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September 30, 2005

The hypocrisy of Republican outrage over the DeLay prosecution

In reading the various Republican statements (see here and here) alleging that Travis County District Attorney Ronnie Earle is engaging in an outlandish abuse of power in regard to his decision to indict House Majority Leader Tom DeLay, a thought occurred to me.

For the past several years, the Justice Department under the Bush Administration has engaged in numerous and similar abuses of power. As a result, where is the Republican outrage over the sad cases of Daniel Bayly, William Fuhs, Arthur Andersen and Jamie Olis, to name just a few?

As I have noted many times, Sir Thomas More explains in the following passage from A Man for All Seasons why it is important to uphold the rule of law to constrain the abuse of overwhelming state power, even where doing so means that the Devil himself cannot be prosecuted unless he actually commits a crime:

"And 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 Bush Administration, Mr. DeLay and many of the Republicans who are criticizing Mr. Earle failed to uphold the rule of law in preventing prosecutions of business executives whose only "crime" was to be involved in arguably questionable business transactions that, at most, should have been the subject of civil litigation. Thus, the Republicans' irresponsible sacrifice of these executives' careers to the mantle of fickle public opinion has now contributed to the current environment where their own attempts to take advantage of loopholes in campaign finance laws is being criminalized.

Although abuse of state power against controversial politicians should not be condoned any more than abuse of state power against unpopular business executives, the Republicans' criticism of the DeLay prosecution rings hollow. They should have listened to Sir Thomas.

Posted by Tom at 7:11 AM | Comments (6) | TrackBack (0)

Assessing the hurricane damage to Gulf production facilities

Following on this post from yesterday, the markets continued to react to more information that indicates that damage to Gulf of Mexico offshore production and drilling facilities from the recent hurricanes is going to reduce production and exploration from that key region for an extended period of time.

That information, combined with the slow process of restarting Gulf Coast refineries, is generating one of the more unusual political ironies that America has seen in some time. As a result of the restricted energy supplies from the Gulf region, the outspokenly pro-exploration and production Bush Administration is sounding eerily like the Carter Administration from the late 1970's, promising a national energy-conservation campaign to give Americans tips on saving energy during the winter heating season.

Actually, markets are still trying to adjust to the news of the restricted supplies. Gasoline and heating-oil futures settled lower on the New York Mercantile Exchange yesterday, but front-month crude oil contracts posted a 44 cent rise to $66.79 a barrel -- its highest level in over a week -- although forward month oil contracts were lower. After increasing almost 8% during Wednesday trading, October gasoline settled down about 4% to $2.2516 a gallon and October heating oil fell 1.64 cents to $2.1247 a gallon. November natural-gas futures continued their relentless increast as they rose 9.6 cents to $14.196 per million British thermal units.

The double whammy of Hurricanes Katrina and Rita has not only damaged the Gulf's production and drilling infrastructure, it has damaged the important service industry that provides key logistics support for the offshore exploration and production industry. Helicopters at this point are in such demand that they are nearly impossible to find and many Louisiana dock facilities that used to launch supply boats to the Gulf have been destroyed. Service companies are even having a difficult time finding enough employees to meet the demand for assessment and repair service. This lack fo workers, helicopters and equipment is hampering the damage assessment process with regard to offshore oil and natural-gas facilities, most of which remains shut down nearly a week after Hurricane Rita came ashore last Saturday morning. The Gulf of Mexico accounts for roughly one-quarter of U.S. oil and natural-gas production.

Even when existing production is restarted, the hurricanes have damaged so many drilling rigs that efforts to increase Gulf production of oil and natural gas will likely be severely hampered. Current assessments are that the two hurricanes either sank or seriously damaged 13 drilling rigs, which is 12% of the Gulf rig fleet. As a result, that will make drilling more expensive, adding yet another element to the upward pressure on energy prices.

Finally, although Houston area refineries are firing up operations, the seven refineries in the hard-hit Port Arthur and Lake Charles areas will probably take longer than initially thought because of problems in getting reliable power to those facilities. About 20% of U.S. refining capacity was shut down for at least some period of time by the hurricanes.

Posted by Tom at 6:00 AM | Comments (1) | TrackBack (0)

Langone unmasks the Lord of Regulation

You remember Kenneth Langone, don't you?

Mr. Langone is the co-founder of Home Depot who chaired the New York Stock Exchange compensation committee that approved Richard Grasso's $140 million pay package. As a result, he is a defendant along with Mr. Grasso in New York Attorney General Eliot Spitzer's lawsuit to recover alleged overcompensation paid by the NYSE to Mr. Grasso. As this previous post from over a year ago indicates, Mr. Langone does not think much of Mr. Spitzer's lawsuit.

Well, in this delicious follow-up OpinionJournal op-ed, Mr. Langone updates us on Mr. Spitzer -- who he calls "the full-time New York state attorney general and part-time fund-raiser for his political ambitions" -- and his use of the high-profile lawsuit against Messrs. Grasso and Langone to promote his political career.

First, Mr. Langone notes Mr. Spitzer's inflammatory public statements regarding Mr. Langone at the outset of the litigation (a favorite Spitzer tactic):

A little more than a year ago I was obliged to defend myself publicly against a legal smear. Eliot Spitzer, the full-time New York state attorney general and part-time fund-raiser for his political ambitions, called me "unsavory," "deceptive" and "tainted." When many in the media were uncritically swayed by his posturing, Mr. Spitzer then pledged to "put a stake through" my heart.

This metaphorical threat to my cardiovascular system aside, the occasion for all this brash talk was the attorney general's assertion that I was a lawbreaker. I tricked some of Wall Street's keenest minds, so the accusation goes, into approving a portion of Dick Grasso's compensation when he headed the New York Stock Exchange.

Then, Mr. Langone proceeds to review what has been learned through the discovery process in the lawsuit so far:

[The other NYSE board members'] testimony is clear and consistent. Of the six directors deposed thus far who served on both the compensation committee and the full board, each has said they were not deceived in any way. They all confirm that, as head of the NYSE compensation committee, I provided them and the board with complete and accurate information about Mr. Grasso's proposed compensation--and that they approved it.

Pressed for examples, they cited one-on-one meetings with compensation experts, committee meetings, conference calls, comprehensive written documentation, full board meetings, as well as annual presentations I gave both to the committee and the board that included detailed handouts and unfettered opportunity for discussion and debate.

And, contrary to Mr. Spitzer's statements at the outset of the case, what has been Mr. Spitzer's reaction to discovery of this information? Mr. Langone lays the wood to the Lord of Regulation:

And confronted with these hard facts in full view, Mr. Spitzer's public response was flat, total silence.

Since the attorney general seems to be lying low of late--no more press releases every time he goes to the water cooler--allow me to summarize.

Here's a case alleging deception, in which nearly everyone involved says that the full details were provided repeatedly. The public official who brought the case has indulged garish profiles of himself to publications like Vanity Fair, People and New York magazines, while at the same time resisting scrutiny of key facts in the case. And while his office recently said it is low on funds to pursue Medicaid fraud, he is devoting multiple lawyers to this case -- which will benefit the state not one nickel. Medicaid spending by the way costs this state more than a quarter of its budget, in excess of $40 billion.

Mr. Langone concludes by boring in on the lack of judgment and troubling tactics that have been a consistent theme of prosecutions of unpopular business executives during this post-Enron era of criminalizing merely questionable business judgments:

The reliability of Mr. Spitzer's judgment, . . . should be an issue of prime concern when those votes are cast. But he also has a troubling method of making loud legal threats, strong-arming witnesses, and intimidating boards and companies into destructive concessions. . . Coercing settlements through fear, as anyone can see, is far different from delivering justice.

Read the entire piece. It is a wonderful unmasking of one of the most insidious demagogues on the current American political scene.

Update: Bill Dyer notes and comments on one of the more frightening NY Times articles of the year.

Posted by Tom at 5:47 AM | Comments (0) | TrackBack (2)

An interesting perspective

It is becoming clearer each day now that at least a substantial amount of the initial information coming out of New Orleans in the aftermath of Hurricane Katrina was either exaggerated or misinformation. One such piece of misinformation was that large numbers of murders were occurring as a result of gunshots.

Commenting yesterday on the fact that only seven gunshot victims had been identified in the autopsies done on the first 650 or so bodies recovered from New Orleans, Coroner Frank Minyard made the following observation:

"Seven gunshots isn't even a good Saturday night in New Orleans."

Posted by Tom at 5:21 AM | Comments (0) | TrackBack (0)

September 29, 2005

Market responds to Rita-related damage to Gulf production facilities

Following on this post from yesterday, Chevron Corp.'s announcement that its Typhoon tension leg platform was severed from its moorings by Hurricane Rita and is floating upside down in the Gulf of Mexico dovetailed with the news that natural-gas futures on the New York Mercantile Exchange skyrocketed 10% to almost $14 per million British thermal units, which is its highest closing on record.

Thus, if it's going to be a long, cold winter in the U.S. hinterlands this winter, then it's looking increasingly as if it's going to be a long, cold, expensive winter.

Natural-gas futures on the Nymex for delivery in October rose $1.251 to $13.907 per million BTUs. The expiration of the October contract at the same time that the delivery point for Nymex futures, Louisiana's Henry Hub, which has been closed down for the past week, added to the uncertainty and volatility in the market.

As a result, the Natural Gas Supply Association -- an association that represents producers and marketers -- issued this alert (pdf) that colder weather in the East combined with hurricane-related supply disruptions along the Gulf Coast will likely translate into substantially higher natural-gas prices across the U.S. this winter. The damage from the two major hurricanes in the Gulf over the past month have delayed or halted production of about 5% of the annual U.S. production of natural gas from the Gulf of Mexico, and that reduction in domestic natural gas production cannot be readily replaced with imports.

As for the Typhoon platform, it is floating upside down after the deep-water facility took a direct hit from Rita. Although Chevron has not announced whether the massive platform can be salvaged, my sense is that it's probably a total loss because its engines, pumps and living quarters are probably unsalvageable. The Typhoon is located in 2,000 feet of water in the Green Canyon area approximately 165 miles south-southwest of New Orleans.

Along those same lines, The Oil Drum provides this summary of the status of the known damage to drilling and production facilities in the Gulf of Mexico.

Posted by Tom at 9:50 AM | Comments (1) | TrackBack (1)

Paul Burka on the Houston evacuation plan

Following on previous posts here and here regarding Houston's hurricane evacuation plan, Texas Monthly editor and former Houstonian Paul Burka weighs in on the plan in this OpinionJournal op-ed. Mr. Burka does not offer anything new here in terms of a solution, but he does do a good job of framing the key issue:

There is no way that government can assure that the people on the roads are the ones who are in the most danger, those from Galveston and the low-lying areas near Galveston Bay. Common sense needs to be restored to the evacuation process, so that people with the greatest risk of danger will make the decision to leave, and those with the least risk will stay off the roads.

Tory Gattis over at Houston Strategies also has some good thoughts on how to improve the plan.

Posted by Tom at 7:27 AM | Comments (0) | TrackBack (0)

A key tip for dealing with rattlesnakes

One of the best parts of the Houston Chronicle for many years has been the newspaper's Hunting and Outdoors section of its sports section. Inasmuch as my reaction to finding a rattlesnake would have been the same as the fellow's reaction as described in the following Chronicle article, I was glad to learn something from the Chronicle piece about dealing with dead rattlesnakes:

Even a dead rattlesnake can hurt you. Just ask Trey Hanover of College Station.

On Labor Day weekend, Hanover and his father, Tommy Hanover, were working on their deer lease when they killed a big rattler. They shot the snake's head off with a shotgun and loaded the carcass in the truck to show other hunters on their lease that they needed to be careful.

"We hung the snake on the fence at the camphouse," Tommy Hanover said. "When we got ready to leave, Trey picked up the snake and threw it out in the pasture for the buzzards to eat."

By the time he'd driven to College Station, Trey Hanover's eyes were very irritated. By the next morning, his eyes were swollen shut. The doctor who examined Hanover said it looked like he'd suffered a chemical burn.

It took them a while to figure out that the shotgun load that vaporized the rattlesnake's head splattered the snake's venom over its body.

When Hanover handled the snake, he got the venom on his hands and later rubbed it in his eyes, made itchy by dust and ragweed. Sixteen days later, the vision in his right eye was back to normal. His left eye was still a little cloudy, but the doctor thought it would return to normal as well.

"We learned a valuable lesson about handling rattlesnakes — even dead ones," said Tommy Hanover.

Posted by Tom at 7:03 AM | Comments (1) | TrackBack (0)

Stros close in on another playoff berth

After a 6-3 road trip that included a two-game sweep of the Cardinals, the Stros (87-71) come home for four games with the Cubs (77-81) needing any combination of wins or Phillies (85-74) losses equaling two to achieve the club's sixth playoff berth in the past nine seasons (the Phillies finish the season with three games in Washington against the 81-78 Nationals). Inasmuch as the Stros have gone a positively unbelievable 72-41 after a miserable 15-30 start to the season, one has to feel good about the Stros' chances of clinching the playoff berth at this point. However, given this club's chronic lack of hitting, it is reasonable to hold off celebrating until the final out of the clinching game is officially in the scorebook.

The Stros' successful road trip was the primarily the result of this team's strength -- strong pitching. The pitching staff's runs saved against average ("RSAA") is 92, second best among the 16 National League teams. Moreover, the hitting has also picked up of late as the club's four strongest hitters -- Morgan Ensberg (40 RCAA/.390 OBA/.567 SLG/.957 OPS), Lance Berkman (35/.413/.521/.934), Bidg (9/.325/.464/.790) and Jason Lane (5/.316/.501/.817) -- have all stepped up when it counted on the just-finished road trip. Even Mike Lamb -- who has had a generally horrible season (-13/.280/.413/.693) -- has had a robust 7 RCAA since September 5th and Brad Ausmus -- one of the worst hitting regular National League hitters over the past several seasons (-13/.353/.334/.688) -- has had a relatively Bondsian 4 RCAA since August 15th. As a result, the club's team runs created against average ("RCAA") has risen to -23, which is 12th in the National League. Nevertheless, reflecting just how remarkable this season has been, the Stros combined RCAA/RSAA of 69 still trails the Phillies combined RCAA/RSAA of 81, which means that the Phillies are really the better-balanced club. Just goes to show that great pitching can cover up a lot of warts.

It would be nice if the Stros could wrap up the playoff berth on Thursday or Friday so that they could rest the Rocket and Roy O in the weekend games, but don't bet on it. This club has had to fight and struggle for everything that it has achieved, so it would be fitting for this bunch to have to play a couple more heart-pounders before finally clinching the National League Wild Card Playoff berth.

Posted by Tom at 4:35 AM | Comments (0) | TrackBack (0)

The Hammer's indictment

In one of the least surprising developments in Texas politics over the past couple of years, a Travis County (Austin area) grand jury on Wednesday charged Houston Congressman and House Majority Leader Tom DeLay and two political associates -- John Colyandro, former executive director of the Texas political action committee that Mr. DeLay helped form, and Jim Ellis, who heads Mr. DeLay's national political action committee -- with criminal conspiracy in an alleged campaign finance scheme that has been under investigation for almost two years. That investigation and Mr. DeLay have been frequent topics on this blog, as posts here, here, here, here, here, here, here, here, here, and here reflect. Here is a copy of the indictment.

In a press release and news conference on Wednesday afternoon, Mr. DeLay insisted he was innocent and called Travis County District Attorney Ronnie Earle a partisan fanatic, which is not a compelling criticism of Mr. Earle. Nevertheless, Mr. Earle has made some imprudent public statements about Mr. DeLay during the investigation. By the way, Fred Graham of Court TV made one of the funniest comments that I've heard on television recently when, after hearing Mr. DeLay's press release and news conference, he observed "if a press release could froth at the mouth, this would be foaming."

Criminal conspiracy is a state felony punishable by six months to two years in a state jail and a fine of up to $10,000. The indictment forced Mr. DeLay to step down temporarily as House Majority Leader under House Republican rules.

Although a bit skimpy on the allegations relating to specific criminal acts, the indictment accuses Mr. DeLay of a conspiracy to "knowingly make a political contribution" in violation of Texas law outlawing corporate contributions. It alleged that DeLay's Texans for a Republican Majority political action committee accepted $155,000 from several companies, deposited the money in an account, wrote a $190,000 check to an arm of the Republican National Committee and then provided the committee with the names of Texas State House candidates and the amounts they were supposed to received in donations. Thus, Mr. Earle is apparently contending that the Texas PAC simply used the GOP National Committee organization as a conduit to funnel the illegal corporate contributions to the GOP candidates. The indictment against Mr. DeLay came on the final day of the grand jury's term and followed earlier indictments of a state political action committee founded by Mr. DeLay and three of his political associates.

The background of this mess harkens back to 1990 or so when the re-energized Republican Party in Texas decided that it could wrest the Texas House away from the Democratic Party. GOP party leaders aimed to take control in the 2000 so that the House, the Senate and the state's Republican governor could have control of redrawing the state's congressional district lines when the Legislature met after the 2000 census. After spending an extraordinary amount of money, the GOP fell short in 2000 and the Democratic House speaker refused to go along with the governor and Senate's effort to reconfigure the state's district lines so that a half-dozen more congressional seats could be won by Republicans.

That's when Mr. DeLay went to work. He created a political action committee in Texas that was modeled on his own very successful national PAC. Texans for a Republican Majority was equally successful, raising $1.5 million and electing 15 or so new Republican members to the state House. Thus, the GOP took control of the Texas House for the first time in about 125 years and then, with a GOP Texas House Speaker, Mr. DeLay oversaw the redrawing of the state's congressional districts that provided the GOP with I believe six new seats in Congress.

However, at the end of the day, this is a very weak indictment. From a strategic standpoint, Mr. Earle doesn't want to show too much of his hand at this point, but a prosecutor should be required to state with a fair degree of specificity the criminal acts that he contends occurred. Mr. Earle has not done that in regard to Mr. DeLay in the current indictment.

By the way, Mr. DeLay has purchased a first-rate defense team, which includes well-known Houston defense attorney, Dick DeGuerin. You may recall that Mr. DeGuerin recently obtained a rather extraordinary acquittal for a client who had far more difficult problems than Mr. DeLay does.

Finally, Dick DeGuerin -- like Mr. Earle, the prosecutor -- is a Democrat. So, one of the leading Republicans in the U.S. Congress is going to be prosecuted and defended by Democrats.

Only in Texas. ;^)

Local Houston blogger Charles Kuffner has followed the DeLay case closely, and is a very good informational resource on the background of the investigation.

Update: Professor Bainbridge adroitly sums up his feelings about the DeLay affair with a joke that is as good as Fred Graham's above comment on the DeLay news conference.

Posted by Tom at 4:04 AM | Comments (10) | TrackBack (4)

September 28, 2005

Guaranteeing expensive natural disasters

In his Wall Street Journal ($) Business World column today, Holman Jenkins picks up on a theme of several previous posts (here, here, here and here) that point out that governmental policies that distort risk analysis virtually guarantees that natural disasters in hurricane-prone areas will be increasingly costly:

Louisiana's Sen. Mary Landrieu offered a perfect expression on CNN on Sunday of where the new blank-check compassion is leading us: "Wolf, poor families were crushed. Middle-income families are staggering. And wealthy families have been just punched in the stomach. It is going to take a huge national effort for us to realize the importance of this Gulf Coast region."

To wit, everyone must be restored to their previous status and possessions, or better, at taxpayer expense.

Nobody criticized the handouts to New York after 9/11, which ratcheted up expectations of unlimited federal payouts when bad things happen on a large scale. Victim families got seven-figure checks because their loved ones died in a televised tragedy, though similar bounties aren't bestowed on families that lose loved ones in less visible tragedies.

This precedent has returned to haunt us on a giant scale in New Orleans and its hinterland. Why are such selective windfalls to the unfortunate necessary? The federal government already guarantees us retirement income and health care in old age; it provides insurance and health care for the poor. These commitments in excess of $70 trillion, if properly recognized, would have long ago brought the country up before a bankruptcy judge.

It would be insane, under the circumstances, to extend this safety net to subsidize entire regions that wish to build without making proper allowance for predictable geological and meteorological hazards. This is insurance not for life and health, but for "lifestyle," with the biggest benefits flowing to the least needy.

Sen. Landrieu and her Louisiana colleague, Republican Sen. David Vitter, have drawn up a bill for $40 billion in Corps of Engineers projects to encourage southern Louisiana to imagine itself immune to the weather. With near certainty, such a boondoggle would be the best way to guarantee an even more expensive disaster in the future.

Posted by Tom at 5:49 AM | Comments (0) | TrackBack (0)

Rita hammers offshore production facilities

This Financial Times article reports that preliminary assessments of the damage that Hurricane Rita caused to offshore oil and gas drilling and production facilities reflect that the damage is greater any other storm in history.

Rita's path -- which was west of the path of Hurricane Katrina last month -- tore through an area of the Gulf of Mexico that contained a large amount of exploratory rig activity. Given the apparent damage to the rigs, the biggest impact from the storm may be that it will exacerbate an already tight market for rigs in the region. As a sign of just how precious rigs are becoming to the market, The Woodlands=-based Anadarko Petroleum Corp., one of the biggest U.S. independent exploration and production companies, raised eyebrows in the energy industry earlier this week by committing to a rig six years in advance.

Oh, how times have changed in the exploration and production business.

Posted by Tom at 5:21 AM | Comments (0) | TrackBack (1)

September 27, 2005

Comparing planning for impending Gulf Coast threats

Joel Kotkin is an Irvine Senior Fellow at the New America Foundation and is the author of The City: A Global History (Modern Library, 2005). In this Opinion Journal op-ed, he compares the disparate preparations of New Orleans and Houston to the two recent hurricanes, and makes several useful recommendations regarding planning for natural disasters and development of urban areas on the Gulf Coast, including the following:

[The Gulf Coast region], with the notable exception of New Orleans, is one of the fastest growing in the U.S. Its relatively low costs and balmy climate have turned it into the "opportunity coast." Yet clearly the Gulf's history has shown that ignoring nature has its perils. Few now remember Indianola, south of Houston. Until it was wiped out by hurricanes, first in 1875 and then again in 1886, it was Texas's second-largest port. Today, most of that city lies under water.

The other, better-known case, is Galveston. Before a 1900 hurricane--which took 6,000 lives--it was the premier port and commercial center on the Texas coast. After the hurricane, the flow of commerce shifted inexorably to inland Houston, which was, and remains, better protected from the Gulf's annual tantrums. Such lessons should guide development along the Gulf in the coming years. For one thing, it may make sense to use marketplace mechanisms -- in the form of insurance premiums -- to let developers accurately assess the risk of new development. After all, federal assistance may be limited in the future. Some places may need to be abandoned. Whole towns already have been demolished for safety reasons in parts of the Mississippi flood plain as have homes in some of the riskier parts of east Texas. Programs to buy houses from existing residents, move towns to higher ground and create new greenbelts, will benefit the environment--not to mention the taxpayers--by relieving them of the burden of subsidizing repeatedly flooded areas.

A less extreme but equally sensible course can be applied throughout the Gulf region by steering new development--through either environmental or insurance restrictions--further out into the interior.

More broadly, as a nation, we may want to consider ways to encourage greater development further inland. Americans have been crowding into the coasts for generations, even though one of our great assets is the broad interior hinterland. Our continued population growth -- from 310 million now to 400 million by 2050 -- may make repopulating the hinterlands more economically viable. Instead of offering "homesteads" or funds for repeated rebuildings on the crowded, and sometimes dangerous, coasts -- particularly in below-sea-level New Orleans -- it might make more sense to encourage settlement and investment deeper into our nation's interior.

This was the essence of much of 19th-century federal policy, which gave incentives for canals and railroads, as well as providing cheap or free land on the Plains. This could also bring new life to parts of country that have been losing jobs and people for a generation, but may now be ready for revival. With the Internet and small-jet travel, some of these areas, such as the Dakotas, are already showing signs of becoming more competitive in the national and global economy. It is a trend worth boosting, and may come to be the most attractive strategic lesson to emerge from Katrina and Rita.

Read the entire piece. Mr. Kotkin makes a valid point, which is that the federal policy promoting development of coastal areas -- accomplished through such mechanisms as federal subsidies of flood insurance and related federal bailouts of storm-ravaged areas -- distorts rational economic decision-making. Let's rebuild New Orleans, but on a rational basis and without the distorted decisions that often result from the incentive to grab well-intended but counterproductive federal handouts.

Posted by Tom at 7:33 AM | Comments (0) | TrackBack (0)

More trouble for DeLay friend?

This NY Times article reports that the Justice Department's inspector general and the F.B.I. are looking into the November, 2002 demotion of Frederick A. Black, a veteran federal prosecutor whose reassignment shut down a criminal investigation that he had been pursuing of Washington lobbyist Jack Abramoff. Mr. Abramoff is a well-known Washington lobbyist and a major Republican Party fund-raiser who is a close confidant of Houston congressman and House Majority Leader, Tom DeLay. Here are the previous posts relating to a broad corruption investigation of Mr. Abramoff focusing on accusations that he defrauded Indian tribes and their gambling operations out of millions of dollars in lobbying fees.

The focus of this newly-revealed investigation is different from the broader corruption probe involving Mr. Abramoff. In this case, the subject is Mr. Black's demotion only days after he had notified the department's public integrity division in Washington that he had opened a criminal investigation into Mr. Abramoff's lobbying activities for federal judges in Guam, who had sought Mr. Abramoff's help in blocking a bill in Congress to restructure the island court system. In addition, Mr. Black was subsequently blocked from participation in public corruption cases after his demotion. According to the Times article, no evidence has been uncovered to date that indicates that any Justice Department official took the action against Mr. Black in response to any communication from or on behalf of Mr. Abramoff, and evidence does exist that the Bush Administration had been preparing to install a permanent U.S. Attorney to replace Mr. Black at the time.

Nevertheless, the timing of Mr. Black's demotion sure stinks. Stay tuned.

Posted by Tom at 6:49 AM | Comments (1) | TrackBack (0)

Rita damage taxes power grid

On the heels of Entergy Corp.'s decision to place its New Orleans subsidiary in bankruptcy last week on the day that Hurricane Rita barreled into the Gulf Coast at the Texas-Louisiana border, the utility is now dealing with serious damage to its power infrastructure that is threatening to stall the recovery effort in East Texas from the storm.

On Monday, Entergy's Texas subsidiary commenced rolling blackouts in the area of far north Houston that it services, including The Woodlands. The move was made to reduce stress on the utility's damaged electrical system after Hurricane Rita and related tornadoes downed power lines and disabled most of the utility's power plants. A total of almost 1.25 million accounts were without power as of Monday in East Texas and Western Louisiana.

