? March 2006 | Main | May 2006 ?
April 30, 2006
John Kenneth Galbraith, R.I.P.
John Kenneth Galbraith died Saturday night at the age of 97 in Cambridge, MA. The NY Times' lengthy story on Galbraith's remarkable life is here and the well-done Boston Globe story on Galbraith's life is here.
Although Galbraith won world-wide recognition throughout his life as a liberal economist, a consultant to presidents, an active ambassador and a prodigious and witty author regarding America's affluence, my sense is that his foremost legacy is as a wonderful teacher. During his long and distinguished career at Harvard, his lectures were among the most well-attended of any professor, prompting Harvard colleague Henry Rosovsky to pass along the now well-known anecdote that even his car mechanic had heard about Galbraith's formidable teaching talent. Galbraith's death comes about a year after the publication of Richard Parker's seminal book about his life, John Kenneth Galbraith: His Life, His Politics, His Economics (Farrar, Straus 2005), reviewed here by Robert Skidelsky.
As noted in this earlier post, Parker in his book notes how the late President Lyndon Baines Johnson's rejection of one of Galbraith's speeches prompted the following hilarious observation from LBJ about economics and economists:
"Did y’ever think, Ken, that making a speech on ee-co-nomics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."
Posted by Tom at 7:43 AM | Comments (0) | TrackBack (0)
April 29, 2006
Bye-bye Reggie; Hello Mario
Although perhaps not always fulfilling, things are certainly always interesting over at Texansville.
In a stunning development, the Texans ignored conventional wisdom and threw today's National Football League draft into chaos by signing North Carolina State defensive end Mario Williams instead of USC running back and Heisman Trophy winner Reggie Bush as the no. 1 pick in the draft. The ESPN.com report is here and the Houston Chronicle's John McClain's story is here.
Although Chronicle sports columnist Richard Justice is typically apoplectic (see also this blog post) about the Texans' decision to select Williams over Bush, the decision is not all that surprising. For their entire existence, the Texans have come into each season with the same basic problems -- the team could not protect its own passer and could not put pressure on the opposition's passer.
Despite those constant problems, the Texans were able to muddle through their first three seasons with the appearance of overall improvement, but then backslid in Season Four last year as the chronic problems became too much for the undermanned franchise to overcome. Thus, when contract negotiations between the Texans and Bush's agent stalled this past week, the decision to attempt to address the Texans pass rush problem with the 6' 7", 295 lbs. Williams -- who is about as fast as Texas QB Vince Young -- was really not unreasonable at all.
There will be much knashing of teeth over the Texans' decision to pass on Bush, but I'm not buying into that type of over-reaction. Last fall when the Texans' season was going awry, most folks simply concluded that the answer to the Texans' troubles was simple -- fire General Manager Charlie Casserly, head coach Dom Capers and Capers' staff. However, as noted in subsequent posts here and here, the solution to the Texans' problems are not that simple.
Consequently, addressing one of the team's chronic problems with the first pick in the draft is not an unreasonable decision. I only wish that they had done so with the first pick in the draft before Year One that the club used on QB David Carr. Oh well, better late than never.
By the way, almost 30 years ago, the Houston Oilers used the first pick in the NFL draft to pick Texas running back Earl Campbell, who elevated the Oilers into several seasons of championship contention and went on to become an NFL Hall-of-Famer. However, there is a key difference between then and now.
Unlike the Texans, that Oilers team was already a pretty good one when it drafted Campbell. In fact, one of the primary reasons that the Oilers were already a good team was defensive tackle Curly Culp, who the Oilers had obtained in a trade a couple of seasons earlier. With Culp plugged into the middle of the Oilers' defensive line, teams could not run consistently on the Oilers and, with Culp occupying the interior offensive lineman, LB Robert Brazile and DE Elvin Bethea were free to generate a devastating pass rush off the edge. That rock-solid defense is what made those Oilers teams of that era good. The addition of Campbell made them nearly great, but that would not have been the case without players such as Culp, Brazile and Bethea.
In contrast, the Texans are not a good enough team yet for Bush to elevate them into a great one. Frankly, I am cautiously optimistic that Texans owner Bob McNair did not allow public pressure to sway him from addressing a core need with the first pick in this draft. Remember that key fact over the next several months as you listen to the Richard Justices of the world rail against the Texans' decision to pass on Bush.
While we're on the subject of the NFL draft, don't miss this NY Times op-ed by Jim McFarland, a former NFL player, who proposes that the draft be abolished in favor of allowing each NFL team to negotiate with any former college player that they want after each season.
Finally, for absolutely the funniest thing I've seen regarding the draft in some time, don't miss this video entitled "New York Jets NFL Draft Blunders."
Update: L.A.-based corporate law and football expert Professor Bainbridge believes that the Texans blew it by not picking Bush, but points out that the Saints may have blew it even more by selecting Bush. And local blogger Kevin Whited makes the case that the failure to pick Bush reflects an overall lack of competent Texans management.
Posted by Tom at 7:31 AM | Comments (3) | TrackBack (1)
April 28, 2006
Lynn Hughes strikes again
First, he hammered the FDIC with a record sanctions award in the long-running case against Maxxam chairman Charles Hurwitz.
Then, he challenged the Enron Task Force's bludgeoning of a plea bargain from a mid-level former Enron executive.
Now, U.S. District Judge Lynn Hughes accused federal prosecutors of "reckless and conscious indifference" for bringing a fraud charge against Oklahoma lawyer John Claro and said he would award attorney's fees to Claro under the Hyde Act that provides sanctions for bad-faith prosecutions.
"The charges are a jumble of claims and stray facts," U.S. District Judge Lynn Hughes said about a health-fraud indictment against John Claro and seven others.Giving short shrift to protests by Assistant U.S. Attorney Vernon Lewis, Hughes allowed Claro to present the court a bill for $327,000, or 1,090 hours at $300 per hour, from Houston attorney Dick DeGuerin.
Grizzled courthouse veterans observed that Claro must have received DeGuerin's discount rate.
The Chronicle article goes on to explain:
A Houston grand jury issued indictments March 25, 2004, accusing Claro and the others of fraudulently enticing employers to buy health insurance policies administered by offshore companies not licensed to do business in the United States.In announcing the indictment, then U.S. Attorney Michael Shelby said in a news release, "Today's indictment brings to light a fraud of unimaginable proportions that victimized thousands of working men and women across the United States and the small businesses that employ them."
[Judge Hughes] threw out the charges against Claro and the other defendants July 20 [2005] after DeGuerin invoked the Hyde Amendment, a 1997 law that allows a court to award reasonable attorney's fees and other expenses if a prosecution is found to be "vexatious, frivolous, or in bad faith."
Judge Hughes has scheduled a May 9th hearing to determine the amount of fees and expenses that he will award in favor of Claro.
Posted by Tom at 6:37 AM | Comments (0) | TrackBack (0)
Lay-Skilling, Week Thirteen
Week Thirteen of the corporate criminal case of the decade (prior weeks posts here) was the Ken Lay week and, based on the media reports, it was alternately either the most boring or the most entertaining week of testimony in the trial to date.
However, from my vantage point of reading the transcript of each day’s proceedings and sitting in occasionally on the trial when I can, Lay’s testimony underscored what the Enron Task Force’s strategy has become in this case — a show trial to degrade Lay and Skilling for denying the presumption that underlies Task Force’s case. In so doing, the Task Force is hoping that the jury equates humiliation with guilt rather than noticing the gaping holes that have emerged in the Task Force’s case.
