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August 31, 2008
The best Gulf Coast hurricane information source
Hurricane Gustav is another powerful hurricane bearing down on the Gulf Coast, so I wanted to recommend Chron science reporter Eric Berger's SciGuy blog as the best source of hurricane information for the Gulf Coast region.
Eric and I got to know each other over the fateful weekend of August 27-28, 2005 when we each posted one of the first blog posts in the blogosphere noting the dreaded turn of Hurricane Katrina toward New Orleans during the early morning hours of Saturday, August 27. Although we both recommended that New Orleans residents seriously consider immediate evacuation, local governmental officials in New Orleans did not do so until much later. We now know the result of that misjudgment. With that disaster in mind, at least I doubt that such misjudgments will be a problem this go-around, as New Orleans lawyer Ernie Svenson explains.
Since that time, Eric has developed his blog into the go-to source in the blogosphere for information on hurricanes in the Gulf of Mexico. Bookmark it and check it regularly for updates on Gustav.
At this time, it looks as if Gustav will make landfall along the Louisiana coast just west of the New Orleans metropolitan area (check out this cool WSJ map that compares the projected path of Gustav with those of the deadly 2005 storms, Katrina and Rita, and this slick new MSNBC hurricane tracker). That track would put much of New Orleans in the storm's northeastern quandrant, which is the most damaging part of the storm.
If that path holds, then post-landfall rainfall next week will be the main problem for the Houston area. The storm is expected to slow down somewhat after making landfall and become a tropical storm or depression in northwestern Louisiana and then northeastern Texas. The Dallas-Ft. Worth Metroplex has been in the throes of a drought for the past several months (as was Houston until the past couple of weeks or so), but that should end next week if Gustav continues its current course.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 30, 2008
"Darrell, I don't think we could go through that again"
With the beginning of the college football season this week, it just feels right to pass along this OU Insider interview of one of Texas' legendary college football coaches -- Emory Bellard, the inventor of the Wishbone offense.
Numerous National Championship teams from Texas, Alabama and Oklahoma used the Wishbone during the two decades after Bellard implemented the formation as an assistant coach with the Texas Longhorns during the 1968 season. Although Bellard went on to a mercurial tenure as the head coach at Texas A&M in the 1970's, he is best remembered for developing the Wishbone, which was a devastatingly effective triple-option offense (Paul Johnson at Navy and now at Georgia Tech runs a variation of the Wishbone today). OU Insider interview focuses on Bellard's memories and thoughts about the Wishbone, which include the following pearls:
On the criticism that the Wishbone was an ineffective passing offense:
". . . The biggest mistake I made in the passing game was assuming that we needed something short, but we didn’t. We just needed to throw deep. We did not need to throw short because everybody was coming up this way trying to stop the run. So as long as we kept out deep threats, post patterns and the streak patterns — that’s what we should have been placing the emphasis on."
On what happened after Bellard implemented the Wishbone at UT in 1968:
"So we put it in [1968] and we tied the first game and lost the second one and then we won the next 30."
On his misgivings about teaching UCLA's Pepper Rodgers the Wishbone:
"You can’t imagine the number of colleges that were at our spring practice. We conducted a darn coaching clinic every day; it was the biggest mess I ever messed with. I got so tired of talking to people."
"Pepper Rodgers, he came down from UCLA and they had had a bad year. Mark Harmon, the young actor, he was to be the quarterback and he was a good one, too. Ended up being a good one."
"But I spent about a week and I’d go back up to the office and talk with him at night and that jackass went back out and put the Wishbone in at UCLA and had a book published before Christmas. Boy, that takes a lot of gall there, now. I just, that really…"
And finally, on legendary UT head coach Darrell Royal's decision to teach the Wishbone to other programs, including arch-rival Oklahoma. OU refined the formation during the late 1970's and 80's to win National Championships and to dominate Texas after UT abandoned the Wishbone when Royal retired in 1975:
"[E]verybody in the country was looking to run the Wishbone. And it became the winningest formation in the history of the game of football for quite a while there. We gave it to Alabama, we gave it to Oklahoma. I mean, their execution knowledge and so forth of the offense came from us; we gave it to Oklahoma."
"I just saw Barry [Switzer] the other day. He was offensive coordinator at Oklahoma and Chuck Fairbanks was the head coach and Darrell came into my office one day and we’d already just wore Oklahoma out a couple years and he said, “Chuck is in trouble, he’s gonna lose his job and they want to put in the Wishbone. Barry is gonna be calling you, help him all you can.”
I shook my head, I said, “Darrell, you got to be joking?” He said, “No, I wanna help him.”
I said, “Well, I can admire your wanting to help somebody but I said, gosh darn, not them.” That’s true, too, because they got to where they had so much speed it was hard for us to catch them.
He [Royal] called me about four or five months ago. He calls every now and then and I call him every now and then. But anyhow, he called and said, “You know, I was just sitting here thinking, I might not be as benevolent if I had it to do over (again).”
I said, “I hope not, Darrell. I don’t think we could go through that again.”
Posted by Tom at 12:01 AM | Comments (1) | TrackBack (0)
August 29, 2008
The shoe drops on Judge Kent
Here is the Chronicle article on the unusual federal aggravated sexual harassment abuse and contact indictment against U.S. District Judge Sam Kent. The previous posts on this matter are here. Here are the public statements of Judge Kent and his main accuser, and a related article (see also here) on Judge Kent.
Judge Kent will apparently defend himself by what amounts to confession and avoidance -- that is, conceding that sexual advances were made, but that they were consensual in nature. In my view, that will be an extremely difficult defense for a defendant-judge to sustain in front of a jury.
This one has the potential to be very ugly indeed.
Update: Serious questions (see also here) are already being raised about the Fifth Circuit Judicial Council's handling of the investigation and sanctioning of Judge Kent.
Posted by Tom at 12:01 AM | Comments (2) | TrackBack (0)
August 28, 2008
Justice fumbles again
Even when chronically-wrong Chronicle sports columnist Richard Justice gets something right, he immediately follows it with more poorly-reasoned blather.
In this blog post, Justice pays tribute to former Texas Tech football coach Spike Dykes, who is truly one of the nicest men ever to be a successful head coach in the big-time college football. But rather than leave well enough alone, Justice proceeds to engage in more myth-making about current Tech head coach, Mike Leach:
Not many Division I schools would have hired Mike Leach, either. Not many Division I coaches look or sound like him. He's funny, arrogant, off-the-wall and occasionally infuriating.
He's also a great coach. He wins games and graduates his players. His ninth season begins with high hopes on the South Plains. The Red Raiders are 12th in the AP poll, the highest they've been at the start of a season in 31 years. Tech has sold every season ticket for the first time in the 84-year history of the program.
The Red Raiders have 18 starters back, including WR Michael Crabtree and QB Graham Harrell. There's depth all over the place on offense, and if Ruffin McNeill's defense plays the way it did after he took over last season, Texas Tech could be in the BCS mix.
Where to begin? In his eight years at Tech, Leach has a 65-37-0 record, which works out to a 63.7% winning percentage. Although that is the best mark of any long-time coach at Tech over the past 70 years, a substantial component of Leach's success has been his 25-5 (83.3%) record against non-Big 12 opponents, which have been mostly sacrificial lambs.