One of the biggest problems facing Entergy is the damage to the company's huge Roy S. Nelson power plant near Lake Charles, which suffered substantial damage during the hurricane. That plant generates power for a large part of Entergy's service area in East Texas and Western Louisiana, and the high voltage power lines that carry the power throughout the region were so badly damaged in the storm that Entergy is having problems getting electricity to some parts of its Texas service area. Entergy announced that it was about 30% short of the power it needs to meet the local needs of a four county area that it serves in the far north and east areas of Houston because only three of the 13 power plants that the utility normally relies upon were in a position to furnish power yesterday. As a result, the company initiated the rolling blackouts on a day in which temperatures in the area were around 100 degrees, and those blackouts will continue indefinitely.

Outages in the areas serviced by Entergy are more severe than in Houston. Inasmuch as Entergy draws its power from the giant electric network known as Eastern Interconnection, its power base had been hit hard by both Hurricanes Katrina and Rita. In contrast, Houston draws its power from companies within the Electric Reliability Council of Texas ("Ercot"), which escaped from Rita relatively unscathed. Texas has maintained its transmission system and power plants as a separate grid in order to keep that system under state control, whereas the system from which Entergy draws power is an interstate system that is regulated by the Federal Energy Regulatory Commission.

As of Monday, Entergy reported over 650,000 metered accounts in Louisiana and Texas that were without power as a result of damage from the two recent storms.

Posted by Tom at 6:18 AM | Comments (1) | TrackBack (0)

September 26, 2005

What's really going on over at Texansville?

Kevin Whited over at blogHouston.net has this interesting post chronicling the trial balloons that are being floated out of the Houston Texans' camp these days as various coaches and management figures attempt to deflect criticism for the team's absolutely horrendous start to the 2005 season.

Although the Texans have a myriad of problems, it appears reasonably clear that the biggest one is that they do not have enough good players. That problem falls squarely in the lap of General Manager Charlie Casserly, whose golden touch with the media has been much better than his coordination of choosing the team's players. The good news is that the Texans are almost $10 million under the NFL salary cap. Moreover, even with the almost certain decision at this point to exercise an $8 million option on under-performing QB David Carr's contract for next season, the Texans should still have plenty of room under next season's salary cap to attract some good offensive and defensive linemen during this upcoming off-season. The key question that Texans owner Bob McNair has to address is this:

Given the below-average nature of the player selections made to date, should Casserly be in charge of making the next round of player selections for the team?

Posted by Tom at 8:27 AM | Comments (0) | TrackBack (0)

Throwing money at All the King's Men

John Fund explores in this OpinionJournal piece the risk that long-standing Louisiana elements of corruption are likely to hijack a good part of the extraordinary amount of federal aid that will be flowing into the state in the wake of Hurricane Katrina. That reality is likely not going to stop or slow the flow of such aid because, as William Easterly points out in this Foreign Policy (pdf) piece, such aid has the following beneficial effect:

The poor have neither the income nor political power to hold anyone accountable for meeting their needs--they are political and economic orphans. The rich-country public knows little about what is happening to the poor on the ground in struggling countries. The wealthy population mainly just wants to know that "something is being done" about such a tragic problem as world poverty. The utopian plans satisfy the "something-is-being-done" needs of the rich-country public, even if they don't serve the needs of the poor.

Confronted with this confounding state of affairs, Stephen E. Landsburg proposes this innovative choice for spreading the federal aid to the victims of Katrina:

Before we spend $200 billion on New Orleans disaster relief, can we just pause for about three seconds, please? That should be long enough to divide one number by another. The numbers I have in mind are, on the one hand, $200 billion, and, on the other hand, 1 million people—the prestorm population of the New Orleans area, broadly defined.

Two-hundred billion divided by 1 million is 200,000. For the cost of reconstructing New Orleans, the government could simply give $200,000 to every resident of the region—that's $800,000 for a family of four. Given a choice, which do you think the people down there would prefer?

Based on my anecdotal experience in talking with New Orleans evacuees during Houston's relief effort, I can say unequivocally that every evacuee would prefer to receive direct aid over throwing federal relief funds into the black hole that is Louisiana state government.

Hat tip to Arnold Kling for the lines to the Easterly and Landsburg pieces.

Posted by Tom at 7:27 AM | Comments (0) | TrackBack (1)

Mississippi's AG increases the cost of rebuilding

This previous post explored the role of federally-subsidized flood insurance in attracting capital investment in New Orleans that probably would not have occurred had the owners of the capital been faced with paying the cost of private flood insurance. Until Hurricane Rita developments took us a bit off track, I had been meaning to pass along this NY Times article about a batch of lawsuits by plaintiff's lawyers and Mississippi Attorney General Jim Hood that seek to eviscerate flood exclusion provisions in homeowner's liability insurance constracts and make the insurers responsible for damages caused by flooding from Hurricane Katrina For those of us who prefer to pay less rather than more for such insurance, these lawsuits are a real bad idea, as the following and this OpinionJournal piece explain.

Insurers have long had flood exclusions in their insurance contracts, which is one of the primary reasons why the federal government got into the business of subsidizing flood insurance in the first place. The reason for this is that floods are not a typical insurable risk, which insurers normally spread among a large pool of insureds who are subject to the risk through collecting premiums from that pool. Insurers then use the premium funds from that pool to compensate the relatively few who actually suffer accidents from the risk. Floods are also not a typical insurable risk because the only people who buy flood insurance are those who are likely to be flooded, which makes it impossible to spread risk over a large enough pool of insureds. Finally, floods tend to be widespread and recurring, so they cause huge losses that require equally huge pools to cover the losses. That's why private flood insurance is very expensive.

However, Attorney General Hood is now attempting to set aside these flood exclusions in private insurance contracts in the wake of Katrina as being "unconscionable." Similarly, well-known Mississippi plaintiff's lawyer Dickie Scruggs is following up with other lawsuits in which he contends that the insurers engaged in deceptive trade practices by excluding flood coverage arising from storm surge from their contracts. Messrs. Hood and Scruggs are taking these positions despite the fact that federally-subsidized flood insurance has been promoted in the region for about 40 years and relatively few Mississippi coastal residents have bothered to buy it, presumably because either they did not want to pay extra for it or they assumed that the feds would bail them out in the event of a Katrina-like catastrophe, anyway.

So, Messrs. Hood and Scrugges are demanding that private insurers pay for Katrina flood damages even though the insurers never collected any flood premiums over the years and thus, have no such reserves dedicated for that risk. Inasmuch as insurers are already liable for an estimated $50-70 billion in insured losses, adding another $15-20 billion in uninsured flood losses would ensure that at least a few insurers would end up in chapter 11.

But there would be even a more draconian result if Messrs. Hood and Scruggs are successful in their lawsuits. Insurance companies would have to assume that flood risk is a part of the insured risk, regardless of the exclusions in the insurance contracts. Consequently, the insurers would either charge you and me higher premiums -- certainly at least hundreds of dollars annually -- to cover this risk, or they could simply stop writing policies at all in the Gulf Coast region. That would reduce the competition among insurers to provide policies to all of us, which would also ratchet up the cost of such insurance.

Finally, one has to ponder how Mr. Hood -- a governmental official who has at least an indirect responsibility to encourage reconstruction of the battered regions of his state -- rationalizes taking actions that will increase the cost of liability insurance and thus, make it more expensive for Mississippi citizens to rebuild. Hopefully, a common sense opponent to Mr. Hood will appear in the campaign for the next election who will point that out to Mississippi voters.

Update: Professor Ribstein notes the even wider impact of the Mississippi insurance lawsuits on respect for the rule of law:

[N]obody’s safe if courts don’t enforce contracts. How could the insurance industry ever be sure it was excluding a risk if can't enforce this clearest exclusion of all? How could any company ever be sure it was limiting the scope of any promise?

Doug Simpson over at Unexpected Consequences also reviews the effects of the Mississippi insurance lawsuits.

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

September 25, 2005

Rita's expected economic waves turn into ripples

It's been a helluva past month in Houston.

First, the Houston community responded to the worst natural disaster in America in decades by taking in tens of thousands of evacuees (posts here, here and here) from New Orleans and the central Gulf Coast who had almost everything but their lives. Then, as that relief effort was winding down, Houston confronted Hurricane Rita, a category 5 storm bearing down for a direct hit on the city. Implementation of the city's evacuation plan led to an estimated 2.7 million Houston area residents hitting the road, resulting in unprecedented traffic gridlock and gasoline shortages throughout the region. After Rita veered off to the east to make landfall on the Texas-Louisiana border, Houston is now dealing with the not insubstantial problem of how to have 2.7 million people return to their homes in the region without experiencing the same type of gridlock and shortages that occurred when they left.

Whew!

Despite all that, the initial signs are that the feared economic repurcussions of damage from Hurricane Rita will not be all that bad. Damage to the vital concentration of oil refineries along the Texas coast appears to be relatively light, and U.S. Coast Guard aerial reconnaissance of the Ports of Houston, Galveston and Port Arthur and their related shipping lanes showed few problems as a result of the hurricane. The biggest problem at the Port of Houston is that the winds out of the north as the storm pushed onshore pushed water out of the Houston Ship Channel and Galveston Bay so that those relatively shallow waterways do not have enough water to accomodate deep sea vessels at this point. However, the water levels should should return to normal levels by Monday or Tuesday, so no substantial disruption in Port operations are expected.

Inasmuch as prices for gasoline and diesel fuel would rise if Houston-area refineries and ports are slow to resume operations, the light damage reports were good news for markets that are still recoiling from the economic impact from the damage to the New Orleans area from Hurricane Katrina.

However, even without extensive damage to refineries and Gulf oil and gas production facilities, the energy industry's pre-Rita shutdown will at least stretch gasoline supplies for the next several weeks. Sixteen refineries were shut down in anticipation of Rita, and that accounts for almost 25% of U.S. refining capacity. That's nearly twice as much of the U.S. capacity that was shutdown prior to Hurricane Katrina, and only about half of that capacity affected by Katrina has come back on line. It normally takes between a week and two weeks for a shutdown refinery to resume normal operations.

Nevertheless, good news emanated on Saturday from the Houston area refineries. Exxon Mobil Corp.'s Baytown plant, which is located between Port Arthur and Houston and is the nation's largest, announced that it planned to restart a number of units beginning today. Terminals and pipelines have already reopened, and the 557,000 barrel-a-day refinery is already delivering gasoline out of storage. Similarly, Royal Dutch Shell PLC announced Saturday that its 340,000 barrel-a-day Deer Park refinery near Houston was not damaged and that both its North Houston and Pasadena distribution terminals are fully operational. BP PLC's huge Texas City refinery is thought to be in the process of restarting, while the smaller Marathon Oil Co. and Valero Energy Corp. refineries in Texas City were also moving towards restarts after reporting no serious damage.

The initial damage reports are worse from the refining area near the Texas-Louisiana border where Rita made landfall. The Port Arthur-Beaumont area has four refineries and Lake Charles, La. just across the border has three plants. Although damage assessments are still ongoing at those plants, the restarting of those plants will take longer both because of probable greater damage than to the Houston area plants and the lack of power, which will probably not be remedied until later in this week.

As a result of the foreoing, crude oil futures fell sharply in unusual Sunday trading as it appeared that oil rig and refinery damage from Hurricane Rita was less than originally feared. Oil prices had climbed steadily last week as Rita churned through the Gulf of Mexico as a category 5 and then 4 hurricane, but fell Friday as the storm weakened before its early Saturday morning landfall just south of Sabine Pass, La. A barrel of light sweet crude for November delivery was down $1.40 at $62.80 on the New York Mercantile Exchange, and unleaded gasoline fell 10.46 cents to $1.98 per gallon. Sunday trading via the Nymex electronic Access system and on London's International Petroleum Exchange was arranged late last week in an effort to mitigate energy market volatility resulting from Hurricane Rita. However, the lack of damage to the facilities appears to have deflated interest in early trading. On London's IPE, Brent crude futures fell $2.59 to $62.01 in light trading.

Posted by Tom at 12:54 PM | Comments (0) | TrackBack (1)

Does Joe Pendry use the Run 'N Shoot?

Looks as if Chronicle NFL sportswriter John McClain better avoid political analysis and stick to football.

In the introduction to a column noting that new Texans offensive coordinator Joe Pendry is much more conservative in his offensive philosophy than the just-fired Chris Palmer, McClain makes the following analogy:

"Texans offensive coordinator Joe Pendry has a reputation for being so conservative he makes George W. Bush look like Bill Clinton."

Posted by Tom at 7:05 AM | Comments (1) | TrackBack (0)

September 24, 2005

Thinking about Houston's evacuation plan

A couple of days ago it was gridlock as an estimated 2.7 million Houstonians evacuated out of fear of Hurricane Rita. Today, it appears that at least a portion of that gridlock is developing coming in the opposite direction as many residents attempt to return to their homes despite a quickly-developed government plan to stagger the return of the evacuees.

During all of this, I have been giving some thought about Houston's evacuation plan, as reflected by this earlier post. In 1983, Hurricane Alicia -- a minimal category 3 storm -- made a direct on Houston and Galveston. There was no evacuation to speak of and, thus, no gasoline shortages. The storm killed 22 people and caused damage costing about $4 billion in 2005 dollars. On the other hand, Hurricane Rita -- a stronger category 3 storm than Alicia that did not make a direct hit on Houston and Galveston -- has already caused more deaths (24 in the Dallas bus crash alone) than Alicia and resulted in a regional gasoline shortage, while the direct costs of the storm will likely be much smaller than Alicia's.

My purpose in pointing this out is not to criticize the governmental officials' execution of the Houston evacuation plan, which has been thoughtful and generally good. My thoughts are more with regard to the plan itself, which during implementation encouraged all Houston residents -- even those in non-mandatory evacuation areas -- to evacuate. The result was that, despite the fact that Houston has the most highway lane-miles per capita of America's large metro areas, dangerous gridlock and accidental deaths occurred, and the area experienced severe gasoline shortages as a result of the huge spike in demand. Moreover, the gridlock precluded suppliers from being able to deliver new supplies of gasoline and other goods, and despite the good faith efforts of the governmental officials, similar gridlock is occurring as residents return.

This is not to suggest that a hurricane evacuation plan is unnecessary for the Houston area. Clearly, the people in the areas of the metropolitan area that would be flooded by a strong storm surge need to get out. Similarly, arrangements need to be made for the poor and infirm, and for those folks who do not live in sufficiently solid structures to withstand a strong hurricane. However, if Alicia and Hurricane Carla in 1961 taught us anything, then it's that most Houstonians survived the storms just fine by battening down the hatches and remaining in their homes. Moreover, the recovery from such a storm is facilitated in many ways by having property owners tending to their property immediately after the storm rather than attempting to find the back way home from afar.

Just some thoughts to ponder as Houston attempts to return to normal after experiencing one of the largest evacuations in American history. And in the meantime, enjoy Ken Hoffman's alternately hilarious and insightful column about Houston's Rita experience.

Update: The Chronicle's Dan Feldstein and Matt Stiles weigh in on many of the same issues discussed above in this post-Rita article. And the Chronicle's Eric Berger -- who has provided both exhaustive and exhausting (he had to evacuate his family from Clear Lake) coverage of both major hurricanes over the past month -- notes the following in his Monday post on Rita:

Why were people so far away from the coast leaving town? In College Station, my wife ran into a man who had evacuated from Conroe.

Posted by Tom at 3:29 PM | Comments (11) | TrackBack (5)

Houstonian wins USGA Senior Amateur Championship

In the category of better things to do than waiting around Houston for a hurricane to arrive, Houstonian Mike Rice -- who I believe plays out of Champions Golf Club -- won the the 2005 USGA Senior Amateur Championship on Thursday at the Farm Golf Club in Rocky Face, Ga. Mr. Rice, who is 65, is the oldest winner of the event in 18 years. Here is the transcript of the post-victory interview with Mr. Rice. Hat tip to Bogey McDuff over at Golf Texas for the links to Mr. Rice's victory.

Posted by Tom at 2:02 PM | Comments (0) | TrackBack (0)

Pay-to-stay evacuation plan?

The always insightful Tyler Cowen over at Marginal Revolution is already thinking about how to improve Houston's evacuation plan:

"Pay people who stay behind. By the day, of course. And only if they own cars."

Tyler's plan makes a lot of sense, particularly for folks who live in sturdy structures in non-flood prone areas. The evacuation of Houston ended up being arduous because an unanticipated large number of people evacuated who did not live in the mandatory evacuation areas. Most of those folks would have been better off battening down the hatches and staying put, but it's hard to criticize folks -- particularly those who do not have a safe haven to ride out such a storm or who are worried about infants -- for wanting to get the hell out. The number of non-mandatory evacuees clearly surprised governmental officials and that resulted in a the delay in getting all main freeway lanes going in the same direction to accomodate the evacuees.

Posted by Tom at 10:22 AM | Comments (2) | TrackBack (1)

Entergy's New Orleans unit files chapter 11

Following up on this post from earlier this week, Entergy Corporation's New Orleans subsidiary filed a chapter 11 case on Friday in New Orleans (that filing location will certainly cut down on the number of lawyers attending the first round of hearings). Neither the Entergy parent company nor any of its other subsidiaries were included in the bankruptcy filing, which is important because about 250,000 of Entergy's Gulf Coast unit's 1.3 million Texas customers are currently without power as a result of Hurricane Rita. The difference between those two units is that those 250,000 customers without power are still Entergy customers. In stark contrast, Entergy's New Orleans unit has lost a staggering 130,000 customers as a result of Hurricane Katrina, and its unclear how many of those customers will even return to the New Orleans region.

The filing occurred after Entergy concluded that the estimated $750 million to $1.3 billion cost of rebuilding the unit's electric system from Hurricane Katrina-related damage far exceeds what the utility's customers can afford to pay. Immediately upon filing, Entergy's parent corporation requested bankruptcy court authority to advance the New Orleans unit $150 million to head off an emergency liquidity crisis and to provide funds to continue the rebuilding effort. Even that emergency financing was dependent on the parent company obtaining emergency concessions from its lenders to avoid a cross-default on its $2 billion emergency line of credit. Although the New Orleans unit's reorganization plan is in the infancy stages, Entergy is attempting to arrange a plan that is based on insurance proceeds, federal support and a limited rate increase to cover rebuilding costs.

Posted by Tom at 9:29 AM | Comments (0) | TrackBack (0)

Hurricane Rita update from The Woodlands

As predicted during the morning yesterday, the Houston metropolitan area was spared a direct hit from Hurricane Rita, which came onshore at about 2:30 a.m. this morning at Sabine Pass near the Texas-Louisiana border.

In The Woodlands, which is on the north side of the Houston metro area (pdf region map), the strongest winds -- which were probably 40 - 50 mph steadily with gusts of 75 mph -- occurred between 3:00 a.m. and 6:00 a.m., and have decreased steadily since then. Rain has not been particularly heavy, and my home has had power throughout the storm, although there are wide areas of Houston and the north end that have lost power. Interstate 45 to the east of The Woodlands appears to be a rough demarcation line on the north end where the wind and rain have been worse on the east side of that line. The area between Huntsville and Livingston to the north has been getting hammered hard over the past couple of hours, and the East Texas area around Jasper (just north of Beaumont) is really bearing the brunt of the storm at this point.

Conditions will gradually improve over the next several hours and, by noon or so, we will be able to venture out safely and assess the damage. My sense is that the primary damage in this area will be relatively light wind damage caused by fallen tree limbs, roof damage, broken windows and the like. Frankly, I'm looking forward to venturing out into the weather today because one of the few fringe benefits of these storms is that they cool down the atmosphere greatly, which is much appreciated in these parts because we have been experiencing an excrutiatingly hot late summer -- the high temperature was 95 degrees yesterday.

Finally, I want to pass along my heartfelt thanks for the dozens of phone calls, emails, blog comments, blog posts and the like over the past several days expressing concern and conveying goodwill and prayers for my family and me. The outpouring of concern has been greatly appreciated by my family and me, and we are humbled by the gracious expressions of support. Thank you all very, very much.

Posted by Tom at 8:08 AM | Comments (1) | TrackBack (0)

September 23, 2005

Emergency shelters in The Woodlands need bedding

Three emergency shelters have been established in The Woodlands to care for evacuees who got caught up in the bottleneck on I-45 leading out of Houston. The shelters are at The Woodlands High School at 6101 Research Forest Drive in The Woodlands 77381-4902, The Woodlands College Park High School at 3701 College Park Dr. in The Woodlands 77384, and The Woodlands McCullough Junior High School at 3800 South Panther Creek in The Woodlands 77381-2799. The Reverend Howard Huhn, the Minister of Outreach at The Woodlands United Methodist Church has sent out this email requesting the following:

Dear Friends,

Because of the traffic associated with Hurricane Rita, our local high schools (McCullough, TWHS, College Park) have opened as shelters. They are in need of bedding. If you have bedding available, please drop it off directly at the schools.

Thank you for being Christ to others.

Howard Huhn
Minister of Outreach
The Woodlands United Methodist Church

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

A hopeful sign for Houston and Galveston

Jeff Master's latest update of just a few minutes ago indicates that experts are increasingly forming a consensus that Houston and Galveston will avoid a direct hit from Hurricane Rita:

The latest computer models are tightly clustered around a landfall point just west of the Texas/Louisiana border. Confidence is high in this forecast. Houston and Galveston should escape major wind and storm surge damage, and only experience maximum sustained winds of 60 mph with gusts to 85 mph. It is still too early to tell what will happen after landfall, as the models all take Rita different ways. A major rainwater flooding problem will ensue after Rita's landfall, with 10 - 30 inches of rain falling over a large area of Texas and Louisiana.

For the first time since Hurricane Rita entered the Gulf earlier in the week, the cone of uncertainty that shows the range where the hurricane force winds will hit does not include a substantial portion of the Houston area, essentially that part west of I-45.

Posted by Tom at 10:01 AM | Comments (0) | TrackBack (1)

Here comes Rita

Houston awakens this morning to the news that the two most likely locations for landfall are Port Arthur and Galveston. The cone of uncertainty extends from southwestern Louisiana on the east to the entire Houston metro area on the west. The National Hurricane Center is currently predicting landfall to occur in Jefferson County near Port Arthur, while local experts are predicting landfall slightly west in Chambers County nearer Galveston Bay (county map here). As Rita continues to move slowly with its eye about 260 miles southeast of Galveston, a consensus has developed that the storm will move into northeast Texas after landfall and then stall on Sunday and Monday, potentially causing huge amounts of rainfall of the type that flooded the Houston area during Tropical Storm Allison in 2001. Landfall is expected at this point sometime in the early morning hours of Saturday, probably between 5 a.m. to 8 a.m., although heavy rainfall and strong winds throughout the Houston area will be experienced well before then.

Houston, get ready to rumble.

Posted by Tom at 7:30 AM | Comments (2) | TrackBack (0)

"Houston to Coach Briles, are you with us?"

For the sake of the University of Houston football program, I am hoping that head football coach Art Briles had his tongue placed squarely in his cheek during his weekly radio show Wednesday described by Chronicle sportswriter Richard Justice:

"OK, there's no requirement that your local college football coach has to read the New York Times Book Review.

But shouldn't he know something.

UH's Art Briles went on the radio Wednesday and just about made a fool out of himself.

When he was asked if this week's game with Southern Miss would be cancelled, he said he hadn't heard anything about it. He also said he hadn't heard anything about a hurricane.

If I'm the president or athletics director at UH, I'm wondering if this guy might have a little too much tunnel vision."

Posted by Tom at 6:12 AM | Comments (1) | TrackBack (0)

September 22, 2005

Adam Everett and Eric Bruntlett

As the Stros continue their improbable push to a second straight Wild Card playoff berth, two of the team members who are most popular among the Stros' players -- shortstop Adam Everett and utility player Eric Bruntlett -- are the subjects of the seventh segment in our series on the Stros' key players. Previous posts are here, here, here, here, here, and here.

Everett came over to Houston from the Red Sox organization in the 1999 Carl Everett trade, but he lost out to Stros farmhand Julio Lugo in the minor league competition to replace the eminently forgettable Tim Bogar as the Stros' shortstop after the disappointing 2000 season. However, Lugo had a highly-publicized spat with his wife in 2003 and was promptly exiled to Tampa Bay, so Everett was handed the job as a 26 year old rookie.

He showed promise during the 2003 season by exhibiting superior fielding skills while generating about a position average hitting line (-13 RCAA/.320 OBA/.380 SLG/.700 OPS). Then, while showing improvement at the plate during the first part of the 2004 season, Everett's left wrist was broken in a beaning and he was not able to come back in time to play any meaningful role in that club's historic run to the playoffs. Thus, the 2005 season is quite important for Everett, who is no longer a young player at 28 and still has not established himself as a top level National League shortstop.

Frankly, Everett's season has been disappointing. He still is excellent defensively, but his hitting has regressed to the point that a genuine question exists whether he can be anything more than a complementary defensive player on a good hitting team, which the Stros are not. Everett's hitting problem is twofold -- (i) he does not take enough walks (only 24 in about 550 plate appearances), so his on-base average is deficient, and (ii) he has a bad habit of attempting to pull every pitch, which results in a high number of weak ground balls on outside pitches that he ought to be taking to center and right field.

Thus, Everett is not yet a part of the Berkman-Oswalt-Ensberg-Lidge nucleus that will likely keep the Stros in playoff contention over the next several seasons. Inasmuch as he is an above-average defensive player and is at least close to league position average as a hitter, Everett could still become a productive player for the Stros if he can continue to bump his power numbers (11 HR's so far this season) and learn to generate more walks. However, he will be 29 next season, so he needs to improve those skills quickly or he will fall into the category of players who cannot be taught new tricks.

Bruntlett, on the other hand, has had a remarkable season, although perhaps because the expectations for him were much lower than Everett. For the first part of the season, Bruntlett was the player named most likely to be sent to the minors whenever a player was ready to come off of the disabled list. However, the 27 year old career infield utilityman expanded his defensive skills to play center and left field, and has done it very well. In the meantime, he has hit better than expected, has had two game winning hits, and hits above-average for his usual position, which is shortstop. It is doubtful that Bruntlett has the ability to sustain that level of hitting if he were used as a regular player, but he has proven this season that he is a valuable (and, perhaps most importantly, inexpensive) utility player. Bruntlett is one of the real nice stories for the Stros during this surprising 2005 season.

Everett and Bruntlett's statistics are here.

Posted by Tom at 5:32 PM | Comments (1) | TrackBack (0)

Everett and Bruntlett statistics

Adam Everett
YEAR	AGE	RCAA	OBA	SLG	OPS	AVG	HR	RBI	SB	G
2003	26	-13	.320	.380	.700	.256	8	51	8	128
2004	37	-11	.317	.385	.703	.273	8	31	13	104
2005	28	-16	.296	.379	.675	.254	11	54	20	141
CAR		-48	.308	.370	.679	.255	27	140	45	422
LG AVG		0	.340	.431	.771	.269	45	186	23
POS AVG		-38	.317	.387	.704	.265	25	143	33

Eric Bruntlett
YEAR	AGE	RCAA	OBA	SLG	OPS	AVG	HR	RBI	SB	G
2003	25	-4	.255	.370	.625	.259	1	4	0	31
2004	26	2	.328	.519	.847	.250	4	8	4	45
2005	27	-2	.308	.454	.762	.237	4	14	7	85
CAR		-4	.300	.448	.749	.246	9	26	11	161
LG AVG		0	.340	.431	.771	.269	7	28	3
POS AVG		-4	.329	.397	.726	.268	4	22	5

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

A cautionary observation

After the jolting early morning news that Hurricane Rita was heading directly toward Galveston Bay, the track models have been trending further eastward for most of the day. The current most likely projection is that the storm will make landfall east of Galveston Bay closer to Port Arthur and Beaumont and, if that happens, most of the Houston metro area would at least be spared a direct hit by the most damaging winds around the storm's eyewall.

