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August 31, 2006

Merck's good day

As noted earlier here, the occasional bad day that Merck experienced recently in regard to a couple of its Vioxx cases is inevitable when defending tens of thousands of such cases.

However, it's also inevitable that Merck will experience some good days during the Vioxx trial marathon. One of those occurred yesterday as the federal judge in the recent New Orleans trial that concluded with a $51 million jury verdict against Merck threw out the verdict on the basis that the jury's award was clearly excessive.

Meanwhile, according to this Heather Won Tesoriero/WSJ ($) article, a juror involved in awarding a plaintiff a $32 million verdict against Merck in a Vioxx trial that took place earlier this year in Texas' Rio Grande Valley had borrowed money from the plaintiff prior to the trial, a small detail that the juror did not disclose during pre-trial questioning. As noted in this prior post, the Rio Grande Valley was rated by the American Tort Reform Association as the number one "judicial hell-hole" for 2005. The ATRA describes a judicial hell-hole as a venue of "disproportionately harmful impact on civil litigation. Litigation tourists, guided by their personal injury lawyers, seek out these places because they know they will produce a positive outcome - an excessive verdict or settlement, a favorable precedent, or both."

Looks to me as if Merck needs to compare notes with Ford Motor Company over this one.

Posted by Tom at 5:55 AM | Comments (0) | TrackBack (0)

Amazing arrogance

Virginia Republican Senator George Allen is in a fight for his political life, which is not what one would normally expect from a candidate who was recently mentioned as Presidential timber. Senator Allen has been hammered in the media for some apparently patronizing remarks that he made to a minority student, but my sense is that the attitude reflected in this Washington Post article is a far bigger problem for Allen with voters than his impolite remarks to a student.

The article reports that last week “the Secret Service asked Virginia officials if they would be kind enough to shut down all of the HOV lanes on I-395 from 1 to 7 p.m. the next day so President Bush could get where he needed to be,” which was a fundraiser for Senator Allen. State traffic experts explained the likely results of closing the HOV lane to accomodate President Bush and Senator Allen:

There will be approximately 8,600 cars using the HOV lanes over a three hour period (4 to 7 pm). This equates to approximately 20,000 to 22,000 people. If the HOV lanes are closed, according to the District’s estimate the back up of traffic in the general purpose lanes will not be cleared until 10 p.m.

Despite that effect, local officials apparently had quite a time talking the Secret Service out of the plan.

When a couple of politicians expose an attitude that they could not care less about how much they inconvenience 20,000 of their citizens so long as one of the politicians can get to a rubber-chicken fundraiser for the other one on time, that's a pretty good signal that it's time for a change.

Hat tip to Gene Healy for the link to the WaPo article.

Posted by Tom at 5:18 AM | Comments (4) | TrackBack (0)

Understanding contango in the oil markets

As noted in this earlier post, the recent run-up in energy prices and the lingering "contango" in the crude oil trading markets -- that is, futures contracts for a given product priced substantially higher than that same product for near-term delivery -- has prompted the usual conspiracy claims from demagogues who seek more power through damaging regulation of the beneficial trading markets. As if on cue, the U.S. Senate Permanent Subcommittee on Investigations recently issued a report asserting that traditional supply and demand conditions cannot adequately explain current high oil prices and contending that evil capitalist roaders in the trading markets are to blame for a substantial portion of the lingering high prices.

Thankfully, the blogosphere provides a counterbalance to such demagogic appeals. In this post, University of Houston business professor Craig Pirrong disassembles the Senate report, observing at the outset:

Where to begin? The report is a farrago of facts, factoids, and falsehoods stitched together to arrive at a conclusion that is miles beyond what the evidence actually supports. Moreover, although I concur that manipulation is a potential problem in energy markets–as it is in all commodity and even financial markets–the report does not even make the effort to show that current price levels are the effect of manipulation. Nonetheless, it sternly recommends a variety of new regulatory initiatives to combat manipulation, suggesting (by implication) that manipulation is the cause of high oil prices. This is a flagrant example of bait-and-switch of a variety that I imagine that the Subcommittee members would vigorously condemn if committed by your local used car salesman.

The report (and most of the other criticisms of speculation) fails on only two points: logic and evidence. Other than these shortcomings, it’s great.

Read the entire post.

Posted by Tom at 4:41 AM | Comments (0) | TrackBack (0)

August 30, 2006

A few good reads

The following are several reading recommendations for a busy Wednesday:

In this TCS Daily article, Hoover Institute fellow David R. Henderson examines the media coverage of the criminal trials of Frank Quattrone and concludes that it left much to be desired:

The evidence seems to suggest that [Quattrone] was innocent. And even in the unlikely case that he was guilty, the prosecutor never made the case beyond a reasonable doubt, the standard for conviction for a crime. What wasn't a victory, though, was the media's role in this. Many reporters pandered to their audiences' desire to see a wealthy man take the fall because of the dotcom bust.

Meanwhile, the always insightful Stephen Bainbridge posts this interesting TCS Daily article on New York's next governor, the Lord of Regulation, Eliot Spitzer, in which the Professor makes the following observation:

A fair reading of Eliot Spitzer's record as presented by [Brooke Masters's biography of Spitzer] suggests that he is both a genuine cause crusader and a career political hack. Spitzer has consistently used -- and abused -- his authority as New York attorney general to level sweeping accusations against a wide swath of American business. In some cases, like the proverbial stopped clock, he got it right. In a lot of cases, however, the much ballyhooed charges got a lot of press attention but then quietly went away. Indeed, on the few occasions he's taken one of these high profile business cases to trial, he's lost at least as often as he's won. Instead, his record consists mainly of using media pressure to extort settlements from frightened executives.

Finally, I've not addressed the sad case of the the Duke University Lacrosse team members accused of rape, but this recent NY Times article provides a comprehensive review of the case. Perhaps not surprisingly, the two NY Times reporters who reviewed the public documents in the case concluded that the evidence against the three students is neither as strong as prosecutors have publicly claimed nor as weak as defense attorneys have asserted. However, where the standard of proof is beyond a reasonable doubt, this would appear to be a case where prosecutors should have concluded on the front end that the allegations are better left for resolution in the civil justice system rather than the criminal justice system. It's an ugly case that promises only to get uglier as the criminal trial nears.

Posted by Tom at 5:55 AM | Comments (0) | TrackBack (0)

Stros lock up Roy O

In my most recent periodic review of the Stros 2006 season, I observed that the personnel moves that Stros General Manager Tim Purpura made this past off-season do not inspire much confidence that he knows what to do in turning the Stros back into a legitimate playoff contender. However, it's comforting to know that when it comes to the best pitcher in the history of the Stros franchise -- Roy Oswalt -- that Purpura and Stros owner Drayton McLane know exactly what to do.

In the richest contract ever given to a Stros pitcher, the Stros announced last night that they had signed Roy O to a five year extension worth $73 million, but which could be worth as much as $87 million should the club pick up a $16 million option for the 2012 season. Oswalt will be paid $13 million in 2007 and '08, $14 million in '09, $15 million in 2010 and $16 million in 2011. The club can either exercise a $2 million buyout after 2011 or pick up the $16 million club option for 2012. The contract will include a no-trade clause.

While the Stros normally do not do deals for over three years with pitchers because of the high injury risk, Roy O is a special case. Drafted by the Stros ten years ago and developed within the Stros' heralded minor league pitching program, Oswalt jumped from AA ball to the Stros in 2001 and quickly became one of the best pitchers in the National League. Remarkably durable throughout his career to date, Oswalt pitched the key win that vaulted the Stros into their first World Series last season and has developed into one of the best pitchers in MLB history at this stage of his career. Oswalt, who turned 29 yesterday, is tenth in the history of the National League in runs saved against average ("RSAA," defined here) for pitchers through the age of 28:

1 Christy Mathewson 279
2 Tom Seaver 234
3 Robin Roberts 229
4 Don Drysdale 219
5 Dizzy Dean 207
6 Ferguson Jenkins 196
7 Greg Maddux 189
8 Juan Marichal 177
9 Grover C Alexander 176
10 Roy Oswalt 163

Roy O is also comfortably the Stros' career leader in RSAA:

1 Roy Oswalt 163
2 Roger Clemens 103
3 Billy Wagner 99
4 Mike Hampton 76
5 Dave Smith 75
6 Octavio Dotel 67
7 Nolan Ryan 60
8 Wade Miller 56
9 Don Wilson 55
10 Joe Sambito 53

Finally, Oswalt's career 3.09 ERA compares to a league average of 4.29 during the time that he has pitched in the National League.

Thus, although there is substantial risk that this deal could ultimately turn out as badly as the Bagwell contract played out for the Stros, my sense is that locking up Oswalt is a calculated risk that the Stros are smart to take. Roy O is a Stros icon, has shown unusual durability, stays in shape and has that remarkable presence that only big-time players have when it comes to performing brilliantly in high-pressure situtations. Barring injury, Oswalt is well on his way to the Baseball Hall of Fame, along with Bagwell, Craig Biggio, Roger Clemens and perhaps even Lance Berkman, among current Stros players. It's rarely a bad idea to pay top dollar for that type of talent.

Roy O's career statistics are below.

The abbreviations for the statistics above are defined here

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

Priscilla Slade is doing what?

Former Texas Southern University President Priscilla Slade, who is currently under indictment on charges relating to alleged use of as much as $1.9 million of school property for her personal benefit, and who is currently suing TSU over her firing to boot, is teaching accounting at the school this semester.

H'mm. I recognize that Slade is innocent until proven guilty and is certainly entitled to earn a living while awaiting her various trials. But she is teaching accounting at TSU while facing an indictment that effectively charges her with improperly accounting for expenses while TSU president?

If she does not resolve the criminal charges by copping a plea bargain, then Slade and her defense team better be prepared to hear from prosecutors about that little incongruity during her upcoming criminal trial.

Posted by Tom at 4:28 AM | Comments (0) | TrackBack (0)

August 29, 2006

Clarifying the risk of insolvency in China

One of the biggest deterrents to free-market investment in state-controlled economies such as China or Russia is consistent application of the rule of law, and few rules of law are more important to an investment decision than those that bear on the risk of insolvency. So, the news that a long-awaited amendment to China's bankruptcy laws was approved by a powerful government committee and is scheduled to go into effect on June 1, 2007 is an important milestone in the Chinese government's continuing -- but sometimes ineffectual -- attempts to attract greater foreign investment capital in China's economy. A key provision in the new law introduces a mechanism for corporate reorganizations, something that has been alien to the Chinese Communist legal system, but a concept that has preserved massive amounts of employment and going concern value in the U.S. and other Western market-based legal systems.

Investment of foreign capital in China has traditionally been high risk, but the new bankruptcy law reflects that the Chinese government is serious about passing reforms that addresses that risk. Compare that to Russia, where investors still face daunting risk in an economy controlled by a volatile combination of government officials and oligarchs.

By the way, I hope the amendment to the Chinese bankruptcy law corrects this type of problem that arose under the old law. In the meantime, the Chinese government is also attempting to reform the market for funeral attendees in that country.

Posted by Tom at 5:22 AM | Comments (0) | TrackBack (0)

What was that about Casserly not being fired?

As noted in this earlier post, Texans owner Bob McNair allowed former Texans General Manager Charlie Casserly to resign under the pretense that he would be pursuing a job with the National Football League's main office, which Casserly subsequently failed to land. Some Houston media reporters -- such as the Chronicle's John McClain -- actually swallowed the "Casserly resigned" charade.

Thus, my eyebrow raised a bit when I read the following blurb from John Czarnecki's blog over at FoxSports:

How is that?

You would be amazed how many NFL general managers know Matt Millen’s won-loss record in Detroit since he became the team’s general manager.

“How in the hell does someone with a 21-59 record get named to the Competition Committee?” one GM asked me. “How does he keep his job and also get a new contract?”

Said a former member of the committee: “Matt is the wrong kind of person to be on that committee. I just can’t figure out what they are doing, but I’m glad I’m not dealing with it anymore.”

Millen replaced former Houston GM Charley Casserly, who is now working for CBS Sports. By the way, Casserly wasn’t happy with his settlement pay from Texans owner Bob McNair after being fired.

Gosh, I wonder who that "former member of the committee" is (hint - Casserly was formerly a member of the Competition Committee while he was Texans GM)? And then, after dumping on Millen, Casserly goes off on the eminently classy McNair for supposedly being cheap in buying out Casserly's contract.

But John McClain says Casserly resigned. Yeah, right.

Posted by Tom at 4:56 AM | Comments (2) | TrackBack (0)

Everything really is bigger in Texas

Although the big news on the University of Texas campus yesterday was that freshman cowboy Colt McCoy will be replacing Vince Young as the Longhorn starting quarterback in the Longhorn's first game this Saturday against sacrificial lamb North Texas, the bigger news is the new Jumbotron video screen that has been installed at Royal-Memorial Stadium. Check out the the specs on this thing:

The screen is 55 feet tall by 134 feet wide;

The university had to upgrade its utilities capacity to accommodate its power needs;

Forty 5-ton air conditioning units are required to cool it;

The heads of the gounding bolts are 5 inches wide; and

At least for a few months, it will be the world's largest HDTV in existence.

The Yankees have the house that Ruth built. The Longhorns have the video screen that Vince built.

Posted by Tom at 4:38 AM | Comments (4) | TrackBack (0)

August 28, 2006

The Coen Brothers do Marfa

This NY Times story reports on the culture shock that film directors Joel and Ethan Coen ("Raising Arizona," “Fargo,” “The Big Lebowski” and “O Brother, Where Art Thou?”) and their Hollywood cast are experiencing in the far west Texas tourist enclave of Marfa while filming the Coen Brothers' adaptation of Cormac McCarthy’s 2005 novel No Country for Old Men. The Coen Brothers movie is one of two films currently being shot in Marfa, which is not exactly Palm Springs, if you know what I mean. The moviemakers are also discovering that folks in West Texas are not inclined to change their ways to accomodate a couple of film crews:

[I]n some ways Marfa’s shrugging attitude baffled the film crews. There are only a handful of restaurants in town, and if you’re hungry past 9 p.m., you have to settle for the local gas stations’ dizzying array of fried food. Both crews asked local restaurants to either open earlier or stay open later, and most declined. “That’s frustrating,” [one of the producers] acknowledged. “We’ve been working six-day weeks, and on our one day off — Sunday — nothing’s open. Everybody’s been very welcoming, but they’re like, ‘We’re not going to change our ways.’ ”

Even though both crews brought in hundreds of people, many local business owners found their stay to be prohibitive to their businesses, since Marfa’s economy is based on tourism. “The movies filled up all the hotels, and they work late and are fed through their caterer,” said Ms. [Maiya] Keck, [a Marfa] restaurateur. “This is the first week the hotels haven’t been full of movie people, and we’ve been so busy. I’m so glad it’s back to normal. Now we can go to our coffee shop and not have to wait 45 minutes to get our cappuccino.”

Posted by Tom at 5:55 AM | Comments (0) | TrackBack (0)

A disturbing growth industry

This Newspaper.com story summarizes several articles and resources that examine a troubling growth industry among Texas municipalities:

Red light cameras and cash seizures are taking money from motorists and funding uncontrolled spending sprees in small Texas cities. . . . In the South Texas city of San Juan, population 26,200, police have begun seizing ever greater amounts by taking both cash and vehicles from motorists. In 2005, officers collected $4400. This year, however, the force has collected $67,000. Pharr, with a population of 47,000, collected $422,000 last year. McAllen, a bigger city with 106,000 residents, collected $484,000. A federal appeals court ruling this week concluded that driving with a large amount of cash is sufficient justification for police to confiscate it, even if there is no evidence that a crime has been committed.

Each South Texas city has said its priority is to use the money to fund or expand a SWAT team, . . .

As Cato Institute policy analyst Radley Balko shows in this Cato study, small municipalities frequently misuse SWAT squads for routine police work, which has led to an increasing number of botched raids resulting in injury or even death to innocent citizens. And local politicians of small Texas cities are encouraging liberal confiscation policies by police as a convenient means to funding this type of questionable activity?

Posted by Tom at 5:30 AM | Comments (3) | TrackBack (0)

Muddling the understanding of insider trading

The NY Times business columnist Gretchen Morgenson -- who regularly writes with a curious anti-business agenda -- weighs in again in the Sunday Times with this frontpage article about trading in anticipation of merger announcements that begins with this proclamation:

"The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem."

Morgenson then goes on to report on a recent study that confirms the particularly unsurprising news that trading frequently increases in the stock of companies immediately before public announcements concerning deals involving the companies.

Morgenson's article is so disingenuous I struggled to know where to start. She doesn't explain cogently why insider trading is illegal -- just that honest investors are victims of the practice -- but even her argument in that regard makes little sense. She contends that sellers of stock are injured by insider trading because they could have held their stock until after the merger announcement and received more value, but that argument assumes that the seller would only sell at the higher price generated by the insider trading and not at the lower price that existed before the insider sales. This is strained, to say the least, as sellers generally sell at the market price (whatever it is at the time of the sale) and take the risk that they are selling the bird in the hand instead of the potentially more valuable one in the bush if they were to wait and sell later.

With such basic flaws in Morgenson's analysis of insider trading, I was shuddering at the thought of how long it would take me to critique Morgenson entire piece. Thus, I was heartened to discover that Larry Ribstein had already done so, in which he concludes with the following observation:

In sum, this page 1 story on one of America's leading papers is a particularly egregious example of shoddy and slanted reporting by, perhaps, America's leading practitioner of shoddy and slanted reporting. No doubt Morgenson's influence will lead to misguided regulatory and legislative activity, which will impose additional costs on American business. Shame on Morgenson, and even more importantly, shame on her editors for failing to see the dangers of mixing news and commentary, for propogating these phony scandals to sell newspapers.

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

August 27, 2006

Taking stock in New Orleans

The NY Times continues today with another installment in its excellent The Katrina Year series focusing on the status of the rebuilding of New Orleans. To the surprise of no one who has ever been involved in the interplay of business development nad government bureaucracy, the re-development of areas of the city that are most attractive for investment has actually gone reasonably well, while the areas in which government subsidies are necessary to induce private capital to invest have lagged. Also not surprising is the fact that local governmental entities still have not been able to put together a plan for providing basic governmental services for redevelopment. So it goes.

As noted in posts here and here last year in the immediate aftermath of Hurricane Katrina, one of the biggest problems confronting redevelopment of the New Orleans area was the storm's destruction of small businesses, which on an aggregate basis was the largest provider of jobs in the New Orleans area. This NY Times article reports on the struggles that small businesses in New Orleans have confronted in attempting to stay afloat in the year after Katrina and how many of the pre-Katrina small businesses have little hope of coming back.

Update: In this Opinion Journal editorial, the Wall Street Journal editorial board eviscerates the federal government's handling of the enormous amount of federal aid thrown at New Orleans in the year since Katrina.

Posted by Tom at 8:16 AM | Comments (0) | TrackBack (0)

August 26, 2006

Stros 2006 Review, Part Eight

When we last checked in on the Stros at the 7/10's pole, the club had shown signs that it was going to climb back into legitimate contender status in the National League playoff race. Unfortunately, those signs of a playoff run were as illusory as Brad Ausmus' swing and the Stros promptly turned in a 6-10 record in their eighth 1/10th segment of the season. In so doing, the Stros (61-68) effectively took themselves out of the race for a playoff spot.

As regular readers of this blog recognize, it's not surprising that this Stros club is continuing to struggle. It has been a mediocre club almost all season, reflected by the team's record in each of its 1/10th segments of the season (previous 10% segment summaries are here):

1. 11-5
2. 8-8
3. 6-10
4. 7-9
5. 7-10 (halfway mark)
6. 7-9
7. 9-7
8. 6-10

As noted in the each of the pre-season reviews of the club over the past three seasons (here, here and here), the Stros' overall hitting has been declining steadily for six straight seasons and that lack of punch has finally caught up with the club. Superior pitching and playoff appearances over the past two seasons tended to camouflage the club's abysmal hitting, but merely better-than-National League-average pitching this season has exposed the Stros' imbalance -- it is now a club with better-than-average pitching, one legitimate slugger, a few average or slightly-above average hitters, and a troubling number of regular players who are among the worst hitters in the National League.

