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October 31, 2004

2004 Weekly local football review

Texans 20 Jaguars 6. In their most impressive overall performance to date, the Texans beat the Jags decisively at Reliant Stadium in Houston. The Texans actually should have had another TD except that Jabbar Ga second quarter without being hit a moment before reaching the gs game, holding the Jags to a paltry 39 yards rushing and about 3.5 yards per pass, and tacking on a TD on DeMarcus Faggins' fourth quarter interception return to ice the game. Meanwhile, David Carr had probably his best game as a pro, hitting on 26-34 throws for 276 yards, a TD, and most importantly, no turnovers (well, actually he did have a fumble, but the refs blew the call). The Texans are now an improbable 4-3, but face tough road games at Denver and then Indianapolis over the next two weekends.

Texas Longhorns 31 Colorado 7. The Horns' increasingly formidable defense keyed this win, as Colorado could muster only 3 yards rushing and 221 yards total offense. The Horns still can't pass a lick, which will be a problem against teams that have the defensive strength to stuff their rushing attack. However, a big difference in Texas this season is that their defense is good enought to win low scoring games. My friends in college coaching told me before the season that Dick Tomey would make a difference in Texas' defensive unit, and I am now a believer.

Baylor 35 Texas Aggies 34. The Aggies almost laid an egg at home last week against Colorado, but they went ahead and laid a whopper in Waco against the Bears. Frankly, I was not surprised that Baylor gave A&M a game, as I had been on the sidelines of the Baylor-Iowa State game the weekend before and concluded then that the Bears -- although undermanned at several line positions -- were very well motivated and well-coached. The Ags put the ball on the ground a few times and, before you now it, the Bears determined that they could win the game. The decision of Baylor coach Guy Morris to go for two points after pulling to within 34-33 in the first overtime is one of those decisions that anyone who enjoys college football just has to admire. The 6-2 Aggies must now try to regroup before Oklahoma comes to College Station next Saturday night. Given the performance of the Aggie defense over the past two games, here is a betting recommendation on that game -- take "the over."

Houston 24 Tulane 3. The Coogs, who really have played a brutal schedule this season, finally caught a break and pounded a poor Tulane team at Roberston Stadium in Houston. This one was over by halftime as the Coogs coasted in the second half against either a dominating defensive effort or an imcompetent Tulane offensive performance, depending upon your viewpoint. The 2-6 Coogs have another winnable game next Saturday at home against 2-5 East Carolina.

Tulsa 39 Rice 22. The Owls' once promising season has now officially fallen apart as they lost decisively to a bad Tulsa team in Tulsa. The 3-5 Owls now face Fresno State and the Mike Price-revived UTEP in two of their final three games. Those games could be very ugly for the Owls.

And remember to review Kevin Whited's excellent weekly review of Big 12 games.

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October 30, 2004

Was Abe gay?

This LA Weekly article reviews the late C.A. Tripp's forthcoming book -- The Intimate World of Abraham Lincoln (Free Press 2005) -- in which the author concludes that there is a reasonable probability that Abraham Lincoln was gay. There actually has been speculation about Tripp's conclusion in historical circles for quite some time. Indeed, I recall Gore Vidal stating in television interviews years ago that, in researching his 1984 historical novel Lincoln, he began to suspect that Lincoln was gay. Give the article a look, and then wait for the return volleys from the more traditional Lincoln biographers.

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Enron's mismanagement of trust

R. Preston McAfee is the J. Stanley Johnson Professor at the California Institute of Technology and formerly held the Murray S. Johnson Chair at the University of Texas at Austin. In this concise and insightful article for The Economists Voice entitled The Real Lesson of Enrons Implosion: Market Makers Are In the Trust Business, Professor McAfee explains in plain terms that, in the end, Enron's demise was caused by a loss of trust:

How did Enron, a firm worth $60 billion, collapse over the discovery of a billion or so in hidden debt and fraudulent accounting? It didnt. Or, at least, not directly. Market makers like Enron and Ebay are in the trust business, just as banks and insurance companies are. Once trust was lost, the rest of Enrons value quickly disappeared. The maintenance of customer trust is an important, and frequently mismanaged, aspect of business strategy.

Professor McAfee begins by pointing out that the disclosures of financial problems at Enron were insufficient along to bring Enron down:

At the time of its collapse, Enrons market capitalization exceeded $60 billion, after growing at over 50% per year for a decade. The company collapsed after the revelation of $1.2 billion in hidden debt. This represented the visible portion of something over $8 billion in total hidden debts, a fraction of the value of the enterprise.

Moreover, the Enron business model provided real value to its customers, permitting them to contract over longer time horizons and to improve risk
management. So why did a company that was making a profit and providing real value to customers vanish so abruptly? Why arent the profitable lines of
business operated by Enron thriving today?

After pointing out that Enron was hardly along among major corporations in engaging in questionable accounting practices, Professor McAfee addresses why Enron's irregularities caused a meltdown when others did not:

So why did Enron collapse, when other firms with questionable accounting survive? The answer is that Enrons business-model was hostage to the trust that customers placed in Enrons financial integrity. Once confidence in Enron waned, as I will explain, participants in Enrons innovative markets were unwilling to engage in the purchasing or selling of a long-term contract that might not be fulfilled. Bid-ask spreads diverged, and Enrons markets unraveled.

Read the entire piece. Inasmuch as the mainstream media struggles to keep something as seemingly broad as Enron's demise in perspective, analysis such as this is quite helpful to a proper understanding of Enron's failure.

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Another financial institution settles in Enron class action

Confirming a deal noted here earlier, Lehman Brothers announced on Friday that it has agreed to pay $222.5 million to settle the the Enron class-action litigation against it in which the plaintiffs claimed that Lehman and other financial institutions helped Enron mislead investors.

The Lehman settlement is the third and the largest since the case was filed in late 2001 just before Enron went into chapter 11 during the first week of December 2001 amid public disclosure of hidden debt, inflated profits and accounting improprieties. As noted in this earlier post, Bank of America agreed to pay $69 million to settle similar allegations of liability for loss of value to securities it underwrote for Enron. The Enron class action plaintiffs also reached a $40 million settlement in July 2002 with Andersen Worldwide, the former parent company of the accounting firm Arthur Andersen.

Despite these settlements, the Enron class action plaintiffs continue to make overall settlement demands in the $30-40 billion range, so it appears that -- based on the total sum of the three settlements to date -- the plaintiffs' lawyers have some work left to do with the remaining financial institution defendants in the case. Bank of America and Lehman were underwriters in just a handful of Enron-related deals, so attorneys involved in the case believe their roles (and thus their settlement payments) are small in comparison to firms like Citigroup Inc. and J.P. Morgan Chase & Co. who did more Enron-related deals. Citigroup and J.P. Morgan are among the firms that have reserved billions of dollars to cover Enron-related exposure.

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October 29, 2004

Chess players -- check this out

Thinking Machine 4. Play a computer that shows you the various moves that it is considering. Very, very cool.

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You gotta love the European Tour

Not only do they kick the American team's rear in the Ryder Cup, the European Tour is much more interesting than the usually staid American Tour.

First, this article reports on Seve Ballesteros going nuclear on a European Tour official, apparently over some rules controversy that occurred years ago. Are you taking your medication, Seve?

And this piece reports on the efforts of the first transsexual to attempt to obtain a card on the women's European Tour. Does this portend a call for hormone analysis on competitors on the women's tours?

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Stros' first off-season moves

In two moves that surprised no one familiar with the Stros, the club announced that it was exercising its option on the contract of outfielder Craig Biggio and declining its option on second basemen Jeff Kent. As a result, the Stros will pay Bidg $3 million next season and will pay Kent $700,000 rather than pick up the option to pay him $9 million for next season.

Bidg enjoyed his second straight solid season after several seasons of decline. After -11 RCAA/.734 OPS in 2002 and 1 RCAA/.763 OPS season in 2003, Biggio hit .469 SLG, .337 OBA, .806 OPS, 8 RCAA in 156 games in 2004 (RCAA, or "runs created against average" is explained here, courtesy of Lee Sinins). He has a .807 career OPS, compared to his league average of .756, and 346 RCAA in 2,409 games. Bidg is the first true Stro Hall of Fame candidate.

Kent is a player in decline, although he is still one of the better hitting second basemen in MLB. After 46 RCAA/.933 OPS and 13 RCAA/.860 OPS seasons, Kent hit .531 SLG, .348 OBA, .880 OPS, 12 RCAA in 145 games. He has a .858 career OPS, compared to his league average of .769, and 237 RCAA in 1,777 games. Kent also has a decent shot at the Hall of Fame.

Both of these moves were the right ones. The Stros are probably overpaying Bidg a bit, but he will likely be at least an average National League hitter next season and he brings valuable leadership to the ballclub. Bidg's restructuring of his batting swing this season -- at the ripe age of 38 -- is one of the more remarkable athletic achievements that I have seen this year. That type of dedication and work ethic is worth paying a reasonable premium to retain.

However, Bidg in the outfield is causing some problems. Although he has gamely done whatever the Stros have asked him to do in the outfield, he remains a below average fielder with a far below average arm. Moreover, Bidg's continued role as a starter is blocking the development of Jason Lane, who is ready for a starting role in the Stros' outfield. If the Stros are able to retain Beltran's services (probably a longshot, but we can dream, can't we?), then my sense is that the best role for Bidg next season would be as a fourth outfielder/backup second baseman utilityman.

On the other hand, not picking up the option on Kent's contract was clearly the right move. Kent is simply no longer a $9 million a year player and the Stros can use the money saved on Kent's contract to go after Beltran. Moreover, the Stros' best minor league player this season -- Chris Burke -- is ready to take over at second base next season. Inasmuch as Kent's lack of range at second may make a shift to third base a smart move in the autumn of his MLB career, the Stros should entertain negotiating a new contract with Kent in the same range as Bidg's so long as he would agree to such a move. However, the Stros should have no interest in JK if he insists on remaining a second baseman.

Finally, my sense is that the Stros enter this off-season in decent shape. Although Berkman and Oswalt are both arbitration eligible and are due for big contract increases, and signing Beltran and Clemens will command big bucks, the Stros were able to ditch the big Hidalgo and Kent contracts this past season. Thus, the Stros have only the Bagwell contract as the last remnant of the big early decade contracts that are much higher than the existing market prices of player contracts.

Unfortunately, Bags' contract is really out of whack -- $39 million over the next three seasons: $15 million in 2005, $17 million in 2006, and a $7 million buyout of an $18 million 2007 contract. After his fifth straight season of declining offensive numbers, Bags is, at best, a $4-5 million a season player. Consequently, the Stros are overpaying Bags by probably about $25 million (or about $8.3 million per year) over the next three seasons.

So, what to do? Here's my strategy. Either persuade Bags to restructure his deal to allow the Stros to pay it out over a longer term or trade Bags to an American League team and pay that club up to $20 million to take on Bags' contract. Increase the team payroll to $100 million (certainly justified by the record attendance and popularity of the club) and dedicate $50 million of that payroll to signing Beltran, Berkman, Oswalt and Clemens. That leaves roughly $50 million for the other 21 roster players, who provide solid alternatives at each position with the exception of catcher.

If the Stros could pull the foregoing off, then my sense is that we could all feel pretty darn comfortable going into the 2005 season. At least so long as the Stros do not re-sign Ausmus as the starting catcher! ;^)

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October 28, 2004

Nigerian Barge case goes to the jury

Final arguments ended today in the Enron-related criminal trial of four former Merrill Lynch executives and two former mid-level Enron executives in what has become known as the Nigerian Barge trial. Earlier posts on the trial may be reviewed here, here, here, and here.

As noted in the earlier posts, this has been a mess of a trial, which likely would have never been pursued at all had not the pariah known as Enron been involved. Remarkably, all of the main prosecution witnesses had copped pleas bargains with the government, were not primary players in the transaction that was at the heart of the trial, and could not personally implicate any of the defendants in the alleged wrongdoing. In a normal case, this ledger would be a prescription for acquittal of all the defendants.

However, the extraordinary public bias against anything having to do with Enron -- a bias that the Enron Task Force repeatedly appeals to in its public statements -- makes this a much tougher case to call. Add to that mix that three (former Merrill execs Bayly, Furst and Brown) out of the six defendants chose not to testify and there is a decent probability that the prosecution will obtain at least a few convictions out of the trial.

My bet is that Sheila Kahanek, the mid-level Enron accountant who testified, and William Fuhs, the lowest-level Merrill executive of the defendants and the only one to testify, will be acquitted. Daniel Boyle, the other former Enron executive on trial, has a decent shot at acquittal, but frankly did not do as good a job as either Kahanek or Fuhs on the witness stand. The other three Merrill execs -- Messrs. Furst, Bayly, and Brown -- did not testify and I believe have a higher risk of facing convictions. As Martha Stewart learned, juries in white collar criminal cases want to hear from the defendant.

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Where is your polling place?

Tom Mighell points us toward My Polling Place, where you can input your address and zip code, and the site provides you the address of the polling place where you are to vote and a map to the the polling place. Very handy. Check it out.

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Arnold Kling on the Four Myths of Social Security

In this Tech Central Station essay, Arnold Kling o Social Security: The Pension Myth, the Transition Cost Myth, th/archives/2004/10/arnold_kling_on.asp"> 9:00 AM | Comments (0) | TrackBack (0)

Reflecting on personal investing

Jonathan Clements has written The Wall Street Journal's ($) Getting Going personal finance column since October 1994. In this week's column, he reflects on ten years of providing personal finance advice, and his views arenewspaper that advocates investment:

The fact is, over the decade I have written this column, my optimism has taken a beating. Yes, I still believe it is possible for ordinary investors to make decent money on Wall Street. But it has become increasingly clear to me that the odds are stacked against us.

First, Mr. Clements notes that gains in stock prices are almost certainly going to slow over the next several decades:

[T]he collapse in stock prices has made me look harder at historic market returns -- and I don't like what I see. According to Chicago's Ibbotson Associates, the Standard & Poor's 500-stock index has clocked an impressive 10.4% a year since 1925.

A significant part of that gain, however, came from both rich dividend yields and rising price/earnings multiples. Today, with dividend yields so low and P/E ratios so high, long-run returns will almost certainly be lower -- even assuming robust economic growth.

The nosebleed valuations are especially worrisome given the aging of the U.S., Europe and Japan. In 30 years, 20% of the U.S. population will be age 65 or older, up from 12% today. With fewer workers per retiree and massive government spending needed for Social Security and Medicare, we are going to face some grim financial choices.

Thanks to their younger population, developing nations should post faster economic growth. That is why I am a big fan of emerging-market stock funds. . . These funds, however, aren't a sure thing, in part because the countries involved don't offer the political stability and commitment to property rights that we enjoy in the U.S.

Indeed, when the costs attributable to investing are assessed, the potential gains look even slimmer:

If the markets' raw results are a tad slim in the decades ahead, the gains may all but disappear after figuring in investment costs, taxes and inflation.

Suppose you own a balanced portfolio of stocks and bonds that scores 6% a year. Knock off two percentage points for investment costs, and you will be down to 4%. Lose 25% to taxes, and that 4% will become 3%. Wouldn't mind earning 3%? Problem is, that 3% could easily be devoured by inflation, leaving you with no real return.

Faced with such potentially meager results, the solutions are obvious enough, and I find myself advocating them ever more stridently. Want to make your investment portfolio grow? You need to save like crazy, make the most of tax-sheltered retirement accounts, trade sparingly and favor low-expense funds, especially market-tracking index funds.

After ten years of reviewing the travails of the individual investor, Mr. Clements is no fan of the Bush Administration's prately, during the past decade, my confidence in the investment acumen of ordinary investors has been shaken. I have come across too many serial blunderers, folks who jumped from technology stocks in the late 1990s, to bonds in the bear market, to real-estate investment trusts in 2004, always buying after the big money ucation nor the emotional fortitude to invest sensibly. That is one of the reasons I believe replacing traditional company pension plans with 401(k) plans has been a mistake. Similarly, I fear that the privatization of Social Security will be a disaster un

And perhaps most surprisingly, Mr. Clements levels his harshest criticism for the industry that makes its living off of advising people on how to invest:

Of course, wayward investors could be straightened out with sound investment advice. But that isn't exactly a safe bet.

Over the years, I have met some fine brokers and financial planners. I have also, however, heard too many horror stories. As e-mail has spread means I get a steady stream of e-mails from aggrieved investors who were taken to the cleaners by unscrupulous advisers.

To make matters worse, Wall Street appears to have scant interest in fixing this mess. In theory, we should be entering a golden age of investment advice, with brokers and planners helping legions of aging baby boomers to manage their burgeoning nest eggs.

Yet rather than helping investors, Wall Street seems more intent on profiting from them. Brokerage firms could refuse to sell bad investment products and ruthlessly weed out rotten brokers. Instead, they appear content to let their brokers loose on the unsuspecting public. What about the legal problems trice of doing business.

Read the entire column.

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October 26, 2004

And if you want to know what I really think .om/scripts/printpage.cgi?/taylor.htm">this National Journal op-ed, Stuart Taylor is not particularly impressed with the quality of the two major parties' Presidential candidates this year:

One candidate is an intellectually shallow, closed-minded, strangely smirking, free-spending, hard-right culture warrior who combines smug ideological certitude with stunning indifference to facts and evidence, who is obsessed wire generations, who claims virtually unlimited power to suspend constitutional liberties, who has alienated millions of America's onetime admirers abroad, and who has never made a mistake he would not repeat.

The other is a both-sides-of-tough-issues, unlikable, aloof, cheap-shotting, free-spending political careerist whose domestic policies might make the Bush deficits even worse, whose Iraq policy shifts with every political wind, and who has long been close to his party's quasi-pacifist, lawsuit-loving Left.

Ouch!

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The Houston Open - consequences of bad decisions

This Chronicle article about the downturn in the Houston Golf Association's charitable donations after a less than stellar Shell Houston Open this past spring brings to mind how even well-intentioned people can bungle a good thing through a series of bad decisions.

The HGA has operated the Houston Open PGA Tour golf tournament for about 60 years. Although Houston has a rich golf tradition, the Houston Open has not always been a resounding success. Indeed, I vividly recall a time in the 1970's when, after a particularly unfulfilling Houston Open, the Houston Post's cranky golf columnist, the late Jack Gallagher, penned a controversial column in which the basic thrust was "if this is the best you can do, then why don't we just forget about having the Houston Open." The HGA's members were not pleased with Gallagher's column, but what he had to say had some merit.

To the HGA's credit, however, it turned things around. In 1975 or so, the HGA entered into a long term agreement with The Woodlands Corporation, which at the time was in the early stages of developing a master-planned suburban community on the far northside of Houston's metropolitan area. For the next 26 years, the Houston Open and The Woodlands enjoyed a mutually beneficial relationship as the golf tournament rode The Woodlands' extraordinary success and growth to become one of the top tournaments on the PGA Tour in terms of the amount of money raised for charity each year. That status was cemented when Royal Dutch/Shell Corporation stepped up in the 1990's to become a stable title sponsor for the tournament.

However, in the late 90's, the partnership between the HGA and The Woodlands Corporation began to have problems. The HGA believed that the tournament needed to move from the Tournament Players Course in The Woodlands, which had parking problems and was not a particularly popular venue with many of the top players. After The Woodlands Corporation developed the outstanding Carlton Woods Golf Club on the westside of The Woodlands, the HGA concluded that The Woodlands Corporation had reneged on its commitment to build a new Tom Fazio-designed TPC Course on the westside of The Woodlands to host the Houston Open. The Woodlands Corporation -- now owned by different owners than the ones who had struck the original deal with the HGA -- concluded that the HGA did not sufficiently appreciate how much the growing attractiveness of The Woodlands had contributed to the success of the tournament and that The Woodlands really did not need the golf tournament to continue its phenomenal success.

Consequently, in 2002, the HGA decided to leave The Woodlands and relocate to Redstone Golf Club on the northeast side of Houston. Although the local media typically mimics the HGA's endlessly positive pronouncements regarding the move to Redstone, the decision is beginning to look like a monumental blunder.

First, despite HGA protestations to the contrary, the Redstone Golf Course is not a PGA Tour-quality golf course. Redstone is the renovated result of the old El Dorado Country Club course and, although the redesign improved that old course significantly, it is still not close to as good a tournament venue as the TPC in The Woodlands.

Second, Redstone Golf Club is out in the middle of nowhere with no nearby quality hotels and other accomodations tonsequently, the Tour players must stay in either second rate Intercontinental Airport-area hotels or far away quality hotels in either the downtown or Galleria-areas of Houston.

In the meantime, The Woodlands has developed the Houston area's best destination resort, along with a beautiful downtown riverwalk area dotted with quality restaurants, entertainment venues, shops, and hotels. As one anonymous Tour player commented to me after viewing the latest commercial developments in The Woodlands: "They [meaning the HGA] left this for that [meaning Redstone]?"

The short terms results tend to support that view. Not only are charitable donations generated by the tournament down for nly 3 of the top 20 money-winners on the PGA Tour. Prospects for next year's tournament do not look much better.