However, the key words here are "most likely," which means that there is a very small percentage difference between the storm making landfall at one spot over another. Stated another way, the chance that the storm could come onshore directly on Galveston Bay is still very likely. The storm is reacting to the movement of three weather systems to its north, and it's simply impossible at this point to determine with any reasonable degree of certainty where the storm will make landfall between Freeport, Tx to Lafayette, La. My sense is that it will not be until early Friday morning before the experts will really have a good handle on how the storm is finally going to react to the weather systems to its north and thus, where landfall will occur. Moreover, even that very good prediction can be as much as 30-50 miles off if the storm wobbles even slightly while coming onshore. Remember, Katrina wobbled east at almost the last minute and spared New Orleans a direct hit.

Thus, the bottom line is to remain vigilant in following this storm. It looks like the storm will be at least a strong category 3 when the it somes onshore, and a storm of that magnitude -- even if it comes onshore well east of Galveston Bay -- will cause very dangerous wind and rainfall in the entire Houston metro area.

Posted by Tom at 2:48 PM | Comments (8) | TrackBack (2)

Thank goodness for the Onion

Hand it to the Onion to provide some levity during Houston's preparations for Hurricane Rita:

WASHINGTON, DC—A bill introduced by Sen. George Allen (R-VA) as "just a goof" several weeks ago was signed into law by President Bush Tuesday.

"I was just trying to crack up Frist and some of the other guys," Allen said. "Everyone's been on edge lately, what with the Katrina situation, and I thought we could use a good laugh."

Added Allen: "Looks like the joke's on me. And, I suppose, the American citizens."

S. 1718, also known as the Preservation Of Public Lands Of America Act, authorized a shift of $138 billion from the federal Medicare fund to a massive landscaping effort that, over the next five years, will transform Yellowstone National Park into a luxury private golf estate.

"I thought it was pretty damn funny when I read over the draft of the thing," said Allen, who said he struggled to keep a straight face when he introduced the law. "Especially the part about how it would create over 10,000 caddy and drink-girl jobs. But I guess it went over people's heads."

The bill passed with a vote of 63-37.

Read on.

Posted by Tom at 10:29 AM | Comments (0) | TrackBack (0)

Economic waves of Rita

With the eastern shift of the projected path of Hurricane Rita directly into the part of the Houston metro area that contains a huge number of some of the nation's largest oil refineries and petrochemical facilities, Rita's economic ripples have now turned into waves with the distinct possibility that they could turn into an economic tsunami.

It now appears almost certain that Rita will substantially disrupt operations at a significant number of the oil refineries that transform crude oil into gasoline, diesel and other products. The only question is how long those facilities will be down and how much gasoline prices will increase as a result of the shutdown. At least eight refineries in the Houston area will shut down soon as they began scaling back operations yesterday. Inasmuch as four refineries in Louisiana and Mississippi have been closed as a result of damage from Hurricane Katrina last month, almost 20% of U.S. refining capacity will shutdown with the closing of the Houston area facilities, which will only reduce already tight inventories of gasoline that have pushed prices to record levels. To make matters worse, the new projected path of the hurricane would also cause probable extensive damage to offshore oil and natural gas platforms and pipelines that were west of the ones that were damaged in Katrina's path. I think it's safe to say now that the U.S. energy industry has never had to deal with anything on the magnitude of the 2005 hurricane season.

To put this in perspective, the main worries that energy markets are dealing with are the supply of gasoline for the next few days and the amount of natural gas that will be available for the winter months when that fuel is used to heat homes across the entire United States. About 25% of U.S. oil and natural gas production comes from the Gulf of Mexico region and the entire Gulf Coast region contains a third of U.S. refining capacity. So, higher gasoline prices are a certainty and winter heating bills will also increase substantially. According to the U.S. Minerals Management Service, almost three days of natural gas production have already been lost during this hurricane season and that amount is clearly increasing because about half of the Gulf natural gas production remains shut-in. This is an even bigger problem than a reduction in oil production because the nation's capability to import natural gas is much more limited than oil.

Reflecting these concerns, the near-month futures price of natural gas was up 1% to $12.59 per million British thermal units yesterday in trading on the Nymex, which means that the price is up over 54% since the beginning of August. November light, sweet crude futures settled up 60 cents on the New York Mercantile Exchange at $66.80 a barrel after hitting a high of $68.27. October Nymex gasoline futures settled up 7.65 cents at over $2 per gallon. However, prices rose sharply in overnight electronic trading after the Wednesday Nymex session ended with crude futures up 65 cents at $67.45 a barrel and gasoline up 4.19 cents at $2.095 per gallon.

Finally, in addition to the impact on the Houston area refineries, Hurricane Rita also poses a major threat for the chemical and petrochemical plants that exist along side the refineries in the Houston area and along the Texas coast. More than 160 plants from Port Arthur to Freeport are in the potential path of the hurricane. That region generates 50% of U.S. chemical-production capacity, and most of those chemical plants were in the process of shutting down yesterday in preparation for the hurricane.

Accordingly, less than a month after Houston showed just how important it is to our nation when it opened its arms to tens of thousands of evacuees from New Orleans and the central Gulf Coast region, Hurricane Rita is about ready to show the nation just how important Houston is to the nation's economic health. It could be one very tough lesson.

Update: James Hamilton provides his usual measured analysis of the probable economic impact of Rita.

Posted by Tom at 5:07 AM | Comments (3) | TrackBack (4)

Houston wakes to foreboding news

As you peruse the current projected path of Rita almost directly over Galveston Bay, contemplate Jeff Masters' latest analysis of the situation:

The latest runs of two key computer models, the GFS and GFDL, now indicate that the trough of low pressure that was expected to pick up Rita and pull her rapidly northward through Texas will not be strong enough to do so. Instead, these models forecast that Rita will make landfall near Galveston, penetrate inland between 50 and 200 miles, then slowly drift southwestward for nearly two days, as a high pressure ridge will build in to her north. Finally, a second trough is forecast to lift Rita out of Texas on Tuesday. If this scenario develops, not only will the coast receive catastrophic damage from the storm surge, but interior Texas, including the Dallas/Fort Worth area, might see a deluge of 15 - 30 inches of rain. A huge portion of Texas would be a disaster area.

This scenario is similar to that of Tropical Storm Allison in 2001 that caused catastrophic flooding throughout the Houston metropolitan area. Moreover, with Allison, Houston did not have to deal with the catastrophic wind damage that is almost certain to result from Rita. Although the new projected path of Rita is not good news for Houston, the prediction that the storm might slow down at landfall and stall over Texas and Louisiana is even worse.

Posted by Tom at 4:45 AM | Comments (0) | TrackBack (0)

September 21, 2005

Buzzard's luck

In the midst of pre-hurricane gasoline and bottled water shortages -- and in anticipation of probable power outages resulting from Hurricane Rita -- this report is not giving me warm and fuzzy feelings:

Facing huge costs for rebuilding its Hurricane Katrina-devastated systems along the Gulf Coast, utility giant Entergy said Tuesday that it will consider filing for bankruptcy protection for its New Orleans unit.

Entergy, whose Entergy New Orleans unit has lost up to an estimated 130,000 customers because of the hurricane, estimates the unit's storm-related costs at $325 million to $475 million.

The company put its total estimated costs for repairing and replacing electric and gas facilities damaged by the Aug. 29 storm at $750 million to $1.1 billion.

Entergy is the utility company for a good part of the northern part of the Houston metro area, including The Woodlands.

Posted by Tom at 9:07 AM | Comments (0) | TrackBack (6)

More on the sad state of the airline industry

The Wall Street Journal's ($) Holman Jenkins addresses the sad state of the airline industry in his Business World column today, and hammers home a point that this previous post made about the ownership stake in the reorganized United Airlines that the debtor-airline is proposing to foist on the federal government under United's pending reorganization plan:

"Let's not delude ourselves: Through the bankruptcy and pension insurance systems, Washington is already engaged in a bailout -- an incoherent and self-defeating one."

Read the entire piece, and feel free to peruse this long line of posts over the past couple of years on the sad state of the airline industry.

After the economic shakeout of the early and mid-1980's -- which included the demise of the savings and loan industry -- the federal government ended up owning large inventories of foreclosed real estate and related assets in the wake of failed lending institutions. A number of entreprenuers bought those assets from the government for pennies on the dollar and deployed the assets in properly capitalized businesses. It's beginning to look as if a similar market in government-owned airline securities is developing, and it will be interesting to watch if a government sale of those securities at rock-bottom prices will prompt the type of true reorganization from a capitalization standpoint that the American airline industry desperately needs.

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

Economic ripples of Rita

Crude-oil prices surged on Monday as it became clear that Tropical Storm Rita would threaten the Gulf Coast, then prices fell on Tuesday morning when the National Hurricane Center forecast a more southerly path for Rita that might spare the Houston area, and then yesterday afternoon and overnight, prices rose again as the storm evolved into a major hurricane.

Such are the vagaries of predicting hurricane tracks and commodity markets.

Oil prices settled Tuesday afternoon more than $1 a barrel lower than Monday's closing price as early Tuesday projections had Rita coming in closer to Freeport so that the brunt of the storm would miss the Houston area refineries. Those initial reports triggered a drop of more than $2 a barrel in oil prices, but those prices recovered quickly during the day as Rita strengthened into a major hurricane and evacuations from offshore rigs picked up. At the New York Mercantile Exchange, the October crude contract ended $1.16 lower from its Monday high at $66.23. October gasoline closed at $1.9766 a gallon, down 6.61 cents for the day and October heating oil, up more than 20 cents Monday, ended at $2.0113, down 2.71 cents.

Refineries that are located on the southeast side of the Houston metro area in or near the cities of Pasadena, LaPorte, Texas City, and on east toward Beaumont and Port Arthur generate about 13% of total U.S. refining capacity. Although Hurricane Rita could cause even more damage to the offshore drilling and production infrastructure in the Gulf of Mexico that was already extensively damaged by Hurricane Katrina, the trading markets' even more critical concern at this point is that Rita will hammer Houston's refineries, which would have a huge effect on U.S. refinery capacity.

James Hamilton made a good point awhile back that underscores the importance of Houston's refineries. Older refineries cannot process heavy, sulfur-rich "sour" crude oils (Mexico's Maya grade crude is an example of a common sour crude) and even newer refineries cannot process such sour crudes as efficiently as light, "sweet" crude oil. Consequently, if Houston's modern refinery facilities are shut down by the storm, then demand for light, sweet crude will rise and push its price even higher relative to lower-grade crudes. Inasmuch as about 75% of the crude oil that OPEC countries produced last year was sour, OPEC's promise to increase output has had little effect on trading markets that are more concerned about refinining capacity. Although OPEC has incrementally increased its production of sweet crude since 2000, world production of sweet crude has declined steadily since that time.

Finally, the Chronicle's Tom Fowler has this informative article today about the Houston area's refineries and the potential market impact of damage to those facilities.

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

Handy hurricane information links

Given that those of us living in the Houston and south Texas area are in for a wild ride over the next few days, I am passing along the hurricane information sites that I am reviewing frequently for up-to-the-minute information and analysis:

Eric Berger's SciGuy. Eric is the Chronicle's science writer who started his blog recently as a part of the weblog initiative that Chronicle tech writer Dwight Silverman promoted at the local newspaper. During Hurricane Katrina, Eric provided an extraordinary source of information and analysis, and he has been doing the same in the early stages of Rita.

StormTrack. A weblog that a couple of young fellows from the northeast started to provide up-to-date analysis of hurricane storm trends. Excellent resource.

Dr. Jeff Masters' WunderBlog. Jeff Masters is the Weather Underground's Director of Meteorology and provides first-rate analysis in his blog.

The Google Map link to the upper Texas Gulf Coast.

This site provides a good overview of hurricane information, including this pithy chart explaining the categories of hurricane strength.

And, of course, the National Hurricane Center site.

As all grizzled veterans of Hurricane Alicia in 1983 know (related Chronicle story is here), this is a serious situation for the Texas Gulf coast and it is time to prepare to batten down the hatches. If you are a relative newcomer to this area and have never been through an intense hurricane before, do not fall into the trap of thinking that the media and others are crying "wolf." This is a deadly serious storm that has the potential to be every bit as devastating to the Texas Gulf coast as Katrina was to the Louisiana-Mississippi-Alabama Gulf coast. As destructive as Alicia was in 1983 (it's eye came in on Galveston's West Beach and tore through the middle of Houston on a track that essentially followed I-45), it was a minimal category 3 storm. In comparison, Rita is shaping up to be a much more powerful storm that is comparable to Hurricane Carla, which was a category 4 (winds of 133-155 mph) storm that caused incredible damage to Houston and the upper Texas Gulf coast on September 11, 1961. Carla had the same minimum barometric pressure as the great 1900 storm that killed over 6,000 people in Galveston.

I hope I have gotten your attention.

Posted by Tom at 4:24 AM | Comments (5) | TrackBack (7)

September 20, 2005

Coach Price turns up the heat on Sports Illustrated

This prior post related the interesting story of former University of Alabama football coach and current University of Texas at El Paso football coach Mike Price's $20 million libel lawsuit against Time Inc. The lawsuit involves an allegedly false and malicious story that Time's Sports Illustrated magazine ran in May, 2003 involving a very wild night that Coach Price had in Pensacola, Florida while attending a University of Alabama football-related golf tournament. That night of festive activity led to Coach Price's termination as the Alabama football coach before he had ever coached a game for the Crimson Tide.

Well, the Price v. Time case is getting very interesting, as this recent AL.com story relates. An appellate panel of the Eleventh Circuit Court of Appeals has advised Time's attorney in this decision that the attorney-client privilege does not obviate the attorney's parallel obligation as an officer of the trial court to advise the court of perjury that would help identify a confidential source. The attorney stuck between a rock and a hard place is Gary C. Huckaby of Huntsville, Ala., who represents Time in the Price lawsuit.

The crux of the issue before the Eleventh Circuit was the magazine's article in 2003 that Coach Price invited two women he met at a strip club to his hotel room and had sex with them there. Coach Price has denied having sex with any woman in his hotel room that night, so in pursuing his libel suit, he has sought to discover from Time the identity of the anonymous source for the article. Time objected to the discovery on the grounds that the identity of such a sources is confidential.

A U.S. District Judge previously ordered Time to identify the confidential source, and the magazine appealed. During oral argument on that appeal in May, Eleventh Circuit Judges Edward E. Carnes and William H. Pryor Jr. asked Mr. Huckaby from the bench what he would do if, during cross-examination of a witness in a deposition, he heard the person who he knew to be the confidential source deny being the source and, thus, commit perjury. Mr. Huckaby confirmed to the appellate court that he would advise the U.S. District Judge handling the case of any such perjured testimony.

As a result, the panel issued this July decision that vacated the District Court's order requiring Time to disclose the identity of its confidential source. However, the panel went on to point out that Coach Price's counsel could discover the source's name anyway by simply deposing the four women who everyone knows were interviewed for the story and then asking each witness whether she was the confidential source. Faced with the prospect of Mr. Huckaby having to divulge perjury committed by its confidential source, Time requested that the panel reconsider its ruling on the grounds that the attorney-client privilege and ethical standards precluded Mr. Huckaby from identifying his client's confidential source -- even if he knew that she was committing perjury -- because Mr. Huckaby had no duty to advise the trial court of the perjury of a witness who was not his client.

The Eleventh Circuit panel did not buy Time's argument:

"[Time] insist[s] that it is the perfect prerogative of an officer of the court to stand silently by as the search for truth is led astray by perjury -- assuming, of course, that the perjury serves his client's interests.

That is an interesting position. Whatever its merit in general circumstances, there may be problems with it in situations involving the search for a confidential source in a libel case, as this case illustrates. Through their counsel defendants have steadfastly refused to divulge their confidential source for the article in question; they have attempted to shield her identity by every legal means; . . . Now they say that if the confidential source lies under oath and obstructs the pathway to the truth that their counsel has urged us to take, he has no duty to remove the obstruction by reporting the lie. We have some problems with that position.

Does anyone else get the sense that Time needs to settle this case quietly?

Posted by Tom at 12:44 PM | Comments (0) | TrackBack (0)

The Texans' next firing?

This Wall Street Journal ($) article profiles Dr. Fran Pirozzolo, The Woodlands-based sports psychologist who has developed a successful practice by catering to a couple of dozen professional athletes who seek him out for "stress inoculation" and other "mental toughness" techniques that supposedly enhance performance. I have listened to Dr. Pirozzolo several times on local sports-talk radio shows and, for the life of me, cannot understand how he is able to persuade professional athletes to pay him money for the psycho-babble that he exudes on those shows. However, as the article notes, Dr. Pizzorolo is also the "staff psychologist" of the Houston Texans, who are not exactly the most well-adjusted and emotionally stable group at this time. If offensive coordinator Chris Palmer lost his job after these two performances (here and here), then how on earth has Dr. Fran not also been canned?

Posted by Tom at 8:05 AM | Comments (2) | TrackBack (0)

Oil and gas markets react to Rita

Whoa, Nellie! Oil prices surged yesterday in anticipation of Hurricane Rita plowing through the Gulf of Mexico as OPEC ministers meeting in Vienna conceded they have no real means to cool red-hot petroleum markets that have become roiled by successive hurricanes in the extensive Gulf of Mexico production region.

The price of U.S. benchmark crude-oil futures for October delivery shot up $4.39 a barrel on the New York Mercantile Exchange and settled at $67.39. That was the highest one-day rise in nominal terms since Nymex began trading oil futures in 1983. Moreover, the storm's approach is slowing down efforts to fix Gulf production infrastructure that was damaged by Hurricane Katrina. The U.S. Mineral Management Service reported yesterday that 44% of the daily output of oil and natural gas remained off-line from the earlier storm.

Folks, hang on to your hat because it's going to be one wild ride this week in the oil and gas markets.

Posted by Tom at 3:38 AM | Comments (3) | TrackBack (1)

September 19, 2005

Kozlowski and Swartz sentenced

Former Tyco International executives L. Dennis Kozlowski and Mark Swartz were led away from a New York City state courthouse in handcuffs today after New York state Justice Michael Obus sentenced them to serve 8 1/3 to 25 years in prison and pay a total of about $240 million in restitution and fines for being convicted of corporate fraud and conspiracy for looting Tyco of more than $150 million. Prior posts on the conviction of Messrs. Kozlowski and Swartz are here and here.

Under New York law, defendants generally are eligible for parole based upon their minimum sentence, but can earn one-sixth off that time for good behavior and other good deeds while in prison. Accordingly, Messrs. Kozlowski and Swartz could serve as little as about 7 years so long as they are good boys in prison. However, it looks like the men will serve hard time because the New York State Department of Correctional Services generally assigns prisoners to maximum security prisons who have more than six years until they are eligible for parole. Although the Department has leeway to modify that policy according to the circumstances of individual cases, don't bet on that sort of discretion in cases involving former corporate executives -- just ask Jamie Olis.

Update: Ellen Podgor has typically insightful comments on the Kozlowski and Swartz sentencings over at the White Collar Crime Prof Blog. In addition, Professor Bainbridge provides a good overview of the policy considerations emanating from draconian sentences of business executives, and makes a particularly good point that such sentences do little to deter the Kozlowskis of the world, but could very well deter the type of creative risk taking that generates beneficial economic activity.

Posted by Tom at 3:50 PM | Comments (0) | TrackBack (1)

Texan fans in full revolt

The Texans firing of offensive coordinator Chris Palmer this morning did little to quell the anger of Texan fans over yesterday's debacle, one of whom emailed me as follows:

"The biggest joke of all is leaving the roof open. On Friday, I got an e-mail telling me that the roof would be open and that I should stay hydrated during the game. I couldn't believe they were sending out a heat related medical advisory on a stadium that has air conditioning. During the first year of the new stadium, management said it was going to keep the roof open in order to have an advantage over the teams that didn't practice in the Texas heat. So, yesterday, the Texans -- whose bench is on the sunny side of the field -- sat there and baked. The Steelers had air-conditioned benches (Texans not) and sat in the shade. Moreover, the Texans lost whatever home field advantage we might have had because half of the seats were emptied by people seeking refuge from the sun. What a bunch of Braniacs."

Key hint to the Texans' front office -- the only thing worse than an angry fan is an angry fan who is also hot and sweaty after boiling in the sun for three hours.

Looks like it's going to be a long season, folks.

Posted by Tom at 1:28 PM | Comments (1) | TrackBack (1)

We don't really need this

Tropical Storm Rita is preparing to enter the Gulf of Mexico, and current predictions have it headed toward the Texas Gulf Coast by the end of the week. This is not good news, particularly for the oil and gas industry's Gulf operations, which have stablized at reduced production levels in the wake of Hurricane Katrina, but are producing at far below usual levels. Here is a download of a handy map of oil and gas interests in the Gulf of Mexico.

With gasoline inventories still low and a substantial portion of Gulf of Mexico oil and gas production remaining shut-in, another hurricane in the Gulf is not what the doctor ordered for the economy. This EIA Daily Report from this past Friday reflects just how precarious oil and gas production is in the Gulf at the present time. If Rita strengthens as expected over the warm waters of the Gulf, then we could experience a real double whammy of damage to Gulf oil and gas production, not to speak to the usual damage to the Texas Gulf Coast that results from such a storm. Hat tip to Calculated Risk for the links to the map and the EIA report.

Update: The latest National Hurricane Center projection has the storm headed straight for the West Beach of Galveston Island. Batten down the hatches!

Posted by Tom at 7:31 AM | Comments (0) | TrackBack (1)

Close Encounter of the Human Kind

Abraham Verghese, M.D., is the Joaquin Cigarroa Jr. Chair and Marvin Forland Distinguished Professor at the University of Texas Health Sciences Center in San Antonio. After volunteering at the Houston shelters during the relief effort for the Hurricane Katrina evacuees, Dr. Verghese's story of meeting the first hurricane evacuees that were sent to San Antonio resonated with me because it is similar to many conversations that I have had over the past couple of weeks with various evacuees:

Hesitantly, I asked each patient, "Where did you spend the last five days?" I wanted to reconcile the person in front of me with the terrible locales on television. But as the night wore on, I understood that they needed me to ask; to not ask was to not honor their ordeal. Hard men wiped at their eyes and became animated in the telling. The first woman, the one who seemed mute from stress, began a recitation in a courtroom voice, as if preparing for future testimony.

Read the entire unvarnished account. Also, check out this Bob Herbert NY Times piece that relates how the corporate owners of the hard-hit Methodist Hospital in east New Orleans responded to the flood after the hurricane by sending emergency relief supplies to the hospital. Unfortunately, the owners sent the supplies to the airport where FEMA officials confiscated them and sent the supplies elsewhere. Along those same lines, here is the story of a volunteer doctor during the relief effort who a FEMA official ordered to stop treating a patient because he was not registered with FEMA.

Finally, here is a helpful FactCheck.org compilation of stories relating to who knew what when in regard to Hurricane Katrina.

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

Do you ever feel this way?

Theodore Dalrymple is probably best known for his weekly columns in The Spectator and his essays in the American quarterly City Journal. He is a psychiatrist working in an inner city area in Britain where he is affiliated with a large hospital and a prison. His columns report on the lifestyles and ways of thinking of Britain's growing underclass, and in his book, Life at the Bottom, he warns that this underclass culture is spreading through society.

In his latest City Journal piece, Mr. Dalrymple expresses the frustration that he feels in responding to the various pooh-bah theories that seem to abound these days:

In Australia recently, I shared a public platform with an educationist, who had won awards for social innovation in the field of education for disadvantaged minorities. I was looking forward to what she had to say.

I was soon in a towering rage, however. She uttered some of the most foolish cliches of radical education theory, now about 40 years old—theories that I had fondly thought were now behind us, . . .

Halfway through my own reply, however, I suddenly became bored. Why do I spend so much time arguing against such obvious rubbish, which should be both self-refuting and auto-satirizing the moment someone utters it? Why not just go and read a good book?

The problem is that nonsense can and does go by default. It wins the argument by sheer persistence, by inexhaustible re-iteration, by staying at the meeting when everyone else has gone home, by monomania, by boring people into submission and indifference. And the reward of monomania? Power.

Read the entire piece. Hat tip to Craig Newmark for the link to Mr. Dalrymple's latest.

Posted by Tom at 5:43 AM | Comments (0) | TrackBack (0)

September 18, 2005

2005 Weekly local football review

Pittsburgh 27 Texans 7

"Houston, we have a problem."

After an absolutely awful performance in Week One of the NFL schedule, the Texans outdid themselves in their home opener by rolling over and playing dead to the Pittsburgh Steelers, 27-7. This is a Texans team that is clearly in turmoil, as most of the players are lifeless and merely going through the motions. In fact, the Texans are beginning to resemble those vintage Oiler disaster-teams of the early 1970's.

QB David Carr is now officially a basket-case who is reverting to survival instincts in the face of even a moderate pass rush from the opposition. Unfortunately for Carr and the Texans, even that approach is not doing much good as Carr was sacked eight times by the Steelers and vented his frustration openly on the field and on the sidelines throughout the game. In fact, a Steelers linebacker Joey Porter was quoted with the following after the game by media reporters:

"[Carr] didn't know what to do. We had him confused. He was arguing with his offensive linemen. It's always a good sign for the defense when the quarterback's yelling at his teammates."

"Sometimes he sacked himself. He was running everywhere, (taking) delay of games, throwing the ball in the dirt, taking sacks, running into guys — he was scrambling for no reason at times."

Texans offensive coordinator Chris Palmer was not exactly ebullient with his QB, either:

"They scramble around and make plays. We scramble around and we don't make plays."

Not a ringing endorsement of the Texans' first draft choice in franchise history.

Meanwhile, the Texans defense remains incapable of generating any meaningful pass rush on the opposition's QB, so the Steelers were able to gain huge chunks of yardage through the air on Sunday. By the way, would someone please introduce new Texan cornerback Phillip Buchanon to Steelers wide receiver Hines Ward?

Frankly, Texans owner Bob McNair has some tough questions to address with the Texans football management. The Texans problem is that they do not have enough good players to compete with teams such as the Steelers, and the responsibility for that deficiency is squarely in the lap of Texans General Manager Charlie Casserly. The Texans have drafted 40 players in four NFL Drafts and, from what I can see, only three players taken in those drafts -- WR Andre Johnson, RB Domanick Davis, and CB Dunta Robinson -- are better than average NFL players. That appears to be an extremely poor drafting record for any NFL team, but particularly for an expansion team such as the Texans. It may not be time to clean house, but it's sure time to start addressing what's wrong with the Texans' plan or the execution of that plan.

