December 31, 2004
NY Times business columnist Floyd Norris hits the nail on the head in his column today in which he observes that the rebound in the investment banking industry this year must be tempered with the plight of Daniel Bayly, the former head of global investment banking at Merrill Lynch. Mr. Bayly was one of five defendants convicted in the Justice Department's questionable Enron-related prosecution known as the Nigerian Barge case. As Mr. Norris notes:
[T]he real man of the year on Wall Street - or at least the man whose plight is emblematic of the new Wall Street reality - will not be sharing in those bonuses. Instead, Daniel Bayly is awaiting sentencing in federal court in Houston, where he is likely to be ordered to spend a few years in prison for doing something that few on Wall Street would have seen as a crime.
Mr. Bayly, the former head of global investment banking at Merrill Lynch, was caught up in the Enron scandal. He signed off on a deal that Merrill did with Enron, in which Merrill "bought" the now-infamous Nigerian barges from Enron at the end of 1999, thereby allowing Enron to report phony profits. The government viewed the transaction as a disguised loan.
Mr. Bayly's role in all this was not a large one. His approval was needed for Merrill to go ahead, and he seems to have been principally concerned that there were safeguards to ensure Merrill would get its money back.
The amount of money involved inflated Enron's profits by only $12 million, just over 1 percent of the $893 million in profits Enron reported for the year. But it allowed the company to meet investor expectations.
The government persuaded the jury that Merrill officials understood the purpose of the transaction was to inflate Enron's profits and that the accounting was phony. Mr. Bayly's lawyers said he believed it was proper.
The result, notes Mr. Norris, is that prosecutors are now treating investment bankers as if they were bartenders:
To many on Wall Street, however, whether or not the client's accounting was proper was a question of little importance, just as a Porsche dealer has no reason to worry that he will get in trouble if a customer chooses to drive faster than the speed limit.
The risk that bankers now confront is that they will be treated the same way bartenders are in some states, where the man who sold the drunk driver his final drink can be held liable for the damages that result.
It used to be that when a company went bankrupt as a result of fraud, the only deep pocket available belonged to the auditor. The collapse of Arthur Andersen after the Enron fraud served as a warning that that pocket might not be so deep, a fact that has been reinforced by the limited insurance now available to auditors.
The current reality is that investment and commercial bankers are the new deep pockets. They used to get high fees for devising transactions whose primary purpose was to mislead investors. Now they will be sued by the Securities and Exchange Commission and by private lawyers if there is any evidence the bankers knew the company's accounting was suspicious. The Justice Department may even deem such an act to be a felony, and there is no assurance that it will not bring criminal charges against an investment bank as well as against its officials.
How does this new risk reality affect the market? Mr. Norris has a suggestion:
As the profits pour in from the rebound in investment banking fees, investors might hesitate in bidding up the industry's shares. As Mr. Bayly's conviction demonstrates, the risks of the investment banking business are much greater than they used to be.
Read the entire piece. And as you ponder the policy implications of the Justice Department's prosecution of businessmen such as Mr. Bayly over merely questionable business transactions, take note of the fact that Mr. Bayly is currently facing a prison sentence that could be longer than that of true business criminal Martin Frankel.
Following on the matters addressed in this earlier post, U.S. District Judge Vanessa Gilmore ruled on Thursday that she will instruct the jury regarding the government's failure to comply with her prior order to disclose the basis of its decision to seek the death penalty against one of the defendants in the criminal case in Houston against against the two remaining defendants accused in the deaths of 19 illegal immigrants who were being smuggled into this country in the back of a blistering hot trailer.
Houston defense attorney Craig Washington accused the government of singling out one of the defendants for the death penalty because he is black. During a prior hearing in the case, Washington presented evidence that this case was the only one in which the government had sought the death penalty out of almost 70 illegal smuggling cases. Prosecutors denied that race was a factor, pointing out that they did not seek the death penalty for the other black defendant in the case and that the basis of the government's decision to seek the death penalty is subject to executive privilege.
I have not researched either the merits of Judge Gilmore's ruling or the government's claim of executive privilege in this matter. Nevertheless, Judge Gilmore's order appears to be nothing more than a mechanism to ensure a full and fair trial of all issues in a death penalty case. Her refusal to acquiesce quietly to the Justice Department's refusal to comply with her order is refreshing. Judges in the Enron-related criminal cases -- please take note.
Before the fourth ranked Cal Bears football team complain too loudly again about being passed over by Texas for the Bowl Championship Series Rose Bowl game, they need to compare this game with this game.
Indeed, the Pac-10 Conference is fortunate that USC was left out of the BCS Championship Game last season. In my view, that's the only justification for choosing the undefeated Trojans for this season's championship game over Auburn, which is also undefeated and played a far tougher schedule than USC.
Get ready for another round of jokes on the late night talk shows as the U.S. Court of Appeals for the Ninth Circuit overturned an $88 million bankruptcy court judgment in favor of former stripper, zaftig model, reality show star and current Trimspa spokeswoman Anna Nicole Smith against the estate of her late husband, Houston oilman J. Howard Marshall, II. Here is the Ninth Circuit opinion and the Chronicle story on the case is here.
E. Pierce Marshall of Dallas, the son of J. Howard Marshall, is the main beneficiary of the late Mr. Marshall's estate. Forbes estimates E. Pierce Marshall's net worth at $1.6 billion. Most of the late Mr. Marshall's fortune was generated through his stake in privately held Koch Industries.
December 30, 2004
In a surprise move, the Russian government announced Thursday that Yuganskneftegaz ("Yugansk") -- the main oil production unit of bankrupt Russian oil giant OAO Yukos -- will not be conveyed to to Russian gas giant OAO Gazprom as widely anticipated. Rather, the Russian government announced that Yugansk will be used to create a new government-owned oil company and that a minority stake of up to 20% in that company will be offered to China's state energy company.
Here are the earlier posts on the Yukos chapter 11 case and related matters.
The new plan for Yugansk will be a major shot in the arm for China's efforts to obtain access to new fuel reserves for its burgeoning economy. China's economy has been the largest factor in the surging world oil demand of recent years, but the Russian government has heretofore always declined Chinese efforts to invest in the Russian oil and gas industry. The plan also confirm that the Russian government's campaign against Yukos will result in the re-nationalization (is that a word?) of a large part of what had been Russia's largest oil unit and one of the relatively few Russian companies that was able to attract foreign investors.
Gazprom is controlled by the Russian government but also has private shareholders. After a Houston Bankruptycy Court enjoined Gazprom and Western Banks two weeks ago from participating in the Russian government's controversial auction of Yugansk to pay for Yukos' alleged $28 billion tax debt, Gazprom appeared to have found a way around the TRO by using the Russian oil company OAO Rosneft to acquire Yugansk. Gazprom and Rosneft are in the process of merging.
In this Opinion Journal piece, Edward Jay Epstein reviews former KGB Col. Victor Cherkashin's new book, Spy Handler: Memoir of a KGB Officer (Basic Books, January 1, 2005). Although there is no assurance that the ongoing reform movement in the Central Intelligence Organization is going to remedy the longstanding problems that have evolved in that agency over the past generation, Col. Cherkashin's book makes clear that the U.S. has little to lose by seeking to correct the CIA's deficiencies. In short, the KGB played the CIA like a fiddle during the Cold War.
Mr. Cherkashin had a distinguished 40 year career in the KGB that began in 1952 under Stalin, included a hitch as deputy KGB chief at the Soviet Embassy in Washington from 1979 to 1985, and ended when the Soviet Union disintegrated in 1991. During that period, Col. Cherkashin primary mission was to organize KGB operations aimed at undermining the CIA's integrity, confidence and morale, and he was pretty darn good at his job:
Mr. Cherkashin describes in detail how he helped convert two American counterintelligence officers--one well-placed in the CIA's Soviet Russia Division, the other in the FBI--into moles. Their names are notorious now, but over the course of a decade Aldrich Ames and Robert Hanssen operated with anonymous stealth, compromising most of the CIA's and FBI's espionage efforts in the Soviet Union.
But Mr. Cherkashin does not attribute his success solely to his personal cleverness:
Mr. Cherkashin skillfully torments his former adversary, the CIA, by attributing a large part of the KGB's success to the incompetence of the CIA leadership, or its madness. He asserts, in particular, that the CIA had been "all but paralyzed" by the "paranoia" of James Jesus Angleton, the CIA's longtime counterintelligence chief, who suspected that the KGB had planted a mole in the CIA's Soviet Russia division.
Mr. Cherkashin is right that Mr. Angleton's concern retarded, if not "paralyzed," CIA operations in Russia. After all, if the CIA was indeed vulnerable to KGB penetration, as Mr. Angleton believed, it had to assume that its agents in Russia would be compromised and used for disinformation. This suspicion would recommend a certain caution or tentativeness, to say the least. Mr. Cherkashin's taunt about Mr. Angleton's "paranoia" echoed what was said by Mr. Angleton's critics in the CIA, who resented his influence, believing that polygraph tests and other security measures immunized the CIA against such long-term penetration.
But of course Mr. Angleton was right, too. On Feb. 21, 1994, Mr. Ames, the CIA officer who had served in the Soviet Russia division, was arrested by the FBI. He confessed that he had been a KGB mole for almost a decade and had provided the KGB with secrets that compromised more than 100 CIA operations in Russia. Mr. Hanssen was caught seven years later.
Since Mr. Cherkashin had managed the recruitment of Mr. Ames and helped with that of Mr. Hanssen, his accusation that Mr. Angleton was paranoid for suspecting the possibility of a mole has the exquisite irony of a stalker following his victim in order to tell him that he is not being followed. Mr. Cherkashin adds a further twist by suggesting that Mr. Angleton's "paranoia" made it easier for the KGB to recruit demoralized CIA officers as moles. According to this tortured logic, if the CIA -- and its counterintelligence staff -- had acted more ostrich-like, by denying the existence of moles in its ranks, the KGB would never have found Aldrich Ames or penetrated the agency in other ways.
The University of Texas announced Wednesday that the UT System Board of Regents has approved a deal in which UT football coach Mack Brown's current contract -- which pays him $2.017 million annually -- will be replaced with the 10-year deal that will pay him $2.159 million in 2005 and $100,000 more than that amount each year through the 10 year term of the contract.
The new contract is the fourth most lucrative one for a college football coach. Only Bob Stoops at Oklahoma ($2.3 million), the departing Nick Saban at LSU ($2.3 million) and Tommy Tuberville at Auburn ($2.28 million) make more than Brown. Due to one-time $1.6 million bonus he received on his 53rd birthday this past August, Brown was the highest paid college coach in 2004 with earnings $3.6 million.
Geez, just think what Brown could make at UT if he could ever manage to beat Oklahoma -- to whom his teams have lost five straight times -- or win a conference championship, something that none of his teams has ever accomplished during Brown's 17 years of being a head coach on the major college level. Not to have won a conference championship at a school with the resources and talent of Texas is a major blemish on Brown's resume.
Moreover, Brown's Texas teams have had a history of playing poorly in big games. They have lost five consecutive losses to Oklahoma and Brown is clearly overmatched by his nemesis, OU Coach Stoops. Brown's Texas teams have lost both Big 12 championship games in which they have played, including the galling upset by Colorado in 2001 that prevented that Texas team from getting a BCS bowl berth.
The bowl record of Brown's Texas teams (3-3) is similarly tarnished. Last year's 28-20 loss to Washington State in the Holiday Bowl was particularly awful, as Texas made WSU's zone blitzs appear to be a new invention in football.
So, one certainly has to admire UT for keeping up with the compensation levels of the elite group of teams in college football, which is where UT aspires to be. However, a valid question remains as to whether Mack Brown deserves it.
In more troubling news for UT, assistant coach Dick Tomey, who is largely responsible for the development of the UT defense this season into an elite unit, will be departing the UT staff next season to take the head coaching job at San Jose State. Perhaps even more troubling from an emotional standpoint, Tomey is attempting to persuade UT graduate assistant coach and former QB great Major Applewhite to join him as an assistant on his San Jose staff.
Houston-based Continental Airlines announced Wednesday that it will order Boeing Co.'s new high-efficiency 7E7 aircraft and accelerate the delivery of other Boeing aircraft that it previously ordered. Continental's 7E7 aircraft order is the first by a U.S. airline and is a shot in the arm for Boeing's marketing of the new aircraft.
Continental is buying 10 7E7s from Boeing with the first of the planes scheduled for delivery in 2009. The list purchase price on the aircraft is approximately $1.3 billion, although Continental will probably pay less than list.
The 7E7 deal illustrates that airlines are banking on reducing operating costs in an attempt to gain an advantage in the brutally competitive airline industry. The 7E7 is made of carbon-fiber composite materials instead of metals such as aluminum that are used on other aircraft, so Boeing is promoting the aircraft as being at least 20% cheaper to operate than older aircraft. Moreover, Boeing believes that the aircraft will be cheaper to manufacture.
Continental will use the 7E7s on international flights, and the purchase is part of a deal between Continental and Boeing under which Continental is attempting to increase the efficiency of its international flights, which are already more profitable than its domestic flights. Continental also will take delivery in 2006 of six Boeing 737-800 aircraft that were previously scheduled for delivery in 2008, and it will lease eight Boeing 757-300 aircraft next year. Continental will use those 737s and 757s on its domestic routes and deploy its 757s and 767s on its international routes.
December 29, 2004
I have added a hyperlink on the right side of the blog for Amazon's Red Cross Tsunami Relief Donation page.
The power of the Internet allows us to make a donation quickly and easily to help subsidize relief efforts for this disaster. If you are financially able to do so, please take advantage of this wonderful resource. As of this post, the Amazon page has generated $1.9 million in donations for the relief effort.
If you prefer to make your donation through another organization, The Command Post has provided this extensive listing of hyperlinks to various relief organizations.
OAO Yukos, the Russian oil company wallowing in a chapter 11 case in Houston, had its credit-rating slashed to default status yesterday after it failed to make the interest payments on a $1 billion loan from a syndicate of western banks and a $1.6 billion loan to Menatep, which is also its largest shareholder. Security for the loans was Yukos' interest in Yuganskneftegaz ("Yugansk"), the oil unit that the Russian government auctioned off earlier this month to defray Yukos' alleged $27 billion in overdue taxes. Here are the earlier posts on the Yukos chapter 11 case.
Meanwhile, in Houston, Deutsche Bank filed a motion to dismiss the Yukos chapter 11 case with the Houston Bankruptcy Court on Tuesday. Duetsche Bank was was one of a group of Western banks that had committed to finance OAO Gazprom's acquisition of Yugansk at the Russian government's auction before the Houston Bankrutpcy Court's temporary restraining order enjoined the bank and other Western financial institutions from participating in the auction.
In its motion, Deutsche Bank asserted that Yukos had tried to "artificially manufacture" a presence in the U.S. in order to seek bankruptcy protection. In obtaining the TRO earlier this month, Yukos had preliminarily persuaded the Bankruptcy Court that it had jurisdiction over Yukos based on, among other things, the fact that it had stablished a bank account in Houston, that its chief financial officer had recently moved to Houston and was working there, and that approximately 15% of Yukos is owned by investors from the United States.
Oregon State's football team handed Notre Dame its seventh straight bowl loss last night in the Insight.com Bowl in Phoenix. However, for my money, the real story from that game is Oregon State's kicker, a 19 year old freshman named Alexis Serna, who walked on the Oregon State football team before this season without a scholarship.
Four months ago, after having attended just a few classes at Oregon State, Mr. Serna was the goat of college football after blowing three extra points in a one-point loss to then number one ranked LSU. As SI.com columnist John Walters writes in this wonderful article on Mr. Serna:
So imagine waking up as Alexis Serna in Corvallis, Ore., on the morning of Sept. 5. You don't have a scholarship. You've only dressed for one game in your college career and the entire country -- yourself included -- is blaming you for Oregon State's loss the night before. And someone at ESPN refers to any missed PAT as "pulling an Alexis Serna." You are 19 years old.
Remarkably, Mr. Serna overcame the humiliation of his first college football game to nail 40 of his next 41 kicks -- including 16 of 17 field goal attempts -- to make the second team All Pac-10 team. Late last month, Mr. Serna's coach rewarded him by giving him an athletic scholarship. From my vantage point, Mr. Serna ought to be awarded Sportsman of the Year.
2004 Nobel Prize in Economics recipient Edward C. Prescott wrote this earlier Wall Street Journal ($) piece advocating a restructuring of the current Social Security system to one based on mandatory individual retirement accounts.
In this op-ed from today's WSJ, Professor Prescott again makes the case for converting Social Security to a system based on mandatory savings accounts, and makes his case with powerful reasoning based on simple common sense:
Social Security was developed at a time when the number of workers paying into the system greatly outnumbered those who were receiving funds, and thus the promise made by government was easily kept. But times change while policies atrophy, and Social Security has evolved into a system that places an increasingly onerous burden on the young; the ratio of workers to elderly has shifted from 41-to-1 in the 1930s, to 3-to-1 today.
Professor Prescott points out that it is rational for young workers to protest having to pay a disproportionate amount to subsidize such a system by working less to support such a system. Thus, he argues, let's change the system to address such rational behavior:
Would such changes in tax rates and changes in government promises affect labor supply? Theory says "yes," the statistical evidence agrees, and common sense concurs. These young workers are rational. They make labor/leisure choices on the margin, and these marginal choices add up.
So what to do? How to move from a pay-as-you-go welfare system to a self-funding retirement system that benefits from individual maximizing incentives? Again, the answer begins with the insight that labor supply is responsive to tax rates. We simply cannot keep cranking up Social Security taxes with impunity. What we need to do is turn the present tax-and-transfer system into a bona fide individual retirement system that is in line with individual incentives.
In short, the answer is to establish a system of mandatory investment accounts for retirement. Why mandatory accounts? Because without mandatory savings accounts we will not solve the time inconsistency problem of people under-saving and becoming a welfare burden.
And Professor Prescott observes that private retirement investment accounts must be made mandatory precisely because people are rational with their money:
The reason we need to have mandatory retirement accounts is not because people are irrational, but precisely because they are perfectly rational -- they know exactly what they are doing. If, for example, somebody knows that they will be cared for in old age -- even if they don't save a nickel -- then what is their incentive to save that nickel? Wouldn't it be rational to spend that nickel instead?
So, indeed, people are acting rationally when they choose not to save. We have rational people making choices based on the rules. The trick is to get the rules right. A mandatory retirement system, properly designed, would establish effective rules.
And then with the wisdom that generated a Nobel Prize, Professor Prescott bores in on the main problem confronting Social Security reform and advises on how to overcome it:
No sooner did talk get serious about fixing Social Security in recent weeks than the political boo-birds went to work scaring people away from new ideas. It's rare to open a newspaper editorial page these days and not find some Cassandra screeching about evil policy-makers and cranky politicians who are trying to destroy Social Security. Why a politician from any party would want to intentionally destroy a retirement program meant to benefit the elderly is beyond me. Such political claptrap makes me glad I'm an economist. Granted, politics is a game with its own rules and incentives, and people will rationally play by those rules for political gain, but such political role-playing certainly complicates matters, at best, and makes for bad policy, at worst.
Maybe one way to help avoid ad hominem attacks and political labeling would be to recast the Social Security question from one of reform to one of reconstruction. Let's stop talking about reforming Social Security -- let's rebuild it. In other words, if we could wipe the slate clean, what kind of government retirement program would we build from scratch today? It's one thing to snipe at new proposals, but it takes a plan to beat a plan, and I'm willing to bet that the best minds of both political parties, given such a charge, would not come up with a government retirement program as it currently exists.
Read the entire piece. Ed Prescott is a true clear thinker.
Originally established to invest in and restructure Continental Airlines to avoid a third bankruptcy case for the airline, TGP has raised over $15 billion, with which it has bought control of companies ranging from Continental to the clothing retailer J. Crew to the Enron's Northwest pipeline subsidiary, Portland General Electric. TGP is now one of the busiest and most-successful private-equity boutiques, controlling companies with combined annual revenue of more than $40 billion. Before fees, TGP's return to investors have averaged 55% annually.
