo -9
Jose Vizcaino -9
Morgan Ensberg -12
Adam Everett -12
Raul Chavez -14
Brad Ausmus -23

As of August 21, the Stros were 10th out of the 16 National League teams in RCAA and had generated 11 fewer runs than an average National League team would have generated up to that date in the season. Compare that with the following, which are the updated RCAA of the Stros hitters as of September 4:

Lance Berkman 58
Carlos Beltran 23
Jeff Bagwell 15
Craig Biggio 11
Mike Lamb 9
Jeff Kent 3
Eric Bruntlett 2
Chris Burke -1
Jason Lane -3
Orlando Palmeiro -3
Jose Vizcaino -5
Morgan Ensberg -9
Richard Hidalgo -9
Adam Everett -11
Raul Chavez -16
Brad Ausmus -21

In just two weeks, the Stros have jumped from 10th to 6th out of the 16 National League teams in RCAA and have now generated 43 more runs than an average National League team would have generated through September 4 this season.

I'm sure it has happened before, but frankly, I cannot recall a club going from a negative 11 RCAA to a positive 43 RCAA in a two week period. This is truly a streak for the ages.

The individual players' improvement has been equally incredible. Bags has tripled his RCAA over the past two weeks and now is within shouting distance of equaling his performance from last season. Beltran and Bidg have doubled their RCAA, and Beltran's combined RCAA from the Royals and the Stros would be a lofty 40. Moreover, Kent, Viz and Ensberg all have chipped in with substantial improvement in their respective RCAA figure, and even the woeful Ausmus has chipped in with a 10% improvement. Finally, Berkman continues to have one of the best seasons of any National League hitter as his 58 RCAA currently places him fifth among NL hitters, behind only Bonds, Edmonds, Pujols, and Helton.

As I noted several times throughout the season, it was going to take the type of improvement in RCAA that we have seen from the Stros over the past two weeks for the Stros to get back in the playoff hunt. I did not think they could do it, but the Stros have proven me wrong. You have to respect the heart of this club.

Meanwhile, the RSAA of the Stros' pitchers has held reasonably steady during the Stros hitters' streak, and that has been good enough. After topping out about a month ago in 3rd among the 16 National League pitching staffs in RSAA, the Stros' pitching staff remains in fifth place now, but still have given up 28 fewer runs than an average NL pitching staff. Here are the individual RSAA of each Stros pitcher:

Roger Clemens 22
Brad Lidge 21
Roy Oswalt 18
Wade Miller 10
Octavio Dotel 5
Darren Oliver 5
Andy Pettitte 4
Dan Miceli 2
Russ Springer 2
Dan Wheeler 2
Brandon Backe -2
Chad Qualls -2
David Weathers -2
Mike Gallo -3
Jeremy Griffiths -3
Ricky Stone -3
Kirk Bullinger -4
Chad Harville -4
Pete Munro -5
Jared Fernandez -6
Carlos Hernandez -6
Brandon Duckworth -9
Tim Redding -14

Clemens, Oswalt and Lidge continue to have outstanding seasons, and the rest of the Stros bullpen meanders between slightly above and slightly below average. The negative 6 RSAA of Hernandez is a concern, but Backe's strong performances in three of his first four starts have been a pleasant surprise. The bottom line is that the Stros staff continues to be a well above average staff this season.

So, what do the Stros need to win the National League Wild Card playoff spot? Well, it is highly unlikely that they are going to continue hitting at the pace that they have over the past two weeks, although the upcoming series with the Reds' abdominable pitching staff should help the hitters prolong their streak for awhile further. But I think its reasonable to expect Berkman and Beltran to continue their outstanding hitting, and that Bags and Lamb can continue to improve slightly throughout the remainder of the season. So long as Bidg and and the remainder of the hitters remain steady or improve slightly, and the pitchers hold steady or increase their RSAA just slightly, the Stros actually have a decent shot -- although not great -- at overtaking the Cubs for the National League Wild Card playoff spot. The Cubs pitching staff continues to be much stronger than the Stros, but the Cubs hitters have declined dramatically over the past month and that downturn could undermine them as the race comes down to the final weeks.

But the fact that the Stros are in the race at all, after being virtually out of the race a little over two weeks ago, is one of the more remarkable stories of this Major League Baseball season.

Brandon Backe takes the hill for the Stros in the Labor Day afternoon game at the Juice Box against the Reds, whose woeful pitching staff comes in to this series having given up 160 more runs than an average National League pitching staff would have surrendered up to this date in the season. That's some seriously bad pitching, folks.

Posted by Tom at 5:42 PM | Comments (0) |

Houston Texans, Year Three

Lest you think that the only baseball and the Stros are the only sports subjects addressed on this blog, we bring you a review of the first weekend of college football. I generally ignore football until the National Football League pre-season games are concluded because they combine all the tedium and meaningless nature of baseball's spring training games without the charm.

The Texas Longhorns pounded North Texas in their first game, but the Chronicle provides Oklahoma some little needed bulletin board material as columnist Richard Justice predicts a UT victory already in the annual Texas-OU game. Given UT's futility with Oklahoma over the past several seasons, can't everyone just shut up about Texas-OU until the game is played?

Meanwhile, things are not going well with the transition from the R.C. Slocum era to the Dennis Franchione era at football-obsessed Texas A&M. After putting up a 4-8 mark in his first season last year, Coach Fran's crew allowed Utah to cream them this past Thursday night on ESPN's nationally televised game. That went over like the proverbial turd in the punch bowl in College Station, and Texas' best sportswriter -- the Chronicle's Mickey Herskowitz -- is not impressed with some of the contrived efforts of Coach Fran:

If you had played as poorly as the Texas A&M Aggies did against Utah, wouldn't you be glad not to have the names on the back of your uniforms?

This was one of the many questions that emerged from the ashes of A&M's 41-21 loss in its opener on national television.

Coach Dennis Franchione removed the names to make a point about playing as a team.

Sadly, the Aggies missed the point, along with a boatload of passes, tackles and blocks.

So the ploy did not work. In the best interest of Aggie survival, we implore coach Fran: please, please, give them back their names.

This isn't the 1970s, when a few teams still thought that identifying the players might cut into their program sales.

The blank space on the back of the A&M jerseys seemed to merely reinforce the feeling that the Aggies didn't know who they were or what they were doing in Salt Lake City.

They appeared not to know where the football was, which can cost a team dearly and did. The Aggies had the Utes backed up to their own 10, and you saw at the start they had no intention of trying to blitz or put pressure on the quarterback, Alex Smith.

So right there, Smith hit a pass for 12 yards. Going without a huddle, he connected with Steve Savoy on a short pass that the receiver turned into a 78-yard touchdown.

Just like that, the Aggies were doomed.

Moving on to the Houston Texans, the local media, which generally fawns over the Texans, has its usual puff pieces as the team prepares for the opening of its third National Football League season. As a grizzled veteran of observing football at all levels, I am skeptical that the media's optimism is justified.

The Texans have a great owner in Bob McNair, but after that, all I see are question marks. The defense -- which is the foundation upon which solid NFL teams are built -- was awful last season and the Texans still do not have the potentially dominant defensive front that is essential to a top flight NFL defense.

Moreover, on the offensive side, the left side of the offensive line is inexperienced and quarterback David Carr, coming into his third season, has shown little (admittedly, on undermanned teams) to indicate that he is a top tier NFL quarterback. Finally, Coach Dom Capers is a capable NFL coach, but my sense is that he is defensive coordinator masquerading as a head coach. Accordingly, I do not believe that the Texans will break out into a playoff caliber NFL team under him.

But Mr. McNair is a great guy and deserves a winner, so I hope I'm wrong on my forecast for the team.

Finally, the best game of the first weekend will take place this afternoon in Houston at Reliant Stadium, where the University of Houston and Rice tangle in their annual game for the Bayou Bucket Trophy. The Cougars hung a 48-14 pounding on the Owls last season, so the Owls will be primed to make this one a more competitive affair. The Coogs are a 3 1/2 point favorite in the 4 p.m. kickoff at Reliant.

Posted by Tom at 7:28 AM | Comments (6) |

Stros storm on

Mike Lamb hit the go-ahead RBI double in the seventh inning and strong relief pitching propelled the Stros to extend their season-high winning streak to eight games with a 6-5 victory over the Pirates on Saturday night at the Juice Box. The Stros have now won 10 of their last 11 gaves and 16 out of their last 19 to pull within two games of the Cubs in the race for the National League Wild Card playooff spot.

Houston starter Carlos Hernandez struggled through three innings, giving up four earned runs on four hits, including Jason Bay's three run yak. However, Kirk Bullinger, Chad Harville, Chad Qualls, Russ Springer, and Brad Lidge gave up just one more run the rest of the way to secure the win. Lidge pitched the ninth for his 20th save in 23 opportunities.

The Stros' Pete Munro tries to keep the momentum going in Sunday's matinee against Baylor-ex Kip Wells. The Reds come to the Juice Box on Monday to provide more batting practice for the Stros' hitters during a three game set.

Posted by Tom at 6:43 AM | Comments (0) |

September 4, 2004

Observations on Bush's convention speech

Arnold Kling has this excellent analysis of President Bush's acceptance speech at the Republican National Convention.

And Professor Maule has some insightful comments on the President's proposals regarding income tax simplification.

Sigh.

Posted by Tom at 1:15 PM | Comments (0) |

Cantor Fitzgerald sues Saudi Arabia

New York-based bond trading firm Cantor Fitzgerald Securities, which lost two-thirds of its workers in the World Trade Center attack of September 11, 2001, has sued Saudi Arabia and dozens of other defendants -- including numerous banks and Islamic charities -- in U.S. District Court in New York for a mere $7 billion for allegedly supporting al Qaeda before the attack through financing, safe houses, weapons and money laundering.

Saudi Arabia is the birthplace of al Qaeda leader Osama bin Laden and 15 of the 19 Sept. 11 hijackers.

The lawsuit involves many of the same defendants, transactions, events and questions of law as an earlier $300 billion lawsuit that various insurance companies have brought against Saudi Arabia, terrorist groups, companies and other countries supporting terrorism. That lawsuit is still pending.

The Cantor Fitzgerald lawsuit takes dead aim at Saudi Arabia, saying the kingdom "knew and intended that these Saudi-based charity and relief organization defendants would provide financial and material support and substantial assistance to al Qaeda." The lawsuit alleges that Saudi Arabia engaged in a pattern of racketeering as it participated directly and indirectly in al Qaeda's work through funding and controllings its "alter-ego" charities and relief organizations. In addition, Cantor Fitzgerald alleges that Saudi Arabia materially supported al Qaeda by helping to raise money for it, by intentionally employing al Qaeda operatives, by laundering its money and by providing al Qaeda with safe houses, false documents and ways to obtain weapons and military equipment.

Interestingly, the U.S. federal government has generally opposed this type of lawsuit on the grounds that it interferes with the government's exclusive power to conduct foreign policy. No word yet on the government's stance toward the Cantor Fitzgerald lawsuit.

Posted by Tom at 12:57 PM | Comments (0) |

Stros remain smokin'

Jeff Bagwell, Carlos Beltran, Craig Biggio and Jose Vizcaino homered and the Rocket won his 325th career win as the Stros beat the Pirates in the first game of their weekend series at the Juice Box, 8-6.

The Stros are in the midst of a major winning trend. They have now won seven straight, 15 of their last 18 games, and 10 of their last 11. They have closed to within 2½ games of the Hurricane Frances-idled Cubs, who are the leader in the race for the NL wild-card playoff spot.

Clemens (15-4) won his third straight start, and moved into sole possession of 12th place on the career wins list. He took a 7-0 lead into the seventh inning but tired and wound up allowing four runs and six hits in 6 2/3 innings. The Rocket even added an run-scoring single in the sixth for his seventh RBI of the season. Dan Wheeler pitched a perfect eighth and Brad Lidge worked the ninth for his 19th save in 22 chances.

By the way, General Richard Myers, chairman of the Joint Chiefs of Staff, threw out the ceremonial first pitch as part of the Astros' Military Appreciation Night. Turns out that General Myers is a former high school classmate Alan Hendricks, who represents Clemens along with his brother, Randy.

Carlos Hernandez takes the pill in Saturday night's game against the Pirates Josh Fogg as the Stros attempt to pull within two games of the still idle Cubs.

Posted by Tom at 5:17 AM | Comments (0) |

September 3, 2004

A separate crime for reckless sex?

Ian Ayres of Yale Law School and Katherine K. Baker of the Illinois Institute of Technology have posted this rather interesting article on SSRN, which is described in the following abstract:

This article attempts to make progress on both the problems of sexually transmitted disease and acquaintance rape by proposing a new crime of reckless sexual conduct. A defendant would be guilty of reckless sexual conduct if, in a first sexual encounter with another particular person, the defendant had sexual intercourse without using a condom. Consent to unprotected intercourse would be an affirmative defense, to be established by the defendant with a preponderance of the evidence. As an empirical matter, first-encounter unprotected sex greatly increases the epidemiological force of sexually transmitted disease and a substantial proportion of acquaintance rape occurs in unprotected first encounters.

The new law, by increasing condom use and the quality of communication in first sexual encounters, can reduce the spread of sexually transmitted disease and decrease the incidence of acquaintance rape.

Posted by Tom at 7:28 AM | Comments (0) |

Merrill Lynch invests in energy trading business

This NY Times article reports that Merrill Lynch & Co. jumped back into the energy-trading business with an agreement to buy Entergy-Koch, LP -- the Houston-based joint-venture trading unit of Entergy Corp. and closely held Koch Industries -- for an undisclosed sum.

Merrill is acquiring a trading staff of about 300 people in Houston and London who primarily buy and sell contracts for electricity, natural gas and weather products. Entergy-Koch valued the business unit at approximately $2 billion.

Merrill's move back into energy trading highlights the emerging role of Wall Street firms with strong credit ratings in the energy trading industry, which was devastated following the demise of Enron Corp.'s dominant online trading business in late 2001. Merrill joins several Wall Street firms that have recently bought substantial trading operations, including Goldman Sachs Group Inc and Morgan Stanley. Generally, the firms are betting on opportunities that recent volatility in energy prices present, such as big energy users hedging their risk on energy prices. Moreover, the energy books often allow the owners to pick up distressed energy-related assets -- such as power plants and pipelines -- at bargain prices. Those assets can form the basis of hard assets around which energy traders can sell products.

Posted by Tom at 6:20 AM | Comments (0) |

Enron's feed trough

The Wall Street Journal ($) is reporting that Stephen F. Cooper, the independent chief executive officer of Enron Corp. during its chapter 11 case, is preparing to request approval of a $25 million bonus for his and his firm's (Kroll Zolfo Cooper, a unit of Marsh & McLennan Cos.) work in connection with Enron's nearly three year old reorganization. The request is in addition to $63.4 million in fees that Mr. Cooper and his firm have already collected from Enron during the chapter 11 case.

Not bad work if you can get it.

Enron's Chapter 11 disclosure statement estimates that fees to all of the bankruptcy professionals involved in the Enron chapter 11 case will eventually reach nearly $1 billion. Although arguably outrageous, the amount needs to be kept in perspective. Enron's reorganization plan is a "going concern" liquidation plan that the company believes will generate about $12 billion for distribution to creditors. That translates to a recovery of about 17 cents on the dollar for the largest group of creditors holding unsecured claims. If Enron had simply liquidated immediately after filing bankruptcy, the company estimates that the amount available for distribution to creditors would have likely have been only about $6 billion. So, the reorganization professionals have been at least partly responsible for preserving value for creditors.

But that's still some serious scratch.

Posted by Tom at 5:42 AM | Comments (0) |

September 2, 2004

Latest chapter in Baylor-Methodist divorce

This Chronicle article reports on the the latest dustup between longtime partners Baylor College of Medicine and the Methodist Hospital -- Baylor has started moving residents to St. Luke's Episcopal Hospital, which is generating even more acrimoney in the already chippy split with between Baylor and Methodist. Here are earlier posts on the Baylor-Methodist divorce.

Executives at Methodist claim to be "dumbfounded" at th e move and claim that the transfer reneges on a previous agreement between the two institutions regarding involving the allotment of residents.

This latest dispute is only the latest in a series of disputes that have arise after Baylor and Methodist's decision to part ways in April ended an historic 50-year Texas Medical Center relationship during which the hospital was Baylor's primary teaching hospital for its medical students and residents. St. Luke's is Baylor's new teaching hospital and Methodist's new primary partner is Cornell University's medical school, which is located in New York.

In other Medical Center news, this Chronicle article reports that Memorial Hermann Hospital System and The University of Texas Health Science Center at Houston renewed their agreement in which Memorial Hermann serves as the school's primary teaching hospital. UT-Houston and Hermann -- which have been partners since 1968 -- agreed to continue their partnership for 15 more years.

Under the renewal, UT-Houston purchased the Hermann Professional Building and adjacent garage for $31 million and renamed the building the University of Texas Health Science Center Professional Building. It will be UT-Houston's first outpatient clinic, and its location (across the street from UT-Houston) will be convenient for UT-Houston faculty and students.

Posted by Tom at 4:55 PM | Comments (0) |

Continental announces jobs cut

Continental Airlines -- one of Houston's largest employers -- announced plans to cut 425 jobs today in a move that the company says will save it $125 million before taxes in 2005 and $200 million a year before taxes by 2007.

In its news release, Continental said that the move, along with other recent efforts to boost revenue and cut costs, should generate a total of about $1.1 billion in pretax benefits. Continental posted a second-quarter loss of $17 million on revenue of $2.51 billion, which the company said was primarily the result of high fuel prices, weak domestic fares, and costs attributable to the early retirement of leased aircraft. The company also warned that existing employees would be asked to take wage and benefit reductions "unless the revenue environment improves dramatically."

Most of 425 job cuts would be in management and clerical staff, although the exact number of layoffs was not disclosed. Some of the positions that Continental plans to eliminate are already empty and some of the other job cuts will come from normal attrition. The latest round of cuts, most of which are effective immediately, are in addition to the previously announced reduction of 253 reservation positions. After the latest reductions, Continental will have cut its management and clerical work force by almost 25% from levels before the attacks of Sept. 11, 2001 on New York and Washington, D.C.

Posted by Tom at 3:23 PM | Comments (0) |

Another trial in an Enron criminal case gets pushed back

Remarkably, almost three years after Enron's descent into bankruptcy amid wide-ranging allegations of corporate fraud, the Enron Task Force still has not taken a criminal indictment against a former Enron executive to trial.

And one of the first Enron-related criminal cases scheduled to go to trial this fall -- the indictment against five former officers of Enron's telecommunications unit, Enron Broadband -- has been pushed back to March of next year. Yesterday, U.S. District Judge Vanessa D. Gilmore in Houston postponed the trial of the Enron Broadband criminal case to March 1, 2005.

Former Enron Broadband CEO Ken Rice pleaded guilty to one charge in July, while former Chief Operating Officer Kevin Hannon pleaded guilty to one charge earlier this week.

The first trial involving former Enron executives is scheduled to begin on September 20 in U.S. District Judge Ewing Werlein's court in Houston in the case that is known as the Nigerian Barge case. Now that the Enron Broadband case has been pushed back to March of next year, there is a decent chance that Ken Lay's request for a speedy trial may result in his case being the second trial to occur of a former Enron executive.

Under normal circumstances, the Government's cases in both the Nigerian Barge case and the Lay case appear to be weak. However, anything related to Enron is atypical. Given the public bias against Enron, the Government has a decent shot at convictions in even their weak Enron-related cases.

Posted by Tom at 2:55 PM | Comments (0) |

Enron finalizes pipeline deal

Enron Corp. agreed to sell its CrossCountry Energy business to a venture of Southern UnionCo. and a General Electric Co. unit in a deal the companies valued at $2.45 billion. CrossCountry Energy holds Enron's interests in three domestic natural-gas pipelines that were one of the company?s most valuable assets when it filed its Chapter 11 bankruptcy case in early December 2001. Earlier posts on the spirited competition for these assets can be reviewed here and here.

The sale ? which is at a price that is $100 million more than the auction winner's initial offer ? remains subject to approval by the Enron Bankruptcy Court in New York on Sept. 9. The deal is expected to close by mid-December.

NuCoastal LLC, a company run by Texas billionaire and Coastal Corp. founder Oscar Wyatt Jr. offered $2.2 billion in May. In June, Southern Union and joint-venture partner GE Commercial Finance Energy Financial Services put forward a rival offer of $2.35 billion. Both offers included the assumption of about $430 million in debt.

The CrossCountry sale is a key part of Enron's ?going concern liquidation? reorganization plan, which also proposes to sell Enron?s interest in Portland General Electric, its Pacific Northwest utility, to an investment group backed by Texas Pacific Group. That deal is for $1.25 billion in cash and $1.1 billion in assumed debt.

Posted by Tom at 2:31 PM | Comments (0) |

September 1, 2004

Stros continue rampage

JK hit a grand salami today as the Stros won their 14th game of the last 17 in obliterating the Reds for the third straight time at the Great American Ballpark in Cincy, 9-3. In sweeping the three-game series against the Reds, the Stros cranked 10 yaks and scored 28 runs.

Roy O (16-9) improved to 10-0 in 14 career games against the Reds by allowing three runs and six hits in six innings, walking three and striking out four. However, he left after the sixth with discomfort in the same area of his abdomen that gave him problems earlier in the year.

Even with this recent surge, the Stros chances of winning the Wild Card playoff spot are not great. They become virtually non-existent if Oswalt is injured and cannot pitch down the stretch effectively.

The Stros pounded Reds pitching again for 12 hits. Lance Berkman led the way with three hits, including a solo tater. The Stros hitters enjoyed their batting practice with the Reds' pitchers over the past several days.

After a well-deserved off day on Thursday, the Stros send the Rocket to the hill to start a weekend series with the Pirates at the Juice Box on Friday night. The Reds follow the Pirates for a series early next week.

Posted by Tom at 9:57 PM | Comments (3) |

Ken Lay's Washington Post op-ed

In this Washington Post op-ed, former Enron chairman and chief executive officer Kenneth Lay makes the following disclosure and asks a very reasonable question:

At my request, my lawyers have filed motions in federal court asking for an immediate and speedy trial on the charges I face. To facilitate this, I offered to forgo discovery and to waive a jury trial, leaving it to a judge to determine my guilt or innocence.

Why, then, is the Department of Justice not willing to agree to an immediate and speedy trial?

And as one who should know, Mr. Lay thinks he knows the reason -- politics:

My July 8 indictment was announced at a news conference in Washington. The acting attorney general, James Comey, referred to what had previously been known as the Enron Task Force as "The President's Corporate Fraud Task Force." Never mind that the phones are still answered "Enron Task Force" and that's what the letterhead on the stationery reads.

Comey described the Enron investigation as the most prominent among those being overseen by this presidential task force. He said: "Our joint mission is to bring corporate criminals, corporate crooks [i.e., Ken Lay] to justice in this country."

Well, if my indictment is "the most prominent" in this effort, why can't we get on to trial? Perhaps, as my lawyers said in a court filing, it's because the acting attorney general was "unable to determine whether he was announcing an indictment or holding a political rally" and finally decided on the latter. Some other statements at that rally:

? Linda C. Thomsen, deputy director of enforcement for the Securities and Exchange Commission: "[T]he president's corporate task force, which celebrates its second anniversary tomorrow . . . [has demonstrated that] just the mention of the name Enron evokes images of duplicity and greed."

? Internal Revenue Service Commissioner Mark W. Everson: "[T]he corporate culture of Enron guided by Mr. Lay is now synonymous with corporate fraud and greed at its worst. And Enron's crooked 'E' logo depicts the corporate management team at Enron -- crooked."

Are these signs of a dispassionate prosecution of crime? To me they look more like part of a political campaign.

Mr. Lay has a point and he makes it well:

Now, I know about politics. I have been active for years and I ask neither sympathy nor special treatment. But justice is a different issue. The tragic circumstances surrounding the collapse of Enron and the harm it caused to so many victims is something I will take to my grave. My inability to save Enron is one of my greatest regrets. But I am guilty of no crime and eager to prove my innocence. Our Constitution guarantees justice and a speedy trial. Yet, without the agreement of the president's task force, as hard as I may try, I may not be granted either.

I would ask James Comey and Andrew Weissmann: With justice in the balance, do you have a real case, based on the law and not on politics? Subject to the judge's schedule, meet me in court before November, and agree to a stand-alone trial, with or without a jury -- your option. If you agree to a non-jury trial, the trial can begin and end before the election. It will determine not only whether the charges against me are "significant" but also whether they are "real."

Overall, I agree with Mr. Lay, although his fixation on a trial before the November elections seems somewhat contrived. My sense is that Mr. Lay will get his speedy trial -- severed from that of his co-defendants, Messrs. Skilling and Causey -- and that the trial will likely begin some time early next year. Given the normal progression of these types of cases, that's not unreasonable.

But Mr. Lay's larger point is valid -- the way in which the Government has handled the Enron criminal cases has elevated politics far beyond justice, and that is not a good thing.

Almost three years now after Enron spiraled into bankruptcy, the Enron Task Force has not prosecuted a single trial involving a former Enron executive (the first is scheduled to begin on September 20 in the Nigerian Barge case). Rather, the Task Force has take the approach of sledgehammering former Enron executives with multi-count indictments so that each of the executives is faced with the prospect of what amounts to a life prison sentence if they risk attempting to defend themselves against the charges. In the meantime, just to make sure that the public perception remains biased against anything having to do with Enron, the Task Force makes public statements and disclosures about its indictments that strongly imply guilt and wrongdoing.

And where the Government does not have the grounds in a case to justify the prospect of a life sentence, the prosecutors have no problem making them up. They did just that recently in the Nigerian Barge case in a superceding indictment prompted by the Supreme Court's recent Blakely decision that placed the federal sentencing guidelines into question. On a $25 million deal in which neither Enron nor Merrill Lynch lost a dime, and in which the basis for the Government's allegation that a "true sale" did not occur was not even discovered until well after Enron had gone into bankruptcy and its stock had become worthless, the Government now claims that the "damage to the market" resulting from the Nigerian Barge transaction was $80 million.

There is no factual basis for that allegation. The only reason that it has been made is to justify a sentence at the harshest levels of the federal sentencing guidelines. And this in a case that is so weak that it likely would not have been prosecuted but for the fact that the Task Force currently believes that it can play on the extraordinary public bias against Enron to obtain a conviction against anyone who was associated with the company.

So, why should we care? Wasn't Enron just a house of cards run by some bad folks at the top? Aren't they just getting what they deserve? Who cares if the Government simply makes things a bit more efficient by obtaining plea bargains rather than convictions after protracted trials?

Well, Professor Ribstein has one very good reason that the fair adminstration of justice is important to anyone who is interested in the promotion of business and risk taking:

[Mr. Lay] is entitled to fairness whether he's a businessman or not. But it's important because he is a businessman to send the right signals to future entrepreneurs about how risk-taking behavior is going to be treated.

But there is also another even more important reason that the Government should dispense with the political wrangling and get on with the fair administration of justice against the former Enron executives -- that is, because that process protects you and me.

I made the same point several months ago in connection with the Martha Stewart trial by passing along the following dialogue from the fine movie, "A Man For All Seasons"."

In this insightful scene, one of Sir Thomas More's apprentices -- Richard Rich -- confronts Sir Thomas while Sir Thomas is conversing with his wife, daughter, and his daughter's fiancee, Will Roper (an aspiring lawyer). Rich begs Sir Thomas for a political appointment, which Sir Thomas proceeds to refuse because Sir Thomas knows that Rich is prone toward corruption and would never be able to resist the bribes that he would be tempted to take in such an appointment (Sir Thomas thought Rich should be a teacher). After an embittered Rich leaves Sir Thomas and his family, it is obvious to Sir Thomas' wife, daughter, and Roper that Rich is resentful and will ultimately betray Sir Thomas, which indeed Rich does later in the movie. That leads to the following dialogue:

Wife: "Arrest him!"

Sir Thomas: "For what?"

Wife: "He's dangerous!"

Roper: "For all we know he's a spy!"

Daughter: "Father, that man is bad!"

Sir Thomas: "There's no law against that!"

Roper: "But there is, God's law!"

Sir Thomas: "Then let God arrest him!"

Wife: "While you talk he's gone!"

Sir Thomas: "And go he should, if he were the Devil himself, until he broke the law!"

Roper: "So, now you give the Devil the benefit of law!"

Sir Thomas: "Yes! What would you do? Cut a great road through the law to get after the Devil?"

Roper: "Why, yes! I'd cut down every law in England to do that!"

Sir Thomas: "Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down--and you're just the man to do it, Roper!--do you really think you could stand upright in the winds that would blow then?"

"Yes," Sir Thomas concludes. "I'd give the Devil the benefit of law, for my own safety's sake!"

Ken Lay is entitled to the speedy and fair administration of justice. I am hopeful that he receives it, not so much for his sake, but for ours.

Posted by Tom at 4:11 PM | Comments (0) |

Dallas Doc wins $366 million jury verdict

Tom Mayo has the story and the analysis in this unusual peer-review case.

Posted by Tom at 6:58 AM | Comments (2) |

Tax policy and health care finance reform

The Wall Street Journal's Holman W. Jenkins, Jr. addresses health care finance reform in his column today, and he makes the salient point that the Tax Code is a big part of the problem:

This is surprising only to those who never understood why the tax code was the problem in the first place. Notice that the typical family policy doled out by companies to their employees represents a total price-tag of about $9,086 a year. If you're in the top tax bracket, the effective after-tax cost to you is about $5,500. If you're in the working-poor bracket (i.e. pay no federal income tax), it's $9,086.

In fact, it's doubtful that such an insurance product would even exist in the marketplace in the absence of a massive tax subsidy, given the built-in incentives that naturally drive costs out of sight. Certainly you wouldn't buy gold-plated, first-dollar health insurance if you faced the full tab alone.

Then, Mr. Jenkins cuts to the heart of the main problem with America's health care finance system -- overreliance on the third party (i.e., insurer) payor system:

No serious person doubts that our overreliance on third-party payment is the problem that will be solved -- or will lead to a government-run, single-payer system that controls costs by denying care. In our information-rich economy, the medical industry doesn't even publish price lists. Is this not downright weird and a sign change is desperately needed? (The exception is cosmetic surgery, where, as health economist John Goodman points out, consumers pay out-of-pocket and competition has meant prices are flat or falling).

Alas, a bold proposal for health care finance reform is subject to the shifting winds of the current political campaign:

Some in the Bush camp were prepared to go deeper than even the HSA [explained here] kludge, totally revamping the tax system. The idea was to help Americans shift their expectations: No longer will they send their tax money to government and hope government will take care of them in old age. Now they will have ownership of the assets that will take care of them in old age.

Hope for such boldness on Thursday night probably vanished the moment it became clear John Kerry was going backward in the polls. It may be just as well. The HSA revolution suggests that simply offering taxpayers a better choice may be the stealthy way to reform entitlements (and let's admit that the tax deductibility of employer health care is a giant middle-class entitlement) without frightening swing voters with any Big Bang-like proposals.

Posted by Tom at 5:54 AM | Comments (0) |

What top Democrats are saying about Kerry

Al Hunt is executive Washington editor for The Wall Street Journal ($). His WSJ responsibilities include writing the weekly editorial page column, "Politics and People," and directing the paper's political polls.

This week, Mr. Hunt is writing his column from the Republican Party Convention in New York, but his subject in today's column is the coming shakeup in the John Kerry's campaign staff resulting from President Bush's recent run-up in the polls. Mr. Hunt describes what Mr. Kerry's supporters are saying about his management style:

The Kerry campaign, like most, ultimately reflects the candidate. The cautious indecisiveness and occasional vacillations have become Kerry trademarks.

Leading Democrats describe a command structure often frozen -- or at least tempered -- by too many chefs, a too-heavy reliance on polls or focus groups and an aversion to risks. As a result, the message often is muddled and the reaction to hard-hitting attacks from Republicans often is slow and unconvincing.

With friends like these . . .

Posted by Tom at 5:31 AM | Comments (1) |

August 31, 2004

The Enron noose tightens

The Government's noose around neck of Jeffrey Skilling and Kenneth Lay got a bit tighter today as Kevin P. Hannon, former chief operating officer of Enron Corp.'s heavily promoted telecommunications unit, became the latest former Enron executive to plead guilty to criminal charges.

Mr. Hannon, 44, pled in U.S. District Court in Houston to one count of conspiracy to commit securities and wire fraud, and agreed in the plea bargain to cooperate with the Enron Task Force's continuing criminal investigation and prosecution of other former Enron executives. One of those undoubtedly will be Mr. Skilling, who was heavily involved in the promotion of Enron's telecommunications unit. The deal also provides that Mr. Hannon faces up to five years in prison, the payment of $3.2 million in forfeitures and penalties, and the settlement of a related SEC civil suit.

In the late 1990s, Enron's top executives touted Enron Broadband as one of the company's best growth opportunities. Enthusiasm among investors for the broadband operation helped increase Enron's stock price despite the fact that the unit never came close to meeting either company or market expectations.

As part of his plea agreement, Mr. Hannon admitted that he overstated Enron Broadband's accomplishments. In particular, during a January 2001 conference with securities analysts, Mr. Hannon admitted in the plea bargain that he took part in a presentation that "was intentionally misleading and falsely portrayed the company as a commercial and business success. I conspired with other Enron employees to achieve this improper purpose."

Meanwhile, the beginning of the trial of the Nigerian Barge case is now less than three weeks away.

Posted by Tom at 10:07 PM | Comments (0) |

Don't pinch the Stros, they might wake up

Brandon Backe hurled six shutout innings in only his third start as a starting pitcher and JK pummeled to yaks as the red hot Stros blasted the Reds in Cincy at the Great American Ballpark, 8-0.

The win was the Stros' fifth straight and 13th in their last 17 games. Incredibly, the win brought the Stros within three games of the Cubs, who are currently in the lead for the National League Wild Card playoff spot. What a run!

Backe gave up only three hits in his six frames as he continues his unlikely journey from backend reliever to a potential fourth or fifth starter. Stros relievers Chad Qualls, Mike Gallo and Dan Wheeler allowed a combined three hits over the final three innings to secure the Stros' 11th shutout of the season.

In addition to JK's two crank jobs, Beltran, Bags and Berkman had some fun in the fifth when they hammered back-to-back-to-back taters. The Reds pitching is so bad that even that uprising did not prompt the removal of starter Aaron Harang.

The Stros have a good chance of keeping it going in tomorrow's Businessman's Special as Roy O goes for his 16th win against Paul Wilson (9-4), who is the Reds' best starter. After a well-deserved off day on Thursday, the Stros and the Rocket start a weekender with the Pirates at the Juice Box on Friday night.

Posted by Tom at 9:47 PM | Comments (0) |

Merck reels from Zocor study

This Wall Street Journal ($) article reports on the reaction of pharmaceuticals giant Merck & Co. to the disappointing study involving Zocor, its top-selling cholesterol drug.

The study found that high doses of the drug did not benefit patients at high risk of a heart attack compared with both placebo and less-aggressive Zocor treatment. Researchers presented the 4,500-patient Zocor study at the annual meeting of the European Society of Cardiology in Munich, Germany, and it also was published online by the Journal of the American Medical Association.

Even before this news, Merck had been losing in the competition with Pfizer's Lipitor, which is the world's biggest-selling statin drug with sales of $9.2 billion in 2003. A clinical trial reported earlier this year that Lipitor was was much better than another statin -- Bristol-Myers Squibb Co.'s Pravachol -- at reducing the risk of death, heart attack or other serious complications within two years of treatment. Here is an earlier post on that study.

The 4,500-patient study tested an aggressive cholesterol-lowering strategy compared with a moderate approach for patients hospitalized with severe unstable chest pain. The aggressive treatment was 40 milligrams of Zocor for a month followed by 80 milligrams for the next 23 months. The moderate approach was four months of a placebo followed by 20 milligrams of Zocor.

In the earlier Lipitor/Pravachol study, Lipitor at a dose of 80 milligrams proved significantly more effective in reducing LDL and the risk of serious heart problems than Pravachol at 40 milligrams. The benefit for Lipitor was evident within 30 days of starting the drug and the study was an important reason why cardiology experts are now recommending that doctors consider aggressive therapy with statins to enable patients at very high risk of a heart attack to reduce their levels of LDL to below 70. Previously, the target for such patients was below 100.

Cardiologists expected aggressive treatment with Zocor to reflect the Lipitor findings, especially because the control group was treated with a placebo during the first four months of the two-year trial. But even though their LDL levels fell to 62, aggressively treated patients at the end of four months had no difference in heart attacks, death from heart attacks, or strokes for heart problems than patients on placebo whose LDL was twice as high. After two years, 14.4% patients on aggressive therapy had suffered negative outcomes compared with 16.7% on the moderate regimen, but the difference was not considered statistically significant.

Posted by Tom at 5:53 AM | Comments (0) |

August 30, 2004

Red hot Stros dust off Reds

Lance Berkman cranked two yaks and a double and knocked in four RBI's as the red hot Stros crushed the reeling Reds on Monday night in Cincy, 11-3. The Stros have now won four straight and 12 out of their last 16 games as they continue their push to get back in the National League Wild Card playoff race. The Stros trail the Cubs by 4.5 games for the Wild Card playoff berth.

Berkman's hitting was contagious on Monday night as light-hitting Brad Ausmus even pounded a three run tater. The Stros continued hammering the ball, ringing up 11 hits, including 3 homers and 4 doubles. Pete Munro got the win by giving up 3 runs on 8 hits in five innings and led the Stros AAA relief corps, which included long lost Russ Springer, who reappeared as a Stro this week seven years after his initial tenure with the club.

Brandon Backe hopes the Stros hitters keep their hitting clothes on Tuesday night as he takes the hill for the Stros in the second game of the series on Tuesday. Based on Backe's most recent performance in Chicago, the Stros will likely need every run they can generate.

Posted by Tom at 9:41 PM | Comments (0) |

Judge Posner on the 9/11 Commission Report

Richard A. Posner is a highly-regarded judge on the United States Court of Appeals for the Seventh Circuit, a senior lecturer at the University of Chicago Law School, a prolific author, and should be one of the leading candidates to become the next Justice of the U.S. Supreme Court (which probably means that he is not).

In this brilliant New York Times book review, Judge Posner reviews the 9/11 Commission's report and he is not particularly impressed, particularly with the Commission's recommendation for centralizing intelligence gathering:

[T]the commission's analysis and recommendations are unimpressive. . . Much more troublesome are the inclusion in the report of recommendations (rather than just investigative findings) and the commissioners' misplaced, though successful, quest for unanimity. Combining an investigation of the attacks with proposals for preventing future attacks is the same mistake as combining intelligence with policy. The way a problem is described is bound to influence the choice of how to solve it. The commission's contention that our intelligence structure is unsound predisposed it to blame the structure for the failure to prevent the 9/11 attacks, whether it did or not. And pressure for unanimity encourages just the kind of herd thinking now being blamed for that other recent intelligence failure -- the belief that Saddam Hussein possessed weapons of mass destruction.

At least the commission was consistent. It believes in centralizing intelligence, and people who prefer centralized, pyramidal governance structures to diversity and competition deprecate dissent. But insistence on unanimity, like central planning, deprives decision makers of a full range of alternatives. For all one knows, the price of unanimity was adopting recommendations that were the second choice of many of the commission's members or were consequences of horse trading. The premium placed on unanimity undermines the commission's conclusion that everybody in sight was to blame for the failure to prevent the 9/11 attacks. Given its political composition (and it is evident from the questioning of witnesses by the members that they had not forgotten which political party they belong to), the commission could not have achieved unanimity without apportioning equal blame to the Clinton and Bush administrations, whatever the members actually believe.

As an appellate jurist, Judge Posner is well-prepared to identify the flaw in the 9/11 Commission's presentation -- a fundamentally flawed premise:

The tale of how we were surprised by the 9/11 attacks is a product of hindsight; it could not be otherwise. And with the aid of hindsight it is easy to identify missed opportunities (though fewer than had been suspected) to have prevented the attacks, and tempting to leap from that observation to the conclusion that the failure to prevent them was the result not of bad luck, the enemy's skill and ingenuity or the difficulty of defending against suicide attacks or protecting an almost infinite array of potential targets, but of systemic failures in the nation's intelligence and security apparatus that can be corrected by changing the apparatus.

That is the leap the commission makes, and it is not sustained by the report's narrative. The narrative points to something different, banal and deeply disturbing: that it is almost impossible to take effective action to prevent something that hasn't occurred previously. Once the 9/11 attacks did occur, measures were taken that have reduced the likelihood of a recurrence. But before the attacks, it was psychologically and politically impossible to take those measures. The government knew that Al Qaeda had attacked United States facilities and would do so again. But the idea that it would do so by infiltrating operatives into this country to learn to fly commercial aircraft and then crash such aircraft into buildings was so grotesque that anyone who had proposed that we take costly measures to prevent such an event would have been considered a candidate for commitment.

The problem isn't just that people find it extraordinarily difficult to take novel risks seriously; it is also that there is no way the government can survey the entire range of possible disasters and act to prevent each and every one of them. As the commission observes, ''Historically, decisive security action took place only after a disaster had occurred or a specific plot had been discovered.'' It has always been thus, and probably always will be. For example, as the report explains, the 1993 truck bombing of the World Trade Center led to extensive safety improvements that markedly reduced the toll from the 9/11 attacks; in other words, only to the slight extent that the 9/11 attacks had a precedent were significant defensive steps taken in advance.

Based on the 9/11 Commission's proposals, Judge Posner is skeptical that the foregoing pattern will change:

Anyone who thinks this pattern can be changed should read those 90 pages of analysis and recommendations that conclude the commission's report; they come to very little. Even the prose sags, as the reader is treated to a barrage of bromides: ''the American people are entitled to expect their government to do its very best,'' or ''we should reach out, listen to and work with other countries that can help'' and ''be generous and caring to our neighbors,'' or we should supply the Middle East with ''programs to bridge the digital divide and increase Internet access'' -- the last an ironic suggestion, given that encrypted e-mail is an effective medium of clandestine communication. The ''hearts and minds'' campaign urged by the commission is no more likely to succeed in the vast Muslim world today than its prototype was in South Vietnam in the 1960's.

The commission wants criteria to be developed for picking out which American cities are at greatest risk of terrorist attack, and defensive resources allocated accordingly -- this to prevent every city from claiming a proportional share of those resources when it is apparent that New York and Washington are most at risk. Not only do we lack the information needed to establish such criteria, but to make Washington and New York impregnable so that terrorists can blow up Los Angeles or, for that matter, Kalamazoo with impunity wouldn't do us any good.

The report states that the focus of our antiterrorist strategy should not be ''just 'terrorism,' some generic evil. This vagueness blurs the strategy. The catastrophic threat at this moment in history is more specific. It is the threat posed by Islamist terrorism.'' Is it? Who knows? The menace of bin Laden was not widely recognized until just a few years before the 9/11 attacks. For all anyone knows, a terrorist threat unrelated to Islam is brewing somewhere (maybe right here at home -- remember the Oklahoma City bombers and the Unabomber and the anthrax attack of October 2001) that, given the breathtakingly rapid advances in the technology of destruction, will a few years hence pose a greater danger than Islamic extremism. But if we listen to the 9/11 commission, we won't be looking out for it because we've been told that Islamist terrorism is the thing to concentrate on.

Illustrating the psychological and political difficulty of taking novel threats seriously, the commission's recommendations are implicitly concerned with preventing a more or less exact replay of 9/11. Apart from a few sentences on the possibility of nuclear terrorism, and of threats to other modes of transportation besides airplanes, the broader range of potential threats, notably those of bioterrorism and cyberterrorism, is ignored.

And Judge Posner is singularly unimpressed with the Commission's foremost recommendation -- the appointment of a new intelligence agency "czar:"

The report's main proposal -- the one that has received the most emphasis from the commissioners and has already been endorsed in some version by both presidential candidates -- is for the appointment of a national intelligence director who would knock heads together in an effort to overcome the reluctance of the various intelligence agencies to share information.

The commission thinks the reason the bits of information that might have been assembled into a mosaic spelling 9/11 never came together in one place is that no one person was in charge of intelligence. That is not the reason. The reason or, rather, the reasons are, first, that the volume of information is so vast that even with the continued rapid advances in data processing it cannot be collected, stored, retrieved and analyzed in a single database or even network of linked databases. Second, legitimate security concerns limit the degree to which confidential information can safely be shared, especially given the ever-present threat of moles like the infamous Aldrich Ames. And third, the different intelligence services and the subunits of each service tend, because information is power, to hoard it. Efforts to centralize the intelligence function are likely to lengthen the time it takes for intelligence analyses to reach the president, reduce diversity and competition in the gathering and analysis of intelligence data, limit the number of threats given serious consideration and deprive the president of a range of alternative interpretations of ambiguous and incomplete data -- and intelligence data will usually be ambiguous and incomplete.

What is true is that 15 agencies engaged in intelligence activities require coordination, notably in budgetary allocations, to make sure that all bases are covered. Since the Defense Department accounts for more than 80 percent of the nation's overall intelligence budget, the C.I.A., with its relatively small budget (12 percent of the total), cannot be expected to control the entire national intelligence budget. But to layer another official on top of the director of central intelligence, one who would be in a constant turf war with the secretary of defense, is not an appealing solution. Since all executive power emanates from the White House, the national security adviser and his or her staff should be able to do the necessary coordinating of the intelligence agencies. That is the traditional pattern, and it is unlikely to be bettered by a radically new table of organization.

Judge Posner concludes by noting the normal American reaction to an attack, and notes that wide-ranging reforms in response to such reactions are ill-advised:

So the report ends on a flat note. But one can sympathize with the commission's problem. To conclude after a protracted, expensive and much ballyhooed investigation that there is really rather little that can be done to reduce the likelihood of future terrorist attacks beyond what is being done already, at least if the focus is on the sort of terrorist attacks that have occurred in the past rather than on the newer threats of bioterrorism and cyberterrorism, would be a real downer -- even a tad un-American. Americans are not fatalists. When a person dies at the age of 95, his family is apt to ascribe his death to a medical failure. When the nation experiences a surprise attack, our instinctive reaction is not that we were surprised by a clever adversary but that we had the wrong strategies or structure and let's change them and then we'll be safe. Actually, the strategies and structure weren't so bad; they've been improved; further improvements are likely to have only a marginal effect; and greater dangers may be gathering of which we are unaware and haven't a clue as to how to prevent.

Read the entire review. Judge Posner is an unusally clear thinker, and his analysis of the 9/11 Commission's recommendations is far more insightful than the recommendations themselves.

By the way, Judge Posner is guest blogging over at Larry Lessig's blog, and here is his blog post on his NY Times review of the 9/11 Commission.

Posted by Tom at 6:30 AM | Comments (0) |

August 29, 2004

Thank you, Michael Barrett

What a difference a week makes.

Last Sunday, Roy O nailed Michael Barrett and the Cubs pounded the Stros so badly that I wrote off the Stros playoff chances completely. Just to make sure, the Cubs pounded a listless Stros team again this past Thursday. The Stros appeared washed up.

Then, the Cubs' Barrett confronted Oswalt in the batters' box in the second inning of Friday's game and, almost magically, the fortunes of these two clubs changed. The Stros were galvanized, and started cranking against any Cubs pitcher who took the mound. On the other hand, the Cubs began pitching and playing tentatively, and before you know it, the Stros had scored 32 runs in the final three game of the series, won them all, and now find themselves four games out of the Wild Card playoff spot with 32 games to go.

I don't think the Stros can win the Wild Card, but I did underestimate the pluckiness of this club. They will not go down meekly. They have now won 11 of their last 14 games.

Lance Berkman homered and Carlos Hernandez earned his first major league win in almost two years in leading the Stros to a 10-3 win over the Cuts at Wrigley on Sunday afternoon in the final meeting of the two clubs' chippy season series. Jeff Bagwell capped a big weekend with three hits for the Stros as he went 10-for-18 with seven RBI in the four game series.

As was typical of the last five games between the clubs, getting hit by pitches was a big part of the game. Carlos Beltran left with a bruised knee after he was hit by a pitch in the eighth inning and is day-to-day. Later in the inning, Berkman was plunked in the helmet by Cubs' reliever Mike Remlinger. Berkman went to the ground and stayed down for several minutes.

Incredibly, Remlinger and some of the idiot Cubs believe Berkman was pulling a stunt. Accordingly, in one of the more classless displays that I have seen in quite some time, a good part of the Cubs crowd actually booed Berkman when he came to the plate again in the ninth!

The Stros proceeded to score five times in the eighth inning to add to its 5-3 lead and put this one away for Hernandez, who was making his fourth start after coming up from AAA New Orleans, Hernandez allowed three runs and six hits in 5 2/3 innings.

The benches emptied for the second time in the four-game series and the third time in a week when new Stros reliever Dan Wheeler (just acquired from the Mets) hit Derrek Lee in the back with a pitch in the ninth (what did the Cubs expect after the Beltran and Berkman beanings?). Wheeler and Garner were ejected and Remlinger and JK jawed with each other colorfully, but no punches were thrown.

The Stros are now off to Cincy to face the Reds, who have the worst pitching staff in Major League Baseball. So, it is time for the Stros to pad their hitting statistics, particularly given that Pete Munro and Brandon Backe are doubtful to keep the hard-hitting Reds' lineup from scoring quite a few runs in the first two games of the series. After three games in Cincy and an off day on Thursday, the Stros return to the Juice Box for a weekend series with the Pirates and three more next week with the Reds.

Posted by Tom at 8:56 PM | Comments (0) |

Rice University -- excellent but underachieving?

University of Texas Law Professor Brian Leiter posts this excellent summary analysis of Houston's Rice University, in which he notes Rice's relative excellence in comparison to its even greater potential. Based on Professor Leiter's insight, new Rice president David Leebron would be smart to retain him as a consultant.