In fact, of those 30 non-conference games, only five have been against other BCS-conference teams -- Ohio State (loss), Mississippi (2 wins) and North Carolina State (2 losses). Moreover, the last time that Tech even played a non-conference game against a BCS-conference opponent was five years ago in 2003.
Meanwhile, Tech under Leach has feasted on cupcakes such as Division 1-AA teams Stephen F. Austin, Sam Houston State, Indiana State, Southeastern Louisiana and Northwestern State and undermanned Division I outfits such as SMU and New Mexico. Heck, ten of Tech's non-conference games under Leach have been against SMU and New Mexico. That Tech wins over 80% of such games is certainly no feather in Leach's cap.
On the other hand, Tech's Big 12 conference record under Leach is another story -- 35-29 (a 54.6% winning percentage). Leach-coached Tech teams are only 3-13 against Texas and Oklahoma and his teams have had only a 4-4 Big 12 conference record in four of Leach's eight seasons at Tech, including the last two.
Finally, Leach has used extremely poor judgment in some of his public remarks about assistant coaches on his staff.
In short, objective evaluation of Leach's career at Tech reveals that his teams run up big numbers, but they don't often beat teams with comparable or better talent because those teams can control the ball enough to keep Tech's offense from scoring a winning number. And despite what Justice suggests, Tech's defense under Leach has never stopped any good offensive team.
Tech is rated highly this season in pre-season polls (14th in the USA Today Coaches Poll), but their non-conference schedule is again largely a joke -- two D-1AA teams (Eastern Washington and UMass) and a rebuilding SMU should again be easy wins for the Red Raiders. In an unusual twist, Tech will have a reasonably difficult non-conference game this season when they travel to Reno on September 6 to play a well-seasoned Nevada Wolfpack team from the Western Athletic Conference.
But I'll wait to see how Tech fares in the Big 12 before conceding that the Red Raiders have reached a new level under Leach. So far, Leach's success at Tech looks more like good public relations to gullible sportswriters such as Justice than any major elevation of the program.
Posted by Tom at 12:01 AM | Comments (2) | TrackBack (0)
August 27, 2008
The genesis of a mortgage fraud hotspot
Dealbreaker's essential Opening Bell yesterday included the following note about the connection between the state of Florida and mortgage fraud:
Florida tops 1Q mortgage fraud list (AP)
This is not surprising... Florida is already a key location of the housing bubble. What's more, Florida tops every fraud list. Hello, Boca Raton? Clearwater? These cities are to fraud what Hungary is to Paprika. It's an industry. Plus, doesn't Florida have really lax mortgage/bankruptcy laws as it is?
However, what's most interesting about Florida is how relatively well the state has turned out given its checkered history. In his fine Throes of Democracy: The American Civil War Era 1829-1877 (HarperCollins 2008) (earlier blog post here), Walter A. McDougall provides the following colorful overview of Florida's evolution from the epitome of a backwater port:
From the day of the of the pirates to our day of offshore bank accounts, hedonistic resorts, and drug smuggling, Americans have found in the Caribbean an escape from their own laws and morals. The sand spit that Juan Ponce de Leon baptized La Florida was no exception.
In 1595, the Spaniards garrisoned Saint Augustine, the oldest European settlement on what became U.S. soil; and over a century Franciscans founded thirty-two missions to proselytize the Indians. But the province, which was 300 miles wide at the Panhandle and 400 miles long on the Atlantic coast, remained a derelict.
The whole Spanish navy could not have policed its 8,246 miles of tidal coastline, nor could the army police its 54,000 square miles of jungle and swamp. Nor could either defend the Indians from European infectious diseases or from the renegade Creeks they called cimarrones (whence “Seminoles”).
By the nineteenth century, the Native American Floridians were dead, the European population was measured in hundreds, and the whole peninsula from the Apalachicola River to Key West served as a refuge for Tampa Bay buccaneers, mutineers, deserters, fugitive slaves, Seminoles, and plunderers of shipwrecks (a frequent occurrence, especially during the hurricane season).
John Quincy Adams cited the anarchy as justification for the treaty of 1819 ceding Florida to the United States. But he was pretentious to think Americanization would ensure law and order. The mostly poor, mostly Scots-Irish “crackers” who spilled into the Panhandle had no patience for government. Hot blood, hot sunshine, laws so variable that even judges could not parse them, no jails, no constables, and plenty of places to hide encouraged “ingenious rascality.” Florida was “a rogue’s paradise.” [ . . .]
. . . [V]irtue was in short supply, not only among the murderers, gamblers, slavers, squatters, and drunks who poured over the border from Georgia, but among the erstwhile elite. One feud over banking provoked two duels, a murder and a lynching that left all parties dead. In 1827, Ralph Waldo Emerson found Tallahassee “a grotesque place . . . settled by public officers, land speculators, and desperadoes.” . . . [. . .]
The Jacksonian hatred of banks likewise prevailed. So stringent were the state’s restrictions that no state banks were chartered until the legislature itself chartered one in 1855. Education? The same story. In 1851, the state founded “seminaries” to train teachers at Ocala (parent of the University of Florida) and Tallahassee (the future Florida State University), but as late as 1860 the state counted just ninety-seven schools with 8,494 pupils.
The government showed vigor only in the enforcement of slave codes and the repression of free Negroes. As the state’s population rose from 87,445 in 1850 to 140,424 by 1860, the percentage of slaves remained above 40 percent. Disciplining that underclass was everyone’s business. Policing white people’s behavior was pretty much left up to the women and the Baptist and Methodist clergy. [. . .]
. . . Today [Florida] is home to Disney World, the space program, South Beach and golf and retirement complexes. But the original Florida will never die out so long as "darkies" gather in jook joints to dance the jubilee (jitterbug), bumper stickers proclaim "Redneck and Proud of it," policeman cruise with alcoholic "roaders" in hand, and transplanted Yankees are taught that "blacks is blacks, but there ain't nothin' sorrier than po' white trash."
Mortgage fraud doesn't sound all that out of place there, now does it? ;^)
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 26, 2008
Glass houses
Dan Slater of the Wall Street Journal's Law Blog notes the Kremlin's recent refusal to grant parole to former OAO Yukos CEO Michael Khodorkovsky, who is serving an eight-year prison sentence in Siberia for tax evasion and fraud.
Khodorkovsky's conviction and prison sentence are widely viewed within the U.S. as evidence that the Russian business and judicial systems remain largely corrupt and not conducive to honest commercial investment.
Maybe so, but what does the same reasoning conclude about a system that produces barbaric injustices such as this, this, this and this, to name just a recent few?
People who live in glass houses . . .
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 25, 2008
Joe Cocker, captioned for the clear-headed
Come to think of it, I always have wondered what lyrics Joe Cocker was singing during his famous rendition of "With a Little Help from My Friends" at Woodstock in 1969 (H/T Craig Newmark).