Before addressing Lay’s testimony, it’s helpful to step back and review how we got here. Since shortly after the Enron saga began in late 2001, the Task Force and a large number of media outlets have promoted the now common theme that Enron was merely a house of cards and that the company's intrinsic instability was hidden from the investing public by a deceitful management team that Lay and Skilling led.
That view has been readily embraced by a wide-range of societal forces, such as publicity-seeking politicians who don't allow facts to get in the way of demonizing unpopular entrepreneurs for political gain, government prosecutors who improperly expand the reach of criminal laws to further their careers, competing businesspeople and business plaintiffs’ lawyers seeking to profit from Enron's demise and a pliable public that finds it easy to resent wealthy businesspeople, particularly after the bursting of a stock market bubble. As reflected by this discussion over the gross injustice of what happened to the four Merrill Lynch executives in the Nigerian Barge case (one that hopefully is in the process of being righted), these societal forces believe that they understand the Enron morality play so thoroughly that otherwise thoughtful and intelligent people lose the capacity for independent thought regarding Enron and reject any notion of ambiguity or fair-minded analysis in ferreting out the truth of what really happened at Enron.
This common view of Enron ignores the more nuanced view that has arisen during the Lay-Skilling trial. In many ways, Enron was an innovative firm, both in its primary business activities and in the ways in which it raised money. Experts in structured finance and derivatives recognize this and have already written extensively about Enron's innovation in that regard (see, for example, Christopher Culp and William Niskanen's Corporate Aftershock: The Policy Lessons from Enron and Other Major Corporate Corporations and Culp's subsequent book, Risk Transfer: Derivatives in Theory and Practice).
Even Enron's original purpose in using special purpose entities ("SPE's") was sound and creative, at least before former Enron CFO Andrew Fastow and henchman Michael Kopper hijacked a couple of them. With equity owned primarily by investment banks and other financial institutions, the SPE's were initially intended to be private equity funds with completely separate management from Enron. The main attraction of the SPE's for investors was the funds' preferred right to invest in Enron assets, which benefitted Enron by allowing the company to preserve liquidity and hedge risk.
Thus, the picture that has emerged during Skilling and Lay’s testimony is that Enron was engaged in mostly legitimate and beneficial financial activities, including energy trading, structured finance and other financing transactions that had literally never been attempted before, and certainly never on the scale that Enron generated them. As a result, it is critically important in determining the truth of what happened at Enron — particularly when the futures of two men and their families are at risk — to distinguish between Enron's role as a legitimate, innovative company and the fraud that Fastow and Kopper engineered.
Unfortunately, the Enron Task Force has utterly dispensed with any notion of truth and fairness in pursuing convictions of Lay and Skilling. A case in point is Enron Task Force prosecutor John Hueston’s first questions out of the box to Lay, which I witnessed on Wednesday afternoon. Toward the end of direct examination, Lay and his counsel, Mac Secrest, discussed Lay’s attempts to repay $7.5 million that he still owes Enron, a point that Hueston railed about during opening argument in the case. After the now-insolvent Lay recounted how he and the Enron Creditors’ Committee had worked out a settlement in 2004 under which he would repay the debt, Secrest asked Lay whether the deal had been consummated. The following exchange ensued:
Q. Did you actually execute the document, along with your wife?A. I -- Linda and I -- I think it was early July 2004 – did execute this agreement, and a lawyer representing the creditors committee also executed it. [. . .]
Q. Okay. Was that agreement actually finalized?
A. It was not finalized. And it was not finalized because John Hueston blocked that deal.
MR. HUESTON: Objection. That is just outrageous.
THE COURT: I sustain the objection.
MR. HUESTON: I wish I had such power.
THE COURT: The jury will disregard the last answer.
Well, that’s certainly a little detail that Hueston conveniently left out during opening argument in disparaging Lay about the non-payment of the debt. With that backdrop, the following is Hueston's opening cross-examination of Lay:
Q. I'd like to start by just writing something up here. Mr. Lay, your attorney, in opening statement, said the following: "By our deeds we are known." You'd agree with that; right?A. Yes. Yes, at least in part.
Q. Okay. So you're backing way from that? From the statement of your attorney? Maybe? Sometimes?
A. No. Our deeds are more important. Life is a little more complicated than that, though.
Q. Okay. Well, let's elaborate. We're going to come back to that $7.5 million. But just to make it clear, as of today, you have not repaid one dollar of the principal owing on that $7.5 million from Enron as of the end of 2001; correct?
A. We tried to, and you blocked it.Q. Sir, have you repaid even a single dollar of the principal from November 27th, 2001 until today? It's a simple question.
A. We have not because you blocked it.
Q. Did the Task Force block you from doing that in January of 2002?
A. Mr. Hueston –
Q. It's a simple question.
A. -- you know you blocked it.
Q. Sir, did the Task Force block it in January of 2002?
A. It was not due in January of 2002.
Q. So you didn't repay it in January of 2002?
A. We tried to repay it in 2003, 2004, and you blocked it.
Q. Simple -- simple question.
A. And simple answer.
Q. Zero is the right response for the principal; correct?
A. It's not the right response, but you can write it down.
Q. All right. Is that incorrect? Is there more than a dollar? Have you paid more than zero principal balance?
A. Mr. Hueston, when I was sworn in here, I was sworn in to tell the truth and the whole truth, not partial truths.
Q. Okay. I'm going to try to ask simple questions and --
A. Good.
Q. -- and so, that one again, once more: No principal paid; correct?
A. No principal paid because you blocked the settlement.
Q. We'll get to that later. Let's go to another item.
So, let’s see here. In the corporate criminal case of the decade and the Enron Task Force’s legacy case, the first subject of the Task Force's cross-examination of the former chairman and CEO of Enron is his failure to repay a $7.5 million debt to Enron that is not even a part of the criminal charges against him and that the Task Force blocked him from repaying, to boot. Hueston followed that dubious initial line of questioning with the following subjects, which were not any more substantive:
Making the absurd suggestion that Lay was witness tampering by attempting to make contact with a couple of prospective witnesses in the trial. Since when is it wrong to attempt to talk with potential witnesses in a trial? Only in the Lay-Skilling case, where the Task Force has effectively precluded dozens of important witnesses with exculpatory testimony for Lay and Skilling from testifying at trial by designating those witnesses as unindicted co-conspirators in a conspiracy that the Task Force has not come close to proving during the trial.Chastising Lay for his attorney Mike Ramsey calling key Task Force witness Ben Glisan a “monkey” to media reporters after Glisan’s testimony several weeks ago. Frankly, Ramsey’s characterization of Glisan was mild in comparison to how Task Force and government representatives have referred to Lay in the media. For good measure, Hueston then bizarrely criticized Lay for approaching Glisan during a courtroom break and expressing his sorrow for what Glisan and his family had been put through by the Task Force.
Paralleling a major cross-examination point with Skilling, criticizing Lay for not following Enron’s Code of Ethics regarding disclosure to the Enron board of his investment PhotoFete, a small Enron vendor operated by a former girlfriend of Skilling. It is one of the more revealing indications of the fundamental weakness of the Task Force’s case that the prosecution has asked dozens – maybe hundreds – of questions to Lay and Skilling over the past two weeks about PhotoFete and none to date about such key issues as the alleged Global Galactic agreement (see also here) and the alleged huge conspiracy that Lay and Skilling supposedly orchestrated at Enron.