The Stros hitting woes continued in the most recent 1/10th segment of the season as the club's aggregate runs scored against average ("RCAA," explained here) declined to -42, which is 13th among the 16 National League teams. While the pitching staff's overall improvement during the second half of the season increased the staff's runs saved against average ("RSAA," explained here) to 35 (4th in the NL) midway through this current segment, a couple of rocky starts by the back-end of the staff lowered the staff's RSAA to 30, which is currently 5th among National League teams.

The club's hitting and pitching statistics to date are set forth below, and pdf's of the current hitting stats are here and the current pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia. The abbreviations for the hitting stats are defined here and the same for the pitching stats are here:

Thank goodness for 1B/OF Lance Berkman (46 RCAA/.413 OBA/.609 SLG/1.022 OPS/35 HR's), who is simply one of the best hitters in MLB and the only hitter separating the Stros from becoming as bad a hitting club as the Cubs or Pirates. Of the remaining Stros players, only 1B Mike Lamb (4/.353/.477/.830) 2B/OF Chris Burke 6/.361/.455/.816), 3B Morgan Ensberg (13/.395/.467/.862) and OF Luke Scott (20/.463/.620/1.083) have hit above National League-average this season, although mid-season acquisition 3B/OF Aubrey Huff (-1/.340/.477/.817) is also close.

On the surface, that would seem like a reasonable nucleus of above-average hitters to work with, but that is only true if the club is managed in a savvy manner, which this one is not. As noted several times on this blog (most recently here), Stros Manager Phil Garner is not a particularly good manager and his mishandling of the Stros' best hitters this season is a case in point. Rarely does Garner ever play Berkman, Lamb, Burke, Scott, Ensberg, and Huff in the same lineup. Although a lineup with Berkman at 1B, Huff and Scott in the corner OF positions, Burke at CF or 2B, Lamb at 2B or 1B and Ensberg at 3B is not going to remind anyone of the Yankees lineup, it certainly has a better chance of generating runs than Garner's typical lineup.

As has been the case all-season, SS Adam Everett (-25/.287/.343/.630), CF Taveras (-14/.334/.341/.675), C Ausmus (-31/.302/.288/.590; hit into 19 double-plays!) continue to be a huge drag on the Stros' every day lineup. At least Stros management had the good sense to dispense with LF Preston "Double-Play" Wilson (-19/.309/.405/.714); hit into 18 double plays!), but now even future Hall-of-Famer Bidg is giving indications that he is finally washed up (-10/.318/.433/.751). Although Everett, Taveras, Ausmus and Biggio should rarely be in the same lineup, Garner has played them together in the lineup more often than not during this season.

By the way, as noted in this earlier post, don't allow the largely meaningless Taveras 28-game hitting streak mislead you. Taveras is far below a National League-average hitter and, given his lack of plate discipline and power, I have my doubts that he will ever develop into even an average hitter, much less a good one. Although the media touts the hitting streak and Taveras' .350 batting average (also one of baseball's most misleading statistics) during the streak, the reality is that Taveras' RCAA -- the runs that he has created compared to what an average National League hitter would have generated using the same number of outs as Taveras -- has actually decreased from -11 to -14 during his hitting streak.

Meanwhile, the pitching staff's best pitchers continue to improve as Roy O (3.23 ERA/25 RSAA) and the Rocket (2.50 ERA/18 RSAA) remain two of the best starters in the National League, and Andy Pettitte (4.51 ERA/1 RSAA) continued his considerable improvement since the All-Star break. However, the loss of Brandon Backe (3.77 ERA/4 RSAA) to an elbow injury forced the Stros to call up AAA-sensation Jason Hirsch (12.75 ERA/-11 RSAA) and the brutal Wandy Rodriguez (5.51 ERA/-13 RSAA), so that has hurt the pitching staff's overall RSAA. The bullpen continues to be steady, if not spectacular, with troubled closer Brad Lidge (5.34 ERA/-5 RSAA) being the only bullpen pitcher who is currently pitching at a below National League-average level. The current closer, Wheeler (2.68 ERA/12 RSAA), is doing just fine.

Inasmuch as the current flawed makeup of the Stros club has been developing over the past five seasons, it's unfair to blame current Stros GM Tim Purpura -- who has been on the job for less than two years -- entirely for the situation. However, Purpura was an assistant GM with the club during the time that the club's hitting needs have gone unaddressed and his moves this past off-season -- signing the woeful Wilson and re-signing Ausmus along with mediocre pinch-hitter Orlando Palmeiro -8/.278/.289/.567) to over-priced, guaranteed two-year deals -- do not inspire much confidence that he understands the Stros' problem, much less the ability to fix it.

Nevertheless, the situation for the Stros is certainly not dire. The club will free up over $50 million (almost half the club's current payroll) after this season as Bagwell, Pettitte and Clemens' contracts end. Extending Oswalt's contract before he reaches free agency after the 2007 season is a first priority, and Berkman, Ensberg, Lamb, Huff, Burke, Scott and even the much-maligned Jason Lane (-6/.336/.409/.745) constitute a decent -- albeit not imposing -- hitting nucleus. The weak-hitting Everett remains an extraordinary talent in the field and Taveras is still young enough that he could develop the plate discipline necessary for him to become at least an average National League hitter, which -- with his above-average fielding skills -- would make him a valuable MLB player. With money to spend and several good pitching prospects on the MLB roster and in the upper minor league pipeline, the Stros appear to be in a good position to pick up a couple of productive hitters in the upcoming off-season who could vault the club right back into playoff contention. Although the 2006 season has been a disappointment for a club that has had a winning record in the five previous seasons and 12 of 13 since 1993 while making the playoffs six times in the past ten seasons, the Stros remain a basically solid club that, with a few tweaks here and there, could make the Berkman-Oswalt era every bit as successful as the Biggio-Bagwell era has been.

After finishing their current weekend series against the Pirates, the Stros schedule down the stretch is actually quite interesting, as they play 16 home games through September 24 against the NL East champ Mets (76-51) and playoff contending teams such as the Cardinals (67-60), the Reds (67-62) and the Phillies (65-63). Look for the next review -- which will take us to the 9/10's pole of the season -- on September 13.

Posted by Tom at 6:41 AM | Comments (0) | TrackBack (0)

August 25, 2006

The real issue in the Grasso case

Eliot Spitzer's long-running propaganda campaign and lawsuit against former New York Stock Exchange chairman and CEO Richard Grasso has been a frequent topic on this blog, so I couldn't help but notice this NY Post article (hat tip to Peter Lattman) in which Grasso is derided for defending his lucrative pay package during a recent television interview. I mean, why should anyone make that much money, right?

Meanwhile, for a much more lucid analysis of the true issues should be in the Grasso lawsuit, check out this Larry Ribstein post:

[T]he main thing to keep in mind is that [Grasso's] pay was approved by a highly sophisticated board. The only issue should be whether that board was informed. This is the way it should and would be in a standard fiduciary duty case (e.g, Disney). There is significant reason to believe it was, . . .

Alas, this isn't the end of the matter because the NYSE was a non-profit that comes under Eliot Spitzer's tender care. Grasso's trial has been broken into two parts, so that the trial judge first rules on reasonableness separate from board process. In the first part, . . . Spitzer will try to prove "that the pay judgments of executives who worked in the highest echelons of the business community were not 'reasonable.'" In other words, a NY trial judge may end up substituting his judgment for that of a board that included the likes of the Treasury Secretary and former head of Goldman Sachs.

Thus, while the only issue should be whether the board was properly informed, that rather dry issue does not allow Spitzer to appeal to the dynamic that might win him the case (and, presumably, some votes) -- the resentment of large pay packages to allegedly greedy businesspersons. So, what should be a reasonably straightforward case regarding the NYSE's review of Grasso's pay package is turned into a morality play where the scapegoat is a greedy executive who allegedly plundered the defenseless non-profit. At least a judge will determine the reasonableness issue in regard to Grasso's pay package, which probably gives Grasso a better chance than if that issue were tried to a jury.

But the main point here is that the Grasso case -- as in dubious criminal prosecutions such as Lay-Skilling, Arthur Andersen, the Nigerian Barge case and many others -- is not about the true legal and business issues involved, but whether the government can frame an issue or two in a manner that appeals to the resentment of the jury. Thus, in Grasso's case, the issue isn't whether the board was informed, but that Grasso's compensation violates the "too good to be true rule" and must be the product of cronyism. In Lay-Skilling, don't get bogged down in the facts of what really happened, just focus on Photofete and Lay's lucrative company credit line. In Arthur Andersen, don't worry about whether Andersen actually destroyed any document that was material to the Enron investigation, the firm must have had something to cover up because it was making big bucks from the social pariah Enron. In the barge case, who cares what the documents say about the transaction in question, it's far more important what an admitted felon said that another admitted felon told him about the deal that really counts. The syndrome goes on and on.

So, what is the greater threat to justice and the rule of law -- the greedy businesspersons who are being pursued in these cases or the government officials who are doing the pursuing? My answer is here and here.

Posted by Tom at 6:21 AM | Comments (1) | TrackBack (0)

Gripping already for the Ryder Cup

The United States has lost four out of the last five Ryder Cup competitions, so it's not particularly surprising that some U.S. golf fans are viewing the 2006 Ryder Cup competition next month at the K Club in Ireland with some trepidation. However, former Houstonian and noted teaching professional Butch Harmon is already gripping particularly hard in anticipation of the competition, and Brett Wetterich -- who will be playing in his first Ryder Cup competition for the American team -- is the target of Harmon's nervousness:

Brett Wetterich, who squeezed into the US Ryder Cup team in the last available qualifying spot, will have to greatly improve his attitude at next month's Ryder Cup match at the K Club.

At least that's the way widely-respected US swing coach and Sky Sports analyst Butch Harmon sees it.

Harmon told Sky Sports he was "appalled" by what he saw on day two at the 9th hole at last week's PGA Championship where Wetterich, destined to miss the cut by nine shots after shooting a 2nd-round 77, took four shots to get out of some greenside rough.

Harmon says he was infuriated by Wetterich's attitude.

"I was appalled by what I saw with Brett Wetterich," he told Sky Sports. [. . .]

"This isn't the kind of guy you want on your Ryder Cup team," Harmon said of Wetterich.

H'mm. I guess Wetterich will at least have something to talk about with Tiger Woods during the Ryder Cup competition.

Meanwhile, Rick Reilly at Sports Illustrated.com weighs in with this article ($) in which he predicts another disaster for the 2006 U.S. Ryder Cup team:

Have you seen the U.S. team? It has all the intimidation power of the Liechtenstein navy. It would have a hard time beating the Winnetka Country Club ladies' B team. It's the single worst squad we've ever taken to a Ryder Cup, and that's saying something, considering the last batch got pummeled 18.5 - 9.5. . . .

This outfit would be the underdog to a stiff breeze. Or do Brett Wetterich, Zach Johnson, J.J. Henry and Vaughn Taylor make your timbers shiver? It sounds like somebody's Webelos troop. None of those four have ever played in a Ryder Cup before. Three of them missed the cut at last week's PGA, and Henry finished 41st.

Wetterich has missed five cuts in his last eight starts. You look at him and think, Was he my waiter at Olive Garden last night? If he wasn't, he will be soon.

Won't Tiger be psyched to be paired with him?

That's the other thing: Tiger. He's the No. 1 player in the world by a light year, the Golfing Gladiator. Until he goes to Ryder Cups, and then he suddenly becomes Dead Man Walking.

He mopes around like a husband in couples therapy, only he talks to his partner less. It may the only thing he sucks at. His Ryder record is 7-11-2, and no wonder. He wasn't wired for team play. He trusts nobody. Why should he buddy up with people he's been trained to swallow in two bites or less? The hangman doesn't play on the prison softball team. Lions don't room with lambs.

Sheesh! These folks need to get a grip. What many reasonably informed people often misjudge in golf and other sporting events is the substantial role of luck in determining the outcome. A good case can be made that bad luck has been the biggest factor in the American squad's failure in recent Ryder Cup competitions, as certain members of the American team simply have not been playing as well as their European counterparts at the time of the competitions. That happens to everyone in golf -- just ask British Open and PGA champ Tiger Woods, who missed the cut in this year's US Open. In a perfect world, the Ryder Cup teams would be comprised of players who were playing the best at the time of the competition, but that wouldn't be fair to the players who earned their way on to the team by playing at a consistently high level during the previous two seasons.

So, yes, this US Ryder Cup team is comprised of a relatively large percentage of first time players. But that will likely have very little to do with the success or failure of the American team. If most of the players happen to be playing better than their European counterparts during the third week of September, then the Americans will win. If not, they won't. Whether the players are well-known to the general public has nothing to do with it, and even prior Ryder Cup experience doesn't won't make much of a difference. All of these players have played under intense pressure before and the key is going to be how well they are striking the ball and putting at the time of next month's competition. My bet is that this American team will do quite well.

Posted by Tom at 5:26 AM | Comments (1) | TrackBack (0)

The drift of the Nacchio prosecution

This Denver Post article reports on the appointment of former Enron Task Force prosecutor Cliff Stricklin as the lead prosecutor in the Justice Department's criminal case against former Qwest CEO Joe Nacchio on insider trading charges. Stricklin was a member of the Task Force's team that handled the Lay-Skilling trial, although he sat about fourth chair and did very little in the courtroom during the trial.

However, neither the fawning Post article nor the other media accounts of Stricklin's appointment that I have seen mention Stricklin's dubious conduct in the first Enron Broadband trial, which did not turn out quite so "successfully" for the Task Force as the Lay-Skilling trial. As noted in this earlier post, Stricklin was one of the lead prosecutors during that debacle in which the prosecution was caught eliciting false testimony from one of the Task Force's main witnesses and threatening two defense-friendly witnesses (Beth Stier and Lawrence Ciscon). Then, to top it off, U.S. District Judge Vanessa Gilmore cut off Stricklin from further cross-examination of one of the defendants and rebuked him in open court during the latter stages of that trial when Stricklin violated one of the court's limine orders. That trial -- which appeared to be a tap-in for the Task Force at the outset -- ended in a crushing defeat for the Task Force.

In the Post article noted above, Colorado U.S. Attorney Troy Eid issued the following statement about Stricklin:

"Cliff's extraordinary background, including his work on the Enron Task Force, makes him the ideal leader to handle the Joseph Nacchio case while serving Colorado as first assistant U.S. attorney."

Yeah, right.

Posted by Tom at 4:43 AM | Comments (0) | TrackBack (0)

August 24, 2006

Hoop Nazis

I recognize that the University Park area of Dallas is a nice place to live and all, and I also concede that the residents there are rightly attentive to maintaining property values and the decorum of the area. But this recent Dallas Morning News article reports on an initiative that establishes fairly convincingly that a number of the UP residents simply do not have enough to do:

Hoops could be shot down in this wealthy community thanks to a proposed ordinance banning basketball goals in front yards. The reason? To some city officials, they don't look too good.

That's the basis of a proposed University Park ordinance prohibiting portable and permanent basketball hoops. On Tuesday, council members postponed a decision on the ordinance until their Aug. 22 meeting so revisions could be made, . . .

Under the proposal, violators could be fined up to $2,000 a day. [. . .]

The ordinance the Planning and Zoning Commission and city staff originally recommended would have allowed residents to keep portable basketball goals in their front yards for up to 30 days a year. Council members wanted none of that, though.

They went back and forth for about 15 minutes at their Tuesday meeting on whether to allow swings, soccer goals and basketball goals in front yards at all. Some wanted to allow them certain months of the year, others only during daylight hours.

Portable soccer goals and badminton nets were deemed allowable because they could be moved inside every night. So were one-seat swings, provided they don't swing into the street.

Trampolines and basketball goals weren't as lucky.

"It's just not as pleasing to the eye," [the] Mayor . . . said about the goals.

Posted by Tom at 6:05 AM | Comments (4) | TrackBack (0)

The sinking Milberg Weiss ship

Class action securities powerhouse Milberg Weiss Bershad & Schulman has been attempting to keep a stiff upper lip in the face of the Justice Department's decision to go Arthur Andersen on the firm earlier this year (previous posts here), but this New York Observer article (related NY Times article here) reports that the firm's demise is imminent, well before the criminal trial of the firm:

A lawyer for a competing firm, who asked to remain anonymous, said that he had interviewed several Milberg Weiss employees seeking a position with his firm. He said they have the same sense of the mood at the firm. “That it’s sad, it’s a sinking ship, it’s like a funeral home. It’s extremely upsetting,” he said. “It’s like waiting for them to turn out the lights and close the door; they’re running for the exits.”

Published reports have documented the departure of about two dozen attorneys since the indictments were handed down. That’s a lot in a firm of 125 lawyers.

And of the offices once listed on the company’s Web site—Los Angeles; Boca Raton, Fla.; and Manhattan—only the New York and California branches remain.

The firm once employed close to 500 people, including paralegals, investigators, messengers, secretaries, forensic experts and lawyers. [ . . .]

The “experience with Arthur Andersen indicated that partnerships are fragile entities,” said [New York University law professor and Milberg Weiss advisor Samuel] Issacharoff. “That’s the reality.”

The government's prosecution of Milberg Weiss out of business will have nowhere near the economic impact that the government's effective shuttering of Arthur Andersen had. And certainly a plaintiff's firm is not the type of victim that elicits much sympathy. However, that does not make any less outrageous what the government is doing here -- effectively killing the accused after investigating it for over five years and before it is determined whether it has committed a crime. That there is not more of an outcry over this injustice reflects a troubling deference that even the legal community is now giving to the abuse of the criminal justice system by federal prosecutors. As Sir Thomas More reminds us "do you really think you could stand upright in the winds [of abusive prosecutorial power] that would blow" if that power were applied to you?

Posted by Tom at 5:20 AM | Comments (2) | TrackBack (0)

The risk of supporting a former girlfriend

It's reasonably clear that Texas Supreme Court Justice Nathan Hecht didn't think anything of it when he gave dozens of media interviews last year supporting President Bush's nomination to the US Supreme Court of his former girlfriend and fellow parishoner, trusted Bush White House advisor Harriet Miers.

But the Texas Commission on Judicial Conduct didn't view Justice Hecht's politicking on behalf of Miers in the same way. In May, the Commission issued an ethics rebuke to Justice Hecht, determining that he had improperly used the prestige of his office to support the nomination of Miers. Earlier this week, Justice Hecht appealed that decision to a three-judge panel during a hearing in Ft. Worth (hat tip to Peter Lattman for the link).

The Commission accused Justice Hecht of going “on a specific mission, a campaign, in connection with certain parties in the White House and their operatives” and, in so doing, violated two canons of the Texas Code of Judicial Conduct:

“A judge shall not lend the prestige of judicial office to advance the private interests of the judge or others;” and

“A judge . . . shall not authorize the public use of his or her name endorsing another candidate for any public office.”

In response, Justice Hecht contends that the Commission misapplied the canons because Miers was not a political candidate, was not involved in a political election race and had no election opponent. Moreover, Justice Hecht observed that reporters were interested in his views about Miers because of his three-decade friendship with her, not because of his status as a Texas Supreme Court Justice.

The three-judge panel has 60 days in which to issue a ruling. The panel's decision may be appealed directly to the US Supreme Court, which Hecht lawyer Chip Babcock contends that he will if the Commission's rebuke of Justice Hecht is upheld.

Posted by Tom at 4:50 AM | Comments (2) | TrackBack (0)

August 23, 2006

The lucrative sacrificial lamb market in college football

Although I enjoy most college sporting events, I have long maintained that the structure of major-college football in the US is fundamentally flawed (related post here). Along those lines, this NY Times article reports on a lucrative market that has evolved from the NCAA's regulation of major college football -- less successful football programs selling the opportunity to be a sacrificial lamb to the more successful programs:

The University at Buffalo football team went 1-10 last season and did not score a touchdown until the fourth game. For nearly a decade, it has been considered one of the worst teams in college football.

Buffalo is just the kind of opponent some of the nation’s top-ranked teams are looking for — and are paying rapidly rising prices to play this season. The Bulls will travel this coming season to play Auburn, a national title contender, and Wisconsin, a perennial Big Ten Conference power. Although Buffalo appears destined to be humiliated, the university will receive a $600,000 appearance check for each game.

Scheduling easy victories is a tradition as timeless in college football as fight songs and homecoming. But after the National Collegiate Athletic Association approved the addition of a 12th regular-season game for the coming season, the appearance fees began climbing in a bidding war for games against college football’s flotsam and jetsam.