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August 24, 2008
The Quad reviews UT and LSU
The Quad -- the NY Times' excellent college sports blog that has been the subject of these previous posts -- continues its excellent review of each of the NCAA Division I Football Bowl Subdivision ("FBS") football programs by profiling the two best football programs in this neck of the woods, the 8th-ranked University of Texas Longhorns and the defending BCS National Champion, the Louisiana State University Bengal Tigers.
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August 23, 2008
Stros 2008 Season Review, Part Four
After falling apart during the third fifth of the 2008 season, the Stros (64-64) made an unexpected rebound during the fourth fifth of the season, going 20-13 over that stretch.
Although the Stros' recent play was more fulfilling to watch than if the club had mailed it for the rest of the season, the risk is that the good result from a small sample size of games deludes Stros management into thinking that the Stros are close to regaining true contender status in the National League. They are not and here's is a simple reason whey they aren't.
Despite their relatively good play of late, the Stros remain 14 games behind the NL Central-leading Cubs (77-49) and 9.5 games behind the NL Wildcard-leading Brewers (73-55). Inasmuch as that is even further behind than the Stros stood after their worst stretch of play of the season during the third fifth of the season, the Stros actually lost ground in the race for a playoff spot while playing their best stretch of baseball of the season.
Aggregate RCAA and RSAA numbers provide a simple but revealing reflection of why the Stros cannot contend with the likes of the Cubs and Brewers over the course of a long season. Remember, a club's RCAA reflects how many more (or fewer) runs that a club's hitters generate than a National League-average club. Similarly, RSAA measures how many more (or fewer) runs that a club's pitching staff saves than a National League-average club. Accordingly, a club's combined RCAA/RSAA number shows how many more (or fewer) runs the club's hitters have generated and the club's pitchers have saved in comparison to a National League-average club.
Even with their uptick during the fourth fifth of the season, the Stros aggregate RCAA/RSAA score remains -45 (-24 RCAA/-21 RSAA, which is 12th and 10th respectively among the 16 National League clubs), meaning that the Stros have generated and saved 45 fewer runs this season than a National League-average club. That's not much worse than where the Stros stood after 60% of the season (-42 = -41 RCAA/-1 RSAA), but the fact remains that the decidedly below-average performance means that the Stros have actually been quite lucky to generate a record of as many wins as losses over the season to date.
On the other hand, the Cubs have a stout RCAA/RSAA of 176 (71 RCAA/105 RSAA) and the Brewers a respectable 77 (33 RCAA/44 RSAA), which means that the Cubs have created and saved a startling 221 more runs (and the Brewers 122 more runs) this season than the Stros. Although the Stros are lucky to be near a .500 record for the season, there is no amount of luck that would allow them to contend against the likes of the Cubs and Brewers given that RCAA/RSAA differential.
The theme of this season -- as with most Stros' seasons since 2003 -- has been well below-average hitting. That trend continued during the most recent fifth of the season with a couple of notable exceptions, which is the primary reason that the Stros rebounded a bit.
Although the Stros best hitter, 1B Lance Berkman, cooled off during the fourth fifth of the season (56 RCAA/.431 OBA/.597 SLG/1.028 OPS, but only 3 RCAA in the 34 games), but LF Carlos Lee (30 RCAA/.368 OBA/.569 SLG/.937 OPS and 16 RCAA in 22 games before his injury) and then 3B Ty Wigginton (16 RCAA/.373 OBA/.541 SLG/.914 OPS, including 13 RCAA in 33 games) really picked up the slack. 2B Kaz Matsui (4 RCAA/.348 OBA/.415 SLG/.763 OPS, including 7 RCAA in 26 games) also showed signs of life, but then he went back on the disabled list, where he spends way too much time to be a dependable MLB regular player.
Unfortunately, two Stros hitters upon whom club management was heavily relying -- SS Miguel Tejada (-17 RCAA/.319/.420/.739) and RF Hunter Pence (-17 RCAA/.300 OBA/.435 SLG/.735) -- continued to have nightmarish seasons and are two of the worst-performing regular players in the National League this season.
Moreover, if you combine the players who have manned the Stros' centerfield (Michael Bourn -24 RCAA and Darren Erstad -6 RCAA) and catcher (J.R. Towles -15 RCAA, Brad Ausmus -12 RCAA, and Humberto Quintero -10 RCAA), four of the Stros' eight positions are among the worst-performing positions in the Natonal League this season. That's a sure-fire prescription for a bad team.
Meanwhile, most of the Stros' pitchers in the most recent fifth of the season continued their season-long performance of around National League-average except for starters Brandon Backe and Wandy Rodriguez.
Backe (-19 RSAA/5.62 ERA) was one of the worst pitchers in the National League over his past 7 starts (-13 RSAA), which prompted Chronicle sports columnist Richard Justice to recommend that Backe be made a pillar of next season's Stros staff (again, why is Justice allowed to write about sports?).
Rodriguez (4 RCAA/4.11 ERA, but -6 RSAA over his last 8 starts) has not been as bad as Backe, but his declining performance as the season wears on confirms that he is, at best, a back-end rotation starter. Geoff Geary, considered a throw-in in the Brad Lidge-for-Bourn trade, has been the most effective Stros hurler through 80% of the season (13 RSAA/2.41 ERA).
By the way, Geary's performance this season has been quite comparable to that of Lidge (13 RSAA/2.06 ERA). Inasmuch as the Stros have not committed to Geary anywhere near the $37 million-plus that the Phillies recently committed to Lidge, it's not at all clear that the Lidge-for-Bourn deal was a bad one for the Stros despite Bourn's ineptitude this season.
As for Stros management, it's still too early to say whether they have charted a course for returning the Stros to a playoff contender. Management did a good job in signing the Stros' top draft picks this season, which is a good start in restocking a farm system that has been seriously depleted over the past decade. Also, management has continued to make patchwork moves, such as bringing in veteran pitchers Randy Wolf (-2 RSAA/5.13 ERA) and LaTroy Hawkins (3 RSAA/0.00 ERA), that at least show that the club wants to make the best of it despite the team's non-contender status.
On the other hand, why on earth does Stros management pick up the contract of Giants castoff, IF Jose Castillo (-24 RCAA/.290 OBA/.381 SLG/.671)? Castillo is one of few National League infielders who actually makes Tejada look productive by comparison. It's moves such as these that make me scratch my head and wonder whether GM Ed Wade really has a plan for rebuilding the Stros or is simply casting about aimlessly?
Oh well. After finishing the series with the Mets (71-57) this weekend in New York, the Stros return home for three-game sets against the Reds (56-72) and then the Cardinals (71-58) before going back on the road to begin the final month of the season against the Cubs and the Rockies (59-70). Teams can expand their rosters in early September after completion of the minor league season, so here's hoping that Stros management allows the meager young talent on the club and in its farm system to get a taste of the Show over the final month rather than wasting that valuable playing time on veterans who will never pan out.
The 2008 season statistics for the Stros are below (through 127 games), 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 Stros' 40 man roster is here with links to each individual player's statistics:
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 22, 2008
Metro's sleight-of-hand
Kevin Whited passes along this Bellaire Examiner article that reports on Metropolitan Transit Authority CEO Frank Wilson bragging to a couple of local Chambers of Commerce about the economic impact that Metro's new light rail projects will have on Houston:
The Metropolitan Transit Authority’s construction of nearly $2 billion in light rail projects will be an economic boon to the entire Houston area, Metro Executive Director Frank Wilson said recently.
