May 31, 2005
In a unanimous decision, the Supreme Court overturned the conviction of the defunct Arthur Andersen accounting firm for destroying documents relating to its client, Enron Corp., before Enron collapsed into chapter 11 bankruptcy in late 2001. Here are the previous posts on the Andersen case.
Chief Justice Rehnquist, writing for the Court, said that the conviction was the product of defective jury instructions at trial that were too vague and broad for jurors to determine correctly whether Andersen obstructed justice. Justice Rehnquist noted that jurors were instructed to convict Andersen if the accounting firm had an "improper purpose," such as an intent to impede or subvert fact-finding in an "official proceeding." Thus, Justice Rehnquist reasoned, jurors were instructed to convict even if Andersen mistakenly thought it was acting legally. At trial, Andersen argued that employees who shredded tons of documents followed the policy and there was no intent to thwart the SEC investigation.
On a threshold basis, Justice Rehnquist analyzed the case in the following manner:
In this case, our attention is focused on what it means to "knowingly . . . corruptly persuad[e]" another person " with intent to . . . cause" that person to "withhold" documents from, or "alter" documents for use in, an "official proceeding."
We have traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress, . . . and out of concern that a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed. [citations ommitted].
Such restraint is particularly appropriate here, where the act underlying the conviction -- "persua[sion]" -- is by itself innocuous. Indeed, "persuad[ing]" a person "with intent to . . . cause" that person to "withhold" testimony or documents from a Government proceeding or Government official is not inherently malign. Consider, for instance, a mother who suggests to her son that he invoke his right against compelled self-incrimination, . . . or a wife who persuades her husband not to disclose marital confidences. [citations ommitted].
Nor is it necessarily corrupt for an attorney to "persuad[e]" a client "with intent to . . . cause" that client to "withhold" documents from the Government.
In a later part of the opinion, Justice Rehnquist ribs the Government regarding its argument about Congress' alleged meaning of the key phrase in the criminal statute under scrutiny:
The Government suggests that it is "questionable" whether Congress would employ such an inelegant formulation as "knowingly . . . corruptly persuades." . . Long experience has not taught us to share the Government's doubts on this score, and we must simply interpret the statute as written.
And in discussing the defective instructions given to the jury at trial, Justice Rehnquist notes that following:
[T]he jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing. Indeed, it is striking how little culpability the instructions required. For example, the jury was told that, "even if [Andersen] honestly and sincerely believed that its conduct was lawful, you may find [Andersen] guilty." . .The instructions also diluted the meaning of "corruptly" so that it covered innocent conduct. . .
The ruling is a stunning setback for the Department of Justice generally and the Enron Task Force specifically, which pursued a dubious prosecution of Andersen that effectively terminated a going concern that employed 30,000 persons in the U.S. (in comparison, Enron's implosion cost approximately 5,000 employees their jobs). That economic carnage was a stark reminder of the increasingly common governmental regulatory practice of criminalizing merely questionable business transactions, a practice that has been played out over and over again in other aspects of the Enron case and, more recently, in regard to the governmental investigations into American International Group Inc.
Professor Ribstein, a longtime critic of governmental regulation through criminalization of merely questionable business transactions, places the Supreme Court's decision in the perspective of the damage done by the government's prosecution:
[I]n addition to destroying value and lives, it significantly reduced competition in the auditing industry and thereby impeded efforts to engage in the cleanup the pro-regulatory folks have thought is oh so necessary. Now it turns out the whole thing was a legal as well as policy mistake.
More generally, this is yet another nail in the coffin of the misbegotten idea that corporate criminal liability is the way to better markets.
So, the Supreme Court reminds us that the rule of law does not allow the government to abuse the law to engage in popular prosecutions of unpopular business figures. As has been noted on many previous occasions on this blog, this principle is precisely what Sir Thomas More was talking about in A Man for All Seasons when he made the following comments to young lawyer Will Roper, who had just confirmed that he would abuse the rule of law in order to achieve the laudable goal of convicting the Devil of a crime:
"Oh? And Roper, when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down -- and you're just the man to do it, Roper -- do you really think you could stand upright in the winds that would blow then?"
"Yes, I'd give the Devil the benefit of law, for my own safety's sake!"
The Supreme Court's decision in Anderson cannot bring that firm back to life, and that is an injustice. But it does provide a measure of protection to us from the government abusing the law and using its overwhelming power to pursue wrongful prosecutions against the unpopular persons of the moment. And for that, I am very thankful.
By the way, Fiesta Texas is directly adjacent to the Westin La Cantera Resort, which is one of the best resort properties in Texas. A part of one of the two La Cantera golf courses (the one on which the Texas Open is played) runs right next to the Rattler, one of the giant rollercoasters at Fiesta Texas.
Several years ago, my older brother Bud and I were playing a round at that La Cantera course with a club pro from East Texas. The club pro was not having a good round. After snap hooking one off the tee on the hole where you tee off right above -- and within earshot of the screams emanating from -- the Rattler, the club pro turned to Bud and me and said with utter exasperation:
"This sure as hell ain't Augusta National."
This Telegraph article provides a nice summary of the potential implications to French business interests of the vote over the weekend by French voters to reject the proposed European Union constitution.
The French left's vote heavily influenced the election, with two thirds of the Socialist base voting no, including over 70 per cent no vote levels in hard-Left strongholds such as Calais. French employers are clearly worried about the implications of the vote, which they believe will stymie employment reforms that would allow the French economy to become more competitive with the U.S. and emerging economic powers such as China and India.
By the way, Marginal Revolution's Tyler Cowen notes in this post that it's already not easy to find a plumber in France.
Meanwhile, Forbes Paul Maidment provides this insightful summary of the political implications of the vote, including this observation:
The French campaign united some strange political bedfellows. Witness the Trotskyite far left making common eurosceptic cause with the conservative right, The "no" camp was also boosted by the unpopularity of President Jacques Chirac and the cautious economic reform-minded Prime Minister Jean-Pierre Raffarin, both advocates of the draft constitution.
But the pre-vote polling reflected a growing mistrust of Europe's institutions, not confined to France, we should note, as well as wider economic and social anxieties. The proposed EU constitution was attacked by its French opponents for being an Anglo-Saxon neoliberal document that threatens the integrity of the French social economy. (In the U.K, of course, the constitution is mainly opposed because it is a Franco-German neo-statist document that threatens the integrity of the British market economy.) So caution is required in interpreting the outcome of Sunday's poll.
And, Jane Galt of Asymmetrical Information sums up the implications of the vote this way:
I'll tell you what is a big deal for the EU, though: the euro. The disparities between euro-zone economies are not shrinking as everyone had hoped; in some places, they're growing. That is making it nearly impossible to craft monetary policy that is both hawkish on inflation, and doesn't throw huge economies (i.e. Italy and Germany) deeper into the slough of economic despond. Italy, meanwhile, is managing to disprove the adage that "inflation is always and everywhere a monetary phenomenon" by having stagflation, a recession, and an inflation hawk at the monetary helm. If the euro falls apart, it could have major repercussions for the EU, as it would be a full scale retreat from "ever-closer union".
May 30, 2005
Americans are having another Sputnik moment: one of those periodic alarms about some foreign technological and economic menace. It was the Soviets in the 1950s and early 1960s, the Germans and the Japanese in the 1970s and 1980s, and now it's the Chinese and the Indians. To anyone old enough, there's no forgetting Oct. 4, 1957, when the Soviets orbited the first space satellite. It terrified us. We'd taken our scientific superiority for granted. Foolish us. Soon there were warnings of a "missile gap" with the Soviets. One senator admonished that Americans should "be less concerned with . . . the height of the tail fin on the new car and . . . be more prepared to shed blood, sweat and tears if this country and the free world are to survive."
Every complex economy is more (or less) than the sum of its parts. What matters is not just how much we save -- but how well we invest. . . .
The Sputnik syndrome is an illusion. It transforms a few selective economic happenings -- a satellite here, a Toyota there, poor test scores everywhere -- into a full-blown theory of economic inferiority or superiority. As often as not, the result is misleading. We are now going through this process with China and India. Their entry into the global economy is a big deal, with some obvious pluses and minuses for us. As they get richer, some of their talent that once came our way may stay home (especially if we make getting U.S. visas harder). On the other hand, good ideas that originate in Bangalore or Shanghai will soon benefit people everywhere -- just as good American or Japanese ideas have before. . . .
On being overtaken, history teaches another lesson. America's economic strengths lie in qualities that are hard to distill into simple statistics or trends. We've maintained beliefs and practices that compensate for our weaknesses, including ambitiousness; openness to change (even unpleasant change); competition; hard work; and a willingness to take and reward risks. If we lose this magic combination, it won't be China's fault.
Nevertheless, there are glimmers of hope as the last place the Stros (18-31) return to Minute Maid Park on Memorial Day for a six game homestand against first the Reds (20-30) and then the Cards (32-17). Given that the Reds and the Cardinals are two of the best hitting teams in the National League in terms of runs created against average ("RCAA," explained here), the Stros' pitchers will have their work cut out for them in keeping the number of runs at the minimum level necessary to give the Stros a chance to win.
And, believe me, runs are a hard thing to come by for this Stros team. This is clearly one of the worst hitting Stros' clubs of the past 25 years, maybe ever. With just 30% of the season played, the Stros have already scored an incredible 53 less runs than an average National League club would have scored during the same number of games. That's easily the worst in the National League.
Only two regulars -- Bidg (7 RCAA/.297 BA/.353 OBP/.537 SLG) and Morgan Ensberg (6/.284/.381/.535) -- have positive RCAA's, and really only one other regular player -- Lance Berkman (-5/.212/.325/.288) -- is a good bet to have a positive RCAA after the remainder of the season. Moreover, don't buy into the common explanation in the mainstream media that the Stros' hitting woes this season are the result of losing Jeff Kent (3/.261/.351/.483) and Carlos Beltran (3/.300/.349/.465) over this past off-season -- even with those players, the Stros would still be tied for the worst team RCAA in the National League!
The Stros' hitting problems have been apparent for quite some time; last season's late-season surge and playoff run simply covered them up. Thus, the Stros are definitely a club that is in the market for a hitter, and it's good to see that the mainstream media is now discussing proposed trades that were suggested here a month ago. As noted here, a trade for a slugger to two should be a real possibility so long as the Stros are willing to use a couple of their good, young pitching prospects as bait.
Meanwhile, the Stros' pitching staff continues to hang in there despite the lousy hitting. After an earlier two-week span in May in which the pitching staff's runs scored against average ("RSAA," explained here) dipped a bit, the staff recovered over the past week with a string of strong performances. The staff is now 7th of the sixteen National League teams in RSAA with both the Rocket (24 RSAA-1st in NL/1.19 ERA) and Roy O (10 RSAA-9th in NL/3.23 ERA) performing at a particularly high level. In fact, if you exclude the absolutely abysmal performance of both Duckworth (-12/11.40) and Astacio (-14/10.98), the pitching staff's RSAA performance would currently be the third best in the National League. Inasmuch as those two hopefully will not pitch much more this season, it is reasonable to expect (barring injury) that the Stros pitching staff's RSAA will improve gradually over the balance of the season.
Clemens kicks off the upcoming homestand by pitching the Memorial Day matinee game to open the series against the Reds, which should be interesting for no other reason than it pits the worst hitting team in the National League (i.e., the Stros) against the worst pitching team in the National League (i.e., the Reds). After this homestand, the Stros go to New York for three games with the Mets (26-25), and then return home the following weekend for a three game series against the Blue Jays (27-23) before going back on the road for a six game road trip.
May 29, 2005
A couple of articles today about local business disputes reiterate the truism that, so long as humans are involved in a market economy, the risk of fraud is an essential element of virtually every transaction.
In this NY Times article, Kurt Eichenwald -- whose recent Conspiracy of Fools (previous posts here) is the best book written to date on the Enron scandal -- profiles a family-controlled business in Conroe, Texas (about 40 miles north of downtown Houston) that is now beset with competing allegations of business fraud between the brother-owners. As Mr. Eichenwald notes:
How could it happen? How could a small company be wrecked so quickly amid myriad accusations of financial wrongdoing that went undetected until the whole place came tumbling down?
The answer is, it happens every day. The Con-Tex story is not just the tale of the downfall of one company or one family. It is a microcosm, a look at an underbelly of the investing and corporate worlds where hokey deals and mysterious webs of linked investors are part of the workaday business.
Although the article is quite good and interesting, one point that Mr. Eichenwald missed is that, despite the popular urge to use governmental regulation to punish every instance of business fraud, it really makes no economic sense to do so. The cost of such a regulatory net that would catch all business fraud (assuming that one could even be devised) would be enormous and far in excess of what Americans would be willing to subsidize.
Meanwhile, Chronicle columnist Rick Casey reviews the saga playing out in Harris County Probate Court between former Houston businessman Robert Alpert and his former attorney, Mark Riley. Mr. Riley is the trustee of a couple of trusts that Mr. Alpert had set up for his children. After a falling out with Mr. Alpert, Mr. Riley filed a lawsuit against Alpert in which he alleges that Mr. Alpert is interfering with his work as the trustee of the trusts and that Mr. Alpert is fraudulently using the trusts as a tax dodge.
The interesting twist to this case is that, during the civil litigation, Mr. Riley hired a well-known local criminal defense attorney -- Robert Scardino -- to negotiate a "bounty deal" between Mr. Riley and the IRS in which Mr. Riley could receive 15%, up to $7.5 million, of any penalties, fines and back taxes that the IRS recovers from Mr. Alpert as a result of information that Mr. Riley supplies.
Mr. Casey is troubled that the Probate Judge in the case -- who many years ago used to work for the law firm representing Mr. Riley -- will not allow attorneys for Mr. Alpert to introduce a copy of the bounty agreement as evidence during the trial of the civil case between Mr. Riley and Mr. Alpert. My sense is that Mr. Casey's suggestion is far-fetched that the judge's motivation in not allowing admission of the bounty agreement is to protect his former law firm, but it doesn't appear from the article that there is much of a reason that the jury should not be allowed to consider the bounty agreement in the context of the lawsuit between Mr. Alpert and Mr. Riley.
Just two more stories from the soft underbelly of the wild world of business litigation in Houston.
May 28, 2005
Quashed coups (five since 1996) are so routine in Equatorial Guinea that some wags observe that the the government stages them like Broadway plays to add luster to its macho image. The latest coup last year was the stuff of novels, involving a highly dysfunctional ruling family, a rap-music-producing heir apparent who drives a Lamborghini, and a political opponent in exile who contends that Equatorial Guinea's dictator is a cannibal who particularly enjoys eating human gonads. The coup also allegedly involved a Lebanese front company, Sir Mark Thatcher (here and here and about 100 mercenaries from South Africa, Germany, Armenia and Kazakhstan. Add to that background the fact that Equatorial Guinea has huge oil and gas reserves that many Western exploration and production companies are competing to develop and you have a tempest of international intrigue and corruption.
Against that colorful backdrop, Simon Kareri, a former Riggs Bank senior vice president and his wife, Nene Fall Kareri, were arrested yesterday in Washington on fraud, conspiracy and money laundering charges related to accounts at the bank of the Equatorial Guinea government, which formerly was the bank's largest customer.
Riggs Bank, which is now owned by PNC Financial Services Group Inc., pleaded guilty in January to a felony charge of failing to report suspicious transactions involving foreigners, including former Chilean dictator Augusto Pinochet and members of his family. The bank also agreed to pay a $16 million fine, which the bank paid on top of a record $25 million civil fine that Treasury Department assessed against the bank last ago.
Mr. Kareri was Riggs' senior international banking manager and has been a target of a federal grand jury investigation since he took the Fifth Amendment at a Senate subcommittee hearing investigating U.S. oil company investments in Equatorial Guinea last July. In an example of a typical transaction, Senate investigators found payments totaling almost a half million dollars from a big U.S. oil company into the account of a 14-year-old relative of Equatorial Guinea's dictator, earmarked for "renting office space."
Life really is stranger than fiction.
May 27, 2005
On the heels of this lawsuit, this New York Times article profiles the defense team of former AIG chairman and CEO, Maurice R. "Hank" Greenberg -- David Boies, Robert G. Morvillo, and longtime Greenberg confidant, Kenneth J. Bialkin of Skadden, Arps.
In typical NY Times style, the article treats Mr. Boies as a rock star, while essentially avoiding too much mention of the two less flashy members of the defense team. Overall, the team strikes me as somewhat odd. Mr. Boies is a longtime supporter of Democratic Party interests, which is the opposite of Mr. Greenberg's political interests. Moreover, Mr. Morvillo -- the criminal law expert -- is coming off the rather disappointing trial defense of Martha Stewart last year. I would not be surprised to see additional members added to this team when the inevitable criminal indictments against Mr. Greenberg are filed, probably later this summer.
Longtime Houston attorney John D. White was elected as chairman of the Texas A&M University System Board of Regents yesterday. John is the managing partner of the local office of the Jones Walker law firm, a first rate litigator (particularly in oil and gas matters), and one of the genuinely nicest guys in the Houston legal community. A&M's board has chosen well.
By the way, yesterday's A&M Board meeting was the first for new regent Gene Stallings. Coach Stallings is a former A&M, University of Alabama, and NFL Phoenix Cardinals head football coach, and his 1992 Alabama team won the National Championship.
May 26, 2005
New York AG ("Attorney General" or "Aspiring Governor," take your pick) Eliot Spitzer and the New York State Insurance Department filed a civil lawsuit today against American International Group, Inc and its two former top executives -- former CEO Maurice R. "Hank" Greenberg and former CFO Howard I. Smith -- alleging that the two executives orchestrated a scheme that allowed AIG to manipulate its financial results and mislead regulators and investors.
After managing AIG into one of the world's largest financial companies over the past 40 years, Mr. Greenberg resigned as AIG's CEO and chairman this past March under pressure from the AIG Board and Mr. Spitzer. At around the same time, Mr. Smith was fired as AIG's CFO for allegedly refusing to cooperate with Mr. Spitzer's investigation, although Mr. Spitzer had made clear by that time that both Mr. Greenberg and Mr. Smith were targets of his parallel criminal investigation. Here are previous posts on the saga of Mr. Spitzer's investigation of AIG and Berkshire Hathaway's General Reinsurance Corp, and here is a copy of the complaint and Mr. Spitzer's press release regarding the complaint.