Finally, one key hint to the Texans' front office -- give up on this silly notion that the Texans achieve some type of competitive advantage over the opposition by keeping the roof of Reliant Stadium open on a brutally hot afternoon when tempuratures in the sunlight in the stadium easily exceeded 100 degrees.

The Texans will be underdogs against their open week this coming Sunday, while they travel to Cincinnati in two weeks to get pummelled by the red-hot Bengals.

Update: The good news is that the offensive coordinator has been replaced. The bad news is that the new offensive coordinator is the offensive line coach! Can you say "Rearrange the deck chairs on the Titanic?"

Texas Longhorns 51 Rice 10

Does anyone else think that freshman RB Jamaal Charles looks a lot better than Cedric Benson did as a freshman?

The Horns (3-0) toyed with Rice (0-2) before taking the next week off. The Horns travel to Missouri for a warm-up game before taking on the Sooners in Dallas on October 8th. Given OU's troubles, the Horns biggest problem against OU this season may be over-confidence. Rice (0-2) has tough games against Navy in Houston next weekend and then at UAB the following weekend, so an 0-4 start is a distinct possibility for the Owls.

Texas Aggies 66 SMU 8

Despite the loss to Clemson in their first game, my sense is that the Ags (1-1) are going to be a very good team by the end of this season and may be -- along with Tech -- one of the only teams that can give the Horns a run for their money this season. This is a very fast, strong and deep Aggie team that runs and passes the ball equally well. If the defense improves over the course of the season, this bunch could develop into a Top Ten team. The Ags get a JV game against Texas State next week before hosting Baylor the following week in their initial Big 12 game of the season.

UTEP 44 Houston 41 (OT)

The Coogs (1-2) are a frustrating team to watch. They clearly have some talented skill position players who can break an exciting TD run or pass at virtually any time. Meanwhile, however, their games are a mish-mash of penalties, sacks, fumbles, turnovers, missed assignments and poor tackling. I'm not sure that this is entertainment. The Cougars host Southern Miss next Saturday.

Finally, remember to check out Kevin Whited's weekly Big 12 report for analysis of the rest of games involving the rest of the Big 12 Conference.

Posted by Tom at 8:39 PM | Comments (6) | TrackBack (1)

Stros 2005 Review: Stros enter the stretch run

After almost writing off the Stros' playoff chances a couple of weeks ago, a couple of future Hall of Famers turned in the type of remarkable performances that might just make the difference in pushing the Stros into the National League Wild Card Playoff berth.

On this past Wednesday, after the Stros had lost two straight games to the Marlins and fallen 1.5 games behind the Fish in the race for the Wild Card playoff spot, Roger Clemens took the mound 15 hours after his mother's death and pitched the Stros to a desperately needed 10-2 victory over the Marlins. Then, on Friday, Jeff Bagwell came off the bench in only his third at bat since coming back after four months on the disabled list to hit a two out, pinch hit single in the bottom of the ninth to drive in the winning run in a 2-1 victory over the Brewers that pushed the Stros back into the lead in the Wild Card race. With their series sweep of the Brewers, the Stros have now won five straight games as they prepare for their final 13 regular season games over the last two weeks of the regular season.

The Stros (81-68) are 1.5 games ahead of the Phillies (80-70) and 2.5 games up on the fading Marlins (79-71) in the race for the Wild Card playoff berth. Here are the remaining series for the three Wild Card playoff contenders:

Stros: at Pittsburgh (4); at Chicago (3); at St. Louis (2); Chicago at home (4);

Phillies: at Atlanta (3); at Cincinnati (3); Mets at home (3); at Washington (3);

Marlins: at New York Mets (3); at Atlanta (3); Washington at home (3); Atlanta at home (3).

Based on the foregoing, none of the three contenders appear to have a clear edge in the schedule coming down the home stretch.

Thus, after getting back into the NL Wild Card playoff race with a 47-22 streak after their abysmal 15-30 start, the Stros are now 19-16 over their past 35 games, which is closer to this club's typical performance. My sense is that it will take at least 88 wins to secure the Wild Card playoff spot this season, so the Stros would have to go 7-6 over their final 13 games to achieve that number of wins. If the club can go 9-4 and get to 90 wins, that is almost a sure bet to win the Wild Card berth.

The Stros chronically-deficient hitting has actually improved modestly over the past two weeks even though one of the Stros two best hitters -- Morgan Ensberg -- has been out during that time with a bruised hand. Here are the Stros hitters' individual runs created against average ("RCAA," explained here) through Saturday's games, courtesy of Lee Sinins:

Morgan Ensberg 35
Lance Berkman 29
Craig Biggio 7
Jeff Bagwell 1
Charles Gipson 0
Charlton Jimerson 0
Jason Lane 0
Orlando Palmeiro 0
Todd Self -4
Eric Bruntlett -6
Jose Vizcaino -6
Humberto Quintero -7
Luke Scott -7
Raul Chavez -11
Brad Ausmus -12
Chris Burke -12
Willy Taveras -12
Mike Lamb -15
Adam Everett -18

The Stros have bumped their team RCAA to a -38, which is tied for 12th among the 16 National League teams. Mike Lamb (-15 RCAA/.270 OBA/.401 SLG/.671 OPS) has finally started hitting over the past couple of weeks after having a miserable season, while Jason Lane (0/.301/.491/.792) continues his steady post-All Star break hitting. If Lamb and Lane can continue to supplement Ensberg (35/.385/.565/.950) and Lance Berkman's (29/.408/.512/.919) strong hitting down the stretch, then the Stros' chances of winning the Wild Card berth increase substantially.

Meanwhile, the Stros pitching remains outstanding and is one of the best performances by a staff in club history. Here are the Stros pitchers' individual runs saved against average ("RSAA," explained here) through Saturday's games:

Roger Clemens 53
Andy Pettitte 40
Roy Oswalt 33
Brad Lidge 14
Dan Wheeler 14
Chad Qualls 7
Mike Gallo 3
Travis Driskill 0
Chad Harville -1
Scott Strickland -1
Mike Burns -4
Russ Springer -4
John Franco -5
Brandon Backe -9
Ezequiel Astacio -12
Brandon Duckworth -12
Wandy Rodriguez -19

The Stros pitching staff's aggregate 97 RSAA is second to the Cardinals staff's 136 among the 16 National League teams. The Rocket, Pettitte and Oswalt continue to be first, third, and seventh among National League pitchers in RSAA, which continues to be one of the finest seasons by three starting pitchers on one staff in modern baseball history.

One worrisome aspect about the competition in the stretch run is that the Phillies -- who have been hitting-deficient like the Stros for much of the season -- have really started to mash the ball over the past couple of weeks. Accordingly, the Phils' combined RCAA/RSAA currently is 84, which is quite a bit better than the Stros' 59 and the Marlins' 20, whose pitching outside their top three starters has really cratered. Therefore, if recent trends hold, this is a two team race between the Stros and the Phillies, and the Phils' combination of hot-hitting and strong pitching may be tough to beat.

Posted by Tom at 7:11 PM | Comments (0) | TrackBack (0)

September 17, 2005

John McMullen, R.I.P.

John McMullen -- who went from savior of the Houston Astros franchise to one of the more reviled owners in Houston professional sports history -- died yesterday at his home in Montclair, New Jersey. McMullen was 87 years old.

McMullen was a successful businessman from the New York area who became interested in investing in professional sports in the mid-1970's when New York Yankee owner George Steinbrenner persuaded him to buy a limited partnership interest in the Yankee franchise. That experience prompted McMullen -- who was known to be a quite witty man -- to observe "[t]here is nothing quite so limited as being a limited partner of George Steinbrenner's."

McMullen's investment in the Yankees led him to buy the Stros franchise from a consortium of asset-based lenders that had taken over control of the franchise after Judge Roy Hofheinz -- the Houston businessman who promoted the construction of the Astrodome and the creation of the Stros franchise financial empire -- suffered a stroke and experienced severe financial problems in the mid-1970's. Inasmuch as the lenders were unwilling owners, they did little to market the club and it showed. By the late 1970's, the Stros were experiencing a sharp decline in attendance and, in fact, 1975 marked the first season in the Astrodome that the club drew less than a million fans. Thus, McMullen's leadership of a group that acquired the Stros in 1979 was widely viewed locally as a positive development, and McMullen's engineering of the signing of local legend Nolan Ryan to Major League Baseball's first million dollar contract in 1980 really re-ignited interest in the Stros and baseball in the Houston area.

Interestingly, despite the caretaker ownership of the Stros by the lenders, the Stros' baseball management continued to emphasize the Stros' traditionally strong farm system and, by the time McMullen's group bought the club, the Stros were a ready to become a contender in the National League. In 1979, the Stros engaged in a feisty pennant race with Cincinnati before finishing 1.5 games behind the Reds in the National League West. With the signing of Ryan and future Hall of Famer Joe Morgan in 1980, the Astros parleyed a dominant pitching staff that included Ryan, J.R. Richard (the season he suffered a tragic stroke), Joe Niekro, Ken Forsch, Vern Ruhle, Joe Sambito and Dave Smith into a division championship and a National League Championship performance that came within three outs of the club's first World Series before the Stros lost to the Phillies, who went on to win the World Series. Although the nucleus of that club returned and lost a division series to the Dodgers in the strike-shortened 1981 season, the Stros began to drift back to mediocrity after that season and, by 1986, Stros fans were becoming restless that the absentee owner McMullen did not not have the requisite interest in developing a winning ballclub.

In that connection, a couple of off-field incidents in the early 1980's started to tilt local sentiment against McMullen. First, McMullen fired popular General Manager Tal Smith -- who had been the architect of the contending Stros club that McMullen inherited in 1979 -- and replaced him with Al Rosen. Three years later, after that Stros club had gone into decline and the local media was beginning to criticize McMullen for his decision to fire Smith, McMullen provided a glimpse of his legendary temper. On April 24, 1983, the Houston Chronicle reported the following:

Houston Astros Chairman of the Board John McMullen, reacting angrily to recent criticism of his team, said Saturday night that Houston's baseball franchise "was the worst in baseball when I bought it in 1979.

"The 25 men on the field today are better than the Astros' 25-man team when I bought the club."

McMullen said he is tired of reading suggestions that Smith was the architect of the Astros' success.

"How can you keep writing that?" McMullen asked. "You'd better start writing the truth. Tal Smith is a despicable human being. It's unfair and wrong for people to keep giving him credit."

Apart from the rather acerbic characterization of Smith, the main problem with McMullen's analysis about the Stros was that it was not true. Accordingly, that little explosion prompted Smith to file a defamation lawsuit against McMullen, which was settled quietly after a U.S. District Court declined to dismiss the lawsuit in this decision. Subsequently, McMullen's limited partners revolted against him, which was quelled only by McMullen cutting a deal with Don Sanders, a local investment banker who was one of the limited partners. However, promptly thereafter, Sanders alleged that McMullen reneged on the deal that he had cut with Sanders to quell the limited partner revolt, so Sanders also sued McMullen. That lawsuit was also settled quietly after an appeals court in this decision reversed a summary judgment in McMullen's favor and sent the case back to the district court for a jury trial.

So, with this backdrop, expectations for the Stros were not particularly high in 1986 when, seemingly out of nowhere, the club put together the third best regular season in franchise history (96-66) and won the National League West going away. With another dominant pitching staff that included Ryan, Smith, Mike Scott, Bob Knepper, Jim DeShaies and Danny Darwin, that club came within a game of the World Series as they lost the National League Championship Series to the Mets after a 16-inning 7-6 Game Six loss that remains one of the greatest playoff baseball games in Major League Baseball history. If he had built on that magic 1986 season, McMullen had a chance to restore his reputation in Houston professional sports circles.

However, even with all the goodwill generated by that 1986 Stros team, McMullen sealed his fate along side Bud Adams as one of the most despised owners in Houston professional sports history with two moves in the succeeding years that almost defy explanation. The first, in 1987, was the decision to fire long-time and tremendously popular Stros play-by-play announcer, Gene Elston. Elston was a real pro as an announcer, and his low-key, analytical, and well-prepared approach resonated with Stros baseball fans. There was simply no reasonable explanation for such a move other than pettiness.

But the next move in 1988 was the straw that broke the camel's back -- McMullen's decision not to re-sign the hugely popular Ryan to a new contract. And not only did he decline to re-sign Ryan, it was the way in which McMullen handled the negotiations with Ryan that angered Houstonians. McMullen directed his General Manager at the time (Bill Wood) to offer Ryan -- who had played nine seasons for the Stros, won 106 games and become the face of the organization -- a 20% salary reduction. In short, McMullen was marking down a local legend.

So, Ryan rebuffed McMullen's insult and signed a contract with the Texas Rangers, where Ryan proceeded to stick it to McMullen in the most delicious manner possible, pitching two more no-hitters (giving him a record 7 for his career), winning his 300th victory, throwing his 5,000th strikeout, and giving the Rangers a much-needed drawing card during his five seasons in Arlington. And just to complete the public relations disaster, Ryan went into the Hall of Fame in 1999 as a Ranger despite his long tenure with the Stros and the fact that he has lived in the Houston area for most of his life. Years later, Ryan noted the absurdity of it all when he commented that "if [McMullen] had just come back and said [he] wanted me to stay another year at my same salary, I probably would have taken it and not thought anything about it." Thankfully, one of the many good things that Drayton McLane has done since acquiring the Stros franchise from McMullen in 1992 was to bring Ryan back into the Stros organization as a consultant and owner of the Stros' AAA Round Rock minor league franchise.

McMullen's reputation was toast in Houston after the Ryan debacle. Despite development of some excellent young talent such as Craig Biggio, Ken Caminiti, and Luis Gonzalez, and the acquisition of such great young players as Jeff Bagwell and Curt Schilling, the Stros under McMullen continued to drift as he simply did not have the heart to market the club properly. Gradually, McMullen's sporting interests turned primarily toward the New Jersey Devils NHL hockey club that he had acquired in the mid-1980's and which won Stanley Cup Championships in 1990 and 1995. Reflecting his lack of interest in the baseball club, McMullen agreed to have the team take a Major League Record month-long road trip in 1992 so that the Republican Party Presidential Convention could use the Astrodome to nominate George H.W. Bush as its Presidential candidate. Thus, at the end of 1992, McMullen sold his interest in the Stros franchise to McLane, triggering the beginning of an era in which the Stros have become one the most successful clubs in Major League Baseball.

What is most interesting about all this is that McMullen really was a rather remarkable fellow. McMullen earned a bachelor of science degree in electrical engineering from the United States Naval Academy in 1940 and then served in the U.S. Navy from 1940 to 1954, resigning with the rank of commander. During his Naval service, he earned a master of science degree in naval architecture and marine engineering from the Massachusetts Institute of Technology and a doctor of mechanical engineering degree from the Swiss Federal Institute of Technology.

Then, after leaving the Navy, McMullen became renowned in the business world for his leadership in ventures including shipping lines, oil tanker operations, naval architecture and marine engineering, he established John J. McMullen Associates in 1958, a firm of naval architects and marine engineers that became one of the most successful naval architectural firms in the nation. In 1967, McMullen organized MPR Associates, a nuclear consulting firm, and in 1968, he was elected chairman and CEO of United States Lines, one of the country's leading shipping companies. In 1974, the Bank of England retained him as president and chief executive officer of Burmah Oil Tankers, a company he reorganized and transformed into an efficient and profitable operation. In short, McMullen was a heavyweight in business circles.

Finally, and perhaps most incongruosly given the acrimony with Ryan, McMullen was actually well-liked by most of the players who played for his clubs. Years ago, Jeff Bagwell told me that he and other young players at the time appreciated the fact that McMullen, after each baseball season, would always organize a trip for the players to come up to New Jersey to play golf at McMullen's course, which just happened to be one of the best in the United States, Pine Valley Golf Club. Similarly, upon retiring after 20 years with the New Jersey Devils hockey team, defenseman Ken Daneyko personally thanked McMullen for his support on and off the ice, particularly McMullen's support during Daneyko's stay in an alcohol rehabilitation program:

"Words can't describe what (McMullen) has meant to me and my wife," Daneyko said at his retirement ceremony, pausing to compose himself. "It goes way beyond a hockey relationship. He's the man who instilled values of loyalty and integrity."

So, even after his tumultuous ownership of the Stros, all Stros fans need to remember that McMullen had the good sense to sell the club to the best owner that the Stros have ever had. So, rest in peace, John McMullen, your life was quite a ride.

Posted by Tom at 8:00 PM | Comments (2) | TrackBack (0)

September 16, 2005

David Toms hospitalized

Popular Shreveport, Louisiana-based PGA Tour golfer David Toms was hospitalized yesterday on an emergency basis after he was seen clutching his chest and taking a knee due to an escalated heart rate while playing the first round of the 84 Lumber Classic in Pennsylvania. Toms was rushed to a hospital via Life Flight helicopter where he is now reported to be in stable condition.

Update: Toms has been released from the hospital after being diagnosed with Supraventricular Tachycardia, which is a general term for any rapid heart rate originating above the ventricles. It is generally a non-life-threatening condition that can be either treated with medication or cured with minor surgery.

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

Doesn't the Fifth Circuit know about Gallery Furniture?

The Fifth Circuit Court of Appeals plan to re-open for business this week in Houston ran into a logistics problem -- furniture for the Court's personnel could not be delivered until this weekend. Accordingly, the Court has pushed back its re-opening date to September 21 and the new deadline for filing non-emergency pleadings is October 10. Here is the Court's announcement and related Order.

Meanwhile, this Chronicle article on the Fifth Circuit's operations notes that none of the Court's files in its New Orleans offices appear to have been damaged by the flood.

Posted by Tom at 6:37 AM | Comments (0) | TrackBack (0)

In the wake of KPMG

Following on this post from last month, this New York Times article reports that, on the heels of KPMG's deferred prosecution agreement with the Justice Department and the subsequent indictment of eight former KPMG partners, federal prosecutors are apparently focusing on other firms involved in the creation and promotion of allegedly illegal tax shelters, including Deutsche Bank and possibly Ernst & Young, the law firm of Sidley, Austin, Brown & Wood, and Texas-based law firms Jenkens & Gilchrist and Scheef & Stone. Here are the previous posts on the KPMG tax shelter saga.

Posted by Tom at 5:50 AM | Comments (0) | TrackBack (0)

The myopia of the Times

It should be considered progress whenever the New York Times runs an article questioning the draconian prison sentences that are being handed down to business executives in connection with the government's criminalization of business during the post-Enron era. However, one question is prompted by the Times article:

How on earth does one write such an article without noting the sad case of Jamie Olis?

For much more complete analysis of white collar criminal sentences, check out this post over at Doug Berman's blawg, Sentencing Law and Policy.

Posted by Tom at 5:32 AM | Comments (3) | TrackBack (3)

Spitzer goes after former Marsh execs

Even news relating to natural disasters cannot push the Lord of Regulation out of the public eye for long.

In a widely-anticipated move, Mr. Spitzer's office indicted eight former Marsh Inc. insurance brokers and executives yesterday on criminal-fraud charges in connection with Mr. Spitzer's long-running investigation of alleged bid-rigging in the insurance industry. Earlier posts on Mr. Spitzer's forays against the Marsh employess are here and here.

The indictments allege essentially the same matters as the earlier civil lawsuit that Mr. Spitzer brought against Marsh -- that the brokers cheated some corporate clients by rigging bids for excess casualty insurance contracts in a scheme to steer business to insurers that paid Marsh larger commissions than Marsh would have received from more competitive insurers. Mr. Spitzer alleges that the scheme increased at least 35 Marsh customers' insurance costs by as much as $1 million in some instances. Earlier this year, Marsh & McLennan signed an $850 million settlement (ransom?) with Mr. Spitzer's office under which the company apologized to its customers for its employees' unlawful" and "shameful" behavior. Over the past several months, eight former Marsh employees have pled guilty to criminal charges in the matter.

For his part, Mr. Spitzer -- who, as a part of the investigation into Marsh, arranged for the installation of his former employee and tennis buddy, Michael Cherkasky, as Marsh & McLellan's CEO -- stated that Marsh "should be applauded" for changing its management and business model to avoid conflicts of interest, but added that there may be even more prosecutions of former or current Marsh employees and others in the corrupt insurance industry.

Spitzer is a real piece of work.

Posted by Tom at 5:05 AM | Comments (0) | TrackBack (0)

A new home

This Washington Post article reports that a survey by The Washington Post, the Henry J. Kaiser Family Foundation and the Harvard School of Public Health has found that less than half of all New Orleans evacuees living in emergency shelters in Houston said they will return to the Crescent City and that about two-thirds of those who plan to relocate are probably going to settle permanently in the Houston area.

The findings in the survey are consistent with my anecdotal experience in talking with evacuees while volunteering over the past couple of weeks at the George R. Brown Convention Center and at my family's church here in The Woodlands. Few of the evacuees who I have spoken with plan to return to New Orleans, primarily because they have lost everything and they do not believe that they will have any employment opportunities for a long time if they were to return. Those who have relatives in larger cities in the region tend to gravitate toward those family members, but few of the evacuees have any desire to move away from the region. I helped cook breakfast for some evacuees this past Tuesday morning, and one nice man put it to me in this way with a wry smile: "If we were to leave [the region], where would I fish?"

Finally, every evacuee with whom I have spoken has expressed heartfelt gratitude for the kindness and hospitality that Houstonians have shown them. One of my sons and I are looking forward to working the morning shift (4 a.m. to 10 a.m.) tomorrow at the Brown Convention Center, and it appears that we will be helping the last group of evacuees at the Brown prepare to move on to smaller shelters or apartments. Houston officials are projecting that the Brown Convention Center shelter may be able to be closed by as soon as the end of this weekend. The Astrodome and Reliant Convention Center shelters at Reliant Park are currently scheduled to be closed by early next week, although the Reliant Arena shelter at Reliant Park will probably continue to be City's center for processing evacuees to smaller shelters and permanent housing for several more weeks.

Finally, the NY Times carried this nice piece about Houston's civic efforts to assist the evacuees from the Gulf Coast.

Update: Just got word that the Brown Convention Center will close as a shelter after dinner next Tuesday, September 20.

Posted by Tom at 4:34 AM | Comments (3) | TrackBack (1)

September 15, 2005

Markets at work

A funny thing happened in response to the recent run-up in gasoline prices resulting from Hurricane Katrina -- demand for gasoline dropped dramatically.

Clear Thinkers favorite James Hamilton puts it all into perspective.

Posted by Tom at 7:54 AM | Comments (0) | TrackBack (0)

Tom DeLay said what?

This Washington Times article refers to House Majority Leager Tom DeLay's recent comments regarding the Bush Administration's record on government spending:

House Majority Leader Tom DeLay said yesterday that Republicans have done so well in cutting spending that he declared an "ongoing victory," and said there is simply no fat left to cut in the federal budget.

Mr. DeLay was defending Republicans' choice to borrow money and add to this year's expected $331 billion deficit to pay for Hurricane Katrina relief. Some Republicans have said Congress should make cuts in other areas, but Mr. DeLay said that doesn't seem possible.

On the contrary, the Bush Administration compares poorly with past administrations in terms of cutting non-defense governmental spending, approved outrageous and poorly-administered pork barrel spending, ushered in a huge unfunded increase in the government's future liabilities through the Medicare prescription drug benefit package, and has arguably presided over the biggest and most reckless deterioration of America's finances in history.

In what parallel universe is Mr. DeLay operating?

Hat tip to Arnold Kling for the link to the Washington Times article.

Posted by Tom at 7:21 AM | Comments (2) | TrackBack (2)

Incredibly bad judgment

Sometimes I am left to scratch my head and ponder whether there is any adult supervision left in Washington, D.C. these days. The latest incident giving me pause is the disclosure that Senate Democrats have designated John W. Dean III as a potential witness today during Judge John Roberts' confirmation hearing before the Senate Judiciary Committee.

Now, most of us older bloggers know all about John Dean, but younger folks might not. Mr. Dean is the convicted felon who somehow crafted his legacy of breaching the attorney-client privilege and testifying to Congress against his client (former President Richard M. Nixon) during the Watergate Scandal in the early 1970's into a job as an "expert" legal commentator for FindLaw.com. An example of his "scholarship" is this article in which he took the dubious position that Senator John Kerry would have a pretty good defamation claim against Swift Boat veteran John O'Neill, who is a longtime and well-regarded Houston attorney.

Recently, Mr. Dean has been writing articles on FindLaw.com opposing the confirmation of Judge Roberts and contending that the White House should release Mr. Roberts' documents from his time in the Solicitor General's office during the 1980's. Unfortunately for Mr. Dean, every Soliciter General in recent memory has taken the position publicly that such documents are covered by the attorney-client privilege and should remain confidential.

So, rather than rely on the advice of previous Solicitor Generals, the Democrats on the Judiciary Committee tap a convicted felon who violated the attorney-client privilege during the Watergate hearings to testify that the privilege should be violated again with regard to Judge Roberts' work on behalf of the Solicitor General.

What on earth are these people thinking?

Posted by Tom at 5:49 AM | Comments (4) | TrackBack (0)

Delta and Northwest tank

As anticipated here earlier this week, Delta Air Lines commenced its inevitable chapter 11 reorganization case yesterday and was joined by fellow legacy carrier Northwest Airlines. Both chapter 11 cases were filed in New York City, which has become the preferred venue for big reorganization cases (or at least the preferred venue for the debtors' attorneys).

With the filing of these cases, four of the U.S.'s seven largest airlines (by passenger traffic) are wallowing in Chapter 11 and more than half the capacity of the nation's top dozen airlines are now under the jurisdiction of the Bankruptcy Courts. Although the liquidation of one or more of these debtor-carriers would likely improve the overall financial health of the airline industry, it's difficult to put a big airline out of its misery.

The common thread behind all four big airlines currently in bankruptcy are that they are legacy carriers that have been unable to modify the structure of their finances and operations to remain profitable during this era of industry deregulation. The airline industry has faced a brutal business environment over the past five years, including high labor costs, increasing fuel prices and increased competition from low-cost carriers such as Southwest Airlines.

Although an effective way to convert excess debt to equity in a reorganized entity, a chapter 11 case is no guarantee that a reorganized airline will be successful. As noted here, substantial questions already exist whether the proposed reorganization plan in the United Airlines case will allow that airline to be profitable after bankruptcy, and several airlines have already filed chapter 22 cases (that is, chapter 11 twice), including US Airways and Houston-based Continental Airlines. Years ago, Eastern Air Lines and Pan American Airways were both liquidated in chapter 11 with other airlines buying their assets, while TWA was swallowed by American Airlines during TWA's chapter 33 case.