On Thursday morning, Hueston made a big deal out of the fact that Lay’s son had shorted Enron stock in 2001. Apparently, Hueston was attempting to cast aspersions on Lay’s earlier testimony that short sellers had contributed to the market panic that prompted Enron’s collapse in late 2001, but Hueston’s questioning was typically disingenuous. Neither Lay nor Skilling have ever blamed legitimate short-sellers as being a material cause of the market panic that doomed Enron. Rather, Lay and Skilling have testified that certain short-sellers’ planting of false and misleading information about Enron in the financial media fanned the flames of the market panic. Not surprisingly, Hueston did not ask Lay if he thought his son had planted any false information about Enron with the media.
Is there any question about what is really going on here? As Larry Ribstein noted last week in regard to the similarly vacuous cross-examination of Skilling, the Task Force is betting that guilt in this case will not be determined by the sometimes messy and difficult process of sorting out the truth, but on ephemeral matters to the charges that the jury can easily understand.
Lay's sales of stock to meet margin calls and use of his line of credit with Enron is another case in point. The Task Force has not charged Lay with insider trading for selling his Enron stock or that Lay did anything illegal with regard to using the board-approved line of credit, but that has not stopped the prosecution from hammering Lay with regard to the sales, which approximated $70 million in 2001. The Task Force's theory is that Lay's entirely legal decision not to advertise his sales of stock back to the company publicly is evidence that Lay was hiding other bad news about Enron from the markets.
"If the market had found out you had sold $70 million of stock in that time, that actually would have caused the stock to tumble?" asked Hueston about the stock sales.
"It depends, Mr. Hueston," responded Lay, who went on explain that using cash from internal stock sales to Enron to preserve his Enron stock as collateral for private loans was a sign that he had faith in Enron stock. Lay shot back at Hueston: "There was no requirement that I disclose any of that. You're trying to mislead the jury as to somehow I was doing something illegal, and I was not."
When the Task Force did dip into the evidence relating to the substance of its charges against Lay -- such as the resegmentation of the retail unit or the international division's water unit (Wessex) -- the dubious nature of its actual charges quickly becomes evident. On Thursday afternoon, Lay calmly but firmly refuted each area that Hueston addressed and -- although one might disagree with Lay's business judgment -- none of his answers came close to indicating that this was a man who was desperately conspiring to cover up a massive fraud so that he could dump more Enron stock.
Finally, late in the day, Lay observed to Hueston: “You can go where you want with this, but I think this is a real waste of the jury’s time.” Judge Sim Lake agreed with Lay and made the following observation upon ending the week a half-hour early: “Any jury that has sat through two-and-a-half hours of alleged Wessex impairment deserves the right to leave early.” Although courtroom observers related to me that the jurors, lawyers and courtroom spectators cracked up over Judge Lake's dry wit, Hueston -- who is wound pretty tight -- was apparently not amused.
Of course, who knows how all of this is playing out with the jury? On Wednesday afternoon, my sense was that the jurors — whose apparent leaders appear to be closer in age to the 64 year-old Lay than Hueston, who is about 40 — appeared put off with Hueston’s initial cross-examination, much in the same way that I perceived them to be in regard to Hueston’s similarly misguided cross-examination of former Enron general counsel Jim Derrick during Week Ten of the trial. Peter Lattman of the WSJ Law Blog noted the same dynamic, although most others in the media simply breathlessly reported that Hueston was having his way with a beleaguered Lay. It’s anyone’s guess what the jurors are really thinking.
As for Lay’s direct examination, it was definitely interesting, although perhaps more so reading it than sitting through it. Almost lost amidst the Task Force’s blather is that all of the charges against Lay in this case relate to the period after which he replaced Skilling as Enron’s CEO in mid-August 2001. Lay denied Fastow and Glisan’s testimony that they were telling him as early as mid-August, 2001 that Enron had serious financial problems, and Lay’s testimony is buttressed by numerous documents and an early October board presentation in which Glisan and Fastow reported that Enron’s liquidity position was strong.
Lay’s testimony was particularly riveting regarding the accelerating crisis in Enron’s credit and equity markets after the series of Wall Street Journal articles beginning on October 17, 2001 that revealed Fastow’s shenanigans with certain SPE’s to the markets. Enron’s fate was literally sealed within three weeks, maybe even less time, and Lay’s testimony provides fascinating insight into the conflicting issues and pressures that he was confronting on a daily basis as unsettled markets were quickly souring on the company.
Lay is clearly a proud man who desperately wants to tell his side of the story, and it is quite a story. Born and raised in a family with little money, Lay worked his way through college and graduate school, landed his first job with Houston-based Humble Oil (the predecessor to ExxonMobil), and then served his country admirably as a Naval officer and Deputy Undersecretary of Interior for Energy for six years during the Vietnam War. After his governmental service, Lay rose quickly through the executive ranks of a couple of gas pipeline companies before assuming the chairman and CEO position of the company that eventually became Enron in 1985. From that perch, Lay accumulated a personal net worth of about $350 million as of 2000 as he oversaw the growth of Enron into one of the largest publicly-owned companies in the U.S., and then saw that net worth evaporate over the past four-plus years since Enron's collapse into bankruptcy.
But as difficult as that fall must have been, Lay does not appear to be the type of man who is bothered all that much by the loss of wealth, and certainly not nearly as much as he is aggravated by the Task Force and media’s ravaging of his reputation over the past five years. According to media reports, Lay and Secrest struggled somewhat during the early stages of Lay’s direct examination, and my sense is that their struggles were attributable largely to Lay’s frustration with not being able to explain to the jurors directly — without the limiting framework of a trial — the utter contradiction between his life story and the nature of the criminal charges against him.
Lay will remain on the stand through at least Monday of next week, and probably into a part of Tuesday. Several character witnesses for the defendants will follow Lay, and the Skilling team still has an impressive group of expert witnesses prepared to testify regarding the Task Force’s allegations that Enron’s business practices were outside the ordinary and customary standards of similarly-situated U.S. public companies. Thus, my sense is that the defense probably has at least two more weeks of testimony, and the Task Force will present another week’s worth of rebuttal testimony. Consequently, my best guess at this point is that the close of evidence will take place around mid-May as the corporate criminal case of the decade turns toward what will likely be a very entertaining home stretch.
Posted by Tom at 4:30 AM | Comments (1) | TrackBack (2)
April 27, 2006
Houston attorney pleads
Following on this post from a couple of weeks ago, Michael J. Wing, an attorney who lives in Tyler but practices out of Houston, faces up to 20 years in prison after pleading guilty in Tyler earlier this week to wire fraud charges over defrauding one investor of $500,000 in 2004.
Wing had been charged with 18 counts of securities and wire fraud and, although his plea deal involves only one defrauded investor, he also admitted to defrauding 10 investors of more than $7 million. No sentencing date has been scheduled yet. Hat tip to Letter of Apology for the news.
Posted by Tom at 7:40 AM | Comments (0) | TrackBack (0)
Confounding contango
This post from last week noted the seeming contradiction between rising oil prices at a time of rising inventories and the current longstanding "contango" in the oil trading market -- i.e., futures contracts for a given product are priced substantially higher than that same product for near-term delivery.