There is really nothing much new in the complaint, which was filed in State Supreme Court in Manhattan and seeks damages and disgorgement of profits from the allegedly illegal transactions. The Lord of Regulation alleges that Mr. Greenberg orchestrated wrongdoing in "an apparent effort to improve the company's financial results," even as AIG "was a well-run and profitable company that didn't need to cheat." The complaint does not address the fact that the transactions in question were approved by AIG and its independent auditors. The Securities & Exchange Commission and Justice Department are also investigating AIG, but neither is involved in Mr. Spitzer's civil lawsuit.
Meanwhile, AIG and its auditors, PricewaterhouseCoopers LLP, are working to finish the company's delayed annual report by the company's self-imposed May 31 deadline. Still remaining to be seen is whether AIG can weather an Enronesque meltdown now that the Lord has deemed Mr. Greenberg's earnings management strategies as illegal, and to ponder the importance of good timing in going bust. AIG's shares have lost almost a quarter of their value since Mr. Spitzer announced his campaign against AIG on February 12, closing today at $55.71 compared to a value of $73.12 on Friday, Feb. 11.
In its inimitable style, the B.B.C. has produced a news video segment on the three U.K. bankers who have been dubbed the "NatWest Three" (earlier posts here) in the Enron case. To view the video:
Go to this site.
Hit the "Launch" button, which produces a new window.
In the new window, scroll down on the right hand side to the April 20 hyperlink, "Million Dollar Manhunt." The video plays in RealPlayer.
It's always entertaining to hear the British pronounce "Houston." Also, the piece is definitely not complimentary of the Federal Detention Center in downtown Houston. Finally, it seems in the video as if Philip Hilder (Sherron Watkins' attorney) is doubling as a spokesman for the Enron Task Force. ;^)
By the way, this Glasgow Herald article provides an interesting U.K. perspective on the NatWest Three case, including the following comment from a Glasgow University law professor:
"Three questions arise here. Firstly, will they receive a fair trial, second, would the sentence be out of proportion with European norms and thirdly, is there a real risk of other forms of mistreatment either in detention conditions or more usual the infliction of violence?"
Tory Gattis runs the smart blog, Houston Strategies. In this post, Tory notes Metro's less-than-robust rail ridership figures (see this earlier post) and then describes litigation that Metro could be facing in the near future if Metro's ridership trends continue.
Great. Add litigation attorneys as another interest group favoring misguided rail plans. ;^)
If you are contemplating a purchase of new golf clubs, make sure that you read this first.
As David Feherty comments:
"Maybe we're all supposed to stink at this. It's our punishment for playing this insane game."
By the way, if you are really interested in improving your golf game and not just hitting longer drives, read this.
The New England Journal of Medicine yesterday published the findings of a large-scale study that indicate that angioplasty -- an increasingly popular invasive procedure for patients with blocked coronary arteries -- carries a higher risk of death over the long term than open-heart bypass surgery. The researchers were led by Edward L. Hannan, chairman of the Department of Health Policy Management and Behavior at the University at Albany School of Public Health.
The study is particularly significant because it raises questions regarding the shift in treatment for blocked coronary arteries over the past decade or so -- the shift away from coronary bypass surgery in favor of angioplasty, which involves sliding a balloon into an artery through a small incision and then propping it open with a wire-mesh stent.
Inasmuch as angioplasty procedures require a far shorter recovery time and lower risk of in-hospital complications than bypass surgery, it is currently performed more than one million times a year in the U.S., which is about three times the rate of bypass operations. Bypass surgery generally costs between $25,000 to $35,000 while angioplasties run from around $10,000 to $15,000.
The study involved a review of almost 60,000 patients from 1997 through 2000 with serious heart disease in two government databases in New York state. Researchers concluded that those with three blocked arteries who received stents were 1.56 times as likely to die within three years as those who had bypass surgery. Similarly, those with two blocked arteries who got stents were 1.33 times as likely to die as those who had bypass surgery. Finally, over a third of the angioplasty patients required either surgery or additional stents within three years, while only 5% of the bypass surgery patients required either angioplasty or further surgery within the same period. The researchers note that the study does not include findings on the newer generation of drug-coated stents, which some cardiologists believe will improve the outcome for angioplasty.
This large scale study adds to an increasing number of smaller studies finding advantages of bypass surgery over angioplasty for long-term survival. Last year, a Cleveland Clinic study that followed 6,000 patients found that the risk of death over time was more than twice as high in the angioplasty group of relatively high-risk patients.
Both the Cleveland Clinic and New York studies involved review of registry data and not the controlled clinical trials that scientists consider the best form of evidence. In registry studies, researchers must adjust existing data for various factors, which can lead to debate and criticism over the effect such adjustments have on the ultimate findings of the study. Nevertheless, registry data studies allow the reearchers to involve much larger patient groups than clinical trials and to evaluate medical practices that are being most commonly performed in the medical marketplace.
The trial has been a strange one. Looking like a tap-in for the prosecution at the beginning, the prosecution committed some early blunders, such as allowing its key witness to testify falsely regarding a video shown to the jury and then compounding that mistake by attempting to blame the error on a clearly intimidated woman who previously provided video services for Enron. At that point, the trial was looking really interesting.
Unfortunately, the fireworks did not last long. The trial quickly descended into mind-numbing boredom, noted here and here. Thus, when the Enron Task Force prosecutors advised U.S. District Judge Vanessa Gilmore that they expected that it was going to take at least a week to ten days longer to complete presentation of their case-in-chief than they originally predicted, a jury rebellion nearly broke out. It's exceedingly difficult to read if a jury is blaming the prosecution or the defense for such delays, but the lawyers on both sides accelerated examination of witnesses over the past week in an attempt to get the trial back on course. Inasmuch as the defense side of this type of case normally does not take as long as the lawyers originally predict, my sense is that the trial is back on track to conclude by late June.
Despite their early mistakes, the Enron Task Force prosecutors ended their case-in-chief by eliciting testimony about the "elephant in the courtroom" -- i.e., the large amount of money that three of the former Enron executives-defendants made on stock sales during the period in which the prosecution alleges that they were making false public statements about Enron Broadband's prospects. That is clearly the strength of the prosecution's case, and expect the prosecutors to hammer that point again and again throughout the remainder of the trial.
The defense team begins presentation of their case today. Let's hope they liven things up a bit.
May 25, 2005
This handy document ranks the size of the 741 largest university and college endowments in the United States. Although most of the largest endowments are held by well-known institutions, there are surprises even among the biggest endowments. Not many people realize that little Grinnell College in Grinnell, Iowa has the 34th largest endowment in the U.S. at almost $1.3 billion.
Here are some entries of interest to Houstonians:
1. Harvard University $22.1 billion
2. Yale University $12.7 billion
3. University of Texas System $10.3 billion
10. Texas A&M University System $4.375 billion
17. Rice University $3.3 billion
52. Baylor College of Medicine $972 million
56. Southern Methodist University $914.5 million
57. Texas Christian University $869 million
78. Trinity University $673 million
79. Baylor University $672 million
125. University of Houston System $402.5 million
129. Texas Tech University $392.5 million
Given the institutions' relative contributions to the welfare and economy of the State of Texas, does it really make sense for the University of Houston to have an endowment that is only roughly 4% the size of the University of Texas endowment and only 10% of that of Texas A&M? Ah, the legacy of the Permanent University Fund. At least UH is providing some serious "bang for the buck" in furnishing a quality educational resource for the State of Texas and Houston at a fraction of the endowed capital of UT and A&M.
On the other hand, one way to ameliorate the effects of the disproportionate size of the endowments would be through merger. How about turning UH into the University of Texas at Houston (UTH) and Tech into Texas A&M University at Lubbock? Or vice versa, in that it actually might make more sense to merge UH with A&M, which is more in need of an urban presence than UT. Inasmuch as it is in the interests of Texas for UH and Tech to achieve Tier I university status, a merger into either the UT or A&M systems would give both institutions access to endowed capital that would facilitate such an effort.
By the way, don't worry. Both UH and Tech could retain their football teams after the mergers. ;^)
May 24, 2005
One of the more interesting sidelights to the criminal investigations into Enron Corp. has been the saga of the "NatWest Three" -- David Bermingham, Gary Mulgrew and Giles Darby, the three former National Westminster Bank PLC bankers based in London who are charged in Houston with bilking their former employer of $7.3 million in a scheme allegedly engineered by former Enron CFO Andrew Fastow. Here are the previous posts on the NatWest Three.
Earlier this morning, English Home Secretary Charles Clarke approved the extradition of the NatWest Three to Houston to face the seven counts of wire fraud that each of them face under the U.S. indictment. The NatWest Three have two weeks to appeal Mr. Clarke's decision, and an appeal would likely tie the matter up further in U.K. courts.
The case of the NatWest Three is gaining increased public interest in England because the three bankers have contended that, if a fraud case should be prosecuted against them at all, then the case should go forward in England because the men are all British and the alleged offenses were committed against a United Kingdom company. If a British prosecution against the three were to proceed, then the U.S. prosecution would be delayed because the British charges would take precedence over foreign ones. A British prosecution would also raise all sorts of double jeopardy and collateral estoppel issues that could at least complicate any subsequent U.S. prosecution.
The U.K.'s Serious Fraud office decided not to prosecute the three former bankers, but the three bankers last month won a judicial review of that decision. Although Mr. Clarke was not required to consider the judicial review issue in deciding whether to approve the men's extradition, British legal commentators are now openly questioning why the British government is giving in so easily to a U.S. government extradition request relating to reputable U.K. businessmen, particularly in regard to an extradition that would result in a prosecution of those U.K. citizens in Houston's anti-Enron environment for alleged crimes that the U.K. government has declined to prosecute?
That's a pretty darn good question.
Mr. Crandall was viewed as a hard-knuckled but successful executive during his tenure at American. Always worried about the tendency of airlines to price cut themselves to ruination, Mr. Crandall was tape-recorded (some would say set up) by the CEO of bankrupt Braniff Airlines, who prompted Mr. Crandall to make the unremarkable statement that both airlines would benefit if they raised prices. The Justice Department censured Mr. Crandall for broaching price fixing over that incident. In his campaign to control rising costs during the new era of deregulation, Mr. Crandall took on the airline labor unions, prompting a flight attendant strike in 1993 and a pilot strike in 1997. However, when he retired, American was a much healthier company financially than it is now.
While running American, Mr. Crandall did not enjoy the competition that Dallas-based American faced from Dallas-based discounter, Southwest Airlines. In this WSJ ($) letter to the editor, Mr. Crandall takes the Journal to task for what he considers revisionist history regarding the controversial Wright Amendment, which restricts Southwest from flying most interstate routes from its Dallas Love Field hub:
In the 1960s, the cities of Dallas and Fort Worth made an agreement with the U.S. government and with the airlines then serving the two cities. The U.S. had told the cities that it wouldn't provide continued support for two airports, but that if they could agree on a single airport, the government would provide help in creating it. The cities agreed to prohibit competition with DFW from any other airport, the airlines serving both city airports agreed to move and to take on the financial burden of paying off the bonds with which DFW would be built and sustained, and the new airport was built. During construction, Southwest was created, and when the airlines moved to DFW, Southwest found a legal loophole that allowed it to remain at Love Field, which is much closer to the businesses, hotels and high-income residential areas of Dallas. Thus, Southwest gained a unique monopoly position in one of the country's premier markets and avoided bearing any of the cost of creating and sustaining DFW.
The city of Dallas could and should have closed Love Field to fulfill its promise to prevent competition against DFW, as Denver did when it closed Stapleton to prevent it from competing with the new Denver airport. Unfortunately, Dallas lacked the moral courage to fulfill its obligation. In retrospect, it was a mistake for American and others to agree to the compromise that the Wright Amendment represented, for Southwest and others now mischaracterize it at every opportunity.
Lino A Graglia is the A. Dalton Cross Professor of Law at the University of Texas Law School and Texas' foremost Constitutional law scholar. From time to time, he has also been one of the more outspoken and controversial commentators on application of Constitutional law to social issues in American society.
In this Opinion Journal op-ed, Professor Graglia notes that modern Constitutional law is narrowly based:
The essential irrelevance of the Constitution to contemporary constitutional law should be clear enough from the fact that the great majority of Supreme Court rulings of unconstitutionality involve state, not federal, law; and nearly all of them purport to be based on a single constitutional provision, the 14th Amendment--in fact, on only four words in one sentence of the Amendment, "due process" and "equal protection." The 14th Amendment has to a large extent become a second constitution, replacing the original. . .
The problem is that the Supreme Court justices have made the due process and equal protection clauses empty vessels into which they can pour any meaning. This converts the clauses into simple transferences of policy-making power from elected legislators to the justices, authorizing a court majority to remove any policy issue from the ordinary political process and assign it to themselves for decision. This fundamentally changes the system of government created by the Constitution
The basic principles of the Constitution are representative democracy, federalism and the separation of powers, which places all lawmaking power in an elected legislature with the judiciary merely applying the law to individual cases. Undemocratic and centralized lawmaking by the judiciary is the antithesis of the constitutional system. . .
Plato argued for government by philosopher-kings, but who could argue for a system of government by lawyer-kings? No one can argue openly that leaving the final decision on issues of basic social policy to majority vote of nine lawyers--unelected and life-tenured, making policy decisions for the nation as a whole from Washington, D.C.--is an improvement on the democratic federalist system created by the Constitution. Yet that is the form of government we now have.
The claim that the court's rulings of unconstitutionality are mandates of the Constitution, or anything more than policy preferences of a majority of the justices, is false. Rule by judges is in violation, not enforcement, of the Constitution. Ending it requires nothing more complex than insistence that the court's rulings of unconstitutionality should be based on the Constitution--which assigns "All legislative Power" to Congress--in fact as well as name.
As noted in this earlier post, the Lord of Regulation latest political grandstanding strategy has been to launch an investigation into the sub-prime lending industry, which provides the valuable service of lending money for home loans at higher interest rates to those who cannot qualify for a conventional mortgage because of insufficient income, lack of assets or credit problems. It's almost certain that his investigation will damage the industry and thus, reduce the number of people it can profitably serve while scaling back the growth rate in home-ownership. As with many of Mr. Spitzer's investigations, the real victims are not the ones he pretends to threaten.
Well, apparently the banks are not rolling over for Mr. Spitzer quite as quickly as most of his other targets. This Wall Street Journal ($) article reports that certain of the banks in Mr. Spitzer's latest probe may decline to cooperate because the primary regulator of national banks is the Office of the Comptroller of the Currency and not Mr. Spitzer's office.
As usual, the Lord of Regulation is not reacting well to competition on his turf of regulating all alleged business corruption. Last week during a speech in Washington, Mr. Spitzer accused the OCC of trying to thwart his lending investigation and, in so doing, noted a telephone call he received from the OCC's acting comptroller, Julie L. Williams.
That did not sit well with Ms. Williams, who criticized Mr. Spitzer for launcing an investigation into an area that is clearly within the regulatory mandate of the OCC:
"I was surprised and disappointed to see what I had understood to be a personal conversation recounted as part of a speech."
Given Mr. Spitzer's general disdain for markets in regulating business, wouldn't it be delicious irony for one of his investigations to be thwarted by competition within the regulatory marketplace?
May 23, 2005
The youngest player to win an LPGA golf tournament in 50 years emerged yesterday as graduating high school student Paula Creamer won her first LPGA event at something called the Sybase Classic by sinking a clutch 20-foot birdie putt on the final hole.
For you fellow parents of teenage girls, I'm sure you can relate to Paula's following answer to a question during her post-round interview:
Q: You said yesterday you were anxious. Did you just handle that much better today?
A: Yes, I think so. I called Colin, my caddie. We talk a lot, every day, and we talked to Lance about it, and just things to help me be not anxious and be calm and patient out there. And it worked well for a while. It's funny, because on 17 I hit a pretty decent good shot and then Gloria hit it within two feet. And Lance was like, "Come on, you have to make this putt." And I'm like, "Listen, you need to settle down, not me. We have a hole and a half to play. Come on." It worked well.
There were times I tend to walk very fast when things are like on the last hole, 18, I was 50 yards in front of Lance. And Lance was screaming, "Paula, Paula, stop!" And I waited. And then we walked up. I just have to learn how to control it. The last putt, I was shaking because of nerves and just wanting to see what's going to happen.
It's only a matter of time before Dan Jenkins picks up on this material.
Doctor and author Robin Cook has re-evaluated his view on universal health insurance based on advances in academic understanding of the human genome. In this NY Times op-ed, Dr. Cook notes the following:
In this dawning era of genomic medicine, the result may be that the concept of private health insurance, which is based on actuarially pooling risk within specified, fragmented groups, will become obsolete since risk cannot be pooled if it can be determined for individual policyholders. Genetically determined predilection for disease will become the modern equivalent of the "pre-existing condition" that private insurers have stringently avoided.
As a doctor I have always been against health insurance except for catastrophic care and for the very poor. It has been my experience that the doctor-patient relationship is the most personal and rewarding for both the patient and the doctor when a clear, direct fiduciary relationship exists. In such a circumstance, both individuals value the encounter more, which invariably leads to more time, more attention to potentially important details, and a higher level of patient compliance and satisfaction - all of which invariably result in a better outcome.
But with the end of pooling risk within defined groups, there is only one solution to the problem of paying for health care in the United States: to pool risk for the entire nation. (Under the rubric of health care I mean a comprehensive package that includes preventive care, acute care and catastrophic care.) Although I never thought I'd advocate a government-sponsored, obviously non-profit, tax-supported, universal access, single-payer plan, I've changed my mind: the sooner we move to such a system, the better off we will be. Only with universal health care will we be able to pool risk for the entire country and share what nature has dealt us; only then will there be no motivation for anyone or any organization to ferret out an individual's confidential, genetic makeup.
Hat tip to the HealthLawProf Blog for the link.
In a gathering of advertisers last Wednesday in New York City, CBS chairman Leslie Moonves explained that CBS lost the key rating title this past season to Fox among viewers between the ages of 18 and 49 because of Yankees relief pitcher Mariano Rivera.
Mr. Moonves reasoned that the ratings race between Fox and CBS was so close that if the ratings for just one of the seven playoff games between the Yankees and the Red Sox last October were subtracted, CBS would have beaten Fox for the year. That series went to a seventh game because Riviera uncharacteristically blew several Yankee save opportunities. Thus, Mr. Moonves concluded, "Mariano Riviera cost us more money than the Yankees."