Moreover, there is a developing line of thought -- one that Larry Ribstein has frequently addressed on his blog -- that there has not been enough contraction in the airline industry to make the industry profitable during this era of higher-than-expected fuel prices. Most airlines these days would be profitble if oil were selling at $35 a barrel, but the adjustment in the industry to oil prices almost double that price is delayed by chapter 11, which allows money-losing airlines such as United to continue operating and competing with non-bankrupt airlines that are attempting to restructure outside of bankruptcy. For example, Northwest would have gained market share and benefited greatly had United liquidated or become a much smaller airline, but United did not do so and has been operating in bankruptcy for almost three years now. Similarly, had US Airways bitten the dust rather than go into chapter 11, Delta would have been been able to gain market share and raise some prices on its East Coast routes, which might have allowed the company to parley that increased business into the changes necessary to stave off a bankruptcy case. Consequently, there is a real issue as to whether chapter 11 is really promoting the type of restructuring necessary to transform the airlines into a financially sound industry.

Delta has arranged over $2 billion in debtor-in-possession financing from a consortium of DIP lenders led by General Electric Co.'s commercial finance unit and Morgan Stanley. Interestingly, Northwest believes that it has sufficient liquidity to make a go of it in chapter 11 without DIP financing, although that may simply be a decision to avoid a fight with its current lenders, who have locked up virtually all of Northwest's assets.

With US Airways about ready to emerge from its current chapter 11 case through a reorganization merger with America West, there has been some speculation in the markets that Delta and Northwest may pursue a similar merger while in chapter 11 with the assistance of private equity. The two airlines route networks do not overlap much and Delta's trans-Atlantic flights would complement Northwest's foreign routes. As with the US Airways-American West merger, absent fundamental changes in the way the two airlines operate, such a merger would likely be nothing more than a rearrangement of the deck chairs on the Titanic.

Posted by Tom at 4:28 AM | Comments (3) | TrackBack (1)

September 14, 2005

A Judge challenges the Enron Task Force's bludgeoning of a plea bargain

A frequent topic on this blog has been the unjust nature of the government's questionable tactic of bludgeoning business executives into plea bargains by playing on the executive's fear of a draconian prison sentence (often an effective life sentence) if the executive has the temerity to assert his or her Constitutional right to a fair trial by jury. Although prosecutors justify such tactics as a reasonable tool in seeking the truth about criminal acts of others, plea bargainers often undermine that goal by testifying falsely in order to obtain the favorable terms of the deal. Moreover, the Enron Task Force's bludgeoning of plea bargains has been particularly egregious because the Task Force is not using the tactic to promote the truth. Rather, as reflected by the strong evidence of witness tampering in all of the Enron-related criminal cases, the Task Force has been intimidating huge numbers of witnesses (114 in the Lay-Skilling-Causey case alone!) who would testify favorably for the defendants in those cases. That tactic has already resulted in the jury in the Nigerian Barge case not hearing the full story in that case, contributing to the imprisonment of four innocent former Merrill Lynch executives.

Although one judge is currently grappling with how to deal with the Enron Task Force's witness tampering tactics, another judge -- U.S. District Judge Lynn Hughes -- recently made clear during a hearing in another Enron-related criminal case that he is highly skeptical of the Enron Task Force's bludgeoning of a plea bargain from a former Enron executive who is likely going to be a key witness in the upcoming trial against former Enron executives Ken Lay, Jeff Skilling and Richard Causey. You may recall from this previous post that Judge Hughes is not relunctant to criticize the government when it abuses its overwhelming power against individual citizens.

The particular Enron-related criminal case in which Judge Hughes weighed in is that of Christopher Calger, a former Enron North America executive, whose plea bargain was the subject of this previous post. As noted in that post, the case against Mr. Calger involved a somewhat convoluted 2000 transaction known as Coyote Springs II in which Enron North America sold some energy assets to a third party and arranged a hedge of the third party's risk that Enron North America would not complete the sale of all of the assets. Although it's not at all clear that there is anything even questionable -- much less criminal -- with that transaction, Mr. Calger elected to enter into a plea bargain with the Enron Task Force rather than risk the financial drain and long prison sentence that could result from defending his innocence at trial.

At any rate, when the Task Force decided to announce Mr. Calger's plea bargain -- which just happened to be on the same day that the jury in the Enron Broadband case began jury deliberations (are you still doubting that the Enron Task Force plays fair?) -- the judge assigned to the criminal case against Mr. Calger was out of town and unavailable to take the plea. Rather than postpone the hearing and lose the opportunity to taint the Enron Broadband jury with publicity about another admission of guilt in connection with an Enron-related case, the Task Force elected to proceed with the hearing on Mr. Calger's plea bargain in front of Judge Hughes, who has not been assigned to any Enron-related criminal cases.

Although mainstream media accounts of the hearing on Mr. Calger's plea bargain reported nothing about what actually occurred during the hearing, the transcript of the hearing (download here) reveals that the Task Force's decision to proceed with the hearing in front of Judge Hughes nearly backfired.

Beginning on page 9 of the 23 page transcript (p. 11 of the pdf), Judge Hughes begins questioning both Mr. Calger and then the Enron Task Force prosecutor regarding the nature of the alleged offense. Very quickly, it becomes clear from the transcript that the Task Force prosecutor neither understood the underlying transaction involved in the indictment of Mr. Calger nor could articulate precisely what crime Mr. Calger had committed. At the end of the questioning, Judge Hughes gave Mr. Calger an opportunity to reject the plea bargain, which he declined to do. As a result, Judge Hughes accepted the plea bargain, although it is clear from the transcript that he was not comfortable in doing so.

So, what really is the bigger problem to American society and the rule of law -- criminal business executives or out-of-control prosecutors? My answer is here and here.

Posted by Tom at 7:50 AM | Comments (1) | TrackBack (0)

Duke Energy sheds wholesale power and trading assets

In a move that was widely-anticipated in energy circles, Duke Energy Corporation plan to shut most of its money-losing wholesale power and trading businesses and take a third-quarter pretax charge of about $1.3 billion. Duke is shedding most of its wholesale power business as it expands its traditional utility operations through a planned $8.98 billion acquisition of Cinergy Corp.

Duke started paring its wholesale power business after the bankruptcy of Enron Corp. in December 2001 and the ensuing collapse of the wholesale electricity markets and related trading business. Government investigations into trading practices followed, which resulted in criminal indictments that furthered soured Duke on the trading business. In the meantime, buyout firms, hedge funds and investment banks such as Goldman Sachs and Morgan Stanley have become much more active in buying power plants and trading electricity.

Posted by Tom at 5:19 AM | Comments (0) | TrackBack (0)

Good news from the Port of New Orleans

The Port of New Orleans re-opened on a limited basis yesterday and plans to be at 80% of capacity within three months. Moreover, the nearby Port of South Louisiana and Port Fourchon on the Gulf Coast have also partially restored service, and the Port of Pascagoula, Miss. expects to resume service by early October. Although the focus of analysis on the economic effect of Hurricane Katrina has been on the oil and gas industry, the economic impact on shipping along the Mississippi River and Gulf of Mexico has also been severe, so the reopening of the ports in the New Orleans area is good news.

Posted by Tom at 5:05 AM | Comments (0) | TrackBack (0)

September 13, 2005

Blogging at the big Houston shelters

Former Houstonian Christine Hurt of the Conglomerate blog passes along a new Houston-based blog by two South Texas College of Law professors -- Tracy McGaugh and Kathy Bergin -- who are making daily treks to Reliant Park and sometimes to the George R. Brown Convention Center to provide insight into the experience of the evacuees at both locations. The new blog is called White Washing the Black Storm: We Are Watching.

Each day, the profs volunteer at the medical aid table and ask what medicine is needed. Then, the profs go to a local drugstore and buy the medicine needed. The blog has a link where you can donate to the cost of the medicine, which the profs have been largely subsidizing.

The blog also provides somewhat unvarnished commentary on the goings on at each shelter, which is an important component of the complete story regarding Houston's extraordinary effort to provide for the evacuees. It's not all peaches and cream out there, folks.

Posted by Tom at 11:26 AM | Comments (0) | TrackBack (0)

One of the benefits of takeover battles

Financially-strapped Six Flags, Inc. -- the subject of an ongoing takeover battle -- announced yesterday that it would close Houston's AstroWorld theme park at the end of October and that it had engaged Cushman & Wakefield to market the valuable 109-acre site just south of the Reliant Park complex for sale.

The 37 year old theme park is overdue for finally being put to rest. AstroWorld was not originally a Six Flags Park, so it was not as well-planned as most other Six Flags Parks. Moreover, the park was landlocked from expansion and had poor relations with Harris County with regard to parking issues at adjacent Reliant Park. Consequently, Six Flags minimized capital expenditures at the park, which turned it into a decaying mess over the past several years. Thankfully, the value of the land is finally prompting Six Flags to put the underperforming park out of its misery.

Posted by Tom at 8:48 AM | Comments (1) | TrackBack (1)

Update on Katrina's economic ripples

Petroleum futures fell to pre-Hurricane Katrina levels for the first time since the storm yesterday on news of heavy losses in refined products and market concern that that high gasoline prices have depressed demand for product. Earlier posts on the developing economic effects of Katrina over the past couple of weeks are here, here, here, here, here, here, here, and here.

Benchmark light, sweet crude oil futures for October settled at $63.34 a barrel on the Nymex Exchange, while Nymex gasoline futures for October settled down 8.60 cents at $1.8737 a gallon. Losses in heating oil futures on the Nymex were also substantial as the October contract settled down 8.22 cents at $1.8143 a gallon.

Despite the downward trend in the gasoline futures market, news on the Gulf oil and gas production front remained measured. Although operations at the Louisiana Offshore Oil Port were fully restored yesterday for the first time since the storm, oil production in the Gulf of Mexico showed only marginal improvement during the weekend as about 57.4% of daily output remains offline. Almost 60% of the daily total was offline as of this past Friday.

Posted by Tom at 8:17 AM | Comments (0) | TrackBack (0)

Westar executives convicted

A federal jury in Kansas City yesterday found former Westar Energy Inc. Chief Executive Officer David Wittig and chief strategy officer Douglas Lake guilty of looting the electric utility of millions of dollars. Previous posts on the hotly-contested case -- which included a previous trial that ended in a hung jury -- are here and here.

The prosecution against the two former Westar executives was similar to the prosecution of former Tyco executives Dennis Kozlowski and Mark Swartz in that the prosecution alleged that Messrs. Wittig and Lake engineered extravagant salaries and benefits for themselves at the expense of Westar shareholders while hiding their actions from the company's board and federal regulators. As in the Tyco trial, Messrs. Wittig and Lake denied the charges and contended that all of their actions were legal, approved by the company's directors and disclosed in the company's regulatory filings. The jury found Messrs. Wittig and Lake guilty of conspiracy, wire fraud, circumventing internal controls and money laundering.

Mr. Wittig became CEO of Westar in 1998 and hired Mr. Lake, a former colleague at Salomon Brothers, to become his chief aide. After some initial success, Mr. Wittig's quick-deal strategy faltered and Westar's stock price fell from $44 to $9 as the company came under pressure from shareholders and regulators. As in the Tyco case, an outside law firm hired by Westar's board eventually uncovered many of the actions of Messrs. Wittig and Lake that led to the indictment against the former executives.

Posted by Tom at 7:41 AM | Comments (0) | TrackBack (1)

2006 -- The Enron Trial Year

Over four years after Enron's descent into bankruptcy, 2006 is shaping up as the year of the Enron criminal trials.

First, in mid-January, the trial of the Enron Task Force's legacy Enron case -- i.e., the trial that everyone will remember -- cranks up against former Enron chairman Ken Lay, former CEO Jeff Skilling, and former chief accountant, Richard Causey.

Then, in May, the first retrial of defendants in this year's mistrial in the Enron Broadband case will take place against Kevin Howard, former chief financial officer of EBS, and Michael Krautz, former senior accounting director at EBS.

Following that trial, the second retrial of one of the Enron Broadband defendants will proceed in June against Scott Yeager, the former senior vice president of business development. Finally, the final two of the five Broadband defendants -- Joe Hirko, former co-CEO of Enron Broadband Services, and Rex Shelby, former senior vice president of engineering and operations at EBS, will be retried in September. Mary Flood's article on the Enron Broadband retrials is here.

Thus, 2006 is shaping up as quite a season for Enron-related criminal trials. And you thought the NFL season lasted a long time?

Posted by Tom at 3:31 AM | Comments (2) | TrackBack (0)

September 12, 2005

Andruw Jones for MVP?

I enjoy the writing of Chronicle sportswriter Richard Justice, but he occasionally gets carried away, as with this note on his blog today:

"Andruw Jones will be the National League's Most Valuable Player. The balloting won't be close if voters have been paying attention. He's leading the NL in both home runs and RBIs. He carried the Braves while their young players were establishing themselves. He's the man."

Andruw Jones for National League MVP? Yes, he did hit his 48th and 49th homers yesterday and is having his best season, but Jones (32 RCAA/.360 OBA/.612 SLG/.972 OPS) is not even close to being the best hitter in the National League this season. The best hitters are the Cubs' Derrick Lee (84/.422/.670/1.092) and Albert Pujols (76/.434/.631/1.065), both of whom have created over 40 more runs for their respective teams than Jones has for the Braves. Heck, Andruw Jones is not even clearly the best hitter named Jones on the Braves -- Chipper is hitting 30/.418/.570/.988. There are at least eight other players in the National League -- including the Stros' Morgan Ensberg (34/.384/.564/.948) -- who are having at least as good or better a season hitting the baseball as Andruw Jones.

Inasmuch as Pujols has been the best player in the National League not named Bonds over the past several seasons, he should win the National League MVP this season. Lee would not be a bad choice, either, although my sense is that he is having a career year and Pujols deserves it more because of his previous MVP-quality seasons. However, one thing is clear -- despite all those taters, Andruw Jones is not the National League MVP this season.

Posted by Tom at 1:15 PM | Comments (6) | TrackBack (0)

Woody Hayes' advice to defense counsel in the Enron cases

Peter Henning over at the White Collar Criminal Prof Blog is skeptical that U.S. District Judge Sim Lake's letter-writing campaign is going to induce any of the recalcitrant witnesses in the criminal case against former Enron executives Ken Lay, Jeff Skilling and Richard Causey to come forward in the face of the prosecution's intimidation tactics and confer with the defendants and their counsel. Professor Henning concludes as follows:

It's a little bit like the old Woody Hayes view of passing: only three things can happen if you meet with the defense lawyers, and two of them can be bad, so why take the risk? I will be surprised if many of the 38 letter recipients agree to meet with the defense team.

Many folks down here in Texas believe that former Texas coach Darrell Royal popularized that pithy quote about passing in football, but I believe that Professor Henning is correct that Coach Royal picked it up from Coach Hayes.

Posted by Tom at 6:58 AM | Comments (1) | TrackBack (0)

Bush = Carter?

The inimitable Professor Bainbridge is not happy with President Bush for a variety of valid reasons, and recently observed that the President may be becoming the Republican Party's equivalent of what former President Jimmy Carter has been for the Democratic Party.

The Professor's criticism of President Bush has merit. Regardless of what one thinks about the Administration's venture into Iraq, the Bush Administration has overseen a tremendously damaging criminalization of business interests, largely ignored health care finance reform and income tax simplification, increasd farm subsidies, installed tariffs for various products (including steel, lumber, and even shrimp), created a massive new prescription drug benefit, promoted dubious amendments to the U.S. Bankruptcy Code and nationalized airline security by folding it into a huge and ineffectual bureaucracy. That's not exactly a slate of accomplishments that exudes Presidential greatness.

But as bad as Jimmy Carter? No way. Refresh your memory of just how bad Mr. Carter was (and continues to be) in these reviews (here and here) of Steven F. Hayward's book about Mr. Carter, The Real Jimmy Carter. Even as bad as President Bush has been, he cannot limbo under the low bar that Mr. Carter established.

Along these lines, this Opinion Journal piece discusses a recent poll of historians who ranked Mr. Bush's performance as average among Presidents. Mr. Carter ranked as below-average, just a cut above "failure."

Posted by Tom at 5:19 AM | Comments (12) | TrackBack (0)

Delta is ready to file a chapter 11 case

Following on this report from about a month ago, this Wall Street Journal ($) article reports this morning that Delta Airlines will pull the plug this week and file a chapter 11 reorganization case. Let's hope that this prediction on the timing of the filing of the chapter 11 case is a bit better than this one, and that Delta's stay in chapter 11 is bit shorter and more pleasant than this one.

Delta is certainly a prime candidate for reorganization. The airline has lost almost $10 billion since 2001, has debt of about $20 billion and expensive pension obligations. As of the end of this year, Delta faces $470 million in maturing debt, $550 million in interest payments, $460 million in operating lease payments and $135 million in pension payments. Not many companies have a spare $2 billion in cash laying around to spread around such obligations.

Meanwhile, Houston-based Continental Airlines announced late last week that it expects to save about $300 million in 2005 from employee compensation reductions, but still expects to record a "significant loss" for the year. The company also noted that record high fuel prices continue to offset a continued improvement in revenue trends. Continental had a net loss of about $86 million for the first six months of 2005, but the company continues to maintain decent liquidity levels as it anticipates ending the third quarter with $1.9 billion and $2 billion in unrestricted cash and short-term investments and to end the year with a cash balance of about $1.5 billion.

Interestingly, Continental also announced that Boeing Co. has agreed to provide backstop financing for Continental's purchase of new Boeing aircraft to support its international operations. Such credit enhancements are not typically necessary for companies that are not having trouble tapping the usual asset-based credit markets.

Posted by Tom at 4:37 AM | Comments (0) | TrackBack (0)

2005 Weekly local football review

Two local quarterbacks had very different tales during the first full week of college and pro football of the 2005 season.

Texas Longhorns 25 Ohio State 22

In a magnificent early-season game between two storied college football programs, Texas' WR Limas Sweed made a tremendous catch for the winning touchdown in the closing minutes on a 24 yard pass from QB Vince Young as the Longhorns held on to beat Ohio State before a record 105,000 crowd in Columbus. Although the gazelle-like Young was the media-picked star of the game, it was the Longhorn defense that actually won the game for the Horns as that plucky unit held the Buckeyes to three field goals after three Longhorn turnovers deep in their own territory gave the Ohio State offense multiple opportunities to build an insurmountable lead. Also, it looks to me as if the Horns have a couple of emerging stars in freshman RB Jamaal Charles and MLB Aaron Harris. About the only negative for the Horns was their kick-off team, which continued the abysmal trend that first appeared in last season's Rose Bowl game against Michigan. The Horns have a couple of warm-up games against Rice at home and Missouri on the road sandwiched around an off-week before the Oklahoma game on October 8th in Dallas.

Buffalo 22 Texans 7

In a game that was not as close as the score indicates, the Texans looked even worse than they did in the final game of last season against Cleveland in losing to the Bills in Buffalo. QB David Carr and the offense were pathetic, as Carr threw three interceptions and fumbled once, and was sacked five times and harrassed on virtually every pass play. The offense could generate only 107 yards, had seven possessions of three plays or less, and did not have a first down until the second quarter when the Bills already led 12-0. The only positive from the game was the play of the Texans' defense, which held the Bills to only one touchdown despite being put in adverse positions the entire game by the Texans' ineffectual offense. It doesn't get any easier for the Texans as they play the Steelers at home and the Bengals in Cincy with their off-week in between over the next three weeks. Frankly, based on their performance in the Bills game and despite my generally positive pre-season analysis, it's a bit difficult to see how the Texans could win more than just a few games this season.

Cowboys 28 San Diego 24

New Cowboys QB Drew Bledsoe three three TD passes as the Cowboys held on to beat the Chargers in San Diego. Former Texans CB Aaron Gleen intercepted a Drew Brees pass in the Cowboys end zone with 24 seconds left to seal the win for the Pokes. By the way, Brees is about the same age as David Carr and has roughly the same experience level as Carr, but Brees is a far superior QB to Carr at this point in their careers.

Houston 31 Sam Houston State 10

The Coogs overpowered a good Division I-AA Sam Houston team while warming up for their first C-USA game against a tough UTEP team in El Paso next Friday night.

UCLA 63 Rice 21

In another game that was not as close as the score indicates, the Owls allowed UCLA to score the first seven times they had the ball, and apparently stood by and watched as the Bruins rolled up 300 yards total offense in the first quarter and over 400 yards by halftime. In the understatement of the year, Rice coach Ken Hatfield observed after the game that "it was a physical mismatch. They're just plain better than us." Rumor has it that Texas will play its junior varsity against the Owls this Saturday in Austin.

The Texas Aggies were off this past weekend and play SMU in College Station on Saturday before taking on Texas State and Baylor at home over the following two weekends before traveling to Boulder to play Colorado. And Kevin Whited is back from vacationing and has cranked back up his weekly Big 12 Conference football review.

Posted by Tom at 4:00 AM | Comments (1) | TrackBack (0)

September 11, 2005

"Who's laughing now, Mister?"

During the U.S. Open Tennis Tournament, Lexus has been running a clever series of commercials featuring U.S. tennis star Andy Roddick. The series -- called "On the Road with Andy Roddick" -- features five different people talking to Mr. Roddick about various subjects while cruising with him in a convertible Lexus.

Click here to watch each of the five commercials. My favorite: "Catfish"

Posted by Tom at 4:42 PM | Comments (0) | TrackBack (0)

Will the NY Times blame Enron for the delay in the Hurricane Katrina relief effort?

My sense is that the New York Times editors need a little psychiatric help in letting their "Enron-thing" go.

In this article, the Times reports on a working paper by a couple of East Coast economists who propose the rather unsurprising hypothesis that accounting scandals are one of many factors that tend to have a negative effect on job growth. Thus, the Times translates that working paper into the headline: "The Crime: Slow Job Growth. A Suspect: Enron."

Of course, the Times didn't bother to call the longstanding the expert on Houston's employment market to find out the effect that Enron's demise has had on Houston's employment market (it's not had much long-term effect). Nor does the Times bother to note that governmental regulation through criminalization of business -- particularly the Arthur Andersen case -- has likely had a far larger negative effect on jobs than the accounting scandal at Enron or other companies.

By the way, this is not the first time that the Times editors have used a questionable headline relating to Enron. Is there a medical term for an unhealthy preoccupation with Enron? Enronpsychosis?

Posted by Tom at 2:00 PM | Comments (3) | TrackBack (0)

NY Times profiles Dell CEO

Most folks who do not follow business closely are surprised to learn that Michael Dell has not been the chief executive officer of Round Rock, Texas-based Dell, Inc for almost two years now. This NY Times piece profiles Dell's CEO, Kevin B. Rollins, and, although Mr. Dell is no longer CEO, it sounds as if Mr. Dell is still, might we say, "involved" in the company's day-to-day operations:

[Messrs. Dell and Rollins] do work closely together, figuratively and literally. Their large wooden desks face one another in adjoining offices separated by a glass wall and a glass door. [EMC CEO Joseph] Tucci says he has visited those offices about 50 times and has never seen the door closed. "The way those two guys get along is not an act," Mr. Tucci said. "I can start a conversation with Michael, and two weeks later finish it with Kevin. They know what each other is thinking."

Posted by Tom at 8:02 AM | Comments (1) | TrackBack (0)

September 10, 2005

Take this job and shove it

The Lazard investment banking empire -- Paris-based Lazard Frères & Cie., London-based Lazard Brothers, and New York-based Lazard Frères & Co. -- recently conducted the largest initial public offering by an investment bank since Goldman Sachs went public in 1999. The move was not without critics, particularly among certain sectors of the Lazard workforce. The following is the departing email of one of those critics to his fellow Lazard employees, as noted by the NY Times:

I will be leaving Lazard effective tomorrow after more than 32 years with various firms of the Group around the world. I will be pursuing my career in the general unemployment line, as I am neither old enough nor wealthy enough to retire. I wish myself every good fortune in the future.

I am leaving on the high note of the IPO of Lazard with the knowledge (i) that I will be contributing to the stated intent of reducing the employment costs at Lazard by a total of more than US$ 180 million per year and (ii) that I will not have to comply with the non-disparagement provisions contained in the agreement between Lazard and the "Historical Partners".

I wish to congratulate the Head of Lazard for his success in selling the Lazard IPO to the investment public and to most (!) of Lazard's "Working Members". This will probably be judged in years to come not only as an even bolder act of financial wizardry than the sale of Wasserstein Perella, but also as a gesture of extraordinary altruism, since it was essentially done - from a cash point of view - for the benefit of the Historical Partners.

I wish every success to the Lazard Working Members in their task of working down Lazard's mountain of debt and hopefully ultimately returning to a situation where the tangible book value attributable to their own (still indirect) interests in Lazard Ltd. will again be positive.

Finally, let me say how gratifying it is, as the only direct descendant of the founding Lazard brothers currently employed in the Group, to sever ties with Lazard around the same time as my distant uncle Michel David-Weill who was the last family member (albeit not a direct descendant of the founding brothers) to run the firm.

Bernard Sainte-Marie

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

Disassembling Dowd

Will Wilkinson is a policy analyst at the Cato Institute in Washington and runs the smart Fly Bottle blog. In this TCS Central piece piece (blog link here), Mr. Wilkinson deliciously exposes the muddled thinking behind three recent op-eds written by NY Times columnist Maureen Dowd, Washington Post columnist Harold Myerson and NY Times columnist Paul Krugman that all contend that the principles of limited government and economic libertarianism caused the tragedy in New Orleans.

When I read Ms. Dowd's piece earlier in the week, it occurred to me that her remark "when you combine limited government with incompetent government, lethal stuff happens" rather naively presumed that less limited but competent government is a realistic alternative. However, Mr. Wilkinson's op-ed takes that observation several steps further and concludes:

Dowd, Krugman, and Meyerson evidently loathe free markets and limited government. And they also loathe the Bush administration. Apparently it would be nice for them if they could bundle their hatreds into a package of loathing, tie it up in spite, and burn it. So they try. But the package won't hold together, and they can't bash Bush without burning themselves. The most cursory inspection of the front page indicates that the difference between him and them is simply the details of their hostility to economic freedom and small government.

Read the entire piece for some refreshing clear thinking.

Posted by Tom at 7:42 AM | Comments (2) | TrackBack (0)

September 9, 2005

Katrina's economic ripples on Houston

Following on this post from earlier in the week regarding the economic impact to Houston of the arrival of thousands of former New Orleans residents, Tyler Cowen over at Marginal Revolution provides his typically insightful analysis on the issue. Tyler notes that there are economic benefits and costs attributable to the arrival of the former New Orleans residents, and concludes:

Both the costs and benefits of resettlement will be overstated by partisans. The Houston boom won't last long, and the costs will net out to put the city in a roughly break-even position.

My sense is that Tyler's view is largely correct because most of New Orleans' larger businesses that could provide a big employment boost for Houston (i.e., the port, refineries, etc.) will remain in New Orleans due to the huge capital investments there. The one difference with the exodus from New Orleans from other analogous circumstances is the decimation in New Orleans of small businesses, which were the largest employer in the area. The jobs with the big employers will return to New Orleans relatively quickly, but the replenishment of the supply of jobs attributable to small businesses -- particularly small service companies -- will take much longer because a huge number of those businesses were wiped out by the storm and do not have the capital or demand necessary to re-start their business in the New Orleans area any time soon. Whether any significant number of those jobs are ultimately re-created in the Houston economy remains to be seen.

