May 31, 2004
Aging superstar Greg Maddux made it seem like old times today as he handcuffed the Stros over seven innnings and led the Cubs to a 3-1 victory at Wrigley. The Stros have now lost eight of their last 11 games as they begin a 12 game, two week road trip, which is their longest of the season.
Hard luck Roy O (3-4) pitched well again as he continues to receive poor run support from his teammates. Ex-Astro Moises Alou's two-run yak in the sixth was the game winner, while Lance Berkman's ninth dinger in his last 13 games was the only offense the Stros could muster.
Subject: FW: Goodbye...
As many of you are aware, today is my last day at the firm. It is time for me to move on and I want you to know that I have accepted a position as "Trophy Husband". This decision was quite easy and took little consideration. However, I am confident this new role represents a welcome change in my life and a step up from my current situation. While I have a high degree of personal respect for PHJW as a law firm, and I have made wonderful friendships during my time here, I am no longer comfortable working for a group largely populated by gossips, backstabbers and Napoleonic personalities. In fact, I dare say that I would rather be dressed up like a pinata and beaten than remain with this group any longer. I wish you continued success in your goals to turn vibrant, productive, dedicated associates into an aimless, shambling group of dry, lifeless husks.
May the smoke from any bridges I burn today be seen far and wide.
ps. Achilles absent, was Achilles still. (Homer)
Hat tip to Brian Leiter for the link to this hilarious post.
May 30, 2004
Bags, Lance Berkman and Mike Lamb all cranked two-run dingers Sunday afternoon and Tim Redding pitched seven and a third shutout innings as the Stros won the final game of their weekend series with the Cardinals, 7-1.
Redding (3-3) allowed just four hits and, after a first inning single, retired 16 of the next 18 batters. The Stros got to Matt Morris (4-5) for three runs and four hits in seven innings with Lamb's yak being the big blow, and then Bags and Berkman's homers in the bottom of the eighth against Cal Eldred put the game away. Berkman has now hit eight home runs in his last 12 games.
The Stros now become road warriors for the next two weeks as they go on a 13 game road trip to Chicago, St. Louis, Seattle, and Milwaukee. Roy O starts tomorrow's Memorial Day game against the Cubs' Greg Maddux at Wrigley Field.
The Stros (27-22) are inching their way to the one-third mark of the season, and its an appropriate time to assess how the club is doing. This post from yesterday explained the helpful hitting statistic of "runs created against average," or "RCAA," which computes the number of outs that a particular player uses in creating runs for his team and then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs.
Through yesterday's games, here are the National League leaders in RCAA, courtesy of Lee Sinins:
1 Barry Bonds 41
2 Lance Berkman 33
3 Mike Lowell 30
4 Sean Casey 26
5 Craig Wilson 25
T6 Bobby Abreu 20
T6 Scott Rolen 20
8 Jim Thome 19
T9 Adam Dunn 18
T9 Todd Helton 18
Consequently, in case you didn't know it already, Lance Berkman is currently the second best hitter in the National League behind Barry Bonds, who happens to be one of the best hitters of all-time. Why on earth does manager Jimy Williams continue to bat Berkman either fifth or sixth in the order?
Although the Stros are currently a respectable fourth in the National League in team RCAA, the individual numbers are more revealing:
Lance Berkman 33
Jeff Bagwell 10
Craig Biggio 6
Jeff Kent 4
Mike Lamb 3
Eric Bruntlett 1
Jason Lane 0
Orlando Palmeiro -2
Raul Chavez -3
Richard Hidalgo -3
Morgan Ensberg -5
Adam Everett -5
Jose Vizcaino -6
Brad Ausmus -9
Thus, Berkman is having a monster season, and Bags is solid. However, after a fast start (the peril of relying on a small sample of games), Biggio is falling back to his declining trend over the past several seasons of not being much better than an average NL player. The reality is that the Stros would probably get at least as good offense and much better defense by replacing Bidg with Jason Lane as the season wears on, but don't expect Manager "I love my veterans" Williams to make such a move.
Moreover, despite the media's touting of Jeff Kent's meaningless 15 game hitting streak, Kent also is hitting just barely above an average NL hitter and has no business batting in front of the torrid Berkman in the lineup. Likewise Richard Hidalgo has slumped badly in May after a hot start and Williams' use of Palmeiro and Lamb in his place is actually a good move. Why can't Jimy do that in regard to Biggio?
The perception is that Adam Everett is having a much better season to date than Morgan Ensberg, but the facts indicate that, at least from a hitting standpoint, they are doing the same. Of course, Everett is the best defensive player on the team, so some indulgence of mediocre hitting is more justified than with other players. Ensberg had a horrendous April and a better May, but his power numbers are still way down from last season. After hitting 25 yaks last season, Ensberg still does not have one this season.
And, as readers of this blog already know, Brad Ausmus and Jose Vizcaino are among the worst hitters in Major League Baseball and, thus, should be used as little as possible. Of course, under veteran-entranced Williams, Ausmus is a starter and Viz is a key regular. I'm not certain that the rest of the Astros' hitters are good enough to make up for the regular negative hitting contributions of these two.
The equivalent RCAA statistic for pitchers is called "runs saved against average" or "RSAA." RSAA basically computes the number of runs that a pitcher saves for his team relative to the number of runs that an average pitcher in the league would give up while obtaining an equivalent number of outs for his team (as with RCAA, RSAA is park-adjusted). As with RCAA, a pitcher can have either a positive RSAA, which indicates he is an above average pitcher, or a negative RSAA, which means he is performing below average.
The following are the current NL leaders in RSAA:
1 Randy Johnson 18
T2 Tom Glavine 17
T2 Livan Hernandez 17
T4 Roger Clemens 14
T4 Brad Penny 14
6 Ben Sheets 13
T7 Armando Benitez 12
T7 Horacio Ramirez 12
T9 Chad Cordero 11
T9 Zach Day 11
T9 Ryan Madson 11
T9 Tomo Ohka 11
T9 Jake Peavy 11
T9 Carlos Zambrano 11
Again, the Stros are a solid third in the NL in team RSAA, but as with RCAA, the individual RSAA stats are more revealing:
Roger Clemens 14
Roy Oswalt 8
Andy Pettitte 4
Octavio Dotel 3
Mike Gallo 3
Brad Lidge 3
Wade Miller 3
Dan Miceli 1
Chad Harville 0
Brandon Backe -2
Ricky Stone -3
Brandon Duckworth -4
Tim Redding -5
Jared Fernandez -6
The Rocket and Roy O are off to solid starts, but the rest of the pitchers are just barely above average or below average (note that Redding's solid start of today is not included in the above statistics and will improve his negative RSAA considerably). The biggest disappointment has been Dotel, who has been one of the Astros' leaders in RSAA over the past three seasons.
Consequently, the Stros are solidly in contention in the NL Central, but they are being carried by strong performances by a relatively small group of players (Berkman, Bags, Clemens and Oswalt) while the other players are grinding away at either just above or below average seasons. Inasmuch as older players such as Bags and Clemens will likely trend downward as the season wears on, other Astros will likely have to pick up their performances considerably if the Stros are going to remain in contention for the NL Central title. That's certainly possible, as Hidalgo, Ensberg, Kent, Redding and Dotel are all candidates to improve their performance from the first third of the season. But it's also far from a certainty.
The final element -- and admittedly the least important -- is manager Jimy Williams. As noted here earlier, Williams' mishandling of Ensberg last season may have cost the Astros the NL Central title that they lost to the Cubs by a game. This season, Williams has continued his inconsistent use of Ensberg, inexplicably bats his best hitter in the five or six hole rather than third, and continues to overuse poor performers Ausmus and Vizcaino.
Again, these may appear to be relatively small errors in isolated circumstances, but over 162 games, those errors in judgment add up and can make a difference, particularly in a close race. The NL Central race looks like it will be a barnburner this season, and its doubtful that the Astros will have any margin for error. Here's hoping Williams' illogical prejudices don't end up costing the Stros in a close race.
Here is the NY Times obituary on Archibald Cox, the Harvard Law School constitutional law professor who became famous as the special prosecutor who investigated the Watergate scandal during the second Administration of the late president, Richard M. Nixon. President Nixon's firing of Mr. Cox during a crucial phase of the investigation into the Watergate scandal eventually was a galvanizing event that eventually led to Nixon's resignation of the presidency and the granting of a pardon to Nixon by his successor, Gerald R. Ford.
Mr. Cox was a solicitor general of the United States in the Kennedy Administration and a Harvard Law School professor when he took over the the Watergate scandal investigation in May, 1973. He was appointed to that position largely because of his friendship with his former student, then Attorney General Elliot L. Richardson. The appointment of Mr. Cox came on the heels of President Nixon's announcement in late April 1973 of the forced departure from his administration of four top- level appointees after they were swept up in the Watergate affair. The scandals had begun with the June 1972 burglary of the Democratic National Committee's offices in the Watergate office complex during 1972 Presidential election campaign between Nixon and Democratic nominee, George McGovern.
As the special prosecutor, Mr. Cox soon wound up in a constitutional confrontation with the White House. After the discovery of secret tape recordings of Nixon's Oval Office conversations, Mr. Cox subpoenaed those tapes and, when the White House refused to comply with the subpoena under principles of Executive Privilege, Mr. Cox sought to enforce the subpoena through the federal courts and won.
When Nixon resisted the federal courts' orders requiring him to turnover the tapes and Mr. Cox persisted, Nixon ordered Attorney General Richardson to fire Mr. Cox, but Richardson refused as a matter of principle. As a result, Richardson resigned and Nixon then ordered the deputy attorney general, William D. Ruckelshaus, to fire Mr. Cox. Mr. Ruckelshaus refused and was then fired. Finally, Robert H. Bork, the solicitor general, finally complied with Nixon's order to fire Mr. Cox. Many powerful people in the U.S. government never forgave Mr. Bork's compliance with Nixon's order to fire Mr. Cox, and that probably had more to do with Mr. Bork's eventual rejection years later as a Supreme Court Justice than any of his more relevant views on application of constitutional law.
These extraordinary events were eventually dubbed "the Saturday Night Massacre" of the Watergate scandal, and the resulting public outcry against Nixon was the beginning of the end of his Presidency. Nixon eventually appointed famed Houston trial attorney Leon Jaworski to replace Mr. Cox as special prosecutor, and Mr. Jaworski continued Mr. Cox's relentless pursuit of the tapes. Nixon eventually turned them over to Mr. Jaworski, their contents proved Nixon's involvement in the cover up of the Watergate burglary, and Nixon resigned the Presidency in disgrace shortly thereafter.
After his involement in the Watergate affair, Mr. Cox returned to Harvard, where he taught constitutional law and became a professor emeritus in 1984. Rest in peace, Professor Cox.
May 29, 2004
The Stros lost their seventh game in the last nine on Saturday afternoon as the Cards scored six runs in the last two innings in their 10-3 victory. Albert Pujols went nuclear on the Stros, going 4 for 5 with two mammoth yaks, a double, and three RBIs.
The game was close until the eighth when things really got out of hand. Jeff Kent went after a foul pop-up from Ray Lankford that appeared to richocet into fair territory (and unfortunately away from Kent) off of one of the Juice Box's roof beams. Under Minute Maid Park ground rules, the ball should have been declared a foul ball, but the umpiring staff blew the call, just as they blew the balk call against Dotel the previous game. The flustered Kent overthrew third base on the play, allowing another run to score, and a Vizcaino throwing error on the next batter allowed two more runs to score. After that chaotic interlude, the Stros were toast.
Stros first baseman and future Hall of Famer Jeff Bagwell played in his 2000th career game last night.
Bags has been good for so long that it is easy to take him for granted. Although he is clearly in the autumn of his career (this will likely be his fifth straight season of declining offensive numbers), Bags in decline is still better than most players.
A team wins baseball games by scoring more runs than the other team. So, the amount of runs that a player creates is the best indication of a player's hitting ability. In that connection, sabermetricians who have studied hitting statistics over generations have concluded that two particular hitting statistics are the best indicators of how many runs that a player will create -- on base average ("OBA") and slugging percentage ("SLG"). This makes sense because players who get on base frequently (OBA) and who hit the ball hard (SLG) tend to create the most runs. OBA and SLG are combined into a cumulative statistic called "OPS," which is OBA + SLG = OPS.
Building on these statistics, Lee Sinins, a lawyer turned sabermetrician, has developed another statistic called "runs created against average" ("RCAA") in connection with his website Baseball Immortals and his related Baseball Sabermetric Encyclopedia, which is an excellent baseball statistical database than can be purchased through Lee's site.
RCAA is a particularly valuable statistic to evaluate hitting because it focuses on the two most important things in winning baseball games ? that is, creating runs and avoiding making outs. RCAA basically computes the number of outs that a particular player uses in creating runs for his team and then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs.
RCAA is computed by taking a specific player's runs created ("RC") statistic minus the amount of runs created that an average player would have created using the same amount of his team's outs based on the league average and adjusted to the player's home park. The hypothetical average hitter in the league has an RCAA of exactly zero. Thus, a player can have either a positive RCAA -- which indicates he is an above average hitter -- or a negative RCAA, which means he is performing below average.
For example, as you might expect, Barry Bonds led the NL and MLB last season with a positive 115 RCAA ? that is, he produced an incredible 115 more runs for the Giants than an average NL player would have created using an equivalent number of his team's outs. On the other side of the ledger, the Stros' Brad Ausmus was one of the five worst hitters in the NL last season, producing a horrid negative 32 RCAA, which means that he created 32 fewer runs than an average player would have created using an equivalent number of his team's outs.
In acknowledging Bags' milestone of playing in his 2000th game, Sinins noted the following:
After 43 RCAA/.966 OPS and 38 RCAA/.919 OPS seasons, Bagwell hit .524 SLG, .373 OBA, .897 OPS, 21 RCAA in 160 games in 2003 and is off to a .465 SLG, .411 OBA, .876 OPS, 9 RCAA start in his first 45 games. He has a .957 career OPS, compared to his league average of .762, and 672 RCAA in 2000 games.
Bagwell ranks 8th on the NL's career RCAA list (since 1900)--
1 Barry Bonds 1385
2 Stan Musial 1204
3 Rogers Hornsby 1081
4 Hank Aaron 1039
5 Willie Mays 1008
6 Mel Ott 989
7 Honus Wagner 938
8 Jeff Bagwell 672
9 Joe Morgan 657
10 Eddie Mathews 652
That's pretty good company for Bags, who is simply the best Stros player ever.
In this New Republic ($) Online article, Daniel Drezner does a good job of concisely analyzing the Iraq War plan and the execution of its goal. The entire article is well worth reading, and the following is a tidbit to pique your interest:
Say what you will about the neoconservatives' skills at manners or management; their big idea cannot be dismissed lightly. There is a compelling logic to the argument that the primary source of frustration among Arabs in the Middle East is a sense of powerlessness. Trapped in a region littered with authoritarian and corrupt regimes, they are encouraged by these regimes and their Islamic critics to blame their situation on Israel and the United States. This is an ideal environment for fomenting terrorism. Creating an open society in Iraq would put the lie to this kind of hate-mongering.
To be sure, democracy promotion is far from easy. Indeed, regime change in the Middle East looks like a lousy, rotten policy option for addressing the root causes of terrorism, until one considers the alternatives--appeasement or muddling through. The latter option was essentially the pre-9/11 position of the United States and its allies, and has been found wanting. Appeasement or isolation has the same benefits and costs that the strategy had in the 1930s: It buys short-term solace but raises the long-term costs of facing a stronger and potentially undeterrable adversary.
For all their criticism of Bush's grand strategy, Europeans and left-wingers have offered very little in the way of alternatives to his vision. Some say that American soft power could bring about change in the Middle East. But decades of alternately coddling, cajoling, and ostracizing Arab despots has not led to liberalization or democratization. We have showered Egypt with aid, but have succeeded only in propping up an authoritarian monster in Hosni Mubarak. We have tried to isolate Syria, but have only strengthened that country's anti-American credentials. Maybe U.S. soft power is part of the solution to the Middle East's woes, but soft power alone cannot accomplish our desired ends.
The craft of foreign policy is choosing wisely from a set of imperfect options. While flawed, the neoconservative plan of democracy promotion in the Middle East remains preferable to any known alternatives.
If one goes back to the fifth week of Bill Clinton's 79-day bombing campaign against Serbia ? no U.N. approval, no congressional sanction, NATO partners backing out ? one reads of castigation from the American Right about bombing a Christian Orthodox country in Europe, from neoconservatives about not committing ground troops, and from the Left about going to war at all. But with Milosevic in the dock and the mass murder stopped, we now are told that the Clinton administration's efforts to stop the bloodbath in the Balkans proved to be about the only success of his scandal-ridden administration. Why? He persevered and won ? and we can imagine what would have happened had he caved in at week six and called it another Mogadishu.
The truth is that for all our education, nuance, and professed idealism, too many of us think and act with our limbic systems, which are hard-wired to appreciate perceived success and feel comfortable with consensus. Like most in the animal kingdom, man wishes to identify with good fortune and abhors apparent failure, and thus seeks conveniently to find distance from it. After Abu Graib and the insurrections in Fallujah and Najef, the loudmouth critic Michael Moore is praised as a gifted filmmaker at the Cannes Film Festival even as prominent conservatives and ex-generals, now in their newfound genius, trash the war and claim they were brainwashed, naïve, or not listened to.
Our leaders should remember this volatility. In the long run, of course, the present strategy is sound and in a decade will be judged as such by historians. How could it not be sound to remove a mass murderer who posed a threat to the region and our country and then sponsor a consensual government in his place?
Listening Al Gore?
May 28, 2004
The Stros lose to the Cards 2-1 as Dotel balks in the winning run in the 10th on a dubious call by Ump Hunter Wendlestadt. I suspect that the phrase "chicken shit" is being uttered more than once in the Stros' clubhouse this evening.
Professor Ribstein posts this interesting analysis of the Fifth Circuit's recent decision in Kimbell v. U.S.A., Case no. 03-10529 (May 20, 2004) that is welcome relief to estate planning attorneys who utilize the popular technique of family limited partnerships to help wealthy families escape taxes.
Family partnerships -- although largely untested legally -- have become increasingly popular over the past decade because they allow wealthy people to transfer large amounts of money and other property virtually tax-free to their heirs. In the typical family partnership, a wealthy person transfers assets into a partnership that is usually formed with the children. In most cases, a parent serves as general partner with the children holding limited partner shares. Less often, one of the children serves as the general partner.
For the wealthy, such tax planning can save an enormous amount for heirs that would otherwise be used to pay estate and gift taxes. For example, the top federal estate-tax rate is 48%, although the first $1.5 million of a taxable estate is usually exempt from federal estate tax.
Concern about the level of protection that family limited partnerships afford increased last year when the IRS won a case involving the late Texas businessman Albert Strangi on the grounds that Mr. Strangi retained excessive control over his family partnership. That decision is currently on appeal to the Fifth Circuit.
The new decision involves the estate of Ruth A. Kimbell, who died in 1998 at the age of 96. At the time Mrs. Kimbell died, the value of the assets in her family limited partnership -- which was created only a few months before her death -- was about $2.4 million. When the federal estate-tax return was filed, the estate claimed a big discount on the value of Mrs. Kimbell's interest in the partnership, to which the IRS objected.
The dispute landed in federal district court, and the Fifth Circuit reversed the district court's ruling that had denied the estate's request for a refund of the estate taxes and interest paid. The Fifth Circuit panel noted that the assets contributed to the partnership included working interests in oil and gas properties, that Mrs. Kimbell retained sufficient assets outside the partnership for her own support, and that there was no commingling of partnership and Mrs. Kimbell's personal assets.
Professor Ribstein observes the following:
There remain serious potential debtor-creditor issues in these firms aside from any estate planning problems, as I discuss in Reverse Limited Liability and the Design of Business Associations. Notably, in this case the partnership was set up to insulate the owners from potential environmental liability generated by the transferred assets. But in many of these cases, as I discuss in my article, the conveyance is intended to put the assets out of the reach of a debtor's creditors on claims that have nothing to do with the transferred assets themselves. This might stand for estate tax purposes after this case, but even if it does raises problems in the debtor-creditor context.
The case illustrates the potentially devastating impact of the death tax, here a million without the FLP discount, on an estate that is not so enormous by modern standards.
This Chronicle article reports on the pre-trial conference yeseterday in the Enron-related criminal case commonly known as the "Nigerian Barge case," which appears to be the first Enron-related criminal case that will actually go to trial.
As noted in previous posts here and here, the Justice Department in general, and the Enron Task Force in particular, have adopted a sledgehammer policy in white collar criminal cases against business executives -- that is, Justice alleges a myriad of counts against the business executive so that the executive is confronted with a draconian choice: either what amounts to a life prison sentence if the executive dares to defend the charges at trial or a plea bargain calling for a shorter prison sentence of between one (Lea Fastow) and ten (Andrew Fastow) years.
For the government's standpoint, the strategy has worked well in regard to the Enron criminal investigation. In the two and a half years since Enron crumbled into bankruptcy, the Task Force has obtained plea bargains from over a dozen former Enron executives and has not had to conduct a trial against any former Enron executive to date. In fact, the only Enron-related criminal trial that has taken place was the case against Enron's auditor, Arthur Andersen, in early 2002. That trial resulted in a controversial conviction of Andersen, which is currently the subject of an appeal before the Fifth Circuit Court of Appeals in New Orleans.
However, the Nigerian Barge case is a different animal, and it does not look like this case is likely to be resolved through a plea bargain. The case is particularly interesting because it involves the government's attempt to convict former Enron and Merrill Lynch executives for participating in a commercial transaction of the type that is common throughout the business world.
In essence, the Task Force's indictment against the Merrill executives contends that the entire Nigerian Barge deal was a sham because Merrill Lynch would not have bought from Enron an interest in the barges docked off the coast of Nigeria but for former Enron CFO Fastow's oral assurance that Enron would broker a sale of the barges at a tidy profit for Merrill Lynch the following year. Fastow did indeed broker a sale of Merrill's interest in the barges the following year to one of his infamous "off-balance sheet partnerships" that ultimately hid a total of roughly $40 billion of Enron debt.
According to the government's theory of the case, if Fastow's oral assurance to Merrill Lynch was binding on Enron, then the sale of the barges was not a true arm's length sale and, thus, Enron's accounting for the transaction as a true sale was fraudulent. Accordingly, the government reasons that it is irrelevant that the subsequent written agreements between Enron and Merrill Lynch contained a provision that made Fastow's oral assurance unenforceable. The contract was false and a part of the sham because Merrill Lynch would not have done the deal but for Fastow's oral assurance.
Other than Mr. Fastow's probable testimony of dubious credibility (he is cooperating with the government under his plea bargain), 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 Merrill consummated the transaction. 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 more reasonable interpretation of Merrill's nervousness regarding the deal -- that is, 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 Fastow's unenforceable oral assurance that Enron would broker a sale of the barges the following year. Accordingly, their nervousness was that they might be making a bad investment that would result in having to hold the barges for a long term rather than 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 Fastow's oral assurances to get them out of the investment could not be enforced if Enron failed to live up to them.
But for the current highly adverse environment for any Enron-related defendant, my sense is that the prospects for a successful government prosecution in this particular case would be low. Even with the current anti-Enron bias in the community, this is going to be a tough case for the government. For example, during the pre-trial hearing yesterday, U.S. District Judge Ewing Werlein -- a former civil trial attorney and a scrupulously fair judge -- was clearly troubled by the government's failure to turn over to the defense potentially exculpatory evidence that the government has in its possession. At another point in the hearing, Judge Werlein was openly skeptical of the government's theory that it should be allowed -- without providing pre-trial expert reports to the defense -- to elicit expert opinions at trial from three proposed former Arthur Andersen auditors who the government has named as fact witnesses in the case.
Moreover, inasmuch as there are six defendants in this case, the defense team is formidable. Dan Cogdell and Tom Hagemann -- two members of Houston's excellent criminal defense bar that was the subject of a previous post here -- were outstanding yesterday during the pre-trial hearing, as were New York's Daniel Horwitz and Lawrence Zweifach. The prosecution team that assistant U.S. attorney Matthew W. Friedrich is leading will have its hands full at trial with this group of defense attorneys.