Buffalo became such a hot commodity in the off-season that it broke contracts with West Virginia and Rutgers because Auburn and Wisconsin were offering at least double the money. Troy State of Alabama will receive $750,000 from Nebraska to play in Lincoln this season. Louisiana-Lafayette will get the same amount from Tennessee next year.

In fact, demand for sacrificial lambs has become so great that the supply of lambs is running out:

With the weakest teams in Division I-A becoming more expensive, top programs are stooping lower for competition. Iowa, a Big Ten favorite this year, wooed Montana, a Division I-AA program, for $650,000.

Texas A&M and Texas have bought into the sacrificial lamb market big-time. Get a load of A&M's non-conference schedule: Citadel, Louisiana-Lafeyette, Army and Louisana Tech. Other than the Ohio State game, Texas' non-conference schedule is about as bad -- North Texas, Rice and Sam Houston State.

Interestingly, in the structure of the major college sport that football should be emulating -- baseball -- there is little incentive to play sacrificial lambs because playing better competition enhances a team's post-season tournament prospects and seeding. Would such a structure work in major college football? Sure, but it's going to take courageous and creative leadership from the university presidents of the top major college football programs to effectuate such a change, and that type of leadership in academia is in short supply these days.

Posted by Tom at 6:30 AM | Comments (5) | TrackBack (0)

Barbaro continues to beat the odds

This NY Times article continues its excellent coverage of the recovery of Kentucky Derby champion Barbaro from a life-threatening injury suffered in the Preakness Stakes (previous posts here). The article does a good job of explaining the tremendous resources that are being deployed to attempt to save the horse's life, which could still have great financial value if the horse can recover sufficiently to be leased as a stallion for breeding purposes.

Although Barbaro's health is still at great risk, the thoroughbred no longer needs the sling that was used immediately after surgery to keep weight off the horse's legs and the epidurals that he required for pain have not been necessary for several weeks. Moreover, Barbaro is now being walked outside each day in a field and being allowed to graze. As a result, the horse is appearing to become stronger by the day. Stay tuned.

Posted by Tom at 5:59 AM | Comments (0) | TrackBack (0)

Quattrone walks, but what about Andersen?

As noted earlier here, former CSFB investment banker Frank Quattrone's ordeal (previous posts here) came to a close yesterday as the Court in the criminal case against him approved a a deferred-prosecution agreement under which the charges will be dropped in a year and Mr. Quattrone was not required to pay a fine or admit any wrongdoing. Thus, apart from the enormous cost of the prior litigation and having this talented businessman out of work for the past five years, at least Quattrone can now get back to his career and, as Peter Lattman notes, recover $120 million that he has coming to him.

But the same cannot be said for Arthur Andersen, which was prosecuted out of business under similar circumstances as Quattrone. Just as Mr. Quattrone was never charged any criminal offense related to investment banking, Andersen was not prosecuted for providing fraudulent accounting services to its client, Enron. Rather, appealing to the dynamics of resentment of wealthy and powerful business interests in the aftermath of Enron's demise, Quattrone and Andersen were both indicted for obstruction of justice and witness-tampering related almost entirely to a single email that Quattrone and Andersen in-house counsel Nancy Temple sent reminding employees of each organization to clean up there files in accordance with each company's document retention policy. Instead of undertaking the difficult task of proving that either Quattrone or Andersen were really involved in any fraudulent acts, prosecutors in both cases portrayed the emails as a criminal coverup and then liberally "suggested" in inflammatory public statements and during trial that Quattrone and Andersen were involved in fraud.

The prosecution of Quattrone was costly, but that cost pales in comparison to the economic damage that the Justice Department caused in prosecuting an American accounting institution and its 30,000 employees out of business. Despite that, similar misguided prosecutions continue. This is simply not a rational deployment of the prosecutorial resources of our criminal justice system.

Posted by Tom at 5:13 AM | Comments (0) | TrackBack (0)

August 22, 2006

John McClain can't help himself

Given the largely meaningless nature of NFL pre-season football, I'm holding off on posting my annual pre-season blog post on the Texans until the first regular season game is close at hand. But given the Chronicle's blanket coverage of the Texans' training camp, it's a bit hard to overlook the cheerleading doozies that the Chronicle writers generate almost daily about their hometown heroes.

With the exception of a couple of comments such as this one last week, Chronicle NFL columnist John McClain has generally been more careful this pre-season than he was last pre-season when he was predicting that the Texans were primed to make a playoff run. However, McClain simply cannot contain his cheerleading for the Texans at times, such as the following comment about Texans guard Chester Pitts, who is competing for a job in the area of one of the Texans' traditionally weakest areas, the offensive line:

"It seems strange that Pitts is having to compete for a starting job, considering he's never missed a play in four seasons while moving between left tackle and left guard."

Pitts has been a member of the Texans offensive line that has been the worst pass-blocking line in the NFL for the past four seasons. Last season, Football Prospectus attributed 40 of the quarterback sacks that QB David Carr endured directly to blown blocks of the offensive line, which was the highest number in the NFL among offensive lines. Pitts had six of those blown blocks for sacks, which was the second-most on the line (Todd Wade, who is no longer with the team, was the leader with eight). Pitts has also been one of the most-penalized offensive linemen in the NFL during his four years in the league.

Thus, from my vantage point, it does not seem strange at all that Pitts is competing for a starting job. In fact, it reflects progress that he is.

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

What's really behind the Andrew Young-Wal-Mart flap

This NY Times article reports on the flap over the recent remarks of Andrew Young, the colleague of Martin Luther King who went on to become the first black congressman from Georgia since Reconstruction and one of Atlanta's most prominent politicians.

Young had recently become a consultant for Wal-Mart, but that particular job didn't last long after Young was quoted during a recent interview "defending" Wal-Mart as not being so bad for black people because Jewish, Arab and Korean store owners had traditionally “ripped off” black neighborhoods by “selling us stale bread and bad meat and wilted vegetables.” Concluding that Young's defense of the company was faint praise, Wal-Mart understandably let him go.

As would be expected, the Times article focuses on the angst that Young's remarks has generated among the folks who are preoccupied with race relations, but Larry Ribstein observes the much more troubling dynamic that is truly behind Young's remarks:

I don't believe civil rights hero Young is a bigot. But unfortunately the bigoted nature of his remarks will draw attention from the real prejudice here -- against capitalism. It's really all about people who want to make a profit, and those who insist that this is a zero sum game that has to be ripping off the customers.

The result of this attitude is anti-Wal-Mart laws like the one coming up in Chicago that hurt the very people Young fought to defend. Even when hired to defend Wal-Mart, Young couldn't resist bashing it, and others who tried to make a buck.

Meanwhile, along the same lines, Jeff Matthews analyzes Senator Joe Biden's recent anti-Wal-Mart remarks and how they reveal the leadership void within the Democratic Party. Check it out.

Update: The always-insightful Holman Jenkins of the Wall Street Journal chimes in with this column ($) echoing the same thoughts and more.

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

Grundfest takes on the sad case of Jamie Olis

A heavyweight has entered the ring on behalf of Jamie Olis.

The WSJ's Peter Lattman reports that Joseph A. Grundfest, W.A. Franke Professor of Law at Stanford University and one of the leading securities law experts in the US, is donating his services to Olis on a pro bono basis in regard to the key issue of market loss in Olis' upcoming September 12th resentencing hearing. Olis' case is arguably the most egregious product of the government's increasing criminalization of business interests in this particular post-bubble era.

In Olis' most recent sentencing memorandum (a bookmarked version of the memo is available for download here), Grundfest and Olis appellate attorney David Gerger expand on many of the points that have been raised over the past two and a half years on this blog regarding the flimsly basis of the government's position that Olis should be imprisoned for at least the next two decades, particularly the government's disingenuous market loss theory. As noted in this previous post relating to the Enron-related Nigerian Barge trial, the prosecution misled U.S. District Judge Sim Lake regarding the proper method for calculating the market loss in connection with the original sentencing of Olis, and then has ignored subsequent decisions (see also here) that have undermined the spurious market loss theory that it has employed in the Olis case.

The prosecution in the Olis case won't be able to dodge facing the misleading nature of its market loss theory any longer. In a devastating analysis of the government's market loss theory, Professor Grundfest's declaration attached to the Olis' sentencing memo disassembles the work of the prosecution's market loss expert, Frank Graves. Professor Grundfest summarizes his critique in the following manner:

The Graves Declaration fails to establish that Project Alpha inflated Dynegy's stock price on any date by any amount. It also fails to establish that any portion of Dynegy's stock price decline on April 25, 26, or May 8, 2002 is attributable to Project Alpha. the Graves Declaration's methodology for measuring price declines caused by Project Alpha is also internally inconsistent with Graves' prior report in another matter. It also fails to recognize that Dynegy's stock price rebounded significantly on April 30 (the second trading day following April 26) when the market was informed that concerns regarding Project Alpha had been exaggerated. It further fails to adjust for the presence of confounding information that entered the market on May 8, 2002. The Graves Declaration also relies on methodologies that are broadly criticized in the scholarly literature, and repeatedly commits logical errors. The Government has therefore failed to demonstrate through the Graves Declaration that Project Alpha has caused any loss whatsoever to any investor at any time. . . .

The methodologies relied upon by the Graves Declaration to calculate the number of damaged shares have been broadly criticized in the academic literature and have been rejected by several courts. The damage measure relied upon by the Graves Declaration has also been broadly criticized int eh academic literature because, even if perfectly applied, it fails to measure the economic loss caused by aftermarket frauds such as Project Alpha. This well-established literature helps explain the Second Circuit's observation that the methodology applied by the Graves Declaration can lead to "Draconian, exorbitant damages, out of all proportion to the wrong committed . . ." [citation deleted]

Finally, . . . the magnitude of a settlement paid to resolve a private class action lawsuit is not a reliable measure of the loss caused by a fraud.

Other than that, Professor Grundfest would presumably conclude that the Graves analysis is just fine. ;^) Professor Grundfest's declaration is one of the most thorough and well-reasoned analyses that I have read regarding the vagaries of attempting to attribute huge market losses in a company's stock to one of a plethora of events that affect that company's stock price. I recommend reading the entire declaration.

Although the focus of the Olis sentencing memo is market loss, one other part of the memo jumped out at me. On pp. 5-6, the memo outlines over a dozen company executives, Arthur Andersen accountants, and outside lawyers -- almost all of whom were senior in status to Olis -- who participated in devising and analyzing the transaction for which Olis was prosecuted. Nevertheless, only Olis and his two immediate supervisors (who copped pleas and testified against Olis) were prosecuted. As Larry Ribstein has eloquently contended over the past two years on his blog and most recently in his paper The Perils of Criminalizing Corporate Agency Costs, are we really prepared to throw all corporate actors in prison for participating in the type of risk-taking involved in Project Alpha?:

Disciplining agents also requires pinning responsibility for corporate failure on particular people in the organization. If someone should be criminally responsible for obscuring Enron's financial condition, who should it be – the midlevel executives who designed the misleading structures, the executive officers who signed off on them, the independent directors who failed to object, the lawyers, accountants, banks and other executives who enabled them, anybody who knew about them and didn’t speak up, the whistleblower who told only those within the organization, or all of the above?

Unfortunately, in Olis' case, it turned out to be the junior executive taking directions from superiors who had the audacity to assert his innocence at trial. Chalk it up to the increasingly high price of asserting innocence in business-related prosecutions.

Although Professor Grundfest's salutary effort on behalf of Olis is heartening and one that should buttress his already exemplary reputation, Olis still faces daunting hurdles to having a just sentence assessed in his case. Professor Grundfest's analysis of Graves' market loss opinion reveals its essential lack of objectivity, so Graves will literally be fighting for his expert witness life in this case. Thus, it should be expected that he will respond to the Grundfest declaration by attempting to bolster his earlier opinion.

Similarly, Judge Lake, who levied the original 24 year sentence against Olis, will be resentencing Olis. Inasmuch as no judge -- particularly one as competent as Judge Lake -- enjoys being reversed by an appellate court, Olis faces the risk that Judge Lake will attempt to justify his original harsh sentence during the resentencing. However, similar to his colleague Ewing Werlein, Judge Lake is a man of unusual depth, so my bet is that he will recognize that the prosecution misled him regarding the market loss issue during Olis' original sentencing and will correct the stark injustice of that sentence. As Professor Ribstein points out in his post on the Grundfest declaration, "Olis' sentence has become an important symbol of the excesses of criminal prosecutions in the wake of Enron. Freeing Olis would be a start toward correcting these injustices."

Posted by Tom at 4:11 AM | Comments (0) | TrackBack (0)

August 21, 2006

An Enronesque public scam

This NY Times article reveals a scam that New York AG ("attorney general" or "aspiring governor," take your pick) Eliot Spitzer won't touch with a ten-foot pole:

Every year since 1999, New York City has reported that it has all the money it needs to pay for the pensions that have been promised to city workers.

With the retirement plans said to be financially sound, state politicians have happily showered city employees with generous pension enhancements — annual cost-of-living increases, holiday bonus payments, early retirement with full benefits — that are the envy of private-sector workers, whose pension benefits have eroded.

But a close inspection of city pension records shows that the funds committed to the plans may fall well short of the city’s promises to hundreds of thousands of current and retired workers. They look fully funded chiefly because the city has been using an unusual pension calculation that does not comply with accepted government accounting rules. Even the city’s chief actuary, who helps produce the annual reports, says the official numbers are “meaningless” when it comes to showing the plans’ financial health.

The chief actuary, Robert C. North, has prepared a little-noticed set of alternative calculations showing that the gap in the pension funds could be as wide as $49 billion. That is nearly the size of the city’s entire annual budget and the equivalent of the city’s publicly disclosed outstanding debt.[ . . .]

Senior New York City officials bristled at the suggestion that their annual reports were flawed and strongly disagreed with any suggestion that the pension plans might be under-funded.

“The city’s pension funds are 99.6 percent funded by acceptable methods for evaluating and disclosing pension fund assets and liabilities,” said Martha Stark, the New York City finance commissioner. . . .

Ms. Stark said that she was sure of the pension funds’ health because the city was contributing responsibly to them every year, and because she was confident that the investments in the funds would meet their targets of 8 percent average annual returns over the long haul. Many other public plans have investments targets in this range. [. . .]

Asked why the pension funds appeared to be fully funded back in 1999, when they were swollen with gains from the stock market boom, and still appear to be almost fully funded now — after losing billions of dollars in the stock market and granting billions of dollars worth of new benefits — she said that the numbers were “smoothed” to avoid short-term fluctuations. She also noted that the city had been increasing its annual contributions in recent years.

Arnold Kling observes that "if you assume 8 percent annual returns, many things are possible. Until the actual returns come in." As noted in this earlier post regarding accounting for other government liabilities, the government bears the entire risk of a shortfall in regard to these public pension plans and, thus, the only way they remain viable is through the same type of alleged accounting gimmicks and deficient disclosure for which the Justice Department prosecuted Arthur Andersen out of business, Ken Lay to death and Jeff Skilling to prison, probably for much of his remaining life.

So, what is Spitzer or the Justice Department going to do about the same type of activity in regard to public pensions?

Posted by Tom at 6:59 AM | Comments (0) | TrackBack (0)

Judge Jack v. AG Abbott

Based on this NY Sun article, it sure doesn't appear as if U.S. District Judge Janis Jack of Corpus Christi is going to be exchanging holiday greeting cards with Texas Attorney General Greg Abbott this year.

Judge Jack publicly rebuked Abbott last week when she learned that evidence in the investigation into potentially fraudulent silicosis claims in her court had disappeared after Abbott's office sent four armed agents on June 23 to seize thousands of x-rays from a Corpus Christi storage facility that was maintaining the documents for the federal court. After Judge Jack learned about the seizure on July 5 and ordered Abbott's office to return the documents by high noon the following day and Abbott's office returned about 40 boxes, the records custodian reported to Judge Jack that 152 X-rays had disappeared. After an assistant attorney general informed Judge Jack during a conference call between the court and attorneys involved in the cases last week that Abbott's office does not have the missing x-rays, Judge Jack blasted Abbott:

"The arrogance of taking those documents from a federal court-supervised depository is astounding. The attorney general of the state of Texas has exhibited a total disregard for the rule of law by doing this."

Judge Jack made waves last year when she recommended throwing out all but one of about 10,000 silicosis lawsuits because the diagnoses appeared to be "manufactured for money." Her ruling has generated a number of investigations, including by a congressional committee, federal prosecutors and Abbott's office.

Hat tip to Walter Olsen for the link to the NY Sun article.

Posted by Tom at 5:15 AM | Comments (0) | TrackBack (0)

The PGA channels the Ryder Cup

As Tiger Woods strolled to his 12th victory in a major golf championship yesterday (second now only to Jack Nicklaus' 18 major wins), the big news out of Medinah was the confirmation of the ten players who earned a spot on this year's American Ryder Cup team, which will compete against the European team on September 22-24 at the K Club in Straffan, Ireland, about 25 miles west of Dublin:

1. Tiger Woods
2. Phil Mickelson
3. Jim Furyk
4. Chad Campbell
5. David Toms
6. Chris DiMarco
7. Vaughn Taylor
8. J.J. Henry
9. Zach Johnson
10. Brett Wetterich

American Ryder Cup captain Tom Lehman will announce his two captain's choices this morning. Davis Love and Stewart Cink appear to be the likely choices, although a resurgent Corey Pavin appears to have a real chance. Meanwhile, Lawrence Donegan of the Guardian reports that European team captain Ian Woosnam has asked Ireland's Darren Clarke, whose wife died of cancer last week, to accept one of the European captain's choices and then makes the following observation about Lehman's options and the American team:

If Woosnam faces difficult decisions ahead, however, they are nothing to the selection worries of his American counterpart. Tom Lehman, who will announce his team later today, has been hidebound by a selection process that has given too much weight to victories in weaker PGA Tour events, with the upshot that many on the fringes of his team are rookies or players whose records suggest that they may be capable winning a tournament in Albuquerque but might crumble under the pressure of the Ryder Cup.

By the way, of the four American rookies who made the team (Taylor, Johnson, Henry and Wetterich), only Henry made the cut in the PGA and he played the final three rounds in 4 over to finish at even par 288 for the week, tied for 41st. The European team -- which has won the last the last two Ryder Cup competitions -- will be finalized on Sept. 3. Five European players have qualified so far -- David Howell, Colin Montgomerie, Jose Maria Olazabal, Henrik Stenson and Luke Donald, who clinched his position with a tie for third in the PGA.

Meanwhile, Woods was every bit as dominant and in control in winning the PGA as he was last month in winning the British Open, and Donegan's European perspective on Woods' performance is one of the best. Although Woods played brilliantly on the front nine, Woods put this one away from my perspective on the 11th hole when, after hitting a poor tee-shot into heavy fairway rough, Woods hammered his approach shot out of the mess to eight feet and then holed the birdie putt. Inasmuch as virtually every other competitor would have been scrambling for a par under the same circumstances, Woods' birdie signaled decisively to the field that the only competition yesterday was for second place and Ryder Cup points.

Posted by Tom at 4:31 AM | Comments (0) | TrackBack (0)

August 20, 2006

Jose de Jesus Ortiz said what?

As the Stros playoff hopes fade with each passing loss, the Chronicle's Stros beat writer -- Jose de Jesus Ortiz -- continues to show that he does not truly understand baseball and, as a result, has become a conduit of Stros propaganda to the public.

Fresh off his woeful analysis of Preston Wilson, de Jesus Ortiz blows it again with this fawning column entitled Patience, coaching help turn Taveras around in which he contends that good coaching from the Stros coaching staff has helped Taveras generate his current 22-game hitting streak and make him a good player again. In so doing, de la Ortiz shows that -- despite covering baseball on a daily basis -- he is incapable of properly analyzing the subject that he covers. For example, de la Ortiz observes as follows:

"As a rookie in 2005, Taveras was the Astros' most pleasant surprise while finishing second in the voting for National League Rookie of the Year honors. He steadily improved his defense and used his near world-class speed to leg out infield singles.

[Stros Manager] Phil Garner opted to sacrifice offense for defense at shortstop, but somehow Taveras' solid offense wasn't deemed strong enough to keep his strong defense on the field as Chris Burke got hot in late May."