Meanwhile, the HGA is valiantly attempting to make the best of the situation. The HGA-Redstone partnership hired noted golf course designer Rees Jones to design a new tournament course at Redstone that will become the tournament course in 2006. Also, the HGA is lobbying the PGAston Open into one of the premier non-major tournaments on the PGA Tour. Playing on a mediocre golf course in an isolated part of Houston with a less than stellar field, the Houston Open has lns. The situation may improve if the new Rees Jones course turns out to be popular with the Tour players, but unless a more attractive date for the tournament is obtained and quality accommodations closer to the course are arranged for the players, any improvement in the overall situation will likely be temporary and m days.

What is sad about all of this is that it did noston Open could have continued to prosper in The Woodlands. Now, the HGA is back to square one, and it is going to be a long, tough road to make the Houston Open more than a blip on the radar screen of the PGA Tour.

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October 25, 2004

Hard to get a word in edgewise

As noted in this earlier post, John O'Neill is a prominent Houston attorney and Swift Boat Veteran who is a co-author of Unfit for Command that is highly critical of John Kerry's Vietnam War service and subsequent anti-war activities. Mr. O'Neill had a hard time getting a word in edgewise in this hilarious television interview with MSNBC analyst and Kerry supporter, Lawrence O'Donnell.

I must say that it is impressive that Mr. O'Donnell's performance made moderator Pat Buchanan appear to be absolutely moderate! ;^) Hat tip to the TigerHawk for the link to this interview.

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Checking in again on the Nigerian Barge trial

The first Enron-related criminal trial -- the mess known as the Nigerian Barge trial (previous trial posts here<6482440/qid=1098703118/sr=1-1/ref=sr_1_1/002-0106609-0335235?v=glance&s=books">Past Imperfect: Facts, Fictions, Fraud -- American History from Bancroft and Parkman to Ambrose, Bellesiles, Ellis, and Goodwin (PublicAffairs 2004) contends that the history profession has condoned sloppy scholarship and an "anything-goes" ethical climate:

Hoffer revisits the now-familiar cases of a quartet of historians brought low by scandal in 2002: former Emory University professor Michael Bellesiles, who was accused of falsifying data in "Arming America," his controversial 2000 study of 18th- and 19th-century gun culture; Stephen Ambrose and Doris Kearns Goodwin, who were both found to have used material from other scholars without full attribution; and Mount Holyoke's Joseph Ellis, who was rebuked for spinning tales of his nonexistent Vietnam combat record in classes and newspaper articles. According to Hoffer, these were not just isolated incidents but symptoms of a wider problem -- one that goes far beyond the headlines to the very way history is written and consumed in America.
. . . Hoffer is particularly harsh on Bellesiles, who resigned from his job at Emory and was stripped of the Bancroft Prize in the wake of the controversy over "Arming America."

To his defenders, the former Emory historian was the victim of a conservative plot, spearheaded by the National Rifle Association, to discredit Bellesiles' conclusion that, contrary to the image of the musket-wielding patriot, few early Americans owned functional guns. But in Hoffer's telling, Bellesiles engaged in deliberate "falsification" of his data. Furthermore, Hoffer asserts, Bellesiles published his book with the trade publisher Knopf (which eventually withdrew the book from circulation) rather than a scholarly press "in order to claim . . . immunity from close professional scrutiny." (While an investigative panel formed by the AHA found no outright falsification, they condemned Bellesilles' evasiveness about his source records, many of which could not be traced.)

As for Goodwin and Ambrose, who are also published by trade presses, Hoffer brushes aside their claims that the instances of missing footnotes or insufficient citations were just unintentional and isolated lapses in otherwise sound work. Whatever the intention, Hoffer writes, the end result is the same: "plagiarism," which under AHA standards, he notes, does not require actual intent to deceive. (He brings greater sympathy to the case of Joseph Ellis, whose scholarship itself was not questioned, suggesting that the same imaginative powers that led him to lie about his life story may have helped him write more subtle and nuanced books.)

Read the entire review.

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October 24, 2004

2004 Weekly local football review

The Texans were off in Week 7 of the NFL season. They play the Jags at Reliant Stadium in Houston next Sunday.

Green Bay 41 Dallas 20. If there was any doubt that the Cowboys were in deep trouble to date, then this game removed all doubt. The Packers toyed with the Cowboys, who were incapable of stopping either the Pack's ground or aerial game. In the meantime, the Cowboys have no rushing attack and no real deep threat in the passing game. This 2-5 Cowboy team is a good bet to reach 10-12 losses this season. The improved Lions are up next for the Pokes at Texas Stadium next Sunday.

Texas 51 Texas Tech 21. The 6-1 Horns proved again that they can dominate a team that cannot stop the run. Unfortunately, Texas' problem is with the teams that can stop the run and force the Horns to rely on their questionable passing game. None of the Horns next four games are going to be picnics -- at Colorado, home against Okie State, at Kansas, and the annual Thanksgiving weekend grudge match against the Texas Aggies. Interestingly, it may be Texas' relatively unnoticed but much improved defense that pulls the Horns through these next four games.

Texas Aggies 29 Colorado 26 (OT). After back-to-back impressive road wins over the past two weeks, the Ags came home and almost laid an egg before winning their sixth straight. The Aggies came out flat in the first half of this game, but mounted a couple of impressive second half comebacks to tie the game in regulation. The Buffs sprayed the ball all around Kyle Field in generating almost 400 yards of passing offense, so the Aggies' secondary better shore up quickly if they want to stay on the same field with OU's high-powered offense in two weeks. The 6-1 Ags tune up for the OU showdown by taking on Baylor next week in Waco.

TCU 34 Houston 27. The Coogs are in a clear freefall as their record deteriorates to 1-6 in a game that was not as close as the score reflects. Houston is looking like a 1-10 or 2-9 team to me. What a comedown after Art Briles' magical first season as UH's coach.

Navy 14 Rice 13. The Owls made a nice fourth quarter comeback against a strong Navy squad only to undermine their chance for victory in overtime by blowing the PAT after the second TD. The 3-4 Owls are just a couple of breaks away from being 5-2 and in the thick of the race for a minor bowl appearance, but the Owls are now facing a brutal final month of the season beginning next Saturday at Tulsa. Rice will struggle to finish with a .500 record this season.

And, as usual, Kevin Whited has his excellent weekly review of Big 12 games.

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Posner on law review articles

Seventh Circuit Judge Richard Posner takes dead aim at law review articles in this Legal Affairs article, and the hilarious sub-headline sums up his viewpoint:

Welcome to a world where inexperienced editors make articles about the wrong topics worse.

Any article by Judge Posner is well worth reading and this one is no exception. He notes the result of the system of law review articles:

The result of the system of scholarly publication in law is that too many articles are too long, too dull, and too heavily annotated, and that many interdisciplinary articles are published that have no merit at all. Worse is the effect of these characteristics of law reviews in marginalizing the kind of legal scholarship that student editors can handle wellarticles that criticize judicial decisions or, more constructively, discern new directions in law by careful analysis of decisions. Such articles are of great value to the profession, including its judicial branch, but they are becoming rare, in part because of the fascination of the legal academy with constitutional law, which in fact plays only a small role in the decisions of the lower courts. Law reviews do extensively analyze and criticize the constitutional decisions of the Supreme Court, but the profession, including the judiciary, would benefit from a reorientation of academic attention to lower-court decisions. Not that the Supreme Court isn't the most important court in the United States. But the 80 or so decisions that it renders every year get disproportionate attention compared to the many thousands of decisions rendered by other appellate courts that are much less frequently written about, especially since justices of the Supreme Court are the judges who are least likely to be influenced by critical academic reflection on their work.

Read the entire article. Also, U.T. Law Prof Brian Leiter has some interesting comments on Judge Posner's views.

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October 22, 2004

The Bush Administration's discretionary spending

Victor over at the Dead Parrot Society has performed this interesting analysis of this earlier American Enterprise Institute study (linked in this earlier post via Marginal Revolution) in which the author of the AEI study -- Virginia de Rugy -- concluded that the Bush Administration compares poorly with other administrations over the past 40 years in terms of reducing the amount of major governmental agency or department spending. Victor focuses on comparing the second Clinton Administration's spending with the Bush Administration, and concludes as follows:

The numbers are ambiguous. By focusing only on discretionary expenditures, much -- but not all -- of the cyclical impact of the recession has been removed from the data. When you do this, Bush's spending looks much better outside of the well documented cases where he has made a conscious push to increase spending (like education). However, he still has not achieved a real reduction in any federal agency.

But if you look at the actual Budget Authority levels, his administration actually has achieved a few reductions.

In both cases, of course, this has occurred in an environment where many agencies are adding homeland security requests to their budgets; I have only anecdotally adjusted for that. Regardless, the overall spending picture isn't quite as dreary as implied by DeRugy's original analysis.

Read the entire post. And as noted in this previous post, the prospect is remote that a Kerry Administration would be more restrained in terms of governmental spending than a second Bush Administration.

Quare: Is the difference between the increase in discretionary spending that would likely occur during the next four years under a second Bush Administration as compared to the increase that would likely take place under a Kerry Administration so marginal that it is not really a meaningful reason to favor one administration over the other?

Posted by Tom at 8:37 AM | Comments (2) | TrackBack (0)

October 21, 2004

Cards top Stros to win NLCS

Scott Rolen hit a two out, two run yak in the sixth off of Roger Clemens to break a 2-2 tie and lead the Cardinals to a 5-2 win over the Stros in Game 7 of a thrilling 2004 National League Championship Series on Thursday night in St. Louis. The win propels the Cards into their 15th World Series against the American League Champion, the Boston Red Sox.

The loss was a bitter one for the Stros, who improbably got within 10 outs of the World Series after struggling for much of the season. A late season surge in which they won 36 of their last 46 games allowed the Stros to win the National League Wild Card spot, and then the Stros won their first post-season series over the Braves in the Divisional Series. The Stros accomplished all of this without two of their starting pitchers -- Andy Pettitte and Wade Miller -- and lost in the seventh game of the NLCS to the club that had the best record in Major League Baseball this season. Those are remarkable accomplishments.

However, the Stros' bugaboo during their struggles for much of the season has been lack of consistent hitting, and that trait reappeared over the last three games of the NLCS to undermine the Stros' chances of getting to the World Series. In the final three games of the NLCS, the Stros had only 11 runs and 16 hits, and 11 of those hits were singles. The Stros could only eke out 3 hits in Game 7, including Bidg's lead off tater, and none of the Stros' hitters looked comfortable the entire game. The bottom line is that two of the Cards' top hitters -- Rolen and Pujols -- came through in the clutch, and the Stros top hitters -- Berkman, Beltran and Bags -- were held without a hit in Game 7. The Cards deserved to win the game and the series.

The Rocket was great through five innings, but clearly tired in the sixth when Pujols doubled in the tying run on an inside fast ball that did not have Clemens' usual bite, and then Rolen cranked a letter high fast ball on the first pitch to put the Cards ahead 4-2. If the Stros' bats had been clicking, then the Rocket's performance might have been good enough. Alas, it was not to be.

Oh, but what a ride it's been. The city of Houston came alive for the past two months as this team jelled and came within a nose of the first World Series for Houston and Texas. The Stros have been one of Major League Baseball's most successful clubs over the past decade, and now their task is to transition from the Bagwell and Biggio Era to the Berkman and (hopefully) Beltran Era. After the run that this club made at the end of this season and into the playoffs, I'm not betting against the Stros figuring out a way to get this done and remain among the elite clubs in the National League.

Posted by Tom at 10:57 PM | Comments (1) | TrackBack (0)

Keeping the price of oil in perspective

Vaclav Smil is Distinguished Professor of Geography at the University of Manitoba, Canada, and is the author of many books on energy and the environment. In this Tech Central Station op-ed, he reminds us of something that the mainstream media generally fails to report regarding the recent run up in the price of oil:

The years of the highest oil prices were 1980 and 1981 (thanks to Ayatollah Khomeini and fall of the Pahlavi dynasty in Iran) when the Arabian Light/Dubai crude traded at nearly $36/bbl and when the West Texas Intermediate went for almost $38. In 2004 monies this is, rounded for easy memorization, between $ 70-75. The peak of the last few days -- $ 55/bbl -- is obviously well above what will be the annual mean for the year 2004 and it is no more than 73-78% of the record averages. But this is a wholly inadequate adjustment. Between 1980 and 2003 the amount of oil that the US economy used to generate an average dollar of its GDP fell by 43% as its oil intensity declined somewhat faster than the overall relative energy use.
And so in order to get an approximate but realistic comparison of how much today's prices impact an average manufacturer or average household purchases, we should multiply the current high price of $55/bbl by 0.57 to get an effective comparable price of around $30, or no more than 40% of the average record price we paid in 1980. Moreover, between 1980 and 2003 average hourly earnings in services, where most new jobs were created, rose by about 30% and so another adjustment taking into account this higher earning power reduces the comparable price to just over $20. Other, more sophisticated adjustments, are possible but this one is easy to execute and easy to remember: the effective -- that is inflation-, oil/$GDP- and earning power-adjusted -- cost of oil at $(2004)53-55 is no more than about 30% of the average record price we paid in 1980 and 1981. That is why recent "record" oil prices have not had any substantial effect on the way this continent uses, and wastes, the most convenient of all fossil fuels.

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

WaPo on Justice's Corporate Task Force

This Washington Post article does a decent job of reviewing the work over the past two years of the Justice Department's Corporate Task Force that was created as a result of the meltdown of Enron Corp.

Posted by Tom at 7:41 AM | Comments (0) | TrackBack (0)

Paul Johnson on tough Presidential campaigns

British historian Paul Johnson (author of "Modern Times," "History of the Jews," "History of Christianity," "A History of the American People," and his more recent "Art, A New History," among others) is one of my favorites. In this WSJ ($) op-ed, Mr. Johnson notes that the nastiness of the 2004 Presidential Campaign really does not hold a candle to the campaign of 1928 between Andrew Jackson and John Quincy Adams:

[The 1928 campaign] inaugurated the habit of long campaigns, since Tennessee nominated Jackson for president as early as Spring 1825, more than three years before the vote. . .

Adams's supporters retaliated by the campaign poster known as the Coffin Handbill, listing 18 murders Jackson was supposed to have committed. Those who claim the current election is the dirtiest know little about 1828. An English visitor, shown a school in New England (where Adams was paramount), put questions to the class, including "Who killed Abel?" A child promptly replied "General Jackson, Ma'am." An Adams pamphlet accused Jackson of "trafficking in human flesh," another accused his wife of being a bigamist and adulterer. After seeing it, she took to her bed and died shortly after the election. To his dying day Jackson believed his political enemies had murdered her. On his side, pamphlets accused Adams of fornication, procuring American virgins for the Tsar while serving as ambassador in Russia, and being an alcoholic and sabbath-breaker. A White House inventory listing a billiard-table and a chess-set led to the accusation that Adams had introduced "gambling furniture." (His most curious presidential habit, of taking a daily swim in the Potomac stark naked, went unnoticed.)

Jackson won the popular vote in this first razzmatazz election, 647,276 to 508,064, and the College by a clear majority. His inauguration was followed by a saturnalia in which thousands of his supporters invaded the White House and engaged in a drinking spree. The Spoils System (a new term) was inaugurated by the ejection of Adams's men from public offices, a process called The Massacre of the Innocents.

And what does Mr. Johnson think about the qualitiy of the current campaign? Apparently, not much:

In recent decades the most significant election was 1980, when Reagan beat Jimmy Carter and so inaugurated the policies which demolished the "Evil Empire" of the Soviet Union, and ended the Cold War in a Western victory. Reagan won this election, which I covered closely, with wit and one-liners. The current election is likely to be significant, too, in deciding the strategy and tactics of the war against terrorism. But wit, alas, will play little part.

Posted by Tom at 7:19 AM | Comments (0) | TrackBack (0)

More on Kerry's income taxes

This post from last week addressed the hypocrisy of John Kerry's political position that the federal government should raise taxes on the wealthiest Americans while his wife continues to use loopholes in the tax laws to pay a lower percentage of taxes than most other Americans.

In this editorial, the Wall Street Journal ($) takes deal aim at the issue and points out the advantages that super-rich folks such as Mrs. Heinz-Kerry have over working stiffs, starting with Ms. Heinz-Kerry's avoidance of the payroll (i.e., Social Security) tax:

One point we failed to mention is that Mrs. Kerry paid only a token Social Security tax. That's because the payroll tax is assessed on wages, and Mrs. Kerry declared very little wage income. She gets most of her income from dividends and interest, as many wealthy people do. This is fine by us, but it is one more advantage she has over the vast majority of Americans who draw a weekly paycheck and must (with their employer) cough up the 15.3% payroll levy.

And that advantage is just one of many that super-rich folks such as Ms. Heinz-Kerry enjoys under that income tax system that Mr. Kerry seeks to perpetuate:

Our main point is that this is one more advantage Mrs. Kerry would have over working stiffs on salary if her husband wins the White House and follows through on his plan to raise taxes.

It's very hard to dodge a tax increase on salary income, especially for middle-class folk who need the money. Many couples who earn more than $200,000 a year are non-wealthy Americans who happen to be at the peak of their earning years and have big bills (such as college educations) to meet now or down the road. They haven't had time -- or been lucky enough to marry rich -- to build up the assets to be able to live off tax-free investments the way Mrs. Kerry can. The super-rich, as opposed to the merely successful, are the ones who are really able to avoid taxes -- which, come to think of it, may be why so many billionaires are supporting John Kerry.

The data on average tax rates actually reflects the highly progressive nature of the tax system, except for the super-rich who can hire lawyers and accountants to avoid paying taxes:

As it happens, the IRS has just released its data on individual income tax returns for 2002. And they reinforce our point about average tax rates. Recall that Mrs. Kerry paid an average tax rate of 12.4% on her declared income of $5.07 million. In 2002, even after the first round of Bush tax cuts, the average rate paid by all taxpayers was still higher than that at 13.03%.

As for the folks in her wealthy neighborhood, in 2002 the top 1% of taxpayers paid an average rate (also known as the effective tax rate) of 27.25%. By the way, the income threshold for getting into that 1% group was only $285,424, down substantially from 2000 and 2001. And that same top 1% of earners paid 33.7% of all income taxes in 2002. The way to think about these numbers is that, despite the Bush tax cuts that allegedly so favored the rich, the tax code remains highly progressive. And these people kept paying the lion's share of all taxes even though their earnings declined amid the recession and stock-market slump.

But the most interesting question in regard to Ms. Heinz-Kerry's tax return is the following:

But back to Mrs. Kerry: Some readers wondered how she could be worth nearly $1 billion (as the Los Angeles Times has estimated) and earn only $5.07 million in 2003. Good question. It's impossible to tell given that Mrs. Kerry has disclosed only two pages of her 1040 form and declines to explain how her assets are deployed. But we agree with those readers who suggest that much of her wealth must be tied up in trusts and estates that don't require a declaration of income. Like many of the super-rich, Mrs. Kerry can afford to hire lawyers and accountants to create these shelters for her and her heirs.

The late, great Wall Street Journal editor Barney Kilgore used to say that the rich don't mind high taxes because they already have their money. Mrs. Kerry and her husband are cases in point.

Inasmuch as the Bush Administration has done nothing during its first four years on making the income tax system in the U.S. simpler and more transparent, it is disappointing to me that the Democratic challenger's platform in this area is a hypocritical and demogogic appeal for votes rather than a substantive proposal for reform of a broken system.

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

Continental posts big 3rd quarter loss

Houston-based Continental Airlines reported a net loss for the third quarter on Tuesday as high fuel prices and competition from low-cost carriers continued to savage the "legacy carrier" segment of the airline industry. In announcing the loss, the fifth-largest U.S. airline in terms of passenger traffic predicted that it expects to report a significant loss for this year and will do the same next year if conditions persist

As with other reeling legacy carriers such as United Airlines and Delta Airlines, Continental continues to fare badly in competing with the widespread fare discounting of such low-cost carriers as JetBlue Airways and Southwest Airlines. Continental has slashed costs through layoffs and negotiating better deals with suppliers, but it has had insufficient liquid reserves to be able to hedge high fuel prices and now there there is not much they can do about the soaring fuel costs.

Despite the loss, Continental is actually faring better than many of its traditional competitors, which are expected to report even steeper losses later this week. Continental's revenue continues to grow at a steady rate because its hubs such as Newark, N.J. have particularly strong local traffic bases. Revenue in the latest quarter rose 8.4% to $2.56 billion as Continental boosted capacity, flew more miles and filled more of its seats.

Continental's unit costs, which are expenses spread over each seat mile flown, rose 4.9% to 9.45 cents mostly because of a higher fuel bill. Had fuel prices been at year-earlier levels, Continental's unit costs would have fallen 2.1%.

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

October 19, 2004

Lay's bid for a separate trial backfires

U.S. District Judge Sim Lake >ruled unexpectedly on Tuesday that former Enron Chairman and CEO Ken Lay will face two separate criminal trials -- one with former Enron CEO Jeff Skilling and former chief Enron accountant Richard Causey, and another one in which he will be the sole defendant.

To put it mildly, this is not the result that Lay's lawyers expected.