Interestingly, TGP's success is directly tied to its policy of never hesitating to take on troubled companies that its competitors avoid. Moreover, despite its strong reputation and track record, TGP prefers to play behind-the-scenes -- it is so invisible that it does not even have a Web site.
"The market often thinks we are crazy when we invest," Mr. Coulter told the WSJ. "We have, however, made a decent living proving the market can be wrong."
Although I have followed basketball most of my life, I find it difficult to generate any enthusiasm for the Houston Rockets.
It has not always been that way. I moved to Houston in 1972 at about the same time as the Rockets franchise moved to Houston from San Diego, so I have always felt a connection to the club. As noted in this earlier post, my late father and I used to attend Rockets games regularly, even back before the Rockets had their own arena. Until 1975, the Rockets played mostly at Hofheinz Pavilion on the University of Houston campus.
Then, in 1994-5, the magnificent Hakeem Olajuwon led the Rockets to two straight NBA titles, the second of which was achieved with the help of local legend Clyde Drexler, who originally burst on the scene with Olajuwon on the University of Houston's memorable Phi Slama Jama teams from 1982-84. With the demise of the Oilers before their exodus to Nashville, and before the Biggio-Bagwell era of the Stros led to multiple MLB playoff appearances, the Rockets were the toast of the town for most of the 1990's.
However, despite the two NBA titles, Rockets' management has always had a curious tendency to make poor personnel decisions. For example, after it was clear that Olajuwon would be a far better player than former number one draft pick, Ralph Sampson, the Rockets delayed trading Sampson until his value had eroded to the point that they could only get Sleepy Floyd and the eminently forgettable Joe Barry Carroll in return.
Even more galling is the fact that Rockets management overlooked talented local players such as Ricky Pierce (Rice), Bo Outlaw (UH), Rashard Lewis (Alief Elsik HS), and Damon Jones (UH), the last three of whom could be playing significant roles on the current Rockets club.
To make matters worse, the Rockets management decisions over the past several years have gone from dubious to just plain horrible. First, they used a second overall pick in the NBA draft on Steve Francis -- a good player who has limitations that will keep him from ever achieving elite stature in the NBA -- who they proceeded to trade over this past offseason to Orlando as a part of the deal for the overrated Tracy McGrady.
Rockets management used another number one draft choice on power forward Eddie Griffin, who was more interesting in the daily police report than the sports section during his short stay with the club. Finally, Rockets management either gave or acquired expensive long term contracts on such mediocre role players as Matt Maloney, Moochie Norris, Brent Price, Maurice Taylor, Kelvin Cato, Juwan Howard -- the list of bad personnel moves just goes on and on.
Comparing the public's waning interest in the Rockets to the popularity of the Texans, one Houston businessman put it to me in this way: "How would you like to be trying to sell luxury suites to the Toyota Center?." Had Rockets management not at least had the common sense to draft and sign Yao Ming, things might be utterly hopeless at this point.
So, it is against this backdrop that Peter Vecsey, the longtime NBA columnist based in New York, absolutely lays the wood to Rockets management over the team's latest move:
[I]t's beyond comprehension what [Rockets General Manager Carroll] Dawson and [Rockets coach] Jeff Van Gundy are thinking.
Acquiring [New Orleans Hornets guard David] Wesley, 34, isn't as irrelevant as the Mavericks swapping Dan Dickau (again, at least the Hornets got potential) for dead end Darrell Armstrong, but it's not much better. . . Wesley will take shots away from Tracy McGrady and Yao Ming, and maybe even Hakeem.
. . . Wesley doesn't loosely qualify as a pure point guard. Wherever he's roamed he's been a shoot-first, pass-as-a-last-resort type guard. Meanwhile, Jackson's a deadlier shooter. Moreover, Wesley doesn't give it up. I'll say! He wouldn't even make a pass at Kobe's wife.
If Wesley's arrival in Van Gundy's starting backcourt isn't opaque enough, this is the worst he's played since the bad old days in New Jersey and Boston, his first two pro seasons.
And Vecsey goes on to point out that the Wesley deal isn't the only bad one the Rockets have made lately:
Not to say Wesley, even in his current state of disrepute, isn't an improvement on what the Rockets have on playmaking patrol. On second thought, I will say it; at best, he's a Bob Sura clone and substantially superior to Charlie Ward, whose game is so shabby four houses of worship refused him sanctuary.
These are the two pointless guards management chose to sign last summer as free agents to "complement" Tyronn Lue, exchanged last week for Jon Barry, whose poisonous attitude and bad mouthing of coaches when not playing has led to his last three change of addresses.
Obviously, Van Gundy had some say regarding the recruitment of his perennial pet mistake. Ward got $1.7M and $1.8M guaranteed with a $2.04M team option. Why wait, Jeff? Pick it up right now. Nobody else was offering more than a 10-day contract. But Carroll, who helped Rudy Tomjanovich assemble Houston's two title teams ('94-'95), has the (last) sway.
Carroll has been groping since, overpaying ineligible receivers as if he were bidding against Warriors whiz Chris Mullin. Maurice Taylor, Shandon Anderson, Howard Eisley, Matt Maloney (on the Rockets' cap this season, his last, at last, for $3.237,250), Brent Price and Moochie Norris were all rewarded with senseless long-term contracts.
Sura was the latest to strike it rich without earning it, unless you deem last season's stats (7.5 points, 2.9 assists, 1.3 turnovers and 41 percent from the field) for the hopeless Hawks noteworthy. Thanks to the Rockets' tainted top talent scout, owner Les Alexander owes the 10-year rent-a-wreck $3.2M/$3.5M/$3.8M this year and the next two . . .
Thanks to Carroll (Van Gundy, too), the Rockets are being forced to restock, if not rethink. That might be asking too much.
So, Rockets owner Les Alexander is in a tough spot. Both of Houston's other major professional teams and their owners are far more popular among Houstonians than the Rockets and Alexander. While the Texans and Stros play in front of record crowds, the Rockets are regularly having trouble drawing 10,000 people to their games. Although I am a regular target of the Rockets' season ticket sales staff, I haven't attended a game in years and have little interest in doing so. Moreover, given the Rockets management's dubious track record in player evaluation, it's hard to be optimistic about the club's prospects. Yao and McGrady are the only players on the Rockets team around whom a playoff caliber club could be built.
Nearly a decade has passed since the Rockets' glory years. The club has declined dramatically since then, and the decline has accelerated over the past several years. Absent considerable improvement in the club's player evaluation process, my sense is that the Rockets will become even more of an afterthought on the Houston scene than they have already become.
December 28, 2004
Bernie Dow was well-known in Houston for many years as one of the leaders of the real estate bar. In addition to being a first rate legal talent, Bernie was a gracious and courteous man who was a joy to be around regardless of whether he was on your side of the deal or not.
Funeral services will be held today at Congregation Beth Yeshurun, 4525 Beechnut, in Houston at 2:00 pm.
Reverend Hinson was a magnificent public speaker and a major spiritual presence in downtown Houston from 1983 through 2001. He will be sorely missed. Funeral services will be at 2 p.m. today at Huntsville's First United Methodist Church. Memorial services in Houston will be at 1 p.m. Saturday at First United Methodist Church downtown, 1320 Main, and 4 p.m. Sunday at the Westchase campus.
When my Republican friends ask me why I am not a Republican (I am assiduously independent politically), I pass along to them articles such as this.
Houston's light rail boondoggle has been the subject of several previous posts here. Given that misery loves company, this Washington Post article provides Houstonians with some comfort that Las Vegas may have managed to generate an even bigger rail boondoggle than Houston's:
When it debuted in mid-July, this city's sleek $650 million monorail was supposed to be the envy of the nation, a high-tech public transit system paid for without taxpayer money that would be so popular it could even turn a profit.
But during a busy convention season, bits and pieces of the trains started falling off, potentially endangering anything below, and the system was shut down indefinitely for major repairs. By Thanksgiving, newspaper cartoonists and tourists alike were dubbing it "monofail" and deriding the futuristic cars sitting idle on the costly tracks.
After being closed for 3 1/2 months, at a cost of more than $9 million in fare revenue, the system reopened over Christmas weekend, just in time for Las Vegas's busiest tourist week of the year. It was a Christmas gift from Clark County officials to monorail operators who hope to erase the memory of one of the city's most humiliating and expensive debacles.
However, the Las Vegas monorail has an interesting characteristic that is not shared by most rail systems -- it was not built with government funds and is not designed for commuters:
Unlike any of the nation's other transit systems, the Las Vegas Monorail is not designed to aid local commuters or even to alleviate roadway congestion. The traffic reduced by this train is in the casino corridor, making visitors its chief beneficiary.
The Las Vegas Monorail deal is unique . . . Transit Systems Management is a private entity that reports to the Las Vegas Monorail LLC, a board appointed by the governor. . . it is largely a privately operated venture funded by construction bonds sold to investors using the state's bond rating but with debt insurance so Nevada taxpayers are not liable in a default.
Nevertheless, the ubiquitous governmental subsidy of the system appears to be on the horizon:
[F]ederal and county funds will be used for future legs of the monorail -- including a $450 million, 2.9-mile stretch to the downtown casino center northeast of the Strip, planned to open in 2008 but now pushed back by the closure. The monorail also is slated to be extended to McCarran International Airport to the south by 2012, using taxpayer money.
Thus, as with publicly-financed stadiums, the scam of these publicly-financed rail systems lives on because the benefits of light rail are highly concentrated in a few interest groups such as elected officials, environmental groups, labor organizations, engineering and architectural firms, developers and regional businesses. On the other hand, the costs of such systems are widely dispersed among the general population. Consequently, the many who stand to lose will lose only a little while the few who stand to gain will gain a lot.
This is why a politically savvy minority can con a large group of taxpayers facing relatively small costs into voting for an uneconomic rail system based on perceived benefits such as helping the poor, reducing congestion and pollution, and fostering development. Even though these benefits are exaggerated, it is usually not worth the relatively small cost per taxpayer for most taxpayers to spend any substantial amount of time lobbying against the cost-ineffectiveness of the rail system. With political leadership usually more interested in reading tea leaves than balance sheets and pro forma operating statements, these uneconomic rail systems just continue to perpetuate like a bad virus.
Of course, if other public projects are proposed where the overall costs outweigh benefits, then the small cost to the taxpayer per project could add up to quite a hefty boondoggler?s bill after awhile. Las Vegans should think about that as they consider publicly financing both the extensions of the monorail and a stadium to attract a Major League Baseball team.
The airline industry in the United States is beset with an oversupply of airlines, a number of which have been wallowing in chapter 11 while unsecured creditors try to come to terms with the fact that their claims will never be paid. Here are prior posts from over the past year that examine the battered condition of the U.S. airline industry.
But US Airways Group Inc. may have done the rest of the American airline industry a favor -- its management and employees outraged thousands of its customers by providing inadequate staffing, canceling flights and losing large amounts of luggage over the hectic holiday weekend.
US Airways pulled this stunt while operating in a chapter 22 bankruptcy case that it filed earlier this year after emerging from its prior chapter 11 case less than two years ago. While a big winter storm in the Midwest and Northeast complicated travel, US Airways' incredibly poor performance alienated thousands of customers, many of whom will never even consider a US Airways flight again. Already faced with crucial financial deadlines in its bankruptcy case for reducing labor costs and persuading various lenders to provide additional forbearance, US Airways' weekend performance should be the straw that breaks the camel's back and pushes the company into a liquidation.
For its part, US Airways blamed more than 450 canceled weekend flights and thousands of pieces of stranded luggage on the winter storm and higher-than-usual numbers of sick calls during the crucial travel period. Over the weekend, US Airways' flight-attendant sick calls ran around 300 a day instead of the usual 100 and that staff shortages were common among ramp workers at its big Philadelphia hub. As a result, unclaimed baggage continued to sit at Philadelphia International Airport and Washington's Reagan National Airport, although the carrier had fewer than 1,000 pieces of luggage left to deliver on Monday, down from a peak of 10,000 lost bags over the weekend. The federal Transportation Department has already commenced an investigation into whether the staff shortages were a deliberate attempt by employee groups to undermine US Airways' operations over the holiday weekend.
Is there any compelling reason for US Airways to continue operating?
December 27, 2004
OAO Rosneft, the Russian government-controlled oil company that has bought OAO Yukos' Yuganskneftegaz ("Yugansk") huge oil unit, has been put on credit watch by Standard & Poor's Ratings Services in a quintessentially Western financial assessment of the riskiness of the deal.
S&P observed that were "major uncertainties regarding the financing of the acquisition and the tax and litigation risks." S&P also continued its credit watch on OAO Gazprom, the Russian government-controlled natural gas company that is scheduled to merge with Rosneft by the end of January.
Gazprom and Rosneft are coordinating the acquisition in defiance of a Bankruptcy Court's temporary restraining order in Yuko's pending chapter 11 case in Houston that enjoined firms from participating in the Russian government's auction of Yugansk to pay for alleged Yukos' tax debts. Yukos' attorneys announced in open court last week that Yukos intends to sue whoever was involved in the acquisition of the Yugansk unit. Here are earlier posts on the Yukos case and the Russian government's auction.
Inasmuch as the deadline for Rosneft's purchase of Yugansk is January 2, the S&P cautionary assessment reflects the marketplace's skepticism that Rosneft will be able to raise the billions in financing necessary to close the deal that quickly.
As a part of a management shakeup, Fannie Mae decided late last week to fire KPMG LLP as its outside auditor after 35 years of service because its financial statements from 2001 through mid-2004 can "no longer should be relied upon."
Oh well, announcements of accounting scandals are no longer any big deal in this post-Enron era where auditors are viewed by many as business cops that go on the take to cover up financial improprieties when they get too cozy with a client's management.
However, what is not as widely reported is that Fannie Mae's decision to dismiss KPMG is providing a glimpse of the big accounting firms' increasingly precarious state of affairs. Indeed, with the firing of KPMG, it is not at all clear which big accounting firm is in a position to take on Fannie Mae as a client.
For all practical purposes, of the Big Four accounting firms -- KPMG, Deloitte Touche Tohmatsu, Ernst & Young LLP and PricewaterhouseCoopers -- Fannie Mae is left with essentially two choices: Deloitte & Touche LLP and PricewaterhouseCoopers.
Ernst & Young likely will not be the choice because it has already been advising Fannie's audit committee and management in responding to various ongoing government probes. Similarly, Deloitte will not be the choice because it has been advising Fannie Mae's chief regulator, the Office of Federal Housing Enterprise Oversight's ("Ofheo") examination of Fannie's accounting practices.
Normally, PricewaterhouseCoopers might be the choice because it does not currently provide any services to Fannie Mae. However, PricewaterhouseCoopers is the auditor for Freddie Mac, for whom it identified numerous accounting violations after replacing the criminalized Arthur Andersen LLP in 2002. Fannie Mae regulator Ofheo might not approve of both major mortgage corporations using PricewaterhouseCoopers as their outside auditor.
Consequently, the Fannie Mae situation highlights one of the largely ignored consequences of the federal government's dubious decision to prosecute Andersen out of business over its role in the Enron accounting scandal: There are simply not enough big accounting firms left to provide audit services for the big companies that need them. Complicating matters even further is that each of the Big Four are literally under siege from civil lawsuits seeking large damage awards that could cripple any or all of them.
So, we already know that the government's regulation of Andersen through criminalization of their audit services cost the marketplace thousands of jobs and one of the relatively few accounting firms that could provide the specialized services that big companies need. Now, we are coming to understand that this dubious governmental policy of criminalizing auditors may result in big companies not being able to to find auditors capable of providing adequate audit services at all.
Remember that the next time that you read a Justice Department press release touting its "success" in its prosecution of Andersen in connection with the Enron scandal.
On Dec. 31, Larry Kellner -- Houston-based Continental Airlines' president and chief operating officer -- will take over as chief executive of Continental, replacing 63-year-old CEO Gordon Bethune, the former mechanic who pulled Continental from the brink of what would have been its third bankruptcy a decade ago.
This Wall Street Journal ($) article profiles Mr. Kellner and Continental, which is the nation's fifth-largest airline with revenues of $8.87 billion over the past year. It is a good introduction to the new CEO of one of Houston's largest employers. Check it out.
December 26, 2004
The Texans defense laid the wood to Jags' QB Byron Leftwich in holding the Jags' offense to 126 total yards and the Texans' much maligned offensive line sprung RB Dominick Davis for 150 yards rushing and a TD as the Texans humbled the Jags in chilly Jacksonville, 21-0. The shutout was the first in Texans' franchise history.
The Texans defense gave Leftwich a concussion early in this one, and the Jags QB could never get untracked as the Texans forced three turnovers and held the Jags to 54 yards passing. Meanwhile, the Texans offense generated 333 total yards behind another average but adequate performance by QB David Carr (14-20, 122 yds., 1 TD, 2 INT). Actually, Carr's line would look better except that one of his interceptions came on a great play by Jags DB Dewayne Washington. Washington made a spectacular one-handed interception on a Carr pass that Andre Johnson probably would have taken to the house for his second TD catch of the game but for Washington's incredible play. About the only phase of the Texans' performance that was subpar on this day was the punt return team, which had one adventure after another while trying to cope with the absence of injured regular returner J.J. Moses.
The 7-8 Texans, who are clearly on a roll, could end the season with a .500 record with a win over the Browns at Reliant Stadium next Sunday. That would be quite an accomplishment for this third year franchise.
Oh, how the might have fallen. In an excrutiatingly boring game between two teams with inept offenses, Cowboys QB Vinnie Testaverde somehow three a 39 yard TD pass to someone named Patrick Crayton with 30 seconds to go to pull out the win before a feisty crowd at Texas Stadium. The 6-9 Cowboys close this disastrous season next week at the Meadowlands against the Giants, and then the off-season process of revamping the Cowboys offense begins. It will not be an easy task.
December 24, 2004
Surgeons who play video games three hours a week have 37 percent fewer errors and accomplish tasks 27 percent faster, . . [based on] observation on results of tests using the video game Super Monkey Ball.
Link hat tip to Tyler Cowen, who hilariously suggests that maybe the surgeons and the patients could play each other?
Following on this earlier post on the dilemma posed by the obsolescent Astrodome, this Richard Connelly Houston Press article does a good job of reviewing the Astrodome hotel project and the other options that are being considered.
Given the constraints posed by regular events at Reliant Stadium and the use of Reliant Park by the Houston Livestock Show and Rodeo and other conventions, retrofitting the Dome into a commercial development is not feasible. The Dome is an important part of Houston's history, but its time is passed and the nostalgia is the only productive aspect of it that remains. It's time to recognize that the only viable option is to demolish the Dome and use the valuable land for better and more productive purposes at Reliant Park.
Update: Charles Kuffner has an interesting thought on the Dome dilemma.
Russian gas giant OAO Gazprom confirmed yesterday what everyone in the international oil and gas business suspected -- that it will control Yuganskneftegaz ("Yugansk"), which was formerly the main oil-production unit of OAO Yukos. Here are the earlier posts about the Yukos chapter 11 case in Houston and the Russian government's auction of Yugansk.
Gazprom's control of the Yugansk unit -- which generated 60% of Yukos' oil and gas production -- is a key development in the Russian government's plan to transform Gazprom into a major international oil and gas company on the level of Exxon Mobil Corporation and other majors.
When the Russian government announced the auction of Yugansk earlier this fall in order to fund payment of a portion of Yukos' alleged $28 billion tax debt, Gazprom -- which is 60% owned by the Russian government -- was generally considered to be the odd's on favorite to be the winning bidder at the auction. However, Gazprom's financing for its bid through Western financial institutions was undermined last Thursday by the entry of a TRO in Yukos' surprise chapter 11 case in Houston. That TRO enjoined Western financial institutions from participating in financing an acquisition of Yugansk.