On a related economic note, the Chronicle's business columnist, Loren Steffy, has a good column in which he notes the prejudicial impact that the Bankruptcy Amendments of 2005 will have on many people who have been rendered insolvent as a result of Hurricane Katrina, not the least of which is the fact that such amendments increase the cost considerably of filing an individual bankruptcy case.

Posted by Tom at 7:26 AM | Comments (0) | TrackBack (1)

Judge Lake's letter-writing campaign

In a hearing yesterday afternoon in Houston federal court, U.S. District Judge Sim Lake continued to grapple with strong evidence that the Enron Task Force has engaged in a systematic campaign of intimidating witnesses in the upcoming trial of former Enron chairman Ken Lay, former CEO Jeff Skilling, and chief accountant Richard Causey from conferring with or testifying with the defendants and their counsel. As noted in earlier posts here, here and here, in each of the three criminal trials that the Enron Task Force has prosecuted to date -- the Andersen case, the Nigerian Barge case, and the Enron Broadband case -- the Task Force threatened numerous material witnesses with indictment who would have testified favorably for the defense in each case but for such intimidation. Particularly in the Andersen case and the Nigerian Barge case, the Task Force was able to use the intimidation tactics to turn weak cases into convictions by preventing the jury in each case from hearing key testimony from dozens of witnesses who would have been favorable for the defense. The Task Force has continued its witness intimidation tactics in the Lay-Skilling-Causey case, as reflected by the prosecution's fingering of the record-setting number of 114 alleged co-conspirators in the case.

As reported in this Mary Flood article on the hearing, Judge Lake has decided to send a letter personally next Tuesday to each lawyer representing at least 38 potential witnesses in the case encouraging them to allow their clients to meet and confer with the Lay-Skilling-Causey defense team, and advising them that the Enron Task Force will not be allowed to take any action against the clients or counsel in retribution for meeting with the defendants and their counsel. Although not a grant of immunity from prosecution for any testimony that a witness would give in the case, Judge Lake's letter will constitute a substantial impediment to any future attempt by the Task Force to prosecute a presently unindicted witness who elects to confer with the Lay-Skilling-Causey defense team. Judge Lake also indicated that he may, at the request of any witness, conduct a hearing in which the witness would be allowed to explain the circumstances of any Task Force intimidation, and he would consider additional alternatives to protect witnesses from any Task Force retribution. Finally, Judge Lake continues to hold the Lay-Skilling-Causey motion to dismiss the Task Force's indictment against them under advisement, so he is reserviing his right to take further action in regard to the situation, particularly if even more evidence of Task Force intimidation of witnesses arises as a result of his letter writing campaign.

Although a significant development, it remains unclear whether Judge Lake's letters will have any meaningful effect on a systemic problem that the Task Force's approach to the Enron criminal cases has caused. Even with Judge Lake's assurance that the Task Force will not be allowed to indict a witness who cooperates with the defense, most criminal defense attorneys are inclined to play it safe and advise their clients that, absent a grant of immunity from prosecution arising from their testimony, remaining silent and not cooperating with the defense is the only sure way of not raising the ire of the Task Force. Consequently, defense counsel for witnesses may be inclined to advise their clients to hold out from conferring with the defense until Judge Lake considers a grant of immunity from any future prosecution that might arise from their testimony in the case.

Nevertheless, the Lay-Skilling-Causey motion to dismiss has raised a highly troubling issue for Judge Lake in this case and for the criminal justice system in general -- what to do when the government's systematic approach to prosecuting related criminal cases is not to determine the truth of what happened in each case through a full evaluation of the facts as described by all material witnesses, but to promote a false version of the facts in each case by intimidating favorable defense witnesses from testifying? Although Judge Lake is clearly attempting to find a solution to the problem that is short of dismissing the Task Force's case entirely, it may well be that a wholesale grant of immunity from prosecution to all material witnesses is the only remedy that will level the playing field and allow a full consideration of the facts during the trial from all material witnesses. That such an extreme measure is necessary to achieve a fair trial is a daunting reflection of the lengths that the government will go to criminalize business in this post-Enron era.

Posted by Tom at 5:02 AM | Comments (3) | TrackBack (1)

Houston Texans, Year Four

As the fourth season of the Houston Texans begins this Sunday in Buffalo against the Bills, Houston professional football fans no longer consider the Texans an NFL expansion franchise. As a result, it's now put up or shut up time for a franchise that has largely received a free pass from a fan base that, for the first three seasons of the team's existence, was simply thrilled that the National Football League had returned to Houston.

That inherited goodwill is pretty well used up, as the boo-birds let the Texan team members know during an awful final regular season loss last season to the moribund Cleveland Browns. That debacle blew the opportunity for the Texans to finish the season at an even 8-8. Nevetheless, a 7-9 record for a third year franchise is still respectable, and the Texans do have a number of positive factors working in their favor, not the least of which is a wonderful fellow in owner Bob McNair. So, even with the team's generally awful 2005 pre-season performances, there remains an air of cautious optimism regarding the Texans' chances this season.

The Texans' 2004 season was an odd one as the team was wildly inconsistent, either combining a good defensive game with a poor offensive one or a lousy first half performance in a particular game with an inspired second half effort. The team's first (against San Diego) and last (against the Browns) games were awful, but the Texans recovered from the San Diego loss to win four of six games to rise to a 4-3 season by midseason. Then, despite some close games, the Texans faded to 3-6 down the stretch to end the season at 7-9.

Some aspects of the Texans 2004 performance were very encouraging. Andre Johnson bloomed into an All-Pro receiver and QB David Carr had his second and third 300 yard passing games, flinging five TD passes and only one interception in those games. The defense laid the wood to division rival Jacksonville in two games, allowing a total of six points and forcing four turnovers. One of the Texans' two first round draft picks in the 2004 NFL draft -- CB Dunta Robinson -- was spectacular all season, which included a two-interception game against the Raiders and a two-sack game against the Colts. After overcoming nagging early season injuries, RB Domanick Davis was one of the best running backs in the NFL with a 4.5 per carry average and ten TD's.

Unfortunately, the three big issues for the Texans going into the 2004 season -- a deficient offensive line, the lack of a pass rush and mediocre play at quarterback -- remain the team's big question marks going into this season. Although the Texans football management team of GM Charlie Casserly and Head Coach Dom Capers have done a solid job of developing the team over its first three seasons, the fact that the team's main problems beginning this season are the same ones that existed before last season is a reason for Mr. McNair to pause and contemplate the direction of the franchise.

The Texans did make an unsuccessful off-season run at signing All-Pro Orlando Pace in an effort to shore up the troublesome offensive left tackle position that still has not recovered from the ill-fated Tony Boselli deal. However, after Pace re-signed with the Rams, the Texans settled on mediocre Saints right tackle Victor Riley to provide competition for Seth Wand, the Texans' starting left tackle last season who was overmatched in only his second season out of Division II college football. Riley has beat Wand out during the pre-season, which does not bode well for the prospect of the offensive line improving much this season. The other members of the unit are reasonably capable and durable, but no one will mistake this unit for the OLine of the Broncos or the Chiefs. Which begs the question -- why on earth is Texans management giving OG Chester Pitts -- who leads NFL offensive linemen in penalties over the past two seasons -- a lucrative new contract?

On the defensive side, Texans management decided after last season that this unit was getting too old, so the team jettisoned several of veteran players such as Aaron Glenn and brought in a new cornerback (the Raiders' Phillip Buchanon), two new linebackers and a rookie defensive lineman that the team selected in the first round of the draft (Travis Johnson). Nevertheless, 2004 first round draft choice, LB Jason Babin -- who is in the second season of making the transition, like Wand, from small college football to the NFL -- still has not shown the ability to pressure the passer consistently. Consequently, although younger and faster than last season's defense, it remains unclear whether this season's defensive unit will be any more effective than last season's unit in generating the type of pass rush that leads to turnovers and wins.

However, the most important element in the Texans' ultimate success remains the development of the franchise's first draft choice, QB David Carr. Carr has been the sacrificial lamb of a deficient offensive line during his first three seasons, so his lack of development is somewhat understandable. Nevertheless, he has a poor throwing motion that makes his passes prone to deflection at the line of scrimmage and he still has not shown the ability to pick up secondary receivers. Moreover, after completing almost 65% of his passes for an average of 270 yards per game in the first eight games of the 2004 season, Carr had a pedestrian 59% completion rate for an average of 172 yards per game in the final eight games. There is no way around it, that's a troubling trend.

Consequently, the Texans' upcoming season revolves around the development of Carr and the offensive line. If Carr and the OLine show consistent development, the Texans could finish 9-7. Add in a defensive unit that is more successful in putting pressure on opposing QB's and the team could reach 10-6, and be a viable candidate for a Wild Card playoff berth. On the other hand, if Carr and the OLine's inconsistent play of the past three seasons continues, then this could easily become a 5-11 or 6-10 team, which would not go over well in Houston's hard-knuckled pro football circles. If that happens, then the Texans' privileged existence as the city's conduit back to the NFL will end, and Mr. McNair will be dealing with the difficult task of selling a very high-priced product to an increasingly dissatisfied customer base.

Posted by Tom at 5:00 AM | Comments (5) | TrackBack (0)

September 8, 2005

The amazing Craig Biggio

Almost on cue, after I had written off those hitting-challenged Stros yet again, the amazing 39 year old Craig Biggio jacks a three-run, two out, top-of-the-ninth tater in his first at bat against old Stros buddy Billy Wagner to lead the Stros to an 8-6 victory and a series sweep of the Phillies.

My previous post projected that the Stros (75-64) needed to win 16 of their final 26 games to achieve the 88 wins that will probably be necessary to win the Wild Card playoff berth. Given their lack of hitting and downward trend in terms of wins and losses, I doubted that the Stros could do it. However, with the series sweep of the Phils, the club needs to go just 13-10 over their last 23 to hit that 88 win number. Stranger things have definitely happened.

The Stros have a weekender in Milwaukee (69-71) before returning home for a key seven game homestand, including a big four game series at the Juice Box on Monday through Thursday of next week with the Marlins (74-65), who are the Stros' main competition for the Wild Card. At this point in the season, the Marlins have a 59 combined RCAA/RSAA statistic (explained here), which is only marginally higher than the Stros' combined RCAA/RSAA of 54. So, the two main Wild Card contenders are fairly evenly-matched, although the Marlins are much better hitters than the Stros and the Stros pitching -- particularly their relief pitching -- is better than the Marlins' pitching.

Posted by Tom at 8:36 AM | Comments (1) | TrackBack (0)

Spellman and McGilbra sentenced

Almost overlooked in the Hurricane Katrina news is this Chronicle article regarding the sentencings of two former Houston officials -- Lee Brown Administration chief of staff Oliver Spellman and building services director Monique McGilbra -- who entered into plea bargains in connection with their testimony for the prosecution in the criminal trial of Cleveland entreprenuer Nate Gray. Both Mr. Spellman and Ms. McGilbra admitted that they accepted cash and gifts from Mr. Gray in connection with his attempts to gain their influence in approving him for lucrative city contracts.

Last Friday, Ms. McGilbra received a three-year sentence in the criminal case against here in Cleveland, Ohio, and she received a concurrent two and a half year sentence earlier this week on a related criminal case against her here. Mr. Spellman received probation and a $10,000 fine last Friday in Cleveland for taking a $2,000 bribe from Mr. Gray.

Earlier posts on the Gray trial and the related investigation of Brown Administration officials are here, here, here, here and here.

Posted by Tom at 6:14 AM | Comments (0) | TrackBack (0)

More on the criminalization-of-business lottery

Well, Bernie Ebbers is being allowed to remain free from his effective life sentence during the appeal of his conviction of defrauding WorldCom investors. The basis of the decision to allow Mr. Ebbers to remain free is that there are serious appellate issues in the case, including a jury instruction that the trial judge conceded ventured into "a thorny area of the law."

Does anyone really believe that Mr. Ebbers' appeal is stronger than the appeals of these defendants, each of whom's motion to remain free pending appeal was denied?

Ellen Podgor has more here.

Posted by Tom at 5:47 AM | Comments (0) | TrackBack (0)

United Airlines files its Disclosure Statement

United Airlines parent UAL Corp. filed its Disclosure Statement yesterday in its longstanding chapter 11 case in Chicago and it was not a pretty sight. United was the second major airline to seek bankruptcy court protection during the current downturn in the industry that started in 2001. US Airways Group Inc. is about to emerge from a chapter 22 bankruptcy (two chapter 11 cases in a three year period) and merge with America West Holdings Corp. Delta Air Lines and Northwest Airlines both are currently on the brink of chapter 11. Here are previous posts that chronicle the UAL bankruptcy saga.

The disclosure statement is the chapter 11 equivalent of an offering memorandum that provides creditors with background information on which they can make an informed judgment on the debtor's plan of reorganization. United's disclosure statement revealed that the company is seeking to emerge from bankruptcy by around Feb. 1, 2006, but that creditors holding unsecured claims would receive equity in the reorganized company worth only four cents to seven cents on the dollar of such claims. As is typical in such debt-for-equity plans, pre-bankruptcy holders of UAL's common and preferred stock will be wiped out under the plan. A February, 2006 emergence from bankruptcy would be three years and two months after UAL filed its chapter 11 case.

Not only is the return on creditors' claims not particularly robust under the UAL plan, the financial basis of even that paltry return does not even appear to be particularly sound. UAL contends that it will be profitable for each of the next five years, projecting that total liabilities will decline to around $14 billion in 2010 from over $27 billion this year. The business plan is built on an assumed oil price of $50 a barrel from next year through 2010, which is a historically high fuel cost, but would you want to make a bet on UAL based on that price? A safer bet is that UAL does not have the cash available to hedge and lock-in such fuel costs for that period.

Under United's plan, United employees and the Pension Benefit Guaranty Corp. (the federal pension insurer) will receive convertible notes in the reorganized debtor, with the emphasis on "convertible" because it appears unlikely that United will be in a position to pay such notes anytime soon. The PBGC has taken over all four of UAL's underfunded pension plans and represents about $10 billion of United's expected unsecured claims of about $28 million.

United is currently raising between $2.5 billion and $3 billion through a term loan and revolving credit facility to provide its plan "take-out financing" -- i.e., the funds necessary to repay its interim bankruptcy financing and to provide liquidity to fund its post-bankruptcy operations. Somewhat amazingly, the United disclosure statement suggests that the company continues to consider the alternative of raising additional capital through a rights offering or a public or private equity offering, including giving unsecured creditors the opportunity to buy $500 million in new UAL common stock. My sense is that UAL management need not stay up nights waiting for unsecured creditors to jump at that "opportunity."

After the reorganized company issues about 125 million new shares of common under its plan, UAL's disclosure statement estimates that the reorganized company will have an equity value of about $1.9 billion, which values the new shares at $15. The disclosure statement projects that the reorganized company would initially have $18 million in debt and liabilities compared with the $26 billion that it had before filing its chapter 11 case. Although the company states that it will have sufficient cash flow" to service debt and fund operations post-bankruptcy, a mere 30% reduction in liabilities under a debt-for-equity reorganization plan is not the usual prescription for robust post-bankruptcy business performance. The federal government -- through the PGBC -- better get ready to hold a large equity stake in the reorganized United.

Posted by Tom at 4:52 AM | Comments (0) | TrackBack (0)

September 7, 2005

Another Harvard Law view on the legacy of Chief Justice Rehnquist

Given this diatribe, it's refreshing to see that this more reasoned view on the legacy of the late Chief Justice William Rehnquist was also produced by a Harvard Law prof. The money quote follows, which the writer's colleague would do well to consider:

There is something charmingly modest, and deeply conservative, about that vision of law and governance. Conservatives have long believed that human nature disposes us to arrogance, that we're not as smart and not nearly as farsighted as we think we are. The world is a terribly complicated place. If I think I've figured it out, I'm bound to be wrong, maybe disastrously so. Those who run things should not be enforcing some ideological orthodoxy but muddling along -- looking for targets of opportunity, picking up money on the table, testing their intuitions against those of others. It's not a grand vision of how the Supreme Court or the White House should work. But perhaps all those grand visions -- there is no shortage of them -- will lead us to very bad places.

Posted by Tom at 11:42 AM | Comments (0) | TrackBack (0)

More on Katrina's economic ripples

As noted in this earlier post, the closing of the credit-card issuer Capital One Financial Corp.'s purchase of New Orleans-based Hibernia Corp. had been delayed by the aftermath of Hurricane Katrina. Today, the parties to that transaction announced that Hibernia had agreed to a 9% reduction in the purchase price as the price of the deal was reduced to $5.0 billion from the original price of $5.35 billion. Cap One had planned to close its purchase of Hibernia this week, but the acquisition is now scheduled to close in the fourth quarter.

Speculation over Hibernia's fate over the past week had fueled sharp swings in the company's stock price and heavy trading in its short-term options. The stock price dropped about 10% last week, but then partially recovered on Tuesday as investors became more confident that the deal involving Louisiana's biggest bank in New Orleans and in Louisiana. It holds about 30% of the metropolitan area's deposits and around 20% of the state's deposits, and about 15% of the bank's total deposits are concentrated in the New Orleans area. Over half of the bank's 100 or so branches in the hurricane-ravaged area are still closed, which includes about 20 branches that were largely destroyed and, thus, will not reopen anytime soon.

For a more macro-update on how the markets are dealing with the aftermath of Hurricane Katrina, check out James Hamilton's erudite analysis.

Posted by Tom at 10:02 AM | Comments (0) | TrackBack (0)

The Lay-Skilling-Causey motion to dismiss

As noted in earlier posts here and here, the longstanding suspicions that the Enron Task Force has been engaging in witness tampering in the Enron-related criminal cases is now in full public view. This Mary Flood article reports on the filing of the redacted version of Ken Lay, Jeff Skilling and Richard Causey's motion to dismiss the Task Force's indictment against them on grounds of prosecutorial misconduct and, according to Ms. Flood's article, the motion is a damning indictment of the Task Force's handling of the criminal investigation of Enron. Go to this link to download a copy of the Lay-Skilling-Causey motion, and here is a Washington Post article on the motion.

The motion and accompanying affidavit from law professor Michael Tigar are stunning in many ways. For example, counsel for the defendants note that they have sought to confer with over 100 witnesses and only four have agreed to do so after the Task Force earlier took the extraordinary step of naming 114 unindicted co-conspirators in the case. Mr. Tigar's affidavit states that "this level of silence is not normal" from witnesses and that "I have never seen defendants in a major public trial, especially a white-collar trial, so completely ostracized by witnesses with pertinent information." Mr. Tigar concludes:

". . . I have seen prosecutorial misconduct and litigated about it. However, in all my years handling criminal cases, and in all my experience teaching and working with other lawyers, I have never seen all of these unfair pressures brought to bear on the adversary system in a single case."

Similarly, the motion makes reference to a potentially explosive email from a Task Force prosecutor to a defense attorney for a cooperating government witness in one of the Enron cases. Although it is a bit difficult to surmise what's in the email because it has been redacted from the version of the motion that has been filed publicly, it appears from the motion that the e-mail told the lawyer for the cooperating witness to direct his co-counsel for the cooperating witness to stop talking to Mr. Skilling's lawyer or that he should "get rid" of him. The motion does not name the identity of the Task Force member who made that threat, but I have my suspicions.

Unfortunately, the public exposure of the Enron Task Force's misconduct comes too late to help the defendants in the Nigerian Barge case, whose defense was also undermined by the Task Force's designation of dozens of key defense witnesses as unindicted co-conspirators in the case. Here's hoping that U.S. District Judge Sim Lake puts a halt to this transparent abuse of governmental power and -- at very least -- provides each of the co-conspirators named in the Lay-Skilling-Causey case immunity from prosecution for their testimony in that case. It's about time that the truth about Enron be told, not some piecemeal prosecution version based on the dubious statements of witnesses who have been bludgeoned into plea bargains.

Meanwhile, one notable critic of the government's criminalization of Enron wonders whether the government will take the same approach with regard to its own actions in the debacle of New Orleans?

Posted by Tom at 7:15 AM | Comments (1) | TrackBack (2)

More on the illusory attorney-client privilege

Picking up on the subject of this post from a couple of months ago, this NY Times article notes that corporate targets of criminal investigations can no longer effectively rely on the attorney-client privilege protecting communications between corporate representatives and the company's attorneys.

Frankly, the destruction of the corporate attorney-client privilege is changing the landscape of American business. For example, my standard advice for a prospective chief executive of a publicly-owned company is to negotiate as a part of his employment agreement that the company pay for the executive's personal attorney to advise the executive in regard to his handling of corporate affairs. Similarly, I caution businesspeople considering taking on a board seat with a publicly-owned company not to do so unless the company provides separate counsel for the board. Absent such arrangements, the government's evisceration of the corporate attorney-client privilege has the ironic effect of making business executives and directors less likely to consult corporate counsel before before making critical business decisions because they know that counsel will rat them out in the event of a governmental investigation of the company.

Interestingly, the article notes that some people could care less about the demise of the attorney-client privilege, such as those who conclude first that a crime has occurred and then attempt to manipulate facts to support their conclusion. One of those is John R. Kroger, the Lewis & Clark Law School professor and former Enron Task Force prosecutor, whose law review article -- Enron, Fraud and Securities Reform: An Enron Prosecutor's Perspective -- is an appalling example of a non-expert in structured finance concluding that legitimate structured finance transactions of Enron were criminal and then attempting to manipulate the facts to support his thesis. Taking the same approach to the attorney-client privilege, the article quotes Mr. Kroger:

"It's really in the public's interest to get out on the table whether there's any possibility executives engaged in wrongdoing were really following legal advice or not."

Or, stated another way, the state's interest in criminalizing corporate conduct outweighs the individual's right to consult with an attorney candidly. That such people as Mr. Kroger are teaching this nonsense to future prosecutors at U.S. law schools is an ominous sign for American business interests.

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

Taking on a bully

Showing admirable disdain for the currently popular approach of bowing to governmental demagouges, money manager J. & W. Seligman & Co. fired off a civil lawsuit against New York Attorney General Eliot Spitzer seeking to enjoin his office from pursuing an investigation into whether the advisory fees that the firm charges investors in its mutual funds are excessive. A long line of posts chronicling the Aspiring Governor's manipulation of business interests to further his political career is here.

Seligman contends in its lawsuit that that the Securities and Exchange Commission has the exclusive authority to regulate advisory fees and, thus, Mr. Spitzer's office does not have the authority to pursue the investigation. The Aspiring Governor ratched up the pressure on Seligman when he utilized his usual tactic when a target company does not roll over and enter into a settlement -- he issued a flurry of subpoenas for documents involving fee negotiations between the firm and the independent directors of the Seligman Funds dating back to 1998. Mr. Spitzer's assault on Seligman is an offshoot of his 2003 campaign against the mutual fund industry in which he alleged fund companies allowed favored investors to make improper trades at the expense of long-term shareholders. In connection with prior settlements, about a dozen fund companies have cut advisory fees by an aggregate amount of almost a billion in addition to paying fines and other penalties.

Incredibly, Mr. Spitzer's office does not understand why Seligman isn't simply playing ball with the Aspiring Governor just like all the other fund companies that have rolled over under pressure. A spokesman for Mr. Spitzer's office was actually quoted as saying he could not understand why Seligman shouldn't "want to join other mutual-fund families making appropriate restitution and reducing inordinately high fees?"

Answer: Maybe because it's none of your business.

Posted by Tom at 5:31 AM | Comments (0) | TrackBack (1)

Gambling with your money, their lives

The title of this post is from Holman Jenkins' insightful Wall Street Journal ($) column today in which he decries the role of federally-subsidized flood insurance in promoting the risk-taking that helped turn New Orleans into a disaster waiting to happen:

Professions of shock about the extent of the New Orleans disaster may be understandable from the broader public, but not from Louisianians themselves. Their disaster was the most predicted disaster in recent memory. The city's vulnerability was well documented and this is one case where you can't blame the press for taking its eye off the ball.

The policy implications were not lost on congressmen and federal officials either. A screaming match three years ago concerned a House bill to charge market-based flood insurance premiums to homeowners who filed frequent claims. Louisiana Rep. Billy Tauzin (since retired) denounced the bill as "an assault on the culture of South Louisiana." He was right.

The bill's author, Rep. Earl Blumenauer, put the issue in less hysterical perspective: "The notion that the federal government is just going to shovel money to people in harm's way is misguided, and I personally think it's cruel." He was right too.

Modern New Orleans was the ultimate expression of this high-rolling dynamic. In 2000, an unnamed city official succinctly explained the city's hurricane strategy to the trade publication Risk & Insurance: "We are below sea level and we do get floods sometimes, but it's not a real serious problem. You can still purchase flood insurance."

. . . [a] corollary to the city's acceptance that sooner or later it would be destroyed by a hurricane (and rebuilt using insurance money) was a reliance on evacuation to spare human life in the event of a Category 4 or worse storm, of which there had been four since 1899. That would have meant evicting residents every time a hurricane threatened, a policy that likely would have collapsed after the first false alarm, had a decrepit municipal government cared enough to try it. Instead the city defaulted to an evacuation strategy that was tantamount to every man for himself until it's time to reassemble and collect the checks that will be rolling in.

Along the same lines, John Tierney in this NY Times op-ed suggested the following common sense approach to rebuilding New Orleans:

Here's the bargain I'd offer New Orleans: the feds will spend the billions for your new levees, but then you're on your own. You and others along the coast have to buy flood insurance the same way we all buy fire insurance - from private companies that have more at stake than do Washington bureaucrats.

Private flood insurance has come to seem quaint in America, but in Britain it's the norm. If Americans paid premiums for living in risky areas, they'd think twice about building oceanfront villas. Voters and insurance companies would put pressure on local politicians to take care of the levees, prepare for the worst - and stop waiting for that bumbling white knight from Washington.

Posted by Tom at 4:48 AM | Comments (0) | TrackBack (1)

September 6, 2005

Dershowitz on C.J. Rehnquist

Harvard Law prof Alan Dershowitz -- who certainly does not shy away from defending difficult positions -- displays that capacity again in this tirade toward the late and not-yet-buried Chief Justice William Rehnquist.

Professor Dershowitz is a reflection of the fact that intelligence does not equate with good judgment.

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

Thank you, Andersen and Enron

Allan Sloan in his Washington Post column has an interesting take on the Justice Department's decision not to indict KPMG over the firm's involvement in the creation and promotion of allegedly illegal tax shelters:

The government didn't dare file criminal charges against KPMG because an indictment alone would have driven it out of business, leaving us with too few big accounting firms to go around. KPMG was in this strong bargaining position because of the collapse of Enron's accounting firm, Arthur Andersen, which the government foolishly indicted on criminal charges three years ago.

In an unpublished paper, Emilie R. Feldman, a doctoral student at the Harvard Business School, makes a compelling case that the Final Four firms absorbing Andersen's business would have violated antitrust guidelines had it involved a sale rather than a collapse.