Judge Lake refused to separate Lay, Skilling and Causey into three discrete trials as all three had requested. But Lake did separate the government's four criminal charges against Lay relating to his personal banking into a second trial that would be tried separately from the Enron-related charges against the three former executives.

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

In all likelihood, unless Lay presses the issue, the trial of the banking charges against Lay will be postponed until after the trial of the three former executives takes place, which means that they likely will never be tried. Regardless of the outcome of the first trial as to Lay, the government will likely cut some type of deal with Lay on the banking charges. My best guess at this point is that the trial against Lay, Skilling and Causey will crank up in mid-2005.

In another Enron-related development, the ongoing trial of the Nigerian Barge criminal case has been postponed for the rest of the week because U.S. District Judge Ewing Werlein became ill. Assuming the trial begins again next Monday, there is a good chance that the trial will conclude by the end of next week.

Posted by Tom at 9:32 PM | Comments (0) | TrackBack (1)

Oscar Wyatt's deal with the devil

This NY Times article follows up on last week's news that longtime Houstonian Oscar Wyatt is one of three individuals and four companies that federal investigators are focusing on for who allegedly receiving vouchers for oil from Saddam Hussein as he sought to flout United Nations sanctions. The Times article notes the close relationship between Mr. Wyatt and Saddam:

Mr. Wyatt . . . traveled to Baghdad as recently as early 2003, as the United States was preparing for war, to meet with officials in Mr. Hussein's government. Mr. Wyatt - once called in Texas Monthly magazine "the most hated oilman in Texas" - met Mr. Hussein in 1972, just after Iraq's oil industry had been nationalized, and eventually became one of the biggest United States importers of Iraqi oil.

The two met again in 1990, after Iraq invaded Kuwait and Mr. Wyatt flew to Baghdad on a company jet to help negotiate the release of nearly two dozen American oil workers whom Mr. Hussein had turned into "human shields."

The relationship was so close that when the United Nations authorized Iraq in 1996 to begin selling oil again, under the Oil for Food program, Mr. Wyatt and Coastal secured the first tanker shipment to leave the country.

And that close relationship is at the heart of the criminal investigation into Mr. Wyatt's activities:

The years of effort on Mr. Wyatt's part to court Iraqi officials and build a venture to export Iraqi oil to the United States produced ample rewards: he and companies that he has been linked to earned an estimated $23 million in profit in the seven years of the Oil for Food program, according to sales and profit estimates included in the C.I.A. report by Charles Duelfer; Mr. Wyatt disputes that figure.

And, lest we forget, Mr. Wyatt's used his relationship with Saddam to attain a humanitarian achievement:

By the late 1980's, Coastal was importing as much as 250,000 barrels of oil a day from Iraq. As these oil imports became more and more important to Coastal's operations, Mr. Wyatt became more outspoken in his opposition to any threatened or standing trade sanctions by the United States in the Middle East, . . . including a move by Congress to impose restrictions on trade with Iraq after Mr. Hussein used poison gas against the Kurds.

It was Mr. Wyatt's surprise trip to Baghdad in December 1990, however, that finally brought his relationship with Iraq into the spotlight. He met then with Mr. Hussein to negotiate the release of American hostages. The effort was opposed by the administration of George H. W. Bush, but Mr. Wyatt came home a hero and he wept at a meeting of the released hostages and their families.

"It was not a stunt," said Bobby Parker, a drilling rig electrician who had been held for 128 days before being rescued. "Oscar Wyatt is just not that type of person."

The hostages were safe, but ultimately, Mr. Wyatt's goal had not been fully achieved. He had hoped to prevent a military move by the United States on Iraqi-occupied Kuwait, a war that, he said, the United States had no reason to start.

Five years later in 1996, Mr. Wyatt's relations with Iraq were again in the news:

Mr. Wyatt's ties to Iraq again raised eyebrows, when the first tanker laden with crude oil sailed out of Mina al-Bakr, Iraq's main export oil terminal, in December 1996, in Iraq's legal return to global oil markets.

The ship had been chartered by one of Mr. Wyatt's companies.

This was the start of the Oil for Food program, which ultimately would result in the export of 3.4 billion barrels, earning $65 billion for the Iraqi government over the next seven years, money that was used to buy food and medicine, maintain oil fields and pay reparations from the first gulf war, among other spending.

My Wyatt, through spokespersons, declines to comment on any of this other than to deny that he engaged in any wrongdoing with regard to his business relations with Iraq. However, the Times article notes that one competitor characterized Mr. Wyatt's propensity to enter into difficult business deals in the following manner:

"He is not afraid of the devil."

Read the entire article.

Posted by Tom at 4:12 PM | Comments (1) | TrackBack (0)

On Brad Lidge

Please excuse me for having a hard time getting the Stros off of my mind. Amid the incredible performances over the past several days of Beltran, Berkman, Backe and Kent, Baseball Prospectus' ($) Joe Sheehan reminds us of the following:

Backe's tremendous work enabled Phil Garner to skip over the questionable pitchers on his staff and go right to Brad Lidge in the ninth inning. Garner finally used Lidge in a tie game, and was rewarded with an insanely dominant outing. Lidge pitched in all three games in Houston, throwing five innings, allowing one hit and two walks, and striking out nine. He threw 56 strikes in 77 pitches, going after every hitter he faced.

There's no better pitcher in baseball right now than Brad Lidge, and I say that with apologies to Johan Santana.

Posted by Tom at 2:28 PM | Comments (0) | TrackBack (0)

Bush's trouble with Treasury Secretaries

The WSJ's ($) Alan Murray is spot on with regard to his analysis in his weekly Political Capital column that the Bush Administration's second Treasury Secretary -- John Snow -- has been just as ineffective as the Bush Administration's first Treasury Secretary, Paul O'Neill:

Even some of the administration's closest allies wonder: Why has Mr. Bush failed in his first four years to find an effective Treasury secretary? And can he be expected to do any better in a second term?

Messrs. O'Neill and Snow have proved the least effective in recent memory. And it is worth asking: Why? Part of the answer comes from the fact that national-security concerns have pushed economic matters to the back burner. The secretaries of state and defense have been in the spotlight in this administration, and economic policy has been secondary.

But much of the answer comes from the fact that, for this administration, economic policy has been a direct extension of political strategy. The tax cuts that characterized President Bush's first term were forged during the campaign, and were as much a plan for election and re-election as for economic reinvigoration. The Treasury secretary's job was taken over, in effect, by political adviser Karl Rove.

If Mr. Bush is re-elected, that could change. He won't be running for a third term and he won't be pushing tax cuts. Yawning budget deficits make that certain. And unless Brother Jeb Bush signs him on, Karl Rove will have lost his client.

That could be the chance for a new approach to economic policy. President Bush has suggested an ambitious agenda for his second term. He wants to rewrite the tax code, to encourage savings and eliminate loopholes. He wants to give Americans more control over their health-care plans. And he wants to remake the Social Security system, restoring its finances while creating private accounts for younger workers. If he is serious about all this, he will need a very strong Treasury secretary at his side.

Quare: Each of the policy initiatives mentioned in the foregoing paragraph make sense and would be supported by the vast majority of Americans. Given the Bush Administration's track record, is it more likely that such initiatives would be seriously pursued in a second Bush Administration or in a Kerry Administration?

Posted by Tom at 11:32 AM | Comments (0) | TrackBack (0)

State AG's and the Plaintiffs' Bar

Longtime Wall Street Journal editorial writer John Fund has written this article for the Institute for Legal Reform in which he addresses the conflict of interest issues that arise in the context of state attorney generals hiring plaintiffs' attorneys to represent states in tort litigation. Mr. Fund's executive summary frames the issue in the following manner:

Increasingly, activist AGs are hiring outside plaintiffs attorneys to represent their states on a contingency-fee basis. Very often, they hire attorneys who have given them major campaign contributions. . .

This pinstripe patronage is not merely unseemly, it represents a dangerous conflict of interest and distortion of incentives. Not only can AGs reward their contributors with no-bid contracts, but the plaintiffs attorneys, once hired to pursue a lawsuit, have different incentives than the elected officials who hired them. While the AG is sworn to protect the interests of the people of his or her state, an attorney working on contingency has an incentive to pursue only monetary remedies, even if another outcome might best serve the people of the state. And because these attorneys are paid out of the amounts they cover rather than by taxpayers, taxpayers and legislators have no control over them.

At the very least, large state contracts with outside lawyers should be subject to the same sorts of public disclosure and bidding requirements applied to other state contracts. The Private Attorney Retention Sunshine Act model legislation drafted by the American Legislative Exchange Council has been adopted by five states to restore some measure of democratic control and void a replay of the scandalous back-room deals that plagued the tobacco settlement. Thats a good start.

Read the entire piece.

Posted by Tom at 10:25 AM | Comments (0) | TrackBack (0)

The Birthplace of Bush Paranoia

Several months ago, Professor Ribstein commented on the phenomena in this election of Bush-bashing, which the Professor observed is premised on "an assumption that Bush and his supporters are not credible -- that they are all idiots or worse."

Along those lines, this Weekly Standard article by Andrew Ferguson examines how the political culture of Austin, Texas facilitated the Bush-bashing phenomenom. As Mr. Ferguson notes, Austin is . . . well, different from most other places in Texas:

With its university-town origins, its large population of musicians and artists, its long tradition of political liberalism, Austin is, as Jeff says, the "anti-Texas," where "Texans who don't really like Texas" choose to live. More important, it has also, in a larger sense, exported its own peculiar brand of Bush hatred to Democrats from one coast to the other.

And Mr. Ferguson points out that Austin's brand of political opposition to President Bush may backfire big-time:

Austin has a lot to answer for, whether you're a Democrat or a Republican. Ponder for a moment the strange course the presidential campaign has followed these last 18 months. Judged by the simplest, crudest criterion--comparing the state of the world as it was the day he took office with the world as it will be on the day he stands for reelection--George W. Bush should be the most easily beatable presidential incumbent since Jimmy Carter. A frontal assault on Bush's record, repeated endlessly and packaged cleverly, might well have resulted in a walkaway win for whoever the Democrats had chosen to oppose him.

It hasn't worked out that way, as we know. Bush's opponents instead find themselves in a tight race they well might lose. There are lots of reasons why, but one surely is that instead of mounting a substantial critique of what the president has done and hasn't done, his Democratic adversaries have obsessed over piecing together odd, paranoid caricatures of the man who's driving them nuts--Bush as the agent of Halliburton, Bush as the idiot son of Robber Baron privilege, Bush the religious crank, the right-wing ideologue, the draft-dodger, the front man for Enron or Rove or the Saudi royals or J.R. Ewing.

Interestingly, Mr. Ferguson notes that the trouble with the Austin-style of opposition to Mr. Bush is the underlying insecurity of those who promote it:

[An essential characteristic of the Bush-haters is] hatred for themselves as Texans. "Keep Austin weird" is the cute, self-congratulatory, semi-official motto the city's residents repeat insistently, and there is, sure enough, something weird here. But the city isn't weird in the way Austinites think it is. No matter where in Austin you find yourself--the waiting room of an auto body shop, the men's room of a beer joint--you'll be confronted with a community bulletin board coated thickly with fliers announcing a poetry contest or some new development in Hatha Yoga technique. In that way Austin is no weirder than any other college town. It's weirdness lies in the fact that, unlike every other college town--Madison, Wisconsin; Lawrence, Kansas; Eugene, Oregon--it has never made peace with its home state. Texas progressivism sets itself in opposition to its surroundings, defines itself by what it isn't. It depends on a blend of boosterism (for Austin and for a few progressive neighborhoods in Houston) and contempt (for everything else north of the Rio Grande Valley and south of the Mason Dixon line). "The feeling you get in Austin sometimes," Nathan Husted told me, "is like we're all living in West Berlin during the Cold War."

Even the flap over the now infamous 60 Minutes segment that relied on a untested forged document regarding Mr. Bush's National Guard service has its genesis in the Austin culture of hatred toward Mr. Bush:

For our purposes, however, what was most interesting about the 60 Minutes imbroglio was the light it shed on the tiny, hermetic world of Texas Bush-hating. Rather himself--perhaps the world's most prominent Texas Bush-hater--has a daughter, Robin, who is an activist in, and future contender for the chairmanship of, Austin's Travis County Democratic party, which Rather once helped raise money for and whose chairman at that time, David Van Os, now serves as the attorney for Bill Burkett, who gave 60 Minutes the bogus documents and who has worked as a source for James C. Moore, who discovered the Austin4Kerry tape and whose book, Bush's Brain, was co-written by Wayne Slater, Austin bureau chief of the Dallas Morning News, whose News colleague, Mark Wrolstad, is married to Mapes, who produced the 60 Minutes segment and who knew Moore when both were TV reporters in Houston, where Mapes still lives. It's dizzying to think what Bush-haters would do with this web of intimacies if they were on the other side.

Read the entire piece. Quare: Is the Bush-bashing phenomena the natural result and counterbalance to the proliferation of demogogic right wing pundits that have arisen over the past decade (i.e., Rush Limbaugh, Sean Hannity, etc.)? Or did the latter naturally evolve in response to the former?

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

The best hamburger commercial in history

See it here.

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Primer on health care finance issues

Uwe Reinhardt is the James Madison Professor of Political Economy at Princeton University. He has written this Primer for Journalists on health care finance issues, and it is quite helpful for anyone wanting to understand the issues that we are confronting in the area of health care finance. Check it out.

Posted by Tom at 7:10 AM | Comments (0) | TrackBack (0)

DeLay's bid to buy the Texas Legislature

Lou Dubose -- co-author of The Hammer: Tom DeLay, God, Money, and the Rise of the Republican Congress (Public Affairs 2004) and Shrub: The Short but Happy Political Life of George W. Bush (Vintage 2000) -- pens this LA Weekly article summarizing the development of the multiple criminal and Congressional investigations into U.S. Representative Tom DeLay's allegedly illegal campaign fund-raising scheme that had as its goal the Republican takeover of the Texas Legislature. Mr. Dubose notes the background of DeLay's fundraising effort:

For 10 years the Republican Party had been trying to capture the Texas House. Party operatives aimed for 2000 so the House, the Senate and the states Republican governor could have absolute control of redrawing the states congressional district lines when the Legislature met after the 2000 census. Despite years of spending record sums on campaigns, in 2000 they fell short. And the Democratic House speaker refused to go along with the governor and Senates effort to reconfigure the states district lines so that a half-dozen more congressional seats could be won by Republicans.

Thats when Tom DeLay came home to Texas. Working with one of his Washington operatives, he created a political-action committee in Texas, modeled on his own national PAC. Texans for a Republican Majority was spectacularly successful. It raised $1.5 million and elected 17 new Republican members of the state House, seizing control of the body for the first time in 130 years. With his handpicked Texas House speaker in place, DeLay personally presided over the redrawing of the states congressional districts. The map he put in place will provide the Republicans five to seven new seats in Congress.

As Mr. Dubose notes, there is a small problem with Mr. DeLay's fundraising efforts:

Since 1905, its been against state law to raise or spend corporate money in Texas [political campaigns]. And DeLays Texas PAC raised three-quarters of a million corporate dollars. They reported their corporate contributions only with the IRS in Washington, avoiding disclosure to the state agency that regulates elections in Texas. Ronnie Earle, a D.A. with statewide prosecutorial authority, caught them. He also found they were doing some odd things with their money, like sending $190,000 corporate soft dollars to the Republican National State Election Committee in Washington in exchange for $190,000 non-corporate hard dollars that can be legally spent in Texas.

Mr. Dubose also does not find Mr. DeLay's protestations about his relative non-involvement with Texans for a Republican Majority to be particularly credible:

DeLay insists he had little to do with Texans for a Republican Majority, which seems odd since he founded it. And the PACs Texas director said under oath that DeLay was consulted tme.php?eid=57612">Read the entire piece. Regardless am's first NFL game, the Texans defense picked off four Steve McNair passes and beat the Titans 20-10 in Nashville...." dc:creator="" dc:date="2004-10-17T22:46:25-06:00" /> -->

October 17, 2004

2004 Weekly local football review

Texans 29 Titans 10. In the sweetest win for the young Texans franchise since the win against Dallas in the team's first NFL game, the Texans defense picked off four Steve McNair passes and beat the Titans 20-10 in Nashville. The Texans defense -- which has looked pathetic for much of the season -- held the Titans to 210 passing yards on 41 attempts. I know it's juvenile, but how can one not feel good about kicking the collective butts of a Bud Adams team? Here's hoping the Texans make a habit of it. The Texans have an off week next Sunday before taking on the Jacksonville at Reliant Stadium in Houston on October 31.

Steelers 24 Cowboys 20. Rookie Pittsburgh QB Ben Roethlisberger cuts up the Pokes with 14 points in the fourth quarter to pull out the win. Uh, Big Tuna, have you noticed that the Texans have a better record than your Cowboys? The Pokes play at Green Bay next Sunday.

Texas Aggies 36 Oklahoma State 20. This was the resurgent Ags most impressive win to date as they extended their winning streak to five. Okie State is pretty good, and they had no answer for the Aggies offense under Reggie McNeal, who ran up almost 400 yards total offense. The Aggies take on Colorado at College Station next Saturday.

Texas Longhorns 28 Missouri 20. The Horns overcame their increasingly mediocre passing game to hold off Mizzou at Austin. Texas is a good team with a solid rushing attack and a quick and generally effective defense. However, the lack of any meaningful passing attack is a huge problem, particularly against good teams. The Horns take on Tech next week in Lubbock, which will be no picnic, and both Oklahoma State and the Aggies will be difficult games for the Horns. This team could easily end up 8-3, which will not go over well in Austin.

Nevada 35 Rice 10. The big bugaboo of the triple-option oriented attack is that it does not play well from behind -- it simply takes to much time running the ball to overcome a big deficit. That's what happened to Rice in this game as Nevada took a big lead and Rice's offense simply could never get on track. This is a disappointing loss for the Owls because Nevada was a team that they should have beat and the Owls' next game is against a very tough Navy squad next Saturday at Annapolis.

The Houston Cougars were off this week as they prepare to go 1-6 against TCU next Saturday in Ft. Worth.

And remember, for a more thorough weekly review of Big 12 games, check out Kevin Whited's analysis over at PubliusTX.net.

Posted by Tom at 10:46 PM | Comments (2) | TrackBack (0)

Stros pull even in NLCS

Carlos Beltran and Lance Berkman continued their incredible post-season hitting, and Brad Lidge and Dan Weaver provided clutch relief pitching as the Stros came back to edge the Cardinals 6-5 in a heart-pounding National League Championship Series thriller at a raucous Juice Box on Sunday afternoon.

With the win, the Stros pulled even with the Cards in the NLCS with each team having won two games. Game 5 is tomorrow evening at the Juice Box and Game 6 is Wednesday in St. Louis. Game 7, if necessary will be Thursday evening in St. Louis.

This was one of the most thrilling games in Stros' history, right up there with Game 6 of the 1986 NLCS against the Mets and the Game 5 of the NLCS against the Phillies in 1980. However, unlike those two games, the Stros won this nailbiter, which may just vault it to the top of Stros' memorable games.

The game started badly for the Stros, as Roy O was not sharp and had trouble spotting his fastball all game. Pujols, who -- like Beltran and Berkman -- is having a tremendous NLCS, popped a two run Crawford Box tater in the first, which was quickly followed by another run to put the Stros in a 3-0 hole before they had even batted.

Bags got one back in the bottom of the first by knocking in Beltran with a double, but the Cards extended the lead to 4-1 in the third. Then, in the bottom of the third, Berkman nailed a double to the base of the wall in deep right center to drive in Beltran and Bags to close to within 4-3. However, the Cards added another run in the fourth off of Oswalt to increase the lead to 5-3. Could the Stros ever catch them in this one?

The answer was a resounding yes. In the sixth, after Bidg was called out to end the fifth on a questionable call at second on a steal, Berkman led off by hammering a massive yak to left to cut the lead to 5-4. Then, with two outs, Viz nailed an opposite field double down the line, and the unlikely Raul Chavez blooped a single over second base to drive in Viz and tie the game at 5. The Juice Box crowd -- which was deafening the entire game -- exploded.

Weaver took over in the seventh for Oswalt, who battled like the gamer he is through six innings without his best stuff. After giving up the customary hit to Pujols to lead off the inning, Weaver mowed down Rolen, Edmonds and Rentaria in succession to the roaring approval of the Juice Box crowd.

Then Beltran went to work. With one out, Beltran literally golfed a two strike pitch into the Stros' bullpen to send the Juice Box into utter hysteria. The Stros now led for the first time in the game, 6-5.

There was going to be no Game 2 managerial mistakes in this one as Garner went to Lidge in the eighth. The Stros' stopper used just six pitches to retire the bottom of the Cards order in that inning.

However, the ninth inning was wild. Womack led off by hitting a screaming liner to Bags' right, and he made a nifty grab just off the infield dirt for the first out. After Walker walked on four pitches, Lidge worked the count to two strikes on Pujols, who then half-swinged one of Lidge's nasty sliders and hit a high drive to left that looked like it might be the two run yak that would give the Cards the lead. However, Lane caught the ball on the warning track against the Crawford Box left field wall for the second out as the Juice Box crowd heaved a collective sigh of relief in unison. That's all Lidge needed as he proceeded to whiff Rolen for the third out and the save. The Juice Box crowd almost blew the roof off the stadium.

