Houston's Clear Thinkers

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August 31, 2004

The Enron noose tightens

The Government's noose around neck of Jeffrey Skilling and Kenneth Lay got a bit tighter today as Kevin P. Hannon, former chief operating officer of Enron Corp.'s heavily promoted telecommunications unit, became the latest former Enron executive to plead guilty to criminal charges.

Mr. Hannon, 44, pled in U.S. District Court in Houston to one count of conspiracy to commit securities and wire fraud, and agreed in the plea bargain to cooperate with the Enron Task Force's continuing criminal investigation and prosecution of other former Enron executives. One of those undoubtedly will be Mr. Skilling, who was heavily involved in the promotion of Enron's telecommunications unit. The deal also provides that Mr. Hannon faces up to five years in prison, the payment of $3.2 million in forfeitures and penalties, and the settlement of a related SEC civil suit.

In the late 1990s, Enron's top executives touted Enron Broadband as one of the company's best growth opportunities. Enthusiasm among investors for the broadband operation helped increase Enron's stock price despite the fact that the unit never came close to meeting either company or market expectations.

As part of his plea agreement, Mr. Hannon admitted that he overstated Enron Broadband's accomplishments. In particular, during a January 2001 conference with securities analysts, Mr. Hannon admitted in the plea bargain that he took part in a presentation that "was intentionally misleading and falsely portrayed the company as a commercial and business success. I conspired with other Enron employees to achieve this improper purpose."

Meanwhile, the beginning of the trial of the Nigerian Barge case is now less than three weeks away.

Posted by Tom at 10:07 PM | Comments (0) | TrackBack (0)

Don't pinch the Stros, they might wake up

Brandon Backe hurled six shutout innings in only his third start as a starting pitcher and JK pummeled to yaks as the red hot Stros blasted the Reds in Cincy at the Great American Ballpark, 8-0.

The win was the Stros' fifth straight and 13th in their last 17 games. Incredibly, the win brought the Stros within three games of the Cubs, who are currently in the lead for the National League Wild Card playoff spot. What a run!

Backe gave up only three hits in his six frames as he continues his unlikely journey from backend reliever to a potential fourth or fifth starter. Stros relievers Chad Qualls, Mike Gallo and Dan Wheeler allowed a combined three hits over the final three innings to secure the Stros' 11th shutout of the season.

In addition to JK's two crank jobs, Beltran, Bags and Berkman had some fun in the fifth when they hammered back-to-back-to-back taters. The Reds pitching is so bad that even that uprising did not prompt the removal of starter Aaron Harang.

The Stros have a good chance of keeping it going in tomorrow's Businessman's Special as Roy O goes for his 16th win against Paul Wilson (9-4), who is the Reds' best starter. After a well-deserved off day on Thursday, the Stros and the Rocket start a weekender with the Pirates at the Juice Box on Friday night.

Posted by Tom at 9:47 PM | Comments (0) | TrackBack (0)

Merck reels from Zocor study

This Wall Street Journal ($) article reports on the reaction of pharmaceuticals giant Merck & Co. to the disappointing study involving Zocor, its top-selling cholesterol drug.

The study found that high doses of the drug did not benefit patients at high risk of a heart attack compared with both placebo and less-aggressive Zocor treatment. Researchers presented the 4,500-patient Zocor study at the annual meeting of the European Society of Cardiology in Munich, Germany, and it also was published online by the Journal of the American Medical Association.

Even before this news, Merck had been losing in the competition with Pfizer's Lipitor, which is the world's biggest-selling statin drug with sales of $9.2 billion in 2003. A clinical trial reported earlier this year that Lipitor was was much better than another statin -- Bristol-Myers Squibb Co.'s Pravachol -- at reducing the risk of death, heart attack or other serious complications within two years of treatment. Here is an earlier post on that study.

The 4,500-patient study tested an aggressive cholesterol-lowering strategy compared with a moderate approach for patients hospitalized with severe unstable chest pain. The aggressive treatment was 40 milligrams of Zocor for a month followed by 80 milligrams for the next 23 months. The moderate approach was four months of a placebo followed by 20 milligrams of Zocor.

In the earlier Lipitor/Pravachol study, Lipitor at a dose of 80 milligrams proved significantly more effective in reducing LDL and the risk of serious heart problems than Pravachol at 40 milligrams. The benefit for Lipitor was evident within 30 days of starting the drug and the study was an important reason why cardiology experts are now recommending that doctors consider aggressive therapy with statins to enable patients at very high risk of a heart attack to reduce their levels of LDL to below 70. Previously, the target for such patients was below 100.

Cardiologists expected aggressive treatment with Zocor to reflect the Lipitor findings, especially because the control group was treated with a placebo during the first four months of the two-year trial. But even though their LDL levels fell to 62, aggressively treated patients at the end of four months had no difference in heart attacks, death from heart attacks, or strokes for heart problems than patients on placebo whose LDL was twice as high. After two years, 14.4% patients on aggressive therapy had suffered negative outcomes compared with 16.7% on the moderate regimen, but the difference was not considered statistically significant.

Posted by Tom at 5:53 AM | Comments (0) | TrackBack (0)

August 30, 2004

Red hot Stros dust off Reds

Lance Berkman cranked two yaks and a double and knocked in four RBI's as the red hot Stros crushed the reeling Reds on Monday night in Cincy, 11-3. The Stros have now won four straight and 12 out of their last 16 games as they continue their push to get back in the National League Wild Card playoff race. The Stros trail the Cubs by 4.5 games for the Wild Card playoff berth.

Berkman's hitting was contagious on Monday night as light-hitting Brad Ausmus even pounded a three run tater. The Stros continued hammering the ball, ringing up 11 hits, including 3 homers and 4 doubles. Pete Munro got the win by giving up 3 runs on 8 hits in five innings and led the Stros AAA relief corps, which included long lost Russ Springer, who reappeared as a Stro this week seven years after his initial tenure with the club.

Brandon Backe hopes the Stros hitters keep their hitting clothes on Tuesday night as he takes the hill for the Stros in the second game of the series on Tuesday. Based on Backe's most recent performance in Chicago, the Stros will likely need every run they can generate.

Posted by Tom at 9:41 PM | Comments (0) | TrackBack (0)

Judge Posner on the 9/11 Commission Report

Richard A. Posner is a highly-regarded judge on the United States Court of Appeals for the Seventh Circuit, a senior lecturer at the University of Chicago Law School, a prolific author, and should be one of the leading candidates to become the next Justice of the U.S. Supreme Court (which probably means that he is not).

In this brilliant New York Times book review, Judge Posner reviews the 9/11 Commission's report and he is not particularly impressed, particularly with the Commission's recommendation for centralizing intelligence gathering:

[T]the commission's analysis and recommendations are unimpressive. . . Much more troublesome are the inclusion in the report of recommendations (rather than just investigative findings) and the commissioners' misplaced, though successful, quest for unanimity. Combining an investigation of the attacks with proposals for preventing future attacks is the same mistake as combining intelligence with policy. The way a problem is described is bound to influence the choice of how to solve it. The commission's contention that our intelligence structure is unsound predisposed it to blame the structure for the failure to prevent the 9/11 attacks, whether it did or not. And pressure for unanimity encourages just the kind of herd thinking now being blamed for that other recent intelligence failure -- the belief that Saddam Hussein possessed weapons of mass destruction.

At least the commission was consistent. It believes in centralizing intelligence, and people who prefer centralized, pyramidal governance structures to diversity and competition deprecate dissent. But insistence on unanimity, like central planning, deprives decision makers of a full range of alternatives. For all one knows, the price of unanimity was adopting recommendations that were the second choice of many of the commission's members or were consequences of horse trading. The premium placed on unanimity undermines the commission's conclusion that everybody in sight was to blame for the failure to prevent the 9/11 attacks. Given its political composition (and it is evident from the questioning of witnesses by the members that they had not forgotten which political party they belong to), the commission could not have achieved unanimity without apportioning equal blame to the Clinton and Bush administrations, whatever the members actually believe.

As an appellate jurist, Judge Posner is well-prepared to identify the flaw in the 9/11 Commission's presentation -- a fundamentally flawed premise:

The tale of how we were surprised by the 9/11 attacks is a product of hindsight; it could not be otherwise. And with the aid of hindsight it is easy to identify missed opportunities (though fewer than had been suspected) to have prevented the attacks, and tempting to leap from that observation to the conclusion that the failure to prevent them was the result not of bad luck, the enemy's skill and ingenuity or the difficulty of defending against suicide attacks or protecting an almost infinite array of potential targets, but of systemic failures in the nation's intelligence and security apparatus that can be corrected by changing the apparatus.

That is the leap the commission makes, and it is not sustained by the report's narrative. The narrative points to something different, banal and deeply disturbing: that it is almost impossible to take effective action to prevent something that hasn't occurred previously. Once the 9/11 attacks did occur, measures were taken that have reduced the likelihood of a recurrence. But before the attacks, it was psychologically and politically impossible to take those measures. The government knew that Al Qaeda had attacked United States facilities and would do so again. But the idea that it would do so by infiltrating operatives into this country to learn to fly commercial aircraft and then crash such aircraft into buildings was so grotesque that anyone who had proposed that we take costly measures to prevent such an event would have been considered a candidate for commitment.

The problem isn't just that people find it extraordinarily difficult to take novel risks seriously; it is also that there is no way the government can survey the entire range of possible disasters and act to prevent each and every one of them. As the commission observes, ''Historically, decisive security action took place only after a disaster had occurred or a specific plot had been discovered.'' It has always been thus, and probably always will be. For example, as the report explains, the 1993 truck bombing of the World Trade Center led to extensive safety improvements that markedly reduced the toll from the 9/11 attacks; in other words, only to the slight extent that the 9/11 attacks had a precedent were significant defensive steps taken in advance.

Based on the 9/11 Commission's proposals, Judge Posner is skeptical that the foregoing pattern will change:

Anyone who thinks this pattern can be changed should read those 90 pages of analysis and recommendations that conclude the commission's report; they come to very little. Even the prose sags, as the reader is treated to a barrage of bromides: ''the American people are entitled to expect their government to do its very best,'' or ''we should reach out, listen to and work with other countries that can help'' and ''be generous and caring to our neighbors,'' or we should supply the Middle East with ''programs to bridge the digital divide and increase Internet access'' -- the last an ironic suggestion, given that encrypted e-mail is an effective medium of clandestine communication. The ''hearts and minds'' campaign urged by the commission is no more likely to succeed in the vast Muslim world today than its prototype was in South Vietnam in the 1960's.

The commission wants criteria to be developed for picking out which American cities are at greatest risk of terrorist attack, and defensive resources allocated accordingly -- this to prevent every city from claiming a proportional share of those resources when it is apparent that New York and Washington are most at risk. Not only do we lack the information needed to establish such criteria, but to make Washington and New York impregnable so that terrorists can blow up Los Angeles or, for that matter, Kalamazoo with impunity wouldn't do us any good.

The report states that the focus of our antiterrorist strategy should not be ''just 'terrorism,' some generic evil. This vagueness blurs the strategy. The catastrophic threat at this moment in history is more specific. It is the threat posed by Islamist terrorism.'' Is it? Who knows? The menace of bin Laden was not widely recognized until just a few years before the 9/11 attacks. For all anyone knows, a terrorist threat unrelated to Islam is brewing somewhere (maybe right here at home -- remember the Oklahoma City bombers and the Unabomber and the anthrax attack of October 2001) that, given the breathtakingly rapid advances in the technology of destruction, will a few years hence pose a greater danger than Islamic extremism. But if we listen to the 9/11 commission, we won't be looking out for it because we've been told that Islamist terrorism is the thing to concentrate on.

Illustrating the psychological and political difficulty of taking novel threats seriously, the commission's recommendations are implicitly concerned with preventing a more or less exact replay of 9/11. Apart from a few sentences on the possibility of nuclear terrorism, and of threats to other modes of transportation besides airplanes, the broader range of potential threats, notably those of bioterrorism and cyberterrorism, is ignored.

And Judge Posner is singularly unimpressed with the Commission's foremost recommendation -- the appointment of a new intelligence agency "czar:"

The report's main proposal -- the one that has received the most emphasis from the commissioners and has already been endorsed in some version by both presidential candidates -- is for the appointment of a national intelligence director who would knock heads together in an effort to overcome the reluctance of the various intelligence agencies to share information.

The commission thinks the reason the bits of information that might have been assembled into a mosaic spelling 9/11 never came together in one place is that no one person was in charge of intelligence. That is not the reason. The reason or, rather, the reasons are, first, that the volume of information is so vast that even with the continued rapid advances in data processing it cannot be collected, stored, retrieved and analyzed in a single database or even network of linked databases. Second, legitimate security concerns limit the degree to which confidential information can safely be shared, especially given the ever-present threat of moles like the infamous Aldrich Ames. And third, the different intelligence services and the subunits of each service tend, because information is power, to hoard it. Efforts to centralize the intelligence function are likely to lengthen the time it takes for intelligence analyses to reach the president, reduce diversity and competition in the gathering and analysis of intelligence data, limit the number of threats given serious consideration and deprive the president of a range of alternative interpretations of ambiguous and incomplete data -- and intelligence data will usually be ambiguous and incomplete.

What is true is that 15 agencies engaged in intelligence activities require coordination, notably in budgetary allocations, to make sure that all bases are covered. Since the Defense Department accounts for more than 80 percent of the nation's overall intelligence budget, the C.I.A., with its relatively small budget (12 percent of the total), cannot be expected to control the entire national intelligence budget. But to layer another official on top of the director of central intelligence, one who would be in a constant turf war with the secretary of defense, is not an appealing solution. Since all executive power emanates from the White House, the national security adviser and his or her staff should be able to do the necessary coordinating of the intelligence agencies. That is the traditional pattern, and it is unlikely to be bettered by a radically new table of organization.

Judge Posner concludes by noting the normal American reaction to an attack, and notes that wide-ranging reforms in response to such reactions are ill-advised:

So the report ends on a flat note. But one can sympathize with the commission's problem. To conclude after a protracted, expensive and much ballyhooed investigation that there is really rather little that can be done to reduce the likelihood of future terrorist attacks beyond what is being done already, at least if the focus is on the sort of terrorist attacks that have occurred in the past rather than on the newer threats of bioterrorism and cyberterrorism, would be a real downer -- even a tad un-American. Americans are not fatalists. When a person dies at the age of 95, his family is apt to ascribe his death to a medical failure. When the nation experiences a surprise attack, our instinctive reaction is not that we were surprised by a clever adversary but that we had the wrong strategies or structure and let's change them and then we'll be safe. Actually, the strategies and structure weren't so bad; they've been improved; further improvements are likely to have only a marginal effect; and greater dangers may be gathering of which we are unaware and haven't a clue as to how to prevent.

Read the entire review. Judge Posner is an unusally clear thinker, and his analysis of the 9/11 Commission's recommendations is far more insightful than the recommendations themselves.

By the way, Judge Posner is guest blogging over at Larry Lessig's blog, and here is his blog post on his NY Times review of the 9/11 Commission.

Posted by Tom at 6:30 AM | Comments (0) | TrackBack (1)

August 29, 2004

Thank you, Michael Barrett

What a difference a week makes.

Last Sunday, Roy O nailed Michael Barrett and the Cubs pounded the Stros so badly that I wrote off the Stros playoff chances completely. Just to make sure, the Cubs pounded a listless Stros team again this past Thursday. The Stros appeared washed up.

Then, the Cubs' Barrett confronted Oswalt in the batters' box in the second inning of Friday's game and, almost magically, the fortunes of these two clubs changed. The Stros were galvanized, and started cranking against any Cubs pitcher who took the mound. On the other hand, the Cubs began pitching and playing tentatively, and before you know it, the Stros had scored 32 runs in the final three game of the series, won them all, and now find themselves four games out of the Wild Card playoff spot with 32 games to go.

I don't think the Stros can win the Wild Card, but I did underestimate the pluckiness of this club. They will not go down meekly. They have now won 11 of their last 14 games.

Lance Berkman homered and Carlos Hernandez earned his first major league win in almost two years in leading the Stros to a 10-3 win over the Cuts at Wrigley on Sunday afternoon in the final meeting of the two clubs' chippy season series. Jeff Bagwell capped a big weekend with three hits for the Stros as he went 10-for-18 with seven RBI in the four game series.

As was typical of the last five games between the clubs, getting hit by pitches was a big part of the game. Carlos Beltran left with a bruised knee after he was hit by a pitch in the eighth inning and is day-to-day. Later in the inning, Berkman was plunked in the helmet by Cubs' reliever Mike Remlinger. Berkman went to the ground and stayed down for several minutes.

Incredibly, Remlinger and some of the idiot Cubs believe Berkman was pulling a stunt. Accordingly, in one of the more classless displays that I have seen in quite some time, a good part of the Cubs crowd actually booed Berkman when he came to the plate again in the ninth!

The Stros proceeded to score five times in the eighth inning to add to its 5-3 lead and put this one away for Hernandez, who was making his fourth start after coming up from AAA New Orleans, Hernandez allowed three runs and six hits in 5 2/3 innings.

The benches emptied for the second time in the four-game series and the third time in a week when new Stros reliever Dan Wheeler (just acquired from the Mets) hit Derrek Lee in the back with a pitch in the ninth (what did the Cubs expect after the Beltran and Berkman beanings?). Wheeler and Garner were ejected and Remlinger and JK jawed with each other colorfully, but no punches were thrown.

The Stros are now off to Cincy to face the Reds, who have the worst pitching staff in Major League Baseball. So, it is time for the Stros to pad their hitting statistics, particularly given that Pete Munro and Brandon Backe are doubtful to keep the hard-hitting Reds' lineup from scoring quite a few runs in the first two games of the series. After three games in Cincy and an off day on Thursday, the Stros return to the Juice Box for a weekend series with the Pirates and three more next week with the Reds.

Posted by Tom at 8:56 PM | Comments (0) | TrackBack (0)

Rice University -- excellent but underachieving?

University of Texas Law Professor Brian Leiter posts this excellent summary analysis of Houston's Rice University, in which he notes Rice's relative excellence in comparison to its even greater potential. Based on Professor Leiter's insight, new Rice president David Leebron would be smart to retain him as a consultant.

My late father, who was an esteemed professor of medicine for years at the University of Texas Medical School in Houston's famed Texas Medical Center, thought that Rice -- which is located adjacent to the Medical Center -- had always underdeveloped the research opportunities and resources that the Rice faculty could tap within the Medical Center. He observed that Rice's failure to seize this opportunity allowed the University of Texas to step into the breach in the late 1960's and establish the second research institution (to Baylor College of Medicine) in the Medical Center. Even with UT's success in the Medical Center (particularly with the phenomenal M.D. Anderson Cancer Center), the Medical Center has now grown to such an extent that Rice could harvest much greater research opportunities there and become as integral a force in Medical Center research as UT and Baylor.

Posted by Tom at 2:01 PM | Comments (0) | TrackBack (0)

Taps for the Corps?

This Sunday Chronicle op-ed by Houstonian James A. Reynolds, III examines an important facet of Texas' indelible culture -- the Texas A&M Corps of Cadets -- and laments the high risk that the Corps will soon wither away at A&M:

The Corps of Cadets at Texas A&M University is dying.

This venerable organization, a prominent component of our state's first publicly funded institute of higher learning, is withering away. I believe it will be gone within 10 years, perhaps even less.

While our state's population and Texas A&M's enrollment are straining upward, accordingly propagating bringing across-the-board expansion for all academic programs, clubs, sports and other activities, the Corps as a whole simply is not following suit. The Corps is, rapidly and inevitably, perishing.

Mr. Reynolds then zeros in on why Corps enrollment is declining:

Compulsory military service after graduation is not a factor. A substantial number of Corps members have no military ambitions at all, and participate as drills and ceremonies cadets, with no armed forces obligation whatever. They merely want to be in the Corps.

The fundamental problem with attracting and retaining Corps members is the difficulty of one's freshman year in the Corps, the relatively harsh experience of being a "fish." First-year cadets begin as identical, powerless tiles in a self-contained societal mosaic composed of myriad artificial and onerous rules, requirements and traditions. . .

From the instant you step into the Corps, you relinquish your former self and become fish Jones or fish Reynolds or, as our own governor knows, fish Perry -- lacking even the privilege of capitalizing your first name.

Challenging enough when Texas A&M was a small, isolated cow college, the burdens of being a fish today are magnified among a student population dominated by non-regs, ordinary college kids dwelling in a carefree state of parent-funded utopia. The non-regs sleep and eat when the want, they stroll leisurely to classes, they wear shorts and sandals, they shave or don't, their lives are their own.

Not so for a Corps fish.

Last year at A&M with my old boss, watching cadets prepare to march on Kyle Field before a football game, we saw a dozen struggling, sweating Aggie Band fish double-timing by, each hauling two huge silver sousaphones to the assembly area.

"Look at these kids," he said. "This is miserable work, but they do it. Most college kids these days just aren't interested in doing this sort of thing. They look down on it. It's beneath them. Fact is, it's just too hard. They can do it, but they don't like difficult stuff, they hate discipline. They all want point-and-click, immediate gratification. They all want everything to be easy and effortless."

Which means fewer and fewer incoming Texas A&M University students want to be in the Corps.

Mr. Reynolds then describes the rigidly structured life of a "fish" in the Corps:

The fish must attend all Corps formations and functions. Their dorm rooms are austere, their uniforms plain but perfectly maintained, their privileges nonexistent. The fish must learn the names of all the upperclassmen in their dorms, employing an age-old introductory process, and greet them by name thereafter -- causing all shyness to vanish. Freshmen perform numerous duties in their units, from keeping the hallways clean to sounding whistle calls announcing meals and events.

They are constantly supervised by upperclassmen, especially dominated by sophomores who only recently were fish themselves -- and whose vigor for enforcing the rules is judiciously tempered by juniors and seniors. The relaxed lifestyle attained after completion of one's sophomore year allows unalloyed love for the Corps to blossom, along with deep appreciation for the fish experience. But the sophomores are relentless, intent upon ensuring that freshmen toe the line in all respects.

Like it or not, this is a form of hazing. It's not the horrendous sort of fraternity pranks and initiation rites that yield injurious humiliation -- though A&M, like every college, has known isolated occurrences of such -- but the infliction is systematic and constant.

For a fish, the Corps is a total-immersion endeavor -- every waking moment dictated by regimen, responsibilities and demands of the uniform. Everyone in the Corps, from the newest fish to the eldest senior, scoffs at the "hell week" concept used by fraternities, sororities and other college organizations. One little week of collegiate hell is literally laughable, compared to your fish year in the Corps.

So, what is the purpose? What is the value? Mr. Reynolds answers:

I have met numerous A&M former students who were not in the Corps, but declare they wish they had been. I have yet to encounter a single Corps graduate, male or female, who regretted the experience, who would have attended A&M as a non-reg.

An old boss of mine, a band member Class of '63, insisted the Corps literally saved his college career, with its upperclassman-enforced nightly study time on Sunday through Thursday. Overall, Corps grades are higher than the general student average.

Several years ago, a friend worried terribly about his son's decision to join the Corps. My friend fretted that his child -- on his own for the first time -- would be hazed miserably, tormented into scholastic failure, personal injury and permanent psychological scarring.

My friend was a normal parent: He feared sending his son to college without any sort of supervision. He was afraid of letting go.

A week after his son became a Corps fish, however, my friend was a changed man. His son had been taken into a family, a strict one to be certain, but this young new Aggie was anything but unsupervised.

Frank and his wife subsequently became enthusiastic Corps parents, dedicated Old Army supporters. Both wept proudly upon seeing their son wear senior boots, and they hoped their young daughter, too, would attend A&M and join the Corps.

I hope Mr. Reynolds is wrong, but I share his concern about the future of the Corps. It is a difficult to sell the long term benefits of sacrifice and hard work within a culture that worships instant gratification. If we Texans lose the Corps, then we will lose an important part of what defines our culture, and I submit that what replaces it to define our culture in the future is unlikely to have the salutary attributes of the Corps.

Posted by Tom at 12:59 PM | Comments (0) | TrackBack (0)

Sound advice on investing

This Washington Post (free online registration required) article profiles John Keeley, a former FDIC bank examiner who is now the manager of the $155 million Keeley Small Cap Value Fund, which is generating above-average returns by buying shares of U.S. companies that are emerging from bankruptcy or being restructured.

Keely's fund is up 8.5 percent this year, ranking it second of 146 small-cap value funds tracked by Bloomberg. Only the FBR Small Cap Value Fund recorded a bigger gain. Mr. Keeley, who opened his fund in 1993, holds shares of more than 110 companies and devotes no more than 2 percent of assets to any one stock. His family is the fund's largest shareholder, with about an 11 percent stake on June 30, including money invested for the college educations of Mr. Keeley's grandchildren.

While discussing his educational background in evaluating investments, Mr. Keeley passes along this sage advice:

"[T]the greatest education you can get is to get through a bear market."

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

August 28, 2004

Stros continue hot streak

The Stros won their 10th game in their last 13 as they edged the Cubs on a windy Saturday afternoon at Wrigley, 7-6.

You know things are going well when you score three runs on an infield grounder, and that's exactly what the Stros did in the second inning of this game. Bags nailed a bases loaded grounder to first in the second, Cubs pitcher Zambrano dropped the throw from Cubs first baseman Lee as one run scored and then Bidg sought to score another in the confusion. Cubs catcher Barrett dropped the throw from Zambrano allowing Bidg to score, and Beltran alertly came home with the third run when the ball got away from Barrett. Just like we used to do it in T-ball.

The Rocket got his 14th win as he battled in giving up 8 hits and 5 runs over his six innings. Lidge again was solid in securing the win, throwing 37 pitches over the last 1 2/3rd's innings. Bags had three hits and two RBI's, as he appears to have his game face on for the Cubs after becoming quite irritated with Barrett's behavior yesterday with Roy O over the Beanball Chronicles.

Carlos Hernandez tries to keep it going for the Stros tomorrow against Matt Clement. The Cubbies will be leaking some serious oil if the Stros take three out of four from them at Wrigley.

Posted by Tom at 10:46 PM | Comments (0) | TrackBack (0)

VDH on John Kerry's military service

This interesting Victor Davis Hanson column on John Kerry's military service is respectful and insightful, and Professor Hanson's conclusion is absolutely brilliant:

So I conclude with empathy for John Kerry, whom I appreciate as a veteran who served his country — even if I would not now vote for him. He should have been aware of the god Nemesis. Still, in a spirit of magnanimity and appreciation for his months on a boat in a very inhospitable landscape, Americans perhaps should remember the words of Pericles, as recorded by Thucydides shortly after the outbreak of the Peloponnesian War: "For there is justice in the claim that steadfastness in his country's battles should be as a cloak to cover a man's other imperfections; since the good action has blotted out the bad, and his merit as a citizen more than outweighed his demerits as an individual."

Posted by Tom at 12:29 PM | Comments (0) | TrackBack (0)

The silent supporter of the Texas GOP

This Austin American-Statesman (free online subscription required) article provides a profile on Bob Perry, the Houston-based homebuilder who has become the largest contributor to Texas Republican political candidates.

On one hand, Mr. Perry is reported to be an unassuming contributor:

At the state level, several office-holders said Perry never asks anything of them.

Patterson was the state senator for Perry's district before becoming land commissioner.

"In 20 years, he's never asked me for anything," Patterson said. "When I was in the Senate, there were issues he was interested in, but he never called up and said, 'Can you help me on this?' "

Agriculture Commissioner Susan Combs agrees.