I wonder if that will lead to a new pitching statistic: "Blown ratings race?"
May 22, 2005
My younger son and I attended last Thursday's game against the D-Backs (26-18) that was highlighted by five Stros' errors. It's a sure sign that the season is not going well when the loudest cheers of the evening occur when a Stros player would beat out a double play ball. Then, the Rangers (24-20) swept the Stros over the weekend, concluding with an 18-3 rout in which Stros starting pitcher Ezequiel Astacio (10.61 ERA/-13 RSAA, explained here) punched his ticket back to AAA Round Rock while imitating a deer in the headlights, and a 2-0 waste of a strong Roy O (3.50/6 RSAA) pitching performance. The Stros are now tied for last place in the NL Central with the Reds.
There is really no mystery to why the Stros are doing so poorly. As was the trend last season (except for the last third of the season), the Stros have become a poor hitting team. The club is now in last place in the National League at -31 runs created against average ("RCAA," explained here), and the poor hitting has seemed to affect the pitching staff, which has fallen to 11th in the National League at -4 RSAA. Inasmuch as only Bidg (10 RCAA/.310 AVE/.371 OBP/.568 SLG), Ensberg (10/.311/.414/.561), and Palmeiro (2/.341/.388/.477) currently have a positive RCAA among the Stros hitters, the loss of Bags, Kent, and Beltran really has not had that big of an effect on the Stros -- the Stros would still only have a -21 RCAA even with those players. Ouch!
Consequently, this is a fundamentally deficient team in terms of hitting. The Stros' failure to upgrade their personnel at catcher and a couple of the outfield positions is really coming home to roost at this point, and it's time for Stros management to rid the club of some dead wood on the roster and open the spots up for younger players who at least have some potential. For example, Ausmus, who has exactly two extra base hits in almost 100 plate appearances this season, should be released in favor of AAA catcher Humberto Quintero, who is currently hitting .277/.326/.477 at Round Rock compared to Ausmus' -6 RCAA and pathetic .253/.320/.275.
Meanwhile, the Stros have at least four top pitching prospects at AAA Round Rock (Wandy Rodriguez and Jared Gothreaux) and AA Corpus Christi (Fernando Nieve and Jason Hirsch). Perhaps dangling Backe with one of two of those prospects would generate interest from a pitching starved club such as the Reds so that they would dangle one of their young slugging outfielders, Adam Dunn, Austin Kearns, or Wily Mo Pena. The Stros are a team that has been desperately in the need of an infusion of hitting for over a year now, and it's time for Stros management to get creative in dealing some of the club's pitching strength to create the balance between hitting and pitching that is essential to success on the Major League level.
The Stros are on the road for the next week against the Cubs (19-22) and the Brewers (20-23) before returning home next Monday (Memorial Day) for a homestand against against the Reds (15-28) and the Cardinals (27-16). Lefthander Wandy Rodriguez, who has a 3.69 ERA at Class AAA Round Rock, has been promoted to make his major-league debut tonight against the Cubs at Wrigley Field in place of Andy Pettitte, who is missing at least one start due to "forearm" (translated: "elbow") stiffness.
May 21, 2005
A good, old-fashioned snit between Texas political opponents gave the Houston Chronicle an opportunity this week to make a good point about the rule of law and the integrity of governmental investigations. But in so doing, the Chronicle highlighted its failure to apply precisely the same standard to far more egregious examples of prosecutorial impropriety, a good bit of which is taking place in the Chronicle's own backyard.
As this Washington Times article reports, Travis County District Attorney Ronnie Earle (first picture left) -- who is investigating House Minority Leader Tom DeLay's campaign finance methods (previous posts here) -- characterized Mr. DeLay as a "bully" in a speech at a Democratic Party fundraiser in Dallas. Among Mr. Earle's comments were the following:
"This case is not just about Tom DeLay. If it isn't this Tom DeLay, it'll be another one -- just like one bully replaces the one before. This is a structural problem involving the combination of money and power. Money brings power and power corrupts."
Well, level-headed liberals and conservatives agreed that Mr. Earle should not have sullied the integrity of the investigation into Mr. DeLay's campaign finances by taking potshots at Mr. DeLay during a partisan gathering. But Mr. DeLay's hometown newspaper -- the Chronicle -- went even further and published this stinging editorial questioning Mr. Earle's judgment:
Earle's attendance and remarks attacking DeLay at a Democratic fund-raiser last week in Dallas damaged the credibility of his investigation with a stunning display of prosecutorial impropriety.
[I]t is inappropriate for a prosecutor to discuss a case under investigation in a political setting, or to single out a potential target of that probe for criticism.
The fact that Earle refuses to recognize his blunder and would do it again calls into question whether he has the necessary impartiality and judgment to conduct the investigation . . .
The Chronicle's broadside toward Mr. Earle was made all the more surprising by the fact that the local newspaper has been a frequent critic of Mr. DeLay. So, the Chronicle editorial definitely scores some points for objectivity.
However, before the Chronicle editorialists pat themselves on the back too much for their fairness in defending Mr. DeLay against Mr. Earle's imprudent remarks, they need to answer the following question:
Where has that objective viewpoint been over the past several years as other "stunning displays of prosecutorial impropriety" have been perpetrated on business executives, including many right under the nose of the Chronicle in Houston?
In that connection, it has become commonplace for officials of the federal government to conduct a virtual political rally as they flame already well-stoked local emotions against former executives of that favorite corporate pariah, Enron:
"[T]he president's corporate task force, which celebrates its second anniversary tomorrow . . . [has demonstrated that] just the mention of the name Enron evokes images of duplicity and greed," said Linda C. Thomsen, director of enforcement for the Securities and Exchange Commission;
"[T]he corporate culture of Enron guided by Mr. Lay is now synonymous with corporate fraud and greed at its worst. And Enron's crooked 'E' logo depicts the corporate management team at Enron -- crooked," opined Internal Revenue Service Commissioner Mark W. Everson; and
In a December, 2004 interview, the Chronicle reported that Andrew Weissmann (second picture above), director of the Enron Task Force, compared Enron executives to New York mobsters that he previously prosecuted.
Literally dozens of other examples of inflammatory public statements from Enron prosecutors and government officials could be cited.
Meanwhile, as noted in this earlier post, the Lord of Regulation went on the Sunday talk show circuit recently to condemn Maurice "Hank" Greenberg, one of the targets of the Lord's ongoing investigation into American International Group, Inc.:
"These are very serious offenses," stated Mr. Spitzer gravely. "Over a billion dollars of accounting frauds that A.I.G. has already acknowledged. . . That company was a black box, run with an iron fist by a C.E.O. who did not tell the public the truth. That is the problem."
Now, let's take stock here. In each matter described above, prosecutors have made inflammatory public statements about subjects of their highly-publicized criminal investigations. In Mr. Earle's case, the Chronicle condemns his one imprudent remark in the strongest terms. But what has the Chronicle had to say about the multiple comments of the Enron prosecutors and Mr. Spitzer, which frankly are much more numerous and egregious than Mr. Earle's relatively tame comments?
Nothing. Nada. Zilch.
The Chronicle's blindspot is typical of the mainstream media's apathy toward the prosecutorial misconduct that is taking place these days as big government criminalizes big business. The existence of business fraud at companies such as Enron, WorldCom, Tyco and maybe even AIG does not necessarily mean that there is more misconduct in big business than in any other relatively large organization, such as big government or even big news organizations. Nevertheless, prosecutors such as Mr. Spitzer and those on the Enron Task Force are publicizing these instances of business fraud to generalize arbitrarily against those who are easy and popular targets -- i.e., wealthy (and apparently greedy) businessmen. The Chronicle has embraced this public relations tactic while portraying the Enron Task Force as the defender of noble egalitarianism fighting against the forces of corrupt capitalism.
In the wake of such seemingly simple morality plays, many legitimate business transactions -- most notably structured finance transactions that most prosecutors and journalists neither understand nor do the homework necessary to understand -- are unfairly and incorrectly portrayed as complex business frauds. Completely ignored in the process is the fact that such transactions build wealth in companies for the benefit of shareholders, and that such transactions are usually reviewed and approved by multiple professionals who are experts in such transactions. The misguided nature of the government and the Enron bankruptcy examiner's criminalization of Enron's valid structured finance transactions has been well-chronicled by University of Chicago business professor and structured finance expert Christopher Culp in his recent books, Corporate Aftershock (Cato 2003) and Risk Transfer (Wiley 2004).
So, three and a half years now after Enron spiraled into bankruptcy, the Enron Task Force has completed one trial, and obtained one conviction and one acquittal of former Enron executives (the Task Force is currently conducting a trial against five former Enron executives in the Enron Broadband case). Rather than prosecute clearly criminal conduct, the preferred approach of the Task Force has been to sledgehammer former Enron executives with multi-count indictments so that each of the executives is faced with the prospect of what amounts to a life prison sentence if they risk exercising their Constitutional right to defend themselves against the charges. Yale Law School Professor John Langbein has written and spoken extensively about how the government is manipulating this plea bargain system to pressure people to buckle and accept a plea, even if they are innocent.
Admittedly, some of the former Enron executives who copped pleas -- notably Andrew Fastow, Ben Glisan and Michael Kopper -- stole from Enron and thus, certainly engaged in criminal conduct. However, many others who have entered into plea deals did not engage in any clearly criminal conduct. Rather, they entered into those deals simply because they could not risk either the financial drain or the long prison term that they faced if they attempted to defend themselves against the Task Force's sledgehammer.
In the meantime, just to make sure that public perception remains inflamed against big business targets, Mr. Spitzer and the Enron Task Force continue to make inflammatory public statements and disclosures about their targets that strongly imply guilt and wrongdoing. Again, what has the Chronicle had to say about this unsavory use of the government's overwhelming prosecutorial power?
Nothing. Nada. Zilch.
The preservation of our freedom is inextricably tied to upholding the rule of law, and that includes restraining the government when it attempts to erode the rule of law to convict an unpopular defendant. As noted many times on this blog, this principle is precisely what Sir Thomas More was talking about in A Man for All Seasons when he made the following comments to young lawyer Will Roper, who had just confirmed that he would abuse the rule of law in order to achieve the laudable goal of convicting the Devil of a crime:
"Oh? And Roper, when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down -- and you're just the man to do it, Roper -- do you really think you could stand upright in the winds that would blow then?"
"Yes, I'd give the Devil the benefit of law, for my own safety's sake!"
The Chronicle is right that even Tom DeLay is entitled to the protection of due process of law in the face of the overwhelming power of a governmental prosecution. But so are former Enron and AIG executives. Not only for their protection, but for ours.
May 20, 2005
The economic lunacy of light rail has been an occasional topic on this blog (here, here, here, and here). However, blogHouston.net has a much more impressive archive of insightful posts over the past year on the foibles of the Houston Metropolitan Transit Authority, which has completely redesigned Houston's public transit system over the past decade from a flexible one based primarily on bus transit to an inflexible one based primarily on light rail.
Metro wants to spend an additional $104 million on its Main Street light rail line to almost double the number of trains and fix costly problems it blames on construction errors.
Metropolitan Transit Authority president and CEO Frank Wilson laid out his wish list to the agency's board Thursday, shortly after releasing statistics that show surging rail ridership but decreased numbers of bus riders and overall customers.
The cost Metro estimates for the improvements would raise the bill for what Metro calls its Red Line ? the 7.5-mile route from downtown to Reliant Park ? by about a third.
At the same time, the agency is seeking federal money to help build four light rail extensions with a combined price tag of $1.7 billion.
The Chronicle goes on to report that, although light rail ridership has increased, the total number of people using Metro mass transit (i.e., light rail and buses) has declined by 3% over the past year.
Not exactly the return on investment that one would wish for after plunking down $325 million to build the 7.5 mile light rail system.
At any rate, Ms. Linehan uses her skill in translating Metro-speak to explain why Metro officials believe that spending another cool $104 mil on the existing light rail line is a good idea:
"We cut corners building the 7.5 miles of downtown light rail; we have dismantled bus and trolley service in order to feed the light rail; we don't have a consistent method for collecting fares so we can't talk about 'paid ridership;' we are bleeding passengers systemwide even though Houston's population has increased; and now we'd like an extra $100 million to help fix our mess."
Thus, the scam of this publicly-financed rail system continues to eat money voraciously with no end in sight. The economic benefit of light rail is actually highly concentrated in only a few interest groups, such as elected officials who enjoy touting their political "accomplishment," environmental groups who seek to gain political influence, construction-related firms who can soak the public till, and real estate developers who enjoy the increase in the value of their property along the rail line. Inasmuch as none of these reasons for mass transit are particularly appealing to the vast majority of the electorate, the interest groups disguise their goals behind disingenuous claims that rail lines will reduce traffic congestion, curb air pollution, or -- the one I like best -- make a city "world class." In reality, rail transit has never been an efficient means to reduce either congestion or air pollution, and a rail line has certainly never made a city "world class."
On the other hand, the costs of such systems are widely dispersed among the local population. Thus, the many who stand to lose will lose only a little while the few who stand to gain will gain a lot. As a result, it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying against even an uneconomic rail system. With political leadership more interested in shiny toys than pro forma operating statements, the publicly-financed rail systems continue to infect metro areas like a bad virus, and the cost of treating this civic virus grows larger each month.
Finally, the foregoing analysis does not even count the cost associated with this carnage.
Where is the Lord of Regulation when you really need him? ;^)
Following on the news reported in this earlier post, America West Holdings Corp and U.S. Airways Group Inc. announced yesterday that they are proceeding with a merger that -- contrary to the usual optimism surrounding such deals -- could sink both airlines.
The theory of the deal is that, by combining the smaller, low-cost America West to US Airways larger but more costly operation, the companies would create a full-service nationwide airline with a competitive pricing structure that could be profitable even at the current high level of fuel prices. The combined company will be based in Tempe, Ariz., where America West is now based, but will be called "US Airways."
New equity investors will infuse $350 million for a 41% stake in the merged company, America West shareholders will receive 45%, and 14% will go to US Airways creditors. The airlines believe that they can attract another $1.6 billion in new capital -- including the new equity and financing from partners, suppliers, asset-based loans, etc. -- so that they expect to have less debt and $2 billion in cash on hand when the deal closes this fall. The two carriers pegged the equity value of the combined airline at $850 million.
US Airways has been a basket case for quite some time and has been wallowing in a chapter 22 (i.e., it's second chapter 11 case) since September, 2004. Last year, the company posted a net loss of over $600 million on revenue of just a bit over $7 billion. Here are some previous posts on that troubled airline.
Meanwhile, America West narrowly escaped a chapter 11 case in late 2001 by arranging a bailout loan of over $400 million backed by federal guaranties. America West posted a net loss last year of almost $90 million on revenue of about $2.35 billion, and ended 2004 with about $400 million in cash.
So, although far from a surefire success at this point, the merger does have at least glimmer of hope -- the reduction of one airline from the over-crowded U.S. airline industry. Maybe markets still do work in the inscrutable airline industry!
This Dan Feldstein/Houston Chronicle article reports on the cozy relationship between two prominent Houston businessmen and Monique McGilbra, former head of Houston's Building Services Department, who pleaded guilty earlier this month to federal bribery charges. Local political weblog blogHouston.net has been discussing this corruption story about officials from former Mayor Lee Brown's administration for some time, and it appears that Mr. Feldstein is bearing down on a story that could shake up Houston City Hall.
The Chronicle article reports that prosecutors claim in court documents that Keystone Group, through its principals Alan Schatte and Michael Surface, paid Garland Hardeman -- who was McGilbra's boyfriend at the time -- $3,000 a month as a "consultant" when Keystone was seeking deals from the City of Houston through McGilbra.
Mr. Schatte is a well-connected local businessman with Democratic Party ties who has specialized in making deals with the City of Houston and made a small fortune from dealings with local governments that occasionally court controversy. He was one of the founders of BSL Golf, which renovated and now manages the municipal Hermann Park Golf Course for the City of Houston. Mr. Surface is chairman of the Harris County Sports & Convention Corp. that runs Reliant Park for the county. He and Mr. Schatte were the original owners in Keystone Group, which specializes in government-leased real estate projects.
The Chronicle reports that, through a spokesman, Mr. Schatte disclosed that federal authorities have not advised him that he is a target of a criminal investigation and that he denies any wrongdoing with regard to the McGilbra affair. The Chronicle could not reach Mr. Surface for comment.
May 19, 2005
SYDNEY, Australia (AP) - The World Anti-Doping Agency will consider restoring caffeine to its list of banned substances after Australian Rugby Union captain George Gregan said he used it to enhance performance.
WADA director general David Howman said Wednesday that reports of Gregan and other Australian athletes using caffeine to boost performance were disturbing.
Gregan said Tuesday that he'd been using caffeine tablets before matches - with the knowledge and approval of Australian sports authorities - since caffeine was removed from WADA's list of banned substances in January 2004.
He claimed the caffeine could improve performance by up to seven percent, citing research at the Australian Institute of Sport. But AIS director Peter Fricker said Gregan's figures on caffeine were inflated, saying any boost would be "in the region of three per cent."
Thank goodness there is no such proposed ban in regard to federal criminal trials.
Hat tip to Off Wing Opinion for the link.
Texas Supreme Court justice and former Houston lawyer Priscilla Owen's nomination to the Fifth Circuit Court of Appeals in New Orleans will finally reach debate on the Senate floor today. This Washington Post article provides a good summary of how the Republicans intend to use the expected Democratic filibuster over Justice Owen's nomination to force a vote on the nomination with a simple majority instead of the three-fifths majority that is currently required under Senate rules.
Politics aside, it's unfortunate that Justice Owen's nomination has become a political football in the Congressional battle over the President's proposed judicial selections. In reality, she is precisely the type of talent that our nation needs in the federal appellate courts. She was a law-review editor at Baylor Law School and the top graduate from that school at the ripe old age of 23. After posting the top score on the Texas bar exam, she entered private practice with Andrews & Kurth in Houston where she became a partner and developed an excellent reputation as a litigator in oil and gas law over a 17 year period. Since entering the judiciary, Justice Owen has served on the Texas Supreme Court for the past 10 years, where -- during her last election to that court -- she was supported by a larger percentage of Texans than any of her colleagues and enjoyed the endorsement of every major Texas newspaper. She has received the highest rating possible ? a unanimous "well qualified" ? from the American Bar Association, which is certainly no bastion of Republican Party politics. Thus, under normal circumstances, the Senate would confirm Justice Owen's nomination in a heartbeat and without reservation.