Nevertheless, Russian officials scurried around last Friday and Saturday to arrange alternative financing, and Baikal Finance Group -- a new special purpose entity controlled by Russian individuals with close ties to Gazprom -- submitted the winning bid at the auction. On this past Tuesday, Russian oil company OAO Rosneft -- a Russian government-controlled company that Gazprom is acquiring in a previously announced merger -- announced that it had purchased Baikal Finance. That announcement confirmed Gazprom's effective control of the Yugansk unit.
By controlling the Yugansk unit, Gazprom adds a prodigious oil production unit to its already formidable gas production unit. Already the world's largest producer of gas, Gazprom will now become one of the world's biggest oil and gas companies with combined reserves that are about six times more than Exxon Mobil's. Russia is second in world oil production after Saudi Arabia.
Nevertheless, the Kremlin's heavy-handed handling of Yukos and its valuable Yugansk unit may have far reaching implications for Russian business interests in the international business community. The Russian government's willingness to elevate its control of Russian oil and gas interests over the promotion of Western business interests is a serious deterrent to future Western investment in Russian companies. Yukos is now the poster boy of that policy -- once a darling of Western investors, the Russian government's actions have now rendered Yukos essentially worthless. It's hard for the Moscow Chamber of Commerce to put a happy spin on that story in attempting to attract Western capital.
Moreover, Gazprom faces huge obstacles in maintaining a presence as a major oil and gas company. Although it is currently pumping huge quantities of natural gas, replacing that gas is not easy. Inasmuch as most of Gazprom's reserves are in remote regions that require technological expertise that Gazprom does not currently possess, Gazprom will face increasing production costs as it attempts to maintain or increase its production levels. During the first half of this year, Gazprom's net income fell 13% to $3 billion even though its revenue rose 12% to $15.7 billion. By way of comparison, Exxon Mobil earned $11 billion in the same period on revenue of $138 billion. Consequently, if oil and gas prices dip, Gazprom's profit margins could be squeezed even further.
Meanwhile, Houston-based ConocoPhillips announced an agreement yesterday with Gazprom to study at development of the potentially lucrative Shtokman gas field in the Barents Sea. The study will evaluate the feasibility of producting and transporting liquefied natural gas from the field to the United States and European markets.
Discovered in 1988, The Shtokman field is estimated to contain more than 100 trillion cubic feet of gas. Inasmuch as it is located approximately 350 miles off the northwest coast of Russia in the South Barents Sea Basin in water depths of 1,000 feet, the Shtokman field will require at least three or four phases for full field development.
Earlier this year, ConocoPhillips became a large equity investor in Lukoil -- another Russian oil major -- and became a 30 percent partner in another exploration joint venture with Lukoil. ConocoPhillips announced earlier this week that it is increasing its equity stake in Lukoil to 10% by the end of the year.
December 23, 2004
The Chicago Cubs Baseball Club has always been considered somewhat of a lovable laughingstock around Chicago. Consequently, although the club's swoon in this past baseball season's National League Wild Card playoff race did not sit particularly well with Cubs fans, it was at least expected.
But according to this scathing Jay Mariotti Chicago Sun-Times article, the legendary incompetence of Cubs management may have risen to heretofore unforseen levels. Consider this snippet:
We understand the Cubs have a feeble, hapless Charlie Brown existence. We know they're battling farm animals, perpetual paranoia and turtleneck-choked fans. But if they're also so internally incompetent that they employ an unlicensed head trainer, who was ratted out by the assistant trainer just months after they fired the previous head trainer, then riddle me this, Ronnie Woo-Woo:
How are they supposed to win a World Series in our lifetime? When management is appointing alleged quacks to heal injuries on a team that lost Mark Prior, Kerry Wood and too many other players to the most mysterious disabled list I've seen in sports -- remember the sneeze that toppled Sammy Sosa? -- isn't it time to dismiss the cause as hopeless and move on to junk bonds as a hobby?
Sister Helen Prejean is a member of the Sisters of St. Joseph of Medaille in Louisiana. She is America's leading abolitionist with regard to the death penalty and the author of Dead Man Walking, which was made into one of the best movies about the death penalty.
In the most recent issue of the New York Review of Books, this article is adapted from Sister Prejean's new book, The Death of Innocents: An Eyewitness Account of Wrongful Executions that Random House is releasing next month. Sister Prejean sharply criticizes then-Governor George Bush's denials of clemency to a large number of Texas death row defendants in Texas, noting that he distanced "himself from his legal and moral responsibility for executions." The entire article is compelling reading, as the following excerpt reflects:
George W. Bush during his six years as governor of Texas presided over 152 executions, more than any other governor in the recent history of the United States. Bush has said: "I take every death penalty case seriously and review each case carefully.... Each case is major because each case is life or death." In his autobiography, A Charge to Keep (1999), he wrote, "For every death penalty case, [legal counsel] brief[s] me thoroughly, reviews the arguments made by the prosecution and the defense, raises any doubts or problems or questions." Bush called this a "fail-safe" method for ensuring "due process" and certainty of guilt.
He might have succeeded in bequeathing to history this image of himself as a scrupulously fair-minded governor if the journalist Alan Berlow had not used the Public Information Act to gain access to fifty-seven confidential death penalty memos that Bush's legal counsel, Alberto R. Gonzales, whom President Bush has recently nominated to be attorney general of the United States, presented to him, usually on the very day of execution. The reports Gonzales presented could not be more cursory. Take, for example, the case of Terry Washington, a mentally retarded man of thirty-three with the communication skills of a seven-year-old. Washington's plea for clemency came before Governor Bush on the morning of May 6, 1997. After a thirty-minute briefing by Gonzales, Bush checked "Deny" ? just as he had denied twenty-nine other pleas for clemency in his first twenty-eight months as governor.
But Washington's plea for clemency raised substantial issues, which called for thoughtful, fair-minded consideration, not the least of which was the fact that Washington's mental handicap had never been presented to the jury that condemned him to death. Gonzales's legal summary, however, omitted any mention of Washington's mental limitations as well as the fact that his trial lawyer had failed to enlist the help of a mental health expert to testify on his client's behalf. When Washington's postconviction lawyers took on his defense, they researched deeply into his childhood and came up with horrifying evidence of abuse. Terry Washington, along with his ten siblings, had been beaten regularly with whips, water hoses, extension cords, wire hangers, and fan belts. This was mitigation of the strongest kind, but Washington's jury never heard it. Nor is there any evidence that Gonzales told Bush about it.
The article concludes with the following observation:
As governor, Bush certainly did not stand apart in his routine refusal to deny clemency to death row petitioners, but what does set him apart is the sheer number of executions over which he has presided. Callous indifference to human suffering may also set Bush apart. He may be the only government official to mock a condemned person's plea for mercy, then lie about it afterward, claiming humane feelings he never felt. On the contrary, it seems that Bush is comfortable with using violent solutions to solve troublesome social and political realities.
On the anniversary of the first kidney transplant in Boston 50 years ago, Eric Berger of the Chronicle does a fine job in this article of reviewing the accomplishments of Houston's Texas Medical Center doctors in contributing to the advancement of transplant procedures. Inasmuch as the Chronicle does not maintain online links to many of its articles for very long, check it out soon.
Following on this earlier post regarding Houston-based restaurant company Landry's search for acquisition targets, the Chronicle reports that the company's target is probably a Las Vegas casino and not the Stros.
Landry 's is a national restaurant company that owns and operates 300 restaurants, including Joe's Crab Shack, Rainforest Cafe and Landry's Seafood House. Landry's CEO Tilman Fertitta, who founded the company and controls about a quarter of the company's outstanding stock, is the cousin of the Fertitta family that runs Station Casinos Inc., so the gaming industry is already in the Fertitta family.
What's particularly interesting is that Landry's is dipping into the junk bond market to fund its venture into the gaming industry. Last week, Landry's priced its inaugural $450 million speculative-grade issue in the high-yield market last Wednesday, and the resulting 7.50% rate for the offering of senior notes due in 2014 was about 50 basis points more than Landry's would have had to offer if it had a track record in the high-yield market. Nevertheless, wWith that kind of yield, Landry's bond offering received a warm reception in the high-yield junk bond market.
Landry's will use $300 million of the unrestricted proceeds of the offering to pursue its new acquisition and the remaining $150 million for restaurant operations. If Landry's makes a deal for a casino, it is likely that it would return to the junk bond market for additional financing.
In addition to its junk bond financing, Landry's is also arranging a new $450 million credit facility, which consists of a $300 million revolving credit facility and a $150 million term loan.
Finance market analysts are cautious with regard to Landry's financing moves. Standard & Poor's Ratings Services assigned its 'BB-' rating and a '2' recovery rating to the $450 million credit facility, which means that the expectation is that there would be an 80-100% chance of recovering principal in the event that Landry defaults on the loan. S&P also issued a 'B' rating to Landry's $400 million junk bond offering, and an overall 'BB-' corporate credit rating with a negative outlook.
S&P assigned the junk bond offering a rating two levels below the corporate credit rating because the junk bonds are subordinate to the of substantial amount of priority debt in Landry's capital structure. S&P provided the following cautionary comment on Landry's:
The ratings reflect Landry 's participation in the highly competitive casual dining sector of the restaurant industry, its growth-through-acquisition strategy, the inherent difficulties in operating multiple concepts, a very aggressive financial policy, and the high leverage that results from the recapitalization. These risks are only partially offset by the company's established presence in the causal seafood dining sector of the restaurant industry, good locations for its restaurants, and adequate financial flexibility.
Russian oil company OAO Rosneft announced today that it has acquired Baikal Finance Group, the purchaser of OAO Yukos' main production unit Yuganskneftegaz ("Yugansk") at a Russian government auction last Sunday. Here are the earlier posts covering the auction and the Yukos chapter 11 case.
The Russian government controls Rosneft, so the company's acquisition of the Yugansk unit gives the Russian government effective control over a substantial portion of the Russian oil and gas industry. Yukos believes that the Rosneft acquisition is preliminary to the ultimate transfer of the Yugansk unit to Russian government-controlled OAO Gazprom. Gazprom was expected to be the primary bidder at the auction until the U.S. Bankruptcy Court in Houston issued a TRO late last Thursday in Yukos' chapter 11 case that chilled Western financial institutions that were scheduled to provide financing for Gazprom's bid. When Gazprom could not finance its anticpated bid for Yugansk, Baikal Finance stepped into the breach and emerged on Sunday as the winning bidder at the auction by posting a $9.37 billion bid.
Gazprom and Rosneft announced a merger this past September, and many analysts of the Russian economy expect that the Russian government will use Gazprom as the vehicle to create Russia's major oil and gas company. Before Gazprom's bid was undermined by the TRO, Rosneft was expected to become part of Gazprom's new oil subsidiary -- OOO Gazpromneft -- and Yugansk was to be merged into that unit.
Adding to the quickly changing events of the past week, Gazprom earlier this week announced that it had sold the Gazpromneft unit last Friday to an unidentified buyer for an undisclosed sum. Gazpromneft took part in the auction on Sunday, but did not bid.
Meanwhile, Yukos announced in a Bankruptcy Court hearing in Houston on Wednesday that it is preparing a massive lawsuit against all parties that participated in the auction in violation of the Bankruptcy Court's TRO. In that regard, Yukos accused Gazprom of violating the Bankruptcy Court's TRO by participating -- although not bidding -- in the auction of the Yugansk unit.
In rattling this litigation saber, Yukos is clearly signaling that it will attempt to put the assets of Gazprom and any Western financial institution that participated in the auction at risk. In so doing, Yukos is attempting to gain some leverage in its battle with the Russian government by chilling the market for Western financing of the Russian companies' oil and gas ventures. It is a creative strategy, but it is far too early to predict whether it will have any meaningful impact on the Russian government's conduct toward Yukos and the rest of the Russian oil and gas industry.
December 22, 2004
Sports notes on UH bball, Jackie Sherrill, golf, Mack Brown, Gene Conley and Friday Night Lights, Houston style
Meanwhile, former Texas A&M, Pittsburgh, and Mississippi State head football coach Jackie Sherrill has teed off on the NCAA in a lawsuit over in Mississippi. The over/under bet on this lawsuit is $1 million.
On a more pleasant note, 55 year old Austin resident Tom Kite -- fresh off an impressive performance in the 2004 U.S. Open -- plans to rejoin the regular PGA Tour next month and become the oldest exempt player in Tour history.
Also on the golf scene, in concrete evidence that securities regulators do not have enough to do, this recent Wall Street Journal ($) article reports that regulators have embarked on sweeping inquiries into Wall Street gift-and-entertainment practices, particularly golf junkets that Wall Street firms provide to mutual-fund executives and other money managers they are trying to woo for trading business:
NASD regulators, for example, have started to examine golf outings that Bank of America Corp. provided to Fidelity Investments' head of stock trading, people familiar with the matter said. As the bank worked in recent years to win trading business from Fidelity, it hosted the executive, Scott DeSano, at the annual AT&T Pebble Beach National Pro-Am golf tournament several times, allowing him to play alongside the pros competing in the event, which raises money for charity.
What next? Eliot Spitzer to sue?
Also in the combat department, as the University of Texas football team and its supporters prepare for their trip to L.A. for the Rose Bowl on New Year's Day, the Dallas Morning News' Greg Fraley throws down the gauntlet and declares the run for the Roses a make or break game for Longhorn coach Mack Brown:
Texas and Brown must win a game on the main stage for once, or never again demand to play with the big boys.
It will be a real live put-up-or-shut-up game for a team notorious for underachieving in these moments. . .
It will be the Longhorns' highest-profile bowl appearance since they went into the 1978 Cotton Bowl ranked No. 1 but lost to Notre Dame.
This is not the Pacific Life Holiday Bowl, a regular stop off the main bowl draft for the Longhorns. . .
The only way the Longhorns' task could have been easier would have been if Pittsburgh had landed in Pasadena.
Michigan is 13th in the BCS standings. Only Pitt, the Big East co-champion, is worse among the eight schools in BCS bowls at No. 21.
Michigan, which shared the championship of the stodgy Big Ten with Iowa, has the name but not the chops this season.
The Wolverines lost to Notre Dame, which has fired its coach, and to Ohio State (7-4). San Diego State came within three points of the Wolverines, at Michigan.
This is not an opponent of the USC-Oklahoma-Auburn level. Michigan is not even Utah, which may be out of coaches before its bowl game.
The Longhorns must cleanly handle Michigan and prove they belong at this level, . . .
Brown asked for this chance. Now, he must do something with it.
And that would be a first, too.
Brown has been a convenient target of barbs because his teams promise so much and deliver so little under the spotlight.
In 17 seasons at North Carolina and Texas, Brown has never won a conference title. That is somewhat understandable at North Carolina, where basketball is king and Florida State was in the conference for part of his tenure.
An 0-for at Texas, flush with resources and talent, is unfathomable.
The bigger the moment, the worse Brown's Texas teams have played. Look at his big-game resume:? Five consecutive losses to Oklahoma and uber-coach Bob Stoops.
This is as big a mismatch as there is in the college game. The thought of Stoops throws Brown into a panic. The gap is growing. Texas' dull offense does not even challenge Stoops and his staff.
? An 0-2 record in Big 12 championship games. Texas lost to Nebraska in 1999 and, with a BCS berth at hand, was upset by Colorado in 2001.
? A 3-3 bowl record. Last year's 28-20 loss to Washington State represented a dreadful showing by Brown and his staff. Texas acted as if it had no idea Washington State, which led Division I-A in sacks, would blitz. With the offense collapsing in the face of the heavy blitz pressure, Brown removed the mobile quarterback (Vince Young) for the stationary quarterback (Chance Mock).
Reputations are formed by a body of work. There are lots of wins but no landmark triumphs during Brown's seven seasons with Texas.
A win against Michigan would have substance because of the setting.
A loss to Michigan would make it easy not to take Brown seriously for a long time. . .
Moving to thoughts of Christmas, if you are looking for a gift for a sports-interested family member or friend, this Boston Globe article reviews the new book by Gene Conley, one of the last athletes to play two professional sports (Major League Baseball and the NBA) at the same time for much of his professional career. Conley's is a remarkable story, as reflected by this snippet from the article:
There was the time he struck out Ted Williams in the All-Star Game. Then there was the time he had to separate Tom Heinsohn from Wilt Chamberlain during a heated exchange in an NBA game. . . No one else ever won a championship ring in two major sports. No one else played against Jackie Robinson, Frank Robinson, and Oscar Robertson. No one else played with Carl Yastrzemski during the summer, then joined Bob Cousy for the winter. No one else lockered next to Hank Aaron and Bill Russell in the same calendar year.
Conley also confirms the truth about the legendary story in which he and a teammate got off the Red Sox team bus and Conley was not seen again for 68 hours. Ah, those were the days.
Finally, this Houston Press article provides an interesting analysis of the evolution of the high-powered suburban high school football programs in the Houston metropolitan area. Call it the natural evolution of Friday Night Lights.
The Belmont Club has this excellent initial analysis of the insurgent attack in Mosul yesterday that killed more than 20 people, including American military and civilian personnel.
The information and analysis that can be gleaned from blogs such as the Belmont Club puts the accounts of such incidents generated from the mainstream media to shame.
Dan Wallach is the Rice University computer scientist who, along with two of his his graduate students, discovered the security flaw in the Google search tool last week that could have allowed an attacker to search private data stored on personal computers.
In a computer security class, Professor Wallach and Rice graduate students Seth Nielson and Seth Fogarty discovered that an attack website could trick the Google program into believing it was communicating with the Google software and, in so doing, retrieve private data from PCs. Google disclosed the security problem over this past weekend and announced that it has begun distributing a new version of the search tool that repairs the security flaw.
Congratulations to Professor Wallach and his students for a job well done.
December 21, 2004
Austin-based Dell, Inc. heaved a mighty yawn over the recent sale of IBM's computer manufacturing business to the Chinese entity, Lenovo. This NY Times article does a good job of reviewing Dell's remarkable story and current business plan, and includes such interesting tidbits as this:
Five years ago, it took two [Dell factory] workers 14 minutes to build a PC; it now takes a single worker roughly five minutes to do the same.
Although overshadowed by the Enron-related criminal cases, the business fraud criminal trial of former Westar Energy, Inc. CEO David Wittig and his right hand man has been making quite a bit of news over the past few months in Kansas. U.S. District Judge Julie Robinson on Monday declared a mistrial in the case when the jury could not render a verdict on most of the 40 count indictment against the defendants. Although the prosecution can (and probably will) re-try a case that ends in a mistrial rather than an acquittal, the result of the trial was a clear victory for the defense.
The mistrial comes a year and a half after another federal jury convicted Mr. Wittig of bank fraud charges in a case not directly related to Westar. Mr. Wittig remains free on bond pending his appeal of that conviction.
Mr. Wittig and former Westar Executive Vice President Douglas T. Lake each faced charges relating to allegations they tried to loot the largest electric utility in Kansas. The pair left Westar late in 2002 amid revelations of misuse of corporate funds. Subsequently, Westar under Mr. Wittig was implicated in the scandal surrounding corporate efforts to curry favor with Houston congressman Tom DeLay, the House majority leader. A Travis County, Texas grand jury continues to investigate Westar's contributions of funds during 2002 to the political action committee that Mr. DeLay created.
Mr. Wittig, who is a former star deal maker at Salomon Brothers, became CEO of Westar in 1998 and immediately turned the sleepy Midwestern utility into a deal machine. Mr. Wittig hired Mr. Lake, who worked with him at Salomon. Mr. Wittig was paid compensation of more than $25 million in his seven years Westar, and he had no reservations about showing it in normally conservative Topeka, where Westar is based. He bought the largest home in Topeka, which is a 17,000-square-foot mansion that former Kansas governor and one-time presidential candidate Alf Landon built, which he then outfitted in with over $2 million in art and interior decoration. Mr. Wittig also drove around Kansas in a $230,000 Ferrari 550 Maranello.
After some success, Mr. Wittig's fast deal plan at Westar faltered and the company's stock price fell from $44 to $9. As a result, Westar came under increasing pressure from shareholders and regulators, including the Travis County grand jury.