My late father, who was an esteemed professor of medicine for years at the University of Texas Medical School in Houston's famed Texas Medical Center, thought that Rice -- which is located adjacent to the Medical Center -- had always underdeveloped the research opportunities and resources that the Rice faculty could tap within the Medical Center. He observed that Rice's failure to seize this opportunity allowed the University of Texas to step into the breach in the late 1960's and establish the second research institution (to Baylor College of Medicine) in the Medical Center. Even with UT's success in the Medical Center (particularly with the phenomenal M.D. Anderson Cancer Center), the Medical Center has now grown to such an extent that Rice could harvest much greater research opportunities there and become as integral a force in Medical Center research as UT and Baylor.

Posted by Tom at 2:01 PM | Comments (0) |

Taps for the Corps?

This Sunday Chronicle op-ed by Houstonian James A. Reynolds, III examines an important facet of Texas' indelible culture -- the Texas A&M Corps of Cadets -- and laments the high risk that the Corps will soon wither away at A&M:

The Corps of Cadets at Texas A&M University is dying.

This venerable organization, a prominent component of our state's first publicly funded institute of higher learning, is withering away. I believe it will be gone within 10 years, perhaps even less.

While our state's population and Texas A&M's enrollment are straining upward, accordingly propagating bringing across-the-board expansion for all academic programs, clubs, sports and other activities, the Corps as a whole simply is not following suit. The Corps is, rapidly and inevitably, perishing.

Mr. Reynolds then zeros in on why Corps enrollment is declining:

Compulsory military service after graduation is not a factor. A substantial number of Corps members have no military ambitions at all, and participate as drills and ceremonies cadets, with no armed forces obligation whatever. They merely want to be in the Corps.

The fundamental problem with attracting and retaining Corps members is the difficulty of one's freshman year in the Corps, the relatively harsh experience of being a "fish." First-year cadets begin as identical, powerless tiles in a self-contained societal mosaic composed of myriad artificial and onerous rules, requirements and traditions. . .

From the instant you step into the Corps, you relinquish your former self and become fish Jones or fish Reynolds or, as our own governor knows, fish Perry -- lacking even the privilege of capitalizing your first name.

Challenging enough when Texas A&M was a small, isolated cow college, the burdens of being a fish today are magnified among a student population dominated by non-regs, ordinary college kids dwelling in a carefree state of parent-funded utopia. The non-regs sleep and eat when the want, they stroll leisurely to classes, they wear shorts and sandals, they shave or don't, their lives are their own.

Not so for a Corps fish.

Last year at A&M with my old boss, watching cadets prepare to march on Kyle Field before a football game, we saw a dozen struggling, sweating Aggie Band fish double-timing by, each hauling two huge silver sousaphones to the assembly area.

"Look at these kids," he said. "This is miserable work, but they do it. Most college kids these days just aren't interested in doing this sort of thing. They look down on it. It's beneath them. Fact is, it's just too hard. They can do it, but they don't like difficult stuff, they hate discipline. They all want point-and-click, immediate gratification. They all want everything to be easy and effortless."

Which means fewer and fewer incoming Texas A&M University students want to be in the Corps.

Mr. Reynolds then describes the rigidly structured life of a "fish" in the Corps:

The fish must attend all Corps formations and functions. Their dorm rooms are austere, their uniforms plain but perfectly maintained, their privileges nonexistent. The fish must learn the names of all the upperclassmen in their dorms, employing an age-old introductory process, and greet them by name thereafter -- causing all shyness to vanish. Freshmen perform numerous duties in their units, from keeping the hallways clean to sounding whistle calls announcing meals and events.

They are constantly supervised by upperclassmen, especially dominated by sophomores who only recently were fish themselves -- and whose vigor for enforcing the rules is judiciously tempered by juniors and seniors. The relaxed lifestyle attained after completion of one's sophomore year allows unalloyed love for the Corps to blossom, along with deep appreciation for the fish experience. But the sophomores are relentless, intent upon ensuring that freshmen toe the line in all respects.

Like it or not, this is a form of hazing. It's not the horrendous sort of fraternity pranks and initiation rites that yield injurious humiliation -- though A&M, like every college, has known isolated occurrences of such -- but the infliction is systematic and constant.

For a fish, the Corps is a total-immersion endeavor -- every waking moment dictated by regimen, responsibilities and demands of the uniform. Everyone in the Corps, from the newest fish to the eldest senior, scoffs at the "hell week" concept used by fraternities, sororities and other college organizations. One little week of collegiate hell is literally laughable, compared to your fish year in the Corps.

So, what is the purpose? What is the value? Mr. Reynolds answers:

I have met numerous A&M former students who were not in the Corps, but declare they wish they had been. I have yet to encounter a single Corps graduate, male or female, who regretted the experience, who would have attended A&M as a non-reg.

An old boss of mine, a band member Class of '63, insisted the Corps literally saved his college career, with its upperclassman-enforced nightly study time on Sunday through Thursday. Overall, Corps grades are higher than the general student average.

Several years ago, a friend worried terribly about his son's decision to join the Corps. My friend fretted that his child -- on his own for the first time -- would be hazed miserably, tormented into scholastic failure, personal injury and permanent psychological scarring.

My friend was a normal parent: He feared sending his son to college without any sort of supervision. He was afraid of letting go.

A week after his son became a Corps fish, however, my friend was a changed man. His son had been taken into a family, a strict one to be certain, but this young new Aggie was anything but unsupervised.

Frank and his wife subsequently became enthusiastic Corps parents, dedicated Old Army supporters. Both wept proudly upon seeing their son wear senior boots, and they hoped their young daughter, too, would attend A&M and join the Corps.

I hope Mr. Reynolds is wrong, but I share his concern about the future of the Corps. It is a difficult to sell the long term benefits of sacrifice and hard work within a culture that worships instant gratification. If we Texans lose the Corps, then we will lose an important part of what defines our culture, and I submit that what replaces it to define our culture in the future is unlikely to have the salutary attributes of the Corps.

Posted by Tom at 12:59 PM | Comments (0) |

Sound advice on investing

This Washington Post (free online registration required) article profiles John Keeley, a former FDIC bank examiner who is now the manager of the $155 million Keeley Small Cap Value Fund, which is generating above-average returns by buying shares of U.S. companies that are emerging from bankruptcy or being restructured.

Keely's fund is up 8.5 percent this year, ranking it second of 146 small-cap value funds tracked by Bloomberg. Only the FBR Small Cap Value Fund recorded a bigger gain. Mr. Keeley, who opened his fund in 1993, holds shares of more than 110 companies and devotes no more than 2 percent of assets to any one stock. His family is the fund's largest shareholder, with about an 11 percent stake on June 30, including money invested for the college educations of Mr. Keeley's grandchildren.

While discussing his educational background in evaluating investments, Mr. Keeley passes along this sage advice:

"[T]the greatest education you can get is to get through a bear market."

Posted by Tom at 7:38 AM | Comments (0) |

August 28, 2004

Stros continue hot streak

The Stros won their 10th game in their last 13 as they edged the Cubs on a windy Saturday afternoon at Wrigley, 7-6.

You know things are going well when you score three runs on an infield grounder, and that's exactly what the Stros did in the second inning of this game. Bags nailed a bases loaded grounder to first in the second, Cubs pitcher Zambrano dropped the throw from Cubs first baseman Lee as one run scored and then Bidg sought to score another in the confusion. Cubs catcher Barrett dropped the throw from Zambrano allowing Bidg to score, and Beltran alertly came home with the third run when the ball got away from Barrett. Just like we used to do it in T-ball.

The Rocket got his 14th win as he battled in giving up 8 hits and 5 runs over his six innings. Lidge again was solid in securing the win, throwing 37 pitches over the last 1 2/3rd's innings. Bags had three hits and two RBI's, as he appears to have his game face on for the Cubs after becoming quite irritated with Barrett's behavior yesterday with Roy O over the Beanball Chronicles.

Carlos Hernandez tries to keep it going for the Stros tomorrow against Matt Clement. The Cubbies will be leaking some serious oil if the Stros take three out of four from them at Wrigley.

Posted by Tom at 10:46 PM | Comments (0) |

VDH on John Kerry's military service

This interesting Victor Davis Hanson column on John Kerry's military service is respectful and insightful, and Professor Hanson's conclusion is absolutely brilliant:

So I conclude with empathy for John Kerry, whom I appreciate as a veteran who served his country ? even if I would not now vote for him. He should have been aware of the god Nemesis. Still, in a spirit of magnanimity and appreciation for his months on a boat in a very inhospitable landscape, Americans perhaps should remember the words of Pericles, as recorded by Thucydides shortly after the outbreak of the Peloponnesian War: "For there is justice in the claim that steadfastness in his country's battles should be as a cloak to cover a man's other imperfections; since the good action has blotted out the bad, and his merit as a citizen more than outweighed his demerits as an individual."

Posted by Tom at 12:29 PM | Comments (0) |

The silent supporter of the Texas GOP

This Austin American-Statesman (free online subscription required) article provides a profile on Bob Perry, the Houston-based homebuilder who has become the largest contributor to Texas Republican political candidates.

On one hand, Mr. Perry is reported to be an unassuming contributor:

At the state level, several office-holders said Perry never asks anything of them.

Patterson was the state senator for Perry's district before becoming land commissioner.

"In 20 years, he's never asked me for anything," Patterson said. "When I was in the Senate, there were issues he was interested in, but he never called up and said, 'Can you help me on this?' "

Agriculture Commissioner Susan Combs agrees.

"He doesn't lobby me," she said. "I lobby him. I know he has contacts."

She said she asked his advice on how to encourage home construction in rural areas. He also organized a meeting of Houston ministers in minority communities when she wanted to talk about schoolchildren's diets.

When Bob Deuell was running against a Democratic incumbent for a Dallas-area Senate seat, he got help from Perry before ever meeting him.

"I just started getting these checks from him," Deuell recalls. When Deuell phoned to thank Perry and ask for a meeting, Perry said there was no need. "I know who you are," Deuell remembers Perry telling him.

By Election Day, the checks totaled more than $250,000.

On the other hand, Mr. Perry has received some valuable business consideration for his hefty political contributions:

Perry got plenty for the $3.8 million he spent on the 2002 elections.

In 2003, a Republican-controlled Legislature curbed the ability of consumers to file lawsuits against businesses.

Krugh, the lawyer for Perry Homes, also helped write legislation that created the Texas Residential Construction Commission, a new state agency to create rules for dispute resolution between home builders and consumers. The governor then appointed Krugh to the nine-member commission.

Opponents see the new agency as a hurdle to consumers suing home builders; the builders defend it as a quicker, fairer way to resolve disputes.

"Bob Perry was highly rewarded with his own state agency," said Rep. Garnet Coleman, D-Houston. "In Texas you can buy your own state agency, then regulate yourself."

Doesn't Governor Perry and the Texas Republican Party stand for less governmental regulation? Or is it that they stand for less governmental regulation except in those cases where more regulation will benefit their largest contributor?

Posted by Tom at 8:22 AM | Comments (0) |

August 27, 2004

kenlayinfo.com

It was only a matter of time.

Posted by Tom at 9:21 PM | Comments (2) |

This is the way it was supposed to be

For one afternoon, the Stros shook off the weight of a disappointing season and hammered the cocky Cubs with five yaks in winning easily at Wrigley on Friday afternoon, 15-7.

Things got a little chippy again between the Cubs' Michael Barrett and Roy Oswalt just five days after Oswalt was ejected for beaning Barrett with a pitch in the back following a Cubs' homer. Both benches emptied after Barrett confronted Oswalt as he stepped into the batter's box in the second. After the umpires clearly warned Barrett to knock it off, he continued baiting Oswalt as he ran back to the dugout after grounding out. Later the Cubs' Kent Mercher intentionally hit Oswalt with a pitch, but the umpiring crew again did not eject anyone.

Inasmuch as Oswalt was ejected a week earlier without even a warning, the umpires need to get their criteria together for throwing players out of games. Sheesh!

At any rate, Oswalt (15-9) allowed six runs in eight innings for the win on a hot and muggy afternoon at Wrigley, but he retired 13 batters in a row from the fourth inning until giving up a single and a two-run homer to Nomar Garciaparra with two outs in the eighth.

The Stros jumped on the Cubs' Kerry Wood for four runs in the first and never looked back, whacking him for eight runs on eight hits in 4 1/3 innings, including four of the taters. Beltran led the way with two yaks and four RBI, and since coming to the National League in June, he is 11-for-21 with seven homers and 11 RBI in five games at Wrigley Field.

I think the Cubs need to pitch around that guy.

Bags and Berkman hit back-to-back solo shots off Wood, and JK added another yak as the Stros cranked out 17 hits for a gaudy 37 total bases. The win was the ninth for the Stros in their last 12 games.

In a personnel note, the Stros mercifully released David Weathers after the game, who came over from the Mets in the Hidalgo salary dump. Weathers looks washed up, although his runs saved against average is not as bad as some of the Stros' bullpen. However, Weathers is earning over $3 million, and the Stros are not interested in retaining him at anywhere near that compensation level. So, it was time for a divorce.

The Rocket takes the hill on Saturday as the Stros try to maintain the momentum of their best play since their great start in April.

Posted by Tom at 9:16 PM | Comments (0) |

The latest twist in the wild world of Equatorial Guinea

As noted in this earlier post, Equatorial Guinea is one fascinating place. Now, this NY Times article reports on the latest bizarre development in the affairs of this little African oil enclave. Here are all earlier posts on Equatorial Guinea.

With true stories like these, who needs novels?

Posted by Tom at 6:04 AM | Comments (0) |

John O'Neill defends the Swift Boat Vets

In case you have tuning out the world over the past month or so, you already know that prominent Houston attorney John O'Neill is the author of the best-selling book "Unfit for Command" and has been at the forefront of the group known as the Swift Boat Veterans that has been waging a public campaign against John Kerry's candidacy for President. In this Wall Street Journal ($) op-ed today in which he defends the SWV's right to campaign against Mr. Kerry. First Mr. O'Neill debunks the notion that the SBV's are a mouthpiece for the Bush-Cheney campaign:

Are we controlled by the Bush-Cheney campaign? Absolutely not. The Swift boat veterans who joined our group come in all political flavors: independents, Republicans, Democrats, and other more subtle variations. Had another person been the presidential candidate of the Democrats, our group never would have formed. Had Mr. Kerry been the Republican candidate, each of us would still be here.

We do not take direction from the White House or the president's re-election committee, and our efforts would continue even if President Bush were to ask us directly to stop.

Then, Mr. O'Neill explains simply why the SBV's have come forward:

Why have we come forward? As explained in "Unfit For Command," Mr. Kerry grossly exaggerated and lied about his abbreviated four-month tour in Vietnam. He disgraced all legitimate Vietnam War heroes when he falsely testified to Congress that we were war criminals, daily engaged in atrocities that had the full approval of all levels in the chain of command. So, once Mr. Kerry decided to apply for the commander in chief's job with a war-hero resumé, we felt compelled to come forward to explain why he is "unfit for command."

Read the whole piece.

And, in this related WSJ op-ed, the WSJ's Daniel Henninger shakes his head at the way Mr. Kerry is responding to the SBV's:

How can this be happening? Why didn't John Kerry months back -- if not years -- find some gracious way to make peace with the John O'Neills of the world? Why didn't one wise head among the Democrats point out the obvious difficulties of the Kerry candidacy once past the party's primary voters? This is a man who would be running as both a hero of Vietnam and a famous accuser of the war's heroes. This is an election, not a Shakespearean tragedy. How come John Kerry never worked out, before the final leg of his long odyssey, a let-bygones statement, admitting the hyperbole (at the least) of his accusations of atrocity before Congress in 1971, honoring the service of colleagues who never felt obliged to apologize for Vietnam, but reserving his right to oppose that troubled war?

As I noted in this earlier blog post on Mr. O'Neill from several months ago, John is a highly regarded attorney in Houston legal circles and independent politically. The Kerry campaign's attempts to discredit him as a Republican shill are doomed to failure.

John Kerry has recently admitted that he used poor judgment and engaged in youthful indiscretion in condemning many of his co-Vietnam veterans publicly during the early 1970's. Was that earlier criticism truly a product of youthful indiscretion? Or is Mr. Kerry's response to serious critics such as John O'Neill prove that he simply has poor judgment and that he has not really changed from his earlier indiscretion?

By the way, before commenting, please know that I am also independent politically.

Posted by Tom at 5:27 AM | Comments (1) |

August 26, 2004

Cubs continue treating Stros like the Stros treat the Phils

Brandon Backe came crashing back down to earth after his winning firt starting performance of last week as the Cubs cruised past the Stros 8-3 in the clubs' first game of a four game weekend series in Chitown.

Backe gave up seven runs and nine hits in three innings, which is more like he pitched when he was a reliever. Beltran did whack his fourth yak in four games and Bags nailed one, too. But the Stros left 12 men stranded, most of them while Mark Prior was pitching. Prior was primed to be beat today, but the Stros could not put together the big inning necessary to chase him.

Roy O and Kerry Wood renew their beanball rivalry in an another afternoon game tomorrow. The over-under on batters beaned tomorrow is 3.

Posted by Tom at 11:11 PM | Comments (0) |

Grocer's Supply to buy Fiesta

A couple of independent Houston grocery institutions decide to merge.

Posted by Tom at 8:15 AM | Comments (0) |

Father of HSA's condemns Kerrycare

John C. Goodman is a health care finance expert who was one of the leading advocates of Health Savings Accounts (explained here), which is one of the only positive pieces of health care finance legislation that has been enacted in years.

In this Wall Street Journal op-ed, Mr. Goodman reviews the Kerry Campaign's health care plan, and he is singulalry unimpressed with what he sees:

Mr. Kerry is seeking to completely transform the health-care system. The changes are far more radical than even he has let on. If he is successful, millions of middle-income families will enroll in Medicaid, the federal-state health program for the poor. Millions more will get their insurance through a system of managed competition, similar to what Hillary Clinton proposed more than a decade ago. Most people would be unable to remain in the private health plan they have today.

Mr. Goodman then reviews the goals of Kerrycare and how it proposes to achieve them:

The ostensible purpose of the proposal is to insure the uninsured. By some estimates, as many as 44 million people lack health insurance at any one time. The Kerry goal is to insure about two-thirds of them.

How well will all of this work? More than half the money in this plan will be spent expanding Medicaid and the S-CHIP program (for low-income children). Emory University professor Kenneth Thorpe, Mr. Kerry's health adviser, estimates that as many as 26 million new people will be enrolled. However, as the public sector expands, the private sector will surely contract.

Even Mr. Kerry assumes that for every 10 people who sign up, three people will lose private insurance from an employer; and it could be much worse. Studies in the 1990s found that every additional dollar spent on Medicaid led to a reduction in private insurance of 50 to 75 cents. More recent evidence suggests that private sector crowd-out is approaching one-to-one: Each new Medicaid enrollee is offset by one less person with private insurance. Moreover, most of the private sector subsidies will go to people who are already insured; and employers get their subsidies even if they fail to insure a single additional employee. Bottom line: It is entirely possible to spend $1 trillion and achieve no reduction in the number of uninsured!

And Mr. Goodman is not sanguine about the quality of care that would result from Kerrycare:

Quality of care will suffer under the Kerry proposal. People who go from employer plans to Medicaid will have fewer choices of doctors, longer waits for care, and inevitable health-care rationing. Those who join the system of managed competition will experience a different problem: Health plans will face perverse incentives to overprovide to the healthy and underprovide to the sick.

Which leads to the $64,000 question: How much will Kerrycare cost? Mr. Goodman comments:

In order to keep spending down in the latest 10-year projection, the Kerry team delays implementation for one year, so the first year's costs can be zero. They also claim phantom savings that basically amount to the perennial promise to eliminate waste and inefficiency.

Counting the first full 10 years in operation and only savings that seem likely to be real, I put the actual cost in excess of $1 trillion, almost $1,000 per year for every household in America. Versus the budget Mr. Kerry has promised to balance, this cost is more than three times the new revenue Mr. Kerry hopes to get from high-income earners.

This estimate may be low. The reason: People will face perverse incentives to overinsure and overconsume. For example, faced with virtually no out-of-pocket costs, the 26 million new enrollees in Medicaid will have no reason to show restraint. The bills all go to someone else. Premium caps mean that a poverty enrollee under managed competition will pay no more than $600 or $700 a year, with the remainder paid by Uncle Sam. If they insure at all, they will tend to pick the most expensive plan. Why choose a Volkswagen when you can have an Aston Martin at no extra cost?

Whatever the cost, the plan will almost certainly lead to a new round of health-care inflation. Federal spending alone will increase by more than $100 billion a year. But since there will be no increase in supply, the bulk of this new spending will buy higher prices rather than more health care.

Mr. Goodman then asks the following common sense questions regarding Kerrycare:

A major problem with the current system is that tax subsidies for health insurance are arbitrary and unfair. But rather than move to a fairer system that treats equals equally, Mr. Kerry would create a slew of new subsidies that would make the system even more arbitrary.

The structure of the Kerry health plans raises a number of intriguing questions:

? Why spend billions on subsidies to small businesses if they join an insurance system that doesn't even exist yet, while denying them those same subsidies if they buy insurance that is readily available in the marketplace?

? Why pay the cost of premium caps and other subsidies to individuals if they buy insurance that doesn't yet exist, while denying them any relief if they buy insurance that is already available?

? And why spend billions enrolling middle-income families in Medicaid instead of using those same dollars to help them enroll in employer plans and individually-owned policies which they would probably much prefer?

Mr. Goodman concludes that there is only one logical answer to these questions:

The real purpose of this plan is not to insure the uninsured. The real purpose is to radically change our health- care system.

Read the whole piece.

Posted by Tom at 6:27 AM | Comments (0) |

Bank of NY tees off on Citigroup over Enron-related instruments

This Wall Street Journal ($) article reports that Bank of New York Co. sued Citigroup Inc. earlier this week over the sale of financial instruments related to Enron Corp. The lawsuit could involve as much as $2.5 billion in liability for Citigroup.

The lawsuit is particularly interesting because it involves credit insurance, which has become one of the trendiest new financial products over recent years. Such insurance provides investors a hedge against the risk of insolvency for their investment, and the Bank of New York - Citigroup dispute focuses on whether banks involved in the market may have superior knowledge to other participants.

The suit alleges Citigroup knew (or presumably "should have known") Enron's debts were far greater than the numbers presented in its public financial statements between 1999 and when Enron went into bankruptcy in early December, 2001. The suit alleges that Citigroup just could not get enough of Enron's business and that by 1999, Citigroup's exposure to Enron totaled a staggering $1.7 billion, which was four times Citigroup's internal limit on exposure to Enron. Bank of New York alleges that Citigroup's exposure increased over the next two years as Enron entered a series of financial deals with Citigroup that enabled Enron to mask debt as cash flow on its financial statements.

In short, Bank of New York alleges that Enron was a Ponzi scheme and that Citigroup knew it. The lawsuit alleges that the only reason Citigroup did not cut Enron off from new financing was because Citigroup knew that Enron would collapse before Enron could pay it back.

So, the lawsuit alleges that Citigroup approached major institutional investors to reduce its Enron exposure by promoting an investment in "Yosemite" securities, a series of notes with a total face value of $2.4 billion that were linked to the creditworthiness of Enron. So long as Enron remained financially viable, the investors in the Yosemites would receive interest payments that were more attractive than the interest rate on Enron bonds. If Enron defaulted on any debt obligations or filed for bankruptcy protection, the lawsuit alleges that Citigroup was supposed to replace the Yosemites with Enron bonds that would likely be worth far less than 100 cents on the dollar to investors, but which would rank relatively high in claim priority in an Enron bankruptcy.

As sad stories go, this dispute was triggered because Enron and its other creditors are asserting that the investors ought should be subordinate to other creditors in Enron's claim priority ranking because of Citigroup's involvement in the deception that helped cause Enron's bankruptcy. If Enron's position is sustained and the claims of the Yosemite securities holders go to the bottom of the Enron claim totem pole, then those investors will likely get nothing on their claims.

Such a result will not make the holders of those claims happy. Most of those Yosemite securities claims are now held by distressed-debt investors -- a notoriously hard-knuckled group in insolvency cases -- who bought the securities from the original holders at discounted prices between 10 to 50 cents on the dollar.

Just another $2.5 billion aftershock of the Enron financial earthquake. This one should be interesting.

Posted by Tom at 5:44 AM | Comments (0) |

August 25, 2004

How about those Stros?

JK whacked an eighth inning three run yak -- his second tater of the game -- as the Stros swept their season series from the utterly befuddled Phillies, 7-4 this afternoon at the Juice Box.

This looked like a game that the Stros were destined to lose as they lagged behind the entire game and could not put a big inning together against Phils' starter Eric Milton. However, Pete Munro kept the Stros in the game, and then AAA relievers Gallo, Harville and Qualls did not allow the game to get out of hand before Kent's fireworks in the eighth. Carlos Beltran and Morgan Ensberg also tagged solo bombs for the Stros, who crept two games over the .500 mark with the win.

So now it's off to Wrigley for four games with the Cubbies over the weekend followed by a trip to Cincy for batting practice with the Reds early next week. With their playoff hopes toasted to a crisp, the Stros appear to be playing as loose as a goose and could give the contenders some well-deserved headaches down the stretch.

Posted by Tom at 9:14 PM | Comments (0) |

Another Enron plea deal

Mark Koenig, the former head of Enron's investor relations section, agreed to a plea bargain today with the Enron Task Force in regard to newly-filed criminal charges against him, and agreed with the Securities and Exchange Commission to pay civil penalties of $1.49 million to settle related civil fraud charges against him.

Mr. Koenig worked for Enron from 1985 through 2002. He is charged with participating in a scheme to mislead investors about the financial affairs of a couple of Enron units for the purpose of making those units appear to be more valuable than they really were so that their alleged true, lower worth would not dilute the value of Enron stock. The incidents set forth in Koenig's plea deal are also included in the indictment of Enron's remaining "big three" unconvicted executives -- Kenneth Lay, Jeffrey Skilling, and Richard Causey. Mr. Koenig appeared this morning before U.S. Magistrate Judge Frances Stacy and was released on bond.

Paula Rieker, who worked under Mr. Koenig, pled guilty earlier this year to an insider trading charge and is cooperating with the Enron Task Force.

Posted by Tom at 12:32 PM | Comments (0) |

Contrasting views on the Google IPO

I have been meaning to comment on the contrasting views that James Surowiecki of Marginal Revolution and Holman Jenkins, Jr of the Wall Street Journal ($) have regarding the recent Google IPO. However, Professor Ribstein beat me to the punch and does a better job of analyzing the respective positions than I could have done, anyway.

By the way, is the Professor really recommending that we short Google? ;^)

Posted by Tom at 9:24 AM | Comments (0) |

A lawyer acting badly

Don Hawbaker, a fine Dallas area litigator who runs the Construction Law Blog, had an interesting adventure in court the other day after which he asks the question: Should I report this guy to the local grievance committee?

Posted by Tom at 8:55 AM | Comments (0) |

Fifth Circuit on proving attorneys' fees

In this recent decision in a duty to defend case, the Fifth Circuit Court of Appeals upheld the trial court's admission of an attorney's expert testimony on the reasonableness of attorney's fees despite the fact that the witness had failed to provide the opposition with a report regarding his anticipated testimony.

Interesting decision, but I recommend highly that you simply have the lawyer/expert prepare a report, which need not be lengthy. Hat tip to Blog 702 for the link to this decision.

Posted by Tom at 8:16 AM | Comments (0) |

The folly of campaign finance "reform"

Washington Post columnist George Will's column today is an outstanding analysis of the inane implications of the McCain-Feingold campaign finance "reform" legislation. Mr. Will relates the absurd suppression of free speech -- the suppression of a dealership's car ads that use the dealership's name, which happens to be the same as a Republican candidate for senator -- and observes the following:

A core principle of an open society is that, in the words of Thomas Hobbes, liberties "depend on the silence of the law" -- what is not forbidden is permitted. However, because of the com- plexities and vagaries of McCain-Feingold and the rest of the government's metastasizing regulations of political activity, prudent participants in poli- tics must assume that everything is forbidden until the government gives permission.

The Supreme Court's affirmation of McCain-Feingold was a watershed in the nation's constitutional experience. The First Amendment will be forever open to statutory dilution, at least as it pertains to political speech. (The court has placed pornography essentially beyond the reach of regulation.) Henceforth, the guarantee of freedom of political speech is being steadily circum- scribed in the name of political hygiene. The right of free expression can be trumped by the supposed imperative of combating "corruption" or "the appearance" thereof, which is to say, where probably no actual corruption exists.

Common Cause's desire to regulate car ads has no conceivable connection to preventing corruption. But the "corruption" rationale merely disguises the reformers' real agenda, which is to extend government supervision of speech whenever they think extension serves their partisan advantage.

And in deriding President Bush's late criticism yesterday of the use of section "527" organization funding for political ads, this Wall Street Journal ($) editorial reminds us that McCain-Feingold is a product of bipartisan misjudgments:

One reason 527s are so prominent now is because Mr. Bush made the mistake of signing the McCain-Feingold campaign finance "reform" that barred big donations to political parties. So 527s have become the new alternative vehicle that Americans passionate about politics are using to exercise their First Amendment rights to free speech. The difference is that now the campaigns can't control how that money is spent.

If Mr. Bush wanted the two major parties to better control their campaign messages, he could have vetoed McCain-Feingold. Some of us urged him to do so, but his political advisers whispered not to worry, the Supreme Court will take care of it. Well, Sandra Day O'Connor failed too, but in any event since when are Presidents supposed to pass the buck to judges?

In our view, this was among the worst moments of Mr. Bush's term. Having helped to midwife the current campaign-finance system, it ill behooves him to blame others for the way this world works.

Posted by Tom at 7:44 AM | Comments (0) |

Survey of corporate governance practices

New York based Shearman & Sterling LLP has published this well done and informative survey of corporate governance practices at the 100 largest publicly-owned U.S. companies. Hat tip to the always attentive Professor Bainbridge for the link to the survey.

Posted by Tom at 7:01 AM | Comments (0) |

Citigroup expands Texas presence

In the latest deal reflecting that financial services companies are increasingly pursuing consumer lending, Citigroup Inc. announced that would expand its retail-branch presence into Texas by acquiring closely-held, Bryan-based First American Bank SSB. Terms of the cash deal were not disclosed.

With this deal, Citigroup continues its strategy of increasing its domestic banking business, particularly in fast-growing areas. Inasmuch as Citigroup already owns the Mexican bank Grupo Financiero Banamex SA, the First American deal will also facilitate Citigroup's goal of becoming the key bank for the large Mexican-American community in Texas.

First American has 102 full-service banking facilities across Texas and has been expanding in such key Texas metropolitan areas of Houston, Dallas, and Austin. With $3.5 billion in assets, First American will not have much of a financial impact on Citigroup, which has $1.19 trillion in assets. Nevertheless, the deal may set the stage for other Citigroup acquisitions in Texas. Stayed tuned.

Posted by Tom at 6:01 AM | Comments (0) |

A good man's worthy cause

When you find yourself becoming cynical while reading the next inevitable article about an obnoxious professional athlete, remember the Stros' Craig Biggio.

Yesterday, for the 13th straight year, Bidg and his wife Patty hosted their 13th annual party and baseball game at the Juice Box for the Sunshine Kids, the local Houston charity that works closely with the Texas Medical Center's M.D. Anderson Cancer Center and Texas Children's Hospital to provide recreation and support for children diagnosed with cancer.

This Chronicle article relates how important Bidg and his wife's efforts are on behalf of the Sunshine Kids:

Suzie James said her family returned from vacation just in time to make it to the stadium so her 7-year-old son, Cameron, could participate. When Cameron was diagnosed in February, his mother said, a social worker at Texas Children's Hospital told them about the Sunshine Kids.

"This is our third activity," she said, just before Cameron took his turn at bat.

He has undergone surgery, radiation treatments and chemotherapy, his mother said.

"The activities help us get our minds off it for a while."

Cameron connected for a solid grounder on his fourth swing. Sunshine Kids don't strike out if Biggio can help it.

While other local charities have seen a downturn in charitable donations over the past several years, Bidg's efforts on behalf of the Sunshine Kids have increased their charitable donations over that same period. Bidg's annual charity golf tournament on behalf of the Sunshine Kids -- which he puts on during the distraction of the baseball season -- has turned into a huge fund-raising affair.

Craig Biggio is not only a Hall of Fame quality baseball player, he is a Hall of Fame quality citizen of Houston. During his long tenure with the Stros, Bidg and his family have settled comfortably in the West University area of Houston and have become integral members of their church and community. As a father of two young men who have literally grown up admiring Bidg during his unusually long career with the Stros, I appreciate the classy example of manhood that he has always displayed. He is part of what makes Houston a special place.

Posted by Tom at 5:40 AM | Comments (0) |

Stros continue mastery over Phils

The Stros continued their somewhat baffling dominance of the Phillies this season as they beat the Phils for the fifth straight time 4-2 on Tuesday night at the Juice Box.

Carlos Hernandez gave his most encouraging performance since returning from shoulder surgery, giving up two runs on six hits and four walks in seven innings. Roy O made a rare relief performance in pitching a perfect eighth after his abbreviated appearance in Sunday's beanball fest with the Cubs and got unexpectedly got his 14th win when the Stros rallied in the eighth to break a 2-2 tie. Lidge nailed down his 16th save with a scoreless ninth.

Phils' starter Brett Myers pretty well stymied the Stros over the first seven innings, giving up only two runs on two hits (one of which was Beltran's solo yak), but ex-Stro closer Todd Jones came through for the Stros in the eighth by giving up two runs on Lance Berkman and Mike Lamb's consecutive two-out singles.

By the way, I used the Stros' new service yesterday that allows season ticket holders to email their tickets to someone else to use. All you have to do is call the Stros' ticket services at (800-278-7672) and obtain your account's PIN number to gain access to the service, I emailed mine to an old friend, and the service worked without a hitch. The service cannot yet email parking passes or club level passes, which do not have the bar code that allows the tickets to be easily recreated.

Based on recent history, the Stros' chances of sustaining success plummet in today's afternoon Businessman's Special as Pete Munro (2-5) takes the hill against the Phils' Eric Milton, who has a 13-2 record this season. In one of those statistical anamolies that helps make baseball fascinating, Munro (4.79) and Milton (4.71) have about the same ERA this season. The anamoly is best explained by the probability that Munro's ERA would be much higher if he had pitched the 90 more innings that Milton has pitched this season.

Posted by Tom at 5:06 AM | Comments (0) |

August 24, 2004

Durst finally granted reasonable bail

The Texas 14th Court of Appeals finally lowered Robert Durst's bail to $450,000 from the absurd $3 billion amount that Galveston State District Judge Susan Criss had set earlier this year. Here are earlier posts on the Durst murder case.

Posted by Tom at 1:21 PM | Comments (0) |

The claimed results of Bush and Kerry's health care finance plans

Ceci Connolly of the Washington Post is one of the best reporters on health care finance issues. This article in yesterday's edition reviews the dubious financial projections behind the Bush Administration's health care finance proposals:

If the Republican-controlled Congress enacted President Bush's entire health care agenda, as many as 10 million people who lack health insurance would be covered at a cost of $102 billion over the next decade, according to his campaign aides.

But when the Bush-Cheney team was asked to provide documentation, the hard data fell far short of the claims, a gap supported by several independent analyses.

Projections by the Congressional Budget Office, the Treasury Department, academics and the campaign's Web site suggest that under the best circumstances, Bush's plans for health care would extend coverage to no more than 6 million people over the next decade and possibly as few as 2 million.

"There's little reason to expect that there would be any reduction in the overall numbers of Americans without health insurance," Brookings Institution health policy expert Henry J. Aaron said. "We're swimming against a rather swift current in our efforts to reduce the number of uninsured, and the power of President Bush's proposals to move against that current is, it seems to me, very, very limited."

On the other hand, the article notes that the credibility of the Kerry campaign's health care finance projections is not particularly compelling, either:

Sen. John F. Kerry (Mass.), has released a health care agenda that is more ambitious and more expensive, with plans to expand government health programs, offer tax credits similar to Bush's and reimburse businesses for some of their most costly catastrophic cases.

Forecasting the cost and impact of policy proposals is always complicated, and both presidential campaigns try to spin the numbers to their advantage. Kerry, for example, estimates his health care proposals would cover 27 million people at a 10-year cost of $653 billion. But that assumes $300 billion in "savings" that the Bush team says might prove elusive. Without the savings, the cost of the Kerry package jumps to nearly $1 trillion.

Sigh.

Posted by Tom at 7:17 AM | Comments (0) |

The right way to pick a Supreme Court Justice

Bill James would enjoy this method in evaluating potential candidates for the U.S. Supreme Court.

Hat tip to Craig Newmark for the link.

Posted by Tom at 6:41 AM | Comments (0) |

Bye-bye Monday Night Football?

Monday Night Football is ABC's highest rated show. However, ABC is currently losing about $250 million on MNF. This LA Times (free online registration required) article is a good overview on the economics of televising professional football and the difficult decisions that ABC faces in regard to MNF.

Hat tip to Professor Sauer for the link to this article.

Posted by Tom at 6:08 AM | Comments (0) |

El Paso previews huge earnings restatement

Houston-based El Paso Corp. released some preliminary 2004 financial numbers and previewed its restatement of financial results from 1999 to 2003 following a review of its accounting for natural-gas hedges. El Paso previously announced plans to restate results because of downward revisions to its oil and natural-gas reserves and warned at the time that it likely would have to restate for its hedge accounting as well.

The company said that the revision to its reserves will cut the value of El Paso's oil and gas assets by $2.7 billion and result in a corresponding after-tax reduction in shareholder equity. El Paso also announced that the restatement to eliminate hedge accounting will result in a $1 billion pretax cumulative charge on shareholder equity and will trigger an additional $1.6 billion in charges.

El Paso has yet to file its financial reports for 2003 or for the first two quarters of 2004. It warned that the 2004 figures it provided today are "subject to further review by El Paso and its independent auditor and, therefore, [are] subject to change." Not exactly a statement brimming with confidence.

El Paso reduced its net debt by about $1.9 billion in the first six months of the year, finishing the second quarter with net debt of $18.6 billion. The company expects net debt to fall below $17 billion by the end of 2004, and to $15 billion by the end of 2005. In addition, El Paso's businesses have been somewhat bolstered as high prices for oil and natural gas have been aiding the company's rebound effort.

Despite the foregoing, El Paso remains a strong candidate for reorganization under chapter 11 as its high debt burden makes an acquisition outside of bankruptcy problematic.

Posted by Tom at 5:41 AM | Comments (0) |

The Rocket finally wins no. 13

The Rocket lasted long enough for his first win in almost a month -- the 323rd victory of his career -- and Carlos Beltran belted a three-run yak to lead the Stros over the Phillies 8-4 Monday night at the Juice Box.

After leaving in the fourth inning of his start against the Phils last week when he injured his right calf, Clemens hobbled around on the injured leg throughout much of his incredible seven-inning outing. Clemens (13-4) allowed only two runs and five hits with eight K's and two walks in his first win in five starts since July 28.

Beltran connected in the seventh to become the 45th player in major league history with 30 home runs and 30 steals in a season. Bidg went 3-for-4 with two doubles as the Stros won their fourth straight over the Phils.

Carlos Hernandez tries to get untracked in tonight's game against the Phils' Brett Myers.

Posted by Tom at 5:23 AM | Comments (0) |

August 22, 2004

Cubs crush Stros

The much anticipated pitching matchup between the Stros' Roy O and the Cubs' Kerry Wood deteriorated into an old-fashioned beanball contest as the Cubs pounded the Stros 11-6 on Sunday afternoon at the Juice Box.

The shenanigans began in the second when Wood beaned Jason Lane after Mike Lamb had nailed a long solo yak to open the scoring. Oswalt reciprocated the following inning by nailing Michael Barrett squarely in the back after Aramis Ramirez had taken a bit too long in rounding the bases after cranking a two out, three run tater on an 0-2 pitch in the third. Oswalt was ejected immediately, but Wood stayed around until the fifth (despite nailing Beltran in the next inning on a slider in the dirt, which the the umps let that pass) when he nailed JK. At that point, Wood was gone along with Cubs manager Dusty Baker.

That was about the only excitement in this game, which was out of reach the way the Stros hit (or, more accurately, don't hit) after Ramirez's blast gae them a 5-1 lead. The Cubs are simply a better overall team than the Stros, particularly in the area in which the Stros struggle -- hitting the ball hard.

Our periodic review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here) accurately reflects the Stros' current status in the National League -- about average, but not close to being a contender for a playoff spot. Here are the Stros hitters' RCAA numbers, courtesy of Lee Sinins:

Lance Berkman 45
Carlos Beltran 12
Mike Lamb 6
Jeff Bagwell 5
Craig Biggio 5
Eric Bruntlett 2
Chris Burke -1
Jeff Kent -1
Jason Lane -2
Orlando Palmeiro -3
Richard Hidalgo -9
Jose Vizcaino -9
Morgan Ensberg -12
Adam Everett -12
Raul Chavez -14
Brad Ausmus -23

The Stros are 10th out of the 16 National League teams in RCAA, and have generated 11 fewer runs than an average National League team would have generated so far this season.

Berkman, and Beltran continue to be the only Stros having excellent seasons hitting the ball (Beltran's RCAA is 29 when his Kansas City RCAA is added to his Stros RCAA). Bidg's performance is in free fall as his RCAA over the past month has been a negative 8 and his performance is now equal to the disappointing output of Bags. Those two players combined RCAA is about one half their output from last season. Combine that drop in performance with the precipitous drops in RCAA from Ensberg, Kent, and Hidalgo from their output of last season and you have a presciption for a ballclub that struggles to score runs.

Meanwhile, the injuries to the Stros' pitchers are starting to take a toll on the Stros' pitching staff's overall performance. After topping out two weeks ago in 3rd among the 16 National League pitching staffs in RSAA, the Stros' pitching staff has fallen back to fifth, but still have given up 34 runs less than an average NL pitching staff. Here are the individual RSAA of each Stros pitcher:

Roger Clemens 26
Roy Oswalt 19
Brad Lidge 18
Wade Miller 10
Octavio Dotel 5
Darren Oliver 5
Andy Pettitte 4
Dan Miceli 3
Brandon Backe 1
Kirk Bullinger 0
Mike Gallo -2
David Weathers -2
Jeremy Griffiths -3
Pete Munro -3
Chad Qualls -3
Ricky Stone -3
Carlos Hernandez -4
Jared Fernandez -6
Chad Harville -8
Brandon Duckworth -9
Tim Redding -14

Clemens, Oswalt and Lidge continue to have outstanding seasons, but the remainder of the healthy Stros' pitchers are led by Miceli's barely above-average performance. Consequently, unless Clemens or Oswalt goes late into a game and hands the ball to Miceli and Lidge, or the Stros enjoy an unexpected performance such as the one Backe provided on Saturday night, the Stros are going to lose more games than they win because of their overall combination of below average pitching after the big three and far below average hitting after Berkman and Beltran.

Interestingly, as predicted, the Stros have settled into third place in the National League Central and I suspect that they will stay there for the remainder of the season unless the Stros' players simply pack it in. However, the Stros have no realistic shot at the Wildcard Playoff berth because their available personnel simply is unlikely to generate enough improvement over the remaining 40 games to compete with the Giants, Cubs, and Padres for that spot.

The Rocket takes the hill on Monday in the opener of a three game series against the Phils. After the Wednesday game of that series, the Stros travel to Chicago for a four game set at Wrigley on Thursday through Sunday and then to Cincy to pad their hitting statistics against the Reds' horrifying pitching staff.

Posted by Tom at 6:28 PM | Comments (0) |

August 21, 2004

A minor miracle

Professional football has clearly overtaken Major League Baseball as the most popular sport in American society. However, Saturday night's Stros-Cubs game is an example of why the appeal of Major League Baseball will endure through the ages regardless of its place in the pecking order of popular sports popularity.

Let's set the stage. The Stros' Brandon Backe is an obscure 26 year old from Galveston who began his professional baseball career as an outfielder in the Devil Ray organization. After converting to a pitcher, Backe was rushed through the thin Devil Ray minor league system as a relief pitcher and was never given adequate time to develop as a pitcher.

After coming over to the Stros in the Geoff Blum trade before this season, Backe toiled ineffectively in the Stros' bullpen for a short time during the first part of the season. However, the Stros' management decided that Backe's underdevelopment in the Devil Rays' system had finally caught up with him, and so they sent him down to AAA New Orleans to become a starter there and pitch every fourth day. Backe pitched well this season at New Orleans, and the Stros recalled him recently when Andy Pettitte decided to have season ending elbow surgery. Saturday night's game was his first start in Major League Baseball.

On the other hand, the Cubs' Mark Prior, 24, is unquestionably one of the best young players in all of Major League Baseball. Prior has impeccable pitching mechanics, tremendous control, and a 96 m.p.h. heater. During the 2003 season, Prior was 18-6 and arguably the best pitcher in the National League. Barring injury, Prior will likely be the best pitcher in the National League over the next decade.

Moreover, the Cubs are legitimate contenders for the National League Wildcard Playoff spot and are coming off Friday night's game in which they made two Stros' pitching staff members look like batting practice pitchers. The Stros are 5 1/2 games back in the Wild Card race and realistically, are playing out the string on the 2004 season.

Given that backdrop, Saturday night's Stros-Cubs game looked like a classic mismatch -- the Cubs' Prior versus the Stros' Backe, who was starting his first game in Major League Baseball. To make matters worse, the Stros' bullpen was not available to bail Backe out after having been used heavily over the past three games in which the Stros had given up 27 runs.

So, what happens? Backe pitches seven shutout innings and hits a two run single off of Prior to stake the Stros to a 2-0 lead over the Cubs after seven innings.

Then, after Miceli and Lidge blew the save, the Stros came back with two runs in the bottom of the ninth to pull out a stirring 4-3 win over the Cubs.

As the oldtimers say, "That's why you play the game."

Backe was magnificant, giving up only four hits and three walks in seven innings. He baffled the Cubs' hitters by throwing a lively 92 m.p.h. heater mixed with a slow and hard curve, and a hard slider.

Viz and Jason Lane were the Stros' heros in the bottom of the ninth along with the Cubs' Macias, who contributed a key throwing error that put the tying and winning runs in scoring position. After Macias' miscue, Viz tied it with a single and then Lane -- who had come into the game for Bidg in the top of the ninth as a defensive replacement -- won it with a single to right as the Stros' dugout and the Juice Box crowd went bananas.

As my 16 year old son and I walked away from the Juice Box after the game, he turned to me and said, "Dad, it doesn't get any better than that."

Amen.

The Stros' Roy O and the Cubs' Kerry Wood tangle in an attractive rubber game on Sunday afternoon, but they will have to be in top form to compete with the Backe-Prior matchup from Saturday night's game. The Phillies come to town on Monday for a three game set with the Rocket opening that series for the Stros.

Posted by Tom at 11:15 PM | Comments (0) |

Pension fund plaintiffs

This Wall Street Journal ($) editorial addresses a litigation phenomenon that has been increasing in recent years -- public employee pension funds serving as plaintiffs in class action lawsuits. And as the editorial notes, this new willingness to serve in such a role reflects even more troubling signs on the way in which at least several of those pension funds are operated:

It's an article of faith these days that institutional investors are the white knights of the corporate governance crusade. And the most loyal acolytes of fiduciary duty, we are told, are the state-administered funds that provide retirement benefits for public-sector employees. But a couple of recent cases show that some public pension funds are not only failing their own beneficiaries, they are making mischief for well-run corporations.

The Journal notes that a few pension plans are collaborating with a few plaintiffs' securities lawyers to shake down the companies in which the pension plans invest:

[T]wo funds representing Pennsylvania's public school teachers and state employees have been busy this year suing corporate giants Time Warner and Royal Dutch/Shell Group. Alleging that the companies misled investors, the lawsuits seek hundreds of millions in damages. Since shareholders are essentially suing themselves, the main winners here will be the lawyers..

Meanwhile, the pension fund managers are not exactly providing overwhelming performance in their primary duty to the funds:

[T]he fund managers show more zeal for litigation than they do for stock picking. The two funds have lost $20 billion, or 25% of their value, over the last few years, despite paying $250 million a year in management fees. As a result, state and local governments will have to come up with extra tax revenue to make up the shortfall.

And though the performance of the managers of the Pennsylvania funds has been less than exemplary, it does not hold a candle to the corruption that takes place when one concocts the volatile mix of plaintiffs' securities litigation with the traditional corruption of Louisiana politics:

[In Louisiana] the trustees of the state's Teachers Retirement System were found to have violated state ethics rules by accepting golf outings, hunting trips, football games and $150 bottles of champagne from a Texas private equity firm, Hicks Muse Tate & Furst. The fund then committed more than $900 million to Hicks's investments. The fund says that 23% of its $10 billion in assets were committed to similar "alternative" investments, earning it the rating of riskiest public pension fund in the country from Wilshire Associates. Because this strategy cost the fund somewhere between $500 million and $2 billion by different estimates, retirees are foregoing cost-of-living increases, and the state general fund and local school boards are struggling to make up billions in unfunded liabilities.

But instead of re-evaluating their investment practices, the trustees of the Louisiana fund have instead been racking up an impressive record of litigation. It has been involved in 60 class-action lawsuits in the last eight years, and a Tennessee judge last year rebuked it for seeking "lead plaintiff" status in 24 suits while already taking that role in eight others.

And what is the Louisiana fund managers' response to such risky investment practices? They sue the company that represents one of their best investments:

To top it all off, last year the Louisiana fund tried to sue the majority shareholders of Regal Entertainment, the country's largest operator of movie cinemas. Despite having only a $30,000 investment in the company, the fund launched an 11th hour lawsuit to stop the company from issuing an extraordinary dividend, accusing Regal's controlling shareholders of "looting" the company.

This incendiary accusation was truly laughable. The dividend was paid equally to all shareholders, and no other investors found reason to object. After all, the company enjoys a strong cash flow, so distributing profits and increasing the company's leverage was a legitimate management decision.

How can we say that with such certainty? Because the Louisiana teachers' fund admitted as much when it dropped the case, in order to avoid a counterclaim by Regal. That climbdown only came after the judge refused to grant a preliminary injunction against the dividend because there was "not a shred of evidence" that minority shareholders would be hurt.