Alas, these are not normal times. Jack Balkin makes the political case against Justice Owen's nomination, but -- as has been far too often the case in recent years -- the Democrats are not picking their spots wisely. While the Democrats' argument has merit when applied to judicial nominees of dubious quality, it falls flat when used to oppose candidates of the quality of Priscilla Owens.
This Washington Post article provides a fine report on the various memorial services for Lloyd Cutler, the longtime Washington attorney and insider who died this past Sunday. Mr. Cutler served as an official and unoffical adviser to most of the Presidents over the past generation.
Mr. Cutler was a Democrat, but he was widely respected by both sides of the political aisle for his conscience, which is not always considered an asset in the hard-knuckled backrooms of Washington. For example, Mr. Cutler opposed the Democratic Party's successful effort to thwart conservative Judge Robert Bork's nomination to the Supreme Court in 1987 and often defended the automobile industry in legal proceedings that consumer activist Ralph Nadar pursued over safety issues. Over the past year, Mr. Cutler served on President Bush's commission that investigated intelligence failures during the run-up to the war in Iraq.
As with Texan Robert Strauss, Mr. Cutler served our country selflessly while working quietly in the background to resolve many important issues of our time. He exemplified what a lawyer should aspire to be.
May 18, 2005
The same Florida state court jury that awarded Ronald Perelman $604.3 million in actual damages against Morgan Stanley earlier in the week awarded the Revlon, Inc. chairman $850 million against Morgan in punitive damages for defrauding the financier in connection with the 1998 sale of a large interest in Coleman, Inc. to Morgan's client, Sunbeam Corp. Mr. Perelman had been seeking $1.8 in punies.
Thus, Morgan Stanley is facing a $1.454 billion jury verdict. If the trial court upholds the jury verdict, then Morgan is facing a difficult appeal, which will almost certainly revolve around the trial court judge's pre-trial sanction order against Morgan Stanley that effectively prevented Morgan from defending itself during trial on the merits of Mr. Perelman's fraud claims. Although that sanction order was harsh, most jurisdictions review such orders on an abuse of discretion standard. That is not an easy standard to overcome on appeal, even when the result is a $1.454 billion jury verdict.
The indictment and recent guilty plea of former City of Houston administrator Monica McGilbra on federal bribery charges has been ably covered by Kevin Whited over at blogHouston.net. But after reviewing this Department of Justice press release detailing Ms. McGilbra's myriad illegal activities in Houston and her simultaneous involvement in related illegal activities that have led to a broad corruption case pending in the Northern District of Ohio (Cleveland), Professor Peter Henning, a criminal law expert at Wayne State University Law School, asks a common sense question that has not yet been answered by City of Houston officials:
"Did McGilbra and the others do any work in their spare time?"
"New York Times responds to sagging subscription sales, brought on by the public's access to countless free news sources online, by charging for their web content."
As noted in this previous post, the Enron Broadband trial -- after some early fireworks -- has really turned into a snoozer. And, according to this Chronicle article, the jurors are close to open rebellion:
Initially, lawyers for both sides estimated the trial would take two months to complete. Prosecutors are in their fourth week of presenting their case and told Ú.S. District Court Judge Vanessa Gilmore during a break in the trial Tuesday it would take them at least another seven to 10 days beyond their original estimate to finish.
"The government underestimated the length of the cross-examination," Gilmore told the jury at the end of Tuesday's proceedings.
Jaws of some jurors dropped while others became wide-eyed when she told them the trial would now not likely end until July 8, which is 12 weeks from its April 18 start.
Gilmore then spoke privately outside the courtroom with jurors before returning to address attorneys.
"The jury is going insane back there," Gilmore said, pointing to a door that leads to the jury room. "They're having a fit."
Many of the jurors, she said, will miss out on summer vacations and will not be getting paid at their jobs for up to a month longer than expected.
I'm still not sure that the trial will last as long as Judge Gilmore told the jury yesterday because the defense case in such trials often does not take as long as predicted. However, the prosecution's poor time-planning in putting on its case in chief is another potential blunder in a case that looked like a layup for the prosecution before trial. Although one never knows for sure which side the jurors are blaming for trial delays, my experience is that jurors tend to blame the side that is less entertaining in their questioning of witnesses. And unquestionably, at this stage of the Broadband trial, the prosecution's presentation of its case has clearly been less lively than the defense's cross-examination.
Consequently, stay tuned. If you can stay awake, that is.
Update: The defense counsel in the Broadband case proposed this morning that the defendants would create a fund from which anonymous payments could be made by the District Clerk to jurors. Although parties in long civil trials in Texas state courts will occasionally fund such anonymous payments to jurors to defray a part of the financial hardship of jury service, Judge Gilmore is researching whether such an arrangement is allowed in a federal criminal trial.
The Texas Medical Center has already been rocked over the past year by the split between longtime partners Baylor Medical School and The Methodist Hospital, but today's Chronicle article by Todd Ackerman adds a new level of uncertainty for the heart of Houston's medical community:
St. Luke's Episcopal Hospital is weighing offers that would align it with either Memorial Hermann Hospital or a consortium of Texas Children's and The Methodist hospitals. . . St. Luke's would merge with Memorial Hermann under the first scenario.
Texas Children's and Methodist would purchase the hospital under the second.
Those options ? and a third that St. Luke's continue to go it alone ? are before the St. Luke's board of directors now, . . .
A decision should come within a few months.
Never a dull moment in the Medical Center, eh? Mr. Ackerman reports that the negotiations are the product of a developing consensus within the Medical Center that more collaboration is needed between the various institutions.
Nevertheless, the proposed collaborations are ambitious and complicated, to say the least. Inasmuch as St. Luke's is the new teaching hospital of Baylor Medical School and Memorial Hermann is the longtime teaching hospital for the University of Texas Health Science Center, any St. Luke's-Hermann merger would have the added complication of providing resources for two medical schools.
Similarly, an acquisition of St. Luke's by Methodist would be akin to annulling the acrimonious divorce between Methodist and Baylor.
So, stay tuned. The pressures of providing quality health care services in this era of strained health care finance makes for some very interesting bedfellows.
In an interesting public relations and legal strategy, BP PLC admitted liability for its negligence in connection with the March 23rd explosion at its Texas City facility that killed 15 contract workers and injured more than 170 others. Here is the Houston Chronicle's exhaustive coverage of the explosion, and here is the BP report and notes from its press briefing that were published on BP's website.
In a detailed preliminary report on the blast, BP concluded that its employees committed "surprising and deeply disturbing" mistakes that led to the blast. The accident was only the latest in a series of serious safety and compliance lapses in BP's North American operations. Not only do the report's findings suggest that BP expects regulators to assess fines once their own investigations are complete, but they essentially turn the wrongful death and personal injury lawsuits resulting from the blast into a trial on the amount of damages that BP will have to pay. This Wall Street Journal ($) article quoted John Eddie Williams Jr., one of Houston's best personal injury trial lawyers, as saying the following:
"My client's husband trusted BP with his life, and now she's supposed to trust that BP will fully compensate her for his death?"
BP's report blames its supervisors and employees for making a series of operational errors and oversight lapses that caused the blast at the isomerization unit of the refinery. The explosion occurred during a start-up procedure after the unit had been taken off-line for routine maintenance when operators overfilled and overheated a processing tower at the unit that housed hydrocarbon liquid and vapor. The liquid and vapor mix was overpressurized and flooded into an adjacent stack before escaping into the atmosphere around the unit. The vapor cloud was then ignited by a still-unknown source.
"The failure of [the isomerization unit's] managers to provide appropriate leadership and the failure of hourly workers to follow written procedures are among the root causes of this incident," BP admitted in it's press statement. BP is taking disciplinary action against an unspecified number of employees responsible for running the isomerization unit on the day before and the day of the blast, and has already replaced the plant's manager. BP has also began a wide-ranging review of plant procedures.
Although its effectiveness is still uncertain at this point, BP's strategy in quickly investigating the explosion and in admitting liability may be the best way to put the negative publicity from the blast behind it. BP realizes that the regulatory fines and damages it will have to pay on wrongful death and personal injury claims arising from the blast will be substantial, but even those amounts will be only a small fraction of BP's net worth. The greater risk for the company is that prolonged publicity and uncertainty from the investigations would negatively affect the company's stock price. Yesterday's admission may be BP's way of trying to minimize that risk.
May 17, 2005
Checking again on Ford Motor Company's troubles in Crystal City, this Chronicle article reports on the hearing in regard to Ford's motion to set aside the $28 million jury verdict that a jury rendered against Ford in a wrongful death lawsuit earlier this year. Ford's motion is based on a variety of grounds, including the following information that was confirmed during the hearing about the original jury foreman in the trial:
[The original jury foreman] acknowledged on the stand she and [the plaintiff's lawyer] were romantically involved, that she had helped him sign up clients for this case and had worked for him as a jury consultant in other cases.
But, she said, those factors did not affect her ability to be fair as a juror in the case.
Yeah, right. And if you believe that, I've got some swamp property near Beaumont that will be a nice weekend getaway spot for you and your family.
Incredibly, the girlfriend's relationship with the plaintiff's lawyer was not her only connection with the case:
In addition to her relationship with [the plaintiff's lawyer], [the girlfriend's] sons from a previous marriage were first cousins to one of the deceased victims.
What has not been reported is how the girlfriend was able to hide her relationship with the plaintiff's lawyer from Ford's attorneys during the voir dire (i.e., questioning) of the jurors before trial. Likewise, there has been no report yet on the rationalization of the plaintiff's attorney as to why he did not disclose his relationship with the girlfriend before she was placed on the jury. Depending on the answers to those questions, both the girlfriend and the plaintiff's lawyer may have much bigger legal problems than having a $28 million verdict set aside.
Don't count The New Yorker movie reviewer Anthony Lane as one of the admirers of the latest and (hopefully) last installment of George Lucas' lucrative sci-fi bonanza, Star Wars: Episode III?Revenge of the Sith. The following are a few gems from his review of the movie that appears in the latest issue of the magazine:
"The general opinion of ?Revenge of the Sith? seems to be that it marks a distinct improvement on the last two episodes, The Phantom Menace and Attack of the Clones. True, but only in the same way that dying from natural causes is preferable to crucifixion."
"So much here is guaranteed to cause either offense or pain, starting with the nineteen-twenties leather football helmet that Natalie Portman suddenly dons for no reason, and rising to the continual horror of Ewan McGregor?s accent."
"[T]he one who gets me is Yoda. May I take the opportunity to enter a brief plea in favor of his extermination? Any educated moviegoer would know what to do, having watched that helpful sequence in Gremlins when a small, sage-colored beastie is fed into an electric blender. A fittingly frantic end, I feel, for the faux-pensive stillness on which the Yoda legend has hung. At one point in the new film, he assumes the role of cosmic shrink?squatting opposite Anakin in a noirish room, where the light bleeds sideways through slatted blinds. Anakin keeps having problems with his dark side, in the way that you or I might suffer from tennis elbow, . ."
"The prize for the least speakable burst of dialogue has, over half a dozen helpings of ?Star Wars,? grown into a fiercely contested tradition, but for once the winning entry is clear, shared between Anakin and Padmé for their exchange of endearments at home:
You?re so beautiful.?
?That?s only because I?m so in love.?
?No, it?s because I?m so in love with you.?
For a moment, it looks as if they might bat this one back and forth forever, like a baseline rally on a clay court."
Ole'! Enjoy the entire review.
The National Oceanic and Atmospheric Administration issued its annual storm forecast yesterday, and the NOAA is predicting from 12 to 15 tropical storms during this upcoming hurricane season (June through November). Or, as Fark translates, "We have no clue how many hurricanes there will be, so we say 'a lot' to keep our asses covered."
At any rate, the NOAA predicts that seven to nine of the storms could become hurricanes, and that three to five of those could become major hurricanes, which are defined as category 3 (winds of between 111-130 mph; here is a hurricane category chart) or above. Nine hurricanes developed during the hurricane season last year and four of those hammered Florida over a 40 day period.
Public officials along the upper Texas Gulf Coast are particularly concerned with the NOAA's forecast because the Houston area has not been directly hit with a hurricane since Hurricane Alicia, which was a category 3 storm in 1983. The eye of that storm came in on West Beach on Galveston Island and then essentially followed a path along I-45 through downtown Houston and beyond. The damage to the area was incredible, and left thousands of Houstonians without power for weeks. As bad as Alicia was, however, oldtimers in Houston contend that it was nothing compared to the destruction that was caused on September 11, 1961 by Hurricane Carla, which was a category 4 (winds of 133-155 mph) storm that had the same minimum barometric pressure as the great 1900 storm that killed over 6,000 people in Galveston.
Finally, this series of Houston Chronicle articles earlier this year revealed that many state and local public officials do not believe that they safely evacuate all coastal residents on the upper Texas coast in the event of a Category 4 or 5 hurricane. Not a comforting thought as we head into an active hurricane season at a time when the Houston area is long overdue to take a direct hit from a storm.
Based on the developments related in this previous post, it's not particularly surprising that a Florida jury awarded billionaire financier and Revlon, Inc. chairman Ronald Perelman $604.3 million against Morgan Stanley on his claims that Morgan defrauded him when he sold about an 80% stake in camping-gear maker Coleman Inc. to Sunbeam Corp. in 1998. Shortly thereafter, Sunbeam went into chapter 11, undercutting the value of much of the $1.5 billion consideration that Mr. Perelman received under the deal.
To make matters worse, the $604 million award is for compensatory damages only. Inasmuch as Mr. Perelman is also claiming entitlement to punitive damages, Morgan's damages in the case could rise to almost $2.5 billion. Finally, all of this carnage comes after Morgan Stanley had rejected a $20 million settlement offer from Mr. Perelman during early stages of the case.
As noted in the earlier post, Mr. Perelman's case was helped by the earlier default judgment that the state court judge approved as a sanction for Morgan Stanley's discovery abuse in failing to turn over documents (mostly emails) to Mr. Perelman's legal team. Accordingly, the judge instructed the jury during the trial that it must accept as fact that Morgan Stanley helped Sunbeam defraud investors. As a result, Mr. Perelman only had to persuade the jury that he relied on representations made by Morgan Stanley or Sunbeam and that he lost money.
The judgment comes during a troubled time for Morgan Stanley, which is currently undergoing a management revolt in which former executives are attempting to persuade the Morgan board to replace Morgan CEO Philip Purcell over how he is running the company. Morgan is in the "trust" business and, at some point, troubles such as those Morgan is experiencing can undermine customers' trust in Morgan's financial integrity. That lack of trust is what brought Enron down, and Morgan's board needs to be concerned with that same dynamic.
May 16, 2005
In a last ditch effort to salvage another season or two of his career, longtime Stros 1B Jeff Bagwell has decided to undergo surgery on the arthritic right shoulder that has been deteriorating over the past several years.
As noted in this previous post, Bags' move to the disabled list and this surgery are probably both necessary steps toward the Stros working out a settlement with the disability insurer on Bags' contract. Such a settlement would assist the Stros financially in paying off the balance of the $39 million or so that the club owes Bags over the remaining two years of his contract. My bet is that Bags will not be able to regain enough strength in his surgically repaired shoulder to withstand the rigors of playing Major League Baseball.
Bags' impending retirement has brought an excrutiatingly stupid discussion in the mainstream media about whether Bags should be elected to the Baseball Hall of Fame. On both talk radio and in the print media, supposed "experts" (with the notable exception of Charlie Pallilo) opine almost daily as to the pros and cons of whether Bags should be elected. In many respects, the discussion reflects the truth of what Bill James examined in his book about the Hall, Whatever Happened to the Hall of Fame -- that is, that election to the Hall is largely an arbitrary political process that has little to do with a player's performance during his baseball career.
Frankly, Mr. James' book is one of the reasons why I prefer Lee Sinins' much better conceived Baseball Immortals website in which each member of that group is selected solely on the basis of their performance as a baseball player. It is quite illuminating to see how many members of the Hall of Fame do not come close to meeting the standard of performance of membership in Baseball Immortals, and how many of the members of the performance-based Baseball Immortals group still have not been elected to the Hall.
In short, Bags should be elected to the Hall of Fame on the first ballot, and it is not even a close call. For his career, Bagwell has an incredible 680 RCAA (RCAA explained here) in 2,135 games (meaning that he has created 680 more runs than an average National League hitter would have created in those games), a .297 batting average, a gaudy .408 on-base percentage (to put that in perspective, an average National League hitter had about a .340 OBP last season), a slugging percentage of .541, and a monstrous .949 career OPS (on-base percentage + slugging percentage) compared to the league average OPS during Bagwell's career of .763!
In addition to the foregoing, Bagwell holds the modern NL record for career RCAA by a 1B:
1 Jeff Bagwell 680
2 Johnny Mize 638
3 Willie McCovey 536
4 Bill Terry 425
5 Todd Helton 406
6 Stan Musial 399
7 Keith Hernandez 371
8 Dolph Camilli 353
9 Will Clark 331
10 Frank Chance 330
Indeed, Bags' running mate -- Craig Biggio -- has "only" a .810 career OPS (compared to his league average of .756) and 357 RCAA in 2447 games. The fact that Bidg should be a surefire Hall of Famer underscores the fact that Bags should be, too.
And as if the foregoing stats were not enough, Bags was among the best defensive firstbasemen in the game until his shoulder injury robbed him of his throwing ability over the past several seasons, and he remains -- despite average speed -- one of the best and most instinctive baserunners in the game during his career.
Just to underscore the foregoing, Mr. James -- who knows more about baseball in his pinky than most of us can comprehend -- rates Bags as the fourth best firstbaseman of all-time in his New Bill James Historical Abstract, behind only Lou Gehrig, Jimmie Foxx, and Mark McGwire.
So, please. Whenever you hear someone take the ignorant position that Bags was not good enough to be in the Hall of Fame, please refer them to this post. Bags may not make it into the Hall because of arbitrary and capricious bias. However, such a non-selection would have nothing to do with his performance. He is truly one of baseball's greats.
As noted in this previous post, the Shell Houston Open has suffered for years because it is played two weeks after The Masters Tournament when most of the best players are taking a break before gearing up for the U.S. Open in June.