The trial has been particularly wild. Judge Robinson, who is a former prosecutor, and Mr. Wittig's defense attorneys -- Adam Hoffinger and Edward Little -- butted heads throughout the trial as the defense accused the judge of favoring the prosecution in her rulings. At several points during the trial, Judge Robinson angrily lectured the attorneys for their courtroom demeanor, which included rolling their eyes during witness testimony. Finally, a day before closing statements, the friction between the judge and the defense attorneys boiled over as Judge Robinson took the extraordinary measure of barring one of the attorneys on Mr. Lake's defense team from the courtroom for the remainder of the trial.
For excellent background on Westar's involvement with Rep. DeLay, the PAC, and the Travis County investigation, check out Charles Kuffner's comprehensive posts.
Parties involved in the Yukos chapter 11 case on Monday were attempting to discover information regarding Baikal Finance Group, which was the obscure winner of Sunday's Russian government auction of the Yukos oil unit Yuganskneftegaz ("Yugansk"). Several news services reported late Monday that at least two representatives of Baikal are employees of Siberian-based oil and gas major, OAO Surgutneftegaz. Although Surgutneftegaz announced after the Sunday auction that it had no ties to Baikal Finance, speculation is increasing that Surgutneftegaz is providing or backing financing in some manner for Baikal Finance.
Here is the Wall Street Journal's ($) more thorough coverage of the aftermath of the Russian government's auction of the Yukos oil and gas production unit.
Meanwhile, in this op-ed in today's Journal, former Russian chess champion Garry Kasparov pulls no purches regarding the implications from Western acceptance of the Russian government's handling of Yukos:
If the West won't stand up for basic human rights and democratic principles in Russia, one last hope was that it would come to the aid of free enterprise. But the only voice of protest against this weekend's auction of Russian oil giant Yukos's main asset came from Texas, and it wasn't George W. Bush -- it was a bankruptcy court in Houston. Needless to say, the auction of Yuganskneftegaz went forward on Sunday in Moscow despite the court order.
With the Russian state gas company Gazprom in a potential legal tangle over the injunction, the auction was won by a completely unknown entity from the Russian hinterlands that just happened to have $9.3 billion cash on hand. This company will soon prove to be the outer layer of a Russian matryoshka doll. We'll find a Gazprom doll inside of that one and, like every matrioshka today, at the center will be Vladimir Putin.
Mr. Kasparov concludes with the following insight:
Perhaps Western leaders agree with last week's New York Times editorial that made the stunning assertion that "a fascist Russia is a much better thing than a Communist Russia." I hope I am allowed to order something not on that menu. I am not ready to throw up my hands and surrender to the Putin dictatorship. It is still possible to stand up to the dictator and to fight for democracy.
In March, 1991, then-President George H.W. Bush and his European counterparts were still supporting Mikhail Gorbachev's futile domestic endeavors. I wrote then that if we were left alone we would soon have no Gorbachev and no communism. Now we need to say no to Vladimir Putin and no to fascism. If the United States and the European powers are not willing to help us in this new fight, at the very least they should stay out of the battle and stop giving aid to the forces of fascism.
December 20, 2004
The NY Times' Murray Chase in this article provides some humbling analysis of the economic disparity between the New York Yankees and everyone else in Major League Baseball:
If the Yankees' rotation is [Randy] Johnson, Mike Mussina, Kevin Brown, Carl Pavano and Jaret Wright, the combined 2005 salaries of the starters will be $67 million. That total is more than the 2004 payrolls of 18 of the other 29 teams.
And if the Yanks outbid the Stros for Carlos Beltran?:
If Beltran's agent gets what he wants, $20 million a year, make the Yankees payroll $230 million, nearly 30 percent higher than this year's.
By way of comparison, the Stros' 2004 salary budget was just a tad under $75 million.
We all know that the Cowboys are having horrible season. But it's really a bad turn of events when the NY Times runs an article about all of the problems that Dallas is having, not the least of which is that San Antonio has overtaken it to become Texas' second largest city behind Houston:
The losing Cowboys are fixing to defect again, the police chief and city manager were shown the door, a 350-pound gorilla made his own grand exit, and the hometown daily, former employer of the ex-reporter now ensconced in City Hall, is pinning Pulitzer Prize hopes on a pitiless exposť of everything gone wrong.
It has been that kind of year for Big D, Texas's second biggest - oops, third biggest - city; San Antonio gained a 6,000-person edge to slip in with just over 1.2 million, behind Dallas's longtime archrival, Houston.
The city was humbled in other ways as well, watching sourly as conventioneers thronged Houston's budding entertainment district while Dallas struggled to begin a master plan study and select a flagship hotel for its own convention hopes, which it did at its final City Council meeting of the year on Wednesday, giving a provisional go-ahead to a developer for a 1,000-room Marriott. (In fairness, the Dallas Convention and Visitors Bureau may have been distracted, some of its executives having been found earlier wooing clients at topless bars.)
Based largely on a wave of property crimes, Dallas once again leads the F.B.I.'s list of high-crime big cities this year. Efforts to cope with a growing homeless population by making it illegal to take a shopping cart off the property of the store it belongs to did not solve the problem, but instead produced bizarre fleets of cannibalized baby strollers and shopping carts. The dramatically slanted City Hall that attracted architectural plaudits when it was completed in 1978 has become a magnet for derelicts.
Dallas officials also spent part of the year trying to figure out how a handful of police narcotics informants were able to plant some 330 kilograms of gypsum and other harmless substances on 30 innocents, mostly Spanish-speaking immigrants, to frame them on drug charges in 2001.
Not to mention that the 6-8 Texans are on course to finish with a better record this season than that 5-9 Cowboys.
This NY Times article mostly misses the point about the key issues arising from the ongoing civil trial over the Walt Disney Co. board's decision to pay Michael Ovitz a rather generous severance package for essentially doing nothing during his short stay at Disney. The Times piece focuses on personalities and the changing nature of the executives who are running big media and entertainment companies, and observes that the days of the autocratic executive treating the corporation as a personal fiefdom are probably over.
However, as noted in this earlier post, the blogosphere has done a much better job of analyzing the larger issues arising from the trial, not the least of which is that any malfeasance of the Disney board in approving the Ovitz severance package pales in comparison to its failure to require Disney CEO Micheal Eisner to adapt Disney's corporate strategy to maximize value for Disney's shareholders.
Both Professor Ribstein and Professor Bainbridge have been particularly insightful in discussing the issues arising in the Disney trial. For example, in noting that the case should ultimately turn on the duty of care that the Disney board used in making its decision to ratify the Ovitz severance package, Professor Ribstein observed in this recent post:
The Disney case is also interesting in illustrating the cross-currents of recent corporate history. It was first decided for the board in the pre-Enron era, then allowed to go forward in the post-Enron era, and now may be decided in the post-post-Enron era in which many are having second-thoughts about whether regulation and distrust of business people have gone too far.
And Professor Bainbridge notes in a recent post here:
The facts suggest that Eisner hired his buddy Ovitz, fell out with Ovitz and wanted him gone, cut very lucrative deals for his friend Ovitz both on the way in and on the way out, all the while railroading the deals past a complacent and compliant board. The story that emerges is one of cronyism and backroom deals in which preservation of face was put ahead of the corporation's best interests. As such, the case does not necessarily presage the emergence of what Allen called "'"objective' evaluation of the decision" made by a board. Instead, this looks like another case in which "we have reason to disbelieve the protestations of good faith by directors who reach 'irrational' conclusions?" Michael P. Dooley, Fundamentals of Corporation Law 263 (1995). Once again, a seeming inquiry into the rationality of the decision arguably masks an underlying search for conflicted interests and self-dealing.
Finally, Professor Bainbridge provides the bottom line on the case in this post:
If the shareholders win, boards could be held liable "not just for big decisions like mergers but also compensation and other run-of-the-mill decisions."
Thus, in a business climate in which many companies are having increasing difficulty finding qualified independent board members, the outcome of the Disney trial may provide yet another reason for competent businesspersons to avoid such engagements altogether.
December 19, 2004
In a game played in -10 wind chill conditions, the Texans' defense beat up on an utterly incompetent Bears offense as the Texans beat the Bears at Soldier Field in Chicago. The sixth win is the most that the Texans have won in a season during their first three in the NFL.
The tale of this game was turnovers, as the Bears lost four and the Texans none. Neither team could do much offensively under the difficult conditions, but the Bears were particularly atrocious, managing barely 200 yards total offense. The Texans' David Carr played reasonably well under the circumstances (13-28/208 yds/1 TD) and, most importantly, had no turnovers. Notably, Carr did a good job of throwing passes to wide receivers Jabbar Gaffney and Corey Bradford, which is the only way that the Texans are going to be able to force teams to loosen the now routine double coverage on the Texans' star receiver, Andre Johnson.
The entire Texans' defense was impressive, although this Bears offense is truly one of the worst of the past decade in the NFL. Particularly impressive for the Texans is rookie cornerback Dunta Robinson, who was one of the Texans' first round draft picks in the 2004 draft. This young player plays like a seasoned veteran 14 games into his professional career and, barring injury, looks as if he will hold down one of the Texans' cornerback positions for the next decade.
The Texans play the Jaguars at Jacksonville on the Sunday after Christmas Day and then play Cleveland at Reliant Stadium to finish up the season. Despite rather substantial problems in both the offensive and defensive lines, and a still unproven quarterback, it is a credit to the Texans' coaching staff that they have this club in a position to break even on the season.
In perhaps the best reflection of the state of the Cowboys franchise, the Pokes were able to take solace in the fact that they were at least able to keep it close against the Eagles this time, as opposed to the 49-21 Monday Night Football disaster of earlier this season.
What is truly amazing is that the Cowboys were in a position to win this game at all after mustering barely 300 yards total offense and coughing up three turnovers. But the Eagles scored with less than two minutes remaining to seal the win and place the Cowboys in distinct peril of finishing the season with a worse record than the third year Texans. The Pokes wind up the season with the Redskins at home next Sunday and then the Giants the following week at the Meadowlands before beginning what is sure to be an eventful offseason as this once proud franchise faces a formidable rebuilding project.
A special-purpose vehicle representing unknown Russian interests agreed to pay $9.34 billion for a controlling interest in Yuganskneftegaz ("Yugansk"), which formerly was Russian oil giant OAO Yukos' largest production asset. The interest purchased includes all of Yugansk's voting shares.
Here are the earlier posts on the Yukos chapter 11 case and the related TRO.
OOO Baikal Finance Group made the winning bid at an auction that the Russian Federal Property Fund carried out despite a temporary restraining order that a U.S. Bankruptcy Court in Houston approved in Yukos' chapter 11 case on Thursday. The TRO enjoined several Western financial institutions from participating in the financing of a bid in such auction.
The winning bid was far below what Yukos contends that its interest in Yugansk was worth. Yugansk constituted 60% of Yukos's producing output at the time of the auction.
Nothing is known about Baikal, which registered for the auction on Friday after entry of the TRO. The initial speculation is that it is a Russian government controlled entity that relies on domestic Russian financing for its bid.
December 18, 2004
Gazprom, the Russian state-controlled natural gas giant, has appealed and requested a stay of a U.S. Bankruptcy Court's temporary restraining order that enjoins Western financial institutions from financing Sunday's scheduled government auction of Yukos' main production subsidiary Yuganskneftegaz ("Yugansk")in Moscow. An extraordinary Saturday afternoon hearing on Gazprom's motion for stay was scheduled before U.S. District Judge Nancy Atlas in Houston in civil case no. 04-04756. Here are the earlier posts on the fast-breaking Yukos case.
Gazprom, which is the expected to be the winner of Sunday's auction, may not be able to finance its winning bid after a consortium of Western banks -- including Deutsche Bank, ABN Amro, BNP Paribas, and Dresdner Kleinwort Wasserstein -- froze a credit line of about $13 billion it had agreed to loan Gazprom for its bid. With huge banking interests in the United States, each of the banks could face legal action if they violated the TRO and went ahead and financed Gazprom's bid.
Stay turned for late breaking developments in this fast moving case.
Meanwhile, the largest shareholder in Yukos is planning a $100 billion lawsuit against various entities involved in the Russian auction of Yukos.
London-based Clifford Chance agreed Friday to pay $5.5 million in a global settlement with the trustee of former tech law firm Brobeck, Phleger & Harrison's bankruptcy estate and retired partners and longtime employees of Brobeck. Houston's Lanier Law Firm, who represent the plaintiffs in the lawsuit, and Brobeck's liquidation committee also signed off on the settlement. Here is an earlier post on the rather interesting bidding for Brobeck's claims against Clifford Chance.
The settlement was finalized as the parties negotiated for three hours in two jury deliberation rooms next to U.S. Bankruptcy Judge Dennis Montali's courtroom Friday morning. The settlement mooted the necessity for an auction of Brobeck's claims against Clifford Chance, which Judge Montali had previously ordered. The KM Group, a coalition of asbestos plaintiff lawyers, had planned to bid against Clifford Chance.
The settlement resolves the lawsuit that retired Brobeck partners and employees had filed against Clifford Chance and former Brobeck Chairman Tower Snow Jr. that sought at least $100 million in damages. The lawsuit basically claimed that Clifford Chance's and Mr. Snow's agreement that Mr. Snow and and 16 other Brobeck partners would bolt to Clifford Chance in 2002 triggered Brobeck's 2003 collapse into bankruptcy.
The agreement also resolves a dispute between the plaintiffs in that lawsuit and the Brobeck trustee over the ownership of the claims against Clifford Chance. The Brobeck trustee had asserted in court pleadings that the claims primarily related to profits Clifford Chance received from unfinished business Brobeck partners had taken with them to the firm and, thus, the claims were property of Brobeck's estate.
The settlement resolves negotiations that have been ongoing for the past six months. Clifford Chance had agreed to pay $3.75 million to Brobeck's estate to settle the trustee's potential claims in July. However, the KM Group emerged and offered the trustee $4 million for the estate's claims againt Clifford Chance. The trustee then renegotiated the deal with Clifford Chance, which upped the settlement amount to $4.5 million. The KM Group's desire to increase its offer over that settlement amount had prompted the Bankruptcy Judge to schedule the auction of the Brobeck estate's claims.
The cost of Dallas-based law firm Jenkens & Gilchrest's legal problems resulting from its involvement in advising clients on tax shelters rose considerably yesterday. The the Dallas Morning News is reporting that the firm has increased its offer to a class of former clients to $85 million to settle a lawsuit over the firm's involvement in the matter. Here are earlier posts on the firm's involvement in the investigations and lawsuits that have arisen over the firm's tax shelter advice.
Twenty-five years ago, the University of Houston football team was preparing to play the University of Nebraska in the Cotton Bowl game on New Year's Day. Houston won that entertaining game 17-14 on a last minute touchdown pass.
Thus, UH Athletic Director Dave Maggard's idea of scheduling a game between Houston and Nebraska at Houston's Reliant Stadium to open the 2005 football season seemed like a good one. That is, until Nebraska pulled out of the game yesterday in order to schedule a home opener against that traditional college football powerhouse, Maine. Mr. Maggard is not pleased, as the Chronicle reports:
"This is the most unprofessional thing I've dealt with in my 30 years in this business. I'm very, very surprised by all this. This is something that doesn't belong in Division I athletics. I'm very, very angry about this."
"This is absolutely unprofessional in every way." It's gutless. Spineless. They're going to have to live with it. I've lost a tremendous amount of respect for that program. I think that for college athletics, it's shameful."
"We're going to figure out a solution, but they are developing a reputation for hanging people out to dry. I think it's a sad commentary on the people running that athletic program."
On the heels of this earlier incident involving a Nebraska football player, this latest development makes one wonder just how low the University of Nebraska football program must fall before it bottoms out?
The Fifth Circuit Court of Appeals in New Orleans issued this decision on Friday in the case of former Dynegy trader Michelle Valencia that upholds a controversial law that the Justice Department has used to charge a group of Houston natural gas traders with reporting false information in an alleged scheme to manipulate prices. Here is an earlier post on this particular prosecution.
The Fifth Circuit decision overturns a previous ruling of U.S. District Judge Nancy Atlas of Houston that the law was vague and that someone could be charged in the trader cases with delivering "false and misleading" information even if the person did not know that the data was incorrect.
In January 2003, Ms. Valencia was charged with three counts of false reporting under the Commodity Exchange Act and four counts of wire fraud. The indictment alleges that Valencia fabricated natural gas trades for submission to the publication Inside FERC's Gas Market Report from November 2000 to February 2001. She pleaded not guilty to the charges.
This past August, a group of former natural gas traders received letters from the U.S. Attorney's Office in Houston advising them that are targets of a criminal investigation. Then, a couple of months later, four former El Paso traders pleaded guilty to false reporting charges in connection with the probe. Finally, in late November, three more former El Paso workers and a former Reliant trader were charged with false reporting, and Ms. Valencia was also charged with conspiracy and wire fraud charges.
All of these indictments follow a lengthy investigation into alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications such as the Inside FERC Gas Market Report use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular cases, it remains unclear whether the publication actually used the false information provided. Nevertheless, the government contends that it needs only to prove that fake trades were reported and not that they were actually published or affected the markets.
These cases -- along with the recent Enron-related Nigerian Barge criminal case -- are at the forefront of the controversial but increasingly common tactic of federal prosecutors and state prosecutors such as Eliot Spitzer criminalizing merely questionable business practices to regulate politically unpopular business interests. As noted in this earlier post, this tactic is resulting in absurdly unjust results, such as Martin Frankel's 25% shorter sentence than that of Jamie Olis.
Moreover, the inflexibility of the federal sentencing guidelines combined with the public animus toward business that the government's press releases often provoke, defendants in these cases are often faced with the untenable choice of copping a plea for a short prison term or defending themselves under politically-charged circumstances against a possible prison term that would amount to a life sentence.
With the Yukos bankruptcy filing in Houston this past week, much has been made in news reports regarding the Russian government's politically-motivated and unjust criminal prosecution of former Yukos CEO Mikhail B. Khodorkovsky. What is not as widely reported is that the current United States Justice Department policy of pursuing questionable criminal prosecutions of politically unpopular businesspersons is not much different.
Houston-based oil services giant Baker Hughes Inc. announced Thursday that it has received a federal grand jury subpoena and a request from the Securities and Exchange Commission to provide information regarding its participation in the United Nations' oil-for-food program. Here is an earlier post regarding the investigation of other companies and individuals with Houston ties regarding their their involvement in the controversial program.
Among the other companies that have acknowledged receiving subpoenas from the SEC and the grand jury are conglomerate Tyco International Ltd., pharmaceuticals maker Wyeth and Houston-based El Paso Corp. The SEC's probe is parallel to the other investigations, which include an independent U.N. inquiry being headed by former Federal Reserve Chairman Paul Volcker, the federal grand jury in Manhattan and several congressional committees.
The SEC's investigative focus is the same as the other investigations -- whether any of the companies improperly conducted business with Iraq's oil-for-food program that Saddam Hussein operated in a typically corrupt manner. Specifically, the investigations are examining whether companies that issue stock or securities in the U.S. paid illegal kickbacks or bribes to politicians or businessmen to get Iraqi business or dealt with companies that may have committed such violations.
U.S. District Judge Vanessa Gilmore is currently presiding over a rather ugly criminal case in Houston against against three people accused in the deaths of 19 illegal immigrants who were being smuggled into this country in the back of a blistering hot trailer. To say that the prosecution has not gone smoothly is an understatement.
On this past Thursday, after the prosecution closed its case in chief and the defendants chose not to put on any evidence in defense of the case, Judge Gilmore dismissed charges against one of the defendants, ruling that the government had failed to show that the defendant had benefited financially from an arrangement in which illegal immigrants were harbored and transported.
Then, on Friday, Gilmore threatened to hold one of the prosecutors in contempt if he failed to get a letter from U.S. Attorney General John Ashcroft by the end of the day explaining his refusal to disclose why the death penalty sought against one of the black defendants in this case is the first time that the death penalty has been sought against a defendant in an immigrant smuggling case. According to this Chronicle story on the matter, Judge Gilmore stated from the bench:
"They are taking the position that they can indict whoever they want to and charge the death penalty and not disclose the reason."