Feldman (disclosure: her family and mine are close friends) says having the Final Four absorb Andersen's business added 455 points to the Herfindahl-Hirschman Index, a tool that antitrust mavens use to measure business concentration. Any increase bigger than 50 points would have violated the relevant guidelines, she says.

In other words, a collapse brought about by the Justice Department prosecutors allowed the Final Four to acquire at no cost business that the Justice Department antitrust enforcers would never have let them buy. You have to love it.

And Mr. Sloan also notes why the penalty that KPMG will pay the government under its deferred prosecution agreement is not likely onerous enough to put the firm out of business:

To be sure, the penalty imposed on KPMG isn't chopped liver. It's $456 million, which is real money. But it's less than it seems to be, even though the deal forbids KPMG from deducting any of the money from taxable income. . . And you don't need a CPA to see that this deal is one of the bargains of the year.

KPMG generated $3.8 billion of revenue in the year ended Sept. 30, 2004. . . between 35 and 48 percent of that was pretax profit, which works out to at least $1.33 billion, an average of $787,000 per partner. But remember that the penalty is after taxes. So we'll assume an unrealistically high tax rate -- 40 percent -- for KPMG's partners. This would leave after-tax profit of about $470,000 per partner. The $456 million is about $276,000 per partner. So KPMG's partners are paying less than a year's profit to avoid being destroyed by a criminal indictment. Pretty slick.

The firm and the government say none of KPMG's payments will be covered by insurance. But the settlement calls for the government to get 50 percent of the first $288 million of insurance proceeds, should KPMG get any. (KPMG would keep anything above $288 million.) The settlement, the first $256 million of which was due last week, may end up costing KPMG less than the stated $456 million by the time it finishes paying next year.

So it's time for KPMG's partners to thank the gods of greed for creating the Enron scandal. Because if we hadn't had Enron, we might not have KPMG.

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

Houston's hope for the golf swing

Houston has a particularly rich golf heritage that is reflected by the fact that such golf notables as Jack Burke, Jr., Jimmy Demaret, Dave Marr, and Claude Harmon, Sr. lived here for much of their lives. The Chronicle's Steve Campbell notes one of the more low-profile Houstonians that has contributed to that rich tradition with this piece on golf instructor and golf course design expert, Jim Hardy, who has become sort of a last hope for several professional golfers who are struggling with their swings and ready to give up competitive golf.

Peter Jacobsen, Hardy's longtime business partner, was Hardy's first reclamation project. Although he had been a solid player on the PGA Tour from the late 1970's through the early 1990's, Jacobsen's golf game had fallen on hard times for several years when he revived his career in 1995 by changing from a two-plane swing (think Tom Watson, Hale Irwin, and Davis Love) to a one-plane swing (think Ben Hogan, Ernie Els, and Michelle Wie) through Hardy's tutelage. Hardy recently used his experience in changing Jacobsen's prior two-plane swing to a one-plane swing as the basis of an exceptional new book on golf swing instruction, The Plane Truth for Golfers (McGraw-Hill 2005).

In his book, Hardy identifies the two-plane swing and the one-plane swing as the two basic -- but much different -- golf swings. In so doing, he makes the key insight that much of golf swing instruction over the past generation has been counterproductive because of the failure of golf instructors to tailor their teaching to the particular golf swing that the student is using or should use. Inasmuch as the key elements of the one-plane swing are quite different from those of the two-plane swing, Hardy points out that attempting to teach two-plane concepts to a one-plane swinger (and vice versa) risks having the student adopt swing elements that are ill-suited for the student's particular swing.

As with Hogan's classic golf swing book Five Lessons, Hardy's Plane Truth for Golfers is only a little over 100 pages. However, take it from this self-taught golfer who has read dozens of golf instruction books over the past 25 years, Houstonian Jim Hardy's Plane Truth for Golfers is a landmark book in the area of golf swing instruction and another of the many contributions that Houstonians have made to the wonderful world of golf.

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

The Katrina business boom

This NY Times article provides a good summary of the response of the Houston business community to the aftermath of Hurricane Katrina and the business opportunity that it represents. The article focuses on the short term business opportunities, although the more signficant economic impact to the overall Houston economy would be the potential population and job growth that could result from the exodus of New Orleans citizens to Houston. Nevertheless, the article is an interesting read of how Houston businesses are responding to the aftermath of Katrina, so check it out.

Update: Tory Gattis has good insights into the probable long-term economic impact of the hurricane on Houston's economy.

Posted by Tom at 5:28 AM | Comments (2) | TrackBack (0)

An example of failed local leadership

Following on this earlier post and Joe Carter's post noted in the post below regarding the failures of the federal government in the Hurricane Katrina aftermath, former state legislator Bob Williams -- whose district was the most impacted by the Mount St. Helens eruption -- lays the wood to Louisiana Governor Kathleen Blanco and New Orleans Mayor Ray Nagin in this equally devastating Opinion Journal op-ed

The primary responsibility for dealing with emergencies does not belong to the federal government. It belongs to local and state officials who are charged by law with the management of the crucial first response to disasters. First response should be carried out by local and state emergency personnel under the supervision of the state governor and his/her emergency operations center.

The actions and inactions of Gov. Blanco and Mayor Nagin are a national disgrace due to their failure to implement the previously established evacuation plans of the state and city. Gov. Blanco and Mayor Nagin cannot claim that they were surprised by the extent of the damage and the need to evacuate so many people. Detailed written plans were already in place to evacuate more than a million people. The plans projected that 300,000 people would need transportation in the event of a hurricane like Katrina. If the plans had been implemented, thousands of lives would likely have been saved.

In addition to the plans, local, state and federal officials held a simulated hurricane drill 13 months ago, in which widespread flooding supposedly trapped 300,000 people inside New Orleans. The exercise simulated the evacuation of more than a million residents. The problems identified in the simulation apparently were not solved.

A year ago, as Hurricane Ivan approached, New Orleans ordered an evacuation but did not use city or school buses to help people evacuate. As a result many of the poorest citizens were unable to evacuate. Fortunately, the hurricane changed course and did not hit New Orleans, but both Gov. Blanco and Mayor Nagin acknowledged the need for a better evacuation plan. Again, they did not take corrective actions. In 1998, during a threat by Hurricane George, 14,000 people were sent to the Superdome and theft and vandalism were rampant due to inadequate security. Again, these problems were not corrected.

Mayor Nagin was responsible for giving the order for mandatory evacuation and supervising the actual evacuation: His office of Emergency Preparedness (not the federal government) must coordinate with the state on elements of evacuation and assist in directing the transportation of evacuees to staging areas. Mayor Nagin had to be encouraged by the governor to contact the National Hurricane Center before he finally, belatedly, issued the order for mandatory evacuation. And sadly, it apparently took a personal call from the president to urge the governor to order the mandatory evacuation.

The city's evacuation plan states: "The city of New Orleans will utilize all available resources to quickly and safely evacuate threatened areas." But even though the city has enough school and transit buses to evacuate 12,000 citizens per fleet run, the mayor did not use them. To compound the problem, the buses were not moved to high ground and were flooded. The plan also states that "special arrangements will be made to evacuate persons unable to transport themselves or who require specific lifesaving assistance. Additional personnel will be recruited to assist in evacuation procedures as needed." This was not done.

Instead of evacuating the people, the mayor ordered the refugees to the Superdome and Convention Center without adequate security and no provisions for food, water and sanitary conditions. As a result people died, and there was even rape committed, in these facilities. Mayor Nagin failed in his responsibility to provide public safety and to manage the orderly evacuation of the citizens of New Orleans. Now he wants to blame Gov. Blanco and the Federal Emergency Management Agency. In an emergency the first requirement is for the city's emergency center to be linked to the state emergency operations center. This was not done.

The federal government does not have the authority to intervene in a state emergency without the request of a governor. President Bush declared an emergency prior to Katrina hitting New Orleans, so the only action needed for federal assistance was for Gov. Blanco to request the specific type of assistance she needed. She failed to send a timely request for specific aid.

In addition, unlike the governors of New York, Oklahoma and California in past disasters, Gov. Blanco failed to take charge of the situation and ensure that the state emergency operation facility was in constant contact with Mayor Nagin and FEMA. It is likely that thousands of people died because of the failure of Gov. Blanco to implement the state plan, which mentions the possible need to evacuate up to one million people. The plan clearly gives the governor the authority for declaring an emergency, sending in state resources to the disaster area and requesting necessary federal assistance.

Posted by Tom at 5:00 AM | Comments (3) | TrackBack (0)

Not a good progress report

Although one whould caution against jumping to conclusions before facts are established, tongues will nevertheless be wagging across the United States today in the face of this devastating Wall Street Journal ($) article that lists the incidents reflecting lack of organization and preparedness in the federal government's response to the aftermath of Hurricane Katrina, including the following:

The U.S. Army has a large facility, Fort Polk, in Leesville, La., about 270 miles northwest of New Orleans. Officials at Fort Polk, which has nearly 8,000 active-duty soldiers, said their contribution so far has consisted of a few dozen soldiers from the 10th Mountain Division manning purification equipment and driving half-ton trucks filled with supplies and equipment. The first contingent of soldiers didn't receive orders until Saturday afternoon.

A spokeswoman at Fort Polk said she did not know why the base received its deployment orders so late in the game. "You'd have to ask the Pentagon," she said. A senior Army official said the service was reluctant to commit the 4th brigade of the 10th Mountain Division from Fort Polk, because the unit, which numbers several thousand soldiers, is in the midst of preparing for an Afghanistan deployment in January.

Instead, the Pentagon chose to send upwards of 7,500 soldiers from the 1st Cavalry Division at Fort Hood, Texas and the 82nd Airborne Division from Fort Bragg, N.C., along with Marines from California and North Carolina. Soldiers from the 82nd Airborne Division are able to deploy anywhere in the world in 18 hours. It took several days for them to arrive on the ground in Louisiana.

And you just knew that airport security had to have a hand in this mess, too:

Because of worries that terrorists could take advantage of such chaos, FEMA now must abide by post-9/11 security procedures, such as putting air marshals on flights. That meant stranded residents couldn't be evacuated from the New Orleans airport until FEMA had rounded up dozens of Transportation Security Administration screeners and more than 50 federal air marshals. Inadequate power prevented officials from firing up X-ray machines and metal detectors until the government decided evacuees could be searched manually.

The article reports that even basic logistical support was unorganized:

In the hours before and after Katrina struck, there weren't firm procedures in place for directing people and materials. Dan Wessel, owner of Cool Express Inc., a Blue River, Wis., transportation company that contracts with FEMA to move supplies, said he didn't get a green light to send trucks to a staging area in Dallas until about 4 p.m. Monday, hours after Katrina made landfall. That was too late to meet a deadline of getting trucks to Dallas by noon Tuesday, he said.

Once the trucks arrived, drivers often found no National Guard troops, FEMA workers or other personnel on hand to help unload the water and ice, Mr. Wessel said. "I almost told the guys to leave, but people are wanting the water," he said. "The drivers distributed it."

There is much more, so read the entire article, as well as Joe Carter's thoughtful piece on how America's current leadership failed in preparing the local leadership necessary to address a disaster of this magnitude.

As noted in this earlier post, "they fiddle while Rome burns . . ." But kidding aside, the apparent failure of the Department of Homeland Security in its first big test in responding to a natural disaster is sure making the decision to create that agency as a massive reshuffling of the deck chairs on the Titanic.

Update: Given the extent of disingenuous statements made by governmental officials, Ellen Podgor in this White Collar Criminal Prof blog post asks the following question:

[O]ne has to wonder if this reaches a level of criminality. And if not, should it?

By the way, don't miss watching this CNN/AOL video that exposes the contrary pre- and post-hurricane statements by Homeland Security chief Michael Chertoff and FEMA director Michael Brown (he of Grilled by Koppel fame). Devastating is too mild a word to describe the piece.

Posted by Tom at 4:55 AM | Comments (0) | TrackBack (0)

September 5, 2005

A terrific hurricane relief information resource

The Librarians' Index to the Internet has put together a terrific web resource center for Hurricane Katrina-related information, including information on volunteer opportunities, legal matters, displaced students, charitable giving, animal rescue, missing persons, temporary housing, flood control, levee management, gas prices, environmental factors, news sites, maps and images, and much more. Moreover, LII.org continually updates their webpages, so check back from time-to-time to review the resources added to the Hurricane Katrina webpage.

Man, those librarians sure can organize, eh? ;^)

Posted by Tom at 12:29 PM | Comments (0) | TrackBack (2)

One of the effects of mass transit choices in New Orleans

Awhile back, I participated with local bloggers Tory Gattis, Anne Linehan and Kevin Whited, Laurence Simon, Owen Courr�ges and several others on a lively thread regarding the causes and effect of the public policy choices that Houston is making in regard to Houston's Metropolitan Transit Authority and its light rail system. One of the points that I tried to make in that discussion was the political factors often prompt people who need mass transit the most to vote in favor of transit plans -- such as Houston's light rail system -- that really do not really address their needs, and that such choices often have long-lasting and unintended consequences.

Along those same lines, Randal O'Toole, senior economist at the Thoreau Institute, points out here that the public policy decisions regarding mass transit in New Orleans played a large part in the loss of human life that will result from Hurricane Katrina and the storm's aftermath:

Those who fervently wish for car-free cities should take a closer look at New Orleans. The tragedy of New Orleans isn't primarily due to racism or government incompetence, though both played a role. The real cause is automobility -- or more precisely to the lack of it.

"The white people got out," declared the New York Times today. But, as a chart in the Times article makes clear, the people who got out were those with automobiles. Those who stayed, regardless of color, were those who lacked autos.

What made New Orleans more vulnerable to catastrophe than most U.S. cities is its low rate of auto ownership. According to the 2000 Census, nearly a third of New Orleans households do not own an automobile. This compares to less than 10 percent nationwide. There are significant differences by race: 35 percent of black households but only 15 percent of white households do not own an auto. But in the end, it was auto ownership, not race, that made the difference between safety and disaster.

"The evacuation plan was really based on people driving out," an LSU professor told the Times. On Saturday and Sunday, August 27 and 28, when it appeared likely that Hurricane Katrina would strike New Orleans, those people who could simply got in their cars and drove away. The people who didn't have cars were left behind.

Critics of autos love the term "auto dependent." But Katrina proved that the automobile is a liberator. It is those who don't own autos who are dependent -- dependent on the competence of government officials, dependent on charity, dependent on complex and sometimes uncaring institutions.

As shown in the table below, the number of people killed by hurricanes in the U.S. steadily declined during the twentieth century. Economists commonly attribute such declines to increasing wealth. Wealth differences are also credited with the large number of disaster-related deaths in developing nations vs. developed nations. But what makes wealthier societies less vulnerable to natural disaster? There are several factors, but the most important is mobility.

Number of Deaths Caused by Hurricanes in the U.S.:

1900-1919 10,000
1920-1939 3,751
1940-1959 1,119
1960-1979 453
1980-1999 57

Source: Atlantic Oceanographic and Meteorological Laboratory. Number for 1900-1919 is estimated as the exact death toll from 1900 Galveston hurricane is unknown.

People with access to autos can leave an area before it is flooded or hit with hurricanes, tornados, or other storms. When earthquakes or storms strike too suddenly to allow prior evacuation, people with autos can move away from areas that lack food, safe water, or other essentials.

Numerous commentators have legitimately criticized the Federal Emergency Management Agency and other government agencies for failing to foresee the need for evacuation, failing to secure enough buses or other means of evacuation, and failing to get those buses to people who needed evacuation. But people who owned autos didn't need to rely on the competence of government planners to be safe from Katrina and flooding. They were able to save themselves by driving away. Most apparently found refuge with friends or in hotels many miles from the devastation. Meanwhile, those who didn't have autos were forced into high-density, crime-ridden refugee camps such as the Superdome and New Orleans Convention Center.

Rather than help low-income people achieve greater mobility, New Orleans transportation planners decided years ago that their highest priority was to provide heavily subsidized streetcar rides for tourists. In the late 1980s and 1990s, New Orleans spent at least $15 million converting an abandoned rail line into the 1.5-mile Riverfront Streetcar line. In 2004, New Orleans opened the 3.6-mile Canal Street streetcar line at a cost of nearly $150 million.
New Orleans was planning to spend another $120 million on a Desire Street streetcar line.

These tourist lines do nothing to help any local residents except for those who happen to own property along the line. The city was not deterred by table 7.2 on page 8 its own analysis of the Desire line showing that each new rider on this line would cost taxpayers more than $20.

About 26,000 low-income families in New Orleans don't own a car. If all the money spent on New Orleans streetcars from 1985 to the present had been spent instead on helping autoless low-income families achieve mobility, the city would have had more than $6,000 for each such family, enough to buy good used cars for all of them. Add the money the city wanted to spend on the Desire Street streetcar and you have enough to buy a brand-new car for every single autoless low-income family -- not a Lexus or BMW, certainly, but a functional source of transportation that would have allowed them to escape the current disaster.

While I don't think that buying low-income families brand-new cars is the best use of our limited transportation resources, it would produce far greater benefits than building rail transit. Studies have found that unskilled workers who have a car are much more likely to have a job and will earn far more than workers who must depend on transit. That is why numerous social service agencies have begun programs aimed at helping low-income families acquire their first car or maintain an existing one.

Yet when I point out the comparative benefits of providing mobility to low-income people vs. building rail transit lines to suburban areas that already enjoy a high degree of mobility, rail advocates often respond, "We can't let poor people have cars. It would cause too much congestion." Yes, as the Soviet Union discovered, poverty is one way to prevent congestion.

New Orleans is in many ways a model for smart growth: high densities, low rates of auto ownership, investments in rail transit. This proved to be its downfall. While the city was vulnerable from being built below sea level, many cities above sea level have proven equally vulnerable to storms and flooding. In the end, New Orleans' people suffered primarily because so many lived without autos, thus making them overly dependent on the competence of government planners.

As noted in this previous post, people are entitled to vote in favor of a mass transit system that does not really address their needs. However, they should not be misled in doing so as has often been the case with regard to past Metro referendums. If a part of Metro's long-term strategy is to make certain segments of Houston's population less "automobile-dependent," then one of the lessons of New Orleans and Hurricane Katrina is that we should make clear in any future Metro referendums that such a strategy can have deadly consequences in the event that an evacuation of Houston is required.

Hat tip to Peter Gordon for the link to Mr. O'Toole's piece.

Posted by Tom at 9:53 AM | Comments (8) | TrackBack (1)

Greg Norman steps up

It's not everyone who can make this type of contribution to the Hurricane Katrina relief effort:

Greg Norman is lending his personal helicopter to the Hurricane Katrina relief effort, just as he did after last year's destructive hurricane season.

Norman sent the helicopter to the greater Louisiana area Friday, and said it will remain in service for as long as a month. His pilot, Gary Hogan, will fly medical supplies and other items into the region.

"Our thoughts and feelings go out to everyone over there," Norman said.

Norman's estate on Jupiter Island, about 90 miles north of Miami, was damaged by hurricanes Frances and Jeanne last year. He lent his helicopter - which can carry about 1,000 pounds of supplies and shuttle small groups of patients and medics - to the recovery effort.

The Federal Emergency Management Agency contacted the helicopter's manufacturer in recent days seeking help, and word eventually got to Norman. FEMA will coordinate Hogan's flights and supply fuel.

"They need as much airlift as they can get," Norman said.

Posted by Tom at 9:23 AM | Comments (0) | TrackBack (0)

Bush nominates Roberts for Chief Justice

Showing my usual lack of prognostication ability with regard to Supreme Court appointments, President Bush this morning nominated the late Chief Justice William Rehnquist's former clerk John Roberts to replace Mr. Rehnquist as the Chief Justice of the United States Supreme Court.

Inasmuch as the nomination of Judge Roberts for Chief Justice requires another nomination by the President, the confirmation hearing on the prior nomination of Judge Roberts -- which was supposed to commence tomorrow -- will be delayed for a couple of weeks.

Posted by Tom at 7:26 AM | Comments (0) | TrackBack (0)

2005 Weekly local football review

Amidst the chaos resulting from Hurricane Katrina, at least a small amount of normalcy returned this past weekend as the local college football season kicked off. As with last season, I will pass along a brief summary of the local and notable college and professional games of the past week, and refer to links that provide more thorough analysis of particular games. Now, for this week's games:

Texas Longhorns 60 Louisiana-Lafayette 3

The Horns cruised in what amounted to a scrimmage against outmanned an outmanned and understandably distracted team from Louisiana-Lafayette, otherwise know as "La-La" in football circles. However, the price of poker goes up considerably this coming Saturday as the Horns travel to Columbus, Ohio to face a fellow top 10 ranked Ohio State team.

Although the Longhorns have finished in the Top 12 for five straight seasons, have 16 starters returning and are coming off an 11-1 season and a dramatic Rose Bowl victory over Michigan, the long shadow of Darrell Royal still looms over Mack Brown and his embarrassing 1-12 record against top five-ranked teams, which includes a grating five straight losses to Brown's nemesis, Bob Stoops and Oklahoma. In my view, UT really has only five reasonably tough games on its schedule this season, and the game against Ohio State is one of only two that are true away games (the other true away game is with A&M in College Station to end the season, although the Horns do play a quasi-away game against OU in Dallas). With expectations sky high in Longhorn-land, the Ohio State game will likely set the tone for the Horns' season.

By the way, for extensive analysis of all things relating to the Longhorns, check out the All Things Longhorn blog.

Clemson 25 Texas Aggies 24.

In Dennis Franchione's first season in 2003, an undermanned Aggie squad had one of the worst defenses in the past 20 seasons of Aggie football. In his second season last year, the Aggies were one of the most improved teams in college football, but struggled to stop the run against top-flight competition and ended the season with embarrassing losses to Texas and Tennessee.

Now, in his third season, Coach Franchione has his most talented team and is armed with an improved contract that pays him over $2 million per year. The result in the first game? The Aggies can still not stop the run against top flight competition and, to make matters worse, the Aggies certainly did not get their money's worth in regard to Coach Franchione's blown decision not to go for two points midway through the 4th quarter that would have given the Ags a three point lead and, as the game turned out, a chance to win in overtime.

The Ags have three straight games at home against weak teams before traveling to Colorado on October 8th, so the restless in Aggieland will calm down a bit by then. But even though this is Franchione's most talented Aggie team, a tough conference schedule -- away games against Colorado, Kansas State, Texas Tech and Oklahoma, and a home game against Texas -- means that even an improved Aggie team may not have as good a record as last season's 7-4 slate.

Note to Coach Fran -- you really do not want to go there.

By the way, for more thorough analysis of all things relating to Aggie football, check out Texas A&M and Baseball in No Particular Order.

Oregon 38 Houston 24

Last season, Houston's offensive line resembled a huge sieve and its defense could not even shut down a hard-charging marching band.

In its first game this season, Houston's offensive line resembled a huge sieve and its defense would have had problems stopping Oregon's marching band.

Some things never change. The Coogs look like a 4-7 team to me.

TCU 17 Oklahoma 10

Does anyone really question anymore that Jason White was an extraordinary college quarterback?

The Sooners were the most talented and experienced team in college football last season -- NFL teams drafted the incredible number of 10 players off that squad, including two players in the first round and three in the second. However, for the second straight season, the Sooners laid an egg in the National Championship game, and the 2005 edition returns only nine starters off last season's talented team. So, the Sooners -- despite a load of very good young talent -- are clearly in rebuilding mode, and the TCU game reflected that fact in spades.

The following are a few questions that OU fans should be asking after the TCU debacle:

After the loss of three starters (including an Outland Award winner) and a top reserve, will the Sooners offensive line develop quick enough to allow the Sooners to score enough to be a serious contender for the Big 12 South title?

Despite the o-line problems, how is it that Adrian Peterson, the best running back in college football, only had eight carries in the first half of the TCU game?

Did an experienced offensive line and Jason White's excellence as a college QB cover-up Chuck Long's deficiencies as an offensive coordinator?

Stay tuned for the answer to these questions.

Rice opens its season this Saturday in L.A. against UCLA (1-0), and the Texans open their season this Sunday against the Bills in Buffalo. Look for my pre-season analysis of the Texans later this week. Also, for more detailed analysis of Big 12 games, check out Kevin Whited's weekly posts over at PubliusTX.Net, which ought to crank up in another week or two.

Posted by Tom at 5:45 AM | Comments (0) | TrackBack (0)

Stros 2005 Review: It's not looking good for the Stros

Despite the best pitching season in the club's history, the Stros' (72-64) chronic lack of hitting is making it increasingly unlikely that the team will be able to win enough of their final 26 games to secure the National League Wild Card Playoff berth for the second straight season.

Thus, after getting back into the NL Wild Card playoff race with a 47-22 streak after their abysmal 15-30 start, the Stros are now 10-12 over their last 22 games, which is probably more representative of this Stros club's overall ability-level. My sense it will take 88 wins to secure the Wild Card playoff spot this season, so the Stros would have to go 16-10 over the rest of the regular season to achieve that number of wins. Based on the way the club is hitting, that's not likely.

Here are the Stros hitters' individual runs created against average ("RCAA," explained here) through Saturday's games, courtesy of Lee Sinins:

Morgan Ensberg 36
Lance Berkman 22
Craig Biggio 6
Orlando Palmeiro 4
Jeff Bagwell 1
Charles Gipson 0
Jason Lane -1
Luke Scott -2
Todd Self -4
Jose Vizcaino -5
Eric Bruntlett -7
Humberto Quintero -7
Raul Chavez -10
Chris Burke -12
Willy Taveras -12
Brad Ausmus -15
Adam Everett -16
Mike Lamb -20

The Stros overall have a hideous -42 RCAA, which is 13th among the 16 National League teams. To make matters worse, Manager Phil Garner continues to do his best imitation of Jimy Williams by making moves such as playing Mike Lamb (-20 RCAA/.247 OBA/.368 SLG/.615 OPS) -- who has had a perfectly hideous season -- in place of Jason Lane (-1/.304/.490/.794) -- who has been one of the club's better hitters since the All-Star break -- on this past Saturday night. Down the stretch drive, Garner would be well-advised to play Lane, Orlando Palmeiro (4/.360/.490/.850), and AAA Round Rock slugger Luke Scott in the outfield and leave Willy Taveras (-12/.328/.346/.674) and Chris Burke (-12/.306/.363/.669) on the bench, but don't count on that happening. Garner, as with Williams before him, is proving not to be the bench manager that a team needs to steer a poor-hitting team through a pennant race.