Brandon Backe goes for the Stros in Game 5 against the Cards' Woody Williams. It's the best two out of three now, folks. We got us a series!

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October 16, 2004

Stros beat Cards in Game 3 of NLCS

JK, Carlos Beltran, and Steven Curtis Chapman.

Chris and I became good friends and golfing buddies when he was just starting his career at my church in The Woodlands about 10 years ago, and I have watched in admiration as his music career has continued to ascend after his move to Austin several years ago. This is truly one of those success stories that could not have happened to a nicer guy.

Coincidentally, I put in a call to Chris (or "C.T." as he is known in golfing circles) yesterday afternoon to see if he could swing into Houston and play with me in a golf game on Saturday morning with Capitol Records country music recording artist, Dierks Bentley, who is in The Woodlands to perform at the Pavilion on Saturday night. Dierks is the younger brother of another old friend of mine, Bart Bentley, who is a longtime Houston real estate attorney.

C.T. was always quite a hearthrob to many of the teenage girls at our church during his time in The Woodlands, and he apparently has not lost any of his charm in that regard. The female reporter from the Statesman gushes as follows:

With this tousled blond hair, gleaming teeth and elfin face, he's the stuff of teeny-bopper magazines. He's 34 but looks a decade younger. And of course he's sporting cool shades.

Give me a break. That adulation will cost C.T. several strokes of punishment on the first tee of our next big golf game. ;^)

Posted by Tom at 7:16 AM | Comments (0) | TrackBack (0)

October 15, 2004

Enron-related extradition of British bankers approved

A British judge ruled Friday that three British bankers indicted in the U.S. on Enron-related fraud charges could be extradited to stand trial in Texas. Here is a prior post that reports on the background of this case leading up to the recent extradition hearing.

District Judge Nicholas Evans found that there was a "good and proper basis" for prosecuting David Bermingham, Giles Darby and Gary Mulgrew in the United States and ruled the case should be sent to Home Secretary David Blunkett for a decision on whether to extradite them. Under British law, Home Secretary Blunkett can only halt the extradition if the men might face the death penalty or are likely to face further charges once in the U.S.

Despite the Justice Department's dubious handling of the Enron-related criminal investigation and prosecutions to date, the Justice Department is likely "only" to seek a prison sentence against each of the bankers that is tantamount to a life sentence, but not the death sentence. ;^)

The three former employees of National Westminster Bank ("Natwest") were charged in the U.S. in 2002 with bilking the bank of $7.3 million in a Andrew Fastow-designed scheme. Prosecutors allege that Messrs. Mulgrew, Darby and Bermingham conspired with Mr. Fastow and Michael Kopper in 2000 to defraud Natwest of millions of dollars. They allegedly advised the bank to sell its interest in a subsidiary of LJM (one of Fastow's off balance sheet partnerships) to another Fastow-created entity for $1 million when it was really worth much more. However, based on the way Fastow manipulated Enron and his partnerships, I do not know how the prosecution could know what the interest was really worth.

At any rate, the government says that Fastow arranged for Enron to pay $30 million to unwind the energy company's transactions with the LJM subsidiary and that Natwest received only $1 million of that amount, while Fastow, Kopper, and the bankers divvied up $19 million between themselves. Of that, the bankers allegedly pocketed $7.3 million and, as a result, each of the bankers has been charged with seven counts of wire fraud.

The bankers' case has been one of the first tests of the new fast-track British extradition procedures introduced in 2003 to deal primarily with terrorist cases. The Extradition Act lessens the burden of proof in some cases, allowing certain countries such as the U.S. to provide mere information rather than evidence that a crime has been committed.

Inasmuch as Kopper pleaded guilty to two counts of conspiracy in August 2002 and Fastow pleaded guilty to two counts of conspiracy in January of this year -- and Kopper just finished being one of the prosecution's main witnesses in the ongoing Nigerian Barge trial -- the bankers can expect that both Kopper and Fastow will be witnesses against them in any U.S. trial.

Posted by Tom at 12:42 PM | Comments (0) | TrackBack (0)

Crossing the line

Charles Krauthammer thinks John Edwards crossed the line, and he supports his argument with wisdom generated from personal experience:

This is John Edwards on Monday at a rally in Newton, Iowa:
"If we do the work that we can do in this country, the work that we will do when John Kerry is president, people like Christopher Reeve are going to walk, get up out of that wheelchair and walk again."

In my 25 years in Washington, I have never seen a more loathsome display of demagoguery. Hope is good. False hope is bad. Deliberately, for personal gain, raising false hope in the catastrophically afflicted is despicable.

Where does one begin to deconstruct this outrage?

First, the inability of the human spinal cord to regenerate is one of the great mysteries of biology. The answer is not remotely around the corner. It could take a generation to unravel. To imply, as Edwards did, that it is imminent if only you elect the right politicians is scandalous.

Second, if the cure for spinal cord injury comes, we have no idea where it will come from. There are many lines of inquiry. Stem cell research is just one of many possibilities, and a very speculative one at that. For 30 years I have heard promises of miracle cures for paralysis (including my own, suffered as a medical student). The last fad, fetal tissue transplants, was thought to be a sure thing. Nothing came of it.

As a doctor by training, I've known better than to believe the hype -- and have tried in my own counseling of people with new spinal cord injuries to place the possibility of cure in abeyance. I advise instead to concentrate on making a life (and a very good life it can be) with the hand one is dealt. The greatest enemies of this advice have been the snake-oil salesmen promising a miracle around the corner. I never expected a candidate for vice president to be one of them. . .

Politicians have long promised a chicken in every pot. It is part of the game. It is one thing to promise ethanol subsidies here, dairy price controls there. But to exploit the desperate hopes of desperate people with the promise of Christ-like cures is beyond the pale.

There is no apologizing for Edwards's remark. It is too revealing. There is absolutely nothing the man will not say to get elected.

My sense is that the Kerry-Edwards Campaign staff will be deploying a trap door device for Mr. Edwards if he does this Benny Hinn imitation again before Election Day.

Posted by Tom at 7:21 AM | Comments (0) | TrackBack (0)

Spitzer is at it again

New York Attorney General Eliot Spitzer cranked up his questionable litigation propaganda machine again yesterday and sued the world's largest insurance broker -- Marsh & McLennan Cos. -- on the grounds that it cheated its corporate customers by rigging bids and collecting huge fees from major insurance companies in return for guiding insurance business their way.

The charges were included in the civil lawsuit and in two plea bargains of criminal charges against two insurance executives from American International Group, Inc. ("AIG"). In addition to AIG, Spitzer named Hartford Financial Services Group Inc. and Munich-American Risk Partners in the civil suit as participants with Marsh in the bid rigging and improper fee-paying charges.

This is the latest in Mr. Spitzer's use of the New York attorney general's office to sue large companies in an effort to trigger reform in business practices, although some grizzled observers contend that the lawsuits are more about promoting Mr. Spitzer's political ambitions than reforming business. Earlier posts on Mr. Spitzer's other lawsuits are here, here and here.

Mr. Spitzer's latest lawsuit depicts the insurance industry as a corrupt business in which bid rigging and payment of improper fees have become accepted practices. Unlike markets for securities, commodities and other financial products, commercial insurance is bought and sold in private, so most of the business passes through the hands of insurance brokers, who are middlemen who match buyers and sellers in return for a cut of the transaction.

Normally, a company that is shopping to buy insurance advises its insurance broker on the type and amount of coverage that it is seeking and the broker then solicits bids from insurance companies. The broker usually is paid by commission, which is calculated as a percentage of the insurance buyer's premium payments. It is not unusual for the insurance purchaser to send its premium check to the broker, who then deducts its commission before passing the premium payment on to the insurance company.

Spitzer's lawsuit does not appear to take direct aim at the system described above. Rather, the lawsuit is going after the brokers from accepting what are called "contingent commissions," which are payments that insurance companies make directly to brokers based on factors such as the total volume of business a broker does with that insurer or the profitability of that business. Big insurance brokers such as Marsh have been able to demand and receive such contingent commissions in recent years because of the large amount of insurance business that they control.

Spitzer contends that the contingent commissions prompt brokers to book their business where it is most profitable to the broker rather than where it best serves the interest of the customer. client. On the other hand, it's not like the companies buying such insurance do not know about the contingent commissions and cannot take their business to another broker if they are uncomfortable with such arrangements. Mr. Spitzer's lawsuit appears to overlook that rather obvious market truth.

As noted in the previous posts, Spitzer has become controversial figure in the financial services industry. This insurance industry lawsuit follows high-profile lawsuits into conflicts of interest that allegedly taint the research of Wall Street analysts and into special trading privileges that big mutual-fund investors enjoy. The probes have tarnished the reputations of some of the country's best-known and largest corporations, and although the facts differ in each lawsuit, they all have a common theme -- the alleged wrongdoing has been going on for years and the corrupt industry is unwilling or incapable of correcting it.

Inasmuch as the state governments handle regulation of insurance, differing regulation standards, controls, and disclosure requirements apply from state to state. Although large insurers and brokers for years have resisted federal regulation of insurance, lawsuits such as Spitzer's latest may have them rethinking that position.

Wouldn't that be rich? Big insurers and brokers lobbying with consumer groups for federal regulation of insurance? Politics certainly makes for strange bedfellows!

Posted by Tom at 6:47 AM | Comments (0) | TrackBack (0)

October 14, 2004

Cards top Stros to take 2-0 lead in NLCS

The Stros' bullpen could not hold a lead again as the Cards' scored two runs in the eighth to break a tie and beat the Stros 6-4 and take a 2-0 lead in the NLCS on a cold, rainy night at Busch Stadium in St. Louis on Thursday night.

The Stros took a 3-0 lead in this one on solo yaks by Beltran and Ensberg, and Berkman's run scoring single. Pete Munro pitched brilliantly for 4 2/3 innings and actually had the third out in the fourth, but the ailing JK (bruised knee and calf) could not get to the bag in time to turn a sure fire double play ball to end the inning.

After that, Munro gave up a walk, a two run tater to Larry Walker and a base hit to Pujols to cut the lead to 3-2, and then Harville served up his second big hit in two nights as Rolen took him out of the yard. Presto, the Cards led 4-3. The Stros came back to tie it in the seventh on Berkman's double and Ensberg's single, but then Miceli served up a back-to-back gopher balls to Pujols and Rolen in the eighth to allow the Redbirds to head to Houston with a 2-0 series lead. Game, set, match.

I was talking to a friend earlier today in which I proposed that the Stros simply walk Pujols and Edmonds (and maybe Walker, too) when anybody other than The Rocket, Roy O or Lidge is pitching and see what happens. Frankly, my sense is that the Stros could not do much worse than they did in past two games pitching to these guys.

Clemens and Oswalt are ready to go next for Games 3 and 4 on Saturday and Sunday at the Juice Box in Houston. This is a plucky Stros' team, so I am not ready to count them out, yet. But Clemens and Oswalt really need to pitch long into each of these games so that they had the ball directly to Lidge. We'll worry about who pitches after Backe in Game 5 later.

Posted by Tom at 10:54 PM | Comments (1) | TrackBack (0)

Dick DeGuerin's Durst annuity

It never ends.

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

Cards-Stros NLCS Series Blog

The Chronicle's Richard Justice is blogging the Stros-Cards National League Championship Series.

Posted by Tom at 1:15 PM | Comments (0) | TrackBack (0)

New book on Mark Rothko

One of Houston's most fascinating places is the Rothko Chapel (map here) on the campus of St. Thomas University in the Montrose area, which is one of the most peaceful places in Houston. The chapel houses fourteen paintings of the late American abstract expressionist Mark Rothko, who committed suicide in 1970. Rothko and architect Philip Johnson collaborated on the design of the chapel, which opened in 1971 and is a part of the art empire of the late John and Dominique de Menil, who were Houston's primary art patrons over much of the past half century.

This NY Times article reviews a new book on Rothko based on some recently discovered writings of Rothko -- "The Artist's Reality: Philosophies of Art" (Yale University Press). The book was writted by Rothko's son, who was six years old at the time of Rothko's suicide, and addresses the philosophical underpinnings of the Color Field paintings, which are generally considered to be Rothko's greatest breakthrough. The review provides a decent overview of Rothko's fascinating life, and also of the infamous decade-long battle over the Rothko estate that erupted after Rothko's death.

The Rothko Chapel is a special place, and it never fails to generate interesting reactions when I introduce friends and visitors to it. If you have never visited the chapel, I highly recommend that you do so and learn more about this interesting part of Houston art culture.

Posted by Tom at 7:04 AM | Comments (2) | TrackBack (0)

A&M to name Robert D. McTeer, Jr. as its new chancellor

This Chronicle article reports that Texas A&M University is preparing to name Dallas Federal Reserve Bank president Robert D. McTeer, Jr. as its new chancellor in the near future. This Dallas Morning News article profiles Mr. McTeer.

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

Hiding the true cost of health care

In his latest WSJ ($) Business World column, Holman Jenkins, Jr. again addresses America's broken health care finance system. Mr. Jenkins is an unusually gifted writer on business issues, and his prior columns in this area (here, here and here) have been typically insightful. In this week's column, Mr. Jenkins addresses one of the main economic problems with America's health care finance system that is dominated by third party payors for health care services and products -- i.e., the system's propensity to hide the true cost of such services and products from the consumer:

The problem is we hide from consumers what their health care is costing them, though hiding the cost in no way relieves them of having to pay the cost.

This is not the fruit of anybody's design but oth Health Savings Accounts, the heart of the Bush approach, which has the intolerable advantage of actually being aimed at the problem.

Better than HSAs, in our view, would have been flatly eliminating the tax deductibility of employer-paid health insurance and letting the system adjust. But HSAs are a much-better-than-nothing strategy, a way of rebalancing the tax incentives to encourage consumers to buy some or all of their health care directly from providers, demanding value for money.

An example of the type of mainstream skepticism toward HSA's that Mr. Jenkins mentions above is this recent NY Times article. Although insurance will always be a substantial component of America's health care finance system, Mr. Jenkins is correct that the current system's failure to allow consumers to shop and determine what health care services and products to purchase is at the root of our spiraling health care costs.

Along these lines, I shook my head in amazement as I read President Bush's comments on health care finance from last night's debate. He started out pretty well:

I think government- run health will lead to poor-quality health, will lead to rationing, will lead to less choice. Once a health-care program ends up in a line item in the federal government budget, it leads to more controls.

And just look at other countries that have tried to have federally controlled health care. They have poor-quality health care.

Our health-care system is the envy of the world because we believe in making sure that the decisions are made by doctors and patients, not by officials in the nation's capital.

But then, in response to Kerry's promises of gifts to various voter groups, the President reverses field and touts his administration's own give-aways:

We've increased VA funding by $22 billion in the four years since I've been president. That's twice the amount that my predecessor increased VA funding. Of course we're meeting our obligation to our veterans, and the veterans know that.

We're expanding veterans' health care throughout the country. We're aligning facilities where the veterans live now. Veterans are getting very good health care under my administration. . .

Which only serves to underscore Mr. Jenkins' point -- so long as we continue to allow the health care finance system to mask the true cost of health care services and products to the public, the more the politicians will manipulate that system to troll for votes. Hat tip to Alex Tabarrok of Marginal Revolution for pointing out the above contradiction.

Posted by Tom at 6:01 AM | Comments (4) | TrackBack (1)

October 13, 2004

Cards down Stros in NLCS Game 1

The Cardinals took advantage of the Stros' shaky middle relief to overcome yaks by Beltran, JK, Berkman, and Lamb in beating the Stros 10-7 in the first game of the 2004 National League Championship Series at Busch Stadium in St. Louis on Wednesday night.

The Stros had a couple of leads in this one after Beltran's yak in the first and JK's in the fourth, but neither lead lasted long. Brandon Backe pitched reasonably well for 4 2/3rd's innings, but the roof fell in on Chad Qualls -- who was dinked to death in the Cards' 6 run sixth -- and then on Chad Harville, who gave up the Edmonds' three run double that put the game away for the Redbirds.

One thing I did not understand about this game is why Manager Garner pitched Backe on three days rest when he could have started Pete Munro tonight and allowed Backe to pitch on his regular rest cycle in Thursday's Game 2. As noted above, Backe pitched reasonably well, but ran out of gas quickly in the fourth. My sense is that the Stros would have gotten more out of him in the Thursday game.

Oh well. Game 2 is Thursday night as the Stros try to steal one from the Cards in St. Louis. And steal it that will have to do given that Munro is the unlikely starter in this one. Hope that the Stros' bats keep crankin' because it is almost certain that the Cardinals' bats will.

Posted by Tom at 10:53 PM | Comments (0) | TrackBack (0)

Reviewing the track record of an urban boondoggle

Earlier posts here and here explored the economic absurdity of urban rail systems in modern American cities, which is a hot topic in Houston these days given the recent launch of Metro's Light Rail System earlier this year.

Now, the long-range empirical data refuting the economic basis of such systems is emerging. In this article, Wendell Cox analyzes the $10 billion cost relating to creation and maintenance of the Washington, D.C. "Metro" rail system over the past 30 years. His findings are insightful:

No US urban area has built more new high-quality urban rail than Washington, DC, which spent $10 billion, most of it from national taxpayers, on a more than 100 mile system. Of course, it would be unfair to have expected Washington�s �Metro� subway to have made a difference in area-wide traffic, since, as noted above, transit is about downtown. Predictably, at the metropolitan area level, Metro�s impact has been virtually absent. In 1970, before the first section of the system opened, the Census Bureau reported that 15.3 percent of area workers used transit to get to work. By 2000, transit�s work trip market share number had dropped 29 percent, to 10.9 percent. Perhaps even more astounding is the fact that Census data indicated a five percent reduction in actual work trip usage from 1990 to 2000, a period during which the system was expanded more than 25 percent.

Over the past 20 years, traffic in the Washington area has become the fourth worst in the nation, following only Los Angeles (which has opened a metro, light rail and commuter rail), San Francisco (where BART has made no difference) and Chicago (with the nation�s second most extensive rail system). The problem in Washington is that so many planned freeways were cancelled. In Houston, where capacity has been built to keep up with demand, traffic is better than in 1986, and the area has improved to 10th worst traffic in the nation from having been the worst in 1985.

Read the entire article. As we ponder why these public boondoggles continue to proliferate despite the increasingly clear evidence of their enormous cost relative to their relatively small public benefit, I pass along an astute commentator's observation regarding the politics of such systems from one of my earlier posts:

Concentrated benefits and dispersed costs are one economic reason for the existence of inefficient public projects. The many who stand to lose will lose only a little, whereas the few who stand to gain will gain a lot. Of course, if other public projects exist where overall costs outweigh benefits, then $6 a year per project could add up to quite a hefty boondoggler�s bill.

Posted by Tom at 11:04 AM | Comments (1) | TrackBack (0)

Wingwomen?

I continue to be amazed at the entreprenurial spirit of some young folks. This NY Times article reports on a new business that brokers attractive young women to accompany young men to social gatherings for the purpose of making the young men appear more attractive to other women at the gathering. Amazing.

Hat tip to Marginal Revolution's Tyler Cowen for the link to the article, and Tyler's point that women judging a man by the quality of his girlfriend or wife is known in economic circles as a "sufficient statistic."

Posted by Tom at 9:36 AM | Comments (1) | TrackBack (0)

Stros 2004 Review: NLCS Series Preview

The Stros and the Cards tee it up tonight in Game 1 of the NLCS in St. Louis, and it you go by the statistics from the season to date, the Cards should win in a cakewalk.

However, statistics are merely indicators of probable performance, and the season-to-date statistics fail to take into consideration two key factors. First, although they lagged earlier in the season, the Stros' statistics over the past two months have been every bit as good as the Cardinals' statistics during that period. Second, the Stros have been playing "on edge" for the past two months in their unlikely drive for the playoffs while the Cards, who put away the NL Central title for all practical purposes shortly after the All-Star break, have been on cruise control. Some teams find it difficult to regain that competitive edge in a playoff series after a long stint of relatively meaningless games.

So, I look for this series to be closer than most pundits believe, although the gaudy Cardinals runs created against average statistics ("RCAA," explained here, courtesy of Lee Sinins) this season certainly reflect the fact that the club had the best regular season record in the Major Leagues:

Albert Pujols 75
Jim Edmonds 73
Scott Rolen 57
Larry Walker 12
John Mabry 7
Reggie Sanders 4
Tony Womack 3
Ray Lankford -1
Colin Porter -1
Bo Hart -2
So Taguchi -4
Roger Cedeno -5
Yadier Molina -5
Hector Luna -6
Cody McKay -6
Edgar Renteria -12
Marlon Anderson -14
Mike Matheny -23

To compare, here are the Stros players' final regular season RCAA:

Lance Berkman 69
Carlos Beltran 46 (28 with the Stros, 18 with the Royals)
Jeff Bagwell 17
Jeff Kent 12
Mike Lamb 11
Craig Biggio 8
Jason Lane 3
Eric Bruntlett 2
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Chris Burke -3
Orlando Palmeiro -4
Richard Hidalgo -9
Adam Everett -11
Morgan Ensberg -12
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26

The Cardinals' 152 RCAA was the highest in Major League Baseball this season by over 40 runs, and over 100 runs better than the Stros' team performance. The Cards' top three hitters -- Pujols, Edmonds, and Rolen -- were among the top ten hitters in the National League this season, and no other team came close to matching that kind of top hitting performance.