Jury selection in the Nigerian Barge case begins on June 7, and the trial will probably last about 4-6 weeks. Stayed tuned to developments in this one. A successful defense in this case could go a long ways toward leveling the one-sided playing field in favor of the Enron Task Force that has existed to date in regard to the handling of the Enron-related criminal prosecutions.
May 27, 2004
Will Carroll is a doctor whose hobby is analyzing sports injuries. He also writes for the Baseball Prospectus and runs his own blog here. In his Baseball Propectus column today, he writes the following ominous news from the Stros:
The Astros may have completed a two-game sweep of the Cubs, but losing Andy Pettitte for any length of time would certainly be a high price to pay for that sweep. Pettitte left after four innings with elbow soreness, later clarified to be "forearm tightness." While Pettitte insisted after the game that the pain was in a different area than the elbow injury earlier this season, his reactions on the mound were very similar. A shot of the dugout showed him rubbing not his forearm, but his elbow. Team physicians will examine Pettitte Thursday morning.
Update: In this Chronicle article, the Stros attempt to put the best face on the initial diagnosis (strained forearm) as possible, but the reality is that Pettitte has a gimpy elbow and throwing pitches only aggravates the injury. Accordingly, I expect Pettitte to go back on the disabled list again at least once and maybe more during the remainder of this season.
In this article bemoaning Andy Pettitte's latest injury, the Chronicle's John Lopez rues the lack of viable alternatives to replace Pettitte in the Stros' rotation and makes the following observation:
Carlos Hernandez, whom the Astros had hoped to be progressing by this point of the season to become an option, has not distinguished himself at Class AAA New Orleans.
While operating under a strict pitch count, Hernandez is 4-0 in nine starts, has an ERA of 2.54, has struck out 26 in 51 innings, and has given up only 18 walks. In other words, Hernandez's stat line is as good as any pitcher on the Astros staff right now and better than most.
Inasmuch as Hernandez is still building arm strength, his velocity has not yet returned completely, and that is reflected in his relatively low strikeout totals. However, Lopez's suggestion that Hernandez is not doing well at New Orleans reflects that he didn't check the facts. This is a common characteristic of the Chronicle baseball writers, best reflected in their unquestioning support of such abysmal players as Brad Ausmus and Jose Vizcaino, and their oblivious acceptance of manager Jimy Williams' dubious decisions.
They have repeatedly noted that Ms. Stewart was charged only with lying after the fact about the stock sale, but not with securities fraud for the transaction itself. The Wall Street Journal editorial page, for example, said there "was something strange about prosecuting someone for obstructing justice over a crime that the government doesn't claim happened." And some feminists have suggested that Ms. Stewart was being penalized for being a powerful woman.
I don't buy any of it. What the jury felt Martha Stewart did -- lying about having received inside information before she traded -- is wrong, really wrong. And the fact that so many on Wall Street have unashamedly risen to her defense is galling -- galling because what she did actually harms the market. Wall Street leaders should be expressing chagrin that a corporate tycoon, who was also a member of the New York Stock Exchange board, could feel free to fleece an unwitting buyer.
H'mm, let's think clearly about Mr. Turow's analysis. We agree that it was wrong for Martha to lie, although it should be pointed out that Martha's lie was her contention to government investigators that she was innocent of the crime of insider trading, for which the government did not charge her.
But then, after noting Martha's lie, Turow criticizes Martha because she engaged in illegal insider trading, the charge for which she was not prosecuted. Martha's defenders -- notably Professors Bainbridge and Ribstein -- have defended Martha because the government elected not to charge her with the real crime (i.e., insider trading) and instead prosecuted her for merely claiming her innocence of that charge. Consequently, Turow jumps from the premise that Martha's lie was wrong to the proposition that she was guilty of insider trading. Maybe so, but the government did not prove that.
Turow then asserts the following:
It's true that Martha Stewart was not accused of securities fraud for selling her ImClone stock, because, the prosecutors said, historically no one else had been charged criminally with insider trading in similar circumstances.
Well, then that should apply also to prosecuting someone for proclaiming their innocence of a charge, which "historically no one else had been charged . . . in similar circumstances."
Finally, Turow plays the class warfare card, reasoning that Martha's defenders suggest different treatment for her because she is rich and famous:
Perhaps the most troubling aspect of the whole case, to me anyway, is how the arguments in defense of Ms. Stewart show a widespread mentality that is all too comfortable with unwarranted privilege. It is yet another example of how justice is very different for the rich and poor.
Consider: While it's not insider trading for Martha Stewart to make some $50,000 using stolen information because she did not have the duty not to steal it, something very different would happen to you if you were caught with, say, a stolen watch in your hand. In that circumstance, the law virtually presumes you are guilty. For decades, American juries have been instructed that when a person is found in unexplained possession of recently stolen property, it is proper to infer that the person knows it is stolen, and thus almost certainly is guilty of receiving stolen property.
Likewise, while it's technically not insider trading for someone to sell shares of stock for more than what he knows, through inside information, to be their true market value, the converse, your buying or selling that hot watch at a steep discount, will almost inevitably get you convicted for trading in stolen property. When we're talking about these petty kinds of crimes, most often committed by the poor, the law does not bother with airy discussions of fiduciary duty. I can't take seriously those who want to believe that the starkly differing contours of the law in these roughly parallel circumstances are unrelated to the economic circumstances, and social standing, of the typical violators.
Turow's reasoning here is utterly muddled. "Roughly parallel circumstances" between selling stock on inside information and stealing a watch and then hawking it? These circumstances are completely different -- Martha bought her stock and then sold it; the thief stole the watch and sold it. Martha's profit is the difference between the sale price of the stock and her purchase price, net of taxes. The thief's profit is the gross sales price.
For these circumstances to be "roughly parallel," either Martha would have had to steal proceeds from the sale of stolen stock (for which I'm sure she would have been prosecuted) or the thief would have had to buy the watch and then sell it to an unsuspecting buyer for a higher price even though the thief knew information about the watch that made it less valuable. Despite Turow's self-righteousness, there are not many prosecutions over the allegedly fraudulent sale of a watch.
Even on the one correct point that he makes, Turow has it turned around. Yes, justice is very different for the rich and poor. In this particular case, someone without Martha's fame would have had her wrist slapped, been required to disgorge her profits (as Martha did), and that would have been the end of it. That was not the end of it in this case because Martha is a high profile target and she did not handle the scrutiny of the transaction well.
Indeed, reasoned defenders of Martha do not defend her because they believe in a different standard for the rich than the poor. Rather, they defend her because the same standard should apply to both.
Turow should stick to writing novels.
May 26, 2004
Andy Pettitte strained his left forearm after pitching four innings, but the Stros' recently maligned bullpen pitched well as the Stros beat the Cubs for the second straight night at the Juice Box, 7-3. Pettitte gave up a run on two hits, and the Cubs were only able to muster two runs off of one (Mike Gallo) of the Astros' five relievers. Miceli, Lidge and Dotel were throwing smoke in the last three innings as they struck out six of the last nine Cub batters in the game. The Stros listed Pettitte as day-to-day, but with that type of injury, I would be surprised if he doesn't miss a start to two.
Lance Berkman hit his seventh yak in the last nine games, and both of the Jeffs -- Kent and Bags -- also cranked dingers. The Stros raked Greg Maddux hard as it is starting to look like Maddux -- who, along with Roger Clemens, is one of the best pitchers of his generation -- is going to have a hard time maintaining a spot in the Cubs rotation when all of their flamethrowers come off of the disabled list.
The Stros take a day off on Thursday and then begin a three game weekend series at the Juice Box with the Cards on Friday night behind Clemens. The Stros are 26-20 and a game behind the Reds in the NL Central race.
The Wall Street Journal ($) is doing a particularly good job in reporting on the polling pertaining to the upcoming Presidential election. This article reports on the WSJ's latest data and analysis. The entire article is highly informative reading, and the following summarizes the WSJ's analysis:
George W. Bush and John Kerry may be speaking to all of America, but their campaign advisers are focusing on a narrower slice of the population and targeting the candidates' messages to voters in states that were decided by a narrow margin in 2000. These battleground states may tip the outcome again in November.
To take the pulse of voters in many of these key states, Zogby Interactive, a division of polling and research firm Zogby International, is conducting online polls twice a month through Election Day in 16 states selected by WSJ.com. Participation in the polls is controlled and the results are weighted, Zogby says, to make them representative of what a poll of the overall U.S. voting population would find.
Results of the first poll, conducted May 18-23, show Mr. Kerry leading in 12 of the 16 states in this poll, including five states that Mr. Bush won in 2000. Mr. Bush leads in four states, including one -- Iowa -- that voted Democratic in 2000. The 12 states in which Mr. Kerry leads have a total of 148 votes in the Electoral College, while the four in which Mr. Bush is ahead have 29 electoral votes.
Mr. Bush won eight of these 16 battlegrounds in his 2000 victory, but if the election were to be held tomorrow, it looks unlikely that the president would fare as well. But more than half of the states that Mr. Kerry leads fall within the polls' margins of error. All of the states that Mr. Bush leads are within the margins of error.
In short, although the election is five months away, Mr. Bush is in trouble. However, Mr. Kerry is not a strong candidate and is having difficulty capitalizing on Mr. Bush's problems. Looks like a close race is shaping up. Stay tuned.
On Monday, the Second Circuit Court of Appeals issued this decision denying former Ohio State running back Maurice Clarett's challenge to the National Football League's rules that prevented him from participating in this year's draft. Here are the prior posts on the Clarett case.
For a variety of reasons, the Second Circuit's decision is questionable, including its complete dodge of the issue that Americans are generally free to make their own decisions on employment opportunities, even if those decisions are bad ones. As usual, Professor Sauer over at the Sports Economist has the best analysis on the decision, in which he observes the following:
The decision is evasive on two major counts. First, apart from mentioning the NFL's claim that the rule protects young players from physical harm, the decision wastes nary a sentence on the issue. The reason is clear - since labor law trumps antitrust, there is no need to judge the reasonableness of the restraint. Second, in announcing this in unabashed terms, the court tiptoes around the real issue here:
In the context of this collective bargaining relationship, the NFL and its players union can agree that an employee will not be hired or considered for employment for nearly any reason whatsoever [emphasis added] so long as they do not violate federal laws such as those prohibiting unfair labor practices ... or discrimination.
That the restriction is discriminatory is obvious. But youth is apparently not a protected class, unlike minorities or the elderly. I find this odd.
Randy Parker over at ParaPundit has this interesting post in which he points out that the shortage of females in China -- coupled with North Korea's crippled economy -- presents the real prospect that Chinese men will import substantial numbers of North Korean wifes in the coming decades. Read the entire post, as Mr. Parker notes that the social and economic implications of this development are potentially ominous, but also potentially positive:
The shortage of women in China may end up posing an existential threat to the Pyongyang regime more powerful than anything US policy makers are likely to do. North Korean leaders might react to this threat by engaging in market liberalization reforms aimed at raising North Korean living standards enough to reduce the level of desperation of North Korean women.
The regime in North Korea faces a more general economic threat from China because of rising wages in China. The higher the wages go the greater the incentive for Northeast China factory managers and other businesses to turn to the black market to supply cheap North Korean labor. This will pull both men and women out of North Korea. Will that destabilize the regime more or less than the selective removal of women from North Korea?
Hat tip to Marginal Revolution for the link to this post.
This Wall Street Journal ($) article reports on the development of an experimental computer chip at the University of Texas that is like a chameleon in that its able to change its function according to the task at hand.
Steve Keckler, a UT computer scientist and a leader of the design effort, believes that the chip can be configured to perform as a specialized chip for devices such as cell phones and digital music players or even serve as a powerful central processor in a desktop or other general-purpose computer. The team hopes to have a prototype of the device finished in about a year and ready for commercialization by the end of this decade. The Defense Advanced Research Projects Agency, a Defense Department agency, is funding the UT team's development.
If the chip works as planned, it will run at a top speed of 10 gigahertz and perform one trillion operations (meaning individual computing tasks) per second. In comparison, Intel Corp.'s current top-speed Pentium 4 processor runs at 3.4 gigahertz and delivers 6.8 billion operations per second. The anticipated performance has led the design team to dub the device a "supercomputer on a chip."
The UT team has nicknamed their design "Trips," for Tera-Op Reliable Intelligently Adaptive Processing System. The term tera-op refers to the targeted one trillion operations per second. The system would divide individual processing cores on the chip into tiny sections that could change automatically for several predetermined functions. The idea is that the processing cores would morph as instructions flowed in. Each chip could contain many processing core, which would enable a single chip to perform multiple functions simultaneously while optimizing for each. Conventional chips generally do only one thing at a time. Moreover, the distributed architecture of the UT team's design would reduce clock delays, which limit the performance of conventional chips.
This Holman Jenkins, Jr. WSJ ($) Business World column examines New York attorney general Eliot Spitzer's latest propoganda campaign . er, I mean, lawsuit in which he seeks to recover a substantial portion of the rather large $200 million in compensation, pension and related benefits that the New York Stock Exchange Board of Directors bestowed on Richard Grasso, the former president of the Exchange. The entire column is good reading, and here are a few tidbits to pique your interest:
The board was chock full of the country's leading business people, folks like Goldman Sachs Chief Henry Paulson, Bear Stearns' James Cayne and former New York Comptroller Carl McCall. They voted unanimously to approve Mr. Grasso's pay knowing full well its magnitude, Mr. Spitzer's subsequent attempt to lay down a smokescreen for their benefit notwithstanding. Mr. Spitzer lauded himself Monday for taking on the national problem of overpaid CEOs. By leaving the board out of his suit, though, he's given directors everywhere an all-purpose defense. To wit, I was too dumb, lazy, clueless, indifferent, gullible etc. to know what I was doing.
Mr. Jenkins then examines the nature of the NYSE, the reason that its members paid Mr. Grasso so well, and why they turned on him quicker than a New York minute:
The NYSE is owned by seat holders who show up on the premises every business day. Their livelihood depends on the place. They elect its board. They know what a telephone is for. They have every means and incentive to wield their collective clout to make sure their interests are being served.
Now some NYSE "specialist" firms will tell you they were afraid of Mr. Grasso; they didn't really know what was going on. If pressed on why they bungled a matter so close to their own interests, they shrug their shoulders like an errant teenager and say they aren't sure why they didn't keep a closer check on things.
So we'll answer for them: They stood back because Mr. Grasso was serving their needs marvelously. Consider the years 1995 through 2000, when the handful of small, little-known businesses that control floor trading pocketed profits of $2.12 billion. The average yearly return on their invested capital: a princely 21.35%. Mr. Grasso's retirement payoff after 35 years at the exchange may have been gross and unsightly, but it was a small fraction of the riches he helped to preserve for the New York Stock Exchange's most privileged constituents.
It's also perfectly obvious why they turned on Mr. Grasso in his moment of political mugging. Anything that brings scrutiny on the inner workings of the exchange, willy nilly, is an invitation to powerful customers who've been fighting to eliminate the specialists in favor of a cheaper, more transparent electronic trading system.
Finally, Mr. Jenkins then turns to the motivation of Mr. Spitzer, who has made quite a name for himself extracting "settlements" from various businesses:
New York's Attorney General, heir to a local real estate fortune, has specialized in presenting his wealthy business targets with both a problem and a solution, the latter involving writing a big check with their firm's money. He may not exactly provoke gratitude (except among CEOs more than usually afflicted with Stockholm Syndrome) but he's seen as someone with whom business can be done.
His political ambition is zeppelin-like, lurching over Manhattan in unmoored, alarming fashion. He was obviously eager here to limit his political risk by portraying the NYSE's famous board as victims rather than culprits in the Grasso pay scandal. But no judge or jury will fail to understand that he's giving them a pass for his own political interests.
Mr. Grasso understands this too, and has semaphored that he will drag them into court, forcing them to choose between pleading gullibility, inattention and incompetence or undermining Mr. Spitzer's case. True, even a court victory might not get Mr. Grasso his good name back, but more than a few would applaud his show of resistance to a budding demagogue.
Spitzer's case against Grasso is beyond absurd. No one held a gun to the head of the NYSE Board or its compensation committee when it approved Mr. Grasso's compensation and related benefits. The NYSE is not bankrupt, so its creditor interests are not in a position to challege the Board's decisions regarding management compensation. Perhaps the Board members made a bad, lazy or incompetent decision in compensating Grasso to such a liberal extent, but that's a reason to replace Board members, not to persecute Grasso.
Spitzer's purge on Wall Street has become so misguided that Mark Haines of CNBC joked the other evening that "the government might as well throw all of Wall Street in prison and release anyone they find innocent." Mr. Jenkins hits the nail on the head in pointing out that the real purpose of this lawsuit is the promotion of a demagogue's agenda rather than the protection of any public interest.
May 25, 2004
Roy O had his game face on tonight and gave up only three singles in seven innings as the Stros broke their five game losing streak in beating the Cubbies, 5-0. Lance Berkman cranked his sixth dinger in eight games, a two run shot off of Astro-killer Carlos Zambrano to the Conoco Porch in the left center of the Juice Box.
Andy Pettitte takes the hill on Wednesday evening as the Stros go for the two game sweep against the Cubs' Greg Maddux. After an off day on Thursday, the Rocket opens the weekend series with the Cards at the Juice Box.
Blogging time is restricted for a couple of days, but Arnold Kling's TCS piece on the Strategic Petroleum Reserve is quite good, as is his blog's follow up piece. Arnold sums up his theory regarding the SPR as follows:
It should be the responsibility of the private sector, not the government, to obtain insurance against oil market disruptions. The SPR has introduced government into the oil market as a destabilizing speculator.
Arnold also provides an excellent explanation of the concept of backwardation in regard to the price of oil.
May 24, 2004
The Stros limp home tonight after losing their fifth straight game and fourth straight to the Reds, 7-5. Berkman is the only player hitting consistently well, and no one is pitching lights out at this point. Not a good combination, and the schedule is not favorable. The Stros begin a two week stretch of playing the Cubs and the Cards with Roy O taking the hill against the Cubs on Tuesday night in the Juice Box.
Here are the previous posts on the Shell reduction of reserve controversy.
This Wall Street Journal ($) article reports on the Justice Department's decision to open a criminal investigation into Ernst & Young LLP's promotions of potentially abusive tax shelters. This investigation follows on the heels of a separate criminal investigation into sales of certain tax shelters at KPMG LLP. Here are prior posts on Ernst and KPMG's recent legal troubles.
The investigation of Ernst reflects the continuation of the Justice Department's continued effort to crack down on tax evaders and their professional advisers, including accounting firms, law firms and financial institutions. A plethora of tax-shelter sales spurred by the late-1990s economic boom and stock-market rally is estimated to have reduced federal tax revenues by billions.
Earlier this year, the Manhattan U.S. attorney's office notified KPMG that it had begun a criminal investigation into the firm's promotion of certain tax shelters that the IRS has deemed potentially abusive. The initiation of a criminal investigation into Ernst's similar activities comes at a time of growing concern in the business community that there already are too few major accounting firms (it's the "Big Four" now) to audit the world's largest companies.
The criminal investigation of Ernst is somewhat surprising in that Ernst last summer reached a civil settlement -- which included payment of a $15 million penalty -- with the IRS to resolve allegations that it failed to register its tax-shelter strategies with the government and maintain lists of investors who participated in them. Ernst disbanded the division that had been involved in developing and marketing its most aggressive tax shelters and, as part of the IRS settlement, Ernst also instituted organizational changes aimed at ensuring future compliance with federal and state tax laws. As a result, it was thought that the IRS settlement concluded the government's action against Ernst for past shelter-related matters.
Following on this Professor Ribstein post and this reply post here over the weekend regarding most airlines' failure to hedge fuel costs, this NY Times article reports that the hedging of fuel costs also varies widely in other fuel intensive businesses. One reason is that the practice is risky:
In a vexing illustration of the risks associated with hedging, though, not every company has been so fortunate.
For instance, the PanOcean Energy Corporation, which produces oil in West Africa, lost $1.4 million in the most recent quarter by essentially agreeing to sell oil for about $30 a barrel when the price of oil climbed much higher - just below $40 a barrel last Friday. PanOcean made the bet as part of a loan agreement with its bank.
"It's a crap-shoot, isn't it?" said David Lyons, chief executive of PanOcean, no stranger to risk after developing a natural gas field in Tanzania in East Africa to complement operations in Gabon. "Personally I feel hedging activities are overdone, but it's something our financial agreements require us to do."
Many companies find it less risky (albeit more incompetent) simply to avoid hedging and pass along the increased fuel costs to their companies:
Many choose instead to raise costs for their customers, contributing to concerns about rising inflation.
One company opting for a fuel surcharge instead of hedges is Waste Management, the Houston-based garbage collection company with a fleet of 20,000 trucks around the nation. Heather Browne, a spokeswoman for Waste Management, said fuel costs still remain a relatively small amount of the company's revenue, about 3 percent of $11.5 billion.
Nevertheless, hedging fuel costs is increasingly important for fuel dependent companies that serve a limited geographical area:
For companies with a more limited geographic reach and more dependent on the fuels that are becoming a bonanza in the oil patch, hedging is increasingly considered a necessity. Southwest Airlines exemplifies this trend, with 80 percent of its fuel needs hedged for this year and 2005, and 30 percent for 2006 at prices below $30 a barrel.
Alaska Air, which operates Alaska Airlines and Horizon Air, is also among the few that hedged a large share of its fuel consumption, about 40 percent this year and next, at prices from $25 to $27 a barrel. But even that was not sufficient, the company acknowledges.
"We're not at the Southwest level," Bradley D. Tilden, Alaska's chief financial officer, said in an interview. With the company consuming about 400 million gallons of jet fuel a year, each penny increase in the price of the fuel costs the company $4 million a year, he said. Jet fuel prices have climbed to $1.17 a gallon from 76 cents a gallon this time last year.
Nevertheless, many major airlines remain slow to hedge:
Other airlines are struggling with the prospect of large losses after hedging fuel needs at relatively high prices, like Continental Airlines, which secured 80 percent of it fuel consumption at $40 a barrel this quarter and 45 percent at $36.40 a barrel for the third quarter.
Delta Air Lines and Northwest Airlines did not hedge at all this year and American Airlines, the nation's largest carrier and a unit of the AMR Corporation, hedged less than 10 percent of its fuel needs for the second half of the year, according to a report by Lehman Brothers. Prying information from companies that placed erroneous bets on the price of fuel is sometimes akin to pulling teeth.
Finally, the NY Times piece observes correctly that the risk of hedging is not a reason to avoid it:
"People get their feelings hurt when they hedge poorly," said J. C. Whorton, executive vice president of StratCom Advisors, a company that provides risk-management services. "But it's most often the case that those companies that fail to hedge at all have done a very poor job."
My prior post noted Warren Buffett's distaste for investment in the airline industry because of its traditional lack of profitability. Could it be that the airline industry is simply an example of Mr. Buffett's following observation about troubled businesses?:
"When a manager with a great reputation takes on a company with a poor one, it is the company's reputation that survives."
May 23, 2004
The listless Stros made the forgetable Corey Lidle look like Tom Seaver today as the Reds mowed down the Stros for third straight day, 7-0. The Stros have now lost four straight and their boat is clearly taking on some serious H2O.
William J. Holstein is the editor of Chief Executive magazine and, in this NY Times piece, interviews Donald J. Gogel, the chief executive of Clayton, Dubilier & Rice, one of the oldest private-equity firms in the world. The entire interview is interesting, but particularly insightful are the following observations that Mr. Gogel makes regarding the disincentives of investing in public companies:
Q. This suggests that a lot is happening away from public scrutiny because these companies do not have to worry about regulatory compliance.
A. The public glare has a number of difficult or challenging aspects. One is the focus on quarterly earnings. It's hard for many publicly traded companies to make strategic investments that have long-term paybacks. It's hard to penalize what may be two or three quarterly earnings reports. The markets won't tolerate that. There is also the fact that compliance can be distracting.
Q. Are you saying a private-equity firm can do a better job cleaning up an underperforming asset than a public company can?