The light rail projects will create 10,000 jobs in the next four years, in addition to having a “secondary and tertiary economic impact,” Wilson told members of the Greater Southwest and Asian Chambers of Commerce on Wednesday.
When Metro spends that much, there is a ripple effect of about $300 million that he said will end up in the hands of small businesses.
“Our effort is to spend it sooner, rather than later,” Wilson said. “By this time next year, all five (rail) lines — $2 billion — is going to be in play,” Wilson said.
The economic benefit will happen as 10,000 people go to work on Metro’s rail projects, he said.
“When 10,000 people go to work, what else do they need? They are going to spend whatever money we give them to spend, and spend it again,” Wilson said. “If you’re an economist, and you look at that — the economic impact is going to be immense.”
Wilson is engaging in a common political sleight-of-hand in which transfers of wealth are promoted (distorted?) as wealth creation. For example, building a new highway creates economic wealth only to the extent that it enhances economic productivity, not because of the jobs that are involved in building it. Creating jobs to construct the highway is really no such thing -- the state is simply transferring the jobs from other sectors of the economy.
Moreover, the government-created jobs aren't even as good in terms of wealth creation as the jobs they replace. That's because it costs taxpayers more when government agencies are spending the money. This Heritage Foundation report recently made this point in response to a recent Department of Transportation assertion regarding the alleged "job creation" benefit of highway spending.
Thus, when you hear bureaucrats such as Wilson talk about "secondary and tertiary economic impact," hold on to your wallet. Unless productivity enhancement is substantial, these types of government investments are generally boondoggles. Inasmuch as taxpayers have to pay $1.50 (or more) for the government agency to spend a dollar, it's easy to understand why that is the case.
Posted by Tom at 12:01 AM | Comments (1) | TrackBack (0)
August 21, 2008
The NFL's next flagship stadium
Reliant Stadium in Houston is a nice and comfortable place to watch sporting events, but this Wired Magazine article reports that the new Dallas Cowboys stadium in Arlington looks to take the stadium experience to an entirely new level.
"The Dallas Cowboys are moving house — Texas style. When the team's new arena opens next year, it will be the largest, most tech-laden stadium in the NFL (and one of the biggest sports facilities of any kind on the planet). Its $1.1 billion price includes the most ginormous retractable roof ever built, massive end-zone doors, and the world's biggest hi-def LED screens." Not to mention locker rooms that include "power outlets, data ports, and televisions at each locker, plus ceiling-recessed projectors in the center of the changing rooms for reviewing plays." Or that "the giant arches holding up the stadium will measure 1,225 feet from end to end - roughly the length of the Empire State Building.”
Damn!
Posted by Tom at 12:01 AM | Comments (3) | TrackBack (0)
August 20, 2008
Martin Wolf on Capitalism
The new Creative Capitalism blog created by Bill Gates, Michael Kinsley and Conor Clarke is quickly making an interesting corner of the blogosphere. Today, Martin Wolf, the associate editor and chief economics commentator at the Financial Times, pens this remarkable blog post about what a company is, and what it is not, under different political systems. In so doing, Wolf provides a an engaging overview of the underlying forces that drive market economies. Read the entire post, but here here is a taste:
First, one has to distinguish the goal of the firm from its role. The role of companies is to provide valuable goods and services – that is to say, outputs worth more than their inputs. The great insight of market economics is that they will do this job best if they are subject to competition. Profit-maximization (or shareholder value maximization, its more sophisticated modern equivalent) is NOT the role of the firm. It is its goal. The goal of profit-maximization drives the firm to fulfill its role.
Second, by creating a competitive market for corporate control, we more or less force companies to maximize shareholder value, or at least behave in ways that the market believes will lead them to do so. . .
Third, a company is viewed in the Anglo-American world as a bundle of contracts. But companies are also social organisms created by a highly gregarious mammalian species with a unique capacity for large-scale co-operation over time and space. Companies have cultures and histories. For many of those most closely associated with them, they also have (and offer) a certain meaning. Committed workers in successful companies do not work in order to maximize shareholder value or even to earn the largest possible living. Indeed, it is impossible to direct most companies solely by the goal of profit-maximization. (Goldman Sachs may be an exception.) They have to be aimed at the intermediate goal of producing and developing goods and services that people want to buy and are worth more in the market than they cost to produce.
Fourth, the idea that a company is an entity that can be freely bought and sold is culturally specific. It is the view, above all, of Anglo-Americans. It is not shared in most of the rest of the world. . .
Fifth, in this perspective, shareholders are not genuine owners. They contribute nothing of value to the competitive strengths of the firm, enjoy the benefits of limited liability and are well able to diversify the risks they run. They are merely an (ever-shifting) group of people with a claim to the residual incomes. Those with the biggest (undiversifiable) investment in the firm -- and thus the greatest exposure to firm-specific risks -- are not shareholders, but core workers. The interests of the latter are, therefore, paramount.
And as if the foregoing wasn't enough, Wolf follows that one up with this post on the issues involved in a company embracing social responsibility as a part of its role:
This is a point of considerable and, indeed, general importance. We live in a world of two fundamentally conflicting tendencies: between ever greater competition, as markets are liberalised and opened to the world, and greater demands on companies to bear social burdens of many kinds. But the latter is incompatible with the former. Extractive industries are in a relatively good position to meet such burdens, because they enjoy rent. In general, however, companies will be increasingly unable to bear them except to the extent that social obligations help them, rather than are costly to them.
That has an important consequence – positive and negative. The positive consequence is that many social goals can only be met through political action. That is also where they ought to be met. The negative consequences are two: first, where political systems are weak or defective, social goals will not be met; second, where companies feel forced by popular pressure to accept costly burdens – to pay higher than market wages, for example – they will feel obliged to lobby to spread those burdens onto all their competitors. The result could, at worst, be less efficiency and less economic growth than otherwise. In that case, therefore, social responsibility will become a machine for spreading anti-social outcomes. That is an end nobody should desire.
If you are involved or simply interested in business, my sense is that you should bookmark Creative Capitalism and check in often.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 19, 2008
Say what, Doc?
Inasmuch as my family and social groups include a large number of medical doctors, I've noticed that the slang that the docs use when they are talking shop can be incomprehensible at times. That's why this comprehensive list of Doctor's Slang, Medical Slang and Medical Acronyms will come in handy. A few good ones:
"Blade" -- Surgeon: dashing, bold, arrogant and often wrong, but never in doubt (very much appreciated by the primary care doctors);
"Captain Kangaroo" -- chairman of the pediatrics department;
"DTMA" -- Stands for "Don't Transfer to Me Again";
"Fonzie" -- Unflappable medic;
"Improving His Claim" -- Victim of minor accident, needs no treatment but wants something to support his insurance/legal claim;
"Masochist" -- Trauma surgeon;
"Sadomasochist" - Neurosurgeon
"NOCTOR"-- A nurse who has done a 6 week training course and acts like she or he is a Doctor;
"Two beers" -- the number of beers every patient involved in an alcohol-related automobile accident claims to have drunk before the accident.