However, that performance is in the past and what's important is right now, and there appear to be a few kinks in the Cardinals' machine. Rolen has a gimpy knee that did not respond to rest over the last month of the season, and he is coming off an 0-12 performance in the Cardinals' divisional series victory over the Dodgers. Accordingly, if Rolen is unable to perform in the NLCS at his performance level for most of the season, the Stros' hitting lineup actually matches up quite well with that of the Cards -- i.e., two top hitters who are slightly better than the Stros' top hitters (Pujols and Edmonds versus Berkman and Beltran), but the Stros have more above-average hitters than the Cards (Bags, Kent, Bidg and Lamb versus Walker, Mabry and maybe Sanders).

The pitching matchup is similar. Again, the Cardinals' pitching staff overall had an extraordinary season, garnering a 68 runs saved against average score ("RSAA," explained here), which is over 20 runs better than the Stros pitching staff's solid performance. Here are the Cardinals pitchers' RSAA through the end of the regular season:

Chris Carpenter 14
Steve Kline 13
Julian Tavarez 13
Jason Isringhausen 11
Ray King 11
Jason Marquis 10
Kiko Calero 7
Al Reyes 5
Cal Eldred 3
Randy Flores 3
Cody McKay 1
Josh Pearce 0
Jeff Suppan 0
Woody Williams 0
Rick Ankiel -1
Danny Haren>-related Nigerian Barge trial in Houston federal court, and already there have been some significant developments.

Attorneys for defendants and former Merrill Lynch executives James Brown and Daniel Bayly rested their cases on Tuesday without putting their clients on the stand. In white collar criminal cases, this is a highly risky move. Juries in such trials generally expect to hear the defendant's story. Even though they are not supposed to hold the defendant's decision not to testify against the defendant, juries nevertheless often do so.

In recent high profile white collar cases, neither Martha Stewart nor Jamie Olis testified, and their juries both voted for conviction. On the other hand, Frank Quattrone did testify during his trial and his jury voted to convict, anyway. So, electing to testify certainly does not ensure an acquittal in white collar cases, but my experience is that electing not to testify in such cases ratchets up the risk of conviction significantly. Meanwhile, William Fuhs, one of the Merrill Lynch defendants in the Nigerian Barge case, did elect to testify yesterday. He will be subjected to the prosecution's cross-examination today.

Left unstated in the mainstream media's accounts of the trial is the continued dubious nature of the government's case in this trial. The government spent three weeks putting on its case in chief, which consisted almost entirely of testimony from former Enron executives who admitted that they were liars and cheats. Each of these witnesses stated that they had lied about the Nigerian Barge transaction to prosecutors initially, but now allege -- after copping plea bargains with the government -- that they are telling the truth in supporting the government's theory that the Nigerian Barge transaction was a sham.

The government's theory of the case is that Enron orally promised Merrill Lynch through its main liar -- Andrew Fastow -- that Enron would either buy the barges back or broker a deal for the barges in six months at an agreed rate of return for Merrill Lynch. Therefore, reasons the government, Merrill Lynch was not truly at risk with regard to the transaction and, thus, Enron's booking of the deal as a sale was fraudulent.

However, it is undisputed at the trial that the deal documents -- entered into after Fastow's oral inducements to Merrill -- did not include any such Enron agreement to repurchase or broker the barges. Likewise, it is undisputed that the written agreement between the parties includes the standard provision that Merrill could rely only on Enron's written representations in the deal documents and could not rely on any prior oral representations (such as Fastow's oral promises) in electing to enter into the deal. Consequently, it is undipusted that Merrill Lynch could not have enforced Fastow's oral promise against Enron in civil court had Fastow not arranged to have one of his off balance sheet partnerships buy the barges from Merrill.

So, where does all that leave us? The government's case relies on the theory that the unenforceable oral promise of someone who the government says is a liar and cheat -- i.e., Fastow -- rendered Merrill's risk in buying the barges non-existent. Or, stated another way, the moral obligation of a liar and cheat to do something that he is not legally required to do is such a sure thing that Merrill was not at risk in entering into the transaction.

Quare: Inasmuch as it is undisputed that Fastow is a liar and a cheat, and that the deal documents did not obligate Enron to buy or broker the barges for Merrill's benefit, how could Merrill not be at significant risk of having to hold the barges for a long term where its only known exit strategy from the deal was a liar and cheat's unenforceable moral obligation to take Merrill out?

I have said it once, but I am compelled to say it again -- this case is an abomination that would not be prosecuted but for the fact that the government believes that they can obtain a conviction against anyone who associated with the disgraced Enron. That is a dangerously poor reason for the government to exercise its awesome power to take away the freedom of citizens.

Posted by Tom at 7:00 AM | Comments (0) | TrackBack (1)

October 12, 2004

Malibu, OU style

What is the world coming to if a Texan cannot even look for a vacation spot in Malibu these days without the risk of bumping into this particular agent? Hat tip to Craig Depken for the link.

Posted by Tom at 10:44 AM | Comments (0) | TrackBack (0)

Presidential candidates and Econ 101

Edward Lotterman is a Twin Cities-based economist who writes a smart column for the Twin Cities Pioneer. Earlier posts have referred to his thoughts on the addictive nature of governmental subsidies and the market's superior ability to react to OPEC's attempts to manuever the market to its advantage.

In this article, Mr. Lotterman addresses the candidates' statements regarding economic policy, and he finds little to be enthusiastic about in either candidates' positions:

This election, most economists are dismayed by the economic positions espoused by Republican President Bush and Sen. John Kerry, D-Mass. Their campaign ads and stump-speech clips frustrate most of us. Many of their proposals would make our nation worse off, rather than better. Still, there are differences in how each man's proposed policies are harmful.

In 2004, Kerry is wrong on many different economic things, including trade, employment, Social Security and health care, among others. Bush is wrong on one enormous thing: tax cuts and their effects on budget deficits and the national debt. Bush's positions on some other issues are more pleasing to economists than Kerry's, but often skirt core questions to focus instead on peripheral matters that have great symbolism but little import.

First, Mr. Lotterman examines the candidates' positions on Social Security reform:

In response to news about Social Security, Kerry recently thundered, "When I am president there will be no decrease in Social Security benefits and no increase in (Social Security) taxes." This stand is just another way of saying, "I am a coward who is going to push this issue forward into someone else's presidency, even if it means any eventual solution will be much more difficult." I know of few economists who could endorse Kerry's position.

On Social Security, Bush advocates personal accounts as a panacea for all problems. Many economists see some form of mandatory personal accounts as one component of a reformed retirement system. But the economic arguments for personal accounts are subtle. Moreover, they would do next to nothing in solving the most pressing problem, the impending retirement of tens of millions of baby boomers.

Turning to health care, Mr. Lotterman also does not much like what he hears:

On health care, Kerry says he will do great things: lower health care premiums, cover all uninsured households and lower drug prices. But he presents no realistic plan for financing these expensive options. He implies these are freebies that will spring from reductions in "waste and inefficiency" in health care.

He doesn't say how he will eliminate such "waste and inefficiency." This position is as intellectually bankrupt as those borrow-and-spend Republicans who say they will close deficits by eliminating "waste and inefficiency" in government. Somehow, no one ever seems to do it.

Bush wants to broaden health care savings accounts and limit damages in malpractice lawsuits. A majority of economists probably would endorse these measures. Even so, most would see them as tangential to more fundamental factors driving health costs.

And on issues of free trade and environment? Again, Mr. Lotterman is skeptical of the candidates' positions:

On trade, a strong majority of economists would opt for Bush's espousal of trade liberalization over Kerry's implicit protectionism. Yet, many are skeptical of the president's true commitment to opening trade, given his quick resort to steel tariffs in his first term and their doubts about his willingness to confront domestic sectors such as cotton and sugar that will be hurt in any serious new trade agreements.

While Bush claims credit for much environmental improvement, most objective observers are critical of his administration's record. Even Russell Train, a Republican who headed the Environmental Protection Agency under Presidents Richard Nixon and Gerald Ford, has come out against him for this reason. Environmental economists also would fault his heavy reliance on poorly targeted subsidies to traditional energy sources. And, like his father, George W. is passing up the opportunity to shift pollution control from command-and-control regulation to widespread use of emissions taxes or tradable permits.

Kerry essentially promises more of the same regulatory approach that has prevailed in the past four decades. His environmental and energy platforms contain many glowing promises, but no policy specifics. Moreover, when he makes sweeping promises like, "As long as I am president, there will be no nuclear storage at Yucca Mountain," he is just pushing a growing problem onto someone else's watch -- at a cost to society as a whole.

So, is this a Presidential election in which there is a viable candidate for sound economic policies? Or are we simply left with evaluating which candidate is "less bad" in terms of economic policy?

Posted by Tom at 10:37 AM | Comments (1) | TrackBack (0)

October 11, 2004

Stros finally conquer the Braves

Carlos Beltran hit two key yaks and then Bidg and Bags keyed a five run outburst in the seventh to put the game away as the Stros beat the Braves 12-3 in the fifth and deciding game of their National League Divisional Series on Monday night at Turner Field in Atlanta.

For the first time in their 43 year existence, the Stros now move on to the next playoff series, which is the National League Championship Series against the Cardinals. The first two games are Wednesday and Thursday nights in St. Louis, and then the next three games will be in Houston at the Juice Box on Saturday through Monday. I expect Pete Munro and Brandon Backe to pitch Games 1 and 2 in St. Louis, so the Stros need to keep their hitting shoes on.

Roy O battled like the gamer he is on three days rest and left the Stros with a 3-2 lead after five innings on the strength of Beltran's first yak and two runs that were keyed by JK's second inning double.

However, this game was won in the sixth inning and the top of the seventh after the Braves had closed to 3-2 in the bottom of the fifth. First, in the top of the sixth, Beltran answered the Braves rally with his second solo yak to extend the Stros lead to 4-2. Then, in the bottom of the sixth, Chad Qualls came back from the trauma of blowing the Game 4 lead and put down the Braves in order for the first time in the game.

In the top of the seventh, Bidg keyed an incredible two out rally with a two strike single to plate a completely juiced Viz from second, who knocked down Estrada, allowing Bidg to race around to third when the throw to the plate got away. Beltran promptly knocked in Bidg for a 6-2 lead, and then Bags lifted the burden of failed playoffs past with a massive two run tater to left to give the Stros an insurmountable 8-2 lead. The Stros tacked on three more in the eighth (including Beltran's fourth and fifth RBI's) just to make sure that the Braves knew that their prior playoff dominance of the Stros was over for good. The Stros ended up with 17 hits as they continue their remarkable late season run to the next stage of the playoffs.

I have been a Stros fan for all the time I have lived in Houston, which is over 32 years now, and I have been a season ticket holder for the past 20. I get up on Tuesday mornings at 3 a.m. to help cook for a large Christian men's breakfast group at my church in The Woodlands, but I found myself watching this game until the very end at almost 11:00 p.m. despite my early wakeup call and the fact that the game was already well in hand. When the final pitch made the win certain, I called my older son at college -- who is a lifelong Stros fan and was watching the game just as intently as I was -- and we laughed with each other on just how good it felt for Bags, Bidg and the rest of the Stros finally to win a playoff series after we had pulled for them together for so many years.

That one magic, joyous conversation between a father and a son made enduring every disappointment of the Stros' past failures well worth it.

Posted by Tom at 10:55 PM | Comments (0) | TrackBack (1)

Iraq Oil-for-Food Probe hits Houston

This New York Times article reports that federal investigators are focusing on four American oil companies and three U.S. citizens with Houston connections who allegedly received vouchers for oil from Saddam Hussein as he sought to flout United Nations sanctions.

The U.S. companies include Exxon Mobil Corp., ChevronTexaco Corp. and Houston-based El Paso Corp. Exxon, El Paso, and Chevron previously confirmed that they were among companies to receive subpoenas. The Times also reported that the U.S. attorney's office in Manhattan is investigating corruption allegations against the former head of the U.N. Oil-for-Food program, Benon Sevan.

The companies and the individuals were identified in the Central Intelligence Agency's 1,000-page report on the Hussein regime's campaign, although the names were redacted from the publicly released version. While confirming that sanctions had prevented Iraq from obtaining weapons of mass destruction, the report by arms inspector Charles Duelfer's report describes efforts by the Hussein regime to manipulate the Oil-for-Food program in its favor by circumventing U.N. mandates and federal law. Others identified in the Duelfer report as receiving the vouchers include Bayoil, a closely held Houston oil company, and three individuals who campaigned to end the Iraq sanctions, including long-time Houstonian Oscar Wyatt. Together, the Duelfer report alleges that the companies and individuals received vouchers from the Hussien regime valued at 111 million barrels of oil.

The U.N. Security Council blocked Iraqi oil sales to punish Hussein following Iraq's 1990 invasion of Kuwait. During the 1990s, U.N. Security Council members such as France and Russia sought to end sanctions by contending that they were primarily harming Iraq's civilian population. As a compromise, the U.S. and Britain agreed to the Oil-for-Food Program, which was intended to allow carefully monitored sales of Iraqi oil to pay for humanitarian supplies.

Consequently, the allocation of vouchers -- which are negotiable instruments that could be traded for Iraqi oil -- was not necessarily criminal in nature and that no one has been charged with a criminal offense in connection with the investigation. However, a May 2002 Wall Street Journal ($) article reported that the Hussein regime had skimmed hundreds of millions of dollars and that several U.S. companies had been major consumers of Iraqi oil.

Relying on captured Iraqi documents and interrogations of Mr. Hussein and other Iraqi officials, the Duelfer report estimates that the Hussien regime illegally collected $11 billion through selling the oil below market price and receiving the difference through kickbacks. The report alleges that Mr. Hussein peddled influence through giving oil vouchers to powerful foreigners and foreign organizations.

Major oil companies have been under increasing pressure to line up new supplies as reserves in more-stable regions have declined, and this search often puts them in contact with countries with rampant corruption and unstable governments. As a result, it is not unusual for such companies to receive subpoenas and be the subject of such investigations.

The Duelfer report lists hundreds of foreign companies and individuals who allegedly received Iraqi oil vouchers -- including Mr. Sevan -- but not the U.S. companies and citizens. However, the names were included in versions sent to congressional committees and officials have confirmed their accuracy. Many of the names were disclosed in January when documents purportedly taken from Iraqi oil-ministry files were published in an Iraqi newspaper.

Posted by Tom at 12:14 PM | Comments (0) | TrackBack (0)

The Purpose of the Sword

As readers of this blog know, I am not enamored of many Bush Administration policies, but I am a supporter of the Administration's overall policy in prosecuting the war against the radical Islamic fascists despite the fact that the Administration has made tactical errors and not always presented the proper case for the war. Apart from the disingenuousness reflected by his his questionable record on defense matters generally, my sense is that Mr. Kerry's criticism of the Administration's war policy is somewhat akin to sniping at FDR's decision to invade North Africa early in World War II rather than opening up the key European front or confronting the Japanese directly in the South Pacific.

However, what really underlies Mr. Kerry's criticism of the war against the radical Islamic fascists is the belief that this is not truly a just war. Addressing that issue head on in this recent review of Jean Bethke Elshtain's book, Just War Against Terror: The Burden of American Power in a Violent World, one of my favorite political philosophy professors -- the Reverend James V. Schall of Georgetown University -- persuasively refutes those who argue against the morality of the Bush Administration's decision to wage war on the radical Islamic fascists:

The last time we were up in arms, so to speak, about "just war" was when we were all overly wrought about nuclear proliferation, piously denying that deterrence could not work. Little did we know at the time that this nuclear worry, with all its subtle distinctions, would not be our most pressing war problem a few decades laterunless the terrorists get nuclear weapons, which they well might. The latter possibility makes it even more immoral not to do all we can to stop them now.

Professor Schall then addresses the muddled thinking of those who rationalize inaction in the face of pure evil:

A surprisingly few determined Muslims, none poor or uneducated, have made every airport and public building in the world a potential inferno, one at a time. They have made every airport and train station, most public buildings, small armed camps on constant look out for disaster. The "suicide bomber" turns out to be more dangerous by far than Soviet missiles. And instead of international outrage at the very idea of religious sources encouraging this suicide weapon, we even have those who claim it might be "justified" for sociological reasons. We are in danger of losing sight of common-sense principles: "The best preparation for peace," it used to be said, "is to prepare for war." The trick is to know what kind of a war is before us. All nations have a record of preparing diligently for the last war. This book warns against that sort of preparation.
. . . [C]ertain types of ideological and religious mind will not stop their aggression unless their minds are changed voluntarily or unless they are taken out before they carry out their plans. We do not like to hear this. We are little prepared with our own tolerant ideology even to imagine such minds. But they exist and to deny it is a form of blindness. Elshtain does not deny their existence. We are "ecumenical" at our peril when we fail to engage in debates about suicide bombings. The killing of the innocent by this terrible method is more than just the killing of the innocent. It is the bankruptcy of a theology that supports it, a proof that it cannot be true.

Professor Schall notes that the main problem is in the nature of Islam itself, something that the liberal West is loathe to admit:

This endeavor requires a much more careful look at Islam and its long, disturbing record than many would like to face. It is not that there are no "peaceful" Muslims, but as Elshtain recognizes, even the peaceful ones are under threat in their own world from those more bent on pursuing the ancient Islamic goal of world domination usually by military means. What most of us, with our more liberal bent, are loathe to admit, is that any historical movement can seek century after century to pursue a single goal of world domination. Our memories are shorter than many Muslim visionaries.

Belloc, in his writings on Islam, understood this likelihood, this persistency over time. We have to have a certain begrudging admiration, as well as fear, for this determination. But it is an aberration and needs to be called such. Moreover the lack of freedom and independence within actual Muslim societies needs to be much more honestly faced and described. Few are willing to recall that Europe is not Muslim today because it was stopped in France and before Vienna by the sword. At bottom, the Crusades were classic defensive war against an aggressive power, without which Europe would have been absorbed centuries ago.

And although good intelligence is the first line of defense, the will to exercise force remains the key to overcoming "the determined wrath of wrongdoers:"

But though the first line of defense is intelligence in the sense of knowing the enemy, the situation, we need force. We cannot doubt that some individuals and movements cannot be stopped except by force. Force means army, navy, air power, technology, and above all will and brains. But it also means intention. It cannot be lost in legalities or institutions that prevent action on an immediate danger. If there is anything new about this situation, it is found in the very title of the Elshtain book, Just War Against Terror. Something can and must be done about terror, beginning with its proper identification as to its source and cause. This "doing something" requires that potential threats be stopped where they are by armed force acting justly.

Professor Schall concludes by noting that, lest we forget, another 9/11-type attack can happen:

[More radical Islamic terrorist attacks] can happen again, are intended to happen again, and that they not only can be stopped, but can be stopped morally. The fact is, since 9/11, because of our military and security efforts, terrorists have been stopped. All we do not know is the full record of this success that has saved things we cannot imagine, as we can now imagine the World Trade Center destroyed. This prevention, after all, is the purpose of the "sword""he is the servant of God to execute his wrath on the wrongdoer." Jean Elshtain understands this use of mind and force and her book is a comfort for those who, in honor and justice, have to carry out, often at the cost of their lives, the rugged work that prevents the determined wrath of the wrongdoers from falling on us all.

Read the entire piece. And here is Professor Schall's website.

Posted by Tom at 8:14 AM | Comments (1) | TrackBack (0)

Nice primer on health care finance

For those of you looking for an explanation of the sometimes numbing concepts used in discussions of health care finance issues, check out this useful Introduction to Health Economics.

Posted by Tom at 6:38 AM | Comments (2) | TrackBack (0)

On the politics of income taxes

Count me as one who is skeptical of John Kerry's position that soaking the rich with more income taxes is the way to relieve middle class tax rates and to reduce the federal government's deficit. Similarly, I am not particularly sanguine about the prospects for income tax reform and simplification in a second Bush Administration. However, it is somewhat galling to listen to Mr. Kerry decry income tax "loopholes" for wealthy Americans while, at the same time, taking advantage of those loopholes personally.

In this Wall Street Journal op-ed, Stephen Moore of the Club for Growth takes dead aim at the hypocrisy of Senator Kerry's position on the income tax:

According to the Kerrys' own tax records, . . . the couple had a combined income of $6.8 million in income last year and paid $725,000 in income taxes. That means their effective tax rate was a whopping 12.8%.
Under the current tax system the middle class pays far more than the Kerry tax rate. In fact, the average federal tax rate -- combined payroll and income tax -- for a middle-class family is closer to 20% or more. George W. and Laura Bush, who had an income one-tenth of the Kerrys', paid a tax rate of 30%.
Of course, there is delicious irony in the Kerry family tax-return data. Here is the man who finds clever ways to reduce his own tax liability while voting for higher taxes on the middle class dozens of times in his Senate career. He even voted against the Bush tax cut that saves each middle-class family about $1,000.