A. The private-equity teams that come in, when they're successful, can create a new culture and introduce new leaders. They can create a sense that this is a new team and a fresh start. There's a definite cultural transformation. Incentives and executive compensation can change. We can recruit people because the compensation systems can be skewed toward long-term results. We can attract people because they don't want to be in public companies.
Q. Why don't they want to be in public companies?
A. I think the Sarbanes-Oxley Act and other requirements of the public arena inevitably have a cost. I wouldn't overstate the cost. It's one of several factors. But we are able to recruit some C.E.O.'s and other executives to run our companies because they say to themselves, "Boy, if I could do this in private, it would be a lot better. My own performance would be better and the company would be better."
Q. But, again, from a public policy point of view, how can we know that privately held companies are being governed well?
A. Our investors know as much, if not more, about our investments and returns than do public companies' investors. We have a more limited audience, so it's easier to communicate with them. A firm like ours might have 75 or 80 investors. That's a target audience that's easier to communicate with.
There's a lot of continuity because many investors have been with us for a long time. But a public company's shareholding base could change literally in the fraction of a second. We have the advantage.
From purely my anecdotal experience, virtually all business executives who I know would much rather work for a company funded with private, rather than public, equity.
Whenever the subject of a discussion is great Texas golf courses, two courses should always be included in the discussion -- Jack Burke, Jr. and the late Jimmy Demaret's Champions Golf Club in Houston and Colonial Country Club in Ft. Worth, nicknamed "Hogan's Alley" after the late Ben Hogan, a Ft. Worth native and arguably the best ball-striker in golf history.
Both of these golf courses are steeped in history and are phenomenal challenges. Champions is long and relatively wide open off the tee, but has huge greens that place a premium on getting the ball close to the hole on approach shots. Colonial is short and tight, with postage stamp greens.
Chad Campbell is a 30 year old West Texan from Andrews, Texas. After graduating from UNLV in 1996, Campbell worked his way through the mini-tours for five years before getting his Tour card in 2001 and, since that time, has established himself as one of the best ball-strikers on the Tour.
Last October, Campbell shot one of the best rounds of the year on the Tour when he shot an incredible 61 (10 under par) at Champions during the third round of the Tour Championship, which he went on to win the following day for his first Tour victory. Campbell won his second Tour victory earlier this year at Bay Hill.
Yesterday, in 25 mph wind conditions (i.e., extremely difficult for most golfers; no big deal for a West Texas boy), Campbell shot an equally incredible 61 (nine under par) at Colonial to bolt into a third round tie for the lead.
Campbell's 61's on these two great golf courses is the equivalent of pitching two perfect games in baseball. Campbell is now firmly established as one of the Tour's rising stars and may now be the best Tour player who has not yet won a major golf tournament. The only flaw in his game at this point is inconsistent putting, but if he gets that part of his game to a more consistent level, watch out. Chad Campbell has serious game.
Sean Casey and Ken Griffey hit run scoring doubles off of normally reliable Brad Lidge in the bottom of the eighth on Saturday night in Cincy as the hard-hitting Reds sent the Stros to their third straight defeat, 8-7. The win moves the Reds into a first place tie with the Stros and the Cubs in the NL Central. All three clubs have a 24-18 record.
The Rocket struggled in this start, giving up six runs and nine hits in six innings, including four walks. Despite Clemens' strong start this season, his elevated walks total is a clear sign that his performance level is trending downward.
The Stros' stroked 15 hits and were led by red-hot Lance Berkman, who hit his fourth dinger in the last five games and had two doubles. Of course, manager Jimy Williams continues to bat Berkman fifth in the order when he is a far superior hitter to any other Astro and thus, should be batting in the postion in the order that would maximize his plate appearances.
In fact, Williams' dubious decision-making is becoming a big problem for the Stros. Despite near deification among local reporters as being a real "baseball guy" (whatever that means), Williams in reality is a mediocre manager, as has been explained earlier here and here. Late in this game, Williams again allowed his irrational prejudice in favor of veteran players to hurt the Stros' chances of winning.
In the top of the ninth, consecutive hits by Kent, Berkman and Ensberg scored a run to make it 8-7 with no outs. After Berkman was cut down on a fielder's choice, the Stros still had runners on first and second with one out. Inexplicably, with the game on the line, Williams trotted two of the worst hitters in Major League Baseball -- Brad Ausmus and Jose Vizcaino -- to the plate. The Stros' bench is not strong this season, but Williams' refusal to use the far superior hitter second year man Jason Lane in that situation is yet another example of Williams' questionable use of veteran players over better, but younger, alternatives.
As noted earlier, Williams non-sensical platooning of the emerging star Ensberg last season with the far inferior Geoff Blum may have been the difference in the close NL Central race that the Stros ended up losing to the Cubs by a game. This season's NL Central race will likely by just as close, and the Stros' small margin of error cannot afford Williams' continued poor decision-making.
Wade Miller tries to right the Stros' ship the Sunday afternoon game against the Reds' Corey Lidle. After closing out the Reds series tomorrow behind Tim Redding, the Stros come home for key home and home series with the Cubs and Cards.
May 22, 2004
This Washington Post article reports that "the law of good, but not well thought out, governmental intentions" is again vetoed by the practicality of horse trough politics:
NEW YORK -- Six months after the Sept. 11, 2001, terrorist attacks, Congress approved an $8 billion program to repair this city's damaged office towers, build apartment buildings and finance the rebirth of the financial district.
But two years later, city records show that much of the money, dubbed Liberty Bonds, has gone to developers of prime real estate in midtown Manhattan and Brooklyn and to builders of luxury housing.
And who received this governmental perk? Yes, the businesspeople who needed it the least:
Local and state officials -- over the objections of their own downtown development chief -- gave one developer $650 million from the Liberty Bonds to erect an office tower for the Bank of America near Times Square, miles from the shattered precincts of Ground Zero. According to city records, another developer got $113 million to build a tower for Bank of New York in Brooklyn. One of the few projects downtown has gone to actor and sometime developer Robert De Niro, who picked up nearly $39 million from the bonds in November to build a boutique hotel in Tribeca, directly north of Ground Zero.
Congress designated $1.6 billion of the Liberty Bonds for rental housing for the tens of thousands of moderate-income residents who live in Lower Manhattan. Who got that money?:
Nearly all the money from those bonds has gone to prominent developers to build luxury apartment towers in the neighborhoods around Ground Zero, accelerating its transformation into one of New York's richest neighborhoods, the city records show.
And what is the bureaucratic response to allegations of political favortism over the doling out of this financial largesse?:
State housing officials said that political favoritism played no part in their decisions and that loans were handed out "on a first-come, first-served basis." Litwin, they say, had projects in the works and simply got in line when the Liberty Bonds came available.
To which Professor Sauer responds insightfully: "That's it folks -- projects already "in the works" get millions of subsidies. What good are the subsidies then?"
The always perceptive Professor Ribstein over at Ideablog asks this question: Given the volatility or oil prices and the adverse impact of high prices on the business of running an airline, why don't airlines hedge their fuel costs?
The answer: Airlines generally are not, and never have been, particularly well-managed.
After a particularly unfulfilling experience in investing in airline stocks several years ago, Warren Buffett studied the industry and concluded, if one tabulates all of the airline industry's finances since the day the Wright Brothers in 1903, one will discover that, cumulatively, there has not been a single penny of profit. Mr. Buffett has also suggested that, in hindsight, shooting down the Wright Brothers on that beach would have been a reasonable financial, if not moral, move.
May 21, 2004
The Reds jumped on Stros relievers Backe and Miceli for five runs in the sixth to take control and then cruised to a 7-4 win on Friday night at Great American Ballpark.
Andy Pettitte muddled through five innings for the Stros, giving up two runs on four hits, but walking four, which jumped his pitch count. Backe and Miceli stunk up the joint in the sixth, and Jeff Kent did not look slick, either, making a poor play on the first hit of the inning and failing to make the turn on a double play ball that would have short circuited the big inning. Meanwhile, the Reds' relievers shut the Stros down after the Stros took a 4-2 lead in the top of the sixth on a Bags dinger and an Ensberg pinch hit (yes, manager Jimy did not start the hottest hitter on the team -- simply incredible).
The Rocket takes the hill on Saturday as the Stros try to get back on track after two straight losses. The Stros are 24-17 on the season and still a game in front of the Cubs for first in the NL Central, but now also just a game in front of the surging Reds.
This Chronicle article reports on the announcement of the merger of two Houston area independent banks -- Southwest Bank of Texas and Klein Bank. Southwest will be the acquiring entity under the $165 million deal. The merged company will become the second-largest independent bank in Texas and the fourth-largest bank in the Houston area, behind J.P. Morgan Chase, Bank of America and Wells Fargo. The combined companies will have $6.6 billion in total assets, $4.2 billion in loans, $5.3 billion in deposits and a loan limit of $77 million.
This NY Times article reports on Enron Corp.'s announcement today that, subject to Bankruptcy Court approval, it has agreed to sell for $1.8 billion its most valuable remaining pipeline assets to a company run by colorful Houston billionaire Oscar Wyatt, Jr.
Enron's pipeline and power assets have never been part of the company's troubled businesses that led it into bankruptcy in late 2001. Enron will sell CrossCountry Energy Corp. -- which owns outright or has stakes in three North American natural-gas pipelines -- to Wyatt's company, NuCoastal LLC. As a part of the deal, NuCoastal would also assume $430 million in debt from the 2,600-mile Transwestern Pipeline in the deal.
Mr. Wyatt, who is 79 years old, has long been one of Houston's most outspoken businessmen. He founded Coastal Corp. and turned it into a natural gas giant before retiring as its chairman in 1997. El Paso Corp. bought Coastal in 2001 for $22.6 billion, and Mr. Wyatt's public (and caustic) displeasure with El Paso's management generated an unsuccessful proxy battle to oust El Paso's board last year. Another example of Mr. Wyatt's outspoken nature was his public opposition to Operation Desert Storm in the first Iraq War in 1991, which was led by fellow Houstonian President George H.W. Bush.
Mr. Wyatt's company may still be outbid for CrossCountry Energy because bankruptcy courts generally award the assets to the highest bidder until the deal is approved. If that occurs, Mr. Wyatt's company will likely receive a generous "stalking horse" fee, which is usually a percentage of the ultimate purchase price.
This NY Times article provides a good analysis of the the difficulty that Russia's largest oil and gas companies are having in translating their huge reserves into stature among the world's major oil and gas companies in the marketplace for investors. The article starts by noting the huge potential in the Russian oil and gas business:
By rights, Russia should have a world-class energy company. It has 6 percent of the world's oil reserves and pumps 10 percent of daily global production, rivaling Saudi Arabia. And its economy has rebounded as oil-consuming nations east and west turn increasingly to Russia for energy supplies.
However, that potential has not yet translated into success. The article uses the example of Lukoil, one of the two Russian majors:
But the very things that make Lukoil work in Russia are holding it back in the rest of the world, analysts and industry experts say: Lukoil remains a very Russian company, with all that has come to imply, from its complex structure and opaque finances to its inefficiency and dependence on the good will of the Kremlin.
In short, the lack of business management development under the old Soviet Union's economy continues to bedevil Lukoil in comparison to other major oil and gas companies:
Though publicly traded as a single entity, Lukoil is structured more like a decentralized web of fiefs, and some investors say it is often unclear how profits flow to the center of the group or whether its published accounts fully capture what is going on.
"Some of the units within Lukoil, like Permneft, are, in management terms, very autonomous," said Ian Hague, co-manager of Firebird, a hedge fund specializing in Russian investments. "The amount of oil they're producing, as compared to net income, seems to show that large sums - hundreds of millions of dollars - are going places not clear to investors."
"Investors don't like things that are difficult to explain," Mr. Hague said. "If Lukoil is running an expensive ship, meaning more of their money goes to administrative costs than others, investors view that as a problem."
Stocks of American majors like Exxon Mobil and ChevronTexaco are now trading at price-to-earnings multiples in the mid-teens, based on estimated earnings over the next year. But Lukoil's multiple is just 7.9, in the middle of the Russian oil pack.
Now a decade and a half after the fall of the Soviet Union, is it fair to ask whether Lukoil and Yukos (the other Russian oil and gas major) will be able to achieve stature equal to the world's oil and gas majors in the marketplace for investors without the importation of Western oil and gas management expertise?
If you have any intention whatsoever to drive this weekend anywhere close to the Katy Freeway - West Loop interchange, you need to reconsider.
As a part of the ongoing Katy Freeway expansion project, the Highway Department will close the Katy freeway near the West Loop interchange from 9 p.m. tonight through 9 p.m. Saturday for eastbound lanes and from 9 p.m. tonight to 5 a.m. Monday for the westbound lanes so that workers can demolish a portion of the North Post Oak Road bridge. As a result, drivers will face detours via side streets and frontage roads with traffic jams likely to snarl near west Houston and the Galleria area all weekend.
If you absolutely must drive in this part of town over the weekend, I recommend highly that you bring a good book to read while you sit in traffic.
May 20, 2004
Josh Beckett pitched seven and two thirds strong innings and the Marlins roughed up Roy O for eleven hits over six innings as the Fish downed the Stros in the final game of their series at Pro Player Stadium, 6-2.
Beckett clearly had his game face on for his hometown team as he gave up only five hits and two runs, one of which was Lance Berkman's third yak of the series. The Stros made it interesting by loading the bases with two out in the eighth, but the marginally competent home plate umpire Lazaro Diaz rang Berkman up on an absurdly outside pitch from Benitez and the Stros were toast.
The Stros to to Cincinnati for a weekend series with the Reds before returning to the Juice Box next Tuesday for a two week stretch of games against the Cubs and the Cards. The NL Central race is about to heat up.
As the members of my old Clear Thinkers email list know, I enjoy reading British obituaries. The British have a long and special talent for writing witty obituaries, and the good folks over at Southern Appeal point us to the latest example, this London Telegraph obituary of Admiral of the Fleet Lord Hill-Norton, who died this past Sunday at the age of 89. The entire obituary is a hoot, and you get a flavor for it in the first two paragraphs:
Admiral of the Fleet Lord Hill-Norton, who died on Sunday aged 89, was a formidable Chief of the Defence Staff before becoming the senior military officer in the Nato alliance; he also had a reputation for being one of the rudest men in the Royal Navy. Almost from the beginning of his career some considered him destined either to be court martialled or to end up as First Sea Lord. His reputation for ruthless efficiency and meticulousness, combined with good luck and an irritating habit of being right, took him to the top. This made it seem all the more strange when, as a retired officer in the House of Lords, he placed rather more credence on the possible existence of unidentified flying objects than did less talented individuals.
Sounding like a character out of the brilliant British comedy "Fawlty Towers," Lord Hill-Norton's immediate post-WWII duties are described as follows:
By now his reputation as an abrasive and short-tempered officer was well established. He was in the habit of answering the telephone with the words: "Gunnery Division. Hill-Norton. Kindly state your business briefly; we're busy men here." An inadequate response would result in the telephone receiver being slammed down.
Even in retirement, the Lord's demeanor did not improve, as is reflected by his reaction to some proposed cuts in military appropriations:
The defence cuts ordered by Options for Change did not improve his view of politicians, whom he regarded as sufferers from sea blindness. He was scathing about proposals to economise on Armed Forces pensions, and most notoriously called the then defence secretary Michael Portillo "a little creep" for suggesting the sale of Admiralty Arch.
But in classic British obituary style, Lord Hill-Norton's obit closes with an acknowledgement of his good side:
Although Hill-Norton was feared, hated and respected in equal measure he led from the front. His harsh manner and foul language belied a man who could, on rare occasions, demonstrate an otherwise well-concealed humanity. He was always receptive to sound arguments but would not suffer fools or those who weakened before his onslaughts.
He married, in 1936, Margaret Linstow, whom he selflessly brought out of hospital to nurse at home himself in recent years. She survives him, with their daughter and son, Vice-Admiral Sir Nicholas Hill-Norton.
Don't miss Arnold Kling's analysis over at EconLog regarding the phenomenom known as backwardation energy prices. Arnold explains backwardation by using the example of current and future prices of oil:
As of May 20th, the June 2004 futures contract for light crude oil was at $41.66, while the June 2005 futures contract was at $35.58. When futures prices are below spot prices, this is known as "backwardation." I believe that it represents a puzzle. Think of it this way. If you have oil, by holding onto it for a year, you are losing 15 percent. That seems kinda dumb.
Arnold goes on to explain that the various theories on why backwardation occurs all seem to be somewhat flawed, but then makes this observation and asks this very salient question:
Speculators buy low and sell high. The American and Saudi governments do the reverse. Which is the stabilizing force in the oil market?
This Wall Street Journal ($) article is the most thorough report yet on the sad case of Jamie Olis, the 38 year old former Dynegy mid-level tax manager who was convicted and recently sentenced to over 24 years in federal prison for his role in the Project Alpha financial scheme that essentially masked loan proceeds as cash flow from operations. Here are the previous posts on Mr. Olis' case.
The entire WSJ article is interesting reading, and provides the best background piece to date on how Mr. Olis finds himself in this position. As I suspected based upon previous rulings by U.S. District Judge Sim Lake in Mr. Olis' case, his defense team made a serious tactical error (at least in my view) by electing not to rebut the government's evidence at trial of the damage that the Project Alpha deal caused to Dynegy shareholders:
After eight days of prosecution testimony, Mr. Olis's lawyers believed they had poked enough holes in the government's case to win. They rested without putting Mr. Olis on the stand -- or any other witness.
That decision meant that, in considering the length of Mr. Olis' sentence, the only evidence that Judge Lake had on damages resulting from the deal was that which the government offered:
The new federal sentencing guidelines work on a kind of point system, with more points and more prison time given if the case involves more victims, larger losses or using special training to execute a fraud. The key issue was the size of the loss suffered by Dynegy investors from the scheme: Anything more that $100 million would garner the maximum number of points, lengthening the sentence.
After considering several options, U.S. District Judge Sim Lake settled on a loss estimate of $105 million -- the amount the University of California retirement fund lost on Dynegy stock, a hit the fund attributed to Project Alpha. With that loss and other factors, the guidelines recommended a sentence of 292 to 365 months.
As the article relates, Mr. Olis remains convinced of his innocence and, thus, remains unwilling to assist the government in its investigation and possible prosecution of other Dynegy executives and outside lawyers who were implicated in the scheme during Mr. Olis' trial:
But such cooperation seems unlikely. Though "facing years away from his wife and daughter, Jamie remains strong in his convictions," close friend Joan E. Quinn wrote to Judge Lake before the sentencing.
Mike Shelby, the U.S. attorney for the southern district of Texas, who supervised the case, isn't sympathetic. "We have been rebuffed at every turn" by Mr. Olis, said Mr. Shelby. "I would ask the question, 'Why don't you help us?' "
My speculation: "Despite the tactical errors of his defense, maybe because Mr. Olis did not deserve 24 years in prison."
I continue to maintain that the criminalization of questionable business practices -- combined with the government's sledgehammer approach of forcing executives to defend themselves only at the risk of what amounts to a life prison sentence if they lose -- is an extremely unfair and unwise governmental policy. And this from an administration that touts itself as "business friendly?"
If you are interested in reviewing more on this topic, Professor Ribstein over at Ideablog has provided some of the best analysis of the Olis case and this troubling trend of the government criminalizing such things as bad accounting.
May 19, 2004
For the second straight night, the Stros hammered a pitcher who had dominated them a week earlier and improved their road record to 12-4 as they beat the Marlins at Pro Player Stadium, 10-2.
Tim Redding continued his improved pitching of late by stifling the Fish on three hits and two runs over six and two thirds innings. The Stros got to the Marlins' Carl Pavano for nine hits and five runs over seven innings, and Lance Berkman again led the Stros' hitting attack with his seventh dinger and a couple of RBI's. Also, Morgan Ensberg's two hit and three RBI performance continued to make it difficult for manager Jimy Williams to rationalize platooning him, as is his instinct.
The Stros go for the series sweep in the Thursday night by sending Roy O to the hill, but it won't be easy. Spring's Josh Beckett will likely be at his best as he attempts to beat his hometown team. Tune in for at least a part of this one and enjoy watching two of the best young pitchers in Major League Baseball. The Stros go to Cincy for a series with the Reds over the weekend, and then return to the Juice Box next Tuesday for consecutive series against the Cubs and the Cards.
This Chronicle story reports on today's plea bargain and settlement involving Paula Rieker, the former Enron managing director of investor relations. Under the deal, Ms. Rieker will turn over to the SEC nearly half a million dollars she made off the sale of stock the summer before Enron filed bankruptcy in early December, 2001, and she will plead guilty to a criminal insider trading charge under a cooperation agreement to testify for the Enron Task Force. Here is an earlier post that anticipated the deal.
Rieker is charged with knowing about significant losses at Enron's defunct broadband business and selling her Enron stock before the company's myriad problems were fully revealed to the public. Rieker was the managing director of investor relations for Enron in mid-2001 when the stock sale occurred. Later in 2001, she became the secretary to the board of directors and continued in that position until recently.
Under the SEC settlement, Ms. Rieker agreed never to serve again as an officer or director of a public company and, upon court approval of the settlement, will pay the SEC roughly $500,000, which is her profit from the sale of the stock. As is standard in these deals with the SEC, Mrs. Rieker did not admit or deny the SEC's charges against her.
In the criminal case, Ms. Rieker has been cooperating with the government and she could be a valuable witness for the government as she prepared earnings releases and internal scripts for conference calls with analysts. The Task Force's allegations against ex-CEO Jeff Skilling focus largely on alleged misrepresentations made about Enron's earnings, and it is likely that any prosecution of ex-Enron Chairman Ken Lay would also also focus on such alleged misrepresentations. Lay has not yet been charged with any crime
Over two dozen individuals have been criminally charged in the Enron Task Force's investigation, but none of those individuals have taken a case to trial. Several have pleaded guilty to various charges and are cooperating with the continuing investigations. Among those cooperating is former Enron Chief Financial Officer Andrew Fastow, whose cooperation facilitated the indictments earlier this year of Mr. Skilling and former Enron chief accountant, Richard Causey.
The first Enron-related criminal trial -- the one known as the "Nigerian Barge case" involving several mid-level former Enron executives and former Merrill Lynch executives -- is currently scheduled to begin in on June 7 in Houston before U.S. District Judge Ewing Werlein.
The GOP Challenge: Can Republicans govern Texas?
With school finance blowing up on the GOP leadership in Austin, you have to wonder if Texas Republicans will learn from history.
Back in the 1950s and 1960s, conservative Democrats like Govs. Allan Shivers and John Connally commonly fought with liberal party members. The feuds became so prominent that the disputes left room for the state's infant GOP to quietly but steadily develop. By the start of the 1980s, the Texas GOP was on the rise while the Texas Democratic Party was on its decline.
We point this out because Texas Republicans now are at their own crossroads. They are skirmishing like Democrats of old.
The Legislature's failure to come up with a fix for school funding wasn't because Republicans and Democrats were brawling, although there were conflicts between the parties. The breakdown came because Republicans couldn't agree with Republicans. The GOP controls the governorship, the House and the Senate. And that's where the feuding has mostly taken place over the last month.
Now, some of the fight is about honest disagreements. But the real quarrel is about whether the Legislature should raise business taxes to put more money into Texas schools. Gov. Rick Perry hasn't wanted to do that, Lt. Gov. David Dewhurst fortunately is willing, and House Speaker Tom Craddick is somewhere in between.
Republicans need to recognize the state needs a new pool of funds to improve schools. And they need to come to that reality fast.
Since 2002, when Republicans took over all parts of the state's government for the first time in 100-plus years, the Legislature has broken down into bitter fights over the state's budget, congressional redistricting and, now, school funding. If Texas Republicans don't fix this situation, then Texans will have a right to wonder if the GOP knows how to govern.
Republicans may want to check in with the state's Democratic elders on this point, too. They know what it's like for voters to take away their power.
In the meantime, I will not hold my breath waiting for the Texas legislature to begin considering such innovative approaches as are reviewed in this prior post.
This NY Times article reports on Houston-based Continental Airlines' plan to respond to the recent spike in fuel prices that are straining profits of all airlines. Fuel is the second-biggest expense for airlines, after labor costs, and typically totals about 10% of operating costs.