In this post, Clear Thinkers favorite James Hamilton takes a stab at explaining the situation, and casts doubt on the conventional wisdom that speculation is a separate force from supply and demand in affecting the price of oil. In so doing, Professor Hamilton makes the following common-sense observation, which you will never hear from politicians and a mainstream media that prefer to characterize business interests that make money speculating on oil prices as greedy capitalists:
[I]f these speculators turn out to be right [that prices will be higher in the future] and earn themselves a tidy profit, they will have done us all a favor. By bidding up the price of oil today and filling the storage facilities to the brim, they will have caused consumers to conserve today in order to have more oil available in the event that we do run into a big shortfall in production before September. On the other hand, if the speculators turn out to be wrong, they bought high and sold low. That would be destabilizing, forcing us all through some current pain, which, if we somehow could predict the future with certainty, will turn out to have been unnecessary. Our only consolation would be that the speculators will undoubtedly feel our pain, and then some, as their multibillion dollar bets flew into the wastebasket.So, the only reason I see to be concerned about the contribution of speculation is if you think that the speculators are in danger of making huge losses. But if that's your concern, I have a simple cure -- just put yourself on the selling side of some of those futures contracts -- let their pain be your personal gain.
Posted by Tom at 7:03 AM | Comments (0) | TrackBack (0)
Defining a framework for Constititutional interpretation
This previous post notes Yale Law School Constitutional Law professor Jack Balkin's (of the popular Balkinization blog) article in which he favors the "living Constitution" approach over originalism as a theoretical framework for interpreting the U.S. Constitution.
In this recent blog post, Professor Balkin addresses a basic structure of constitutional interpretation and the limits of interpretive theory, and breaks down the topic into four basic issues: fidelity, interpretation, construction, and constraint. He then notes:
[T]he issue of what fidelity requires is not the same thing as the question of how the system produces constraint. That is to say, it's possible (in fact it is likely) that the requirements of fidelity permit people to arrive at a wide range of different answers to constitutional questions over time, and that the work of constraining interpretation and construction is achieved by other features of the system. It is often assumed that what constrains judges are a set of rules of interpretation and construction, that, if followed, will produce correct answers that will also constrain judges, or, less ambitiously, keep judges from making arbitrary decisions (and poor decisions) or keep them from moving too far out of the mainstream of constitutional thought.My view, by contrast, is that theories of constitutional interpretation, even the best theories, offer only part of the constraints necessary for the practice of judicial review, particularly when constitutional issues become most strongly contested. Rather, much of the work of constraint is produced by structural and institutional features of the constitutional system.
Check out the entire post.
Posted by Tom at 5:36 AM | Comments (1) | TrackBack (0)
Explaining corporate agency costs
During the Lay-Skilling trial, the questionable governmental policy of criminalizing corporate agency costs is on full display.
In this TCS Daily column, Clear Thinkers favorite Stephen Bainbridge lucidly explains corporate agency costs and why shareholders deserve protection from theft, but not from risk-taking.
Given the government's overwhelming prosecutorial power and the presumption in cases involving failed business decisions, the criminalization of corporate agency costs is a serious threat to justice and to creation of wealth and jobs. Professor Bainbridge is an expert at the top of his game on this key business law issue, so don't miss his analysis.
Posted by Tom at 4:13 AM | Comments (2) | TrackBack (0)
April 26, 2006
Europe's hyprocisy regarding Microsoft
WSJ ($) columnist and Clear Thinkers favorite Holman Jenkins (prior posts here) is on a roll today in his Business World column as he addresses the hypocrisy of Europe pursuing its anti-trust case against Microsoft while simultaneously indulging such transparent European-based anti-trust violators as Airbus. Money quotes:
"Antitrust is untrammeled bureaucratic whim masquerading as law and science, and sometimes the only effective check is a political check.""Antitrust always and everywhere ends up being a neurotic response to ephemeral issues of corporate power, yielding only when the spasms of a previous administration can be politely swept out of sight."
Read the entire column. Good stuff.
Posted by Tom at 6:16 AM | Comments (0) | TrackBack (0)
Another Houston business innovation
Despite the success of Wal-Mart, operating a successful retail business in the U.S. during the best of times is difficult. In that regard, recent years have not been kind to retailers, particularly "big box" retailers -- i.e., those companies that lease large, warehouse-type buildings that anchor a strip shopping center containing any number of smaller retail businesses.
As a result, many of those strip centers have lost their anchor tenants, which often prompted smaller businesses to vacate the premises because of reduced customer traffic. Moreover, inducing a new retail anchor tenant to come into a center that has already lost its previous anchor is usually a dicey proposition, so owners of such centers often are left with the vexing problem of attempting to turnaround a relatively new retail property in a market that is devoid of potential tenants. What to do?
Well, as this Thaddeus Herrick/Wall Street Journal ($) article reports, Houston is at the forefront of an innovation that is helping owners of such properties solve their problem -- big chuches buying or leasing such centers to house part of the growing space needs of the churches:
Several years ago, when leaders at the 5,000-strong Tallowood Baptist Church in Houston realized they needed more space to expand their congregation, they considered building a new church on the outskirts of this sprawling Texas city. Instead, they opted for a less conventional site: a strip mall on the Katy Freeway.Last year, Tallowood began services in a renovated 32,000-square-foot building that was formerly a Circuit City store. In addition to a 300-seat auditorium, the location now boasts 30 offices, a conference room that doubles as a day-care center and a Christian bookstore. "Not everyone comes to church for the architecture," says Larry Heslip, Tallowood's minister of education and administration. "Some people just like to be in a space that's usable." [. . .]
To make room for members, many churches are moving into commercial and retail spaces such as strip malls, big box locations and corporate campuses. Though often less spectacular in design than conventional churches, these buildings tend to be cheaper than new construction.Large churches also see such properties as more desirable because they might attract potential churchgoers who are shopping at a retailer next door or across the street. And plenty of suburban property is available thanks to a commercial and retail push to both the fringes and downtowns of large urban areas. [. . .]
Tallowood paid $7.5 million for the 12-year-old strip center in 2004, acquiring 80,000-square-feet of retail space and 390 parking spaces on about 6.2 acres across the street from a Ford dealer.
Mr. Heslip says new construction would have cost considerably more, and older members might not follow the congregation to a new church. Tallowood spent $500,000 on the renovation of the Circuit City store, a project that presented few construction challenges. The older church, located less than a mile away from the new structure, is undergoing a $26 million expansion.
Tallowood's leaders believe the new campus will attract new followers. For younger members, the church plans to turn what was once the storage bay -- with 24-foot ceilings -- into basketball courts.
At the rear of the building, a modified coffee bar is in the works where Mr. Heslip says folks will be able to come in off the freeway and watch sports network ESPN. And all the church services feature an electronic band, not a choir.
"It's the opposite of the old campus," he says. "And intentionally so."
Posted by Tom at 5:39 AM | Comments (0) | TrackBack (0)
Shell Houston Open -- we have a problem
As noted in this earlier post, the Tournament Course at Redstone Golf Club -- the new home course of the Shell Houston Open golf tournament -- received mixed reviews from the players who played in last week's tournament, a view echoed in this GolfWeek magazine report after the tournament. However, it appears that the verdict on the new course from spectators may not even reach the level of mixed.
First, Chronicle sportswriter and columnist John Lopez noted over the weekend that some spectators were complaining to him of the inordinately long walks between the parking areas and the course entrance, and also the long hikes between the 1st hole green and the 2nd hole tee and the 17th green the 18th tee. That view was shared by a spectator who made the following comment to the Chronicle's Sports Update blog:
"The golf was fine, but the layout is very poor and too massive for a fan-friendly event. The walking distances are much too long and there is minimal multi-hole viewing. The HGA has really messed up on this venue."
But that barb was nothing compared to the scathing criticism that I received yesterday from a friend who attended the tournament over the weekend:
"I got to go to the Shell Houston Open on Friday and Sunday. What the hell is the HGA doing? That course is not PGA quality nor fan-friendly. The only holes you can watch easily are 1 and 18. Not too many folks want to make that 20 minute walk over the bayou to chase down another group on holes 2-17. I also got to watch first hand some pretty pissed-off caddies as they lugged their bags from 17 to 18. That was about a 10 minute walk. The viewing sites are sparse, no spectator mounds. No decent food pavilion. This tournament is doomed when it moves to the week before The Masters."