The Kerrys have unwittingly made the case for what George W. Bush says he wants to do: radically simplify and flatten out the tax code. Dick Armey and Steve Forbes have persuasively argued over the years that America should have a flat tax with a rate of 17% to 19%. John Kerry has consistently opposed a flat tax, because he says it would be a tax break for the rich. But the truth is with a 19% flat tax, some rich people with lavish tax shelters, like John Kerry, would pay more taxes. I calculate that the Kerrys would pay another $500,000 of taxes if we had a flat tax.

Meanwhile, Steven Pearlstein in this Washington Post op-ed takes a look at the current corporate tax bill in Congress and throws up his hands:

It remains a mystery why Congress feels such a need to reduce corporate tax burdens even further. Despite what you hear from politicians and the National Association of Manufacturers, there is precious little economic evidence linking reductions in corporate profit taxes to job creation. Struggling firms don't have profits, while successful ones with ample cash flow are likely to base hiring decisions on whether the new employees will generate new profits.

This is largely a Republican bill reflecting the majority party's tax-cutting philosophy and increasingly strong corporate ties. But it says something about the moral and intellectual bankruptcy of congressional Democrats -- and their lack of political imagination -- that they haven't rallied behind a Senate filibuster of this legislative abomination. If, at a time of record federal budget deficits, a self-proclaimed "party of the people" can't take a principled stand against the biggest corporate tax giveaway in a generation, maybe it doesn't deserve to be the majority party.

And finally, check out Professor Maule's analysis of the candidates' statements in regard to taxation policy, a part of which follows:

Listening to these two candidates spar over taxes was unpleasant. They toss about sound-bite phrases but I would be shocked if they really understood the underlying issues.

Though each candidate tried to paint the others tax philosophy as bringing a significantly different approach to the table, neither one persuaded me that they get it. Both hold philosophies that complicate the code. Neither one addressed the flaws inherent in taxing capital gains and dividends at lower rates; the plans advocated by each candidate would continue to treat these types of income as less deserving of taxation than are wages.

Update (10/12-13/04): Trent, a reader of the blog, points us to this Kerry-Edwards Campaign press release from May of this year regarding Ms. Heinz-Kerry's tax return, and Buster points us to another site that purports to refute Mr. Moore's analysis.

The press release and the website analysis are both somewhat ambiguous because they make assertions that cannot be verified without reviewing the actual tax returns (or at least having an independent expert review them). However, Trent fairly points out that the Mrs. Heinz-Kerry paid taxes equal to a more reasonable 32% of their taxable income, and that Mr. Moore's 12.8% rate appears to be based on total income, which includes non-taxable income. The other website's analysis -- i.e., that the Kerrys' lower taxable income was purely the result of the Kerrys' charitable donations -- is not at all clear to me from the available information.

However, the fact remains that the Kerrys take advantage of loopholes in the tax laws by sheltering roughly half of their income in tax-exempt investment vehicles. Frankly, I see nothing wrong with this as the Kerrys are simply doing what our antiquated tax laws allow. Nevertheless, Mr. Kerry would be more credible to independent voters such as me if he would advocate reasonable income tax reform and simplification -- an area in which the Bush Administration has failed miserably -- rather than engaging in divisive demagoguery regarding tax loopholes while enjoying the benefits of those same loopholes.

Posted by Tom at 6:10 AM | Comments (1) | TrackBack (0)

The sad life of Ken Caminiti ends

Former Stros third baseman Ken Caminiti, who was a unanimous pick for the 1996 National League MVP while playing with the Padres, died Sunday at the age of 41 of a heart attack in the Bronx. Caminiti is survived by three daughters from a marriage that ended in divorce several years ago.

Caminiti had a .794 career OPS (on base average + slugging percentage), compared to his league average of .746, and 154 RCAA in 1760 games (RCAA explained here), mostly with the Astros and Padres, from 1987-2001. His best year was a .621 SLG, .408 OBA, 1.028 OPS, and 66 RCAA with the 1996 Padres.

The three-time All-Star led often a troubled life the past few years after retiring from baseball in 2001. Last Tuesday, he admitted in a Houston criminal court that he violated his probation by testing positive for cocaine. State District Judge William Harmon sentenced Caminiti to 180 days in jail for violating his probation, but gave him credit for the 189 days he already served in jail and a treatment facility since he was sentenced to three years probation for a another cocaine arrest in March 2001.

In May 2002, Caminiti generated national media interest when he told Sports Illustrated magazine that he had used steroids during his MVP season and speculated that half of the Major League Baseball players were also using them.

Caminiti was beloved by his teammates for his strong work ethic and willingness to play hurt, but he was a poster child for the professional athlete who knows of no other way to live than to play the game in which they excel. Once Caminiti's abilities eroded below the Major League level, he became lost and was never able to find his way into a meaningful way of life after baseball. His death will weigh heavily on Bags and Bidg, who played with Cammy for many years in Houston.

Posted by Tom at 5:33 AM | Comments (0) | TrackBack (0)

October 10, 2004

2004 Weekly local football review

Vikings 34 Texans 28 (OT). Down 21-zip midway through the third quarter, the Texans came charging back to tie the game at 28 behind a gutty performance from QB David Carr and extraordinary efforts from WR's Andre Johnson and Derick Armstrong. Unfortunately, the Texans defense could not stop a hard chargin' marching band, so early NFC Pro Bowl QB candidate Dante Culpepper threw for over 400 yards, five TD's, and the hit the 50 yard gamewinner in overtime. And Dom Capers is supposed to be a defensive coach? The Texans go to Nashville next Sunday to play the well-balanced (at least if Steve McNair is playing) Titans.

Giants 26 Cowboys 10. With no passing offense, 11 penalties, and two turnovers, this performance will not be on Bill Parcells' career highlight film. The Cowboys remind me of the NFL version of the Texas Longhorns. The Pokes play the Steelers next Sunday in Dallas.

Oklahoma 12 Texas Longhorns 0. As noted in earlier weekly reviews, Texas simply does not have the passing game to force OU's DB's to play defensive back rather than linebacker. Consequently, OU stuffed the Horns' running game and Vincent Young was incapable of making the Sooners pay for stacking their defense to stop Ced Benson. Texas' defense did an admirable job stopping OU's vaunted passing game, but OU freshman phenom Adrian Peterson shredded the Horns' rushing defense for 232 yards. Based on their performance on this game, the Horns are going to have tough games against Tech, Oklahoma State, and A&M, although they get Okie State and A&M at home, which will help. However, Bob Stoops continually outcoaches Mack Brown while Texas continues its mystifying inability to develop their quarterback talent -- Major Applewhite is the only UT QB in recent memory to develop reasonably well over his career. If the Horns slip to third or fourth in the Big 12 South this season, how long will UT's alums -- who have invested an enormous amount into the UT program over the past five years -- put up with this obvious inability to reach the top tier of college football? The Horns get Missouri next week in Austin, which should be reasonably easy, but Tech looms in two weeks in Lubbock.

Texas Aggies 34 Iowa State 3. The Ags are starting to gain some confidence as they reel off their fourth straight win. Next week is a tougher test -- Okie State at Stillwater. Man, is the Big 12 South looking tough this season or what?

Southern Miss 35 Houston 29 (OT). The Coogs beat the spread in this Thursday night ESPN game, but allowed USM to score the last 14 points of the game to grab the loss from the jaws of victory. The Coogs somewho lost this game despite almost 520 yards of total offense and no turnovers. Oh, well, the Coogs are off next weekend before trying to avoid a 1-6 record at TCU the following weekend.

Rice 44 SMU 3. The Owls crushed the Ponies while racking up 501 yards of total offense, 496 of which was on the ground. The word in the coaching community is that SMU head coach Phil Bennett is in hot water, and performances like this one will only make the hot seat even warmer. The Owls go to Nevada next week for another WAC game that they should win.

And remember, for a more thorough weekly review of Big 12 games, check out Kevin Whited's analysis over at PubliusTX.net.

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

October 9, 2004

Stros close to within one game of NLCS

Brandon Backe pitched the best six innings of his life and the Stros plated five runs with two outs as they pulled to within one game of advancing to the National League Championship Series with an 8-5 win over the Braves on Saturday afternoon in front of a deafening sellout Juice Box crowd. The win was the Stros 19th straight at the Juice Box, and the club's 38th win in their last 49 games.

Based on the outcome of the other two division series games on Saturday, the Stros and Braves will play on Sunday at either noon or 6:30 p.m. The Rocket will pitch for the Stros on three day's against the Braves Russ Ortiz.

Backe continued to show the same extraordinary poise that he displayed when he stepped in for the ailing Clemens last Sunday to lead the Stros to their Wild Card playoff clinching win in the regular-season finale. In Saturday's game, Backe worked his way out of a bases-loaded jam in the second by getting the third out with a 94-mph heater, and retired the final seven batters he faced. Backe's final numbers were solid -- two runs, five hits, five strikeouts and two walks in six innings.

Carlos Beltran's two run yak got the Stros started in the third inning, and then the rest of the Stros put it away with five runs in the fifth and sixth innings as Jeff Kent, Lance Berkman, and Morgan Ensberg all had key hits in the rallies. But for a couple of baserunning errors, the Stros would likely have had a couple of more runs, and the final score was closer than the game really was. The Braves' Andruw Jones cranked a three run tater off of hard luck Russ Springer in the eighth to bring the Braves within three runs after the Stros gave the Braves an extra out in that inning by failing to catch J.D. Drew's popup that hit one of the Juice Box roof supports. Brad Lidge pitched a dominating ninth to nail down the victory.

Finally, the Juice Box crowd was tuned into every pitch, and almost blew the roof off the place when Lidge struck out the final hitter. The Juice Box should be totally juiced when Clemens takes the mound on Sunday to try and bring Houston its first win in a Major League Baseball playoff series. Tune in and hang on for a wild ride!

Posted by Tom at 5:42 PM | Comments (3) | TrackBack (0)

October 8, 2004

Checking in again on the Nigerian Barge trial

I was in federal court yesterday, so I had occasion to drop in again (here is my earlier report on the trial) on the ongoing Enron-related Nigerian Barge trial, which was concluding its third week. The prosecution's second star witness -- former Enron treasurer and Andy Fastow favorite son, Ben Glisan -- finished his testimony and the prosecution rested. Despite the mainstream media's continued simplistic analysis of everything related to Enron generally and this trial in particular, the prosecution's case has not gone well.

There are huge holes in the prosecution's case. First, the prosecution's case relies almost entirely on the testimony of former Enron executives Michael Kopper and Glisan, who both admitted that they are prodigious liars and that they copped deals with the Justice Department to hedge their risk of lengthy jail sentences. Moreover, the government inexplicably failed to call the person -- that is, Fastow -- who supposedly originated the sham side deal between Enron and Merrill. Indeed, the prosecution did not even call an independent expert witness to testify on a key issue in the trial -- i.e., that Fastow's legally unenforceable oral inducement to Merrill that Enron would either buy the barges back or broker a deal for them rendered false Enron's accounting of the deal and, thus, misleading to Enron's investors.

For what it's worth, Glisan's testimony dovetailed generally with that of Kopper, although Kopper thought Merrill was at real risk with regard to the barge deal while Glisan downplayed that risk. Similar to Kopper, Glisan dumped on former Enron treasurer Jeffrey McMahon, who Glisan contends told him he was "was comfortable" with Fastow's oral inducement to Merrill. Consistent with its approach to this case, the prosecution failed to elicit from either Glisan or Kopper that Fastow and them did not get along with McMahon, who was not involved in receiving any of the millions of dollars that Fastow, Kopper and Glisan received from "investing" in Fastow's off-balance sheet partnerships. In fact, Fastow ultimately engineered both McMahon's firing as Enron's treasurer (because of McMahon's criticism of Fastow's off-balance sheet partnerships to former Enron CEO, Jeff Skilling), and Glisan's replacement of McMahon as Enron's treasurer. That the prosecution would allow the Fastow cabal to defame the unindicted McMahon in such a manner without pointing out their well-established acrimony toward him is just one example of how the Justice Department is willing to dispense with a balanced presentation of the facts to obtain convictions in this case.

Meanwhile, two of the Merrill defendants appear to have pretty darn good grounds for a directed verdict of acquittal. Tom Hagemann, defense counsel for Merrill defendant Daniel Bayly, argued persuasively that the prosecution's case against Mr. Bayly consisted solely of testimony that Mr. Bayly participated in the telephone call in which Fastow made the oral inducement to Merrill to buy the barges, and then that Mr. Bayly directed the Merrill representatives to send an engagement letter to Enron that included Fastow's oral representation that Enron would take Merrill out of the barge deal within six months. Inasmuch as the prosecution presented no further evidence that Mr. Bayly was involved in the deal in any respect after that point and did not attempt in any way to cover up the fact that Fastow had made the oral inducement, Mr. Hagemann pointed out that it is simply impossible for the prosecution to meet its burden of proof that Mr. Bayly was involved in a wide-ranging conspiracy with Enron to cover up the true nature of the deal.

Equally persuasive was David Spears' motion for a directed verdict of acquittal for Merrill defendant William Fuhs. Incredibly, the prosecution did not present even one witness who knew or had ever talked with Mr. Fuhs regarding the barge transaction! Consequently, the prosecution's case against Mr. Fuhs relies totally on about a half dozen documents and emails that the prosecution could not prove that Mr. Fuhs ever read and which are subject to various interpretations. As Mr. Spears pointed out, based on that evidentiary record, the prosecution cannot sustain its burden of proof that Mr. Fuhs was involved in any type of conspiracy with Enron or that he was involved in fraud on Enron's investors.

Finally, in a devastating cross-examination of Glisan, Lawrence J. Zweifach, Merrill defendant James Brown's attorney, elicited that Fastow's supposed promise to buy back the barges from Merrill made no economic sense and, thus, is of dubious credibility. Inasmuch as such a buy back would have required Enron to restate earnings and endure the market's bad reaction to such a restatement, Glisan admitted that it would have been far less damaging to Enron in terms of the investor market not to sell the barges to Merrill and simply to take the one penny-per-share earnings hit in the fourth quarter of 1999. In short, reasoned Mr. Zweifach, why would Fastow risk the much worse market effect of a restatement by making the oral side deal when simply holding the barges would not result in much of a market effect in the first place? Glisan had no answer to that question.

Of course, as noted in my earlier post, no one really knows how all of this plays out with either Judge Werlein or the jury. But one thing is crystal clear -- the Justice Department believes that it is shooting fish in a barrel even when it puts on as flimsy a case as this because it figures that most jurors will be biased against any defendant having anything to do with the cultural pariah Enron.

Beyond the effect on the individual lives involved in this case, that's the real societal significance of this case. For if the government can use its power to obtain convictions and long jail sentences in a case as weak as this one, then business executives everywhere should be concerned that the risk of doing business in the United States will have just risen to an entirely new level.

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KPMG agrees to record malpractice settlement

KPMG LLP and its Belgian affiliate agreed to pay $115 million to settle a shareholder lawsuit in Boston claiming they had failed in their audit work for Lernout & Hauspie Speech Products NV, the defunct Belgian maker of speech-recognition software. The proposed settlement is one of the largest ever by an auditing firm.

As with many software firms, Lernout & Hauspie soared to prominence in the late 1990's in the field of speech recognition software. The company had a market capitalization of nearly $10 billion on the Nasdaq exchange at one point. But in all to familiar a story, Lernout collapsed in 2000 and later admitted to a massive fraud, which included falsifying approximately 70% of sales in its largest unit. The company has been liquidated.

The suit alleged that KPMG was responsible for Lernout's false and misleading financial statements and sought damages on behalf of the company's shareholders. As usual in such settlements, KPMG and its Belgian affiliate publicly stated that they settled to avoid "protracted legal battles" and that they "deny all allegations and any liability."

However, the settlement does not end KPMG's nightmare with regard to the Lernout account. Earlier this year, KPMG and its Belgian unit were sued for $340 million by the trustee in Lernout's bankruptcy case, who is attempting to recover that sum for Lernout's creditors. Moreover, the Belgian liquidator for Lernout piled on by filing a separate claim for $427.5 million against KPMG's Belgian affiliate. Finally, KPMG's work in the Lernout case also remains subject to a Securities and Exchange Commission investigation.

The settlement is the latest in a string of such large settlements for KPMG and other big auditing firms. Last year, KPMG paid $125 million to settle shareholder claims related to its audit of drugstore chain Rite Aid Corp., and $75 million related to its audit of Oxford Health Plans Inc. The largest amount that an accounting firm has paid in settlement of a private shareholder class-action suit remains Ernst & Young LLP's $335 million settlement in 1999 related to its audit of Cendant Corp.

In the meantime, many relatively good size companies are finding that they cannot hire the services of the Big Four accounting firms because of the firms' staffing problems attendant to their larger audit clients.

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October 7, 2004

Braves outlast Stros

The Braves jailbird-to-be Rafeal Furcal hit a two-out, two-run walkoff homer in the 11th inning off of Dan Miceli that propelled the Braves to a 4-2 victory over the Stros Thursday afternoon at Turner Field in Atlanta. The Braves' win tied their NL playoff series with the Stros at one game each.

Furcal was in court just hours before Game 1 of the series where he was sentenced to 21 days in jail and 28 days in a treatment center for violating probation with his second drunken-driving arrest in four years. However, the judge -- obviously a Braves fan -- put the sentence off until the day after the season ends.

With the Stros on the verge of taking a commanding lead, manager Phil Garner brought closer Brad Lidge into the game in the seventh inning when the Stros had a 2-1 lead, but the Braves rallied to force extra innings. The Braves outhit the Stros 14-4 and held the Stros without a hit for the final 5 1/3 innings.

Realizing the importance of the game, the Braves kept closer John Smoltz on the mound for three innings, which was his longest outing since September 2001. Similarly, Lidge went 2 2/3 innings, which was his longest outing of the season.

Both starters for the respective teams pitched well. Roy O gave up eight hits and a run in 6 2/3 innings while Mike Hampton gave up just four hits in 6 1/3 innings, including solo yaks to Bags and Raul Chavez. Hampton left in the seventh because of tightness in his left forearm, but the injury is not believed to be serious.

The series now moves to the Juice Box on Saturday where the Stros have won 18 straight games with the Stros' Brandon Backe going up against the Braves' John Thomson. Game time has been moved to noon on Saturday.

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The public policy failure of the Texas Robin Hood school finance system

Virginia Postrel of Dallas, who runs the smart Dynamist.com blog, does an excellent job of explaining in this NY Times article the public policy failure that is the current Texas Robin Hood public school finance system.

As Ms. Postrel notes, the problem is not with equalizing benefits between rich and poor school districts, but rather the structure under which such equalization was to be achieved:

Robin Hood does not just move money from rich school districts to poor school districts. It does so in a way that destroys far more wealth than it transfers, and that erodes the tax base on which school funding depends.

To understand why Robin Hood is so destructive, consider the market price of a given house. The home's value depends not just on how big the house is or whether it has walk-in closets and granite countertops.

Property taxes depress the value of a house. The amenities those taxes buy, including good schools, increase the value. The final price reflects the net value of the taxes the homeowner pays.

Robin Hood essentially raises taxes while reducing benefits, creating a downward spiral in home values and property tax receipts. For each district, the state divides the total assessed value of property in the district by the number of pupils. (Districts get higher per-pupil weightings for such factors as students with learning disabilities or limited English proficiency.)

The state then compares this number with a confiscation threshold. The district keeps the taxes on the property base below the threshold. But every single penny collected on the property value above the threshold goes to the state.

Not surprisingly, Ms. Postrel notes that, when homebuyers no longer get as much education for their taxes, buyers will not pay as much for houses:

During the 1990's, "a period of unusually rapid income growth for the wealthy," the economists note, the property value per pupil actually fell in the state's wealthiest 5 percent of school districts, even without accounting for inflation.

That drop was bad news for everyone. Robin Hood assumed that house prices would stay pretty much the same, so that property-rich districts would continue to provide ample tax dollars to the rest of the state. Instead, every year the tax base became smaller in the rich districts.

To meet its commitments to poor districts, the state effectively lowered the real value of the confiscation threshold. Corrected for inflation, the threshold was $340,000 per weighted pupil in 1994, when the system was established. By 2002, it had fallen to $305,000.

But lowering the threshold further depresses home values. A death spiral sets in.

As homebuyers switch from the once-rich districts into moderately priced districts, property values hit the threshold in those districts, setting yet another spiral in motion.

And while the state is pushing down the confiscation threshold, districts try to keep up by raising their property tax rates, pushing down home values even more.

Ms. Postrel notes that correcting the system is certainly not impossible:

[The solution is to bring] well-established principles of efficient taxation to bear on school finance. Transfers . . . should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, . . . the state could take a much smaller percentage of the whole tax base.