"He doesn't lobby me," she said. "I lobby him. I know he has contacts."

She said she asked his advice on how to encourage home construction in rural areas. He also organized a meeting of Houston ministers in minority communities when she wanted to talk about schoolchildren's diets.

When Bob Deuell was running against a Democratic incumbent for a Dallas-area Senate seat, he got help from Perry before ever meeting him.

"I just started getting these checks from him," Deuell recalls. When Deuell phoned to thank Perry and ask for a meeting, Perry said there was no need. "I know who you are," Deuell remembers Perry telling him.

By Election Day, the checks totaled more than $250,000.

On the other hand, Mr. Perry has received some valuable business consideration for his hefty political contributions:

Perry got plenty for the $3.8 million he spent on the 2002 elections.

In 2003, a Republican-controlled Legislature curbed the ability of consumers to file lawsuits against businesses.

Krugh, the lawyer for Perry Homes, also helped write legislation that created the Texas Residential Construction Commission, a new state agency to create rules for dispute resolution between home builders and consumers. The governor then appointed Krugh to the nine-member commission.

Opponents see the new agency as a hurdle to consumers suing home builders; the builders defend it as a quicker, fairer way to resolve disputes.

"Bob Perry was highly rewarded with his own state agency," said Rep. Garnet Coleman, D-Houston. "In Texas you can buy your own state agency, then regulate yourself."

Doesn't Governor Perry and the Texas Republican Party stand for less governmental regulation? Or is it that they stand for less governmental regulation except in those cases where more regulation will benefit their largest contributor?

Posted by Tom at 8:22 AM | Comments (0) | TrackBack (0)

August 27, 2004

kenlayinfo.com

It was only a matter of time.

Posted by Tom at 9:21 PM | Comments (2) | TrackBack (0)

This is the way it was supposed to be

For one afternoon, the Stros shook off the weight of a disappointing season and hammered the cocky Cubs with five yaks in winning easily at Wrigley on Friday afternoon, 15-7.

Things got a little chippy again between the Cubs' Michael Barrett and Roy Oswalt just five days after Oswalt was ejected for beaning Barrett with a pitch in the back following a Cubs' homer. Both benches emptied after Barrett confronted Oswalt as he stepped into the batter's box in the second. After the umpires clearly warned Barrett to knock it off, he continued baiting Oswalt as he ran back to the dugout after grounding out. Later the Cubs' Kent Mercher intentionally hit Oswalt with a pitch, but the umpiring crew again did not eject anyone.

Inasmuch as Oswalt was ejected a week earlier without even a warning, the umpires need to get their criteria together for throwing players out of games. Sheesh!

At any rate, Oswalt (15-9) allowed six runs in eight innings for the win on a hot and muggy afternoon at Wrigley, but he retired 13 batters in a row from the fourth inning until giving up a single and a two-run homer to Nomar Garciaparra with two outs in the eighth.

The Stros jumped on the Cubs' Kerry Wood for four runs in the first and never looked back, whacking him for eight runs on eight hits in 4 1/3 innings, including four of the taters. Beltran led the way with two yaks and four RBI, and since coming to the National League in June, he is 11-for-21 with seven homers and 11 RBI in five games at Wrigley Field.

I think the Cubs need to pitch around that guy.

Bags and Berkman hit back-to-back solo shots off Wood, and JK added another yak as the Stros cranked out 17 hits for a gaudy 37 total bases. The win was the ninth for the Stros in their last 12 games.

In a personnel note, the Stros mercifully released David Weathers after the game, who came over from the Mets in the Hidalgo salary dump. Weathers looks washed up, although his runs saved against average is not as bad as some of the Stros' bullpen. However, Weathers is earning over $3 million, and the Stros are not interested in retaining him at anywhere near that compensation level. So, it was time for a divorce.

The Rocket takes the hill on Saturday as the Stros try to maintain the momentum of their best play since their great start in April.

Posted by Tom at 9:16 PM | Comments (0) | TrackBack (0)

The latest twist in the wild world of Equatorial Guinea

As noted in this earlier post, Equatorial Guinea is one fascinating place. Now, this NY Times article reports on the latest bizarre development in the affairs of this little African oil enclave. Here are all earlier posts on Equatorial Guinea.

With true stories like these, who needs novels?

Posted by Tom at 6:04 AM | Comments (0) | TrackBack (0)

John O'Neill defends the Swift Boat Vets

In case you have tuning out the world over the past month or so, you already know that prominent Houston attorney John O'Neill is the author of the best-selling book "Unfit for Command" and has been at the forefront of the group known as the Swift Boat Veterans that has been waging a public campaign against John Kerry's candidacy for President. In this Wall Street Journal ($) op-ed today in which he defends the SWV's right to campaign against Mr. Kerry. First Mr. O'Neill debunks the notion that the SBV's are a mouthpiece for the Bush-Cheney campaign:

Are we controlled by the Bush-Cheney campaign? Absolutely not. The Swift boat veterans who joined our group come in all political flavors: independents, Republicans, Democrats, and other more subtle variations. Had another person been the presidential candidate of the Democrats, our group never would have formed. Had Mr. Kerry been the Republican candidate, each of us would still be here.

We do not take direction from the White House or the president's re-election committee, and our efforts would continue even if President Bush were to ask us directly to stop.

Then, Mr. O'Neill explains simply why the SBV's have come forward:

Why have we come forward? As explained in "Unfit For Command," Mr. Kerry grossly exaggerated and lied about his abbreviated four-month tour in Vietnam. He disgraced all legitimate Vietnam War heroes when he falsely testified to Congress that we were war criminals, daily engaged in atrocities that had the full approval of all levels in the chain of command. So, once Mr. Kerry decided to apply for the commander in chief's job with a war-hero resumé, we felt compelled to come forward to explain why he is "unfit for command."

Read the whole piece.

And, in this related WSJ op-ed, the WSJ's Daniel Henninger shakes his head at the way Mr. Kerry is responding to the SBV's:

How can this be happening? Why didn't John Kerry months back -- if not years -- find some gracious way to make peace with the John O'Neills of the world? Why didn't one wise head among the Democrats point out the obvious difficulties of the Kerry candidacy once past the party's primary voters? This is a man who would be running as both a hero of Vietnam and a famous accuser of the war's heroes. This is an election, not a Shakespearean tragedy. How come John Kerry never worked out, before the final leg of his long odyssey, a let-bygones statement, admitting the hyperbole (at the least) of his accusations of atrocity before Congress in 1971, honoring the service of colleagues who never felt obliged to apologize for Vietnam, but reserving his right to oppose that troubled war?

As I noted in this earlier blog post on Mr. O'Neill from several months ago, John is a highly regarded attorney in Houston legal circles and independent politically. The Kerry campaign's attempts to discredit him as a Republican shill are doomed to failure.

John Kerry has recently admitted that he used poor judgment and engaged in youthful indiscretion in condemning many of his co-Vietnam veterans publicly during the early 1970's. Was that earlier criticism truly a product of youthful indiscretion? Or is Mr. Kerry's response to serious critics such as John O'Neill prove that he simply has poor judgment and that he has not really changed from his earlier indiscretion?

By the way, before commenting, please know that I am also independent politically.

Posted by Tom at 5:27 AM | Comments (1) | TrackBack (0)

August 26, 2004

Cubs continue treating Stros like the Stros treat the Phils

Brandon Backe came crashing back down to earth after his winning firt starting performance of last week as the Cubs cruised past the Stros 8-3 in the clubs' first game of a four game weekend series in Chitown.

Backe gave up seven runs and nine hits in three innings, which is more like he pitched when he was a reliever. Beltran did whack his fourth yak in four games and Bags nailed one, too. But the Stros left 12 men stranded, most of them while Mark Prior was pitching. Prior was primed to be beat today, but the Stros could not put together the big inning necessary to chase him.

Roy O and Kerry Wood renew their beanball rivalry in an another afternoon game tomorrow. The over-under on batters beaned tomorrow is 3.

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Grocer's Supply to buy Fiesta

A couple of independent Houston grocery institutions decide to merge.

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Father of HSA's condemns Kerrycare

John C. Goodman is a health care finance expert who was one of the leading advocates of Health Savings Accounts (explained here), which is one of the only positive pieces of health care finance legislation that has been enacted in years.

In this Wall Street Journal op-ed, Mr. Goodman reviews the Kerry Campaign's health care plan, and he is singulalry unimpressed with what he sees:

Mr. Kerry is seeking to completely transform the health-care system. The changes are far more radical than even he has let on. If he is successful, millions of middle-income families will enroll in Medicaid, the federal-state health program for the poor. Millions more will get their insurance through a system of managed competition, similar to what Hillary Clinton proposed more than a decade ago. Most people would be unable to remain in the private health plan they have today.

Mr. Goodman then reviews the goals of Kerrycare and how it proposes to achieve them:

The ostensible purpose of the proposal is to insure the uninsured. By some estimates, as many as 44 million people lack health insurance at any one time. The Kerry goal is to insure about two-thirds of them.

How well will all of this work? More than half the money in this plan will be spent expanding Medicaid and the S-CHIP program (for low-income children). Emory University professor Kenneth Thorpe, Mr. Kerry's health adviser, estimates that as many as 26 million new people will be enrolled. However, as the public sector expands, the private sector will surely contract.

Even Mr. Kerry assumes that for every 10 people who sign up, three people will lose private insurance from an employer; and it could be much worse. Studies in the 1990s found that every additional dollar spent on Medicaid led to a reduction in private insurance of 50 to 75 cents. More recent evidence suggests that private sector crowd-out is approaching one-to-one: Each new Medicaid enrollee is offset by one less person with private insurance. Moreover, most of the private sector subsidies will go to people who are already insured; and employers get their subsidies even if they fail to insure a single additional employee. Bottom line: It is entirely possible to spend $1 trillion and achieve no reduction in the number of uninsured!

And Mr. Goodman is not sanguine about the quality of care that would result from Kerrycare:

Quality of care will suffer under the Kerry proposal. People who go from employer plans to Medicaid will have fewer choices of doctors, longer waits for care, and inevitable health-care rationing. Those who join the system of managed competition will experience a different problem: Health plans will face perverse incentives to overprovide to the healthy and underprovide to the sick.

Which leads to the $64,000 question: How much will Kerrycare cost? Mr. Goodman comments:

In order to keep spending down in the latest 10-year projection, the Kerry team delays implementation for one year, so the first year's costs can be zero. They also claim phantom savings that basically amount to the perennial promise to eliminate waste and inefficiency.

Counting the first full 10 years in operation and only savings that seem likely to be real, I put the actual cost in excess of $1 trillion, almost $1,000 per year for every household in America. Versus the budget Mr. Kerry has promised to balance, this cost is more than three times the new revenue Mr. Kerry hopes to get from high-income earners.

This estimate may be low. The reason: People will face perverse incentives to overinsure and overconsume. For example, faced with virtually no out-of-pocket costs, the 26 million new enrollees in Medicaid will have no reason to show restraint. The bills all go to someone else. Premium caps mean that a poverty enrollee under managed competition will pay no more than $600 or $700 a year, with the remainder paid by Uncle Sam. If they insure at all, they will tend to pick the most expensive plan. Why choose a Volkswagen when you can have an Aston Martin at no extra cost?

Whatever the cost, the plan will almost certainly lead to a new round of health-care inflation. Federal spending alone will increase by more than $100 billion a year. But since there will be no increase in supply, the bulk of this new spending will buy higher prices rather than more health care.

Mr. Goodman then asks the following common sense questions regarding Kerrycare:

A major problem with the current system is that tax subsidies for health insurance are arbitrary and unfair. But rather than move to a fairer system that treats equals equally, Mr. Kerry would create a slew of new subsidies that would make the system even more arbitrary.

The structure of the Kerry health plans raises a number of intriguing questions:

• Why spend billions on subsidies to small businesses if they join an insurance system that doesn't even exist yet, while denying them those same subsidies if they buy insurance that is readily available in the marketplace?

• Why pay the cost of premium caps and other subsidies to individuals if they buy insurance that doesn't yet exist, while denying them any relief if they buy insurance that is already available?

• And why spend billions enrolling middle-income families in Medicaid instead of using those same dollars to help them enroll in employer plans and individually-owned policies which they would probably much prefer?

Mr. Goodman concludes that there is only one logical answer to these questions:

The real purpose of this plan is not to insure the uninsured. The real purpose is to radically change our health- care system.

Read the whole piece.

Posted by Tom at 6:27 AM | Comments (0) | TrackBack (0)

Bank of NY tees off on Citigroup over Enron-related instruments

This Wall Street Journal ($) article reports that Bank of New York Co. sued Citigroup Inc. earlier this week over the sale of financial instruments related to Enron Corp. The lawsuit could involve as much as $2.5 billion in liability for Citigroup.

The lawsuit is particularly interesting because it involves credit insurance, which has become one of the trendiest new financial products over recent years. Such insurance provides investors a hedge against the risk of insolvency for their investment, and the Bank of New York - Citigroup dispute focuses on whether banks involved in the market may have superior knowledge to other participants.

The suit alleges Citigroup knew (or presumably "should have known") Enron's debts were far greater than the numbers presented in its public financial statements between 1999 and when Enron went into bankruptcy in early December, 2001. The suit alleges that Citigroup just could not get enough of Enron's business and that by 1999, Citigroup's exposure to Enron totaled a staggering $1.7 billion, which was four times Citigroup's internal limit on exposure to Enron. Bank of New York alleges that Citigroup's exposure increased over the next two years as Enron entered a series of financial deals with Citigroup that enabled Enron to mask debt as cash flow on its financial statements.

In short, Bank of New York alleges that Enron was a Ponzi scheme and that Citigroup knew it. The lawsuit alleges that the only reason Citigroup did not cut Enron off from new financing was because Citigroup knew that Enron would collapse before Enron could pay it back.

So, the lawsuit alleges that Citigroup approached major institutional investors to reduce its Enron exposure by promoting an investment in "Yosemite" securities, a series of notes with a total face value of $2.4 billion that were linked to the creditworthiness of Enron. So long as Enron remained financially viable, the investors in the Yosemites would receive interest payments that were more attractive than the interest rate on Enron bonds. If Enron defaulted on any debt obligations or filed for bankruptcy protection, the lawsuit alleges that Citigroup was supposed to replace the Yosemites with Enron bonds that would likely be worth far less than 100 cents on the dollar to investors, but which would rank relatively high in claim priority in an Enron bankruptcy.

As sad stories go, this dispute was triggered because Enron and its other creditors are asserting that the investors ought should be subordinate to other creditors in Enron's claim priority ranking because of Citigroup's involvement in the deception that helped cause Enron's bankruptcy. If Enron's position is sustained and the claims of the Yosemite securities holders go to the bottom of the Enron claim totem pole, then those investors will likely get nothing on their claims.

Such a result will not make the holders of those claims happy. Most of those Yosemite securities claims are now held by distressed-debt investors -- a notoriously hard-knuckled group in insolvency cases -- who bought the securities from the original holders at discounted prices between 10 to 50 cents on the dollar.

Just another $2.5 billion aftershock of the Enron financial earthquake. This one should be interesting.

Posted by Tom at 5:44 AM | Comments (0) | TrackBack (0)

August 25, 2004

How about those Stros?

JK whacked an eighth inning three run yak -- his second tater of the game -- as the Stros swept their season series from the utterly befuddled Phillies, 7-4 this afternoon at the Juice Box.

This looked like a game that the Stros were destined to lose as they lagged behind the entire game and could not put a big inning together against Phils' starter Eric Milton. However, Pete Munro kept the Stros in the game, and then AAA relievers Gallo, Harville and Qualls did not allow the game to get out of hand before Kent's fireworks in the eighth. Carlos Beltran and Morgan Ensberg also tagged solo bombs for the Stros, who crept two games over the .500 mark with the win.

So now it's off to Wrigley for four games with the Cubbies over the weekend followed by a trip to Cincy for batting practice with the Reds early next week. With their playoff hopes toasted to a crisp, the Stros appear to be playing as loose as a goose and could give the contenders some well-deserved headaches down the stretch.

Posted by Tom at 9:14 PM | Comments (0) | TrackBack (0)

Another Enron plea deal

Mark Koenig, the former head of Enron's investor relations section, agreed to a plea bargain today with the Enron Task Force in regard to newly-filed criminal charges against him, and agreed with the Securities and Exchange Commission to pay civil penalties of $1.49 million to settle related civil fraud charges against him.

Mr. Koenig worked for Enron from 1985 through 2002. He is charged with participating in a scheme to mislead investors about the financial affairs of a couple of Enron units for the purpose of making those units appear to be more valuable than they really were so that their alleged true, lower worth would not dilute the value of Enron stock. The incidents set forth in Koenig's plea deal are also included in the indictment of Enron's remaining "big three" unconvicted executives -- Kenneth Lay, Jeffrey Skilling, and Richard Causey. Mr. Koenig appeared this morning before U.S. Magistrate Judge Frances Stacy and was released on bond.

Paula Rieker, who worked under Mr. Koenig, pled guilty earlier this year to an insider trading charge and is cooperating with the Enron Task Force.

Posted by Tom at 12:32 PM | Comments (0) | TrackBack (0)

Contrasting views on the Google IPO

I have been meaning to comment on the contrasting views that James Surowiecki of Marginal Revolution and Holman Jenkins, Jr of the Wall Street Journal ($) have regarding the recent Google IPO. However, Professor Ribstein beat me to the punch and does a better job of analyzing the respective positions than I could have done, anyway.

By the way, is the Professor really recommending that we short Google? ;^)

Posted by Tom at 9:24 AM | Comments (0) | TrackBack (0)

A lawyer acting badly

Don Hawbaker, a fine Dallas area litigator who runs the Construction Law Blog, had an interesting adventure in court the other day after which he asks the question: Should I report this guy to the local grievance committee?

Posted by Tom at 8:55 AM | Comments (0) | TrackBack (0)

Fifth Circuit on proving attorneys' fees

In this recent decision in a duty to defend case, the Fifth Circuit Court of Appeals upheld the trial court's admission of an attorney's expert testimony on the reasonableness of attorney's fees despite the fact that the witness had failed to provide the opposition with a report regarding his anticipated testimony.

Interesting decision, but I recommend highly that you simply have the lawyer/expert prepare a report, which need not be lengthy. Hat tip to Blog 702 for the link to this decision.

Posted by Tom at 8:16 AM | Comments (0) | TrackBack (0)

The folly of campaign finance "reform"

Washington Post columnist George Will's column today is an outstanding analysis of the inane implications of the McCain-Feingold campaign finance "reform" legislation. Mr. Will relates the absurd suppression of free speech -- the suppression of a dealership's car ads that use the dealership's name, which happens to be the same as a Republican candidate for senator -- and observes the following:

A core principle of an open society is that, in the words of Thomas Hobbes, liberties "depend on the silence of the law" -- what is not forbidden is permitted. However, because of the com- plexities and vagaries of McCain-Feingold and the rest of the government's metastasizing regulations of political activity, prudent participants in poli- tics must assume that everything is forbidden until the government gives permission.

The Supreme Court's affirmation of McCain-Feingold was a watershed in the nation's constitutional experience. The First Amendment will be forever open to statutory dilution, at least as it pertains to political speech. (The court has placed pornography essentially beyond the reach of regulation.) Henceforth, the guarantee of freedom of political speech is being steadily circum- scribed in the name of political hygiene. The right of free expression can be trumped by the supposed imperative of combating "corruption" or "the appearance" thereof, which is to say, where probably no actual corruption exists.

Common Cause's desire to regulate car ads has no conceivable connection to preventing corruption. But the "corruption" rationale merely disguises the reformers' real agenda, which is to extend government supervision of speech whenever they think extension serves their partisan advantage.

And in deriding President Bush's late criticism yesterday of the use of section "527" organization funding for political ads, this Wall Street Journal ($) editorial reminds us that McCain-Feingold is a product of bipartisan misjudgments:

One reason 527s are so prominent now is because Mr. Bush made the mistake of signing the McCain-Feingold campaign finance "reform" that barred big donations to political parties. So 527s have become the new alternative vehicle that Americans passionate about politics are using to exercise their First Amendment rights to free speech. The difference is that now the campaigns can't control how that money is spent.

If Mr. Bush wanted the two major parties to better control their campaign messages, he could have vetoed McCain-Feingold. Some of us urged him to do so, but his political advisers whispered not to worry, the Supreme Court will take care of it. Well, Sandra Day O'Connor failed too, but in any event since when are Presidents supposed to pass the buck to judges?

In our view, this was among the worst moments of Mr. Bush's term. Having helped to midwife the current campaign-finance system, it ill behooves him to blame others for the way this world works.

Posted by Tom at 7:44 AM | Comments (0) | TrackBack (0)

Survey of corporate governance practices

New York based Shearman & Sterling LLP has published this well done and informative survey of corporate governance practices at the 100 largest publicly-owned U.S. companies. Hat tip to the always attentive Professor Bainbridge for the link to the survey.

Posted by Tom at 7:01 AM | Comments (0) | TrackBack (0)

Citigroup expands Texas presence

In the latest deal reflecting that financial services companies are increasingly pursuing consumer lending, Citigroup Inc. announced that would expand its retail-branch presence into Texas by acquiring closely-held, Bryan-based First American Bank SSB. Terms of the cash deal were not disclosed.

With this deal, Citigroup continues its strategy of increasing its domestic banking business, particularly in fast-growing areas. Inasmuch as Citigroup already owns the Mexican bank Grupo Financiero Banamex SA, the First American deal will also facilitate Citigroup's goal of becoming the key bank for the large Mexican-American community in Texas.

First American has 102 full-service banking facilities across Texas and has been expanding in such key Texas metropolitan areas of Houston, Dallas, and Austin. With $3.5 billion in assets, First American will not have much of a financial impact on Citigroup, which has $1.19 trillion in assets. Nevertheless, the deal may set the stage for other Citigroup acquisitions in Texas. Stayed tuned.

Posted by Tom at 6:01 AM | Comments (0) | TrackBack (0)

A good man's worthy cause

When you find yourself becoming cynical while reading the next inevitable article about an obnoxious professional athlete, remember the Stros' Craig Biggio.

Yesterday, for the 13th straight year, Bidg and his wife Patty hosted their 13th annual party and baseball game at the Juice Box for the Sunshine Kids, the local Houston charity that works closely with the Texas Medical Center's M.D. Anderson Cancer Center and Texas Children's Hospital to provide recreation and support for children diagnosed with cancer.

This Chronicle article relates how important Bidg and his wife's efforts are on behalf of the Sunshine Kids:

Suzie James said her family returned from vacation just in time to make it to the stadium so her 7-year-old son, Cameron, could participate. When Cameron was diagnosed in February, his mother said, a social worker at Texas Children's Hospital told them about the Sunshine Kids.

"This is our third activity," she said, just before Cameron took his turn at bat.

He has undergone surgery, radiation treatments and chemotherapy, his mother said.

"The activities help us get our minds off it for a while."

Cameron connected for a solid grounder on his fourth swing. Sunshine Kids don't strike out if Biggio can help it.

While other local charities have seen a downturn in charitable donations over the past several years, Bidg's efforts on behalf of the Sunshine Kids have increased their charitable donations over that same period. Bidg's annual charity golf tournament on behalf of the Sunshine Kids -- which he puts on during the distraction of the baseball season -- has turned into a huge fund-raising affair.

Craig Biggio is not only a Hall of Fame quality baseball player, he is a Hall of Fame quality citizen of Houston. During his long tenure with the Stros, Bidg and his family have settled comfortably in the West University area of Houston and have become integral members of their church and community. As a father of two young men who have literally grown up admiring Bidg during his unusually long career with the Stros, I appreciate the classy example of manhood that he has always displayed. He is part of what makes Houston a special place.

Posted by Tom at 5:40 AM | Comments (0) | TrackBack (0)

Stros continue mastery over Phils

The Stros continued their somewhat baffling dominance of the Phillies this season as they beat the Phils for the fifth straight time 4-2 on Tuesday night at the Juice Box.

Carlos Hernandez gave his most encouraging performance since returning from shoulder surgery, giving up two runs on six hits and four walks in seven innings. Roy O made a rare relief performance in pitching a perfect eighth after his abbreviated appearance in Sunday's beanball fest with the Cubs and got unexpectedly got his 14th win when the Stros rallied in the eighth to break a 2-2 tie. Lidge nailed down his 16th save with a scoreless ninth.

Phils' starter Brett Myers pretty well stymied the Stros over the first seven innings, giving up only two runs on two hits (one of which was Beltran's solo yak), but ex-Stro closer Todd Jones came through for the Stros in the eighth by giving up two runs on Lance Berkman and Mike Lamb's consecutive two-out singles.

By the way, I used the Stros' new service yesterday that allows season ticket holders to email their tickets to someone else to use. All you have to do is call the Stros' ticket services at (800-278-7672) and obtain your account's PIN number to gain access to the service, I emailed mine to an old friend, and the service worked without a hitch. The service cannot yet email parking passes or club level passes, which do not have the bar code that allows the tickets to be easily recreated.

Based on recent history, the Stros' chances of sustaining success plummet in today's afternoon Businessman's Special as Pete Munro (2-5) takes the hill against the Phils' Eric Milton, who has a 13-2 record this season. In one of those statistical anamolies that helps make baseball fascinating, Munro (4.79) and Milton (4.71) have about the same ERA this season. The anamoly is best explained by the probability that Munro's ERA would be much higher if he had pitched the 90 more innings that Milton has pitched this season.

Posted by Tom at 5:06 AM | Comments (0) | TrackBack (0)

August 24, 2004

Durst finally granted reasonable bail

The Texas 14th Court of Appeals finally lowered Robert Durst's bail to $450,000 from the absurd $3 billion amount that Galveston State District Judge Susan Criss had set earlier this year. Here are earlier posts on the Durst murder case.

Posted by Tom at 1:21 PM | Comments (0) | TrackBack (0)

The claimed results of Bush and Kerry's health care finance plans

Ceci Connolly of the Washington Post is one of the best reporters on health care finance issues. This article in yesterday's edition reviews the dubious financial projections behind the Bush Administration's health care finance proposals:

If the Republican-controlled Congress enacted President Bush's entire health care agenda, as many as 10 million people who lack health insurance would be covered at a cost of $102 billion over the next decade, according to his campaign aides.

But when the Bush-Cheney team was asked to provide documentation, the hard data fell far short of the claims, a gap supported by several independent analyses.

Projections by the Congressional Budget Office, the Treasury Department, academics and the campaign's Web site suggest that under the best circumstances, Bush's plans for health care would extend coverage to no more than 6 million people over the next decade and possibly as few as 2 million.

"There's little reason to expect that there would be any reduction in the overall numbers of Americans without health insurance," Brookings Institution health policy expert Henry J. Aaron said. "We're swimming against a rather swift current in our efforts to reduce the number of uninsured, and the power of President Bush's proposals to move against that current is, it seems to me, very, very limited."

On the other hand, the article notes that the credibility of the Kerry campaign's health care finance projections is not particularly compelling, either:

Sen. John F. Kerry (Mass.), has released a health care agenda that is more ambitious and more expensive, with plans to expand government health programs, offer tax credits similar to Bush's and reimburse businesses for some of their most costly catastrophic cases.