Check out the entire list. Those docs are a tough bunch.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
August 18, 2008
Richard Justice's Kumbaya Weekend
Allow me to ask the following question again: Why is Richard Justice allowed to write about sports for a major metropolitan newspaper?
This weekend's Justice missives were particularly banal, which is saying something when it comes to his writings.
First, he led with this fawning blog post about Vince Young and the University of Texas. I guess one has to have attended UT to understand.
That one was followed by this one about Olympic swimmer Michael Phelps being some sort of cultural unifier. Yes, he's a really good swimmer, but . . .
Finally, Justice finished the weekend by heaping more hero worship on former Stros star, Craig Biggio, who is deserving of praise, but come on.
Frankly, it does not reflect well on the Chronicle that it dedicates more resources to accommodating Justice's blather than it provides in informing the public about one of Houston's true heroes of the past 30 years.
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August 17, 2008
Fashion trends
Check out Esquire's slideshow (on the left below) illustrating the evolution of men's fashion over the past 75 years. Then, take a look at this Time Magazine slideshow (on the right below) exhibiting the worst of golf fashion over the past century.
My sense is that there is a connection.
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August 16, 2008
Dr. Ralph Feigen, R.I.P.
In this recent post on the death of Michael DeBakey, I noted that a substantial part of Dr. DeBakey's legacy was his involvement in the massive importation of talented medical professionals to Houston over the past 60 years. That talent transformed the Texas Medical Center from a sleepy regional medical center into one of the largest and most dynamic medical centers in the world.
Dr. Ralph Feigen, who died at the age of 70 on Thursday,epitomizes the doctors who have been at the center of that transformation.
Drawn to Texas Children's Hospital and Baylor College of Medicine at the age of 40 in 1977, Dr. Feigen spent the rest of his life in Houston cultivating a culture of excellence in research and patient care that turned Texas Children's into one of the largest and best pediatric hospitals in the world. Dr. Feigen was an excellent teacher, superb clinician and a highly-regarded researcher, but his personal warmth for his patients is what thousands of parents and their children will remember most about this fine man. A large part of Dr. Feigen's legacy is that Texas Children's -- despite its enormous growth over the past 30 years -- still reflects the comfortable warmth of its long-time leader.
Todd Ackerman, the Chronicle's fine medical reporter, summarizes Dr. Feigen's enormous impact well (the NY Times obituary is here):
Feigin, considered by many the most important pediatrician of the past 25 years, died Thursday. [. . .]
Feigin transformed Baylor pediatrics from a small, poorly funded department into the nation's biggest, made Texas Children's Hospital one of the nation's elite children's hospitals and trained an amazing roster of doctors, including almost half of Harris County's current population of pediatricians and many academic leaders nationally.
He also was known for research that contributed to the better understanding and treatment of pediatric disease, as the author of textbooks that changed the care of children worldwide and as a tireless advocate who never missed a chance to take up the cause of children's health.
Colleagues described him as unfailingly cheerful and energetic, even after the lung cancer struck. Diagnosed with the disease in late 2007, he continued as Baylor's chairman of pediatrics and Texas Children's physician-in-chief while in treatment. In May, he announced he would step down but attributed the decision to a plan he had made at 65 to stop his administrative duties at 70. [. . .]
In all, Feigin trained more than 2,000 pediatricians and pediatric specialists. Of those, two went on to become medical school deans, 22 became associate medical school deans, 10 became pediatric department chairmen and 180 became section heads of pediatrics.
Feigin came to Houston in 1977, a time when neither Baylor pediatrics nor Texas Children's were players of any significance. In 30 years, Baylor's pediatric faculty grew from less than 40 to more than 500, and pediatric's federal research funding became the most in the country, nearly $100 million. Texas Children's created and developed several of the nation's most respected clinical centers, and its patient load skyrocketed.
In addition to his pediatric administrative and clinical duties, Feigin served as president of Baylor from 1996 to 2003 and as interim CEO of Texas Children's from 1987 to 1989.
Despite the administrative roles, Feigin remained focused on children's health. He pushed for the state to extend the Children's Health Insurance Program to the maximum number of children and Medicaid to the maximum number of indigent mothers. He and his colleagues were at the forefront whenever there was an infectious disease outbreak, giving shots to kids and urging people to exercise caution.
He was considered such a great diagnostician that twice a week residents would gather to seek his help on their most baffling cases at "stump Feigin" sessions.
Without books or computers, Feigin would reel off myriad possible causes, then describe what he'd do to arrive at a diagnosis as quickly as possible. The performance left the residents awed.
We often get sidetracked as to what bells and whistles will supposedly make Houston better, but it's people such as Ralph Feigen who truly make Houston such a special place to live.
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August 15, 2008
Mapping Olympic Medals
The New York Times has the best Olympics online coverage page that I've seen. Particularly well-done are the daily schedule and the Olympic Medals page, the latter of which maps the medals as they are won and provides a map of medals for each Olympiad since 1896. Check it out.
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August 14, 2008
Cowboy business
The Texans are the toast of their local cheerleading team, but the unquestioned NFL team of Texas remains the Dallas Cowboys. This Glenn Hunter/D Magazine interview of Cowboys owner Jerry Jones confirms that the Cowboys business model is performing very, very well:
With the Cowboys, you’re said to lead the league in corporate sponsorships. Can you give me an idea how much those relationships are worth each year?
We’ve got significant, long-term relationships with Dr Pepper, Miller Lite, Pepsi, Bank of America. If you would aggregate those key, basic long-term sponsorships, that would exceed $50 million annually. We have smaller relationships through our broadcasting, radio and television.
And for merchandising, would $50 million be a good number?
The wholesale-merchandising area is a very, very proprietary number that has a lot involved with it. Let’s see, how to say this? Our wholesaling and retailing combined, as far as financial viability is concerned, is on par with what we do with sponsorships. They are equal in their contribution to the Cowboys.
For the team as a whole, what are you looking at for revenue this year? A few years ago, the figure was north of $200 million; are you going up every year?
Yes, we are. I think it’s fair to say that we will be north of $300 million.
And yes, Jones really is sorry for the way he handled the firing of longtime Cowboys coach, the late Tom Landry:
You really turned around the Cowboys franchise in the early 1990s, and to do it you had to shake up the status quo, including firing the longtime coach, Tom Landry. To this day we hear complaints from longtime Dallasites about that. If you could do things over, would you have handled that differently?
Yes. I understand the criticism; I actually understood it then. I didn’t have a sense of how significant the emotional attachment was to Coach Landry, and to some degree [Cowboys President and General Manager] Tex Schramm, but especially to Landry and the franchise. He had actually transcended the franchise. I actually had very prominent consulting people—not one but two firms, Hill & Knowlton, out of Washington D.C., and one firm from Dallas—that were advising me all during this time. And they advised me in many ways to do it the way I did it. Bum Bright—the individual I bought the team from—offered, to his credit, to make all these changes and to sell the Cowboys to me with no one here, a clean slate. But I was advised, and I concurred with it, that everybody knew the reason the changes were coming was because of me, so I should be a man and directly do it myself, as far as Coach Landry’s and Tex Schramm’s situations—in other words, do it face to face.