As noted last season here, Taveras had a below National League-average season in 2005 and had no business being considered for Rookie-of-the-Year honors. Although Taveras' defense did improve over the course of last season, Taveras was one of the worst hitters among regular players in the National League last season. His slugging percentage (.341), on-base average (.325), extra-base hits (20 in 635 plate appearances), walks (25) and runs created against average (-13) were all far below an average National League hitter. Moreover, Taveras is even worse this year with a .329 slugging percentage, .324 on-base average and an RCAA of -17, meaning that Taveras has generated 17 fewer runs this season than an average National League hitter would have generated making the same number of outs that Taveras has made. Even Taveras stolen base rate (34 out of 45 or 75%) is not all that great considering his speed. In short, Taveras is not a good offensive player and, as noted in this earlier post, has absolutely no business batting lead-off in the relatively rare occasions that he should be playing.

de la Ortiz goes on to extol Taveras' current 22-game hitting streak, which is one of those misconstrued statistics that is often used to suggest a ballplayer is better than he really is. In truth, Taveras has hit mostly singles during his streak and, thus, has still been a below National League-average hitter during those 22 games. Although that performance has been marginally better than Taveras usually would provide over a 22-game span, it still does not make Taveras even an average National League hitter and certainly does not mean that Taveras "has turned his season around."

Taveras is fast and fun to watch run. And yes, he is an above-average centerfielder defensively and will have an occasional good game where his speed will make a difference. But that does not change the fact that Taveras is a below National League-average hitter and is not having a good season. The real story here is that the Stros' reliance on below National League-average hitters such as Taveras, Wilson, Ausmus, and Everett is one of the primary reasons that the club is now playing like a below National League-average team, is unlikely to make the playoffs this season and will likely trend downward in coming seasons unless that reliance is lessened. Indeed, about the only positive thing that can be said about Taveras' play is that at least he is playing better than Jose de la Ortiz is thinking or writing.

Taveras' career batting statistics are below.

Update: Kevin Whited catches de la Ortiz in yet another embarrassing column.

The hitting statistics are defined here

Posted by Tom at 8:01 AM | Comments (0) | TrackBack (0)

August 19, 2006

Quattrone's ordeal is coming to a close

After five years, two trials, an appeal, two regulatory investigations, thousands of hours of tedious legal work, multi-millions of dollars in legal cost and untold damage to the attorney-client privilege, the Justice Department has finally decided to cut its losses with regard to its misguided harassment of former Credit Suisse investment banker Frank Quattrone (previous posts here). This NY Times article reports that Mr. Quattrone has entered into a deferred-prosecution agreement with the Justice Department that will impose no penalty and will not require Quattrone to admit any wrongdoing. The deal is scheduled for court approval this coming Tuesday in New York City.

So, yet another chapter closes in the story of the Great Waste of the federal government's dubious criminalization of business in this post-bubble era.

Posted by Tom at 8:09 AM | Comments (0) | TrackBack (0)

Not enough choices?

This NY Times article passes along the news that the last remaining area-wide radio station in the Los Angeles market playing country music has changed its format, so the second-largest radio market in the country joins New York (the largest radio market) and San Francisco (the fourth largest) as big markets that no longer host a radio station with a country music format. Inasmuch as such a development seems unthinkable in a country-music hotbed such as Houston, the Times article provides the following explanation:

“Country is a tough format to do in a market that is an ethnic melting pot,” said Rick Cummings, Emmis’s president of radio. “The appeal of the format is fairly limited when it comes to ethnicity.” In Los Angeles, he said, stations that cater mostly to white listeners are “playing for less than 25 percent of the marketplace on a good day.”

And while country music may draw a more diverse audience in cities like Houston, he added, it simply does not in Los Angeles, where Latino listeners have a wealth of choices for entertainment in both English and Spanish.

So, Latinos are forced to listen to country music more in Houston than in L.A. because they lack the variety of entertainment choices of the Los Angeles area?

My sense is that the Times reporter has not checked out the Houston radio market recently.

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

August 18, 2006

Now, let me get this straight

I am not astute politically, so I usually leave analysis of such matters to more politically savvy bloggers, such as local pundits Charles Kuffner at Off the Kuff, as well as Kevin Whited and Anne Linehan over at blogHouston.net.

And I also certainly don't condone public officials using their clout to obtain favorable treatment for their family members and friends who mess up and find themselves embroiled in the criminal justice system.

However, after reading this article, it occurs to me that the attorney general of New Jersey was forced to resign earlier this week essentially because she forgot some some items in her boyfriend's car and the boyfriend wasn't wearing a seatbelt.

What am I missing?

Posted by Tom at 6:47 AM | Comments (1) | TrackBack (0)

More on the benefits of oil and gas trading

Following on this post from earlier in the week on the benfits of speculation in the oil and gas commodities markets, Chronicle business columnist Loren Steffy pens this column (related podcast here) along the same lines that includes an interview with Craig Pirrong, the director of energy markets for the Global Energy Management Institute at the University of Houston's C.T. Bauer Business School. As Pirrong notes, the current criticism of speculators in the oil and gas markets is simply the latest salvo in a long and misguided American tradition of scapegoating speculators:

Investors [in oil and gas commodities markets] . . . make bets on what the price of oil will be. If they're right, they make money. If they're wrong, they lose.

That, Pirrong says, allows producers to share the risk that comes with volatile prices. Speculators, using derivatives and other financial tools, can offer producers more stable price contracts. The stability makes it easier for oil companies to invest in new production or new technology, he says.

"We'd be worse off if they hadn't come in," Pirrong says.

Historically, though, speculators have been blamed when markets have gone awry. When Congress attempted to regulate agriculture markets in the 1880s and 1890s, speculators were cited as a threat to price stability, Pirrong says. The same was true in the 1920s, when regulation was enacted amid slumping commodity prices that were again blamed on speculators.

"This is just the latest chapter in a very old story," Pirrong says.

Posted by Tom at 6:17 AM | Comments (0) | TrackBack (0)

Merck's bad day

As with the baseball season, Merck & Co.'s defense of the Vioxx litigation is a marathon and not a sprint (previous posts here). Yesterday's sprint was not good for Merck, but my sense is that it's still way too early to write off Merck's defense strategy as a failure at this point.

The bad news for Merck was that a federal jury in New Orleans awarded $51 million to a former FBI agent who was taking Vioxx when he suffered a heart attack, while a New Jersey judge threw out a verdict in Merck's favor from a trial there last fall. The NJ judge has a reputation of being plaintiffs-friendly, so that ruling was not all that much of a surprise and, despite the federal venue of the New Orleans trial, New Orleans is still a plaintiffs-friendly environment. After a year of Vioxx trials, the scorecard reflects that Merck and the plaintiffs each have four victories, and there are at least another eight or so Vioxx trials scheduled in both state and federal court through the end of this year.

Ted Frank, who has been following the Vioxx litigation closely, has the best analysis of yesterday's developments in the overall context of the Vioxx litigation (see also here and here). Peter Lattman also has an interesting post in which he includes an email exchange with Houston plaintiff's lawyer, Mark Lanier, who was the first lawyer to hammer Merck in a Vioxx trial.

Posted by Tom at 5:35 AM | Comments (0) | TrackBack (0)

August 17, 2006

Conn Gen fires back in the Bagwell disability claim lawsuit

This earlier post examined the initial exchange between the parties in the Houston Astros' lawsuit against Connecticut General Insurance Co. over the insurer's denial of the Stros' claim under the disability insurance contract that the Stros bought from the insurer on their injured slugger, Jeff Bagwell (previous posts here).

Now, Conn Gen has fired back with a response (download link here) to the Stros' argument that the club's extra-contractual claims (juicier from an evidentiary and damages standpoint) should be tried along with the club's more pedestrian breach of contract claim under the policy. In short, the insurer argues that there is little legal precedent for the Stros' desire to have all of the claims adjudicated in one lawsuit and that the risk of prejudice to the insurer in having the claims tried together strongly mitigates in favor of severance of the claims for seperate trials.

I will be surprised if Connecticut General does not win this initial skirmish over severance of the Stros' claims.

Posted by Tom at 6:44 AM | Comments (0) | TrackBack (0)

Politics of academia run amok

My late father treasured his career in academic medicine, but he did concede that the politics of academia were rather byzantine at times. However, even my father didn't expect those politics to get this brutal:

The dean of medicine at the University of Texas Medical Branch at Galveston has temporarily stepped down, three weeks after her husband was mugged in the aftermath of announced layoffs at the school.

Dr. Valerie Parisi will "focus her attention on personal and family members" until Oct. 1, said a news release on UTMB's Web site Wednesday.

Parisi had led reorganization efforts that include layoffs of about 1,000 employees and a change in professors' salary structure — moves that have roiled the campus.

Soon thereafter, on July 27, Parisi's husband, Gary Strong, was attacked by three masked men while walking his dog. One of the men told Strong his wife "doesn't know who she's (expletive) with," leading police to believe the attack may have been related to the layoffs.

Sheesh!

Posted by Tom at 5:27 AM | Comments (0) | TrackBack (0)

The best major?

The fourth and final major professional golf tournament of the year begins today in the western suburbs of Chicago as the PGA Championship returns to Medinah Country Club. Golf World's Tim Rosaforte provides ten reasons why the PGA is not only the most improved major golf championship, but in some ways the best. Geoff Shackelford has the scoop on Medinah.

This year's PGA Championship has the additional intrigue of the game within the game -- the competition for a spot on the US Ryder Cup team -- and that pairing for the first two rounds of Master's champ Phil Mickelson, US Open champ Geoff Ogilvy and British Open champ Tiger Woods doesn't hurt the marquee value of the tournament, either.

Finally, don't miss this entertaining Boston Globe story on Houstonian and Champions Golf Club owner Jack Burke's victory at the 1956 PGA Championship. At that very different time and during a much less lucrative stage of professional golf, Burke played 155 holes over five days to beat seven opponents (the PGA Championship was match play back in those days) and win the 38th PGA Championship. For his trouble, Burke received a check for $5,000, which turned out to be hot. By the way, the article passes along Burke's following analysis of why Woods is the top professional golfer in the world right now:

"He's the only one who understands how to play the game, how to make shots. The other guys? They're all out there plumb-bobbing the world, worrying about their launch angle and their ball speed. But Woods is like the great pool player -- he doesn't see the cue, doesn't see the ball, he just sees the whole game."

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

August 16, 2006

Do as I say? Or as I do?

According to this report, Illinois senator Barack Obama warned citizens at his 50th Town Hall meeting about gas guzzling vehicles and proclaimed that such vehicles are a big part of the blame for the world's higher temperatures. In urging citizens to switch to higher mileage hybrids, Obama observed that "it would save more energy, do more for the environment and create better world security than all the drilling we could do in Alaska."

After the meeting, Obama proceeded to leave in his SUV, a GMC Envoy.

But it's not finished. When Obama's staff saw the news report, they sent the following email to the station that published the report:

A story your station ran seems to imply that my boss Senator Obama was being hypocritical when he said Americans should drive more fuel-efficient vehicles though he was himself traveling in an SUV.

The SUV in question, though, is a Flexible Fuel Vehicle that can run on E85, which the Senator fills it with wherever its available (and in fact he's worked very hard to provide tax credits to increase availability and access to e85). I believe in light of these facts the story is misleading and warrants a correction.

Let's get this straight. Don't drive an energy guzzling SUV. But it's o.k. to do so if your SUV can guzzle primarily ethanol, for which the Senator promotes tax breaks because it is uneconomic to produce otherwise, partly because of the energy cost involved in such production.

Something tells me that Senator Obama and his staff should shut up on this particular issue. Hat tip to Steven Hayward.

Posted by Tom at 7:39 AM | Comments (1) | TrackBack (0)

Christine Hurt is working on an interesting paper

Christine Hurt, Conglomerate blogger, former Houstonian and currently the Richard W. and Marie L. Corman Scholar in the University of Illinois College of Law, is working on an interesting paper that she describes here:

The prosecutorial response to white collar crime post-Enron has had some setbacks. In both the Arthur Andersen case and the Enron Nigerian Barge case, appellate courts eventually said that the fact pattern did not constitute the crime in question. However, as welcomed as these decisions are, they cannot turn back time. Arthur Andersen was destroyed by the investigation and conviction and, like a corpse after an autopsy, cannot be brought back to life. The defendants in the Nigerian barge case will never get back the years they spent defending themselves and actually living in prison, not to mention the untold defense costs. I am writing a paper on the relative burdens on the various parties in criminal and civil corporate misconduct cases, and I find it interesting that we have so many requirements and presumptions to save corporate civil defendants from vexatious litigation and exorbitant discovery costs, but we seem not to care about the corporate criminal defendant who must wait until a jury verdict or an appellate ruling to determine whether the prosecution was without merit.

Music to my ears! ;^)

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

On the Iraqi counterinsurgency and radical Islam

In this short review of Thomas Ricks' new book, Fiasco (Penguin July, 2006), renowned British military historian and author Sir John Keegan (previous posts here) provides a typically lucid explanation of "how a brilliantly executed invasion turned into a messy counterinsurgency struggle." Keegan concludes with the following observation:

[W]hat may underlie the whole insurgency, . . . is the rise of Islamic militancy across the Muslim world.

America was so certain that what it had to offer--modern government in an incorrupt and democratic form--was so obviously desirable that it failed altogether to understand that the Iraqis wanted something else, which is self-government in an Islamic form. It is too late now to start again.

All that can be hoped is that the U.S. Army will prevail in its counterinsurgency and, as Mr. Ricks's gripping accounts of the troops in action suggest, it may still. His description of Marines "attacking into an ambush" leaves one in no doubt that American soldiers know combat secrets that their enemies do not and cannot match. Whether pure military skills will win the war, however, cannot be predicted.

Meanwhile, in this NY Times op-ed, Yale fellow Irshad Manji, author of The Trouble with Islam Today: A Muslim’s Call for Reform in Her Faith (St. Martin's 2004) reminds us that radical Islamic jihadists do not require foreign policy grievances to justify their violence, and that support of responsible Islamic leadership is the key to success in the Middle East:

Whether in Britain or America, those who claim to speak for Muslims have a responsibility to the majority, which wants to reconcile Islam with pluralism. Whatever their imperial urges, it is not for Tony Blair or George W. Bush to restore Islam’s better angels. That duty — and glory — goes to Muslims.

And finally, Will Wilkinson points to this wonderful, short Bertrand Russell essay that identifies one of the key human dynamics underlying not only radical Muslin jihadists, but demagogues in any culture:

Ignore fact and reason, live entirely in the world of your own fantastic and myth-producing passions; do this whole-heartedly and with conviction, and you will become one of the prophets of your age.

Posted by Tom at 5:08 AM | Comments (1) | TrackBack (0)

August 15, 2006

An underappreciated factor in NFL games

Aaron Schatz is the lead author of Pro Football Prospectus 2006 (prior post here), which is an innovative effort to develop the same type of objective statistical framework for evaluating professional football players that Bill James and other sabermetricians have made standard in evaluating Major League Baseball players. I have read much of the first two Football Prospectus editions that have been published, and I recommend that you pick up this season's edition if you are interested in the NFL and the evaluation of football players.

In this interesting NY Times article, Schatz takes on an issue in regard to NFL games that the NFL hierarchy does not enjoy talking about -- that is, the wide discrepancy in the number of penalties called in NFL games between the various referee crews that call such games.

As Schatz notes, one of the Super Bowl participants could well have been determined by that factor last season as the Seattle Seahawks barely survived their November game against the New York Giants even though the officiating crew called an astounding 19 penalties against the Giants (the average NFL team was penalized 8.5 times a game last year). Not surprisingly, the crew that officiated that game called more penalties than any other NFL referee crew last season. Schatz goes on to observe that certain crews tend to call substantially more of certain types of penalties -- such as false starts and pass interference -- than other crews.

The NFL promotes the image that its games are decided on the field by the players and their coaches. But Schatz's research is indicating that who referees a particular game may be as big a factor as the participants.

Posted by Tom at 7:22 AM | Comments (3) | TrackBack (0)

Update on Barbaro's condition

This NY Times article provides an update on the rehabilitation of Kentucky Derby champion Barbaro's injured leg and related complications. Previous posts on Barbaro are here. The bottom line is that Barbaro is not out of the woods by any means, but is showing progress. Interestingly, the biggest problem that the horse faces in his fight for survival is not the original injury, but an infection to the hoof that often occurs after such an injury.

Posted by Tom at 7:06 AM | Comments (0) | TrackBack (0)

The WSJ said what about the Enron Task Force?

The Wall Street Journal has had a spotty record in covering the corporate scandals that emanated from the stock market bubble of the late 1990's, as noted earlier here, here and here in regard to its coverage of the Enron case. In the better-late-than-never department (Larry Ribstein notes that the WSJ seems to have changed its tune), the WSJ Editorial Board published this editorial ($) today entitled Enron Overkill that decries the Enron Task Force's hyper-aggressive use of the honest services statute to obtain unjust convictions of the four Merrill Lynch executives in the Nigerian Barge case, which resulted in a severe rebuke of the Task Force's tactics from the Fifth Circuit Court of Appeals. The WSJ editorial criticizes the federal government's broad use of the vague honest services statute as a trump card in white-collar criminal prosecutions.

But after failing to place the issue in the context of the more troubling trend of the government wrongfully prosecuting business interests, the WSJ editorial ends with this doozy of an observation about the Enron Task Force:

[The] Enron Task Force has a good record overall, bringing solid fraud cases and winning some 30 convictions. In the Merrill case, however, it stretched the law to send a political message -- and has now received a well deserved rebuke.

In short, the WSJ lauds the Task Force for doing a good job overall, but notes that they messed up in this one particular case and got caught.

In what parallel universe is America's leading business newspaper living? Does the WSJ Editorial Board really believe that the following amounts to "a good record overall?":

The Task Force's inflammatory public relations campaign demonizing anything having to do with Enron;

The Task Force's poor trial record involving former Enron executives (four convictions out of nine Enron executives tried to date) in a venue severely-biased against such executives;

The Task Force's questionable tactic of bludgeoning former Enron executives into plea bargains;

The Task Force's disingenuous market loss arguments in connection with the sentencings of the four Merrill Lynch executives in the Nigerian Barge case, which argument contradicted the Justice Department's position in a case pending before the U.S. Supreme Court at the time;

The overreaching nature of the Task Force's decision to prosecute Arthur Andersen out of business, which the Supreme Court noted in its unanimous reversal of that conviction, and the incalculable cost of such prosecutions;

The Task Force's elicitation of false testimony from former Enron executive Ken Rice, its key witness in the Task Force's miserably failed first Enron Broadband prosecution;

The Task Force threats toward two witnesses in the Broadband trial -- Beth Stier and Lawrence Ciscon -- who testified favorably for the defense in the first Enron Broadband trial and a Task Force prosecutor's violation of the judge's instruction not to question witnesses on certain subjects during that trial;

The Task Force's dubious policy of fingering potential defense witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation to deter such witnesses from testifying for defendants in the Enron criminal trials, including the strong evidence that the Task Force threatened witnesses (see also here and here) favorable for the defense in the Lay-Skilling trial;

After bagging the conviction of Ken Lay, the Task Force prosecutors bragging to the NY Times that they had trumped up a weak case against Lay in order to get a conviction of the former Enron chairman;

The Task Force's characterization of "harmless error" in regard to strong evidence of jury misconduct in the trial of former Enron Broadband executive Kevin Howard;

The appallingly arrogant "end justifies the means" attitude expressed by the former head of the Enron Task Force in regard to the prosecution of Arthur Andersen and other Enron-related cases;

The negative effect that the Justice Department's criminalization of business mindset is having on how foreigners perceive the risk of investment in American business markets; and

The negative ripple effect (see also here) that the Task Force's tactics have had on such fundamental rights as the attorney-client privilege and the presumption of innocence in prosecutions of business executives.

If the WSJ editorial board considers the foregoing "a good record overall," then I shudder to think about the carnage to justice and the rule of law that would result from a record in such matters that the WSJ would consider poor. In reality, the WSJ has fumbled the ball badly in defending business from the federal government's increasing criminalization of corporate agency costs in the post-Enron era. A few editorials sniping at isolated issues relating to that criminalization is not going to change the WSJ's abject failure in that regard.

Posted by Tom at 4:38 AM | Comments (1) | TrackBack (1)

August 14, 2006

Nice gig if you can get it

Cato Institute tax director Chris Edwards -- author of Downsizing the Federal Government (Cato 2005) -- addresses in this Washington Post article the myth that a job in the federal government involves much of a sacrifice of what the "servant" could earn in the private sector:

The Bureau of Economic Analysis released data this month showing that the average compensation for the 1.8 million federal civilian workers in 2005 was $106,579 -- exactly twice the average compensation paid in the U.S. private sector: $53,289. If you consider wages without benefits, the average federal civilian worker earned $71,114, [which is] 62 percent more than the average private-sector worker, who made $43,917.