Forecasting the cost and impact of policy proposals is always complicated, and both presidential campaigns try to spin the numbers to their advantage. Kerry, for example, estimates his health care proposals would cover 27 million people at a 10-year cost of $653 billion. But that assumes $300 billion in "savings" that the Bush team says might prove elusive. Without the savings, the cost of the Kerry package jumps to nearly $1 trillion.

Sigh.

Posted by Tom at 7:17 AM | Comments (0) | TrackBack (0)

The right way to pick a Supreme Court Justice

Bill James would enjoy this method in evaluating potential candidates for the U.S. Supreme Court.

Hat tip to Craig Newmark for the link.

Posted by Tom at 6:41 AM | Comments (0) | TrackBack (0)

Bye-bye Monday Night Football?

Monday Night Football is ABC's highest rated show. However, ABC is currently losing about $250 million on MNF. This LA Times (free online registration required) article is a good overview on the economics of televising professional football and the difficult decisions that ABC faces in regard to MNF.

Hat tip to Professor Sauer for the link to this article.

Posted by Tom at 6:08 AM | Comments (0) | TrackBack (1)

El Paso previews huge earnings restatement

Houston-based El Paso Corp. released some preliminary 2004 financial numbers and previewed its restatement of financial results from 1999 to 2003 following a review of its accounting for natural-gas hedges. El Paso previously announced plans to restate results because of downward revisions to its oil and natural-gas reserves and warned at the time that it likely would have to restate for its hedge accounting as well.

The company said that the revision to its reserves will cut the value of El Paso's oil and gas assets by $2.7 billion and result in a corresponding after-tax reduction in shareholder equity. El Paso also announced that the restatement to eliminate hedge accounting will result in a $1 billion pretax cumulative charge on shareholder equity and will trigger an additional $1.6 billion in charges.

El Paso has yet to file its financial reports for 2003 or for the first two quarters of 2004. It warned that the 2004 figures it provided today are "subject to further review by El Paso and its independent auditor and, therefore, [are] subject to change." Not exactly a statement brimming with confidence.

El Paso reduced its net debt by about $1.9 billion in the first six months of the year, finishing the second quarter with net debt of $18.6 billion. The company expects net debt to fall below $17 billion by the end of 2004, and to $15 billion by the end of 2005. In addition, El Paso's businesses have been somewhat bolstered as high prices for oil and natural gas have been aiding the company's rebound effort.

Despite the foregoing, El Paso remains a strong candidate for reorganization under chapter 11 as its high debt burden makes an acquisition outside of bankruptcy problematic.

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

The Rocket finally wins no. 13

The Rocket lasted long enough for his first win in almost a month -- the 323rd victory of his career -- and Carlos Beltran belted a three-run yak to lead the Stros over the Phillies 8-4 Monday night at the Juice Box.

After leaving in the fourth inning of his start against the Phils last week when he injured his right calf, Clemens hobbled around on the injured leg throughout much of his incredible seven-inning outing. Clemens (13-4) allowed only two runs and five hits with eight K's and two walks in his first win in five starts since July 28.

Beltran connected in the seventh to become the 45th player in major league history with 30 home runs and 30 steals in a season. Bidg went 3-for-4 with two doubles as the Stros won their fourth straight over the Phils.

Carlos Hernandez tries to get untracked in tonight's game against the Phils' Brett Myers.

Posted by Tom at 5:23 AM | Comments (0) | TrackBack (0)

August 22, 2004

Cubs crush Stros

The much anticipated pitching matchup between the Stros' Roy O and the Cubs' Kerry Wood deteriorated into an old-fashioned beanball contest as the Cubs pounded the Stros 11-6 on Sunday afternoon at the Juice Box.

The shenanigans began in the second when Wood beaned Jason Lane after Mike Lamb had nailed a long solo yak to open the scoring. Oswalt reciprocated the following inning by nailing Michael Barrett squarely in the back after Aramis Ramirez had taken a bit too long in rounding the bases after cranking a two out, three run tater on an 0-2 pitch in the third. Oswalt was ejected immediately, but Wood stayed around until the fifth (despite nailing Beltran in the next inning on a slider in the dirt, which the the umps let that pass) when he nailed JK. At that point, Wood was gone along with Cubs manager Dusty Baker.

That was about the only excitement in this game, which was out of reach the way the Stros hit (or, more accurately, don't hit) after Ramirez's blast gae them a 5-1 lead. The Cubs are simply a better overall team than the Stros, particularly in the area in which the Stros struggle -- hitting the ball hard.

Our periodic review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here) accurately reflects the Stros' current status in the National League -- about average, but not close to being a contender for a playoff spot. Here are the Stros hitters' RCAA numbers, courtesy of Lee Sinins:

Lance Berkman 45
Carlos Beltran 12
Mike Lamb 6
Jeff Bagwell 5
Craig Biggio 5
Eric Bruntlett 2
Chris Burke -1
Jeff Kent -1
Jason Lane -2
Orlando Palmeiro -3
Richard Hidalgo -9
Jose Vizcaino -9
Morgan Ensberg -12
Adam Everett -12
Raul Chavez -14
Brad Ausmus -23

The Stros are 10th out of the 16 National League teams in RCAA, and have generated 11 fewer runs than an average National League team would have generated so far this season.

Berkman, and Beltran continue to be the only Stros having excellent seasons hitting the ball (Beltran's RCAA is 29 when his Kansas City RCAA is added to his Stros RCAA). Bidg's performance is in free fall as his RCAA over the past month has been a negative 8 and his performance is now equal to the disappointing output of Bags. Those two players combined RCAA is about one half their output from last season. Combine that drop in performance with the precipitous drops in RCAA from Ensberg, Kent, and Hidalgo from their output of last season and you have a presciption for a ballclub that struggles to score runs.

Meanwhile, the injuries to the Stros' pitchers are starting to take a toll on the Stros' pitching staff's overall performance. After topping out two weeks ago in 3rd among the 16 National League pitching staffs in RSAA, the Stros' pitching staff has fallen back to fifth, but still have given up 34 runs less than an average NL pitching staff. Here are the individual RSAA of each Stros pitcher:

Roger Clemens 26
Roy Oswalt 19
Brad Lidge 18
Wade Miller 10
Octavio Dotel 5
Darren Oliver 5
Andy Pettitte 4
Dan Miceli 3
Brandon Backe 1
Kirk Bullinger 0
Mike Gallo -2
David Weathers -2
Jeremy Griffiths -3
Pete Munro -3
Chad Qualls -3
Ricky Stone -3
Carlos Hernandez -4
Jared Fernandez -6
Chad Harville -8
Brandon Duckworth -9
Tim Redding -14

Clemens, Oswalt and Lidge continue to have outstanding seasons, but the remainder of the healthy Stros' pitchers are led by Miceli's barely above-average performance. Consequently, unless Clemens or Oswalt goes late into a game and hands the ball to Miceli and Lidge, or the Stros enjoy an unexpected performance such as the one Backe provided on Saturday night, the Stros are going to lose more games than they win because of their overall combination of below average pitching after the big three and far below average hitting after Berkman and Beltran.

Interestingly, as predicted, the Stros have settled into third place in the National League Central and I suspect that they will stay there for the remainder of the season unless the Stros' players simply pack it in. However, the Stros have no realistic shot at the Wildcard Playoff berth because their available personnel simply is unlikely to generate enough improvement over the remaining 40 games to compete with the Giants, Cubs, and Padres for that spot.

The Rocket takes the hill on Monday in the opener of a three game series against the Phils. After the Wednesday game of that series, the Stros travel to Chicago for a four game set at Wrigley on Thursday through Sunday and then to Cincy to pad their hitting statistics against the Reds' horrifying pitching staff.

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

August 21, 2004

A minor miracle

Professional football has clearly overtaken Major League Baseball as the most popular sport in American society. However, Saturday night's Stros-Cubs game is an example of why the appeal of Major League Baseball will endure through the ages regardless of its place in the pecking order of popular sports popularity.

Let's set the stage. The Stros' Brandon Backe is an obscure 26 year old from Galveston who began his professional baseball career as an outfielder in the Devil Ray organization. After converting to a pitcher, Backe was rushed through the thin Devil Ray minor league system as a relief pitcher and was never given adequate time to develop as a pitcher.

After coming over to the Stros in the Geoff Blum trade before this season, Backe toiled ineffectively in the Stros' bullpen for a short time during the first part of the season. However, the Stros' management decided that Backe's underdevelopment in the Devil Rays' system had finally caught up with him, and so they sent him down to AAA New Orleans to become a starter there and pitch every fourth day. Backe pitched well this season at New Orleans, and the Stros recalled him recently when Andy Pettitte decided to have season ending elbow surgery. Saturday night's game was his first start in Major League Baseball.

On the other hand, the Cubs' Mark Prior, 24, is unquestionably one of the best young players in all of Major League Baseball. Prior has impeccable pitching mechanics, tremendous control, and a 96 m.p.h. heater. During the 2003 season, Prior was 18-6 and arguably the best pitcher in the National League. Barring injury, Prior will likely be the best pitcher in the National League over the next decade.

Moreover, the Cubs are legitimate contenders for the National League Wildcard Playoff spot and are coming off Friday night's game in which they made two Stros' pitching staff members look like batting practice pitchers. The Stros are 5 1/2 games back in the Wild Card race and realistically, are playing out the string on the 2004 season.

Given that backdrop, Saturday night's Stros-Cubs game looked like a classic mismatch -- the Cubs' Prior versus the Stros' Backe, who was starting his first game in Major League Baseball. To make matters worse, the Stros' bullpen was not available to bail Backe out after having been used heavily over the past three games in which the Stros had given up 27 runs.

So, what happens? Backe pitches seven shutout innings and hits a two run single off of Prior to stake the Stros to a 2-0 lead over the Cubs after seven innings.

Then, after Miceli and Lidge blew the save, the Stros came back with two runs in the bottom of the ninth to pull out a stirring 4-3 win over the Cubs.

As the oldtimers say, "That's why you play the game."

Backe was magnificant, giving up only four hits and three walks in seven innings. He baffled the Cubs' hitters by throwing a lively 92 m.p.h. heater mixed with a slow and hard curve, and a hard slider.

Viz and Jason Lane were the Stros' heros in the bottom of the ninth along with the Cubs' Macias, who contributed a key throwing error that put the tying and winning runs in scoring position. After Macias' miscue, Viz tied it with a single and then Lane -- who had come into the game for Bidg in the top of the ninth as a defensive replacement -- won it with a single to right as the Stros' dugout and the Juice Box crowd went bananas.

As my 16 year old son and I walked away from the Juice Box after the game, he turned to me and said, "Dad, it doesn't get any better than that."

Amen.

The Stros' Roy O and the Cubs' Kerry Wood tangle in an attractive rubber game on Sunday afternoon, but they will have to be in top form to compete with the Backe-Prior matchup from Saturday night's game. The Phillies come to town on Monday for a three game set with the Rocket opening that series for the Stros.

Posted by Tom at 11:15 PM | Comments (0) | TrackBack (0)

Pension fund plaintiffs

This Wall Street Journal ($) editorial addresses a litigation phenomenon that has been increasing in recent years -- public employee pension funds serving as plaintiffs in class action lawsuits. And as the editorial notes, this new willingness to serve in such a role reflects even more troubling signs on the way in which at least several of those pension funds are operated:

It's an article of faith these days that institutional investors are the white knights of the corporate governance crusade. And the most loyal acolytes of fiduciary duty, we are told, are the state-administered funds that provide retirement benefits for public-sector employees. But a couple of recent cases show that some public pension funds are not only failing their own beneficiaries, they are making mischief for well-run corporations.

The Journal notes that a few pension plans are collaborating with a few plaintiffs' securities lawyers to shake down the companies in which the pension plans invest:

[T]wo funds representing Pennsylvania's public school teachers and state employees have been busy this year suing corporate giants Time Warner and Royal Dutch/Shell Group. Alleging that the companies misled investors, the lawsuits seek hundreds of millions in damages. Since shareholders are essentially suing themselves, the main winners here will be the lawyers..

Meanwhile, the pension fund managers are not exactly providing overwhelming performance in their primary duty to the funds:

[T]he fund managers show more zeal for litigation than they do for stock picking. The two funds have lost $20 billion, or 25% of their value, over the last few years, despite paying $250 million a year in management fees. As a result, state and local governments will have to come up with extra tax revenue to make up the shortfall.

And though the performance of the managers of the Pennsylvania funds has been less than exemplary, it does not hold a candle to the corruption that takes place when one concocts the volatile mix of plaintiffs' securities litigation with the traditional corruption of Louisiana politics:

[In Louisiana] the trustees of the state's Teachers Retirement System were found to have violated state ethics rules by accepting golf outings, hunting trips, football games and $150 bottles of champagne from a Texas private equity firm, Hicks Muse Tate & Furst. The fund then committed more than $900 million to Hicks's investments. The fund says that 23% of its $10 billion in assets were committed to similar "alternative" investments, earning it the rating of riskiest public pension fund in the country from Wilshire Associates. Because this strategy cost the fund somewhere between $500 million and $2 billion by different estimates, retirees are foregoing cost-of-living increases, and the state general fund and local school boards are struggling to make up billions in unfunded liabilities.

But instead of re-evaluating their investment practices, the trustees of the Louisiana fund have instead been racking up an impressive record of litigation. It has been involved in 60 class-action lawsuits in the last eight years, and a Tennessee judge last year rebuked it for seeking "lead plaintiff" status in 24 suits while already taking that role in eight others.

And what is the Louisiana fund managers' response to such risky investment practices? They sue the company that represents one of their best investments:

To top it all off, last year the Louisiana fund tried to sue the majority shareholders of Regal Entertainment, the country's largest operator of movie cinemas. Despite having only a $30,000 investment in the company, the fund launched an 11th hour lawsuit to stop the company from issuing an extraordinary dividend, accusing Regal's controlling shareholders of "looting" the company.

This incendiary accusation was truly laughable. The dividend was paid equally to all shareholders, and no other investors found reason to object. After all, the company enjoys a strong cash flow, so distributing profits and increasing the company's leverage was a legitimate management decision.

How can we say that with such certainty? Because the Louisiana teachers' fund admitted as much when it dropped the case, in order to avoid a counterclaim by Regal. That climbdown only came after the judge refused to grant a preliminary injunction against the dividend because there was "not a shred of evidence" that minority shareholders would be hurt.

The biggest shock was just how little the Louisiana fund's administrators knew, or cared to know, about the litigation they sponsored. Director Bonita Brown admitted in a deposition that, despite being one of only two officials responsible for deciding to initiate lawsuits, she not only had had no contact with the Regal management ahead of the lawsuit, but she also did not know whose idea it was to sue.

The Journal editorial concludes by summarizing the absurdity of it all:

So what we have here is a public fund whose risky practices have cost the taxpayer billions throwing mud at a profitable company's management -- throwing it, moreover, at a company (Regal) that was one of the fund's better-returning investments. If the Louisiana and Pennsylvania pension funds were private entities, their trustees might well be the target of a lawsuit themselves for being so lackadaisical about their fiduciary duty. Given the ethics violations in Louisiana, state investigators might check to see whether law firms are illegally compensating trustees with junkets so they'll ignore their duty to protect their funds from possible counterclaims arising from frivolous lawsuits.

But then everybody knows that the real blame lies with the politicians who appoint and protect these incompetent managers, and it's up to voters to hold them accountable. Perhaps the better question is why Congress and federal judges still allow such funds to posture as guardians of good corporate governance while they dance to the trial lawyers' tune.

Read the entire piece. The Journal editorial is correct in noting that the conduct of the pension fund trustees is certainly troubling in these particular cases. However, a related issue that the editorial does not address is whether the dubious cases are truly a significant problem or merely an anecdotal byproduct of an open civil justice system. For a detailed analysis of that issue in the context of class action settlements, see this article by Cal-Berkeley Law Professor Steven J. Choi and this Professor Bainbridge comment on Professor Choi's article.

Posted by Tom at 10:08 AM | Comments (0) | TrackBack (0)

Tyler Cowen's clear thinking

Tyler Cowen of Marginal Revolution is writing a new book on economics, and he provides the following excerpt in explaining his fundamental preference for politics that encourage sustained economic growth:

The importance of the growth rate increases, the further into the future we look. If a country grows at two percent, as opposed to growing at one percent, the difference in welfare in a single year is relatively small. But over time the difference becomes very large. For instance, had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990. At a growth rate of five percent per annum, it takes just over eighty years for a country to move from a per capita income of $500 to a per capita income of $25,000, defining both in terms of constant real dollars. At a growth rate of one percent, such an improvement takes 393 years.

Professor Cowen goes on to explain the cornerstone of his political views in the following manner:

If I had to explain, in one sentence, the reason I am not on the political left, I would cite the enormous long-run benefits of economic growth. Of course it still can be argued that various left-wing policies, properly understood, will contribute to long-term growth. But in my view, if you are not supporting growth-maximizing economic policies, you better had a pretty good reason in your pocket.

Amen.

Posted by Tom at 8:22 AM | Comments (0) | TrackBack (0)

August 20, 2004

Butt ugly

Pete Munro and Chad Harville pitched batting practice to the Cubs on Friday night at the Juice Box. Unfortunately, the umps kept score and the Cubs used seven (actually six, I lost count when I posted that they had hit seven) yaks to pound the Stros, 9-2.

Frankly, given that the Stros were using pitchers who are really AAA quality, the outcome of the game was not surprising. On Saturday night, Brandon Backe, who could not remain with the club as a reliever earlier this year, starts against the Cubs' Mark Prior. It will take a minor miracle for the Stros to win that game.

The Sunday matinee has a great matchup between Roy O and Kerry Wood, which should at least generate some interest until Roger Clemens' next start. That's about all Stros fans have to look forward to these days.

Posted by Tom at 9:56 PM | Comments (0) | TrackBack (0)

Skilling and Causey request separate trials

As expected, former Enron CEO Jeffrey Skilling and chief accountant Richard Causey filed motions with the U.S. District Court in Houston Friday requesting that their pending criminal case be severed for separate trials. Their motions mirrored a similar motion that their other co-defendant -- former Enron chairman Kenneth Lay -- filed earlier this month.

Frankly, all three defendants can make a good case that they should be tried separately. Mr. Lay has far fewer charges pending against him than either Messrs. Skilling and Causey. Indeed, four charges against Mr. Lay involve personal banking matters that do not even relate to Enron's business. On the other hand, Messrs. Skilling and Causey are each accused of 35 or more counts of conspiracy, fraud and insider trading in a scheme to manipulate Enron's earnings while getting rich personally.

In his motion, Mr. Skilling argues that the indictment against Mr. Causey and him "strains" to link Mr. Lay and him, and that the jury deciding Mr. Skilling's fate should not be tainted by evidence introduced against Messrs. Lay and Causey. On the other hand, Mr. Causey -- who is not nearly as well known as either Mr. Lay or Mr. Skilling -- argues that the jury in his case should not be prejudiced by the noteriety of his better-known co-defendants who would be sitting next to him in a joint trial.

U.S. District Judge Sim Lake has not yet set a trial date for any of the cases against the three men. Mr. Lay has requested a trial as soon as possible. Enron Task Force prosecutors have requested March 2005 trial, while Messrs. Skilling and Causey have requested a March 2006 trial.

Posted by Tom at 8:56 PM | Comments (0) | TrackBack (0)

Anadarko announces big asset sales

Houston-based Anadarko Petroleum Corp. announced plans today to sell its Gulf of Mexico shelf properties through two deals valued at a total of $1.31 billion. The deals are part of Anadarko's plan to refocus on exploration and other areas where the company believes it can achieve sustainable growth.

Houston-based Apache Corp. will acquire part of the properties for $537 million and Morgan Stanley's Capital Group trading unit will pay Anadarko $775 million to acquire an overriding royalty interest in some of the reserves that are expected to be produced over the next four years.

As noted here earlier, Anadarko announced plans in June to sell oil and natural-gas properties valued at about $2.5 billion in connection with its plan the company more competitive by focusing on such areas as exploration and unconventional resource development and exploitation. Anadarko expects to use about $1.4 billion of proceeds from its asset sales to reduce debt and the rest to buy back stock.

By divesting of its Gulf shelf properties, Anadarko will can focus on its Gulf deepwater exploration program, which is expected to be the single-largest contributor to Anadarko's growth target over the next five years. Anadarko's shelf (i.e., shallow-water) properties include 78 fields and 112 platforms. When the asset sales are completed, Anadarko will operate only one offshore platform in the Gulf of Mexico.

Posted by Tom at 1:50 PM | Comments (0) | TrackBack (0)

Are you ready to rumble?

Check out this highly entertaining Washington Post article today on the Olympic Water Polo Tournament:

Water polo is a combination of swimming, soccer and basketball, plus wrestling, boxing and mugging. The players are phenomenal athletes who perform amazing feats of speed, grace, stamina and ball-handling. They also perform amazing feats of kicking, punching, scratching, clawing and choking. And that's just the men. The women are also fond of tearing each other's bathing suits off.

Uh, what channel is the Olympic Water Polo Tournament on?

"It gets pretty feisty," agrees Natalie Golda, 22, a defender on the U.S. women's team. "On top of the water, it looks pretty mellow -- you're passing the ball around -- but under water, they're grabbing, they're punching and people are getting dunked. Sometimes they'll pull you under water for so long, you're thinking, 'If I don't get air, soon, I'll be in trouble.' "

And, how exactly does this whole "tear off the swimsuit" thing happen?:

If your eyes follow the ball, you see a fair amount of fighting, but the real action, brutality-wise, occurs as players who don't have the ball fight for position in the prime real estate in front of the goal. . .

Frequently, a player will suddenly disappear under the water, as if yanked down by an invisible hand. That's because he was yanked down by an invisible hand -- the hand of an opponent.

For men, the preferred method of dunking an opponent is to grab the body and yank down, Golda says. For women, it's grabbing the opponent's swimsuit and yanking down.

"They'll grab the suit in the back and twist it, and sometimes it'll tear off," she says. "So you lose quite a few suits."

When that happens, she says, "you play as long as you can and then you get subbed out."

This article may be the most effective advertisement in history for an obscure Olympic sport.

Equally hilarious is the coach of the U.S. mens' team, who apparently knows a thing or two about how to play the game:

After the U.S. men's team beat Kazakhstan 9-6 on Tuesday, Ratko Rudic, the legendary coach of the American team, lumbered into the "mix zone" where players meet the media, grumbling to reporters about the brutality of the Kazakh team.

"This is not football, it's water polo," he fumed through his thick, bristly mustache. "If some teams can't get the result they want, this is how they play."

"This game was so violent," said Rudic, 56. "I can't remember such a violent game."

It was an odd statement coming from Rudic, who has never been mistaken for Mahatma Gandhi. . .

Coaching Italy in Sydney in 2000, Rudic argued so vociferously with a referee that he had to be restrained by police, and he was later suspended from the sport for a year over the incident. That didn't hurt his career: When the year was up, he was hired by USA Water Polo to whip the mediocre American team into shape.

And now, in Athens, Rudic was shocked -- shocked! -- at the violence in water polo.

"Who will protect us?" he asked.

However, Coach Rudic's assessment that the Kazakhs were guilty of excessive violence was not shared by all the U.S. team members:

Defenseman Dan Klatt, 25, who scored one goal, didn't think the Kazakhs were particularly brutal, . .

"A couple guys got punched in the face and a couple got kicked in the face," he said with a shrug. "But that's just part of the game."

But then the interview was interrupted by a television shot of another game:

Up on the big TV screen was a candid shot from the pool: A Russian player appeared to be giving a Serb player a big bear hug. The Serb hugged him back.

For a split second, it looked like one of those heartwarming moments of Olympic brotherhood. Then the two men started trying to drown each other, and you realized it was just another heartwarming moment of Olympic water polo.

Enjoy the entire piece.

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

More on the Cowboys' stadium deal

Professor Depken is providing clear thinking on the Dallas Cowboys' proposed new stadium deal with Arlington. Check it out.

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

Primer on higher oil prices

This Wall Street Journal ($) article provides a timely overview of the economic and political forces that have caused the increased energy prices over the past two years and how this price hike differs from previous ones:

As oil prices near $50 a barrel, a fundamental difference between this oil crunch and prior ones is becoming clear: This one is less acute, but it may prove to be more chronic.

So far, the current oil-price surge still trails the big blows of the past. In inflation-adjusted dollars, oil peaked in 1981 at $73 a barrel, 55% above where it's trading now. Back then, moreover, the oil crisis sparked a full-blown recession. Today, despite some signs of a slowing, the economy continues to grow -- and, with it, oil demand.

However, it's that knotty problem of growth that continues to push prices upward:

It's precisely the steadily rising demand, however, that is worrying the market. Unlike in the 1970s, the problem this time isn't primarily a supply shock in which the world's biggest oil spigots have been shut off. It's that, even though they're wide open, the world is consuming pretty much everything that comes out of the ground. The resulting fear is that isolated supply disruptions -- a change in government in Venezuela, say, or a terrorist attack in the Middle East -- could push prices even higher.

And although U.S. energy prices remain relatively high, there are contrarians as to the current prices:

Still, [U.S.] commercial inventories of crude oil are 5% above last year's level, and gasoline stocks are up 4.5%.

Some observers see the U.S. inventory levels as evidence that there's plenty of oil to meet growing demand and that today's oil price is largely the result of excessive speculation. Trading volume has soared in recent months as hedge funds and other fast-moving traders have headed into the oil markets. "I don't think the fundamentals support prices anywhere close to this level," says Kyle Cooper, an oil analyst at Citigroup in Houston. He believes prices should be closer to $30.

But futures markets are still betting on continued high prices:

The market isn't betting on a quick fix. In a big change from past experience, this time it isn't just the price of today's oil that's surging. Futures contracts through May 2006 delivery are above $40. The contracted price of oil to be delivered six years down the road is also rising. After years in which they hovered between $20 and $25, these so-called six-year futures now are trading around $35.

And although the market takes time to adjust to higher energy prices, it does eventually work, as reflected in its reaction to the energy price hike of the 1970's:

Improving energy efficiency takes a long time. But it can be done, says a longtime advocate, Amory Lovins, chief executive of the Colorado-based Rocky Mountain Institute. He says that between 1977 and 1985, real GDP in the U.S. grew by 27% while oil use fell by 17%.

By his calculation, if the U.S. kept reducing oil use at that pace, every year and a half the U.S. would decrease its daily oil consumption by some 2.5 million barrels, about the amount it currently imports from the Gulf. "It's a measure of how much we did the last time we paid attention," Mr. Lovins says.

Read the entire piece. Moreover, here is an NY Times article on speculation regarding similar increases in natural gas prices.

Also, for more analysis on how this energy price hike relative to past ones, review this earlier post on the work of James D. Hamilton, an economics professor from San Diego who specializes in analysis of energy markets.

Posted by Tom at 4:51 AM | Comments (0) | TrackBack (0)

August 19, 2004

Enron cases are different

You know that the criminal cases related to the demise of Enron Corp. are a different breed of cat when articles such as this appear in the Houston Chronicle explaining what former Enron chairman Kenneth Lay and former Enron CEO Jeffrey Skilling are going in their spare time while preparing for trial:

Enron's two former top guns are keeping busy -- one doing court-ordered charity work at a warehouse and the other pulling together a self-explanatory Web site.

Ex-Enron Chief Executive Officer Jeff Skilling has been seen doing menial chores at a Houston Habitat for Humanity warehouse and ex-Enron Chairman Ken Lay and staff are working on an Internet site to present information he wants the public to know about his case.