H'mm. Consequences of bad decisions?
Posted by Tom at 4:00 AM | Comments (2) | TrackBack (0)
April 25, 2006
Uh, Reggie, can you return kick-offs, too?
I may have missed it, but I didn't see the following news reported in ProFootballTalk reported by any of the local media:
Mathis Pulls a WinslowA league source tells us that Texans receiver Jerome Mathis is sporting casts on both hands and bandages on his wrists and arms due to a recent motorcycle accident.
The accident happened recently, and nearly a year to the day after Browns tight end Kellen Winslow auditioned for the role of Superman by flying over the handlebars after attempting a reverse wheelie. Winslow suffered far more extensive injuries, including a torn ACL that knocked him out for the 2005 season.
Per the source, the injuries to Mathis appear to be limited to his arms. The source added that Mathis looks like "a mummy from the elbows down" (which raises all sorts of interesting bathroom issues).
Mathis, who excels at returning kick-offs, was the only member of the Texans team to make the NFL Pro Bowl All-Star game this past season.
Posted by Tom at 9:33 AM | Comments (1) | TrackBack (0)
A class act calls it quits
George Melloan, the deputy editor, international, of The Wall Street Journal and the author of the WSJ's weekly "Global View" column for the past 16 years, is retiring from the Journal at the end of this week. His final Global View column is here, which concludes as follows:
As readers may have suspected from the above, this is my last Global View column. After 54 years of joy at being part of a great news organization, I am retiring at the end of this week. I will keep myself busy writing a book about the 36 years I have spent writing and editing a portion of the copy you have read on the Journal editorial pages.Part of the pleasure of this column has been the exchanges I've had with readers. Let me thank again those of you who have been generous with your time in sending me your thoughts and criticisms. A tiny few readers have expressed their disagreement in barnyard terms, but, having grown up on an Indiana farm, I long ago became familiar with that kind of discourse. I can quite understand hostile reactions to the preachments of a newspaper columnist, since I occasionally have tantrums myself when I disagree with a journo who sees the world in a different light. In America, neither side, thank goodness, can use the power of the state to suppress the other.
I will leave this column in the hands of a far younger and more talented writer. It has been fun, but all good things must end. Sayonara.
Melloan is a talented writer on business and politics, and I have liberally cited his columns in these previous posts. His common sense and -- most of all -- clear thinking will be sorely missed. Congratulations on a fine career and a job well done.
Posted by Tom at 7:31 AM | Comments (0) | TrackBack (0)
Plains Exploration's big deal
Houston-based Plains Exploration & Production Co. announced Monday that it has agreed to acquire Stone Energy Corp. of Lafayette, La. and assume the company's debt in a stock deal with a current value of about $1.35 billion.
Under the agreement, Plains will swap 1.25 common shares for each Stone Energy common share as Plains expects to issue about 34.5 million shares and assume about $485 million in debt. When the acquisition closes, Plains shareholders will own 70% of the combined company with Stone Energy shareholders owning the balance. Stone Energy shares rose $1.76 to $48.86, while Plains stock declined $2.92 (7%) to $39.05 as of the end of yesterday afternoon's New York Stock Exchange composite trading.
The primary purpose of the acquisition is to diversify Plains heavy concentration of reserves in California into Louisiana and the Gulf Coast. After the acquisition closes, Plains will have a proved reserve base of about 500 million barrels of oil equivalent (about 80% in oil) with operations in California, the Rocky Mountain region, Texas and the Gulf of Mexico.
Posted by Tom at 6:55 AM | Comments (0) | TrackBack (0)
Protecting Bezos
In this era of increasing skepticism regarding executive compensation of public companies, I pass along this Seattle Times blurb on the compensation package of Amazon.com's CEO, Jeff Bezos:
Amazon.com spent $1.1 million last year protecting Chief Executive Jeff Bezos, according to regulatory filings.Since 2003, the online retailer has paid roughly $3.2 million on security for Bezos, including at business facilities and for business travel. The expense showed up for the first time on the company's annual proxy, which was filed Thursday with the Securities and Exchange Commission.
Meanwhile, Bezos' pay remained the same for the eighth year: $81,840.
As the company's founder, Bezos owns 101.3 million shares, or 24.3 percent of the company, worth about $3.68 billion.
80 grand in annual compensation and over a million in security costs? Sounds as if Bezos should trade jobs with his bodyguard. ;^)
Posted by Tom at 6:45 AM | Comments (0) | TrackBack (0)
The real presumption in the Lay-Skilling case
Although the key presumption in the criminal trial of former key Enron executives Ken Lay and Jeff Skilling is supposed to be that the men are innocent of the charges levied against them, a far different presumption is turning out to be the key one in the trial.
The Enron Task Force's case against Lay and Skilling heavily relies on an unstated presumption -- that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something in connection with Enron's descent into bankruptcy. Although the presumption is superficially appealing because of the human instinct to find scapegoats for failure, it is insidious because it is not true.
Yesterday, during his initial direct examination, Lay challenged that presumption by testifying that Enron's meltdown was the result of an unfortunate series of events that coalesced in undermining the market's trust in the company. As regular readers of this blog know, I have studied the Enron case and come to much the same conclusion as Lay. Enron was a "trust-based" business -- that is, Enron's business model required that its customers rely on the company's financial integrity and not necessarily its net worth. Accordingly, when customer confidence in a company such as Enron is undermined, participants in that company's markets become less willing to engage in the purchase or sale of long-term contracts that might not be fulfilled. Consequently, as the "bid-ask" spreads on trading contracts in Enron's trading business diverged in late 2001, Enron's markets unraveled, Enron's formerly profitable trading business collapsed and the company melted down into bankruptcy.
A typical reaction of the media reporters covering the Lay-Skilling trial have labeled the "run on the bank" explanation of what happened to Enron as audacious, but it's really not. Although the bankruptcy of a company as large Enron is unusual, Enronesque experiences for even the largest trust-based companies are not. In fact, over the past couple of years, two of the largest companies in the U.S. -- American International Group and General Motors -- each have had their own Enronesque experience. AIG survived its Enronesque experience; it remains to be seen whether GM will. In understanding how companies deal with such a loss of trust in the marketplace, it is helpful to review a few previous posts about AIG and GM's experience:
AIG's Absolutely Enronesque experience, how AIG was reeling as its experience continued and continued until the company was able to wind it up by serving Hank Greenberg and a few other executives up to the Lord of Regulation.Thinking about GM's Enronesque experience as the company's Enronesque slide continues.
Finally, although not related to either AIG or GM, this post discusses Allied Capital's strategy for avoiding an Enronesque experience.
Although AIG and GM are trust-based businesses, they are different companies than Enron was, and the market forces that AIG faced and that GM continues to face are different -- and in many ways, more favorable -- than the dicey market conditions that Enron confronted in 2001. However, the point remains that, if any trust-based company loses the trust of the market, then the same thing that happened to Enron could happen to any such company, and such a breach of trust is not necessarily the result of the criminal wrongdoing of its leaders. That's an important point to remember as the Enron Task Force continues to rely on its dubious presumption to prop up a fundamentally weak and flawed case in attempting to place Lay and Skilling in prison for most of the remainder of their lives.