The high level of federal pay is problematic in and of itself, but so is its rapid growth. Since 1990 average compensation for federal workers has increased by 129 percent, the BEA data show, compared with 74 percent for private-sector workers.

Why is federal compensation growing so quickly? For one thing, federal pay schedules increase every year regardless of how well the economy is doing. Thus in recession years, private pay stagnates while government pay continues to rise. Another factor is the steadily increasing "locality" payments given to federal workers in higher-cost cities.

Rapid growth in federal pay also results from regular promotions that move workers into higher salary brackets regardless of performance and from redefining jobs upward into higher pay ranges. [. . .]

According to Bureau of Labor Statistics data, the rate of layoffs and firings in the federal workforce is just one-quarter the rate in the private sector. [. . .]

One sign that federal workers have a sweeter deal than they acknowledge is the rate of voluntary resignation from government positions: just one-quarter the rate in the private sector, the BLS data show. Long job tenure has its pros and cons, but the fact that many federal workers burrow in and never leave suggests that they are doing pretty well for themselves.

And that's not even considering the enormous cost to businesses and lives resulting from the misguided work of some of those well-paid federal employees.

Posted by Tom at 6:17 AM | Comments (1) | TrackBack (0)

So, what's the problem again?

This Norm Alstar/NY Sunday Times article notes a recent analyst report suggesting that a stampede of institutional investors, mainly pension funds, into the commodities futures markets is actually the chief cause of the rise in oil prices, which the report characterizes as “a bubble.” Maybe so, but as James Hamilton noted in regard to the contango situation in such markets awhile back, this is a good thing and not an ominous one as the Times article suggests.

If the speculators turn out to be right that prices will be higher in the future, then they will earn a profit and provide a benefit for consumers. By bidding up the price of oil today, oil inventories rise as owners save for the higher future price and consumers conserve so that more oil is available in case there is a shortfall in the future.

However, if the speculators bet wrong, then they will have bought high and sold low. That results in consumers paying more now for oil products than would be necessary if the future price of oil could be predicted with certainty. But consumers' increased payments for oil products will pale in comparison to the money that the speculators will lose on their bets of higher prices in the future. Consequently, the only reason to be worried about all this is if you are concerned about the speculators losing huge amounts of money when the bubble bursts.

In short, as former Exxon CEO Lee Raymond reminds us about oil prices when he was asked recently whether he thinks that they will continue to go up:

"Maybe. But I'll bet they'll be lower at some point."

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

Missing the point on Preston Wilson

The Stros mercifully waived Preston Wilson over the weekend, who has been one of the worst-producing regularly-playing outfielders in the National League this season (Wilson's .714 OPS was 79th in the National League among regular players). The news would not normally justify even a blog post, except for the fact that Wilson's exit exposed the vacuous nature of the analysis that the Houston Chronicle serves its readers on almost a daily basis from two of its sportswriters, columnist Richard Justice and Stros beat writer Jose de Jesus Ortiz.

As regular readers of this blog know, I sized up the Stros decision to acquire Wilson accurately when the club picked him up as a free agent in January and questioned de Jesus Ortiz's fawning praise of the acquisition at the time. Not that such a prediction was particularly difficult. If one took the time to analyze Wilson's career statistics objectively, then it was easy to conclude that he wasn't a very good player and was a longshot to help the Stros much. Neither de Jesus Ortiz nor Justice bothered to undertake such an analysis of Wilson.

For example, the following is Justice's take on the Stros decision to acquire Wilson at the time the club acquired him in January:

Preston Wilson is a good addition. Period. Don't nitpick it. Don't try to figure out where he's going to play.

He can play any outfield spot, he didn't cost much money and he's a big league hitter.

I have no idea how he'll be used. Phil Garner probably doesn't know either. But he's a player. You can't get too many of them.

But Justice's original support of the Stros' decision to acquire Wilson does not stop Justice in his column today from using the decision to let Wilson go to engage in one of his favorite pastimes -- taking childish potshots at Stros owner Drayton McLane and GM Tim Purpura:

Preston Wilson's departure in the middle of a pennant race came at an odd time. Even odder is why he was signed in the first place. [. . .]

His signing made sense only from the narrow window through which Purpura was viewing his team. He had just seen the Astros hit .203 in the World Series and wanted to add a veteran bat.

So he went for one of the few Uncle Drayton would spring for. He compounded the mistake by guaranteeing Wilson playing time.

Bad idea. The problem with players like Wilson is they're not good enough to carry a team through tough times. And when they're not hitting, they don't do enough other things to merit being on the field. The Astros already had too many high-strikeout players on their roster. They shouldn't have added another.

Unlike Justice, de Jesus Ortiz at least admits in this column that he was wrong in originally supporting the Stros' decision to acquire Wilson. But that candor doesn't lead to any better analysis of the decision to let him go:

"When Astros general manager Tim Purpura gave Wilson a one-year, $4 million deal in January, the contract was praised throughout Houston."

Oh, really?

"[H]e's a far superior player than Jason Lane, but Lane's contract is cheap enough that the Astros would have lost him to another team through waivers. . . . Wilson is far more accomplished [than Lane], so the Astros should be praised for letting him go instead of making him sit on the bench with no chance of starting."

Wilson is far more accomplished than Lane? Wrong.

Covering the local baseball team is not a big deal, so maybe none of this matters. But many casual followers of Major League Baseball read the Chronicle's articles on the Stros, and one would think that the newspaper's editors would want to provide them a better quality of analysis than that provided by Justice and de Jesus Ortiz. It would seem likely that indulgence of such mediocrity could easily drift into more important areas of the newspaper.

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

August 13, 2006

Be careful replacing that divot

Larry Dierker thinks that some of baseball's rules are absurd, but even the most arcane of baseball's rules don't hold a candle to several of golf's rules. This James Achenbach/Golf Week column describes the byzantine manner in which U.S. Golf Association officials penalized 17-year old Esther Choe of the Scottsdale, Arizona in her recent third-round match during the U.S. Women's Amateur over -- you guessed it -- a divot:

After winning her first two matches over the Witch Hollow course at Pumpkin Ridge, Choe was bidding for a third-round victory and a spot in the quarterfinal round. Suddenly and decisively, she was derailed by a divot.

A what? Yes, that's right – a divot. Choe lost the 18th hole as well as the match, against 26-year-old Katarina Schallenberg of Germany, because she replaced a divot. [. . .]

As Choe took her stance to hit a shot to the 18th green, an old dried-up divot stuck to her right shoe. She instinctively shook the divot off her shoe and replaced it in its original position. She again assumed her stance, hitting her ball onto the green.

Oh, the heavens sometimes unleash such terrible fury on the innocents among us.

USGA officials immediately surrounded Choe. They didn't beat her with sticks, or anything like that, but they did rule that she lost the 18th hole because she was guilty of improving her stance.

Whattt?

That's right – improving her stance. The official reasoning went like this: When the divot came out of its resting place, she had worsened her stance (no penalty). When she replaced it, she thus had improved her stance (from worse to better, as it were).

What Choe should have done was simply kick the divot aside without replacing it. There would have been no penalty.

However, replacing it was a violation. In match play, the penalty was loss of hole. In stroke play, it would have been two strokes.

"Well, it doesn't make much sense to me," Choe said, "but I guess I understand what they are saying. I shouldn't have put it back."

All our golfing lives, beginning when we are junior golfers, we are told to replace divots. We are told to keep the course neat and tidy. We are told that we can be a golf course superintendent's best friend.

And what happened here? Choe was penalized for doing exactly what we are always instructed to do. There is something very wrong. This rule (13-2) needs a little finetuning.

Note to my golfing buddies -- Be careful replacing those divots. I'm watching you.

Posted by Tom at 8:34 AM | Comments (0) | TrackBack (0)

August 12, 2006

The political implications of the NatWest Three case

This earlier post focused on the political controversy that arose in the UK over the case of the NatWest Three, the three former London-based National Westminster Bank PLC bankers who are charged in Houston with bilking their former employer of $7.3 million in one of the schemes allegedly engineered by former Enron CFO Andrew Fastow and his right hand man, Michael Kopper. After the intervention of British Prime Minister Tony Blair, the British Parliament declined to block the extradition of the three former bankers, who are now living in Houston while awaiting trial on the charges.

However, one question that arose immediately after the NatWest Three arrived in Houston was why the three former bankers were not required like other defendants in Enron-related criminal cases to undergo a "perp walk" -- i.e., the process by which federal authorities parade white-collar criminal defendants in handcuffs and sometimes leg chains in front of the media as they enter the federal courthouse for their initial appearance in court. Well, according to this Telegraph.co.UK article, Attorney General Alberto Gonzales telephoned the US Marshals Service in Houston on the afternoon the three arrived in Houston and instructed the marshals to remove their hand and leg chains. So much for the ruse that Enron-related criminal cases are not subject to political pressure, wouldn't you say?

Meanwhile, in another interesting development, the entertainment value of the NatWest Three case increased last this week with the news that famed Houston criminal defense attorney Dick DeGuerin -- he of Joseph Durst fame -- has been hired by Giles Darby, one of the NatWest Three. With colorful Houston-based criminal defense lawyer Dan Cogdell already representing NatWest Three defendant David Bermingham, the defendants are preparing a formidable legal team and signaling an aggressive defense of the Enron Task Force's charges.

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

August 11, 2006

More Chronicle Cheerleading for the Texans

After Richard Justice's fawning column yesterday on new Texans' receiver Eric Moulds, Chronicle columnist John McClain gets into the cheerleading act today as he states the following regarding Texans placekicker Kris Brown in his daily report on the Texans' practice:

Despite the uncertainties in the return game, Marciano has no concern about three members of his special teams — kicker Kris Brown, punter Chad Stanley and long snapper Bryan Pittman. All are solid veterans whose consistency helps a coach sleep better.

"I don't know what I'd do without those guys," Marciano said.

McClain might have a point about Stanley and Pittman, but it's ludicrous to characterize Brown as a consistently good kicker. Last season, Brown blew at least a couple of games by missing quite makeable field goals and only two kickers in the entire NFL (Ryan Longwell and Paul Edinger) made a lower percentage of field goal attempts between 30 - 39 yards than Brown. And just to show that last season was not an aberration, Brown has been in the lower third of NFL kickers in overall accuracy for the past five consecutive seasons.

Thus, rather than "a solid veteran whose consistency helps a coach sleep better" and who draws $1.2 million in base salary, Brown actually ought to be fighting for his job during training camp. But the Chronicle never has let objective criteria get in the way of cheerleading for the Texans in the optimistic glow of the pre-season.

Posted by Tom at 7:02 AM | Comments (6) | TrackBack (1)

James Fallows -- "We've won the War on Terror"

One of the unfortunate results of the news regarding the latest foiled terrorist attack in London is that it will inevitably distract from a point that James Fallows (previous posts here) makes in this excellent Atlantic Monthly article -- we've won the War on Terror.

In preparing the AM article, Fallows -- who is of America's most gifted investigative reporters on foreign policy and military issues -- interviewed over 60 leading terrorism analysts and concludes that “terrorists, through their own efforts, can damage, but not destroy us. Their real destructive power lies in what they can provoke us to do.” Fallows goes on to observe that if we allow fear rather than reason to control our reaction to terrorism, then groups such as Al Qaeda can provoke the US into launching unnecessary wars that are far more damaging to our ultimate cause than the terrorist attack that provoked the war in the first place. Accordingly, Fallows urges in the article that the US drop the war metaphor in continuing its fight against groups such as Al Qaeda.

As we assess further information regarding the London airline terrorist plot, Fallows' cogent optimism reminds us that fear is the fuel for demagogic threats to the freedom that we most cherish. Check it out.

Update: Stratfor echos Fallows' optimism in his pre-London terrorist plot article with this post-plot analysis:

There are four takeaway lessons from this incident:

First, while there obviously remains a threat from those not only sympathetic to al Qaeda, but actually participating in planning with those in the al Qaeda apex leadership, their ability to launch successful attacks outside of the Middle East is severely degraded.

Second, if the cell truly does have 50 people and 21 have already been detained, then al Qaeda might have lost its ability to operate below the radar of Western -- or at least U.K. -- intelligence agencies. Al Qaeda's defining characteristic has always been its ability to maintain operational security. If that has been compromised, then al Qaeda's importance as a force has diminished greatly.

Third, though further attacks could occur, it appears al Qaeda has lost the ability to alter the political decision-making of its targets. The Sept. 11 attack changed the world. The Madrid train attacks changed a government. This failed airliner attack only succeeded in closing an airport temporarily.

Fourth, the vanguard of militant Islamism appears to have passed from Sunni/Wahhabi al Qaeda to Shiite Iran and Hezbollah. It is Iran that is shaping Western policies on the Middle East, and Hezbollah who is directly engaged with Israel. Al Qaeda, in contrast, appears unable to do significantly more than issue snazzy videos.

Will Wilkinson agrees and notes that the response in terms of airline security needs to be proportionate to the true risk.

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

Throw them all in the clink

As noted earlier here and here, the practice of backdating stock options is fundamentally a disclosure issue. However, that has not stopped federal prosecutors from criminalizing the practice as new indictments are now announced almost daily.

In this typically lucid post, Larry Ribstein wonders where this current spike in criminalizing a perhaps unfortunate but nevertheless common corporate practice will end:

The question is where to draw the line between criminal and civil liability for these violations. Are we going to throw a significant fraction of corporate America in jail? . . . backdating could become the Rubicon of criminalizing agency costs.[. . .]

The line-drawing problem becomes particularly clear in light of the news just yesterday that the vaunted Pixar apparently had its own backdating problem, and that one of the grants was to its guiding creative spirit, John Lasseter. So, again, how far are we going to go? Should we say that it’s ok to jail the heretofore little known Kobi Alexander, but draw the line at the famous John Lasseter, or Steve Jobs, Pixar’s co-founder and board chair?

Or is the key that Jobs himself didn’t receive options but Alexander did? But, then, how distinguish Brocade, discussed in my first post on criminalizing backdating, where the indicted ceo apparently also did not gain?

Or is the distinction that the board may have authorized the options in Pixar, but the indicted Comverse agents apparently tricked their board? But the board apparently approved the Brocade options.

Also, the evidence of who did, and knew, what may get a little tricky. A member of the Comverse board’s compensation committee was Alexander’s sister. And note that a lot of this evidence of a coverup is based on affidavits by Comverse board members, who appointed the internal review committee.[ . . .]

In the Pixar case, the WSJ story implies but doesn’t say that the board was in on the scheme. It notes that one compensation committee member was Jill Barad, former Mattel ceo, who also served on Microsoft’s compensation committee while Microsoft was backdating. Another director was famed lawyer Larry Sonsini, who was also on the Brocade board and had long advised Apple and Jobs. . .

But what difference should it make whether the insiders fooled the board, and therefore the shareholders, or the board was in on the scheme? Is it, again, just that we don’t want to send the likes of Barad and Sonsini to jail, but it’s ok to catch the small fry? And can we be sure who was in on what?

Or should the key distinction as to criminalization be whether the insiders lied to the auditors, as may have happened in Comverse? If so, why is it worse to lie to the auditors than to your board?

This whole business of fixing responsibility within large organizations, or even not so large, is part of the problem of criminalizing agency costs. As I’ve said in my short paper The Perils of Criminalizing Agency Costs:

Disciplining agents also requires pinning responsibility for corporate failure on particular people in the organization. If someone should be criminally responsible for obscuring Enron's financial condition, who should it be – the midlevel executives who designed the misleading structures, the executive officers who signed off on them, the independent directors who failed to object, the lawyers, accountants, banks and other executives who enabled them, anybody who knew about them and didn’t speak up, the whistleblower who told only those within the organization, or all of the above?

Elsewhere on the criminalization of business front, the publicly-owned company BetOnSports -- whose CEO David Carruthers was yanked off a plane while changing planes and arrested a couple of weeks ago (previous posts here) and which has provided a recreational service enjoyed by millions of Americans (online betting) -- announced yesterday that it was shutting its operations down and "refocusing" its business on the Asian markets. The development represents the first time that I can recall that a publicly-traded company on the London Stock Exchange has shut down its operations under pressure from United States prosecutors.

So, what's next? Shut down all the popular online Fantasy Football operations? That would be absurd, you say. Well, maybe not. At least the statistics don't appear to be the property of the professional sports leagues.

Federal prosecutors assert that offshore Internet casinos such as BetOnSports violate the Federal Wire Act of 1961, but that legal theory is wholly untested except arguably in the area of sports betting. BetOnSports raised over $100 million when it went public on the London Exchange in July 2004 and its market cap immediately before the arrest of Carruthers was about $235 million. Some of the company's largest institutional shareholders are funds controlled by major American investment houses, such as Goldman Sachs, Merrill Lynch and Morgan Stanley.

So, if BetOnSports is truly guilty of racketeering, then does that mean that Goldman Sachs, Merrill Lynch and Morgan Stanley are also criminally responsible for helping to finance that racketeering?

Don't bet against it.

Update: Christine Hurt over at the Conglomerate provides these related insights into the enormous cost of prosecutorial overreaching.

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

August 10, 2006

Stros 2006 Review, Part Seven

As the Stros pass the 7/10's pole and turn on to the stretch run of the 2006 National League regular season (previous 10% segment summaries are here), there is good news and bad news.

First, the good news. For the first time since the first 10% segment of the season, the Stros actually finished their most recent 10% segment -- their seventh of the season -- with a winning record.

The bad news is that the Stros' record for that seventh segment (9-7) is not indicative of the type of rally that the this year's club needs to become a realistic contender for the National League wild-card playoff berth for the third season in a row.

Nevertheless, the Stros continue to muddle along on the fringes of the NL playoff race. Due to the fact that there are not any really good NL teams this season except for the Mets, the 55-58 Stros remain only 3.5 games behind the Reds in the NL wild-card playoff race and only six games behind the slumping Cardinals in the NL Central race (the 59-55 Reds have pulled to within 2.5 games of the 61-52 Cards in that race). So, the Stros are still within striking distance in the NL wild-card race and could even contend for the NL Central lead if the Cards and Reds both collapse down the stretch. But that latter scenario is highly unlikely and even getting to 85 wins on the season -- which will probably be the minimum wins necessary to win the wild-card playoff berth -- would require that the Stros go 29-19 over the remainder of the season. Given the Stros' traditionally strong pitching, that type of finish is certainly not impossible, but there has been little indication during this season to date that this particular Stros club is going to be able to pull it together sufficiently to make that kind of run.

As predicted in the previous post in this series, the return of Clemens (2.32 ERA/14 RSAA) and Brandon Backe (3.69 ERA/3 RSAA) -- as well as the banishment of Buchholz (5.96 ERA/ -16 RSAA) and Rodriguez (5.22 ERA/-7 RSAA) to AAA Round Rock -- has improved the Stros pitching staff's aggregate runs saved against average ("RSAA," explained here) to 32, which has vaulted the Stros to 6th from 13th among the 16 NL pitching staffs.

Unfortunately, despite the explosion in last night's game, the Stros' chronic hitting woes are diluting the effect of the pitching staff's improvement on the overall club's performance. After idling around National League-avereage in runs created against average ("RCAA," explained here) for most of the season, the Stros hitting overall declined dramatically over the past 16-game segment, falling to an aggregate RCAA of -33, the lowest of the season to date and 12th among the NL clubs.

The club's hitting and pitching statistics to date are set forth below, and pdf's of the current hitting stats are here and the current pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia. The abbreviations for the hitting stats are defined here and the same for the pitching stats are here:

The decline in the Stros' overall RCAA reinforces the club's unbalanced hitting lineup and its steady decline in hitting over the past six seasons. 1B/RF Lance Berkman (45 RCAA/.419 OBA/.625 SLG/1.044 OPS) remains one of the best hitters in the game, but only a few of the rest of the Stros hitters are above-National League-average hitters and one of those -- 1B Mike Lamb (8/.365/.513/.878) -- is blocked from playing while Berkman rehabs his injured groin while playing first base. Moreover, CF/2B Chris Burke has tailed off considerably to 1/.353/.442/.795 at the 7/10's pole from 10/.377/488/.859 after 60% of the season, and 3B Morgan Ensberg (13/.394/.485/.879) continues to show a dramatic power drop-off since his return from a shoulder injury. Meanwhile, RF Luke Scott has given the club a nice boost after being called up from Round Rock (14/.459/.691/1.151), but the verdict is still out whether a 28-year old career minor leaguer will be able to sustain that level of hitting over a prolonged period of Major League play, and mid-season acquisition 3B/OF Aubrey Huff -- despite his big game last night -- still has not really caught fire (3/.388/.500/.888).