Skilling is fulfilling a magistrate judge's order that he do charity work by mopping up and doing other chores at a Houston Habitat for Humanity warehouse. . . U.S. Magistrate Judge Frances Stacy required that Skilling, whose lawyers said preparing his legal defenses was his full-time job, also perform community service while on bond.

Skilling's codefendant ex-Chairman Ken Lay is working with his staff preparing a Web site not yet ready for viewing.

Lay has pleaded not guilty to seven counts of conspiracy and fraud relating to his last months at Enron and four felonies relating to fraud in his personal banking. . .

Kelly Kimberly, Lay's publicist, said they are in the process of developing background on Lay and up-to-date information on his case.

When last contacted about the Web site, www.kenlayinfo.com, Kimberly said no launch date had been chosen.

Is it just a matter of time before the Justice Department hires publicists and and creates websites for the prosecution?

Posted by Tom at 6:57 PM | Comments (0) | TrackBack (0)

Break'em up

The Stros and the Phillies picked up this afternoon where they left off last night as the Stros came back from a 7-2 deficit with a seven run seventh inning to sweep the Phils and win their fourth straight, 12-10.

Oddly, the Stros' big rally actually began with the Stros in the field as they pulled off an Ensberg to JK to Lamb triple play (the Stros first since 1991) with the bases loaded and no outs in the bottom of the fifth. Then, Bidg started the seventh inning heroics with a two run shot that was quickly followed by Lance Berkman's massive two run yak to staight away center. Then, as the Phillies relievers proved that they are one of the worst groups in the league, light-hitting Eric Bruntlett uncorked a three run tater to left to complete the explosion. The Stros tacked on a couple more on JK's double in the ninth to complete their scoring.

Carlos Hernandez was roughed up in his second start since being recalled from AAA, which is to be expected as he continues to regain arm strength from last season's labrum surgery. After Bullinger fiddled around with allowing the Phils to close to within 12-10, Miceli came in to get the final out in the eighth and then Lidge closed this one out with a spotless ninth.

The Stros come home to meet the Cubs in a weekender with Pete Munro leading the way on Friday, with newly-recalled Brandon Backe probably going on Saturday and Roy O pitching the Sunday matinee. The Phils come to Houston for a little payback in a three game series that begins on Monday.

Posted by Tom at 3:50 PM | Comments (0) | TrackBack (0)

Joe Sheehan on the Stros: "Time to say good-bye"

Joe Sheehan is one of the best writers at the incomparable baseball Baseball Prospectus. Yesterday he penned the following summary analysis on what has happened to the Stros this season and the prospects for the future:

For the Astros, Roger Clemens is a candidate for the Cy Young Award, and Roy Oswalt has been a top-ten starter in the NL. Andy Pettitte and Wade Miller, however, have combined for 30 starts, while Tim Redding put up a 5.73 ERA and lost his spot in June. Brandon Duckworth was awful in his stead. The trade of Billy Wagner to the Phillies has been blamed for some of the Astros' pitching problems, but the real culprit was the rotation. The Astros had plenty of pitching with which to replace Wagner in the back of the bullpen--Brad Lidge has been dominant, and Octavio Dotel was effective before being traded--but when three-fifths of the rotation averaged 5 2/3 innings a start, the strain on the bottom of the staff cost the the team a lot of games in the early part of the season.

It didn't help that this was the year in which the Astros' offense finally died, and it did so while getting Craig Biggio's best season since he was a second baseman back in 2001. The team's .257 EqA ranks 12th in the NL. This will be the first below-average offense the Astros have had since 1991, Jeff Bagwell's rookie season. Thirteen years later, Bagwell has been part of the problem, his bum right shoulder limiting him to a .443 slugging average that is flirting with his career low.

Jeff Kent and Morgan Ensberg have been disappointing as well, and a team carrying Brad Ausmus and Adam Everett just can't affford that many underachievers. Even upgrading from Richard Hidalgo to Carlos Beltran in June wasn't enough.

It would be nice if there was one easy answer to the Astros' collapse, but there isn't, and that's baseball. Sometimes, if everyone is a little off-a couple of pitchers get hurt, a couple of hitters find their decline phase-you're not good enough to win any longer. That's the edge the Astros, with their love for their veteran players, have balanced on for a few seasons now. This year, even with Roger Clemens coming aboard and doing Roger Clemens things, they finally fell off.

It's time to start over. While there will be a considerable desire to bring back the popular core of this team for another run, there's no baseball reason for doing so. It's an old team with no upside whose best player, Beltran, isn't coming back. There's no core of young talent ready to step in an rejuvenate the lineup, and there isn't the willingness or ability to spend $100 million on the payroll, which might be enough to keep the engine running.

The Killer Bs had a long and prosperous run, winning four division titles in five seasons at their Larry Dierker peak. That they never won a playoff series became their story, but the fact remains that this is the dominant team in the storied history of the NL Central.

And it's time to say goodbye to it.

Hat tip to the Astro in Exile for the link to Mr. Sheehan's piece.

Posted by Tom at 9:10 AM | Comments (3) | TrackBack (0)

California's worst nightmare

Check out Tyler Cowen's mini-review of an independent Mexican film that sounds both interesting and hilarious.

Posted by Tom at 8:33 AM | Comments (0) | TrackBack (0)

NY Times picks up on "Houston. It's Worth It" campaign

Following on Charles Kuffner's blog post on the subject, this NY Times article reports on the the "Houston. It's Worth It" Internet-based branding campaign, which permits people who visit a Web site to describe why they enjoy Houston:

Financed in part by Michael Zilkha, a wealthy wind-energy entrepreneur and a prominent patron of the arts in Houston, a guerrilla-style branding offensive began this month. The campaign, using the slogan "Houston. It's Worth It," relies on descriptions of urban afflictions and images of giant mosquitoes and cockroaches to convey a sense of how Houston is nevertheless beloved by many residents.

The Internet-based branding campaign permits people who visit a Web site, www.houstonitsworthit.com, to describe in their own words why living in the city has its advantages. Functioning as a blog, or Web log, the site has received hundreds of comments from residents or people with a connection to the city.

The Times reports that one of the main goals of the originators of campaign was to distinguish it from past failed campaigns to promote Houston:

Distancing the campaign from past efforts was of paramount importance to its creators at ttweak, the marketing and advertising company based in the leafy bohemian district of Montrose. Ttweak became known in the last year for leading the unconventional advertising strategy for Bill White, a Democrat who was elected mayor of Houston in December.

"The 'in spite of all the afflictions here' angle really appealed to us," said Randy Twaddle, who owns ttweak with a partner, David Thompson.

Or, as the website puts it:

"A city must know itself before it can sell itself."

Read the whole piece.

Posted by Tom at 8:26 AM | Comments (0) | TrackBack (1)

Update on the sad case of Jamie Olis

David Gerger, appellate counsel for former Dynegy finance employee Jamie Olis filed Mr. Olis' appellant's brief with the Fifth Circuit Court of Appeals this week in which Mr. Gerger contends that Mr. Olis' conviction and 24-year prison sentence should be overturned because of insufficient evidence and U.S. District Judge Sim Lake's alleged misapplication of federal sentencing guidelines.

Interestingly, Mr. Gerger also represents former Enron CFO Andrew Fastow in connection with his plea bargain with the Enron Task Force, and Judge Lake is also overseeing the pending high profile criminal cases of former Enron executives Kenneth Lay, Jeffrey Skilling, and Richard Causey.

One of Mr. Gerger's main arguments is that Mr. Olis' sentence should be subject to the U.S. Supreme Court's recent ruling in Blakely v. Washington that suggests that federal judges should be prohibited from increasing a sentence using factors not proved before a jury beyond a reasonable doubt. Previous posts are here on the Blakely decision.

Posted by Tom at 7:07 AM | Comments (0) | TrackBack (0)

Stros edge Phils in wild one

Roger Clemens hurt his right calf running the bases (he does everything for the Stros, you know) and watched as his teammates beat the Phils 9-8 on Wednesday night in the type of game that just might be the straw that breaks the camel's back in the Phils' decision on when to fire the Boa Constrictor.

Carlos Beltran's two-run double in the eighth inning was the game winner on a day in which -- as predicted here -- the Stros learned that Andy Pettitte will have season-ending elbow surgery next week. Pettitte and the Stros are telling the media that he expects to be ready to pitch again by spring training in 2005, but don't bet on that. Best case is that he pitches again sometime next season, more likely by around June or so.

Clemens is day to day after straining his right calf running to first base on his two-run single in the fourth, but doesn't expect to miss his next start. Before he left the game, the Rocket gave up four runs in three innings in this unusually wild affair. Beltran finished with two hits and three RBI for the Stros, who somehow remain just are six games behind the Giants in the race for the NL wild-card playoff spot. The Stros hitters uncharacteristically cranked out 13 hits, including at least one by every starter. Just to make sure that this see-saw game ended on an appropriate note, Brad Lidge retired a pinch-hitter on a shallow fly ball with the bases loaded to end the game. The loss means that the Phils are now 1-8 on their current homestand, which is not going over well with the Philly locals

The Stros have moved Carlos Hernandez up in the rotation to pitch today's businessman's special in Philly before the club returns home to battle the Cubbies in a weekend series at the Juice Box.

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

August 18, 2004

H'mm . . .

As if there wasn't enough gossip being generated in the Texas Medical Center these days, this Chronicle article reports as follows:

Texas Children's Hospital's longtime chief financial officer, Sally Nelson, has resigned from her job as executive vice president and CFO after 18 years with the hospital.

Nelson left the positions she's held since 1987 a week ago, the hospital said. On Tuesday it released a brief statement thanking Nelson for her years of service without offering an explanation for her sudden exit.

Reached at her Houston home, Nelson directed all inquiries about the reason for her abrupt resignation to Texas Children's, the nation's largest pediatric hospital.

"You'll have to call the marketing department at the hospital about that," she said. "They'll tell you all about it."

The hospital, however, would not comment beyond saying that Randall Wright, senior vice president and chief information officer at Texas Children's, will serve as the acting executive vice president and CFO.

"It's our policy and our practice to respect the privacy of our current and former employes, so the statement includes only the information that we can release," Texas Children's spokeswoman Jennifer Hart said.

Posted by Tom at 6:58 AM | Comments (0) | TrackBack (0)

WSJ on KPMG tax shelter investigation

This Wall Street Journal ($) article follows up on the status of the government's investigation into KPMG's tax shelter practice and emphasizes the involvement of lawyers (from the Wall Street firm, Brown & Wood) in the promotion of that practice. Here are the previous posts on this investigation and KPMG.

Suffice it to say that this saga is not likely to end well for either KPMG or Brown & Wood (now merged with Sidley, Austin).

Posted by Tom at 5:07 AM | Comments (0) | TrackBack (0)

August 17, 2004

Stros cruise by Phils

Roy O, Mike Gallo, and Dan Miceli combined on a five-hitter, and Raul Chavez hit an improbable three-run double as the Stros won their second straight 5-0 victory over the free-falling Phillies on Tuesday night in Philly.

Staked to an unusual big lead, Oswalt (13-8) was dominant, allowing five hits, striking out seven and walking two in 7 2-3 innings to win his fifth straight decision. Gallo got the final out in the eighth, and Miceli pitched a perfect ninth to gain only the Stros' third win in their last nine games. It was the club's 10th shutout this season.

The Phillies were shut out for the fourth time and fell to 1-7 on their current homestand. The loss did not go over well with the Philly faithful, who let the Phils know about their acute displeasure after each futile at bat.

By the way, just to show how bad the Stros are at the catcher position this season, Chavez's big night now gives him 15 RBIs in 111 at-bats this season and he is still a better hitter statistically than the Stros' regular catcher, the impotent Brad Ausmus. Ugh!

The Rocket takes the hill in the second game of the Phils series as Andy Pettitte goes to have his sore left elbow examined by Dr. Andrews in Birmingham. That is usually a precursor to surgery, so don't expect to see Pettitte pitch again for a long while.

Posted by Tom at 9:26 PM | Comments (0) | TrackBack (0)

In case you are not updating your virus, spyware, and adware protection regularly . . .

and maybe even if you are, read this.

Posted by Tom at 1:31 PM | Comments (4) | TrackBack (0)

American Olympic basketball prospects improve

On the heels of the United States Olympic Basketball team's loss to Puerto Rico in the first round of the Olympic Basketball Tournament, Sportspickle.com reports the following:

"U.S. Grants Puerto Rico Statehood in Hopes of Winning Basketball Gold"

Hat tip to Will Veber for the link.

Posted by Tom at 12:30 PM | Comments (0) | TrackBack (0)

Arlington and the Cowboys have a deal

The Arlington City Council and the Dallas Cowboys apparently have struck a deal on a new stadium for the Cowboys, subject to voter approval.

Professor Depken over at Heavy Lifting provides an objective analysis of the proposed deal.

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Beethoven's "Stairway to Heaven"

Check out the Stairway Suite, in which University of New South Wales Orchestra plays Led Zeppelin's "classic" rock tune "Stairway to Heaven" as if it had been composed by composers Franz Schubert, Gustav Holst, Glen Miller, Gustav Mahler, Georges Bizet, and Ludwig von Beethoven. My favorites: Ludwig Von, with Glen Miller coming in a close second.

Hat tip to Newmark's Door for the link to this hilarious site.

Posted by Tom at 6:09 AM | Comments (0) | TrackBack (0)

August 16, 2004

Is Ken Lay a criminal?

William Anderson is an economics professor at Frostburg State University and an adjunct scholar at the Mises Institute. Here is an earlier post in which Professor Anderson challenged the reasoning behind an indictment earlier this year of several former executives of Houston-based Reliant Resources.

In this article that he co-authored with California attorney Candice E. Jackson, Professor Anderson challenges the conventional wisdom that the indictment of former Enron chairman and CEO Kenneth Lay is justified:

The "prosecutor as hero" theme reverberates in the media. What follows (from the July 19, 2004, edition of U.S. News) is typical of the state-worshiping press in the wake of the Lay indictments:

The federal prosecutors mopping up after corporate scandals can remember the summer of 2004 as their season of sweet victory. Last week a jury convicted Adelphia Communications founder John Rigas and his son Timothy Rigas of conspiracy, bank fraud, and securities fraud. A judge denied Martha Stewart's bid for a retrial and will deliver her sentence this week. And charges finally reached the top in the biggest case of all when a grand jury indicted former Enron CEO Kenneth Lay on 11 criminal counts, including bank fraud, securities fraud, and making misleading statements.

One would remind people that the supposed pursuit of "justice" is not a game in which we have "victory." These are legal procedures that destroy families, incarcerate talented people, and eviscerate legitimate business firms, apparently so that U.S. attorneys can bask in the glory that only the news media can provide.

Indeed, in Professor Anderson's view, Mr. Lay is a political prisoner:

Ken Lay is a political prisoner. To put it another way, the charges against him are political, not criminal in nature. He was in charge of a company that had a spectacular fall, which is not a surprise, given that Enron was riding the crest of a speculative bubble that almost certainly was going to burst.

And such criminalization of ordinary business behavior likely would not change under a Kerry Administration:

The problem with the Lay indictment, according to Kerry, whose campaign advertisements tout his experience as a prosecutor, is that it did not come soon enough; Bush's friendship with Lay delayed what Kerry claimed should have been done three years ago.

This is disconcerting, to say the least. It took a long time for the DOJ to put together a case against Lay that even is presentable, and the indictment itself presents a weak (but politically charged) legal case. Kerry's response makes one wonder if he even believes that Lay should receive a fair trial at all -- or, for that matter, even a trial, as opposed to summary judgment or the infamous military tribunals.

Professor Anderson is particularly unimpressed with the substance of the indictment:

Indictments are written for maximum effect, and Lay's is no exception. . . Yet, after one slogs through the 65 pages or so (another ploy by the government to imply guilt -- the longer the document, the more guilty someone must be) in the federal indictment, one is struck by the lack of criminality.

The most "damning" charges stem from stock sales Lay made after it became clear that Enron was headed for trouble. Yet, his behavior during this whole episode does not square with the criminality that the government is alleging. For the most part, Lay held the bulk of his investments in Enron stock. When some of his financial advisors told him to diversify, he insisted on borrowing against his Enron stock to purchase other securities.

However, at times he received margin calls, which means that the borrower must produce cash immediately; the only thing he could sell quickly was his Enron stock, but then he also continued to purchase that stock even in the face of company problems. At the same time, he urged employees to purchase the stock, as he was doing.

Or, as the Wall Street Journal's Holman Jenkins put it shortly after Enron filed its chapter 11 case, "if Mr. Lay was committing securities fraud, he was shooting himself in the foot while doing it."

Professor Anderson then decries the media and the government's unwillingness to confront the weakness of the criminal case against Mr. Lay and the fact that he really does not have -- under the inflamed circumstances surrounding Enron's demise -- any realistic chance of receiving a fair trial:

These matters are public record, yet news accounts have made statements like "he was quietly dumping his Enron stock at the same time that he was urging employees to buy more," which says more about the integrity of U.S. mainstream journalists than it does Lay's stock sales. Even a cursory glance at the record demonstrates that reality is not what the government is claiming. But then, neither the government nor mainstream journalists are bound by truth; nothing should get in the way of a good story or a politically popular indictment.

[W]we are pessimistic about Lay's chances of avoiding conviction. His jurors most likely will consist of middle-class individuals who are loyal to the U.S. Government and will be of the mentality that anyone in the dock must be guilty by definition. Since the media has a vested interest in having been "right" in its demonization of Lay, it is doubtful that the coverage of the trial and pre-trial activities will change in its pro-prosecution, pro-government bias.

Professor Anderson then notes that that Mr. Lay's failures are better dealt with in the civil justice system rather than the criminal justice system:

It's doubtful that Lay is guilty of criminal activity, especially in the sales of Enron stock. However, as the chairman of the firm, he had fiduciary responsibilities to the firm and stockholders. Moreover, many of the decisions he made, in good faith or not, resulted in huge business losses for investors, not to mention employees who purchased large blocks of Enron stock.

These matters are better suited for civil, not criminal court. Historically, this has been the venue where issues like this were argued and -- at least to a point -- resolved. By muscling into this legal realm, U.S. attorneys not only are criminalizing acts that are not traditionally criminal, but they also ensure that the people who should be receiving real justice are left out.

In closing, Professor Anderson provides a disturbing insight into the current psyche of American society in regard to business leaders:

There is no doubt that there will be cheering when Lay's guilty verdict is announced and he is sentenced to what effectively will be a life term in prison. Americans have become people who enjoy watching others suffer -- particularly watching leaders fall from grace -- and perhaps one should remember that business executives have wives and children who also will have loved ones incarcerated for many years.

While U.S. attorneys are not providing bread and circuses to the masses, they are giving the public the next best thing: public humiliation of wealthy executives and their families, many of whom have committed the crime of being successful. Others, apparently, have committed the crime of not being successful enough.

Read the entire piece. As Professor Ribstein aptly notes in his blog today regarding yesterday's post about the Global Crossing, Ltd.:

Yes, it is true, that the market often got it wrong during the speculative bubble that ended with Enron. But as I've discussed, many people share the blame for this mass delusion, not least investors themselves. We are going to find as these cases go to trial that there are nuances here the headlines have missed, and that raise serious doubts about dealing with these cases as criminal matters.

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

Kerry's spending proposals

This post from a few days ago addressed the Bush Administration's rather lackluster record in regard to fiscal policy.

Now, American Enterprise Institute fellows Eric M. Engen and Kevin A. Hassett provide this analysis of John Kerry's spending promises combed from his public statements, policy memos, and other information provided by his campaign staff. the Kerry spending promises add up to an extraordinary amount of money. Their best estimate is that Kerry's proposals would increase federal spending $2 trillion and $2.5 trillion over the next ten years. Mr. Hassett comments:

[R]oughly half of this additional spending is attributable to Senator Kerry's health care proposals that would add more than $900 billion in federal outlays. Education expenditure accounts for nearly one quarter of Kerry's new spending, with almost $500 billion added over ten years. A $400 billion expansion of military personnel and benefits for veterans comprises most of the remainder of Kerry's spending plans, with the balance distributed among numerous social programs and increases in international aid.

Hat tip to the Marginal Revolution for the link to this foreboding analysis.

Posted by Tom at 6:51 AM | Comments (0) | TrackBack (0)

Arlington seeks new Cowboys stadium

Already the home of the Texas Rangers baseball club and AmeriQuest Field this Dallas Morning News (free online reg required) article reports on the city of Arlington's play to be the home of the Dallas Cowboys' new stadium.

As usual, Arlington city officials tout the economic benefits of the new stadium. However, Professor Sauer suggests otherwise.

Craig Depken, an economics professor at the University of Texas at Arlington who runs the Heavy Lifting blog, is doing a particularly good job of keeping up with the saga of the Cowboys' quest for a new stadium.

Posted by Tom at 6:32 AM | Comments (0) | TrackBack (0)

PGBC objects to United's financing plan

The federal Pension Guaranty Benefit Corporation, the quasi-governmental pension insurer, challenged the key portion of United Airline's new debtor-in-possession financing arrangement in United's Bankruptcy Court on Friday by asserting that the agreement violates federal-pension law by forbidding the company from contributing to its underfunded retirement plans. Earlier posts on United's chapter 11 case can be reviewed here.

The PBGC, which is a member of United's creditors' committee, appears to have a clear conflict of interest now with most other unsecured creditors of United, who face receiving a greatly reduced dividend -- or nothing at all -- on their unsecured claims if United has to meet its underfunded pension obligations.

The PBGC alleges that if United terminates the pension plans -- which would require the permission of the Bankruptcy Court and the PBGC -- it would be on the hook for $6.4 billion. In the event of a termination, the benefits that UAL's 120,000 workers and retirees would lose would amount to around $2 billion because they exceed the guarantee limits set by Congress.

United also asked the bankruptcy judge on Friday to extend to the end of the year the company's exclusive right to file a plan of reorganization, meaning it wouldn't have to compete with other plans filed with the Court by creditors. United's exclusive right currently expires on Aug. 30.

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

August 15, 2004

Stros finally beat Expos

After losing four straight to the Expos, the Stros rallied for three runs in the ninth to salvage the final game of the weekend series in Montreal, 5-4.

With the victory, the Stros ended a four-game losing streak and won for just the second time in their last eight games. Reflecting their futility this season, the Stros had been 0-51 before today's game when trailing after eight innings.

The Expos led 4-2 in the ninth when Jeff Kent and Michael Lamb hit consecutive one-out singles to chase Expos starter Livan Hernandez, who up to that point had allowed only Carlos Beltran's two-run yak in the first. Jason Lane then hit a run-scoring single off Expos reliever Ayala and Viz tied the score with a groundout to shortstop. Pinch-hitter Orlando Palmeiro then singled in the go-ahead run. Brad Lidge pitched the ninth for his 13th save in 15 chances.

The Stros get a golf day on Monday in Philly before opening a three game set against the Phils on Tuesday (sorry about the error in the previous Stros' posts--I had deluded myself into thinking the Stros got to play the equally woeful Reds next). The Stros return home on Friday for a big three game homestand against the Cubbies.

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

Interview with Professor Porter on health care finance

Following up on this earlier post, this NY Times piece interviews Michael E. Porter, who is one of America's foremost business theorists and who has been recently studying America's dysfunctional health care finance system. This is interesting reading on one of the most important domestic issues in American politics today.

Posted by Tom at 2:12 PM | Comments (0) | TrackBack (0)

How much longer does Carly have?

Following on prior posts here and here, the NY Times' Gretchen Morgenson examines the latest carnage at Hewlett-Packard, Inc over the continued inability of the company to generate any economic benefit from spending almost $20 billion in buying Compaq almost three years ago.

I wonder whether Professor Bainbridge will set up a pool on when H-P CEO Carly Fiorina will resign or be fired?

Posted by Tom at 2:05 PM | Comments (0) | TrackBack (0)

The importance of good timing in going bust

This NY Times article provides a fine report on the demise of Global Crossing, Ltd., the telecommunications company that went down under suspicious circumstances at the same time as Enron Corp. was cratering. However, unlike Enron, the Justice Department established no "Global Crossing Task Force." Moreover, neither Global Crossing CEO and chairman Gary Winnick nor any other Global Crossing executive was ever charged with a crime:

Along with Kenneth L. Lay of Enron, L. Dennis Kozlowski of Tyco International and Bernard J. Ebbers of WorldCom, Mr. Winnick has emerged as a symbol of the financial shenanigans behind the 1990's bull market. Unlike the others, however, Mr. Winnick, Global's founder and chairman, has already been cleared of criminal charges. The Justice Department quietly dropped a criminal fraud investigation of him on Christmas Eve of 2002, relieving him of the prospect of prison time.

Nevertheless, the allegations in pending civil lawsuits sound the same as the core allegations in pending criminal indictments against various former Enron executives:

J. P. Morgan Chase and other leading banks are seeking $1.7 billion in damages from Mr. Winnick and other Global Crossing executives, contending that the group engaged in a "massive scam" to "artificially inflate" the company's performance to secure desperately needed loans. . .

Among other things, the suit refocuses attention on exactly what Mr. Winnick knew about his company's finances during times when it was borrowing heavily and he was selling hundreds of millions of dollars in stock.

Which led the U.S. District Judge Gerald E. Lynch to comment with regard to the banks' case against Global Crossing:

"I am prepared to look at this case as, with all respect to the people involved, a bunch of crooks getting sued by a bunch of bankers who are too dumb to stop throwing money down the toilet."

Indeed, Global Crossings' growth was even more meteoric than Enron's:

In a three-year whirlwind, Mr. Winnick tapped the stock and bond markets for $20 billion, all on the prospect that Global would keep growing and securing new customers. Global went public in August 1998, its shares leaping from $9.50 to $13.40 the first day of trading. Less than two years later, with the stock at a peak of about $64, the market valued Global at $47 billion - more than PepsiCo, more than CBS, more than McDonald's.

None of Global's financials justified this. It lost $20 million on sales of just $424 million in 1998, and it would never earn a penny in profits after that. In fact, losses would balloon. In 2000 alone, Global lost $1.4 billion, a staggering amount for any start-up, no matter how bright its future.

Nonetheless, Mr. Winnick's $20 million initial stake in Global was, at its height, worth more than $6 billion. He had become a billionaire faster than anyone in American history - faster than Bill Gates, faster than John D. Rockefeller - and his picture landed on the cover of Forbes magazine, with a headline that read "Getting Rich at the Speed of Light.''

And, of course, as with Enron, Global Crossing had its helpers among market promoters, including the ubiquitous politicians:

Mr. Winnick's team also gave large donations to Republicans and Democrats, hired well-connected lobbyists in Washington and secured Wall Street's loyalty, including that of Jack Grubman, a Salomon Smith Barney analyst who played carnival barker for the telecom joyride of the 1990's. Mr. Grubman, whose firm reaped hefty fees for underwriting Global's stock and for advising it on acquisitions, lavishly praised Global in his investor reports.

However, Global Crossing's world came crashing down in 2001 as the telecommunications industry went through a severe shakeout. Although garnering only a fraction of the public attention of Enron's meltdown, Mr. Winnick's analysis of what caused Global Crossing's demise sound the same as that of Enron's Jeffrey Skilling or Kenneth Lay regarding Enron's collapse:

In his Congressional testimony in 2002, Mr. Winnick offered his thoughts on his company's fate. "Global Crossing's bankruptcy, based on the facts known to me, is not a result of fraud but of a catastrophe that befell an entire industry sector," he said. "I don't offer this as an excuse because it's certainly not an acceptable excuse. It's an explanation."