"One of the principles of public finance is that having a high tax rate on a small base is very inefficient, whereas having a lower tax rate on a larger base is less distortionary, " observes Ilyana Kuziemko, a Havard University economist who co-wrote with Caroline M. Hoxby a new working paper for the National Bureau of Economic Research entitled Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan.

As noted in this earlier post, the handling of public school finance by the Republican-dominated Texas Legislature has been so inept that it gives rise to reasonable questions regarding whether a Republican-controlled state government is capable of addressing such public policy issues in a responsible and effective manner. However, Professors Hoxby and Kuziemko note that the primary reason for the public policy failure of the Robin Hood public school finance system is much simpler than poor political leadership:

"Lawyers, not economists, designed the system.''

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A great post-debate line

Former Republican senator from Wyoming Alan Simpson attended Tuesday's debate between Vice-Presidential candidates Dick Cheney and John Edwards. During an interview after the refreshingly contentious debate, Mr. Simpson waxed nostalgic about the bygone days in which such contentiousness was the norm in such political exchanges, such as the time that Republican Sen. Wayne Morse of Oregon in 1957 called his "distinguished colleague" Republican Sen. Homer Capehart of Indiana "a tub of rancid ignorance."

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Understanding terrorism

Although I am generally supportive of the way in which the Bush Administration has conducted the war against the Islamic fascists over the past three years, I have never been comfortable with the Administration's characterization of the war as the "War on Terror." Not only does that moniker obscure the real enemy -- radical Islamic fascism -- but its vagueness risks inclusion of legitimate rebel movements against tyrannical regimes. I mean, really -- would the United States be siding with the Iranian or North Korean governments if rebel movements in those countries began to use tactics to undermine those tyrannical regimes similar to those that are used by Islamic fascists against America and Israel?

Dr. Philip Jenkins is a prolific author and an outstanding professor of history and religious studies at Penn State University. He is best known for his recent books The Next Christendom: The Coming of Global Christianity (New York: Oxford University Press, 2002) and The New Anti-Catholicism: The Last Acceptable Prejudice (New York: Oxford University Press, 2003), which are outstanding works on the changing nature of Christianity in the world. The Next Christiandom explores the emergence of Third World countries as the future demographic and cultural center of global Christianity, and The New Anti-Catholicism examines how modern political correctness toward minority groups has not deterred major media outlets from casting the Catholic Church and its teachings in the worst possible light.

However, Professor Jenkins is also an expert on the concept of terror, and his new book Images of Terror: What We Can and Cant Know about Terrorism (Aldine de Gruyter, New York 2003) explores the social construction of terrorism as a concept and problem. In this review of Images of Terror, reviewer Daniel McCarthy notes that Professor Jenkins asks the salient question: What makes a particular incident an example of terrorism, rather than a conventional crime? Although a generic definition of terrorism is possible to develop, the application of that definition to a particular event is much more difficult as a variety of social forces and media interpretations shape our understanding of the event:

[A]s a new understanding of the problem [of terrorism] takes hold, older interpretations may be forgotten entirely and even retroactively discredited. The interpretation that was plausible in the 1980s became, under the influence of a changing ideological climate, a thing that only crackpots believed in the 1990s. This, says Jenkins, is what happened to the theories of those who warned of the dangers of Islamic terrorism during the Clinton years. In the 1980s, when terrorism was understood as a phenomenon connected to outside dangersto the Cold War and the Iran-Iraq War, for examplesuch warnings might have been taken seriously. In the 1990s, however, terrorism increasingly came to be understood as something associated with domestic far-right militants, and those who talked too much about Islamic terrorism risked being dismissed as racists or Islamophobes. After 9/11, the prevailing understanding changed again, and people who may have sounded like cranks five yc/elements/1.1/"> -->

Former El Paso traders cop pleas

Following on this earlier post on the subject, four former Houston-based El Paso Corp. natural gas traders have agreed to plead guillty under cooperation agreements with the Justice Department after being been charged with making false reports used to calculate the index price of natural gas.

Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In this particular case, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.

Each of the traders worked for the Houston company's El Paso Merchant Energy division and were charged with one count of false reporting. They will enter their guilty pleas later this month. The four who were released on personal recognizance bonds were Christopher Bakkenist, 41; Dallas Dean III, 60; Donald J. Guilbault, 51; and William L. Hamm, 45.

Wednesday's indictments came nearly two years after former El Paso trader Todd Geiger was indicted for wire fraud and reporting fake trades to an industry publication. He pleaded guilty in 2003 to the fake-trade-reporting charge and agreed to cooperate with prosecutors in the probe.

Earlier this year, ten former El Paso Corp. traders and supervisors received targe letters from the U.S. Attorney's Office in Houston alerting them that they were targets of a criminal investigation into manipulation of natural gas prices. Moreover, in the last two years, the Commodity Futures Trading Commission has filed civil charges against several companies and subsidiaries in which the CFTC alleges that traders knowingly reported false data to industry publications in an effort to manipulate natural gas prices. So far, the CFTC has settled such allegations against approximately 25 companies for more than $250 million, and El Paso settled such CFTC charges for $20 million in March 2003.

However, in a recent case involving another trader who had been charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad. That ruling is currently on appeal, and the Fifth Circuit Court of Appeals in New Orleans conducted oral argument on the case earlier this week.

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October 6, 2004

Stros cruise by Braves

The Stros glided into Atlanta and easily took the first game of their National League Divisional Series with the Braves 9-3 behind Lance Berkman, Carlos Beltran, Jason Lane, and Brad Ausmus' yaks and the gutty pitching performance of Roger Clemens.

The Stros won this one with a solid hitting display as they cranked out nine hits in addition to the four above-mentioned taters, including run scoring doubles by Bags and JK. A four run uprising in the third and then three more runs in the fifth put this one away.

Unfortunately, the Stros' strong hitting display prompted Braves reliever Juan Cruz to nail Beltran in the ribs with a pitch in the seventh, and Lane replaced Beltran in the field for the final two innings. Post-game x-rays on Beltran's ribs were negative, but the contusion restricted the his arm's range of motion, so it is unclear whether he will be able to play in today's game. If Beltran cannot play today, Lane would replace him in the lineup.

Inasmuch as Cruz clearly was throwing at Beltran on purpose (although the umps did not issue any warnings), the bottom half of the frame provided one of the comic moments of the season. With two outs and nobody on, the Braves' centerfielder Andruw Jones came to the plate against Clemens, who is notorious for being "old school" with regard to retribution for one of his teammates being hit by a pitch on purpose. Inasmuch as Jones is the Braves' centerfielder and Beltran is the Stros' centerfield, there is logic in a baseball sense for Clemens to throw at Jones in response to Cruz throwing at Beltran.

At any rate, Clemens worked the count to two strikes against a very antsy Jones. Clemens then started a two strike curveball at Jones that broke over the plate but in the dirt. Jones took the worst swing at the pitch that I've seen since I coached my last T-Ball game in striking out, and looked like the most relieved person in the ballpark as he toancial reports were being falsified. Mr. Moores denies any knowledge of the falsity of Peregrine's financial statements and has never been charged criminally in regard to Peregrine or any other venture.

The indictment charged former Peregrine CEO Stephen Gardner and former President and COO Gary Lenz, and other executives involved in sales, finance and accounting at the company. The indictment also charged a former Arthur Andersen LLP audit partner, who oversaw Peregrine's bookkeeping. Messrs. Gardner and Lenz, and four other executives also face related civil fraud charges filed by the Securities and Exchange Commission.

Peregrine filed for bankruptcy protection in 2002 after announcing an internal probe of its accounting. It later restated financial results for 11 quarters from 2000 through 2002 in which it reduced its previously reported revenue of $1.3 billion by over a half a billion dollars. Peregrine had reported 17 consecutive quarters of rising earnings from 1997 through 2002, and its stock price reached nearly $80 in March, 2002. The plaintiffs in the civil lawsuits against Mr. Moores and others -- and now the Justice Department -- are taking the position that those results were the result of the Peregrine executives' cooking of the company's books.

In the meantime, a former Peregrine sales executive on Wednesday agreed to plead guilty to charges of obstructing justice and will join several others who are cooperating in the government's ongoing investigation of the company. Moreover, Peregrine's former chief financial officer previously pled guilty to conspiracy and securities fraud charges, and two other former Peregrine executives also pled guilty to conspiracy charges.

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Akin, Gump sued for Pizza Inn golden parachutes

Colony, Texas-based Pizza Inn Inc. has sued Dallas-based Akin Gump Strauss Hauer & Feld LLP -- the company's former law firm -- for $7.4 million in damages alleging that the firm breached its duties to the company when it wrote "golden parachute" severance package agreements for four senior Pizza Inn executives. The lawsuit alleges that the potential payout under the golden parachute agreements was more than twice Pizza Inn's 2003 net income of $3.1 million and that the firm's legal services benefited the executives, but not Pizza Inn.

The lawsuit is the latest crossfire in a fight for control of Pizza Inn, of which Dallas-based Newcastle Partners LP owns 32.5 percent. In February, company shareholders approved a plan that gave Pizza Inn board control to Newcastle, including replacing the Pizza Inn chairman with Newcastle's sole general partner and adding the Newcastle president and two other Newcastle backed members to the board. That development coincided with a Thompson & Knight LLP opinion to the board that that adding the Newcastle-backed board members to the Pizza Inn board did not constitute a change in control. A month later, one of the Pizza Inn executives resigned and sought a $605,882 severance payment under his golden parachute agreement. The other three other Pizza Inn executives with similar severance deals still work at the firm.

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DuPont Photomask acquired

Japanese technology and printing company Toppan Printing Co. announced on Tuesday that it will acquire Round Rock, Texas-based DuPont Photomasks Inc. for about $650 million. The deal will create the world's largest maker of photomasks, which are like stencils that are used to etch circuits onto silicon and, thus, are key components in semiconductor production. The transaction is expected to close in early 2005.

Under the deal, DuPont Photomasks shareholders will receive $27 a share. After the completion of the deal, the U.S. company will become a wholly owned Toppan unit named Toppan Photomasks Inc. DuPont Co., which is DuPont Photomasks' largest shareholder with about a 20% stake, has agreed to the deal.

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October 5, 2004

Stros 2004 Review: Stros-Braves Playoff Preview

The media is all aflutter with the fact that the Stros have never beaten the Braves in three previous playoffs (in 1997, 1999, and 2001), but that fact is irrelevant to the current series. Only five of the Stros' 25 man roster were even on the 2001 club (Bags, Bidg, Ausmus, Viz, and Berkman) and the same roster turnover is true for the Braves. So, these are different teams at a different time, and what has occurred in the past is largely just the stuff of baseball myths that media types enjoy discussing while trying to figure out something perceptive to say.

In its essence, baseball is a simple game. While at bat, a club tries to score more runs than its opposition. While in the field, the club tries to get three outs each inning before the opposition scores as many runs as the club has scored. Thus, creating runs while hitting, and saving runs while pitching and playing defense, are the most important indicators of success in baseball. That's why I like the statistics of runs created against average ("RCAA") and runs saved against average ("RSAA" and RCAA are explained here) -- they are solid reflections of how a player and a team stacks up against an average player and an average team in their league at any particular point in time.

Based on RCAA and RSAA, the Braves should beat the Stros in this series, but not by much. Moreover, based on RCAA and RSAA, the Cubs and the Giants should have beaten out the Stros for the Wild Card Playoff spot, so the statistics are simply indicators of probable performance, not dispositive predictive tools. The nature of human performance generally and the charm of baseball in particular is the unpredictability of it all.

Since my most recent periodic review of the Stros hitters' RCAA and the pitchers' RSAA, the Stros overtook both the Giants and the Cubs in the NL Wild Card playoff race, and the clubs' final RCAA and RSAA bear out what happened. Here are the Stros hitters' final RCAA numbers, courtesy of Lee Sinins, through the end of the regular season:

Lance Berkman 69
Carlos Beltran 46 (28 with the Stros, 18 with the Royals)
Jeff Bagwell 17
Jeff Kent 12
Mike Lamb 11
Craig Biggio 8
Jason Lane 3
Eric Bruntlett 2
Willy Taveras 0
Chris Tremie 0
Jason Alfaro -2
Chris Burke -3
Orlando Palmeiro -4
Richard Hidalgo -9
Adam Everett -11
Morgan Ensberg -12
Jose Vizcaino -14
Raul Chavez -19
Brad Ausmus -26

After falling back to ninth a week before the end of the regular season, the Stros' seven game winning streak to close out the season was bolstered by another surge in hitting that resulted in the Stros finishing seventh out of the 16 National League teams in RCAA (50), while the Braves finished fifth (60 RCAA). Frankly, that means the teams are about equal in hitting, as the Stros RCAA would be 8 points higher than the Braves had Beltran played with the club the entire season.

Insmuch as the Stros were at 17 RCAA a week ago, their hitting over the last week of the season was flat remarkable. Berkman and Beltran concluded monster years, and Bags and Bidg rebounded nicely after their lull following the earlier 12 game winning streak. Moreover, after being essentially an average National League hitter for the entire season, Jeff Kent went nuclear in the last week of the season and improved his RCAA from 1 to 12. Jason Lane also improved notably over that time, raising his -2 RCAA to a plus 3 by the end of regular season.

Now, here are the Braves' individual RCAA figures:

J.D. Drew 66
Eli Marrero 14
Marcus Giles 13
Chipper Jones 11
Johnny Estrada 9
Julio Franco 6
Charles Thomas 5
Adam LaRoche 2
Rafael Furcal 1
Damon Hollins 1
Andruw Jones 0
Dewayne Wise -5
Wilson Betemit -6
Nick Green -8
Jesse Garcia -9
Mike Hessman -9
Eddie Perez -11
Mark DeRosa -20

In effect, the Braves have an outstanding hitter in Drew, who is almost equal to Berkman, but then a big dropoff to their second best hitter -- there is clearly no Beltran-caliber second best hitter on the Braves. That is an advantage for the Stros, but it is offset by the fact that the Stros are pulled down by the amount of play that deficient hitters Ausmus, Chavez, Viz, and Ensberg receive. Stros manager Phil Garner would be well-advised to play the much more productive Lamb during the playoffs over Ensberg.

The big difference in the Braves and the Stros is in pitching, where the Braves are stronger even though the Stros' pitching staff is quite good. Here are the Stros pitchers' RSAA:

Roger Clemens 32
Brad Lidge 26
Roy Oswalt 22
Wade Miller 10
Dan Miceli 6
Octavio Dotel 5
Andy Pettitte 4
Chad Qualls 3
Russ Springer 3
Dan Wheeler 3
Darren Oliver 1
Brandon Backe 0
Mike Gallo -2
Chad Harville -2
David Weathers -2
Jeremy Griffiths -3
Ricky Stone -3
Kirk Bullinger -6
Jared Fernandez -6
Pete Munro -9
Carlos Hernandez -10
Brandon Duckworth -11
Tim Redding -15

The Stros are fourth among the 16 National League teams with a team RSAA of 46, which is the position that the Stros' staff has been for most of the second half of the season. On the other hand, the Braves staff's RSAA is a stout 89, which is second only to the Cubs' staff that measured a heady 121 on the season (how again did the Cubs blow their lead in the Wild Card Playoff race?).

Clemens, Lidge and Oswalt are three of the best pitchers in baseball, and that's a good nucleus for a short series. Miceli has bounced back well from his three week stint on the DL with pink eye, but beyond those four pitchers, the Stros are relying on a slew of young and not so young pitchers who are average or barely above average. Inasmuch as all of those pitchers seem to be pitching well right now (particularly the irrepressible Backe), the Stros may be able to bob and weave through a five game series with this bunch. However, in the longer seven game series in the LCS and the World Series, that lack of quality depth might get exposed. Unless, of course, these fellas simply step up on this national stage and continue to improve as they have over the past couple of weeks. I'm through doubting this bunch of competitors.

Here are the Braves pitchers' individual RSAA:

Jaret Wright 21
Antonio Alfonseca 14
John Smoltz 14
Horacio Ramirez 13
John Thomson 13
Juan Cruz 12
Kevin Gryboski 8
Paul Byrd 5
Russ Ortiz 4
Roman Colon 2
Chris Reitsma 2
Tom Martin 1
Dan Meyer 1
Tim Drew 0
Mike Hampton 0
Sam McConnell 0
C.J. Nitkowski 0
Armando Almanza -2
Will Cunnane -4
Jose Capellan -6
Travis Smith -9

Jaret Wright, the Braves first game pitcher against Clemens, has pitched basically as well as Oswalt this season, so he is darn good pitcher. But interestingly, the rest of the Braves staff is essentially a bunch of well above-average and just above average pitchers, but none which had the seasons of Clemens, Lidge or Oswalt. Thus, the depth of the Braves' pitching gives them an advantage, but the starting pitching matchups for the first three games favor the Stros:

Game One: Clemens (32 RSAA) v. Wright (21 RSAA)
Game Two: Roy O (22 RSAA) v. Mike Hampton (0 RSAA)
Game Three: Brandon Backe (0 RSAA) v. John Thomson (13 RSAA)

So, despite the Braves greater depth in quality pitching, this is really a very even series based upon the production of the respective teams' players at this time. That's why small adjustments such as playing Lamb over Ensberg and perhaps giving the emerging Lane some swings for Bidg could be the difference between winning and losing this series. Here's hoping that Manager Garner can continue to pull the right strings that he so effectively selected during the drive for the Wild Card playoff spot.

Now, here are some other observations on the final statistics from the regular season:

Although the Cubs pitching was the best in the National League by far, their hitting went into the tank. As the Stros climbed from an RCAA of 18 to 50 in the last week of the season, the Cubs' RCAA fell from 17 to 2 during the same week. Say bye-bye, Sammy!
Although the Giants' 90 RCAA was stout and second best in the league behind the Cards' astronomical 152, they lost the Wild Card Playoff race because of thei top-loaded it is -- the incredible Barry Bonds had a league-leaefore or during this season:
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Tough night

Talk about a tough night!

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R.I.P., Gordo Cooper

Gordon Cooper, one of the original Mercury Space Program's astronauts, died of natural causes on Monday at his home in Ventura, California at the age of 77.

Mr. Cooper's death leaves just three of the original seven Mercury astronauts still living -- John Glenn, the former senator from Ohio, Walter M. ("Wally")Schirra, and M. Scott Carpenter. Virgil I. ("Gus") Grissom was one of three astronauts killed in a 1967 fire inside an Apollo capsule on the launching pad, and Donald K. ("Deke") Slayton and Alan B. Shepard died of natural causes several years ago.

As the pilot of the last Mercury mission, Mr. Cooper was the last American astronaut to fly alone in space. His mission on May 15-16, 1963 covered 34 hours and 20 minutes, which was more than all five of the previous Mercury flights combined. When the automatic system that was supposed to control the descent of his Mercury capsule failed, Mr. Cooper took control manually and made a bull's-eye landing just 7,000 yards from aircraft carrier that picked up the Mercury capsules.

Mr. Cooper subsequently flew a long mission in the Gemini Space Program in which he demonstrated that a trip to the moon was feasible. Mr. Cooper's second and last trip into space was on Gemini 5, a two-man, eight-day mission in August 1965 that set a space endurance record of over 190 hours.

Among the many firsts in spaceflight that Mr. Cooper achieved was that he was the first person to sleep in space (seven and a half hours like a log, he reported). He was also the first astronaut to fly twice, and the first American to be televised from space.

Mr. Cooper was also immortalized in film by former Houstonian Dennis Quaid's excellent portrayal of him in the wonderful 1983 film of Tom Wolfe's equally superb book, "The Right Stuff." For anyone who grew up during the early days of the American space program, "The Right Stuff" is a must see. I recently watched it again with one of my teenage sons, and we thoroughly enjoyed watching how the original astronauts took enormous risks to do something that is considered commonplace by many in my son's generation. I also enjoyed sharing with him many of the stories of the original Mercury astronauts that are now an essential part of Houston folklore.

Rest in peace, Gordo Cooper.

Posted by Tom at 9:27 AM | Comments (0) | TrackBack (0)

October 4, 2004

IRS demands a big tip from Brinker

In this Form 8-K filing with the Securities and Exchange Commission today, Dallas-based Brinker International Inc. -- the operator and franchiser of Chili's Bar & Grill and a number of other popular casual-dining restaurants -- said the Internal Revenue Service has demanded "the employer's share of FICA taxes on unreported tips during the examination period totaling $31.4 million." It is not clear from the statement in the filing whether the $31.4 million represents the taxes owed or the amount of unreported tips.

The company also disclosed that the the IRS is alleging that alleged that Brinker has failed to fulfill its obligations under a 1996 tip-reporting alternative-commitment agreement with the IRS and has retroactively revoked the agreement. As a result, the IRS is alleging that some portion of the unreported tips should have been treated as service charges subject to employment taxes. The proposed assessment is based on the assumption that the cash-tip reporting rate should have been about two percentage points less than the charge-tip reporting rate.

In the filing, Brinker asserted that it has complied with all of the terms of the January 1996 agreement and with the law pertaining to the employment-tax treatment of service charges, and that it is "vigorously" contesting the accuracy of the proposed assessment related to unreported tips.

Restaurant owners and their counsel should watch this situation carefully. Brinker is a big fish in the restaurant industry, and a successful IRS assessment on this issue will send shock waves through the industry.