Having said that, it’s not something I would do that way again. I would have been more sensitive. I don’t know if I would have gone so far as having Coach Landry coach one more year, then having a transition period of a year. Or work longer with Tex; come in and let them kind of mentor you, show you the ropes, talk about their fundamental vision for the Cowboys. In hindsight, that’s what people say I should have done. But again, unfortunately, I’ve always tried to get there quicker and consequently, as I said earlier, taken more risk by getting on with things.
Finally, just what does Jones think about this whole QB Tony Romo-Jessica Simpson thing?:
Speaking of the quarterback position, does Tony Romo’s high-profile relationship with the entertainer Jessica Simpson bother you, like it does some Cowboys fans?
Tony’s relationship with Jessica Simpson doesn’t bother me at all. It’s good for the franchise—adding sizzle and show business and interest—and it doesn’t affect Tony’s performance in any way.
Maybe so, but I'm not taking a chance on Romo in my Fantasy Football League's draft. ;^)
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August 13, 2008
The fall of a demagogue
I wasn't going to blog anything about John Edwards' recent public admission to an affair with Rielle Hunter. As has been noted many times previously on this blog, Edwards is a demagogue who represents the worst in American national politics. I would have much preferred that Edwards' demagoguery be the reason for the demise of his political career rather than a tawdry affair that is hurtful to Edwards' innocent family members, even if it was "oncologically correct," as Maureen Dowd put it.
But turning to Ms. Hunter, check out this Jonathan Darman/Newsweek article. What a piece of work. Once Hunter decided to pounce, Edwards never had a chance. It almost makes one feel sorry for him. Almost.
By the way, while considering matters political, don't miss Josh Green's Atlantic piece on the demise of the Hillary Clinton campaign (previous posts here).
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August 12, 2008
Here we go again?
With the completion of the PGA Championship this past weekend, the eight automatic qualifiers for the 12-man 2008 U.S. Ryder Cup team were named for next month's matches at Valhalla Golf Club in Louisville (Sept. 16-21). U.S. team captain Paul Azinger will complete the 12-member roster by announcing his four Captain's selections Tuesday, Sept. 2, at 10 a.m. at the Hotel Martinique on Broadway in New York City.
The automatic qualifiers are the following:
Player Points
Phil Mickelson 5,342.500
Stewart Cink 4,952.665
Kenny Perry 4,480.700
Jim Furyk 4,423.892
Anthony Kim 4,035.296
Justin Leonard 3,379.274
Ben Curtis 3,120.061
Boo Weekley 2,785.095
My sense is that this group isn't sending shivers up the spine of the European team, which has recently dominated the U.S. team, winning four of the past five matches. The U.S. team is younger than prior teams with three of the eight (Ben Curtis, Anthony Kim and Boo Weekley) participating in their first Ryder Cup. Phil Mickelson is the veteran of the U.S. team by virtue of making his seventh consecutive appearance in the matches, but he is coming off a pathetic 1-7-1 record in the past two matches.
At least Mickelson played reasonably well over the past two weeks, contending for both titles and tying for seventh at the PGA Championship. Likewise, Furyk (29th) and Weekley (20th) played decently at the PGA even though they were not in contention for the title, while Curtis played very well in tying for second place.
However, Kim and Justin Leonard disappeared during the weekend rounds, Stewart Cink didn't even make the cut and Kenny Perry withdrew after the first round after scratching his cornea with a wayward contact lense. Leonard and Perry have never won a Ryder Cup match, and Mickelson, Furyk and Cink have an aggregate Ryder Cup record of 18-29-10.
Meanwhile, Euro team members Padraig Harrington (first place), Sergio Garcia (second place tie with Curtis), Henrik Stenson (tied for fourth) and Justin Rose (tied for ninth) were stellar during the PGA Championship.
Is anyone else getting a bad feeling about this year's matches? At least the U.S. team won't have to deal with being the favorite going into the matches.
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August 11, 2008
Barackroll
As political satire, the video below probably doesn't top this one, but it's close.
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August 10, 2008
Elegant Elk
Clear Thinkers favorite and longtime Houstonian Steve Elkington (PGA Tour page here) is now 45 years old and past his prime on the PGA Tour, where he has won a major (the 1995 PGA at Riviera), is a ten time winner (the most recent was in 1999 at Doral). Nevertheless, Elk continues to have one of most elegant golf swings on the Tour and remains quite competitive, reflected by his tie for eighth place through two rounds of this week's PGA Championship at Oakland Hills outside Detroit.
Mirroring his swing, Elk has also established himself as one of the most fashionable dressers on the Tour. During this first round of the PGA Championship, Elk was resplendent in a white shirt with pink dots and a hard collar, high-rise brown trousers with a windowpane check and long pleats, and green, white and red patent-leather Foot Joy shoes. Elk is continuing the tradition of fellow Houstonians Doug Sanders and the late Jimmy Demaret, both of whom were the fashion plates on the Tour during their respective eras.
As he winds down his PGA Tour career and prepares for the Champions Tour, Elk has established his own website -- elksworld.com -- where he is displaying and selling the shirts and caps he wears and designs. Elk also provides this slick deck that summarizes the marketing opportunities that businesses can derive by associating with Elk. Rather than selling advertising space on himself or his golf bag, Elk is using his artistic talent and entrepreneurial spirit to start an interesting business. Here's hoping that he is as successful in that endeavor as he has been during his PGA Tour career.
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August 9, 2008
Criminal justice?
The always-insightful Larry Ribstein points out that Jamie Olis would have been better off providing material support for Osama Bin Laden than working on the beneficial structured finance transaction that ultimately led to his criminal conviction.
The sad case of Jamie Olis remains one of the most egregious abuses of the government's prosecutorial power during the post-Enron criminalization of business. The relative lack of outrage over it reflects poorly on all freedom-loving Americans.
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August 8, 2008
Is the problem really risk aversion?
Steve Waldman (H/T Felix Salmon) makes a spot-on observation regarding the conventional wisdom that the current downturn in the financial sector of the global economy is the result of too much risk:
One of the more depressing bits of emerging conventional wisdom is the notion that the financial system took on "too much risk" in recent years. I think it is equally accurate to suggest that the financial system took on too little risk. [. . .]
The big central banks, whose investment largely drove the credit boom, were (and still are) seeking safety, not risk. The banks and SIVs that bought up "super-senior AAA" tranches of CDOs were looking for safe assets, not risky assets. We had a housing boom, rather than a Pez dispenser bubble, because housing collateral is (well, was) the preferred raw material for fabricating safe paper. Investors were never enthusiastic about cul-de-sacs and McMansions. They wanted safe assets, never mind what backed 'em, and mortgages are what Wall Street knew how to lipstick into safe assets. The housing boom was born less from inordinate risk-taking than from the unwillingness of investors to take and bear considered risks. Agencies, asset-backed securities, it was all just AAA paper. It was "safe", so who cared what it was funding? [. . .]
. . . We've trained a generation of professionals to forget that investing is precisely the art of taking economic risks, then delivering the goods or eating the losses. The exotica of modern finance is fascinating, and I've nothing against any acronym that you care to name. But until owners of capital stop hiding behind cleverness and diversification and take responsibility for the resources they steward, finance will remain a shell game, a tournament in evading responsibility for poor outcomes.