Judge Gilmore has not yet issued an order for the prosecutors to show cause why they should not be held in civil contempt for failing to disclose the information, which is a prerequisite for the enforcement of the civil contempt penalty.
At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom's bid for the Yukos unit Yuganskneftegaz ("Yugansk") has decided to postpone its participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.
Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.
Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.
My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia's post-communist economic development will continue to be constrained by the lack of investment from the West.
At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom's bid for the Yukos unit Yuganskneftegaz ("Yugansk") have decided to postpone their participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.
Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.
Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.
My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia's post-communist economic development will continue to be constrained by the lack of investment from the West.
December 17, 2004
As noted in this earlier post, the city of Jacksonville has a tough act to follow in hosting the 2005 Super Bowl. With only a fraction of the facilities that Houston used in hosting the 2004 Super Bowl, Jacksonville officials are scrambling to accomodate the NFL's gargantuan requirements for putting on the biggest spectacle in U.S. professional sports.
However, despite the perk of hosting the Super Bowl, Professor Sauer observes that Jacksonville is not even a sure bet to keep its NFL team. Because of declining ticket sales, Jacksonville's ownership is artifically reducing the number of seats in the team's stadium. Professor Sauer notes:
In an open system of leagues, teams from smaller burgs occasionally get good, generate enthusiasm, and go on a run. In the US system of league monopolies, a town essentially gets a short term lease on a team, then it gets auctioned off to the next town starved for the sport.
The Air Line Pilots Association agreed yesterday not to oppose United Airlines parent UAL Corp.'s effort to terminate the group's generous defined-benefit pension plan in return for UAL's agreement to issue to the union $550 million in convertible notes that the active pilots could sell in the capital markets to raise money to cover a portion of the pension shortfall.
The agreement is a key development in UAL's effort to meet conditions of its exit financing so that it can emerge from its now seemingly unending chapter 11 case. Here are earlier posts on UAL's bankruptcy case.
UAL is seeking to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasi-governmental agency that insures pension plans. Such a move would save UAL $4 billion in pension contributions through 2008 and is a condition to UAL's exit financing for emerging from its chapter 11 case. Although the PBGC opposes UAL's plan to terminate the pension plans, if UAL can persuade the bankruptcy court that it cannot emerge from bankruptcy with that financial burden, then the PBGC would likely be forced to take over the plans.
Inasmuch as lucrative defined-benefit pensions are a highly important component of compensation in legacy airlines' labor contracts, the fact that ALPA agreed to a deal over its pension with UAL indicates that the union understands that UAL really is on the brink of liquidation.
And that, folks, is the most important lesson that the parties-in-interest in the UAL case must understand if United Airlines is ever going to emerge from chapter 11.
Following on this earlier post regarding Dallas-based Southwest Airlines' effort to expand its operations at Chicago's Midway Airport, Southwest won the auction of bankrupt airline ATA's Holding Corp.'s Midway assets yesterday.
U.S. Bankruptcy Judge Letitia Z. Clark issued a temporary restraining order late Thursday enjoining the Russian government's auction in Moscow on Sunday of the main production subsidiary of Russia's OAO Yukos. Here are the earlier posts on the Yukos chapter 11 case.
Although no one involved in the case really expects the Russian government to comply with a United States court order, the real purpose behind Yukos seeking the order in the first place is to chill participation by Western financial insitutions in financing an acquisition of the Yukos unit at the auction.
Russian natural-gas company Gazprom is expected to bid on the Yukos unit named Yuganskneftegaz ("Yugansk") and Deutsche Bank AG is leading a consortium of Western banks in financing Gazprom's bid for Yugansk. The Russian government owns 40% of Gazprom, which has extensive dealings with Western oil and gas firms. Consequently, the prospect of being held in contempt of the TRO is a serious consideration for the banks and Gazprom, both of which are quite likely to be found to be subject to the jurisdiction of U.S. courts.
Although a major issue in the Yukos chapter 11 case is whether a U.S. Bankruptcy Court can exercise jurisdiction over a Moscow-based business with tenuous American ties, Judge Clark concluded that she had jurisdiction in issuing the TRO. The fact that U.S. investors own 15% of Yukos' shares was an important factor in her decision, which stated in part:
"Participants in international commerce, in Russia, in the United States and elsewhere, need to have an expectation that when they invest in foreign enterprises they may do so without fear that their investments may be the subject of confiscatory action by agencies of the foreign government."
Judge Clark went on to find in her order that the events in Russia that led to the notice of the auction are "inconsistent with the regular application of Russian law within Russia" and that harm to Yukos from the sale would be "irreparable." In comparison, she noted that delaying the sale did not cause any material harm to the Russian government's ability to collect its tax claim.
Consequently, Yukos looks to have won the first round of this fight to take its case against the Russian government to the investing public. And make no mistake about it, this is really a high stakes public relations battle in which Yukos is attempting to embarrass the Kremlin in the international business community. Although the principles of sovereign immunity almost certainly protect the Russian government from any damage claims, the basis for damage claims against Western banks and Gazprom is far better. Many precedents exist for Western companies grabbing assets of Russian firms in the West to satisfy judgments issued by Western courts.
Mr. Putin now may well find that in lands with independent courts and respect for the rule of law, the title of Gazprom to Yukos's assets will come under serious legal attack. Yukos has a very strong property rights argument in most Western jurisdictions to persuade the courts that Gazprom has no title to its assets and then seek compensation in the form of seizing Gazprom tankers, bank accounts and subsidiaries. If Yukos can prevail in the Western courts, Gazprom's revenues are likely to fall sharply as a result. Oil and gas arriving in the West will be seized and Gazprom, for fear of further seizures, will be unwilling to ship more oil and gas abroad. Given Gazprom's size, such a disruption will have a knock-on effect on the flow of oil and gas to the EU, and a serious negative impact on the Russian economy. If Yukos prevails in the courts of the West, Mr. Putin, however bitter he may find it, may realize that he has to settle if he wants to protect Gazprom and keep the oil flowing.
So, bankers -- lend at your peril and stay tuned.
December 16, 2004
Houston-based independent exploration and production company, Noble Energy Inc., has agreed to acquire Denver-based Patina Oil & Gas Corp. for $2.76 billion in cash and stock. The deal, which is scheduled to be completed by April, is expected to raise Noble's reserves and production by more than 50%.
Noble will pay approximately $1.1 billion in cash and 27 million of its shares, and assume some of Patina's debt. Based on Noble's closing share price of yesterday, the deal values Patina at about $37.89 a share, which is about a 20% premium over its closing price of yesterday.
Noble is acquiring Patina to add to its inventory of development opportunities. Patina's assets are located primarily in the Rocky Mountain and mid-continent regions of the U.S., which are regions in which Noble already has substantial operations.
Noble's Charles D. Davidson will remain chairman, president and chief executive of the merged company. Thomas J. Edelman, Patina's chairman and CEO, will take a seat on Noble's board along with one other director from Patina's board. Mr. Edelman will also serve in a special advisory capacity to facilitate the integration of the two companies.
Priceless, from Comedy Central.
This Jaime Diaz Golf Digest article is the flat out best analysis of Tiger Woods' recent swing change that I have read and a must read for any student of the golf swing.
Lawrence R. Velvel, the dean of the University of Massachusetts Law School, lays the wood to Harvard over its handling of the recent plagiarism of Harvard professors Laurence Tribe and Charles Ogletree. The entire piece is hard-hitting academic criticism at its best, and here is a snippet to arouse your interest in reading the rest:
The continued silence of [Harvard] President Summers and Dean Kagan gives wings to what until recently has been only a slight suspicion. It promotes the idea that they are simply saying nothing -- are lying low -- in the hope that the story will simply disappear with time. They are, after all, old Washington hands. They cannot help but be familiar with the two-day-wonder nature of the media. They cannot fail to know, that is, that generally speaking the press jumps on a story for one or two days and then forgets about it as reporters and anchormen turn to and jump on other stories. They know that the febrile minds of the press, minds based not on principle but on sensationalism and the new new thing, are usually unable to stick with something for longer than 48 hours.
So our flagship university, like the rest of American society, which it purports to lead by example, appears to be condoning dishonesty instead of punishing it in clear, public and no uncertain terms. Bravo President Summers. Bravo Dean Kagan. Your failure to act accords with the dishonesty that is rampant in society today. And the actions of a flagship should accord with those of the society it leads, shouldn?t they?
Care to respond, Harvard?
On the heels of Yukos' chapter 11 filing late Tuesday in a Houston, U.S. Bankruptcy Judge Letitia Clark will continue hearing testimony on Yukos' request for a temporary restraining order this morning. The TRO request is Yukos' last ditch attempt to create a some type of legal impediment to the Russian government's scheduled auction of Yukos' primary oil and gas unit this Sunday.
The Russian government has already announced that it intends to proceed with the auction regardless of the outcome of the TRO hearing. However, my sense is that Yukos' real intent in pursuing the TRO is to create hesitation in the business planning of Western financial institutions that may be planning on financing an acquisition of the Yukos' unit in Sunday's auction. Yukos has named a number of those financial institutions as defendants in the lawsuit in which it is seeking the TRO.
The threshold issue in the Yukos' case is whether a U.S. Bankruptcy Court has jurisdiction because nearly all of Yukos's assets and most of its creditors are outside the United States. In the court hearing yesterday, Yukos' attorneys stated that Yukos did not file for bankruptcy protection in Russia because the company fears it would not get a fair hearing there. Although that it probably correct, that is not a basis for jurisdiction in an American federal court. Moreover, lawyers for various defendants pointed out yesterday that Yukos successfully argued in obtaining dismissal of a federal lawsuit two years ago that Yukos had virtually no ties to Texas.
Yukos countered by contending that it has a greater stake in Texas and the United States now. Yukos contended that it is U.S. investors own more than 10% of the company and that Yukos has about $10 million in domestic banks. Moreover, Yukos' chief financial officer is now working out of his Houston home after fleeing Russia because of government intimidation, although I doubt that making Yukos a home-based business in Houston will have any effect on Judge Clark's decision on jurisdiction.
The sale of Yukos' main oil and gas unit -- Yuganskneftegaz, but thankfully nicknamed "Yugansk" -- is the latest chapter in Yukos' ordeal with the Russian government over the past year and a half. The company's troubles -- which include an ongoing criminal corruption case against its former CEO and main shareholder, Mikhail Khodorkovsky -- is part of a campaign by the Kremlin to deter Russia's new wealthy capitalists from opposing the Putin government and to regain government control over strategic assets that were privatized during the demise of Russia's communist economic system in the early 1990s (see well-time Wall Street Journal ($) op-ed here). Given the reduction in Yukos' equity value during the past year and a half, the Russian government's handling of Yukos is likely to have a lingering effect on Western capital investment in Russia, which the Russian government still desperately needed.
During the hearing on Wednesday, Judge Clark told Yukos lawyers that they would have to establish in the TRO hearing that the Russian government was attempting to to undervalue Yugansk in the auction, and commented that, for starters, Yukos should be prepared to show that that Yugansk is worth at least twice the $8.6 billion starting price that the Russian government has established for the auction.
Longtime Houston bankruptcy lawyer Hugh Ray, who is representing Deutsche Bank AG (which is financing Gazprom's bid for Yugansk), generated chuckles in the courtroom yesterday when he observed that Yukos's chapter 11 filing and request for a TRO is the equivalent of a "legal Hail Mary."
December 15, 2004
The Russian Government is being challenged with the rule of law, United States Bankruptcy Code style.
In a stunning development, embattled Russian oil giant Yukos has filed a chapter 11 case in Houston late Tuesday and requested a temporary restraining order against the Russian government's auction of its main production unit that is currently scheduled for this Sunday.
H'mm. How would you like to try and enforce that TRO?
Here are earlier posts on the problems that Yukos has been experiencing with the Russian government. On one hand, Yukos' defenders claim that the Russian government's campaign against Yukos and its owners -- particularly jailed CEO Mikhail Khodorkovsky -- is an effort to silence political opposition to Russian president Vladimir Putin, while Putin and his supporters claim that the government is simply cracking down on Yukos because of shady bookkeeping and corruption. Mr. Khodorkovsky has been in jail over a year and is currently being tried in Russia on charges of fraud and tax evasion.
Russian tax authorities claim that Yukos owes the government a total of $27.8 billion in unpaid taxes, so the government is auctioning Yukos' subsidiary Yuganskneftegaz (how's that for mouthfu?) -- which produces about 60% of Yukos' oil production -- on Sunday to pay at least a portion of the indebtedness. Yukos supporters contend that the government auction is a sham that is intended to transfer the unit to a government favored company such as state gas giant Gazprom. The starting price for the auction is $8.6 billion.
In its initial chapter 11 pleadings, Yukos claimed that its total assets are worth approximately $12.25 billion and that its total debts were about $30.75 billion.
The case information for the chapter 11 case is case no. 04-47742, Yukos Oil Company, Debtor and is pending before U.S. Bankruptcy Judge Letitia Z. Clark. A hearing on Yukos' request for the temporary restraining order is scheduled for 11:15 a.m. this morning in Houston. Zack Clement of Fulbright & Jaworski is representing Yukos.
While Bill James and his Sabermetrian disciples revolutionized analysis of baseball over the past generation, no similar movement took place in regard to analysis of football. However, as this NY Times article reports, football at the highest levels is increasingly embracing Sabermetric principles:
Now the sabermetric revolution may be gaining a toehold in football as well. And here too the center of the revolution can be found in Massachusetts, where Coach Bill Belichick has led the New England Patriots to victories in two of the last three Super Bowls.
Belichick is known for his unorthodox strategies: being more willing than most to not punt on fourth down; running the ball far more than average in certain crucial situations; and eschewing two-point-conversion attempts in situations when orthodox doctrine recommends them.
Not coincidentally, experts in the world of football statistical analysis endorse all these strategies. For example, David Romer, an economist at the University of California at Berkeley, published a working paper arguing that conventional football wisdom led to far too much punting. Romer analyzed thousands of plays and calculated the chance of scoring from any position on the field. Based on that, he gauged the relative worth of the field position gained by punting against the lost opportunity to score. Romer found that football coaches punt far more than they ought to -- perhaps acting out of fear of the worst outcome (going for it on fourth down and failing), rather than rationally balancing risk and reward.
Romer's paper, "It's Fourth Down and What Does the Bellman Equation Say? A Dynamic Programming Analysis of Football Strategy," is far from light reading, so it came as a shock to Romer when he learned that Belichick, who was an economics major at Wesleyan University, had read it.
The main thrust in football statistical analysis is the development of a metric known as "defense-adjusted value over average," or "DVOA." The statistic takes into account that not all yards gained in football are created equal. For example, gaining 5 yards on third down and 4 is more beneficial, on average, than gaining eight yards on third and 10. Aaron Schatz over at FootballOutsiders.com is doing the best analysis with DVOA:
Just as it is in baseball sabermetrics, context is crucial to Schatz's analysis. Schatz rates every play a team runs by comparing it with the league average performance for plays in as close to that situation as possible. In Schatz's analysis, the relative success of a play is determined by, among other things, the down and distance, the current score, the field position and the opponent's strength. DVOA, in short, is an attempt to create a tool of analysis for football similar to such Jamesian baseball statistics as offensive winning percentage, runs created and OPS (on-base percentage plus slugging percentage).
Meanwhile, the lack of refined football statistics obscures just how phenomenal a season Peyton Manning this seasons. Although Manning has received a fair amount of publicity over the fact that he will break Dan Marino's record of 48 touchdown passes in a season, Allen St. John in this Wall Street Journal ($) piece observes that Mannings' excellence is better reflected by another key passing statistic -- yards per pass:
For pro quarterbacks there's no statistical Holy Grail. The conventional milestones Mr. Manning is approaching don't quite resonate. We have developed a benchmark of our own that should make watching the rest of Mr. Manning's historical season all the more compelling.
10 Yards per Attempt: What's the essence of football? Almost every time the referee spots the ball on first down, a team has one goal -- move the ball 10 yards and earn another set of downs. In a game of variables, it's the one near-universal. By the Numbers has long touted YPA as the game's most revealing passing stat because it factors in all the qualities that a great quarterback needs. Accuracy is important, but so is the ability to go deep.
And 10 yards per attempt is near perfection. It means that almost every time a quarterback throws, the linesmen move the chains. And while it's been achieved in the past by greats like Sid Luckman and Otto Graham, it's a goal that has become elusive in the modern NFL. Mr. Manning's YPA of 9.41 is the best single-season mark of any post-merger quarterback with more than 350 attempts in a season. Indeed, just topping nine yards per toss puts Mr. Manning in some pretty heady company. Only four other post-merger QBs have been able to top nine yards per throw for a full season, and three of them made the Super Bowl in the year they did it.
Lynn Dickey of the Packers in 1983!
Herbert Breslin became master tenor Luciano Pavarotti's publicist in 1967 and ultimately dumped Placido Domingo from his client list so that he could become Pavarotti's manager. He lasted as Pavarotti's manager for 35 years.
However, now Mr. Breslin is Mr. Pavarotti's ex-manager, and he has written a book about Pavarotti that is the subject of this hilarious NY Times Book Review by Jane and Michael Stein. Here are a couple of delicious snippets:
As Pavarotti got bigger in every way, Breslin's adoration shrank. By the time of the Three Tenors, a pop phenomenon engineered not by Breslin but by the impresario Tibor Rudas, Breslin was miserable. "A big, big, big mistake" is how he describes Pavarotti's original deal to sing with Placido Domingo and Jose Carreras for charity, lamenting that "Once, I had been Luciano's creator. . . . Now I had been reduced to his foil. My role was to act as a buffer and, most important, to get him more money." Finally he bemoans that "managing an artist can be like serving a life sentence in Alcatraz."
And what of Pavarotti's legendary appetite?:
Gluttony is a big theme in Breslin's demystification. "It's not just that he likes to eat," he snipes. "He loves to smell food, to touch food, to prepare food, to think about food, to talk about food. When he comes into a room, he begins sniffing like a dog, and his first question is, 'What smells so good?'" We are treated to scenes of him using a tablespoon to gobble up caviar to the point of nausea and of his "swaying belly flowing over the edge of the chaise longue."
Not only is Pavarotti a pig, but he has bad taste, and his house in Modena "looks like something on Queens Boulevard, crammed with trinkets, tchotchkes, anything and everything." When Pavarotti falls in love with the decor of his suite at Caesars Palace in Las Vegas, he makes Breslin buy all the furniture, drapes and bedspread, and ship it to Modena. "It looks like a big blood clot," Breslin observes.
Read the entire review. What a hoot!
December 14, 2004
Will Carroll is an expert in sports medicine who writes a column for Baseball Prospectus($) regarding injuries to baseball players. Following up on thoughts expressed in this earlier post, Mr. Carroll notes in this NY Times op-ed that, from a clinical perspective, it is far too early to jump to the conclusion that Barry Bonds' phenomenal performance over the past several seasons is attributable to steroid use:
While there is no doubt that these chemicals are effective at their stated goal, albeit with significant complications, the question of how their effects manifest themselves in a baseball game has not been answered. There are no credible studies that connect drug use to improved performance, nor any that determine what cost these athletes may be paying. In 2004, Major League Baseball financed its first research grants with the pathetic sum of $100,000. The league values science about as much as one-third of the salary of the last player on the bench.
Mr. Carroll points out that Bonds' recent production may simply be the anecdotal performance of a top baseball player:
What of this late-career surge? Certainly we can point to that with an accusing finger, sure that Bonds's numbers in the record books have been written with some "cream" or "clear" substance. It's much easier to point than to find facts.