The biggest shock was just how little the Louisiana fund's administrators knew, or cared to know, about the litigation they sponsored. Director Bonita Brown admitted in a deposition that, despite being one of only two officials responsible for deciding to initiate lawsuits, she not only had had no contact with the Regal management ahead of the lawsuit, but she also did not know whose idea it was to sue.

The Journal editorial concludes by summarizing the absurdity of it all:

So what we have here is a public fund whose risky practices have cost the taxpayer billions throwing mud at a profitable company's management -- throwing it, moreover, at a company (Regal) that was one of the fund's better-returning investments. If the Louisiana and Pennsylvania pension funds were private entities, their trustees might well be the target of a lawsuit themselves for being so lackadaisical about their fiduciary duty. Given the ethics violations in Louisiana, state investigators might check to see whether law firms are illegally compensating trustees with junkets so they'll ignore their duty to protect their funds from possible counterclaims arising from frivolous lawsuits.

But then everybody knows that the real blame lies with the politicians who appoint and protect these incompetent managers, and it's up to voters to hold them accountable. Perhaps the better question is why Congress and federal judges still allow such funds to posture as guardians of good corporate governance while they dance to the trial lawyers' tune.

Read the entire piece. The Journal editorial is correct in noting that the conduct of the pension fund trustees is certainly troubling in these particular cases. However, a related issue that the editorial does not address is whether the dubious cases are truly a significant problem or merely an anecdotal byproduct of an open civil justice system. For a detailed analysis of that issue in the context of class action settlements, see this article by Cal-Berkeley Law Professor Steven J. Choi and this Professor Bainbridge comment on Professor Choi's article.

Posted by Tom at 10:08 AM | Comments (0) |

Tyler Cowen's clear thinking

Tyler Cowen of Marginal Revolution is writing a new book on economics, and he provides the following excerpt in explaining his fundamental preference for politics that encourage sustained economic growth:

The importance of the growth rate increases, the further into the future we look. If a country grows at two percent, as opposed to growing at one percent, the difference in welfare in a single year is relatively small. But over time the difference becomes very large. For instance, had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990. At a growth rate of five percent per annum, it takes just over eighty years for a country to move from a per capita income of $500 to a per capita income of $25,000, defining both in terms of constant real dollars. At a growth rate of one percent, such an improvement takes 393 years.

Professor Cowen goes on to explain the cornerstone of his political views in the following manner:

If I had to explain, in one sentence, the reason I am not on the political left, I would cite the enormous long-run benefits of economic growth. Of course it still can be argued that various left-wing policies, properly understood, will contribute to long-term growth. But in my view, if you are not supporting growth-maximizing economic policies, you better had a pretty good reason in your pocket.

Amen.

Posted by Tom at 8:22 AM | Comments (0) |

August 20, 2004

Butt ugly

Pete Munro and Chad Harville pitched batting practice to the Cubs on Friday night at the Juice Box. Unfortunately, the umps kept score and the Cubs used seven (actually six, I lost count when I posted that they had hit seven) yaks to pound the Stros, 9-2.

Frankly, given that the Stros were using pitchers who are really AAA quality, the outcome of the game was not surprising. On Saturday night, Brandon Backe, who could not remain with the club as a reliever earlier this year, starts against the Cubs' Mark Prior. It will take a minor miracle for the Stros to win that game.

The Sunday matinee has a great matchup between Roy O and Kerry Wood, which should at least generate some interest until Roger Clemens' next start. That's about all Stros fans have to look forward to these days.

Posted by Tom at 9:56 PM | Comments (0) |

Skilling and Causey request separate trials

As expected, former Enron CEO Jeffrey Skilling and chief accountant Richard Causey filed motions with the U.S. District Court in Houston Friday requesting that their pending criminal case be severed for separate trials. Their motions mirrored a similar motion that their other co-defendant -- former Enron chairman Kenneth Lay -- filed earlier this month.

Frankly, all three defendants can make a good case that they should be tried separately. Mr. Lay has far fewer charges pending against him than either Messrs. Skilling and Causey. Indeed, four charges against Mr. Lay involve personal banking matters that do not even relate to Enron's business. On the other hand, Messrs. Skilling and Causey are each accused of 35 or more counts of conspiracy, fraud and insider trading in a scheme to manipulate Enron's earnings while getting rich personally.

In his motion, Mr. Skilling argues that the indictment against Mr. Causey and him "strains" to link Mr. Lay and him, and that the jury deciding Mr. Skilling's fate should not be tainted by evidence introduced against Messrs. Lay and Causey. On the other hand, Mr. Causey -- who is not nearly as well known as either Mr. Lay or Mr. Skilling -- argues that the jury in his case should not be prejudiced by the noteriety of his better-known co-defendants who would be sitting next to him in a joint trial.

U.S. District Judge Sim Lake has not yet set a trial date for any of the cases against the three men. Mr. Lay has requested a trial as soon as possible. Enron Task Force prosecutors have requested March 2005 trial, while Messrs. Skilling and Causey have requested a March 2006 trial.

Posted by Tom at 8:56 PM | Comments (0) |

Anadarko announces big asset sales

Houston-based Anadarko Petroleum Corp. announced plans today to sell its Gulf of Mexico shelf properties through two deals valued at a total of $1.31 billion. The deals are part of Anadarko's plan to refocus on exploration and other areas where the company believes it can achieve sustainable growth.

Houston-based Apache Corp. will acquire part of the properties for $537 million and Morgan Stanley's Capital Group trading unit will pay Anadarko $775 million to acquire an overriding royalty interest in some of the reserves that are expected to be produced over the next four years.

As noted here earlier, Anadarko announced plans in June to sell oil and natural-gas properties valued at about $2.5 billion in connection with its plan the company more competitive by focusing on such areas as exploration and unconventional resource development and exploitation. Anadarko expects to use about $1.4 billion of proceeds from its asset sales to reduce debt and the rest to buy back stock.

By divesting of its Gulf shelf properties, Anadarko will can focus on its Gulf deepwater exploration program, which is expected to be the single-largest contributor to Anadarko's growth target over the next five years. Anadarko's shelf (i.e., shallow-water) properties include 78 fields and 112 platforms. When the asset sales are completed, Anadarko will operate only one offshore platform in the Gulf of Mexico.

Posted by Tom at 1:50 PM | Comments (0) |

Are you ready to rumble?

Check out this highly entertaining Washington Post article today on the Olympic Water Polo Tournament:

Water polo is a combination of swimming, soccer and basketball, plus wrestling, boxing and mugging. The players are phenomenal athletes who perform amazing feats of speed, grace, stamina and ball-handling. They also perform amazing feats of kicking, punching, scratching, clawing and choking. And that's just the men. The women are also fond of tearing each other's bathing suits off.

Uh, what channel is the Olympic Water Polo Tournament on?

"It gets pretty feisty," agrees Natalie Golda, 22, a defender on the U.S. women's team. "On top of the water, it looks pretty mellow -- you're passing the ball around -- but under water, they're grabbing, they're punching and people are getting dunked. Sometimes they'll pull you under water for so long, you're thinking, 'If I don't get air, soon, I'll be in trouble.' "

And, how exactly does this whole "tear off the swimsuit" thing happen?:

If your eyes follow the ball, you see a fair amount of fighting, but the real action, brutality-wise, occurs as players who don't have the ball fight for position in the prime real estate in front of the goal. . .

Frequently, a player will suddenly disappear under the water, as if yanked down by an invisible hand. That's because he was yanked down by an invisible hand -- the hand of an opponent.

For men, the preferred method of dunking an opponent is to grab the body and yank down, Golda says. For women, it's grabbing the opponent's swimsuit and yanking down.

"They'll grab the suit in the back and twist it, and sometimes it'll tear off," she says. "So you lose quite a few suits."

When that happens, she says, "you play as long as you can and then you get subbed out."

This article may be the most effective advertisement in history for an obscure Olympic sport.

Equally hilarious is the coach of the U.S. mens' team, who apparently knows a thing or two about how to play the game:

After the U.S. men's team beat Kazakhstan 9-6 on Tuesday, Ratko Rudic, the legendary coach of the American team, lumbered into the "mix zone" where players meet the media, grumbling to reporters about the brutality of the Kazakh team.

"This is not football, it's water polo," he fumed through his thick, bristly mustache. "If some teams can't get the result they want, this is how they play."

"This game was so violent," said Rudic, 56. "I can't remember such a violent game."

It was an odd statement coming from Rudic, who has never been mistaken for Mahatma Gandhi. . .

Coaching Italy in Sydney in 2000, Rudic argued so vociferously with a referee that he had to be restrained by police, and he was later suspended from the sport for a year over the incident. That didn't hurt his career: When the year was up, he was hired by USA Water Polo to whip the mediocre American team into shape.

And now, in Athens, Rudic was shocked -- shocked! -- at the violence in water polo.

"Who will protect us?" he asked.

However, Coach Rudic's assessment that the Kazakhs were guilty of excessive violence was not shared by all the U.S. team members:

Defenseman Dan Klatt, 25, who scored one goal, didn't think the Kazakhs were particularly brutal, . .

"A couple guys got punched in the face and a couple got kicked in the face," he said with a shrug. "But that's just part of the game."

But then the interview was interrupted by a television shot of another game:

Up on the big TV screen was a candid shot from the pool: A Russian player appeared to be giving a Serb player a big bear hug. The Serb hugged him back.

For a split second, it looked like one of those heartwarming moments of Olympic brotherhood. Then the two men started trying to drown each other, and you realized it was just another heartwarming moment of Olympic water polo.

Enjoy the entire piece.

Posted by Tom at 7:38 AM | Comments (0) |

More on the Cowboys' stadium deal

Professor Depken is providing clear thinking on the Dallas Cowboys' proposed new stadium deal with Arlington. Check it out.

Posted by Tom at 6:39 AM | Comments (0) |

Primer on higher oil prices

This Wall Street Journal ($) article provides a timely overview of the economic and political forces that have caused the increased energy prices over the past two years and how this price hike differs from previous ones:

As oil prices near $50 a barrel, a fundamental difference between this oil crunch and prior ones is becoming clear: This one is less acute, but it may prove to be more chronic.

So far, the current oil-price surge still trails the big blows of the past. In inflation-adjusted dollars, oil peaked in 1981 at $73 a barrel, 55% above where it's trading now. Back then, moreover, the oil crisis sparked a full-blown recession. Today, despite some signs of a slowing, the economy continues to grow -- and, with it, oil demand.

However, it's that knotty problem of growth that continues to push prices upward:

It's precisely the steadily rising demand, however, that is worrying the market. Unlike in the 1970s, the problem this time isn't primarily a supply shock in which the world's biggest oil spigots have been shut off. It's that, even though they're wide open, the world is consuming pretty much everything that comes out of the ground. The resulting fear is that isolated supply disruptions -- a change in government in Venezuela, say, or a terrorist attack in the Middle East -- could push prices even higher.

And although U.S. energy prices remain relatively high, there are contrarians as to the current prices:

Still, [U.S.] commercial inventories of crude oil are 5% above last year's level, and gasoline stocks are up 4.5%.

Some observers see the U.S. inventory levels as evidence that there's plenty of oil to meet growing demand and that today's oil price is largely the result of excessive speculation. Trading volume has soared in recent months as hedge funds and other fast-moving traders have headed into the oil markets. "I don't think the fundamentals support prices anywhere close to this level," says Kyle Cooper, an oil analyst at Citigroup in Houston. He believes prices should be closer to $30.

But futures markets are still betting on continued high prices:

The market isn't betting on a quick fix. In a big change from past experience, this time it isn't just the price of today's oil that's surging. Futures contracts through May 2006 delivery are above $40. The contracted price of oil to be delivered six years down the road is also rising. After years in which they hovered between $20 and $25, these so-called six-year futures now are trading around $35.

And although the market takes time to adjust to higher energy prices, it does eventually work, as reflected in its reaction to the energy price hike of the 1970's:

Improving energy efficiency takes a long time. But it can be done, says a longtime advocate, Amory Lovins, chief executive of the Colorado-based Rocky Mountain Institute. He says that between 1977 and 1985, real GDP in the U.S. grew by 27% while oil use fell by 17%.

By his calculation, if the U.S. kept reducing oil use at that pace, every year and a half the U.S. would decrease its daily oil consumption by some 2.5 million barrels, about the amount it currently imports from the Gulf. "It's a measure of how much we did the last time we paid attention," Mr. Lovins says.

Read the entire piece. Moreover, here is an NY Times article on speculation regarding similar increases in natural gas prices.

Also, for more analysis on how this energy price hike relative to past ones, review this earlier post on the work of James D. Hamilton, an economics professor from San Diego who specializes in analysis of energy markets.

Posted by Tom at 4:51 AM | Comments (0) |

August 19, 2004

Enron cases are different

You know that the criminal cases related to the demise of Enron Corp. are a different breed of cat when articles such as this appear in the Houston Chronicle explaining what former Enron chairman Kenneth Lay and former Enron CEO Jeffrey Skilling are going in their spare time while preparing for trial:

Enron's two former top guns are keeping busy -- one doing court-ordered charity work at a warehouse and the other pulling together a self-explanatory Web site.

Ex-Enron Chief Executive Officer Jeff Skilling has been seen doing menial chores at a Houston Habitat for Humanity warehouse and ex-Enron Chairman Ken Lay and staff are working on an Internet site to present information he wants the public to know about his case.

Skilling is fulfilling a magistrate judge's order that he do charity work by mopping up and doing other chores at a Houston Habitat for Humanity warehouse. . . U.S. Magistrate Judge Frances Stacy required that Skilling, whose lawyers said preparing his legal defenses was his full-time job, also perform community service while on bond.

Skilling's codefendant ex-Chairman Ken Lay is working with his staff preparing a Web site not yet ready for viewing.

Lay has pleaded not guilty to seven counts of conspiracy and fraud relating to his last months at Enron and four felonies relating to fraud in his personal banking. . .

Kelly Kimberly, Lay's publicist, said they are in the process of developing background on Lay and up-to-date information on his case.

When last contacted about the Web site, www.kenlayinfo.com, Kimberly said no launch date had been chosen.

Is it just a matter of time before the Justice Department hires publicists and and creates websites for the prosecution?

Posted by Tom at 6:57 PM | Comments (0) |

Break'em up

The Stros and the Phillies picked up this afternoon where they left off last night as the Stros came back from a 7-2 deficit with a seven run seventh inning to sweep the Phils and win their fourth straight, 12-10.

Oddly, the Stros' big rally actually began with the Stros in the field as they pulled off an Ensberg to JK to Lamb triple play (the Stros first since 1991) with the bases loaded and no outs in the bottom of the fifth. Then, Bidg started the seventh inning heroics with a two run shot that was quickly followed by Lance Berkman's massive two run yak to staight away center. Then, as the Phillies relievers proved that they are one of the worst groups in the league, light-hitting Eric Bruntlett uncorked a three run tater to left to complete the explosion. The Stros tacked on a couple more on JK's double in the ninth to complete their scoring.

Carlos Hernandez was roughed up in his second start since being recalled from AAA, which is to be expected as he continues to regain arm strength from last season's labrum surgery. After Bullinger fiddled around with allowing the Phils to close to within 12-10, Miceli came in to get the final out in the eighth and then Lidge closed this one out with a spotless ninth.

The Stros come home to meet the Cubs in a weekender with Pete Munro leading the way on Friday, with newly-recalled Brandon Backe probably going on Saturday and Roy O pitching the Sunday matinee. The Phils come to Houston for a little payback in a three game series that begins on Monday.

Posted by Tom at 3:50 PM | Comments (0) |

Joe Sheehan on the Stros: "Time to say good-bye"

Joe Sheehan is one of the best writers at the incomparable baseball Baseball Prospectus. Yesterday he penned the following summary analysis on what has happened to the Stros this season and the prospects for the future:

For the Astros, Roger Clemens is a candidate for the Cy Young Award, and Roy Oswalt has been a top-ten starter in the NL. Andy Pettitte and Wade Miller, however, have combined for 30 starts, while Tim Redding put up a 5.73 ERA and lost his spot in June. Brandon Duckworth was awful in his stead. The trade of Billy Wagner to the Phillies has been blamed for some of the Astros' pitching problems, but the real culprit was the rotation. The Astros had plenty of pitching with which to replace Wagner in the back of the bullpen--Brad Lidge has been dominant, and Octavio Dotel was effective before being traded--but when three-fifths of the rotation averaged 5 2/3 innings a start, the strain on the bottom of the staff cost the the team a lot of games in the early part of the season.

It didn't help that this was the year in which the Astros' offense finally died, and it did so while getting Craig Biggio's best season since he was a second baseman back in 2001. The team's .257 EqA ranks 12th in the NL. This will be the first below-average offense the Astros have had since 1991, Jeff Bagwell's rookie season. Thirteen years later, Bagwell has been part of the problem, his bum right shoulder limiting him to a .443 slugging average that is flirting with his career low.

Jeff Kent and Morgan Ensberg have been disappointing as well, and a team carrying Brad Ausmus and Adam Everett just can't affford that many underachievers. Even upgrading from Richard Hidalgo to Carlos Beltran in June wasn't enough.

It would be nice if there was one easy answer to the Astros' collapse, but there isn't, and that's baseball. Sometimes, if everyone is a little off-a couple of pitchers get hurt, a couple of hitters find their decline phase-you're not good enough to win any longer. That's the edge the Astros, with their love for their veteran players, have balanced on for a few seasons now. This year, even with Roger Clemens coming aboard and doing Roger Clemens things, they finally fell off.

It's time to start over. While there will be a considerable desire to bring back the popular core of this team for another run, there's no baseball reason for doing so. It's an old team with no upside whose best player, Beltran, isn't coming back. There's no core of young talent ready to step in an rejuvenate the lineup, and there isn't the willingness or ability to spend $100 million on the payroll, which might be enough to keep the engine running.

The Killer Bs had a long and prosperous run, winning four division titles in five seasons at their Larry Dierker peak. That they never won a playoff series became their story, but the fact remains that this is the dominant team in the storied history of the NL Central.

And it's time to say goodbye to it.

Hat tip to the Astro in Exile for the link to Mr. Sheehan's piece.

Posted by Tom at 9:10 AM | Comments (3) |

California's worst nightmare

Check out Tyler Cowen's mini-review of an independent Mexican film that sounds both interesting and hilarious.

Posted by Tom at 8:33 AM | Comments (0) |

NY Times picks up on "Houston. It's Worth It" campaign

Following on Charles Kuffner's blog post on the subject, this NY Times article reports on the the "Houston. It's Worth It" Internet-based branding campaign, which permits people who visit a Web site to describe why they enjoy Houston:

Financed in part by Michael Zilkha, a wealthy wind-energy entrepreneur and a prominent patron of the arts in Houston, a guerrilla-style branding offensive began this month. The campaign, using the slogan "Houston. It's Worth It," relies on descriptions of urban afflictions and images of giant mosquitoes and cockroaches to convey a sense of how Houston is nevertheless beloved by many residents.

The Internet-based branding campaign permits people who visit a Web site, www.houstonitsworthit.com, to describe in their own words why living in the city has its advantages. Functioning as a blog, or Web log, the site has received hundreds of comments from residents or people with a connection to the city.

The Times reports that one of the main goals of the originators of campaign was to distinguish it from past failed campaigns to promote Houston:

Distancing the campaign from past efforts was of paramount importance to its creators at ttweak, the marketing and advertising company based in the leafy bohemian district of Montrose. Ttweak became known in the last year for leading the unconventional advertising strategy for Bill White, a Democrat who was elected mayor of Houston in December.

"The 'in spite of all the afflictions here' angle really appealed to us," said Randy Twaddle, who owns ttweak with a partner, David Thompson.

Or, as the website puts it:

"A city must know itself before it can sell itself."

Read the whole piece.

Posted by Tom at 8:26 AM | Comments (0) |

Update on the sad case of Jamie Olis

David Gerger, appellate counsel for former Dynegy finance employee Jamie Olis filed Mr. Olis' appellant's brief with the Fifth Circuit Court of Appeals this week in which Mr. Gerger contends that Mr. Olis' conviction and 24-year prison sentence should be overturned because of insufficient evidence and U.S. District Judge Sim Lake's alleged misapplication of federal sentencing guidelines.

Interestingly, Mr. Gerger also represents former Enron CFO Andrew Fastow in connection with his plea bargain with the Enron Task Force, and Judge Lake is also overseeing the pending high profile criminal cases of former Enron executives Kenneth Lay, Jeffrey Skilling, and Richard Causey.

One of Mr. Gerger's main arguments is that Mr. Olis' sentence should be subject to the U.S. Supreme Court's recent ruling in Blakely v. Washington that suggests that federal judges should be prohibited from increasing a sentence using factors not proved before a jury beyond a reasonable doubt. Previous posts are here on the Blakely decision.

Posted by Tom at 7:07 AM | Comments (0) |

Stros edge Phils in wild one

Roger Clemens hurt his right calf running the bases (he does everything for the Stros, you know) and watched as his teammates beat the Phils 9-8 on Wednesday night in the type of game that just might be the straw that breaks the camel's back in the Phils' decision on when to fire the Boa Constrictor.

Carlos Beltran's two-run double in the eighth inning was the game winner on a day in which -- as predicted here -- the Stros learned that Andy Pettitte will have season-ending elbow surgery next week. Pettitte and the Stros are telling the media that he expects to be ready to pitch again by spring training in 2005, but don't bet on that. Best case is that he pitches again sometime next season, more likely by around June or so.

Clemens is day to day after straining his right calf running to first base on his two-run single in the fourth, but doesn't expect to miss his next start. Before he left the game, the Rocket gave up four runs in three innings in this unusually wild affair. Beltran finished with two hits and three RBI for the Stros, who somehow remain just are six games behind the Giants in the race for the NL wild-card playoff spot. The Stros hitters uncharacteristically cranked out 13 hits, including at least one by every starter. Just to make sure that this see-saw game ended on an appropriate note, Brad Lidge retired a pinch-hitter on a shallow fly ball with the bases loaded to end the game. The loss means that the Phils are now 1-8 on their current homestand, which is not going over well with the Philly locals

The Stros have moved Carlos Hernandez up in the rotation to pitch today's businessman's special in Philly before the club returns home to battle the Cubbies in a weekend series at the Juice Box.

Posted by Tom at 6:39 AM | Comments (0) |

August 18, 2004

H'mm . . .

As if there wasn't enough gossip being generated in the Texas Medical Center these days, this Chronicle article reports as follows:

Texas Children's Hospital's longtime chief financial officer, Sally Nelson, has resigned from her job as executive vice president and CFO after 18 years with the hospital.

Nelson left the positions she's held since 1987 a week ago, the hospital said. On Tuesday it released a brief statement thanking Nelson for her years of service without offering an explanation for her sudden exit.

Reached at her Houston home, Nelson directed all inquiries about the reason for her abrupt resignation to Texas Children's, the nation's largest pediatric hospital.

"You'll have to call the marketing department at the hospital about that," she said. "They'll tell you all about it."

The hospital, however, would not comment beyond saying that Randall Wright, senior vice president and chief information officer at Texas Children's, will serve as the acting executive vice president and CFO.

"It's our policy and our practice to respect the privacy of our current and former employes, so the statement includes only the information that we can release," Texas Children's spokeswoman Jennifer Hart said.

Posted by Tom at 6:58 AM | Comments (0) |

WSJ on KPMG tax shelter investigation

This Wall Street Journal ($) article follows up on the status of the government's investigation into KPMG's tax shelter practice and emphasizes the involvement of lawyers (from the Wall Street firm, Brown & Wood) in the promotion of that practice. Here are the previous posts on this investigation and KPMG.

Suffice it to say that this saga is not likely to end well for either KPMG or Brown & Wood (now merged with Sidley, Austin).

Posted by Tom at 5:07 AM | Comments (0) |

August 17, 2004

Stros cruise by Phils

Roy O, Mike Gallo, and Dan Miceli combined on a five-hitter, and Raul Chavez hit an improbable three-run double as the Stros won their second straight 5-0 victory over the free-falling Phillies on Tuesday night in Philly.

Staked to an unusual big lead, Oswalt (13-8) was dominant, allowing five hits, striking out seven and walking two in 7 2-3 innings to win his fifth straight decision. Gallo got the final out in the eighth, and Miceli pitched a perfect ninth to gain only the Stros' third win in their last nine games. It was the club's 10th shutout this season.

The Phillies were shut out for the fourth time and fell to 1-7 on their current homestand. The loss did not go over well with the Philly faithful, who let the Phils know about their acute displeasure after each futile at bat.

By the way, just to show how bad the Stros are at the catcher position this season, Chavez's big night now gives him 15 RBIs in 111 at-bats this season and he is still a better hitter statistically than the Stros' regular catcher, the impotent Brad Ausmus. Ugh!

The Rocket takes the hill in the second game of the Phils series as Andy Pettitte goes to have his sore left elbow examined by Dr. Andrews in Birmingham. That is usually a precursor to surgery, so don't expect to see Pettitte pitch again for a long while.

Posted by Tom at 9:26 PM | Comments (0) |

In case you are not updating your virus, spyware, and adware protection regularly . . .

and maybe even if you are, read this.

Posted by Tom at 1:31 PM | Comments (4) |

American Olympic basketball prospects improve

On the heels of the United States Olympic Basketball team's loss to Puerto Rico in the first round of the Olympic Basketball Tournament, Sportspickle.com reports the following:

"U.S. Grants Puerto Rico Statehood in Hopes of Winning Basketball Gold"

Hat tip to Will Veber for the link.

Posted by Tom at 12:30 PM | Comments (0) |

Arlington and the Cowboys have a deal

The Arlington City Council and the Dallas Cowboys apparently have struck a deal on a new stadium for the Cowboys, subject to voter approval.

Professor Depken over at Heavy Lifting provides an objective analysis of the proposed deal.

Posted by Tom at 6:52 AM | Comments (0) |

Beethoven's "Stairway to Heaven"

Check out the Stairway Suite, in which University of New South Wales Orchestra plays Led Zeppelin's "classic" rock tune "Stairway to Heaven" as if it had been composed by composers Franz Schubert, Gustav Holst, Glen Miller, Gustav Mahler, Georges Bizet, and Ludwig von Beethoven. My favorites: Ludwig Von, with Glen Miller coming in a close second.

Hat tip to Newmark's Door for the link to this hilarious site.

Posted by Tom at 6:09 AM | Comments (0) |

August 16, 2004

Is Ken Lay a criminal?

William Anderson is an economics professor at Frostburg State University and an adjunct scholar at the Mises Institute. Here is an earlier post in which Professor Anderson challenged the reasoning behind an indictment earlier this year of several former executives of Houston-based Reliant Resources.

In this article that he co-authored with California attorney Candice E. Jackson, Professor Anderson challenges the conventional wisdom that the indictment of former Enron chairman and CEO Kenneth Lay is justified:

The "prosecutor as hero" theme reverberates in the media. What follows (from the July 19, 2004, edition of U.S. News) is typical of the state-worshiping press in the wake of the Lay indictments:

The federal prosecutors mopping up after corporate scandals can remember the summer of 2004 as their season of sweet victory. Last week a jury convicted Adelphia Communications founder John Rigas and his son Timothy Rigas of conspiracy, bank fraud, and securities fraud. A judge denied Martha Stewart's bid for a retrial and will deliver her sentence this week. And charges finally reached the top in the biggest case of all when a grand jury indicted former Enron CEO Kenneth Lay on 11 criminal counts, including bank fraud, securities fraud, and making misleading statements.

One would remind people that the supposed pursuit of "justice" is not a game in which we have "victory." These are legal procedures that destroy families, incarcerate talented people, and eviscerate legitimate business firms, apparently so that U.S. attorneys can bask in the glory that only the news media can provide.

Indeed, in Professor Anderson's view, Mr. Lay is a political prisoner:

Ken Lay is a political prisoner. To put it another way, the charges against him are political, not criminal in nature. He was in charge of a company that had a spectacular fall, which is not a surprise, given that Enron was riding the crest of a speculative bubble that almost certainly was going to burst.

And such criminalization of ordinary business behavior likely would not change under a Kerry Administration:

The problem with the Lay indictment, according to Kerry, whose campaign advertisements tout his experience as a prosecutor, is that it did not come soon enough; Bush's friendship with Lay delayed what Kerry claimed should have been done three years ago.

This is disconcerting, to say the least. It took a long time for the DOJ to put together a case against Lay that even is presentable, and the indictment itself presents a weak (but politically charged) legal case. Kerry's response makes one wonder if he even believes that Lay should receive a fair trial at all -- or, for that matter, even a trial, as opposed to summary judgment or the infamous military tribunals.

Professor Anderson is particularly unimpressed with the substance of the indictment:

Indictments are written for maximum effect, and Lay's is no exception. . . Yet, after one slogs through the 65 pages or so (another ploy by the government to imply guilt -- the longer the document, the more guilty someone must be) in the federal indictment, one is struck by the lack of criminality.

The most "damning" charges stem from stock sales Lay made after it became clear that Enron was headed for trouble. Yet, his behavior during this whole episode does not square with the criminality that the government is alleging. For the most part, Lay held the bulk of his investments in Enron stock. When some of his financial advisors told him to diversify, he insisted on borrowing against his Enron stock to purchase other securities.

However, at times he received margin calls, which means that the borrower must produce cash immediately; the only thing he could sell quickly was his Enron stock, but then he also continued to purchase that stock even in the face of company problems. At the same time, he urged employees to purchase the stock, as he was doing.

Or, as the Wall Street Journal's Holman Jenkins put it shortly after Enron filed its chapter 11 case, "if Mr. Lay was committing securities fraud, he was shooting himself in the foot while doing it."

Professor Anderson then decries the media and the government's unwillingness to confront the weakness of the criminal case against Mr. Lay and the fact that he really does not have -- under the inflamed circumstances surrounding Enron's demise -- any realistic chance of receiving a fair trial:

These matters are public record, yet news accounts have made statements like "he was quietly dumping his Enron stock at the same time that he was urging employees to buy more," which says more about the integrity of U.S. mainstream journalists than it does Lay's stock sales. Even a cursory glance at the record demonstrates that reality is not what the government is claiming. But then, neither the government nor mainstream journalists are bound by truth; nothing should get in the way of a good story or a politically popular indictment.

[W]we are pessimistic about Lay's chances of avoiding conviction. His jurors most likely will consist of middle-class individuals who are loyal to the U.S. Government and will be of the mentality that anyone in the dock must be guilty by definition. Since the media has a vested interest in having been "right" in its demonization of Lay, it is doubtful that the coverage of the trial and pre-trial activities will change in its pro-prosecution, pro-government bias.

Professor Anderson then notes that that Mr. Lay's failures are better dealt with in the civil justice system rather than the criminal justice system:

It's doubtful that Lay is guilty of criminal activity, especially in the sales of Enron stock. However, as the chairman of the firm, he had fiduciary responsibilities to the firm and stockholders. Moreover, many of the decisions he made, in good faith or not, resulted in huge business losses for investors, not to mention employees who purchased large blocks of Enron stock.

These matters are better suited for civil, not criminal court. Historically, this has been the venue where issues like this were argued and -- at least to a point -- resolved. By muscling into this legal realm, U.S. attorneys not only are criminalizing acts that are not traditionally criminal, but they also ensure that the people who should be receiving real justice are left out.

In closing, Professor Anderson provides a disturbing insight into the current psyche of American society in regard to business leaders:

There is no doubt that there will be cheering when Lay's guilty verdict is announced and he is sentenced to what effectively will be a life term in prison. Americans have become people who enjoy watching others suffer -- particularly watching leaders fall from grace -- and perhaps one should remember that business executives have wives and children who also will have loved ones incarcerated for many years.

While U.S. attorneys are not providing bread and circuses to the masses, they are giving the public the next best thing: public humiliation of wealthy executives and their families, many of whom have committed the crime of being successful. Others, apparently, have committed the crime of not being successful enough.

Read the entire piece. As Professor Ribstein aptly notes in his blog today regarding yesterday's post about the Global Crossing, Ltd.:

Yes, it is true, that the market often got it wrong during the speculative bubble that ended with Enron. But as I've discussed, many people share the blame for this mass delusion, not least investors themselves. We are going to find as these cases go to trial that there are nuances here the headlines have missed, and that raise serious doubts about dealing with these cases as criminal matters.

Posted by Tom at 8:24 AM | Comments (0) |

Kerry's spending proposals

This post from a few days ago addressed the Bush Administration's rather lackluster record in regard to fiscal policy.

Now, American Enterprise Institute fellows Eric M. Engen and Kevin A. Hassett provide this analysis of John Kerry's spending promises combed from his public statements, policy memos, and other information provided by his campaign staff. the Kerry spending promises add up to an extraordinary amount of money. Their best estimate is that Kerry's proposals would increase federal spending $2 trillion and $2.5 trillion over the next ten years. Mr. Hassett comments:

[R]oughly half of this additional spending is attributable to Senator Kerry's health care proposals that would add more than $900 billion in federal outlays. Education expenditure accounts for nearly one quarter of Kerry's new spending, with almost $500 billion added over ten years. A $400 billion expansion of military personnel and benefits for veterans comprises most of the remainder of Kerry's spending plans, with the balance distributed among numerous social programs and increases in international aid.

Hat tip to the Marginal Revolution for the link to this foreboding analysis.

Posted by Tom at 6:51 AM | Comments (0) |

Arlington seeks new Cowboys stadium

Already the home of the Texas Rangers baseball club and AmeriQuest Field this Dallas Morning News (free online reg required) article reports on the city of Arlington's play to be the home of the Dallas Cowboys' new stadium.

As usual, Arlington city officials tout the economic benefits of the new stadium. However, Professor Sauer suggests otherwise.

Craig Depken, an economics professor at the University of Texas at Arlington who runs the Heavy Lifting blog, is doing a particularly good job of keeping up with the saga of the Cowboys' quest for a new stadium.

Posted by Tom at 6:32 AM | Comments (0) |

PGBC objects to United's financing plan

The federal Pension Guaranty Benefit Corporation, the quasi-governmental pension insurer, challenged the key portion of United Airline's new debtor-in-possession financing arrangement in United's Bankruptcy Court on Friday by asserting that the agreement violates federal-pension law by forbidding the company from contributing to its underfunded retirement plans. Earlier posts on United's chapter 11 case can be reviewed here.

The PBGC, which is a member of United's creditors' committee, appears to have a clear conflict of interest now with most other unsecured creditors of United, who face receiving a greatly reduced dividend -- or nothing at all -- on their unsecured claims if United has to meet its underfunded pension obligations.

The PBGC alleges that if United terminates the pension plans -- which would require the permission of the Bankruptcy Court and the PBGC -- it would be on the hook for $6.4 billion. In the event of a termination, the benefits that UAL's 120,000 workers and retirees would lose would amount to around $2 billion because they exceed the guarantee limits set by Congress.

United also asked the bankruptcy judge on Friday to extend to the end of the year the company's exclusive right to file a plan of reorganization, meaning it wouldn't have to compete with other plans filed with the Court by creditors. United's exclusive right currently expires on Aug. 30.

Posted by Tom at 6:00 AM | Comments (0) |

August 15, 2004

Stros finally beat Expos

After losing four straight to the Expos, the Stros rallied for three runs in the ninth to salvage the final game of the weekend series in Montreal, 5-4.

With the victory, the Stros ended a four-game losing streak and won for just the second time in their last eight games. Reflecting their futility this season, the Stros had been 0-51 before today's game when trailing after eight innings.

The Expos led 4-2 in the ninth when Jeff Kent and Michael Lamb hit consecutive one-out singles to chase Expos starter Livan Hernandez, who up to that point had allowed only Carlos Beltran's two-run yak in the first. Jason Lane then hit a run-scoring single off Expos reliever Ayala and Viz tied the score with a groundout to shortstop. Pinch-hitter Orlando Palmeiro then singled in the go-ahead run. Brad Lidge pitched the ninth for his 13th save in 15 chances.

The Stros get a golf day on Monday in Philly before opening a three game set against the Phils on Tuesday (sorry about the error in the previous Stros' posts--I had deluded myself into thinking the Stros got to play the equally woeful Reds next). The Stros return home on Friday for a big three game homestand against the Cubbies.

Posted by Tom at 7:24 PM | Comments (0) |

Interview with Professor Porter on health care finance

Following up on this earlier post, this NY Times piece interviews Michael E. Porter, who is one of America's foremost business theorists and who has been recently studying America's dysfunctional health care finance system. This is interesting reading on one of the most important domestic issues in American politics today.

Posted by Tom at 2:12 PM | Comments (0) |

How much longer does Carly have?

Following on prior posts here and here, the NY Times' Gretchen Morgenson examines the latest carnage at Hewlett-Packard, Inc over the continued inability of the company to generate any economic benefit from spending almost $20 billion in buying Compaq almost three years ago.

I wonder whether Professor Bainbridge will set up a pool on when H-P CEO Carly Fiorina will resign or be fired?

Posted by Tom at 2:05 PM | Comments (0) |

The importance of good timing in going bust

This NY Times article provides a fine report on the demise of Global Crossing, Ltd., the telecommunications company that went down under suspicious circumstances at the same time as Enron Corp. was cratering. However, unlike Enron, the Justice Department established no "Global Crossing Task Force." Moreover, neither Global Crossing CEO and chairman Gary Winnick nor any other Global Crossing executive was ever charged with a crime:

Along with Kenneth L. Lay of Enron, L. Dennis Kozlowski of Tyco International and Bernard J. Ebbers of WorldCom, Mr. Winnick has emerged as a symbol of the financial shenanigans behind the 1990's bull market. Unlike the others, however, Mr. Winnick, Global's founder and chairman, has already been cleared of criminal charges. The Justice Department quietly dropped a criminal fraud investigation of him on Christmas Eve of 2002, relieving him of the prospect of prison time.

Nevertheless, the allegations in pending civil lawsuits sound the same as the core allegations in pending criminal indictments against various former Enron executives:

J. P. Morgan Chase and other leading banks are seeking $1.7 billion in damages from Mr. Winnick and other Global Crossing executives, contending that the group engaged in a "massive scam" to "artificially inflate" the company's performance to secure desperately needed loans. . .

Among other things, the suit refocuses attention on exactly what Mr. Winnick knew about his company's finances during times when it was borrowing heavily and he was selling hundreds of millions of dollars in stock.

Which led the U.S. District Judge Gerald E. Lynch to comment with regard to the banks' case against Global Crossing:

"I am prepared to look at this case as, with all respect to the people involved, a bunch of crooks getting sued by a bunch of bankers who are too dumb to stop throwing money down the toilet."

Indeed, Global Crossings' growth was even more meteoric than Enron's:

In a three-year whirlwind, Mr. Winnick tapped the stock and bond markets for $20 billion, all on the prospect that Global would keep growing and securing new customers. Global went public in August 1998, its shares leaping from $9.50 to $13.40 the first day of trading. Less than two years later, with the stock at a peak of about $64, the market valued Global at $47 billion - more than PepsiCo, more than CBS, more than McDonald's.

None of Global's financials justified this. It lost $20 million on sales of just $424 million in 1998, and it would never earn a penny in profits after that. In fact, losses would balloon. In 2000 alone, Global lost $1.4 billion, a staggering amount for any start-up, no matter how bright its future.

Nonetheless, Mr. Winnick's $20 million initial stake in Global was, at its height, worth more than $6 billion. He had become a billionaire faster than anyone in American history - faster than Bill Gates, faster than John D. Rockefeller - and his picture landed on the cover of Forbes magazine, with a headline that read "Getting Rich at the Speed of Light.''

And, of course, as with Enron, Global Crossing had its helpers among market promoters, including the ubiquitous politicians:

Mr. Winnick's team also gave large donations to Republicans and Democrats, hired well-connected lobbyists in Washington and secured Wall Street's loyalty, including that of Jack Grubman, a Salomon Smith Barney analyst who played carnival barker for the telecom joyride of the 1990's. Mr. Grubman, whose firm reaped hefty fees for underwriting Global's stock and for advising it on acquisitions, lavishly praised Global in his investor reports.

However, Global Crossing's world came crashing down in 2001 as the telecommunications industry went through a severe shakeout. Although garnering only a fraction of the public attention of Enron's meltdown, Mr. Winnick's analysis of what caused Global Crossing's demise sound the same as that of Enron's Jeffrey Skilling or Kenneth Lay regarding Enron's collapse:

In his Congressional testimony in 2002, Mr. Winnick offered his thoughts on his company's fate. "Global Crossing's bankruptcy, based on the facts known to me, is not a result of fraud but of a catastrophe that befell an entire industry sector," he said. "I don't offer this as an excuse because it's certainly not an acceptable excuse. It's an explanation."

But, as with Enron, there are many who do not agree that Mr. Winnick and Global Crossing were just the victims of bad luck:

Susan Kalla, a telecom analyst at Friedman Billings Ramsey, said Mr. Winnick inflated the scope of every deal he struck and overstated what he was able to charge for access to Global's network. "I believe this guy has set American business culture back greatly," she said. "He wasted billions and billions of dollars that could have been spent on far more useful purposes. He's set innovation in the industry back by a decade because he, and others like him, beat investors down so badly. "This was just about speculation," she said.

Although Mr. Lay has been indicted for selling his Enron stock on margin calls while Enron spun downward in late 2001, Mr. Winnick skated free while selling his Global Crossing stock under the same circumstances:

According to the J. P. Morgan suit, [Mr. Winnick] sold $860 million worth of stock from 1999 to 2001, and the lawsuit contends that most was sold at a time when serious problems at the company were not being publicly disclosed. (Mr. Winnick's representatives contest that figure, saying he sold $735 million worth of stock.)

[Mr. Winnick's] lawyer, Mr. Christensen, said that all Mr. Winnick's stock sales were preplanned or tied to the normal course of business - including a sale of $123 million of shares in May 2001 that has drawn S.E.C. scrutiny.

In the months before that sale, Global's managers were on tenterhooks about the company's precarious finances, according to documents introduced in various lawsuits. One internal Global e-mail message from a customer service representative to a company vice president in March 2000 said the company was "losing customers left and right" because of "network problems" and "poor service." Three months later, Leo Hindery, the company's chief executive at the time, sent a memo to Mr. Winnick saying that Global's business "niche" was "going to die."

The J. P. Morgan lawsuit raises questions about what Mr. Winnick knew about Global's finances. It says that Mr. Winnick and other Global Crossing executives "personally oversaw and reviewed Global Crossing's financial results" and "were aware of Global Crossing's precarious financial position."

At meetings in April 2001, senior Global executives discussed that revenues were going to fall $1 billion short of earnings estimates that had already been shared with the public, according to memos uncovered by Congressional investigators. Mr. Winnick did not attend those meetings, but he sold his shares a month later - with, he told Congress, the approval of Global's chief executive.

In early June 2001, about two weeks after Mr. Winnick sold those shares, Global's lawyers closed the window on all insider stock sales, citing the company's deteriorating finances. Although Mr. Winnick orchestrated most of Global's biggest deals, raised all of the company's initial financing, answered analysts' questions at road shows, kept in daily contact with a string of executives and even supervised landscaping at Global's headquarters in Beverly Hills, he told Congressional investigators that it was not until that point that he learned Global would not hit its numbers. (His lawyer says others at the company did the numbers-crunching.)

And, as with Mr. Lay and Enron, Mr. Winnick was not the only Global Crossing executive to profit from stock sales while the company was spiraling downward:

Other Global executives also profited handsomely from a wave of stock sales. As a whole, the company's culture was, one former senior Global executive said, "just a hot-deal shop."

"There was this dichotomy between this small cabal in Beverly Hills and thousands of people in the rest of the country," said the former executive, who requested anonymity. "It was put together by a bunch of flippers who saw an amazing gravy train and nothing else."

So, why are dozens of former Enron executives currently subject to criminal proceedings while no former Global Crossing executives are experiencing similar troubles? Frankly, there is no good explanation. The answer lies primarily in politics -- a Republican administration could not afford politically to look as if it was going easy on Enron, which was a highly visible financial supporter of the President Bush's campaign. Although Global Crossing and Mr. Winnick also contributed to both political parties, Mr. Winnick's primary support was to former President Clinton, who was gone by the time that Global Crossing was going into the tank.

The discrepany in treatment between the Justice Department's handling of Enron and Global Crossing highlights the high risk of arbitrary and capricious results that occur when government seeks to criminalize business behavior. As Professor Ribstein has pointed out on several occasions, criminalization of ordinary business behavior risks diluting the moral force of the law, not to speak of discouraging beneficial risk-taking that generates economic development and job creation.

And the counterproductive political activity does not end with criminalization. Sarbones-Oxley Act ("SOX") was a political regulatory reaction to Enron and other business scandals of the early part of this decade, and Professor Ribstein's post today points to yet another article that hints of the negative effects of such increased regulation:

In a nutshell, after SOX executive pay becomes less risky and therefore provides lower-powered incentives, and firms are managed more conservatively. The authors concede that they establish only a temporal and not a causal relationship, but the inference is there.

Hopefully politicians and voters will remember that, just as a speculative market bubble can have a regulatory hangover, so a "regulatory bubble" like SOX can put a long-term damper on the market. But I doubt it.

Given the current popularity of criminalizing ordinary business behavior among politicians, I share the Professor's pessimism.

Posted by Tom at 1:42 PM | Comments (1) |

August 14, 2004

Expos pound Stros

The Stros wasted a solid pitching performance from Carlos Hernandez as their fragile bullpen again allowed the Expos to trounce the Stros late, 8-3 in Montreal on Saturday night.

Hernandez's performance was promising, as he yielded three runs on seven hits in six innings. His velocity is not what it was before his injury (a torn labrum), but he battled gamely and put the Stros in a position to win the game. Reliever Chad Qualls screwed the pooch, giving up 5 runs in the seventh, including a grand salami to Nick Johnson. Beyond Lidge, the Stros bullpen is falling into oblivion.

Oh, and let's not overlook the Stros' offense. Four hits, three runs. Bags had a two run yak and a double, but the impotency of the Stros' offense has to be discouraging for the pitching staff members, who know they have no margin for error.

Pete Munro attempts to salvage a game in this series before the Stros take off to Cincy for a series with the reeling Reds. It will be nice to see the Stros play a club that is playing as badly as they are.

Posted by Tom at 9:44 PM | Comments (0) |

VDH on the Politics of bashing

Victor Davis Hanson's NRO column this week picks up on the phenomenom that Professor Ribstein noted some time ago -- the almost pathological hatred of President Bush exhibited by some on the political left. The entire column is well worth reading, but Professor Hanson's conclusion is particularly insightful and also cautionary:

In short, the Left hates George W. Bush for who he is rather than what he does. Southern conservatism, evangelical Christianity, a black-and-white worldview, and a wealthy man's disdain for elite culture ? none by itself earns hatred, of course, but each is a force multiplier of the other and so helps explain the evolution of disagreement into pathological venom.

September 11 cooled the furor of these aristocratic critics, but Iraq re-ignited it. Not voting for George Bush is, of course understandable and millions in fact will do precisely that. But for those haters who demonize the man, their knee-jerk disgust tells us far more about their own shallow characters than it does anything about our wartime president.

And there is a great danger in all these manifestations of pure hatred. We are in a war. And in these tumultuous days, the Left's unhinged odium will resonate with and embolden not only our enemies abroad, but also the deranged, dangerous folk here at home.

Read the entire piece.

Posted by Tom at 11:16 AM | Comments (6) |

The next big threat - EMP Blast

This Opinion Journal piece discusses the likely outcome of an Electromagnetic Pulse (EMP) attack on the United States, which Department Department officials have been being discussing just below the public surface for the past few years. Not a pretty prospect.

Posted by Tom at 10:50 AM | Comments (0) |

Expos edge Stros

The Expos came back to score two runs with two outs in the 12th to beat the Stros 6-5 for their sixth win in a row, three of which have come over the hapless Stros.

Chad Harville (does he not have any minor league options left or what?) blew his second straight save opportunity and took the loss for the Stros. After yaks by Carlos Beltran, Jeff Kent, and Morgan Ensberg had tied the game in the ninth and then given the Stros a 5-4 lead in the 12th, Harville pitched the 12th and actually got the first two outs. He then proceeded to give up a tater, two walks, and the game winning single. Why is this guy still on the major league roster?

Roger Clemens was not sharp, but he battled through six innings and kept his club in the game until the outburst in the ninth. Five other Stros relievers before Harville looked good. Again, why is this guy still on the major league roster?

Stros fans get to see former phenom Carlos Hernandez today get his first start in two years on his road back from shoulder surgery. Oh yeah, did I remember to ask why Harville is still pitching for the major league club?

Posted by Tom at 5:18 AM | Comments (0) |

August 13, 2004

Not touting the Google IPO

Commenting on the flap over the Google owners' Playboy interview that may delay the Google IPO that has already been postponed once, Professor Ribstein makes this common sense observation:

Can the Google boys be trusted with investors' money if they think it's more important to talk to Playboy than to protect their multi-billion-dollar public offering from regulators?

Posted by Tom at 6:28 AM | Comments (1) |

HP bloodletting nails former Compaq exec

Continued lackluster corporate spending on technology is seperating the strong from the weak quickly in the high-tech industry.

That was certainly apparent yesterday as Dell Inc. and International Business Machines Corp. detailed continued growth and new hiring, while Hewlett-Packard Co. stumbled badly and fired three top executives.

The gloomy outlook has dashed hope among tech executives and investors that the sector will soon return to the supercharged growth of the late 1990s. Pummeled again yesterday, the tech-heavy Nasdaq Composite Index is down 12.5% for the year, and 19% from its peak in late January.

Curiously, demand for high-tech goods remains good. World-wide shipments of personal computers rose 15.5% in the second quarter, and Commerce Department reports indicate that U.S. companies' spending on hardware and software increased 15% in the second quarter from a year ago.

H-P's troubles were rooted in its unit that makes computer servers and storage devices for corporate customers, which suffered from a botched software installation and aggressive discounting. The unit posted an operating loss of $208 million on revenue of $3.4 billion, contributing to a surprising earnings shortfall.