Continental raised fares across the board late yesterday and said it will have to consider furloughs and wage cuts if jet-fuel prices do not decline from their current record levels. Continental raised ticket prices $10 each way for flights of as much as 1,000 miles, and $20 each way for longer trips. However, under heavy pressure from discount airlines, major carriers such as Continental have seen previous attempts to boost ticket prices fail when competitors decline to match. Even if this current increase sticks, Continental said it would offset only 15% of its higher fuel tab.
At current prices for oil, Continental faces an additional $700 million in annual operating expense over what it originally had planned for 2004. As a result, Continental CEO Gordon Bethune said he expects Continental to suffer a significant loss for 2004.
As noted in this earlier post, U.S. District Judge James B. Moran of the Northern District of Illinois refused to dismiss a Justice Department lawsuit government lawsuit that seeks to force Dallas-based law firm Jenkens & Gilchrist to turn over the names of hundreds of clients who bought tax shelters that the firm allegedly promoted.
Now, Judge Moran issued a May 14 order for Jenkens & Gilchrist to turn over documents the Internal Revenue Service sought in five administrative summonses. In the order, Judge Moran said the law firm's clients can raise claims of attorney-client privilege concerning the documents, but that few of such privilege assertions will prevail and he warned that clients could face sanctions for making frivolous privilege claims.
As noted here a couple of months ago, Jenkens & Gilchrist agreed to pay $75 million to settle civil claims from clients concerning tax-shelter legal opinions. Here are the other recent posts concerning the legal challenges facing Jenkens & Gilchrist in regard to the firm's tax shelter advice.
During a political season, you will not hear much about the benefits of higher oil prices. But this Wall Street Journal's ($) Holman W. Jenkins, Jr. Business World column dissects the issue and concludes that increased oil prices are not all bad. First, Mr. Jenkins addresses the current price spike and the reasons behind it:
The futures market puts oil for delivery next summer at $35, well under today's $41. Seers are not hard pressed to explain why. On April 24, three small boats operated by suicide commandos hit Iraq's southern oil terminal and a few days later kamikaze gunmen shot up a Saudi petrochemical plant. Osama bin Laden has a plan: Get control of Saudi Arabia through subversion and put himself in charge of its oil, foundation of a new Islamic empire. That is, Saudi survival can't be taken for granted.
Traders say five to ten bucks of today's price is due to terrorism fears. Notice also that the biggest speculator out there is the U.S. government, which has been frantically topping off the Strategic Petroleum Reserve ever since November 2001, yelps from private energy buyers notwithstanding.
Then, Mr. Jenkins focuses on the real issue, which is not a shortage of oil:
Note that the issue is not whether the world is running out of oil. The debate concerns a theoretical milestone called Hubbert's peak, after which output from any given field slows and becomes more costly to produce long before the last drop is lifted. Half of Saudi Arabia's oil comes from the giant and venerable Ghawar field; much of the remainder comes from four other aging giants that may be at or near their Hubbert's peak. . .
How much oil is left is far less significant than how quickly and cheaply it can be extracted, especially from a relative handful of large, cheap-to-produce fields that have carried industrial man for a century. Some believe that getting much above today's 80 million barrels a day would be horrendously costly if not impossible. If they're correct, two billion Chinese and Indians, right now beginning to trade their bicycles for Toyotas, would be stuck trying to achieve modernity by outbidding the rest of us for a share of the world's current rate of oil production rather than benefiting from additional output.
All this has some petroleum engineers predicting resource wars, famine and pestilence, preventable only by a massive effort of central planning to shift the world to a less hydrocarbon-intensive lifestyle. If so, we might as well pass around the cyanide caplets right now. Such global planning is certainly beyond the wisdom and power of politicians to manage.
Which brings Mr. Jenkins to his central theme -- i.e., the benefits of higher oil prices:
Yet the unwillingness of doomsayers to credit price signals with eliciting changed consumption behavior, new technology, a thousand substitutions and other adaptive responses is more than a little peculiar here. Oil companies have held back from investing in deep-water searches, Canadian oil sands and Venezuelan bitumen for fear oil prices will plummet to $15. Shareholders have kept Big Oil on a short leash, tolerating only low-risk investment projects that will generate cash flow in a small number of years. Won't this change now if higher prices seem a permanent feature of the landscape?
Motorists might or might not be willing to swallow price hikes, but what about other industries that use petroleum as feedstock? They're price sensitive and would be expected to adapt in ways that aren't all easy to foresee from today's vantage.
Scare talk is a hardy perennial in the global petroleum business, a passport to fun and attention from the media. Industrial society is frequently painted as a fragile, vulnerable machine, yet all the evidence suggests the opposite: It's a machine that has grown more resilient and adaptable the more complex and interdependent the world becomes. In short, as long as the price mechanism is allowed to work, mankind seems likely to muddle through. Hallelujah, then, for higher oil prices.
On a related note, although not quite as insightful as Mr. Jenkins' piece, this NY Times editorial strikes the correct theme that short term spikes in energy prices is not a cause for overreaction.
May 18, 2004
This Scott McCartney Wall Street Journal ($) article reports that business travelers will have a new alternative to flying commercial airlines or buying their own jet as early as next year -- an "air taxi."
Using a new generation of small jets that are currently in flight testing, several entrepreneurs are trying to launch "air taxi" services. The goal is to let corporate travelers bypass crowded airports and fly into smaller, local airports, at half of the current cost of chartering a jet.
An outfit called IFly Air Taxi Inc. is floating the concept, and the owners of IFly are an eclectic mix of airline types -- Donald C. Burr, the founder of People Express Airlines back in the 1980s, his son, Cameron, and Mr. Burr's old rival, Robert L. Crandall, the former CEO of American Airlines that was instrumental in running Mr. Burr's People Express out of business.
One of the reasons that the air taxi concept is drawing interest is the new jet technology -- "micro jets" -- that will be used:
One reason for optimism that now is the right time for air taxis: The arrival of a new generation of four-passenger "micro jets" that can operate more cheaply than conventional jets. These aircraft typically are much lighter than conventional private jets, and are powered by a new generation of small, fuel-efficient engines. None of the planes are in service yet. Manufacturers are accepting advance orders, which so far are being placed by a mixture of private individuals and hopeful air-taxi operators.
iFly is expected to announce an order for Adam Aircraft jets soon. The Adam A700, which at $2 million is half of the price of the cheapest Cessna Citation jet right now, began flight tests in July 2003.
And how does an air taxi trip stack up to the current conventional modes of business air travel?:
The new planes have the potential to revolutionize transportation. Currently, chartering private jets is extremely expensive, costing $7,000 or more for a 500-mile hop, round-trip. Fractional ownership (where you buy a "share" of an aircraft that entitles you to use it periodically) is no bargain either. Corporate-owned jets, while sometimes economical for shuttling groups of executives, are often viewed as overly expensive perks.
Air-taxi service would be different, in theory at least. Mr. Burr says he can provide rides for $3 to $4 a mile, on average -- which works out to be a bit more expensive than most first-class tickets. A trip to Cleveland from Teterboro, N.J., for example, might cost $1,000 to $1,400 on average. By comparison, an unrestricted first class ticket on Continental Airlines from Newark, N.J., to Cleveland costs $1,338.
Of course, there are still a host of unanswered questions about the air taxi concept, such as how best to manage a fleet of such small jets to ensure maximum usage. However, Mr. McCartney sums up what the concept does make clear, which is really the beauty of American capitalism:
What seems clear is that transportation in the future will take many forms, and that our choices in the future may well be better than the ones we have today.
Baseball is a bewildering game.
Last Wednesday night at the hitter friendly Juice Box, Dontrelle Willis threw 91 pitches in hurling a complete game 5-2 victory for the Marlins over the Stros. The Stros' Wade Miller left that game in the sixth inning with a sore neck.
Lance Berkman led the Stros' hitting attack as he whacked four hits -- including a double and a solo yak -- and had 2 RBI's and 2 runs. Inexplicably, Stros' manager Jimy Williams continues to bat Berkman in either the fifth or sixth hole even though every player hitting in front of him in the Astros' lineup is an inferior hitter. Oh, well. Even outmaker supreme Brad Ausmus had a two run crank and 3 RBI's. The big lead allowed the Stros to give seldom used relievers Ricky Stone and Brandon Duckworth some work, and they worked the last three innings without incident.
Things are likely to pick up for the Fish in the Wednesday game as Tim Redding pitches for the Stros against the Marlins' Carl Pavano, who dominated the Stros' in a game last week. Roy O and the Marlins' Josh Beckett -- two of the best young pitchers in MLB -- tangle in the Thursday game.
Almost on cue, this NY Times article reports on Congressional Democrats calling for the Bush Administration to use the Strategic Oil Reserve to increase supplies of oil in the economy to ease the recent spike in energy prices. On a more thoughtful note, Arthur Kling over at EconLog points us to a Allan Sloan's better analysis in this Washington Post article:
[T]he $41.55 price for oil today is much higher than the $35.50 it costs for a barrel to be delivered next year. This disparity inspired Loews chief executive Jim Tisch, whose company has extensive energy holdings and plays financial markets like a violin, to propose a trade. Let's sell oil out of the reserve, he says -- not for money, but for oil to be delivered next year. We could get seven barrels next year for six today. We're now buying 160,000 barrels a day for the reserve, which has 660 million barrels. But by trading rather than buying, we'd save taxpayer dollars, reduce the demand that's driving up prices today, and spook the speculators. I love it.
Meanwhile, this WaPo article indicates that the amount of oil going into the reserve amounts to less than two-tenths of 1 percent of the world supply, which is too small to have any more than a two to five cent price per gallon effect if the government's current "buy" policy were changed.
In this Wall Street Journal ($) op-ed, novelist Herman Wouk addresses the serious implications arising from the fact that governmental funding of science research in America has become simply another political football. Mr. Wouk focuses on the poor political decisions that undermined the Texas Supercollider Project back in the early 1990's:
Back in 1993, Congress abruptly killed the largest basic science project of all time, the Superconducting Super Collider in Texas. With three billion dollars already spent, and the project pretty much on time and on budget, our lawmakers cut off all funding, and voted another billion just to shut the project down. This bizarre abort sent a shock wave through the scientific world which has never entirely subsided. The event remains in controversy, but one undeniable outcome has been the diminished international repute of American science.
The Superconducting Super Collider would have been an oval tunnel 54 miles around, where some 10,000 magnets cooled by liquid helium would accelerate protons to collide almost at the speed of light, and thus to wrest from the subatomic debris a prime secret of nature: the Higgs boson, dubbed by one Nobel laureate the "God Particle," a possible key to the final understanding of the universe. Ronald Reagan approved the project, George Bush senior sustained it, and it died under Bill Clinton. Today a powerful super collider in Geneva is being upgraded by a consortium of European physicists, intent on beating the world to the Higgs boson, with the Americans out of the picture.
* * *
Nevertheless, even Benjamin Franklin, a founding father and a one-man interface of science and politics, could not have foreseen how this loose play in American governance might one day affect world destiny, nor how the pace of scientific advancement would lethally accelerate in times to come. It is a long reach from the capture of a lightning spark in a Leyden jar in Philadelphia, to the dropping of a uranium bomb on Japan. Yet the same intellectual curiosity that moved Franklin to risk electrocution from the clouds motivated the British physicist James Chadwick to discover the neutron, and so to unlock the horrific energy in the atomic nucleus. And it motivated thousands of high-energy physicists to venture their careers and years of their lives on the Superconducting Super Collider, only to be stranded by Congress, high, dry and unemployed at a vast abandoned hole in Texas.
These scientists had been the darlings of Congressional budgeting ever since the end of World War II, when they delivered into President Truman's hands a weapon new in human history. The president, an artilleryman in World War I, said of the bomb, "It was a bigger piece of artillery, so I used it." It did stop the war at once, to be sure. The historical debate about his decision may never end, but the triumph of particle physics was brilliant, and the rise in its annual funding spectacular, until the ax rudely fell. One SSC physicist bitterly exclaimed on getting the word, "It's the revenge of the C students." A more philosophical colleague observed: "Well, our 50-year ride on the bomb is over."
And then, with the wisdom of his almost 90 years, Mr. Wouk makes an insightful observation for us to ponder:
I go through the days with good cheer and jokes, aware of dark threats looming ahead for our little global home, probably beyond my time, but close enough. The prime task of today's politicians, after getting themselves elected and re-elected, is to deal open-eyed and intelligently with those threats in the light of the best science. We who elect them bear the ultimate, inescapable responsibility to choose well.
This NY Times article reports on the unusual order issued yesterday in which a Third Circuit Court of Appeals panel ordered U.S. District Judge Alfred M. Wolin of Newark, N.J. to withdraw from three of the five important asbestos-related bankruptcy cases that are pending in his court. The basis of the order is the appearance of bias.
In a 2-to-1 decision, the 3rd Circuit ordered Judge Wolin to withdraw from overseeing the bankruptcy cases involving W. R. Grace, Owens Corning and U.S. Gypsum. The appellate court will decide later whether to remove him from a fourth case involving Armstrong World.
Lawyers for the creditors objected to meetings that Judge Wolin conducted with plaintiffs' lawyers and other parties to the case without a record being made for those who were absent. The 3rd Circuit agreed, holding that such meetings "were flawed because no opportunity existed for their adversaries to know precisely what was said" and what effects might result. The creditors also contended that Judge Wolin had appointed advisers who were not impartial because they represented plaintiffs in the G.I Holdings, Inc. bankruptcy case, and the appellate court noted that two of them had a conflict of interest in the five cases because they represented individuals with asbestos claims against G.I. Holdings.
Asbestos-related personal injury litigation has been controversial for years. Some economists estimate that companies have already paid more than $70 billion in asbestos claims with insurance companies paying one-third to one-half of the total. A RAND Corporation study estimates that there have been 8,400 defendants in thousands of asbestos-related lawsuits over the past 15 years.
Legislation to create a no-fault trust fund to compensate victims of asbestos-related diseases is stalemated in Congress. Proponents of the legislation say that asbestos-related litigation risk has forced more than 70 companies into bankruptcy.
May 17, 2004
Seymour Hersh's articles on the Abu Ghraib scandal are the stuff of Pulitzer Prizes. Here is his latest article in which he implicates the top Pentagon brass in the interrogation techniques that led to the abuse of prisoners at the prison. His earlier articles on the prison are here and here.
Read all and decide for yourself.
As noted in this earlier post, Richard Z. Chesnoff has long been one of America's most prominent reporters on foreign affairs. In this NY Daily News op-ed, Mr. Chesnoff reports on Iran's systematic support for the radical Islamic fascists who are waging war against the United States. As Mr. Chesnoff notes:
Tehran's mad mullahs have thrown their support behind select Islamic extremists for many years. But a top-secret report prepared by senior Mideast intelligence sources says Iran has recently stepped up its efforts to train and arm a widening range of terrorists, many of whom pose direct threats to Western targets, including in Iraq.
Iran's protégés, new and old, are both Sunni and Shiite Muslims, and they hail from all across the Middle East: Morocco, Algeria, Libya, Saudi Arabia, Iraq, the Gaza Strip, the West Bank and Lebanon. Many are already ensconced in Iranian training camps.
Most of these Iranian-fostered groups are violently anti-American. Some, like Lebanon's Usbat al-Ansar and Iraq's Ansar al-Islam, have direct ties to Al Qaeda.
Mr. Chesnoff also points out the ominous implications of this Iranian support of the enemy for the war effort in Iraq:
Most frightening of all, my sources say there are indications Hamas is helping Ansar al-Islam develop short-range rockets with which to attack coalition troops in Iraq. These are the same type of Qassem rockets that Hamas has been producing in Gaza and firing at Israeli settlements and towns.
"The coalition's abundance of defensive armor in Iraq," says one source, "has made it increasingly difficult for Ansar al-Islam to attack stationary targets."
Qassem-style rockets would help our enemies overcome that difficulty.
A Hamas-financed Qassem workshop, I'm told, has been set up in Iran under the supervision of a Hamas cell leader named Abu Husam, who is a qualified engineer.
Needless to say, Iran is eager not to leave any traces of its involvement in attacks against the U.S.
But Iranian intelligence has quietly helped its terrorist protégés cross over into the United Arab Emirates and return with materials for the rocket project through the Iranian military port of Bandar Abbas.
"According to the Hamas-Al Qaeda plan," says an intelligence source, "the first rockets are to become operative in Iraq in early June, just before rule is transferred to the Iraqi interim government."
And Mr. Chesnoff concludes by asking the $64 question:
What was that we were being told recently about the Iranian government's "moderating" its positions?
This NY Times article reports on the Justice Department's aggressive use of obstruction of justice laws in its investigation of accounting irregulaties at the giant software company, Computer Associates.
John F. Savarese, a former federal prosecutor who also represented Martha Stewart before her trial this year, led a team from Wachtell, Lipton, Rosen & Katz, the prominent New York law firm that the company hired to investigate the charges in an internal probe. Savarese and Wachtell turned over information regarding the probe to the Justice Department. On April 9, three former executives of Computer Associates pleaded guilty to obstruction of justice charges that were not tied to statements told to federal investigators, but to statements made to Wachtell during the company's internal investigation.
The executives were never accused of lying directly to federal investigators or a grand jury. Their guilty pleas were based on the theory that, in lying to Wachtell, they had in effect misled federal officials because Wachtell passed their lies on to the Justice Department.
As the story relates, the Justice Department's use of the company's law firm represents a serious extension of Justice's use of obstruction of justice laws. Usually, obstruction charges cover behavior such as destroying documents, pressuring witnesses not to testify, or lying to federal officials. Inasmuch as an employee can be fired for asserting the privilege against self-incrimination in an internal company probe, this new Justice Department policy may actually hinder such internal probes. Lower level company employees will now be less willing to discuss matters with the company's investigators, which will make it more difficult to implicate higher level company executives in the alleged wrongdoing.
This is yet another example of the unhealthy criminalization of business that is occurring under the Bush Administration's Justice Department. And the Republican Party is supposed to be business-friendly?
May 16, 2004
For the second time in the last three games in which he has pitched, closer Octavio Dotel blew a save in the top of the ninth and the Stros ended up losing to the Mets in the rubber game of their three game series at the Juice Box, 3-2.
In blowing this save, Dotel made the incredible boneheaded move of throwing Mike Piazza a two out, two strike fastball over the middle of the plate (with first base open to boot) that Piazza promptly deposited in the Astros' bullpen 420 feet from home plate to tie the game at 2-2. Jason Phillips then won the game for the Mets with a solo yak off of Brandon Backe in the top of the 13th.
Except for Roger Clemens, it was bad karma all the way around for the Stros. The Rocket was brilliant, allowing only 2 hits and a walk over 7 innings with 10 strikeouts. However, the Stros' bats went back to sleep as they collected 14 singles without an extra base hit. Moreover, in addition to the blunder of pitching to Piazza with first base open and two outs in the top of the ninth, Stros manager Jimy Williams continues his incomprehensible strategy of allowing superior out-maker Brad Ausmus -- one of the worst hitters in Major League Baseball -- to hit in key potential run scoring situations. As usual, Ausmus delivered with his usual strikeout and pop up.
Things don't get any easier for the Astro hitters as they go to Miami tomorrow for a three game series against the Astro-killer Marlins pitching staff and then move on to Cincy for a three game series next weekend against the Reds. The Stros return home a week from Tuesday when they begin a two week period of playing the Cubs and the Cardinals in consecutive home and away series, with a two game set against the Cubs at the Juice Box being the first games of that key two week segment of the schedule.
By the way, if you are interested, the Spurs are taking applications for the timekeeper's job at their arena in San Antone.
May 15, 2004
The Stros showed signs of breaking out of their collective slump of over the past week as they cranked out 12 hits on Saturday night in defeating the Mets, 7-4.
Andy Pettitte won his fourth straight game since coming off the disabled list, giving up 4 runs on 6 hits with 6 strikeouts in 6 innings. While Miceli and Lidge were both strong in an inning of relief each, Dotel made things interesting in the ninth by walking the first two batters before getting the next three, two on K's.
SS Adam Everett had a 2 run yak (his 3rd of the season) and 2B Jeff Kent also had a couple of hits and RBIs. Another positive sign for the Stros is that third baseman Morgan Ensberg continued his hitting resurgance. After posting an anemic .552 OPS (i.e., on base average + slugging percentage) during April, Ensberg has warmed up to a very respectable .951 OPS during May.
Long-time Astros closer and fan favorite, Billy Wagner, who was traded to the Phillies during this past offseason, was placed on the 15 day disabled list yesterday (retroactive to May 7) with a pulled groin.
Wags is easily the best Astros closer of all-time. He has a 2.50 career ERA, compared to a league average of 4.31 during his career, and he has saved 104 runs more than an average pitcher would have saved in 477 games over his career. After a great season with the Stros last season, Wags is off to a good start this season with a 1.20 ERA/5 RSAA (runs saved against average) in his first 13 games.
Canadian computer giant Nortel Networks, which has its U.S. base in Richardson just outside of Dallas, announced that a federal grand jury in Dallas has subpoenaed financial documents from the company as part of a criminal investigation. The SEC and Canadian securities regulators are already investigating Nortel in regard to Nortel's restatements of its earnings dating back to 2000 and an executive bonus program.
Nortel's announcement refused to comment on whether the subpoenaed documents were linked to the three top Nortel executives -- chief executive, Frank A. Dunn; its chief financial officer, Douglas A. Beatty; and its controller, Michael J. Gollogly -- who the company fired last month. Nortel's board fired those executives after the company reported that it earned half as much in 2003 as it initially reported and that it had smaller losses in 2001 and 2002 than it stated in those years. As you might expect, the three former executives have been named as defendants in nearly two dozen investor class-action lawsuits.
Charles Paul Freund is a senior editor of Reason, a monthly magazine on politics and culture, who has written extensively on the political manipulation of culture, the ideological use of imagery and language, modern techniques of persuasion and the process of disseminating ideas.
In this LA Times op-ed, which is a must read in its entirety, Mr. Freund makes the following salient point in comparing the responses to the recent images of the Abu Ghraib prison and the beheading of Nicholas Berg:
The Abu Ghraib pictures reveal American soldiers humiliating their prisoners in a sadistic manner (in some images, the Americans are actually smirking). It's a painful sight because it is cruel on its own terms (we don't even know whether the terrorized individuals are actually guilty of anything) and because we regard such sadism as unworthy of our image of ourselves.
By contrast, Zarqawi intentionally videotapes and distributes his bloody atrocity; the literal slaughter of an innocent is offered as an example of his righteousness. For Zarqawi, the question of unworthiness simply never enters the calculation; that the action is inhuman is its point.
Shameless brutality of this degree has the power to transform the shame of Zarqawi's enemies. Zarqawi has reminded his enemies that, unlike him, they are at least capable of shame.
Zarqawi's righteous snuff movie is an act of lunacy, a gift to his enemies, and, one hopes, an unwitting suicide note.
Hat tip to Virginia Postrel for the link to Mr. Freund's timely piece.
This Begging the Question post provides an appellate law clerk's handy list of reminders for appellate lawyers in what not to do in advocating your client's position. Hat tip to Evan Schaeffer over at the Illinois Trial Practice Blog for the link to this post.
By the way, Evan's blog is one of the best in cyberspace in providing insightful and practical information for trial lawyers. I particularly enjoy the way he has organized his posts into various subjects relating to trial work. This is a great resource for trial lawyers, and a great example of how a blog can provide specialized information in a creative and effective manner.
May 14, 2004
The Stros dropped their third straight game on Friday night as the Mets smoked them, 8-3. Roy O gave up his first career grand salami to the Mets' Cliff Floyd, and that's about all she wrote on this one. The Stros continue to slump at the plate, and now have averaged just three runs a game over their last six. The Stros try to get back on track in the Saturday evening game against the Mets behind Andy Pettitte, as the Rocket prepares for a Sunday afternoon matinee.
San Antonio-based SBC appointed 51-year-old Forrest Miller, a long-time telecom industry veteran, to succeed Mr. Daley as head of the company's public affairs and corporate planning functions. However, SBC announced that it is not planning to appoint a new president.