On the other side of the hitting coin, the other Stros hitters continue to bleed badly. SS Everett (-22/.295/.331/.626), CF Taveras (-14/.329/.339/.668), C Ausmus (-29/.298/.292/.590) and LF Preston "Double-Play" Wilson (-20/.309/.405/.714); hit into 18 double plays!) -- are among the least productive regularly-playing hitters in the National League. Even future Hall-of-Famer Bidg is showing his age (-5/.327/.458/.785). At least Manager Phil Garner has finally placed Wilson squarely on the bench in favor of Scott, but he still tends to play Taveras and Ausmus more than their hitting performance justifies.

Nevertheless, the work of the pitching staff is encouraging. Roy O (3.27 ERA/24 RSAA) and Clemens remain two of the best starters in the National League and, as noted above, Backe has been a considerable improvement over either Buchholz or Rodriguez. The Stros are still searching for a fifth starter and will try AAA-sensation Jason Hirsch in that slot this Saturday, but even Pettitte -- who has had a miserable season to date -- has shown signs of improvement over the past 16 games (went from 5.50 ERA/-12 RSAA to 4.96/-6 RSAA). Although Manager Garner stubbornly insists on continuing his worst bullpen pitcher -- Lidge (5.65 ERA/-6 RSAA) -- as the closer when Wheeler (3.06 ERA/8 RSAA) should be in that role, the remainder of the staff has been above-National League-level in terms of RSAA, which bodes well for the rest of the season.

So, while I continue to believe that this Stros club is not quite strong enough to pull out another playoff berth, improved pitching gives them a shot in a weak National League if the hitting stablizes at an average or just below-National League-average level. The Stros have seven games remaining on the current homestand (1 more against the Pirates, 3 against the Padres (58-55) and 3 against the Cubs (48-65)) before going on a three-city, 11 game road trip that will probably determine whether the club will still be in the race for a playoff berth come September. If the Stros win, say, 12 of those next 18 games, then watch out.

Posted by Tom at 6:51 AM | Comments (0) | TrackBack (0)

Cheerleading for the Texans

As regular as the sun rising, the Chronicle sports staff reverts to hometown cheerleaders during each pre-season training camp of the Houston Texans, chloroforming readers with puff pieces such as this Richard Justice column on new Texans wide-receiver, Eric Moulds.

For the first three seasons of the Texans, the training camp stories all lapped up the optimistic theme that the team was making steady progress behind the well-coordinated plan of owner Bob McNair, GM Charlie Casserly and head coach Dom Capers that had led the expansion team to the brink of being a playoff contender. Unfortunately, that theme fell rather flat last season as the bottom fell out for the Texans during a horrifying 2-14 season. It was rather comical to watch as Chronicle sportswriters John McClain and Justice went from fawning praise of the Texans during the pre-season to acerbic criticism just several weeks later during that awful season.

Given last year's disastrous season, the Chronicle's overall theme this pre-season is a bit different -- the team has overhauled management and personnel, and the new, better-organized coaching staff and the new players who the Texans have brought in are moving the Texans in the right direction again. Maybe so, but there is no meaningful analysis in Justice's column on Moulds that would lead an objective observor to conclude that the receiver is a significant upgrade over the seemingly serviceable Jabar Gaffney, the former Texans receiver who Moulds replaced.

Compare Justice's fawning piece on Moulds with the following pre-season analysis by the folks at Football Prospectus, who base their evaluations of players primarily on objective criteria rather than subjective considerations:

Moulds has been an average receiver at best for several years now; even back in 2003, teammates such as Bobby Shaw outranked him in DPAR ("points above replacement-level player"). But the national media still considers Moulds an elite talent because the Bills throw him 150 passes per year, and he still has one or two 9-catch, 120-yard games each season, usually when the Bills are being beaten handily. The new Bills brain trust finally figured out that Moulds' best years were behind him, and they did everythign but throw his cleats into a trash dumpster in their effort to get rid of him this spring. Moulds is a top candidate to fall off the map in 2006.

In short, based on objective criteria, Moulds' decline in productivity has been masked by the fact that his former team threw to him frequently, albeit ineffectively. Thus, objective analysis suggests that the Texans overpaid for Moulds and that he will not be any better than a replacement-level player. Justice's column might make you feel better about Moulds for awhile, but my sense is that most serious followers of the Texans and the NFL prefer the cold, hard facts to the type of subjective blather that the Chronicle regularly fees us during the Texans' pre-season camp.

By the way, for current information on the Texans, check out the Chronicle's new blog, Stephanie Stradley's Texans Chick. Stephanie is an unabashed Texans' fan, so she is unfailingly optimistic about the team and its players. However, she does pass along quite a bit interesting information and analysis on the Texans and its players that is not available from the Chronicle's other sources. I recommend giving Stephanie's blog a look.

Posted by Tom at 5:56 AM | Comments (8) | TrackBack (0)

August 9, 2006

What might have been

This NY Times article checks in on Mets centerfielder, Carlos Beltran, who the Stros rented during their incredible second half drive to win a 2004 post-season berth and come within a game of their first World Series. Beltran had a disappointing, injury-plagued season last year (-2 RCAA/.330 OBA/.414 SLG/.744 OPS), his first as a Met, but he is making up for it this season (39/.384/.619/1.003) as the Mets are the favorite at this point to win the National League pennant.

Although Beltran is a wonderful talent, my sense still is that the Stros probably made the right move in not paying the $120 million over seven years that it would have taken to retain him after the 2004 season (see earlier posts here and here). Lance Berkman is only a year older than Beltran and has generated over 200 more RCAA than Beltran during their respective careers, so it would be hard to rationalize paying Berkman less than Beltran. That would tie up over $40 million in payroll for a long-term in two players, which the Stros learned was a tough pill to swallow during the declines of former sluggers Jeff Bagwell and Richard Hidalgo. Moreover, just to put it in the perspective of this season, even if Beltran were added to the Stros lineup, the club's combined RCAA/RSAA numbers reflect that the Stros would still be behind the Cardinals and the Reds in the National League Central race, although they obviously would be closer than they are now and would have a better chance of overtaking those two clubs for a post-season berth.

Thus, even as good as Beltran is, I still like better the flexibility that the Stros will have after this season when about $40 million in payroll attributable to Bags, Pettitte, Clemens, etc. comes off the books. That should be enough to buy the 2-3 additional hitters that the club needs to turn around the downward trend in hitting that the Stros have experienced since the 2000 season.

Posted by Tom at 5:53 AM | Comments (0) | TrackBack (0)

Houston's ambassador of learning

One of the many people that make Houston such a remarkable place is John Lienhard, the longtime University of Houston engineering professor who is the author and voice of the popular KUHF radio series -- Engines of our Ingenuity -- which is carried across the nation by more than 40 National Public Radio affiliates. As Professor Lienhard describes it, Engines is "a mix of history, engineering and science. The programs describe the machines that make civilization run, and the people who devise them."

Lienhard recently completed his 2,000th segment of Engines, so the Chronicle's science writer Eric Berger used the occasion to interview Professor Lienhard. A part of the interview is here, and Eric's podcast of the entire 30-minute interview is here. The following is Professor Lienhard's response to Eric's inquiry as to what he considers the greatest invention:

I don't like to identify "greatest inventions." I think inventions flow and swirl and intertwine with one another. There was a wonderful piece by Salman Rushdie where he described stories as flowing like different colors in a great sea, and what you do is dip in and pull out one of those stories. But they're intermixed and intertwined with other stories. There's the constant flow and ebb of stories, and the same is true of invention. And there's another reason. In the book I finally say we're in trouble when we talk about inventions. The airplane was not an invention. It was something else. I give it a word, multigenium. ... They are these accrued inventions that we finally point out and say this is the final thing, like Wright Brothers' airplane, or Morse's telegraph, which followed something like 70 years of working with electric telegraphy. We call that thing in a finished form the invention, but it's not an invention.

Posted by Tom at 5:25 AM | Comments (0) | TrackBack (0)

El Paso's rebound

Just a year of so ago, Houston-based El Paso Corp. looked as if it was a prime candidate to be the city's next big corporate reorganization.

That's not the case anymore. Earlier this week, El Paso announced that it had earned a $141 million profit in the second quarter on revenue of $1.21 billion. The natural gas pipeline company had a net loss of $246 million (38 cents a share) on $1.17 in revenues during the second quarter last year.

Good job, El Paso.

Posted by Tom at 5:07 AM | Comments (0) | TrackBack (0)

August 8, 2006

The WSJ gets it right on the BetOnSports case

After being oddly slow in objecting to the prosecutorial abuses of businesspeople that have resulted in this, this and this (among many others), the Wall Street Journal ($) editorial page finally gets it right in this editorial on the outrageous conduct of the Justice Department in arresting BetOnSports executive David Carruthers while he changed planes in Dallas. Read the entire piece, but the conclusion sums up the outrage well:

. . . BetOnSports and Mr. Carruthers are not charged with dishonest behavior toward their customers. They are being told that a business they believed was legal was a criminal enterprise even if it was being run in the open. That suggests that prosecutors believe they have the right to enforce compliance with even ambiguous U.S. laws on any business, wherever based, solely because some of the people accessing their site happen to be Americans. As a legal theory, this is a stretch. But as an excuse to incarcerate a foreign national just passing through, it smacks of a politically opportunistic prosecution.

Posted by Tom at 7:24 AM | Comments (1) | TrackBack (0)

You just knew this was coming

Following on posts here and here from last year regarding the City of Houston's ill-advised investment in several downtown hotel properties, this Matt Stiles/Chronicle article reports that the City had decided to "restructure" (translated: Can you please pay us something?) $15 million in second lien loans on the Magnolia and the Crown Plaza hotels in downtown Houston rather than attempting to foreclose on the properties and deal with the messy business of attempting to eke out a profit from the two highly-leveraged properties in an overbuilt downtown hotel market.

As noted in this previous post, the Magnolia and Crowne Plaza are poster projects for why local governments should rarely get involved in financing projects that private financing sources will not support. In reality, the City is nothing more than a preferred equity investor in these highly-leveraged properties and, thus, its entire $15 million investment is at serious risk of being lost. That type of loss is not going to break the City of Houston finances, but the quality of the City's investment decision should give one pause when considering the amount of money the City is throwing around in regard to these equally dubious investments.

Posted by Tom at 6:21 AM | Comments (3) | TrackBack (0)

The first salvo in the Bagwell disability claim lawsuit

Connecticut General Insurance Co. -- the lead insurer on the Stros' disability insurance policy on the best player in the history of the Houston Astros Baseball Club, Jeff Bagwell -- has fired the first salvo in the Stros' lawsuit against the insurer for its failure to pay the Stros' claim under the policy resulting from Bagwell's injured right shoulder. Previous posts on the issues relating to the disability insurance policy on Bagwell are here.

In this motion, Connecticut General requests that U.S. District Judge Keith Ellison sever the two extra-contractual claims from the Stros' contractual claim that the Stros have asserted against the insurer in the lawsuit and abate the extra-contractual claims pending the disposition of the lawsuit over the contractual claim. The insurer points out that Bagwell's play late last season during the Stros' playoff drive and in the post-season raises a legitimate question as to whether Bagwell is totally disabled. Accordingly, Connecticut General argues that the Stros' extra-contractual claims (which are a basis for greater damages against the insurer than breach of contract damages, which are fixed by the insurance policy) likely have no merit and that, even if those claims survive the breach of contract lawsuit, the insurer should not have to defend against those claims until after the dispassionate breach of contract claim is sorted out.

As one would expect, the Stros' response (download link here) suggests that the circumstances surrounding Connecticut General's denial of the club's claim under the Bagwell disability insurance policy indicate a reasonable basis for the extra-contractual claims and, thus, that Judge Ellison should exercise his discretion to have a jury consider all of the claims in one efficient trial. Even if the Stros are successful in opposing Connecticut General's motion to sever and abate the extra-contractual claims, this is likely not the last that the club will hear on this issue before trial. The insurer will probably request a summary judgment dismissing the entire lawsuit before trial, but almost certainly will request a partial summary judgment attempting to knock out the extra-contractual claims before trial. If Connecticut General is successful on that move, then the insurer would limit its risk of taking the case to trial to the contractual damages, which is a flyer that Connecticut General might just be willing to take.

Posted by Tom at 5:20 AM | Comments (0) | TrackBack (0)

More good news from the Fifth Circuit in the Nigerian Barge case

James Brown -- the only former Merrill Lynch executive who remains in prison after last week's Fifth Circuit decision reversing and vacating the convictions of the four former Merrill Lynch executives in the Nigerian Barge case -- appears to be on the verge of being released from prison pending further disposition of his appeal.

In this motion filed with the Fifth Circuit, Brown's attorneys argue persuasively that the year that Brown has already served in prison in regard to his conviction on perjury and obstruction of justice charges -- combined with the fact that substantial issues remain as to whether Brown's conviction on those charges should stand (read Judge DeMoss' dissent from the Fifth Circuit decision on that issue) -- is more than enough to justify Brown's release from prison pending further disposition of his appeal, including possible re-sentencing (the Fifth Circuit vacated Brown's conviction on wire fraud and conspiracy charges along with those of the other three former Merrill Lynch executives).

In a pleasant surprise, the Justice Department filed this short response to Brown's motion not opposing Brown's release. Inasmuch as it would be highly unusual for the Fifth Circuit not to grant such an unopposed motion under the circumstances, Brown should be released from prison shortly, perhaps as early as today.

Does the Justice Department's response signal something? After last week's decision in the case, Ellen Podgor, among others, speculated that the DOJ might request that the Fifth Circuit conduct an en banc review of the panel's decision. That's certainly possible, but the DOJ should be careful what it asks for -- my sense is that a good number of other Fifth Circuit judges would view the case much as DeMoss did. If the DOJ is concerned that the panel's decision is going to be dished up to them already in virtually every deprivation of honest services case, then just think how often the DOJ would have to confront an en banc decision that adopts Judge DeMoss' dissent as the majority view. As a result, although the DOJ may still request it, I would not be surprised if the DOJ passes on en banc review in this case.

Update: The Fifth Circuit has now issued this order directing Brown's release. What a wonderful surprise for the Brown Family and hopefully the beginning of the end to a long nightmare.

Posted by Tom at 4:32 AM | Comments (1) | TrackBack (0)

August 7, 2006

Another Longhorn winner

The University of Texas has a storied golf program, and another chapter was written in that story yesterday as Sherri Steinhauer won the Women's British Open yesterday at Royal Lytham. It was Steinhauer's third Women's British Open victory, but the first since 2001 when the tournament became a major on the LPGA circuit.

Steinhauer is a native of Wisconsin who attended the University of Texas, where she was an All-American in 1985. She was the MVP of the UT women's golf team in 1983 and '85.

Posted by Tom at 7:56 AM | Comments (0) | TrackBack (0)

Who exactly is Judge Kaplan?

This Paul Davies/Wall Street Journal Weekend ($) article provides a profile of U.S. District Judge Lewis Kaplan, the judge who is at the center of the KPMG tax shelter case.

Judge Kaplan is quite a character, as reflected by his following response to one of the banes of federal judges -- the wrong-number caller to the in-court conference speaker phone that is used by out-of-town attorneys to participate in hearings that do not necessitate their in-person appearance in court:

During one hearing, an outside caller was mistakenly connected to the courtroom telephone.

"Hello?" the caller said over the speaker phone.

Judge Kaplan deadpanned: "Punch one if you want to enter your credit card number."

Posted by Tom at 6:32 AM | Comments (0) | TrackBack (0)

Perpetuating the Enron Myth

As noted in this prior post on the death of former Enron chairman Ken Lay, the myth of Enron is now so fully embraced within American society that otherwise intelligent people reject any notion of ambiguity in addressing facts and issues that call the Enron morality play into question.

One of the poster boys for the myth of Enron is Chronicle business columnist Loren Steffy, who has made a good part of his living for the past several years appealing to resentment and scapegoating rather than fair-minded analysis in covering the aftermath of Enron's demise. Steffy's latest effort in that regard is this column on the Fifth Circuit's recent ruling eviscerating most of the Enron Task Force's dubious Nigerian Barge prosecution of four former Merrill Lynch executives. Steffy dismisses the ruling as "a quagmire" and "thick mumbo jumbo" that "only a lawyer could love," and suggests that none of the three judges on the Fifth Circuit panel who wrote the decision "completely agreed with each other." Compare Steffy's treatment of the case with this analysis from a year ago, which foreshadowed much of the Fifth Circuit's decision.

But the best indication that Steffy's appeal to resentment trumps sound analysis or good judgment is his statement that none of three Fifth Circuit judges involved in Fifth Circuit's decision "completely agreed with each other." That's simply false, as each of the Fifth Circuit judges agreed with each other that the conviction of Merrill Lynch executive William Fuhs should not only be vacated, but reversed and rendered (i.e., the case cannot be re-tried). In so doing, each of the judges agreed that the Enron Task Force had produced insufficient evidence during its case-in-chief against Fuhs for a jury to find him guilty beyond a reasonable doubt of any crime. The ruling is a strong rebuke of the Task Force's decision to prosecute Fuhs in the first place.

Inasmuch as that part of the Fifth Circuit's decision does not fit neatly into the myth of Enron, Steffy ignores it (after misrepresenting it). The human tragedy of a young man with a wife and two young children being unjustly imprisoned for almost a year and having his professional career shattered by a wrongful prosecution does not even register on Steffy's radar screen.

That it does not reflects the shallow nature of Steffy's analysis well. As Larry Ribstein has observed in his ongoing series of posts regarding the disingenuousness of NY Times business columnist Gretchen Morgenson:

The last thing the journalists want is the sort of analytical clarity that we need for useful public policymaking. Rather, they want to obfuscate differences to enlarge the apparent, though not actual, size of the story.

Posted by Tom at 5:30 AM | Comments (1) | TrackBack (0)

August 6, 2006

Say what?

According to this Chronicle article, State Representative Harold Dutton chose the keynote address at the summer commencement ceremonies of Texas Southern University to declare who is truly responsible for the recent scandal involving former TSU president, Priscilla Slade:

Along with the usual advice and good wishes for graduates, State Rep. Harold Dutton delivered some pointed criticism of Texas Southern University's Board of Regents during his keynote address at the school's summer commencement ceremony Saturday.

"You (regents) are directly responsible for the unsuccessful management and government of TSU," Dutton said in his speech, with the regents arrayed on the platform behind him.

In an interview later, Dutton, D-Houston, said he was referring to the "dark clouds" looming over TSU because of the regents' handling of the investigation, dismissal and subsequent indictment of former university president Priscilla Slade and their current dispute with the school's radio station. [. . .]

Dutton, an alumnus of the university, said that although the controversy centered on Slade, he felt that the regents were just as much to blame because it is the board's responsibility to oversee TSU's fiscal management. He said the regents acted so poorly he considered them "co-conspirators."

"I don't think you just look to Priscilla Slade for the reason why, I think you have to look at all the board members," he said. "She may be in the spotlight, but I don't think she's the only one responsible for the mess we're in."

H'mm, let's see here. The TSU regents hire Slade, who by all accounts did a good job as TSU president, except for that little problem with managing her expense accounts, which is hardly something that regents of a university should be using their time to oversee. Yes, TSU has chronic financial and related management problems, but this and this has a lot more to do with those problems than the efforts of regents who donate their time to deal with the mess.

In short, Representative Duncan, you and the parochial nature of Texas education politics are much more responsible for TSU's problems than the TSU regents or even Ms. Slade.

Posted by Tom at 7:41 AM | Comments (3) | TrackBack (0)

August 5, 2006

The view from the front lines of Iraq and Afghanistan

Scottish author and diplomat Rory Stewart has packed a lifetime of fascinating experiences into his 33 years. In this interesting interview tucked into the weekend Wall Street Journal ($), the WSJ's Jeffrey Trachtenberg talks with Stewart, who has become one of the foremost authorities on the day-to-day problems involved in stabilizing Iraq and Afghanistan after years of brutal totalitarian governments.