But, as with Enron, there are many who do not agree that Mr. Winnick and Global Crossing were just the victims of bad luck:

Susan Kalla, a telecom analyst at Friedman Billings Ramsey, said Mr. Winnick inflated the scope of every deal he struck and overstated what he was able to charge for access to Global's network. "I believe this guy has set American business culture back greatly," she said. "He wasted billions and billions of dollars that could have been spent on far more useful purposes. He's set innovation in the industry back by a decade because he, and others like him, beat investors down so badly. "This was just about speculation," she said.

Although Mr. Lay has been indicted for selling his Enron stock on margin calls while Enron spun downward in late 2001, Mr. Winnick skated free while selling his Global Crossing stock under the same circumstances:

According to the J. P. Morgan suit, [Mr. Winnick] sold $860 million worth of stock from 1999 to 2001, and the lawsuit contends that most was sold at a time when serious problems at the company were not being publicly disclosed. (Mr. Winnick's representatives contest that figure, saying he sold $735 million worth of stock.)

[Mr. Winnick's] lawyer, Mr. Christensen, said that all Mr. Winnick's stock sales were preplanned or tied to the normal course of business - including a sale of $123 million of shares in May 2001 that has drawn S.E.C. scrutiny.

In the months before that sale, Global's managers were on tenterhooks about the company's precarious finances, according to documents introduced in various lawsuits. One internal Global e-mail message from a customer service representative to a company vice president in March 2000 said the company was "losing customers left and right" because of "network problems" and "poor service." Three months later, Leo Hindery, the company's chief executive at the time, sent a memo to Mr. Winnick saying that Global's business "niche" was "going to die."

The J. P. Morgan lawsuit raises questions about what Mr. Winnick knew about Global's finances. It says that Mr. Winnick and other Global Crossing executives "personally oversaw and reviewed Global Crossing's financial results" and "were aware of Global Crossing's precarious financial position."

At meetings in April 2001, senior Global executives discussed that revenues were going to fall $1 billion short of earnings estimates that had already been shared with the public, according to memos uncovered by Congressional investigators. Mr. Winnick did not attend those meetings, but he sold his shares a month later - with, he told Congress, the approval of Global's chief executive.

In early June 2001, about two weeks after Mr. Winnick sold those shares, Global's lawyers closed the window on all insider stock sales, citing the company's deteriorating finances. Although Mr. Winnick orchestrated most of Global's biggest deals, raised all of the company's initial financing, answered analysts' questions at road shows, kept in daily contact with a string of executives and even supervised landscaping at Global's headquarters in Beverly Hills, he told Congressional investigators that it was not until that point that he learned Global would not hit its numbers. (His lawyer says others at the company did the numbers-crunching.)

And, as with Mr. Lay and Enron, Mr. Winnick was not the only Global Crossing executive to profit from stock sales while the company was spiraling downward:

Other Global executives also profited handsomely from a wave of stock sales. As a whole, the company's culture was, one former senior Global executive said, "just a hot-deal shop."

"There was this dichotomy between this small cabal in Beverly Hills and thousands of people in the rest of the country," said the former executive, who requested anonymity. "It was put together by a bunch of flippers who saw an amazing gravy train and nothing else."

So, why are dozens of former Enron executives currently subject to criminal proceedings while no former Global Crossing executives are experiencing similar troubles? Frankly, there is no good explanation. The answer lies primarily in politics -- a Republican administration could not afford politically to look as if it was going easy on Enron, which was a highly visible financial supporter of the President Bush's campaign. Although Global Crossing and Mr. Winnick also contributed to both political parties, Mr. Winnick's primary support was to former President Clinton, who was gone by the time that Global Crossing was going into the tank.

The discrepany in treatment between the Justice Department's handling of Enron and Global Crossing highlights the high risk of arbitrary and capricious results that occur when government seeks to criminalize business behavior. As Professor Ribstein has pointed out on several occasions, criminalization of ordinary business behavior risks diluting the moral force of the law, not to speak of discouraging beneficial risk-taking that generates economic development and job creation.

And the counterproductive political activity does not end with criminalization. Sarbones-Oxley Act ("SOX") was a political regulatory reaction to Enron and other business scandals of the early part of this decade, and Professor Ribstein's post today points to yet another article that hints of the negative effects of such increased regulation:

In a nutshell, after SOX executive pay becomes less risky and therefore provides lower-powered incentives, and firms are managed more conservatively. The authors concede that they establish only a temporal and not a causal relationship, but the inference is there.

Hopefully politicians and voters will remember that, just as a speculative market bubble can have a regulatory hangover, so a "regulatory bubble" like SOX can put a long-term damper on the market. But I doubt it.

Given the current popularity of criminalizing ordinary business behavior among politicians, I share the Professor's pessimism.

Posted by Tom at 1:42 PM | Comments (1) | TrackBack (1)

August 14, 2004

Expos pound Stros

The Stros wasted a solid pitching performance from Carlos Hernandez as their fragile bullpen again allowed the Expos to trounce the Stros late, 8-3 in Montreal on Saturday night.

Hernandez's performance was promising, as he yielded three runs on seven hits in six innings. His velocity is not what it was before his injury (a torn labrum), but he battled gamely and put the Stros in a position to win the game. Reliever Chad Qualls screwed the pooch, giving up 5 runs in the seventh, including a grand salami to Nick Johnson. Beyond Lidge, the Stros bullpen is falling into oblivion.

Oh, and let's not overlook the Stros' offense. Four hits, three runs. Bags had a two run yak and a double, but the impotency of the Stros' offense has to be discouraging for the pitching staff members, who know they have no margin for error.

Pete Munro attempts to salvage a game in this series before the Stros take off to Cincy for a series with the reeling Reds. It will be nice to see the Stros play a club that is playing as badly as they are.

Posted by Tom at 9:44 PM | Comments (0) | TrackBack (0)

VDH on the Politics of bashing

Victor Davis Hanson's NRO column this week picks up on the phenomenom that Professor Ribstein noted some time ago -- the almost pathological hatred of President Bush exhibited by some on the political left. The entire column is well worth reading, but Professor Hanson's conclusion is particularly insightful and also cautionary:

In short, the Left hates George W. Bush for who he is rather than what he does. Southern conservatism, evangelical Christianity, a black-and-white worldview, and a wealthy man's disdain for elite culture — none by itself earns hatred, of course, but each is a force multiplier of the other and so helps explain the evolution of disagreement into pathological venom.

September 11 cooled the furor of these aristocratic critics, but Iraq re-ignited it. Not voting for George Bush is, of course understandable and millions in fact will do precisely that. But for those haters who demonize the man, their knee-jerk disgust tells us far more about their own shallow characters than it does anything about our wartime president.

And there is a great danger in all these manifestations of pure hatred. We are in a war. And in these tumultuous days, the Left's unhinged odium will resonate with and embolden not only our enemies abroad, but also the deranged, dangerous folk here at home.

Read the entire piece.

Posted by Tom at 11:16 AM | Comments (6) | TrackBack (0)

The next big threat - EMP Blast

This Opinion Journal piece discusses the likely outcome of an Electromagnetic Pulse (EMP) attack on the United States, which Department Department officials have been being discussing just below the public surface for the past few years. Not a pretty prospect.

Posted by Tom at 10:50 AM | Comments (0) | TrackBack (0)

Expos edge Stros

The Expos came back to score two runs with two outs in the 12th to beat the Stros 6-5 for their sixth win in a row, three of which have come over the hapless Stros.

Chad Harville (does he not have any minor league options left or what?) blew his second straight save opportunity and took the loss for the Stros. After yaks by Carlos Beltran, Jeff Kent, and Morgan Ensberg had tied the game in the ninth and then given the Stros a 5-4 lead in the 12th, Harville pitched the 12th and actually got the first two outs. He then proceeded to give up a tater, two walks, and the game winning single. Why is this guy still on the major league roster?

Roger Clemens was not sharp, but he battled through six innings and kept his club in the game until the outburst in the ninth. Five other Stros relievers before Harville looked good. Again, why is this guy still on the major league roster?

Stros fans get to see former phenom Carlos Hernandez today get his first start in two years on his road back from shoulder surgery. Oh yeah, did I remember to ask why Harville is still pitching for the major league club?

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

August 13, 2004

Not touting the Google IPO

Commenting on the flap over the Google owners' Playboy interview that may delay the Google IPO that has already been postponed once, Professor Ribstein makes this common sense observation:

Can the Google boys be trusted with investors' money if they think it's more important to talk to Playboy than to protect their multi-billion-dollar public offering from regulators?

Posted by Tom at 6:28 AM | Comments (1) | TrackBack (0)

HP bloodletting nails former Compaq exec

Continued lackluster corporate spending on technology is seperating the strong from the weak quickly in the high-tech industry.

That was certainly apparent yesterday as Dell Inc. and International Business Machines Corp. detailed continued growth and new hiring, while Hewlett-Packard Co. stumbled badly and fired three top executives.

The gloomy outlook has dashed hope among tech executives and investors that the sector will soon return to the supercharged growth of the late 1990s. Pummeled again yesterday, the tech-heavy Nasdaq Composite Index is down 12.5% for the year, and 19% from its peak in late January.

Curiously, demand for high-tech goods remains good. World-wide shipments of personal computers rose 15.5% in the second quarter, and Commerce Department reports indicate that U.S. companies' spending on hardware and software increased 15% in the second quarter from a year ago.

H-P's troubles were rooted in its unit that makes computer servers and storage devices for corporate customers, which suffered from a botched software installation and aggressive discounting. The unit posted an operating loss of $208 million on revenue of $3.4 billion, contributing to a surprising earnings shortfall.

Chief Executive Carly Fiorina called the blunders "unacceptable" and promised that the unit would return to profitability in the current quarter. In a terse memo issued a few hours after the disappointing results, Ms. Fiorina announced the departures of three executives, including Peter Blackmore, head of the H-P's business sales division, who used to work for Houston-based Compaq before its merger with H-P.

Of course, now almost two and a half years after the questionable H-P - Compaq merger that Ms. Fiorina heavily promoted, could it also be said that that "blunder" is "unacceptable" and that Ms. Fiorina should be shown the door? Stay tuned on that one.

H-P is increasingly caught in a squeeze between Dell's low prices for basic corporate computers and IBM's increasingly innovative high-performance computers. Both rivals have been gaining market share against H-P since its acquisition of Compaq in 2002. As a result, H-P has been shifting toward lower-profit businesses. H-P's personal-computer unit, which has relatively low gross margins is growing faster than its servers and storage business, which typically has much higher gross margins.

My sense is that this is not going to end well for Ms. Fiorina.

Posted by Tom at 6:16 AM | Comments (4) | TrackBack (0)

U.S. Air on the brink

The Airline Pilots' Association's investment bankers at US Airways Group Inc. warned yesterday that the carrier could fail in the near future and is highly likely to file for chapter 11 bankruptcy protection by mid-September without substantial cost cuts.

Such a bankruptcy filing would be known as a "chapter 22" because US Air is already operating under a structure adopted under a reorganization plan approved in a previous chapter 11 case in 2002-03.

Arlington, Va.-based US Airways said it concurs with the report's conclusion that it is in the best interest of the company and its labor unions to reach consensual agreements quickly that will reduce expenses and help it implement its turnaround plan.

Although US Air is not far from its previous chapter 11 reorganization, the company has not been profitable because the domestic flight market is now controlled by discount airlines that have low costs and low fares. Add to that the recent spike in fuel prices and, before you know it, US Air posted a net loss of $143 million during the first part of its fiscal year.

Frankly, I do not understand how US Air can avoid going into the tank even with union concessions. It has a $130 million pension-plan contribution due on Sept. 15 that will consume liquidity if it is made. Its regional-jet financing arrangements with two manufacturers and General Electric Co. mature on Sept. 30 in the absence of a turnaround, and it is on the verge of defaulting on Sept. 30 on the terms of a federally guaranteed loan that provided the company with a portion of its exit financing out of Chapter 11 in 2003.

As Professor Ribstein has insightfully noted on several occasions, the market needs to be allowed to put at least one of these financially-strapped airlines out of its misery.

Posted by Tom at 5:48 AM | Comments (0) | TrackBack (1)

August 12, 2004

National Oilwell to acquire Varco

Houston-based National Oilwell Inc. announced plans to acquire Houston-based Varco International Inc. in a stock deal valued at about $2.22 billion. The deal will combine two companies that provide products and services for oil and natural gas drilling.

Terms of the agreement call for Varco stockholders to receive 0.8363 of a National Oilwell share for each Varco share. Based on National Oilwell's Wednesday closing price of $30.85 on the New York Stock Exchange, the transaction values each Varco share at $25.80, a 9.2% premium to Varco's Wednesday closing price of $23.62.

National Oilwell President and Chief Executive Pete Miller will serve in the same capacity of the combined company. John Lauletta, Varco's chairman and CEO, will serve as chairman of the combined company. Varco's president and chief operating officer, Joe Winkler, will serve as the operating chief. Each company will be equally represented on the board and, after closing of the deal, National Oilwell will change its name to National Oilwell Varco Inc.

National Oilwell expects that the transaction will add to earnings and cash flow per share in 2005. National Oilwell expects about $40 million to $50 million in pretax cost cuts as a result of production facility consolidation, expense reductions in sales and marketing and corporate overhead cuts that should be achieved by the end of 2005.

Posted by Tom at 3:37 PM | Comments (0) | TrackBack (0)

Stros exit New York meekly

The Stros looked like a team that needed to catch a flight as they could muster just two singles against four Mets pitchers and lost on Thursday afternoon at Shea Stadium, 2-1.

Andy Pettitte looked uncomfortable as he struggled with his control, giving up four hits and four walks in 5 2-3rd's innings against a Mets' lineup that has been eviscerated by injuries. The Stros were pathetic offensively, as Berkman singled in the only one and Manager Garner inexplicably benched two of his club's only five above average hitters -- Bags and Bidg.

I realize Garner is trying to shake the Stros up and get something started, but sometimes he appears to be trying too hard. This club struggles to hit generally and to hit with power particularly. Thus, there is simply no good reason not to be playing his five above-average hitters -- Berkman, Beltran, Bidg, Bags and Lamb -- almost every game. Beyond those five, it doesn't make much difference who hits for the Stros. Except for Kent, who represents exactly an average National League hitter this season, the rest of the Stros are either below average or well below average. Playing more of those guys than is necessary simply increases the risk of loss.

The Rocket gives the folks in Montreal one last opportunity to see one of the best pitchers of the past generation on Friday. Let's hope the Stros do some hitting rather than simply watching, too.

Posted by Tom at 3:22 PM | Comments (0) | TrackBack (0)

Government v. Business

Peter Gordon is a clever professor in the University of Southern California's School of Policy, Planning and Development and in its Department of Economics and is director of USC's Master of Real Estate Development program. Professor Gordon also runs a smart blog called Peter Gordon's Blog, which explores "the intersection of economic thinking and urban planning/real estate development and related big-think themes."

In this post, Professor Gordon addresses the L.A. City Council's recent decision to require more impact studies of possible harm before large centers such as Wal-Mart are allowed to be built in Los Angeles. With brevity and razor sharp insight, Professor Gordon points out the unintended consequences of such governmental action:

I imagine that the 13 of 15 L.A. City Council members who voted for this measure also dream of requiring studies of the "possible harm" before anyone can legally file to compete with them at the polls.

For now, the professional harm detectors have a windfall. The influence of politicians and their acolytes is extended. Inefficient retailers get a pass. The poorest customers have to travel further for lower prices and more variety. Entry level jobs are foreclosed, etc., etc., etc.

Conventional measure of the size of government understate the harm that politicians do. The full consequences of this stuff are not so easily detected.

Posted by Tom at 8:43 AM | Comments (0) | TrackBack (0)

Fiddling while Rome burns

Peter G. Peterson is founder of the Blackstone Group and founding president of The Concord Coalition, which is a bi-partisan citizen's group organized in 1992 for the purpose of building a constituency of fiscal responsibility.

In this New York Times book review, Financial Times and Weely Standard columnist Christopher Caldwell reviews Mr. Peterson's new book entitled "Running on Empty" in which Mr. Peterson lays out the case that politicians in both political parties have abandoned any pretense of fashioning responsible fiscal policy. That has resulted in the highly-leveraged state of various government entitlement programs such as Social Security and Medicare:

How we reached this pass can be stated simply: Republicans undertax, while Democrats overspend. For decades, Mr. Peterson writes, Democrats ''labored patiently to purge America of its traditional aversion to deficits," bribing voters with jobs and social-service programs that the country could not afford. Starting with the Emergency Recovery Tax Act of 1981, though, Republicans have learned that tax cuts and write-offs can be used as bribes in exactly the same way. Dependent on deficit spending, both parties have blown through every institutional constraint erected against reckless tax cuts and benefit expansions, from the Gramm-Rudman deficit ceilings of the 1980's to the Budget Enforcement Act of 1990. And they have blown the Social Security-tax surpluses meant to offset predictable future shortfalls.

And although he blames both political parties for this fiscal debacle, Mr. Peterson takes dead aim at the Bush Administration:

While Mr. Peterson blames both parties for conniving against fiscal common sense, he puts the present administration in a class of its own. George W. Bush has discarded traditional Republican qualms against big government, replacing the old Democratic model of tax-and-spend with his own model of borrow-and-spend. Thanks to three unaffordable tax cuts and an unfinanced Medicare drug benefit that will eventually cost $2 trillion a decade, Mr. Peterson writes, ''this administration and the Republican Congress have presided over the biggest, most reckless deterioration of America's finances in history."

But even more interesting is why politicians continue to ignore these clear warning signs of fiscal disaster? Mr. Peterson has a theory:

''[O]ur national leaders are providing the American people with precisely what they want." Debt, he notes, is particularly alluring in periods of partisan intransigence. If the two sides cannot compromise on priorities, each can take what it wants while dumping the bill on future generations. Americans used to understand this temptation and flee it. Thomas Jefferson warned: ''To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude."

Mr. Peterson's book highlights the watershed nature of this year's Presidential election. The Bush Administration has done precious little during its first four years to merit the support of voters who yearn for prudent fiscal reform of government entitlement programs. On the other hand, the Democrats have nominated a candidate with an extraordinarily weak record on the same issues.

Is Peterson correct that most voters simply do not care anymore about fiscal responsibility of government? Or has the public simply given in to the dark side of using debt to pay for our government's lack of fiscal responsibility? Interesting questions with no easy answers.

And to get a good idea of just how far the Bush Administration has strayed from sound economic policy, Tyler Cowen over at Marginal Revolution outlines what he believes the Bush Administration's economic platform should be.

Posted by Tom at 6:58 AM | Comments (0) | TrackBack (0)

Union requests a trustee in United chapter 11 case

Labor relations at UAL Corp.'s United Airlines hit a new low yesterday as United's the International Association of Machinists union asked the bankruptcy judge overseeing the carrier's chapter 11 case to appoint a trustee to operate the company.

Still fuming over over United's recent decision not to make required contributions to its underfunded pension plans, the machinists contended in their trustee motion that United has shown "misconduct, ... dishonesty and incompetence" by breaching fiduciary duties related to the plans, favoring some classes of creditors over others and failing to produce a workable business plan for a reorganization.

Frankly, the machinists' motion has about as much of a chance of succeeding on their motion as I have of winning the "Most Handsome Cowboy" contest at the Bluebonnet Dance Palace this Saturday night. United's decision not to make the pension payments was prudent and made to attract new capital to the company that would fund a reorganization plan that would avert a liquidation of United. The machinists have not accepted the reality that a United liquidation would be even worse for them than a reorganized United that terminates its pension plans but continues to provide jobs for the union's members.

Although it is unlikely that the bankruptcy court will grant the union's motion, the discord between the union and United management could affect United's improved operational performance of the past two years, which would cause further delays in generating the private capital necessary to fund a plan for United to emerge from chapter 11.

From my vantage point, the unions lack of a coherent strategy in the United reorganization is appalling.

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

Lay's proposed September trial date denied

U.S. District Judge Sim Lake denied former Enron Chairman and CEO Kenneth Lay's motion for a September trial date during a hearing on Wednesday, but agreed that Lay was entitled to a quick trial. Judge Lake did not set a trial date for the Lay case during the hearing.

Judge Lake ordered counsel for Mr. Lay, former Enron CEO and COO Jeffrey Skilling, and former chief accountant Rick Causey to make all their arguments about why each wants to be tried separately and said he will rule on those requests by early October.

Messrs. Causey and Skilling are each accused of 35 or more counts of conspiracy, fraud and insider trading in a scheme to manipulate the earnings of Enron to enrich themselves. Mr. Lay is charged with 11 counts, seven of which related to fraud and conspiracy at Enron and four of which relate to fraud in banking of his Enron stock.

In a particularly insightful question while reviewing the defendants' request to move the trial to another jurisdiction, Judge Lake asked during the hearing:

"Just out of curiosity, what district court in this country do you think would be free of any publicity of the demise of Enron?"

Judge Lake also chided Mr. Lay's lawyer, Mike Ramsey, who had conducted a press conference at the courthouse after filing the motion for a speedy trial in Mr. Lay's case on Monday. "Why don't you save the press conference until after this hearing?" the judge asked Mr. Ramsey with a wry smile.

Mr. Lay's strategy for a speedy trial is based on the fact that that the charges against him focus on the period immediately preceding Enron's bankruptcy. Messrs. Skilling and Causey face charges that focus on a wide range of activities that occurred over several years.

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

Stros slop past Mets

Light-hitting Brad Ausmus' RBI single in the 10th inning was the difference as the Stros went on to a 5-4 win over the Mets on a strange and sloppy Wednesday evening at Shea Stadium in Queens, New York.

The teams played through a steady rain until an hour long delay in the sixth. Lightning flashes throughout the early innings added to the eerie backdrop to the game.

Morgan Ensberg had three hits and scored twice for the Stros, who won for only the second time in seven games. Ensberg led off the 10th with an infield single, stole second and went to third on a groundout. With the infield drawn in, Ausmus hit a grounder past the diving Met third bagger down the left-field line to plate Ensberg with the game winner.

Brad Lidge struck out three in two scoreless innings for the win. Kirk Bullinger got three outs for his first career save, retiring a pinch-hitter with a runner on third to end this mess of a game.

Playing without injured starting pitcher Tom Glavine, slugger Mike Piazza, and shortstop Kaz Matsui, the injury-depleted Mets lost for the fourth time in five games. The Mets also lost left fielder Cliff Floyd during the game after he was nailed in the back by Stros starter Roy Oswalt's 95 mph fastball.

During the game, Oswalt slipped on the slick mound for a balk and matched a career high with five walks. In a particularly bizarre point in the game, Oswalt threw a pitch to the backstop on the fly in the third and, on the next pitch, the Mets' Danny Garcia's bat slipped out of his hands and sailed over the Stros' dugout into the stands.

What on earth were the umps thinking in continuing the game under these conditions?

Andy Pettitte attempts to throw his weekly five innings today against the Mets' Victor Zambrano before the Stros take off for Montreal and their last series in that city before the Expos' inevitable move after this season.

Posted by Tom at 5:34 AM | Comments (0) | TrackBack (0)

August 11, 2004

An order that most lawyers would not want to receive

Based on this order, I think it's fair to surmise that U.S. District Judge Sam Sparks is fed up with several lawyers.

Posted by Tom at 8:14 PM | Comments (0) | TrackBack (0)

Young golfers don't get it

Tour golf professional Chris DiMarco is interviewed in this month's Golf Digest. Asked to opine on the observation that younger Tour players don't seem to be having much fun while playing the Tour, DiMarco agrees and refers to a comment that fellow Tour professional Scott Hoch observed about fellow Tour pro Ty Tryon, who got his Tour card at the age of 17:

"Ty's not going to be able to experience some of the best nights that he can't remember."

Posted by Tom at 1:40 PM | Comments (0) | TrackBack (0)

This is unfortunate

With all the bad television shows that we must endure, I am saddened to learn this.

Posted by Tom at 9:20 AM | Comments (2) | TrackBack (0)

No. 17 at Whistling Straits

The final major golf tournament of the season -- the PGA -- is being played this week at Whistling Straits Golf Club on the windy shores of Lake Michigan in Kohler, Wisconsin. Whistling Straits is a relatively new golf course that has a reputation of being a monster. However, it has never hosted a major golf tournament and thus, is not that well known to the general golfing public.

I was taking a look at some pictures and video of the golf course last night and came across this picture of the incredible 223 yard 17th hole. Check out video flyover that reflects that the hole is even tougher than the picture suggests. I think I would use my "block right" swing on this one.

Posted by Tom at 9:04 AM | Comments (0) | TrackBack (0)

Where have all the fiscal conservatives gone?

Before you dismiss this season's Presidential race as an easy one between a profligate Democrat and a fiscally-restrained Republican, review this W. James Antle III piece from the The Foundation for Economic Education:

. . .over the past few years the Republicans have enjoyed unified control over both houses of Congress and the White House. Instead of a renaissance of spending restraint and economic freedom, government has grown at a prodigious clip.

According to the Cato Institute, total federal outlays are scheduled to rise by 29 percent between 2001 and 2005 while discretionary nondefense spending in particular will climb 36 percent over this same period. During President Bush's first term, we have seen three of the five largest annual increases in real discretionary spending of the past 40 years.

This is not to suggest that Mr. Kerry would enact policies to reduce this trend if he is elected President. However, it is important to remember when you hear the inevitable drumbeat from the Republicans that Mr. Bush and the Republican-controlled Congress are acting in a fiscally responsible manner.

Hat tip to the good folks at Southern Appeal for the link to this article.

Posted by Tom at 8:13 AM | Comments (0) | TrackBack (0)

Former El Paso traders targets of criminal probe

About a dozen former El Paso Corp. traders and their supervisors have been notified they are targets of a grand jury investigation into natural gas price manipulation. The former employees received target letters from the United States Attorney's office in Houston office advising them that they may face charges of commodity price manipulation, conspiracy and wire fraud.

The charges referred to in the target letters are virtually the same as those previously filed against Todd Geiger, a former El Paso trader who was accused of providing false information to Inside FERC's Gas Market Report. In December, 2003, Mr. Geiger pleaded guilty to one count or wire fraud and of reporting inaccurate information under the Commodity Exchange Act.

The government's investigation relates to natural gas price indexes, which various publications produced through surveys of energy traders and others. The indexes offer pricing snapshots for hubs across the country that buyers and sellers of natural gas use to help set prices in contracts. The Commodity Futures Trading Commission has filed civil charges against several companies over the past couple of years in which the CFTC claims that traders knowingly provided false data to publications with the intention of influencing natural gas prices. The CFTC has collected about $250 million in penalties from companies, including $30 million from the Royal Dutch/Shell trading subsidiary, Coral Energy Resources, and $20 million previously from El Paso.

Posted by Tom at 6:25 AM | Comments (0) | TrackBack (0)

The Market for Insuring Terrorism

The Wall Street Journal's ($) Holman Jenkins' Business World column today reviews the market for insuring against terrorist attacks, and what Mr. Jenkins finds is quite revealing:

The insurance industry's job is to quantify risk, and more and more evidence suggests that, in fact, we've pretty thoroughly smothered al Qaeda's ability to bring laborious, slow-moving plots on the scale of Sept. 11 to fruition. If so, actuaries will only be catching up with the insurance market, where terrorism coverage has been a hard sell, even with a dollop of taxpayer subsidy, because most property owners judge the risk to be negligible. But don't expect industry lobbyists to highlight this fact. Why give up a federal subsidy?