A former Commerce Secretary under President Clinton, chairman of Al Gore's 2000 presidential campaign, and the son of the late Chicago Mayor Richard J. Daley, Mr. Daley, 55, had been hired in 2001 to advance SBC's regulatory agenda and was part of a campaign to improve the company's strained relations with Midwest regulators.
Mr. Daley's resignation comes as SBC and other local phone giants are in the middle of a volatile period of political activity over the future of access to local phone systems. SBC officials have been trying to free themselves from federal regulations that force them to lease access to their networks to rivals such as AT&T Corp. and MCI Inc. at artificially low rates. Competitors of SBC and other regional telecoms say the federal rules are fair and provide the only method of ensuring competition in local phone markets.
SBC and the other Bells suffered a serious regulatory defeat late last year when the Federal Communications Commission decided to leave wholesale leasing regulations essentially unchanged. Mr. Daley had led SBC's regulatory lobbying effort in regard to that FCC matter.
State District Judge Joseph "Tad" Halbach, Jr was hospitalized at St. Lukes Episcopal Hospital in the Medical Center on Friday morning after suffering chest pains in his courtroom. Judge Halbach, 47, was undergoing tests this afternoon to determine the cause of the chest pains.
David Ignatius of the Washington Post (free online subscription required) has some interesting observations in this piece titled "Reassembling Iraq" based on his recent trip to Iraq. The entire piece is well worth reading, and the folloiwng will give you a flavor for it:
After each visit to Iraq over the past year, I've tried to weigh how things are going. At the end of a trip last week, one answer was that it depends on where you live. Even in the wilds of Mesopotamia, all politics is local.
Overall, Iraq is a mess. . .
Yet this disarray on the macro level masks local pockets of stability. Southern Iraq, where I traveled for a week with British troops, is surprisingly calm -- thanks to a quiet alliance of tribal sheiks and Shiite religious leaders with the British occupiers. The British have been wise enough to let the Iraqis find their own solutions to problems. Their motto, says the British chief of staff in the south, Col. Jim Tanner, is that "one size doesn't fit all."
The Kurdish north is also relatively calm and stable. Kurdish political leaders know they've got a good thing going in their quasi-autonomy from the Arabs to the south. Their troops and clan leaders are maintaining order, and while they may pay lip service to the notion of the Iraqi state, they're quite happy to be running their own show.
The nightmare area is the U.S.-controlled zone in the center of the country. This was always going to be the toughest piece of the puzzle. Where the Shiite south and Kurdish north are each relatively homogenous, central Iraq is an ethnic, religious and political jumble.
But even in the center, temporary pockets of stability have emerged over the past month, as the United States steps back from the brink of all-out urban warfare. Much like the British in the south, the U.S. occupiers now seem ready to accept some Iraqi solutions that are backed by the nation's traditional power bases, such as the tribes, religious leaders and semi-respectable remnants of the old army.
Sometimes we'll have to hold our noses at these local solutions, as when a former Republican Guard general restores order in Fallujah. But that kind of pragmatic approach seems preferable to waging a bitter war of occupation.
Unfortunately, the checkerboard Iraq that I'm describing isn't any longer a single nation. It's a country in the process of de facto partition -- with the north and the south going their own ways and the center in a bloody state of ferment.
Baseball fans can now print Houston Astros tickets directly from their own office or home computer, under a new system that the club just launched.
The newly announced delivery option -- called TicketFast -- allows fans to print tickets that are purchased on www.astros.com. Such tickets can be printed using home or office computers, then they can be used to attend Astros games at the Juice Box. TicketFast works by printing a unique bar code that is used in conjunction with the latest Minute Maid Park entry system.
Professor Sauer over at the Sports Economist analyzes this interesting David Henderson article and points us to this Pejman Yousefzadeh Tech Central Station article that address the benefits of generating information about terrorist attacks from decentralized sources.
In particular, Mr. Yousefzadeh's article re-examines the use of futures markets as a predictor of terrorist attacks, which is a creative idea that was scuttled earlier based on emotional, rather than objective, reactions. As Professor Sauer and Mr. Henderson explain, such decentralized sources will often generate more reliable information than our increasingly centralized intelligence agencies are likely to produce. Check it out.
David Wessels over at the Wall Street Journal ($) has this column in yesterday's edition that focuses on John Kerry's health care finance plan. The entire column is well worth reading, and here are a few snippets:
But Mr. Kerry knows that for many American workers and businesses, the big worry is cost. So he has added another dish to his health-care table. He proposes that the federal government shoulder most of the cost when someone gets really sick. It would pay 75% of medical bills over $50,000 a year for any person covered by an eligible (more on that later) private employer. He says this would cut premiums for employers and employees by 10% or, as he boasts on the stump, by $1,000 per family.
The notion is so old it sounds novel. The Kerry campaign credits Stuart Altman, a veteran health-policy wonk at Brandeis University, for the plan. Mr. Altman drew it from memories of his years as a Nixon administration bureaucrat. A similar scheme was written into an ultimately unsuccessful bill in 1974 by Wilbur Mills, then chairman of the U.S. House Ways and Means Committee.
The concept is simple: Government becomes the ultimate reinsurance company, spreading the risk of expensive illness among taxpayers instead of sticking it with an unlucky employer. "We're always worried that insurers will dump sick people," notes David Cutler, a Harvard University health economist. "So the idea is that we won't make them pay for really sick people."
If Mr. Kerry wants to spend money so employers and insured workers pay less, then subsidizing firms that employ sicker and, often, older workers is reasonable.
It's expensive: $257 billion over 10 years, estimates Kenneth Thorpe, a former Clinton administration health economist now at Emory University.
It doesn't save society any money and does nothing to restrain the American appetite for more drugs, more tests and more exams, whether or not they're worthwhile. It simply shifts some costs now paid by employers and employees to taxpayers.
Mr. Wessels then closes by focusing in on one of the key issues, one that is sadly not a part of the usual public debate on health care finance:
If the proposal becomes law, Mr. Kerry and his advisers may discover it could do something they haven't anticipated: provoke a broad public debate over how much health care is enough.
If the government starts picking up the tab for the one-half of 1% of privately insured Americans whose medical bills exceed $50,000, it will open the door to questions -- and possibly rules -- about whether such care is wise in every case. Should stomach-stapling surgery be covered? How about bypass surgery in 90-year-olds? Who decides when to pull the plug?
As The Wall Street Journal illustrated in articles last year, decisions in the U.S. on who gets expensive care and who doesn't are made quietly and differently by intensive-care coordinators, transplant schedulers, and insurance bureaucrats. This Kerry proposal could break that debate wide open.
As Brad DeLong points out in this insightful post and as noted in this earlier post here on Health Savings Accounts, this key issue and others relating to the overhaul of America's flawed health care finance system desperately need to be addressed in this campaign season. Although I have reservations about the Kerry plan's reliance on third party payor systems as the primary mechanism for controlling health care costs, I agree with Professor DeLong that Kerry should be complimented for facilitating the debate of these key issues that the Bush Administration has largely ignored.
Victor Davis Hanson's latest NRO column is up and, as usual, he places the calls for Donald Rumsfeld's resignation or firing in the proper perspective:
The idea that anyone would suggest that Donald Rumsfeld -- and now Richard Meyers! -- should step down, in the midst of a global war, for the excesses and criminality of a handful of miscreant guards and their lax immediate superiors in the cauldron of Iraq is absurd and depressing all at once.
What would we think now if George Marshall had been forced out on news that 3,000 miles away George S. Patton's men had shot some Italian prisoners, or Gen. Hodges's soldiers summarily executed German commandoes out of uniform, or drivers of the Red Ball express had raped French women? Should Chairman of the Joint Chiefs Colin Powell have been relieved from his command for the February 12-13, 1991, nocturnal bombing of the Al Firdos compound in Baghdad, in which hundreds of women and children of Baathist loyalists were tragically incinerated and pictures of their corpses broadcast around the world, prompting the United States to cease all further pre-planned and approved attacks on the elite in Saddam's bunkers throughout Baghdad? Of course not.
Rumsfeld and Meyers have presided over two amazingly successful wars. In an aggregate of 11 weeks, and at the tragic cost of 700 combat dead, the American military defeated the two worst regimes in the Middle East and stayed on to implant democratic change where no such idea has ever existed. Had anyone envisioned, say in 1999, that the United States could do such a thing -- that Saddam Hussein and Mullah Omar would both be out of power, and that governing councils would be there in their place -- he would have been dismissed as unhinged. What they are attempting to do is not to keep some psychopath "in his box" or lob over cruise missiles. The latter are palliative but ultimately solely punitive measures that kill a few hundred or thousand anonymous Middle Easterners and keep the nasty business off the evening news, thus in the long term inciting rather than solving the problem.
Then, VDH turns to Rumsfeld's record:
Have we forgotten the world before September 11? It was not all certain that going to Afghanistan was preordained, much less the rapid fall of the Taliban ? reread the use of "quagmire" and its kindred language of doom after the first few weeks of war by experts on the New York Times opinion pages. Those on the left said victory was impossible; those on the right said we were losing due to far too few troops. . .
Yet Rumsfeld's Special Forces and air power really did win the war, and Afghanistan is now more secure with far fewer troops than is Iraq. A new policy toward North Korea; a mature sobriety about the post-Cold War European hypocrisy of wanting continued protection without even the simulacra of responsible partnership; a new honesty with South Korea ? all this is due largely to Donald Rumsfeld. Add the Libyan turn-around, Dr. Khan's confessions, troops out of Saudi Arabia, and the Iranian worry about new scrutiny ? all dividends from his acceptance of the world as it is rather than what we used to dream it to be. The Democratic leadership asking for his scalp should spell out exactly how the U.N. representative in Iraq is not de facto U.N. participation, how the paltry NATO contingent in Afghanistan is proof that Europe will help if asked to join a truly multilateral coalition, and what exactly they would have done differently in the war that the vast majority of them voted for and funded.
And finally, Professor Hanson, who is a registered Democrat, has these words for the leaders of his party:
One final jarring scene from the televised spectacles was the image of the lone, beleaguered Joe Lieberman calling for patience and sobriety, and worried about our troops in the field and the pulse of the war. This decent and honest man reminds us of what the present party of Ted Kennedy and Terry McAuliffe used to be. The confidence of a Truman, JFK, and Scoop Jackson ? caricatured now for dropping the bomb, a fiery "pay-any-price" speech, and heating up the Cold War ? is now nowhere to be found.
This is a vital point, because either this year or sometime in the next decade a Democratic administration may well take the reins of power and in matters of national security it will be far to the left of the Liebermans of the world. And the disturbing events that we saw in the 1990s ? constant appeasement of Middle East terrorists and their national sponsors, the emergence of a nuclear Pakistan and North Korea, sudden withdrawal from messy places like Mogadishu, a jetting special envoy Jimmy Carter ? will return, though made worse through the prism of the present fury over Iraq.
If it were not so tragic it would be ironic to see what the present prescient critics are going to say ? much less do ? when they confront the hideous reality that Iran and perhaps Syria will have acquired nuclear weapons and with them the ability, without a neighboring nuclear India staring them down, to blackmail most of the Middle East and the oil-hungry world at large.
We will soon learn what Middle Eastern nuclear honor, atomic loss of face, or radioactive jihad really means. Most who now damn unilateralism and preemption won't find their beloved but shaken U.N., EU, or NATO at their side. More likely there will come a day when in exasperation they will call up someone like Don Rumsfeld for advice ? albeit in silence and off the record.
As noted earlier here, I'm not much of an NBA fan anymore, but I must recommend that, if you did not see it last night, try to catch a replay today of the final moments of the Spurs-Lakers playoff game last night. Simply incredible.
The Marlins beat the Stros on Thursday for the second straight time, 3-2, behind a top of the ninth rally that included one of the strangest plays you will see this season.
The situation was this. Dotel had already blown the save opportunity by giving up a lead off walk and then a triple to Juan Pierre that plated the tying run with no outs. The Stros walked the next two batters to set up the force at any base and pulled the infield in. Dotel got Miguel Cabrera to hit a hard chopper to third, Viz leaped to stab the ball, came down on the bag and threw home. Ausmus -- acting instinctively and not comprehending that Viz's touching the bag at third had removed the force play at the plate -- simply tagged the plate (the plate ump made the out call), and threw to first to attempt to complete an inning-ending triple play (the throw was just a tad late). After an umpire crew discussion, Pierre was ruled safe at home (the correct call), the Marlins took the lead, and Ausmus tried to find a place to hide.
All three of the games in this series were close, but the Marlins proved that their starting pitching is better than the Stros' strong set of starters. Carl Pavano dominated the Stros in this game, just like Willis and Penny did in the prior two games. Although each team's best pitcher -- the Marlins' Josh Beckett (from Spring High School on the northside of Houston) and the Stros' Roy O -- did not pitch in this series, my sense is that the Marlins set of starting pitchers is the best in baseball.
The Stros try to get back on the winning track tonight at the Juice Box by sending Andy Pettitte to the hill against the Mets. Roy O follows him in the Saturday game of the series, and the Rocket takes on the Mets' Al Leiter in what should be an entertaining Sunday game.
May 13, 2004
As noted here earlier, Dan Jenkins is American's finest sportswriter on golf. He has covered an incredible 53 Masters Golf Tournaments in a row, and here is his Golf Digest article on this year's spectacular tournament that Phil Mickelson won in dramatic fashion. The entire article is a a must read for any golf fan, and here are a few tidbits of Jenkins' wit and wisdom to give you a flavor for the piece. First, on the questionable ruling that allowed Ernie Els to take a drop out of a horrible lie in some debris:
Now all I have to do is try to avoid hooking a sentence into some cut-and-paste neighborhood that will closely resemble the spot where Ernie Els' golf ball wound up on Saturday.
I mean that time in the third round when Ernie's ball came to rest among the roots, twigs, leaves, sticks, rocks and limbs of a place that looked so strange and far away you'd have had a hard time getting a National Geographic photographer to go in there. This was after he'd hit a soaring golf writer's hook off the 11th tee.
I fear there's no silly rules official around who can rescue my sentence the way this guy did Ernie's golf ball. It could have been the free drop that won the Masters. Els got out of the "ice storm debris" with a bogey 5 when a double or a triple was what he deserved.
The rules official who permitted the incomprehensible relief -- and I shall withhold his name out of kindness to his family -- must pardon me if I say it looked like a lift out of Uganda and onto I-20 near Augusta.
And what about Mickelson, the man who Jenkins had previously criticized for not having what it takes to win one of golf's major championships?:
It was my 53rd Masters in a row, and I must confess that in all of those years I have never seen anything as thrilling, exciting or dramatic as Phil Mickelson's victory.
Yeah, that Phil Mickelson. The guy with the enormous promise tainted by a record of failures in majors. He went out in the Big Heat on Sunday, and first he survived it, then he courageously stood up to the Big Easy coming down the stretch and sensationally won with golf shots instead of the mistakes of others, and thereby buried all of his past nightmares and, I hope, all of our bad jokes about him.
Masters Sunday was a feast of brilliant golf shots and clutch putting strokes, to be sure, and it was obviously the confirmation of Mickelson, but it needs to be said that the public couldn't have lost no matter who won, Phil or Ernie. Which is why it was so memorable, so historic.
It came down to a battle between the other two best players in the world today. The battle of the anti-Tigers.
Jenkins goes on to put Mickelson's performance on the back nine of Augusta National in the context of other great final day performances in past Masters Tournaments, and then points out what he likes about Mickelson in comparison to another top golfer:
To me, one of the nicest things about Mickelson's victory is that he's a guy who's loyal, unlike another star we know. Phil's caddie, Bones Mackay, and business manager, Steve Loy, go back more than a dozen years.
Other nice things about Phil are that he's accessible, unlike another star we know, plus he's talkative, he's interested in other sports, and despite his fame and wealth, which were already in evidence, he was hard at work to trim his physique and improve his game long before he arrived in Augusta a week early, Hogan style.
Incidentally, Phil didn't ask Mark O'Meara how to do any of that.
Then, Jenkins provides his theory on what might be going wrong with Tiger Woods' game:
Nicklaus is the exception to the "window theory" on putts, having been the only guy to make them for 20 years. Every great the game has known, except for Jack, has enjoyed a period, a window, of making darn near every big putt for eight, nine, 10 years -- then the door slams.
Tiger may have hit that wall. Forget the "swing plane." Surely every good golfer realizes that when you start missing putts, it eats away at the rest of your game like a poison. Tiger was tied for 35th in putting at Augusta.
The only thing wrong with Tiger is, he's gotten so bogged down in mechanics that he's lost his intuition. It'll be interesting to see if Tiger sticks with what he's doing, whatever that is, or goes back and rediscovers what he did to become great.
Finally, in his inimitable style, Jenkins asks and answers the age-old question:
Meanwhile, here's another question: Now that Phil Mickelson has done it, who's the best current American player who has never won a major?
I look around the dismal landscape and see only one answer.
One of the more interesting Texas billionaires is Ft. Worth's Richard Rainwater. He cut his teeth in the big-time financial world by overseeing the tremendous increase in value of the Bass Brothers' from 1970 through the mid-1980's, including what turned out to be a very lucrative bet on the Disney Co. during that period. Rainwater then struck out on his own investing heavily in energy, real estate investment trusts, and health care and, as he put it several years ago, "I'm just a retired guy who made a couple billion by being in the right place at the right time."
Maybe so, but Rainwater's contrarian investment strategy has always been interesting to follow. Today, this Wall Street Journal ($) article reports on Rainwater's latest investment -- buying a 7.5% stake in battered telecommunications giant Global Crossing Ltd. in recent weeks as its share price plunged in response to new accounting troubles and possible delisting from Nasdaq.
News of Mr. Rainwater's investment in Global Crossing along sent the company's shares up $1.30 to $10.70 yesterday afternoon. The stock had lost almost 40% of its value in less than the past month after management announced that it might need to restate financial results for the past two years and that Nasdaq may delist the company.
Global Crossing was one the biggest stars of the telecom boom and its founders were big contributors to President Clinton's second campaign. But the company slid into chapter 11 in 2002 amid the market downturn and questions about its accounting. It emerged from Chapter 11 in December 2003 with a cleaned up balance sheet, only to announce in late April that poor internal controls had led management to underestimate access costs by between $50 to &80 million for gaining access to other telecom networks. That led the company's auditor -- Grant Thornton LLP -- to withdraw its audits and left the company in violation of the conditions for listing on Nasdaq. Inasmuch as such errors (particularly just after getting out of bankruptcy) do not exactly generate confidence in management, Global Crossing's ability to obtain new financing is subject to serious question in the investor marketplace.
Nevertheless, that's when Rainwater went to work, according to the WSJ article:
As some investors fled the stock, Mr. Rainwater turned a relatively modest investment into a large stake, according to filings with the Securities and Exchange Commission. Mexican magnate Carlos Slim Helu, already a major shareholder, added to his stake and now owns 9.9% of the company. Mr. Rainwater declined to comment on his purchases. The company's other major stakeholder, Singapore Technologies Telemedia Pte. Ltd., has a 61.5% stake.
Mr. Rainwater owns three million shares, according to the filings. His holdings represent 13.6% of the company's publicly traded shares. Between March 17 and May 11, Mr. Rainwater spent $24.4 million on Global Crossing stock, with the purchases accelerating in the past two weeks as the share price fell into the single digits.
The telecommunications industry has been one of the most perilous investments over the past decade. For a variety of reasons, the huge run up in value in most telecommunications companies during the late 1990's has been followed by a plunge in value that appeared to have no bottom. Rainwater's bet is the first positive sign for a battered industry in a very long time.
In the wake of this news regarding oil prices, Morris A. Adelman is a professor emeritus of economics at Massachutsetts Institute of Techonology and long has been one of America's leading energy economists. In this article, Professor Adelman eviscerates the myth that humanity?s need for oil cannot be met and that a gap will soon emerge between demand and supply. The entire article is a must read during the current season of political demagoguery, and here are a few snippets to pique your interest:
There is not, and never has been, an oil crisis or gap. Oil reserves are not dwindling. The Middle East does not have and has never had any ?oil weapon.? How fast Russian oil output grows is of minor but real interest. How much goes to the United States or Europe or Japan ? or anywhere else, for that matter ? is of no interest because it has no effect on prices we pay nor on the security of supply.
The doomsday predictions have all proved false. In 2003, world oil production was 4,400 times greater than it was in Newberry?s day [Newberry, a geologist, predicted in 1875 that the world was running out of oil], but the price per unit was probably lower. Oil reserves and production even outside the Middle East are greater today than they were when Akins claimed the wolf was here. World output of oil is up a quarter since [Jimmy] Carter?s ?drying up? pronouncement, but Middle East exports peaked in 1976?77. Despite all those facts, the predictions of doom keep on coming.
If the cost of finding and developing new reserves were increasing, the value per barrel of already-developed reserves would rise with it. Over the period 1982?2002, we found no sign of that. Think of it this way: Anyone could make a bet on rising inground values ? borrow money to buy and hold a barrel of oil for later sale. With ultimate reserves decreasing every year, the value of oil still in the ground should grow yearly. The investor?s gain on holding the oil should be at least enough to offset the borrowing cost plus risk. In fact, we find that holding the oil would draw a negative return even before allowing for risk. To sum up: There is no indication that non-opec oil is getting more expensive to find and develop. Statements about nonopec nations? ?dwindling reserves? are meaningless or wrong.
U.S. oil policies are based on fantasies not facts: gaps, shortages, and surpluses. Those ideas are at the core of the Carter legislation, and of the current Energy Bill. The Carter White House also believed what the current Bush White House believes ? that, in the face of all evidence, they are getting binding assurance of supply by opec, or by Saudi Arabia. That myth is part of the larger myth that the world is running out of oil.
Professor Adelman's piece dovetails nicely with this Fred Singer article on the ill-conceived Nixon and Carter Administrations' energy-related policies that were implemented in response to perceived shortages of oil.
Hat tip to Professor Kling over a EconLog for the link to Professor Adelman's timely article.
This Chronicle article reports that the Commodity Futures Trading Commission has subpoenaed information from several energy companies -- including Duke Energy Corp., El Paso Corp., CenterPoint Energy Inc. and Oneok Inc. -- to determine more information about how storage data is compiled and reported to the Energy Department's statistical arm, the Energy Information Administration. Dominion Resources Inc., the nation's largest storage operator with about 28% of the U.S. storage capacity, says it is voluntarily providing information even though it has not received a subpoena.
Energy company investors follow EIA's weekly numbers for trends on whether supplies of natural gas are plentiful or tight. The subpoenas come on the heels of a big increase in natural-gas prices last fall. Starting last October, natural-gas prices rose about 50% to $7.22 per million BTU's in mid-December, then dropped to $6.19 per million BTUs at the beginning of 2004. Natural gas prices tend to track crude-oil prices, which are at 13-year highs. The benchmark natural-gas futures price rose 1.9 cents yesterday to settle at $6.40 per million BTUs on the New York Mercantile Exchange.
Storage operators are required to report how much working gas (i.e., gas available for withdrawal) they have injected into underground aquifers, salt caverns and depleted wells. To meet seasonal swings in demand, operators often purchase gas during the spring and summer, and then put it back into pipelines in the fall and winter. Typically, the storage operators collect fees for storing gas, and many of them also are natural-gas producers and marketers who benefit from higher prices.
The latest investigation follows the disclosure in recent years that several energy companies reported false trading volumes and prices to industry trade publications. As a result of that probe, 13 companies paid a combined $180 million to settle charges of false reporting and attempted price manipulation. For example, Enron Corp. has agreed to pay a $35 million fine, which is pending approval from Enron's bankruptcy judge.
The Stros' string of good luck ended on Wednesday evening as they not only lost to the Fish 5-2, but also may have lost Wade Miller. Miller battled gamely through five and two thirds innings (4 hits, 3 walks, 3 runs, 5 K's), then left with soreness in the same area of his neck where he had a pinched nerve during the 2002 season that put him on the shelf for two months. He will be MRI'ed today.