According to Clay Davenport, a researcher at Baseball Prospectus, Hank Aaron's best year for home runs - when he had the most homers per at bat - was 1973, when he was 39. His second best was in 1971, at age 37. Willie Stargell had his best seasons after age 37. Carlton Fisk put his best rate in the books when he was 40. Even Ty Cobb had his best home run rate at age 38, though the end of the dead-ball era helped that. It is not uncommon, according to Mr. Davenport, for a slugger to change his mechanics as he ages, swinging for the fences as his ability to run the bases declines.
And Mr. Carroll concludes by noting Hank Aaron's recent comments:
Perhaps Hank Aaron said it best: "I know that you can't put something in your body to make you hit a fastball, changeup or curveball."
Without more scientific studies on the effects that steroids and other drugs have on the game, we're left with appeals to emotion, finger-pointing or worse.
Finally, in another off-season baseball post of interest, don't miss Professor Sauer's fascinating post on how research is proving that the designated hitter in baseball is proving to be a moral hazard.
University of Iowa Law Professor Tung Yin observes persuasively that jury's assessment of the death penalty on Scott Peterson is not in the public interest.
The simmering dispute of control of Colony, Texas-based Pizza Inn, Inc. boiled over yesterday as the Pizza Inn board fired CEO Ronald W. Parker for cause, which is a nice legal way of saying that he's being canned with no severance payment. This move comes on the heels of this earlier move by the board to authorize a company lawsuit against the Dallas-based law firm of Akin Gump Strauss Hauer & Feld LLP for $7.4 million in damages for allegedly breaching its duties to the company in writing "golden parachute" severance package agreements for four senior Pizza Inn executives.
This Austin-American Statesman article profiles former University of Texas and current University of Houston basketball coach Tom Penders. It's an interesting story about the grinding nature of college basketball. Check it out.
In his Wall Street Journal ($) Political Capital column today, Alan Murray reports that certain business interests that supported President Bush's re-election are conducting a quiet campaign to persuade the White House to dump Securities and Exchange Commission chairman, William Donaldson:
The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn't.
The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year's election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.
In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. . . [business leaders are] particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges.
But Mr. Murray notes that such matters are not discussed publicly because businessmen have become popular whipping horses:
The effort isn't discussed much in public, and probably won't get any attention at this week's economic summit. That's because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.
As noted in prior posts such as this one, the Bush Administration has not been particularly friendly to business interests. In addition to the wayward SEC, the Bush Administration's Justice Department has been particularly poor in exercising prosecutorial discretion regarding business matters. If the Administration is not responsive to business interests over this clear abuse of power, the Democratic Party will have a great opportunity to modify its traditionally anti-business policies and win over a business community that is increasingly disenchanted with the Bush Administration's regulation of business through criminalization of merely questionable commercial transactions.
December 13, 2004
My old friend David Chesnoff's law partner -- Las Vegas mayor Oscar Goodman -- has been lobbying Major League Baseball owners at the Winter Meetings in Anaheim to allow for the move of the Florida Marlins to Las Vegas. Argus Hamilton comments that such a move could resolve MLB's public relations problem relating to its players' steroid use:
"The Florida Marlins met with Nevada officials Tuesday about moving to Las Vegas. It could save the game. Expose entire baseball teams to round-the-clock strip bars and escort services and in no time they will make Barry Bonds look like Bishop Tutu."
Following on this earlier post about a hedge fund beating Carl Icahn at his own game, this NY Times article reports that Mr. Icahn is now doing what any red-blooded American businessman would do when he ends up on the wrong end of an investment strategy -- hire uber-lawyer David Boies and file a lawsuit.
Note to Mr. Icahn -- if you lose your case in the trial court, make sure that Mr. Boies' paralegal calendars your appeal deadline correctly.
H.R. "Bum" Bright, a longtime Dallas-based businessman, died Saturday night at his Highland Park home after a long illness. Mr. Bright was 84 at the time of his death.
Although Mr. Bright was best known for his ownership of the Dallas Cowboys NFL football club from 1984 to 1989, Mr. Bright was one of Dallas' most prominent businessmen for many years and also a longtime member of the Texas A&M University Board of Regents, of which he was chairman from 1981 to 1985. A&M was one of Mr. Bright's main philanthropic causes and the beneficiary of a $25 million gift from Mr. Bright during the mid-1990s'. Mr. Bright's other main charitable cause was the Children's Medical Center Dallas, to which he made a key $5 million donation in 1999 that led to the creation of a facility at the hospital that specializes in treating ear, nose and throat ailments.
Mr. Bright was trained as a petroleum engineer, received his degree from A&M in 1943, and made his first forture as the independent exploration and production sector of the oil and gas business. However, Mr. Bright proceeded to build an even bigger fortune in a nationwide trucking business, real estate, banks, and savings and loans. It was the investments in financial institutions that led to some of Mr. Bright's most notorious business failures.
Mr. Bright lost about $30 million in the failure of RepublicBank Corp. in the late 1980's, and another $200 million in the 1989 failure of Bright Banc Savings Association. Federal regulators seized control of Bright Banc during the costly cleanup that followed the collapse of the Texas savings and loan industry. Years of litigation over the failures ensued.
Mr. Bright's influence was also substantial in the sports world. Mr. Bright engineered the process that resulted in the firing of Texas A&M football coach Tom Wilson and the hiring of Jackie Sherrill to a then record contract in 1981. Although Coach Sherrill returned A&M to prominence in the Southwest Conference and college football, he was forced to resign five years later under the spectre of NCAA violations that ultimately landed the A&M program on probation.
Similarly, Mr. Bright's sale of the Cowboys to Jerry Jones in 1989 was the beginning of the end for legendary Cowboys coach Tom Landry, who was unceremoniously canned by Jones immediately after closing of the deal.
To say that Mr. Bright's politics drifted toward the conservative side is an understatement. Not well known is that Mr. Bright was one of the co-sponsors of a full-page newspaper ad written by local members of the John Birch Society that sharply criticized President John F. Kennedy on the morning of the President's visit to Dallas on Nov. 22, 1963. Lee Harvey Oswald shot and killed the President in downtown Dallas later that day. Mr. Bright later stated that, despite the unfortunate assassination, he had no regrets about the ad because it simply reflected his political views.
Subsequently, Mr. Bright was one of the main financial supporters of fellow Texan John Connally's Presidential campaign in 1980, which raised and spent $11 million but flamed out after a few primaries. That $11 million expenditure could garner only one binding commitment from a GOP convention delegate. Mr. Connally left politics for good after that fiasco.
A private burial for Mr. Bright will be held at 2 p.m. Thursday, and a memorial service will be conducted at 4 p.m. Thursday at The Chapel of the Cross, 4333 Cole St. in Dallas.
Christopher Soloman, the NY Times' Frugal Traveler, noticed an earlier Times article referred to in this post on the unusual "Houston. It's Worth It" public relations campaign. As a result, he decided to travel to Houston for the first time and, in a first for the Times, actually gives Houston a favorable review.
December 12, 2004
The Texans actually made a game of it against high-powered Peyton Manning and the Colts, but Manning methodically picked away at the Texans defense for six 4th quarter points to salt this one away for the Colts. The Texans closed to within 17-14 with about six minutes to go in the 3rd quarter, but the Texans could not mount any meaningful offense against an average Colts defense for the rest of the game (only two first downs and 35 yards in the 4th quarter). No team is going to beat this Colts team scoring 14 points.
Texans' QB David Carr continues to be unimpressive in his development, which is best reflected by the Texans' sputtering offense the past two weeks under his control. Although the mainstream media continues to fawn over Carr, he simply is not performing at the level that a top draft choice should be in his third season in the NFL.
Carr's recognition skills continue to be mediocre, and his unorthodox throwing motion makes it difficult for him to take full advantage of the passing lanes. Moreover, Carr'statistical performance has been mediocre. Carr was 16-21 for 167 yards and an interception against the Colts, which means that his yards-per-pass -- the key statistic for evaluating an NFL QB's performance -- was a pathetic 5.5 yards today. For the season, his yards-per-pass is about 6.3 yards, and he has thrown for only 13 TD's against 12 interceptions.
By way of comparison, check out the statistics of Drew Brees, a QB with comparable experience to Carr who plays for a team that was about equal in stature to the Texans coming into this season. Brees has thrown for 23 TD's against only 6 interceptions, and his yards-per-pass is over a half yard per pass better than Carr's. As a result, Brees' QB rating is over 103, while Carr's rating is less than 85. More importantly, the Chargers are 10-3 and the Texans are 5-8.
Inasmuch as the rest of the Texans' team played well enough to win for the second week in a row, the Texans' management has a huge problem developing with Carr. The Texans have a ton of money invested in him, but it's becoming clearer with each game that Carr is nothing more than an average NFL QB, at best. With games at Chicago and Jacksonville the next two Sundays before closing at home on January 2nd against the Browns, the Texans' management must begin addressing whether they have a bust on their hands with Carr. Inasmuch as the Texans' offensive line still has not completely recovered from the failed Tony Boselli transaction, the Texans can ill-afford to have their overall offensive development stunted by a QB that is not developing at the same rate as the rest of the unit. And at this point, Carr certainly is not.
The Cowboys are the only organization in the NFL that begins printing playoff tickets with a 5-7 record. However, after the woeful Saints humiliated the Pokes at home on Sunday, the 5-8 Cowboys will now simply be playing out the string in their last three games against the Eagles, Redskins and Giants. The Cowboys have more personnel problems overall than the Texans, so this is a franchise that is clearly in a serious rebuilding mode.
It's going to take at least two seasons for the Cowboys to have a realistic chance for the playoffs, and that assumes that they acquire a top flight QB as soon as possible. If they draft a QB, then this team is a good three seasons away from being a playoff team. It will be interesting to see if the Big Tuna has the stomach to stick around during a long rebuilding phase. My bet is that he does not.
December 11, 2004
This post from Anne Linehan of blogHouston.net shows what happens when the Chronicle bases its investigative reporting regarding the new Houston Independent School District superintendent on the school district's press release.
Earlier this week, Astronaut John Young resigned from NASA. I was dismayed with the short shrift that the local newspaper gave to the retirement of this legend in spaceflight -- indeed, there is not even a mention of Mr. Young on the Chronicle's spaceflight section.
But make no mistake about it, John Young is an American hero. Mr. Young served as a NASA astronaut for an incredible 42-year career, which included spending more than 800 hours in space. His unprecedented career began with the first manned flight of the Gemini program in 1965, included two Apollo moon missions, and concluded with two flights on the space shuttle, including its first flight. John Young is the longest serving astronaut of them all.
Mr Young was a US Navy test pilot when he signed up for the second astronaut class in 1962. His first mission was to pilot the first manned voyage of the Gemini program -- Gemini 3 -- which was the first American space flight to have more than one astronaut on board. In 1966, Mr. Young commanded Gemini 10, which performed the first dual rendezvous procedures during a single mission.
Three years later, and two months before Neal Armstrong set foot on the Moon, Mr Young performed the test mission to the Moon in Apollo 10, in which he orbited the Moon in the command module. He subsequently returned to the Moon in 1972 as commander of Apollo 16 in which he piloted the lunar module to its perfect landing and drove a mooncraft 16 miles across the surface of the Moon. Including the liftoff from the Moon's surface, Mr. Young was the the first man to blast into space seven times.
In 1981, Mr. Young piloted the space shuttle?s inaugural flight and guided the Columbia to a perfect runway landing, which was also a first. Two years later, Mr. Young commanded the Columbia in his sixth and final mission. He is also the only astronaut to pilot four different kinds of spacecraft.
And although a NASA lifer, Mr. Young never compromised his aviator principles for his position in the agency. In 1987, he was abruptly removed as NASA's chief astronaut when he accused NASA's chiefs of putting "launch schedule pressure" ahead of safety in the wake of the Challenger accident. His criticism was later vindicated by the report of the Presidential Commission that investigated the Challenger accident.
Just like the late astronaut Gordon Cooper and his fellow Mercury astronauts, John Young has "the Right Stuff." Here's hoping for a long and fulfilling retirement for this local Houston and American hero.
Given the federal government's increasing propensity to regulate business through criminalizing questionable business transactions, it's easy to overlook the instances where the criminal justice system actually punishes a real bonafide business crook.
Martin Frankel was a small-time New York money manager in the early 1990's who was paralyzed with fear from trading stocks. Accordingly, rather than trade equities, Frankel arranged for the acquisition of a group of financially-troubled insurance companies throughout the 1990's. He then used the assets of those insurance companies to pull off a several hundred million dollar scam, which is one of the largest insurance frauds in American history.
With investigators closing in on him in May, 1999, Frankel bought millions of dollars worth of diamonds, wired money to accounts all over the world, torched any remaining paper trail, and fled the country for Germany under a blaze of publicity. He was apprehended in Germany several months later, spent a year and a half in a German prison, and then was extradicted to the United States to face criminal charges here.
Although largely forgotten in the wake of Enron and other large business meltdowns, Frankel turned out to be a fascinating character. He was a gawky misfit with an obsessive terror of germs who nevertheless was able to induce attractive young women to fight over him. Although intensely reclusive, Frankel was able to build an intricate Ponzi scheme that was in no small part attributable to his talent for luring prominent people -- such as Texas Democratic powerbroker Robert Strauss -- into his scam. He even created a phony Catholic charity that went into business with a group of priests with close Vatican ties.
The Wall Street Journal's Ellen Joan Pollock was a lead writer on the reporting team that covered the FBI's four-month international manhunt for Frankel, and she eventually wrote a good book about the affair called The Pretender. With the right treatment (are you listening Professor Ribstein?), Frankel's story of risky business deals, duplicitous businessmen, con artists, jewelry traders, women looking for love, women looking for money, revengeful husbands, and slick private detectives is a potential blockbuster movie just waiting for the right screenplay.
At any rate, as this NY Times article reports, Frankel's affair came to a typically bizarre close yesterday, as he was sentenced to almost 17 years in the slammer:
The most bizarre 45 minutes took place when the judge allowed Mr. Frankel to address the court. He used the opportunity to settle old scores, quote the Bible, crack a joke and plead for leniency. He said most of his misdeeds were caused by his love for a co-conspirator, Sonia Howe, and his desire to earn enough money to protect her two children from harm. The judge was a bit incredulous.
"So, you stole $209 million in order to take care of the children?" she said.
"No," he said. "Can I explain it to you?"
"I'm begging you to explain it to me," the judge said.
Meanwhile, as the admitted perpetrator of one of the largest insurance scams in American history was sentenced to 17 years in prison, a mid-level accountant who did what his bosses told him to do in regard to a merely questionable business transaction continues to serve a 24 year prison sentence.
Folks, you cannot ask for a starker example of the injustice that results from government criminalizing dubious business transactions to assuage public animus toward business failures such as Enron. If government cannot tell the difference between Martin Frankel and Jamie Olis, then it is unlikely that it can tell the difference between Martin Frankel and you or me.
You gotta love Southwest Airlines, Inc.
While most of the legacy airlines are trying to figure out either how to avoid bankruptcy or find financing to exit bankruptcy, Dallas-based Southwest just continues to execute its methodical business plan of expanding its low-cost operations in markets that respond to it.
The addition of the six ATA gates would increase Southwest's capacity at Midway by nearly a third. The airline operates about 150 daily flights from Midway and has already announced it would add 25 more by the middle of next year even without the ATA asset acquisition. The company has more than 2,500 employees in Chicago, which is its fourth largest operation.
Southwest is battling for ATA's assets with another low-cost airline, AirTran, which has submitted a $90 million bid. The Midway gates would give either carrier an increased presence in Chicago, which is the key high-traffic city in the central United States. The fight over Indianapolis-based ATA's holdings began last October when it filed its Chapter 11 case, which is the first large low-cost carrier to file bankruptcy during this latest period of carnage in the always tumultuous American airline industry.
The federal Department of Housing and Urban Development took the extraordinary step yesterday of freezing $48 million of federal funds allocated to the City of Houston until the City corrects over two dozen serious problems in its administration of a program to assist low income families to purchase homes.
The City's administration of HUD funds has been scandalous for as long as I can remember. Rather than encouraging responsible persons in the private sector to become involved in providing quality low income housing to Houston's citizens, multiple City administrations have traditionally allowed the HUD funds to be misused in lining the pockets of political hacks and flighty businessmen interested only in making a quick buck. It is going to take more than Mayor Bill White's platitudes to clean up this mess, which has now become firmly engrained in the fabric of the City of Houston government.
Houston is home to dozens of superb and creative and developers of income-producing residential real estate. Mayor White should tap that civic resource and create an advisory committee to oversee a complete overhaul of this den of corruption. Until that occurs, expect that the federal funds that could be used to subsidize well conceived and constructed low-income housing will continue to be used in Houston to line the pockets of the swindlers who would leach off of those who can least afford it.
As noted in this earlier post, Drayton McLane may be quietly trying to sell the Stros. This Chronicle article speculates that Landry's announcement yesterday that it has completed arrangements for almost $850 million in debt may portend a move by Landry's CEO Tilman Fertitta to buy the club. During spring training earlier this year, Mr. McLane denied publicly that he was negotiating to sell the team to Mr. Fertitta. Stay tuned. Scott Boras will be watching this development carefully.
December 10, 2004
On the heels of the news earlier this week that the Stros had offered Carlos Beltran a seven year deal worth $81 million, Baseball Prospectus' Joe Sheehan was asked about Beltran in a recent chat session:
Question: How much is Carlos Beltran really worth for what he's going to give you and his likelihood of staying healthy?
Joe Sheehan: Beltran has a lot of value that doesn't show up in his Triple Crown stats, with a good walk rate, top-tier defense, and one of the best SB success rates in history. Put it all together with a good health record and his age, and I'd be comfortable exceeding Vlad Guerrero's 5 yrs/$70MM deal, conceding that Guerrero's numbers were held down by the speculation over his back.
I expect Beltran to get much more than that, something like 7 yrs/$126MM, or even 8 yrs/$144MM if the Yankees win the bidding.
As for the question in the subject of this post, here are Drew's statistics.
The bankruptcy judge in the bankruptcy case of former tech law firm Brobeck, Phleger & Harrison has decided to conduct an auction of Brobeck's cause of action against old line law firm Clifford Chance.
The theory of Brobeck's case is that Clifford Chance caused Brobeck's decline by inducing 17 key Brobeck partners to defect to Clifford Chance.
The idea of the auction arose earlier this week when the trustee in Brobeck's bankruptcy case attempted to settle the lawsuit against Clifford Chance for $4.5 million. At the hearing on approval of the settlement, a group of creditors objected to the settlement when a coalition of plaintiff's lawyers (including several from the Houston area) offered $4.8 million for the lawsuit, and the bankruptcy judge decided simply to sell the lawsuit to highest bidder. Both Clifford Chance and the plaintiff's lawyers group appear poised to participate in the "lawsuit auction."
Interestingly, there has been no outcry from tort reformers regarding this unseemly trading in outlandish damage claims. ;^)
And just in case anyone thinks that Notre Dame has the market cornered on over-the-top football fans, check out this story about a dispute that broke out at Texas A&M University over buying Cotton Bowl tickets:
A woman, who is a senior at Texas A&M, who asked that her identity be withheld, shoved a paper copy of a waiting list for SBC Cotton Bowl tickets into her mouth to secure her place in line while waiting to pull tickets for the sold-out game at about 6 a.m. Thursday.
"The piece of paper doesn't justify a spot in line to me if no one is standing there," she said. "If they wanted a spot, they should've woken up."
Aggie blogger Chris Elam over at Safety for Dummies is all over the story, and even identifies the notorious List-Eater.
Lawsuits certainly to follow.
Having followed college football my entire life, I would have never thought that the University of Notre Dame would have a hard time hiring a head football coach.
A week or so ago, Notre Dame fired Tyrone Willingham -- a highly-regarded coach within the profession who will not be without a job for long -- after three seasons and a 21-15 record. Since that time, both the retiring Notre Dame president and its athletic director have stated publicly that they did approve of the firing.