Investors' childlike demand for safety has made the financial world terribly risky. As we rebuild our broken financial system, we must not pretend that risk can be regulated or innovated away. We must demand that investors choose risks and bear consequences. We need more, and more creative, risk-taking, not false promises of safety that taxpayers will inevitably be called upon to keep.
Read the entire piece here. As noted many times on this blog (most recently here), many powerful forces in our society -- the government and the mainstream media to name just two -- continue to embrace myths that distract from a mature understanding of the nature of risk.
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August 7, 2008
A bad idea that just won't die
Isn't it amazing how long bad ideas will remain festering so long as local governmental officials have something to do with it?
After four years of dithering, this Bill Murphy/Chronicle article breathlessly reports that there may be hope for the Astrodome hotel project after all:
Despite their previous staunch opposition to the project, the Houston Livestock Show and Rodeo and the Texans signaled that they may be able to coexist with a convention hotel that would be built in the Astrodome.
Their more conciliatory attitude toward the 1,300-room project was evident in recently submitted reviews of the proposed convention hotel lease. . .
And since the promoters of the project already have a financing commitment lined up, this deal is about ready to take off, right? Uh, well, maybe not:
Even if the Texans and the rodeo drop opposition to the project, Astrodome Redevelopment Co. still needs to obtain financing for the ambitious, $450 million effort to transform the building once known as the Eighth Wonder of the World into a convention hotel.
Astrodome Redevelopment president Scott Hanson said the company's efforts to obtain financing have been hampered by an inability to strike a lease with the sports corporation, which oversees Reliant Park operations, including the Astrodome.
"The (commercial lending) market is much tougher now. Quite frankly, we have been waiting on getting an approved lease before we go back out into the marketplace," he said.
So, what happened to that financing commitment for the project about which the Chronicle previously reported? What the heck, even in a tough lending market, half-a-billion or so in financing shouldn't be all that difficult to line up for a project that almost certainly will be a financial success, now could it? Well maybe, except that the parent company that owns the model for the Astrodome hotel project -- The Gaylord Texan -- is not exactly doing all that well:
The Star-Telegram has a story today about the Gaylord Texan’s parent company, Gaylord Entertainment, reporting a second quarter revenue increase of 36 percent over last year—but a net income drop of 91 percent. The company reported a net income of $106.8 million in Q2 ‘07; for Q2 ‘08, they’re looking at a net income of $8.78 million. That’s right, eight. They blame it on decreased attendance at conventions. Does this bode well for the convention center hotel business?
So, let's get this straight. After not being able to arrange financing for this boondoggle during the robust equity and credit markets that existed up to 2007, the promoters think they are going to be able to line up financing in the current tight financing market for a business that is not even doing particularly well?
Give it up folks.
Update: Kevin Whited suggests that the promoters' PF staff should retain the Chron's Murphy.
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August 6, 2008
Cutting the Pai
Former Enron executive Lou Pai's recent settlement with the Securities and Exchange Commission confirmed that the Greed Narrative is still embraced by much of mainstream American society. Take, for example, Charles Kuffner's reaction:
Reading this story reminds me why I was bothered less than folks like Tom were about the criminal cases that were brought against the likes of Ken Lay, Jeff Skilling, and so on. Pai was (eventually) punished through the civil process, but the punishment he received doesn't come close to balancing the scales, in my view. He's still a millionaire many times over - assuming he hasn't blown it all, of course - while so many other people, employees and shareholders, got wiped out. I think the only way the civil justice system could really make these guys pay for their wrongdoings is if it left them in the same shape as the people who were affected by their actions - namely, in a situation where they'd have to work for the rest of their lives because they no longer had any accumulated wealth. Here's a bit I wrote from my review of "The Smartest Guys In The Room":
There's a really poignant scene in which Portland General Electric lineman Al Kaseweter matter-of-factly states that he sold his entire retirement portfolio, which was worth $348,000 at its peak, for $1200.
PGE had been bought by Enron before the crash; like most Enron employees were encouraged to do, Kaseweter put the bulk of his retirement funds into Enron stock. Put Lou Pai in Al Kaseweter's shoes, and I'd agree that justice had been served. Same with Skilling and the rest of that crowd. But that's not how it works, so despite the problems associated with the Enron prosecutions, I think they were necessary.
Stated simply, Charles' view is that "Pai got rich at Enron and a bunch of people lost money when Enron went down in flames, so he must have done something criminal and must be punished." Chron business reporter Loren Steffy, who really ought to know better, spews a similar view.
Frankly, given the societal bias against nearly everything related to Enron, such reactions are not particularly surprising. But it remains disappointing -- and, frankly, a reflection of our human instinct to demonize those in regard to whom we feel morally superior -- that reasonably intelligent people dismiss as a virtual white-collar criminal a man of considerable talent without even passing mention of what he supposedly did wrong.
In reality, Pai was a former SEC economist who became one of the commodities traders who helped Jeff Skilling transform Enron into a multi-billion dollar corporation with earnings that rose from a couple of hundred million dollars in 1990 to $1.6 billion in 1998, over half of which was generated by Enron's trading division. By 2000, Enron's revenue had risen to $100 billion and, on in late August of that year, Enron’s stock price peaked at $90 per share.
As virtually every mainstream media article about Pai's settlement reported, Pai had a legendary fondness for strippers and was a frequent patron of Houston's famous topless club near the Galleria, Rick's Cabaret. Pai met a woman at Rick's with whom he had a long affair, leading Pai and his wife to divorce in 2000 (Pai eventually married his mistress). Pai sold a large amount of his Enron stock in 2000 to fund the divorce settlement, so although he was a wealthy man before selling the stock, Pai was a wealthy and liquid man after doing so.
But the SEC charges against Pai did not involve any of that. Rather, the SEC alleged that between May 18, 2001 and June 7, 2001, Pai sold 338,897 shares of Enron stock and exercised stock options that resulted in the sale of 572,818 shares. According to the SEC, before making those sales, Pai -- who previously headed an Enron division called Enron Energy Services ("EES") -- learned from the successor EES management team that it had identified substantial contract-related losses in the division. The SEC theorized that, had Enron reported EES's contract-related losses in its retail energy services segment, that segment would have shown a quarterly loss of at least $60 million rather than the profit of $40 million that Enron reported in its Form 10-Q for the first quarter of 2001. By selling in May and June, the SEC alleged that Pai avoided the substantial losses that he would have suffered had he still been holding the stock when Enron's stock price collapsed in late 2001.
However, the SEC's allegations against Pai were anything but a slam dunk. Mirroring the SEC's theory of the case against Pai, the Enron Task Force attempted in the Lay-Skilling trial to prove that Enron and Skilling had lied about EES’s growth while simultaneously hiding mounting EES losses. Relying on the testimony of plea-bargainers David Delainey and Timothy Belden, the Task Force asserted that EES first moved an allegedly non-collectible account receivable to Enron's profitable Wholesale division in the fourth quarter of 2000 and then transferred the entire EES risk management book to Wholesale in the first quarter of 2001 ("the resegmentation"). According to the Task Force's theory against Skilling and the SEC's theory against Pai, these events occurred solely to make EES look more profitable than it really was.