Dontrelle Willis pitched a rare Juice Box complete game for the Marlins, as this game really came down to a key play in the bottom of the sixth. With two out, the Stros had closed to 3-2 and had runners at second and third. Ensberg blistered a ground ball up the middle that looked like it would plate the two runs and give the 'Stros the lead, but Willis gloved it with a "look what I found" expression and threw Ensberg out. That was all she wrote as Willis proceeded to put the 'Stros down in order in the last three innings to secure his fourth win.
The rubber game of the series tonight looks like a mismatch as the 'Stros inconsistent Tim Redding goes up against the Marlins' sturdy Carl Pavano. The Mets come in to the Juice Box on Friday for a weekend series.
May 12, 2004
Miller has served five years of a six-year appointment and will continue to serve as chairman until the regents elect a replacement to fill his unexpired term. Then Governor George W. Bush appointed Miller to the board in February 1999, and he was elected chairman in February 2001. Miller was re-elected chairman in 2003, and his term as a regent would have ended in February 2005.
In his announcement, Miller stated that he wanted to resign at this time so that the board had plenty of time to choose his successor ahead of the 2005 session of the Texas Legislature.
The UT System has 15 campuses, including nine academic and six health institutions and an enrollment of approximately 180,000 students. The system's current annual operating budget is $7.8 billion. UT System institutions in the Houston are include UT Health Science Center at Houston, UT M.D. Anderson Cancer Center and the UT Medical Branch at Galveston.
This NY Times article reports on the $85 million partial settlement that has been in the works for quite some time in the Tittle class action lawsuit involving claims of former Enron employees who lost their shares in their 401K plans when Enron collapsed in late 2001 was filed today in U.S. District Court in Houston. Here is a copy of the plaintiff's memorandum in support of the proposed settlement.
Enron employees lost hundreds of millions of dollars when the Enron stock in their 401(k) plan went up in smoke as the company slid into bankruptcy in late 2001. Under the settlement, the former employees may receive up to 10 cents on the dollar. Associated Electric & Gas Insurance Services Ltd., also known as Aegis, and Federal Insurance Co. will fund most of the settlement payment. Enron had $85 million in fiduciary liability insurance to cover company employees who were acting as fiduciaries.
The partial settlement resolves claims against Enron's directors and human-resource staff, but does not settle claims against former Enron executives, Kenneth Lay and Jeffrey Skilling. The settlement also does not resolve claims against Northern Trust Co., who the former employees contend should have protected them in its capacity as trustee and a fiduciary of the plans, or Arthur Andersen, which was the auditor of the plans and Enron. Similarly, the settlement also does not release claims against Enron's fidelity bonds, which cover losses to the plans caused by theft or dishonesty. Finally, the settement does not release the plans' separate securities claims against Enron underwriters and investment banks.
The settlement will be presented for preliminary approval to U.S. District Judge Melinda Harmon Houston on May 20 in Houston. Plaintiffs still have some substantial hurdles to jump over in connection with Enron's bankruptcy case in New York, where Enron's creditors are contending (with considerable merit) that the former employees and retirees' claims are subordinate to the claims of most other Enron creditors.
Following up on this post from a couple of months ago on Dallas' proposal to Dallas Cowboys owner Jerry Jones to build a new stadium in Fair Park for the Cowboys, Professor Sauer posts this analysis of Jones' counter-offer to Dallas officials -- i.e., the cost of the stadium would be $650 million, with the Cowboys paying roughly a third and getting $425 million in public subsidies from Dallas County. The public financing would be paid in part by a 3% increase in the hotel occupancy tax, which would raise that tax to the nation's highest of 18%. Jones argues that the stadium and surrounding commercial and residential complex (which would include hotels) would "drive business to the metroplex."
With pragmatic clarity, Professor Sauer observes: "If I were a hotel owner and Jerry Jones was asking for a subsidy to compete with me, financed by a tax on my business, I'd be hopping mad."
Stay tuned on this one. Although Professor Sauer's skepticism is undoubtedly correct from an economic standpoint, my sense is that Jones will be able to play on Dallas public officials' concern over falling behind Houston in the "stadium arms race" to get a deal done that involves a boat load of public financing.
This Chronicle story reports on the bloodier than normal confirmation of Scott Brister as a new justice on the Texas Supreme Court. Justice Brister got 19 votes in the Texas Senate, exactly the two-thirds majority necessary to be confirmed. Nine Democratic senators voted against him, including Houston senators Rodney Ellis, Mario Gallegos and John Whitmire.
Justice Brister was appointed by Gov. Rick Perry last November to a vacancy on the Supreme Court. At the time of his appointment, Justice Brister was serving on Houston's 14th Court of Appeals, where he was chief justice. Justice Brister also served on Houston's other intermediate appellate court -- the 1st Court of Appeals -- and was a judge for the 234th District Court in Harris County for 11 years.
Despite the divisive politics involved in his confirmation, Justice Brister has a fine reputation among the Houston bar as a jurist, and he will be a valuable addition to the Supreme Court.
Princeton University Professor Emeritus Bernard Lewis is America's foremost expert on Middle East history, and prior posts involving his work and views can be viewed here. In this Wall Street Journal ($) piece, Dr. Lewis makes some typically insightful observations in regard to relying on the United Nations as an agent for progress in the Middle East:
The record of the U.N. in dealing with conflicts is not encouraging -- neither in terms of fairness, nor of efficacy. Its record on human rights is even worse -- hardly surprising, since the members of the U.N. Commission on Human Rights include such practitioners of human rights as Cuba, Saudi Arabia, Sudan and Zimbabwe. In dealing with conflicts, as a European observer once remarked, its purpose seems to be conservation rather than resolution.
A case in point: In 1947 the British Empire in India was partitioned into two states, India and Pakistan. There was a bitter military struggle, and an estimated 10 million refugees were displaced. Despite continuing friction, some sort of accommodation was reached between the two states and the refugees were resettled. No outside power or organization was involved.
In the following year, 1948, the British-mandated territory of Palestine was partitioned -- in terms of area and numbers, a triviality compared with India. Yet that conflict continues, and the 750,000 Arab refugees from Israel and their millions of descendants remain refugees, in camps maintained and staffed by the U.N. Except for Jordan, no Arab state has been willing to grant citizenship to the Palestinian refugees or to their locally born descendants, or even to allow them the rights of resident aliens. They are now entering their fifth generation as stateless refugee aliens. The whole operation is maintained and sustained by a massive apparatus of U.N. officials, some of whom have spent virtually their whole careers on this issue. What progress has been made on the Arab-Israel problem -- the resettlement in Israel of Jewish refugees from the Arab-held parts of mandatory Palestine and from Arab countries, the Egyptian and Jordanian peace agreements -- was achieved outside the framework of the U.N. One shudders to think what might have been the fate of the Indian subcontinent if the U.N. had been involved in its partition.
Roger Clemens continued his dreamlike hometown season as he hurled the Stros to their 10th victory in their last 12 games, 6-1 over the Marlins. The Rocket won his 7th straight game of the season, giving up only 3 hits, a walk and one run while striking out 11 in seven innings. For the first two thirds of the game, this was an old-fashioned late 1960's-early 70's pitching duel between Clemens and the Marlins' Brad Penny, who dominated the Stros. However, Lance Berkman tied the game with a double to deep center off of Penny in the bottom of the seventh, and then Morgan Ensberg plated Berkman for the lead to secure the win for Clemens and send Penny to the showers. Bidg and the crew then put this one away with a four spot in the bottom of eighth.
May 11, 2004
On the heels of the news of Citigroup's WorldCom settlement and increase in litigation reserves for other (i.e., Enron) investor litigation, this Wall Street Journal ($) article reports on the pressure that other financial services firms are facing to increase the amount of their reserves because of the darkening litigation environment.
Believe me, "dark" does not begin to describe the litigation environment surrounding the Enron litigation. "Black hole" would be more appropriate.
At any rate, the WSJ article notes that several other financial institutions are assessing what to do in light of the Citigroup action:
Because Citigroup also raised its reserves for liability associated with Enron Corp. -- another company that like WorldCom hit the rocks after overstating its earnings during the market bubble of 1999 and 2000 -- some legal and stock-market experts said the action put pressure on J.P. Morgan Chase & Co. to consider boosting its reserves for Enron as well.
"Citi's move would appear to put pressure on [J.P. Morgan] to do something similar, given that JPM and Citi had business relationships with Enron that appear, in our view, to have been broadly similar in exposure," Guy Moszkowski, who follows banks and securities firms at Merrill Lynch & Co., said in a note to clients late yesterday.
Funny that the WSJ article would quote a Merrill analyst:
Another firm with significant exposure to Enron-related liabilities is Merrill Lynch, which like Citigroup and J.P. Morgan settled regulatory charges, without admitting or denying wrongdoing, that it aided Enron in overstating earnings. . .
Citigroup yesterday added $3.3 billion, after taxes, to its litigation reserves, bringing the current total to $6.7 billion -- which Chief Executive Charles Prince said was for "Enron, research and IPO litigations," including some remaining WorldCom exposure. Mr. Moszkowski, the Merrill Lynch analyst, estimated the biggest chunk of that was about $2 billion for Enron.
As of year-end 2003, J.P. Morgan had $745 million in reserves for litigation, including $524 million for Enron. Bank analyst Susan Roth of Credit Suisse First Boston said that if J.P. Morgan brought its Enron reserves up to the Citigroup level, that could result in a charge of $2.5 billion, or $1.19 a share. Accordingly she reduced her price target for J.P. Morgan stock to $45 from a range of $45 to $50 a share.
. . . Last July, J.P. Morgan Chase agreed to pay $135 million to settle charges by the Securities and Exchange Commission that it helped Enron defraud investors. Citigroup also agreed to pay $120 million to settle charges that it helped Enron and Dynegy Corp. defraud investors.
Without admitting or denying wrongdoing, both institutions settled charges that they helped the companies mislead investors by characterizing loan proceeds as cash from operations. Merrill paid $80 million to settle SEC charges that it aided and abetted Enron's fraud with two deals in late 1999, also without admitting or denying wrongdoing.
Citigroup's WorldCom settlement "probably re-prices the cost of Enron- and WorldCom-" related liability, said Brad Hintz, who follows securities firms at Sanford C. Bernstein & Co.
"Re-pricing" the cost of Enron-related liability? I can already hear the plaintiffs' lawyers using that term.
In performing research on a company or a particular director on a company's board, it is often helpful to identify the company's other board members and the other corporate boards on which those board members serve.
"They Rule" is an extraordinary website that uses flash player to visualize a database that the rather interesting Josh On has created on certain publicly-owned corporate and institutional boards. You can choose either a particular board member or simply a corporate board. Then, the site will map the corporate board by identifying each board member, and then you can select a particular board member and it will map out each corporate board on which the board member serves. This process has amazing possibilities for tracking relationships between various corporate boards. Heck, I even expect Kevin Bacon to pop up before long!
To test "They Rule," I plugged in the name of former Georgia senator Sam Nunn. He is on four boards and this is the map that "They Rule" produced:
In this NY Times Review of Books review, my favorite novelist -- Larry McMurtry, author of the incomparable "Lonesome Dove" and many other fine novels -- writes about Mark Perry's new book, "Grant and Twain: The Story of the Friendship that Changed America." This is a magnificent review about the fascinating General Grant, who never seemed to be able to live up to other people's expectations except President Lincoln's. The entire review is a must read, and I pass along an the following excerpt that McMurtry uses from Grant's "Personal Memoirs" that is the central focus of Mr. Perry's book:
Put Grant in a fresh uniform and within half an hour it would look as if he had fought the Battle of the Wilderness in it. In uniform or out, Grant rarely seemed at ease, neither in his clothes nor in his skin. His penchant for casual, if not ragged, garb is never better illustrated than in the famous passage in his Personal Memoirs when he goes, at last, to meet Lee at Appomattox Courthouse in hopes of receiving the surrender of the Army of Northern Virginia?as poignant a moment, in my view, as one will find anywhere in the history of war:When I had left the camp that morning I had not expected so soon the result that was then taking place, and consequently was in rough garb. I was without a sword, as I usually was when on horseback on the field, and wore a soldier's blouse for a coat, with the shoulder straps of my rank to indicate to the army who I was. When I went into the house I found General Lee. We greeted each other, and after shaking hands took our seats....
What General Lee's feelings were I do not know. As he was a man of much dignity, with an impassible face, it was impossible to say whether he felt inwardly glad that the end had finally come, or felt sad over the result, and was too manly to show it. Whatever his feelings, they were entirely concealed from my observation; but my own feelings, which had been quite jubilant on the receipt of his letter, were sad and depressed. I felt like anything rather than rejoicing at the downfall of a foe who had fought so long and valiantly....
General Lee was dressed in a full uniform which was entirely new, and was wearing a sword of considerable value, very likely the sword which had been presented by the State of Virginia; at all events it was an entirely different sword from the one that would ordinarily be worn in the field. In my rough traveling suit, the uniform of a private with the straps of a lieutenant-general, I must have contrasted very strangely with a man so handsomely dressed, six feet high and of faultless form. But this was not a matter that I thought of until afterwards....
We soon fell into conversation about old army times.... Our conversation grew so pleasant that I almost forgot the object of our meeting....
As this earlier post notes, Ms. Mylroie is a former Clinton Administration advisor on Iraqi intelligence matters who has clashed with Richard Clarke regarding his dismissal that Iraq was involved in either the 1993 World Trade Center or the 9-11 attacks.
Hat tip to Powerline for the link to Ms Mylroie's article.
This NY Times article reports on the settlement of the WorldCom class action lawsuit against Citigroup. The $2.65 billion settlement is the largest ever by a bank, brokerage firm or auditor to settle an investor fraud case based on the purchase recommendation advice that such an entity gave to investors. It is the second-largest amount ever paid to settle a securities class action, trailing only the Cendant Corporation's payment of $2.85 billion in 2000.
Nevertheless, neither of those records is expected to last long:
The bank also said that it would take a charge in the second quarter of $4.95 billion to reflect the settlement and an addition to its reserves to cover exposure to Enron and other pending litigation. The charge is equal to roughly three months' worth of its earnings . . . Citigroup has set aside $6.7 billion in all to cover its litigation exposure.
A couple of quotes of note from the Bloomberg article on the settlement:
Chief Executive Officer Charles Prince said Citigroup faced claims seeking $54 billion in the WorldCom lawsuit. "We made a $1.64 billion insurance policy to avoid a roll of the dice in front of a jury," Prince said on a conference call with investors. "We want to put the entire era behind us."
Saudi Prince Alwaleed bin Talal, Citigroup's largest individual shareholder, said Prince and Citigroup Chairman Sanford Weill called him this morning and he told them "I'm backing them all the way. If this was to go to court it would be so big, God help us," Alwaleed said. "The trend in the U.S. and New York is against corrupt practices. Look at Martha Stewart."
This Wall Street Journal ($) article reports on an interesting area of Pentagon research that is not discussed much in the mainstream media -- that is, the fundamental shift that has taken place over the past generation in the theory behind the way in which American military forces fight wars.
The WSJ article focuses on Thomas Barnett, a 41 year old obscure Defense Department analyst, teamed up with senior executives at the Wall Street firm Cantor Fitzgerald LP in 1998 to study how globalization was changing national security. The entire WSJ article is well worth reading, and the following are a few tidbits to whet your appetite:
One scenario [Mr. Barnett and his associates] studied was a meltdown caused by the Y2K computer bug followed by terrorist attacks designed to exploit the chaos. Mr. Barnett posited that Wall Street would shut down for a week. Gun violence, racially motivated attacks and sales of antidepressants would surge. The U.S. military would find itself embroiled in brushfire conflicts across the developing world.
His theories were met with skepticism. "People began referring to me as the Nostradamus of Y2K," Mr. Barnett says.
Then came the Sept. 11 terrorist attacks. Suddenly Mr. Barnett didn't look so crazy.
Accordingly, at the urging of certain Pentagon researchers, Mr. Barnett overhauled the concept to address more directly the post-9/11 world and condensed it into a three hour PowerPoint briefing. As a result, Mr. Barnett has become a key figure in the debate currently raging about what the modern military should look like. Senior military officials say his controversial ideas are influencing the way the Pentagon views its enemies, vulnerabilities and future structure. The WSJ article notes:
Mr. Barnett's military is a far cry from the shape of today's armed forces. Instead of a single force to wage wars and rebuild nations, Mr. Barnett envisions two. The first, which he dubs "Leviathan," would be hard-hitting, ready to take on conventional foes such as Saddam Hussein on a moment's notice. The second, more unconventional force of "System Administrators" would focus on bringing dysfunctional states into the mainstream through the type of nation-building operations seen in Iraq, the Balkans and Eastern Africa. It wouldn't only mop up after wars but would travel the world during peacetime building local security forces and infrastructure.
You will never discover in the mainstream media that Defense Secretary Rumsfeld is one of the reasons why Mr. Barnett's theories are seeing the light of day:
Mr. Barnett conjured up his vision at the urging of Retired Vice Adm. Arthur Cebrowski. After 9/11, Defense Secretary Donald Rumsfeld tapped the admiral to run a new office in the Pentagon, dubbed the Office of Force Transformation, focusing on changing the military, one of Mr. Rumsfeld's pet projects.
In Mr. Barnett's world, countries are divided into two categories. His "core" countries are part of a global community linked by trade, migration and capital flows. Europe, the U.S., India and China fall into this group. Then there are "gap" countries that either refuse to join the global mainstream (such as Saudi Arabia and Iran), or are unable to because they have no central government or are struggling with debilitating crises (such as Iraq, Afghanistan, Somalia, and much of sub-Saharan Africa).
"The "gap" is a petri dish of grief, repression, terrorism and disease," says Adm. Cebrowski. "And 9/11 shows we can't wall ourselves off from it."
To join those worlds together, Mr. Barnett envisions two different military forces. The Leviathan force consists of stealthy submarines, long-range bombers and highly trained soldiers who are "young, unmarried and slightly p- off," Mr. Barnett says.
The System Administrator force is named for the technology wonks who run corporate computer networks. This force is focused on training "gap state" security forces, stamping out insurgencies and rebuilding basic infrastructure such as legal systems and power grids.
That force would include lightly armored soldiers, the Marine Corps and officials from the State, Justice and Commerce departments along with the U.S. Agency for International Development. Its troops would be older and more specialized than the Leviathans. The purpose of the System Administrators would be to bring order to a country, but the force would also be strong enough to defend itself.
The Pentagon is a notoriously tradition-bound organization where new ideas that do not come through the normal chain of command are viewed by Pentagon generals with skepticism. Nevertheless, over the past 30 years, the Pentagon has increasingly embraced intellectual ideas from non-conventional sources.
For example, Andrew Marshall in the late 1970's and early 80's argued from an obscure Pentagon office that wars could be revolutionized by precision bombs, unmanned planes and wireless communications that would allow the American military to destroy enemies from a distance. Similarly, the work of the late Pentagon iconoclast John Boyd and his acolytes in revolutioning the way in which the American military approaches war in the late 20th and early 21st century has been well-chronicled in Robert Coram's book, "Boyd: The Fighter Pilot Who Changed the Art of War.
As we evaluate the performance of America's military leaders in the aftermath of the Abu Ghraib prison scandal, it is important to remember that things are not always as they seem in regard to the American military.
For example, the Pentagon brass fought tooth and nail against the innovative ideas of people such as Boyd, Marshall, and now Barnett, primarily because their ideas often run contrary to the sacred cow military appropriations that the Pentagon hierarchy aggressively protect.
On the other hand, you will not learn from the mainstream media that it took leaders such as Donald Rumsfeld, Dick Cheney, and Colin Powell over the past two decades to open up and accept recommendations from lower Pentagon sources such as Boyd and Marshall that have revolutionized and dramatically improved America's ability to conduct war in places such as Afghanistan and Iraq. But for the willingness of leaders such as Messrs. Rumsfeld, Cheney and Powell to listen to these unconventional sources of information, the traditional Pentagon brass would have squelched those innovative ideas before they would have ever seen the light of day.
Consequently, for those who are calling for the heads of Messrs. Rumsfeld and Cheney, I give this advice: Be very careful what you wish for.
This Chronicle article reports on the $18,000 fine under Fed. R. Civ. P. 11 that Judge Kent recently levied against Griffin in connection with Griffin's representation of a former Galveston Independent School District administrator in a wrongful termination-civil rights lawsuit.
As as his nature, Judge Kent did not mince words in sanctioning Griffin. He noted that the district "is currently fighting a severe and genuine economic crisis that has forced budget cuts resulting in the reduction of staff and programs." He then observed that the money the district spent on the Boone lawsuit "does not come from a magic money tree."
"Even a minimal investigation into the facts and the law of this case would have revealed the abject frivolity of all of plaintiff's claims. Filing it shows either an ignorance of the law or an utter disregard for it, both of which are inexcusable."He went on to find that Griffin's client's claims were "utterly wanting in merit. This attorney, and all others similarly situated, must be made to realize that abusive manipulation of the legal system and attempts to legally extort money from public institutions, with no basis in fact or law, must and will be appropriately rebuked."
Griffin has 30 days to pony up the $18,000.
May 10, 2004
This Wall Street Journal ($) article reports on innovative techniques that several corporate health care finance departments are undertaking in an attempt to mitigate the adverse effects that the third party payor system has on the consumer's decision regarding health care choices. The entire article is well worth reading, and here is one of the strategies noted:
In the fall of 2001, Pitney Bowes Inc.'s corporate medical director, John Mahoney, proposed an unusual experiment: Slash the amount that employees pay for diabetes and asthma drugs, and see what happens.
On its face, the proposal seemed it would only add to the company's escalating health-care costs. But there was a simple logic to Dr. Mahoney's theory: If diabetic or asthmatic employees found drugs more affordable, they might take them more regularly. Over time, taking better care of their chronic conditions might reduce expensive complications.
But Dr. Mahoney says even he didn't expect the dramatic savings that resulted. Since 2001, the median medical cost for a Pitney Bowes employee with diabetes has fallen 12% from about $1,000 a year. The median cost for a patient with asthma has dropped 15% from $900 annually. Overall, the company says it will save at least $1 million in 2004, with continued savings in future years.
Pitney Bowes's move is indeed radical. Amid health-care cost increases of 11% to 15% annually, many employers are taking the more obvious approach: have employees shoulder some of the financial burden by raising premiums, deductibles and co-pays. Such moves appear to be helping to slow health-care cost increases in the short term. But Pitney Bowes's experience shows that spending more upfront to make it easier -- and cheaper -- for employees to manage some chronic illnesses may actually bring about greater savings in the long run.
"There's a reluctance among many people to take this kind of a chance because conventional wisdom says it's going to increase your costs," says Dr. Mahoney, a former White House physician in the Ford administration.
"But health care is kind of like a balloon. When you squeeze costs in one place, they often pop up in another."
Both the Chronicle and the Wall Street Journal ($) have front page stories on the research project that Dr. Wadih Arap, a cancer biologist at the University of Texas M.D. Anderson Cancer Center in Houston's Texas Medical Center, is leading a study that offers a potential new approach to treating obesity and is also showing promise in cancer treatment. The results are being published in the June issue of the journal Nature Medicine.
Such research is becoming increasingly important because several recent studies are revealing that many of the improvements in health that medical advances have bestowed upon middle-aged and older Americans will likely be effectively erased over the next 20 years if Americans' weight continues to increase.
The researchers said they melted away body fat in laboratory mice by cutting off the blood supply to fat cells. The agent is a drug the researchers designed to home in on blood vessels cells linked to fat tissue and then deliver an agent that induces the cells to self-destruct. As the blood vessel cells died, the fat tissue essentially vanished.
Weight-loss drugs typically seek to suppress appetite or increase the body's metabolism to make it burn more calories. However, the body can quickly compensate for the effects of such drugs, making it difficult to lose and keep off weight. Accordingly, the new research is important because it could decrease the amount of fat in a completely novel way.
Dr. Arap cautions that only mice have been studied so far and that what works in mice often fails in people. Even if additional research goes well, it would probably be several years before any treatment could reach the market.
No corporate sponsors were involved to date in the study. The research has been funded with grants from the National Institutes of Health and several philanthropies. M.D. Anderson has filed patents related to the approach, and its institutional policies enable Drs. Arap and other researchers in the project to benefit financially if the strategy is commercially developed.
As far as potential corporate sponsors go, I recommend highly that the researchers get in touch with a certain doughnut makere.