Chief Executive Carly Fiorina called the blunders "unacceptable" and promised that the unit would return to profitability in the current quarter. In a terse memo issued a few hours after the disappointing results, Ms. Fiorina announced the departures of three executives, including Peter Blackmore, head of the H-P's business sales division, who used to work for Houston-based Compaq before its merger with H-P.

Of course, now almost two and a half years after the questionable H-P - Compaq merger that Ms. Fiorina heavily promoted, could it also be said that that "blunder" is "unacceptable" and that Ms. Fiorina should be shown the door? Stay tuned on that one.

H-P is increasingly caught in a squeeze between Dell's low prices for basic corporate computers and IBM's increasingly innovative high-performance computers. Both rivals have been gaining market share against H-P since its acquisition of Compaq in 2002. As a result, H-P has been shifting toward lower-profit businesses. H-P's personal-computer unit, which has relatively low gross margins is growing faster than its servers and storage business, which typically has much higher gross margins.

My sense is that this is not going to end well for Ms. Fiorina.

Posted by Tom at 6:16 AM | Comments (4) |

U.S. Air on the brink

The Airline Pilots' Association's investment bankers at US Airways Group Inc. warned yesterday that the carrier could fail in the near future and is highly likely to file for chapter 11 bankruptcy protection by mid-September without substantial cost cuts.

Such a bankruptcy filing would be known as a "chapter 22" because US Air is already operating under a structure adopted under a reorganization plan approved in a previous chapter 11 case in 2002-03.

Arlington, Va.-based US Airways said it concurs with the report's conclusion that it is in the best interest of the company and its labor unions to reach consensual agreements quickly that will reduce expenses and help it implement its turnaround plan.

Although US Air is not far from its previous chapter 11 reorganization, the company has not been profitable because the domestic flight market is now controlled by discount airlines that have low costs and low fares. Add to that the recent spike in fuel prices and, before you know it, US Air posted a net loss of $143 million during the first part of its fiscal year.

Frankly, I do not understand how US Air can avoid going into the tank even with union concessions. It has a $130 million pension-plan contribution due on Sept. 15 that will consume liquidity if it is made. Its regional-jet financing arrangements with two manufacturers and General Electric Co. mature on Sept. 30 in the absence of a turnaround, and it is on the verge of defaulting on Sept. 30 on the terms of a federally guaranteed loan that provided the company with a portion of its exit financing out of Chapter 11 in 2003.

As Professor Ribstein has insightfully noted on several occasions, the market needs to be allowed to put at least one of these financially-strapped airlines out of its misery.

Posted by Tom at 5:48 AM | Comments (0) |

August 12, 2004

National Oilwell to acquire Varco

Houston-based National Oilwell Inc. announced plans to acquire Houston-based Varco International Inc. in a stock deal valued at about $2.22 billion. The deal will combine two companies that provide products and services for oil and natural gas drilling.

Terms of the agreement call for Varco stockholders to receive 0.8363 of a National Oilwell share for each Varco share. Based on National Oilwell's Wednesday closing price of $30.85 on the New York Stock Exchange, the transaction values each Varco share at $25.80, a 9.2% premium to Varco's Wednesday closing price of $23.62.

National Oilwell President and Chief Executive Pete Miller will serve in the same capacity of the combined company. John Lauletta, Varco's chairman and CEO, will serve as chairman of the combined company. Varco's president and chief operating officer, Joe Winkler, will serve as the operating chief. Each company will be equally represented on the board and, after closing of the deal, National Oilwell will change its name to National Oilwell Varco Inc.

National Oilwell expects that the transaction will add to earnings and cash flow per share in 2005. National Oilwell expects about $40 million to $50 million in pretax cost cuts as a result of production facility consolidation, expense reductions in sales and marketing and corporate overhead cuts that should be achieved by the end of 2005.

Posted by Tom at 3:37 PM | Comments (0) |

Stros exit New York meekly

The Stros looked like a team that needed to catch a flight as they could muster just two singles against four Mets pitchers and lost on Thursday afternoon at Shea Stadium, 2-1.

Andy Pettitte looked uncomfortable as he struggled with his control, giving up four hits and four walks in 5 2-3rd's innings against a Mets' lineup that has been eviscerated by injuries. The Stros were pathetic offensively, as Berkman singled in the only one and Manager Garner inexplicably benched two of his club's only five above average hitters -- Bags and Bidg.

I realize Garner is trying to shake the Stros up and get something started, but sometimes he appears to be trying too hard. This club struggles to hit generally and to hit with power particularly. Thus, there is simply no good reason not to be playing his five above-average hitters -- Berkman, Beltran, Bidg, Bags and Lamb -- almost every game. Beyond those five, it doesn't make much difference who hits for the Stros. Except for Kent, who represents exactly an average National League hitter this season, the rest of the Stros are either below average or well below average. Playing more of those guys than is necessary simply increases the risk of loss.

The Rocket gives the folks in Montreal one last opportunity to see one of the best pitchers of the past generation on Friday. Let's hope the Stros do some hitting rather than simply watching, too.

Posted by Tom at 3:22 PM | Comments (0) |

Government v. Business

Peter Gordon is a clever professor in the University of Southern California's School of Policy, Planning and Development and in its Department of Economics and is director of USC's Master of Real Estate Development program. Professor Gordon also runs a smart blog called Peter Gordon's Blog, which explores "the intersection of economic thinking and urban planning/real estate development and related big-think themes."

In this post, Professor Gordon addresses the L.A. City Council's recent decision to require more impact studies of possible harm before large centers such as Wal-Mart are allowed to be built in Los Angeles. With brevity and razor sharp insight, Professor Gordon points out the unintended consequences of such governmental action:

I imagine that the 13 of 15 L.A. City Council members who voted for this measure also dream of requiring studies of the "possible harm" before anyone can legally file to compete with them at the polls.

For now, the professional harm detectors have a windfall. The influence of politicians and their acolytes is extended. Inefficient retailers get a pass. The poorest customers have to travel further for lower prices and more variety. Entry level jobs are foreclosed, etc., etc., etc.

Conventional measure of the size of government understate the harm that politicians do. The full consequences of this stuff are not so easily detected.

Posted by Tom at 8:43 AM | Comments (0) |

Fiddling while Rome burns

Peter G. Peterson is founder of the Blackstone Group and founding president of The Concord Coalition, which is a bi-partisan citizen's group organized in 1992 for the purpose of building a constituency of fiscal responsibility.

In this New York Times book review, Financial Times and Weely Standard columnist Christopher Caldwell reviews Mr. Peterson's new book entitled "Running on Empty" in which Mr. Peterson lays out the case that politicians in both political parties have abandoned any pretense of fashioning responsible fiscal policy. That has resulted in the highly-leveraged state of various government entitlement programs such as Social Security and Medicare:

How we reached this pass can be stated simply: Republicans undertax, while Democrats overspend. For decades, Mr. Peterson writes, Democrats ''labored patiently to purge America of its traditional aversion to deficits," bribing voters with jobs and social-service programs that the country could not afford. Starting with the Emergency Recovery Tax Act of 1981, though, Republicans have learned that tax cuts and write-offs can be used as bribes in exactly the same way. Dependent on deficit spending, both parties have blown through every institutional constraint erected against reckless tax cuts and benefit expansions, from the Gramm-Rudman deficit ceilings of the 1980's to the Budget Enforcement Act of 1990. And they have blown the Social Security-tax surpluses meant to offset predictable future shortfalls.

And although he blames both political parties for this fiscal debacle, Mr. Peterson takes dead aim at the Bush Administration:

While Mr. Peterson blames both parties for conniving against fiscal common sense, he puts the present administration in a class of its own. George W. Bush has discarded traditional Republican qualms against big government, replacing the old Democratic model of tax-and-spend with his own model of borrow-and-spend. Thanks to three unaffordable tax cuts and an unfinanced Medicare drug benefit that will eventually cost $2 trillion a decade, Mr. Peterson writes, ''this administration and the Republican Congress have presided over the biggest, most reckless deterioration of America's finances in history."

But even more interesting is why politicians continue to ignore these clear warning signs of fiscal disaster? Mr. Peterson has a theory:

''[O]ur national leaders are providing the American people with precisely what they want." Debt, he notes, is particularly alluring in periods of partisan intransigence. If the two sides cannot compromise on priorities, each can take what it wants while dumping the bill on future generations. Americans used to understand this temptation and flee it. Thomas Jefferson warned: ''To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude."

Mr. Peterson's book highlights the watershed nature of this year's Presidential election. The Bush Administration has done precious little during its first four years to merit the support of voters who yearn for prudent fiscal reform of government entitlement programs. On the other hand, the Democrats have nominated a candidate with an extraordinarily weak record on the same issues.

Is Peterson correct that most voters simply do not care anymore about fiscal responsibility of government? Or has the public simply given in to the dark side of using debt to pay for our government's lack of fiscal responsibility? Interesting questions with no easy answers.

And to get a good idea of just how far the Bush Administration has strayed from sound economic policy, Tyler Cowen over at Marginal Revolution outlines what he believes the Bush Administration's economic platform should be.

Posted by Tom at 6:58 AM | Comments (0) |

Union requests a trustee in United chapter 11 case

Labor relations at UAL Corp.'s United Airlines hit a new low yesterday as United's the International Association of Machinists union asked the bankruptcy judge overseeing the carrier's chapter 11 case to appoint a trustee to operate the company.

Still fuming over over United's recent decision not to make required contributions to its underfunded pension plans, the machinists contended in their trustee motion that United has shown "misconduct, ... dishonesty and incompetence" by breaching fiduciary duties related to the plans, favoring some classes of creditors over others and failing to produce a workable business plan for a reorganization.

Frankly, the machinists' motion has about as much of a chance of succeeding on their motion as I have of winning the "Most Handsome Cowboy" contest at the Bluebonnet Dance Palace this Saturday night. United's decision not to make the pension payments was prudent and made to attract new capital to the company that would fund a reorganization plan that would avert a liquidation of United. The machinists have not accepted the reality that a United liquidation would be even worse for them than a reorganized United that terminates its pension plans but continues to provide jobs for the union's members.

Although it is unlikely that the bankruptcy court will grant the union's motion, the discord between the union and United management could affect United's improved operational performance of the past two years, which would cause further delays in generating the private capital necessary to fund a plan for United to emerge from chapter 11.

From my vantage point, the unions lack of a coherent strategy in the United reorganization is appalling.

Posted by Tom at 6:19 AM | Comments (0) |

Lay's proposed September trial date denied

U.S. District Judge Sim Lake denied former Enron Chairman and CEO Kenneth Lay's motion for a September trial date during a hearing on Wednesday, but agreed that Lay was entitled to a quick trial. Judge Lake did not set a trial date for the Lay case during the hearing.

Judge Lake ordered counsel for Mr. Lay, former Enron CEO and COO Jeffrey Skilling, and former chief accountant Rick Causey to make all their arguments about why each wants to be tried separately and said he will rule on those requests by early October.

Messrs. Causey and Skilling are each accused of 35 or more counts of conspiracy, fraud and insider trading in a scheme to manipulate the earnings of Enron to enrich themselves. Mr. Lay is charged with 11 counts, seven of which related to fraud and conspiracy at Enron and four of which relate to fraud in banking of his Enron stock.

In a particularly insightful question while reviewing the defendants' request to move the trial to another jurisdiction, Judge Lake asked during the hearing:

"Just out of curiosity, what district court in this country do you think would be free of any publicity of the demise of Enron?"

Judge Lake also chided Mr. Lay's lawyer, Mike Ramsey, who had conducted a press conference at the courthouse after filing the motion for a speedy trial in Mr. Lay's case on Monday. "Why don't you save the press conference until after this hearing?" the judge asked Mr. Ramsey with a wry smile.

Mr. Lay's strategy for a speedy trial is based on the fact that that the charges against him focus on the period immediately preceding Enron's bankruptcy. Messrs. Skilling and Causey face charges that focus on a wide range of activities that occurred over several years.

Posted by Tom at 6:00 AM | Comments (0) |

Stros slop past Mets

Light-hitting Brad Ausmus' RBI single in the 10th inning was the difference as the Stros went on to a 5-4 win over the Mets on a strange and sloppy Wednesday evening at Shea Stadium in Queens, New York.

The teams played through a steady rain until an hour long delay in the sixth. Lightning flashes throughout the early innings added to the eerie backdrop to the game.

Morgan Ensberg had three hits and scored twice for the Stros, who won for only the second time in seven games. Ensberg led off the 10th with an infield single, stole second and went to third on a groundout. With the infield drawn in, Ausmus hit a grounder past the diving Met third bagger down the left-field line to plate Ensberg with the game winner.

Brad Lidge struck out three in two scoreless innings for the win. Kirk Bullinger got three outs for his first career save, retiring a pinch-hitter with a runner on third to end this mess of a game.

Playing without injured starting pitcher Tom Glavine, slugger Mike Piazza, and shortstop Kaz Matsui, the injury-depleted Mets lost for the fourth time in five games. The Mets also lost left fielder Cliff Floyd during the game after he was nailed in the back by Stros starter Roy Oswalt's 95 mph fastball.

During the game, Oswalt slipped on the slick mound for a balk and matched a career high with five walks. In a particularly bizarre point in the game, Oswalt threw a pitch to the backstop on the fly in the third and, on the next pitch, the Mets' Danny Garcia's bat slipped out of his hands and sailed over the Stros' dugout into the stands.

What on earth were the umps thinking in continuing the game under these conditions?

Andy Pettitte attempts to throw his weekly five innings today against the Mets' Victor Zambrano before the Stros take off for Montreal and their last series in that city before the Expos' inevitable move after this season.

Posted by Tom at 5:34 AM | Comments (0) |

August 11, 2004

An order that most lawyers would not want to receive

Based on this order, I think it's fair to surmise that U.S. District Judge Sam Sparks is fed up with several lawyers.

Posted by Tom at 8:14 PM | Comments (0) |

Young golfers don't get it

Tour golf professional Chris DiMarco is interviewed in this month's Golf Digest. Asked to opine on the observation that younger Tour players don't seem to be having much fun while playing the Tour, DiMarco agrees and refers to a comment that fellow Tour professional Scott Hoch observed about fellow Tour pro Ty Tryon, who got his Tour card at the age of 17:

"Ty's not going to be able to experience some of the best nights that he can't remember."

Posted by Tom at 1:40 PM | Comments (0) |

This is unfortunate

With all the bad television shows that we must endure, I am saddened to learn this.

Posted by Tom at 9:20 AM | Comments (2) |

No. 17 at Whistling Straits

The final major golf tournament of the season -- the PGA -- is being played this week at Whistling Straits Golf Club on the windy shores of Lake Michigan in Kohler, Wisconsin. Whistling Straits is a relatively new golf course that has a reputation of being a monster. However, it has never hosted a major golf tournament and thus, is not that well known to the general golfing public.

I was taking a look at some pictures and video of the golf course last night and came across this picture of the incredible 223 yard 17th hole. Check out video flyover that reflects that the hole is even tougher than the picture suggests. I think I would use my "block right" swing on this one.

Posted by Tom at 9:04 AM | Comments (0) |

Where have all the fiscal conservatives gone?

Before you dismiss this season's Presidential race as an easy one between a profligate Democrat and a fiscally-restrained Republican, review this W. James Antle III piece from the The Foundation for Economic Education:

. . .over the past few years the Republicans have enjoyed unified control over both houses of Congress and the White House. Instead of a renaissance of spending restraint and economic freedom, government has grown at a prodigious clip.

According to the Cato Institute, total federal outlays are scheduled to rise by 29 percent between 2001 and 2005 while discretionary nondefense spending in particular will climb 36 percent over this same period. During President Bush's first term, we have seen three of the five largest annual increases in real discretionary spending of the past 40 years.

This is not to suggest that Mr. Kerry would enact policies to reduce this trend if he is elected President. However, it is important to remember when you hear the inevitable drumbeat from the Republicans that Mr. Bush and the Republican-controlled Congress are acting in a fiscally responsible manner.

Hat tip to the good folks at Southern Appeal for the link to this article.

Posted by Tom at 8:13 AM | Comments (0) |

Former El Paso traders targets of criminal probe

About a dozen former El Paso Corp. traders and their supervisors have been notified they are targets of a grand jury investigation into natural gas price manipulation. The former employees received target letters from the United States Attorney's office in Houston office advising them that they may face charges of commodity price manipulation, conspiracy and wire fraud.

The charges referred to in the target letters are virtually the same as those previously filed against Todd Geiger, a former El Paso trader who was accused of providing false information to Inside FERC's Gas Market Report. In December, 2003, Mr. Geiger pleaded guilty to one count or wire fraud and of reporting inaccurate information under the Commodity Exchange Act.

The government's investigation relates to natural gas price indexes, which various publications produced through surveys of energy traders and others. The indexes offer pricing snapshots for hubs across the country that buyers and sellers of natural gas use to help set prices in contracts. The Commodity Futures Trading Commission has filed civil charges against several companies over the past couple of years in which the CFTC claims that traders knowingly provided false data to publications with the intention of influencing natural gas prices. The CFTC has collected about $250 million in penalties from companies, including $30 million from the Royal Dutch/Shell trading subsidiary, Coral Energy Resources, and $20 million previously from El Paso.

Posted by Tom at 6:25 AM | Comments (0) |

The Market for Insuring Terrorism

The Wall Street Journal's ($) Holman Jenkins' Business World column today reviews the market for insuring against terrorist attacks, and what Mr. Jenkins finds is quite revealing:

The insurance industry's job is to quantify risk, and more and more evidence suggests that, in fact, we've pretty thoroughly smothered al Qaeda's ability to bring laborious, slow-moving plots on the scale of Sept. 11 to fruition. If so, actuaries will only be catching up with the insurance market, where terrorism coverage has been a hard sell, even with a dollop of taxpayer subsidy, because most property owners judge the risk to be negligible. But don't expect industry lobbyists to highlight this fact. Why give up a federal subsidy?

Both Republicans and Democrats on the influential House Financial Services Committee have already written to the White House urging renewal, though the law, known as the Terrorism Risk Insurance Act, doesn't expire for 15 months. John Snow at Treasury isn't likely to stand in the way. In fact, aside from the Consumer Federation of America (motto: "If insurance companies are for it, we're against it"), nobody has an obvious interest in lobbying on the other side -- unless, by some miracle, a dissenter should happen to emerge from the insurance industry itself.

Our nominee for this role: Warren Buffett.

Now, why would Mr. Buffett be an advocate for removing the federal subsidy on terrorism insurance? Read on:

The Berkshire Hathaway chief's most famous pronouncement concerned the inevitability of nuclear terrorism someday. Yet his firm actually has been one of the few large reinsurers willing to make big bets on target buildings like the Sears Tower. We suspect Mr. Buffett will end up laughing all the way to the bank on a careful judgment that the megaterrorist threat to the insurance industry's capital base is exaggerated.

Mr. Jenkins then points out that even the largest potential targets of terror attacks are held by companies that can absorb the risk of such an attack:

As former Treasury official and Wharton economist Kent Smetters points out in an excellent paper, many megatargets are owned by publicly traded companies, and it's not clear that insurance has much value for them: Their shareholders are already well diversified. Even the loss of a World Trade Center, at $40 billion, is hardly sneeze-worthy compared to the $100 billion fluctuations that such shareholders put up with in the equity markets every ho-hum day.

What about a nondiversified property owner with all his eggs in one target? That was the case with the Port Authority, owner of the World Trade Center. But even here "cat" bonds and other innovative instruments create ways to share the risk with willing investors in the global capital markets.

Read the whole piece. Another gem by one of the WSJ's best thinkers.

Posted by Tom at 6:03 AM | Comments (0) |

August 10, 2004

Mets waltz by listless Stros

In a matchup of fading teams that are dropping like rocks from wild-card contention, the Mets ended a three-game losing streak and handed the Stros their fifth loss in six games, 7-3 at Shea Stadium on Monday night.

Other than Berkman's solo yak, there is nothing for the Stros to talk about from this one. Several of the Stros -- particularly Kent and Ausmus -- appear to be going through the motions at this point. Munro and Redding were particularly bad as a weak hitting Mets club without Piazza lit the Stros' pitchers up for 10 hits and 17 total bases. In the most merciful move of the year to date, the Stros optioned Redding to New Orleans after the game and recalled long-awaited Carlos Hernandez.

At least it was nice to see former Stro Richard Hidalgo double in a run. I suspect most of the Stros enjoyed seeing him do well, too.

The Stros have a chance tomorrow night as Roy O is pitching. But the way the Stros hit, Oswalt better be thinking shut out.

Posted by Tom at 9:34 PM | Comments (0) |

Nigerian Barge case postponed again

The Enron Task Force's recent decision to re-indict the defendants in the Enron-related Nigerian Barge case has caused another postponement of the trial in that case.

The trial, which was scheduled to begin on either August 16 or 17th, has been pushed back by U.S. District Judge Ewing Werlein until September 20. That trial schedule would still make it the first criminal case involving former Enron executives actually to go to trial since Enron's collapse almost three years ago.

The government decided to re-indict the defendants recently because of concern over the U.S. Supreme Court's recent Blakely decision (prior posts here), which has called into question the Constitutionality of both state and federal sentencing guidelines, particularly in cases in which the jury did not consider the alleged loss caused by the alleged crime.

Included in the new indictment in the Nigerian Barge case are allegations that a scheme to pretend Enron sold Nigerian barges caused the loss of more than $80 million, which, if proven, would add years to a sentence under the federal sentencing guidelines.

However, I am not following the governement's theory of the case here. Neither Enron nor Merrill Lynch lost any money on this transaction, which was a relatively small deal in Enron's world involving about $12 million in profits for Merrill Lynch. Moreover, the alleged illegal accounting treatment for the deal was not discovered until after Enron was well into its bankruptcy case, so public disclosure of that alleged impropriety had no market impact on Enron's already worthless stock. Accordingly, I am still trying to figure out the government's theory that the deal caused damages of $80 million. Oh well, maybe I'll try to ask Jamie Olis.

At any rate, defense attorneys in the Nigerian Barge case had asked for the postponement because they said new expert financial testimony is necessary and new defenses need to be developed. The government asked Judge Werlein for a bifurcated trial in which the jury hears only about the alleged crimes in the first part and then, if there is a conviction, the jury would hear evidence of sentencing factors in the second stage.

Posted by Tom at 9:19 PM | Comments (0) |

Whose Constitution Is It, Anyway?

In this Wall Street Journal ($) book review, Northwestern University Law Professor John O. McGinniss reviews Stanford Law Dean and Professor Larry Kramer's new book -- "The People Themselves" -- in which he argues that the notion that the judiciary is the sole true arbiter of the Constitution under the American government is a fairly new and inaccurate view. As Professor McGinnis notes from Professor Kramer's work:

. . . the men who wrote the Constitution would have been aghast at a judicial monopoly on its interpretation. At the time, judges did not claim some exclusive power of constitutional settlement. They believed that judicial review stemmed from their duty to interpret all relevant laws in the course of litigation. But they did not dispute that the White House and Congress had their own duty to interpret the Constitution in the course of their own official actions.

Only later, when the Federalists feared that they would be voted out of office, did the doctrine of judicial supremacy come into play, to insulate Federalist court decisions from correction. But Mr. Kramer shows that presidents from Jefferson to Lincoln refused to yield all authority to judges. They embraced "departmentalism" -- each branch of government claiming an equal right to discover the Constitution's true meaning.

Professor Kramer notes that the doctrine of judicial supremacy has serious implications to American government and society:

Because the court is selected from a narrow social class, he notes, it tends to reflect the views of a modern "aristocracy." Only the willingness of other branches to disagree with the court prevents our constitutional republic from degenerating into a constitutional oligarchy -- with a priestly caste ruling, in effect, by fiat.

Mr. Kramer goes even further. He believes that "the people themselves" should be principal enforcers of the Constitution, as they long enforced the British Constitution through such devices as jury nullification and mobbing -- i.e., disturbing the peace. But the American Constitution differs from that of George III. In the U.S., the people themselves can reconstitute all branches of the government -- by voting for certain candidates instead of others, of course, and by thus affecting political appointments. Electoral accountability is the essence of popular constitutional control. Thus Americans have not typically resorted to mob violence. The contrast with the British Constitution is striking.

But Professor McGinnis is not completely sold on Professor Kramer's theory that varied interpretations of the Constitution protect our society against the tyranny of the majority:

The American Constitution also differs from the (unwritten) British one in its source of authority. In 1789 the Framers drafted a specific text that the people themselves ratified in every state. It is this consensus that gives the Constitution its power and justifies the disregard of even democratically made laws that conflict with it. But the meaning of that consensus can be discovered only by referring to the words themselves and to their historical context -- not by relying on the "political-legal" interpretation that Mr. Kramer suggests. Constitutional interpretation based on politics places the people's own considered judgments at the mercy of rash and temporary majorities. Only a document fixed by law -- and subject to strict rules of amendment -- can protect, in the words of Justice David Brewer, "Peter Sober from Peter Drunk."

Read the whole piece. Good stuff.

Posted by Tom at 11:20 AM | Comments (0) |

El Paso announces restatement of earnings from 1999-2003

Houston-based El Paso Corp. announced today that an internal review of its accounting has prompted the company to restate quarterly earnings from 1999 to 2003. El Paso noted in its announcement that stockholders' equity would be reduced by the move, but that "cash flow" would not be affected. As if this latter assurance is going to make creditors any more willing to provide credit to El Paso!

It has not been a good year for El Paso, which has been the subject of an overstatement of reserves scandal and multiple resulting investigations. Here are the previous posts on El Paso's troubles.

The restatement will result in increases and decreases in El Paso's quarterly earnings at its merchant energy and production units, and that earnings at the parent company level will also be restated. El Paso also noted that it had received waivers under its $3 billion revolving-credit facility giving it a Sept. 30 deadline to file its 2003 10-K, which the company believes it will be able to meet. An El Paso spokesperson contended that the restatements would not cause the company to default on any debt covenants.

The bankruptcy watch for El Paso continues, and there is nothing in this latest announcement that indicates that such a result is any less likely.

Posted by Tom at 10:51 AM | Comments (0) |

August 9, 2004

Ken Lay presses for a speedy trial

In an astounding move in a case of nearly unprecedented negative publicity, Ex-Enron Chairman and CEO Kenneth Lay requested U.S. District Judge Sim Lake today to grant a speedy trial -- even possibly waving a jury trial to get it -- in pleadings filed today in his pending criminal case in Houston.

Mr. Lay, who is presently facing 11 criminal charges in the same case as former Enron CEO and COO Jeffrey Skilling and ex-chief accountant Richard Causey, requested that Judge Lake sever Mr. Lay's case from that of Messrs. Skilling and Causey, and commence the trial of Lay in mid-September, just a month away.

Mike Ramsey -- Mr. Lay's criminal counsel -- estimated that the 11 criminal counts against Mr. Lay can be tried in three weeks to Judge Lake and about eight weeks if a jury hears it. In addressing the media at Houston's federal courthouse while filing pleadings on behalf of Mr. Lay today, Mr. Ramsey chided the Enron Task Force prosecutorial team for allegedly politicizing Mr. Lay's criminal case in inflammatory prosecutorial press conferences.

Mr. Lay's request for a speedy trial is a high risk strategy, but there are few alternatives in defending an Enron-related case that are not high-risk because of the noteriety of the Enron. The big fringe benefit of a quick trial to Mr. Lay is the severance of his case from that of Messrs. Skilling and Causey, who Mr. Lay will likely portray as being in control of the day-to-day affairs of Enron.

Also in pleadings filed today, the Enron Task Force noted that Lay has set aside $15 million to a legal defense fund, which Mr. Ramsey contended is not accurate because of the illiquid nature of a large portion of the assets transferred into the fund. Even with that hefty war chest, Mr. Lay is still running second to Mr. Skilling, who socked away $23 million of cold, hard cash in his legal defense fund.

The Enron Task Force is opposing Mr. Lay's request for a September trail date, but has proposed a fairly quick schedule that includes a March 2005 trial date. As one would expect, the Task Force prefers to try all there defendants together.

Judge Lake has scheduled a Wednesday hearing to discuss a trial date for the Mr. Lay's case.

Somewhat overshadowed in today's developments is the fact that, more than two and a half years after Enron collapsed into bankruptcy, the first criminal trial involving former Enron executives is currently scheduled to begin in Houston next Monday before U.S. District Judge Ewing Werlein in the case known as "The Nigerian Barge case."

Posted by Tom at 8:55 PM | Comments (0) |

It's going to be close, folks

Pejman Yousefzadeh, who was noted in this earlier post regarding his work on the benefits of futures markets in predicting terrorist attacks, has this interesting analysis of how the Electoral College vote is stacking up in regard to the upcoming Presidential election based on the current status of future markets. Check it out.

Posted by Tom at 6:28 AM | Comments (0) |

Fix the tax code in regard to health care finance

Wall Street Journal Editorial Board member Susan Lee proposes in today's WSJ ($) that the U.S. tax code be overhauled to mitigate the negative effects of the third party payor system that most Americans use to pay for health care:

Anybody who gives a few hours of thought to the current health-care system can identify the mother of these problems -- the widespread existence of a third-party payer system. Third party-payers come in the form of government, employers (who self-insure) or insurance companies. This arrangement insulates consumers of health care from its true cost and encourages overconsumption.

And as Ms. Lee notes, such an inefficient system makes perfect sense under the current U.S. Tax Code:

This kind of employer-sponsored plan actually makes sense since employer payments are excluded from taxes while direct, or out-of-pocket, payments by employees are made with after-tax dollars. In fact, the tax exclusion is the chief reason that employers pay $5 out of every $6 spent in the private market.

Inasmuch as the tax system causes the unfortunate third party payor system, Ms. Lee touts a reform that economists John Cogan, Glenn Hubbard and Daniel Kessler have proposed -- expand tax deductibility to out-of-pocket expenses and individually purchased health insurance. The syllabus for their proposal is here, and incorporates the recent legislation creating Health Savings Accounts ("HSA's), which are more fully explained in this previous post. Ms. Lee points out that the Messrs. Cogan, Hubbard, and Kessler's study indicates that such a proposal would have two effects:

The expansion of tax deductibility would have two effects. First would be the commonsense -- and perverse -- impact of increasing consumption and costs. Expanding tax deductibility would lower overall health care prices to consumers and thus increase demand.

But the second effect goes the other way, reducing heath-care consumption and costs. Currently, by making employer plans cheaper than individually purchased ones, the tax exclusion creates a bias toward employer plans and away from direct purchase. So extending the tax exclusion to direct purchases of health care would level the playing field. . .

For both the self-employed and those with employer-provided insurance, making out-of-pocket costs deductible will lower the price of direct health-care purchases relative to purchases made through insurance. Thus, insurance with higher deductibles and coinsurance, and fewer covered services -- that requires lower premiums -- will become more attractive. The shift will reduce the consumption of health- care services and reduce costs.

Lower premium prices are the key to this shift. When out-of-pocket costs are reduced by the proposed tax deduction, it will make less economic sense to pay the higher premiums charged for high deductible, high coinsurance policies. And, as it turns out, premium costs are very sensitive to the level of deductions and coinsurance.

Since low coinsurance and deductions are the engine behind rocketing costs and wasteful medical practices, providing consumers with the incentive to shift to policies with high coinsurance and deductibles is an elegant remedy. Extending the tax deductibility will do just that. Better yet, it is done without resorting to a larger government role in the health-care system.

The probable financial benefits of such a move are not insubstantial:

Although the theoretical impact of these two effects are ambiguous, the economists' empirical work demonstrates that the second effect will very likely overwhelm the first. For the first effect -- extension of the tax deduction will increase consumption and costs -- the economists estimate that it will cause annual health care spending to rise by about $5 billion. Then add another $1 billion in the increased coverage coming from those who are currently uninsured, and the total increase comes to $6 billion.

As for the second effect -- extension of the tax deduction will decrease costs because people shift to higher deductible, higher coinsurance policies -- the economists estimate that if the average deductible rises from $250 to $500, health-care spending would decline by $43 billion. If coinsurance rates also rise to 25%, health care spending would decline by $69 billion.

The bottom line is that the net reduction of spending on health care would be $63 billion a year.

Ms. Lee then notes a study by Kaiser Permenante Institute for Health Policy staff economists Laura Tollen and Jason Lee that indicates that higher coinsurance and deductibles make health care consumers more aware of the true cost of medical services and thus, will reduce non-essential heath-care utilization. Stated simply, when consumers have more "skin in the game," they will become more cost conscious and make better choices.

Finally, Ms. Lee notes that decreasing reliance on the employer funded health insurance system -- a system that arose during World War II to attract scare labor during a time of wage controls -- would have another fringe benefit:

But extending the tax exclusion has another nice effect. Under the current system, health insurance is a form of compensation to employees. That is, money wages are reduced by the amount of insurance the employer provides. Once the tax exclusion is extended, however, workers no longer have an incentive to take compensation in the form of pricey health insurance. They will shift to plans with higher deductibles and coinsurance and -- given a competitive market -- the savings from lower insurance premiums will be passed on to them in the form of higher money wages.

I have only one question regarding the foregoing commen sense proposal: Why isn't either Presidential candidate embracing such a commen sense proposal?

Posted by Tom at 5:57 AM | Comments (0) |

August 8, 2004

Expos rub Stros' noses in the dirt

The Expos won their first series on the road this season by taking advantage of the Stros' feckless offense in winning Sunday's matinee at the Juice Box against Roger Clemens, 5-2.

There will be much knashing of the teeth in the media over this latest Stros debacle, but it's really not much of a surprise. Since May 11th, when the Stros had their best record after 32 games in club history (21-11), the moribund Expos actually have a better record than the Stros (Expos: 34-44/Stros: 34-45). That's how sorry the Stros have been this season.

Clemens was solid again today, giving up only one earned run on eight hits over seven innings. But the Stros' hitters continue to scruff away at the plate. Today, they were only able to manage six singles and Ensberg's solo tater against mediocre Expos pitching. The three Expos starters in this series had a combined negative 32 runs saved against average this season, meaning that they have given up 32 more runs than an average National Leage pitcher has this season. The Stros were only able to manage seven runs in three games off of those well below average pitchers. Ouch!

The Stros players' runs created against average ("RCAA") and runs saved against average ("RSAA" and RCAA explained here) have not changed much from last week, so I will hold off on publishing them again until next week. Suffice to say for now that the Stros continue to tread water.

Berkman continues to be one of the ten best hitters in baseball, while Beltran also is quite solid if his numbers with the Royals are included -- his numbers with the Stros only are decent, but not as good as I hoped they would be. Bidg is starting to fade a bit, which is to be expected, and Bags has had a modest resurgance, although he is still only generating about half of the production this season than he did last season. Lamb is the only other Stro who is an above-average hitter this season. Every single other player is either below average or well below average, which means that the fact that the Stros' are 10th among the 16 N.L. teams in hitting is not surprising.

The Stros pitchers' RSAA is better (third in the N.L.), but that is somewhat deceptive. Miller has contributed a +11 RSAA, but is unlikely to pitch again this season. Clemens, Oswalt, and Lidge are all solid, but the remainder of the pitchers are either just above average or just below average, with the exception of Harville and Redding, who are pitching poorly and probably should be shipped to AAA to regain confidence.

The Stros' power drain this season has been deep and pervasive. Bidg is the only Stros' hitter who is hitting better this season than last season, although Berkman continues to hit at a very high level. As noted above, Bags is half the hitter he was last season, and last season was his fifth straight season of declining numbers. Ensberg has produced 32 fewer runs this season than last season, and Hidalgo's numbers were even worse than that before he left. Kent has gone from being a +13 RCAA last season to a 0 RCAA this season. Interestingly, Kent is an example of precisely an average National League hitter so far this season with his batting average/on base average/slugging percentage of .288/.342/.484.

The Stros get an off day tomorrow to think about all this, and then they begin a nine game road trip in New York on Tuesday against the Mets. At least Richard Hidalgo has cooled off so the Stros probably won't have to deal with the humiliation of Hidalgo going nuclear on them. On the other hand, the way this season has gone, the Stros will probably ignite Hidalgo into one of his legendary hitting streaks.

Posted by Tom at 6:35 PM | Comments (1) |

The Hellfighter is dead

One of Houston's genuine colorful characters of the past half-century -- Paul N. "Red" Adair -- has died on Saturday night at the age of 89 in Houston. In a rather stunning oversight, the Houston Chronicle does not have an article posted on Mr. Adair's death as of Sunday morning. Update: Finally, here is the Chronicle story.

Mr. Adair was a world-renowned oil well firefighter who revolutionized the science of capping oil and gas wells that had exploded and were burning. Although his work was incredibly dangerous, Mr. Adair often boasted that none of his employees ever suffered a serious injury while fighting the fires.

Mr. Adair founded Red Adair Co. Inc. in Houston in 1959. He is credited with battling more than 2,000 land and offshore oil well fires, including the hundreds of wells left burning after the Iraqis fled Kuwait at the end of the Persian Gulf War in 1991. The Houston native spent his 76th birthday clad in his traditional red overalls, swinging valves in place as his crews capped 117 Kuwaiti wells left burning by retreating Iraqi troops. Mr. Adair's expertise contributed to making a firefighting operation expected to last three to five years a nine month operation, which saved millions of barrels of oil and prevented a potential air pollution disaster.

Mr. Adair used explosives, drilling mud and concrete to control and cap wild well fires. His reputation for having never met a blowout he couldn't cap earned him the nickname "Hellfighter," which inspired the title of a 1968 movie based on Adair's life starring John Wayne. Mr. Adair always considered having Mr. Wayne play him in a movie was one of the highest honors that he ever received.

Posted by Tom at 7:30 AM | Comments (0) |

August 7, 2004

Expos pound Stros

The Expos scored six runs on six hits against a trio of the Stros' middle relievers as they embarrassed the home town club, 8-3 on Saturday night at the Juice Box.

Andy Pettitte went five innings and threw 57 pitches, gave up two runs on two hits, and left the game with a 3-2 lead. But Weathers (bad), Harville (awful), and Gallo (bad again) stunk up the place and, by the top of the eighth, the Expos had an 8-3 lead. Given the Stros' feeble hitting, that's tantamount to an insurmountable lead.

The Stros trotted out their typical popgun attack, flaring ten hits but producing only 13 total bases in the process. At least Phil Garner had the good sense finally to play Mike Lamb, who proceeded to produce a couple of the Stros' runs. Garner apparently knew what was coming on this evening and elected to take an early shower while arguing a dubious second inning out call on Vizcaino, who appeared simply to avoid the Expos pitcher on a close play at first, but was tagged out after the ump contended that he had evinced an intent to go to second. It's been that kind of season for the Stros.

The Rocket strides to the hill in the Sunday matinee as the Stros attempt to avoid the ignominy of losing a series to the lowly Expos. The Stros then leave for their last long roadie of the season to play the Mets, Expos, and Phillies before returning to the Juice Box on August 20 to play the Cubbies.

Posted by Tom at 9:22 PM | Comments (0) |

Gordon Wood on Ben Franklin

Gordon Wood is the Alva O. Way university professor at Brown University and one of America's foremost authorities on the history and philosophy of the American Revolution. His brilliant books "Radicalism of the American Revolution" and "Creation of the American Republic" are essential for an understanding of American politics and its political system from the Founding Fathers era to the present. The subject of this previous post is Professor Wood's review of University of Pennsylvania professor Walter A. McDougall's new book, ''Freedom Just Around the Corner,''which is a fine book that I am currently enjoying greatly.

Now, Professor Wood has produced what it appears to be another fine book. In this NY Times Review of Books review, the reviewer points out that one of the most intriguing aspects of Professor Wood's new book on Benjamin Franklin -- "The Americanization of Benjamin Franklin" -- is the approach in which it was written:

This study is not a biography, at least not a conventional one. Wood focuses on Franklin's personal development and constructs his narrative around various turning points in the life, almost like a bildungsroman. We learn the choices Franklin made, the conflicts he had to resolve. This is the most dramatic of the recent Franklin books.

One of Professor Wood's points is that Franklin was hard to pin down as a personality. For example, many of today's politically correct on the left would have a hard time dealing with Franklin:

The politically correct would most likely hector him if they could. For Franklin was a slaveholder. It's true he turned against slavery, and ardently so, at the very end of his life, but he took a long time getting there. He could be a bigot as well. He wrote nativist diatribes against the large German population in his own colony of Pennsylvania. In 1751 he argued for excluding everyone from Pennsylvania except the English; Morgan calls him ''the first spokesman for a lily-white America.'' Franklin loved the company of women, but he was no feminist. He treated his wife miserably, and he admonished young brides to attend to the word ''obey'' in their vows. He worried that handouts to the poor would encourage laziness, and he was a fervent supporter of a strong military.

On the other hand, those on the right of the political spectrum would also have a difficult time embracing Franklin:

Modern right-wingers would probably be even more uncomfortable with him than left-wingers. Take his religious views. Franklin was a deist; God, in his opinion, was a distant presence in the affairs of men. He was no churchgoer. He accepted neither the sacredness of the Bible nor the divinity of Jesus. His ideas about property rights were similarly unorthodox. Beyond basic necessities, he said, all property belonged to ''the public, who by their laws have created it.'' Brands calls such remarks ''strikingly socialistic.''

What most sets Franklin apart from contemporary conservatives, however, is his attitude toward that panoply of issues gathered under the heading of ''family values.'' As a young man he consorted with ''low women,'' and fathered an illegitimate child. In 1745 he wrote a letter to a youthful friend -- long suppressed -- offering advice on choosing a lover. (Older women, he declared, were preferable to younger ones.) Franklin was always an incorrigible flirt. How much actual sex was involved is anybody's guess, but one incident stands out among the rest. When he was in his 70's and living in Paris, he became enamored of the captivating 33-year-old Mme. Anne-Louise Brillon, one of the leading lights of Parisian society. Even the puritanical John Adams was enchanted by her. She was no less taken with Franklin, and their vivacious correspondence consisted of a determined campaign on his part to bed her and her equally stalwart resistance, based on the customs of the day and what was proper between a widower and a married woman. Their bantering give-and-take, as quoted by Brands, constitutes one of the most charming episodes in early American history and -- since as far as the historians can tell they never did sleep together -- also one of the most poignant.

As a result of Franklin's extraordinary nature and accomplishments, Americans tend to sentimentalize him, which Professor Wood cautions against:

The other problematic theme concerns Franklin's ''Americanness.'' He seems almost a checklist for those national qualities Americans take pride in -- and others despise us for. Yet Wood alerts us to be careful in how we think about this aspect of his character. For he was the most cosmopolitan of the founders, at home anywhere. Twenty-five of the last 33 years of his life were spent abroad, and those years were anything but a hardship for him. He was wined and dined and celebrated by the Europeans more than he ever was by his own countrymen. Soon after arriving in London he was complaining about the provinciality and vulgarity of Americans. In Paris he was quite simply a superstar, acclaimed as the equal of Voltaire, and he gave thought to settling permanently in ''the civilest Nation upon Earth.'' These sentiments did not go unnoticed back home, and Franklin fell under suspicion of being a foreign agent, first for the British, then for the French. When he returned to Philadelphia for the last time in 1785, it was in part to clear his name.

In the end, Professor Wood's book attempts to answer the difficult question: What changed Benjamin Franklin from a citizen of the world to a citizen of the United States?

The Revolution was not a conflict over taxation or home rule, not even a dispute over the rights of Englishmen. For him it represented something universal, a world-historical event, ''a miracle in human affairs.'' That is, Franklin never stopped being the urbane cosmopolitan, the ultimate sophisticate. He stayed true to himself. But by 1776 he had concluded that the only way to remain a citizen of the world was to become an American.

Gordon Wood on Ben Franklin. Don't miss it.

Posted by Tom at 2:10 PM | Comments (0) |

SEC steps up investigation into business dealings with Equatorial Guinea

Following on previous posts here and here regarding the rather wild business of exploring for oil and gas in the African nation of Equatorial Guinea, Devon Energy Corp. announced that it had received a letter Friday from the Securities and Exchange Commission asking for cooperation in an inquiry into whether U.S. oil companies violated federal law by bribing officials in Equatorial Guinea.

Other U.S. companies that have been contacted include Exxon Mobil Corp., Marathon Oil Corp., ChevronTexaco Corp. and Amerada Hess Corp. The inquiry follows a U.S. Senate subcommittee report last month into Washington-based bank Riggs National Corp.

The Senate report concluded that several companies had made millions of dollars in dubious payments to top officials in the West African nation through the bank. Devon and the other companies have also denied violating the law and said they would cooperate with the commission inquiry.

According to the Senate report, Devon made payments totaling $350,000 to Equatorial Guinea officials, reportedly to meet "educational training obligations" required under production sharing contracts. Devon also announced that it had begun an internal investigation into the matter.

Posted by Tom at 11:21 AM | Comments (0) |

The politics of academia addresses a knotty Enron issue

It's always interesting to watch the machinations that occur whenever academics must address a conflict between their academic principles and the devilish necessity of money.

This Houston Chronicle story picks up on this earlier article concerning the University of Missouri-Columbia's dilemma regarding what they should with a substantial endowment donated by former Enron Corp. Chairman and CEO Kenneth Lay if Mr. Lay is convicted of securities fraud in his pending Enron-related criminal case.

In one of the understatements of the year to date, UM officials say they would "prefer" to remove Mr. Lay's name from a yet unfilled economics professorship he endowed if he is convicted. However, under the terms of the donation contract, such a move would require the return of Mr. Lay's 1999 donation of $1.1 million to the school. The professorship remains unfilled to date.

Talk about a tough decision. This one is getting the attention of the highest levels of the UM administration.

In an e-mail obtained by the Columbia Daily Tribune, UM Chancellor Richard Wallace told UM President Elson Floyd and the university's Board of Curators about discussions he and Provost Brady Deaton had about the Lay chair in economics:

"Unless Mr. Lay is convicted of a felony, the money in the endowment should be retained and used for the purpose for which it was established," Wallace wrote. "If found guilty then we would prefer to remove the name from the chair and, in accord with the terms of the endowment, we believe that this would require returning the money to Mr. Lay."

And we thought the periodic scandals in UM's basketball program caused difficult issues!

From my vantage point, the UM administration is engaging in muddled thinking here. Regardless of the outcome of Mr. Lay's criminal case, it is reasonably clear that Mr. Lay was at least negligent to some extent in connection with the collapse of a major American corporation that cost investors and creditors billions and that he led a company that now has become synonymous in American society (or at least on Letterman and Leno) with corrupt business practices. Whatever the outcome of Mr. Lay's criminal trial, that is not going to change. Consequently, using the outcome of the criminal trial as the standard on whether to keep the money seems to be a misplaced standard to use under these circumstances.

If UM decided that it should not keep the donation, I really could not quibble with such a decision. Frankly, there would probably be some public relations benefit to the University in doing so. However, it seems to me that this dilemma also provides an opportunity for a bit of academic administration creativity.

I propose that UM go ahead and fill the chair with Mr. Lay's name on it and use it to promote academic research into risk analysis in economics and business. Enron was a staggering investment loss, but the risk of such a loss and related insolvency is arguably the most important assessment that is made in any investment decision. Although Mr. Lay's legacy in business is certainly different from what UM thought it would be in 1999 when it accepted his donation, that legacy nevertheless reflects one key aspect of business and economics. Why not use Mr. Lay's donation and the unfortunate circumstances of Enron's demise to promote research into issues relating to the risk of loss and insolvency?

Posted by Tom at 8:52 AM | Comments (0) |

The ongoing cost of public financing of sports stadiums

In an effort to persuade Moody's investment rating agency from downgrading its bonds to junk status, the Harris County Sports Authority voted to issue $37.2 million in new bonds this week to cover the ongoing cost financing the building of Minute Maid Park, Reliant Stadium and Toyota Center in Houston over the past five years. The three sporting venues cost $1.036 billion to build -- Reliant Stadium cost $500 million, Minute Maid Park, $286 million, and Toyota Center, $250 million. With the bond issuance, the price tag has now risen to $1.073 billion.

I have always been fascinated with this type of reasoning regarding investment: "In order not to allow the interest rate on our existing highly-leveraged bonds to rise, let's go ahead and issue some more highly-leveraged bonds." H'mm.

At any rate, the new bonds were needed to make up for declining hotel and car rental tax revenues, which services bond debt. In 2002 and 2003, the revenues sagged by approximately 10 percent. To meet the annual payments for $900 million in previously issued bonds, the authority had projected annual 3 percent increases in hotel and car rental tax revenues. During the past two years, the tax revenue generated by the special taxes has declined about 5 percent each year, which means that the sports authority missed its projections by close to 8 percentage points during each year.

The Sports Authority was facing penalties if it failed to fulfill its agreement to replenish its cash reserve fund from $32 million to $47 million by May 2006. With hotel and car rental taxes declining, the Authority was not going to be able to raise the money unless it issued the bonds. About $15 million of funds generated from the new bonds will be added to the cash reserve fund.

Paul Bettencourt, Harris County tax assessor-collector, was skeptical about the public financing of the stadiums at the time that each was approved. "It's just three, four, five years after the elections, and already they're selling more bonds," he said. "This is a big concern to me, and it should be to taxpayers."

I am hopeful that that Professor Sauer, who comments regularly on the follies of public financing of sports stadiums, will have his usual keen observations on this development.

Posted by Tom at 5:39 AM | Comments (0) |

August 6, 2004

Everett hurt in Stros win

Stros shortstop Adam Everett suffered a broken bone in his left wrist as the Stros beat the Expos 4-0 Friday night behind Roy O's nifty five-hitter.

Everett was hit by a pitch from Claudio Vargas in the fourth inning that broke the ulnar bone. He will be sidelined for at least a month and, if he needs surgery, will be lost for the rest of season.

After having -13 RCAA/.700 OPS in 2003 (RCAA explained here), his first year as a starter, Everett is off to a .385 SLG, .317 OBA, .703 OPS, -13 RCAA start in his first 102 games. He has a .681 career OPS, compared to his league average of .774, and -34 RCAA in 279 games.