However, the PGA Tour is currently negotiating a new television contract and, in that connection, is considering a revamped schedule that would move the Players Championship's current late March date to a more favorable date in May. This Florida Times-Union article on the subject sets forth the following tournament schedule model that is being considered as an alternative to the current one, and this schedule would give the Shell Houston Open a much more favorable date the week before the Players Championship:
Mercedes Championship, Hawaii
Sony Open, Hawaii
Buick Invitational, La Jolla, Calif.
Bob Hope Chrysler Classic, Palm Desert, Calif.
FBR Open, Scottsdale, Ariz.
AT&T Pebble Beach National Pro-Am
Nissan Open, Los Angeles
Chrysler Classic of Tucson
Ford Championship at Doral, Miami
Honda Classic, Palm Beach Gardens
Bay Hill Invitational, Orlando
Accenture Match Play, Innisbrook
BellSouth Classic, Atlanta
Masters, Augusta, Ga.
MCI Heritage, Hilton Head, S.C.
Shell Houston Open
Wachovia Championship, Charlotte, N.C.
EDS Byron Nelson Championship, Irving, Texas
MasterCard Colonial, Fort Worth, Texas
FedEx St. Jude Classic, Memphis, Tenn.
Memorial, Dublin, Ohio
Booz Allen Classic, Potomac, Md.
Barclays Classic, Westchester, N.Y.
Western Open, Lemont, Ill.
American Express Invitational
British Open (B.C. Open, Endicott, N.Y., the same week)
U.S. Bank Championship, Milwaukee
Buick Open, Warwick Hills, Mich.
International, Castle Rock, Colo.
NEC Invitational (Reno-Tahoe Open the same week)
Deutsche Bank Championship, Norton, Mass.
Tour Championship, Atlanta (John Deere Classic, Silva, Ill., same week).
End of official money season and beginning of next official money season.
Bell Canadian Open
84 Lumber Classic, Farmington, Pa.
Southern Farm Bureau Classic, Annandale, Miss.
Valero Texas Open
Chrsyler Classic of Greensboro
Michelin Championship of Las Vegas
Funai Classic at Disney World
End of official money events for calendar year
This Washington Post article reports that a Senate Permanent Subcommittee on Investigations investigation into the U.N.'s oil-for-food program has concluded that Houston-based oil trading company, Bayoil, "paid millions of dollars in illegal, under-the-table surcharges" to the Iraqi regime of Saddam Hussein regime under the program and that Hussein used the illicit proceeds from the oil sales to buy weapons, among other things. The Senate Subcommittee report was made public last night in advance of a hearing today on the matter. Here are earlier posts on the oil-for-food scandal.
The report concludes that the Bayoil payments were part of a scheme under which Iraq sought to influence and reward the Russian government for supporting the Hussein regime in U.N. Security Council deliberations regarding sanctions against the Iraqi government. The Senate report contends that Bayoil played a key role in numerous transactions with the Iraqi government, and that Bayoil arranged transactions between Iraq and former prominent Russian politician Vladimir Zhirinovsky under which a Russian entity would purchase the oil and, without ever taking possession, sell it to Bayoil. Apparently, the Senate report includes a copy of a letter from Bayoil described how the company paid an "agreed premium" to Mr. Zhirinovsky for his cut of the transaction.
Federal Reserve chairman Alan Greenspan gave the commencement address at Wharton yesterday and was quoted as saying the following: "I am surprised that the Sarbanes-Oxley Act, so rapidly developed and enacted, has functioned as well as it has."
H'mm. This earlier post notes Mr. Greenspan's rather dubious views on criminalizing negligence of business executives. But if you want a detailed analysis of the error in Mr. Greenspan's opinion on the Sarbox legislation, Professor Ribstein's archive of Sarbox posts is an excellent resource.
May 15, 2005
22 year-old Sean O'Hair -- who was born and raised in Lubbock -- is leading the tournament going into the final round. O'Hair was a high school student and one of the nation's top junior players when he turned pro at 17 in September, 1999, one calendar year before fellow teens and future PGA Tour card-holders Ty Tryon and Kevin Na.
However, O'Hair's journey to the PGA Tour was anything but a smooth one. He languished on the mini-tours for the past five years, traveling over 200,000 miles in the process. O'Hair finally won his Tour card by finishing fourth in the 2004 PGA Tour Qualifying School this past fall, but as this January, 2005 GolfWorld article reports, O'Hair has had to overcome a lot more than just the rigors of travel on the mini-tours in attaining his PGA Tour Card:
Marc O'Hair [Sean O'Hair's father], 52, signed management contracts with his son, says he invested $2 million in his boy's professional future and subjected Sean to a physical and psychological regimen that would make most drill sergeants blush. Sean broke free in 2002 and has not spoken to his father since a perfunctory greeting at Sean's wedding more than two years ago.
Marc O'Hair, a large man who wore dark sunglasses, subjected Sean to a rigorous routine that stood out. He was sometimes brusque to tournament, rules and school officials, event organizers and other parents. His son, by design, was treated as a commodity.
Sean signed his first contract with his dad when he was 17, requiring him to pay his father 10 percent of his professional earnings for life. He signed another when he was 20, Marc says."I told him, 'I can't blow this kind of money without a return,'" Marc says." 'When you make it, there has to be payback someday.'"
Taking a tough-love approach, Marc drove his son hard. While the results speak for themselves, those who watched the duo believe there was madness in the method. As a junior player, Sean was forced to run a mile for making bogeys or finishing over par at tournaments. Marc once claimed he made Sean run eight miles in 93-degree heat after shooting an 80. At a 1998 AJGA tournament in California, Sean shot 79, then spent part of the night logging seven miles on a treadmill, a friend, Christo Greyling, says.
"The next day, he could hardly walk," remembers Greyling, a former AJGA player and a senior at University of Georgia. "We could hardly believe he [Marc] went through with it."
Other players . . . say Marc would berate his son in the presence of others. Dad admits slapping his son, but he says he never injured him. Sean declines to discuss the specifics of his father's behavior, but he missed numerous social activities because he was on the driving range, working out or watching tapes of his swing. "We'd go to the beach, have an outing at Disney, do something social, and he'd be out in the parking lot with his dad doing some crazy crap [drill]," says Erik Compton, who competed in AJGA events with Sean and roomed with him at the 1998 Canon Cup team matches.
In addition to the golf work, Marc awakened his son at 5 a.m., had him run a mile and lift weights. After Sean turned pro, Marc cooked meals on a portable stove in their hotel room so that Sean ate the right foods. Every day was like boot camp, and the military comparisons aren't by accident."What am I supposed to do, say, 'Oh, Seany boy, you don't have to get up early today,'" Marc says sarcastically. "The military, they know how to build a champion. Somebody who slacks off, that's a loser. The typical high-school kid is hanging out at the mall - that's a loser. You have to have a goal or you are just wasting time. I busted my [butt] on this thing. I thought I was doing him a favor. You would not believe what I did for him."
How the family dynamic develops from here is anybody's guess. No question, dad feels a broiling sense of festering betrayal. In fact, Sean is worried that Marc will someday sue him for repayment of the money spent fostering his career. "I hope I don't have to go through that," he says of a legal battle, "because that's been a bit of a concern." Truth be told, dad has other ideas. Marc says he has placed 25 photocopies of their contracts and a cover letter into envelopes he plans to mail to media outlets when his son makes a splash on tour."As soon as he gets famous, I am going to lower the boom," Marc says. "I am going to show everybody what he did to me. I have no intention of suing him. I intend to crucify him in the media, because what he did to me is not right."
Read the entire article. Then go watch the tournament and pull for this kid to win it, and for his father never to receive a nickel from him.
Update: Young O'Hair acquitted himself well in the final round, shooting a two under par 68 and finishing in second place, one stroke off Ted Purdy's 15 under par winning score. O'Hair won $669,600 for his second place finish.
T. Boone Pickens started Mesa Petroleum Company in 1956 with a $2,500 investment and built it into the largest independent oil and gas company in America. Then, during the 1980's, Mr. Pickens became well-known in business circles (Fortune magazine called him the "most hated man in America") for leading a series of hostile takeover attempts that earned him a reputation as a corporate raider and greenmailer. Although Mr. Pickens' ideas about corporate restructuring and the tactics he used for achieving them were controversial in those days, many of those ideas are common practice in the business world today, even among hedge funds.
This article reports on recent remarks of the 77 year old Mr. Pickens in which he provides an interesting overview of current oil demand and production statistics:
Let me tell you some facts the way I see it. Global oil (production) is 84 million barrels (a day). I don't believe you can get it any more than 84 million barrels. I don't care what (Saudi Crown Prince) Abdullah, (Russian Premier Vladimir) Putin or anybody else says about oil reserves or production. I think they are on decline in the biggest oil fields in the world today and I know what's it like once you turn the corner and start declining, it's a tread mill that you just can't keep up with.
So, when you start adding the reserves in these countries, you're not even replacing what you're taking out.
Let me take you to another situation quickly. 84 million barrels a day times 365 days is 30 billion barrels of oil a year that we're depleting. All of the world's (oil) industry doesn't even come close to replacing 30 billion barrels of oil. We don't spend enough money to even give ourselves a chance to replace 30 billion barrels. It may be because the prospects are not there. I rather imagine that's what the answer is to that.
So, if you accept that 84 million barrels a day is all the world can (produce), and then look at refining capacity, I think it's just a coincidence that refining capacity... world capacity... is 84 million barrels a day. So, we're in balance: 84, 84.
Now you see the projections for the fourth quarter of '05, I mean like tomorrow; it is 86 to 87 million barrels of oil a day required. China (and) India (are) growing fast. Our economy is going down a little bit, but it doesn't seem to be shutting off demand for gasoline, oil, natural gas, whatever. But around the world... just assume that the (U.S.) economy is slowing, but China is still ramped up; it is still 86, 87 million for the fourth quarter.
Now we've got some pretty good inventory, those will be... I think.. they'll be gone in the third quarter. I can't wait to see how this is all going to play out.
After his remarks, Mr. Pickens was asked if he agrees with Houston-based investment banker Matt Simmons that Saudi Arabia's oil fields may be on the verge of decline. Mr. Pickens replied that he agreed with Mr. Simmons.
As the article on Mr. Pickens' remarks notes, if he and Mr. Simmons are correct that Saudi promises to raise production over the next decade cannot be fulfilled, then Saudi Arabia's role as a swing producer and oil price stabilizer will be a thing of the past. That would probably lead to more volatility in energy prices as the world economy begins to adjust to more expensive fossil fuels. Thus, the coming year could be a very interesting one in the oil and gas business.
May 14, 2005
Joseph H. Umansky, president of AIG Reinsurance Advisors over the past 13 years, became the first senior executive at American International Group Inc. to strike a deal with authorities to offer his testimony in return for immunity from potential charges related to the ongoing investigations of the company's accounting of structured finance transactions, although it is still unclear with which governmental entity Mr. Umansky has cut his deal. Here are previous posts on the various investigation of AIG and Berkshire Hathaway related to these transactions.
Various governmental agencies are investigating AIG's structured finance transactions involving reinsurance over the past five years or so that the regulators contend artificially inflated the company's financial statements to mislead investors. The basic theory of the government's case is that the reinsurance deals in question did not transfer enough risk to qualify for the favorable accounting that AIG used. Earlier this month, AIG announced that its revision of accounting treatment relating to various transactions would reduce its net worth by about $2.7 billion, which is about 3.3% of the company's net worth.
Mr. Umansky is expected to testify against two key AIG executives who appear to be the prime targets of the investigations -- AIG's former chief financial officer, Howard I. Smith, who AIG fired in March for declining to cooperate with the ongoing investigations, and Maurice R. "Hank" Greenberg, AIG's chief executive for almost 40 years, who resigned under pressure when he decided to exercise his his Fifth Amendment rights in response to the governmental inquiries.
Meanwhile, on the Berkshire Hathaway side of the investigatory landscape, that company announced on Friday that two executives working for overseas units of its General Reinsurance Corp. unit have been put on administrative leave with pay while U.S. and foreign authorities investigate their involvement in AIG reinsurance transactions and other similar transactions.
Just in case you are keeping track, the value of AIG's shares has dropped by almost 30% since the disclosure of the government investigations in mid-February and, as this earlier post points out, the end of that drop may not yet be in sight.
May 13, 2005
The U.S. Attorney's position in Houston has been a revolving door for years. It's a big district with a ton of drug and immigration cases, and -- despite the ongoing Enron prosecutions -- has really never been a particularly active office in pursuing the juicier white collar criminal cases. Moreover, because of a myriad of conflicts, Mr. Shelby withdrew the local office early from investigating or prosecuting any of the Enron cases, which have been handled by a special Enron Task Force comprised of prosecutors primarily from New York City and Washington. Here's hoping that the local bar committee will be able to come up with a candidate for the position who will be able to stay for a prolonged period, say a decade or so. My sense is that the assistant U.S. Attorneys in the local office would really appreciate the stability that such a long tenure tends to promote.
Over the past several months, The Discovery Channel has been promoting an interesting project called the Greatest American of All Time. During a road show promoting the contest, Americans from all over the country have been nominating other Americans who they believe have had the greatest influence on what it means to be an American.
The road tour kicked off last month in Boston and is stopping in Houston over this weekend. The Great American Tour Bus will be at the Art Car Parade on Saturday between 10 and 3 and at the Galleria on Sunday between 11 and 7. Attendees have the opportunity to write a short blog entry essay or give a video testimonial on who they think deserves to be the Greatest American.
The road tour will conclude in June and be followed by a TV series with Matt Lauer of the Today Show that counts down the top 100 nominations to No. 1, who will be named the Greatest American. This appears to be a great project to introduce young children (and older ones, too) to great Americans, so check it out if you're in the neighborhood this weekend.
After last week's entertaining analyst conference call for Blockbuster, Inc., you have probably heard by now that Carl Icahn won shareholder approval this week for planting himself and two friendly directors on the Blockbuster board. Mr. Icahn's moves prompted an interesting discussion between two of the blogosphere's most insightful commentators regarding corporate law issues.
First, Professor Bainbridge posted this analysis in which he predicts that the current trend of hedge fund activism is unlikely to alter the basic precept of corporate law and governance -- i.e., separation of ownership and control.
Then, Professor Ribstein responded with posts here and here in which he suggests that hedge funds may be able to minimize the "agency costs" that result from the separation of ownership and control in corporate governance, particularly the cost of managerial misconduct.
Meanwhile, my sense is that the recent hedge fund activity in corporate governance signals that it is only a matter of time before the Lord of Regulation deems it necessary to substitute his wisdom regarding such matters for that of the market.
Joe Morgenstern is the film critic of The Wall Street Journal, where he writes the Friday "Review/Film" column in the Weekend Journal and supervises the Leisure & Arts page's coverage of the business of Hollywood. Mr. Morgenstern won the 2005 Pulitzer Prize for distinguished criticism "for his reviews that elucidated the strengths and weaknesses of film with rare insight, authority and wit."
A good example of that insight appears in Mr. Morgenstern's column in today's WSJ ($), in which he pans the new Jennifer Lopez-Jane Fonda movie, Monster-in-Law, and observes the following about the current trend in Hollywood filmmaking:
Films like this -- as well as two other clumsy features opening today -- are emblematic of Hollywood's relentless dumbing-down and defining-down of big-screen attractions. There's an audience for such stuff, but little enthusiasm or loyalty. Adult moviegoers are being ignored almost completely during all but the last two or three months of each year, while even the kids who march off to the multiplexes each weekend know they're getting moldy servings of same-old, rather than entertainments that feed their appetite for surprise and delight. "Life's too short to live the same day twice," Charlie says in "Monster-In-Law," quoting her father. It's also too short to keep living the same weekend, though that's what the movie going experience is starting to feel like -- an extended Groundhog Day of amateur nights.
Mr. Zimmerman: Judge, while we don't have the jury here, can I get some guidance? If we see a juror that's sleeping, what do you want us to do?
Judge Gilmore: That's y'all's problem. That means the case is boring.
Mr. Zimmermann: How do we alert the Court?
Judge Gilmore: What am I supposed to do? Y'all are boring them to death. Does anybody else want to see that? It says just what I said. What are we supposed to do? God, how are we going to stay awake through two months of this? I can barely stay awake. I don't even drink coffee and I'm drinking it every day.
The Securities and Exchange Commission lawyer who headed the agency's investigation into Enron Corporation has been named to head its enforcement division. Here is the SEC's press release on the appointment.
Linda Chatman Thomsen, 50, will be the first woman to hold the top enforcement position at the SEC. She has been the enforcement group's deputy director since 2002 and succeeds Stephen M. Cutler, who ran the enforcement division for several years before resigning last month.
May 12, 2005
The two remaining unsentenced former Merrill Lynch executives and the only Enron executive convicted of fraud and conspiracy in the Enron-related criminal trial known as the Nigerian Barge case are being sentenced today by U.S. District Judge Ewing Werlein in Houston.
This morning, one of the two Merrill defendants -- Robert Furst -- received a similar sentence to those received last month by co-defendants and former Merrill executives, Daniel Bayly and James Brown. As in the previous sentencings, Judge Werlein basically ignored the government's proposed 15 year sentence for Mr. Furst, and sentenced him to three years, one month in prison and to pay $665,000 in restitution.
The other Merrill defendant -- William Fuhs -- and the lone Enron defendant -- Dan Boyle -- are scheduled to be sentenced this afternoon. Mr. Fuhs' sentence will likely be a bit less than Mr. Furst's, while Mr. Boyle -- a mid-level former Enron executive who the government inexplicably wants to put away for life over this -- will probably receive a bit longer sentence than Mr. Furst's.
Update: This afternoon, Judge Werlein first sentenced Mr. Boyle to three years and 10 months in prison and a $320,000 fine. Late this afternoon, the Judge completed the sentencing in the Nigerian Barge case by sentencing Mr. Fuhs to the same sentence as that of Mr. Furst -- 37 months.
Meanwhile, Mr. Bayly's legal team recently filed this brief with the Fifth Circuit Court of Appeals in support of Mr. Bayly's request to be allowed to remain out of prison pending disposition of his appeal. The brief previews Mr. Bayly's arguments on appeal, which are focused on the paucity of direct evidence linking Mr. Bayly to the transaction, the hearsay nature of the evidence that did, and the refusal of Judge Werlein to instruct the jury on a key defense theory. That key defense theory is that an Enron promise to Merrill Lynch to arrange a sale of the barges within six months to a third party -- as opposed to an Enron promise to repurchase the barges within that time frame -- did not undermine Enron's accounting of the transaction and did not constitute the basis of a crime. Inasmuch as Enron ultimately arranged for such a sale to a third party as opposed to buying back the barges from Merrill itself, the lack of a jury instruction on that issue appears to be a solid basis for Mr. Bayly's appeal.