Meanwhile, the Stros remain in the Wild Card playoff race solely because of their outstanding pitching. Here are the Stros pitchers' individual runs saved against average ("RSAA," explained here) through Saturday's games:

Roger Clemens 57
Andy Pettitte 36
Roy Oswalt 30
Dan Wheeler 17
Brad Lidge 13
Chad Qualls 8
Mike Gallo 2
Travis Driskill 0
Scott Strickland 0
Chad Harville -1
Russ Springer -4
Mike Burns -5
John Franco -5
Brandon Backe -9
Brandon Duckworth -12
Ezequiel Astacio -13
Wandy Rodriguez -18

The Stros pitching staff's aggregate 90 RSAA is second to the Cardinals staff's 123 among the 16 National League teams. The Rocket, Pettitte and Oswalt continue to be first, third, and fifth among National League pitchers in RSAA, which is one of the finest seasons by three starting pitchers on one staff in modern baseball history. The Stros' pitchers really do have a pretty good lack of support lawsuit against the club's hitters.

The Stros now go on the road for a key three game series in Philadelphia against the Wild Card playoff-leading Phillies (73-64) and then a weekender against the Brew Crew (67-70) before returning to the Juice Box for a big four game series next week against the Marlins (72-64), who remain the most team most likely from a statistical standpoint to win the Wild Card playoff berth.

Posted by Tom at 4:05 AM | Comments (0) | TrackBack (0)

Willy Taveras

The subject of the sixth segment in our ongoing series about the key Stros players (previous posts here, here, here, here, and here) is Willy Taveras, who represents a good example of how people who do not examine the facts often poorly evaluate the ability of ballplayers.

As noted in this earlier post, if all you listened to was the Stros' P.R. machine and Stros play-by-play announcer Milo Hamilton, then you would think that Taveras is the odd's-on favorite to win the National League Rookie-of-the-Year Award. "He's so fast!" "He leads the league in bunt hits!" "He has more hits than any other rookie!" These are just a few of the breathless comments that one commonly hears about Taveras from most Houston media types (with the notable exception of Charlie Pallilo).

Well, Taveras might win the Rookie-of-the-Year Award, but it would be because there is a far below-average rookie class in the National League this season, not because Taveras is a particularly good player. In fact, Taveras is not even an average player at this stage of his development. As noted in his statistics below, Taveras has a -12 RCAA, which means that he has produced 12 fewer runs so far this season than an average National League hitter would have generated in the same number of plate appearances. In almost every key offensive category -- on-base average, slugging percentage, OPS, etc. -- Taveras is not only below average, but far below average. Only because of the average nature of his batting average -- which happens to be among the most misleading of hitting statistics -- is Taveras considered by superficial observers to be a budding star. Even Taveras' defense in centerfield -- which was supposed to be quite good due to his excellent range -- has been surprisingly average to below-average because of below-average recognition skills.

Having said all that, it's far too early to write Taveras off. He has done a decent job of making the difficult jump from Double A ball to the National League. He is only 23 and still has time to improve. But Taveras has produced only a paltry 22 walks and 18 extra base hits in 550 career plate appearances, so it's far too early to pencil him in as the future Stros centerfielder or even as a sure-fire part of the Berkman-Oswalt-Ensberg-Lidge nucleus of the club over the next five seasons. If he can improve his walk rate to raise his on-base average to around .380 or so, and improve his power to an average or just below-average slugging percentage, then Taveras can be a reasonably effective National League player. But he's not there yet, and awarding him the Rookie-of-the-Year Award for a far below average season is not the way to point out his deficiencies to him.

Taveras' stats are here.

Posted by Tom at 4:02 AM | Comments (2) | TrackBack (0)

Willy Taveras statistics

Willy Taveras
YEAR	AGE	RCAA	OBA	SLG	OPS	AVG	HR	RBI	SB	G
2004	22	0	.000	.000	.000	.000	0	0	1	10
2005	23	-12	.330	.349	.679	.294	3	27	31	130
CAR		-12	.330	.348	.678	.294	3	27	32	140
LG AVG		0	.339	.429	.767	.269	15	64	8
POS AVG		-2	.338	.422	.760	.270	15	56	14

Posted by Tom at 4:00 AM | Comments (0) | TrackBack (0)

September 4, 2005

Ramping up the blame game

As noted here earlier, I don't think it's the time to point fingers at each other while there are still people to be saved inside New Orleans, although I do think the question of why troops were not used earlier to re-establish civil order is a reasonable one.

However, among the early analysis of what went wrong with the various governmental responses to the aftermath of Hurricane Katrina, this Washington Post article makes it clear that the Bush Administration is not going to take all the blame for various shortcomings:

Behind the scenes, a power struggle emerged, as federal officials tried to wrest authority from Louisiana Gov. Kathleen Babineaux Blanco (D). Shortly before midnight Friday, the Bush administration sent her a proposed legal memorandum asking her to request a federal takeover of the evacuation of New Orleans, a source within the state's emergency operations center said Saturday.

The administration sought unified control over all local police and state National Guard units reporting to the governor. Louisiana officials rejected the request after talks throughout the night, concerned that such a move would be comparable to a federal declaration of martial law. Some officials in the state suspected a political motive behind the request. "Quite frankly, if they'd been able to pull off taking it away from the locals, they then could have blamed everything on the locals," said the source, who does not have the authority to speak publicly.

A senior administration official said that Bush has clear legal authority to federalize National Guard units to quell civil disturbances under the Insurrection Act and will continue to try to unify the chains of command that are split among the president, the Louisiana governor and the New Orleans mayor.

As one my former professors used to remind me, "they fiddle while Rome burns and, to make matters worse, they do not realize that Rome is burning or that they are fiddling."

Meanwhile, this City Journal article is a pretty darn astute analysis of what happened last weekend in New Orleans. Hat tip to Tom Smith over at the Right Coast for the City Journal piece.

Posted by Tom at 3:41 PM | Comments (3) | TrackBack (0)

A massive relief effort that you do not see

As Americans are still attempting to absorb the shock of the largest exodus of citizens during our nation's modern history, the Chronicle's Steve Campbell's great photo of the inside of Houston's Astrodome provides the backdrop to a huge part of the Hurricane Katrina relief effort that you do not see on television -- the massive effort by a network of Houston-area churches and charities to provide relief resources to the tens of thousands of Gulf Coast evacuees who are residing in hotels and homes throughout Houston and Texas.

Although the evacuees from New Orleans are understandably getting most of the attention from the mainstream media, hotels and shelters from the Texas-Louisiana border to throughout the Houston-Dallas-San Antonio triangle are filled with tens of thousands of other Gulf Coast evacuees. The largest concentration of evacuees in Texas remains at Reliant Park in Houston, where about 25,000 people are currently located and, as of Sunday, another 7,200 will be located at the George R. Brown Convention Center in downtown Houston. In addition to those evacuees, an estimated 170,000 other people from Louisiana and Mississippi are staying with friends or relatives, or in hotels in the Houston area. A spokesman for Houston's hotel owner's association estimates that about 45,000 of the Houston area's 55,000 hotel rooms are occupied by Gulf Coast evacuees.

As a result of the surge of evacuees, city and county officials shifted gears on Saturday and turned Reliant Park into a medical way station where newly arriving evacuees are assessed as to their medical needs. The injured or sick are taken off to either the onsite medical facility or the nearby Texas Medical Center, and then the healthy are given a meal and transferred to new shelters being opened in Huntsville, Corpus Christi and Lubbock. On Saturday, at the Reliant Park medical clinic, about a 1,000 volunteer doctors, nurses and other medical personnel treated 3,500 evacuees and sent about 100 of those to area hospitals. Doctors gave about 2,000 tetanus shots to people who were injured during their ordeal in the hurricane and its aftermath.

Meanwhile, Houston-area churches and charities continued organizing a massive relief effort on behalf of both the evacuees at the main shelters and others outside those shelters. A group of Houston churches raised about $4 million for a month's worth of meals at Reliant Park and the Brown Convention Center and to provide volunteer servers for those meals. Either a large church or several churches will be handling service of those meals each day over the next couple of months, and members of my family and I will be serving meals on Tuesday, September 20 as my family's church handles the food service operation on that day.

In addition to those efforts at the main shelters, the network of churches and local charities are also setting up the infrastructure necessary to provide relief to the tens of thousands of evacuees who are located around the Houston area outside of the main shelters at Reliant Park and the Brown Convention Center. Representative of that overall effort are the services being provided by my family's church in the South Montgomery County area of Houston, where our church is providing relief services to evacuees in three local hotels. Literally hundreds of other Houston-area churches and charities are providing similar services, including Second Baptist Church, First United Methodist in downtown Houston, Fellowship of The Woodlands, Chapelwood United Methodist, Lakewood Church, St. Luke's United Methodist, Windsor Village United Methodist, Christ United Methodist Church, the Catholic Churches of the Houston-Galveston Archdiocese and the remarkable Houston Food Bank. If you are not affiliated with a church or charity that is involved in this effort, Charles Kuffner provides this informative post on information on how to get involved.

So, although the relief effort that is going on at Reliant Park and the Brown Convention Center is certainly important and compelling, it is equally important to recognize that there is an even bigger relief effort ongoing at the same time that addresses the needs of over a hundred thousand people who are not at the more visible shelters. That this massive relief effort has been put together literally behind the scenes in less than five days is yet another reason why Houston is one remarkable place.

Posted by Tom at 12:49 PM | Comments (2) | TrackBack (4)

Updating Katrina's economic ripples

Six days after Hurricane Katrina hammered a main conduit of the U.S. energy and shipping industries, much of the crucial infrastructure on the energy industry in the Gulf Coast region those remains shut down. Although a full assessment of the status of the region's infrastructure still cannot be made because of the post-storm chaos, it is becoming increasingly clear that refining and production capacity in the region will be curtailed for a prolonged period of time. Earlier posts on the developing economic effects of Katrina over the past week are here, here, here, here, here and here.

First, the impact on refining capacity. The storm shut down about two million barrels a day of crude-oil refining capacity. That translates to the loss of about one million barrels a day of gasoline production, which is about 10% of total U.S. demand. It is now apparent that at least four refineries that together generate about 5% of U.S. oil-refining capacity will be down for at least a month as those facilities are repaired. Meanwhile, damage to production capacity has also been extensive. Although production is coming back on-line slowly, it's becoming clearer that it will take at least several weeks -- and perhaps months -- for production levels to return to near pre-Katrina levels.

As noted here, the International Energy Agency ordered the release of two million barrels a day of crude oil, gasoline and other fuels on to the world market from their strategic stockpiles over the next month and, in response, gasoline and crude-oil futures fell on the Nymex Exchange for the first time since the storm. But the IEA's move refects that the world is now running partly on its fuel reserves that have been set aside for emergency use. Inasmuch as the amount of spare production capacity on the world market is particularly thin at this time, any further blips on the energy supply or demand radar screens would have even greater economic impact than those we are already experiencing.

Similarly, the news on the production side of the energy industry is not particularly optimistic, either. Six days into the recovery from Katrina, energy producers have been able to restart about 250,000 barrels a day of oil and 3 billion cubic feet of daily gas production that had shut down in anticipation of the storm. In comparison, six days after the smaller Hurricane Ivan last year, energy producers had restarted almost 850,000 barrels a day of oil and 4.1 billion cubic feet of natural gas. In addition to the extensive damage to offshore drilling and production facilities, roads and waterways, a big reason for the slow recovery is a practical problem -- the service companies that provide transportation and equipment for damage assessment and repair along the Gulf Coast are also in a state of chaos. Many of those companies' employees are homeless and living temporarily elsewhere, complicating the damage assessment process greatly. As a result, concrete information on the status of offshore production facilities and pipelines remains sketchy, at best.

Finally, at least indirectly tied to the dislocation of gasoline supplies resulting from Hurricane Katrina, don't miss James Hamilton's witty analysis of California Attorney General and demagouge Bill Lockyer's incredibly disingenuous plan to keep California gasoline prices low.

Posted by Tom at 11:40 AM | Comments (0) | TrackBack (0)

Robert Reich on the dangers of the political economy status quo

Robert B. Reich is University Professor and Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University and at the Brandeis Heller School of Social Policy and Management. He has served in three national administrations, most recently as Secretary of Labor in the Clinton Administration. Daniel Drezner points us to this NY Times op-ed in which Mr. Reich provides a fine analysis of the dangerous economic effects of the seemingly intractable governmental tendencies toward protectionism and pork-barrel spending:

Oil shocks, hurricanes and housing bubbles aside, consumers who are worried about their jobs and wages will be reluctant to buy goods and services, thereby dampening any recovery. But the new insecurity is undermining our national interest in other, less predictable ways by setting off political resistance to economic change, with negative repercussions that ripple beyond the economy.

Forty years ago, free-trade agreements passed Congress with broad backing because legislators recognized that they helped American consumers and promoted global stability. But as job and wage insecurity have grown, public support for free trade has declined. The North American Free Trade Agreement, which passed by 34 votes in 1993, was a hard sale for the Clinton administration. But the recent Central American Free Trade Agreement, embracing a far smaller and less populous area, was an even harder sale for President Bush. Despite Republican control of Congress, the trade deal cleared the House in July by just two votes, and then only after heavy White House pressure.

The increasing insecurity of ordinary workers also imperils our national defense by handcuffing the Pentagon. It can't shift the defense budget to fighting terrorism because of local fears that well-paying jobs will be lost. Contrast this with the comparative ease by which the Pentagon downshifted from fighting World War II to the Cold War, more than 50 years ago. Its recent base-closing recommendations ignited a political firestorm, causing even the apolitical Base Closure and Realignment Commission to retreat. The commission's chairman justified its decision to save the Niagara Falls Air Reserve Station, for example, by noting that the base "is the second-largest employer in western New York."

Consider, finally, the pork that's been larded into the federal budget. Republicans may collectively oppose wasteful spending, but as individual legislators they've created more pork than any Congress in history. The new $286 billion transportation act is bloated with 6,371 "special projects" with a price tag some $30 billion more than the White House wanted. The president reassured the nation that it would, at the least, "give hundreds of thousands of Americans good-paying jobs." The new $12.3 billion energy bill cost twice what the White House sought because it's laden with what Senator Pete Domenici, the New Mexico Republican who ushered it through Congress, defends as measures to create "hundreds of thousands of jobs." According to the conservative watchdog group Citizens Against Government Waste, pork programs have risen from fewer than 2,000 a year in the mid-1990's to almost 14,000 this year.

Read the entire piece, which includes several of Mr. Reich's policy alternatives, such as expansion of the earned income tax credit, which is the modern equivalent of the negative income tax that Milton Friedman introduced in his 1962 classic Capitalism and Freedom to provide welfare in the most efficient manner possible. Moreover, Mr. Reich's view toward the Pentagon's intransigence in continuing to feed sacred cows has been well-chronicled in Robert Coram's book, Boyd: The Fighter Pilot Who Changed the Art of War in which he describes the Pentagon's resistance to Mr. Boyd and his acolytes' efforts in revolutioning the way in which the American military approaches war in the late 20th and early 21st century.

Posted by Tom at 8:15 AM | Comments (0) | TrackBack (0)

Chief Justice William Rehnquist, R.I.P.

Chief Justice William H. Rehnquist's death Saturday night creates a second vacancy on the Supreme Court and raises the stakes in what will likely be an intense political battle over the Supreme Court's future.

Over the next days and weeks, many Supreme Court commentators more knowledgeable than I will place Chief Justice Rehnquist's judicial career in perspective (four good previous ones are here, here, here and here), so I will pass along the best of those commentaries. However, one thing is clear at this point: Chief Justice Rehnquist will be remembered -- along with John Marshall and Earl Warren -- as one of the Supreme Court's three most influential Chief Justices.

Chief Justice Rehnquist's death comes less than a month before his 81st birthday, only three months after the retirement of Justice Sandra Day O'Connor and just days before hearings on a former clerk of Justice Rehnquist, John Roberts, who President Bush nominated to replace Justice O'Connor. Judge Roberts confirmation hearing is currently scheduled to open Tuesday, but it likely will be delayed as a result of Justice Rehnquist's death.

The Supreme Court will begin its fall term in under a month with senior Associate Justice, John Paul Stevens, in charge of the Chief Justice's administrative duties. The Supreme Court can continue to function with just seven Justices because the law requires only a quorum of six for the Court to take official action. There is an outside chance that the nomination of Judge Roberts would be approved by October 3, the date on which the Court will begin hearing oral arguments in its fall term.

President Bush may elect to promote one of the existing Associate Justices to the Chief Justice position, but that still requires a new nomination and Senate approval (you can bet that takes Justice Clarence Thomas out of the running). Inasmuch as another lightning rod for political controversy -- Justice Antonin Scalia -- would be the only other Associate Justice that President Bush would consider promoting to the Chief Justice position, my sense is that the President will probably not select the new Chief Justice from the existing Associate Justices. Similarly, it is unlikely that the President would decide to change his nomination of Judge Roberts to be for the Chief Justice position because such a move would require an entirely new nomination of Judge Roberts (he was nominated to be an Associate Justice, not Chief Justice).

This post from earlier this year provides background information on several possible candidates to replace Chief Justice Rehnquist, and this more recent post includes information on several candidates who were considered in connection with the vacancy created by Justice O'Connor's retirement. My speculation at the time that President Bush chose Judge Roberts to replace Justice O'Connor was that his selection of Judge Roberts signaled that the President would select a female candidate to replace Chief Justice Rehnquist, which could mean Fifth Circuit Judge and Clear Thinkers favorite, Houstonian Edith H. Jones.

Posted by Tom at 6:13 AM | Comments (1) | TrackBack (0)

September 3, 2005

A remarkable city responds as Katrina's economic ripples ease a bit

In the chaos of the worst natural disaster of our time, the remarkable Houston community provided extraordinary relief for tens of thousands of New Orleans area evacuees and, in so doing, provided a substantial part of the calming effect that steadied jittery economic markets still attempting to stabilize from the effects of Hurricane Katrina.

First, the economic update. As the evacuation of New Orleans picked up steam on Friday, crude-oil and gasoline futures fell sharply as the federal government and the International Energy Agency arranged to release almost 2 million of barrels of oil daily to cover shortages caused by Hurricane Katrina. The short-term supply relief drove benchmark light, sweet crude oil October futures contracts down nearly $2 to $67.57 a barrel on the Nymex Exchange. Earlier posts on the developing economic effects of Katrina over the past week are here, here, here, here and here.

In addition to the drop in crude futures, Nymex gasoline futures for October fell 22.53 cents to finish at $2.1837 a gallon and the October contracts fell another 23 cents in overnight trading to end at $2.2295 a gallon. Also, Nymex heating oil futures for October traded down 10.74 cents to $2.0911 a gallon.

As noted in this post yesterday, both the Louisiana Offshore Oil Port -- a key Gulf port for oil supertankers -- and the huge Plantation Pipe Line -- which transports fuel to much of the Southeast -- regained power late Thursday and were resuming operations. Moreover, some other fuel pipelines began restarting operations Friday, although supplies of product are way down after the storm knocked out nine Gulf Coast refineries, disrupted gasoline pipelines, and shut down 90% of the oil production and about 80% of natural gas production in the Gulf of Mexico. The Gulf region generates about 30% of U.S. oil production and about 25% of its natural gas production.

On the downside, additional information on damage to offshore oil and gas rigs in the Gulf of Mexico continued to filter in to the markets. The American Petroleum Institute announced that the storm had damaged or displaced about 60 Gulf oil platforms and drilling rigs, and about 30 of those are total losses. A company breakdown on the ownership of the lost rigs and platforms is not yet available. James Hamilton has his usual insightful thoughts on what all this may mean for the overall economy going forward.

Meanwhile, Houston continued to exhibit the remarkable nature that has made this city a comfortable home for my family and me over the past 33 years as city and county officials essentially opened the huge Reliant Park Convention and Sports Complex as massive shelters for an estimated 30,000 evacuees from New Orleans. Officials currently estimate that another 70,000 Gulf Coast area evacuees are staying in the Houston area with relatives or friends, in hotels, or in smaller shelters. The vast majority of these people need financial assistance, and many need medical care. The Houston Chronicle is providing excellent coverage of the situation, as are many Houston-area bloggers, a good number of which are listed in this post of Chronicle business blogger Loren Steffy. BlogHouston.net, the Lone Star Times,Off the Kuff, Eric Berger and many other local blogs have also been providing outstanding coverage of the Houston relief effort.

As bad as this disaster has been, it is difficult to imagine how bad it would have been had Houston's amazing facilities not been available as a transition point for the Gulf Coast region evacuees. Reliant Park is a massive facility that can accomodate huge numbers of people, and it is located near one of the world's finest medical centers, Houston's Texas Medical Center. As large as the loss of life has been in the Gulf Coast region to date, it would have been far larger had Houston's amazing facilities not been available to accomodate the stream of evacuees.

Within Reliant Park, the Astrodome is filled with approximately 15,000 people, while officials have opened up the the adjacent Reliant Arena and the Reliant Park Convention Center to accomodate another 15,000 evacuees. On Friday, city officials also opened the massive George R. Brown Convention Center near downtown Houston, which was filled with air mattresses donated by a local sporting goods retailer. As many as 7,000 people could be staying there as of today.

The flow of buses to Houston continued unabated as conditions in Louisiana have worsened. Rather than turn evacuees away, Houston has simply opened up more of its resources to attempt to accomodate them all, and without much assistance from officials who coordinating the exodus from New Orleans. Texas officials have not been able to coordinate the departures or destinations of the buses with Louisiana counterparts and, at this point, Texas officials have no control over what happens with regard to the exodus from New Orleans.

At this point, Houston officials are using the Astrodome as a staging area for newly arriving buses and their passengers. Medical and security personnel greet each bus after it arrives and pre-screen passengers during the six mile trip to the George R. Brown Convention Center. Meanwhile, Texas Medical Center hospitals equipped and staffed a medical clinic at the Brown Center to handle the larger number of elderly and ill arrivals, and a group of Houston churches are organizing to raise about $4 million for a month's worth of meals and to provide training for volunteer servers at Reliant Park and the Brown Center.

Folks, this is going to be one wild ride. Stay tuned.

Posted by Tom at 7:02 AM | Comments (3) | TrackBack (1)

Fifth Circuit relocates to Houston

Following on this previous post about the Fifth Circuit Court of Appeals emergency operations, Chief Judge Carolyn Dineen King announced on Friday that the Court would temporarily relocate to Houston. The court will resume operations in Houston in the Federal Courthouse at 515 Rusk Avenue in downtown Houston (View image) on September 14, and the current plan is to remain here for at least two months before eventually moving to temporarly quarters in Baton Rouge, La. Given the situation in New Orleans, the timing of a return to the Court's permanent offices there is problematic at this point.

Most of the Fifth Circuit's documents are digitized and backed up electronically on remote servers, so the Court's operations should be able to get back up to speed quickly. Most of the Court's paper documents were moved from the first floor to the second floor of its New Orleans courthouse before the storm, but the status of those files is still undetermined at this time.

Posted by Tom at 4:51 AM | Comments (0) | TrackBack (1)

September 2, 2005

Grilled by Koppel

Late night television viewers are still shaking their heads over ABC Nightline's Ted Koppel's interview last night of Mike Brown, embattled director of the Federal Emergency Management Agency (FEMA). Here is a partial transcript of the interview, a portion of which went like this:

Koppel: You have chaos and anarchy breaking out in a number of different places in New Orleans, it would seem the first thing is to get good solid combat troops like the 82nd airborne or 101st in there. These are guys who are ready to move immediately. Instead you send National Guardsmen and it's taking time. You don't have time.

Brown: [T]here will soon be 30,000 armed National Guard troops in there to restore order, to take control of the facilities and allow us to do our job.

Koppel: Mr. Brown, you know, forgive me . . . But here we are, essentially five days after the storm hit, and you are talking about what's going to happen in the next couple of days.

It didn't get any better for Mr. Brown. Read the entire piece here.

Update: Stephen Bainbridge is asking the same question as Mr. Koppel.

Posted by Tom at 3:37 PM | Comments (0) | TrackBack (2)

A hero in New Orleans

My sense is that this is not the time to be blathering about who to blame for what has happened in New Orleans and the governmental response to it. The logistical complications alone of obtaining and organizing the resources necessary to evacuate hundreds of thousands of people under flooded and destroyed conditions are not understood by many of the folks who are criticizing those who are attempting to coordinate that task. So, I prefer to focus on that effort and the heroes who are arising amid the squalor.

One of those is Dr. Steve Phillip, who wrote the following email this past Tuesday afternoon from downtown New Orleans:

Thanks to all of you who have sent your notes of concern and your prayers. I am writing this note on Tuesday at 2 p.m. I wanted to update all of you as to the situation here. I don't know how much information you are getting but I am certain it is more than we are getting. Be advised that almost everything I am telling you is from direct observation or rumor from reasonable sources. They are allowing limited internet access, so I hope to send this dispatch today.

Personally, my family and I are fine. My family is safe in Jackson, Miss., and I am now a temporary resident of the Ritz Carlton Hotel in New Orleans. I figured if it was my time to go, I wanted to go in a place with a good wine list. In addition, this hotel is in a very old building on Canal Street that could and did sustain little damage. Many of the other hotels sustained significant loss of windows, and we expect that many of the guests may be evacuated here.

Things were obviously bad yesterday, but they are much worse today. Overnight the water arrived. Now Canal Street (true to its origins) is indeed a canal. The first floor of all downtown buildings is underwater. I have heard that Charity Hospital and Tulane are limited in their ability to care for patients because of water. Ochsner is the only hospital that remains fully functional. However, I spoke with them today and they too are on generator and losing food and water fast.

The city now has no clean water, no sewerage system, no electricity, and no real communications. Bodies are still being recovered floating in the floods. We are worried about a cholera epidemic. Even the police are without effective communications. We have a group of armed police here with us at the hotel that is admirably trying to exert some local law enforcement. This is tough because looting is now rampant. Most of it is not malicious looting. These are poor and desperate people with no housing and no medical care and no food or water trying to take care of themselves and their families. Unfortunately, the people are armed and dangerous. We hear gunshots frequently. Most of Canal Street is occupied by armed looters who have a low threshold for discharging their weapons. We hear gunshots frequently. The looters are using makeshift boats made of pieces of Styrofoam to access. We are still waiting for a significant National Guard presence.

The health care situation here has dramatically worsened overnight. Many people in the hotel are elderly and small children. Many other guests have unusual diseases. .... There are (Infectious Disease) physicians in at this hotel attending an HIV confection. We have commandeered the world famous French Quarter Bar to turn into a makeshift clinic. There is a team of about seven doctors and PAs and pharmacists. We anticipate that this will be the major medical facility in the central business district and French Quarter.

Our biggest adventure today was raiding the Walgreen's on Canal under police escort. The pharmacy was dark and full of water. We basically scooped the entire drug sets into garbage bags and removed them. All under police escort. The looters had to be held back at gunpoint. After a dose of prophylactic Cipro I hope to be fine.

In all we are faring well. We have set up a hospital in the French Quarter bar in the hotel, and will start admitting patients today. Many will be from the hotel, but many will not. We are anticipating dealing with multiple medical problems, medications and acute injuries. Infection and perhaps even cholera are anticipated major problems. Food and water shortages are imminent.

The biggest question to all of us is "where is the National Guard?" We hear jet fighters and helicopters, but no real armed presence, and hence the rampant looting. There is no Red Cross and no Salvation