Consequently, although you will hear wailing from the Stros management and the mainstream media about what a huge loss Everett is to the club, the reality is much less dramatic. Everett is an above-average fielder and a below average fielder whose production can be replaced rather easily. Indeed, even though Viz does not field as well as Everett, he has hit much better than Everett this season, so playing him instead of Everett is about a wash in the big scheme of things.

Oswalt (12-8) struck out eight and walked one in hurling his second shutout of the season and the third of his career. Oswalt has now won four straight decisions overall and improved to a rather incredible 9-0 against the Expos in 13 career starts. Oswalt's complete game was a timely tonic for the Stros' bullpen, which sorely needed some rest after virtually every relief pitcher in sight was used during yesterday's game against the Braves.

Bags and JK drove in two runs each for Houston, and Bags hit a solo homer in the second inning that tied him with Frank Thomas for 30th on the career home run list at 436. Lance Berkman made it a short night for Expos starter Rocky Biddle by nailing him with a vicious line drive that careened all the way back across the first-base line. Biddle left the game with a bruised ankle and relatively good fortune that his injury was not much worse. In other statistical news, Bidg was hit by a pitch for the 13th time this season and raised his career total to 255, the most by far among active National League players.

Andy Pettitte tries to coax a few innings out of his sore left elbow in the Saturday game of the series, and the Stros are preparing for a big crowd on Sunday as the Rocket goes for win number 13.

Posted by Tom at 10:31 PM | Comments (0) |

Excellent 2004 Election website

I have been meaning to pass along the Electoral Vote Predictor 2004, which has one of the best interfaces that I have seen in analyzing the upcoming Presidential election. Check it out.

Posted by Tom at 7:37 AM | Comments (1) |

Houston's charms

Charles Kuffner over at Off the Kuff points us to an interesting website that allows people to write and read what they enjoy about Houston. Check it out.

My favorite: "Ridiculous to sublime. Rothko to Airline."

Posted by Tom at 7:17 AM | Comments (0) |

More on tax simplification

Bob Formaini is a Senior Economist and Public Policy Advisor at the Federal Reserve Bank of Dallas. In this TCS Central column, Mr. Formaini addresses a fundamental absurdity of the income tax system in the United States:

You might be wondering why, this year, my return has become something that, as I gaze on its small novel length, reads as if it were written in some foreign language. It's simple. My wife and I are dealing with the death of her mom and an inheritance that involves two trusts, dozens of stocks, and three limited partnerships. I can understand the W2s okay. But the heart of my return is completely alien to me. I have no idea what it says or whether it is accurate. We have placed our fate in the hands of a very competent tax accountant, but even though his name is on the return along with ours, I remain somewhat uneasy signing a document that I can't understand.

Then, Mr. Formaini addresses the real heart of the matter:

There is something wrong with a tax code that requires so much paperwork, so many hours of preparation, so much frustration with the endless record keeping that the law demands. And that's just for individuals. The burdens on business are staggering. Even so, our return no doubt is, for our accountant, a baby sort of thing. I doubt that he even worked up a mild sweat. Compared with the returns he does for a living -- a living created by Congress and their inability to have a simple tax code and for which I certainly do not begrudge him -- our return is probably a laugher. And yet, to a guy like me with four college degrees including a PhD, it might as well be written in Klingonese. I have become, along with most of my fellow citizens, just another helpless dunce who can't deal with the complexities that our wonderful politicians yearly serve up.

Which leads Mr. Formaini to a very provocative thought regarding this ludricrous situation that we have allowed our leaders to place us in:

The upside, assuming there is one, of being a helpless dunce is that one can no longer be held responsible. Unless Congress, "simplifying the tax laws" once more, decides that the old legal doctrine of mens rea is no longer the standard for criminal behavior. If that happens, were all potentially in some very serious trouble.

Amen.

Posted by Tom at 6:39 AM | Comments (0) |

Braves down Stros

The Stros ran out of relief pitchers as the Braves came back from a four run deficit to win the rubber game of the clubs? series, 6-5 at the Juice Box on Thursday evening.

Stros' starter Darren Oliver was the latest Stro pitcher to get a hitch in this giddyup as he left after an inning with the seemingly ubiquitous ?stiff shoulder.? That prompted a parade of Stro relief pitchers, who actually pitched reasonably well with the exception of Gallo, who looked like he was throwing grapefruit to the appreciative Braves hitters. After Gallo gave up two runs and put another runner aboard, Weathers relieved him, Marrero cranked the longest yak he will ever hit on the first pitch, and Presto! The Braves had comeback from a 5-1 deficit and all Stros? fans had that old ?Uh, oh, here come the Braves? feeling again. The Braves pushed a run across in the top of the ninth against Miceli to nab the win.

Although the Stros scored five runs ? a monstrous total for them against the Braves ? most of the production was courtesy of the Braves ? they walked nine Stros? hitters. The Stros had just two extra base hits, including Beltran?s solo yak, and after the fifth inning when the Stros staked their 5-1 lead, the Stros managed just one hit off of four Braves relievers.

On a club that struggles to score runs as much as the Stros, it is inexplicable how management allowed Jimy Williams and now allows Phil Garner for the past two games to continue not to play Mike Lamb, the club?s fourth best hitter this season behind only Berkman, Beltran, and Bidg. Simply astounding.

Roy O takes his turn tonight in the first game of the weekend series against the Expos? Rocky Biddle, who has almost a 7.00 ERA. The Stros embark on a nine game roadie after the Expos series against the Mets, Expos, and Phillies.

Posted by Tom at 5:30 AM | Comments (1) |

August 5, 2004

Enron trader cops plea

John Forney, former manager of Enron Corp.'s online trading desk, pleaded guilty today to charges in California that he manipulated energy markets during California's power crisis.

Mr. Forney, who is 42, is the third Enron executive to plead guilty to manipulating electricity prices from Enron's now-defunct trading office in Portland, Ore. Former Enron executives Timothy N. Belden and Jeffrey S. Richter pled guilty last year and have been cooperating with the Justice Department in its continuing investigation into Enron.

As a part of the plea bargain, Mr. Forney is expected to cooperate with the ongoing investigation into Enron's trading desk and how other energy firms may have played a role in manipulating energy markets. Four employees of Reliant Corp. have already been charged with deliberately shutting down power plants to increase the price of California electricity.

Over two and a half years after Enron collapsed into bankruptcy, the first criminal trial involving former Enron executives is currently scheduled to begin in Houston on August 16 before U.S. District Judge Ewing Werlein in the case known as "The Nigerian Barge case."

Posted by Tom at 10:19 PM | Comments (0) |

Enron goes nuclear on the PBGC

Enron Corp. has forcefully asked the New York Bankruptcy Court overseeing its chapter 11 case to enjoin the Pension Benefit Guaranty Corp.'s lawsuit in Houston to take over four of Enron's retirement plans.

In pleadings filed Wednesday, Enron accused the PBGC of, among other things, forum shopping, attempting to frustrate its reorganization plan, and usurping the Bankruptcy Court's authority to consider claims against the company. Not bad for starters.

In short, Enron accused the PBGC of trying to obtain in the Houston U.S. District Court what it could accomplish in the New York Bankruptcy Court during the confirmation hearing on Enron's plan. The Bankruptcy Court previously denied the PBGC's objection to Enron's plan, which the Bankruptcy Court confirmed on July 15.

The PBGC -- which provides a measure of subsidy for defunct private-sector pensions -- is trying to proceed with a lawsuit that it filed June 3 in U.S. District Court in Houston to terminate Enron's four woefully underfunded pension plans.
By pursuing the termination action in Houston federal court, Enron asserts that the PBGC is trying to avoid Enron's plan treatment for its unliquidated and contested claims and elevate those claims over those of similarly situated creditors. The PBGC has asserted claims against Enron totaling over $300 million for the Enron-related pension plans -- the Enron Corp. Cash Balance Plan, Garden State Paper Pension Plan, Enron Financial Services Pension Plan, and San Juan Gas Co. Pension Plan. Those four plans have approximately 17,000 participants.

As long as the agency's claims remain unresolved, Enron is required to reserve under its reorganization plan for the full amount of the PBGC's claims. If the PBGC claims are disallowed or reduced, then the amount Enron will have to pay to terminate the four pension plans will likely be substantially less than the amount that the the PBGC seeks in its termination action. Enron contends that the Bankruptcy Court must determine the amount of the PBGC claims before the termination action can proceed and, thus, asserts that the Bankruptcy Court should enjoin the PBGC from proceeding with the termination action in Houston federal court.

Posted by Tom at 3:06 PM | Comments (0) |

Chuck Watson settles with Dynegy

Dynegy founder and former chief executive officer Chuck Watson and his chief operating officer -- Steve Bergstrom -- will receive a combined $32 million in severance payments under a settlement of their severance claims with the company. Mr. Watson will receive approximately $22 million plus interest and legal fees, which is about a quarter less than what he originally demanded from the company. Mr. Bergstrom will receive $10.4 million plus interest and legal fees, which is the full amount that he demanded.

Mr. Watson had been a sterling Houston business success story for the past 15 years until that shine was somewhat dulled by his involvement of Dynegy in a last ditch effort to keep Enron out of bankruptcy in 2001. For years, Mr. Watson led Dynegy successfully as it mirrored many of Enron's business moves, particularly its involvement in online energy trading.

As Enron spiraled toward bankruptcy in late 2001, Mr. Watson had Dynegy set to take over Enron, but the deal broke down when Dynegy discovered the extent of Enron's contingent liabilities in connection with its off-balance sheet partnerships. Enron's subsequent demise almost caused Dynegy to collapse as well, as traders and investors shunned the company over fears that it would become the next Enron. Dynegy's troubles - a regulatory probe, a share price collapse, a credit downgrade and disappearing trading partners - bore a striking resemblance to the start of Enron's downfall. However, Dynegy is better capitalized than Enron, as Chevron owns over a quarter of the company's stock.

Still reeling from the impact of Enron's demise into insolvency, the Dynegy board pressured Mr. Watson to resign in May, 2002. Mr. Bergstrom inherited the president's position until he left the company in October 2002 when Dynegy decided to exit the energy trading business for which Mr. Bergstrom had been primarily responsible. The energy trading industry had largely melted down by that time in the wake or Enron's collapse.

Both Mr. Watson and Mr. Bergstrom objected to the severance packages that Dynegy had offered them upon their resignations from the company and, in early 2003, both demanded arbitration of the disputes. The settlements announced today are the culmination of those proceedings.

As a footnote, the sad case of Jamie Olis involved a deal at Dynegy.

Posted by Tom at 12:01 PM | Comments (0) |

The $100 Terrorist Insurance Plan

Steven Lansburg is an economist who writes a monthly column for Slate. In his most recent column, Professor Lansburg addresses the controversy over racial profiling of airline passengers and Annie Jacobsen's recent article in WomensWallStreet about her harrowing experience on a Northwest flight from Detroit to Los Angeles in June.

Jacobsen's fellow passengers included 14 Syrians, most of whom boarded separately. Once the plane was in the air, Ms. Jacobson contends that the men began gesturing to each other and congregating in large groups near the lavatories. Once there, the men took turns entering the lavatories, sometimes with packages. At one point, seven of the 14 men stood up in unison and all made for the lavatory simultaneously.

Ms. Jacobsen asserts that she, other passengers, and the flight attendants were alarmed by the bizarre behavior of this group. In fact, the men turned out to be a group of Syrian musicians en route to an engagement in San Diego. Nevertheless, U.S. government agencies have issued recent warnings about teams of terrorists conducting dry runs to determine whether they could build bombs in flight from components that they carry on separately.

Accordingly, Ms. Jacobsen asks the very reasonable question: "Since the [the Transportation Security Administration] issued a warning to the airline industry to be wary of groups of five men on a plane who might be trying to build bombs in the bathroom, shouldn't a group of 14 Middle Eastern men be screened before boarding a flight?"

Professor Landsburg first takes stock of the typical responses:

The government frowns on ethnic profiling for airline passengers, but Jacobsen and the 12 bazillion bloggers who have linked to her story think the feds and the airlines should throw political correctness to the winds and adopt a policy of full-fledged ethnic profiling. Meanwhile, roughly another 12 bazillion bloggers have warned that profiling Arab men will seriously undermine civil liberties.

So, how would an economist resolve the problem? Professor Landsburg answers:

First, detaining 14 Middle Eastern men is neither more nor less an infringement of civil liberties than detaining 14 passengers chosen at random. Either way, 14 people have their liberty infringed.

Is it worth detaining 14 people (or an entire planeload of people) on every flight to see what's in their McDonald's bags or to question them closely about their reasons for traveling? I honestly don't know. But this I'm sure of: If you're going to detain 14 people, they should at least be the 14 people who are statistically most likely to be worth detaining.

Second, just because you detain particular people, it doesn't follow that you've got to treat them unfairly. Being detained and questioned is a burden; it's inconvenient and it's demeaning. But there's no reason that burden has to be borne entirely by the detainees. To spread the burden, all the airlines have to do is give each detainee a $100 bill for his trouble. If Northwest had had a policy like that on Annie Jacobsen's flight, it would have paid out $1,400 to the 14 Syrians. Assuming there were another 200 passengers on that board, they could have covered that cost with a $7 hike in ticket prices.

Professor Landsburg then argues persuasively that the economics of such a policy are quite realistic:

I am guessing that Annie Jacobsen would have been thrilled to pay a $7 surcharge for the comfort of knowing that her Syrian co-passengers had been thoroughly vetted before takeoff. The Syrian musicians, in turn, would have picked up a hundred bucks apiece in exchange for, oh, 15 minutes or so of answering questions. How many musicians do you know who would turn down a gig at that hourly rate?

Professor Landsburg points out that his proposed system is similar to the one used in compensating passengers that are bumped from overbooked flights. However, it has zilch chance of ever being proposed politically, much less tried.

Hat tip to Professor Sauer over at the Sports Economist for the link to this article.

Posted by Tom at 7:42 AM | Comments (0) |

Criminalizing business

Gil Weinrich has a piece at TCS Central that proposes a different approach to punishment of corporate wrongdoers:

Our society does a poor job of penalizing [corporate] crime. . . In the white-collar arena, the unrequited losses endured by victims of financial crime similarly underscore the fecklessness of the system.

Besides the injustice to victims there is an inherent lack of mercy to criminals who are not given an opportunity to make amends. For the sake of the victims of Enron and other white-collar crimes, we need to shift away from a system based on punishment to one based on restitution.

So, what does Weinrich propose?: A financial debtor's prison:

When Andrew Fastow pleaded guilty early this year, he agreed to surrender $23.8 million in cash and property, including vacation homes in Vermont and Galveston, Texas. That's a start. He and those who shared in his crime should be apportioned the part of the losses for which a court deems them responsible, including an extra 10 percent to compensate for the unearned return on the victims' money, and an additional fine to compensate the government if the perpetrator did not cooperate in the investigation of the crime.

The perpetrators should then spend as long as it takes, up to the rest of their lives if necessary, to repay that debt. Andrew Fastow may be a criminal but he is also a financially savvy corporate executive. Surely his vast talents can be put to some good use for some company somewhere. A court could give him an allowance (based on a percentage of his income so that he would always have an incentive to increase his earnings), with the lion's share (say, 90 percent) devoted to a restitution fund.

Weinrich then proposes a rather elaborate system of ceremonies involving victims and the perpetrators in which they would either discuss the crimes or welcome the perpetrator back from the financial debtor's prison once the debt is paid off.

I'm an advocate against the criminalization of business in America that has culminated in absurdly long prison sentences such as the one involved in the sad case of Jamie Olis. However, Weinrich's proposal strikes me as silly. The civil justice system already provides a financial disincentive for corporate wrongdoing. Moreover, the fact that politicians have arranged for absurdly long prison sentences in business cases to appeal to the public passion to punish wealthy people excessively does not mean that there should be no penal system disincentive whatsoever for engaging in corporate crime. One imagines Bialystock & Bloom in "The Producers" blithely continuing to create Ponzi schemes in perpetuity under Weinrich's proposed system (and so long as Zero Mostel could continue to play Bialystock, that might not be such a bad thing).

Professor Bainbridge agrees with me.

Posted by Tom at 7:13 AM | Comments (1) |

Houston Crime Lab scandal hits the NY Times

You know that a local scandal has hit the big-time when the New York Times finally notices it.

This NY Times article reports on the embarrassing scandal involving Houston's Crime Laboratory, which was already relling from the requirement that it retest evidence that it provided in 360 cases, now faces a much larger crisis that could involve many thousands of cases over 25 years. In a report to be filed in a Houston state court on Thursday, six independent forensic scientists said that a crime laboratory officials -- because they either lacked basic knowledge of blood typing or gave false testimony -- may have offered "false and scientifically unsound" reports and testimony in thousands of criminal cases. The panel called for a comprehensive audit spanning decades to re-examine the results of a broad array of rudimentary tests on blood, semen and other bodily fluids.

Elizabeth A. Johnson, a former director of the DNA laboratory at the Harris County medical examiner's office in Houston, estimated for the Times article that a conservative number of re-examinations required by the report would probably be 5,000 to 10,000 cases, but if cases involving examination of hair are added, the number of required re-examinations would be "off the board."

A state audit of the crime laboratory dated December 2002 found that DNA technicians there misinterpreted data, were poorly trained, and kept shoddy records. In many cases, the technicians used up all available evidence, making it impossible for defense experts to refute or verify their results. Even the laboratory's building was a mess, with a leaky roof contaminating evidence. The DNA unit was shut down soon afterward, and it remains closed.

What a mess. Stay tuned for more.

Posted by Tom at 6:29 AM | Comments (0) |

George Mitchell funds A&M and UT telescope project

On the heels of this earlier contribution to the University of Texas Medical School, Houston businessman and philanthropist George Mitchell has made a $1.25 million gift to provide initial funding for a massive project involving both UT and Texas A&M University that has a goal of building the world's largest telescope on the Andes Mountains in Chile by 2015. If successful, the $400 million Giant Magellan Telescope is expected to collect 70 times more light than NASA's Hubble Space Telescope and could produce images that are 10 times sharper.

The telescope's six large mirrors will surround a seventh central mirror, all on a single mounting, and its light-collecting area would be twice the diameter of today's largest telescopes. The world's two largest optical telescopes ? each 33 feet in diameter ? operate at the W.M. Keck Observatory on the summit of Hawaii's dormant Mauna Kea volcano.

Mr. Mitchell donated the money to Texas A&M University, which is his alma mater, and The University of Texas at Austin -- which runs the McDonald Observatory in the Davis Mountains of far West Texas, which is the third largest telescope in the world -- will match Mr. Mitchell's contribution over the next two years. Other partners in the project are the Carnegie Institution of Washington, Harvard University, the Smithsonian Astrophysical Observatory, the Massachusetts Institute of Technology, the University of Arizona and the University of Michigan.

Posted by Tom at 5:59 AM | Comments (0) |

August 4, 2004

The quest for tax simplification

From Stu's Views:

Posted by Tom at 10:49 PM | Comments (0) |

Randall's founder dies

Everyone who has lived in Houston over the past 40 years has shopped at a Randall's grocery store. Robert Onstead, the co-founder of that grocery store chain, died Wednesday morning while on a trip to Italy.

After Mr. Onstead and his original partners started Randall's in the early 1960's, the chain grew steadily through the next three decades and became the premier grocery store chain in the Houston area during the 1980's (remember those great Randall's "Flagship" stores?). But then, in the early 1990's, Randall's hometown character began to change when it acquired the Dallas-based Tom Thumb grocery store chain and a dozen AppleTree grocery stores in Austin. While that expansion made Randalls one of the largest Texas grocery companies, it also foreshadowed a change in the way Randall's did business.

By the time Mr. Onstead sold his the Randall's chain of 117 stores to Safeway for almost $1.5 billion in 1999, Randall's was beginning to reel under the competitive pressures being exerted by other grocery retailers in Randall's key markets. Now, Randall's is becoming an afterthought in the Houston grocery wars as Wal-Mart, Kroger and increasingly H.E.B. take over turf that Randall's previously dominated.

But Randall's had a great run, and it was largely due to Mr. Onstead's vision and leadership. Houston's business community will miss him.

Posted by Tom at 10:45 PM | Comments (3) |

Braves cruise over Stros

The Braves' John Thomson dominated the Stros' hitters in leading the Braves to a 5-4 victory Wednesday night at the Juice Box.

Thomson threw just 79 pitches in seven innings and gave up two runs on only four singles. Meanwhile, the Stros' Pete Munro got raked for eight hits and four runs in four and a third innings by a Braves team that is not exactly a hitting juggernaut, either.

Actually, this was one of those games that was not as close as the final score indicates. The Braves were leading comfortably 5-2 with two outs and a runner on in the bottom of the ninth with Smoltz closing when Bags whacked a completely unexpected two run tater to make the score 5-4. Poor Ensberg had to follow Bags to the plate and face a very irritated Smoltz, who proceeded to strike Ensberg out on three quite fast pitches. Game, set, match.

It's a duel of lefties in the rubber game on Thursday night as Darren Oliver goes for the Stros against ex-Stro Mike Hampton. The Virginia Expos come to town on Friday for the weekend series.

Posted by Tom at 10:28 PM | Comments (0) |

Clemens' side of the story

Following on this earlier post about allegedly being thrown out of a youth league game involving one of his sons, Roger Clemens gives his side of the story in this Chronicle article:

Clemens said he didn't even witness the call in question, one in which Kacy Clemens, who plays for the 10-and-under Katy Cowboys, was called out attempting to steal second base despite an admission from a Bakersfield, Calif., player who said he failed to make the tag.

Clemens said he was standing behind a fence, well away from the action, where he videotaped his son's base hit and then resumed signing autographs, something he had been doing for most of the afternoon and for the balance of the weekend.

He retreated to his car, per his routine, for a respite from the autograph-seekers.

"They did not ask me to leave," Clemens said, which conflicts with the account of field supervisor Jim Carpenter, who told the AP he supported the decision to eject Clemens. "I did not even know I was supposedly thrown out. I didn't see the play my son happened to be involved in. I videoed (taped) his at-bat and when he got a hit and got on first, I put the video camera up and started dealing with the public like I always do."

Clemens said he was upset no one contacted him or his agent Randy Hendricks to get his version of what happened. Instead, he said, the national media ran with an unsubstantiated story.

Some local media outlets picked up the story, and Clemens said what angered him was the same group of reporters who heralded his return home after he came out of retirement and signed with the Astros on Jan. 12 were quick, in his opinion, to assume the story was correct as reported.

"I'm disappointed in a lot of media because I was only a phone call away, and my agent said anybody could have called up on the story," Clemens said. "It was reckless the guy that ran the story because I was at the ballpark for at least an hour (after the game ended) signing autographs, and if he had any questions he could have come over and asked me.

"It was reckless by some of the national media that I was able to see comments like I was toe to toe, nose to nose arguing (with the umpire).

"And it's the same thing here that went on in my hometown. I'm really disappointed because once you guys set these cameras and those pens down, I would think that you would know me a little better than that."

Posted by Tom at 9:02 AM | Comments (0) |

Annual securities litigation survey

PricewaterhouseCoopers publishes an annual survey of securities litigation, and it has just released its 2003 Securities Litigation Study. As usual, the review contains a number of interesting findings, including the following:

107 of the 175 securities class action filed in 2003 were accounting-related. In more than half of those cases, the primary allegation related to revenue recognition issues;

The percentage of cases with pension funds as lead plaintiffs has grown steadily from less than 3% in 1996 to over 28% of the cases in 2003;

Average settlements for all cases was up 20% from 2002, and there were more large settlements, including six greater than than $100 million;

After 2002 saw over 40 "triple jeopardy" cases in which companies were subject to securities class actions along with parallel SEC and Justice Department investigations, the number of those cases dropped to eight in 2003, which is above average.

Hat tip to Lyle Roberts over at the 10B-5 Daily for the link to the PwC report.

Posted by Tom at 8:22 AM | Comments (0) |

Lessons from another '04 campaign

Check out this interesting TCS Central piece by San Diego attorney and former Harvard history professor Michael Rosen that compares this year's Presidential campaign with that of 1904. Good stuff.

Posted by Tom at 7:49 AM | Comments (0) |

Clear thinking on Social Security and Health Care Finance

In this TCS Central piece, Arnold Kling addresses what he would like to hear President Bush say in his upcoming speech accepting the Republican nomination for President. On the key issue of financing Social Security and health care, Mr. Kling advises Mr. Bush to say the following:

Going forward, the most important issues are Social Security and the government's role in health care. The Administration should focus on pursuing modernization and reform in those two areas.

On Social Security, the President should say that the system works for today's seniors, but it does not work for younger people. As important as it is to keep our promises to those who are in retirement or close to it, it is just as important that we not leave Social Security as it is for people in their 20's, 30's, and 40's.

The American people need to know that the money that workers put into Social Security now does not belong to them, but instead goes into the general Treasury, where Congress spends it as it pleases. You might think that the money you put into Social Security goes into an account where it belongs to you and nobody else can touch it. However, it does not work that way. It can work that way. It should work that way. It will work that way once reforms are enacted. Privatization is the ultimate lockbox.

Social Security also needs to be more flexible. Our existing system was designed when reaching the age of 65 meant that your active life was probably over, and you were likely to die within a decade. Going forward, we need a system that can accommodate everything from early retirement to seniors taking on second careers and new challenges in their 80's. Personal accounts are the key to giving people more options as they age.

Then, Mr. Kling turns to financing health care:

On health care, reforms should adhere to some basic principles. These principles will promote personal choice and continued innovation.

The first principle is to give as much decision-making authority as possible to patients and doctors. Today, treatment choices can be distorted by Medicare regulations, fear of lawsuits, and other mechanisms. Reform should aim to minimize such sources of distortion.

The second principle is that taxes should be used to pay for health care only for those who truly need assistance. To the extent that the government pays health care expenses for everyone, your medical bills will go down but your tax bills will go up by much more. We need only limited paternalism.

A good start would be enhancing the recently established Health Savings Accounts, which are addressed in this prior post.

Posted by Tom at 7:31 AM | Comments (0) |

VDH on European animus toward America

Victor Davis Hanson has another compelling Wall Street Journal ($) op-ed today in which he points out that the European desire that George Bush be defeated in the upcoming election could very well backfire on European interests:

Yet the European meddling in this particular presidential election is. Less talked about is that the image of an allied Europe has been shattered here at home. And all the retired NATO brass and Council on Foreign Relations grandees are finding it hard to put the pieces back together again. The American public now wants to be told exactly why thousands in their undermanned military are stationed in a continent larger and richer than our own without conventional enemies on its borders. If Europeans think it is nonsensical to connect Iraq with our own post 9/11 security, then Americans believe it is far more absurd to envision an American-led NATO patrolling their skies and roads 15 years after a nearby hostile empire collapsed -- especially when NATO turns out to be as isolationist as America is expected to be engaged abroad.

The election of John Kerry would probably not reverse either the current policy in Iraq or the ongoing reappraisal of our foreign relations. The European fixation with the upcoming election and rabid hatred of George Bush instead may backfire here at home; indeed, even now European animus acerbates our own growing unease with what we read and see abroad

Read the entire piece.

Posted by Tom at 7:15 AM | Comments (0) |

The psychology of leading

The Wall Street Journal's ($) Holman Jenkins weighs in today with this column regarding the ideas regarding the psychology of leading of Stanley Renshon, who is a psychologist and political scientist at the City University of New York Graduate Center.

Mr. Renshon has written a new book set for publication in September called "In His Father's Shadow," in which Mr. Renshon addresses George W Bush's emergence from an "erratic commitment to conventional success" in early adulthood to an "embrace of responsibility and sustained success that would have been little expected from his performance until then." Mr. Renshon is also the author of a number of other works on the psychology of American presidents, inlcuding the award-winning account of Bill Clinton's first term, "High Hopes."

Mr. Renshon first notes that the public's pre-election evaluation of Mr. Bush's leadership style overlooked an important part of his personality. As Mr. Jenkins notes:

He came to office promising to be a "uniter not a divider"; his reputation in the traditionally weak Texas governor's office was that of a consensus seeker. Those who expected more of the same in the White House have been pleasantly (or unpleasantly) surprised because, says Mr. Renshon, they overlooked an aspect of Mr. Bush's character: His rare capacity to "stand apart," even from friends and supporters, and withstand abuse and criticism when he believes a policy course is the right one.

He also ended up with a political character noticeably different from that of his loved and admired papa, who famously derided the "vision thing" and sought compromise with every critic. "Mr. Bush is a president who is comfortable taking controversial stands and sticking with them," Mr. Renshon writes. "He is able to do so through sometimes severe storms of public anxiety and critics' cries to change course."

Using Mr. Renshon's analysis, Mr. Jenkins speculates on the probable course of Mr. Kerry's leadership style if elected president:

GOP harping on Mr. Kerry's "liberal" record would seem to imply he has philosophical commitments that he's prepared to sacrifice for. The label "Massachusetts liberal" perhaps points closer to the truth. Unlike Mr. Bush, he built his life and self-image around elective office, and in a state and party where survival required adhering to certain unfashionable and arguably obsolescing norms. He's risk averse where Mr. Bush is a risk taker.

His leadership style is strongly at odds with Mr. Bush's -- and one that Democrats are hoping Americans are in the mood for right now. That's the real message of his constant invoking of Vietnam. That's the real strength of his campaign: I was daring and adventurous then, and had my fill. Witness my career ever since: cautious, "nuanced," utterly lacking in the "go for it" certainty of my opponent.

Contrary to much campaign rhetoric, the difference probably wouldn't be felt in the war on terror, to which both parties are now committed. It's on domestic issues that history has trapped Democrats in the role of reactionary party, reflexively defending a status quo.

On Social Security, Medicare, education, you name it: Republicans at least grapple realistically with the need to reshape these programs to keep them solvent and delivering value in the 21st century. Democrats don't. A lot of voters would be pleasantly (or unpleasantly) surprised by Mr. Kerry if he turned out to be a politician willing to court controversy and criticism to change that.

I do not agree with Mr. Jenkins' assessment that the Republican Party is "at least grappling" with the issues relating to reshaping the above-cited governmental programs. On the contrary, the only reason that this Presidential race is likely to be a close one is because the electorate senses that this Republican Administration and Republican-controlled Congress have largely failed to take any constructive action in addressing these issues.

Nevertheless, Mr. Jenkins is correct that the success of either a second Bush Administration term or a Kerry Presidency will likely depend on the willingness of the leader to take risks and to adhere to unpopular positions that will lead to a sound goal. Bush has proven that he has the capacity to do that in regard to his foreign policy against the Islamic fascists. Does Kerry have that attribute?

Read the entire article.

Posted by Tom at 6:58 AM | Comments (0) |

The cost of having an Enron-related deal tried to a jury rather than a judge

An English court yesterday provided a glimpse of the difference between the civil justice there and the American system as it relates to controversial business practices such as those that Enron Corporation practiced.

In this decision handed down by an English court yesterday, J.P. Morgan Chase & Co. won a lawsuit against a WestLB AG-led banking syndicate related to Morgan's Enron financing in which the English judge ordered the WestLb syndicate to honor a $165 million letter of credit that the syndicate had previously refused to pay.

That's the first big difference. In the United States, there is no way that a plaintiff in this lawsuit would not attempt to take advantage of the public bias against Enron by demanding a jury trial. In the English system, jury trials in lawsuits over complicated business transactions are rare.

The case involved Morgan's involvement in an offshore financing vehicle called Mahonia Ltd. In a complex trading arrangement, Morgan provided money to Enron, which then returned the payments to Morgan in the form of contracts for the future delivery of gas. Those payments -- known as "gas prepay contracts" -- were paid through an offshore vehicle called Mahonia.

When Enron collapsed in late 2001, Morgan had to commence litigation to collect on its security for the Enron-related financing. WestLB was the leader of a banking syndicate that had posted a $165 million letter of credit, which is a common form of security in which the WestLB syndicate receives a fee for taking the risk of Enron's insolvency in regard to the financing -- i.e., WestLB agrees to pay Morgan $165 million and assume Morgan's rights against Enron if Enron goes bust on the deal.

Taking advantage of the unprecedented public outcry over Enron's business practices when Enron collapse, WestLB refused to honor the letter of credit, alleging that the transactions were part of a "fraudulent scheme" that essentially disguised Morgan's loans to Enron. Given the due diligence that takes place on these types of transactions, WestLB's claims bordered on the preposterous, but then trying to weasel out of an Enron-related obligation is fair game these days. Morgan sued WestLB, WestLB countersued, and the trial began in London's High Court of Justice in January.

The London case was just the latest litigation for Morgan over the Mahonia deal. When it set up the deal with Enron, Morgan hedged its risk by arranging to have several insurance companies issue $935 million of surety bonds to ensure Morgan against the risk of Enron's default on the deal. When Enron filed for bankruptcy protection, those insurers -- just like the WestAB syndicate -- refused to pay using the same argument that the deal was a fraud designed to disguise loans to Enron. That dispute ended up in a jury trial in federal district court in Manhattan. Immediately before the jury was about to render a verdict in the case in January 2003, Morgan and the insurers agreed to a settlement in which the insurers paid 60% of the costs relating to Enron's default, leaving Morgan holding the bag for the balance (approximately $400 million).

In the English case, High Court Justice Jeremy Cooke on Tuesday ruled in favor of Morgan and Mahonia by concluding that Enron's accounting for the transaction did not breach U.S. accounting and securities rules. He ordered the WestLB banking syndicate to pay on the letter of credit, plus interest and costs, which is what the WestLB syndicate would have normally done in the first place but for the public outcry over anything related to Enron.

There is no question in my mind that Morgan would have agreed to settle with the WestAB syndicate on the same terms that it settled with the insurers over the Mahonia deal if this dispute had been tried to a probably biased American jury rather than a dispassionate English judge. Thus, that change in venue just saved Morgan at least a cool $70 million.

The Mahonia-related trading arrangement has been the subject of extensive scrutiny in connection with Enron's chapter 11 case and related litigation. Last year, Morgan and Citigroup entered into a settlement with the Securities and Exchange Commission and U.S. regulators in which they agreed to pay fines and penalties totaling about $300 million related to their involvement with Enron and Dynegy Inc., a Houston-based energy company that attempted to acquire Enron immediately before the commencement of the Enron chapter 11 case.

Posted by Tom at 6:12 AM | Comments (0) |

August 3, 2004

Stros edge Braves

The Rocket bounced back from being thrown out of his kid's youth league game and pitched the Stros to a 3-2 win over the Braves straight win in the first game of their three game set at the Juice Box. It was the Stros' third straight win.

Clemens was magnificent, giving up one earned run on four hits in seven innings while walking three. The Braves' Russ Ortiz was almost as good, giving up two runs in seven innings while torturing the Stros' hitters with his array of drop balls and change-ups. The Stros finally pushed across runs in the sixth, seventh and eighth to take the lead, including Bidg's solo yak and a key pinch hit by Lamb to set up the go ahead run in the eighth. Lidge was overpowering in saving the win as he K'Oed the side in the top of the ninth.

Inexplicably, the Stros trot Tim Redding out again on Wednesday to provide the Braves with some extended batting practice in between walks. The Stros' hitters better gut up because they will likely need to score a bunch of runs to have a chance to win this one.

Posted by Tom at 10:10 PM | Comments (2) |

Schlotzsky's tanks

Popular Austin-based delicatessen franchiser Schlotzky's, Inc. filed a chapter 11 reorganization case (case no. 04-54504) today in San Antonio.

The case was assigned to U.S. Bankruptcy Judge Leif Clark, who is an able and experienced bankruptcy jurist. A team from Haynes & Boone, LLP -- led by Dallas-based partner Robert Albergotti -- is representing Schlotzky's in the chapter 11 case. Judge Clark has set a hearing for 10:30 a.m. tomorrow in San Antonio to hear a slew of "first day" motions that Haynes & Boone filed on behalf of Schlotzky's today.

The company has more than 500 outlets in 36 states and six countries. Upon filing, Schlotzsky's issued a public statement saying that operations at its shops would continue normally during the reorganization, but it's a safe bet that more than a few of those shops will close during the reorganization. Schlotzky's owns 21 "company" shops and franchisees own the balance of the stores.

Schlotzsky's has been reeling for some time in the intensely competitive deli business that Subway and Quizno's dominates. Schlotzsky's recently cut 20 percent of its corporate staff and closed 15 company-owned shops in July. The company reported a net loss of $11.7 million in 2003 in comparison to a loss of about $200,000 in 2002, and lost another $671,000 in the first quarter of 2004.

Posted by Tom at 2:45 PM | Comments (3) |

Placing terror threats in perspective

Professor Gordon places the recent Al Qaeda threats against eastern United States financial institutions into the proper perspective:

Primitives and Targets

The only silver lining in the War on Terror is that our enemies are primitives who believe that striking the NYSE or Citibank headquarters or even the IMF or the World Bank would have major economic consequences. We will win because they don't get it. We are economically (and spatially) decentralized. More than they can grasp. Terrible as the loss of life and the psychological hit would be, the economic consequences would be minor.

The World Trade Center Towers were tall and auspicious because of New York politics. They had no economic rhyme or reason. Losing them was a terrible loss of life but had little economic consequence. In fact, no major natural disaster in U.S. history (not Hurricane Andrew, not the Northridge Earthquake, nor any other that I can think of) had significant economic impact.

The primitives don't get it. Indeed, they cannot grasp the essence or the durability of decentralized systems. They are, after all, primitives.

Posted by Tom at 6:52 AM | Comments (0) |

August 2, 2004

The Rocket is a competitor

Just reported by the AP:

Clemens asked to leave son's baseball game Associated Press

CRAIG, Colo. -- Houston Astros pitcher Roger Clemens was asked to leave a youth baseball game over the weekend for arguing a close call that went against his son's team.

Clemens was at the game Saturday watching his son, Kacy, compete in a 10-and-under game organized by Triple Crown Sports when Clemens contested a call at second base that went against the Katy Cowboys.

He spit sunflower seeds at an umpire's leg and was asked to leave, said Jim Carpenter, a field supervisor with Triple Crown.

"I supported the umpire's decision and he (Clemens) respectfully left," Carpenter told the Craig Daily Press.

Katy lost the game to the Bakersfield Curve, 11-5.

Triple Crown Sports features a franchise system aimed at pitting top teams from across the country against each other.

Clemens' agent, Randall Hendricks, did not immediately return a call today. Clemens has racked up 322 wins and 4,240 strikeouts in his 21-year major league career.

Thank goodness the ump's name was not Piazza!

Posted by Tom at 3:23 PM | Comments (3) |

Blakely Redux

With strong prompting from the Justice Department, the issues regarding the validity of federal and state sentencing guidelines generated by the U.S. Supreme Court's recent Blakely v. Washington decision are going to be teed up again soon in the Supreme Court. Here are my previous posts on the aftermath of the Blakely decision.

Early this week, the U.S. Supreme Court Justices are expected to grant expedited review of at least one of several post-Blakely lower court rulings that present the issue of whether federal sentencing guidelines are unconstitutional in light of the Court's decision in Blakely. That ruling struck down a Washington state sentencing system similar to sentencing in over a dozen states and in the federal system, and requires that juries determine facts that increase a defendant's sentence.

When a landmark high court decision is such as Blakely is handed down, the Supreme Court usually allows a reasonable amount of time (i.e., several years) to address follow-up issues that arise before the Court re-addresses the core issue. However, Blakely unleashed most U.S. District Judges' pent-up antipathy for the sentencing guidelines and their corresponding limitations on the exercise of judicial discretion in federal sentencing. Thus, with many judges devising their own methods for coping with Blakely in regard to sentencing matters, the Justice Department is pushing the Supreme Court for an unusually quick reassessment of the issues raised in Blakely.

The SCOTUS clarification of the impact of Blakely is being followed particularly closely by the criminal defense bar in Houston, which is already dealing with new indictments in Enron-related criminal cases as the Justice Department scurries to comply with the requirements of Blakely. Moreover, the sad case of Jamie Olis -- in which the absurdly long 25 year sentence was issued prior to Blakely -- could also be affected by that decision and its progeny.

Ohio State University law professor Douglas Berman's blog Sentencing Law and Policy is the best website for keeping up with analysis of post-Blakely developments.

Posted by Tom at 12:08 PM | Comments (0) |

August 1, 2004

Stros down Reds

Adam Everett's eighth-inning suicide squeeze drove in the go-ahead run and Roy O beat the Reds again as the Stros came from behind to win 7-5 in Cincy on Sunday afternoon.

Morgan Ensberg had three RBIs for the Stros, including a sacrifice fly in the eighth that cut the Reds' lead to 5-4. After Jeff Kent scored the tying run on John Riedling's (gotta love that Reds' bullpen) bases-loaded walk to Bidg, Everett laid down a terrific bunt that plated Bags from third. Ensberg added an RBI double in the ninth to finish the scoring.

By the way, Riedling -- who epitomizes the ghastly Reds' pitching staff this season -- gave up three hits, two walks and three runs in two-thirds of an inning. Appropriately, plate umpire Andy Fletcher ejected Riedling as he walked off the field after being relieved.

Oswalt was not particularly sharp, but he improved to 9-0 in 13 career appearances against the Reds, giving up five runs (four earned) and 10 hits in seven innings while striking out eight and walking two. Oswalt had a bad inning in the fourth as the Reds scored four runs. After that, Oswalt gave up just one hit in his final three innings. Dan Miceli worked a scoreless eighth, and Brad Lidge induced a game-ending double play in the ninth for his 11th save.

Meanwhile, our weekly review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here) reflects the Stros' current status in the National League -- barely above average and holding on to a place in the wildcard playoff race by a thread. First, the Stros hitters' RCAA numbers, courtesy of Lee Sinins:

Lance Berkman 37
Craig Biggio 11
Carlos Beltran 10
Jeff Bagwell 8
Mike Lamb 8
Eric Bruntlett 1
Jeff Kent 0
Chris Burke -1
Jason Lane -3
Orlando Palmeiro -4
Jose Vizcaino -5
Richard Hidalgo -10
Morgan Ensberg -12
Adam Everett -12
Raul Chavez -13
Brad Ausmus -23

The Stros continue to have only five players who are hitting above what an average player would generate. Berkman, Bidg, and Beltran are each having great seasons (Beltran would have a 25 RCAA if his numbers while playing with the Royals are included). Lamb is also having a solid season in part-time play, and it is indefensible to play Ensberg over Lamb while the club still has a chance at post-season play. And, as much criticism as Bags has taken this season, he is still the Stros' fifth best hitter even though he now ranks toward the bottom of National League first basemen.

The big problems with the Stros are at catcher (Ausmus now has the worst RCAA among regular National League players and Chavez is not much better) and the left side of the infield (Ensberg's -12 RCAA is depressing and Everett's -12 number is defensible only because of his superb fielding) However, this team simply does not hit well enough to cover for both Everett and Ensberg in the lineup -- the Stros' are tied for ninth in team RCAA among the sixteen National League teams.

On the other hand, despite the ignorant mainstream media's contentions that the Stros' bullpen is primarily to blame for the club's subpar season to date, the Stros pitchers are actually performing quite well. Indeed, the Stros pitching staff ranks third in the National League in total RSAA:

Roger Clemens 26
Brad Lidge 14
Roy Oswalt 13
Wade Miller 11
Octavio Dotel 5
Darren Oliver 5
Pete Munro 4
Dan Miceli 3
Andy Pettitte 3
Mike Gallo 2
David Weathers 2
Kirk Bullinger -1
Chad Qualls -1
Brandon Backe -2
Jeremy Griffiths -3
Ricky Stone -3
Chad Harville -5
Jared Fernandez -6
Brandon Duckworth -8
Tim Redding -11

Clemens, Oswalt, and Lidge are as good as any three pitchers on one staff in the National League. Oliver has been a nice pickup so far, and Munro has pitched far above expectations. With the exception of Redding and Harville, the rest of the current staff is either just above or just below average, which is fine. I do think it's time to give a couple of other pitchers in the organization -- one of whom should probably be Carlos Hernandez -- a chance to replace Harville and Redding.

The Stros return to the Juice Box on Tuesday for a six game set against the Braves and the Virginia, er, I mean, the Montreal Expos. The Rocket takes on the Braves' Russ Ortiz in the Tuesday night game, which should be a good one.

Posted by Tom at 5:07 PM | Comments (3) |

August 1, 1966

Today is the 38th anniversary of Charles Whitman's infamous sniper assault on the area around the University of Texas campus in Austin.

Posted by Tom at 12:14 PM | Comments (0) |

Let's rumble

This NY Times article profiles the latest popular fad in Austin: Texas women's Roller Derby!:

Leave it to Austin, which prizes its weirdness, to foster this contagious blend of high performance sport and campy theatrics called not games but bouts, fought on traditional four-wheel skates. And to field the two feuding leagues - the Texas Rollergirls (www.txrollergirls.com) and the TXRD Lonestar Rollergirls, also known as Bad Girl, Good Woman (www.bggw.com).

This is, at the very least, extreme roller skating, heavy on attitude and light on attire, the better to bare breathtaking tattoos. Social scientists may scratch their heads over the emergence of a new form of staged violence by macho women, but to the players, who don't get paid, it's easy to explain: it's fun.

"It's kind of like hockey in lipstick and fishnet stockings," said Lacy Attuso, 27, a computer publicist who goes by the rink name of Whiskey L'Amour. (Whiskey because she drinks it, she said, L'Amour from the Western writer Louis L'Amour.)

Posted by Tom at 11:25 AM | Comments (0) |

Pension Benefit Guaranty Corporation blues

Following this earlier post regarding United Airlines' decision to default on its obligations to its employees' pension plans to attract capital to fund its chapter 11 reorganization plan, this NY Times article reports on some experts' concern that the Federal Pension Guaranty Corporation that insures company pensions is facing a string of possible airline industry bankruptcies and pension defaults that could lead to another multibillion-dollar taxpayer bailout similar to the S&L bailout of the 1980's.

This raises a rather interesting phenomenom. If United is not able to obtain a federal subsidy of its poor business practices in this way, then it will nevertheless obtain a federal subsidy through foisting a large part of its obligation to pay unrealistically large pension benefits on the federal government. Although not particularly creative, you have to admire United's persistence.

As as Warren Buffett pointed out several years ago, if one tabulates all of the airline industry's finances since the day the Wright Brothers in 1903, one would discover that, cumulatively, there has not been a single penny of profit? Mr. Buffett suggested famously that, in hindsight, shooting down the Wright Brothers on that beach would have been a reasonable financial, if not moral, move.

United has abot $13 billion in pension obligations that is secured by only $7 billion in assets. Inasmuch as the private capital that would fund United's reorganization plan will almost certainly require that United terminate its pension plans in connection with that plan, United's pension liabilities and related collateral will be assumed and administered by the Federal Pension Guaranty Corp. Absent a government bailout, United's retirees will probably receive around a 50% dividend on their claims against United's pension plans.

Although I have empathy for United retirees who thought that they were going to receive more in retirement than they will, there simply is no productive business purpose to be facilitated by the government contributing anything to United's underfunded pensions.

Posted by Tom at 11:15 AM | Comments (1) |

Houston's Donald Trump

At its irreverent best, this Houston Press article takes Landry's CEO Tilman Fertitta and Houston mayor Bill White to task for the sweetheart deal that Mr. Fertitta cut in regard to his company's downtown Houston Aquarium restaurant:

Houston city officials, apparently outraged at how they had fallen behind Galveston and Kemah in the heated race to service every little whim of restaurant-and-real-estate mogul Tilman Fertitta, took bold action a few years ago.

They gave Fertitta a sweetheart lease to the old downtown fire station and central waterworks plant -- even in the year 2040, he'll still be paying rent of only $12,500 a month for the prime location.

In its rush to bend over for Tilman, the city vacated the space even though it didn't have a replacement site lined up for the fire station. Houston is currently paying more than $24,500 a month to lease an admittedly inadequate building on Milam.

All this allowed Fertitta in February 2003 to open the Aquarium restaurant, which features outrageously overpriced train rides, Ferris wheels and -- he hopes -- tigers. (Because nothing says "aquarium" like tigers.) Food is also served, apparently.

Apparently, other than paying below market rent to the City, one of the only requirements that Landry's has under the deal with the City is to file an annual report explaining how the restaurant is doing and what the city is getting for its investment. But, according to the Press, there is one problem:

Fertitta can't be bothered to do it.

The first report was due June 1, says Pete Radowick, spokesman for the city's Convention and Entertainment Facilities. In the eight weeks since then, he says, the city has contacted Fertitta and asked if he would please file the thing. (For some reason, imagining this conversation brings to mind the Cowardly Lion approaching the great and powerful Wizard of Oz.)

The Press story even speculates as to the reason for the delay in the filing of the report:

Fertitta and his wife both gave $2,500 to Mayor Bill White this March; perhaps the paperwork involved in writing out those checks has delayed his filing the Aquarium report. Or maybe he's just too busy with his tiger project.

Landry's response to the Press' inquiriies on the matter?:

Fertitta's office, by the way, referred us to a PR agency that didn't return phone calls.

Ouch!

Posted by Tom at 7:07 AM | Comments (0) |

July 31, 2004

Stros tread water in Cincy

First, the Stros blew the suspended game from last night to the Reds in 13 excrutiating innings 3-2, but then they came back to salvage Saturday afternoon's game, 8-0.

The completion of the suspended game was pure agony. 13 innings, four hits, only one extra base hit (a double) against the worst pitching staff in the National League. Watching bowling or billiards would have been much more exciting than enduring that travesty.

And despite Darren Oliver's five inning, one hit, no walks, 6 K performance in replacing injured Andy Pettitte in Saturday's regular game, the Stros had scored only 2 runs through eight innings in that affair. There is no better indictment of the Stros' main problem this season -- hitting generally and hitting with power particularly -- than scoring just 4 runs in 21 innings against this Reds pitching staff. The last time I looked, the Reds' staff had a negative 63 RSAA, which means that they have given up 63 more runs this season than an average National League pitching staff has allowed.