Now, the only thing that has taken a hit here is Notre Dame's affectations. [President] Malloy's statement begs the question: If the school president isn't responsible for Willingham's firing, then who is? . . . [I] have to wonder if this pale after-the-fact confession is what passes for administrative support at Notre Dame these days. Malloy's statement was easy enough to say a week later and 700 miles away. He was in the room where Willingham's fate was being determined. But he deferred, citing his impending retirement.
As Ms. Jenkins notes, for all its nostalgic value, the Notre Dame football program is simply not all that attractive to good football players anymore:
Notre Dame has become a creaking old fraud. That's why people don't want to go there anymore. Its integrity is based on yellowing old cinema reels. Its facilities are outmoded (although it does still have that stadium.) Its recruiting pitch is no longer persuasive: as a destination for coaches and blue-chip recruits, its appeal falls somewhere between those of sleek warm-weather football schools, and the more elite educational institutions such as Stanford and Duke. It's not just old; it's cold.
[Moreover,] the Irish have struggled on the field for nearly a decade and a half now. It's been 16 years since they won the last of their record eight titles, and 10 seasons since they won a bowl game. They've lost four straight to Boston College, three to Tennessee and two in a row to Purdue. And they've had just two NFL first-round draft picks since 1999 -- compared with nine for Ohio State and 21 for Miami.
Which leads me to pass along an old joke among college football aficionados:
Q. What do you call Notre Dame without a football program?
At any rate, Notre Dame will eventually find a good football coach, although it is far from certain that the new coach will fair any better than Coach Willingham, who remains a good coach. Rather, Notre Dame's real problem is reflected best by the hypocrisy of the statements made by its president and athletic director decrying the termination of Coach Willingham.
You see, these two administrators have negotiated the most lucrative television contract of any university athletic program in the nation and have overseen the raising of tens of millions recently to expand Notre Dame's historic stadium. Then, after having a key role in creating this swamp of financial expectations, these two fellows criticize a move that was made precisely because the football program was not meeting those high expectations. Frankly, a much better case can be made that the firing of Coach Willingham was utterly consistent with the values that have become most important in the Notre Dame football program.
Notre Dame is relearning the hard lesson that you reap what you sow. The timing of Notre Dame's realization of that enduring truth will have much more to do with the re-emergence of its football program than whoever the Domers choose as their next football coach.
And it would help to find another Joe Montana out there somewhere. ;^)
December 9, 2004
The Fifth Circuit issued an opinion yesterday in Fiess v. State Farm Lloyds in which the primary issue was whether mold damage was covered under a homeowner's policy. In reversing a summary judgment in the insurer's favor, the Fifth Circuit applied the doctrine of concurrent cause in concluding that the insureds might be able to segregate covered losses from uncovered losses. In so doing, the Fifth Circuit also certified the following question to the Texas Supreme Court:
Does the ensuing loss provision contained in Section IExclusions, part 1(f) of the Homeowners Form B (HO-B) insurance policy as prescribed by the Texas Department of Insurance effective July 8, 1992 (Revised January 1, 1996), when read in conjunction with the remainder of the policy, provide coverage for mold contamination caused by water damage that is otherwise covered under the policy?
This NY Times article tells the interesting story of a heartbreaking conflict within a family and the Point Foundation's efforts to attempt to mitigate the damage that such conflicts can cause. Check it out.
Bobby Cox Companies, Inc. of Ft. Worth -- owner of the Rosa's Cafe, Taco Villa and Texas Burger chains among its other far-flung assets -- bought the assets of Schlotzsky's franchise deli sandwich company out of bankruptcy yesterday in San Antonio. The purchase price was about $28.5 million. Here are the earlier posts on the Schlotzsky's bankruptcy case.
To summarize: After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas (though no such battle is ever won permanently); we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion.
The Wall Street Journal has revived its Econoblog series, this time with Cal economics professor Brad DeLong replacing Jon Irons in discussing topics with George Mason University economist Tyler Cowen. The subject today is the Bush Administration's surprising decision to retain John W. Snow as Treasury Secretary. From this first round, Mr. DeLong looks to be a better choice to serve as Mr. Cowen's counterpart in this discussion. Check it out.
As these earlier posts reflect, a huge Texas Medical Center rift arose earlier this year between Baylor College of Medicine and the Methodist Hospital over Baylor's decision to terminate its 50 year relationship with Methodist and make St. Luke's Episcopal Hospital its primary teaching hospital.
The Baylor-Methodist split has now officially replaced the longstanding acrimony between the world reknowned heart surgeons -- Dr. Michael DeBakey of Baylor's DeBakey Heart Center and Dr. Denton Cooley of St. Luke's Texas Heart Institute -- as the most severe professional turf war in the always tumultuous world of academic medicine in the Medical Center.
The signal for the change in the relative positions of these two heartfelt disputes was the announcement yesterday that Dr. Cooley had appointed a Baylor heart surgeon -- Dr. Joseph Coselli -- as the chief of adult cardiac surgery at the Texas Heart Institute.
Longtime observers of Medical Center politics expected dogs and cats to live together as best friends before such a development would ever occur.
This development will revitalize the Texas Heart Institute, which used to be one of the nation's premier heart centers before lagging behind the top national centers over the past decade or so. The appointment also means that the Texas Heart Institute will be led by an unusual management team comprised of doctors from both of the Medical Center's medical schools, Dr. Coselli from Baylor and Dr. James Willerson from the UT Health Science Center at Houston, who is the institute's president-elect, medical director, chief of cardiology and director of cardiology research.
Here is the Chronicle story on this development.
December 8, 2004
The Onion hits home with an insight about public transportation that Houston's Metropolitan Transit Authority has been taking advantage of for years.
In this Wall Street Journal ($) op-ed, economists John Cogan, Glenn Hubbard and Daniel Kessler make their pitch to make all health insurance tax deductible, not just employer-provided health insurance. This earlier post noted Messrs. Cogan, Hubbard, and Kessler's earlier proposal on this topic, and it is a simple and common sense component of any overhaul of the American health care finance system. That's probably why we did not hear either candidate propose it during the just completed Presidential campaign.
Messrs. Cogan, Hubbard, and Kessler note that the discrimination in the tax laws regarding health insurance has the following negative market effect:
The most important effect of tax deductibility would be to reduce unproductive health spending. Under current law, medical care purchased through an employer's insurance plan is tax-free, while direct medical care purchased by patients must be made with after-tax income. As we and many others have observed, this tax preference has given patients the incentive to purchase care through low-deductible, low-copayment insurance instead of out-of-pocket, which in turn leads to cost-unconsciousness and wasteful medical practices. In addition, the tax preference for insurance creates incentives for the health-care system to rely on gatekeepers rather than deductibles and copayments when it does try to control costs. The cost of gatekeepers are financed out of insurance premiums that are paid with before-tax dollars; deductibles and copayments are paid with after-tax dollars.
On the other hand, Arnold Kling notes that providing a tax deduction for individual health insurance policies may simply change the problem. By allowing individuals to deduct health care expenses, a trend would likely occur toward disintermediation in health insurance -- that is, more young and healthy workers will opt out of company-provided health insurance, which will leave businesses covering a relatively high-risk population that cannot afford individual policies.
So, the board of Hewlett-Packard Co. has discussed breaking up the company three different times, but decided to keep it intact, according to CEO Carly Fiorina. Asked at an analysts' conference in Boston yesterday how the company's board viewed a breakup, Ms. Fiorina said that each time the HP board discussed a potential breakup, it came to "the same unanimous conclusion" to remain one entity.
Joseph A. Jachimczyk, Harris County's medical examiner from 1960 to 1995, died Tuesday in Houston. Dr. Jachimczyk had battled hypertension and Parkinson's Disease for a number of years.
Dr. Jachimczyk was Harris County's first medical examiner and really built the medical examiner's office from scratch. He was generally well-regarded among law enforcement officials, although medical examiners are invariably remembered more for their mistakes than their achievements. That was certainly true for Dr. Jachimczyk, who badly blew two sets of autopsies six years apart in the late 1970's and early 80's in the Diana Wanstrath case that investigators eventually ignored in solving several murders involved in that case.
A vigil service will be held for Dr. Jachimczyk at 7 PM this evening in the chapel of The Settegast-Kopf Co., 3320 Kirby Drive. A funeral mass will be held at 10 AM Thursday at St. Vincent de Paul Catholic Church, at the corner of Buffalo Speedway and Bellaire.
December 7, 2004
The Securities and Exchange Commission is expected to fine at least three former executives of Global Crossing Ltd., the fiber-optic company that went bust in the business downtown earlier this decade.
The fine on the executives -- including the company's founder and former chairman, Gary Winnick -- stems from alleged accounting fraud at the company that spiraled into an Enron-like bankruptcy three years ago under $12.4 billion of debt. Although Global Crossing was also accused of fraud, the reorganized company is currently struggling to obtain financing from key shareholders to remain solvent, so it will not be fined in the settlement.
However, what is most remarkable about all of this is that Global Crossing was forced into its chapter 11 case only a month after Enron and under similar circumstances as Enron. For example, Mr. Winnick sold $734 million in stock as the company plummeted into bankruptcy protection. Nevertheless, as analyzed in more detail in this earlier post, no one associated with Global Crossing has ever been indicted in a criminal case.
So long as we allow government to criminalize business behavior, such arbitrary results will be common. Not only does such governmental action dilute the moral force of law, it will eventually discourage beneficial risk taking that generates economic development and job creation.
Remember that, New York voters, as you decide whether to vote for Eliot Spitzer.
New York Attorney General Eliot Spitzer - for whom New York Governor George Pataki's press secretary once noted that "AG" stood for "Aspiring Governor" - confirmed today what everyone who has not lived the past few years on a deserted island already knew -- that he will run for governor of New York in 2006.
Mr. Spitzer's political agenda is downright frightening for anyone trying to make a living running a business, as his investigations into investment banking, mutual-fund trading, and business insurance have shaken those industries to their core. Indeed, those investigations have arguably made him a more powerful regulatory force than the federal and state agencies that are chartered to regulate those industries.
Consequently, Mr. Spitzer will likely portray himself in the governor's race as the crusading protector of the common investor against the Republican-backed behomeths of Wall Street. However, it's far from clear at this point that Governor Pataki will even seek a fourth term in 2006. Interestingly, early polls show that Mr. Spitzer would beat Governor Pataki in a head-to-head race, but that former New York City Mayor Rudolph Giuliani would beat Mr. Spitzer handily in head-to-head polls. Nevertheless, Mr. Giuliani may well not not run for governor in order to keep his options for higher political office open.
Meanwhile, as far as horse races go, I'm pulling for Dick Grasso to kick Mr. Spitzer's ass in their upcoming lawsuit over Mr. Grasso's compensation and severance from the New York Stock Exchange. In fact, I hope that Mr. Grasso kicks Mr Spitzer's rear decisively.
For a particularly good archive of well-reasoned analysis of Mr. Spitzer's damaging methods of regulation, check out Professor Bainbridge's resources on the topic.
Finally, if you want a taste of how the fawning mainstream media naively views Mr. Spitzer, check out this ludicrous Loren Steffy column from the Houston Chronicle.
"Major League Baseball players' union counsel Gene Orza maintained Sunday that the current steroid crackdown is working. It's not that strict. The first year you get counseling, the second year you get fined, and the third year you get the MVP."
Roland Thatcher, the professional golfer who plays out of the Carlton Woods Golf Club here in The Woodlands, survived the PGA Tour's Q School over the past weekend and was awarded a 2005 PGA Tour card.
Although 35 players are awarded Tour cards out of the Q School Tournament each year, there are many more excrutiating stories of failure, such as this one involving Tour veteran Joel Edwards:
Joel Edwards, another past PGA Tour champion, was on the cut line until hitting his tee shot into the water and taking double-bogey. He took a long walk to the parking lot, letting out guttural screams and pounding his bag along the way, paying his caddie and slamming his car door as he drove off.
This Christian Science Monitor article reports on Adderall, the prescription medication normally used to treat attention deficit disorder (ADD) and attention deficit hyperactivity disorder (ADHD), but which is now becoming the study amphetamine of choice on college campuses.
This Washington Post article reports on how Houston congressman and House Majority Leader Tom DeLay secured NASA's $16.2 billion portion of the $388 federal omnibus spending bill that Congress passed on November 20:
NASA was identified as a major sticking point when Senate and House conferees sat down to craft the final version of the omnibus spending bill near midnight Nov. 19, but Bolten, Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) and DeLay were holding out for more money.
The negotiators appeared to agree on $15.9 billion for NASA, but that wasn't good enough, DeLay said later at the Space Center. "The main responsibility of the majority leader is to set the agenda for the House floor. I wouldn't schedule the bill until NASA was taken care of," he said.
And it was.
"Once you get into an omnibus bill, the leadership takes over, and you need to have an advocate in that circle," Walsh said. DeLay "was getting me more allocation every time he stepped up to the plate. He made the difference."
This NY Times article reports on the growing concern within the lending industry regarding the long-term ability of several of the legacy airline companies to service their existing financing. This follows the move last week reported on here of one of United's lenders taking steps to repossess a portion of United's fleet during the busy Thanksgiving travel season. The article notes:
Where once the idea of losing an airline was unthinkable, both the government and lenders now seem perfectly willing to let that happen. The mood swing was foretold in June, when a federal loan board turned down an application by United Airlines that the airline had thought was a sure bet. Since then, lenders have sat on their hands, watching the company take a chainsaw to its operations, refusing to commit until the airline's final shape is known.
Aircraft lenders, who did their part after the attacks by loosening the terms of some deals, are tightening up again.
What is different now, experts say, is the growth of markets outside the United States, like Europe and Asia, where new airlines are forming, attracting passengers and expanding, making them far more attractive to lenders and airplane leaseholders.
This is a positive development for the airline industry, where allowing a couple of legacy airlines to go belly up would do wonders for the long term health of the industry. Now will the politicians allow it to happen?
December 6, 2004
Calvin Murphy was acquitted of sexual assault charges late this afternoon by a Houston jury that deliberated for only about two hours.
Final arguments were completed earlier today in the sexual assault criminal trial of the former Basketball Hall of Famer and Houston Rocket.
If he had been convicted, Murphy would have faced a sentence of anywhere between probation to what would amount to a life prison sentence. Even though acquitted, Murphy still faces an uncertain future in Houston, where his public persona has basically been trashed by this trial. From revelations about his fathering 14 children with nine different women to living out of his automobile while working his job as a color man on Rocket broadcasts, suffice it to say that not many Houston businesses are lining up to hire Murph as a spokesperson these days.
December 5, 2004
In this extraordinary NY Sunday Times article, U.S. Supreme Court sources provide highly unusual and scathing public criticism of the Fifth Circuit Court of Appeals and the Texas Court of Criminal Appeals' handling of appeals of Texas Death Row inmates. The Houston Chronicle chimes in with a similar article here.
My sense is that the Fifth Circuit judges will not be exchanging Holiday Greeting cards this year with the SCOTUS Justices. And with good reason. The Fifth Circuit must attempt to decipher SCOTUS's almost indecipherable standards for setting aside death penalty convictions while administering hundreds more of such cases each year than SCOTUS. Although excess volume certainly does justify sloppy adjudication, SCOTUS's difficult-to-ascertain standards -- coupled with prisoners' easy access to the appellate process -- is the real culprit here, not any disrespect for SCOTUS or political agenda, as the NY Times article suggests.
After leading 7-6 at halftime, the Texans folded in the second half to allow the Jets to win easily. In another miserable performance during a season of inconsistent outings, Texans' QB David Carr (12/25 for 157 yds, no TD's and 2 ints) threw into coverage the entire day and once again provided considerable evidence that he lacks even average recognition skills after 2.5+ seasons in the NFL.
With Carr totally ineffective, the Jets gradually began to dominate the line of scrimmage in the second half and ended up rushing for more than 200 yds against the Texans' beleaguered defense. Nevertheless, other than Carr, the rest of the Texans played reasonably well and this loss is squarely attributable to Carr's inability to find the hot receiver against the Jets' stout defense.
With young AFC QBs such as Brees, Roethlisberger, Leftwich, and Palmer all outperforming Carr, the Texans' management has to be getting nervous that they blew the first pick in their first draft on what is appearing to be, at best, a barely above-average NFL quarterback.
The 5-7 Texans return to Reliant Stadium next Sunday to be sliced into small pieces by Peyton Manning and the Colts.
Cowboys 43 Seahawks 39. The Cowboys scored 14 points in the final two minutes of the game to edge the Seahawks on Monday Night Football. The Pokes' running back from Notre Dame -- Junius Jones -- looks pretty darn good and has placed Eddie George so far down the Cowboys' bench that he is not even mentioned anymore. The 5-7 Cowboys take on the 4-8 Saints next Sunday at Texas Stadium in Dallas.
The final games of the regular season worked out well for Texas and Texas A&M, as the Longhorns moved into a BCS Bowl game against Michigan in the Rose Bowl, and the Aggies moved up into the Cotton Bowl on New Year's Day in Dallas against Tennessee.
However, the EV1.net Houston Bowl on Dec. 29 was a loser in the bowl selection process as the Independence Bowl selected Iowa State, leaving the Houston Bowl with Colorado, which was pummeled by Oklahoma 42-3 in the Big 12 Championship game on Saturday night. The Houston Bowl wanted to match already selected UTEP with Iowa State because the Cyclones improved dramatically over the last part of the season and their fans travel well. On the other hand, Colorado's supporters are notorious for being the worst traveling fans in the Big 12. Indicative of that trait is the fact that they bought a total of 1,700 out of 8,000 alotted tickets for the Big 12 Championship game.
The other Texas bowls have interesting matchups. San Antonio's Alamo Bowl has Ohio State playing Oklahoma State on December 29, while Arizona State and Purdue will fling it around El Paso's Sun Bowl on New Year's Eve.
December 4, 2004
James Q. Wilson is the Ronald Reagan professor of public policy at Pepperdine University. In this must read Commentary article, Professor Wilson explores the prospects for the emergence of liberal democracies in Muslim countries such as Iraq. His introduction to the topic foretells the depth with which Professor Wilson treats this important issue:
What are the prospects for the emergence of liberal societies in Muslim countries? Note my choice of words: ?liberal,? not ?democratic.? Democracy, defined as competitive elections among rival slates of candidates, is much harder to find in the world than liberalism, defined as a decent respect for the freedom and autonomy of individuals. There are more Muslim nations?indeed, more nations of any stripe?that provide a reasonable level of freedom than ones that provide democracy in anything like the American or British versions.
Freedom?that is, liberalism?is more important than democracy because freedom produces human opportunity. In the long run, however, democracy is essential to freedom, because no political regime will long maintain the freedoms it has provided if it has an ironclad grip on power. Culture and constitutions can produce freedom; democracy safeguards and expands it.
This is what lies at the heart of our efforts to make Afghanistan and Iraq into liberal states. . .
There are certainly grounds for pessimism. For centuries, only Great Britain and its former colonies?Australia, Canada, New Zealand, and the United States?could be called democratic. And even in those countries, the struggle to acquire both liberal and democratic values had been a long and hard one. It took half a millennium before England moved from the signing of Magna Carta to the achievement of parliamentary supremacy; three centuries after Magna Carta, Catholics were being burned at the stake. The United States was a British colony for two centuries, and less than a century after its independence was split by a frightful civil war. Elsewhere, Portugal and Spain became reasonably free only late in the 20th century, and in Latin America many societies have never even achieved the stage of liberalism. The late Daniel Patrick Moynihan once remarked that, of all the states in existence in the world in 1914, only eight would escape a violent change of government between then and the early 1990?s.
Nevertheless, liberal regimes have been less uncommon than democratic ones. In 1914 there were three democracies in Europe, but many more countries where your neck would be reasonably safe from the heel of government. You might not have wished to live in Germany, but Belgium, Holland, Luxembourg, Norway, and Sweden offered reasonably attractive alternatives even if few of them could then have been called democracies in the modern American or British sense.