May 9, 2004
After last night's bizarre game, the Stros came back this afternoon to beat the Braves in a pitching dual, 2-1. Andy Pettitte was sharp, pitching six innings and strinking out five, giving up three hits, four walks, and one run. The Braves' Russ Ortiz was just as good, going six and two thirds, striking out nine, and giving up only two hits and two runs. Miceli and Dotel were money again in relief.
Manager Jimy Williams, still irritated from last night's debacle with the umpiring crew, got in a few choice words with the plate ump this afternoon after Pettitte expressed frustration at the arbitrary nature of the ump's pitch calls. At least Jimy did not go nuclear and get thrown out again, although he is facing a suspension for bumping the plate ump from last night's game.
The Stros (20-11) get an off day on Monday to play in Bidg's charity golf tournament at Wildcat Golf Club, and then the Rocket opens up a six game homestand at the Juice Box on Tuesday against the World Champion Fish (18-13) and the Mets (14-17).
Floyd Norris notes in this NY Times article that Securities and Exchange Commission chairman William Donaldson is not sounding or acting like the go-slow regulator that many expected when he was named to the post. As Mr. Norris notes:
[Mr. Donaldson] compared the current system of electing corporate directors, in which the incumbent board nominates a slate and no other candidates are on the ballot, to elections in the former Soviet Union: "It's not really an election at all."
[Mr. Donaldson] also emphasized the need to do something to change what he called the Lake Wobegon system that has caused pay for corporate bosses to soar. He said boards all conclude their chief executives are above average, as are all the children in Garrison Keillor's mythical Minnesota town. He also said he was determined to force hedge funds to register with the S.E.C.
As one might expect, Mr. Donaldson's proposals are not particularly pleasing to some elements of the Republican Party:
Mr. Donaldson's efforts are frustrating to those who expected that the Bush administration would roll back regulation. The proposal received a D- average grade from Wendy Gramm, director of the regulatory studies program at George Mason University. "The S.E.C. offered no evidence that existing solutions to poorly performing boards do not work," wrote Ms. Gramm . . .Say what? Wendy Gramm, the former Enron director, is the "director of regulatory studies" at George Mason University? And is a spokesperson against Mr. Donaldson's rather lame recommendations regarding corporate governance?
Could there be a worse spokesperson for maintaining the status quo in regard to "solutions for poorly performing boards?" Mrs. Gramm sat on an Enron board that blithely approved a staggering number of off balance sheet debt vehicles that admitted felon Andrew Fastow engineered to disguise Enron's foreboding debt load, approved the clear conflict of interest that allowed Mr. Fastow to become enriched from such off balance sheet investments while he was Enron's CFO, sat on Enron's board (and was well compensated for doing so) while her husband -- former Texas Senator Phil Gramm -- was receiving campaign contributions from Enron and its upper management, and sold over a quarter of million dollars of Enron stock before the scandal broke.
My sense is that Mrs. Gramm's above quote just might make it into the hands of the plaintiffs' lawyers who are suing Enron's board and its insurers for billions.
Update: Barry Ritholtz over at The Big Picture is even more incredulous than me over this.
Update II: Just for clarification: I tend to agree with Ms. Gramm's position that less government regulation of corporate governance is generally better than more. But I just don't think she should be out front for that position on this particular issue. Her Enron legacy is serious baggage.
May 8, 2004
Occasionally, umpires cost a team a game, and tonight was one of those nights for the Stros as they lost in 10 innings to the Braves, 5-4. Andruw Jones hit a two-out homer off Ricky Stone that barely cleared the right-field wall to win the game for the Braves.
However, the Stros had the game in hand until the bottom of the eighth, when the Braves' Jesse Garcia convinced umpires he had been grazed on the helmet with a pitch, sparking a two-run eighth that tied the game 3-3. The disputed call led to the ejection of Astros manager Jimy Williams. Before the inning was over, bench coach John Tamargo and starter Roy O also were tossed.
The controversy began when Garcia claimed a pitch from Oswalt nicked the top of his helmet and began trotting toward first. Plate umpire Gary Darling didn't make a call but consulted with second-base umpire Rob Drake, who ruled that Garcia had been hit. Astros' manager Williams went nuclear, and tried to run around Darling several times to go after Drake.
Oswalt gave up a bases-loaded single that pulled the Braves to 3-2, then threw up his arms after a low fastball to Chipper Jones was ruled a ball. Darling, who by this time wasn't calling a strike for Oswalt unless it was right down the middle, bounced out from behind the plate and yelled at Oswalt, who promptly walked Jones and forced in the tying run.
Tamargo, now running the team, came out to make a pitching change and wound up getting ejected when he began jawing with Darling. About that time, Oswalt tossed a blue case -- filled with bubble gum -- from the Houston dugout, and its contents sprayed along the third-base line. Several batboys had to come out, scurrying around on their knees to clean up the mess.
Oswalt's reaction is reflective of the absurdity of the umpires' calls and behavior. Roy O is normally as calm and well-mannered as any player in baseball. Frankly, this game might have turned into a mob scene had Roger Clemens been pitching.
The Stros came back to take the lead in the top of ninth, but Brad Lidge, filling in for Octavio Dotel -- who had pitched in three straight games -- couldn't hold that lead. That set the stage for Jones' heroics in the bottom of the tenth.
Andy Pettitte goes for his second win after coming off the DL in the series finale against the Braves. I guess pitching coach Burt Hooten will take the lineup card to the meeting at home plate with the umpires before the game.
Steven Pearlstein of the Washington Post (free subscription required) has written this fine article on the problems in the American horse racing business.
Horse racing was one of the three -- along with baseball and boxing -- most popular sports in America in the early 20th century. However, abolition shut down almost all tracks in America and horse racing did not make a comeback until the 1930's. That's when state governments utilized pari-mutuel betting to generate revenue during the Great Depression era. Racing quickly became popular again, as the recent fine book and movie "Seabisbuit" relates well.
However, as Mr. Pearlstein's article describes, racing struck a devil's bargain by accepting dubious state regulation and taxation in return for its right to exist. Accordingly, while other professional sports skyrocked in popularity and value during the generation after World War II, horse racing remained mired in mud of governmental micro and mismanagement.
So, how is the industry attempting to change this course? The less creative approach is to beg the state governments to allow horse track owners to turn their facilities into "racinos" -- that is, allow the owners to install slot machines at the tracks and split the take with the state.
On the other hand, Churchill Downs, Inc. is pursuing this consolidation business plan that would create what amounts to a national tour of quality tracks that would host competition of top horses similar in the same way the Tour Players' Association puts on professional golf tournaments around the country. This approach seems to have at least a flavor of creativity that is utterly absent in the "racino" stategy.
One anecdote about horse tracks. Houston's race track -- Sam Houston Race Park in northwest Houston -- was built in Houston during the early 1990's, and promptly went into bankruptcy a year or two after it opened. A bright client of mine who was thinking about making an investment in the track to bring it out of bankruptcy asked me to sit in on a meeting with a representative of Churchill Downs, Inc. to determine whether they would be interested in being a co-investor and manager of the track.
During the meeting, the Churchill Downs rep indicated that the company had down a feasibility study on building a track in Houston several years earlier before deciding to pass. He disclosed that their study indicated that the best approach to developing horse racing in Houston was to start relatively small and expand the facility as the popularity of the product developed over time. Consequently, the study indicated that initially spending about $40 million (I may be off on the numbers a bit) and placing the track in a corridor between the Astrodome area on the north and the Gulf Greyhound Dog Racing track near Galveston on the south was the way to go.
"So," I inquired or the Churchill Downs representative. "Where do you think the current owners went wrong with the Sam Houston Race Park?"
"Well," he replied. "Except for spending more than twice as much as they should have in building it, and then placing it in the wrong location, nothing."
My bright client passed on the investment opportunity.
Hat tip to Professor Sauer over at the Sports Economist for the link to article and this issue.
Jeffrey Toobin of the New Yorker has written this interesting story on John Kerry's background as a lawyer before his career as a politician. There is nothing earth shattering in the article, but it is nevertheless provides interesting insight into Kerry. As Toobin notes:
John Kerry graduated from Boston College Law School in 1976, when he was thirty-two years old and on the brink of obscurity. His celebrity as the former leader of Vietnam Veterans Against the War was fading. The war was over, and his much heralded testimony before the Senate Foreign Relations Committee was five years in the past. He had entered law school after losing a congressional election in 1972, a race he was widely expected to win. A story about him in the Boston Globe during this time ran under the headline ?once a hot political property.?
Kerry practiced law for six years. During that period, he began inching back into public view in Massachusetts, rebuilding a reputation both for aggressive investigation and for showmanship which he still enjoys today. The issues that mattered to him then have dominated his subsequent legislative career, and it is his brief career as a lawyer, more than his record as a protester, that could suggest what kind of President he would make.
And somewhat surprisingly, Kerry was not a bleeding heart criminal defense lawyer:
Given his background in the antiwar movement and progressive politics, Kerry might have seemed like a natural for a public defender?s office. ?That?s a stereotype of the worst order and a total knee-jerk reaction,? Kerry told me during a recent conversation about his legal career. ?I always had a prosecutor?s mind and a prosecutor?s bent. It was always what I wanted to do, even in law school. There was a rule in Massachusetts that allowed law students to prosecute misdemeanor trials in front of six-person juries, and I got an unbelievable amount of experience before I even graduated.? For a politically ambitious young lawyer like Kerry, especially one who was known only as a protester, it also made sense to earn a law-enforcement credential.
Hat tip to Ernie the Attorney for the link to this piece.
If you hadn't noticed, Barry Bonds has just completed one of the best months of hitting in the history of Major League Baseball.
In April, Bonds' had an incredible .472 batting average, an equally impressive .696 on base average, an astronomical 1.132 slugging percentage, and an historic 1828 OPS (on base average + slugging percentage).
Joe Sheehan and Keith Woolner over at Baseball Prospectus did some research and determined that Bonds' April was the best month of hitting in the past 30 years (see chart below). In fact, Bonds' 1848 OPS during April dwarfs Todd Helton's May of 2000, which had been the best month by a player in the past 32 seasons. Moreover, Helton played 15 of his 23 games that month in the hitting haven of Coors Field, and Bonds' April OPS still beats him by over 300 points!
The first chart is interesting also because each player listed is a great player with the exception of Ron Cey (good, but not great) and Richard Hidalgo (good, but not great at this point in his career). Given the large number of games played in baseball, this reflects that it is risky to draw dispositive conclusions based on a player's anecdotal performance in a limited sample of games. This is the most common error that casual fans of baseball make in evaluating players.
The second chart below reflects the research of the Wall Street Journal's ($) Allen St. John in this piece in which he suggests that Bonds' hitting has been helped significantly by playing in the new National League ballparks that have been built over the past decade. As Mr. St. John notes:
SBC isn't the only retrostyle new park that suits Mr. Bonds. From 2000 through 2003, he played 105 games at the NL parks built since 1995: Coors Field in Colorado, Bank One Ballpark in Arizona, Houston's Minute Maid Park (previously Enron Field), PNC Park in Pittsburgh, Alanta's Turner Field, Miller Park in Milwaukee, and Cincinnati's Great American Ball Park. In those games he hit .372 and slugged .868. Plus, he hit 46 homers, for an average of 75.6 round trippers per 162 games, above his single-season record pace of 2001.Hitter-friendly ballparks and steroids aside, Bonds is providing us with a once in a lifetime performance over the past decade. Bonds is simply the best hitter in Major League Baseball since Ted Williams and one of the three or four best of all-time. Sit back and enjoy it, because we are unlikely to see it again in our lives.
May 7, 2004
Tim Redding finally pitched a game this season similar to the way he pitched last season as he led the Stros to a 5-3 victory over the Braves in Atlanta. Redding pitched six innings, gave up four hits, a walk and a run, which came on a J.D. Drew dinger. Relievers Backe and Miceli were a bit shaky in the seventh, but Lidge bailed them out again with an inning and a third of strong relief. Dotel closed it with another strong ninth as he appears to catching his stride. Jeff Kent was the hitting star again with three hits and three RBI's, including his sixth jack of the season.
The Stros have now won four in a row and eight out of their last nine. Hard luck Roy O goes for his third win tomorrow evening in the second game of the weekend series with the Braves.
U.S. Magistrate Frances Stacy told ex-Enron CEO Jeff Skilling this afternoon that he must quit drinking alcohol, get both alcohol and mental health treatment, be subject to a curfew and get a job or do volunteer work in order to remain free pending his criminal trial in connection with the collapse of Enron. Judge Stacy, handling the matter for U.S. District Judge Sim Lake, added those restrictions to Skilling's $5 million bond because of a bizarre escapade in New York City last month that landed Skilling in the hospital for a night. Judge Stacy declined to add $2 million to his $5 million as prosecutors requested, which was the absolute right decision.
Prosecutors have said Skilling violated his bond by being seriously drunk, trying to lift a woman's blouse in search of an FBI wiretap, and attempting to steal a car's license plate. Defense attorneys contended the government has gotten its facts wrong about the incident and Skilling, though he had been drinking, was a victim.
I am at a loss to describe the brilliance of Victor Davis Hanson's insight, which has been a bright light in America ever since the 9/11 attacks. In his unequaled string of outstanding columns over the past three years, this week's op-ed for NRO may be the best. Read the entire piece, but the following will give you a flavor for it:
But our problems are not just with the paradoxes of the fourth-dimensional, asymmetric warfare that the United States has dealt with since the fighting in the Philippines and knew so well in Vietnam.
No, the challenge again is that bin Laden, the al Qaedists, the Baathist remnants, and the generic radical Islamicists of the Middle East have mastered the knowledge of the Western mind. Indeed they know us far better than we do ourselves. Three years ago, if one had dared to suggest that a few terrorists could bring down the Spanish government and send their legion scurrying out of Iraq, we would have thought it impossible.
Who would have imagined that Americans could go, in a few weeks, from the terror of seeing two skyscrapers topple to civil discord over the diet and clothing of war in Guantanamo, some of whom were released only to turn up to shoot at us again on the battlefields of Afghanistan? Our grandfathers would have dubbed Arafat a gangster, and al Sadr a psychopathic faker; many of us in our infinite capacity for fairness and non-judgementalism deemed the one a statesman and the other a holy man.
So our enemies realize that the struggle, lost on the battlefield, can yet be won with images and rhetoric offered up to alter the mentality and erode the will of an affluent, leisured and consensual West. They grasp that we are not so much worried about being convicted of being illiberal as having the charge even raised in the first place.
The one caveat they have learned? Do not provoke us too dramatically to bring on an open shooting war, in which the Arab Street hysteria, empty threats on spec, and silly fatwas nos. 1 through 1,000 mean nothing against the U.S. Marines and Cobra gunships. Instead, their modus operandi is to push all the way up to war ? now provoking, now backing down, sometimes threatening, sometimes weeping ? the key being to see the struggle in the long duration as a war of attrition, if you will, rather than a brief contest of annihilation.
These rules of the strategy of exhaustion are complex, and yet have been nearly mastered by the radicals of the Middle East. First, shock the sensibilities of a Western society into utter despair at facing primordial enemies from the Dark Ages. The decapitation of a Daniel Pearl; the probing of charred bodies with sticks, whether in Iran in 1980 or Fallujah in 2004; the promise of torturing Japanese hostages ? all this is designed to make the Western suburbanite change channels and head to the patio, mumbling either, "How can we fight such barbarians" or ? better yet ? "Why would we wish to?"
If, on occasion, an exasperated and furious West sinks to the same level ? renegade prisoner guards gratuitously humiliating or torturing naked Iraqi prisoners on tape ? all the better, as proof that the elevated pretensions of Western decency and humanity are but a sham. A single violation of civility, a momentary lapse in humanism and in the new world of Western cultural relativism and moral equivalence, presto, the West loses its carefully carved-out moral high ground as it engages not merely in much needed self-critique and scrutiny, but reaches a feeding frenzy that evolves to outright cultural cannibalism.
For someone in a coffee-house in Brussels the idea that Bush apologizes for a dozen or so prison guards makes him the same as or worse than Saddam and his sons shooting prisoners for sport ? moral equivalence lapped up by the state-controlled and censored Arab media that is largely responsible for the collective Middle East absence of rage over the exploding, decapitating, and incinerating of Western civilians in its midst.
The leading expert on the regional economics of the Houston metropolitan area is Dr. Barton Smith, University of Houston professor of economics and director of the UH Institute for Regional Forecasting. This Chronicle article reports on Dr. Smith's latest report on the local housing market that he gives a couple of times a year to the Houston real estate business community.
In short, Dr. Smith believes that rising interest rates aren't a good trend, but that the city should escape the serious housing bust that is looming in other markets. Inasmuch as the difference between income levels and home values in Houston is not as wide as it is in some other cities, Dr. Smith believes that smaller difference should help the local housing market relative to other markets. However, Dr. Smith predicts that, by 2006, many regions will experience a harsh housing market correction where home prices will begin to fall.
While rising interest rates are not good for home sales, Dr. Smith believes they will have a more positive impact on one more troubled sector of the local housing market: apartments. Vacancies in Houston area apartments have increased as renters have abandoned their apartments in favor of buying homes at historically low interest rates. However, Dr. Smith reasons, once rates go back up, consumers won't be in such a hurry to buy homes, creating more demand for apartments.
Nevertheless, due to overbuilding over the past several years, Dr. Smith predicts that it will take at least a year before the local apartment industry records any significant occupancy gains. With occupancy at 86.5 percent and nearly 15,000 units expected to be delivered in 2004, Smith gave the same advice yesterday that he gave to local developers in the early 1980's immediately before the that decade's bust in energy prices: "Stop building."
Aside from the apartment industry, Dr. Smith was more bullish on other commercial sectors of the regional economy. He noted that the local office market had bottomed out and will improve this year. In general, the retail market appears healthy, but Dr. Smith observed that much of the new retail is simply diluting sales of older stores. Barring any unforeseen events (i.e., terrorist attacks), Dr. Smith predicted that the regional economy will continue to improve, and Houston could see 30,000 to 50,000 new jobs this year.Consequently, Dr. Smith overall was quite optimistic about the regional economy in his remarks on Thursday.
Dr. Smith reiterated his previous predictions that gentrification will increase in Houston's inner core, and that substantial growth will continue in the city's suburban areas. Dr. Smith predicted that the currently under construction Grand Parkway (Houston's third and outermost "loop" outside of the existing 610 Loop and the outer Beltway loop) will be congested by 2025. To help alleviate congestion and environmental problems, Dr. Smith encouraged developers to build master-planned employment centers --such as The Woodlands in north Houston -- that locate large amounts of workers in a single area near suburban employment centers and that have good access to the other metro area employment centers.
Given my interest in sports, several friends have asked me why I have not blogged much on professional basketball. My stock answer is that, even though I have followed the NBA for about 45 years or so, I find it less interesting now than most other sports, particularly baseball, golf, professional football, intercollegiate athletics, and bowling (well, maybe not bowling).
The Houston Rockets are a good reflection of my reservations. The Rockets won two championships in the 1990's by building a team of interesting complementary players to surround the wonderful talents of Hakeem Olajuwon, who is one of the top five NBA players of all-time. Now, the Rockets have promising young center Yao Ming surrounded by a boring mish-mash of players who do not play well as a team. The Rockets other star player -- Steve Francis -- exemplifies this problem, as he is a phenomenal athlete who is frankly a poor point guard. As a result, the Rockets have made the playoffs only once in the last five years (this season), and were dispatched in that series with relative ease by a Lakers team whose individual parts are better than its whole.
That's a long introduction for this Geoffrey Norman Wall Street Journal ($) op-ed in which he addresses lagging interest in the NBA and the reasons for it. The entire op-ed is quite witty and well worth reading, and here is a sampling:
Many pro-basketball games are so poorly played and tediously long that the fingers seem drawn irresistibly to the remote. You find yourself seeking relief in "The Battle of Stalingrad" on the History Channel or the food channel's primer on how to make jerk sauce. Even some stranger eating worms or getting fired by Donald Trump seems preferable to enduring 10 minutes of undisciplined motion, interrupted occasionally by a dunk, some chest-thumping, a shove, a technical foul, a missed free throw and a beer commercial.
. . . The problem is with the product, not the consumer.
The first game of the Spurs/Lakers quarter-final series was played on Sunday afternoon and, according to Nielsen, drew a 4.9 rating, which translates into 7.3 million viewers. That afternoon's NASCAR race scored a 6.1 rating and 9.8 million viewers. The contrast is especially telling when you consider that this is probably the most desirable matchup in the NBA's unending postseason, with each series lasting longer, it seems, than the Florida recount.
And Professor Bainbridge will appreciate Mr. Norman's analysis of the Lakers:
The Lakers stars, of course, possess a celebrity that extends beyond the realm of sport. Shaq endorses everything that costs money, and Kobe did too until he got into trouble with the law. Just as people who didn't know anything about the game would tune in to watch Michael Jordan, nonfans ought to be drawn to Shaq and Kobe, who has been called the heir to Jordan's throne. Plainly, it isn't working out that way.
Perfect for L.A., if not for basketball, these Lakers resemble a troubled film crew on location, with feuding stars, an ever more temperamental, gnomic director (coach Phil Jackson) and egos ceaselessly banging into each other so that the real point of the thing gets lost in the din. Great material for one of those fan magazines where celebrity is its own justification. Who cares if Kobe unilaterally decides to take over a game and plays as though making a pass to the open man might cost him a shoe endorsement? It doesn't matter because...he's Kobe.
The "Showtime" Laker teams of the late 1980s were built around Magic Johnson, who generally led the league in assists. They ran the fast break, and they moved without the ball. Their rivals, on the opposite coast, were built around another great all-around player, Larry Bird. The Celtics/Lakers rivalry was one of the greatest in the history of sport. A matchup of great stars -- true -- but also of great, and distinctive, teams. When they met in the finals, people changed dinner plans so they wouldn't miss a game. The Celtics of the 1960s and the Knicks of the 1970s could inspire such loyal devotion, too, and for similar reasons.
With the Lakers now down 0-2 and on the ropes, it looks as though it may come down to the San Antonio Spurs and the Detroit Pistons in this year's finals. This is a matchup that might be challenged in the ratings by "Animal Planet." The Pistons and the Nets played a 78-56 contest the other night that was more grueling to watch than even "The Bachelor."
Then, Mr. Norman closes with an astute observation about what is missing:
Those great Knick teams (of the late 1960's and early 70's) were much more than the sum of their parts, and that was the fascination. There was some kind of deep art at work. Fans sensed possibilities and valued, above all, a display of control in the midst of all that motion.
After all, if you just want movement, collisions and chaos between the beer commercials, you can watch NASCAR.
The theory of the HP-Compaq merger was that it would remake HP. However, the new HP looks about the same (albeit bigger) as the old one.
Prior to the $19 billion deal closing in May 2002, HP had a mediocre computing business that was buttressed with a traditionally first rate printer unit that generated most of HP's revenue and profit. Two years later, that profile hasn't changed much. HP's printer unit continues to contribute about 30% of quarterly revenue and 70% of quarterly profit.
HP is a much bigger company now, with annual revenues of more than $70 billion compared with about $45 billion before the merger. HP employs about 140,000 employees in 170 countries. Before the merger, that number was closer to 85,000.
Moreover, HP's upper management is essentially unchanged since before the merger. Chief Executive Carly Fiorina still runs HP, and the HP executives who were in charge of the tech services and printer units before the Compaq merger remain in those roles.
The bottom line is that HP continues to face the same questions over growth and the relative value that such growth brings beyond its printing business. As of the close of trading yesterday, HP's stock price was $19.78, just slightly ahead of its closing price of $18.22 on May 6, 2002, the day on which the Compaq merger was consummated.
That doesn't please money managers, according to the WSJ article:
"At the end of the day, you're still left with a company that has a great printing franchise but is struggling to sustain profitability in its other businesses," says Marty Shagrin, an analyst at money-management firm Victory Capital Management. "Our analysis of HP's business today isn't meaningfully different from two years ago."