Beltran cranked a three run yak and Lamb followed with a two run toaster to run the score up in the ninth inning of the Saturday afternoon game. But make no mistake about it: If the Stros cannot score more than 4 runs in 21 innings against this Reds pitching staff, then the wildcard playoff spot will likely be out of reach for the Stros in about another week.

Roy O goes against Cincy's most reliable starter this season -- Paul Wilson -- in Sunday's rubber game. The way the Stros are struggling at the plate, I recommend highly that you keep the clicker close so that you can check out the golf tournament at frequent intervals.

Posted by Tom at 6:11 PM | Comments (0) |

John Edwards' vision through the prism of John O'Quinn

In this American Spectator piece, New York Sun columnist William Tucker relates to his past interview with famed Houston plaintiffs' attorney John O'Quinn in interpreting fellow trial lawyer and Democratic Party vice-presidential candidate John Edwards' world view:

When it came to defining his core vision, here's what Edwards said:

"Tonight, as we celebrate in this hall, somewhere in America, a mother sits at the kitchen table. She can't sleep because she's worried she can't pay her bills. She's working hard trying to pay her rent, trying to feed her kids, but she just can't catch up.

It didn't use to be that way in her house. Her husband was called up in the Guard. Now he's been in Iraq for over a year. They thought he was going to come home last month, but now he's got to stay longer.

She thinks she's alone. But tonight in this hall and in your homes, you know what? She's got a lot of friends.

We want her to know that we hear her...

So, when you return home some night, you might pass a mother on her way to work the late shift, you tell her: Hope is on the way."

Let's look at what's going on here. First and foremost, we've got a lonely woman. There's a passing reference to Iraq and her husband, but that's basically to get him out of the house and out of the picture. (Remember, these are the same people who brought you the welfare system, also designed to get men out of the house and out of the picture.)

She has no friends, no relatives, no religion, no community, nothing to rely on. Her husband? Well, he doesn't even seem to write anymore. And so she sits by herself at the kitchen table, waiting for someone to come along.

What a beautiful vision of America -- a nation of lonely, isolated women, in dire need of help, abandoned by everyone, waiting for some handsome trial lawyer to come knocking on their door.

Hope is on the way.

Read the entire piece. Hat tip to Michael over at Southern Appeal for the link.

Posted by Tom at 11:00 AM | Comments (0) |

Stros-Reds' game suspended

Bags singled home the tying run during a deluge in the top of the sixth inning and a third rain delay forced the umpires finally to make dinner reservations and call a suspended game between the Stros and Reds on Friday night in Cincy.

The game will resume Saturday at 11:30 a.m. with the score tied at 2 and two Astros on base in the top of the sixth. The regularly scheduled game for Saturday will follow, with Andy Pettitte seeing how many pitches he can throw in that one. The bullpen better be ready today.

Posted by Tom at 5:07 AM | Comments (0) |

July 30, 2004

Sex, Love and Voting

Ray C. Fair is a professor of economics at Yale University. In this Wall Street Journal ($) article, , Professor Fair's new book -- Predicting Presidential Elections and Other Things -- is reviewed and it sounds like a winner:

How can you guess who might be having an extramarital affair? This is an important question, and it deserves to be treated with scientific rigor.

Start with a theory. As a first approximation, it seems reasonable to suppose that the likelihood of having an affair depends on income, age, number of years married, marital satisfaction and religiousness. Next, find some data -- say, a sex survey published in a magazine like Psychology Today or Redbook. Now fit the data to the theory (which means having your computer run a line through a cloud of points -- a technique called linear regression) and do a statistical test to see whether the theory is any good. And what do you know? It is!

Now comes the fun part: prediction. Using the results, you can guess which of your friends and neighbors might be straying from the matrimonial paddock. Likely candidates for an affair are those who (1) have a high wage rate, (2) have been married a long time, (3) are relatively young given the length of their marriage, (4) aren't very happily married and (5) aren't particularly religious. Want something more quantitative? Well, all else being equal, an extra 10 years of marriage increases the predicted number of adulterous encounters per year by about six. (Warning: Blackmail based on these findings is strongly discouraged.)

Predicting adultery is only one of the interesting subjects that Professor Fair addressed. However, during this political season, the most interesting subject is his model for predicting Presidential elections:

By trial and error, Mr. Fair comes up with a list of eight: the growth rate of the economy, inflation, the number of economic "good news" quarters leading up to the election, whether an incumbent is running, how long the incumbent party has held the White House, whether there is a war on and, finally, a "party variable" in case the electorate has an innate preference for one party over the other. As data, he uses election results from 1996 (when President Clinton beat Bob Dole) back to 1916 (when President Wilson beat Charles Hughes).

After fitting the data to the theory, Mr. Fair finds that all eight variables affect voting at greater than chance levels.

And applying Professor Fair's model to the Presidential elections from 1916 through 1996 reflects that it is pretty darn accurate:

From 1916 to 1996, Mr. Fair's theory only calls two elections incorrectly. In 1960 Nixon received 49.9% of the vote, but according to the theory he should have received a 51.1% -- a relatively small discrepancy. More embarrassing to the author's analysis is the 1992 election, in which President Bush's predicted share of the major-party vote was a winning 50.9%, whereas his actual share was 46.5% -- a whopping 4.4 percentage-point error.

Moving to the 2000 election, which lies outside the data set used to construct the theory and is therefore a good test of its validity, Al Gore should have received (a losing) 49% share of the vote that went to the two major parties, but he actually got (a losing) 50.3% share. Not bad.

So, how does the Professor size up the 2004 election?:

Mr. Fair's analysis will be cheering to President Bush, who, as a Republican president running for re-election when the Republicans have been in power only one term, enjoys the best possible incumbency situation. The only way he can lose, the theory suggests, is if the economy suddenly tanks.

Looks like another book to add to my reading stack.

Posted by Tom at 9:08 PM | Comments (0) |

Enron Broadband defendant pleads guilty

Ken Rice, the former head of Enron?s broadband Internet business, became the 11th person to plead guilty to an Enron-related crime when he admitted to a single count of securities fraud this morning before U.S. District Judge Vanessa Gilmore in Houston.

The plea agreement requires Mr. Rice, who is 45, to cooperate with the government in ongoing investigations and trials and forfeit $13.7 million in cash and property. Mr. Rice faces a maximum 10 years in prison and a $1 million fine.

Mr. Rice faced charges of conspiracy, securities fraud, wire fraud, money laundering and insider trading in this multi-count indictment. Attorneys close to the case have been expecting Mr. Rice to reach a deal with prosecutors for several weeks. As a division head, Mr. Rice reported directly to former Enron CEO and COO Jeffrey Skilling, and may have had regular contact with former Enron Chairman Kenneth Lay as well. Both Messrs. Skilling and Lay have pled not guilty to a variety of Enron-related charges in another pending criminal case.

Mr. Rice's plea deal centers on a Jan. 20, 2000 meeting with analysts where Rice and others at the company touted the current and future abilities of Enron?s broadband network. That same meeting was mentioned in the indictment against Mr. Skilling, which claims he made similarly false claims about the abilities of the network and the potential of the business. It?s certainly possible that Enron Task Force prosecutors will Rice as a witness in an attempt to corroborate the charges against Mr. Skilling.

According to the Enron Task Force, Mr. Rice sold 1.2 million shares of Enron stock for more than $76 million while he knew Enron Broadband Services was failing. The unit never generated a profit and was abandoned shortly after Enron's bankruptcy filing in early December 2001. Mr. Rice quit the company in 2001 after his stock sale and several months before Enron went bankrupt. He had served as CEO of Enron's trading unit -- Enron Capital and Trade -- from 1996 to 1999 before taking over the high profile broadband unit that Enron claimed was responsible for millions in profits. Enron's share price spiked to $90 in August 2000 as Enron promoted the venture, among other ventures. Mr. Rice was indicted on April 29, 2003 -- along with seven other former broadband employees -- in a 218-count indictment that claimed the men lied about the value and capabilities of Enron?s internet business.

The remaining defendants in the Enron broadband case are Joe Hirko, another former broadband CEO; Kevin Hannon, former chief operating officer; Scott Yeager and Rex Shelby, former senior vice presidents; and Kevin Howard and Michael Krautz, former executives. Each one has pled not guilty to all charges. The trial of the case is scheduled to begin to begin Oct. 4. The first criminal trial involving former Enron executives will take place in the "Nigerian Barge case," which is scheduled for trial beginning on August 16.

Posted by Tom at 3:13 PM | Comments (0) |

Shell reaches settlements on reserve overstatement

Royal Dutch/Shell Group, the world's third-biggest public oil company, reached preliminary settlements with U.S. and British authorities to pay penalties of about $150 million for overstating its energy reserves. Earlier posts are here about the Shell overstatement controversy.

Shell announced the hefty settlements after months of negotiations with regulators. Shell ousted top executives, turned over millions of pages of documents and shared with the regulators the findings of an internal Shell investigation of the company's overstatements of oil and natural-gas reserves. Shell essentially bet that cooperating with regulators would shorten the regulatory investigations and soften the blow from U.S. authorities, and the bet played out well.

Shell has agreed to pay a $120 million penalty to the Securities and Exchange Commission, which is one of the biggest penalties levied by the SEC on a foreign company in recent years. The agreement settles SEC findings that Shell violated the antifraud, reporting, record-keeping and internal-control procedures of U.S. securities laws and related SEC rules. Shell also said it agreed to pay £17 million ($30.9 million) to Britain's Financial Services Authority, which had already found that Shell had violated British market-abuse regulations. As is usual in such settlements, Shell did not admit or deny the conclusions.

Although the announcements are clearly progress, Shell is not out of the woods just yet. The SEC must formally approve its settlement, and it can still bring civil charges against individuals involved in the fiasco. Moreover, the U.S. Justice Department is continuing its own investigation into the overstatement of reserves. Finally, Shell and its executives still could face costly civil settlements.

Posted by Tom at 6:39 AM | Comments (0) |

New Houston Bankruptcy Judge appointed

Well-known bankruptcy litigation specialist Jeff Bohm of Austin has been appointed as the new bankruptcy judge for the the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Jeff replaces William Greendyke, who resigned effective June 1 to join Houston-based Fulbright & Jaworski.

I have known Jeff for a long time and been involved in several cases with him over the years. He is an outstanding lawyer and will make a fine bankruptcy judge. Although Jeff has been practicing for 20 years and has been a partner at Austin-based McGinniss, Lochridge for 15 years, Jeff's background is interesting in that he did not go directly to law school after undergraduate school. Rather, he chose to work for several years for a large bank in Houston in a variety of positions. I believe that this background is a part of the reason why Jeff has an unusual depth of perspective regarding financial and insolvency-related disputes, and also why he developed a resolution-oriented style of lawyering in his practice (I have found that lawyers who were formerly clients tend to prefer this style). Although an effective litigator, Jeff has always had a refreshing knack for resolving legal disputes in the most efficient and reasonable manner possible under the circumstances.

Jeff joins what has become a powerhouse group of bankruptcy judges in the Southern District of Texas. As noted earlier here, outstanding Houston bankruptcy lawyer Marvin Isgur joined chief Bankruptcy Judge Karen Brown and Bankruptcy Judges Wesley Steen and Letitia Clark on the Houston bankruptcy bench earlier this year. With the additions of Judges Isgur and Bohm, the Houston bankruptcy judges are one of the strongest groups of bankruptcy judges in any one federal district in the country.

Posted by Tom at 5:57 AM | Comments (2) |

July 29, 2004

Stros lose to DBacks

The Stros dropped two games at home to the National League's worst team as the Diamondbacks held on for a 6-4 win on Thursday afternoon at the Juice Box. The Stros go to Cincy 14½ games behind NL Central-leading Cards and 5½ games behind the Padres for the NL Wild Card playoff spot.

The crowd of nearly 40,000 booed the Stros lustily throughout the game, particularly starter Tim Redding, who again struggled with his control. Redding gave up six runs on nine hits in 5 2/3 innings, while walking two, both in the DBacks' 3 run first inning. After his rough start, Redding recovered to retire 12 of the next 13, but started to unravel in the fifth. After giving up a double, Adam Everett made a key throwing error on an infield hit by Gonzo, and then Hillenbrand followed with a two run dinger. Those three unearned runs pushed the DBacks' lead to 6-1.

All of that went over about like a turd in the punchbowl with the Juice Box crowd.

The Stros had nine hits -- including two doubles and a yak by Bidg -- but could never put together the big inning against the DBacks' rookie starter to pull even. Bidg's first double was the 544th double of his remarkable career, moving him past Tony Gwynn for 19th all-time in the majors. His double in the fifth allowed Bidg to pass Reggie Jackson for 70th on the career hits list. It was Bidg's 2,586th.

Pete Munro pitches for the Stros against the Reds in the first game of their weekend series on Friday in Cincy. Although the Reds can flat out bash the ball, their pitching is even worse than the DBacks. So, this series ought to be another good opportunity for the Stros to pad their hitting statistics. That means that they will probably score five runs total in the three games. That's the kind of season it's been.

Posted by Tom at 10:55 PM | Comments (1) |

The prison of radical Islam

In this Opinion Journal.com piece, Danielle Crittenden reviews a new book -- "Inside the Kingdom" -- by Osama Bin Ladin's former sister-in-law, Carmen bin Ladin.

Inasmuch as women of radical Islamic families risk severe punishment for speaking out, first person accounts of life in this culture are rare. As Ms. Crittendon notes, Ms. Bin Ladin is not a distant relative seeking to cash in on her the Bin Ladin family's notoriety. Rather, her story is arguably the most vivid account yet to appear in the West of the oppressive lives of Saudi women:

Carmen's life in Saudi Arabia began when her car pulled up to Yeslam's mother's compound outside Jeddah. In the mid-1970s, the town was still not much more than a donkey crossroads in the middle of the desert. If winds weren't whipping up the sand in blinding funnels, the sun was scorching down with unbearable heat. Shrouded in her unfamiliar and suffocating black robes, Carmen entered what sounds like a luridly decorated marble tomb. From then on, she was no longer free.

Each day, Yeslam vanished to work. Carmen and her young daughter passed the hours in the company of his mother and sister. Rarely could she leave the house--rarely, even, did she see sunlight. Courtyards had to be cleared of male servants before she could poke her head outside; she was not even permitted to cross the street alone to visit a relative. When she did venture out, she had to wear a choking abaya and thick socks to hide her ankles. "It was like carrying a jail on your back," she writes.

Nor was she much freer inside the house. She could not listen to music, pick up an uncensored book or newspaper, or watch anything on television but a dour man reading the Quran. Nor could she absorb herself in household tasks. These were left to foreign servants, including the care of children.

Carmen was horrified by the effects of this isolation and uselessness. "The Bin Laden women were like pets kept by their husbands;. . . .Occasionally they were patted on the head and given presents; sometimes they were taken out, mostly to each other's houses;. . . .I never once saw one of my sisters-in-law pick up a book. These women never met with men other than their husbands, and never talked about larger issues even with the men they had married. They had nothing to say."

Read the whole piece.

Posted by Tom at 6:57 AM | Comments (0) |

Revising "The Deal"

Rich Karlgaard is the publisher of Forbes magazine. In this Wall Street Journal ($) column, Mr. Karlgaard examines what has gone wrong at Microsoft and what Bill Gates is doing to try and fix it:

Today Microsoft is struggling to figure out what attracts and motivates the most talented employees within capitalism's free-agent system. The company had no such problem figuring that out in the 1980s and '90s. Microsoft CEO Steve Ballmer liked to call the old motivational carrot "The Deal." That arrangement worked like this: Come and work for Microsoft. Make do with a so-so salary but partake lavishly of options. Sure, you might be forced to grind away on 80-hour weeks for six or seven years. But you'll change the world and get rich -- wildly rich.

Microsoft's stock has been flat since 1999. The Deal is broken. Not only that, but most of today's change-the-world projects in computing live outside of Microsoft. These include open-source software, search engines, Web services, Flash video, WiFi, iPods, etc. For reasons of pay and excitement, Microsoft is losing its grip on a new generation of IQ.

Then, Mr. Karlgaard notes that the fortunes of companies in the technology world can changes just as fast as the technologies that they sell:

Digital Equipment Corporation reached its peak market value in 1988 but four years later sold to Compaq for a tenth the price. IBM was a titan throughout the 1980s yet nearly went bankrupt in 1992, before Lou Gerstner stepped in. At both IBM and DEC, the stellar 1980s financial results were lagging indicators of future vitality. The leading indicator was the flow of talent. By the late 1980s, even as DEC and IBM were at the peak of their financial powers, they already had lost the war for young IQ. The bright and bold were flocking to the new personal computer industry.

It's hard to believe, but Microsoft, in 2004, has become a company run by gray hairs. Mr. Gates and Mr. Ballmer will turn 50 in the next 20 months. Older yet, with snowy white hair, is Jim Allchin, who directs the future of the company's crown jewel, the Windows operating system . . .

In this context, Mr. Karlgaard suggests that the true purpose of Microsoft's recent stock buyback program and dividend announcement is actually to reinvigorate "the Deal:"

My guess is that outside investors were not Microsoft's primary audience for last week's announcement of a one-time $32 billion dividend payment, a $30 billion stock buyback, and a doubling of the annual dividend payment. No, this move was done to rally employee shareholders and future employee shareholders. Microsoft needs a way to attract and keep future Bill Gateses and Steve Ballmers. It needs to revive The Deal.

A year ago, Microsoft announced it had removed the heart of The Deal -- stock options -- in favor of restricted grants. An army of Microsoftologists parsed the move for deeper meaning. One analysis had it that Microsoft was merely acknowledging what Mr. Gates's good friend Mr. Buffett had asserted -- that the early 2000s would produce lousy returns in the stock market. If that turned out to be true, stock options would only disappoint employees, lead to bad morale at Microsoft and make it harder to recruit.

In retrospect, maybe Microsoft should have been more optimistic about the stock market. It might have joined Intel, Cisco and others in the battle to keep stock options. But Microsoft didn't do that, and since there are no longer options for employees, only share reward -- paying a higher dividend -- is available as an incentive for high-IQ employees.

It's not The Deal, but it's a start.

Posted by Tom at 5:54 AM | Comments (0) |

July 28, 2004

The Rocket rocks on

The Rocket pitched seven innings of five hit ball as the Stros continued their domination of the hapless DBacks by winning 6-1 in the third game of their four game series on Wednesday night at the Juice Box.

As usual, Clemens was reliable, striking out eight while giving up only one run. JK and Bags whacked yaks again, while the Stros continued to improve their hitting statistics against the DBacks pitchers not named Johnson or Webb.

Tim Redding takes the hill tomorrow in the Businessman's Special against Lance Cormier, who has a 14+ ERA. The Stros then take off to Cincy for a weekend series before returning home next week to face the Braves and the Expos.

Posted by Tom at 9:46 PM | Comments (0) |

More Medical Center political strife

Daniel Arnold, a member of the Baylor College of Medicine board of trustees and the former chairman of that board, has sent the full board a July 14 letter calling for Baylor President Dr. Peter Traber to be fired for failed leadership. Mr. Arnold's letter states that Traber's management of Baylor is "deleterious" and "divisive," and that "his lack of realistic vision and fundamental errors in judgment" are not what Baylor needs in a leader. Here is the Houston Chronicle article on this latest Medical Center dustup. The letter is expected to be discussed today at a meeting of the 48-member board.

Corby Robertson, the current chairman of the Baylor board, told the Chronicle that he believes that Dr. Traber has the board's support

Mr. Arnold sent his letter amid the recent political fallout over the split of the long teaching relationship between Baylor and The Methodist Hospital (earlier posts here). The institutions have been in open conflict since deciding to sever their 50-year relationship in which Methodist served as the teaching hospital for Baylor students and residents. Last week, Baylor threatened legal action against Methodist if the hospital does not cease actions that Baylor alleges are interfering with Baylor's operations, including Methodist's "aggressive recruiting" of Baylor faculty members.

Mr. Arnold was the Baylor board chairman who butted heads with popular Baylor faculty member and president, Dr. Ralph Feigin. In that conflict, Mr. Arnold attempted to force Dr. Feigin to choose between the presidency and his other job as physician-in-chief at Texas Children's Hospital. Dr. Feigin subsequently announced he was stepping down, only to have the decision overturned a month later after key faculty and trustees objected. Dr. Traber replaced Dr. Feigin in March, 2003 when Dr. Feigin resigned at the age of 65.

Update: The Baylor board voted unanimously (with one abstention) to support Dr. Traber.

Posted by Tom at 8:24 PM | Comments (0) |

Enron objects to employee settlement

Setting up a potential jurisdictional battle between two federal courts, Enron Corp. filed an objection in U.S. Bankruptcy Court in Manhattan yesterday seeking to block a settlement payment of the $85 million in insurance proceeds to approximately 20,000 current and former Enron employees that is emanating out of pending litigation in the U.S. District Court for the Southern District of Texas. Here is an earlier post on the proposed settlement.

Enron employees lost hundreds of millions of dollars when the Enron stock in their 401(k) plan became worthless as the company spiraled into bankruptcy in late 2001. After they sued Enron in 2002, U.S. District Judge Melinda Harmon in Houston approved the tentative settlement to the former Enron retirement-plan participants earlier this summer. The final hearing on the proposed settlement is scheduled for Aug. 19.

The settlement, which would be the largest to date for a case involving company stock in retirement plans, would be largely paid by Associated Electric & Gas Insurance Services Ltd. and Federal Insurance Co. Enron had $85 million in liability insurance to cover company employees who were acting as fiduciaries.

In pleadings filed with the Enron bankruptcy court in New York, Enron and its creditors argue the money is an asset of the bankruptcy estate and the bankruptcy court should decide who gets it. Enron and many of its creditors have previously filed pleadings in the bankruptcy case asserting that the employees' claims should be subordinate to all other creditors.

Posted by Tom at 5:39 AM | Comments (0) |

July 27, 2004

Stros pound DBacks

Roy O pitched seven shutout innings and Adam Everett cranked two solo yaks as the Stros downed the Diamondbacks, 10-3 on Tuesday night at the Juice Box.

Oswalt was masterful as he struck out five while giving up only two hits and walk during his seven innings. The DBacks jumped on Kirk Bullinger for their three runs in the eighth, but Chad Harville finally pitched a decent inning in throwing a scoreless ninth.

The Stros' hitters had extended batting practice against the DBacks' Edgar Gonzalez and Steve Sparks as they pounded 12 hits, including Everetts' two yaks, JK's two run shot, and Bags' three run tater. Morgan Ensberg chipped in with a couple of doubles as he continues his long road to a respectable OPS.

The Stros are looking good again tomorrow night as the Rocket takes the hill against ex-Texas Aggie Casey Fossum (6.17 ERA). Isn't it nice getting the DBacks when Randy Johnson is not pitching?

Posted by Tom at 9:45 PM | Comments (0) |

More on Houston's light rail boondoggle

Following this earlier post on the economic absurdity of light rail systems, Randal O'Toole, one of the economists over at The Commons, cites the Houston light rail system as one example why cities such as Denver and Austin should reject such systems:

Houston opened a 7.5-mile light-rail line in its downtown on January 1. It has so far caused more than 50 collisions with autos or pedestrians (including a few during testing before January 1). While the transit agency blames bad auto drivers, the accident rate is twenty times the national average for light-rail lines.

Mr. O'Toole notes other economic disasters involving rail systems in other cities, and then aptly summarizes as follows:

The push for rail transit comes from construction companies that seek to soak the taxpayers building it, downtown property owners who hope to enhance the value of their properties, anti-auto environmentalists who view congestion with schadenfreude, and collectivists who think we would be better off in collective transit than private autos. None of these reasons are very appealing so they cloak their goals behind specious claims that rails will reduce traffic congestion and air pollution, something that rail transit has never done.

Amen.

Posted by Tom at 6:53 AM | Comments (4) |

Mike Tyson, Debtor-in-Possession

Former heavyweight champion boxer Mike Tyson is currently a debtor-in-possession in a chapter 11 bankruptcy case. This NY Times article outlines Tyson's plan of reorganization, which is based on the income stream that Mr. Tyson supposedly will generate from fighting an unusually aggressive schedule on pay-for-view television:

The reorganization assumes that Tyson (50-4) will fight five times through November 2005 (with dispensation to stretch the fights out over two more years, when he'll be 41), an extraordinary amount of work for a boxer who has not fought in 17 months and has not beaten a great opponent since Ronald Reagan was in his second term.

The reorganization requires that after keeping $2 million from each fight, Tyson must pay into a reorganization trust fund 50 percent of the after-tax proceeds from his bouts, or $19 million, to pay his taxes and his former wife Monica Turner.

Tyson's first payment to the trust fund, $890,000, . . . is due next month. He must then pay the fund $4.9 million in each of the quarters ending Jan. 31 and April 30, 2005, followed by a payment of $3.7 million in the quarter ending October 31, 2005, and $4.6 million in the quarter ending January 31, 2006.

The plan does not state what will happen if he does not make the payments.

I can answer that one: Liquidation, which is where Tyson should probably be anyway.

It also turns out that Mr. Tyson has settled matters with his former promoter, Don King:

The best news for his finances is the $14 million that will come from the recent settlement of the $100 million federal lawsuit he filed in 1998 that alleged financial fraud against Don King, his former promoter.

King will pay Tyson $8 million soon after the reorganization plan goes into effect, $3 million plus interest in January 2005 and $3 million plus interest in January 2006.

For all the money that Tyson charged that King had siphoned off, he will get none of it; all of it will go for debts.

Meanwhile, those pesky chapter 11 operating reports provide some interesting information on Mr. Tyson's current life:

According to the monthly financial reports Tyson files with the bankruptcy court, his personal earnings in February, $26.54, were overwhelmed by $67,960 in personal expenses. In March, his income improved to $15,127, while his expenses fell to $25,389. And in April, his income soared to $125,055 and his expenses rose again, to $62,589.

Mike Tyson is not a particularly good fighter anymore. Nevertheless, just as many people watch NASCAR events to see the crashes, many folks will tune into a Tyson fight in order to see the inevitable meltdown of Tyson in living color. About when you think the fight game has gone as low as it can go, people leeching off of Tyson push it even lower. Only in America.

Posted by Tom at 6:11 AM | Comments (0) |

The usual government solution

Count the Wall Street Journal's ($) George Melloan as skeptical that the 9/11 Commission's recommendation of a new cabinet department headed by a "National Intelligence Director" is a good idea:

The late William E. Simon, Treasury secretary in the Nixon and Ford administrations, once described to a small group of Journal editors the origin of what would later become the U.S. Department of Energy.

As deputy to Treasury Secretary George Shultz in 1973, he had been sitting in for his boss at a Nixon cabinet meeting and offered a report on the energy "crisis." Mr. Nixon chewed on his pencil for a moment and then, inspired by a thought, told Mr. Simon that he was putting him in charge of a White House energy policy office, a job that later earned him the title of "energy czar." In 1977, Congress and Jimmy Carter created a full-blown cabinet-level department to try to deal with the still-unsolved "energy crisis." Today, the DOE has wide-ranging powers and a budget of roughly $20 billion.

The interesting thing about this story is that it was a clumsy attempt to correct a problem the government itself had created. The "energy crisis" had been caused primarily by the price controls President Nixon adopted in 1971 as a response to inflation, also of the government's own making. That's one way government grows, or metastasizes if you will. It adds new functions to try to correct the problems of existing functions. This new cell growth is always popular inside the Beltway, because it creates jobs and opportunities.

Mr. Melloan notes that the Commission's recommendation of bringing all intelligence under one master and coordinating the exchange of information sounds like a good idea on the surface, but is it really?:

A new department, Homeland Security, was created under Secretary Tom Ridge only two years ago. It already has spent $70 billion and wants $40 billion more next fiscal year, notes Forbes magazine. The DHS is hard at work, organizing better security for nuclear plants, arranging point-of-origin certification of shipboard containers, asking banks to monitor transfers from places like Saudi Arabia. But Forbes still rates these risks at the "yellow" level and gives a high-risk "red" to the threat of computer network hacking.

Mr. Melloan then points out that more government bureaucracy may be the problem, not the solution:

It wasn't that the U.S. had no defenses [before the 9/11 attacks]. It has many thousands of law enforcement officers at all levels of government and as many as 20,000 people in the CIA alone. But all of these people, many of them very able, were trapped in a morass of government bureaucracy.

Some of the restrictions are mind-boggling. Most big cities in the U.S. have "sanctuary" ordinances, pressed on them by "civil rights" groups, which prohibit city employees, especially the police, from checking with the Immigration and Naturalization Service on the immigration status of anyone who runs afoul of the law. As a result, thousands of illegal aliens are at large in the U.S. and encounter no trouble with the INS even if they are picked up for theft or drunken driving. And of course, airport screeners, under the same "civil rights" pressures, are barred from "profiling" passengers and thus, in the words of one critic, must accost a "blue haired 70-year-old woman with an aluminum walker" and nine other average travelers for every able-bodied 30-year-old Mideast male.

The INS also has little coordination with the overseas consular offices of the State Department, which approve visas for visitors to the U.S. The State bureaucracy is responding to homeland security fears by tightening up on visa grants, but with no evident system for distinguishing between possible terrorists and innocent students, business travelers and the like. The CIA's failure to insert spies into al Qaeda was a major shortcoming. One wonders what it does with its estimated $40 billion budget.

Congress is itself fragmented, politically polarized and mired in the oversight methods of yesteryear, and so is not up to the requirements for legislating a more streamlined and efficient defense against terrorism. For example, Secretary Ridge has had to testify to 80 committees and subcommittees since taking office. What they do with all that duplicative information and how he finds time to do anything else is a mystery.

Read on.

Posted by Tom at 5:37 AM | Comments (0) |

July 26, 2004

Stros go low against DBacks

Brandon Webb handcuffed the Stros with his array of sinkers and dinkers as the Arizona Diamonbacks beat the Stros 4-1 Monday night in the first game of their four game series at the Juice Box.

Webb was masterful, giving up 6 singles and one run in 7 1/3rd innings. This game was essentially infield practice for the DBacks as Webb's sinkers had the Stros pounding the ball into the ground with futility the entire game.

Andy Pettitte only gave up three hits in five innings, but the problem was that two of them were back to back gopher balls in the first inning to Gonzo and Hairston. That was all Webb needed on this night. Pettitte left after the fifth game because of soreness in his left elbow, a problem that has bothered him all season. Given the club's disminishing playoff chances, the Stros will soon have to give serious consideration to shutting Pettitte down for the season.

The best news for the Stros on this day was the signing of Troy Patton, the Tomball High School lefty who was projected as a high draft choice until he announced that he would be attending the University of Texas on a baseball scholarship. Most major league clubs backed off on him as a result of that news, but the Stros took a flyer on him in the ninth round of the draft earlier this summer and the bet has paid off. Patton will report to the club?s affiliate in Greeneville of the Appalachian League.

Patton was 12-0 with an 0.91 ERA during his senior season at Tomball High. He struck out 142 hitters in 77.1 innings pitched, while walking only 24 and allowing 24 hits. Patton threw three no-hitters this spring, including one perfect game, and opponents hit only .122 against him in 2004.

Roy O tries to get the Stros back on track on Tuesday night against some fellow with a 12+ ERA for the DBacks. The way this season is going, the game will probably be a nailbiter.

Posted by Tom at 10:08 PM | Comments (0) |

More on the politics of bashing

Awhile back, Professor Ribstein and I discussed (here, here. and here) the unique nature of current vitriolic criticism of President Bush.

Today, the always insightful Virginia Postrel weighs in with one possible reason for the intensity of the Bush-bashing:

When I was in New York a few weeks ago, a friend in the magazine business told me he thinks the ferocious Bush hating that he sees in New York is a way of calming the haters' fears of terrorism. It's not rational, but it's psychologically plausible--blame the cause you can control, at least indirectly through elections, rather than the threats you have no control over. I thought of that insight today when I glanced at Maureen Dowd's column and read this sentence, "Maybe it's because George Bush is relaxing at his ranch down there (again) while Osama is planning a big attack up here (again)."

That is the voice of a petulant child, angry that she has a tummy ache while Daddy is at work or Mommy is visiting a friend, or the voice of a grouchy wife angry that she has a migraine while her husband is out coaching the kids' baseball team. You're upset that you're in pain (we've all been there), so you get mad at someone whose presence wouldn't make the pain any better.

Professor Ribstein is not buying Ms. Postrel's speculation, and contends that an underlying condescending nature is the root of the Bush bashing.

Posted by Tom at 7:06 AM | Comments (3) |

Addressing the obesity epidemic

Clinical psychologist Gerard Musante was the first person to adapt the principles of behavior modification to the eating habits of significantly overweight people. For the past 30 years, Dr. Musante has taught these principles at Structure House, the residential weight loss facility he founded in Durham, N.C.

In this Tech Central Station op-ed, Dr. Mustante addresses that the national debate over responsibility for our society's obesity overlooks the effect that the debate has on how individuals perceive their personal battles with being overweight or obese:

[O]ur national debate on obesity is evolving into two camps. One emphasizes that obesity results from such factors as genes, a disease state or physiology. The other focuses on the role personal responsibility plays and possibly defines obesity as a personal failing.

While the first camp paints the individual as a victim of forces beyond his control, the latter argues from a moral or social viewpoint. While I strongly support personal responsibility, even the discourse to this effect fails to address the most critical reason for espousing such a perspective. What is too often absent from both viewpoints is a direct consideration of the ramifications these arguments themselves can have on how individuals view their personal battles with overweight and obesity.

Dr. Mustante points out that the biggest problem is defining the issue as being out of an individual's control:

If one defines a problem as out of his control, then he remains powerless to influence it. However, nearly all experts acknowledge obesity ultimately results from violating a simple principle: calories consumed should equal calories expended. The idea that individuals are victimized by their own bodies or a toxic environment is problematic. For starters, it's untrue. But as importantly, it stymies their motivation and perceived ability to control their weight loss.

The key lies in a related psychological concept called self-efficacy, which was defined by Albert Bandura, a noted Stanford University psychologist, in 1977. He theorized that people's expectations of their ability to be effective influence whether and how they will act. It will affect how much effort they expend, and how long they will sustain their efforts in the face of challenges. If a person believes he lives in a "toxic food environment" or is suffering from a disease state, how can he have confidence in his ability to change his predicament?

Dr. Mastante then points out that "quick fix" diet plans are usually counterproductive to obesity because the personal sense of failure that an individual experiences triggers a false sense that the individual is powerless to overcome the problem. And that false sense of powerlessness is becoming more popular:

Worsening the problem, we now are seeing efforts to sue food establishments, to demonize various industries, and to rid schools of vending machines. By blaming industries and products, society only makes individuals feel increasingly powerless about their ability to lose weight, and that perceived lack of control makes them less likely to attempt or experience success. Frivolous lawsuits against the food industry and the classification of obesity as a disease only reinforce the idea that obesity is something people cannot control.

Read the entire article, and then take a look at this piece in which the authors point out that the obestiy epidemic is partly the unintended consequence on the anti-smoking campaign over the past generation.

Posted by Tom at 6:44 AM | Comments (1) |

Debating American foreign policy

John Lewis Gaddis is the Robert A. Lovett professor of history and political science Yale University and Paul Kennedy is the J. Richardson Dilworth professor of history at the same school. In this NY Times Book Review interview, the two debate their views on American foreign policy. The entire piece is well worth reading, and the following are a couple of tidbits of their insights:

How Did 9/11 Change America's Thinking About Foreign Policy?

GADDIS. The whole premise of our thinking had been that threats come from states. Then suddenly, overnight, levels of damage were done exceeding those at Pearl Harbor by a gang most of us had never heard of. That is a profound change in the national security environment. It exposes a level of vulnerability that Americans have not seen since they were living on the edge of a dangerous frontier 150 years ago.

KENNEDY. I'd agree, and then add another slant. The whole system of international law was predicated upon states. There's no thought given in the U.N. Charter to nonstate actors. There needs to be agreement on what states can do now with threats from nonstate actors.

Does the United States Have an Empire?

GADDIS. The really important question is to look at the uses to which imperial power is put. And in this regard, it seems to me on balance American imperial power in the 20th century has been a remarkable force for good, for democracy, for prosperity. What is striking is that great opposition has not arisen to the American empire. Most empires in history have given rise to their own resistance through their imperious behavior. For most of its history as an empire, the United States did manage to be imperial without being imperious. The great concern I have with the current administration is that it has slid over into imperious behavior.

KENNEDY. John has put his finger on something very interesting, which is this dominant position of the U.S. not yet causing the emergence of counterweights. And I say ''yet'' because I think there's quite a considerable danger that it will. We now have a Europe with a larger G.D.P., and we have a China growing so fast you can hardly keep your eyes on it. Our great power status is unchallenged at the orthodox military level. But it's beginning to look a little bit more fragmented in other dimensions.

Posted by Tom at 6:04 AM | Comments (0) |

July 25, 2004

Stros pummel Brew Crew

Pete Munro pitched seven shutout innings and Mike Lamb drove in three runs with a pair of doubles to lead the Stros over the Brewers 9-1 on Sunday in the rubber game of their weekend series at the Juice Box. The Stros have now won four of their last five games.

After giving up a pair of singles to lead off the second inning, Munro (2-2/4.46 ERA/0 RSAA) settled down and retired 13 of his next 15 batters. He allowed six hits, struck out a season-high five and walked none.

The Stros took a 4-0 lead in the third on Lamb's bases-loaded double off the left-field scoreboard and Morgan Ensberg's two-run single. Lamb, who started at first in place of Bags, made it 5-0 in the fifth with an RBI double, and Adam Everett doubled in another run in the sixth.

In one of the more entertaining moments of the game, Jeff Kent was ejected by plate umpire Chris Guccione in the seventh after arguing a called strike two on a pitch Kent thought was low. Kent -- who, as baseball people say "has a little turd in him" and yelled at Guccione "with sincerity" -- kicked and threw dirt on home plate before he left the field with gusto. Jose Vizcaino replaced Kent with a 2-2 count and promptly nailed an RBI double on the next pitch. After a run-scoring wild pitch, Brad Ausmus cranked a rare yak to complete the Stros' scoring. The Stros ended up with 12 hits, five of them doubles.

Despite the Stros' power surge over the past week, their runs created against average ("RCAA," explained here) continues to lag near the bottom of the National League (11th out of the 16 teams). Here are the updated individual RCAA figures, courtesy of Lee Sinins:

Lance Berkman 35
Craig Biggio 13
Carlos Beltran 8
Jeff Bagwell 7
Mike Lamb 6
Eric Bruntlett 1
Chris Burke -1
Jeff Kent -1
Jason Lane -2
Jose Vizcaino -3
Orlando Palmeiro -4
Richard Hidalgo -10
Raul Chavez -11
Morgan Ensberg -12
Adam Everett -13
Brad Ausmus -23

Thus, the Stros have only five players who are hitting above what an average player would generate and four regular players (Ausmus, Chavez, Ensberg, and Everett) who are hitting well below what an average player would produce. Inasmuch as Ensberg is the only likely candidate of those four to improve much during the second half of the season, and Bagwell is unlikely to increase his relatively pedestrian production during the remainder of the season. Consequently, I do not expect the Stros' offense to improve enough in the second half to make them a viable playoff contender.

Meanwhile, the Stros pitchers' runs saved against average ("RSAA," explained here) remains in the upper half of the National League (sixth out of the 16 teams). The individual RSAA numbers are as follows:

Roger Clemens 23
Brad Lidge 13
Wade Miller 11
Roy Oswalt 9
Octavio Dotel 5
Dan Miceli 4
Andy Pettitte 3
Kirk Bullinger 1
Mike Gallo 1
Darren Oliver 1
Pete Munro 0
Chad Qualls -1
David Weathers -1
Brandon Backe -2
Jeremy Griffiths -3
Ricky Stone -3
Jared Fernandez -6
Chad Harville -6
Brandon Duckworth -8
Tim Redding -11

Although the pitching staff is performing above-average overall, the production is still a bit deceptive. Miller and Dotel, both of whom contributed above-average production, are no longer pitching for the club (Dotel has been traded and Miller's return this season is questionable at this point due to a shoulder injury). Moreover, Harville, Duckworth and Redding are time bombs every time they take the mound, as their well-below average RSAA numbers reflect. Oswalt is a definite candidate to improve his RSAA during the second half and Redding could if he returns to his form of last season, but some leveling off of Clemens' incredible performance is to be expected. Accordingly, even though I expect the Stros' pitching performance to remain above-average, I do not expect the performance to improve enough over the last part of the season to compensate for the Stros' below average hitting and allow the Stros to compete for the wildcard playoff spot.

And, just so you will not be misinformed by the Chronicle sportswriters' baseless criticism of Stros' management for trading Hidalgo, Wagner, and Dotel, each of those three players has had decidedly mediocre performance this season. Although Hidalgo has a +5 RCAA since joining the Mets, he is still a -5 for the season, which makes him the best paid below average rightfielder in the National League. Dotel has a barely above average RSAA when his numbers from Houston and Oakland are combined, and Wagner has battled injuries all season while posting a relatively mediocre +5 RSAA for the Phillies. Truth be known, Stros' management did a good job in trading each one of those players, particularly given the over-market contracts that both Hidalgo and Wagner enjoy.

The Stros send Andy Pettiitte to the hill on Monday in the first game of a four game set with the DBacks at the Juice Box. After that series, the Stros go to Cincy for a weekend series with the Reds before returning home in the first week of August for a six game homestand against the Braves and Expos.

Posted by Tom at 6:21 PM | Comments (0) |

UT-ex Ricky Williams announces retirement

Former University of Texas star running back and Heisman Trophy winner Ricky Williams has stunned the Miami Dolphins and the National Football League by announcing his retirement from professional football while in the prime of his career.

Posted by Tom at 7:41 AM | Comments (0) |

Mike Ramsey interviewed

Following on this earlier Wall Street Journal ($) profile, Mary Flood, who has been covering the Enron case for the Houston Chronicle, interviews Mike Ramsey, lead criminal defense attorney for Kenneth Lay, in today's Chronicle. Not much of Mr. Ramsey's insight on the Enron case is provided in the interview, although Mr. Ramsey does comment on Mr. Lay's controversial strategy of vigorously defending himself in public statements, interviews, and press conferences from the criminal charges:

Q: Other lawyers have said you are taking risks in letting Lay speak publicly now and in demanding a speedy trial. Why have you chosen these strategies?

A: I think basically at the behest of Mr. Lay. I have been over the documents enough to know and trust that he is, in fact, innocent. But he has been silent for two and a half years, while he has suffered a lot in the press. I think it's about time that he speaks out.

Now, it is a high-risk strategy in some cases to have a defendant testify. But Ken Lay is smart, he's the master of the facts, he knows what happened, and I don't have to go hold hands with him when he talks.

Another interesting comment comes after Mr. Ramsey explains why he decided to go into the practice of criminal law:

. . . [I]f there is a danger to the Republic, it comes from concentration of power in the hands of a few in Washington, not from an outside force of any sort. We're impervious to that.

No one will topple America from the outside. But we may very well lose liberties internally. And if people are not willing to stand up and challenge the government, then the government continues to assume more and more power over us as individuals.

Until you see how vicious it becomes out on the point of a stick where it pierces flesh, you don't understand how powerful the government really is and needs to be held in check.

And if there is any redeeming social value to the defense practice, it is that we are the people to whom it is given the high duty, I believe, to stand up and tell the government to go to hell when they need to be told that.

And this is such a case.

Q: Do you see the Enron Task Force as part of this potential growing evil?

A: Yes. I think that the constitution of any special group of prosecutors who pick their target before they do their investigation is dangerous and an aberration that shouldn't be tolerated.

Posted by Tom at 7:02 AM | Comments (0) |

July 24, 2004

Stros beat Brew Crew

Tim Redding pitched three-hit ball over five innings in his return to Stros' starting rotation as the Stros beat the Brewers 6-3 on Saturday night at the Juice Box.

Redding (4-6/5.66 ERA/-14 RSAA) was demoted to the bullpen after his a poor start against Texas on June 26. He made four relief appearances for the Stros before making his 15th start of the season, in which he fanned six and walked three. Darren Oliver -- who the Stros picked up from Florida on Friday -- made his first appearance and struck out three in two scoreless innings of relief work. After Mike Gallo made things interesting by giving up a couple of yaks (the Brew Crew has 17 against the Stros this season) and 3 runs in 2/3rd's of an inning in the eighth, Brad Lidge gutted up after throwing over 40 pitches in last night's game and pitched a scoreless ninth to pick up the save.

Adam Everett and Jason Lane cranked yaks for the Stros, and Everett also had a double and Lane a sac fly to plate another run. The Stros continued their mild hitting surge, whacking 11 hits that generated 20 total bases.

Pete Munro pitches the rubber game for the Stros in Sunday's matinee at the Juice Box, while Andy Pettitte gets the start on Monday in the first game of the next series with the DBacks.

Posted by Tom at 10:41 PM | Comments (0) |

That's one wild vacation bible school

And it's in The Woodlands, no less!

Posted by Tom at 5:42 PM | Comments (0) |

Kerry's financial support

This Washington Post article does a good job of analyzing the financial support for John Kerry's Presidential campaign. Mr. Kerry's supporters are made up of several disparate group, which WaPo summarizes as follows:

? Lawyers, especially trial lawyers, are the engine of the Kerry fundraising operation. Lawyers and law firms have given more money to Kerry, $12 million, than any other sector. One out of four of Kerry's big-dollar fundraisers is a lawyer, and one out of 10 is an attorney for plaintiffs in personal injury, medical malpractice or other lawsuits seeking damages.

? Much of the seed money for the Kerry presidential campaign was collected through donors to his Senate campaigns, including lobbyists with interests before two of the Senate committees on which Kerry serves: the Finance Committee and the Commerce, Science and Transportation Committee.

? Fueling Kerry's money surge havebeen credit card collections on the Internet, a technique pioneered by his onetime rival Howard Dean in 2003 but used with even greater success this year by the presumptive Democratic nominee. Kerry has been raising more than $10 million a month on the Internet, for a total of more than $65 million, compared with $8.7 million for Bush in the past year, according to officials with both campaigns.

? Kerry appears to have succeeded in creating a new class of donors for the Democratic Party. Dozens of his fundraisers are relative neophytes in big-money politics and have not been active in making their own contributions. A review of federal campaign contributions of the big Kerry fundraisers shows that one-third of them have not made more than $20,000 in campaign contributions since 1990.

? Kerry's donor base is overwhelmingly bicoastal. Almost half of the big-money fundraisers hail from either California or New York. Seventeen of the fundraisers are from Kerry's home of Massachusetts. Kerry has substantially outraised Bush in California and New York, $39.7 million to $28.5 million; Bush has crushed the Democrat in Florida and Texas, $36 million to $8 million.

WaPo also compares the fundraising base of Mr. Kerry with that of President Bush's:

Overall, Kerry's fundraising base is much different from Bush's. Kerry draws heavily on professionals with advanced degrees, academics, scientists and technology workers, in contrast to Bush's strong base in the business community. Bush has close to 100 major fundraisers -- Pioneers or Rangers, as the president's campaign calls them -- from the agribusiness, energy and power, construction, and transportation industries, compared with no more than half a dozen for Kerry.

According to PoliticalMoneyLine, five times as many corporate CEOs, presidents and chairmen gave to Bush as Kerry: 17,770 to 3,393. Conversely, the number of professors who gave to Kerry is 11 times the number of those who gave to Bush, 3,508 to 322. Actors split 212 for Kerry, 12 for Bush; authors, 110 to 3; librarians, 223 to 1; journalists, 93 to 1; and social workers, 415 to 32.

Posted by Tom at 2:38 PM | Comments (0) |

Tax simplification

James Edward Maule is a professor of tax law at Villonova University School of Law who authors a blog in which he frequently opines on various issues relating to tax policy. Today, the issue is income tax simplification and he is not optimistic about the prospects for reform:

The Democrats are trying to make tax simplification a highlight of their campaign promises. This is an amusing thought, but it?s also frightening because there are people who will believe it.

The Democrats, after all, were the pioneers in modern tax hypercomplexity. Beginning with Kennedy?s investment tax credit and magnified by a huge array of other credits, deductions, and exclusions, the tax law was made even more complicated through the enactment of phaseouts, scalebacks, and other hidden tax increases.

Not to be outdone, it didn?t take the Republicans long to get on the special interest complexity tax train. Absurd capital gain rate structures, a new cluster of credits, and all other sorts of finely tailored specially-directed provisions were crammed into an already bloated code. To use an analog from an astrophysics lecture I attended yesterday, the tax universe is expanding at a constant rate and is moving toward increasing disorder. Just like the cosmos.

Professor Maule then evaluates the Kerry Campaign's proposals for tax simplification:

John Kerry?s tax proposals are inconsistent with the notion of tax simplification, so it will be interesting to see how the Democrats reconcile the party?s ?tax simplification? message and Kerry?s proposals. To be fair, Kerry cannot be blamed for all of the tax complexity in the Code or even all of the complexity bestowed on us by the Democrats in Congress. He isn?t even to blame for some of the stuff enacted while he was in the Congress.

Nonetheless, why is Kerry willing to make his proposals within the confines of a Republican tax design? The tax on dividends is a fine example. The Republicans create complexity by making most dividends (a selection process that is itself complex) subject to lower tax rates essentially the same as the bizarre rate structure applicable to capital gains. As readers of my blog and listserv posts know, this is an approach wholly inconsistent with fairness, implification, and common sense. Kerry proposes to eliminate this rate twist by restricting it to taxpayers with incomes under $200,000. This creates yet another layer of complexity onto the already complex dividend taxation structure.

I?d be far more impressed if Kerry took the following position: ?Look, folks, dividends are just one form of income. A person with a lot of income, no matter its source, ought to pay tax at a higher rate than someone with much less income. A person with interest income from certificates of deposit is no less entitled to a low rate than is a person with dividend income. In other words, the basic tax rate structures ought to reflect this principle, and favoritism of one sort of income over another is wrong, no matter the income level. To tax a retired person who has no pension and lives on social security and $30,000 of dividend income at a lower rate than her neighbor who has no pension income and lives on social security and $30,000 of interest income is flat out wrong and contrary to all principles of fairness.?