Born in Hong Kong, Stewart went on to receive undergraduate and master's degrees in Modern History and Politics, Philosophy and Economics from Balliol College, Oxford University, and has written for the New York Times Magazine, Granta and the London Review of Books. After college, Stewart served in the British Army and Foreign Office in a variety of capacities before electing in 2000 to set off on a two-year, 6,000 mile walking journey through Iran, Afghanistan, Pakistan, India and Nepal. He chronicled his journey through Afghanistan during the the winter of 2002 in The Places in Between (Picador/Macmillan 2004), which Harcourt Harvest published this past May in paperback.

Stewart returned to public service in late 2003 as Deputy Governorate Coordinator (Amara/Maysan) and Senior Adviser and Deputy Governorate Coordinator (Nasiriyah/Dhi Qar) in which Stewart established the governance structures of Maysan province, resolved tribal disputes to restore security and consolidate the authority of the Iraqi government and the police, set up NGOs and civil society organizations, ran municipal elections, inaugurated a new Provincial Council in Dhi Qar and saw the province through to the transfer of sovereignty in June 2004. Stewart was awarded the Order of the British Empire (OBE) by the British Government for his service in Iraq.

Last week, Harcourt published Stewart's second book -- The Prince of the Marshes -- in which Stewart describes his recent experiences in Iraq, including the troubling problem of persuading the Iraqis to embrace the Coalition's mission there and the abject failure of a Coalition military unit from Italy to come to Mr. Stewart's rescue when his compound came under a brutal mortar attack. During the WSJ interview, Stewart provides many insights into the practical problems involved in stabilizing Iraq and Afghanistan, including the following:

Q: Did you expect to find the Afghanistan you describe in your first book -- poor, hungry and feudalistic?

A: No, I was surprised. I wasn't prepared for how poor and remote from the rest of the world Afghanistan turned out to be.

Q: Is Afghanistan going to be a perpetual war zone?

A: For the next generation it will be fragile and unstable. You're unlikely to have much government control of the tribal areas. People have a very strong sense of honor and admiration for courage. Particularly young men can become quite excitable and sympathetic towards violence. The older generation would like peace. But half the population is under 18, and that's where a lot of the trouble is coming from.

Q: Very few people you met [in Afghanistan] seemed opposed to the Taliban. Does this suggest that fundamentalism is part of the country's culture?

A: Rural communities are much more conservative in their Islamic beliefs than we acknowledge. If they had problems with the Taliban it had to do with burning their village, or stealing a donkey. But they were in favor of the social codes. In Kabul, there is a lot of unhappiness that people are allowed to drink alcohol. Outside the urban areas you'll find people are surprisingly xenophobic.

Q: Near the end of book, you describe a mortar and small arms attack on your compound in Nasiriyah. Is Iraq the new Yugoslavia, a country that only a tyrant could govern?

A: I don't know the answer to that question. Certain Iraqis seem to want a more authoritarian government. We were pushing for gentler policing, but a lot of Iraqis were suspicious of that. Iraq probably needs a very firm government to restore security. What it needs above all are good politicians flexible enough to restore a sense of national identity.

Q: In light of the behavior of the Italian Quick Reaction Force when your compound was attacked, what chance is there that a multinational armed force can successfully serve as a buffer between Israel and Lebanon?

A: This is a real problem. I don't believe in multinational armed forces except as a symbol. As a fighting force they are often inadequate militarily. Their strength is political; their presence spreads the blame. A coalition says a broader section of the international community is involved. The interesting thing is that the Nasiriyah province is looking better than some other parts of Iraq. Perhaps the Italian approach of doing very little turned out to have positive consequences, in that the Iraqis sorted themselves out rather than relying on foreigners.

Jonathan Tepperman, deputy managing editor of Foreign Affairs, has more on the folly of relying on a multinational force to resolve the ongoing Hezbollah-Israeli conflict.

Posted by Tom at 8:52 AM | Comments (0) | TrackBack (0)

August 4, 2006

Colbert on "wikiality"

You have to hand it to Stephen Colbert. He sure has a way of keeping things lively.

First, Colbert does a segment on his Comedy Central show on the online encyclopedia Wikipedia and the phenomenon of "wikiality" -- the reality that exists if you make something up and enough people agree with you, it becomes reality.

Thousands of viewers then get online and storm Colbert's Wikipedia entry and engage in widespread wikiality.

Hilarity ensues.

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

MotherRock's bad bet

This Bloomberg article is reporting that former Nymex president and former El Paso Merchant Energy trading chief J. Robert "Bo" Collins sent investors in his hedge fund MotherRock L.P. a letter yesterday informing them that MotherRock is shutting down after betting big and losing on trades in the volatile natural gas market during June and July.

Collins formed MotherRock in early 2005. At its peak, the fund managed about $430 million in assets and reported net gains of 20% for 2005. Although its energy fund was up slightly as of the end of May, that MotherRock fund lost $230 million as investors fled and the natural gas prices moved contrary to MotherRock's positions. After an unusally high draw in natural gas from storage last week and a a heat wave across much of the country, natural gas prices rose 17% during the week of July 24 and 14% this past Monday. Guess which way MotherRock was betting prices would go?

Posted by Tom at 6:34 AM | Comments (0) | TrackBack (0)

A $43 million limousine service

Anne Linehan and Kevin Whited, and Tory Gattis continue to do a good job of covering Houston Metro Rail's ever-present expansion plans, which seem to be impervious to whether the expansion is actually needed. Previous posts on the boondoggle of rail systems in cities such as Houston are here.

Although not as slick as a trendy Metro economic report analyzing the projected benefits of an expansion of the light rail system in Houston, this Bill Schadewald/Houston Business Journal ($) op-ed describes his rather compelling analysis of Metro Rail's ridership on one portion of the existing rail line:

As Yogi Berra once observed, sometimes you can see a lot just by looking. Neighborhoods can change character in a just a year.

Today I'm revisiting the outer Texas Medical Center area with a stroll down Fannin past Reliant Stadium along the light rail line.

It's half-past five on a Tuesday afternoon. The walk from South Braeswood to the end of the line is about a mile, give or take. . . .

A Metro train passes, whistle wailing. The trains regularly come and go in opposite directions every few minutes.

I'm focused on heart rate and rock, not paying much attention to the rhythm of the rails. Then I happen to look over. Staring back is a single solitary face on an entire train.

The cell phone says a quarter to six. Just one rider? During rush hour? It doesn't make sense.

I change the radio station and find a traffic report. Traffic is in bumper-to-bumper gridlock and slowed to a crawl on every major freeway for miles on end. Nothing unusual there. It's a typical weekday afternoon.

I decide the first train must have been a fluke. The next one will be chock full of rail commuters happy to be without cars.

The next train is empty. No passengers. Nada. Zip.

I start checking ridership on each train and keep a running total. The math isn't hard. After 20 inspections the cumulative body count is only 32. Even if I missed five who were bent over tying their shoes, it's still below two per train.

The rail cars may be packed from downtown to the Medical Center, but South Braeswood is the end of the line for all but an average of less than two.

It's a mystery why Metro went the extra mile. This ghost spur owes existence to a Super Bowl, a seasonal Reliant Stadium, and a now-defunct seasonal Astroworld.

In post-Super Bowl Houston, trains are crammed with cowboy hats for a few weeks of rodeo festivities early in the year. Red pom-pons and Texans T-shirts fill the seats on Sundays in the fall. . . .

So a mile of the seven-mile system built at a cost of $300 million is now primarily a $43 million limousine service on tracks for livestock lovers and football fanatics.

The depressing sight of so many empty cars bringing down Metro's ridership statistics is turning my walk into a bummer.

Schadewald goes on to recommend that Metro attempt to increase ridership by using its excess capacity of rail cars in a bumper car attraction next to the Dome. Not a bad suggestion, actually.

Posted by Tom at 5:52 AM | Comments (2) | TrackBack (0)

The latest boom

The Wall Street Journal's ($) Ann Davis reports from Houston on the funny money flowing into oil and gas investment opportunities, even those that do not own any oil and gas yet:

Barry Kostiner traded electricity and natural gas for eight years on Wall Street. Last fall, he reinvented himself -- as a Texas oilman.

With no assets beyond plans to buy oil and gas fields, he set up shop as Platinum Energy Resources Inc. He had never worked in the oil industry or managed a company. Yet he carried out an initial public offering of stock and within two months persuaded several New York hedge funds to buy a large chunk of the shares, raising $115 million in all. . .

Energy-related endeavors of all kinds are a magnet for cash these days, thanks to the gravity-defying rise of oil prices and the recent boom in investment pools that cater to deep-pocketed institutions and the wealthy. Some energy investments, to be sure, are relatively low-risk and involve industry veterans. But private-equity firms, hedge funds and other professional speculators are also pouring billions into unconventional loans, management teams with limited track records and IPOs on lightly regulated stock markets.[. . .]

The fevered pitch reminds some of the Silicon Valley boom a few years back. "Energy's about as hot right now as tech was in 2000," says Ben Dell, an energy analyst with Sanford C. Bernstein & Co. [. . .]

One popular trend: management teams with virtually no assets other than big and costly ideas.[. . .]

Exotic new loan markets are another energy investment trend. Some energy companies that don't yet have positive cash flow are borrowing from hedge funds or others at double-digit interest rates. The loans are sometimes called "second-lien" loans because in the event of trouble the hedge funds have to line up behind more-traditional lenders that have first rights to any collateral.

I began practicing business law during the late 1970's-early 80's boom in the oil and gas business, and cut my teeth in insolvency and reorganization law while unraveling and putting oil and gas deals back together again during the prolonged bust that followed that boom. Although this boom is different in material respects from that earlier run-up in the oil and gas business, that prior experience compels me to listen more to the following advice of former Exxon CEO Lee Raymond from an earlier WSJ interview than the sharpies quoted in the latest WSJ article:

Q: What do you think of [the current boom in the oil and gas business]?

A: I can never remember an industry consolidating at high prices. But I can remember an industry consolidating at low prices.

Q: Some people think prices will keep going up.?

A: Maybe. I'll bet they'll be lower at some point.

Let me go back to the last time we went through something like this, which started when the shah of Iran was around. [The shah went into exile in 1979.]

A lot of people don't remember, but we went through a period of relatively high oil prices, which by today's standard would be very high oil prices, that lasted for almost five years. It was at that time that we got into our first stock-buyback program.

As today, we had very strong cash flows. There were a lot of people that were talking about buying other companies. Although we didn't say it directly at that time, we had a view that the price structure could not last -- that it was fundamentally unstable, and that it was just a matter of time. And so we concluded that the cheapest oil we could buy was our own. But because of the stock-buyback program, we were roundly criticized on Wall Street. There were no opportunities. We were liquidating the company. All that kind of stuff.

But the facts are that, behind the scenes -- we were not going to say it publicly, obviously -- we just felt that the price structure couldn't persist. And, come along December of 1985, it just collapsed. Went from $28 to $10 in two weeks. So when people ask today, what are you going to do with the money, my answer is: We're not going to do anything stupid. We're going to manage it like we've managed everything else.

Q: What is Exxon planning to do with all its cash?

A: First of all, we'll sort through it. And secondly, why in the world would we ever tell anybody in advance what we were going to do with it anyway?

Posted by Tom at 5:02 AM | Comments (0) | TrackBack (0)

August 3, 2006

Judge Young swings for the fences again

Doug Berman's remarkable Sentencing Law and Policy blog notes another key sentencing decision from U.S. District Judge William G. Young of Massachusetts, the jurist who declared the federal sentencing guidelines unconstitutional a few months before the U.S. Supreme Court issued its Booker decision. In this well-reasoned 125-page decision, Judge Young concludes that the existing sentencing scheme is unworkable in theory or in reality. "Juries can and should perform" sentencing "as a matter both of practice and of constitutional procedure," Judge Young reasons. He begins his treatise by hammering home a point that has been made continually on this blog during the Justice Department's dubious criminalization of business interests in the post-Enron era -- i.e., the enormous cost of such criminalization:

For seventeen years federal courts had been sentencing offenders unconstitutionally. Think about that. The human cost is incalculable -- thousands of Americans languish in prison under sentences that today are unconstitutional. The institutional costs are equally enormous -- for seventeen years the American jury was disparaged and disregarded in derogation of its constitutional function; a generation of federal trial judges has lost track of certain core values of an independent judiciary because they have been brought up in a sentencing system that strips the words "burden of proof", "evidence", and "facts" of genuine meaning; and the vulnerability of our fair and impartial federal trial court system to attack from the political branches of our government has been exposed as never before in our history.

Posted by Tom at 8:42 AM | Comments (0) | TrackBack (0)

Jury hung already in the natural gas trader case?

Shortly after getting the case, the jury in the criminal trial of former Dynegy and El Paso natural gas traders Michelle Valencia and Greg Singleton (previous posts here) sent U.S. District Judge Nancy Atlas a series of questions that -- according to this Kristan Hays/AP article -- prompted the judge to observe "they just don't understand the [the prosecution's] theories" and may be hung already.

Yesterday, I noted the defense's gamble in electing not to put on a case after the prosecution rested based on the bet that the defense could persuade the jury during closing argument that the prosecution had not met its burden of proving that the defendants committed a crime beyond a reasonable doubt. That bet is usually a bad one, but it's sure looking better in this particular case.

Update: The Chornicle's John Roper reports that the jury has reached a verdict on wire fraud charges, but has advised Judge Atlas that the jurors are deadlocked on the conspiracy and false reporting charges. Until Judge Atlas decides whether to declare a mistrial or direct the jury to continue deliberating, the nature of the verdict on the wire fraud charges will remain confidential.

Update II: The jury is back and has found Valencia guilty of seven counts of wire fraud and Singleton guilty on a single count of wire fraud. The jury either acquitted or deadlocked on all the other charges against the defendants.

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

The best local source for hurricane info and analysis

Last August, the Chronicle's fine science writer, Eric Berger, began his popular SciGuy blog shortly before Hurricane Katrina hammered the central Gulf Coast. On the Saturday morning before Katrina hit, Eric and I were two of the earliest bloggers to recommend that people get out of New Orleans immediately and, in so doing, discovered each other. Since that time, Eric has become my go-to source for science information generally and hurricane information, in particular.

In this Chronicle article and related blog post, Eric predicts that there is a good chance that Tropical Storm Chris will become this season's first Gulf hurricane by early next week (but maybe not, too). As a result, if you haven't done so already, be sure to bookmark Eric's blog and check it regularly -- there is no better local source for hurricane information and analysis. His blog is yet another example of how weblogs have revolutionized the way in which specialized information is disseminated in American society.

Posted by Tom at 6:31 AM | Comments (4) | TrackBack (0)

The more things change, the more they stay the same

Several posts from last year (here, here and here) addressed one of the constants of my 27-year legal career in Houston -- the chronically abysmal condition of the Harris County Jail. With this article, the Chronicle's Steve McViker continues the Chronicle's series on the problem that no Harri County official seems to want to solve. Despite showing a "good faith effort" to correct problems at the jail, the Texas Commission on Jail Standards has concluded that the jail will remain decertified for the third straight year.

During an inspection of the jail earlier this month, commission officials found that "although there were over 700 available beds, there were 548 inmates without bunks," which followed a 2005 commission report in which it noted that just under 1,300 inmates were sleeping on the floor. Meanwhile, Harris County officials continue to dawdle over increasing staffing at the jail and even are dragging their feet in regard to the Chronicle's open records requests regarding jail matters.

Last year, Scott Henson over at Grits for Breakfast wrote a fine series of posts that addressed the reasons for the problems at the Harris County Jail and what needed to be done to correct those problems. As has been the case for decades in Houston, Harris County officials continue to do the minimum necessary to avoid a state-mandated closing of the jail while avoiding the difficult work of actually addressing the causes of the jail's problems by implementing necessary changes in the jail's administration and the local criminal justice system.

A community's soul is often reflected by how the community deals with constituencies who are unpopular and have no political power. In the case of Houston and the people most impacted by the Harris County Jail, that reflection is ugly and -- as shown by this community's remarkable response to the Gulf Coast evacuees last year after Hurricane Katrina -- not an accurate indication of our community's conscience. It is well-past time that Harris County officials prepare and implement a plan to resolve the local jail's chronic problems once and for all, and here's hoping that the Chronicle and the TCJS stay on their tails until they do. Houston deserves better.

Posted by Tom at 5:53 AM | Comments (0) | TrackBack (0)

August 2, 2006

Another Stros problem

The Stros won at San Diego last night, but a situation during the game highlighted another among the many problems with this particular Stros team -- manager Phil Garner.

Now, don't get me wrong. Garner's less-than-average ability as a Major League Baseball manager is nowhere near as big a problem as the Stros' chronic hitting woes or this season's overall lackluster pitching performance. Moreover, he is a genuinely nice man who is impossible to dislike personally. But the fact of the matter is that he is not a good manager. Among recent Stros managers, not as bad as Jimy Williams, mind you, but certainly not as good as Larry Dierker.

The Stros 7th inning in last night's game was a case in point. Luke Scott led off with a double with the Stros leading 1-0 (which turned out to be the final score). Unfortunately, the next four hitters in the Stros lineup included three of the worst hitters in the National League -- Adam Everett (-16 RCAA/.303 OBA/.335 SLG/.639 OPS), Brad Ausmus (-23/.300/.294/.594), the pitcher's spot and then leadoff man Willy Taveras (-14/.315/.321/.637). Thus, manufacturing a run was going to be difficult under the best of circumstances, but Garner managed to make the situation worse.

What does Garner do? First, he has Everett -- who had already driven in the only run of the game with a sacrifice fly -- attempt to sacrifice-bunt Scott to third, resulting in a pop-up to the pitcher. After Ausmus -- who swings as if he is afraid that he is going to hurt himself these days -- made the second out by flying weakly to short centerfield, Garner then pinch-hits the Stros one stud hitter, Lance Berkman (40/.403/.613/1.016), in the pitcher's spot to try to drive home Scott from second base (Berkman was available to pinch-hit only as he continues to rehab a sore groin muscle).

Now, say you're a National League manager late in a close game with the opposing team's runner at second base, two outs, first base open, the second-best hitter in the league coming to the plate and one of the worst hitters in the league following him in the order. What would you do?

Well, I know what I would do. Exactly what Padres manager Bruce Bochy did -- intentionally walk Berkman to get to Taveras, who promptly struck out. As an aside, why on earth does Garner insist on putting a hitter who has a .315 on-base average (26 points below National League average) and a -14 RCAA in the leadoff spot in the order?

To make matters worse, Garner then had to waste Eric Bruntlett to pinch-run for Berkman so as not to risk further injury to Berkman's groin.

So, in a close game that could easily have gone into extra innings, Garner wastes his best hitter and another potential pinch-hitter so that the other team could have the opportunity of pitching to one of worst hitters in the National League with two outs. Think that one through next time, Phil.

Although not as important as player performances, managerial decisions can make a difference. Jimy Williams' disastrous decision to platoon the extraordinarily productive Morgan Ensberg with the notoriously unproductive Geoff Blum during the 2003 season may well have cost the Stros a playoff berth that season (the Stros finished one game behind the Cubs in the National League Central race). Thus, even though the Stros won last night, managerial gaffes such as Garner's last night -- particularly in a close race for a playoff spot -- can be the difference between playing in the post-season and packing one's bags after the regular season. I know one thing for sure -- this Stros club is not good enough to overcome such mistakes and pull out the NL Wildcard Playoff berth.

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

Key natural gas trader case goes to the jury

In a surprising development, the defense in the trial of former Dynegy trader Michelle Valencia and former El Paso trader Greg Singleton (previous posts here) on conspiracy and fraud charges relating to their submission of false gas trading data to trade publications rested without putting on any evidence, betting that they could persuade the jury during closing arguments that the government had failed to fulfill its burden of proving that Valencia and Singleton are guilty of the charges beyond a reasonable doubt. The Chronicle's Tom Fowler reports on the closing arguments in the trial here.

The defense strategy is risky, as Jamie Olis discovered when his trial defense team put on a bare bones defense during his trial. The jury in the Valencia and Singleton trial will begin deliberations today.

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

Former TSU President Slade indicted

After a six-month investigation, the shoe finally dropped on former Texas Southern University president Priscilla Slade. A Harris County Grand Judy indicted her yesterday on charges relating to alleged use of up to $1.9 million of school property for her personal benefit. Two other former TSU officials who worked for Slade - Quintin Wiggins and Bruce Wilson - and a current TSU employee -- senior safety system engineer Frederick Holts -- were also indicted for their roles in the alleged scheme.