Both Republicans and Democrats on the influential House Financial Services Committee have already written to the White House urging renewal, though the law, known as the Terrorism Risk Insurance Act, doesn't expire for 15 months. John Snow at Treasury isn't likely to stand in the way. In fact, aside from the Consumer Federation of America (motto: "If insurance companies are for it, we're against it"), nobody has an obvious interest in lobbying on the other side -- unless, by some miracle, a dissenter should happen to emerge from the insurance industry itself.

Our nominee for this role: Warren Buffett.

Now, why would Mr. Buffett be an advocate for removing the federal subsidy on terrorism insurance? Read on:

The Berkshire Hathaway chief's most famous pronouncement concerned the inevitability of nuclear terrorism someday. Yet his firm actually has been one of the few large reinsurers willing to make big bets on target buildings like the Sears Tower. We suspect Mr. Buffett will end up laughing all the way to the bank on a careful judgment that the megaterrorist threat to the insurance industry's capital base is exaggerated.

Mr. Jenkins then points out that even the largest potential targets of terror attacks are held by companies that can absorb the risk of such an attack:

As former Treasury official and Wharton economist Kent Smetters points out in an excellent paper, many megatargets are owned by publicly traded companies, and it's not clear that insurance has much value for them: Their shareholders are already well diversified. Even the loss of a World Trade Center, at $40 billion, is hardly sneeze-worthy compared to the $100 billion fluctuations that such shareholders put up with in the equity markets every ho-hum day.

What about a nondiversified property owner with all his eggs in one target? That was the case with the Port Authority, owner of the World Trade Center. But even here "cat" bonds and other innovative instruments create ways to share the risk with willing investors in the global capital markets.

Read the whole piece. Another gem by one of the WSJ's best thinkers.

Posted by Tom at 6:03 AM | Comments (0) | TrackBack (0)

August 10, 2004

Mets waltz by listless Stros

In a matchup of fading teams that are dropping like rocks from wild-card contention, the Mets ended a three-game losing streak and handed the Stros their fifth loss in six games, 7-3 at Shea Stadium on Monday night.

Other than Berkman's solo yak, there is nothing for the Stros to talk about from this one. Several of the Stros -- particularly Kent and Ausmus -- appear to be going through the motions at this point. Munro and Redding were particularly bad as a weak hitting Mets club without Piazza lit the Stros' pitchers up for 10 hits and 17 total bases. In the most merciful move of the year to date, the Stros optioned Redding to New Orleans after the game and recalled long-awaited Carlos Hernandez.

At least it was nice to see former Stro Richard Hidalgo double in a run. I suspect most of the Stros enjoyed seeing him do well, too.

The Stros have a chance tomorrow night as Roy O is pitching. But the way the Stros hit, Oswalt better be thinking shut out.

Posted by Tom at 9:34 PM | Comments (0) | TrackBack (0)

Nigerian Barge case postponed again

The Enron Task Force's recent decision to re-indict the defendants in the Enron-related Nigerian Barge case has caused another postponement of the trial in that case.

The trial, which was scheduled to begin on either August 16 or 17th, has been pushed back by U.S. District Judge Ewing Werlein until September 20. That trial schedule would still make it the first criminal case involving former Enron executives actually to go to trial since Enron's collapse almost three years ago.

The government decided to re-indict the defendants recently because of concern over the U.S. Supreme Court's recent Blakely decision (prior posts here), which has called into question the Constitutionality of both state and federal sentencing guidelines, particularly in cases in which the jury did not consider the alleged loss caused by the alleged crime.

Included in the new indictment in the Nigerian Barge case are allegations that a scheme to pretend Enron sold Nigerian barges caused the loss of more than $80 million, which, if proven, would add years to a sentence under the federal sentencing guidelines.

However, I am not following the governement's theory of the case here. Neither Enron nor Merrill Lynch lost any money on this transaction, which was a relatively small deal in Enron's world involving about $12 million in profits for Merrill Lynch. Moreover, the alleged illegal accounting treatment for the deal was not discovered until after Enron was well into its bankruptcy case, so public disclosure of that alleged impropriety had no market impact on Enron's already worthless stock. Accordingly, I am still trying to figure out the government's theory that the deal caused damages of $80 million. Oh well, maybe I'll try to ask Jamie Olis.

At any rate, defense attorneys in the Nigerian Barge case had asked for the postponement because they said new expert financial testimony is necessary and new defenses need to be developed. The government asked Judge Werlein for a bifurcated trial in which the jury hears only about the alleged crimes in the first part and then, if there is a conviction, the jury would hear evidence of sentencing factors in the second stage.

Posted by Tom at 9:19 PM | Comments (0) | TrackBack (0)

Whose Constitution Is It, Anyway?

In this Wall Street Journal ($) book review, Northwestern University Law Professor John O. McGinniss reviews Stanford Law Dean and Professor Larry Kramer's new book -- "The People Themselves" -- in which he argues that the notion that the judiciary is the sole true arbiter of the Constitution under the American government is a fairly new and inaccurate view. As Professor McGinnis notes from Professor Kramer's work:

. . . the men who wrote the Constitution would have been aghast at a judicial monopoly on its interpretation. At the time, judges did not claim some exclusive power of constitutional settlement. They believed that judicial review stemmed from their duty to interpret all relevant laws in the course of litigation. But they did not dispute that the White House and Congress had their own duty to interpret the Constitution in the course of their own official actions.

Only later, when the Federalists feared that they would be voted out of office, did the doctrine of judicial supremacy come into play, to insulate Federalist court decisions from correction. But Mr. Kramer shows that presidents from Jefferson to Lincoln refused to yield all authority to judges. They embraced "departmentalism" -- each branch of government claiming an equal right to discover the Constitution's true meaning.

Professor Kramer notes that the doctrine of judicial supremacy has serious implications to American government and society:

Because the court is selected from a narrow social class, he notes, it tends to reflect the views of a modern "aristocracy." Only the willingness of other branches to disagree with the court prevents our constitutional republic from degenerating into a constitutional oligarchy -- with a priestly caste ruling, in effect, by fiat.

Mr. Kramer goes even further. He believes that "the people themselves" should be principal enforcers of the Constitution, as they long enforced the British Constitution through such devices as jury nullification and mobbing -- i.e., disturbing the peace. But the American Constitution differs from that of George III. In the U.S., the people themselves can reconstitute all branches of the government -- by voting for certain candidates instead of others, of course, and by thus affecting political appointments. Electoral accountability is the essence of popular constitutional control. Thus Americans have not typically resorted to mob violence. The contrast with the British Constitution is striking.

But Professor McGinnis is not completely sold on Professor Kramer's theory that varied interpretations of the Constitution protect our society against the tyranny of the majority:

The American Constitution also differs from the (unwritten) British one in its source of authority. In 1789 the Framers drafted a specific text that the people themselves ratified in every state. It is this consensus that gives the Constitution its power and justifies the disregard of even democratically made laws that conflict with it. But the meaning of that consensus can be discovered only by referring to the words themselves and to their historical context -- not by relying on the "political-legal" interpretation that Mr. Kramer suggests. Constitutional interpretation based on politics places the people's own considered judgments at the mercy of rash and temporary majorities. Only a document fixed by law -- and subject to strict rules of amendment -- can protect, in the words of Justice David Brewer, "Peter Sober from Peter Drunk."

Read the whole piece. Good stuff.

Posted by Tom at 11:20 AM | Comments (0) | TrackBack (0)

El Paso announces restatement of earnings from 1999-2003

Houston-based El Paso Corp. announced today that an internal review of its accounting has prompted the company to restate quarterly earnings from 1999 to 2003. El Paso noted in its announcement that stockholders' equity would be reduced by the move, but that "cash flow" would not be affected. As if this latter assurance is going to make creditors any more willing to provide credit to El Paso!

It has not been a good year for El Paso, which has been the subject of an overstatement of reserves scandal and multiple resulting investigations. Here are the previous posts on El Paso's troubles.

The restatement will result in increases and decreases in El Paso's quarterly earnings at its merchant energy and production units, and that earnings at the parent company level will also be restated. El Paso also noted that it had received waivers under its $3 billion revolving-credit facility giving it a Sept. 30 deadline to file its 2003 10-K, which the company believes it will be able to meet. An El Paso spokesperson contended that the restatements would not cause the company to default on any debt covenants.

The bankruptcy watch for El Paso continues, and there is nothing in this latest announcement that indicates that such a result is any less likely.

Posted by Tom at 10:51 AM | Comments (0) | TrackBack (0)

August 9, 2004

Ken Lay presses for a speedy trial

In an astounding move in a case of nearly unprecedented negative publicity, Ex-Enron Chairman and CEO Kenneth Lay requested U.S. District Judge Sim Lake today to grant a speedy trial -- even possibly waving a jury trial to get it -- in pleadings filed today in his pending criminal case in Houston.

Mr. Lay, who is presently facing 11 criminal charges in the same case as former Enron CEO and COO Jeffrey Skilling and ex-chief accountant Richard Causey, requested that Judge Lake sever Mr. Lay's case from that of Messrs. Skilling and Causey, and commence the trial of Lay in mid-September, just a month away.

Mike Ramsey -- Mr. Lay's criminal counsel -- estimated that the 11 criminal counts against Mr. Lay can be tried in three weeks to Judge Lake and about eight weeks if a jury hears it. In addressing the media at Houston's federal courthouse while filing pleadings on behalf of Mr. Lay today, Mr. Ramsey chided the Enron Task Force prosecutorial team for allegedly politicizing Mr. Lay's criminal case in inflammatory prosecutorial press conferences.

Mr. Lay's request for a speedy trial is a high risk strategy, but there are few alternatives in defending an Enron-related case that are not high-risk because of the noteriety of the Enron. The big fringe benefit of a quick trial to Mr. Lay is the severance of his case from that of Messrs. Skilling and Causey, who Mr. Lay will likely portray as being in control of the day-to-day affairs of Enron.

Also in pleadings filed today, the Enron Task Force noted that Lay has set aside $15 million to a legal defense fund, which Mr. Ramsey contended is not accurate because of the illiquid nature of a large portion of the assets transferred into the fund. Even with that hefty war chest, Mr. Lay is still running second to Mr. Skilling, who socked away $23 million of cold, hard cash in his legal defense fund.

The Enron Task Force is opposing Mr. Lay's request for a September trail date, but has proposed a fairly quick schedule that includes a March 2005 trial date. As one would expect, the Task Force prefers to try all there defendants together.

Judge Lake has scheduled a Wednesday hearing to discuss a trial date for the Mr. Lay's case.

Somewhat overshadowed in today's developments is the fact that, more than two and a half years after Enron collapsed into bankruptcy, the first criminal trial involving former Enron executives is currently scheduled to begin in Houston next Monday before U.S. District Judge Ewing Werlein in the case known as "The Nigerian Barge case."

Posted by Tom at 8:55 PM | Comments (0) | TrackBack (1)

It's going to be close, folks

Pejman Yousefzadeh, who was noted in this earlier post regarding his work on the benefits of futures markets in predicting terrorist attacks, has this interesting analysis of how the Electoral College vote is stacking up in regard to the upcoming Presidential election based on the current status of future markets. Check it out.

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

Fix the tax code in regard to health care finance

Wall Street Journal Editorial Board member Susan Lee proposes in today's WSJ ($) that the U.S. tax code be overhauled to mitigate the negative effects of the third party payor system that most Americans use to pay for health care:

Anybody who gives a few hours of thought to the current health-care system can identify the mother of these problems -- the widespread existence of a third-party payer system. Third party-payers come in the form of government, employers (who self-insure) or insurance companies. This arrangement insulates consumers of health care from its true cost and encourages overconsumption.

And as Ms. Lee notes, such an inefficient system makes perfect sense under the current U.S. Tax Code:

This kind of employer-sponsored plan actually makes sense since employer payments are excluded from taxes while direct, or out-of-pocket, payments by employees are made with after-tax dollars. In fact, the tax exclusion is the chief reason that employers pay $5 out of every $6 spent in the private market.

Inasmuch as the tax system causes the unfortunate third party payor system, Ms. Lee touts a reform that economists John Cogan, Glenn Hubbard and Daniel Kessler have proposed -- expand tax deductibility to out-of-pocket expenses and individually purchased health insurance. The syllabus for their proposal is here, and incorporates the recent legislation creating Health Savings Accounts ("HSA's), which are more fully explained in this previous post. Ms. Lee points out that the Messrs. Cogan, Hubbard, and Kessler's study indicates that such a proposal would have two effects:

The expansion of tax deductibility would have two effects. First would be the commonsense -- and perverse -- impact of increasing consumption and costs. Expanding tax deductibility would lower overall health care prices to consumers and thus increase demand.

But the second effect goes the other way, reducing heath-care consumption and costs. Currently, by making employer plans cheaper than individually purchased ones, the tax exclusion creates a bias toward employer plans and away from direct purchase. So extending the tax exclusion to direct purchases of health care would level the playing field. . .

For both the self-employed and those with employer-provided insurance, making out-of-pocket costs deductible will lower the price of direct health-care purchases relative to purchases made through insurance. Thus, insurance with higher deductibles and coinsurance, and fewer covered services -- that requires lower premiums -- will become more attractive. The shift will reduce the consumption of health- care services and reduce costs.

Lower premium prices are the key to this shift. When out-of-pocket costs are reduced by the proposed tax deduction, it will make less economic sense to pay the higher premiums charged for high deductible, high coinsurance policies. And, as it turns out, premium costs are very sensitive to the level of deductions and coinsurance.

Since low coinsurance and deductions are the engine behind rocketing costs and wasteful medical practices, providing consumers with the incentive to shift to policies with high coinsurance and deductibles is an elegant remedy. Extending the tax deductibility will do just that. Better yet, it is done without resorting to a larger government role in the health-care system.

The probable financial benefits of such a move are not insubstantial:

Although the theoretical impact of these two effects are ambiguous, the economists' empirical work demonstrates that the second effect will very likely overwhelm the first. For the first effect -- extension of the tax deduction will increase consumption and costs -- the economists estimate that it will cause annual health care spending to rise by about $5 billion. Then add another $1 billion in the increased coverage coming from those who are currently uninsured, and the total increase comes to $6 billion.

As for the second effect -- extension of the tax deduction will decrease costs because people shift to higher deductible, higher coinsurance policies -- the economists estimate that if the average deductible rises from $250 to $500, health-care spending would decline by $43 billion. If coinsurance rates also rise to 25%, health care spending would decline by $69 billion.

The bottom line is that the net reduction of spending on health care would be $63 billion a year.

Ms. Lee then notes a study by Kaiser Permenante Institute for Health Policy staff economists Laura Tollen and Jason Lee that indicates that higher coinsurance and deductibles make health care consumers more aware of the true cost of medical services and thus, will reduce non-essential heath-care utilization. Stated simply, when consumers have more "skin in the game," they will become more cost conscious and make better choices.

Finally, Ms. Lee notes that decreasing reliance on the employer funded health insurance system -- a system that arose during World War II to attract scare labor during a time of wage controls -- would have another fringe benefit:

But extending the tax exclusion has another nice effect. Under the current system, health insurance is a form of compensation to employees. That is, money wages are reduced by the amount of insurance the employer provides. Once the tax exclusion is extended, however, workers no longer have an incentive to take compensation in the form of pricey health insurance. They will shift to plans with higher deductibles and coinsurance and -- given a competitive market -- the savings from lower insurance premiums will be passed on to them in the form of higher money wages.

I have only one question regarding the foregoing commen sense proposal: Why isn't either Presidential candidate embracing such a commen sense proposal?

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

August 8, 2004

Expos rub Stros' noses in the dirt

The Expos won their first series on the road this season by taking advantage of the Stros' feckless offense in winning Sunday's matinee at the Juice Box against Roger Clemens, 5-2.

There will be much knashing of the teeth in the media over this latest Stros debacle, but it's really not much of a surprise. Since May 11th, when the Stros had their best record after 32 games in club history (21-11), the moribund Expos actually have a better record than the Stros (Expos: 34-44/Stros: 34-45). That's how sorry the Stros have been this season.

Clemens was solid again today, giving up only one earned run on eight hits over seven innings. But the Stros' hitters continue to scruff away at the plate. Today, they were only able to manage six singles and Ensberg's solo tater against mediocre Expos pitching. The three Expos starters in this series had a combined negative 32 runs saved against average this season, meaning that they have given up 32 more runs than an average National Leage pitcher has this season. The Stros were only able to manage seven runs in three games off of those well below average pitchers. Ouch!

The Stros players' runs created against average ("RCAA") and runs saved against average ("RSAA" and RCAA explained here) have not changed much from last week, so I will hold off on publishing them again until next week. Suffice to say for now that the Stros continue to tread water.

Berkman continues to be one of the ten best hitters in baseball, while Beltran also is quite solid if his numbers with the Royals are included -- his numbers with the Stros only are decent, but not as good as I hoped they would be. Bidg is starting to fade a bit, which is to be expected, and Bags has had a modest resurgance, although he is still only generating about half of the production this season than he did last season. Lamb is the only other Stro who is an above-average hitter this season. Every single other player is either below average or well below average, which means that the fact that the Stros' are 10th among the 16 N.L. teams in hitting is not surprising.

The Stros pitchers' RSAA is better (third in the N.L.), but that is somewhat deceptive. Miller has contributed a +11 RSAA, but is unlikely to pitch again this season. Clemens, Oswalt, and Lidge are all solid, but the remainder of the pitchers are either just above average or just below average, with the exception of Harville and Redding, who are pitching poorly and probably should be shipped to AAA to regain confidence.

The Stros' power drain this season has been deep and pervasive. Bidg is the only Stros' hitter who is hitting better this season than last season, although Berkman continues to hit at a very high level. As noted above, Bags is half the hitter he was last season, and last season was his fifth straight season of declining numbers. Ensberg has produced 32 fewer runs this season than last season, and Hidalgo's numbers were even worse than that before he left. Kent has gone from being a +13 RCAA last season to a 0 RCAA this season. Interestingly, Kent is an example of precisely an average National League hitter so far this season with his batting average/on base average/slugging percentage of .288/.342/.484.

The Stros get an off day tomorrow to think about all this, and then they begin a nine game road trip in New York on Tuesday against the Mets. At least Richard Hidalgo has cooled off so the Stros probably won't have to deal with the humiliation of Hidalgo going nuclear on them. On the other hand, the way this season has gone, the Stros will probably ignite Hidalgo into one of his legendary hitting streaks.

Posted by Tom at 6:35 PM | Comments (1) | TrackBack (0)

The Hellfighter is dead

One of Houston's genuine colorful characters of the past half-century -- Paul N. "Red" Adair -- has died on Saturday night at the age of 89 in Houston. In a rather stunning oversight, the Houston Chronicle does not have an article posted on Mr. Adair's death as of Sunday morning. Update: Finally, here is the Chronicle story.

Mr. Adair was a world-renowned oil well firefighter who revolutionized the science of capping oil and gas wells that had exploded and were burning. Although his work was incredibly dangerous, Mr. Adair often boasted that none of his employees ever suffered a serious injury while fighting the fires.

Mr. Adair founded Red Adair Co. Inc. in Houston in 1959. He is credited with battling more than 2,000 land and offshore oil well fires, including the hundreds of wells left burning after the Iraqis fled Kuwait at the end of the Persian Gulf War in 1991. The Houston native spent his 76th birthday clad in his traditional red overalls, swinging valves in place as his crews capped 117 Kuwaiti wells left burning by retreating Iraqi troops. Mr. Adair's expertise contributed to making a firefighting operation expected to last three to five years a nine month operation, which saved millions of barrels of oil and prevented a potential air pollution disaster.

Mr. Adair used explosives, drilling mud and concrete to control and cap wild well fires. His reputation for having never met a blowout he couldn't cap earned him the nickname "Hellfighter," which inspired the title of a 1968 movie based on Adair's life starring John Wayne. Mr. Adair always considered having Mr. Wayne play him in a movie was one of the highest honors that he ever received.

Posted by Tom at 7:30 AM | Comments (0) | TrackBack (1)

August 7, 2004

Expos pound Stros

The Expos scored six runs on six hits against a trio of the Stros' middle relievers as they embarrassed the home town club, 8-3 on Saturday night at the Juice Box.

Andy Pettitte went five innings and threw 57 pitches, gave up two runs on two hits, and left the game with a 3-2 lead. But Weathers (bad), Harville (awful), and Gallo (bad again) stunk up the place and, by the top of the eighth, the Expos had an 8-3 lead. Given the Stros' feeble hitting, that's tantamount to an insurmountable lead.

The Stros trotted out their typical popgun attack, flaring ten hits but producing only 13 total bases in the process. At least Phil Garner had the good sense finally to play Mike Lamb, who proceeded to produce a couple of the Stros' runs. Garner apparently knew what was coming on this evening and elected to take an early shower while arguing a dubious second inning out call on Vizcaino, who appeared simply to avoid the Expos pitcher on a close play at first, but was tagged out after the ump contended that he had evinced an intent to go to second. It's been that kind of season for the Stros.

The Rocket strides to the hill in the Sunday matinee as the Stros attempt to avoid the ignominy of losing a series to the lowly Expos. The Stros then leave for their last long roadie of the season to play the Mets, Expos, and Phillies before returning to the Juice Box on August 20 to play the Cubbies.

Posted by Tom at 9:22 PM | Comments (0) | TrackBack (0)

Gordon Wood on Ben Franklin

Gordon Wood is the Alva O. Way university professor at Brown University and one of America's foremost authorities on the history and philosophy of the American Revolution. His brilliant books "Radicalism of the American Revolution" and "Creation of the American Republic" are essential for an understanding of American politics and its political system from the Founding Fathers era to the present. The subject of this previous post is Professor Wood's review of University of Pennsylvania professor Walter A. McDougall's new book, ''Freedom Just Around the Corner,''which is a fine book that I am currently enjoying greatly.

Now, Professor Wood has produced what it appears to be another fine book. In this NY Times Review of Books review, the reviewer points out that one of the most intriguing aspects of Professor Wood's new book on Benjamin Franklin -- "The Americanization of Benjamin Franklin" -- is the approach in which it was written:

This study is not a biography, at least not a conventional one. Wood focuses on Franklin's personal development and constructs his narrative around various turning points in the life, almost like a bildungsroman. We learn the choices Franklin made, the conflicts he had to resolve. This is the most dramatic of the recent Franklin books.

One of Professor Wood's points is that Franklin was hard to pin down as a personality. For example, many of today's politically correct on the left would have a hard time dealing with Franklin:

The politically correct would most likely hector him if they could. For Franklin was a slaveholder. It's true he turned against slavery, and ardently so, at the very end of his life, but he took a long time getting there. He could be a bigot as well. He wrote nativist diatribes against the large German population in his own colony of Pennsylvania. In 1751 he argued for excluding everyone from Pennsylvania except the English; Morgan calls him ''the first spokesman for a lily-white America.'' Franklin loved the company of women, but he was no feminist. He treated his wife miserably, and he admonished young brides to attend to the word ''obey'' in their vows. He worried that handouts to the poor would encourage laziness, and he was a fervent supporter of a strong military.

On the other hand, those on the right of the political spectrum would also have a difficult time embracing Franklin:

Modern right-wingers would probably be even more uncomfortable with him than left-wingers. Take his religious views. Franklin was a deist; God, in his opinion, was a distant presence in the affairs of men. He was no churchgoer. He accepted neither the sacredness of the Bible nor the divinity of Jesus. His ideas about property rights were similarly unorthodox. Beyond basic necessities, he said, all property belonged to ''the public, who by their laws have created it.'' Brands calls such remarks ''strikingly socialistic.''

What most sets Franklin apart from contemporary conservatives, however, is his attitude toward that panoply of issues gathered under the heading of ''family values.'' As a young man he consorted with ''low women,'' and fathered an illegitimate child. In 1745 he wrote a letter to a youthful friend -- long suppressed -- offering advice on choosing a lover. (Older women, he declared, were preferable to younger ones.) Franklin was always an incorrigible flirt. How much actual sex was involved is anybody's guess, but one incident stands out among the rest. When he was in his 70's and living in Paris, he became enamored of the captivating 33-year-old Mme. Anne-Louise Brillon, one of the leading lights of Parisian society. Even the puritanical John Adams was enchanted by her. She was no less taken with Franklin, and their vivacious correspondence consisted of a determined campaign on his part to bed her and her equally stalwart resistance, based on the customs of the day and what was proper between a widower and a married woman. Their bantering give-and-take, as quoted by Brands, constitutes one of the most charming episodes in early American history and -- since as far as the historians can tell they never did sleep together -- also one of the most poignant.

As a result of Franklin's extraordinary nature and accomplishments, Americans tend to sentimentalize him, which Professor Wood cautions against:

The other problematic theme concerns Franklin's ''Americanness.'' He seems almost a checklist for those national qualities Americans take pride in -- and others despise us for. Yet Wood alerts us to be careful in how we think about this aspect of his character. For he was the most cosmopolitan of the founders, at home anywhere. Twenty-five of the last 33 years of his life were spent abroad, and those years were anything but a hardship for him. He was wined and dined and celebrated by the Europeans more than he ever was by his own countrymen. Soon after arriving in London he was complaining about the provinciality and vulgarity of Americans. In Paris he was quite simply a superstar, acclaimed as the equal of Voltaire, and he gave thought to settling permanently in ''the civilest Nation upon Earth.'' These sentiments did not go unnoticed back home, and Franklin fell under suspicion of being a foreign agent, first for the British, then for the French. When he returned to Philadelphia for the last time in 1785, it was in part to clear his name.

In the end, Professor Wood's book attempts to answer the difficult question: What changed Benjamin Franklin from a citizen of the world to a citizen of the United States?

The Revolution was not a conflict over taxation or home rule, not even a dispute over the rights of Englishmen. For him it represented something universal, a world-historical event, ''a miracle in human affairs.'' That is, Franklin never stopped being the urbane cosmopolitan, the ultimate sophisticate. He stayed true to himself. But by 1776 he had concluded that the only way to remain a citizen of the world was to become an American.

Gordon Wood on Ben Franklin. Don't miss it.

Posted by Tom at 2:10 PM | Comments (0) | TrackBack (0)

SEC steps up investigation into business dealings with Equatorial Guinea

Following on previous posts here and here regarding the rather wild business of exploring for oil and gas in the African nation of Equatorial Guinea, Devon Energy Corp. announced that it had received a letter Friday from the Securities and Exchange Commission asking for cooperation in an inquiry into whether U.S. oil companies violated federal law by bribing officials in Equatorial Guinea.

Other U.S. companies that have been contacted include Exxon Mobil Corp., Marathon Oil Corp., ChevronTexaco Corp. and Amerada Hess Corp. The inquiry follows a U.S. Senate subcommittee report last month into Washington-based bank Riggs National Corp.

The Senate report concluded that several companies had made millions of dollars in dubious payments to top officials in the West African nation through the bank. Devon and the other companies have also denied violating the law and said they would cooperate with the commission inquiry.

According to the Senate report, Devon made payments totaling $350,000 to Equatorial Guinea officials, reportedly to meet "educational training obligations" required under production sharing contracts. Devon also announced that it had begun an internal investigation into the matter.