For the first time, a law firm is sponsoring a PGA Tour golfer. Dallas-based Thompson & Knight has announced that it will sponsor former University of Texas golfer and Abilene native Harrison Frazar on the PGA Tour:
"Harrison approaches golf the same way that Thompson & Knight practices law," said the Firm's Managing Partner Peter Riley. "He has lots of power, the right kind of finesse and, no matter how good he gets, he's bound to get even better."
H'mm. I wonder if Mr. Riley rates Thompson & Knight as the 135th best law firm in the world? That's Mr. Frazar's current ranking in the World Golf Rankings.
The Houston area fared reasonably well in Forbes magazine's 2005 ranking of the best places for businesses and careers among U.S. metropolitan areas (populations over 345,000).
Houston ranked 13th out of 150 metropolitan areas evaluated in the survey, which primarily focuses on the potential for businesses to maintain low costs and to attract the best workers. Boise, Idaho was ranked the best among large metropolitan areas followed by Raleigh-Durham, N.C., and Austin. Inasmuch as Texas and Virginia have well-educated labor forces and relatively low business costs, those states placed seven areas in the top 20 of the metro areas while no other state had more than one. Dallas (19th) and Fort Worth (20th) joined Austin and Houston as Texas cities in the top 20 metro areas.
In the 168 cities ranked in the smaller metro areas category, Brazoria County ranked 18th, Bryan-College Station 15th, and Galveston 82nd. My old hometown of Iowa City, Iowa came in ninth in that category. Check out the survey and see how your city ranks.
May 11, 2005
Regular readers of this blog know that Dan Jenkins is my favorite golf writer, bar none. Mr. Jenkins still covers each golf major tournament for Golf Digest magazine, and his article (not yet online) on this year's Master's tournament appears in the current (June) Golf Digest issue. In the article, here's how Mr. Jenkins describes the unconventional putting grip of Chris DiMarco, who engaged in a spirited battle with Tiger Woods before losing to Woods in a playoff:
"[A] putting grip that looks like he's trying to change a tire or open a contrary bottle of wine."
Equally as priceless is Mr. Jenkins' description of the "green jacket" ceremony, in which - keeping with tradition - defending Master's champion Phil Mickelson helped Woods into his fourth green jacket signifying his latest Master's victory:
Speaking of a moment that lacked warmth, how about Phil as the defending champion giving Tiger the green jacket after it was over? They had gone 0-2 together in the Ryder Cup last fall, lowlighted by Phil putting Tiger up against a fence with his drive in the alternate shot [match]. So as Phil eased Tiger into his jacket, I could swear I heard Tiger say,
"Nice going, Phil, you hit my shoulders."
Seems like it's been awhile since we checked in on the ongoing divorce between those former Texas Medical Center partners, Methodist Hospital and Baylor College of Medicine. Here are the earlier posts on the historic divorce between the medical school and its former teaching hospital.
In this article, the Chronicle's Todd Ackerman, who has done a fine job covering this story, reports that Baylor's counsel has sent a letter to the Texas to the corporation that manages the Medical Center questioning whether three Methodist activities violate the Medical Center's guiding principle of "institutional cooperation and coordination" -- operating its own residency program; operating a research facility without the affiliation of a Medical Center institution; and using its teaching beds in conjunction with New York's Cornell University Weill Medical School, which is not located in the Medical Center. Mr. Ackerman reports that the Texas Medical Center has hired outside counsel and commenced an investigation into the matter.
Baylor's latest salvo in the ongoing battle between the former Medical Center partners is unlikely to succeed because it, in effect, attempts to enforce a covenant not to compete, which are not favored under Texas law. Nevertheless, Baylor continues to let its bigger and better-endowed rival know that it will not slip meekly away. It will be fascinating to watch this institutional competition unfold and to assess where each institution stands in 5-10 years.
Accordingly, it was with some relief in local business circles that the natural gas production and pipeline company was able to report yesterday that it had swung to profitability in the first quarter from a net loss a year ago. El Paso reported net income of $106 million, or 17 cents a share, compared with a net loss of $206 million, or 32 cents a share, in the first quarter of 2004. However, revenue dropped by 22% to $1.21 billion from $1.56 billion a year ago and cash flow from operations dropped by over 90% to $51 million from $629 million in the prior-year period. As a result, El Paso's stock price fell 34 cents, or 3.2%, to $10.21 per share as of the close of yesterday's trading.
El Paso is not out of the woods financially by any means, but its latest report reflects that the company is taking the steps necessary to hedge the risk of having to endure a formal corporate reorganization. Stay tuned.
After last week's fireworks in the ongoing Enron Broadband criminal trial noted here and here, the Chronicle's Mary Flood reports that the attorneys in the trial have reverted to the dubious tactic of chloroforming the jury with mind-numbing techno-jargon:
On the stand Tuesday was jargon-dependent computer specialist John Bloomer. It was his third day of testimony, and for most of morning he was questioned by Enron Task Force prosecutor Ben Campbell.
Campbell took Bloomer through statement after statement made at a critical January 2000 Enron conference for stock analysts to ask about the truth of what was said.
It was no more exciting in the afternoon when defense attorney Per Ramfjord took over. Ramfjord is so well-versed in technology that the courtroom can become Silicon Valley when he gets going with a geeky witness. Bloomer sometimes answered enthusiastically with something like: "We were late. Whether it be MPLS over ATM, whether it be precedent bit over IP." Don't ask.
So the jurors and alternates, if they've stayed fully awake, know what a hop and a POP are in the tech world, may know the difference between quality of service and quality of stream delivery, and likely know what media cast and media transport are.
Meanwhile, Ms. Flood also reports that some of Mr. Bloomer's testimony yesterday on behalf of the prosecution in the Broadband trial was helpful to the defense of former Enron CEO, Jeff Skilling, whose criminal trial with former Enron chairman Ken Lay and former Enron chief accountant Richard Causey on securities fraud and related charges is scheduled for January 2006.
May 10, 2005
Okay, so it appears that I was wrong in my prediction about the Stros this season.
The Stros (12-19) are already 8 games behind the Cards in the National League Central race and struggling to stay out of last place in the division. The club is 2-14 on the road so far this season, and have already endured two six game losing streaks. Last season's playoff run seems like a distant memory.
Placing all of this in perspective is the Baseball Prospectus' Jonah Keri:
Here is the Astros Lineup for this past Sunday's game against the Braves:
CF Willy Taveras
2B Eric Bruntlett
3B Morgan Ensberg
LF Mike Lamb
1B Jose Vizcaino
RF Jason Lane
SS Adam Everett
C Raul Chavez
P Ezequiel Astacio
With no other information, what would you deduce from that lineup?A) The over/under for runs scored by this lineup is 1.
B) The Astros have been demoted to the Texas League.
C) They're about to get whupped by a National League opponent.
D) All of the above.
If you picked D), you're correct. The lineup the Astros ran out for Sunday's game against the Atlanta Braves isn't much better than a Double-A squad, and a top-tier NL team like the Braves will likely chop them to bits.
Final score: Braves 16 Stros 0. It's going to be a long season.
Clemens: 5 hits in 15 plate appearances, .357 Ave./.400 OBP/.357 SLG
Bruntlett: 0 hits in 15 plate appearances, .000/.200/.000
After 3.91 ERA/10 RSAA (RSAA explained here) in the 2003 season and 2.98 ERA/32 RSAA in the 2004 season, Clemens is off to a 1.10 ERA/18 RSAA start in his first 7 starts this season. He has a 3.16 career ERA, compared to his league average of 4.38, and 663 RSAA in 647 games. Clemens is now just 5 RSAA behind Lefty Grove's modern major league career RSAA record.
Clemens is truly a once-in-a-lifetime pitcher.
In other Stros news, after he missed the last six games with an arthritic right shoulder, the Stros finally placed Bags on the disabled list today. My sense is that this move is a necessary first step toward the Stros working out a settlement with the disability insurer on Bags' contract. Such a settlement would assist the Stros financially in paying off the balance of the $39 million that the club owes Bags so that he can to retire gracefully. Inasmuch as Bags should be a shoo-in Hall of Famer unless his stats are diluted by playing while hurt at the end of his career, here's hoping that the Stros can make those arrangements quickly.
The Stros called up OF/1B Todd Self from AAA Round Rock to replace Bags on the 25 man roster. The 26 year old Self, who is a rangy left-handed hitter, has been tearing up the Pacific Coast League so far this season (.391/.491/.565). Here's what Baseball Prospectus 2005 says about him:
Self is just a marginal prospect - not hitting in the 2004 Arizona Fall League didn't help him - but it's worth noting that the Astros are going to pay Jeff Bagwell a billion jillion dollars for not much more performance than they'd get by handing Self the first base job. His plate discipline is real and he could be good for 40 doubles and 15 homers, maybe a bit more, through his peak. A Mark Grace/Wally Joyner hitter with average defense will let you spend money elsewhere. You could even platoon Self with Royce Huffman, a comparable player who bats right-handed and has been stuck at AAA for two years.
Michael Alcott was charged with bank fraud in September 2004 relating to a $2.5 million line of credit for his now defunct employment placement firm. The indictment alleges that he submitted a fraudulent audit opinion to the bank on the letterhead of a local auditing firm with the name of a fake partner.
Nevertheless, Mr. Alcott was free on bail pending trial. A couple of weeks ago, Mr. Alcott submitted a letter to the court in his case from a doctor at Masschusetts General Hospital. The doctor's note stated that Mr. Alcott was being treated at the hospital for terminal cancer.
Yesterday, Mr. Alcott was arrested pending trial because the letter is a fake and he is not suffering from cancer.
H'mm, I don't think Mr. Alcott should testify at his upcoming trial on that fake audit opinion. ;^)
Hat tip to the White Collar Prof Blog for the link.
V-E Day - the day on which the Allies remember their victory over Nazi Germany during World War II - fell on Mother's Day this year, so the 60th anniversary celebrations seemed somewhat muted. In that regard, British historian Niall Ferguson reminds us in this LA Times op-ed that, despite the courage of the Allied forces in ridding the world of the monstrous Axis powers, we should not forget the moral compromises that were part of the price of winning the war:
Most historians today would give the lion's share of the credit for the Allied victory to the Soviet Union. It was, after all, the Soviets who suffered the largest number of wartime casualties (about 25 million). That reflected in large measure the appalling barbarity with which the Germans waged the war on the Eastern Front. Yet it also reflected the indifference of Stalin's totalitarian regime to the lives and rights of its own citizens. It might have been expected that in the crisis of war, Stalin would suspend the terror that had characterized his regime in the 1930s. On the contrary. The lowest estimates for the period (1942-1945) indicate that 7 million Soviet citizens lost their lives via political executions, deportations or death in the gulag system. All of this reminds us that to defeat an enemy they routinely denounced as barbaric, the Western powers made common cause with an ally that was morally little better.
At Potsdam and in the subsequent Nuremberg trials the victors also struck splendidly sanctimonious poses. The leaders of Germany and Japan had "set in motion evils which [left] no home in the world untouched." Yet the Soviet Union had been on Hitler's side in 1939, something the Baltic states invaded by Stalin have not forgotten.
As for the rest of Central and Eastern Europe, it suffered a similar fate in 1945. Britain had gone to war with Germany ostensibly to prevent Poland from being overrun by Germany, as Czechoslovakia had been. Yet within a few years of the war's end, the whole of Eastern and Central Europe up to the River Elbe was firmly under Stalin's iron fist.
While noting that the Allied bombing campaigns restricted German's ability to mobilize its war economy, diverted key German resources from the Eastern Front and ended the war with Japan, Mr. Ferguson notes that the campaigns also raise serious moral questions:
[T]he destruction caused by the British and American air forces in their bombing campaigns against civilian populations in Germany and Japan is hardly something we can look back on with pride. Hamburg was destroyed in a firestorm code-named Operation Gomorrah; about 45,000 people died. Similar numbers perished when Dresden was bombed. Tokyo was literally incinerated in a raid that killed between 83,000 and 100,000 people, maybe more.
Such bombing was precisely what the U.S. State Department had denounced as "unwarranted and contrary to principles of law and humanity" in 1937, when the Japanese bombed Chinese cities. And it was precisely what Neville Chamberlain, Winston Churchill's predecessor as prime minister, had dismissed as "mere terrorism," to which "His Majesty's government [would] never resort."
After the war, the charges against the Japanese leaders who stood trial included "the wholesale destruction of human lives, not alone on the field of battle, but in the homes, hospitals, and orphanages, in factories and fields." Yet this had been the very essence of the Allied policy of strategic bombing.
Mr. Ferguson is no half-baked historian who fails to recognize the moral superiority of the Allied cause during WWII, so he concludes in the following measured manner:
None of this is intended to detract from the valor of the millions of Allied service personnel who lost or risked their lives in World War II. Nor is it to deny that the war had to be fought to rid the world of two of the most evil empires in all history. There is a moral difference between Auschwitz and Hiroshima. The Axis cities would never have been bombed if the Axis powers had not launched their war of aggression. And the Axis powers would have killed even more innocent people had it not been for the determination of the Allied powers to prevail.
Nevertheless, we would do well, this V-E Day, to face some harsh realities about the nature of the Allied victory, if only to remind ourselves about the nature of all wars. To win World War II, we joined forces with a despot who was every bit as brutal a tyrant as Hitler; we adopted tactics that we ourselves had said were depraved; and we left too many of those we set out to liberate firmly in the grip of totalitarianism.
Hat tip to Professor Bainbridge for the link to Mr. Ferguson's piece.
Also, Deutsche Welle has this outstanding collection of photo essays that show then-and-now pictures of World War II.
May 9, 2005
ChevronTexaco Corp. announced today that it is dropping the venerable "Texaco" part of its corporate name and shortening its name to Chevron Corp., which was the name of the company before before the company merged with Texaco three and a half years ago. Don't worry, though. That bright Texaco star will still grace the local gas station as Chevron plans on continuing to use the Texaco brand to market gasoline.
Chevron has been in the news recently with its proposed acquisition of Unocal Corp for about $17 billion, which is subject to shareholder and regulatory approval. Chevron's stock will continue to trade on the New York Stock Exchange under the "CVX" ticker symbol that was adopted after the Texaco takeover.
Jay Bryant writes this Tech Station Central piece in which he criticizes New York Aspiring Governor Eliot Spitzer's latest abuse of power -- i.e., his investigation of some of the nation's biggest banks to determine whether they had discriminated against minority groups in setting mortgage rates and fees in the sub-prime mortgage market.
The sub-prime lending industry provides the valuable service of lending money for home loans at higher interest rates to those who cannot qualify for a conventional mortgage because of insufficient income, lack of assets or credit problems. Of Mr. Spitzer's latest foray into political image-making, Mr. Bryant warns:
[I]f Spitzer's ominous letters are any indication, he is about to insert himself and his publicity-seeking machine into the sub-prime lending industry, and if he's not careful, he could destroy it. [His investigation will likely] damage the industry, reduce the number of people it can profitably serve and scale back the growth rate in home-ownership.
As former Senator Sam Hayakawa famously observed, you can't expect people to climb the ladder of success if you kick out the bottom rungs. That's the central point about home ownership: that it provides, for people of modest means, the best opportunity they will ever have to build equity. For a great many of them, this equity will mean that before long they will be able to refinance their mortgage at a better rate, their newfound equity having served to improve their creditworthiness. They will, in other words, have moved up the ladder a few rungs. This sort of movement happens all the time.
The threat Spitzer represents is very real, but its victims are not the ones he pretends to threaten. If the bankers who got Spitzer's letters don't make money by sub-prime lending, you may be sure they will find another way to make it. But whether the low-income family trying to climb the ladder to prosperity through home ownership can find another way to make it -- that is a much less likely proposition.
This Washington Post article reports on new NASA Administrator Michael D. Griffin's ambitious plan to shave four years off the timetable for building a next-generation spaceship to replace the obsolescent space shuttle. Dr. Griffin's accelerated plan is to launch the new spaceship by 2010.
As noted in this previous post, Dr. Griffin faces entrenched opposition within the federal government and from government contractors to his efforts to revitalize NASA. This is story worth following closely, for its outcome will have a dramatic impact on the future of U.S. spaceflight, NASA, and the local Houston economy.
Update: Aerospace engineer Rand Simberg comments on Mr. Griffin's initiatives in this TCS piece.
As United Airlines continues to flounder in its nearly two and a half year old chapter 11 case amidst union strike threats and troubling pension obligations, an even bigger problem is emerging -- that is, keeping its jetliners.
As noted in this earlier post from last November, the Bankruptcy Court in the United Airlines chapter 11 case made a clearly erroneous ruling regarding the rights of airplane lessors to repossess their planes because of UAL's failure to make timely payments under the leases covering those planes. In this strongly-worded Judge Easterbrook opinion issued this past Friday, the Seventh Circuit Court of Appeals reversed the earlier Bankruptcy Court order barring repossessions of 14 of United's 460 jetliners and ruled that the repossessions can proceed unless United makes the full rental payments as required under section 1110 of the Bankruptcy Code. The ruling raises the distinct possibility that lessors will repossess a number of United's jetliners, which would be an unprecedented occurrence for a major American airline.
Over the weekend, United attempted to play down the Seventh Circuit's ruling by disclosing that the number of planes in the dispute is now down to eight because the airline previously rejected leases on the other six. However, the ruling means that United still must negotiate terms on all of its 175 leased planes, and the ruling does not exactly provide United much leverage in those negotiations.
Meanwhile, other aspects of the United chapter 11 case are just as messy. The Bankruptcy Judge in the case is expected to rule later this week on a proposed settlement between United and the Pension Benefit Guaranty Corp., the federal pension insurer, that would allow United to turnover to the PBGC its four underfunded pension plans in the largest corporate-pension default in U.S. history. The proposed settlement is essentially a debt for equity swap between United and the PGBC in which the PBGC would receive up to $1.5 billion in notes and convertible stock in the reorganized United. Unions representing flight attendants, mechanics and other ground workers have objected to the deal, although the United pilot's union previously approved the proposed settlement.