This an enormously sad case on numerous fronts, not the least of which is that Slade was the most talented person to serve in the role of TSU president in some time. After a growth spurt under Slade, the chronically-troubled school is again having problems, with enrollment down significantly for the upcoming semester. More on that in a future post.

By the way, did anyone else think that the Chronicle headline on its article covering the Slade indictment -- "The former TSU president could face up to life in prison if convicted of misusing funds" -- is a tad over-the-top? Although technically true, it's highly doubtful that Slade, if convicted, would be sentenced to anywhere near that long a prison term. I don't even think that the Harris County District Attorney's office would even come close to asking for such a sentence. The Harris County DA's office is not the Enron Task Force, you know.

Posted by Tom at 5:25 AM | Comments (1) | TrackBack (0)

Finally, some justice in the Nigerian Barge case

As foreshadowed by this post from last month on the Fifth Circuit's decision to release from prison three of the four former Merrill Lynch executives pending disposition of their appeal in the Enron-related Nigerian Barge case (extensive discussion here), the Fifth Circuit issued this decision vacating the wire fraud and conspiracy convictions of all four Merrill Lynch executives and reversing the conviction altogether of former mid-level Merrill executive William Fuhs, but affirming the conviction of former Merrill head of Strategic Asset and Lease Finance Group, James Brown on perjury and obstruction of justice charges.

Thus, of the four Merrill defendants, Brown still faces the remainder of his 46 month prison sentence and Fuhs appears to be home free, while former head of Merrill's Global Investment Banking division -- Dan Bayly -- and Bayly's lieutenant -- Robert Furst -- both face a possible retrial on the charges, although the fact that both have served a year of their sentences before being released from prison last month strongly mitigates against the government prosecuting the case against them again. At least one would think so in a reasonably civil society.

The decision is interesting on several fronts, not the least of which is the division on the panel in deciding the case. Judge E. Grady Jolly wrote the majority opinion of the Court, which was joined by Judge Harold DeMoss with regard to the reversal of Fuhs' conviction and the vacating of Bayly and Furst's. However, Judge DeMoss wrote a spirited dissent in which he persuasively argues that the perjury and obstruction charges against Brown should also be reversed, while Judge Thomas Reavley concurred with the reversal of Fuhs' conviction and the affirmance of the Brown conviction, but pens a dissent in which he contends the Court should have thrown the book at Bayly and Furst on the mail fraud and conspiracy charges.

The entire decision -- particularly Judge DeMoss' dissent -- is entertaining reading, but here are a few excerpts that stand out on first reading. First, the gist of the decision:

We reverse the conspiracy and wire-fraud convictions of each of the Defendants on the legal ground that the government’s theory of fraud relating to the deprivation of honest services –- one of three theories of fraud charged in the Indictment -– is flawed. We further vacate appellant Fuhs’s conviction on the ground that the evidence is insufficient to support his conviction. Finally, we affirm appellant Brown’s convictions of perjury and obstruction of justice.

Turning to its analysis on the Enron Task Force's flawed deprivation of honest services theory, the Fifth Circuit falls squarely in line with the Second Circuit's decision in United States v. Rybicki, 354 F.3d 124, (2d Cir. 2003):

[W]e are guided by the leading opinion on honest-services fraud, the Second Circuit en banc decision in Rybicki, supra. Rybicki concluded, and we agree, that cases upholding convictions arguably falling under the honest services rubric can be generally categorized in terms of either bribery and kickbacks or self-dealing. The great weight of cases are clear examples of such behavior.

Applying Rybicki, the Court observes that the nature of the transaction -- even if viewed most negatively toward the defendants -- did not involve the type of kickback or bribery that would have tipped off the Merrill executives that the Enron employees were depriving their employer of honest services:

Given that the only personal benefit or incentive originated with Enron itself -- not from a third party as in the case of bribery or kickbacks, nor from one’s own business affairs outside the fiduciary relationship as in the case of self-dealing -- Enron’s legitimate interests were not so clearly distinguishable from the corporate goals communicated to the Defendants (via their compensation incentives) that the Defendants should have recognized, based on the nature of our past case law, that the “employee services” taken to achieve those corporate goals constituted a criminal breach of duty to Enron. We therefore conclude that the scheme as alleged falls outside the scope of honest-services fraud.

Taking a page from the Supreme Court's decision in the Arthur Andersen case (which reversed the Fifth Circuit's decision in that case), the Court noted the following about the expansive interpretation that prosecutors are using in regard to criminal statutes:

This opinion should not be read to suggest that no dishonest, fraudulent, wrongful, or criminal act has occurred. We hold only that the alleged conduct is not a federal crime under the honest services theory of fraud specifically. Given our repeated exhortation against expanding federal criminal jurisdiction beyond specific federal statutes to the defining of common-law crimes, we resist the incremental expansion of a statute that is vague and amorphous on its face and depends for its constitutionality on the clarity divined from a jumble of disparate cases. Instead, we apply the rule of lenity and opt for the narrower, reasonable interpretation that here excludes the Defendants’ conduct.

The Court pulls no punches in criticizing the weakness of the Task Force's case against Fuhs:

Thus, the Government relies solely on the documentary evidence to assert Fuhs’s knowledge of the oral buyback promise and his intent to participate in the scheme to conceal that promise for the purpose of effecting a misaccounting of the overall deal. We find that the documentary evidence fails to sustain the Government’s burden of proof beyond a reasonable doubt. Much of the Government’s evidence consists of e-mails or memos not written or initiated by Fuhs, not directly addressed to him, and in some cases not even copied to him. They neither recognize a secret oral side deal nor imply that the addressees of the correspondence knew of such a secret deal. While they may support the assertion that Fuhs knew Merrill wanted a buyback agreement to protect its investment, and that it was at one point understood to be part of the deal by Fuhs’s subordinate Geoffrey Wilson, the principal documents relied upon by the Government simply do not sustain the inference that Fuhs had knowledge of an oral guarantee that was to be kept out of the written agreement and kept secret in (because it conflicted with) the accounting of the deal.

And in a wonderful passage that could be used to explain the recent prosecution of the late Enron chairman Ken Lay and former chief executive officer Jeff Skilling as well, the Fifth Circuit observes with regard to the Task Force's case against Fuhs:

As counsel for Fuhs noted at oral argument, if we begin with the assumption that Fuhs is guilty, the documents can be read to support that assumption. But if we begin with the proper presumption that Fuhs is not guilty until proven guilty beyond a reasonable doubt, we must conclude that the evidence is insufficient to prove beyond a reasonable doubt that Fuhs had the knowledge and intent to enter into the fraudulent scheme alleged by the Government.

Before disassembling the perjury and obstruction charges against Brown in his dissent, Judge DeMoss suggests that the deprivation of honest services statute is unconstitutional:

[T]he application of § 1346 to the facts presented in this case is particularly problematic for several reasons, the combination of which poses an even greater harm to future business relationships and transactions than would any one of the problems alone. The Government’s extension of the already ambiguous reach of § 1346 by way of an indictment for conspiracy to commit honest services fraud is especially troublesome. . . . To the extent that . . . case law required a relationship that generated a duty of honest services, such a relationship does not exist in this case between the Defendants, who are employees of Merrill, and Enron or its shareholders, who are the purported victims of the alleged fraud. The limitation of criminal activity to relationships giving rise to a duty of honest services is ignored when any person who negotiates with an employee of another corporation is potentially entangled by the combination of § 1346 with our very broad understanding of conspiracy.

I also believe that a serious problem arises with respect to the Government’s theory of harm in this case. It is absolutely undisputed that Merrill paid $7 million to Enron as a result of the closing of the transaction contemplated by the Engagement Letter of December 29, 1999 that was the final written agreement of the two parties (“the Engagement Letter”). Even granting the Government that Enron paid back $250,000 as the advisory fee to Merrill, Enron still had $6,750,000 more in its bank account as a result of the Engagement Letter than it had before. The Government’s theory of harm would have us ignore the initial gains to Enron and focus solely upon some later loss only tangentially connected to the particular investment transaction that forms the basis of the Indictment.

The cumulative effect of a vague criminal statute, a broad conception of conspiracy, and an unprincipled theory of harm that connects the ultimate demise of Enron to a single transaction is a very real threat, of potentially dramatic proportion, to legitimate and lawful business relationships and the negotiations necessary to the creation of such relationships.

And then Judge DeMoss absolutely nails the utter injustice of Brown's perjury and obstruction of justice conviction, which is based largely on evidence of terms of the Nigerian Barge transaction that were discussed in negotiations between Enron and Merrill, but never made it into the final contract between the parties:

The conversations preceding the deal are only negotiations, and the ultimate written agreement speaks for itself. Two material facts corroborate this reading: (1) Fastow himself averred to the Government that he, in fact, made only assurances of best efforts to Merrill, not promises or guarantees to take Merrill out of the deal; and (2) in conformance with the written agreement, Merrill actually paid $7 million to Enron, consistent with its purchase of an interest in the barge partnership investment, and therefore had absolutely no legally enforceable claim to be taken out of the deal. The Government mischaracterizes the transaction evidenced by the Engagement Letter when it labels the agreement a “sham” and asserts that Merrill was never “at risk” during the transaction. The Engagement Letter expressly states, “No waiver, amendment, or other modification of this Agreement shall be effective unless in writing and signed by the parties to be bound.” . . . In light of these provisions, Merrill’s $7 million was absolutely at risk. Any oral assurances of a take-out offered to Merrill by any Enron employee would not have been legally binding on Enron. . . .

Merrill could not have enforced Enron’s assurance of its best efforts commitment to remarket the investment interest that Merrill had agreed to purchase; Merrill could only have refused to deal with Enron in the future if the Engagement Letter had resulted in an unsatisfactory business investment. Such negotiations should not be the fodder for criminal indictments. If there is any criminal wrong arising from the facts in this record, and I have serious doubts on that score, it would be in Enron’s employees’ reporting of the transaction described in the Engagement Letter, not in the manner in which Merrill’s employees negotiated the deal.

So, three of the four former Merrill Lynch executives embroiled in the Nigerian Barge case have finally received some reasonable semblance of justice. Although I am happy for these men and their families, let's not overlook the emotional and financial carnage that has resulted from the Enron Task Force's dubious decision to criminalize this transaction. Four successful executives with Merrill Lynch have had their careers badly damaged. The men and their families have had to endure extraordinary stress and pain over the past four years. Lives and careers have been unalterably changed and for what? For having had the misfortune of being involved in a relatively small transaction with the social pariah of the decade, Enron?

Meanwhile, the person most responsible for this damage is doing quite well, thank you.

The prosecution of the Nigerian Barge case was based on resentment and scapegoating, not on justice or any reasonable concept of prosecutorial discretion. This is an increasingly common occurrence in American society and it's going to take much more than a just reversal in the Nigerian Barge case -- or even the deaths of a talented man and an American business institution -- to alter this troubling trend of how our government exercises its overwhelming prosecutorial power.

If you don't believe me, just ask Jim and Nancy Brown.

Update: An insightful reader points out that, with the reversal of the wire fraud and conspiracy conviction, Brown should be in line for a re-sentencing that could reduce his sentence considerably. Inasmuch as U.S. District Judge Ewing Werlein exhibited grace under fire during the original sentencing of the Merrill Four, here's hoping that Brown's attorneys can persuade him to reduce Brown's sentence to time-served (which is well over a year now).

Posted by Tom at 4:28 AM | Comments (0) | TrackBack (1)

August 1, 2006

The story behind the arrest of Dr. Pou

As noted in this previous post, the arrest in Louisiana of former University of Texas Health Science Center professor and physician Dr. Anna Pou on wrongful death charges for her actions in attempting to save lives during the chaotic aftermath of Hurricane Katrina is an egregious example of prosecutorial misconduct.

As is typical in such cases, word is now filtering out about the real motivations for the prosecution. Not only is an elderly Louisiana attorney general who campaigned on a plank of "cracking down on abuse of the elderly" at the center of the dubious decision to arrest, this NY Times article reports that Dr. Pou's accusers are three employees of LifeCare Hospitals, the company that owned the facility where 24 out of 55 elderly patients died in the aftermath of Katrina and whose top administrator and medical director didn't even show up at the hospital during those chaotic days. It turns out that the accusing LifeCare employees didn't make any effort to evacuate the elderly and sick patients, either. Does this have the smell to you of someone attempting to distract attention (or perhaps avoiding prosecution) from their own indiscretions?

Dr. Kevin Pho of Kevin, M.D. is doing a good job of keeping up with the reactions and commentary around the web to the case against Dr. Pou and the nurses. The case against Dr. Pou is the other side of the same coin that the government flips when it criminalizes risk-taking by businesspersons, so stay tuned to developments in this troubling prosecution.

Posted by Tom at 8:49 AM | Comments (1) | TrackBack (0)

Hope for sanity in sentencing of business executives?

Although just one case, at least one federal judge has concluded that the resentment and scapegoating that has driven the criminalization of business during the post-Enron era has gone too far.

In this thoughtful sentencing memorandum relating to the conviction of former Impath, Inc. president Richard P. Adelson on conspiracy and fraud charges. U.S. District Judge Jed Rakoff began and concluded his decision -- which is ably dissected by Harlan Protass here, Doug Berman here and here and Ellen Podgor here -- with the following comments:

This is one of those cases in which calculations under the Sentencing Guidelines lead to a result so patently unreasonable as to require the Court to place greater emphasis on other sentencing factors to derive a sentence that comports with federal law. . .

To put this matter in broad perspective, it is obvious that sentencing is the most sensitive, and difficult, task that any judge is called upon to undertake. Where the Sentencing Guidelines provide reasonable guidance, they are of considerable help to any judge in fashioning a sentence that is fair, just, and reasonable. But where, as here, the calculations under the guidelines have so run amok that they are patently absurd on their face, a Court is forced to place greater reliance on the more general considerations set forth in section 3553(a), as carefully applied to the particular circumstances of the case and of the human being who will bear the consequences. This the Court has endeavored to do, as reflected in the statements of its reasons set forth at the time of the sentencing and now in this Sentence Memorandum prompted by the dictates of Rattoballi. Whether those reasons are reasonable will be for others to judge.

Along the same lines, Ellen Podgor asks all the right questions in regard to the disappointing Second Circuit decision upholding the absurd effective life sentence of former WorldCom CEO, Bernie Ebbers, while Larry Ribstein chimes in with a new SSRN paper, The Perils of Criminalizing Agency Costs. In a related post, Professor Ribstein rams home the essential point:

. . . criminalizing this business practice is not the answer. There is little doubt that the combination of regulation, civil liability and markets can solve -- indeed, probably already has solved -- any problems here. In fact, criminal charges are so patently not the answer that I suspect that one big effect of this scandal will be a reexamination of the whole issue of criminalizing agency costs.

Meanwhile, Jamie Olis and his family continue their long wait for justice, while three UK bankers bide their time in Houston far away from their families and friends while facing the daunting decision of whether to risk asserting their innocence against the prospect of a long prison sentence if they are convicted within the cauldron of hate that exists in Houston to anyone who had anything to do with Enron.

As Sir Thomas reminds us "do you really think you could stand upright in the winds [of abusive prosecutorial power] that would blow" if that power were to set its sights on you? What now is the more serious danger to justice and the rule of law -- out-of-control prosecutors and abusive prison sentences for businesspersons or the results generated from the risk-taking businesspersons?

Posted by Tom at 6:52 AM | Comments (0) | TrackBack (0)

Those dang baseball expectations

People who follow baseball love to talk about possible trades of players, particularly when the hometown club isn't doing well, as is the case with the Stros this season. That's certainly been the case in Houston over the past couple of weeks as almost anyone with even a passing interest in the Stros has been talking about who the club should jettison to jump-start the team for another pennant drive. Fans' emotions regarding those trade talks were not helped when former star-turned-human reliever Brad Lidge blew another save over the weekend, traumatizing Chronicle sports columnist John Lopez, among others.

Then, Chronicle sports columnist Richard Justice wrote yesterday that an unnamed baseball executive told him that Stros owner Drayton McLane had directed Stros GM Tim Purpura to get anything he could in trade for Lidge after the latest blown save. That rumor was quickly followed by an ever more troubling one that the Stros had supposedly even offered star pitcher Roy Oswalt in trade talks. And, then -- presto! -- in the end, the trade deadline passes and the Stros stand pat and don't do anything. I doubt that McLane ever said such a thing about Lidge to Purpura or that Roy O was ever seriously a subject of trade talks, but the gossip nevertheless got people's juices flowing.

Beyond how this type of social interaction binds a community and is one of the reasons that a Major League Baseball club can be a positive force for a city, what's particularly interesting about these discussions is how they reveal people's expectations about their baseball club. As I noted in this post from several weeks ago, those expectations are a funny thing given that they color our view toward the club regardless of whether the expectations are based in fact. That's one of the reasons why I tend to rely on statistical analysis of players' performance a great deal. Going through that analytical process helps me avoid relying on player myths or dubious generalities about teams. My sense is that Stros GM Purpura does the same thing, which comforts me.

The recent controversy over Lidge is a case in point. Lidge is having a miserable season -- his earned run average currently stands at 5.77 and his runs saved against average ("RSAA," defined here) is an atrocious -7, meaning that he has pitched well-below an average National League pitcher so far this season (a precisely average NL pitcher's RSAA would be zero). To make matters worse, Lidge has given up seven home runs -- usually at a key point in the game -- in a little over 48 innings after giving up only five in almost 71 innings last season and eight in over 94 innings in the 2004 season. And yes, people have not forgotten the emotional trauma of that whole Pujols affair in the playoffs last post-season. After the two straight seasons in which Lidge had a total of 40 RSAA (26 in 2004 and 14 in 2005), Lidge has fallen so far that I don't think it's a stretch to say that most Stros fans wouldn't have minded McLane and Purpura exiling him to, say, Kansas City, regardless of what crumbs could be recovered in trade.

Meanwhile, in the hand-wringing over what to do about Lidge, virtually nothing has been said about Stros lefthanded starter, Andy Pettitte, who has been much worse than Lidge this season. After having arguably the best season of his career last season, Pettitte has really stunk it up this season, currently meandering along at a 5.18 ERA and a -12 RSAA. He has given up an astounding 21 home runs in just over 139 innings after giving up only 17 in over 222 innings last season, and he has saved over 40 fewer runs for the club this season than he did at the same stage of last season (Lidge, in comparison, has saved only about 17 fewer runs this season than at the same stage last season). And just to punctuate how bad Pettitte has been, the Stros are paying him almost $16.5 million smackeroos for stinking up Minute Maid Park, while the Stros pay Lidge a relatively modest $3.975 million.

My point? While it's clear than Pettitte has been a much bigger reason for the Stros' troubles this season than Lidge, nary a word was mentioned over the past several weeks about trading Pettitte. Now, maybe Pettitte's performance and contract made him untradeable, but he is coming off the best season of his career in 2005 and it's not unreasonable to think that a veteran lefthanded starter could still help a potential championship club such as the Mets in the post-season. And certainly the Stros were incentivized to unload some of Pettitte's enormous salary, so you would think that a deal would not have been beyond the realm of possibility. We probably won't ever know whether Pettitte's name came up in trade negotiations before this season's trading deadline, but it's clear that he wasn't even on the radar screen of the fans' discussions about trades -- Lidge was almost the total focus.

So, the Stros fans clearly preferred to trade the cheaper, younger pitcher with more upside potential who has pitched better over the past three seasons and not dropped off this season as much as the aging veteran who is being paid far in excess of what his performance this season justifies. Let's just say that I'm glad Drayton McLane and Tim Purpura are making these decisions and not the fans.

By the way, as noted in this previous post, Stros management was prudent to stand pat. The Stros have a boatload of payroll coming off the books after this season, which allows the club to address needs in attempting to re-sign Oswalt and bringing in some additional hitters, which has been a chronic weakness that this club has had trouble addressing ever since the club gave Bagwell and Hidalgo the big contracts around 2000. Now that the club will finally be in a financial position to address those needs after this season, it would not have made sense to make a trade at this juncture that might have decreased the club's flexibility this coming off-season.

Lidge and Pettitte's career and season statistics are below, and the abbreviations for the stats are here:

Posted by Tom at 5:11 AM | Comments (1) | TrackBack (0)