So, why doesn't the Kerry Campaign from addressing this issue in such a common sense manner?:

What stops Kerry (or his advisors) from tackling this head on? Surely it has something to do with trying to make everyone think he or she is better off under Kerry?s proposals (which in fact is not the case). In an election campaign directed pretty much at the 10% of the voters who are ?swing votes? where?s the advantage in Kerry?s existing proposals? It doesn?t make much sense politically. So I?m wondering if in fact the Kerry tax advisors don?t quite know how to cut the Gordian knot of taxation.

Which leads Professor Maule back to where we always seem to be after each election campaign (with the notable exception of the Reagan Administration). Both political parties initially talk about tax simplification, but then promptly ignore the issue while dividing pork to special interests through tax "policy":

So as far as I?m concerned, with the exception of a few individual members of Congress whose voices of common sense are drowned out in a sea of special interest tax pandering, both major parties and both major Presidential candidates don?t earn any points on the tax question.

So no matter who wins, the tax law will become even more disordered. Will it end as the astrophysicists predict the cosmos will ?end?? Will the system collapse of its own weight, becoming a black hole that swallows all? Does anyone other than a few ?tax mavens? even understand the seriousness of the problem?

Right now, I?m going to go back to looking in 360 degrees at two shades of blue. I?ll let my brain process tax stuff later.

As an independent voter, one of my greatest disappointments with the Bush Administration and the Republican-controlled Congress is their failure to address and propose enactment of meaningful tax simplification reform. As with reform of America's broken health care finance system, the Republicans talk a good game, but then generally buckle to pressure from special interests that lobby to maintain the status quo. Professor Maule makes a good point that a Kerry Administration likely would not be any better in regard to tax simplification reform. Nevertheless, my sense is that the Republican Party badly underestimates the frustration of independent voters with their inaction on the issues of tax simplification and health care finance reform.

Given this Administration's inaction on these issues, I think it is fair to ask the following question: Are we at a point where only a Democratic Administration initiative on these issues -- modified through responsible Republican Congressional opposition -- is the only (albeit messy) route to meaningful reform legislation?

Posted by Tom at 12:52 PM | Comments (0) |

The Blawg Channel - An intriguing new blawg

Six of the pioneers of legal blogs (i.e., "blawgs") -- Tom Migdell, Dennis Kennedy, Ernest Svenson, Marty Schwimmer, Denise Howell, and Rick Klau -- are collaborating on a new blawg called The Blawg Channel. Ernie described the purpose of the new blawg in the following manner:

[to promote] some positive changes in the legal world, and, more particularly, in the newly-minted realm of lawyer blogs. Somehow the Internet seems to have injected steroids into the concept of self-publication, and we believe that we can use this blog in a way that is beneficial to lawyers (especially those that who aren't themselves blogging but who, nevertheless, want to tap into blogs as a source of useful legal information). And, since I mentioned steroids, I should mention, for what it's worth, that a couple of us are even willing to submit to drug tests.

Dennis kicked it off with a post "What five things can lawyers do to better serve entrepreneurs and their businesses?" Given the contributors' knowledge and insight, this new blawg has great potential as a resource for lawyers. I recommend that you check it out regularly.

Posted by Tom at 11:24 AM | Comments (0) |

Enron Task Force PR staff fights back

The unusual nature of Ken Lay's somewhat desperate public relations campaign in connection with the criminal charges that are pending against him has been noted earlier here, here, and here.

Not to be outdone, the Enron Task Force pumped its PR machine into action by leaking to the Houston Chronicle this allegedly secret memo between former Enron CFO Andrew Fastow and former Enron chief accountant Richard Causey.

The gist of the Chronicle article is that, according to the Task Force, the memo proves that Fastow and Causey had secret side deals in which Enron guaranteed a great rate of return for the off-balance sheet partnerships that Fastow ran and in which Enron allegedly parked poorly-performing assets and hid enormous amounts of debt. The Task Force contends that the secret memo agreement between Fastow and Causey proves that the off-balance sheet partnerships were not entities at risk and, thus, should have been reported as a part of Enron's consolidated financial statements. If that had been done, then Enron would have been revealed to the marketplace as a highly-leveraged company that would not have generated anything close to the investor interest that pushed the stock price to $80 a share in early 2001.

The Chronicle goes on to speculate that the revelation of the memo puts pressure on Mr. Causey to plea bargain with the Task Force:

A handwritten memo detailing secret side deals between ex-Enron Chief Accounting Officer Rick Causey and ex-Chief Financial Officer Andrew Fastow has defense lawyers predicting that Causey is under greater pressure to seek a deal with the government.

The document, which prosecutors have called the "global galactic" agreement, seemed a part of Enron folklore until it was cited as an actual written agreement in the indictment of ex-Chairman Ken Lay earlier this month.

Since Fastow has already pleaded guilty to two felony charges and is cooperating with the government, the written document can't hurt him in the criminal arena. Most lawyers contacted this week suspect prosecutors received the written agreement from Fastow.

"It's a very difficult document for team Causey. It's as tough a document to refute as I've seen in the Enron case," said a lawyer for one of the Enron criminal defendants who asked that his name not be used.

He and other defense lawyers in Enron cases, who spoke off the record, said there is growing expectation, largely because of this document, that Causey could be pressured to cooperate with the government.

As if facing what amounts to be a life sentence if convicted of the criminal charges against him is not enough incentive for Mr. Causey to entertain a plea bargain.

Despite the representations in the Chronicle article, most attorneys close to the Enron case have known for some time about the Fastow-Causey memo. And, although not a good piece of evidence for Mr. Causey, it is a decidedly double-edged sword for the Task Force in regard to the other Enron-related defendants. Unless the Task Force can prove that other Enron defendants such as Mr. Lay or former CEO Jeffrey Skilling knew of the Fastow-Causey memo, then the memo may be used as exculpatory evidence for other Enron defendants who could reasonably claim that the Fastow-Causey agreement was secret, that they would have never approved of it, and that the memo proves that Mr. Fastow truly was the loose cannon who manipulated Enron's finances for personal gain to the extent that he ultimately triggered its collapse.

Posted by Tom at 9:56 AM | Comments (0) |

July 23, 2004

Stros fall to Brew Crew

The Brew Crew lit up the Rocket for five runs in 5 2/3 innings and a big Stros comeback was thwarted as the Brew Crew held on for a 7-6 win on Friday night at the Juice Box.

Clemens uncharacteristically gave up three gopher balls, including a killer 3 run shot by Ben Grieve that landed in the first row of the Crawford Boxes. The Stros battled back gamely after being down 5-0, but Lidge lived dangerously in two innings of work and the Brewers were eventually able to push a run on a sac fly across in the top of the ninth for the game winner.

Tim Redding gets a rare start in the Saturday night game, and Pete Munro has been announced as the Stros' starter in the Sunday matinee game.

Posted by Tom at 10:39 PM | Comments (0) |

United busts pension plan payment

United Airlines announced today it would not contribute to employee pension plans while it remains in Chapter 11. This is the first in a number of bold moves that Chicago-based United must take in order to save the struggling airline billions in cash and make it more attractive to the private investors it needs to emerge from bankruptcy protection now that its request for federal subsidies has been rejected.

The action came a week after United skipped a $72.4 million pension payment that it owed to three of its four pension plans, and only a month or so before United faces baking hundreds of millions more in pension payments in September and October. Until that missed payment, United had met all of its pension obligations since filing for bankruptcy in December 2002.

Although difficult, United should go ahead and simply terminate the plans. The plans have enough assets to keep paying benefits to retirees in the short term, but none of the four plans has enough to assure that employees will receive future benefits they have already earned. If the airline abandons the plans, billions of dollars in liabilities for those future benefits will fall on the Pension Benefit Guaranty Corporation, a government-sponsored agency whose finances have already been heavily tapped by the collapse of pension plans at other bankrupt companies in the airline, steel and other industries.

As one would expect, leaders of United's unions reacted with outrage over United's decision but, as usual, offered no alternative to the probable liquidation that United faces if it kept making the pension payments. Greg Davidowitch, president of the flight attendants' union local at United, demanded the following explanation: "Current management should explain to us why the flight attendants should continue to support their restructuring, if this is the best they could do."

I can answer that one: "So that United can stay in business and provide you and the other flight attendants a job."

In all likelihood, United's action was probably a condition of the renewal of its bankruptcy financing (called "DIP financing"), which United advised its Chicago bankruptcy court yesterday that it had arranged. Private lenders and investors will not be willing to invest in United unless the pension obligation was either terminated or dramatically modified. United currently owes its pension plans an estimated $4.1 billion over the next five years.

United is big and many financial institutions have an interest in seeing that it continue as a going concern. However, United is in dire financial trouble, and at substantial risk of liquidation. Even with this latest move, it is not at all certain that United can -- or should -- make it.

Posted by Tom at 8:11 PM | Comments (0) |

Blakely decision prompts revised Enron indictments

The U.S. Supreme Court's recent decision in Blakely v. Washington (prior posts here) -- which has called into question the Constitutionality of both state and federal sentencing guidelines -- has prompted Enron Task Force prosecutors to re-indict defendants in the two Enron criminal cases that are scheduled for trial in the near future.

The Enron grand jury this week reindicted the six people accused in what is known as the "Nigerian barge case" scheduled for trial in August before U.S. District Judge Ewing Werlein and the seven ex-Enron executives charged in the Internet broadband division case scheduled for trial in Houston federal court this October.

Included in both new indictments are allegations that each scheme caused the loss of more than $80 million, an allegation that can add years to a sentence under existing federal guidelines. The new indictments were spurred by the Blakely decision, which held that the state of Washington's sentencing laws were unconstitutional because they only allowed judges, not juries, to consider factors that increased sentences. Some legal experts have speculated that the decision calls the Constitutionality of federal sentencing guidelines into question for the same reason.

Not explained by the Task Force in the new indictment is how the Nigerian Barge deal -- which was a relatively small transaction involving about $12 million in allegedly illegal profit for Merrill Lynch -- could have caused $80 million in damages to Enron.

Posted by Tom at 6:29 AM | Comments (0) |

George Mitchell funds grant for UT Alzheimer's research

Longtime Houston oilman and real estate developer George Mitchell and his wife Cynthia have donated $2.5 million to the University of Texas Medical Branch at Galveston to fund the creation of the George P. and Cynthia Woods Mitchell Center for Alzheimer's Disease Research, which will coordinate UTMB's expanded research into Alzheimer's disease. Mrs. Mitchell has suffered from Alzheimer's over the past several years.

The new UTMB center will focus on Alzheimer's but also will conduct research on similar degenerative neurological disorders such as Parkinson's disease. The Mitchell donation will be combined with other donations and grants to intensify UTMB's overall neurological research.

Although Mr. Mitchell has long been a major player in Houston independent oil and gas circles, he is best known as the developer and visionary of The Woodlands, the planned suburban community 30 miles north of downtown Houston that Mr. Mitchell started 30 years ago and which now is home to almost 100,000 residents.

Posted by Tom at 6:09 AM | Comments (0) |

Baylor threatens litigation against Methodist

The stakes in the ugly divorce between Baylor College of Medicine and The Methodist Hospital (earlier posts here) that has had medical officials in Houston's famed Texas Medical Center chattering for months just zoomed through the roof.

As predicted here earlier, Baylor Board of Trustees Chairman Corbin Robertson Jr. sent Methodist's board a letter on July 20 threatening legal action against the hospital if it doesn't stop alleged illegal interference with Baylor's medical business, putting its accreditation at risk by recruiting faculty under contract, evicting it from space, and refusing to negotiate a contract that would allot some faculty and residents to the hospital.

"Baylor and its longstanding programs at all affiliated hospitals will be damaged as a result of Methodist's actions," Robertson wrote in the July 20 letter. "It is our fervent desire to maintain or repair our relationship rather than engage in legal debates or worse, but you will, of course, understand the fiduciary obligation of the Baylor board to assure Baylor's compliance with law and to safeguard our assets."

Methodist officials reacted to the letter by calling its claims "highly offensive" and "not in the spirit of the Texas Medical Center," and by saying they have no intention of altering their actions. The now open free-for-all between the two former institutional partners is a remarkable development within the Medical Center community, which has always prided itself on harmonious relations between its various member institutions.

The conflict between Methodist and Baylor has been escalating since the two institutions decided earlier this year to end their 50-year relationship in which Methodist served as Baylor's primary teaching hospital for medical students and residents. St. Luke's Episcopal Hospital is Baylor's new primary teaching hospital, and Baylor is now building its own outpatient clinic. Methodist in turn recently entered into a relationship with Cornell University's Weill Medical School, which is in New York.

In the wake of their split, conflicts have developed between Baylor and Methodist over a new affiliation agreement, Baylor's use of space at Methodist, and over retention of staff and faculty physicians. After a Methodist official earlier this year stated publicly that Methodist hospital division chiefs ? most of whom also are Baylor department chairmen ? needed to choose between the two institutions, Methodist's chief of surgery resigned from the hospital and Baylor's chairman of pathology resigned from the college. More doctor fallout from the two institutions is expected.

Mr. Robertson's letter focuses on rank-and-file Baylor faculty, most of whom are under contract. The letter contends that Methodist's "aggressive recruiting" of those faculty members amounts to tortious interference with Baylor's contractual relations.

Stay tuned on this front folks. As we say in the legal community: "Let's get ready to rumble!"

Posted by Tom at 5:48 AM | Comments (2) |

July 22, 2004

Break'em up

Carlos Beltran went nuclear on the DBacks and Roy O pitched seven solid innings as the Stros won over the DBacks for the second game in a row, 10-3. The loss gave the DBacks their second 11 game losing streak this season. Geez, and we thought the Stros were having a tough stretch.

Beltran drove in three runs with his two yaks and Adam Everett tied his career high with four RBI. Beltran now has 10 homers in 23 games with the Stros, and 25 overall. This game was his third multi-homer game of the season, and he now has 11 in his young career. Man, I wish there was some way that Drayton could figure out a way to keep him around past this season.

Everett had a two-run tater and a two-run single before getting spiked in the eighth inning, which required him to leave the game (the injury did not appear serious). Mike Lamb replaced Everett and promptly hammered a two run yak in the ninth. Must have been something in the air around shortstop today.

Incredibly, the DBacks are now winless since the All-Star break and have lost eight straight at home. They have now lost 16 of their last 18 games. The 2001 World Series Championship is a distant memory.

Roy O picked up his fifth win in his past seven starts with a five-hit, seven K, seven-inning effort. He was dusted up by only a two-run yak that he gave up to Shea Hillenbrand in the sixth.

Finally, in personnel news, the Stros picked up Darren Oliver today from the Marlins' scrapheap to add another limp arm (at least he's a lefty) to the bullpen. After 4.66 ERA/-2 RSAA and 5.04 ERA/-5 RSAA seasons (RSAA explained here), Oliver is off to a 6.44 ERA/-15 RSAA start in his first 18 games (8 starts). This essentially means that the Stros are adding a lefthanded Tim Redding or Brandon Duckworth to the pitching staff. Oliver is one of those guys who has made a career out of being a mediocre lefthander. Good work if you can get it, but not exactly the shot in the arm that this Stros club needs.

The Stros now return from their quick trip to the desert with a weekend series against the Brew Crew at the Juice Box. The pitching lineup is the Rocket, Tim Redding, and then probably Pete Munro.

Posted by Tom at 11:01 PM | Comments (0) |

Kling on health care finance reform

Arnold Kling is thinking about health care finance again, and that's a good thing. The entire article is well worth reviewing, as Mr. Kling does a particluarly good job of summarizing the defects in the America's health care finance system:

* Many people lack health insurance. This includes Do-Nots as well as have-nots.

* Poor people, although covered by government programs, are not able to access health care providers in a timely fashion. They obtain too little preventive care and consequently make too much use of hospitalization. In order to improve on certain key health care indicators, such as infant mortality, the United States has to find a way to bring poor people under the umbrella of our health care system.

* The system of employer-provided health insurance distorts choices. It makes it costly for people to change jobs, especially to become "free agents." It puts ordinary firms in the health insurance business, penalizing small firms, for which this is more of a burden. It injects ordinary corporations into the decision-making process of consumers with regard to choice of insurance and even (through "preferred-provider" systems) with regard to choice of doctor.

* Our system tends to subsidize "first-dollar" coverage rather than catastrophic coverage. Catastrophic coverage is like auto insurance that pays in the case of an accident. First-dollar coverage is like auto insurance that pays for gas and tolls. First-dollar coverage results in more paperwork and reduced incentives to control costs.

* People with break-the-bank illnesses, such as diabetes or cancer, cannot switch insurance companies.

* Consumers have little incentive to take responsibility for their health. Smoking and obesity make little or no difference to insurance premiums.

* Consumers have little incentive to take financial responsibility for health insurance. Instead of encouraging consumers to save to pay for the high cost of insurance when they are older, we tell them that they can count on Medicare.

Mr. Kling does not view increasing government's role in health care finance as a viable option. Rather, he views government's best role as that of a facilitator of consumer choice:

However, the solution is not to enlarge government's role. What I would like to see is a role for government in health care that is streamlined, rationalized, and bounded. I call this approach "limited paternalism."

My belief is that most consumers are capable of making the best decisions about health care most of the time. The buzzword for this is consumer-driven health care.

Mr. Kling's consumer-driven health care finance system would have the following components:

* Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).

* Aim to switch from a system of employer-provided health insurance to consumer-purchased health insurance, by ending the tax deductibility of insurance for corporations and eliminating requirements that companies provide health insurance.

* Mandatory catastrophic health insurance for all families not eligible for Medicaid. Rather than expand Medicaid and other government programs upward to the middle class, as some Democrats propose, tighten eligibility for these programs and require co-payments for all but the poorest participants. Eventually, phase out Medicaid and replace it with health care vouchers.

* Phase Out Medicare, and instead mandate health care savings accounts (explained in this earlier post). This would change the medical portion of retirement security from a defined-benefit plan, which Congress will tend to pack with benefits that it cannot pay for, to a defined-contribution plan, which is much sounder financially and much fairer generationally.

* Institute government-provided "catastrophic reinsurance" for very high medical expenses. The Kerry campaign has proposed this for expenses of over $50,000 per year. The purpose of catastrophic re-insurance is to enable private insurance companies to compete for business without having to screen out high-cost individuals. Of all the mechanisms for spreading the cost of break-the-bank illnesses among the general public, catastrophic reinsurance would involve the government in the least number of individuals and the least number of medical decisions. While the rest of the Kerry health care plan tends to be the opposite of what I would like to see, this proposal strikes me as a good plank in any health care reform platform.

Read the entire piece as well as Mr. Kling's follow up blog post on the article. I believe that the Bush Administration and the Republican-controlled Congress' failure to address health care finance reform in a meaningful fashion is one of the big reasons undermining independent voters' confidence in the Administration during this political season.

Posted by Tom at 6:58 AM | Comments (4) |

The politics of bashing

Professor Ribstein has been noting the increasingly polarized nature of political debate in America, best reflected by the tendency of many critics of President Bush to eschew fair criticism for ad hominem attacks.

Although Professor Ribstein is correct that Bush-bashing is prevalent, I'm not certain that this is all that unusual. American Presidential campaigns have often been ribald affairs in which strident supporters of one candidate have characterized the opposing candidate as evil, immoral, moronic, or worse.

For example, the campaigns immediately after George Washington's terms in office were no picnic, and later, Andrew Jackson's opponents used many of the same tactics that the Bush-bashers use now. Even Abe Lincoln endured a good deal of these types of attacks in the 1864 election, and more recently, Barry Goldwater in 1964 and Richard Nixon in 1972 were often characterized as the epitome of evil by their opponents. Particularly during the 1980 election, opponents of Ronald Reagan often portrayed him as an idiot mouthpiece controlled by others.

However, the WSJ's ($) Alan Murray in his Political Capital column this week may point to the reason that the Bush-bashers are using this particular technique during this Presidential campaign:

To an unprecedented degree, Americans already have decided how they are going to vote in November. Polls differ, but all suggest that between 43% and 45% of voters plan to vote for George W. Bush and won't give any consideration to John Kerry, and an equal percentage plan to vote for Sen. Kerry, and won't give any consideration to President Bush.

That leaves just 10% to 15% of voters who say they remain uncertain about how they will vote. And Republican pollster Bill McInturff says his research shows even most of the undecided voters are less malleable than the label indicates. "The polarization is exceptional," says Democratic pollster Peter Hart. "Even the independents break down into pro-Bush and anti-Bush groups." Kerry strategist Mark Mellman goes further: "All the evidence suggests we are fighting over less than 10% of the electorate, and probably less than 6%." Says Mr. McInturff: "I've never seen anything like this in my 25-year career."

Could it be that the Bush-bashers have concluded that their approach is the most effective means by which to persuade a majority of this 10% undecided group? Or is it simply a means by which to maintain the passion of the base of Bush opponents to ensure that base turns out on election day? Or both?

Update: Professor Ribstein notes the difference in the nature of the current Bush bashing with previous President bashing.

Posted by Tom at 6:28 AM | Comments (1) |

The winner of the CenterPoint Energy auction

A group of four of the largest private-equity funds teamed up to win the hotly-contested auction for Texas Genco Holdings Inc., a merchant generating company spun off from CenterPoint Energy Inc., in a deal valued at $3.65 billion. CenterPoint stands to realize $2.9 billion in cash when the deal is closed, likely in the first quarter of 2005. The deal is subject to regulatory approval.

The buyers include Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. LLC and Texas Pacific Group, which have been separately shopping the depressed energy sector.

Among the losing bidders was a group of hedge funds advised by Lazard Freres & Co., which reflects the growing influence of such funds in captial markets. Hedge funds generally invest in stocks, bonds and other financial assets because it is easier to trade in and out of such investments. However, as hedge funds accumulate big pools of capital, they are starting to lend to companies and make longer-term investments in certain companies.

The CenterPoint auction has been widely watched in the power industry because it includes more than 14,000 megawatts of Texas generating plants, which will likely be the largest sale of power assets by a U.S. company this year. The sale comes amid a debate over whether CenterPoint can charge customers to recover so-called stranded costs in plant investments. Under regulatory rate rules, CenterPoint is currently arguing to state regulators that the generating plants it is selling are actually worth much less than what the winning bidders have agreed to pay. If it succeeds in its argument, then CenterPoint would be able to charge its Houston area utility customers higher rates.

Posted by Tom at 5:46 AM | Comments (0) |

Pettitte stops Stros skid

Andy Pettitte pitched a season-high eight innings as the Stros extended the D-Backs losing streak to 10 in a 5-2 victory on Wednesday night at the BOB in Phoenix.

Pettitte (6-3), who was 1-2 in his previous six starts, pitched in Phoenix for the first time since losing Games 2 and 6 of the 2001 World Series for the New York Yankees. He took a five-hit shutout into the eighth in this game before allowing Scott Hairston's double and Steve Finley's tater, which pulled the D-Backs to 3-2. Brad Lidge made things interesting by walking two in the ninth, but finally secured the save.

Carlos Beltran and Craig Biggio each hit a solo yak for Stros, who had 10 hits, but continued their season long trend of leaving 14 runners on base.

Roy O goes for the Stros tonight as they attempt to put a winning streak together at the expense of the hapless D-Backs. The Stros return to the Juice Box for a weekend series with the Brew Crew after their quick trip to Phoenix.

Posted by Tom at 5:25 AM | Comments (0) |

July 21, 2004

Making foreign policy decisions based on imperfect intelligence

Stephen Sestanovich is a senior fellow at the Council on Foreign Relations and a professor of international diplomacy at Columbia University. From 1997 to 2001 he was United States ambassador at large for the former Soviet Union.

In this intelligent NY Times Op-ed, Professor Sestanovich points out that key foreign policy decisions are often the product of imperfect intelligence and government officials' reaction to it. Sensitive intelligence is often too weak to guide important decisions, and if the information fits what the governmental officials already believe -- or what they want to do -- it often gets too little scrutiny. He then relates a humorous story:

Most anyone who's worked in government has a story - probably re-told often these days, given the Iraq debate - about facing a big decision on the basis of information that then turned out to be wrong. My favorite is from August 1998 when, with Bill Clinton just three days away from a trip to Moscow, the Central Intelligence Agency reported that President Boris Yeltsin of Russia was dead.

In 1998 the news that Mr. Yeltsin had died was, of course, no more surprising than the news, in 2003, that Iraq had weapons of mass destruction. It matched what we knew of his health and habits, and the secretive handling of his earlier illnesses. Nor was anyone puzzled by the lack of an announcement. Russia's financial crash 10 days earlier had set off a political crisis, and we assumed a fierce Kremlin succession struggle was raging behind the scenes.

In the agonizing conference calls that ensued, all government agencies played their usual parts. The C.I.A. stood by its sources but was uncomfortable making any recommendation. National Security Council officials, knowing Mr. Clinton wasn't eager for the trip, wanted to pull the plug immediately. The State Department (in this case, me) insisted we'd look pretty ridiculous canceling the meeting because Mr. Yeltsin was dead - only to discover that he wasn't.

Eventually we decided that the Russians had to let the deputy secretary of state, Strobe Talbott, who was in Moscow for pre-summit meetings, see Mr. Yeltsin within 24 hours or the trip was off. Nothing else would convince us: no phone call, no television appearance, no doctor's testimony. The next day Mr. Yeltsin, hale and hearty, greeted Mr. Talbott in his office, and two days later Bill Clinton got on the plane to Moscow.

When the trip was over, I phoned the C.I.A. analyst who had relayed the false report. He was apologetic - sort of. "You have to understand," he said. "We missed the Indian and Pakistani nuclear tests last spring. We're under a lot of pressure not to miss anything else."

So, what do governmental officials do with such imperfect information?:

When policymakers have imperfect information about a serious problem (which is almost always), what should they do? The answer, then as now, is to shift the burden of proof to the other guy. If we had been denied that meeting with Mr. Yeltsin, it would hardly have proved that he was dead. But we would have canceled the trip all the same. Russian uncooperativeness - not our poor intelligence - would have left us no choice.

And how does that relate to the current debate over the Bush Administration's decision to go to war in Iraq on the basis of imperfect intelligence?:

Going to war and canceling a trip are vastly different matters, but what the Bush administration did with Saddam Hussein in the run-up to war followed the same rule: it challenged him to prove that American intelligence was wrong, so that the responsibility for war was his, not ours.

Clearly, President Bush and his advisers did not expect Saddam Hussein to cooperate in this test, and might still have wanted war if he had. But even if the administration had handled other aspects of the issue differently, it would still have been necessary to subject Iraq to a test. In our debate about the war, we need to acknowledge that the administration set the right test for Saddam Hussein - and that he did not pass it.

When America demanded that Iraq follow the example of countries like Ukraine and South Africa, which sought international help in dismantling their weapons of mass destruction, it set the bar extremely high, but not unreasonably so. The right test had to reflect Saddam Hussein's long record of acquiring, using and concealing such weapons. Just as important, it had to yield a clear enough result to satisfy doubters on both sides, either breaking the momentum for war or showing that it was justified.

But, some protest, does not this approach treat Saddam Hussein as guilty until proven innocent?:

They're right. But the Bush administration did not invent this logic. When Saddam Hussein forced out United Nations inspectors in 1998, President Clinton responded with days of bombings - not because he knew what weapons Iraq had, but because Iraq's actions kept us from finding out.

A decision on war is almost never based simply on what we know, or think we know. Intelligence is always disputed. Instead, we respond to what the other guy does. This is how we went to war in Iraq. The next time we face such a choice, whether our intelligence has improved or not, we'll almost surely decide in the very same way.

The Bush Administration deserves much criticism on a variety of issues. However, its decision to go to war with Iraq -- and its overall prosecution of tha war -- are not issues that deserve the criticism that some politicos are heaping upon the Administration during this political season.

Hat tip to Bill Hesson for the link to this fine op-ed.

Posted by Tom at 9:14 PM | Comments (0) |

J.P. Morgan ups ante in Enron litigation

In announcing its second quarter results today, J.P. Morgan Chase & Co. announced that it has increased its total litigation reserve to $4.7 billion before taxes. The reserve covers Morgan's contingent liability in the ongoing Enron civil litigation and other securities cases, including the company's dispute with WorldCom investors.

Excluding the litigation reserve charge, J.P. Morgan Chief Executive William B. Harrison Jr. described the second-quarter results as "comparable to the prior year." That's a bit like saying that, except for the elephant in the middle of the room, the rest of the room remains quite neat and tidy.

Posted by Tom at 9:27 AM | Comments (0) |

July 20, 2004

Stros lose again

The Stros might as well be in "Groundhog Day." The story goes like this:

Stros take lead.

Stros blow lead.

Stros lose.

Munro pitched well and deserved to win. However, Weathers and Harville stunk in relief and gave up a 4-1 lead. Bags and Ensberg had solo yaks and a couple of hits each, but the rest of the Stros hitters beyond Berkman remain tepid. Even Beltran is being affected, as his OBP fell to a pathetic .318. Bad hitting is contagious.

Andy Pettitte opens the Diamondback series on Wednesday in Phoenix. At least the Stros will be playing someone their speed in the D-Backs (31-63). The Stros are now only a game out of last place in the NL Central.

Posted by Tom at 10:10 PM | Comments (0) |

Continental posts quarterly loss

Houston-based Continental Airlines annonced that it posted a net loss of $17 million for the second quarter, citing weak domestic fare prices, high fuel costs and expenses associated with retiring aircraft.

Continental, which is the No. 5 U.S. carrier, reported net income for the year-earlier period of $79 million, or $1.10 a share, which was primarily due to war-related government subsidies. The latest quarter's loss included a charge of $19 million for the retirement of leased MD-80 jets. Excluding that charge, Continental would have eked out a profit of $2 million during the quarter. Continental's total revenue improved 13%, to $2.51 billion from $2.22 billion a year earlier, as passenger revenue improved 15.1% to $2.3 billion. The company's consolidated load factor increased to 77.6% from 75.9%.

Continental has generally competed well against the rising tide of low-cost carriers as the company's chapter 22 (i.e., two prior chapter 11 cases) case tends to focus management on lean operations. Nevetheless, management reported that the company will have to cut costs beyond its original projection of $900 million annually to offset lower than expected ticket prices and high fuel costs.

A day earlier, Delta Air Lines reported a higher-than-expected loss of $1.96 billion for the second quarter, with weak fares undercutting a surge in passengers that pushed traffic to its highest level since the summer of 2000. Delta is the prime prospect to be the next American carrier to land in chapter 11.

Posted by Tom at 8:59 AM | Comments (0) |

Lay PR campaign continues

According to this Houston Chronicle article, Ken Lay's criminal defense attorney, Mike Ramsey, is apparenly not happy that Enron Task Force lawyers had sent letters to U.S. District Judge Sim Lake in late May and mid-June indicating that they were going to indict Mr. Lay in the pending criminal case against former Enron CEO Jeffrey Skilling and former Enron chief accountant Richard Causey.

Mr. Ramsey is not happy because the Task Force lawyers, at the same time they were sending these letters to Judge Lake, were advising Mr. Ramsey that they had not decided whether they were going to indict Mr. Lay. Mr. Ramsey says that he would never have met with the prosecutors to attempt to persuade them not to indict Mr. Lay if he had known that they had already decided to indict Mr. Lay.

Mr. Ramsey presumably gave this information to the Chronicle with a straight face.

Posted by Tom at 8:33 AM | Comments (0) |

July 19, 2004

Dodgers edge Stros

Dan Miceli gave up the back-to-back homers in the eighth inning to allow the Dodgers to edge the Stros 7-6 in a wild game on Monday night at the Juice Box. The win was the Dodgers' seventh straight win, 13th out of their last 14, and dropped new Stros manager Phil Garner's record to 1-3 since taking over from Jimy Williams during the All-Star break.

After the Stros took an early lead, the Dodgers scored four runs in the sixth inning, with three unearned because of two Stros errors, including another adventure in left field by Bidg, who is proving just how underrated Berkman was as a leftfielder. Ensberg cranked a dramatic three-run yak in the sixth to give Stros a 6-5 lead, leading to Miceli's gopher balls in the eighth that put it away for the Dodgers.

Starter Brandon Duckworth had an amazing performance, somehow allowing only one run in 4 2/3rd's while allowing six hits, one K, and four walks (hint: the Stros turned three DP's behind him). After Duckworth's latest tightrope performance, GM Gerry Hunsicker must have taken great pleasure in Carlos Hernandez's 7 inning, 10 K, no-hit performance on Wednesday night at AAA New Orleans.

Pete Munro takes the hill in game two of the Dodger series on Tuesday night at the Juice Box. Any bets on whether Hernandez takes the next non-Oswalt-Clemens-Pettitte start in the rotation?

Posted by Tom at 11:05 PM | Comments (0) |

The addictive nature of governmental subsidies

Edward Lotterman is a Twin Cities-based economist who writes a column for the Twin Cities Pioneer. In this column, Mr. Lotterman points out that the original good intentions of governmental subsidies have, over the decades, generated obsolescence:

News about subsidies for airlines and the U.S. cotton industry illustrate how addictive unsustainable or indefensible flows of money turn out to be.

Once a company, group or economic sector becomes used to above-market income of some type, stopping the flow is traumatic. This is particularly true when such income is incorporated into the price of some fixed resource.

First, Mr. Lotterman addresses U.S. government subsidies for cotton farmers:

The U.S. government subsidizes cotton production to the tune of some $3 billion per year. Virtually all the subsidy flows to fewer than 30,000 cotton farmers. At some $100,000 per producer, cotton is the most heavily subsidized of the major U.S. agricultural commodities.

[C]otton farmers have become used to streams of income that apparently are unsustainable over the longer term. Ending the flow is financially and politically troublesome . . .

The goal of [cotton subsidies] was to improve incomes for small farmers. Cotton subsidies did little to accomplish this. In fact, they contributed to the concentration of cotton production into fewer and fewer hands. As Ricardo would have predicted, most of the subsidies flowed into higher prices for that farmland especially suited for growing cotton. After paying the high prevailing rental or purchase price for good land, a new cotton farmer would enjoy only moderate income even with the subsidy.

Our country should do away with cotton subsidies, not as a favor to producers on other continents, but because they are economically wasteful and unjust.

And, as Professor Ribstein has previously pointed out, Mr. Lotterman observes that governmental subsidies of airlines has had much the same effect:

Established airlines got quasi-monopolies when the government regulated routes and fares. Increases in costs such as fuel or salaries eventually got passed along to consumers in the form of higher ticket prices. Significantly fewer people flew then than now and those who did were either business and government travelers or higher income people. As economists would say, demand was inelastic. Higher fares did not reduce ticket sales greatly.

In this environment, pilot salaries grew inexorably compared to the levels that would have prevailed in a free-market situation. At the end of World War II, pilots did not earn substantially more than bus drivers or locomotive engineers. Twenty-five years later, many earned two to five times as much.

All this began to collapse when former President Jimmy Carter initiated deregulation of the airline industry by appointing economist Alfred Kahn to head the Civil Aeronautics Board. In the intervening quarter-century, the real cost of air travel has plummeted and the proportion of the population flying has grown tremendously. Many of the once-famous carriers ? Pan Am, Braniff, Eastern, TWA ? have bitten the dust while Northwest, United, Delta and others struggle financially.

Some analysts predict that eventually all of the "legacy" carriers that existed before 1978 will go under. Corporate names may survive, but all the shareholder equity and employee pension claims will turn to dust.

Mr. Lotterman concludes by predicting that the subsidies will eventually end and that the industries will eventually shake out, but then makes the following insightful observation:

Adjustment will come and it will be painful for pilots and for cotton farmers, especially those who purchased land in recent decades. The net effect will be to make our society more efficient and fair.

The whole process would be less traumatic, however, if we had not let cotton subsidies and airline salaries grow to the inordinate levels in the century just ended.

To which Arnold Kling (hat tip for the link) asks the following question:

Can you think of examples of industries that once were subsidized that now are thriving subsidy-free?

Posted by Tom at 9:02 AM | Comments (0) |

Protecting Lance

Kirk Bohls provides this Austin American-Statesman (free online registration required) article profiling the two men who are providing bodyguard services for Lance Armstrong during his current Tour de France expedition. The entire column is interesting, spiced by the following two comments:

Asked if it's a grueling assignment since Lance is somewhat of a rock star, [one of the bodyguards] corrected, "Lance is a rock star."

[A]lthough he does get paid for this work. And how much does he make, trying to keep half of France off Lance's back?

"Not enough," he said with a wide grin. "Not enough."

I mentioned this article to one of my teenage daughters, and she responded regarding Armstrong:

"Oh, you mean the guy who is Sheryl Crow's boyfriend?"

Posted by Tom at 8:23 AM | Comments (0) |

Breaking the rules of white collar defense

Robert Shapiro, the L.A.-based criminal defense attorney who put together O.J. Simpson's criminal defense team, writes this Wall Street Journal ($) op-ed today in which he takes issue with a number of tactics that Martha Stewart and her defense team took in defending Martha. Mr. Shapiro is particularly critical of Martha's belief that she could personally persuade prosecutors that she had not lied about the stock sale and, in so doing, makes this salient point about litigating with the government:

While everyone entertains the fantasy of being publicly and dramatically vindicated by a "not guilty" verdict, the fact is that as a defendant the odds are stacked against you at trial. In white-collar cases, particularly federal ones, prosecutors tend to be very experienced, highly skilled, and extremely able. What's more, they are backed up by almost unlimited investigative resources, as well as by laws that give them ready access to financial records. In short, the playing field is hardly level.

Posted by Tom at 8:01 AM | Comments (0) |

July 18, 2004

Stros win first for Garner

The Rocket won his first game in three weeks and the Stros jacked three solo yaks in a 5-3 win over the Padres at the Juice Box on Sunday, stopping a four-game losing streak and giving Phil Garner his first win as the Stros' skipper.

Clemens was his usual reliable self, retiring 16 consecutive batters starting with the final out of the first. The win was his 321st career victory, moving three behind Nolan Ryan and Don Sutton, who share 12th place on the all-time win list. Clemens allowed two runs and four hits in seven innings, striking out five and walking just one.

Beltran, JK and Bidg cranked the taters, and out machine junior Adam Everett came through with a two-out, two-run single in the bottom of the seventh to seal the win.

Pete Munro and Brandon "Gopherball" Duckworth start the first two games of the upcoming Dodger series at the Juice Box, so a winning streak does not look promising. This Stros team simply does not hit well enough to get by with below average pitching, which is what the Stros will generally receive from Munro and Duckworth.

Posted by Tom at 9:16 PM | Comments (0) |

July 17, 2004

Stros are getting monotonous

The Stros losing campaign continued Saturday afternoon as the Padres beat them at the Juice Box for the second game in a row, 7-4.

The Stros are now 44-46 and have dropped four straight and eight of 10, falling two games below .500 for the first time since they were 0-2 on April 6. They remained a season-high 12 games behind the NL Central-leading Cards.

The Pads blew open the game with a five-run fifth. After Craig Biggio had another adventure in left field misjudging Burroughs' drive, Loretta hit a two-run homer on the next pitch. Game, set, match.

Roy O, who beat the Pads on July 7 for the fourth straight time, gave up seven runs and eight hits in 4 2/3 innings. It was only the second time in his career that he's allowed seven or more earned runs. Jason Lane hit an RBI grounder in the bottom of the fifth, Lance Berkman hit a two-run homer in the sixth and Jeff Bagwell homered in the eighth, his 12th of the season but first in 81 at-bats. Ouch.

The Rocket tries to pick up this moribund group of Stros in the Sunday matinee, as the Dodgers arrive on Monday for a three game set.

Posted by Tom at 10:14 PM | Comments (0) |

John Kerry, Red Sox fan?

Baseball writer Peter Gammons passes along this tidbit on a recent radio interview for which John Kerry's staff did not prepare him particularly well:

Thing called love

We have been led to cynically believe that many politicians are disingenuous and generally phony, but few will ever beat Massachusetts Senator John Kerry. This man, who changed his middle initial to be JFK and at an anti-Vietnam rally threw someone else's medals into the water, made a self-promotion appearance with Boston talk-show maven Eddie Andelman and claimed he was a big Red Sox fan from his days growing up in Groton, Mass. And at the promotion he said Eddie Yost was his favorite player.

The problem with that is just the simple fact that Eddie Yost never played for the Red Sox.

Posted by Tom at 2:56 PM | Comments (3) |

The inevitable errors of war

/Victor Davis Hanson's latest NRO column is another outstanding history lesson the inevitable mistakes of conducting warfare. Good stuff.

Posted by Tom at 9:09 AM | Comments (0) |

Ken Lay's insider trading

One of the most interesting aspects of the government's indictment against former Enron Chairman and CEO Kenneth Lay is that it does not includes any insider trading charges. On the other hand, the SEC's civil complaint against Mr. Lay includes insider trading charges. Why the difference?

This Business Week article does a good job of summarizing why the government elected not to bring the insider trading charges and why the SEC believes that it can make its insider trader case against Mr. Lay:

In 2001, Enron Corp. was quietly lurching from crisis to crisis. Whatever he did or didn't know about Enron's woes at the time, Kenneth L. Lay rarely missed an opportunity to talk up the oil-and-gas trading concern with analysts and Enron employees. The ex-chairman and CEO even urged workers to follow his lead and buy stock. From August through October, 2001, Lay bought $4 million worth of Enron shares -- which he cites as proof that he had faith in the company.

But there's a hitch. Privately, Lay was dumping far more stock than he publicly acquired, according to criminal and civil charges filed against him on July 8. In the same three months, he sold $26 million of Enron shares. Altogether in 2001 he unloaded Enron stock for $90 million. But because those shares were sold back to Enron, Lay did not have to disclose the sales until 2002, thanks to a loophole -- since closed -- in Securities & Exchange Commission rules.

The difference between Lay's public statements and private actions is the foundation of the SEC's civil charges -- one of the more aggressive interpretations of insider-trading law in decades. Opening a new chapter in the SEC's pursuit of alleged corporate crooks, the agency, in effect, is putting all CEOs on warning: They now face the risk of violating insider-trading laws when they trade company stock or borrow against it.

The article then goes on to explain how Mr. Lay cashed out of Enron stock while publicly appearing to support the company:

In 2001, according to the suit, he borrowed a total of $77.5 million from Enron, spread out over 20 transactions, and repaid the loans entirely with Enron shares. The repayments often came within a few days. Such stock sales vastly outweighed purchases. In seven transactions from August, 2001 -- when he resumed the CEO job after Jeffrey K. Skilling's surprise resignation -- through October, 2001, he converted more than 918,000 shares into $26 million. "He was selling all the time," says Duke University law professor James D. Cox. "And the number of shares he sold is staggering."

Lay doesn't see it that way. In public he has said that he sold because he needed the funds. He had pledged his shares as collateral for some $100 million in personal loans from three commercial banks. When the value of his Enron stock declined, his bankers made margin calls or demands that he increase his collateral. In his trial, Lay is expected to claim that, with few other assets he could easily sell to satisfy those demands, he was forced to borrow from Enron, repay the Enron loans with stock, and use the proceeds to pay off the banks.

And the foregoing is the crux of why the Justice Department passed on indicting Mr. Lay for illegal insider trading, while the SEC decided to take its shot on those causes of action in its civil complaint:

Justice would have had to show beyond a reasonable doubt that Lay possessed important information the market lacked and that he intentionally traded to take advantage of that information. The SEC's burden of proof is lower. It need only show that the preponderance of evidence points to insider trading. The SEC complaint argues that Lay's trades reveal an effort to pump up the shares, dump his stock, and skirt disclosure rules that might tip off investors.

Under then-SEC rules, sales of stock back to the company did not have to be reported until 45 days after the close of the calendar year in which the trades occurred. So when Lay urged Enron employees to buy on Sept. 26, 2001, he knew there would be no record of his sales. SEC filings showed only that he had bought that $4 million worth of stock.

The SEC case, however, is equally significant for the new liabilities it could create for other execs. Agency officials believe it's relatively common for managers to try to have their cash and keep their shares, too, by borrowing against their stock. Doing so allows them to avoid sending bearish signals to investors while still monetizing their shares. The Lay case seems to show that the SEC views the practice as deceptive. "I think the SEC clearly is saying that you're going to have to disclose if you're borrowing against your stock because, in effect, that's a sale," says UCLA law professor Stephen M. Bainbridge.

The agency also is warning that execs may be setting themselves a trap if they use shares as collateral. Monetizing shares via loans could create a motive to pump up the stock and, as with Lay, subject execs to insider-trading charges if they later sell because of margin calls, . . .

UCLA law professor Stephen Bainbridge -- who provides the consistently best analysis in the blogosphyere on issues pertaining to corporate law -- notes in this post that the SEC is charting a new course in the Lay case that should give all corporate officers pause as they consider borrowing money with their company stock pleadged as collateral.

Posted by Tom at 8:48 AM | Comments (0) |

The men who would be Presidents

Ryan Lizza of the New Republic reviews three books from three former Democratic candidates for President -- George McGovern, Gary Hart, and Mario Cuomo -- in which the three provide their views on how the Democratic Party should regain control of the American government. Particularly interesting are Mr. Hart's views toward redirecting American foreign policy, which Mr. Lizza summarizes in the following manner:

Few Americans have more right to say ''I told you so'' than Gary Hart. During the 1990's, when the foreign policy establishment was obsessed with Star Wars and other issues left over from the cold war, Hart headed a commission on national security with another former senator, Warren Rudman. Its report, issued early in 2001, warned of catastrophic terrorist attacks in which ''Americans will likely die on American soil, possibly in large numbers.'' Incredibly, the work of the Hart-Rudman commission was widely ignored by the press and the Bush administration.

''The Fourth Power'' builds on the many ideas of the commission, offering sweeping recommendations for how America should orient its foreign policy in the 21st century. Hart's timely central argument -- an alternative to both the neoimperialist impulses of the Bush administration and the creeping Kissingerian realism of the Kerry campaign -- is that the traditional military, political and economic powers of American foreign policy should be constrained by and imbued with a fourth power, America's unique principles. To those who advocate a crusading foreign policy of preemption to ''rid the world of evil'' and spread democracy -- even at the point of a gun -- Hart argues that the first casualty would often be America's moral authority: ''There is a vast difference between advocating, as I do, that America live up to its own principles and advocating, as the Bush administration does, that the rest of the world live up to America's principles.'' At the same time, Hart counters Kerry's retreat to a Kissinger-style foreign policy, based largely on America's interests, with a humble but still idealistic internationalism, with the spread of liberal democracy at its core. It's a call for nation building without Abu Ghraib.

In 1993, Hart sent President Clinton a memo arguing that the end of the cold war was the ideal occasion to reorient the military ''for new missions relating to hostage rescue, counterterrorism, low intensity conflict, guerrilla warfare and stabilization of new democracies.'' Much of this prescient document is reprinted as an appendix. We were told.

Posted by Tom at 8:00 AM | Comments (0) |

July 16, 2004

Stros continue to lose

The Phil Garner era began as the Jimy Williams era ended as the Stros lost meekly to the Padres on Friday night at the Juice Box, 5-1.

Andy Pettitte gave up 4 runs on 7 hits in five innings, which is a death sentence for this punchless Stros team. The Stros had their usual six hits against five Padre pitchers, and only one of those was an extra base hit, a triple by Beltran. With the loss, the Stros fell below .500 at 44-45 and the GM's office is fielding more trade proposals by the minute.

Roy O gives the Stros a decent chance in the Saturday night game amid rumors that management is dangling Beltran to the Dodgers for a bunch of prospects.

Posted by Tom at 10:57 PM | Comments (0) |

The Chesnoffs are everywhere

On the heels of my earlier post today on Richard Chesnoff's NY Daily News op-ed, I clicked on the television to watch Martha Stewart's statement after her sentencing. Much to my surprise, my old friend David Chesnoff -- one of Las Vegas' best attorneys and Richard's younger brother -- was standing there next to Martha. Looks like Martha is strengthening her legal team.

Chez and I struck up our long friendship while toiling together for the same Houston law firm in our first job of out of law school in 1979-80. After practicing civil trial law for a year, Chez decided that he wanted to practice criminal defense law, so he took a job in Vegas. He and I loaded everything he owned into and on top of his late model Fiat and we embarked on a legendary road trip down I-10 from Houston to Vegas. Chez quickly established himself in the Vegas criminal defense bar, and has risen to the top of his profession over the past 24 years.

Adding Chessie to your legal team is a good move, Martha.

And, as usual, Professor Ribstein puts Martha's sentence and the sentence given in the sad case of Jamie Olis in proper perspective.

Posted by Tom at 11:27 AM | Comments (0) |

Homeland Security?

If you read nothing else today, read this harrowing account of a family's experience in a recent domestic flight.

Please pass this along the next time you hear someone complain that there is no reason to sacrifice any civil liberties in order to fight the war against the radical Islamic fascists.

Michelle Malkin is running posts on her blog attempting to verify the accuracy of the events described in the account. The skeptics speculate that, if the events happened at all, that the men were either praying or members of a musical group. Which, in my mind, is no justification for allowing such behavior to occur on a commercial airline flight.

Hat tip to Instapundit for the link to this article.

Posted by Tom at 8:54 AM | Comments (0) |

Revisiting the 1970's - Are we better off?

Arnold Kling provides this excellent TCS article in which he forcefully reminds us that the standard of living for the vast majority of Americans is far better now than it was 30 years ago. The entire article is a must read, and Mr. Kling concludes as follows:

The reality is that neither the rise in health care expenditures nor the standard of living of working Americans represents a problem. The false portrayal of these issues by the Left is more likely to provoke a crisis than to solve one.

Read the entire piece.

Posted by Tom at 8:26 AM | Comments (0) |

Richard Chesnoff on the Jordanian option

Richard Z. Chesnoff has long been one of America's leading correspondents on Middle East affairs, and his pieces have been noted here on several previous occasions.