Posted by Tom at 11:21 AM | Comments (0) | TrackBack (0)

The politics of academia addresses a knotty Enron issue

It's always interesting to watch the machinations that occur whenever academics must address a conflict between their academic principles and the devilish necessity of money.

This Houston Chronicle story picks up on this earlier article concerning the University of Missouri-Columbia's dilemma regarding what they should with a substantial endowment donated by former Enron Corp. Chairman and CEO Kenneth Lay if Mr. Lay is convicted of securities fraud in his pending Enron-related criminal case.

In one of the understatements of the year to date, UM officials say they would "prefer" to remove Mr. Lay's name from a yet unfilled economics professorship he endowed if he is convicted. However, under the terms of the donation contract, such a move would require the return of Mr. Lay's 1999 donation of $1.1 million to the school. The professorship remains unfilled to date.

Talk about a tough decision. This one is getting the attention of the highest levels of the UM administration.

In an e-mail obtained by the Columbia Daily Tribune, UM Chancellor Richard Wallace told UM President Elson Floyd and the university's Board of Curators about discussions he and Provost Brady Deaton had about the Lay chair in economics:

"Unless Mr. Lay is convicted of a felony, the money in the endowment should be retained and used for the purpose for which it was established," Wallace wrote. "If found guilty then we would prefer to remove the name from the chair and, in accord with the terms of the endowment, we believe that this would require returning the money to Mr. Lay."

And we thought the periodic scandals in UM's basketball program caused difficult issues!

From my vantage point, the UM administration is engaging in muddled thinking here. Regardless of the outcome of Mr. Lay's criminal case, it is reasonably clear that Mr. Lay was at least negligent to some extent in connection with the collapse of a major American corporation that cost investors and creditors billions and that he led a company that now has become synonymous in American society (or at least on Letterman and Leno) with corrupt business practices. Whatever the outcome of Mr. Lay's criminal trial, that is not going to change. Consequently, using the outcome of the criminal trial as the standard on whether to keep the money seems to be a misplaced standard to use under these circumstances.

If UM decided that it should not keep the donation, I really could not quibble with such a decision. Frankly, there would probably be some public relations benefit to the University in doing so. However, it seems to me that this dilemma also provides an opportunity for a bit of academic administration creativity.

I propose that UM go ahead and fill the chair with Mr. Lay's name on it and use it to promote academic research into risk analysis in economics and business. Enron was a staggering investment loss, but the risk of such a loss and related insolvency is arguably the most important assessment that is made in any investment decision. Although Mr. Lay's legacy in business is certainly different from what UM thought it would be in 1999 when it accepted his donation, that legacy nevertheless reflects one key aspect of business and economics. Why not use Mr. Lay's donation and the unfortunate circumstances of Enron's demise to promote research into issues relating to the risk of loss and insolvency?

Posted by Tom at 8:52 AM | Comments (0) | TrackBack (1)

The ongoing cost of public financing of sports stadiums

In an effort to persuade Moody's investment rating agency from downgrading its bonds to junk status, the Harris County Sports Authority voted to issue $37.2 million in new bonds this week to cover the ongoing cost financing the building of Minute Maid Park, Reliant Stadium and Toyota Center in Houston over the past five years. The three sporting venues cost $1.036 billion to build -- Reliant Stadium cost $500 million, Minute Maid Park, $286 million, and Toyota Center, $250 million. With the bond issuance, the price tag has now risen to $1.073 billion.

I have always been fascinated with this type of reasoning regarding investment: "In order not to allow the interest rate on our existing highly-leveraged bonds to rise, let's go ahead and issue some more highly-leveraged bonds." H'mm.

At any rate, the new bonds were needed to make up for declining hotel and car rental tax revenues, which services bond debt. In 2002 and 2003, the revenues sagged by approximately 10 percent. To meet the annual payments for $900 million in previously issued bonds, the authority had projected annual 3 percent increases in hotel and car rental tax revenues. During the past two years, the tax revenue generated by the special taxes has declined about 5 percent each year, which means that the sports authority missed its projections by close to 8 percentage points during each year.

The Sports Authority was facing penalties if it failed to fulfill its agreement to replenish its cash reserve fund from $32 million to $47 million by May 2006. With hotel and car rental taxes declining, the Authority was not going to be able to raise the money unless it issued the bonds. About $15 million of funds generated from the new bonds will be added to the cash reserve fund.

Paul Bettencourt, Harris County tax assessor-collector, was skeptical about the public financing of the stadiums at the time that each was approved. "It's just three, four, five years after the elections, and already they're selling more bonds," he said. "This is a big concern to me, and it should be to taxpayers."

I am hopeful that that Professor Sauer, who comments regularly on the follies of public financing of sports stadiums, will have his usual keen observations on this development.

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

August 6, 2004

Everett hurt in Stros win

Stros shortstop Adam Everett suffered a broken bone in his left wrist as the Stros beat the Expos 4-0 Friday night behind Roy O's nifty five-hitter.

Everett was hit by a pitch from Claudio Vargas in the fourth inning that broke the ulnar bone. He will be sidelined for at least a month and, if he needs surgery, will be lost for the rest of season.

After having -13 RCAA/.700 OPS in 2003 (RCAA explained here), his first year as a starter, Everett is off to a .385 SLG, .317 OBA, .703 OPS, -13 RCAA start in his first 102 games. He has a .681 career OPS, compared to his league average of .774, and -34 RCAA in 279 games.

Consequently, although you will hear wailing from the Stros management and the mainstream media about what a huge loss Everett is to the club, the reality is much less dramatic. Everett is an above-average fielder and a below average fielder whose production can be replaced rather easily. Indeed, even though Viz does not field as well as Everett, he has hit much better than Everett this season, so playing him instead of Everett is about a wash in the big scheme of things.

Oswalt (12-8) struck out eight and walked one in hurling his second shutout of the season and the third of his career. Oswalt has now won four straight decisions overall and improved to a rather incredible 9-0 against the Expos in 13 career starts. Oswalt's complete game was a timely tonic for the Stros' bullpen, which sorely needed some rest after virtually every relief pitcher in sight was used during yesterday's game against the Braves.

Bags and JK drove in two runs each for Houston, and Bags hit a solo homer in the second inning that tied him with Frank Thomas for 30th on the career home run list at 436. Lance Berkman made it a short night for Expos starter Rocky Biddle by nailing him with a vicious line drive that careened all the way back across the first-base line. Biddle left the game with a bruised ankle and relatively good fortune that his injury was not much worse. In other statistical news, Bidg was hit by a pitch for the 13th time this season and raised his career total to 255, the most by far among active National League players.

Andy Pettitte tries to coax a few innings out of his sore left elbow in the Saturday game of the series, and the Stros are preparing for a big crowd on Sunday as the Rocket goes for win number 13.

Posted by Tom at 10:31 PM | Comments (0) | TrackBack (0)

Excellent 2004 Election website

I have been meaning to pass along the Electoral Vote Predictor 2004, which has one of the best interfaces that I have seen in analyzing the upcoming Presidential election. Check it out.

Posted by Tom at 7:37 AM | Comments (1) | TrackBack (0)

Houston's charms

Charles Kuffner over at Off the Kuff points us to an interesting website that allows people to write and read what they enjoy about Houston. Check it out.

My favorite: "Ridiculous to sublime. Rothko to Airline."

Posted by Tom at 7:17 AM | Comments (0) | TrackBack (1)

More on tax simplification

Bob Formaini is a Senior Economist and Public Policy Advisor at the Federal Reserve Bank of Dallas. In this TCS Central column, Mr. Formaini addresses a fundamental absurdity of the income tax system in the United States:

You might be wondering why, this year, my return has become something that, as I gaze on its small novel length, reads as if it were written in some foreign language. It's simple. My wife and I are dealing with the death of her mom and an inheritance that involves two trusts, dozens of stocks, and three limited partnerships. I can understand the W2s okay. But the heart of my return is completely alien to me. I have no idea what it says or whether it is accurate. We have placed our fate in the hands of a very competent tax accountant, but even though his name is on the return along with ours, I remain somewhat uneasy signing a document that I can't understand.

Then, Mr. Formaini addresses the real heart of the matter:

There is something wrong with a tax code that requires so much paperwork, so many hours of preparation, so much frustration with the endless record keeping that the law demands. And that's just for individuals. The burdens on business are staggering. Even so, our return no doubt is, for our accountant, a baby sort of thing. I doubt that he even worked up a mild sweat. Compared with the returns he does for a living -- a living created by Congress and their inability to have a simple tax code and for which I certainly do not begrudge him -- our return is probably a laugher. And yet, to a guy like me with four college degrees including a PhD, it might as well be written in Klingonese. I have become, along with most of my fellow citizens, just another helpless dunce who can't deal with the complexities that our wonderful politicians yearly serve up.

Which leads Mr. Formaini to a very provocative thought regarding this ludricrous situation that we have allowed our leaders to place us in:

The upside, assuming there is one, of being a helpless dunce is that one can no longer be held responsible. Unless Congress, "simplifying the tax laws" once more, decides that the old legal doctrine of mens rea is no longer the standard for criminal behavior. If that happens, were all potentially in some very serious trouble.

Amen.

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

Braves down Stros

The Stros ran out of relief pitchers as the Braves came back from a four run deficit to win the rubber game of the clubs’ series, 6-5 at the Juice Box on Thursday evening.

Stros' starter Darren Oliver was the latest Stro pitcher to get a hitch in this giddyup as he left after an inning with the seemingly ubiquitous “stiff shoulder.” That prompted a parade of Stro relief pitchers, who actually pitched reasonably well with the exception of Gallo, who looked like he was throwing grapefruit to the appreciative Braves hitters. After Gallo gave up two runs and put another runner aboard, Weathers relieved him, Marrero cranked the longest yak he will ever hit on the first pitch, and Presto! The Braves had comeback from a 5-1 deficit and all Stros’ fans had that old “Uh, oh, here come the Braves” feeling again. The Braves pushed a run across in the top of the ninth against Miceli to nab the win.

Although the Stros scored five runs – a monstrous total for them against the Braves – most of the production was courtesy of the Braves – they walked nine Stros’ hitters. The Stros had just two extra base hits, including Beltran’s solo yak, and after the fifth inning when the Stros staked their 5-1 lead, the Stros managed just one hit off of four Braves relievers.

On a club that struggles to score runs as much as the Stros, it is inexplicable how management allowed Jimy Williams and now allows Phil Garner for the past two games to continue not to play Mike Lamb, the club’s fourth best hitter this season behind only Berkman, Beltran, and Bidg. Simply astounding.

Roy O takes his turn tonight in the first game of the weekend series against the Expos’ Rocky Biddle, who has almost a 7.00 ERA. The Stros embark on a nine game roadie after the Expos series against the Mets, Expos, and Phillies.

Posted by Tom at 5:30 AM | Comments (1) | TrackBack (0)

August 5, 2004

Enron trader cops plea

John Forney, former manager of Enron Corp.'s online trading desk, pleaded guilty today to charges in California that he manipulated energy markets during California's power crisis.

Mr. Forney, who is 42, is the third Enron executive to plead guilty to manipulating electricity prices from Enron's now-defunct trading office in Portland, Ore. Former Enron executives Timothy N. Belden and Jeffrey S. Richter pled guilty last year and have been cooperating with the Justice Department in its continuing investigation into Enron.

As a part of the plea bargain, Mr. Forney is expected to cooperate with the ongoing investigation into Enron's trading desk and how other energy firms may have played a role in manipulating energy markets. Four employees of Reliant Corp. have already been charged with deliberately shutting down power plants to increase the price of California electricity.

Over two and a half years after Enron collapsed into bankruptcy, the first criminal trial involving former Enron executives is currently scheduled to begin in Houston on August 16 before U.S. District Judge Ewing Werlein in the case known as "The Nigerian Barge case."

Posted by Tom at 10:19 PM | Comments (0) | TrackBack (0)

Enron goes nuclear on the PBGC

Enron Corp. has forcefully asked the New York Bankruptcy Court overseeing its chapter 11 case to enjoin the Pension Benefit Guaranty Corp.'s lawsuit in Houston to take over four of Enron's retirement plans.

In pleadings filed Wednesday, Enron accused the PBGC of, among other things, forum shopping, attempting to frustrate its reorganization plan, and usurping the Bankruptcy Court's authority to consider claims against the company. Not bad for starters.

In short, Enron accused the PBGC of trying to obtain in the Houston U.S. District Court what it could accomplish in the New York Bankruptcy Court during the confirmation hearing on Enron's plan. The Bankruptcy Court previously denied the PBGC's objection to Enron's plan, which the Bankruptcy Court confirmed on July 15.

The PBGC -- which provides a measure of subsidy for defunct private-sector pensions -- is trying to proceed with a lawsuit that it filed June 3 in U.S. District Court in Houston to terminate Enron's four woefully underfunded pension plans.
By pursuing the termination action in Houston federal court, Enron asserts that the PBGC is trying to avoid Enron's plan treatment for its unliquidated and contested claims and elevate those claims over those of similarly situated creditors. The PBGC has asserted claims against Enron totaling over $300 million for the Enron-related pension plans -- the Enron Corp. Cash Balance Plan, Garden State Paper Pension Plan, Enron Financial Services Pension Plan, and San Juan Gas Co. Pension Plan. Those four plans have approximately 17,000 participants.

As long as the agency's claims remain unresolved, Enron is required to reserve under its reorganization plan for the full amount of the PBGC's claims. If the PBGC claims are disallowed or reduced, then the amount Enron will have to pay to terminate the four pension plans will likely be substantially less than the amount that the the PBGC seeks in its termination action. Enron contends that the Bankruptcy Court must determine the amount of the PBGC claims before the termination action can proceed and, thus, asserts that the Bankruptcy Court should enjoin the PBGC from proceeding with the termination action in Houston federal court.

Posted by Tom at 3:06 PM | Comments (0) | TrackBack (0)

Chuck Watson settles with Dynegy

Dynegy founder and former chief executive officer Chuck Watson and his chief operating officer -- Steve Bergstrom -- will receive a combined $32 million in severance payments under a settlement of their severance claims with the company. Mr. Watson will receive approximately $22 million plus interest and legal fees, which is about a quarter less than what he originally demanded from the company. Mr. Bergstrom will receive $10.4 million plus interest and legal fees, which is the full amount that he demanded.

Mr. Watson had been a sterling Houston business success story for the past 15 years until that shine was somewhat dulled by his involvement of Dynegy in a last ditch effort to keep Enron out of bankruptcy in 2001. For years, Mr. Watson led Dynegy successfully as it mirrored many of Enron's business moves, particularly its involvement in online energy trading.

As Enron spiraled toward bankruptcy in late 2001, Mr. Watson had Dynegy set to take over Enron, but the deal broke down when Dynegy discovered the extent of Enron's contingent liabilities in connection with its off-balance sheet partnerships. Enron's subsequent demise almost caused Dynegy to collapse as well, as traders and investors shunned the company over fears that it would become the next Enron. Dynegy's troubles - a regulatory probe, a share price collapse, a credit downgrade and disappearing trading partners - bore a striking resemblance to the start of Enron's downfall. However, Dynegy is better capitalized than Enron, as Chevron owns over a quarter of the company's stock.

Still reeling from the impact of Enron's demise into insolvency, the Dynegy board pressured Mr. Watson to resign in May, 2002. Mr. Bergstrom inherited the president's position until he left the company in October 2002 when Dynegy decided to exit the energy trading business for which Mr. Bergstrom had been primarily responsible. The energy trading industry had largely melted down by that time in the wake or Enron's collapse.

Both Mr. Watson and Mr. Bergstrom objected to the severance packages that Dynegy had offered them upon their resignations from the company and, in early 2003, both demanded arbitration of the disputes. The settlements announced today are the culmination of those proceedings.

As a footnote, the sad case of Jamie Olis involved a deal at Dynegy.

Posted by Tom at 12:01 PM | Comments (0) | TrackBack (0)

The $100 Terrorist Insurance Plan

Steven Lansburg is an economist who writes a monthly column for Slate. In his most recent column, Professor Lansburg addresses the controversy over racial profiling of airline passengers and Annie Jacobsen's recent article in WomensWallStreet about her harrowing experience on a Northwest flight from Detroit to Los Angeles in June.

Jacobsen's fellow passengers included 14 Syrians, most of whom boarded separately. Once the plane was in the air, Ms. Jacobson contends that the men began gesturing to each other and congregating in large groups near the lavatories. Once there, the men took turns entering the lavatories, sometimes with packages. At one point, seven of the 14 men stood up in unison and all made for the lavatory simultaneously.

Ms. Jacobsen asserts that she, other passengers, and the flight attendants were alarmed by the bizarre behavior of this group. In fact, the men turned out to be a group of Syrian musicians en route to an engagement in San Diego. Nevertheless, U.S. government agencies have issued recent warnings about teams of terrorists conducting dry runs to determine whether they could build bombs in flight from components that they carry on separately.

Accordingly, Ms. Jacobsen asks the very reasonable question: "Since the [the Transportation Security Administration] issued a warning to the airline industry to be wary of groups of five men on a plane who might be trying to build bombs in the bathroom, shouldn't a group of 14 Middle Eastern men be screened before boarding a flight?"

Professor Landsburg first takes stock of the typical responses:

The government frowns on ethnic profiling for airline passengers, but Jacobsen and the 12 bazillion bloggers who have linked to her story think the feds and the airlines should throw political correctness to the winds and adopt a policy of full-fledged ethnic profiling. Meanwhile, roughly another 12 bazillion bloggers have warned that profiling Arab men will seriously undermine civil liberties.

So, how would an economist resolve the problem? Professor Landsburg answers:

First, detaining 14 Middle Eastern men is neither more nor less an infringement of civil liberties than detaining 14 passengers chosen at random. Either way, 14 people have their liberty infringed.

Is it worth detaining 14 people (or an entire planeload of people) on every flight to see what's in their McDonald's bags or to question them closely about their reasons for traveling? I honestly don't know. But this I'm sure of: If you're going to detain 14 people, they should at least be the 14 people who are statistically most likely to be worth detaining.

Second, just because you detain particular people, it doesn't follow that you've got to treat them unfairly. Being detained and questioned is a burden; it's inconvenient and it's demeaning. But there's no reason that burden has to be borne entirely by the detainees. To spread the burden, all the airlines have to do is give each detainee a $100 bill for his trouble. If Northwest had had a policy like that on Annie Jacobsen's flight, it would have paid out $1,400 to the 14 Syrians. Assuming there were another 200 passengers on that board, they could have covered that cost with a $7 hike in ticket prices.

Professor Landsburg then argues persuasively that the economics of such a policy are quite realistic:

I am guessing that Annie Jacobsen would have been thrilled to pay a $7 surcharge for the comfort of knowing that her Syrian co-passengers had been thoroughly vetted before takeoff. The Syrian musicians, in turn, would have picked up a hundred bucks apiece in exchange for, oh, 15 minutes or so of answering questions. How many musicians do you know who would turn down a gig at that hourly rate?

Professor Landsburg points out that his proposed system is similar to the one used in compensating passengers that are bumped from overbooked flights. However, it has zilch chance of ever being proposed politically, much less tried.

Hat tip to Professor Sauer over at the Sports Economist for the link to this article.

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Criminalizing business

Gil Weinrich has a piece at TCS Central that proposes a different approach to punishment of corporate wrongdoers:

Our society does a poor job of penalizing [corporate] crime. . . In the white-collar arena, the unrequited losses endured by victims of financial crime similarly underscore the fecklessness of the system.

Besides the injustice to victims there is an inherent lack of mercy to criminals who are not given an opportunity to make amends. For the sake of the victims of Enron and other white-collar crimes, we need to shift away from a system based on punishment to one based on restitution.

So, what does Weinrich propose?: A financial debtor's prison:

When Andrew Fastow pleaded guilty early this year, he agreed to surrender $23.8 million in cash and property, including vacation homes in Vermont and Galveston, Texas. That's a start. He and those who shared in his crime should be apportioned the part of the losses for which a court deems them responsible, including an extra 10 percent to compensate for the unearned return on the victims' money, and an additional fine to compensate the government if the perpetrator did not cooperate in the investigation of the crime.

The perpetrators should then spend as long as it takes, up to the rest of their lives if necessary, to repay that debt. Andrew Fastow may be a criminal but he is also a financially savvy corporate executive. Surely his vast talents can be put to some good use for some company somewhere. A court could give him an allowance (based on a percentage of his income so that he would always have an incentive to increase his earnings), with the lion's share (say, 90 percent) devoted to a restitution fund.

Weinrich then proposes a rather elaborate system of ceremonies involving victims and the perpetrators in which they would either discuss the crimes or welcome the perpetrator back from the financial debtor's prison once the debt is paid off.

I'm an advocate against the criminalization of business in America that has culminated in absurdly long prison sentences such as the one involved in the sad case of Jamie Olis. However, Weinrich's proposal strikes me as silly. The civil justice system already provides a financial disincentive for corporate wrongdoing. Moreover, the fact that politicians have arranged for absurdly long prison sentences in business cases to appeal to the public passion to punish wealthy people excessively does not mean that there should be no penal system disincentive whatsoever for engaging in corporate crime. One imagines Bialystock & Bloom in "The Producers" blithely continuing to create Ponzi schemes in perpetuity under Weinrich's proposed system (and so long as Zero Mostel could continue to play Bialystock, that might not be such a bad thing).

Professor Bainbridge agrees with me.

Posted by Tom at 7:13 AM | Comments (1) | TrackBack (1)

Houston Crime Lab scandal hits the NY Times

You know that a local scandal has hit the big-time when the New York Times finally notices it.

This NY Times article reports on the embarrassing scandal involving Houston's Crime Laboratory, which was already relling from the requirement that it retest evidence that it provided in 360 cases, now faces a much larger crisis that could involve many thousands of cases over 25 years. In a report to be filed in a Houston state court on Thursday, six independent forensic scientists said that a crime laboratory officials -- because they either lacked basic knowledge of blood typing or gave false testimony -- may have offered "false and scientifically unsound" reports and testimony in thousands of criminal cases. The panel called for a comprehensive audit spanning decades to re-examine the results of a broad array of rudimentary tests on blood, semen and other bodily fluids.

Elizabeth A. Johnson, a former director of the DNA laboratory at the Harris County medical examiner's office in Houston, estimated for the Times article that a conservative number of re-examinations required by the report would probably be 5,000 to 10,000 cases, but if cases involving examination of hair are added, the number of required re-examinations would be "off the board."

A state audit of the crime laboratory dated December 2002 found that DNA technicians there misinterpreted data, were poorly trained, and kept shoddy records. In many cases, the technicians used up all available evidence, making it impossible for defense experts to refute or verify their results. Even the laboratory's building was a mess, with a leaky roof contaminating evidence. The DNA unit was shut down soon afterward, and it remains closed.

What a mess. Stay tuned for more.

Posted by Tom at 6:29 AM | Comments (0) | TrackBack (0)

George Mitchell funds A&M and UT telescope project

On the heels of this earlier contribution to the University of Texas Medical School, Houston businessman and philanthropist George Mitchell has made a $1.25 million gift to provide initial funding for a massive project involving both UT and Texas A&M University that has a goal of building the world's largest telescope on the Andes Mountains in Chile by 2015. If successful, the $400 million Giant Magellan Telescope is expected to collect 70 times more light than NASA's Hubble Space Telescope and could produce images that are 10 times sharper.

The telescope's six large mirrors will surround a seventh central mirror, all on a single mounting, and its light-collecting area would be twice the diameter of today's largest telescopes. The world's two largest optical telescopes — each 33 feet in diameter — operate at the W.M. Keck Observatory on the summit of Hawaii's dormant Mauna Kea volcano.

Mr. Mitchell donated the money to Texas A&M University, which is his alma mater, and The University of Texas at Austin -- which runs the McDonald Observatory in the Davis Mountains of far West Texas, which is the third largest telescope in the world -- will match Mr. Mitchell's contribution over the next two years. Other partners in the project are the Carnegie Institution of Washington, Harvard University, the Smithsonian Astrophysical Observatory, the Massachusetts Institute of Technology, the University of Arizona and the University of Michigan.

Posted by Tom at 5:59 AM | Comments (0) | TrackBack (0)

August 4, 2004

The quest for tax simplification

From Stu's Views:

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Randall's founder dies

Everyone who has lived in Houston over the past 40 years has shopped at a Randall's grocery store. Robert Onstead, the co-founder of that grocery store chain, died Wednesday morning while on a trip to Italy.

After Mr. Onstead and his original partners started Randall's in the early 1960's, the chain grew steadily through the next three decades and became the premier grocery store chain in the Houston area during the 1980's (remember those great Randall's "Flagship" stores?). But then, in the early 1990's, Randall's hometown character began to change when it acquired the Dallas-based Tom Thumb grocery store chain and a dozen AppleTree grocery stores in Austin. While that expansion made Randalls one of the largest Texas grocery companies, it also foreshadowed a change in the way Randall's did business.

By the time Mr. Onstead sold his the Randall's chain of 117 stores to Safeway for almost $1.5 billion in 1999, Randall's was beginning to reel under the competitive pressures being exerted by other grocery retailers in Randall's key markets. Now, Randall's is becoming an afterthought in the Houston grocery wars as Wal-Mart, Kroger and increasingly H.E.B. take over turf that Randall's previously dominated.

But Randall's had a great run, and it was largely due to Mr. Onstead's vision and leadership. Houston's business community will miss him.

Posted by Tom at 10:45 PM | Comments (3) | TrackBack (0)

Braves cruise over Stros

The Braves' John Thomson dominated the Stros' hitters in leading the Braves to a 5-4 victory Wednesday night at the Juice Box.

Thomson threw just 79 pitches in seven innings and gave up two runs on only four singles. Meanwhile, the Stros' Pete Munro got raked for eight hits and four runs in four and a third innings by a Braves team that is not exactly a hitting juggernaut, either.

Actually, this was one of those games that was not as close as the final score indicates. The Braves were leading comfortably 5-2 with two outs and a runner on in the bottom of the ninth with Smoltz closing when Bags whacked a completely unexpected two run tater to make the score 5-4. Poor Ensberg had to follow Bags to the plate and face a very irritated Smoltz, who proceeded to strike Ensberg out on three quite fast pitches. Game, set, match.

It's a duel of lefties in the rubber game on Thursday night as Darren Oliver goes for the Stros against ex-Stro Mike Hampton. The Virginia Expos come to town on Friday for the weekend series.

Posted by Tom at 10:28 PM | Comments (0) | TrackBack (0)

Clemens' side of the story

Following on this earlier post about allegedly being thrown out of a youth league game involving one of his sons, Roger Clemens gives his side of the story in this Chronicle article:

Clemens said he didn't even witness the call in question, one in which Kacy Clemens, who plays for the 10-and-under Katy Cowboys, was called out attempting to steal second base despite an admission from a Bakersfield, Calif., player who said he failed to make the tag.

Clemens said he was standing behind a fence, well away from the action, where he videotaped his son's base hit and then resumed signing autographs, something he had been doing for most of the afternoon and for the balance of the weekend.

He retreated to his car, per his routine, for a respite from the autograph-seekers.

"They did not ask me to leave," Clemens said, which conflicts with the account of field supervisor Jim Carpenter, who told the AP he supported the decision to eject Clemens. "I did not even know I was supposedly thrown out. I didn't see the play my son happened to be involved in. I videoed (taped) his at-bat and when he got a hit and got on first, I put the video camera up and started dealing with the public like I always do."