Posted by Tom at 5:31 AM | Comments (11) | TrackBack (0)
April 24, 2006
Stephen Cooper's big payday
This earlier post (also see here) noted the wrangling that had developed in the Enron bankruptcy case in New York over former Enron chapter 11 CEO Stephen Cooper's $25 million "success fee" request. That success fee, mind you, was on top of over $100 million that Cooper's firm had already made in providing debtor-in-possession management services to Enron.
Well, as the thorough Steve Jakubowski reports here, Cooper's proposed compromise of a $12.5 million success fee was approved late last week by the Enron Bankruptcy Judge, Arthur Gonzalez.
Not bad work if you can get it. But still no word yet from Lynn LoPucki.
Posted by Tom at 7:43 AM | Comments (2) | TrackBack (1)
A potentially Sharp tax on lawyers
Flying somewhat beneath the radar screen of a Houston business community that is preoccupied by the corporate criminal case of the decade is a new proposed state tax on earnings of partners that exceeds $300,000 a year (are you listening, law firm partners?).
This Ft. Worth Star-Telegram editorial surveys the political landscape regarding the proposed tax, which has been proposed by the so-called Sharp Commission, the special tax reform commission that former state comptroller John Sharp chaired. The proposed tax is part of a legislative effort to meet a June, 2006 deadline to fix the state’s funding system for schools and -- as you might expect -- more than a few law firms are opposing it.
Among other things, the Star-Telegram editorial notes that opponents are contending that the tax is unconstitutional because the Texas Constitution contains a 1993 amendment that specifically prohibits any “tax on the net incomes of natural persons, including a person’s share of partnership and unincorporated association income” without approval by voters in a statewide referendum.
Posted by Tom at 7:04 AM | Comments (4) | TrackBack (0)
Enron point and counterpoint
As former Enron chairman and CEO Ken Lay prepares to take the stand today in Week Thirteen of the corporate criminal case of the decade, I wanted to pass along an interesting exchange of posts from this past week.
This previous post noted this Jim Johnston/Paul Fisher Heartland Institute article that questions the demonization of Enron generally and the validity of the Lay-Skilling prosecution, in particular.
Chronicle business columnist Loren Steffy, who has believed for a long time that the book should be thrown at Lay and Skilling, responded to the Johnston-Fisher piece in this blog post.
In this follow-up post on the Heartland blog, Johnston replies to Steffy's post and concludes by making the point that the type of innovative risk taking that Enron engaged in is often necessary for the creation of new markets, wealth and jobs:
I am glad to hear that the establishment of a once vibrant risk management system for natural gas is not just chopped liver in Mr. Steffy’s opinion. The failed attempts with broadband, water and more importantly electricity, were good attempts and much was learned from the efforts. Maybe someday markets will be established in broadband and water. Electricity markets are even now recovering. It will take entrepreneurial companies with sizable assets to reestablish these markets. These companies will also have to watch out for the politicians.
These companies will need to watch out for the prosecutors, too!
Posted by Tom at 6:21 AM | Comments (0) | TrackBack (0)
Appleby wins SHO in a cakewalk
Stuart Appleby led from wire-to-wire in winning his second Shell Houston Open golf tournament Sunday at the new Tournament Course at Redstone Golf Club. The final leaderboard is here, local golf writer Ed Fowler's report on the tournament is here, and GolfWorld senior columnist John Hawkins' analysis of Appleby's remarkable performance is here.
Appleby lapped the rest of the SHO field as his 19-under-par performance was six shots better than second-place finisher, University of Texas alum Bob Estes. Appleby posted seven birdies in his closing round as he shot 66-67-69-67 for the tournament on the par-72, 7,500 yard Tournament Course layout. Inasmuch as the tournament was played under near-perfect weather conditions, the field scored well on the new course -- better than two thirds of the 70-player field on the final two days finished under par.
On a personal note, Houston clearly has a special place in Appleby's heart. His first win at the SHO came in 2002, about a year after his wife, Renay, had been hit by a car at the airport in London and killed. Everyone at that tournament will recall the tears in Appleby's eyes as he accepted the trophy and spoke of carrying on. He has since remarried, is now the proud father of a 1-year-old daughter and is enjoying his best season on the PGA Tour.
The verdict on the new Tournament Course -- the foundation of the SHO's effort to elevate its presence on the PGA Tour -- was decidedly mixed. The tree-lined course looked gorgeous on television and several players in the field complimented the design over the weekend. Jesper Parnevik, playing in his first Shell Houston Open, shot a 71 Sunday to shoot a one-under par 287 for the tournament, liked the course:
“I think it was very nice for a brand new golf course. There’s no funkiness about it. Very fair."
Parnevik also thinks the move to a new date next year the week before The Masters Tournament will help the SHO:
"It seems like Phil [Mickelson is] going to be here. There’s pros and cons playing the week before a major. Some guys love to play. A guy like Tiger never plays. I think it’s going to be a fairly good field. I like to play before the majors. The only thing about Atlanta is you could drive to Augusta. Now you have a 2 ½-hour flight."
That won't be much of a problem as I'm reasonably sure that the SHO will charter a flight after the tournament next year to transport those players who are playing in The Masters directly from Houston to Augusta. Second-place finisher Estes also thinks the SHO field will improve with the new date:
“Overall, it’s going to help. You’ll get a lot more foreign players. You’ll definitely have a stronger field and get more of the top players.”
A couple of other players expressed optimism that the Tournament Course will help players prepare for Augusta:
“I think it’s a nice warmup for the Masters,” said Ted Purdy. “With the big greens (here), I’m sure they’ll be in perfect condition. It’s a very similar green design, with the big undulations. It will be fun for Houston to have a lot more of the international players here. I think you’re going to have a real strong field.”
“If they can find a way to get the greens good and fast, with the undulations, I think they can draw a good field here,” said Lucas Glover. “They’ll have to find a way to get the greens fast so everyone will want to come before the Masters. This is as good a tuneup for the Masters as anything because of the iron shots, hitting it into the right areas on the greens.”
However, a couple of key players -- neither of whom played particularly well on the new course -- expressed reservations about coming back next year:
"The golf course did not grow on me," said three-time SHO winner Vijay Singh, who shot 2-under for the tournament. "Normally the more you play one, the more it grows on you. For some reason, it didn't do that. I hope they go back to the old golf course next year. I think a lot of the players feel the same way.""Every hole is pretty similar. I wish they had used more trees instead of lakes. It's a modern golf course. It's not a bad golf course. I prefer the other one."
Asked whether he will return to the tournament next year during its new date before The Masters, Singh didn't sound enthusiastic:
"That's something to be thought about. I don't know. If we play the other golf course, I'd play."
Meanwhile, crowd favorite John Daly, who finished in the top 10 in the last three SHO tournaments, but shot 1-over par to finish 59th, also was not happy:
"Every hole is different. Every day, you've got to sit there and decide what you've got to hit off the tee. That one (the Member Course), it's driver. You know it's driver. This one, there are too many certain shots you've got to think about each tee, depending on the wind. It makes it a lot harder."
And will Daly return to play the Tournament Course again?
"Probably not. It doesn't set up for me at all."
Meanwhile, SHO tournament director Steve Timms said he heard much more positive than negative feedback about the Tournament Course during the week.
"You're not going to get a 100 percent vote of confidence."
Any changes in the course anticipated?:
"It's also 11 months away, so we'll see. Some things can change."
Any chance that one of those changes would be a move back to the old Redstone Course:?
"None at all."