Unfortunately for the Task Force and the SEC, that's not what the testimony reflected during the Lay-Skilling trial. The various witnesses expressed differing opinions as to the purpose for the moves with regard to EES, but not one of them stated that anyone had told them that the reason for the moves was to bolster EES’ profitability. Likewise, not one of the witnesses attributed knowledge of that alleged motive to Pai (or Skilling, for that matter). With respect to the transfer of the fourth-quarter 2000 receivable, Enron auditor Arthur Andersen had analyzed the transfer and approved the accounting treatment. Indeed, Skilling defense witness Diann Huddleson testified that Enron management believed it could collect on the questionable receivable and ultimately did collect most of it.
As for the resegmentation, Skilling testified that moving the EES risk book to Wholesale made sense from a business standpoint, and former Wholesale division executive Rogers Herndon confirmed Skilling's version by testifying that the Wholesale unit improved the efficiency and value of that risk book. Even Delainey, the Task Force's main witness on this issue, conceded that he ultimately recommended to Skilling that the risk book be moved. Indeed, the only independent accounting expert who testified during the Lay-Skilling trial -- Walter Rush -- testified that the transfer of the risk book complied with applicable accounting rules.
Thus, the SEC's civil case against Pai was similar to what we've seen in most of the criminal cases against former Enron executives -- long on bombast, short on substance.
But the promoters of the Greed Narrative protest, what about the innocent victims who lost their nest eggs as a result of Enron's collapse?
Well, one of the main reasons that those victims' nest eggs ever had value in the first place was because Pai helped Skilling transform Enron into the world's leading energy risk management company through the creative use of futures and options contracts to hedge price risk for natural gas producers and industrial consumers. Although there is nothing wrong with feeling compassion for folks who lose money on an investment, rarely is it mentioned in the Greed Narrative with regard to Enron that many of those "victims" who lost their nest eggs were imprudent in their investment strategy. They should have diversified their Enron holdings or bought a put on their Enron shares that would have allowed them to enjoy the rise in Enron's stock price while being protected by a floor in that share price if it fell below a certain value. Such is the risk of investing in the trust-based business model.
Thus, while virtually all of those Enron "victims" hedged the risk of their investment in their homes by purchasing homeowner's insurance, few of them hedged the risk of their investment in Enron stock. More than likely, most of them simply did not understand how Enron's risk management services created their nest egg in the first place. Thus, when those nest eggs evaporated during the bank run on Enron, they didn't even try to understand what had occurred. They simply embraced the easy-to-understand Greed Narrative.
Sadly, apart from the its egregious human toll and the serious abuse of state power that its promoters ignore, the Greed Narrative's devastating impact is that it obscures the true nature of investment risk and fuels the myth that investment loss results primarily from someone else's misconduct. As Larry Ribstein has been asking for years, do we really want to be sending a message to investors that risk is bad when it often leads to valuable innovation and wealth creation? For example, self-settled derivative prepay transactions are not particularly intuitive (no product actually changes hands) and are not well-understood outside the trading business. Nevertheless, such transactions provide the valuable benefit of hedging risk for companies, who pass along that benefit to consumers in the form of lower prices for their products and services.
Do we really want to allow prosecutors and regulators to paint such beneficial transactions as frauds and then manipulate the public's ignorance to demonize innovative risk-takers who were attempting to create wealth? How does throwing creative and productive business executives such as Michael Milken and Jeff Skilling in prison do anything to educate investors about the true nature of risk and the importance of diversification and hedging?
A truly civil society would find a better way.
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August 5, 2008
Enunciate!
Come to think of it, I had a difficult time understanding Batman at times, too.
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August 4, 2008
Cool videos to start the week
Walmart opened its first store in Arkansas in 1962. Check out this remarkable Flowing Data video that shows the company stores growing like a wildfire over the ensuing 45 years.
Meanwhile, this BBC video takes a look from above, using satellite tracking and computer imaging, at the daily use of commercial passageways in the UK.
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August 3, 2008
"It's all your fault"
Julie Alexandria of the always-clever WallStrip explains how speculators became the latest business villains of the moment. Enjoy.
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August 2, 2008
The Waiting Game
Moira Hodgson's W$J review of waiter/blogger Steve Dublanica's new book -- Waiter Rant: Thanks for the Tip--Confessions of a Cynical Waiter -- is a rollicking good time. Check out Hodgson's analysis of the merits of Dublanica's background for waiting tables:
Considering some of the customers he has to deal with, Mr. Dublanica's background was the perfect training for his job: four years in a seminary studying to be a priest followed by work at rehab centers and homes for the mentally retarded. He says that 80% of the people he serves at The Bistro are perfectly nice; the rest are socially maladjusted psychopaths. He also has to contend with servers on drugs and an irritable, jumpy boss: "Like a soldier home from war, his eyes are always scanning the horizon for threats."
By the way, be careful about sending that food back to the kitchen:
The third time a woman sends back her de-caf coffee, saying it's not hot enough, he dumps regular coffee into her cup, places it in a 400-degree oven, takes it out with a pair of tongs and delivers it to her table. But that story pales beside Mr. Dublanica's account of a waiter who plays floor hockey in the kitchen with a returned hamburger patty before hosing it off and taking it back to the table.
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August 1, 2008
Chasing rainbows
I enjoy watching football games, but I have never been able to understand the mainstream media's fascination with pre-season football practice.
I mean, really. Is there anything more boring than football practice? Well, maybe pre-season football games, but that's another issue. Yet, the local media cheerleaders are lined up each day to report breathlessly about the Texans' pre-season practices. The late night television news last night reported excitedly about the Texans' practice earlier in the evening in which the Texan players, without pads, ran through a series of drills that amounted to glorified touch football. Touch football!
At any rate, with all the media resources dedicated to covering pre-season training camp, an interesting piece of information does emerge every once in awhile. For example, this AP report notes that former Texans first-round draft pick and QB David Carr, now almost 30 years old, is trying to catch on as a backup QB with the Super Bowl champion New York Giants.
Despite being the Texans' first draft choice and the first player taken in the 2002 NFL draft, Carr turned out to be one of the worst QB's in NFL history, which is one of the many reasons that the Texans have been one of the worst teams in NFL history during their six year existence. It was reasonably clear even before the Texans third year (2004) that Carr was not the answer at QB, but the Texans cheerleaders at the Chronicle were still touting him as a potential top-tier talent deep into the Texans' disastrous 2-14 season in 2005. That same level of incompetence is generally displayed in almost all of the seemingly endless puff pieces that the Chron reporters (Chron blogger Lance Zerlein excepted) generate throughout Texans training camp.
Getting back to Carr, it sounds as if his performance to date in the Giants camp has been consistent with his performance in Houston:
Things have not started well for Carr. He hurt his foot working out a week before camp opened and missed some practice time. Since returning, he has thrown a couple of interceptions, fumbled two snaps and tossed a few questionable passes.
David Carr, first-round draft choice. A quintessential example of the NFL's mismatch problem?
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