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

Fannie Mae Enron?

This Wall Street Journal ($) editorial examines the recent report issued by the Office of Federal Housing Enterprise Oversight (Ofheo) in regard to Fannie Mae's accounting machinations and what it found is troubling, to say the least.

By improperly delaying the recognition of income, Fannie Mae created a cookie jar of reserves and by improperly classifying certain derivatives, it was able to spread out losses over many years rather than recognizing them immediately. Accordingly, Fannie Mae's managers in any quarter could reach into the cookie jar of reserves to compensate for poor results or add to it to lessen good ones. As the WSJ notes, this arrangement gave Fannie Mae "inordinate flexibility" in reporting the amount of income or expenses over reporting periods, which allowed it to manipulate earnings in order to hit target numbers for executive bonuses for Fannie Mae executives:

Ofheo details an example from 1998, the year the Russian financial crisis sent interest rates tumbling. Lower rates caused a lot of mortgage holders to prepay their existing home mortgages. And Fannie was suddenly facing an estimated expense of $400 million.

Well, in its wisdom, Fannie decided to recognize only $200 million, deferring the other half. That allowed Fannie's executives -- whose bonus plan is linked to earnings-per-share -- to meet the target for maximum bonus payouts. The target EPS for maximum payout was $3.23 and Fannie reported exactly . . . $3.2309. This bull's-eye was worth $1.932 million to then-CEO James Johnson, $1.19 million to then-CEO-designate Franklin Raines, and $779,625 to then-Vice Chairman Jamie Gorelick.

The WSJ concludes:

Fannie Mae isn't an ordinary company and this isn't a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie's implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk. That's quite a confidence game -- and it's time to call it.


Posted by Tom at 5:31 AM | Comments (0) | TrackBack (0)

October 3, 2004

2004 Weekly local football review

Texans 30 Raiders 17. With the Stros winning the Wild Card playoff spot at the Juice Box downtown, the Texans did their part at Reliant Stadium to make Sunday a very good day for Houston sports fans. David Carr easily had his best game of the season as he was 14-22 for 238 yards, one TD pass in finding Andre Johnson as a secondary receiver on the play, no interceptions or fumbles, and 35 yards rushing on 8 carries. The Texans offensive line played well, protecting Carr sturdily and allowing third team running back Jonathan Wells to run for 105 yards. On the defensive side, the Texans were able to turn a Jamie Sharper sack into a TD and, while they did not ever really stop the Raiders' offense, they did pick off three Kerry Collins' passes and force two fumbles. The high-scoring Vikings come to town next Sunday, so the Texans' defense better plug the holes or else the Texans offense may need to score 40 just to stay in the game. Will the over/under on that game break 60?

Longhorns 44 Baylor 14. The Horns endured their final scrimmage of the pre-season before the real season begins next weekend in Dallas against Oklahoma. Although the Arkansas win from three weeks ago was a solid one, the three other teams that the Horns have played are not remotely comparable to Oklahoma's talent level. Similarly, Oklahoma's only reasonably tough game to date was this past weekend's win over Texas Tech, which was not particularly impressive. So, to a certain extent, next week's Red River Shootout will involve two talented, but largely unproven, teams. Although I think the addition of Dick Tomey to UT's defensive coaching staff will improve that unit, I'm not sure that the improvement will be sufficiently developed at this stage of the season for the Horns to hold the Sooners under 28 points, which I think is a requirement of beating them. And the Horns still have to figure out now to deal with the fact that the Sooners head coach Bob Stoops is a far superior game day tactician to UT's head coach Mack Brown.

Texas Aggies 42 Kansas State 30. This was a strange game. The Aggies really never stopped Kansas State, but four Wildcat turnovers allowed the Ags to have a short field for several of their scoring drives. Moreover, the Wildcats were behind for much of the game by double figures, so they abandoned their potent rushing attack behind Darren Sproles, despite the fact that it appeared to be working quite well. Nevertheless, with two and a half minutes to go, the Wildcats were driving the ball in Aggie territory and down only 35-30. Then, the KSU coaching staff inexplicably makes several questionable play calls and, for one of the only times in the game, the Aggie defense holds and KSU turns the ball over on downs with a minute and a half to go. As the Ags are running out the clock, Reggie McNeal takes off around left end and scoots 62 yards for a TD to put the game away. The Ags travel to Ames, Iowa next Saturday to play the Iowa State Cyclones, who are coached by my old friend Dan McCarney.

Memphis 41 Houston 14. On their way to a 1-6 record, the Coogs lay an egg against a good Memphis team. The problem with junk offenses such as the one the Coogs run is that, once the opposition's defensive coordinators have seen it, they make adjustments and force the offense to do something else. If the junk offense does not have something else that it can do well, then it gets ugly in a hurry, and that's where the Coogs find themselves now. Art Briles' second season is quickly turning into a rocky one. The Coogs play Southern Miss next on this week's ESPN Thursday night football.

San Jose State 70 Rice 63. When I first heard this score, I thought that Rice's basketball season had started early. The Owls uncharacteristically blew leads of 34-7 and 63-49, and somehow figured out a way to lose despite gaining 634 yards. In case the Owls had any doubts that their decision to move to Conference USA is the correct one, the attendance at this game was only 4,000, which means that this game drew less than a large number of Texas high school football games each week. Rice plays SMU next Saturday night at Rice Stadium.

And remember that Kevin Whited has the best weekly review of Big 12 games over at PubliusTx.net.

Posted by Tom at 9:21 PM | Comments (3) | TrackBack (0)

"We'll Getcha & Mangle Ya"

New York-based Weil, Gotshal & Manges is a major international law firm that is particularly well-known in bankruptcy and reorganization circles. The firm is counsel for the debtors-in-possession in both the Enron and MCI/WorldCom reorganization cases, which are two of the largest chapter 11 cases in history. Over the past 20 years, Weil has built upon its reorganization expertise to become a well-regarded and well-balanced full service firm.

However, the firm's nickname within the legal profession -- which is the title of this post -- makes fun of the firm's traditionally high fees charged to its clients, and this New York Sunday Times article reports on two pending lawsuits against the firm that reflect another image problem at Weil and other big law firms -- i.e., that the firm is more incentivized to make money than to protect the interests of its clients:

Weil Gotshal is embroiled in two lawsuits by former clients who contend that the firm breached its duty to provide them with its undivided loyalty, as state rules on ethics require. The cases - one by the owners of a luxury shop, now defunct, in the Mall at Short Hills, N.J., and one by the pop singer Michael Bolton - stem from very different circumstances. But each case is a cautionary tale for big law firms, experts say.

The fashion boutique's allegations against Weil are particularly troubling:

[The owners of] Fashion Boutique of Short Hills [are pursuing] their contention that the law firm represented them in a suit against the fashion house Fendi even as it also agreed to represent Prada in another case. A few months earlier, Prada had teamed up with LVMH Met Hennessy Louis Vuitton to buy a 51 percent stake in Fendi.

Weil Gotshal did not tell the owners, Annette C. Fischer and her daughter, Randi Fischer, that it was also representing Fendi's new owner until seven months after it started working with Prada; by then, a jury was already deliberating the Fischers' contention that Fendi had used unfair business practices to run them out of business to protect its new flagship store on Fifth Avenue in Manhattan. In the case against Weil Gotshal, Fashion Boutique is seeking $15.5 million, an estimate of the value of lost business.

Despite these troubling allegations, Weil, Gotshal is not shying away from the fight -- the firm has asserted a counterclaim against the firm's former clients in the Fashion Boutique lawsuit for $2.7 million in unpaid attorneys' fees.

And Mr. Bolton's allegations against the firm stem from the firm's attempt to represent the conflicting interests of co-defendants who have potential claims against each other if the claim against them is established:

Mr. Bolton . . . sued Weil Gotshal in New York Supreme Court in Manhattan last December, seeking $30 million. The firm had defended him, along with his publisher, Warner-Chappell Music Ltd. of Britain, and his record label, Sony Music Entertainment Inc., in a 1994 suit contending that Mr. Bolton had infringed someone else's copyright with his 1991 hit "Love Is a Wonderful Thing." When a jury found that the song was too much like a 1964 tune of the same name by the Isley Brothers, [Mr. Bolton and the other defendants] were ordered to pay more than $5 million in damages. Mr. Bolton, however, soon learned that he was personally responsible for the entire judgment because his contracts with both W/b> also hit solo taters as the Stros set a season high with six homers and extended their record home winning streak to 17 games.

Oswalt (20-10) won 20 games for the first time in his career, while allowing only one run and five hits in seven innings. His 20 win season is the eighth 20-win season in club history. Larry Dierker, Mike Hampton, Jose Lima, J.R. Richard, Mike Scott and Joe Niekro (who did it twice) are the other Stros 20 game winners.

Over 110,000 people will be attending the Stros game and the Texans game tomorrow afternoon in Houston. It might just be quite a party!

Posted by Tom at 11:48 PM | Comments (0) | TrackBack (0)

ConocoPhillips' ambitious Russia play

Houston-based ConocoPhillips announced earlier this week a $2.36 billion "strategic alliance" with Moscow-based OAO Lukoil under which Conoco will buy a 7.6% stake in the Russian oil company and get a share in joint projects. The deal provides Conoco access to Russia's enormous but largely undeveloped oil and natural-gas reserves and opens a possible avenue for it to become the first Western petroleum producer to return to Iraq.

For energy producers looking to increase reserves, Russia represents one of the few places in the world where large reserves are available to private investors.The agreement will contribute to Conoco's proved reserves and production, which are closely watched market measures of an oil and gas company's prospects.

The move catapults Conoco ahead of most of the other major oil companies, which have have been largely unsuccessful in seeking a Russian partner. The deal also reflects the strong interest in Russia from foreign investors despite increasing concern over a recent Kremlin clampdown on political life and control over the energy industry. To ensure Conoco's minority stake is protected, Lukoil agreed to give the company one seat on the 11-member board and change its corporate charter to require unanimous board approval of top corporate decisions.

Conoco plans tm/public/xml/rss/module/trackback/" xmlns:dc="http://purl.org/dc/elements/1.1/"> -->

October 1, 2004

Stros get closer; Giants keep pace

Jeff Bagwell hit a massive two-run Crawford Street yak and the Stros overcame some jittery fielding with solid relief pitching as they remained on top of the NL Wild Card standings with a 4-2 victory over the Rockies on Friday night at a rocking Juice Box. The Stros have now won a team record 16 straight games in the increasingly friendly confines of the Juice Box, have won seven of their last eight games, 11 out of their last 14, and are an incredible 34-10 since August 15.

The Stros entered the game tied for the Wild Card lead with the Giants, and they remained tied as the Giants won their game against the Dodgers late Friday night. However, with their wins, the Stros and Giants moved two games ahead of the fading Cubs, who have lost four straight, six of their last seven, and have been reduced to bitching at their television color man. I maintain that they should be blaming Michael Barrett.

During this final weekend of the season, the Stros are trying to avoid a repeat of last season when they needed to win three of their final four games against last-place Brew Crew to force a division tiebreaker with the Cubs. The Stros went 2-2 against the Brewers, which allowed the Cubs to win the NL Central title.

Mike Gallo (2-0) earned the win on Friday night against the Rockies by getting the last out of the third inning, and Brad Lidge nailed down the last three outs for his 28th save. They were two of seven Stros pitchers to scatter 12 Rockies' hits. The Rockies' starter Joe Kennedy (9-7) actually pitched very well, allowing four runs on eight hits in eight innings.

In addition to Bags' heroics, Jason Lane again contributed mightily to the Stros' win. Pinch hitting in the seventh, Lane first knocked in pinch running Adam Everett with an insurance run. Then, the following inning, Lane played the rebound of a line drive adroitly off of the Crawford Box wall and then made a perfect throw to nail Brad Hawpe trying to stretch a single into a double.

Finally, with the capacity Juice Box crowd tonight, the Stros have now drawn 3,001,511 fans through 80 games this season, which is the second time that the cS `׌<r1H$6c²޵ժJ{swŪD1#=jcJ+粹'r We蹲Kul )˴7״E{ai+m$h/.l ;*a`B-*^8q.[맵 %&a{p5"3VR}ȱ{UsHv6.Hf4seCݥ֑닲I L7]s+#+s96+}k!1LzqI3w]}-q!̋]heK}䩟M]af]s1c΂'ZW/[fksz]qP9rW72r[X /ʹ'Ε&% VW(z1UvU7KcJş4b(s*6fbTE's+YŪy/, el$,ԏAf8fQ+>O)G͐݋N\^ RYݳvu." ;θ '!$Kt:_Tu-|ALEf !9_{8FsA ܏I۾tFZ`Mb螜ĦO>Ay韚9sp]̙A4f"GF^͖ Uaס&mZj"_ ڍ!˪J[WJMֺ j cU)i 6%([`=8 {3(j4F©dsnU7(Hc,8+q^ |!UA"GV)|`7 =d{@=խ<Y4+bNTrԚ؝I-t N"e¶"sssvF=Gp2vK(UkwWk4E͎CB_h_LI1|PVk sۥAX]ګi|>)g62pLCXT^9}mjA3,\ϬAT9`,4WN >Ru3jKىbD y8C!HzBcqRLoVY?cI'c/@6> zؚK\N DDɗ0 r,Z^ټyIQ%!"ܢbY."HX(+oܚNj<ݱ݄Ab"}"q1J[h : :MGW5L8P>ck+P4mdM_ۨ(SMj}m)`P 4Ƶ%bc4^a.Ū׊#5ja'@zRY|P3NC[ִ72'/@yӟUiEk>)κׅBA}w\ 6QI_?y.M~7h.OyE z暆 %e;]fvTz/4 )M}MtB-BNֹЖnJF@cZE^42v(lhclJ~vs$rF^V&}~&-'/ TYV6K̮'"$C8رƳdOH6Swћ2|]!HZb%`K,,hQw@d&N CG x4۔ !έ[ծ@S h"]()8+ P5ڀv5a a*G83-Ll] ,w޵}k[AC'\;hOUGU;}7=7aktܫ؊r8#9.aB52r3[/~SQQi7a 6gYn媾H1z-LhեwU?O7 $CCU\:b!"@}̐kL`Đ⿽.7 Jjx.(8>#V:2Erp&w$t贬etTԳIY> ֊nv2@n`nGeܷg6[klgztGf}jЛFPMY~X!CzFKg6o -9+FDvuk;Ԯw-uƔF=`0u :p=õ8v!Ld&' K[4g_"<~v7#+,NӣY+V7]*ʥ; 0)CB 9%_5ɜ=<"Ήz@g]b|]jjhZ(ec.5uW 6ue-y{u~-9x!^8 -'>@>{:bm!vsgd.$7]M !6~ CJk☜Is@n\sv:8tŽp(p=7m 8LS215|DT9G&DǾ]B93q,`C tE?yU2q0`xubs:oSݼvpM[ '?ͮC ysڡ=-y;X=Gr+SKS$ ZBTiF3E߁O8OFGSgv|5|!Ձ%&$Z\ft,s&iĀIF9Hu22;25ȥˠZО"6t6u$21Y͑Yrhtﳛt L-aWr2e9/t5EQ-Jx1Kndc筁/ (YvC/v"\,E FlM'ap lŝZX/DLSxqB>f-یU|#~_jə1 TxW@1V2˅{!-rʢšA9`PSI'Zj$s&PE.rBk^k"iIY,t'Q"[zĭ ǫYBʛ$*ČD &CFb>d Ko*w-ÃVO6 /J ƒNFH?+رsW8l6Ξ6J:Y'p f"G+I+`Dzܤ #c' L|4BAVJ˸4l-.,aeT@ Y)Y@b,6X0r IdȐbzвޮݖu:A q ,:XGe Feds suing Big Tobacco" dc:identifier="http://blog.kir.com/archives/2004_10.asp#001208" dc:subject="Politics - General" dc:description="In his WSJ ($) Business World column this week, Holman Jenkins, Jr. addresses the Justice Department's latest lawsuit against the big tobacco companies, and notes that the public relations benefit of such lawsuits far outweighs any meaningful public benefit: Were..." dc:creator="" dc:date="2004-10-01T06:08:04-06:00" /> -->

The hypocrisy of the Feds suing Big Tobacco

In his WSJ ($) Business World column this week, Holman Jenkins, Jr. addresses the Justice Department's latest lawsuit against the big tobacco companies, and notes that the public relations benefit of such lawsuits far outweighs any meaningful public benefit:

Were there a single element of human or policy interest in the trial launched by the Justice Department last week, it would be the department's conspicuous pride in admitting that it had spent an unprecedented $139 million preparing the case. To what end? In its dubious interpretation of racketeering law, the government seeks "disgorgement" of profits earned over half a century from selling cigarettes to smokers who started before age 21 -- a newly identified demographic category that Justice calls the "youth addicted population."

But those 50 years of profits were long ago distributed to shareholders. They won't be found around the premises in a vault at Philip Morris, er, Altria.

Indeed, just who is the real owner of the big tobacco companies? It might surprise you to find out:

[G]overnment already gets the lion's share of the proceeds of their continued smoking. Consider: A pack costs about $2.15 at the factory gate, of which the industry's after-tax profit is about 17 cents. Federal excise tax takes 39 cents, while state taxes range from Virginia's 37 cents to New Jersey's $2.73.

Then there's the additional, and novel, new "tax" imposed by the 1998 settlement with 46 states, which comes to about 50 cents a pack, though no legislator was ever obliged to cast a vote to impose this price hike on smokers.

Bottom line: The industry's shareholders long ago were reduced to the role of cutouts, allowed to keep collecting a small piece of the pie so politicians can go on posing as scourges of "Big Tobacco" even as government has become, effectively, the "beneficial owner" of the major tobacco companies.

And the public relations benefit to the federal government from these lawsuits also has a rather stark cost:

Revenuers, after all, have imbibed a great deal of free-lunchism from the Campaign for Tobacco-Free Kids, which shouts in one of its press releases: "Raising State Tobacco Taxes Always Increases State Revenues." Ditto the World Bank, which officially estimates that a 10% tax hike causes only a 4% decline in consumption. The bank goes out of its way to applaud governments like Greece's and Turkey's, which get upwards of 10% of their revenue from cigarette taxes.

Of course, a less decorous way of saying the same thing is that governments have learned to be calculating exploiters of the "inelastic" demand of addicted cigarette smokers.

But Mr. Jenkins points out that this ruse likely will not on much longer, but for economic reasons, not good public policy ones:

What might torpedo it politically, if not legally, however, is evidence that the lines are crossing and higher prices are leading to lower revenues.

We're already there: Revenues under the state settlement have lately begun declining at 4.5% a year, twice as fast as predicted and faster than can be explained by smuggling or smokers switching to renegade brands or roll-your-own.

If this keeps up, we may find out whether the government is really interested in curbing smoking -- or in profiting from it.

Read the entire piece. This reminds me a bit of the Texas Republicans' proposal earlier this year to subsidize state public school finance through an increase in notoriously volatile taxes on gambling within the state. Republicans should be wary that independent voters will figure out that something is terribly skewed about government raising money from activities such as gambling and smoking that it really ought not to be promoting.

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

Cubs lose, Giants win, Rockies arrive

The Cubs lost Thursday afternoon again (that's five out of the last six, folks) and the Giants won their late game, so the Stros enter the final weekend of the regular season tied with the Giants for the Wild Card playoff lead and the Cubs are a game behind the Stros and the Giants.

The Stros' Pete Munro starts the biggest game of his career in the Friday night game against the Rockies, while Roy O starts the Saturday night game and goes for his 20th win. Developments over those two games will dictate who starts the Sunday afternoon finale as the Rocket looms in the shadows to start on three days rest, if necessary.

The Rockies come in finishing up another woeful season (68-91) and are 4-6 in their last ten games. But they will be "loose as a goose in a bucket of juice," so the Stros likely will not have it easy. The best approach for the Stros is to take early leads in each game so that the Rockie players become distracted with dinner plans rather than baseball. The Rockies have one great hitter (Todd Helton, who is comparable to Berkman), one decent hitter (Jeremy Burnitz, who has similar stats to Bags), and then a bunch of average and below average hitters, including ex-Stro, Vinnie Castilla, who Milo will describe as having a great seaso4[&nX:%8Yx*:T>!*)9sQo nF+֌'fTF}m"]J xk !:Q9x~G7yiĊ'qJv(2.)lbq=뱯;A<4uSpgfkF#YQBR-f7`y_SΨm!&lչXЃKB /_ A /_!B /_0a /_"E/_(QE/_ 1/_lq/_| %K_"D%K/_2dK/_*TRK/_:te/_&L2e/_6l/_.\r/_>|O~(F^[b"4C-|J>;2d:u"{lqML{+Ka2 h !arGVtkcl`Ő/a9mR64G.ߪ<2mP%UO>jKe#T<[0fB* \Hd,~p׀;-Rwsp˔KF`}ի,XdhJ ϘäL>'؊f Xsp `'5qd+:lI(򷀑BXYWyE/5IBRx.$hILOOLO\mH\(LА!M1e⧥ouLAATr/