Finally, kudos to the CBS Golf Television crew for their fine tribute to the late Dick Harmon during coverage of the tournament. On Saturday, CBS ran a moving segment on Dick in connection with reporting on the opening of the new Dick Harmon Learning Center at Redstone this week. CBS color commentator Lanny Wadkins, on old friend of Dick's, gave a particularly tender testimonial on his friendship with Dick and his appreciation for Dick working with Wadkins' sons on their golf games. It was a wonderful expression of admiration for a great ambassador for Houston, who is sorely missed.
Posted by Tom at 4:28 AM | Comments (0) | TrackBack (0)
April 23, 2006
LBJ on Ee-co-nomics
Thanks to Arnold Kling for pointing out this Robert Skidelsky review of Richard Parker's new book, John Kenneth Galbraith: His Life, His Politics, His Economics (Farrar, Straus 2005), which contains the following earthy observation on economics from the late Lyndon B. Johnson, made to Galbraith while Johnson was throwing away a Galbraith-authored draft of a speech:
"Did y’ever think, Ken, that making a speech on ee-co-nomics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."
Posted by Tom at 6:29 AM | Comments (1) | TrackBack (0)
April 22, 2006
Stros 2006 Review, Part One
This is my first periodic review or the Stros' season in my third straight year of blogging the club, and the first 10% of the season has has initially justified my generally rosy pre-season outlook. The club has burst out of the gate with a Major League-best 11-5 record and, with the exception of the relief pitching, every other part of the club has been performing at above-expected levels so far.
As regular readers know, I'm a stathead with regard to analyzing baseball, so here are the key stats of the Stros' hitters (pdf of hitting stats here) and pitchers (pdf of pitching stats here) through the first 16 games, courtesy of Lee Sinins' sabermetric Baseball Encyclopedia:
The abbreviations for the hitting stats are defined here and the same is done for the pitching stats here.
16 games is not a large enough sample size of games to draw definitive conclusions about the Stros this season, so the following are just some good and bad trends that I see through the first 10% of the season:
The Good: The Stros are off to an 11-5 start.The Bad: Most of the games have been against the likes of the Marlins (5-10), the Nationals (7-10), the D-Backs (7-10) and the Pirates (5-13), all of which are likely to be bottom-feeders in the standings this season. Thus, before getting too excited, let's wait to see how the Stros do against better-quality competition.
The Good: 3B Ensberg (22 RCAA/.522 OBA/.964 SLG./ 1.486 OPS) and 1B Berkman (18/.408/.721/1.130) are absolutely raking the ball right and both of them are off to All-Star quality starts. Berkman recently went over 300 RCAA for his career and now ranks behind only Bags and Bidg on the all-time Stros RCAA list:
1 Jeff Bagwell 680
2 Craig Biggio 351
3 Lance Berkman 300
4 Jose Cruz 277
5 Cesar Cedeno 249
6 Jimmy Wynn 240
7 Bob Watson 216
8 Joe Morgan 170
9 Moises Alou 128
10 Terry Puhl 114The Bad: Newly-acquired LF Preston Wilson (-5/ .273/.435/.708) is looking more like a bust each day. Wilson's spiral downward bottomed out this past week (we hope) against the Brewers when he tied a major league record with 11 strikeouts in the three game series, picked up a golden sombrero (four strikeouts in one game) and a "plutonium sombrero" (five K's in one game -- hat tip to John Lopez) plus two more in the middle game of the series. Given Chris Burke's improved production (2/.389/.563/.951) in limited play to date, Wilson is probably not a better option than Burke in left field.
The Good: Although off to a slow start hitting the ball, RF Jason Lane (0/.357/.429/.786) is showing much better plate discipline and has a team-leading 14 walks in 70 plate appearances after drawing only 32 walks in 561 plate appearances last season. Moreover, light-hitting but superlative-fielding shortstop Adam Everett (0/.333/.444/.778) has had his best hitting start this and is showing some pop in his bat (five extra base hits in 57 plate appearances). Even C Brad Ausmus (3/.489/.361/.850) -- arguably the worst-hitting regular player in the National League -- has parleyed improved plate discipline into a decent start. Above-average hitting seasons from these three would be a big boost for the Stros' chances to reach the post-season.
The Bad: Willy Taveras (-5/ .324/.328/.652) is a horrble drag on the Stros lineup from a hitting standpoint. Not only does Taveras lack power (two extra-base hits in 73 plate appearances), the speedy centerfielder has not stolen a base yet and has been caught stealing two times! And despite their relatively strong starts, Ausmus has precisely one extra base hit (a double) in 47 plate appearances and Everett has drawn only two walks in his 57 plate appearances. Neither Taveras nor Everett likely to become a National League-average hitter unless they draw more walks.
The Good: The freak-of-nature Bidg (-2/.338/.450/.788) continues his power surge from last season with seven extra-base hits in 65 plate appearances.
The Bad: Bidg's power surge has come at the expense of plate discipline, which is hurting his on-base average. After having only 37 walks in 651 plate appearances last season, Bidg has only 2 walks in his first 65 plate appearances this season. Inasmuch as Taveras has a below-National League average OBA, Bidg needs to maintain an at least average OBA to help generate baserunners at the top of the Stros' lineup. It's hard for a player to have even an average OBA if he is not drawing plenty of walks.
The Good: Veteran starters Roy O (6 RSAA/2.76 ERA) and Pettitte (-2/5.25) (Pettitte's numbers are deceptively elevated because of a horrid first game), and young starters Wandy Rodriguez (6/2.52) and Taylor Buchholz (2/3.18) have all had solid starts to the season.
The Bad: Backe's elbow injury (on the disabled list and probably out for at least a couple of months) hurts the already shaky starting pitching depth and no one else has stepped up to take Backe's place in the rotation. The Stros could definitely use the Rocket come the first of May. Moreover, the bullpen has been generally shaky so far this season, but that appears to be more a function of working the kinks out during the early part of the season rather than a talent problem. My sense is that Brad Lidge, Dan Wheeler and Chad Qualls remain a highly formidable trio at the end of games for the Stros.
The Good: Chronicle sports columnist Richard Justice, who has made frequent snarky comments toward Stros owner Drayton McLane, actually pens a nice column about McLane.The Bad: The filing by the Stros of the lawsuit against the insurer of the disability insurance policy on Jeff Bagwell confirmed that the baseball career of the greatest player in Stros history is over.
So, all in all, a great start, but there are definitely enough warning clouds on the horizon that Stros fans shouldn't be ordering their playoff tickets just yet. After finishing this weekend's series with the Pirates, the Stros play three against the Dodgers at Minute Maid Park, then go on road to face the resurgent Reds, Brewers, Rockies and Dodgers again with only a couple of games at home during that time against the Cardinals. Consequently, the schedule gets a big tougher for the Stros in the next 10% of their season, so a cool down from the club's hot start should be expected.
Posted by Tom at 1:30 AM | Comments (4) | TrackBack (0)
April 21, 2006
Lookin' good
As noted in this earlier post, the Shell Houston Open golf tournament is taking place this week at Redstone Golf Club. Yesterday afternoon, I was able to watch a few minutes of the USA Network telecast of the first round and was particularly impressed with the overhead shots of the new Tournament Course at Redstone from the "Bloomin' Onion" -- the Outback Steakhouse Blimp.
Unlike the other courses on which the tournament has been played recently, the new Tournament Course is not a "subdivision" course -- i.e, there are no homes lining the fairways of the course. As a result, the tree-lined course with several small lakes looks much better from an aesthetic standpoint than either the other Redstone course or the TPC at The Woodlands, the two other recent venues of the tournament.
My previous post on this week's tournament is here and my review of of the new Tournament Course is here.