Clemens said he was upset no one contacted him or his agent Randy Hendricks to get his version of what happened. Instead, he said, the national media ran with an unsubstantiated story.

Some local media outlets picked up the story, and Clemens said what angered him was the same group of reporters who heralded his return home after he came out of retirement and signed with the Astros on Jan. 12 were quick, in his opinion, to assume the story was correct as reported.

"I'm disappointed in a lot of media because I was only a phone call away, and my agent said anybody could have called up on the story," Clemens said. "It was reckless the guy that ran the story because I was at the ballpark for at least an hour (after the game ended) signing autographs, and if he had any questions he could have come over and asked me.

"It was reckless by some of the national media that I was able to see comments like I was toe to toe, nose to nose arguing (with the umpire).

"And it's the same thing here that went on in my hometown. I'm really disappointed because once you guys set these cameras and those pens down, I would think that you would know me a little better than that."

Posted by Tom at 9:02 AM | Comments (0) | TrackBack (0)

Annual securities litigation survey

PricewaterhouseCoopers publishes an annual survey of securities litigation, and it has just released its 2003 Securities Litigation Study. As usual, the review contains a number of interesting findings, including the following:

107 of the 175 securities class action filed in 2003 were accounting-related. In more than half of those cases, the primary allegation related to revenue recognition issues;

The percentage of cases with pension funds as lead plaintiffs has grown steadily from less than 3% in 1996 to over 28% of the cases in 2003;

Average settlements for all cases was up 20% from 2002, and there were more large settlements, including six greater than than $100 million;

After 2002 saw over 40 "triple jeopardy" cases in which companies were subject to securities class actions along with parallel SEC and Justice Department investigations, the number of those cases dropped to eight in 2003, which is above average.

Hat tip to Lyle Roberts over at the 10B-5 Daily for the link to the PwC report.

Posted by Tom at 8:22 AM | Comments (0) | TrackBack (0)

Lessons from another '04 campaign

Check out this interesting TCS Central piece by San Diego attorney and former Harvard history professor Michael Rosen that compares this year's Presidential campaign with that of 1904. Good stuff.

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

Clear thinking on Social Security and Health Care Finance

In this TCS Central piece, Arnold Kling addresses what he would like to hear President Bush say in his upcoming speech accepting the Republican nomination for President. On the key issue of financing Social Security and health care, Mr. Kling advises Mr. Bush to say the following:

Going forward, the most important issues are Social Security and the government's role in health care. The Administration should focus on pursuing modernization and reform in those two areas.

On Social Security, the President should say that the system works for today's seniors, but it does not work for younger people. As important as it is to keep our promises to those who are in retirement or close to it, it is just as important that we not leave Social Security as it is for people in their 20's, 30's, and 40's.

The American people need to know that the money that workers put into Social Security now does not belong to them, but instead goes into the general Treasury, where Congress spends it as it pleases. You might think that the money you put into Social Security goes into an account where it belongs to you and nobody else can touch it. However, it does not work that way. It can work that way. It should work that way. It will work that way once reforms are enacted. Privatization is the ultimate lockbox.

Social Security also needs to be more flexible. Our existing system was designed when reaching the age of 65 meant that your active life was probably over, and you were likely to die within a decade. Going forward, we need a system that can accommodate everything from early retirement to seniors taking on second careers and new challenges in their 80's. Personal accounts are the key to giving people more options as they age.

Then, Mr. Kling turns to financing health care:

On health care, reforms should adhere to some basic principles. These principles will promote personal choice and continued innovation.

The first principle is to give as much decision-making authority as possible to patients and doctors. Today, treatment choices can be distorted by Medicare regulations, fear of lawsuits, and other mechanisms. Reform should aim to minimize such sources of distortion.

The second principle is that taxes should be used to pay for health care only for those who truly need assistance. To the extent that the government pays health care expenses for everyone, your medical bills will go down but your tax bills will go up by much more. We need only limited paternalism.

A good start would be enhancing the recently established Health Savings Accounts, which are addressed in this prior post.

Posted by Tom at 7:31 AM | Comments (0) | TrackBack (0)

VDH on European animus toward America

Victor Davis Hanson has another compelling Wall Street Journal ($) op-ed today in which he points out that the European desire that George Bush be defeated in the upcoming election could very well backfire on European interests:

Yet the European meddling in this particular presidential election is. Less talked about is that the image of an allied Europe has been shattered here at home. And all the retired NATO brass and Council on Foreign Relations grandees are finding it hard to put the pieces back together again. The American public now wants to be told exactly why thousands in their undermanned military are stationed in a continent larger and richer than our own without conventional enemies on its borders. If Europeans think it is nonsensical to connect Iraq with our own post 9/11 security, then Americans believe it is far more absurd to envision an American-led NATO patrolling their skies and roads 15 years after a nearby hostile empire collapsed -- especially when NATO turns out to be as isolationist as America is expected to be engaged abroad.

The election of John Kerry would probably not reverse either the current policy in Iraq or the ongoing reappraisal of our foreign relations. The European fixation with the upcoming election and rabid hatred of George Bush instead may backfire here at home; indeed, even now European animus acerbates our own growing unease with what we read and see abroad

Read the entire piece.

Posted by Tom at 7:15 AM | Comments (0) | TrackBack (0)

The psychology of leading

The Wall Street Journal's ($) Holman Jenkins weighs in today with this column regarding the ideas regarding the psychology of leading of Stanley Renshon, who is a psychologist and political scientist at the City University of New York Graduate Center.

Mr. Renshon has written a new book set for publication in September called "In His Father's Shadow," in which Mr. Renshon addresses George W Bush's emergence from an "erratic commitment to conventional success" in early adulthood to an "embrace of responsibility and sustained success that would have been little expected from his performance until then." Mr. Renshon is also the author of a number of other works on the psychology of American presidents, inlcuding the award-winning account of Bill Clinton's first term, "High Hopes."

Mr. Renshon first notes that the public's pre-election evaluation of Mr. Bush's leadership style overlooked an important part of his personality. As Mr. Jenkins notes:

He came to office promising to be a "uniter not a divider"; his reputation in the traditionally weak Texas governor's office was that of a consensus seeker. Those who expected more of the same in the White House have been pleasantly (or unpleasantly) surprised because, says Mr. Renshon, they overlooked an aspect of Mr. Bush's character: His rare capacity to "stand apart," even from friends and supporters, and withstand abuse and criticism when he believes a policy course is the right one.

He also ended up with a political character noticeably different from that of his loved and admired papa, who famously derided the "vision thing" and sought compromise with every critic. "Mr. Bush is a president who is comfortable taking controversial stands and sticking with them," Mr. Renshon writes. "He is able to do so through sometimes severe storms of public anxiety and critics' cries to change course."

Using Mr. Renshon's analysis, Mr. Jenkins speculates on the probable course of Mr. Kerry's leadership style if elected president:

GOP harping on Mr. Kerry's "liberal" record would seem to imply he has philosophical commitments that he's prepared to sacrifice for. The label "Massachusetts liberal" perhaps points closer to the truth. Unlike Mr. Bush, he built his life and self-image around elective office, and in a state and party where survival required adhering to certain unfashionable and arguably obsolescing norms. He's risk averse where Mr. Bush is a risk taker.

His leadership style is strongly at odds with Mr. Bush's -- and one that Democrats are hoping Americans are in the mood for right now. That's the real message of his constant invoking of Vietnam. That's the real strength of his campaign: I was daring and adventurous then, and had my fill. Witness my career ever since: cautious, "nuanced," utterly lacking in the "go for it" certainty of my opponent.

Contrary to much campaign rhetoric, the difference probably wouldn't be felt in the war on terror, to which both parties are now committed. It's on domestic issues that history has trapped Democrats in the role of reactionary party, reflexively defending a status quo.

On Social Security, Medicare, education, you name it: Republicans at least grapple realistically with the need to reshape these programs to keep them solvent and delivering value in the 21st century. Democrats don't. A lot of voters would be pleasantly (or unpleasantly) surprised by Mr. Kerry if he turned out to be a politician willing to court controversy and criticism to change that.

I do not agree with Mr. Jenkins' assessment that the Republican Party is "at least grappling" with the issues relating to reshaping the above-cited governmental programs. On the contrary, the only reason that this Presidential race is likely to be a close one is because the electorate senses that this Republican Administration and Republican-controlled Congress have largely failed to take any constructive action in addressing these issues.

Nevertheless, Mr. Jenkins is correct that the success of either a second Bush Administration term or a Kerry Presidency will likely depend on the willingness of the leader to take risks and to adhere to unpopular positions that will lead to a sound goal. Bush has proven that he has the capacity to do that in regard to his foreign policy against the Islamic fascists. Does Kerry have that attribute?

Read the entire article.

Posted by Tom at 6:58 AM | Comments (0) | TrackBack (0)

The cost of having an Enron-related deal tried to a jury rather than a judge

An English court yesterday provided a glimpse of the difference between the civil justice there and the American system as it relates to controversial business practices such as those that Enron Corporation practiced.

In this decision handed down by an English court yesterday, J.P. Morgan Chase & Co. won a lawsuit against a WestLB AG-led banking syndicate related to Morgan's Enron financing in which the English judge ordered the WestLb syndicate to honor a $165 million letter of credit that the syndicate had previously refused to pay.

That's the first big difference. In the United States, there is no way that a plaintiff in this lawsuit would not attempt to take advantage of the public bias against Enron by demanding a jury trial. In the English system, jury trials in lawsuits over complicated business transactions are rare.

The case involved Morgan's involvement in an offshore financing vehicle called Mahonia Ltd. In a complex trading arrangement, Morgan provided money to Enron, which then returned the payments to Morgan in the form of contracts for the future delivery of gas. Those payments -- known as "gas prepay contracts" -- were paid through an offshore vehicle called Mahonia.

When Enron collapsed in late 2001, Morgan had to commence litigation to collect on its security for the Enron-related financing. WestLB was the leader of a banking syndicate that had posted a $165 million letter of credit, which is a common form of security in which the WestLB syndicate receives a fee for taking the risk of Enron's insolvency in regard to the financing -- i.e., WestLB agrees to pay Morgan $165 million and assume Morgan's rights against Enron if Enron goes bust on the deal.

Taking advantage of the unprecedented public outcry over Enron's business practices when Enron collapse, WestLB refused to honor the letter of credit, alleging that the transactions were part of a "fraudulent scheme" that essentially disguised Morgan's loans to Enron. Given the due diligence that takes place on these types of transactions, WestLB's claims bordered on the preposterous, but then trying to weasel out of an Enron-related obligation is fair game these days. Morgan sued WestLB, WestLB countersued, and the trial began in London's High Court of Justice in January.

The London case was just the latest litigation for Morgan over the Mahonia deal. When it set up the deal with Enron, Morgan hedged its risk by arranging to have several insurance companies issue $935 million of surety bonds to ensure Morgan against the risk of Enron's default on the deal. When Enron filed for bankruptcy protection, those insurers -- just like the WestAB syndicate -- refused to pay using the same argument that the deal was a fraud designed to disguise loans to Enron. That dispute ended up in a jury trial in federal district court in Manhattan. Immediately before the jury was about to render a verdict in the case in January 2003, Morgan and the insurers agreed to a settlement in which the insurers paid 60% of the costs relating to Enron's default, leaving Morgan holding the bag for the balance (approximately $400 million).

In the English case, High Court Justice Jeremy Cooke on Tuesday ruled in favor of Morgan and Mahonia by concluding that Enron's accounting for the transaction did not breach U.S. accounting and securities rules. He ordered the WestLB banking syndicate to pay on the letter of credit, plus interest and costs, which is what the WestLB syndicate would have normally done in the first place but for the public outcry over anything related to Enron.

There is no question in my mind that Morgan would have agreed to settle with the WestAB syndicate on the same terms that it settled with the insurers over the Mahonia deal if this dispute had been tried to a probably biased American jury rather than a dispassionate English judge. Thus, that change in venue just saved Morgan at least a cool $70 million.

The Mahonia-related trading arrangement has been the subject of extensive scrutiny in connection with Enron's chapter 11 case and related litigation. Last year, Morgan and Citigroup entered into a settlement with the Securities and Exchange Commission and U.S. regulators in which they agreed to pay fines and penalties totaling about $300 million related to their involvement with Enron and Dynegy Inc., a Houston-based energy company that attempted to acquire Enron immediately before the commencement of the Enron chapter 11 case.

Posted by Tom at 6:12 AM | Comments (0) | TrackBack (0)

August 3, 2004

Stros edge Braves

The Rocket bounced back from being thrown out of his kid's youth league game and pitched the Stros to a 3-2 win over the Braves straight win in the first game of their three game set at the Juice Box. It was the Stros' third straight win.

Clemens was magnificent, giving up one earned run on four hits in seven innings while walking three. The Braves' Russ Ortiz was almost as good, giving up two runs in seven innings while torturing the Stros' hitters with his array of drop balls and change-ups. The Stros finally pushed across runs in the sixth, seventh and eighth to take the lead, including Bidg's solo yak and a key pinch hit by Lamb to set up the go ahead run in the eighth. Lidge was overpowering in saving the win as he K'Oed the side in the top of the ninth.

Inexplicably, the Stros trot Tim Redding out again on Wednesday to provide the Braves with some extended batting practice in between walks. The Stros' hitters better gut up because they will likely need to score a bunch of runs to have a chance to win this one.

Posted by Tom at 10:10 PM | Comments (2) | TrackBack (0)

Schlotzsky's tanks

Popular Austin-based delicatessen franchiser Schlotzky's, Inc. filed a chapter 11 reorganization case (case no. 04-54504) today in San Antonio.

The case was assigned to U.S. Bankruptcy Judge Leif Clark, who is an able and experienced bankruptcy jurist. A team from Haynes & Boone, LLP -- led by Dallas-based partner Robert Albergotti -- is representing Schlotzky's in the chapter 11 case. Judge Clark has set a hearing for 10:30 a.m. tomorrow in San Antonio to hear a slew of "first day" motions that Haynes & Boone filed on behalf of Schlotzky's today.

The company has more than 500 outlets in 36 states and six countries. Upon filing, Schlotzsky's issued a public statement saying that operations at its shops would continue normally during the reorganization, but it's a safe bet that more than a few of those shops will close during the reorganization. Schlotzky's owns 21 "company" shops and franchisees own the balance of the stores.

Schlotzsky's has been reeling for some time in the intensely competitive deli business that Subway and Quizno's dominates. Schlotzsky's recently cut 20 percent of its corporate staff and closed 15 company-owned shops in July. The company reported a net loss of $11.7 million in 2003 in comparison to a loss of about $200,000 in 2002, and lost another $671,000 in the first quarter of 2004.

Posted by Tom at 2:45 PM | Comments (3) | TrackBack (0)

Placing terror threats in perspective

Professor Gordon places the recent Al Qaeda threats against eastern United States financial institutions into the proper perspective:

Primitives and Targets

The only silver lining in the War on Terror is that our enemies are primitives who believe that striking the NYSE or Citibank headquarters or even the IMF or the World Bank would have major economic consequences. We will win because they don't get it. We are economically (and spatially) decentralized. More than they can grasp. Terrible as the loss of life and the psychological hit would be, the economic consequences would be minor.

The World Trade Center Towers were tall and auspicious because of New York politics. They had no economic rhyme or reason. Losing them was a terrible loss of life but had little economic consequence. In fact, no major natural disaster in U.S. history (not Hurricane Andrew, not the Northridge Earthquake, nor any other that I can think of) had significant economic impact.

The primitives don't get it. Indeed, they cannot grasp the essence or the durability of decentralized systems. They are, after all, primitives.

Posted by Tom at 6:52 AM | Comments (0) | TrackBack (0)

August 2, 2004

The Rocket is a competitor

Just reported by the AP:

Clemens asked to leave son's baseball game Associated Press

CRAIG, Colo. -- Houston Astros pitcher Roger Clemens was asked to leave a youth baseball game over the weekend for arguing a close call that went against his son's team.

Clemens was at the game Saturday watching his son, Kacy, compete in a 10-and-under game organized by Triple Crown Sports when Clemens contested a call at second base that went against the Katy Cowboys.

He spit sunflower seeds at an umpire's leg and was asked to leave, said Jim Carpenter, a field supervisor with Triple Crown.

"I supported the umpire's decision and he (Clemens) respectfully left," Carpenter told the Craig Daily Press.

Katy lost the game to the Bakersfield Curve, 11-5.

Triple Crown Sports features a franchise system aimed at pitting top teams from across the country against each other.

Clemens' agent, Randall Hendricks, did not immediately return a call today. Clemens has racked up 322 wins and 4,240 strikeouts in his 21-year major league career.

Thank goodness the ump's name was not Piazza!

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Blakely Redux

With strong prompting from the Justice Department, the issues regarding the validity of federal and state sentencing guidelines generated by the U.S. Supreme Court's recent Blakely v. Washington decision are going to be teed up again soon in the Supreme Court. Here are my previous posts on the aftermath of the Blakely decision.

Early this week, the U.S. Supreme Court Justices are expected to grant expedited review of at least one of several post-Blakely lower court rulings that present the issue of whether federal sentencing guidelines are unconstitutional in light of the Court's decision in Blakely. That ruling struck down a Washington state sentencing system similar to sentencing in over a dozen states and in the federal system, and requires that juries determine facts that increase a defendant's sentence.

When a landmark high court decision is such as Blakely is handed down, the Supreme Court usually allows a reasonable amount of time (i.e., several years) to address follow-up issues that arise before the Court re-addresses the core issue. However, Blakely unleashed most U.S. District Judges' pent-up antipathy for the sentencing guidelines and their corresponding limitations on the exercise of judicial discretion in federal sentencing. Thus, with many judges devising their own methods for coping with Blakely in regard to sentencing matters, the Justice Department is pushing the Supreme Court for an unusually quick reassessment of the issues raised in Blakely.

The SCOTUS clarification of the impact of Blakely is being followed particularly closely by the criminal defense bar in Houston, which is already dealing with new indictments in Enron-related criminal cases as the Justice Department scurries to comply with the requirements of Blakely. Moreover, the sad case of Jamie Olis -- in which the absurdly long 25 year sentence was issued prior to Blakely -- could also be affected by that decision and its progeny.

Ohio State University law professor Douglas Berman's blog Sentencing Law and Policy is the best website for keeping up with analysis of post-Blakely developments.

Posted by Tom at 12:08 PM | Comments (0) | TrackBack (0)

August 1, 2004

Stros down Reds

Adam Everett's eighth-inning suicide squeeze drove in the go-ahead run and Roy O beat the Reds again as the Stros came from behind to win 7-5 in Cincy on Sunday afternoon.

Morgan Ensberg had three RBIs for the Stros, including a sacrifice fly in the eighth that cut the Reds' lead to 5-4. After Jeff Kent scored the tying run on John Riedling's (gotta love that Reds' bullpen) bases-loaded walk to Bidg, Everett laid down a terrific bunt that plated Bags from third. Ensberg added an RBI double in the ninth to finish the scoring.

By the way, Riedling -- who epitomizes the ghastly Reds' pitching staff this season -- gave up three hits, two walks and three runs in two-thirds of an inning. Appropriately, plate umpire Andy Fletcher ejected Riedling as he walked off the field after being relieved.

Oswalt was not particularly sharp, but he improved to 9-0 in 13 career appearances against the Reds, giving up five runs (four earned) and 10 hits in seven innings while striking out eight and walking two. Oswalt had a bad inning in the fourth as the Reds scored four runs. After that, Oswalt gave up just one hit in his final three innings. Dan Miceli worked a scoreless eighth, and Brad Lidge induced a game-ending double play in the ninth for his 11th save.

Meanwhile, our weekly review of the Stros hitters' runs created against average ("RCAA") and the Stros pitchers' runs saved against average ("RSAA" and RCAA explained here) reflects the Stros' current status in the National League -- barely above average and holding on to a place in the wildcard playoff race by a thread. First, the Stros hitters' RCAA numbers, courtesy of Lee Sinins:

Lance Berkman 37
Craig Biggio 11
Carlos Beltran 10
Jeff Bagwell 8
Mike Lamb 8
Eric Bruntlett 1
Jeff Kent 0
Chris Burke -1
Jason Lane -3
Orlando Palmeiro -4
Jose Vizcaino -5
Richard Hidalgo -10
Morgan Ensberg -12
Adam Everett -12
Raul Chavez -13
Brad Ausmus -23

The Stros continue to have only five players who are hitting above what an average player would generate. Berkman, Bidg, and Beltran are each having great seasons (Beltran would have a 25 RCAA if his numbers while playing with the Royals are included). Lamb is also having a solid season in part-time play, and it is indefensible to play Ensberg over Lamb while the club still has a chance at post-season play. And, as much criticism as Bags has taken this season, he is still the Stros' fifth best hitter even though he now ranks toward the bottom of National League first basemen.

The big problems with the Stros are at catcher (Ausmus now has the worst RCAA among regular National League players and Chavez is not much better) and the left side of the infield (Ensberg's -12 RCAA is depressing and Everett's -12 number is defensible only because of his superb fielding) However, this team simply does not hit well enough to cover for both Everett and Ensberg in the lineup -- the Stros' are tied for ninth in team RCAA among the sixteen National League teams.

On the other hand, despite the ignorant mainstream media's contentions that the Stros' bullpen is primarily to blame for the club's subpar season to date, the Stros pitchers are actually performing quite well. Indeed, the Stros pitching staff ranks third in the National League in total RSAA:

Roger Clemens 26
Brad Lidge 14
Roy Oswalt 13
Wade Miller 11
Octavio Dotel 5
Darren Oliver 5
Pete Munro 4
Dan Miceli 3
Andy Pettitte 3
Mike Gallo 2
David Weathers 2
Kirk Bullinger -1
Chad Qualls -1
Brandon Backe -2
Jeremy Griffiths -3
Ricky Stone -3
Chad Harville -5
Jared Fernandez -6
Brandon Duckworth -8
Tim Redding -11

Clemens, Oswalt, and Lidge are as good as any three pitchers on one staff in the National League. Oliver has been a nice pickup so far, and Munro has pitched far above expectations. With the exception of Redding and Harville, the rest of the current staff is either just above or just below average, which is fine. I do think it's time to give a couple of other pitchers in the organization -- one of whom should probably be Carlos Hernandez -- a chance to replace Harville and Redding.

The Stros return to the Juice Box on Tuesday for a six game set against the Braves and the Virginia, er, I mean, the Montreal Expos. The Rocket takes on the Braves' Russ Ortiz in the Tuesday night game, which should be a good one.

Posted by Tom at 5:07 PM | Comments (3) | TrackBack (0)

August 1, 1966

Today is the 38th anniversary of Charles Whitman's infamous sniper assault on the area around the University of Texas campus in Austin.

Posted by Tom at 12:14 PM | Comments (0) | TrackBack (0)

Let's rumble

This NY Times article profiles the latest popular fad in Austin: Texas women's Roller Derby!:

Leave it to Austin, which prizes its weirdness, to foster this contagious blend of high performance sport and campy theatrics called not games but bouts, fought on traditional four-wheel skates. And to field the two feuding leagues - the Texas Rollergirls (www.txrollergirls.com) and the TXRD Lonestar Rollergirls, also known as Bad Girl, Good Woman (www.bggw.com).

This is, at the very least, extreme roller skating, heavy on attitude and light on attire, the better to bare breathtaking tattoos. Social scientists may scratch their heads over the emergence of a new form of staged violence by macho women, but to the players, who don't get paid, it's easy to explain: it's fun.

"It's kind of like hockey in lipstick and fishnet stockings," said Lacy Attuso, 27, a computer publicist who goes by the rink name of Whiskey L'Amour. (Whiskey because she drinks it, she said, L'Amour from the Western writer Louis L'Amour.)

Posted by Tom at 11:25 AM | Comments (0) | TrackBack (2)

Pension Benefit Guaranty Corporation blues

Following this earlier post regarding United Airlines' decision to default on its obligations to its employees' pension plans to attract capital to fund its chapter 11 reorganization plan, this NY Times article reports on some experts' concern that the Federal Pension Guaranty Corporation that insures company pensions is facing a string of possible airline industry bankruptcies and pension defaults that could lead to another multibillion-dollar taxpayer bailout similar to the S&L bailout of the 1980's.

This raises a rather interesting phenomenom. If United is not able to obtain a federal subsidy of its poor business practices in this way, then it will nevertheless obtain a federal subsidy through foisting a large part of its obligation to pay unrealistically large pension benefits on the federal government. Although not particularly creative, you have to admire United's persistence.

As as Warren Buffett pointed out several years ago, if one tabulates all of the airline industry's finances since the day the Wright Brothers in 1903, one would discover that, cumulatively, there has not been a single penny of profit? Mr. Buffett suggested famously that, in hindsight, shooting down the Wright Brothers on that beach would have been a reasonable financial, if not moral, move.

United has abot $13 billion in pension obligations that is secured by only $7 billion in assets. Inasmuch as the private capital that would fund United's reorganization plan will almost certainly require that United terminate its pension plans in connection with that plan, United's pension liabilities and related collateral will be assumed and administered by the Federal Pension Guaranty Corp. Absent a government bailout, United's retirees will probably receive around a 50% dividend on their claims against United's pension plans.

Although I have empathy for United retirees who thought that they were going to receive more in retirement than they will, there simply is no productive business purpose to be facilitated by the government contributing anything to United's underfunded pensions.

Posted by Tom at 11:15 AM | Comments (1) | TrackBack (0)

Houston's Donald Trump

At its irreverent best, this Houston Press article takes Landry's CEO Tilman Fertitta and Houston mayor Bill White to task for the sweetheart deal that Mr. Fertitta cut in regard to his company's downtown Houston Aquarium restaurant:

Houston city officials, apparently outraged at how they had fallen behind Galveston and Kemah in the heated race to service every little whim of restaurant-and-real-estate mogul Tilman Fertitta, took bold action a few years ago.

They gave Fertitta a sweetheart lease to the old downtown fire station and central waterworks plant -- even in the year 2040, he'll still be paying rent of only $12,500 a month for the prime location.

In its rush to bend over for Tilman, the city vacated the space even though it didn't have a replacement site lined up for the fire station. Houston is currently paying more than $24,500 a month to lease an admittedly inadequate building on Milam.

All this allowed Fertitta in February 2003 to open the Aquarium restaurant, which features outrageously overpriced train rides, Ferris wheels and -- he hopes -- tigers. (Because nothing says "aquarium" like tigers.) Food is also served, apparently.

Apparently, other than paying below market rent to the City, one of the only requirements that Landry's has under the deal with the City is to file an annual report explaining how the restaurant is doing and what the city is getting for its investment. But, according to the Press, there is one problem:

Fertitta can't be bothered to do it.

The first report was due June 1, says Pete Radowick, spokesman for the city's Convention and Entertainment Facilities. In the eight weeks since then, he says, the city has contacted Fertitta and asked if he would please file the thing. (For some reason, imagining this conversation brings to mind the Cowardly Lion approaching the great and powerful Wizard of Oz.)

The Press story even speculates as to the reason for the delay in the filing of the report:

Fertitta and his wife both gave $2,500 to Mayor Bill White this March; perhaps the paperwork involved in writing out those checks has delayed his filing the Aquarium report. Or maybe he's just too busy with his tiger project.

Landry's response to the Press' inquiriies on the matter?:

Fertitta's office, by the way, referred us to a PR agency that didn't return phone calls.

Ouch!

Posted by Tom at 7:07 AM | Comments (0) | TrackBack (0)