In this NY Daily News op-ed, Mr. Chesnoff comments on the new ideas that are springing from Israel and Jordan regarding a resolution to the Palestinian problem. Although not yet the subject of widespread political support, the ideas are are notable in that they do not include relying on Yassir Arafat for support, as Mr. Chesnoff notes:

[The] extreme ideas are not welcome among Palestinians, Jordanians or most Israelis. But in between there may be a meeting of the minds. Why not offer financial compensation to West Bankers willing to to move to unsettled parts of Jordan? Why not a border secured in part by Jordan? Why not a Palestinian West Bank and Gaza (minus border areas Israel needs for security) linked to Jordan with an economic union bonding both to Israel's burgeoning economy?

Anything would be better than the options Arafat & Co. offer: more blood, more corruption, more hatred, more suffering for all sides.

Amen. Read the whole piece.

Posted by Tom at 8:11 AM | Comments (0) |

Tyco's general counsel acquitted

Mark Belnick, the former Paul, Weiss, Rifkind, Wharton & Garrison partner who was Tyco's general counsel during the Dennis Kozlowski scandals, was acquitted yesterday of corporate fraud charges that involved an allegedly unapproved $15 million bonus and $14 million in personal real estate loans.

The article on the acquittal provides the normal exaggerations regarding the impact of the acquittal on prosecutors and defense attorneys, suggesting that it will make the former more cautious in future white collar prosecutions and that it will make the latter bolder in defending hte cases. In reality, the acquittal has very little effect in that regard.

However, the article does provide the following important information about the trial:

Mr. Belnick relied on the advice of the chief financial officer, Mr. Swartz, on the propriety and the disclosure of the relocation loans, Mr. Weingarten [Belnick's defense attorney] told the jury. "There was nothing unusual, extraordinary or improper about seeking advice from that source," he said.

Over nearly a week of testimony, Mr. Belnick essentially stuck to that argument, saying that he had done nothing wrong, had not intended to do anything wrong and had relied on advice from people he had no reason to distrust.

So, Mr. Belnick did what neither Martha Stewart nor Jamie Olis elected to do -- i.e., testified during his criminal trial.

Although the temptation is great not to have a white collar criminal defendant testify during a trial and the decision can always be defended on technical grounds, the bottom line is that jurors want to hear what the white collar defendant has to say regarding the criminal charges. The decision not to testify is not the only reason that Ms. Stewart and Mr. Olis were convicted, but my experience is that the risk of conviction in white collar criminal prosecutions increases substantially if the jurors do not hear directly from the defendant.

Posted by Tom at 7:43 AM | Comments (1) |

July 15, 2004

Enron reorganization plan approved

U.S. Bankruptcy Judge Arthur Gonzalez approved Enron Corp.'s Chapter 11 reorganization plan today in New York, under which $63 billion of claims will share about $12 billion in cash and the value of stock in newly formed companies that will hold and probably sell Enron assets.

Enron now employs 9,300 people, about a third as many as before its bankruptcy filing. Inasmuch as the Enron plan essentially calls for a going concern liquidation of Enron's assets, most of the employees who are left will become employees of other companies that will hold and then sell Enron's assets.

Enron's domestic pipelines are being transferred to CrossCountry Energy Corp., which Enron is currently selling at a rather lively auction. Enron is awaiting regulatory approval on a sale of Portland General Electric, its Oregon utility, to a group headed by Texas Pacific Group, a Fort Worth, Texas, investment concern. A substantial portion of Enron's remaining foreign assets are being transferred to a new entity, Prisma Energy International Inc., which may be sold or spun off to creditors.

However, the main legacy of Enron's plan is the litigation that Enron's bankruptcy has generated. Literally hundreds of lawsuits have been filed against former employees, trading partners, and many financial institutions that furnished money to partnerships that Enron used to mask its highly-leveraged financial condition. Those cases will continue to drain attorneys' fees from Enron's bankruptcy estate for years.

The Enron bankruptcy estate has already paid Enron's attorneys, various other committee attorneys, and two examiners' attorneys in the hundreds of millions in attorneys fees. When the final professional fees tab is calculated, the Enron case almost certainly will be the most expensive chapter 11 case in the history of reorganization law in the United States.

Posted by Tom at 9:40 PM | Comments (0) |

Southwest Airlines CEO resigns

James F. Parker, Dallas-based Southwest Airlines' CEO, unexpectedly resigned yesterday after just three years. The publicly stated reason for the resignation was the ubiquitous "personal reasons," such as the "draining" nature of the job. Airline CEO's are becoming as disposable as football coaches. Mr. Parker becomes the sixth major airline CEO to step down since the 9/11 attacks.

However, the resignation coincidentally came just hours after Southwest reported that its second-quarter earnings had fallen 54%, although that dip was attributable mainly to labor-related charges in the current quarter and a onetime gain a year earlier. Nevertheless, as with the entire airline industry, Southwest has been troubled by labor troubles, higher operating costs and terrorism concerns since the 9/11 attacks. Moreover, although it pioneered the no-frills, low-cost approach, Southwest faces increased competition from new low-cost upstarts who have chased its business and kept fares under pressure.

Mr. Parker's undoing probably was due to the acrimonious labor contract talks with the flight attendants union that the CEO complained became "personal" and "off track." They were were settled only with the involvement of an outside mediator and the company's hard-charging co-founder and chairman, Herbert D. Kelleher, whom Mr. Parker had to bring in as lead negotiator in the labor negotiations.

Mr. Parker had been seen as a transitional CEO, who definitely had a tough act to follow in Mr. Kelleher. The charismatic Mr. Kelleher had worked hard to build personal rapport with employees and won popularity on Wall Street with his pioneering low-cost approach. The two men were longtime associates who began working together 30 years ago at a San Antonio law firm and Mr. Parker was for years known as Southwest's coordinator of big projects such as leading Southwest's successful opposition to a high-speed rail project in Texas. But Mr. Parker had also been largely in the background while Mr. Kelleher became the company's public face.

Chief Financial Officer Gary Kelly, who is 49, was named to replace Mr. Parker as CEO. Mr. Kelly was responsible for negotiating protective price hedges against higher fuel prices that saved Southwest hundreds of millions of dollars as other carriers suffered higher fuel costs.

The scuttlebutt within the industry is that the Southwest board and Mr. Kelleher had become frustrated by the tenor of labor relations at the airline over the past few years. If true, it's understandable that Mr. Kelleher would have a hard time comprehending why it took two years of negotiations to settle an agreement that he and the union were able to settle in two months once Mr. Kellerher got involved.

Posted by Tom at 9:14 PM | Comments (0) |

Thinking about buying a new car? Read this!

It's a buyer's market.

Posted by Tom at 6:42 AM | Comments (0) |

Choosing Death

This Nicholas Kristof NY Times op-ed is a must regarding the U.S. Attorney General's attempt to halt Oregon's "Death With Dignity" experiment. The A.G. is threatening legal action against any physician who participates in assisted suicide by writing a prescription for a drug that appears on the federal government's list of controlled substances. Hat tip to Professor Mayo and his HealthLawBlog for the link to this op-ed.

Posted by Tom at 6:36 AM | Comments (0) |

The Open

The Open begins today at Royal Troon in Scotland, and Quin Hillyer provides this excellent overview of this year's tournament.

Posted by Tom at 6:00 AM | Comments (0) |

July 14, 2004

Rearranging the deck chairs on the Titanic of the Stros

The worst kept secret in Houston this week was exposed today as the Stros fired Jimy Williams this afternoon, ending his 2 1/2 season stint with the club. The Stros named former Stro player and coach, Phil "Scrap Iron" Garner to replace Williams for the rest of this season.

Stros hitting coach Harry Spilman and pitching coach Burt Hooton were also fired and replaced by AAA hitting coach Gary Gaetti and Jim Hickey, respectively. Spilman was the club's minor league field coordinator when he was named the Stros' hitting coach in June 2000 after the club fired Tom McGraw. Hooton was the AA Round Rock pitching coach when he was named pitching coach during the middle of the 2000 season after Vern Ruhle was canned.

I always thought Williams was a rather odd choice as the manager for the Stros, and his record with the club justified my skepticism. Williams was 215-197 as the Stros manager. The 2002 club (84-78) was second in the NL Central, but finished 13 games behind the Cardinals and 11 games behind the Giants for the wild card playoff spot. The 2003 club (87-75) finished second by a game to the Cubs in the NL Central and four games behind the Marlins for the wild card spot. As we all know, this year's club is 44-44 at the All-Star Break, 10.5 games behind the Cards in the NL Central and 4 games behind in the race for the wild card spot.

The Pythagorean winning percentage is an interesting statistic that estimates a team's winning percentage given their runs scored and runs allowed. Developed by Bill James, it can tell you when teams were a bit lucky or unlucky, but it can also let you know whether a team managed by a particular manager consistently overachieves or underachieves.

Jimy Williams-managed teams have consistently underachieved. Williams has a career Pythagorean Differential of -24 (i.e., his teams have lost 24 more games than the statistics suggest they should have), with just one season in which his team exceeded expectations. Consequently, Williams just may prove Branch Rickey's adage: "Sometimes luck is the residue of design."

Although he appears to be a good coach of baseball skills, Williams just seems to make enough boneheaded managerial moves to make sure that his teams underachieve. Here are but a few examples:

His batting Berkman in the fifth and sixth hole for much of this season while he has been one of the best hitters in baseball;

His insistence on batting one of the worst hitters in baseball -- Adam Everett -- in the two hole and have him waste outs by laying down sacrifice bunts at every opportunity;

His decision to platoon poor hitting Geoff Blum with the hot-hitting Ensberg for much of the 2003 season, which may have in itself been enough to cost the Stros the game that they finished behind the Cubs in the NL Central; and

His strained relationship with Hidalgo, which may have ultimately cost the Stros a productive slugger over the next several seasons.

So, I cannot say that I am sorry to see Williams go. My sense is that he is overmatched as a big league manager.

On the other hand, although hiring Garner is a "feel good" P.R. move, it's a dubious one from the standpoint of managerial competence. Although he managed teams for eleven seasons with generally bad players at both Milwaukee and Detroit, Garner only produced a won-loss record three times that was better than those clubs' Pythagorean winning percentage. Moreover, Garner was a marginal hitter as a player, who rarely walked and thus, did not have as high an on-base percentage as he should have to compensate for his mediocre power. So, if Garner favors players like himself, we should expect a steady dose of Viz and Everett, which will only excerbate the Stros' run scoring deficiencies.

The bottom line: It was time for Williams to go, but it's not at all clear that Garner is an improvement other than he gets along with the media better than the irascible Williams. It's becoming clearer by the day that the Stros' plan of making a playoff run this season has failed, and that it's time to clean house and begin bringing in younger players to surround Berkman and Oswalt.

Posted by Tom at 2:48 PM | Comments (6) |

WSJ on Mike Ramsey

This Wall Street Journal ($) article profiles Houston criminal defense attorney, Mike Ramsey, who is heading up the criminal defense team that is defending former Enron Chairman and CEO, Kenneth Lay. The article captures Mr. Ramsey's homespun wit in the following passage:

Even if he doesn't succeed in gaining a separate trial, the effort gives Mr. Ramsey the opportunity to showcase is readiness to quickly rebut the charges. He seems to particularly enjoy attacking the bank-fraud charges brought against Mr. Lay in connection with loans he took out between 1999 and 2001. Part of the loan-related criminal charges involves a federal banking rule known as Regulation U.

Mr. Ramsey asserts that the government is unfairly going after his client for an alleged violation of some obscure rule. Until the indictment, says Mr. Ramsey, "I thought Reg U was a tomato sauce."

As noted on this blog before, Mr. Ramsey is a member of Houston's remarkably talented criminal defense bar, which in many respects is the legacy of legendary Houston-based criminal defense lawyers, Racehorse Haynes and the late Percy Foreman. A couple of other members of this prominent group of Houston criminal defense lawyers -- Dan Cogdell and Tom Hagemann -- will be defending clients in the upcoming mid-August trial of the Enron-related case known as the Nigerian Barge case.

Other prominent members of Houston's criminal defense bar include Dick DeGuerin, who along with Mr. Ramsey, obtained the remarkable acquittal of murder charges for Robert Durst, Dick's brother, Mike DeGeurin (yes, the brothers spell their last name differently), Jack Zimmerman, Rusty Hardin, David Berg, Joel Androphy, Robert Scardino, Mike Hinton, and Robert Sussman. The expertise and talent of Houston's criminal defense bar compares favorably with that of any criminal defense bar of any city in the country.

Posted by Tom at 8:39 AM | Comments (0) |

No oil boom in Houston

This NY Times article reports that the recent uptick in oil and gas prices has not translated into an economic boom for the local Houston economy. The article does a reasonably good job of explaining that Houston's economy is less dependent on the oil and gas industry that in prior eras, and thus less prone to the boom and bust cycles that resulted from past run-ups in energy prices. Accordingly, while Houston's economy used to be largely countercyclical to the national economy (i.e., Houston would do well during times of high energy prices that would drive the national economy down), Houston's more diversified economy now tends to be more in step with the national economy.

Curiously, the Times reporter neglected to interview the foremost authority on the Houston economy, Dr. Barton Smith, University of Houston professor of economics and director of the UH Institute for Regional Forecasting. Twice a year or so, Dr. Smith gives an oral presentation over lunch to Houston businesspeople regarding the state of the Houston economy and his predictions for the economy's future. These meetings provide valuable nuts and bolts information and analysis regarding Houston's economy, and are extremely popular among Houston businesspeople. Not mentioned in the Times article is that Dr. Smith's model of the Houston economy currently predicts an annualized rate of job growth of 2.6 % that, if sustained for the next six months, would translate into about 50,000 jobs. That would be the best job growth rate in Houston since 2000.

Posted by Tom at 6:16 AM | Comments (0) |

Two trials, two CEO's

The Wall Street Journal's ($) Holman Jenkins' weekly column today addresses the different troubles facing former Enron Chairman and CEO Kenneth Lay and Pfizer's CEO Hank McKinnell.

First, Mr. Jenkins examines the indictment against Mr. Lay and observes that it essentially charges him with the crime of making false public statements in carrying out his duty to save Enron. That duty to Enron's shareholders, investors and creditors conflicted with Mr. Lay's other duty to tell the truth to those same folks:

Much will depend on what he was told by Enron employees in the weeks between his return to the CEO's job and Enron's collapse a few weeks later. The famous Sherron Watkins memo and follow-up meeting may have put Mr. Lay in the proverbial double bind. He could have told employees and investors that Enron had many sound businesses but, alas, the accounting mess would likely provoke a crisis of confidence among lenders and trade partners, driving the company out of business for lack of credit to continue its day-to-day operations.

Saying as much, of course, would have precipitated the very implosion that it was Mr. Lay's mission to prevent for the benefit of employees, creditors and investors. "Oh well," he might have said, "I saw my duty and did it. I disclosed all the material facts that investors deserve to know, even if it means the stock will go to zero before they can act on it."

Failing to do so is what he's being prosecuted for now, in good part. The indictment dwells most heavily on his public statements of confidence in the company after he reclaimed the helm of a sinking ship. No, we wouldn't even try to guess at a solution for this problem. In theory investors deserve the truth, even when it hurts. Please, can't somebody in the economics department figure out a way to measure how many companies lied their way back to solvency, saving their shareholders a total loss?

The other trial that Mr. Jenkins addresses is a financial and political one, which Pfizer and other drug companies face in a marketplace that increasingly limits the ability of U.S. drug companies to generate profits and fund research and development on new drugs:

By decade's end, the last major market where prescription drugs aren't currently subjected to price controls -- the giant U.S. market -- will feel the touch of the visible hand. Perversely, the industry can thank George W. Bush. Whatever he intended with his Medicare reform, the government sooner or later will try to limit its pharmaceutical spending on seniors by dictating prices.

History is replete with industries with high fixed costs and low marginal costs that embraced government regulation, believing they could capture the regulatory process and assure themselves an acceptable rate of return. Some say the drug companies will manage the politics of price regulation too, making up on volume what they lose in dictated prices. Don't bet the cat on it. That approach ended badly for the railroad and electric power industries, and both could at least demonstrate clearly for regulators the relation between capital going into the pipeline and services to the public coming out the other end. Drug investment, by contrast, is a speculative shot in the dark, unfit for any kind of regulatory review that we can think of.

Mr. McKinnell at least sounds like a man who believes this future can be avoided, pressing for the U.S. to challenge price controls in other countries so Americans aren't stuck bearing the whole cost themselves of the industry's massive R&D budgets.

Inasmuch as the Bush Adminstration lacks a coherent approach to reforming America's health care finance system, count me as skeptical that this administration can develop a sensible plan to require other countries to fund a fair share of drug R&D costs.

Posted by Tom at 5:48 AM | Comments (0) |

July 13, 2004

Martha Stewart's sentencing

As readers of this blog know, I am not an admirer of Martha Stewart, but I believe that the recent prosecution and conviction of her is an injustice.

The result of that injustice is equally disturbing. As American Enterprise Institute scholar John R. Lott notes in this article, Ms. Stewart's sentencing reflects a system that is so badly out of whack that it penalizes wealthy people far more than poorer people who commit the same offense:

Before the 1987 [sentencing] guideline, judges could sentence two criminals who'd committed the same crime to vastly different sentences: Ms. Stewart could have been let off with simple probation or given more than 10 years. But judges were rarely that arbitrary. In fact, denying judges discretion has made penalties less, not more, equal.

The reason is simple: the justice system imposes many types of penalties on criminals, but the sentencing guidelines only make sure that the prison sentences are equal. Beyond prison, criminals face financial penalties that largely depend on the criminal's wealth. In addition to fines and restitution, white-collar criminals face the loss of business or professional licenses and the ability to serve as an executive or director for a publicly traded company.

Using Ms. Stewart's case as an example, Mr. Lott notes that those extra penalties for the wealthy are substantial, such as Ms. Stewart's responsibility for the losses that investors in her company suffered as a result of her conviction:

Her conviction changed the company's value by over $320 million just between that day's high and low. As Ms. Stewart owns 63 percent of the company, she personally suffered a loss of $203 million on that day. The other shareholders bore the rest of this loss; but soon after the criminal case is concluded, they will file civil suits against Ms. Stewart, forcing her to cover their losses.

Compare the penalties Ms. Stewart faces to those of, say, a drug dealer convicted of the same crimes of giving false information to investigators. Both would face the same prison sentence. But without any discernible assets, the dealer would escape the other financial penalties Ms. Stewart faces. If the dealer had a public defender, he'd even avoid paying a lawyer.

How can these two vastly different penalties for lying to federal investigators be considered comparable? Surely defendants such as Ms. Stewart can hope to offset these much higher penalties with highly skilled lawyers, but this by no means levels the field. Ms. Stewart's total financial penalty could easily amount to over $300 million dollars, while the drug dealer faces a negligible additional penalty on top of imprisonment.

I cannot say it better than Mr. Lott's conclusion:

It is hardly ever fashionable to defend the wealthy--let alone wealthy criminals. Yet the gap in punishment is so enormous it is impossible to ignore. If fairness means that two people who commit the same crime should expect the same penalty, the current system is not merely unfair, it is unconscionable.

Posted by Tom at 9:30 AM | Comments (0) |

Let's make CEO negligence criminal

Enron's excesses and the unprecedented media firestorm over the company's collapse have muddled the reasoning of even normally clear thinking business columnists.

The latest to be afflicted is the Wall Street Journal's ($) Alan Murray, who comes up with this doozy in his column today:

Mr. Lay spent more time schmoozing with politicians and picking fabric swatches for his Gulfstream V corporate jet than studying special-purpose enterprises. As a result, his footprints inside the energy company are shallow, and his fingerprints few. Conviction will be difficult.

In the case of Enron, we already know a giant financial fraud lay at the heart of the enterprise. The convictions of former Chief Financial Officer Andrew Fastow and former Treasurer Ben Glisan established that. At stake in the Lay case isn't whether fraud was committed but whether the chief executive should be held [criminally] responsible.

For the sake of American capitalism, he should.

Mr. Murray then goes on to base this rather startling expansion of criminal liability on the anecdotal experience of Federal Reserve Chairman, Alan Greenspan:

In unusually clear testimony in July 2002, Chairman Greenspan railed against the "infectious greed" that had invaded American business, arguing that the best antidote was strong and ethical CEOs. "It has been my experience on numerous corporate boards that CEOs who insist that their auditors render objective accounts get them," Mr. Greenspan said, "and CEOs who discourage corner-cutting by subordinates are rarely exposed to it."

"Although we may not be able to change the character of corporate officers," he concluded, "we can change behavior through incentives and penalties." That is what is at stake in the Lay case.

So, let's see here. Mr. Murray reasons that, in the "special" case of a business executive, we should treat them like bank robbers in the criminal justice system even though the business executive did not intentionally commit a crime. If the CEO is simply lazy and negligent, then Mr. Murray reasons that she is intentionally neligent and lazy and, therefore, should have the same degree of criminal liability as the bank robber.

As one of my former professors used to say whenever confronted with such muddled reasoning: "Pooh-pah."

First, using the criminal justice system to remedy the problem that Mr. Murray addresses is akin to using an ax where a scalpel is needed and available. Extending criminal laws that penalize intentional crimes to penalize lazy and negligent businesspeople has the primary effect of confusing and ultimately undermining society's confidence in the rule of law. Indeed, such application of criminal laws may deter a few folks from becoming CEO's in the first place (although there is no empirical data supporting such a proposition), but it will not deter laziness or negligence.

However, even more important is the slippery slope. If Mr. Lay should be convicted for being lazy and negligent, then why should Enron's directors not also be convicted of the same crime? Or should they not be held criminally responsible for their laziness and negligence because they only flew commercial while Mr. Lay flew in the company's Gulfstream V? Or because their stock options were considerably less than Mr. Lay's? Or is it because they could not have reasonably known that Mr. Fastow was a crook while Mr. Lay should have?

Similarly, what does the system do with the CEO who is not lazy or negligent, but is truly undermined by crafty underlings who figure out a way to defraud the company despite the CEO's diligence? Convict the CEO anyway? Or carve out an exception to the crime if the jury finds that the CEO is not lazy or negligent? And if that exception is crafted, can you imagine the procedures and systems that CEO's would establish so that they would appear not to be lazy and negligent, particularly if they really were lazy and negligent? What webs Mr. Murray would have us weave!

Part of the cost of a free and productive economy is the risk of Enron-type failure. Misapplying criminal law neither will nor should deter such failures, and is much more likely to promote societal cynicism than responsible business practices. As Professor Ribstein notes in his post on Mr. Murray's column, "we have the tools within our current system. Responding to Ken Lay's irresponsibility with equivalent excesses in criminal prosecutions is not the answer."

For a reasoned argument in favor of holding CEO's responsible as a principal for corporate wrongdoing, see this Professor Bainbridge post, although Brad DeLong is not so sure.

Posted by Tom at 8:54 AM | Comments (1) |

Pitney Bowes battles America's broken health care finance system

This Wall Street Journal ($) article provides an excellent analysis of what Pitney Bowes -- the mailing service and equipment company -- learned regarding the question of why health costs keep rising relentlessly in America: A dysfunctional market creates few incentives for any of its participants to deliver efficient care. In fact, competition among insurers, health-care providers and producers of drugs and equipment often led to higher, rather than lower, prices.

Although the Bush Administration continues to ignore the problem, the struggle by American businesses to rein in health-care costs is nearing crisis levels. American employers still pay the majority of health-care costs for more than 130 million Americans and have borne the brunt of double-digit annual increases in benefit costs. Companies as large as General Motors Corp. reports that it spends "significantly" more on health care than steel, and recent data suggests that health care costs to employers could rise as much as 10% next year. Even a big company with an entire team dedicated to rooting out the source of rising health-care costs has little power to change these dynamics.

Pitney-Bowes has an internal team that aggressively pursues ways to contain ballooning health costs. But such a solution is easier wished for then achieved:

Last year, [the Pitney-Bowes team] scored a small victory. Employees who went to a hospital in 2003 stayed for an average of 3.7 days, unchanged from a year earlier. The overall number of admissions didn't rise, either.

So Pitney Bowes was startled to nonetheless discover that the average cost of each hospital visit jumped 9% to $10,600. The average cost per day jumped 17%. One of the biggest culprits? Increasingly powerful hospital groups in California, whose price increases pushed the company's average cost of a hospital admission in that state to $20,500, twice what it paid elsewhere.

By combing through claims data from its 46,000 U.S. employees and their dependents, Pitney Bowes can pinpoint some of the big contributors to the nation's surging health-care bill: Local hospital mergers; entrepreneurial doctors prescribing costly MRIs and CT-scans at their own private clinics; marketing for expensive drugs such as the heartburn medicine Nexium, which became Pitney Bowes's third-highest drug expenditure last year after an advertising blitz by maker AstraZeneca PLC.

Indeed, despite the Pitney-Bowes team's efforts, health care costs at the company continue to skyrocket:

. . . the total cost of claims Pitney Bowes paid directly -- covering about 80% of its employees -- rose 11.5%, more than it expected. About 20% of Pitney Bowes's employees are covered by health-maintenance organizations, for which the company pays a simple premium. That brings the average increase in prices for the entire company down to 7.5%. Pitney Bowes also managed to reduce its overall costs by increasing employee contributions and winning discounts on certain drugs and services.

The Pitney Bowes team . . . has helped moderate the expansion in Pitney Bowes's $135 million health-care budget. But despite its most vigilant efforts, Pitney Bowes's health-care costs continue to climb faster than the rate of inflation and faster than increases in most other business expenses.

Read the entire article because it provides an excellent overview of the economic pressures that will continue to drive health care prices higher in America's health care finance system that is predominated by private third party payors. As noted on this blog before, unless or until the payment of health costs are placed back in the hands of the consumer, these market anamolies that continually drive up costs and limit competition in certain sectors of health care administration will continue to proliferate. The failure of the Bush Adminstration and the Republican-controlled Congress to address this key issue in a meaningful fashion remains a glaring weakness that the Democrats can exploit in the upcoming Presidential election.

Posted by Tom at 6:20 AM | Comments (2) |

Another Baylor doctor defects to Methodist

Deep divisions in the Texas Medical Center resulted from the decision of Baylor College of Medicine to terminate its 50 year relationship with the Methodist Hospital earlier this year. One by-product of the split is that Baylor and Methodist began to compete with each other for medical talent (earlier posts here) that previously served both institutions.

This Chronicle story reports on Dr. Michael Lieberman's resignation yesterday as chairman of Baylor's pathology department to become director of Methodist's new research instititue. This move follows the earlier resignation of Methodist's chief of surgery to remain with Baylor.

Dr. Lieberman is the first key defection from Baylor to Methodist in the battle between Methodist and Baylor to retain staff members. Before the Baylor-Methodist breakup, 19 of Methodist's division chiefs were Baylor department chairs; now that number is down to 17 and almost certain to reduce further.

Dr. Lieberman was one of the doctors who co-signed a letter to Baylor trustees in April opposing the breakup because it could cause "a crisis of major proportions" and predicting that many faculty would "undoubtedly" stay at Methodist.

Expect more defections between these two fine institutions as the dust settles after this unfortunate divorce in a long-standing Medical Center relationship.

Posted by Tom at 5:44 AM | Comments (0) |

July 12, 2004

More decisions on Blakely

The decisions are coming down fast and furious from the various Circuits Courts of Appeal in regard to the recent Supreme Court Blakely decision, which was noted in these earlier posts. Professor Berman over at Sentencing Law and Policy is keeping up with it all. Check out the developments.

And, as usual, Professor Ribstein is insightful regarding the meaning of these developments on the sad case of Jamie Olis, in particular, and on politically-motivated Congressional initiatives to increase criminal penalties on business criminals, in general.

Posted by Tom at 9:40 PM | Comments (0) |

The political economy of child abuse

This NY Times article reports on the recent chapter 11 bankruptcy filing of the Archdiocese of Portland, which is the first archdiocese in the nation to file for bankruptcy protection because of the large sums that it owes as a result of sexual-abuse claims.

The bankruptcy filing raises an interesting legal issue: For purposes of federal bankruptcy law, are the assets of a Roman Catholic parish assets of the diocese or of the individual parishes? If all parish assets are counted as assets of the diocese, then the diocese's assets would be valued at about half a billion, more than enough to pay the $25 million or so in pending sexual abuse claims. On the other hand, if the diocese's assets do not include those of the individual parishes, then the diocese's bankrupcy estate would be valued at a much more modest $50 million, which would make full payment of sexual abuse claims more problematic. The argument that the assets belong to parishes is based on church law that is much older than United States law. However, the only actual corporate entity is the diocese, which the bishop manages and represents.

University of San Diego Law Professor Thomas Smith -- who runs a very good blawg called The Right Coast -- observes that the diocese's bankruptcy filing is the result of the "political economy of child abuse:"

This all relates to what you might call the political economy of child abuse. A principal reason why the Catholic Church is singled out as a hotbed of child abuse, when there is no good reason to think priests abuse children any more frequently than Protestant pastors, Mormon bishops or Communist summer camp commisars, is that the organization of the Church makes it a much more desirable target for plaintiffs' lawyers. If each parish were a separate corporation, the course of this scandal would have run very differently. Mysteriously, shallow pockets are must less prone to the evils policed by lawyers.

My sense is that the bankruptcy courts will look for guidance from prior non-bankruptcy liquidations of parishes in addressing the legal issue that Professor Smith raises.

Posted by Tom at 6:41 AM | Comments (0) |

More on the sad case of Jamie Olis

This LA Times article is the best analysis that I have seen to date regarding what occurred in the sad case of former mid-level Dynegy accountant Jamie Olis that resulted in the absurd 24 year sentence for Mr. Olis.

In November, 2003, a Houston jury found Mr. Olis guilty of helping cook the books at Dynegy, a Houston-based pipeline company that tracked Enron's course into online power trading before that entire industry went bust as a result of Enron's collapse. Mr. Olis was convicted of a battery of charges -- conspiracy, securities fraud, mail fraud and wire fraud -- related to an accounting scheme called Project Alpha, which attempted to mask $300 million of debt as revenue.

U.S. District Judge Sim Lake -- who is presently handling the criminal case against former Enron chief honchos Kenneth Lay, Jeffrey Skilling and Richard Causey -- handled Mr. Olis' sentencing. Under the sentencing guidelines, several factors -- including the skills required to perpetrate an accounting sleight-of-hand, the number of victims and a defendant's criminal history -- contribute to the length of a prison term for a white-collar criminal. However, the most significant factor in determining a sentence in a corporate fraud case is the monetary loss and -- as all business litigators know -- proving financial loss is far from an exact science.

Indeed, even the government expert on financial loss upon whom Judge Lake primarily relied acknowledges that he did not testify that Project Alpha caused the amount of monetary loss that Judge Lake used in sentencing Mr. Olis:

At Olis' sentencing, Lake put the loss at a minimum of $105 million. He based that finding on his view of losses suffered by the University of California, a major Dynegy shareholder and lead plaintiff in a class-action lawsuit against the company.

During the trial, Jeffrey Heil, a former university investment official, testified that the UC system had lost a little more than $100 million on its Dynegy investment.

But in a recent interview, Heil made clear that he was not sure the punishment meted out to Olis was fair, considering the much lighter sentences given to senior corporate officers who have cut plea agreements in other cases.

"This doesn't make a lot of sense," said Heil, who served as UC's co-head of investments until January 2003.

Yet Heil, who now works for the Doris Duke Charitable Foundation in New York, acknowledged in the interview that he couldn't place a dollar value on the UC losses tied specifically to Project Alpha.

It was not a number he was asked to single out at trial.

"To be truthful," he said, "I wouldn't have known the figure."

Notably, Heil never testified that Project Alpha cost the university system more than $100 million. Rather, he told the court that UC lost that amount during its overall period of owning Dynegy stock in 2001 and 2002, a time when the shares dropped for any number of reasons: the market-rocking Sept. 11, 2001, terrorist attacks; Enron's spectacular collapse, which dragged down the whole energy sector; Dynegy's ill-fated attempt to acquire Enron; and the California energy crisis, which raised fears of a broad regulatory clampdown.

Consistent with the Justice Department's current penchant for criminalizing business, the Olis prosecutors actually attempted to prove that public disclosure of Project Alpha caused a much greater loss:

The government urged Lake to figure investors' losses at more than $500 million -- and perhaps twice that amount -- based on the hit taken by all shareholders, not just the university. Prosecutors submitted a consultant study that considered the entire decline in Dynegy's market value and attempted to screen out factors unrelated to Project Alpha.

The defense countered that it was impossible to accurately separate the losses tied to the fraud, given the array of pressures bearing down on Dynegy.

In the end, Lake sought to simplify the matter by focusing on UC's investment alone.

Meanwhile, in the wake of the Supreme Court's recent Blakely decision, Houston-based criminal defense lawyer David Gerger has filed a motion asking for his client to be released pending appeal because, lacking the jury's endorsement of the $100-million-plus loss that the Blakely decision appears to require, Olis' sentence should be no longer than six months.

Posted by Tom at 5:46 AM | Comments (0) |

July 11, 2004

Stros sink to new low

The Stros officially hit oblivion on Sunday afternoon as they they hacked away with futility at Jose Lima's change up and lost the third of their four game series with the Dodgers, 7-4.

Roy O started on three days rest and battled gamely, giving up 3 runs on 8 hits and 3 walks over 6 innings. But then Weathers gave up a grand salami to Lo Duca in the eighth and the Dodgers cruised to the win. The Stros got their usual six hits, with Beltran and Everett cranking two run yaks to account for the Stros four runs.

The Stros are 44-44 at the All-Star break, 11 games behind the Cards in the NL Central, and 4 1/2 games behind the Giants for the NL Wild Card spot. Since winning 10 of 12 games for a 21-11 record as of May 11, the Stros are an atrocious 23-33. That's a lousy two months, and the Stros' hitting statistics reflect it.

Here are the Stros' hitters' runs created against average ("RCAA," explained here) through Friday's games, courtesy of Lee Sinins:

Lance Berkman 33
Craig Biggio 10
Jeff Bagwell 6
Mike Lamb 5
Carlos Beltran 4
Eric Bruntlett 1
Jeff Kent 1
Chris Burke -1
Jose Vizcaino -1
Jason Lane -3
Orlando Palmeiro -3
Raul Chavez -8
Richard Hidalgo -9
Morgan Ensberg -11
Adam Everett -17
Brad Ausmus -20

The Stros' team RCAA has now plummeted to -13. During their feeble West Coast swing, the Stros have fallen from 7th to 12th out of the 16 National League teams (only the Brewers, Rockies, DBacks, and Expos are worse).

Berkman continues to have a solid overall season, but he has fallen to ninth and eighth in RCAA and OPS (on base average + slugging percentage) respectively after challenging Bonds for first place earlier in the season. Berkman's RCAA now is the same as it was on May 30, so Berkman has been precisely an average player in the National League over the past month and a half.

But things get even worse. The Stros now have two players (Everett and Ausmus) among the worst ten hitters in the National League, and Ausmus is bearing down on Neifi Perez for the lead in that dubious category. Moreover, Ensberg -- who followed up last weekend's promising performance against the Rangers with a horrid West Coast trip -- is not far from breaking into the ten worst hitters in the NL. That means that four out of the Stros' nine hitters in most games (Everett, Ausmus, Ensberg, and the pitcher) are are producing far fewer runs than an average National League hitter would be generating.

And they aren't the only ones not performing. Bags has had a -4 RCAA and is 43rd in OPS among regular players in the National League, the lowest position for Bagwell in those categories in his career. Similarly, Kent a -3 RCAA since May 30 and beyond Bidg, Lamb, and Viz, no other Stro player has had a positive RCAA since May 30. Indeed, Beltran leads the Stros in RCAA since joining the club in June.

Remarkably, the Stros' pitchers' runs saved against average ("RSAA," explained here) is actually improving:

Roger Clemens 23
Brad Lidge 12
Wade Miller 11
Roy Oswalt 11
Octavio Dotel 5
Dan Miceli 4
Andy Pettitte 2
David Weathers 2
Kirk Bullinger 1
Mike Gallo 1
Pete Munro 0
Brandon Backe -2
Jeremy Griffiths -3
Ricky Stone -3
Jared Fernandez -6
Chad Harville -7
Brandon Duckworth -10
Tim Redding -14

The Stros team RSAA is fourth in the National League behind only the Cards, Mets, and Cubs. Clemens remains one of the best pitchers in the league, and Lidge and Roy O's RSAA are improving steadily. Miller remains a big loss for the club, and Harville, Duckworth and Redding are disasters, but perhaps Carlos Hernandez will be called up from AAA New Orleans and provide some spark to the bullpen during the second half of the season.

The Cards have emerged as the clear power in the NL Central over the past two weeks and should win the division easily if current trends hold. The Cubs remain a solid wild card contender and the Stros should eventually overtake the Reds and the Brewers for third in the division, although the Brew Crew is gaining on the Stros statistically and could maintain their position over a discouraged Stros ballclub. The Reds' lack of pitching should continue to grease their skid during the second half of the season.

The bottom line: The Stros pitching is good enough to contend for a wild card spot. However, unless Bags, Kent, and Ensberg heat up considerably, the Stros' lack of hitting will prevent them from contending for a playoff spot. Inasmuch as Bags and Kent are in age-related declines, and Ensberg still is not a proven big league hitter, my bet is that the Stros' hitting will not improve enough in the second half of the season to contend for the wild card spot.

Posted by Tom at 10:49 PM | Comments (0) |

Innocent until proven guilty, except in the Enron case

This Houston Chronicle article reports on a survey that defense attorneys commissioned in connection with one of the upcoming Enron-related criminal trials. The survey concludes that over 80% of potential jurors in Houston believe that believe that the indicted Enron executives are guilty.

The survey claims 81.4% of potential jurors said they thought the former Enron executives accused of misleading the public and profiting off the sale of their own Enron stock were guilty, 7.8% said they were not guilty, and 8.7% said they did not know. The survey also polled potential jurors in Austin, Corpus Christi and Albuquerque, N.M., and the percentages of those who said the Enron executives were guilty in those cities were 71.9%, 67.9% and 71.1%, respectively.

In discussing the change of venue issue with one of the defense attorneys for a prominent former Enron executive, I asked him where he would prefer to try the case. His reply:

"How about Rio?"

Posted by Tom at 7:24 AM | Comments (0) |

July 10, 2004

Civilization v. Trivia

Victor Davis Hanson's latest NRO piece addresses that portion of American society that belittles President Bush and the administration's policy toward Iraq and the Middle East without providing any meaningful alternative other than the continuation of the disastrous policies that culminated in the 9/11 attacks. The entire article is well worth reading, and the following will give you a taste for it:

Do the trivialists want Saddam and the Taliban back in power? Does a Mr. Allawi repulse them? Do they wish 10,000 American troops back in Saudi Arabia? Perhaps they want Libya to resume its work on nukes? Do they care whether Dr. Khan returns to his lab? Or do they think it is child's play to hike back through the Dark Ages into the Pakistani borderlands looking for bin Laden? And is it all that easy to have prevented another 9/11 attack for almost three years now of constant vigilance? Perhaps they would like to deal with the corrupt, duplicitous, and tottering Saudi Royal family, which just happens to sit on 25 percent of the world's oil reserves ? without whose daily production the economies of Japan, Korea, and China would almost immediately grind to a halt.

Only belatedly has John Kerry grasped that his shrill supporters are often not just trivial but stark-raving mad. If he doesn't quickly jump into some Levis, shoot off a shotgun, and start hanging out in Ohio, he will lose this election and do so badly.

The war that Mr. Kerry and Mr. Edwards once caricatured as a fiasco and amoral is now, for all its tragedies, emerging in some sort of historical perspective as a long-overdue liberation.

. . . For over a year now, we have witnessed a level of invective not seen since the summer of 1964 ? much of it the result of a dying 60's generation's last gasps of lost self-importance. Instead of the "innocent" Rosenbergs and "framed" Alger Hiss we now get the whisk-the-bin-Laden-family-out-of-the-country conspiracy. Michael Moore is a poor substitute for the upfront buffoonery of Abbie Hoffman.

. . . It was politically unwise and idealistic ? not smart and cynical ? for Mr. Bush to gamble his presidency on getting rid of fascists in Iraq. There really was a tie between al Qaeda and Saddam Hussein ? just as Mr. Gore and Mr. Clinton once believed and Mr. Putin and Mr. Allawi now remind us. The United States really did plan to put Iraqi oil under Iraqi democratic supervision for the first time in the country's history. And it did.

This war ? like all wars ? is a terrible thing; but far, far worse are the mass murder of 3,000 innocents and the explosion of a city block in Manhattan, a ghoulish Islamic fascism and unfettered global terrorism, and 30 years of unchecked Baathist mass murder. So for myself, I prefer to be on the side of people like the Kurds, Elie Wiesel, Hamid Karzai, and Iyad Allawi rather than the idiotocrats like Jacques Chirac, Ralph (the Israelis are "puppeteers") Nader, Michael Moore, and Billy Crystal.

Sometimes life's choices really are that simple.

Read the whole piece.

Posted by Tom at 7:43 PM | Comments (0) |

Stros quickly return to losing

The Stros wasted another strong pitching performance from the Rocket as the Dodgers used a three run yak from Paul Lo Duca to fuel a 3-1 victory before another crowd of over 45,000 at Dodger Stadium Saturday afternoon.

Clemens was magnificent, as he gave up only 4 hits and 3 runs over seven innings while fanning 8 and walking 2. However, the Stros other than Berkman had one hit (a Jeff Kent single) as they made journeyman Dodger starter Wilson Alvarez look like Fernando Valenzuela in his prime. Typical of the Stros' hitting this season, they loaded the bases with one out in the seventh, but were only able to score the one run (on Mike Lamb's sac fly). "That was the ol' ball game."

In an interesting matchup tomorrow afternoon, ex-Stro fan favorite Jose Lima pitches for the Dodgers against the Stros' Roy O, who will be pitching on only three days' rest with the All-Star Game break coming up. Inasmuch as the playoff propects for the Stros now appear to be remote at best, these types of matchups are the only games that we will be able to look forward to for the remainder of this season.

Posted by Tom at 7:18 PM | Comments (0) |

Seventh Circuit decision on Blakely

Highly-regarded Circuit Judges Richard Posner and Frank Easterbrook of the Seventh Circuit Court of Appeals wrote the majority and dissenting opinions in this recent decision (U.S. v. Booker) interpreting the U.S. Supreme Court's recent decision in U.S. v. Blakely.

In Blakely, the Supreme Court held that judges cannot increase a defendant's sentence under the state of Washington's sentencing guidelines based on facts and behavior that were not presented to a jury. Some sentencing guideline specialists believe that Blakely could affect the guidelines under the federal system.

In the Seventh Circuit decision, Judge Posner leans toward the position that the entire federal sentencing scheme is history because Blakely eviscerates the sentencing enhancements under the scheme. Judge Easterbrook is more cautious in interpreting the effect of Blakely. Hat tip to Southern Appeal for the link to this decision on a legal issue that is affecting many white collar criminal prosecutions, such as the sad case of Jamie Olis.

By the way, a relatively new blawg -- Sentencing Law and Policy by Professor Douglas A. Berman of the Ohio State University Law School -- is providing excellent commentary and insight on Blakely, Booker and other decisions that are affecting this important area of the law, particularly given the sledgehammer approach that the Justice Department is increasingly taking in white collar criminal prosecutions.

Posted by Tom at 1:31 PM | Comments (0) |

Oklahoma! at the Hobby Center

I have been remiss to mention that the latest play in Houston's Broadway Series -- Oklahoma! is currently playing through July 18 at the fabulous Hobby Center.

My wife, one of my daughters and I went to Friday night's show, and it was outstanding. The tour that opened this past Tuesday at the Hobby Center is a generally faithful re-creation of the Royal National Theatre's acclaimed 1998 London revival, seen on Broadway in 2002. This excellent revival is a great afternoon or evening of entertainment, and if you want to combine a fine meal with the play, make a reservation at the Hobby Center's Artista, which is one Houston's finest new restaurants.

Oklahoma! is at 8 p.m. on Tuesdays-Fridays; 2 and 8 p.m. on Saturdays; and 2 and 7:30 p.m. on Sundays through July 18. Tickets range from $23-$64 and can be obtained either online or through the Hobby Center ticket office at 713-629-3700.

Posted by Tom at 10:42 AM | Comments (0) |

Ken Lay PR campaign continues

On the heels of his indictment and earlier extraordinary NY Times interview, the Houston Chronicle reporter Mary Flood interviewed former Enron Chairman and CEO Ken Lay on Friday on a wide range of topics relating to the indictment, his initial court appearance, and his post-Enron life.

On the indictment, Lay made the following observations:

He said he didn't lie to Arthur Andersen accountants in an October 2001 meeting about how big a financial writedown hit the company might have to take for overpaying for a water company. He said the accountants gave him the numbers and told him what was going on.

Lay said he can't be accused of misrepresenting the health of Enron's retail business because he thought it was fine. He said there were legitimate business reasons for taking a wildly unprofitable section of the retail business and merging it into the profitable wholesale section, and it wasn't meant to hide losses.

And he said he did not feel he deceived employees when he told them to buy Enron stock in September 2001 and said he'd recently purchased some himself, while never saying he'd sold six times as much stock as he'd bought.

"I don't suppose I even thought about it," Lay said of mentioning the $24 million in cash he'd taken out of the company in trade for Enron stock, but telling employees about the $4 million in stock he bought. "I don't think it's deceptive ... but the (government) tries to spin sinister thoughts and motives around things," he said.

And how did Mr. Lay pass the time in the holding cell between arriving at the federal courthouse on Thursday and his initial court appearance?:

. . .Lay started chatting with a couple of other men in his holding cell.

The two, in green prison garb and leg irons, were charged in the smuggling ring deaths of 19 undocumented workers in Victoria.

"One young man said: `I think I saw you on TV last night,' " recalled Lay, who had surrendered that day and was awaiting a court hearing so he could be freed on bond.

So for the next three hours, the former CEO and two alleged human smugglers talked. Defendants from other holding cells soon chimed in.

"A couple even asked me for investment advice," Lay said with a laugh.

His response: "Well, I've not really thought much about that recently," said Lay, who lost hundreds of millions of dollars after Enron's collapse.

As noted before, Mr. Lay's campaign to defend himself publicly is highly unusual in a criminal case of this nature. However, the public perception of anybody associated with Enron is so negative that Mr. Lay and his attorneys have apparently concluded that Mr. Lay has little to lose by attempting to persuade at least one potential juror that his management failures at Enron were not criminal in nature. All attorneys representing Enron-related defendants will be watching the upcoming trial in the Nigerian Barge criminal case closely to evaluate whether it is possible for a defendant tainted with the Enron association to receive a fair trial in this highly anti-Enron environment.

Meanwhile, The Economist -- which has been providing some of the most insightful coverage of the Enron affair -- notes that Mr. Lay's defense theory of being an avuncular grandfather who was betrayed by underlings may be hard to prove:

In truth, though, Mr Lay was never the simpleton he now makes himself out to have been. Four years ago, in an interview with The Economist, he revealed an aggressive and somewhat dark management streak. In reply to a question about Enron?s perceived arrogance and disdain for the law, he pointed to what he considered another great firm unfairly maligned by ignorant critics as arrogant: Drexel Burnham Lambert, an investment bank that?like Enron?rose quickly from obscurity to market dominance during the junk-bond boom of the 1980s, only to implode amid charges of wrongdoing. Mr Lay gushed about the brilliance of Michael Milken, Drexel?s star trader, who ended up in jail. Mr Milken (a ?dear friend?) was accused of being arrogant, he said, but was just being ?very innovative and very aggressive?. Prosecutors will no doubt argue that the fraud at Enron was a direct result of Mr Lay?s push to make the company just as ?innovative? and ?aggressive? as the defunct Drexel.

In the meantime, the Lay Endowed Chair in Economics at the University of Missouri remains unfilled.

Posted by Tom at 7:34 AM | Comments (0) |

Stros edge Dodgers

Brad Lidge induced Shawn Green to hit into a nifty game-ending 3-6-1 double play with the bases loaded in the bottom of the ninth to spur the Stros to a 3-2 over the Dodgers on Friday night before almost 53,000 at Dodger Stadium in L.A.

Andy Pettitte rebounded from last Sunday's awful outing against the Rangers and allowed just two runs on four hits, striking out four with no walks over seven innings. Lidge pitched the last two innings, and really had an adventure in the ninth as he almost walked in the tying run.

The long dormant Stros' bats generated only seven hits, including Carlos Beltran's solo yak. Light hitting Viz drove in the winning run in the eighth after Palmeiro blooped a pinch double and Bidg sacrificed him to third. Both Beltran and Viz left the game with bruise injuries, but neither appeared to be serious.

By the way, inasmuch as Viz has had a good week of hitting, his slugging percentage is now approaching that of Bags, a clear sign that Bags' decline this season is not a temporary slump. We are seeing the inevitable decline of a Hall of Fame quality player. I am now just hopeful that Bags and the Stros can work out an arrangement that will allow Bags to retire with dignity and not sully his Hall of Fame quality career.

The Rocket takes the hill for the Stros on Saturday afternoon against the Dodgers' Wilson Alvarez (2-3, 3.77) as the Stros struggle to stay in the playoff hunt. The Stros enter Saturday's game 9.5 games behind the Cards in the NL Central race, but only 2.5 games behind the second place Cubbies.

Posted by Tom at 7:08 AM | Comments (0) |

July 9, 2004

The NY Times Travel section covers my hometown

I have lived in Texas for 32 years, but I was born and raised through high school in the wonderful midwestern university community of Iowa City, Iowa. This NY Times Travel section article reports on Iowa City, and even includes a mention of the Kirkendall Family's old house, 430 Brown Street (now a bed & breakfast). For a student's tour of Iowa City, be sure to check out my nephew Richard's picture tour here.

Posted by Tom at 3:04 PM | Comments (0) |

John Travolta Edwards

Check out Professor Ribstein's insightful observations regarding Hollywood's molding of public perceptions toward trial lawyers and businessmen.

Posted by Tom at 6:10 AM | Comments (0) |

Sobering assessment of American approach toward Islamic fascism

This NY Times Book Review reports on the controversial new book, Imperial Hubris by a current Central Intelligence Agency officer who was able to publish the book on the condition that his real name not be revealed. This is t