Posted by Tom at 6:54 AM | Comments (2) | TrackBack (0)
Lay-Skilling, Week Twelve
The Jeff Skilling segment of the corporate criminal trial of the decade concluded during Week Twelve (prior week summaries are here) as the former Enron CEO testified for a bit over three days on cross-examination from Enron Task Force director Sean Berkowitz and on re-direct from Skilling attorney, Daniel Petrocelli.
As has been my custom during the Lay-Skilling trial, I continue to read each day's transcript of the trial and pop into the courtroom whenever I am in the federal courthouse on other matters and have an hour or two to spare. This week, I was able to sit it on the final two hours of Berkowitz's cross-examination of Skilling, and that experience reinforced my overall opinion of the trial to date -- the Task Force is presenting a fundamentally flawed and weak case against Skilling and Lay.
Given the societal bias against anything having to do with Enron, it is helpful to review from time to time the case that the Task Force has actually presented in court to date. In short, the Task Force has presented a "pump and dump" case that, to a large extent, relies on a complex jumble of innuendo and opinion. According to the Task Force, Enron was so successful in making money in its trading operations that it allowed Skilling and Lay to soft-pedal to the markets the losses that Enron was incurring in several of the company's less successful units.
Mind you, the Task Force is careful not to contend that either Lay or Skilling was involved in fraudulent accounting. Rather, the Task Force asserts that mainly Skilling understated to the market the losses of a couple of poorly-performing Enron business units, including allegedly hiding one unit's losses underneath the blanket of the trading unit's high profits. The Task Force contends that the alleged hiding of these losses -- along with alleged over-reserving of excess profits in the trading unit -- allowed Skilling and Lay to misrepresent Enron to the investing public as a stable logistics company rather than the more volatile trading company that prosecutors allege that Enron had become. As noted in this earlier post at the beginning of the trial, the Task Force's theory of the case relies on its unstated, but nevertheless key, presumption -- i.e., that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something as a result of Enron's failure.
Berkowitz's entire cross-examination of Skilling played heavily on that presumption. Given that dubious premise, it's not particularly surprising that Berkowitz's cross-examination was long on style but noticeably short on substance. Relying on word games and satirical indignation, Berkowitz often gave Skilling little time to answer questions and frequently cut him off during his answers. Meanwhile, Berkowitz failed to pursue most substantive areas of inquiry related to the 28 charges against Skilling in favor of spending an inordinate amount time on relatively superficial matters that have little to do with the charges.
For example, early in the cross-examination, Berkowitz brought up that Skilling was using a jury consultant to assist him in preparing his defense and even showed the jurors the consultant's webpage on the courtroom's exhibit screen. Given the vacuous nature of the entire line of inquiry, it was a credit to Petrocelli's trial instincts that he didn't bother to object. Since when is working with a jury consultant to help establish one's innocence a sign of guilt?
Similarly, Berkowitz spent a substantial amount of time questioning Skilling about his earlier SEC testimony regarding Skilling's investment in Photofete, a former girlfriend's photography business. The investment was clearly small potatoes, but Berkowitz suggested to the jury that Skilling's mistaken earlier SEC testimony about the size of his investment, possible backdating of an investment check and his failure to disclose to the Enron board that he had invested in a small vendor of Enron was definitive evidence of Skilling's lack of credibility. Maybe so, but what about those 28 charges against Skilling? Larry Ribstein summed it up well in this post:
So the biggest fraud of the century is going to come down to Photofete? As I've pointed out in the post linked above, this is all part of what I've called the "corporate crime lottery," where guilt depends on such things as what juries will understand rather than on the essential wrongfulness of the misconduct.
Despite widespread speculation that Skilling would come unhinged under the pressure of cross-examination, he did not. The only time that Skilling flashed anger was during the second day of cross-examination when Berkowitz suggested in a line of questioning that changing the classification of a public company's preliminary earnings estimates in the company's later published financial results was conclusive evidence of accounting fraud. Under Berkowitz's way of thinking, if a company's initial estimates later change in the company's actual published results, it's prima facie evidence of fraud, which would make virtually every public company in the United States subject to being indicted for fraud. After Berkowitz persisted in such nonsense during a protracted series of questions, Skilling finally lost his temper for a moment and chastised Berkowitz's mendacity. However, from my vantage point, it seemed clear from the exchange that Berkowitz either did not understand what he was talking about or was disingenuously suggesting that a common practice of most large public companies is a crime.
But if the first two days of Berkowitz's cross-examination were somewhat odd for the failure to address substantive issues related to most of the actual charges against Skilling, the final day of cross-examination was downright bizarre. During the morning session that I attended on Wednesday, Berkowitz quizzed Skilling over a substantive area -- i.e., Enron's trading business and the company's disclosures related to it.
Berkowitz continually asked Skilling spurious questions about Enron's trading business, while Skilling patiently explained to Berkowitz how the questions reflected either his misunderstanding or mischaracterization of the business. Don't take my word for it, see for yourself -- the transcript of the final hour or so of that portion of the cross-examination is here (note "VaR" in the transcript means "value at risk," the elaborate methodology that Enron developed to monitor and control trading risk). As one old local lawyer sitting next to me commented right before the lunch break:
"This is not a fair fight. Skilling is schooling him."
Then, after the lunch break, Berkowitz changed directions and began to question Skilling regarding the reasons that he decided to resign as Enron's CEO in mid-August, 2001. After about 45 minutes of meandering and innocuous questioning, the elderly lawyer sitting next to me leaned over and cracked:
"I think Berkowitz really just wants to have a beer with Skilling and talk things over."
About an hour into his post-lunch break questioning, Berkowitz finally suggested that Skilling had told a former McKinsey & Co. partner shortly after his resignation from Enron that he would consider the CEO job at Lucent. When Skilling denied the allegation, Berkowitz snidely retorted to Skilling "[t]hat's another person you disagree with?" and abruptly ended the cross-examination. Thus, rather than ending cross-examination with a bang, Berkowitz ended it with a whimper (check out the transcript of that post-lunch break portion of the cross here).
How all of this is playing with the jury is one of the fascinating imponderables of trial law. Certainly, given the government and much of the media's demonization of both Skilling and Lay, the Task Force may not need anything more than a weak case to obtain convictions. Peter Lattman of the popular WSJ Law Blog attended Skilling's direct testimony and the first part of the cross-examination, and he thought that the jurors responded negatively to Skilling in regard to the Photofete testimony. During my visit at the closing of cross-examination on Wednesday, the jurors appeared bored with Berkowitz's morning questioning over the trading business and somewhat befuddled by his aimless post-lunch break questioning. For what it's worth, the Tradesports contracts predicting a Skilling conviction did not move a lick during the cross-examination, which at least reflects a perception in that market that cross did not go well for the prosecution.
Although I do not have as good a basis for evaluating the jury as those who are in the courtroom on a daily basis, my approach of reading the transcript, writing weekly summaries and occasionally popping into the courtroom does allow me to reflect on the proceedings a bit more than the folks who are under the pressure of reporting on each day's developments. In that regard, none of the pervasive media reports on the trial picked up on the fact that Berkowitz failed to address two key allegations in its case during Skilling's cross-examination -- (i) the alleged Global Galactic agreement that former CFO Andy Fastow testified that he entered into with former Enron chief accountant and former Lay-Skilling co-defendant, Richard Causey, and (ii) the alleged huge conspiracy at Enron.
It doesn't say much about the strength or validity of the Task Force's case that arguably the key issue (see also here) in its case-in-chief is not even addressed during cross-examination of the defendant against whom the issue was directed. Similarly, Berkowitz's failure to question Ski