Also this week, a trial in the United chapter 11 case commences on whether United can establish that the labor contracts of the flight attendants, mechanics and other ground workers should be annulled so the airline can impose new terms on the workers. For its part, the flight attendants have already announced that they will implement a series of work stoppages that target specific flights or routes without warning if United goes through with its action to annul the union's labor contract.
What a first class mess.
May 8, 2005
However, in doing so, Berkshire raised eyebrows by disclosing that a current VP at its General Reinsurance Corp unit had received a "Wells" notice from the Securities and Exchange Commission, which means that the SEC is planning on filing civil charges alleging violations of federal securities laws. The Wall Street Journal ($) disclosed later in the weekend that the General Re VP is Rick Napier, and that the SEC is considering filing a complaint against Mr. Napier for assisting American International Group Inc. in allegedly accounting for a highly-publicized reinsurance transaction improperly. Moreover, inasmuch as Wells notices are usually sent out to all potential defendants to an SEC civil action, more General Re and AIG executives who were involved in the reinsurance transaction will probably receive such a notice soon.
Berkshire also disclosed that General Re and its former CEO, Ronald Ferguson, were sued along with AIG and several AIG executives in a recent class-action civil lawsuit filed in federal court in New York City. Mr. Ferguson was the CEO of General Re when Berkshire purchased the company in 1998. After several years of poor results, Mr. Ferguson stepped down as chief executive in 2001 and has been a consultant to Berkshire's reinsurance businesses ever since. AIG's former CEO Maurice "Hank" Greenberg allegedly contacted Mr. Ferguson in 2000 to arrange the reinsurance transaction that is now the subject of the multiple investigations.
Following on this post from yesterday on misguided efforts to restrict the independence of judicial branch of government, this Washington Post article profiles Rick Scarborough, the Pearland, Texas Baptist minister turned political operative. Mr. Scarborough is a leader in the movement within the Republican Party to persuade Senate Republicans to change the rules so that Democrats cannot use filibuster to block President Bush's federal judicial nominees. In 2002, Jerry Falwell publicly touted Mr. Scarborough as one of the new leaders of the religious right in America.
Meanwhile, George Washington University Law Professor Orin Kerr over at the Volokh Conspiracy takes a good-natured jab at those such as Mr. Scarborough who disingenuously claim that the fight over the judiciary is based on Constitutional principles and not good ol' fashioned American politics. Professor Kerr observes the following about a prominent Supreme Court Justice:
If you think about it, [this Justice] is directly or indirectly responsible for many of the problems with the modern judiciary. Not only did [this Justice] personally fail to intervene in the Schiavo case, ignoring the will of Congress, but he has repeatedly urged judges to simply ignore Congressional intent. He refuses to cite legislative history, woodenly following the "text" rather than deferring to clear statements of what Congressional leaders intended to do. This kind of judicial hubris is simply unacceptable.
His activist opinions have invented new constitutional rights for marijuana growers, given thousands of convicted criminals a "get out of jail free" card, and tried to limit the President's ability to fight the war on terror. In addition, [this Justice] has relied heavily on foreign legal sources to interpret allegedly ambiguous provisions of the Bill of Rights (see part II.A). Indeed, [this Justice's] contempt for our system of Government is so great that he admits he wants to see the Constitution "dead."
Who is the Justice taking such outrageous positions? That's right, Mr. Scarborough's favorite, Justice Antonin Scalia.
Also, University of Texas Law Professor Brian Leiter points to this statement approved by the deans of the United States' top law schools (including Dean William Powers of the UT Law School and Dean Nancy Rapoport of the University of Houston Law Center), which provides the following common sense advice:
Recent threats of retaliation against federal judges by members of Congress and others harm the rule of law and the important constitutional principle of separation of powers. We strongly oppose these threats of retaliation. Regardless of whether we agree or disagree with their opininons, we express our full support for judges who properly discharge their constitutional responsibilities by deciding the cases before them as they believe the law requires.
We recognize that Americans wil often disagree, as do we, with particular judicial opinions. But the legislative and executive branches have constitutional means available to them to seek to alter the law as declared by the judiciary. An effort to use those means is part of our tradition of separation of powers and is entirely proper. But it is irresponsible and harmful to our constitutional system and to the value of a judiciary that is independent, in fact and appearance, when prominent individuals and members of Congress state or imply that judges may be impeached or otherwise punished because of their rulings. We urge them to stop.
May 7, 2005
Check out the following executive summary of this Cato Institute paper entitled The Grand Old Spending Party: How Republicans Became Big Spenders:
President Bush has presided over the largest overall increase in inflation-adjusted federal spending since Lyndon B. Johnson. Even after excluding spending on defense and homeland security, Bush is still the biggest-spending president in 30 years. His 2006 budget doesn?t cut enough spending to change his place in history, either.
Total government spending grew by 33 percent during Bush?s first term. The federal budget as a share of the economy grew from 18.5 percent of GDP on Clinton?s last day in office to 20.3 percent by the end of Bush?s first term.
The Republican Congress has enthusiastically assisted the budget bloat. Inflation-adjusted spending on the combined budgets of the 101 largest programs they vowed to eliminate in 1995 has grown by 27 percent.
The GOP was once effective at controlling non-defense spending. The final non-defense budgets under Clinton were a combined $57 billion smaller than what he proposed from 1996 to 2001. Under Bush, Congress passed budgets that spent a total of $91 billion more than the president requested for domestic programs. Bush signed every one of those bills during his first term. Even if Congress passes Bush?s new budget exactly as proposed, not a single cabinet-level agency will be smaller than when Bush assumed office.
Republicans could reform the budget rules that stack the deck in favor of more spending. Unfortunately, senior House Republicans are fighting the changes. The GOP establishment in Washington today has become a defender of big government.
Ron Chernow -- the author of The House of Morgan (1990), The Warburgs (1994), Titan: The Life of John D. Rockefeller, Sr. (1998), and last year's marvelous Alexander Hamilton (2004) -- writes this interesting NY Times op-ed in which he provides insightful historical perspective on the current political battle that is brewing over the misguided proposals of certain Republican Party politicians to cut off federal financing for the judiciary and even abolish some lower-level federal courts.
After explaining how President Thomas Jefferson and the Republicans attempted to undermine the independence of the American judiciary during the early 1800's after former President John Adams and the Federalist Party had stacked the federal judiciary immediately before Adams had left office, Mr. Chernow observes wisely:
So, before they starve the lower courts of funds, Republicans in Congress and the conservative evangelicals who support them would be wise to ponder these events of the early 1800's. For all the talk today of tyrannical judges, the judiciary still relies on Congress for its financing and on the executive branch to enforce its decisions. It could easily, once again, end up at the mercy of the other two branches, upsetting the delicate balance the framers intended.
Or, stated another way, if a leader of the stature of Thomas Jefferson almost compromised the independence of the judiciary, just think what damage Tom DeLay could do.
May 6, 2005
The reeling Stros (11-16) get a nice boost today as the club's best hitter -- Lance Berkman -- is expected to play tonight in the Stros' game against the Braves (17-11) in Atlanta. Berkman has been rehabilitating his right ACL over the past six months after surgery on his knee that he injured while playing flag football last November. Here is the Stros' press release on the activation of Berkman.
Although the Stros have not yet announced the player who will be dropped from the 25 player roster to accomodate Berkman, my sense is that it will be either Brandon "Home Run" Duckworth or Chad Harville, who had a rough outing in last night's game in Atlanta.
Update: Just to show what I know, the Stros announced this evening that they sent rookie Chris Burke (-4 RCAA/.222 Ave/.265 OBP/.244 SLG) to AAA Round Rock to make room on the roster for Berkman. Inasmuch as Burke is blocked by Bidg at his natural position of second base and has not hit well enough so far this season to merit a reserve role in the outfield, he is probably better off at Round Rock where he can play every day. However, the Stros probably will not carry 12 pitchers on the 25 player roster for long, so another roster move is likely in the near future.
The already weak-hitting Stros have been struggling at the plate this season without Berkman, who is legitimately one of the best hitters in Major League Baseball right now. To appreciate just how good a hitter Berkman is, consider his runs scored against average ("RCAA"), which is a statistic that Lee Sinins developed to measure how many more runs a hitter generates compared to the number of runs an average hitter creates.
As noted several times on this blog, RCAA is particularly valuable to evaluate hitting because it focuses on the two most important things in winning baseball games -- that is, creating runs and avoiding making outs. RCAA basically computes the number of outs that a particular player uses in creating runs for his team and then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs. Inasmuch as the hypothetical average player's RCAA is always zero, a player can have either an RCAA that is a positive number -- which indicates he is an above average hitter (i.e., Barry Bonds) -- or an RCAA that is a negative number, which means he is performing below average (i.e., Brad Ausmus).
Moreover, RCAA is a valuable tool to evaluate hitting ability because it provides a good measure for comparing hitters who played during different eras. Inasmuch as RCAA measures a player's hitting ability against that of an average player in the player's league for each particular season, a player's lifetime RCAA is an accurate measure to compare players from different eras -- it essentially measures how each player performed against an average player in his era. On the other hand, comparing other hitting statistics -- such as on-base average, slugging percentage, and batting average -- is often skewed between players of hitter-friendly eras versus players of pitcher-friendly eras.
Berkman is well on his way to being the best hitter in Stros history. After a 55 RCAA/.982 OPS 2002 season and a 40 RCAA/.927 OPS 2003 season, Berkman had an incredible .566 SLG, .450 OBA, 1.016 OPS, 69 RCAA in 160 games during the 2004 season. He has a .980 career OPS (i.e. on-base average + slugging percentage), compared to the league average of .777 during his career, and 254 RCAA in 775 games.
Berkman's 236 RCAA over the past 4 years ranks 8th in the past half century for players of the age 25-28:
1 Mickey Mantle 322
2 Frank Thomas 320
3 Barry Bonds 319
4 Hank Aaron 256
5 Manny Ramirez 250
6 Willie Mays 246
7 Jeff Bagwell 239
8 Lance Berkman 236
T9 Todd Helton 228
T9 Frank Robinson 228
Not bad company.
As noted earlier here and here, University of Houston economics professor Dr. Barton Smith is the leading expert on the regional economics of the Houston metropolitan area. Dr. Smith is also the director of the UH Institute for Regional Forecasting, and his report on the local real estate market that he gives a couple of times a year to the Houston real estate business community is always one of the most well-attended luncheons in the Houston business community.
All in all, Dr. Smith views the Houston economy to be in a small but steady growth mode that is largely dependent on what happens in the exploration and production sector of the oil and gas industry. While Houston's housing market is not overinflated, Dr. Smith believes that it is currently suffering from oversupply, although not close to the extent of the dreaded days in the Houston real estate market of the mid-to-late 1980's. Dr. Smith reminded the audience that high energy prices alone are not enough to create a booming economy in Houston anymore, and noted that, while upstream energy grew at nearly 5 percent last year, the overall regional economy grew only 0.9 percent. Dr. Smith pointed out that this is the result of such factors as slow growth in downstream energy (including refining and petrochemicals) and in non-energy sectors of the regional economy.
One of the remarkable cultural developments since the collapse of Enron Corporation has been the branding of the "Enron" name to become synonomous with all forms of corporate corruption. Earlier this week, the prosecution's use of the Enron brand in the corporate-fraud trial of former HealthSouth CEO Richard M. Scrushy got the prosecution in some very hot water with the judge in that case.
The fireworks came after the witness -- HealthSouth's security chief and a key defense witness -- had mentioned Enron during cross-examination. The prosecutor then then asked the witness if he was referring to "the same company that defrauded investors and laid off many employees, resulting in prison sentences for some people." That prompted U.S. District Judge Karon O. Bowdre (pictured above) -- who previously had warned lawyers in the trial to refrain from references to Enron or any other corporate frauds -- to pound her gavel and yell the prosecutor's name.
After slamming her gavel, Judge Bowdre instructed the jury that the prosecutor had asked a "series of inappropriate questions." The judge then advised the jury that she was terminating the cross-examination "as a sanction" to the prosecution. No word yet on whether the prosecutor faces further sanctions for what is a serious and intentional breach of the judge's previous order.
Professor Ribstein has a typically adept observation about this latest incident of prosecutorial misconduct:
"If the government actually has to try the facts of each individual corporate fraud case, it could get sticky."
Yesterday's conference call for Blockbuster, Inc.'s CEO John Antioco to discuss the company's quarterly earnings turned out not to be the routine chat that usually occurs in such calls. Blockbuster investor Carl Icahn made sure of that.
Mr. Icahn and two entertainment industry veterans are opposing Mr. Antioco and two current directors in the company's upcoming annual meeting. Mr. Icahn is Blockbuster's biggest shareholder, with about 8.6% of Blockbuster's combined voting shares. He is also expected to receive support in his fight with Mr. Antioco from most of the hedge funds that own a big chunk of Blockbuster's stock.
So, this veteran warrior of seemingly countless corporate battles (here are a few previous posts on Mr. Icahn) surprised everyone on the call (via about 450 phone and Web connections) when his distinctive raspy-voice joined the question-and-answer session of the call, beginning with the following missile shot at Mr. Antioco:
"You have mischaracterized what I'm trying to achieve here," Mr. Icahn alleged regarding his recent move to gain control of the Blockbuster board. "We would want you accountable."
Mr. Icahn went on to characterize Mr. Antioco's $50 million bonus last year as "egregious" given Blockbuster's faltering business. Earlier, the company had announced a first-quarter loss of $57.5 million compared with year-earlier net income of about $115 million.
Well, if you want a fight, just mischaracterize a CEO's pay. The usually calm Mr. Antioco accused Mr. Icahn of making an "erroneous" statement about his pay and then said:
"I didn't get a $50 million bonus. I think you know that."
Blockbuster regulatory filings show that Mr. Antioco earned $7 million in cash and $26.7 million in restricted stock in addition to stock options worth potentially much more. Mr. Antioco then appealed to investors on the call:
"Do you honestly believe that electing a divisive element will help move the company and your investment forward?"
In addition to the foregoing, Mr. Icahn challenged Mr. Antioco to give up his entitlement to future bonuses in light of Blockbuster's financial problems and to put the entire board up for election next year rather than continuing the staggered current system under which two or three directors are nominated for election every year. Mr. Antioco shot back that such decisions were the preogative of the board.
At any rate, the unusual dust-up between the two rivals went on for six minutes with each man interrupting the other and ended only when Mr. Icahn was cut off in midsentence by the conference call operator, who declared the investor's comments were not "appropriate." The operator's cut-off came right before Mr. Icahn appeared ready to reveal details of an offer from a leveraged buyout firm to bid for Blockbuster. Mr. Antioco later told listeners on the call that the company had received no such offers. Being cut off in mid-sentence was "corporate democracy, Antioco-style," Mr. Icahn commented later.
No word yet on whether Blockbuster is selling tickets to its upcoming annual meeting.
Update: Charlie Quidnunc, a podcast-blogger in Mercer Island, Washington, actually listened in on the Blockbuster conference call and has this post and podcast on the call. Don't miss it. As Charlie notes, this was not your typical conference call for a publicly-traded company.
May 5, 2005
Professor Podgor over at the White Collar Crime Prof Blog points us to this Securities and Exchange Commission press release that describes the SEC's lawsuit against some Houston-area telemarketers who are taking a rather creative approach to soliciting purchases of six microcap stocks.
Turns out that the stock promoters left hundreds of thousands of fraudulent "wrong number" stock tip messages in which a woman by the name of "Debbie" would leave a hot stock tip message on the phone recipient's voice mail and would leave it in such a way to make the recipient believe that "Debbie" had dialed the number by mistake and had really meant to call a friend to pass along the hot stock tip.
The SEC complaint alleges that the messages were part of a larger scheme enabling the Houston-based stock promoters (Peter S. Cahill of Houston and Cahill's Clearlake Venture Group) to sell approximately $4.5 million of one of the touted stocks through a Tampa, Fla.-based broker-dealer. The SEC alleges that the scheme drove up the price of each of the touted stocks, temporarily inflating their combined market capitalization by approximately $180 million.
Gosh, what is the world coming to? You can't even trust those hot stock tips mistakenly left on your voicemail anymore? ;^)
My sense is that the 'Huskers will not do as well against the Sooners on the gridiron this fall.
Update: OU fan Jim Bob Baker, who had taken the "over" on the pre-verdict over/under betting line of a three year sentence for the defendant, observed the following about the jury:
"Not guilty? Gee, I didn't know that there were that many Oklahoma State alumni in Cleveland County (Norman), Oklahoma."
Frustrated with the Lord of Regulation getting all the headlines recently, the Federal Bureau of Investigation announced yesterday a wide-ranging inquiry into the insurance industry that could extend into banking and other financial sectors.
FBI investigators and insurance regulators from multiple states are meeting in New York City today during which the regulators are apparently going to school the FBI agents on the structured finance transactions that insurers commonly use to manage earnings or -- as described in the current climate of regulatory demagoguery -- to manipulate financial statements. The FBI has assigned between 50 and 75 agents from its Financial Crimes Section to the probe and confirmed that its investigation is the result of the various criminal and regulatory probes that are already underway in regard to AIG and Berkshire Hathaway's reinsurance unit, General Re.
One would hope that the FBI actually hires an expert or two in structured finance to explain the legitimacy of many such transactions before going on the Sunday talk shows and alleging widespread criminal activity within the industry. The misguided nature of the government and the bankruptcy examiner's similar investigations into many of Enron's structured finance transactions has already been well-chronicled, particularly by University of Chicago business professor and structured finance expert, Christopher Culp, in his recent books, Corporate Aftershock (Cato 2003) and Risk Transfer (Wiley 2004).
Meanwhile, checking in on the AIG saga, the Wall Street Journal ($) and others published a copy of a letter from former AIG CEO Maurice "Hank" Greenberg to the AIG board yesterday in which Mr. Greenberg laments AIG's restatement of net worth earlier this week and points out that the restatement lacked critical input from Mr. Greenberg and former AIG CFO, Howard I. Smith. How the company could have reached its conclusions without Mr. Smith's input "is beyond my comprehension," observed Mr. Greenberg in the letter.
Of course, the Lord of Regulation made certain that the AIG board did not have such input by effectively forcing Messrs. Greenberg and Smith to invoke their Fifth Amendment privilege against self-incrimination by publicly alleging that they had committed crimes before even hearing from either man. So it goes in the post-Enron business world of being guilty until proven innocent if one engages in structured finance transactions.