HP contends that it is less dependent on printer revenue and profit and has become a more well-rounded company. Revenue from the printing unit accounted for 31% of H-P's overall revenue in fiscal 2003, down from 43% in fiscal 2001. Although the printing unit made 79% of total profits in fiscal 2003, that percentage was down from 100% in fiscal 2001. Accordingly, HP maintains that trend is good, and is likely to continue.
On the other hand, some analysts argue that HP has simply diluted the profitability of its printer unit by spending on its PC and corporate computing business. One analyst in the WSJ article calculated that a pre-merger HP would have generated earnings of $1.59 a share in fiscal 2003 from its printing unit alone, while HP's actual earnings were $1.16 a share that year. Indeed, HP's printer business alone is valued at $21 a share, which means the market assigns almost no value to HP's other businesses. Accordingly, the WSJ quotes one sage as observing "HP paid $19 billion for the privilege of hardly making any money in some of these other businesses."
H'mm. As Professor Ribstein might observe, was the Compaq acquisition price so high that it took a near-delusional synergy theory for HP management to justify it?
May 6, 2004
Lea Fastow's plea bargain with the Enron Task Force was approved today, and U.S. District Judge David Hittner sentenced her to a year in the slammer. Mrs. Fastow plea guilty to a misdemeanor charge of income tax evasion.
The Task Force prosecutors, who have become quite chummy with the Fastows since former Enron CFO Andrew Fastow, cut a deal to testify against other former executives at Enron, recommended that Mrs. Fastow's sentence be five months. Judge Hittner, who I believe has never been pleased that the Task Force brought a marginal criminal case against a wife to put pressure on her husband, overruled prosecutors' recommendation
Judge Hittner criticized prosecutors for vascillating between an original indictment of six felonies and a final charge of just one misdemeanor, suggesting that justice may not have been served in either instance. "Such maneuvering as is present in this case might be seen as a blatant manipulation of the justice system," Judge Hittner said on the record.
The first Enron-related criminal case actually to go to trial since the Arthur Andersen prosecution in early 2002 is coming up in early June. That is the case that is known as the Nigerian Barge case, which is discussed in more detail here.
Please excuse the light blogging this week. I have been working on a big project, so not much time for the old blog.
But even light blogging cannot stop the Stros, who won their sixth of seven games on the just concluded homestand by beating the Pirates 5-2 on a getaway day afternoon game at the Juice Box. Wade Miller scattered 6 hits over 7 and a third innings and didn't walk anyone, which is a key to for him to do well. Bags and Morgan Ensberg had the key hits for the Stros, who are now 18-10, in first place in the NL Central, and tied with Anaheim for the best record in MLB right now.
That may not last long, though. Tim Redding, who has wavered between mediocre and awful in four starts this season, gets the nod again tomorrow in the first game of a weekend series with the Braves in Atlanta. Roy O and Andy Pettitte are scheduled to pitch the weekend games for the Stros.
The Rocket won his sixth straight game of the season as the Astros beat the Pirates 6-2 in the second game of their three game series. Jeff Kent was the hitting star with a dinger and a triple, while Morgan Ensberg climbed out of Jimy Williams' doghouse long enough to pick up a couple of hits and RBI's.
Clemens struggled a bit in this outing (, but he is so ornery that it doesn't seem to matter much. Clemens moved into second place on the career strikeouts list behind fellow Houston area native Nolan Ryan when he struck out Raul Mondesi swinging in the fifth inning to pass Steve Carlton with No. 4,137 career K's. Clemens finished the night with nine strikeouts to run his career total to 4,140.
The Stros go for the sweep on a Thursday afternoon businessman's special before leaving town for a quick three game roadie in Atlanta over the weekend.
Wade Miller will start for the Astros.
May 5, 2004
This Chronicle story reports that former Dynegy executive Jamie Olis has been ordered to begin serving his 24-year prison sentence on May 20th for participating in an accounting scheme to disguise a $300 million loan as cash flow for Dynegy.
U.S. District Judge Sim Lake late Tuesday ordered Mr. Olis, 38 -- who is married and the father of an eight month old and a soon-to-born child -- to surrender May 20 at the minimum-security federal prison in Bastrop, Texas, which is just southeast of Austin.
Mr. Olis' former Dynegy boss, Gene Shannon Foster, and former in-house accountant Helen Christine Sharkey pleaded guilty to a single count of conspiracy in connection with the same scheme for which Mr. Olis was convicted. They face no more than five years in prison and are scheduled to be sentenced in August.
During Mr. Olis' trial, Mr. Foster testified that Sharkey, Olis, and he were among seven Dynegy employees and two outside attorneys who crafted the Project Alpha deal in April 2001 to meet financial expectations and reduce Dynegy's taxes. None of those who Foster named -- including former Dynegy finance chief Rob Doty -- have been charged.
The SEC and the Enron Criminal Task Force are preparing to bring civil and criminal charges -- along with a plea bargain and a settlement -- against Paula Rieker, the former corporate secretary and investor-relations executive of Enron Corp.
Government investigators consider Ms. Rieker to be a potentially strong witness against former Enron CEO Jeffrey Skilling and former Enron chief accountant, Richard Causey. Given her senior positions at Enron, she also could be helpful in the government's continuing criminal probe of former Enron Chairman Kenneth Lay. Government investigators are focusing on Mr. Lay's actions during the last six months of 2001 when questions began surfacing publicly about Enron's financial condition and practices.
Over two dozen individuals have been criminally charged in the Enron Task Force's investigation, but none of those individuals have taken a case to trial. Several have pleaded guilty to various charges and are cooperating with the continuing investigations. Among those cooperating is former Enron Chief Financial Officer Andrew Fastow, whose cooperation facilitated the indictments earlier this year of Messrs. Skilling and Causey.
The first Enron-related criminal trial -- the one known as the "Nigerian Barge case" involving several mid-level former Enron executives and former Merrill Lynch executives -- is currently scheduled to begin in early June in Houston before U.S. District Judge Ewing Werlein.
This NY Times article reports on the long brewing split into two firms of the large class action plaintiffs' firm, Milberg Weiss Bershad Hynes & Lerach. One of the firms will be led by William Lerach, based in San Diego, and will be called Lerach Coughlin Stoia & Robbins. The other firm will be led by Melvyn Weiss, based in New York, and will be called Milberg Weiss Bershad & Schulman.
Mr. Lerach s the lead counsel in the main investor multi-district securities lawsuit pending in Houston against Enron Corporation's banks and several former officers. Grizzled veterans of that type of litigation have speculated that Milberg Weiss split has been one of the main reasons behind the glacial progress in settlement negotations in Enron-related civil litigation.
This NY Times article reports on U.S. District Judge Thomas F. Hogan's order that KPMG turn over the names of its tax-shelter clients within 10 days pursuant to IRS summonses that were issued in 2002 (these matters take awhile to be worked out ;^)). KPMG is also the subject of a Justice Department investigation into the questionable tax shelters.
Judge Hogan's order also noted that that opinion letters that law firm Sidley Austin Brown & Wood wrote regarding the tax shelters "appear to be nothing more than an orchestrated extension of KPMG's marketing machine." Moreover, Judge Hogan observed regarding KPMG that "the court has lost confidence in KPMG's privilege log since it has been shown to be inaccurate, incomplete and even misleading regarding a very large percentage of the documents."
Earlier posts on KPMG's tax shelter woes may be reviewed here.
Holman Jenkins' WSJ ($) Business World column today examines of the blather that the owners of Google are trotting out to the public to promote their upcoming intial public offering. The entire column places the context of the Google IPO in the proper context of investing in such speculative endeavors, and the following are highlights of a few of Mr. Jenkins' insightful observations:
Google's founders don't want to go public, their company doesn't need the money, but they're going public anyway. Why? To create a "liquidity event," an opportunity for the founders, employees and venture investors to cash out some of the wealth they've been working for.
Being a sucker in somebody else's liquidity event, of course, is not the sort of invitation investors normally leap at. Yet that's the role IPO investors frequently volunteer themselves to play. In turn, Wall Street underwriters have traditionally seen their job as setting the IPO price low enough so those who ante up will be rewarded with first-day profits when the stock trades up -- not just as a bribe, but as a token of good faith.
Yes, this tradition got out of hand in the Internet bubble, when new companies tripled or quadrupled in the first day. Bankers can hardly be faulted for pricing an IPO at a level reasonably related to a company's earnings and prospects. Blame investors: They're the ones who behaved strangely. Nor does Google solve this problem with its much-touted auction plan, which on closer inspection is somewhat faux. The company will indeed solicit bids over the Internet but reserves the right to set a final price by the visible hand of its owners and bankers. How come? Google and its bankers fear big institutional money will stay away unless assured of a first-day pop.
And what about that dual stock provision that gives Google's current owners' IPO shares ten times the voting power of an ordinary share?
As the prospectus frankly states, the goal is to entrench insiders in control of the company. Cofounder Larry Page's celebrated Buffett-like letter is devoted mainly to explaining why this favor to himself is really in the interest of you, the potential shareholder:
"Because we'll be able to focus on the long term without worrying about short-term pressure from Wall Street." Moralizing about the long term versus the presumably disreputable and unvirtuous short term is mostly an evasion of real issues. The stock market is perfectly capable of taking a long view -- witness the share prices of firms that Google hopes to keep company with, such as Yahoo and Amazon, which enjoy huge valuations compared to current earnings precisely because the market is betting on long-term potential.
"We provide many unusual benefits for our employees, including meals free of charge, doctors and washing machines. . . . Expect us to add benefits rather than pare them down over time." The Googlers don't mention the $800 heated toilet seats. Investors will have to judge whether such bennies are genuine productivity builders -- or whether they count as "on-the-job consumption," one of the "private benefits of control" that academic economists traditionally regard as the motive for voting-power lockups. To translate, that's a nice way of saying insiders are living it up at shareholder's expense.
"Dual class structures have not harmed the share price of companies." If there's no cost, then why don't all companies avail themselves of the advantages Googlers see in the dual-share structure? In fact, a recent study by Harvard's Paul Gompers and Joy Isshi and Wharton's Andrew Metrick finds that such companies have reduced share valuations, and invest less in R&D and advertising. The authors conclude with the suspicion that a "misalignment of incentives leads dual-class firms to invest too little, leading to lower sales growth and valuations."
We aim to "make the world a better place" and fulfill the company motto "don't be evil." Nobody fails to couch his or her motives in the higher good.
So, Mr. Jenkins urges investors who are assessing the Google IPO to look past the Google blather and focus on the owners' motive in establishing a structure to retain control. However, Mr. Jenkins concludes with this salient point:
Google is owned by its owners, and they have every right to offer an interest to the public on whatever terms suit them. Fifteen years ago, a court tossed out an SEC attempt to ban dual-share issues, and quite properly, because there's no compelling public interest to justify such interference in the property rights of company owners.
May 4, 2004
The Stros got back on the winning track Monday night as they edged the Pittsburgh Pirates at the Juice Box, 4-3. Andy Pettitte worked five reasonably effective innings (1 run, 2 hits, 2 walks) in his second outing since coming off the DL, and Brad Lidge bailed out fellow reliever Dan Miceli, who had his second straight shaky relief outing. Jeff Kent cranked a two run shot to put the game away, and Bidg hit another lead off home run. Also noteworthy was Adam Everett's sparkling defensive plays, one of which saved a run.
The Rocket goes for his sixth in a row on Wednesday night in the second game of the series, which concludes with a businessman's special on Thursday afternoon at 1 p.m. The Stros go to Atlanta for a three game series with the Braves this weekend.
John E. O'Neill is a longtime Houston attorney with the firm the local litigation boutique, Clements, O'Neill, Pierce, Wilson and Fulkerson and a leading Swift Boat Veteran. In this Wall Street Journal ($) op-ed, O'Neill lays the wood to John Kerry's judgment regarding his actions after returning from the Vietnam War. O'Neill replaced Kerry as the skipper of the six-man boat, the PCF-94 and, like Kerry, is a decorated veteran of the Vietnam War. The entire op-ed should be read, but here are a few highlights:
Despite our shared experience, I still believe what I believed 33 years ago -- that John Kerry slandered America's military by inventing or repeating grossly exaggerated claims of atrocities and war crimes in order to advance his own political career as an antiwar activist. His misrepresentations played a significant role in creating the negative and false image of Vietnam vets that has persisted for over three decades. * * * John Kennedy's book, "Profiles in Courage," and Dwight Eisenhower's "Crusade in Europe" inspired generations. Not so John Kerry, who has suppressed his book, "The New Soldier," prohibiting its reprinting. There is a clear reason for this. The book repeats John Kerry's insults to the American military, beginning with its front-cover image of the American flag being carried upside down by a band of bearded renegades in uniform -- a clear slap at the brave Marines in their combat gear who raised our flag at Iwo Jima. Allow me the reprint rights to your book, Sen. Kerry, and I will make sure copies of "The New Soldier" are available in bookstores throughout America.
And why should Mr. Kerry's Vietnam experience matter today? Mr. O'Neill responds:
Since the days of the Roman Empire, the concept of military loyalty up and down the chain of command has been indispensable. The commander's loyalty to the troops is the price a commander pays for the loyalty of the troops in return. How can a man be commander in chief who for over 30 years has accused his "Band of Brothers," as well as himself, of being war criminals? On a practical basis, John Kerry's breach of loyalty is a prescription of disaster for our armed forces.
John Kerry's recent admissions caused me to realize that I was most likely in Vietnam dodging enemy rockets on the very day he met in Paris with Madame Binh, the representative of the Viet Cong to the Paris Peace Conference. John Kerry returned to the U.S. to become a national spokesperson for the Vietnam Veterans Against the War, a radical fringe of the antiwar movement, an organization set upon propagating the myth of war crimes through demonstrably false assertions. Who was the last American POW to die languishing in a North Vietnamese prison forced to listen to the recorded voice of John Kerry disgracing their service by his dishonest testimony before the Senate?
Mr. O'Neill -- who, like me, is politically independent -- closes with why he is coming forward now:
Since 1971, I have refused many offers from John Kerry's political opponents to speak out against him. My reluctance to become involved once again in politics is outweighed now by my profound conviction that John Kerry is simply not fit to be America's commander in chief. Nobody has recruited me to come forward. My decision is the inevitable result of my own personal beliefs and life experience.
Today, America is engaged in a new war, against the militant Islamist terrorists who attacked us on our own soil. Reasonable people may differ about how best to proceed, but I'm sure of one thing -- John Kerry is the wrong man to put in charge.
Probably because I did not serve in the Vietnam War, I am more sympathetic to Mr. Kerry's explanation that his anti-American post-Vietnam activities were largely the product of youthful indiscretion. However, public skepticism of Mr. Kerry's ability to lead the U.S. military remains a huge problem for him in the upcoming Presidential campaign. Mr. Kerry's record as a politician on that issue is clearly more revealing than his youthful indiscretions, but frankly -- unlike President Bush -- his political stances on military issues have generally reinforced the public's impression that Mr. Kerry is not a strong supporter of the U.S. military forces. Unless Mr. Kerry and the Democrats can change that public perception, my sense is that Mr. Kerry will not be able to beat President Bush in what appears to be stacking up as a very close race.
Roy O's buzzard's luck continues as two late Reds homes runs off of usually money relievers Brad Lidge and Octavio Dotel allowed the Reds to pull out the final game of the four game series, 7-5. Oswalt was not sharp (he walked four in six innings, which is highly unusual for him), but battled gamely and was poised to leave the game with only giving up two runs when Mike Lamb booted a sure double play ball. That led to a two run double that gave the Reds a 4-2 lead. The Stros battled back to take a 5-4 lead in the bottom of the inning to give Roy O the chance for the win, but then Lidge and Dotel served up their gopher balls to the eminently forgettable D'Angelo Jimenez and Javier Valentin in the 7th and 8th innings that allowed the Reds to pull it out.
May 3, 2004
This NY Times article reports that Frank P. Quattrone, a former prominent Credit Suisse First Boston banker, was found guilty today of obstructing federal investigations into stock offerings at Credit Suisse. The jury deliberated for two days before returning the verdict.
This Chronicle article reports that an independent law firm report on El Paso Corp's restatement of reserves earlier this year concludes that El Paso employees provided estimates of proven oil and gas reserves that "they knew or should have known were incorrect at the time they were reported." Haynes and Boone's report also found El Paso employees from 1999 through 2003 "used aggressive and at times unsupportable methods" to book proven gas and oil reserves. In February, El Paso announced that it was reducing its proven reserves estimates by 1.82 trillion cubic feet of natural gas equivalent, representing 35 percent of its reserves as of Jan. 1, 2003. As a result, the Securities and Exchange Commission is commenced an investigation into the reserve revision, and the El Paso board hired Haynes and Boone to conduct an investigation and report on the matter. Earlier posts may be reviewed here regarding the El Paso reserve overstatement.
May 2, 2004
The Astros continued to roll Sunday afternoon as they scored 3 runs in the bottom of the eighth -- spiced by a Brad Ausmus squeeze bunt that plated Lance Berkman with the go ahead run -- to beat the Cincinnati Reds for the third straight day, 6-5. The suicide squeeze play was preceded by Mike Lamb's key bases loaded single that scored two runs to tie the game as the Stros clawed back from an early 4-0 deficit, which was the result of yet another ineffective Tim Redding outing (3 innings, 4 runs, 5 hits, 2 walks). Redding appears to be headed for either the bullpen or AAA New Orleans for awhile until he works out his problems, which appear to be control-related.
The Stros are now 15-9 and lead the NL Central by a game over the Cubs. Roy O hopes that the Stros are ready to provide more than the five total runs that he has received in his last three outings as he takes the hill on Monday evening in the finale of the four game series against the Reds. The Pirates come to town on Tuesday for a three game set before the Stros visit Atlanta for a three game series with the Braves over next weekend.
This Chronicle story does a nice job reporting on Dr. Billy Cohn, one of newer wave of cardiovascular surgeons who are fulfilling the legacy of great heart surgeons at Houston's famed Texas Medical Center that Drs. Michael DeBakey and Denton Cooley began.
Dr. Cohn, 43, has already improved the relatively new method of operating on a heart that is still beating by inventing a cardiac stabilizer that secures the part of the organ that needs surgical attention while the rest of the heart continues to pump blood. Moreover, Dr. Cohn is one of the leaders in a movement within cardiovascular surgery that is attempting to make heart surgery less costly and burdensome to the patient. Eventually, this movement among heart surgeons believes that open-heart surgery will be done without cutting into a patient's chest.
Dr. Cohn grew up in Houston, attended Memorial High School, and has recently returned to Houston from Boston to practice at St. Luke's Episcopal Hospital and the Texas Heart Institute. The entire article is well worth reading and provides a good summary of developments in heart surgery in the Medical Center.
As an aside, whenever I see an article about a doctor such as this one, I cannot help but recall noted medical academician Dr. Walter M. Kirkendall's (my late father) standard observation about such articles:
One of Houston's oldest and largest annual conventions -- the Offshore Technology Conference -- begins on Monday at Reliant Park. This is the 35th straight year that the conference has been held in Houston. Over 50,000 engineers and industry executives will descend upon Houston this week. More than 2,000 exhibitors from 27 countries will fill nearly 400,000 square feet of space at Reliant Center.
Although the size of the conference has varied through the years as a reflection of the state of the offshore oil and gas business, the conference is again in an upward mode as offshore oil production now accounts for about 30 percent of domestic production, and industry estimates predict that to increase to around 40 percent by the end of the decade.
May 1, 2004
Jeff Kent, Bigd, Richard Hidalgo and Bags were the big run producers as the Astros beat the Reds in the second game of their four game series, 10-4. Wade Miller struggled through six innings, but the Reds were never able to take advantage of Miller's wildness to put together a really big inning, and the reliable Stros bullpen limited the Reds to one run in the last three innings to secure the win.
Tim Redding, who has not pitched and probably has beein in therapy since being belted for 9 hits and 8 runs in three innings against the Cards on April 21, will be a highly motivated pitcher for the Stros in the Sunday afternoon game of the series. Cory Lidle will likely start for the Reds.
The Stros are now 14-9, tied with the Cubs for the NL Central lead, and are among the five teams with the best record in MLB right now.
Princeton University Professor Emeritus Bernard Lewis is America's foremost expert on Middle East history and the author of "What Went Wrong: The Clash Between Islam and Modernity in the Middle East" and the new "From Babel to Dragomans: Interpreting the Middle East." This Atlantic Monthly Online interview provides Dr. Lewis' current insights into Middle Eastern affairs and America's role in that region. The entire interview is well worth reading, and these following observations on the effect of the growth of the strong centralized state in Middle Eastern societies is an example:
In a 1957 lecture about tensions in the Middle East you said that Westernization, in spite of its benefits, was the chief cause "of the political and social formlessness, instability and irresponsibility that bedevils public life of the Middle East." I wonder, as you were writing nearly a half century ago, which particular aspects of Westernization you were referring to?
First of all, let me say what I mean by Westernization. This process was not mainly imposed by Western imperial rulers, who tend to be very cautious and conservative, tampering as little as possible with the existing institutions. It was done by reformers in the independent Middle Eastern countries. Enthusiastic reformers who recognized the success and power of the Western world and wanted to get the same for their own people?a very natural and very laudable ambition. But often with the very best of intentions, they achieved appalling results.
What I had in mind in particular was two things, both tending in the same direction. In the old order, the traditional Islamic Middle Eastern society was certainly authoritarian, but it was not despotic or dictatorial. It was a limited autocracy in which the power of the ruler, the Sultan or the Shah or the Pasha, whoever he might be, was limited both in theory and in practice. It was limited in theory by the Holy Law?the Divine Law to which the ruler was subject no less than the meanest of his slaves. It was also limited in practice by the existence of strong entrenched interests in society. You had the merchants of the bazaar, powerful guilds. You had the country gentry. You have the bureaucratic establishment, the military establishment, and the religious establishment. Each of these groups produced their own leaders?leaders who were not appointed by the State, who were not paid by the State, and who were not answerable to the State. These, therefore, formed a very important constraint on the autocracy of government.
Then came the process of modernization or Westernization, which for practical purposes are the same thing. It enormously increased the power of the central government by placing at its disposal the whole modern apparatus of surveillance and control: first the telegraph, later the telephone; the possibility of moving troops quickly, first by train then by truck or by plane. So the central government was able to assert itself and enforce its will even in remote provinces in a way that was inconceivable in earlier times. The effect of this was to weaken or even eliminate those intermediate powers that limited the autocracy of government.
When people look at the kind of regime that was operated by Saddam Hussein and say, "Well, that's how they are, that's their way of doing things," it is simply not true. I mean, that kind of dictatorship has no roots in either the Arab or the Islamic past. It, unfortunately, is the consequence of Westernization or modernization in the Middle East.
And what about the currently popular speculation that representative government simply may not work in Middle Eastern societies?:
Well, there are certain elements in Islamic law and tradition which I think are conducive to democracy. The idea that government is contractual and consensual, for one thing. According to the Islamic Treatise on Holy Law, the ruler comes to power by an agreement between the ruler and his subjects. This is bilateral. Both sides have obligations. It is also limited. The ruler rules under the Holy Law, which he cannot change and which he must obey. So these two elements, I think, of consent and contract, also have the element of limitation, and can be very conducive to the development of democratic institutions. There is also a deeply rooted rejection in traditional Islamic writing of despotism or dictatorship, of the capricious rule of the ruler without due regard to the law and to the opinion of the various groups in society.
And finally, is Dr. Lewis optimistic about Iraq?:
I'm cautiously optimistic about what's happening in Iraq. What bothers me is what's happening here in the United States.
Do you mean the controversy over the occupation? The pressure to pull out?
Yes, because the message that this is sending to people in that region is that the Americans are frightened, they want to get out. They'll abandon us the same as they did in '91. And you know what happened in '91.
Victor Davis Hanson's latest at NRO is typically perceptive and summed up by his conclusion:
Finally, this is not just a struggle to defeat the Islamic fundamentalists, but to establish the principle that the United States in a moment of its greatest success, material wealth, and power can still make terrible sacrifices that throughout the ages have always been the cost for the freedom and security of its citizens and friends abroad. What Osama bin Laden, and those who actively support him, have started, we in the United States most surely will finish.
Read the entire article. Dr. Hanson is the epitome of a clear thinker.