As for the Middle East, there have been only three democracies in its history: Lebanon, Turkey, and of course Israel. Israel remains free and democratic despite being besieged by enemies. But of the two Muslim nations, only one, Turkey, became reasonably democratic after a 50-year effort, while Lebanon, which has been liberal and democratic on some occasions and not on others, is today a satellite of Syria and the home of anti-Israel and anti-Western terrorists; Freedom House ranks it as ?not free.?
Is the matter as universally hopeless as this picture might suggest? Suppose, as a freedom-loving individual, you had to live in a Muslim nation somewhere in the world. You would assuredly not pick Baathist Syria or theocratic Iran or Saddam?s Iraq. But you might pick Turkey, or Indonesia, or Morocco. In what follows, I want to explore what makes those three countries different, and what the difference might mean for the future.
Professor Wilson's following conclusion also reflects the wisdom with which he addresses his subject:
The good news is that, as compared with support for democracy, support for a liberal regime [in Iraq] is very broad. Over 90 percent want free speech, about three-fourths want freedom of religion, and over three-fourths favor free assembly. Freedom is more important than democracy?a fact that might well have been true in America and England in the 18th century.
And here is where an important lesson lurks for us. Scholars at the RAND corporation have studied America?s efforts at nation-building in the last half-century, ranging from our successes (Germany and Japan) to our failures (Haiti and Somalia) and to all the uncertain outcomes in-between (Afghanistan, Bosnia, Kosovo). One of the most important things we should have learned, they conclude, is that ?while staying long does not guarantee success, leaving early ensures failure.?
In order for freedom to have a chance of developing in Iraq, we must be patient as well as strong. It would be an unmitigated disaster to leave too early. Our Iraqi supporters would be crushed, terrorists and Islamic radicals would have won, and our own struggle and sacrifices would have been for naught.
Liberalism and democracy would bring immeasurable gains to Iraq, and through Iraq to the Middle East as a whole. So far, the country lacks what has helped other Muslim nations make the change?a remarkably skilled and powerful leader, a strong army devoted to secular rule, an absence of ethnic conflict. If we may nevertheless be cautiously optimistic, it is because of the hope that we will indeed stay there as long as we are needed.
Cafe Annie is one of Houston's finest restaurants. Gourmet magazine named Cafe Annie one of "America's Top Tables" in 1997, 1998, 1999 and 2000, while Food & Wine named it the "Best Restaurant in Houston" in 1999. Zagat rated it the "Top Restaurant in Houston" each year from 2000 to 2003. And Cafe Annie received the DiRoNa Award as one of the Distinguished Restaurants of North America in 1997.
In this Houston Press article, Rob Walsh reports on the life and times of Cafe Annie's owner and chef, Robert Del Grande, as he turns 50. It's an interesting update on the originator of the modern "Southwestern cuisine" of Cafe Annie and the "fast-casual" restaurant concept that he originated in the Cafe Express restaurants. The article is an interesting read about yet another of the creative people that makes Houston a special place.
December 3, 2004
The Enron-related criminal cases just seem to get more bizarre by the day.
This Chronicle article reports that the Enron Task Force has named 114 unindicted co-conspirators in the Task Force's criminal case against former Enron executives Ken Lay, Jeffrey Skilling and Richard Causey.
The Task Force has apparently set a record with the number of its named co-conspirators. The next largest number of co-conspirators named in a case that anyone can recall is the one involving former Louisiana governor, Edwin Edwards, where the government named 61 co-conspirators.
Messrs. Lay and Skilling are requesting that the Court require the Enron Task Force to disclose the identities of the alleged co-conspirators so that their counsel can talk with them in preparation of their defense. However, the purpose of the Task Force's abuse of naming such a large number of co-conspirators is transparent -- they want to chill any potential witness for Messrs. Lay, Skilling and Causey from testifying during their upcoming trial. The tactic worked like a charm for the Task Force in the recently completed Nigerian Barge trial, in which none of the two dozen or so co-conspirators who had not already copped a plea deal with the government testified during the trial. All of those alleged co-conspirators asserted their Fifth Amendment privilege.
However, that the tactic works does not make it right. Given the apparent lack of adult supervision in the Enron Task Force in making these types of decisions, here's hoping that the federal judges involved will provide it for them. If not, one has to wonder how Messrs. Lay, Skilling and Causey are supposed to mount an effective defense when the 100 or so people who worked most closely with them are effectively precluded from testifying on their behalf?
Argus Hamilton is a funny fellow, as reflected by this entry from his daily observations from November 30:
Annika Sorenstam competed with the men in the Skins Game Saturday. Last year at the Colonial she broke the barrier and became the first woman to play in a PGA tournament. Somehow you knew the Jackie Robinson of golf would be a Swedish blonde.
Longtime Houstonian and former Secretary of both the State and Treasury Departments, James A. Baker III, opines in this NY Times op-ed that the time is now to begin substantive discussions for resolving the Israeli-Palestinian conflict, and he provides some concrete thoughts on how to accomplish that goal:
Stability in Iraq and peace between Palestinians and Israelis can be pursued at the same time. In fact, working toward the latter improves the chances of attaining the former. . .
The so-called quartet (the United States, the European Union, Russia and the United Nations), which has been working on a "road map" for peace between the Palestinians and Israelis for several years, supports a two-state solution, as do the vast majority of both Palestinians and Israelis. President Bush certainly favors this goal, and Prime Minister Ariel Sharon of Israel has publicly supported it as well, . . .
So the real question is how to take advantage of this window of opportunity to achieve that two-state solution. Specifically, what steps should be taken? Who needs to do what?
First, it is critical that negotiations resume. For this to happen, of course, Israel must have a negotiating partner on the Palestinian side. That partner will best emerge from free elections. Elections have been scheduled for Jan. 9, and all who support peace between Israel and the Palestinians have an obligation to do all within their power to see that those elections are successfully held.
Palestinian candidates should clearly and unequivocally renounce terrorism as a means of achieving a political result - and call upon their supporters to do likewise. And those Palestinians should commit themselves to an unequivocal, good-faith effort to crack down on terrorist groups that make a target of Israel.
In exchange, Israel should announce that upon the election of a Palestinian negotiating partner, it is prepared to resume substantive negotiations for peace without requiring that all terrorist activities cease in advance. To require the absence of any terrorist act in advance simply empowers the terrorists themselves to prevent the resumption of peace negotiations.
The United States should itself clearly embrace and articulate the unequivocal, good-faith standard for the resumption of dialogue. The United States should further prevail upon Israel to cease settlement activity in the occupied territories pending Palestinian elections and during the resumption of peace negotiations. Washington should also do everything else that it can to encourage both sides to resume meaningful talks. And it should serve, where necessary, as a direct participant in the talks, offering suggestions, brokering compromises and extending assurances.
We cannot, of course, prejudge the final outcome of any talks. But the plan presented by President Bill Clinton and Prime Minister Ehud Barak at Camp David in 2000 - and rejected by Yasir Arafat - surely offers one plausible place to start.
While the United States cannot dictate the terms of peace to either party, it can and should actively promote the resumption of negotiations. The time to start is now.
Read the entire piece. Mr. Baker is certainly correct that conditioning talks on the cessation of terrorist attacks simply empowers the radical Islamic fascists whose only goal is the destruction of Israel.
However, the legacy of failed negotiations with Arafat is the fact that he supported such attacks, on one hand, while negotiating with Israel on the other. The lack of trust that resulted from that duplicity has permeated Israeli-Palestinian relations for the past generation. Whether the new Palestinian leadership is capable of standing up to the forces within its leadership that foment that lack of trust will ultimately be the key element to the success or failure of any new initative.
The typical media reaction to this development will be self-righteous outrage, but I find my reaction to be one of sadness. I mean, how sad is it that one of baseball's all-time greats resorted to illegal and dangerous drugs to enhance his career? Well, probably about as sad as the fact that supposedly secret grand jury testimony ends up on the front page of the local paper. Even sadder (and not even mentioned by the mainstream media) is that there is no study that has been done to date that indicates there is any competitive advantage to be gained by use of anabolic steroids in baseball. In other words, it is clearly cheating, but it may not actually enhance performance even though Bonds' career statistics may be anecdotal evidence of enhancement.
Also lost in the media firestorm over the revelations about Bonds is the even sadder stories of Jason Giambi, the former MVP who now has serious health issues that are likely a result of his steroid use and of his brother Jeremy, who has also admitted to using steroids but whose baseball performance has eroded dramatically while he has been taking them. Consequently, apart from the mainstream media's drumbeat to implicate the stars with steoroids, the real substantive story here may be that using steroids is unrelated to top-tier performance in baseball. At very least, the net effect of baseball players using steroids remains decidedly unclear.
The bottom line on all of this is that professional sports in general, and Major League Baseball in particular, has not done a good job of drawing the line with regard to what should constitute illegal use of drugs and other alleged performance enhancing substances. As a result, the league rules (as well as our nation's laws) governing which substances are legal and illegal are often arbitrary and hypocritical. Indeed, the libertarian part of me tends toward the position that true freedom means that professional athletes are ultimately responsible for their physical condition and that they should assess the risks and costs of such activities themselves.
Moreover, professional sports teams (as well as their fans) often encourage their players to risk their health. Players who "play with pain" are the subject of adulation in all levels of sport, as are players who risk injury by running into walls, taking cortisone shots to be able to perform with reduced pain (see Roy Oswalt this season), and undergoing risky surgeries to lessen pain in order to play in a big game (see Curt Schilling in the World Series).
Consequently, the difference between a ballplayer taking pain-reducing drugs to get through a season and a slugger using performance enhancing drugs in an attempt to be more productive is not as wide as it may appear on first glance.
If cooler heads prevail, professional sports should address this public relations fiasco by commissioning a study that would determine in a clinical fashion the impact, if any, that steroid use has on athletic performance. Then, in a manner that is sensitive to the rights of all parties involved, Major League Baseball should use the findings of the clinical research to establish a clear regulatory system governing the use of all types of performance enhancing drugs. Perhaps then the mainstream media would even begin to address the issues in a balanced manner rather than the inflammatory style that it currently uses on the subject to sell newspapers.
As to the possibility of this mess being handled in such a manner? Next to zilch. So it goes.
December 2, 2004
In this Opinion Journal piece, Peggy Noonan writes the best and most balanced epilogue on Dan Rather's career that I have read to date. Ms. Noonan, who used to write Mr. Rather's daily radio commentary, has some particularly insightful personal observations about Mr. Rather, including the following:
Dan was a great boss. He was appreciative of good work and sympathetic when it wasn't good. He was one of the men--Douglas Edwards and Dallas Townsend were two others--to whom I am indebted, for they taught me how to write for the ear, how to write for people who are listening as opposed to reading. He was generous with praise. Someone who did a good job on a story got flowers and a note. Someone in the newsroom once knocked Dan in a magazine profile, saying he was insecure, always sending too many flowers. Dan thought, Really? Life's tough, you can't send too many flowers! He was open to ideas, he was democratic and not hierarchical in his management style, and he tried to be fair in his dealings with people in spite of a personal emotionalism that was deep, ever present and not entirely predictable.
For three years, from 1981 through 1984, I wrote his daily radio commentary, a four-minute essay with a one-minute spot that went out to all the CBS affiliates and network-owned stations. It was a great job. We did some good work. Here's how it got done: When I had been doing the show for a few weeks I could see that my work was not good--uneven, without voice, without a clear point of view. I thought I knew the reason. I had become increasingly a political conservative. Dan, it was obvious to me, was a sort of establishment liberal--not a wild leftist and not an ideologue, but whatever smart liberals thought was more or less what he wound up thinking, and saying. I couldn't write his views well, because I didn't buy them and didn't fully understand them. I couldn't write my views, because the show had to reflect his thinking. So I went to him and told him my problem. He was great. He said: On any given issue that we discuss, give the liberal point of view fairly and give the conservative point of view fairly, and then we'll end it with my opinion, because it's my show. I thought that sounded good.
And it worked. "Dan Rather Reporting" actually got something of a conservative following, not because it was a conservative show--it wasn't--but because it actually put forward the conservative point of view in what might be called a fair and balanced way.
As noted in my earlier post, the Wright Amendment is so clearly obsolescent and contrary to the interests of the public that the controversy over its proposed repeal provides a useful barometer to measure a politician's true motivations. Be wary of any politician who contends that the Wright Amendment serves a useful public interest. That's another way of saying that "the supporters of the Wright Amendment contribute more to my campaign war chest than the folks who overpay for airline tickets."
This post from awhile back explored the phenomena that governmental subsidies - even ones that are the product of good intentions - eventually generate obsolescence.
Following up on that thought, the Washington Post's Steve Pearlstein makes the point in this op-ed that governmental subsidies in college funding, housing, and health care have caused serious distortions in the market place, starting with college funding:
And one of the big reasons [that college administrators] can [continually raise tuition] is the ever-increasing amount of public money pumped into the system in a losing effort to keep college "affordable." In effect, these well-intentioned subsidies have the perverse effect of shielding colleges from the kind of market discipline that would have forced them to hold down prices by constantly improving their productivity and efficiency, as happens in just about every other industry.
And how about health care?:
In health care, the big culprit is the tax deduction for employer-paid health insurance, which has hard-wired into the American psyche the expectation that companies should pay for their employees' health insurance. . . Unfortunately, the unintended effect of this $112 billion-a-year tax deduction is to make insured consumers largely indifferent to how much health care they consume or what it costs. And in the face of such indifference, doctors and hospitals and drug companies have done what any profit-maximizing industry would do: push prices and utilization up 7 to 10 percent each year until so many people are priced out of the market that government is forced to pump in even more money, spurring a whole new round of spending increases.
Finally, the home ownership subsidy:
And then there is homeownership, which has somehow become synonymous with "the American dream." The mortgage interest deduction already costs the Treasury $62.6 billion a year, supplemented by billions more in implicit subsidy provided via Fannie Mae, Freddie Mac and the regional Home Loan Banks. To a large degree, however, this money has rewarded those already with homes while making it harder for everyone else to afford one.
The home mortgage deduction is no different than a monthly rebate. Over time, its effect is to boost the price of the house until it incorporates most of the subsidy. And the more the house appreciates, the bigger the tax deduction, creating a dynamic of ever-increasing house prices.
Read the entire piece. All of which re-emphasizes that government subsidies are strong medicine with serious side effects. As such, they should be deployed infrequently and with great care.
This NY Times article reports on an interesting twist to the current takeover battle involving Mylan Laboratories' bid for the generic drug maker, King Pharmaceuticals and legendary takeover expert Carl C. Icahn's typical strategy to extract some ransom from Mylan's takeover bid. Mr. Icahn owns about 10% of Mylan and, of course, opposes the bid for King.
Turns out that a New York-based hedge fund called the Perry Corporation owns seven million shares of King and is attempting to profit from the spread between the price Mylan offered for King shares ($16.49) and King's actual share price (closed yesterday at $12.42). If Mylan's bid is successful, then Perry would make a cool $28 million on the deal.
However, in making its play, Perry appears to have set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that Perry now controls about 10 percent of Mylan's votes with limited or no exposure to fluctuations in Mylan's share price. Perry appears to have accomplished this by buying 26.6 million shares of Mylan while having Bear Stearns and Goldman Sachs "short" the same number of shares. The result of the transaction is that it removes any risk of price fluctuations for either side.
The move leaves Perry as the largest, albeit indirect, shareholder of Mylan and most likely means that Mylan will receive enough shareholder votes to approve the deal for King. As a high school football coach once told me while describing the reaction of his booster club to a failed trick play, "that went over like a turn in a punchbowl" with Mr. Icahn, who the Times quotes with self-righteous fury:
"If this is true, in our opinion, this maneuver is rigging an election, plain and simple, and robbing shareholders of the right to have a meaningful vote - one of the few rights they have left. If hedge funds or any other investors are permitted to dictate the outcome of corporate elections without having economic interest in the companies, then any semblance of corporate democracy we still have in our country would become a travesty."
Translation of the above quote from Mr. Icahn:
"I sure wish I had thought of that!"
December 1, 2004
And on a lighter note, my nephew Richard passes along an excellent and funny story about the Talmudist.
Following on Professor Sauer's excellent post noted here regarding the recent Pacers-Pistons fight at Auburn Hills, the Washington Post's Richard Cohen has one of the best op-eds that I have read on the affair to date:
Much attention continues to be paid to Artest, as if he is such a mystery. He is a rough kid from a rough part of the world with what are known as anger management issues. These are the same issues that bedeviled the late Lizzie Borden and now afflict road ragers across the land. Artest has a record when it comes to such matters -- this is not his first suspension -- and he appears (although I am not personally acquainted with him) a couple of cards short of a full deck. It is authoritatively reported, for instance, that while playing for the Chicago Bulls at the usual multimillion-dollar salary, he applied for a Sunday job at Circuit City so he could get an employee discount.
Be all that as it may, you can surely appreciate the sort of anger that erupts in a man when a fan hits him with a cup full of liquid. . . Sure, Artest should not have reacted the way he did, but you can appreciate what angered him -- and why. He deserves to be punished, but he is not all that hard to understand.
But Mr. Cohen finds the people who participated in the brawl almost incomprehensible:
But the fans? What is wrong with them? They are idiots, being played for suckers by a bunch of millionaires who own ball teams. Because they happen to live in a certain area, they root for a certain team. Never mind that the players usually don't live in the area and they would, for either a buck or a whim, go somewhere else. The fans for some reason identify so passionately with a team that they are willing to risk physical injury on its behalf. Freud, I am sure, had a term for such people: jerks.
Being nicer, I see them differently. They are mere fools being manipulated by teams in ways that would make Pavlov salivate in appreciation. The noise, the choreographed cheering, the booming announcer and, not least, the constant acceptance or encouragement of what used to be called poor sportsmanship -- for instance, thunder sticks used to rattle players at the free-throw line -- are attempts to bond fans to a team that would, in a flash, desert them for a better arena in another city. It works. Vast numbers of people have turned over a piece of their self-worth to a team. They feel good when it wins and bad when it loses and, in some cases, will risk or inflict injury in a cause so worthless that their children should be raised by foster parents for their own good.
I understand wanting to belong to something and I understand a keen appreciation of the game. But the fan, like "the voter" and "the stockholder," has become so hypocritically venerated that it has become virtually sacrilegious to call him (or her) a chump and an idiot when they go too far. So, please, sportswriters of the world, spare me any more analysis of Artest and throw some light on the world of the fan. It must be a dim one, indeed.
The political activism in business affairs of the California Public Employees' Retirement System ("Calpers") -- one of the nation's most powerful institutional investor -- is leading to a nasty public fight over its leadership.
Sean Harrigan, the president of the Calpers, is expected to be fired today. The move comes amid a growing controversy over Calpers' boardroom-governance crusades in regard to companies in which it invests and its interference in operational affairs not directly related to protecting its investments.
I'm betting that the primary source of the problem with Mr. Harrigan is his advocacy of a new conflicts-of-interest policy for corporate boards' outside auditors that prompted Calpers to cast proxy votes against even popular company directors, such as Warren Buffett. Mr. Harrigan also pushed for such out-of-place causes as aggressive investigations into the prisoner-abuse scandal in Iraq and rationalized that move because of Calpers' small stake in a company that was involved in providing support services in Iraq. Finally, Calpers led the effort to oust Richard Grasso as head of the New York Stock Exchange and campaigned for Walt Disney Co. Chief Executive Officer Michael Eisner's resignation as chairman earlier this year.
Despite the rather odd approach to corporate governance issues, Calpers posted solid investment returns for the year ended June 30. It reported a 16.7% one-year return on its global investments and a 20.8% return on its U.S. stock holding, which is better than its benchmark index (the Wilshire 2500).
Nevertheless, Mr. Harrigan's legacy will be of attempting to micromanage the affairs of several companies in which Calpers invested. Such a policy gets a lot of press in the short run, but does not make many friends in the business world in the long run.
Murphy is expected to take the stand this afternoon, and he will likely be the final defense witness. The prosecution will probably not offer much in terms of rebuttal, so expect the case to go to the jury by the middle part of next week.
Whatever the outcome of this sad affair, Murphy is through as a local celebrity.