May 4, 2005
61 year old Bass player Jack Bruce has had a liver transplant and 65 year old drummer Ginger Baker suffers from arthritis, but Eric Clapton's first big rock group -- Cream (you know, Sunshine of Your Love, Badge, White Room, etc)-- lives on.
Cream reunites in concert. For those of you under 40: Cream was Eric Clapton's old band. Under 30: Clapton was once a big rock star. And for you under 20: Rock was a kind of music they used to play on the radio.
And don't miss Banjo Jones' musings on what happened to Cream after Clapton heard The Band.
As noted in previous posts here, here, here, here and here, it is extremely difficult to liquidate even an insolvent airline. Rather, such companies seem to go out to pasture in chapter 11 for an indefinite period until creditors approve some debt for equity swap that cleans up the balance sheet enough for exit financiers to risk the capital necessary to give the airline another swing at the plate.
In that regard, this US Today article examines the question of why it is so difficult to put an airline out of its misery, and essentially concludes that creditors, government, employees, and politicians have created such barriers to exiting the industry that it's almost impossible for an airline's owners simply to liquidate the damn thing and be done with it. This is too bad because the relatively scarce airline gates -- which remain the main barrier of entry into the airline market -- need to be allocated to savvy companies that are positioned to succeed. As Professor Ribstein reminds us here and here, airlines such as United, U.S. Air "and their ilk are starting to resemble nothing so much as Amtrak." Professor Ribstein follows up with these typically insightful comments on today's article.
By the way, speaking of Amtrak, Professor Gordon has comments and has helpful links on that black hole for money.
The grand ol' dame of Houston conventions -- the Offshore Technology Conference -- is winding down over at Reliant Park.
The OTC covers state-of-the-art technology for offshore drilling, exploration, production, and environmental protection, and it is the world energy industry's foremost event for the development of offshore resources. This is the 36th straight year that industry engineers, technicians, executives, operators, scientists, and managers have gathered in Houston for the OTC, and the conference's exhibit floor on the floor of Reliant Stadium -- including massive and specialized equipment and technological devices used in the extraction of oil and gas from offshore locations -- is one of the more fascinating that you will ever see at any convention.
Although an industry conference rather than one that caters to the masses, the OTC has always been interesting in that it tends to mirror the state of the local Houston economy. During the early 1970's through the early 1980's, the conference boomed as increased global demand for energy and Middle East embargoes ratched up the price of oil. After conference attendance topped out at almost 110,000 in 1982, the prolonged bust in the energy industry in the mid-1980's resulted in substantially decreased attendance. In 1984, the conference was held without an exhibition of equipment and technology at all, and the late 1980's brought speculation that the expense of putting on the conference may have become an overpriced luxury for industry participants.
Nevertheless, over the past 15 years or so, the OTC has grown steadily to regain its stature as one of the key oil and gas industry conferences held each year, and last year's attendance of almost 50,000 was the highest since the 1982 record. A pass to the exhibit hall is usually easy to obtain and a visit is well worth it. The conference winds up today, so hurry.
May 3, 2005
Following this development from Monday, the Enron Task Force prosecution is now clearly in serious damage control mode in the ongoing criminal trial against five former Enron Broadband Services executives in Houston federal court.
As this Mary Flood Houston Chronicle story reports, the prosecution hurriedly changed course after the prosecution's key witness -- former EBS CEO Ken Rice -- was forced on Monday to admit during cross-examination that he had falsely testified on direct examination that defendant Rex Shelby had made certain statements to an analysts' conference in 2000.
After Mr. Rice was finally excused on Tuesday after eight days of increasingly grueling testimony, the prosecution departed from its pre-trial witness list and called Beth Stier, who works for a company that previously provided independent contractor video services for Enron. That company continues to maintain a large library of Enron-related videos, and the company is currently providing consultant services for the criminal defense team of former Enron CEO Jeff Skilling.
The source of confusion in Mr. Rice's testimony was a videotape of the analysts' conference that the prosecutors used in examining Mr. Rice. That particular video contained a segment of Mr. Shelby's comments that Mr. Rice contended had been shown at the analysts' conference.
However, the defense revealed this past Friday that the prosecution had used the wrong video and that the raw footage video of the analysts' conference clearly showed that the segment containing Mr. Shelby's comments had not been played for the conference. On Monday, the defense was allowed to show the jury the raw footage video that proved that the segment containing Mr. Shelby's comments had not been played for the conference.
Ms. Stier testified on Tuesday that she had originally taped the segment with Mr. Shelby for the conference, but that the segment was not used during the conference and that she had later inserted the segment into an edited version of the videotape at the request of Enron's investor relations department. Ms. Stier also admitted that she had given the prosecution a copy of both the edited videotape that the prosecution ended up using in examining Mr. Rice and also the raw footage videotape that the defense team used on cross-examination to impeach the credibility of Mr. Rice's testimony.
During her testimony, Ms. Stier then revealed that the Enron Task Force prosecutors had hauled her down to the Federal Courthouse over this past weekend to question her over the videotapes after they first became aware of video mixup during cross-examination of Mr. Rice last Friday. During the weekend questioning, Ms. Stier apparently hedged her answers to prosecutors' questions regarding the work she has done for the Skilling defense team. Accordingly, when the prosecution asked her today on the witness stand whether she had lied to the prosecution in answering those questions over the weekend, Ms. Stier admitted that she had been very careful about her answers and then added:
"You guys scare me to death. I do not want to lie to you."
As noted in this earlier post, the damage from the prosecution's use of the wrong video on Mr. Rice's direct examination could have been limited by the prosecution's forthright admission of its mistake. However, from the report of today's proceedings, the prosecution not only failed to adopt that approach, but inexplicably compounded the damage from its previous error by attempting to shift the blame to a frightened woman on the witness stand before a predominantly male jury. Such a major tactical blunder is a clear sign of a panicked prosecution.
Consequently, a trial that formerly looked like a sure-fire winner for the Enron prosecution has now turned into a real horse race. Stay tuned, for this trial is has just become very interesting.
Following on this earlier post about former Tyco International CEO Dennis Kozlowski's handling of his cross-examination during his ongoing criminal trial in New York City, this NY Times article doesn't make it sound as if yesterday's testimony went much better for Mr. Kozlowski.
The following is an exchange between the prosecutor and Mr. Kozlowski that apparently occurred yesterday:
"This proxy statement, signed by you, has to be honest and complete?"
"It can't be misleading?"
"There's nothing in there about the $32 million in loan forgiveness for you?"
Mr. Kozlowski's first trial, in which he did not testify, ended in a hung jury. If he is convicted in this second trial, then Mr. Kozlowski's performance during cross-examination will almost certainly transform him into the poster boy for white collar criminal defendants who should not testify during trial.
May 2, 2005
An interesting development occurred last Friday during the ongoing Enron Broadband trial, and the development is turning into the first genuine problem for the Enron Task Force prosecution based on Mary Flood's report of today's testimony.
Here's what happened on Friday. Tony Canales, a former United States Attorney in Houston from 1977-80 who is a defense attorney for one of the Broadband defendants, was cross-examining the key prosecution witness and former Enron Broadband CEO, Ken Rice (pictured above). Mr. Canales attempted to offer into evidence the raw footage video of an analysts' conference that Mr. Rice testified about on direct examination from another video that the prosecution used. U.S. District Judge Vanessa Gilmore would not allow Mr. Canales to show the raw footage video to the jury on Friday afternoon because the prosecution had not yet had an opportunity to review it on Friday, which was a rather odd ruling given that the prosecution had given the video to the defense in the first place.
At any rate, the defense's raw footage video came into evidence this morning, and the defense showed the raw footage video side-by-side to the prosecution's video from which Mr. Rice had previously testified during direct examination. It turns out that the prosecution video of the analysts' conference is different in material respects from the raw footage video and that the prosecution's video -- contrary to Mr. Rice's testimony on direct -- contained footage of defendant Rex Shelby making statements that was not shown to the analysts at the conference.
Well, as you might expect, Mr. Rice is in full retreat today as Mr. Canales and other defense attorneys hammer him on why he previously testified that Mr. Shelby had made statements at the analysts' conference that he actually did not make. According to Mary Flood's Chronicle article, Mr. Rice appeared to be rather confused:
Rice said he'd seen the government's video before testifying and when prosecutor Ben Campbell showed it to him in court Tuesday, Rice testified that he was surprised that Shelby was talking about the network operating system as up and running when it wasn't."The government represented that the tape that included Shelby came from Enron and was played at the analysts conference," Rice said.
In questioning from defense attorney Tony Canales, Rice said he knew Shelby had taped the segment in question and knew it was slated to be shown to the analysts.
Under questioning today, Rice said he thought about this a lot of over the weekend and even talked to his lawyer about whether he'd been shown the wrong tape and convinced himself he did see the Shelby segment at the analyst conference."He wasn't any help to you then?" Canales asked Rice.
"All that money, no," Rice said smiling back.
It was one of several light moments in the day when Rice acknowledged being somewhat overwhelmed by the circumstances.
Of note, Mr. Rice is testifying under a cooperation agreement in which he has pleaded guilty to one count of securities fraud in return for the prospect of a reduced sentence. However, the government's support for that reduced sentence is conditioned upon Mr. Rice testifying truthfully during the Broadband trial. He is in his seventh day of questioning.
Even inside the courtroom -- much less outside it -- it's notoriously difficult to evaluate how much any of this affects the jury. If the prosecution handles it correctly on re-direct, then the Enron Task Force prosecutors will take the blame for using the wrong video, apologize to the jury for their mistake, and simply have Mr. Rice re-confirm his opinion that certain of the statements made on both the raw footage video and the prosecution's video were false. So long as the prosecutors take such an approach in a forthright manner, the jurors may view the prosecution's use of the wrong video as an honest mistake and not think much about the erroneous part of Mr. Rice's testimony.
On the other hand, if not handled well on re-direct, this is the type of mistake that could blow up in the prosecution's face. Mr. Rice will almost certainly be called a liar by future witnesses for the defense during this trial, so his credibility will be a key issue for the jury. The prosecution's mistake in using the wrong video -- and Mr. Rice's failure to catch it -- opens him up to the age-old defense tactic of arguing to the jury that "telling the truth is easy, but lying without making mistakes is hard" -- in short, Mr. Rice was lying and the best evidence of it is that he was willing to lie about what statements were made at the analysts' conference in return for the promise of government support of a shorter prison sentence.
So, watch this part of the trial closely. Three of the defendants in the Broadband trial have to overcome a huge elephant in the courtroom -- i.e., the multi-millions that they made on selling Enron stock during an 18 month period. However, discrediting the government's key witness is a nice start to deflating the prosecution's case. Let's see whether the prosecution can minimize the damage to their witness in the jurors' eyes and move on to refocusing their case against the defendants on that elephant.
Ft. Worth-based Private equity firm Texas Pacific Group and its partner Warburg Pincus are close to a deal to acquire luxury retailer Neiman Marcus Group Inc. for about $5 billion ($100 a share). The deal would be the latest in a trend of recent big buyouts in the U.S. retail industry.
The deal includes 35 Neiman Marcus stores and two Bergdorf Goodman stores in New York. The Texas Pacific-Warburg venture apparently beat rival bids from Blackstone Group LP and Thomas H. Lee Partners LP and from Kohlberg Kravis Roberts & Co. and Bain Capital. Interestingly, no retailers made a bid on Neiman's.
According to my wife -- who is a shopping expert -- Neiman's is one of the most valuable brand names in American retail circles. Texas Pacific has experience in retailing after acquiring 85% of clothing retailer J.Crew in 1997, which my wife points out has become a first rate retailer since that time.
Following on Friday's negative report, American International Group Inc. announced late Sunday that it would restate more than four years of financial statements and reduce its net worth by $2.7 billion, which is about 3.3% of AIG's net worth. Although the report does not name names, the report concedes that former AIG executives -- including embattled former CEO Maurice "Hank" Greenberg -- had been able to "circumvent internal controls over financial reporting" and that the company's auditors, PricewaterhouseCoopers LLC, will issue an adverse opinion regarding AIG's defective internal controls over financial reporting. Here are the posts over the past several months involving AIG and Berkshire Hathaway.
In addition to admitting certain reinsurance deals such as the one between AIG and General Re (Berkshire Hathway's unit) involved insufficient risk transfer to qualify for favorable insurance accounting, AIG's Sunday public statement conceded widespread use of trades in and out of hedge funds as one of several improper company strategies to convert capital gains into investment income toward the end of reporting periods to impress the market. With regard to the accounting for those and other transactions, the report concludes as follows:
The restatement will correct errors in prior accounting for improper or inappropriate transactions or entries that appear to have had the purpose of achieving an accounting result that would enhance measures important to the financial community. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG's independent auditors.
The statement admitted that the company used accounting tactics to change the timing and characterization of gains and losses, but it does not address the alleged improper characterization of worker's comp insurance premiums that surfaced last week. Here is the Wall Street Journal ($) copy of the company's statement.
Meanwhile, the Oracle of Omaha -- in addressing his Berkshire Hathaway subjects . . er, I mean, shareholders over the weekend -- stated that he is confident that Berkshire's General Re unit will survive the current regulatory scrutiny and continue to contribute to Berkshire's earnings.
May 1, 2005
Last time we checked in on them, the Stros were coming off a successful homestand and feeling pretty good about themselves. However, after an atrocious roadie in which they lost five straight (including three shutouts) to the division-leading Cardinals (15-8) and the pathetic Pirates (8-15), the Stros (10-13) came home licking their wounds. And after frittering away yet another strong Rocket pitching performance in the Friday night opening game of the weekend homestand against the Cubs (12-12), things just didn't look good at all.
However, the Stros' bats finally came alive against the Cubs' sore aces Wood and Prior in the Saturday and Sunday games, and the club won both games comfortably. So, the Stros come into their upcoming three game set against the Pirates feeling at least competitive at the plate again.
Despite last week's losing streak and a 1-10 road record, the Stros are only a game or two below where I thought they would be one month into the "B.B.R" ("before Berkman returns") portion of the season (Berkman is pictured left on a rehab assignment at AAA Round Rock). One month into the season, the Stros hitters have not hit quite as well as I thought they would, but their pitchers have pitched even better than I thought they would. Except for some managerial malpractice by Phil Garner in hitting Everett (.240 AVE/.326 OBP/.400 SLG) at lead-off for most of the season and in inexplicably giving Lamb (.262/.354/.571) -- whose grand salami off of Prior was the key hit in Sunday's win over the Cubs -- roughly half the at bats of Luke Scott (.154/.250/.205) to date, the Stros probably would have won a game or two more.
As expected, hitting has been the problem for this Stros club. As measured by the all-important statistic of runs created against average ("RCAA" explained here), the Stros are tied with the Brewers (11-13) as the second-to-last hitting team in the National League through the first month of the season, above only the utterly incompetent Pirates. Only Lane (.295/.330/.557) Lamb and Bags (.263/.366/.434) have positive RCAA's, although frankly CF Taveras (.267/.333/.387) has to be rated a pleasant surprise at being able to maintain a -2 RCAA through the first month of the season given that his defense has been generally superior (he threw out three Cubs at the plate over during the weekend series). Similarly, the -2 RCAA of SS Everett -- whose defense has been typically superior and who has shown signs of becoming at least an average National League hitter this season -- is probably acceptable at this stage of the season. Finally, after a hot start, Bidg (.265/.322/.434) has tailed off to a -1 RCAA, but at least his track record indicates that he will improve as the season progresses.
On the other hand, Ausmus (.231/.310/.269), Burke (.238/.289/.262), Ensberg (.246/.342/.377) and Scott have all have -4 RCAA, meaning that each of them have produced four fewer runs than an average National League hitter would have produced so far this season using the equivalent number of outs that each player used. Ausmus has been particularly awful, even by his notoriously low standards. In 57 plate appearances, Ausmus has had 10 singles, two doubles and five walks -- it's clearly time to give the newly-acquired Quintero a chance with the big club. It is almost certain that he could not be worse than Ausmus.
Although getting Berkman back will certainly help, the Stros hitting problems are more than one great hitter can cure. Bags' power drain -- his slugging percentage last season and this season is down over .100 points from the 2001 season -- appears to be permanent. Ensberg still has not regained the stroke from his breakout 2003 season, and at age 39, Bidg is certainly no sure bet to hit much better than an average National League hitter this season. Moreover, the Stros' top hitting prospects at AAA (LF Todd Self) and AA (CF Josh Anderson) have shown little power in the minors. Consequently, absent a trade for another slugger to complement Berkman, the Stros are likely stuck with this group of generally unproductive hitters for the remainder of the season.
Meanwhile, the Stros' pitching has been nothing short of remarkable so far this season. Ranking fourth best in the National League behind only the Marlins (14-9), Braves (15-10), and Cardinals, every pitcher on the Stros' staff except for "Home Run" Duckworth and Backe have a positive runs saved against average ("RSAA" explained here), and Backe has actually pitched reasonably well except for this adventure in St. Louis. The ageless Clemens leads the National League in RSAA through the first month of the season and the remainder of the staff members appear to be on their way to solid seasons. Accordingly, if the Stros can simply figure out a way to be an average National League team in hitting, the Stros' pitching is good enough to carry the club into contention for at least the Wild Card playoff spot.
Some food for thought -- is it time for the Stros to use some of their pitching talent in a trade to acquire more hitting? The Stros are loaded with at least five top pitching prospects at AAA Round Rock (Astacio, Wandy Rodriguez, and Jared Gothreaux) and AA Corpus Christi (Fernando Nieve and Jason Hirsch). Perhaps dangling Burke with one of two of those prospects would generate interest from a pitching starved club such as the Reds so that they would dangle one of their young slugging outfielders. Adam Dunn, Austin Kearns, or Wily Mo Pena would sure look good in a Stros uniform.
The Stros need to make some hay during the upcoming home series against the hapless Pirates because that series is followed by a seven game road trip to Atlanta and Miami, two places where wins are rare. Pettitte pitches the Monday game before Ezequiel Astacio gets his first Major League start in the Tuesday game. After the following seven game roadie, the Stros return to MinuteMaid Park on Thursday, May 12th for a seven game homestand against the Giants (13-11) and the Diamondbacks (14-10). If the Stros come into the San Francisco series with at least a 16-17 record, then my sense is that they would still be on course for this season.