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Author Archives: Tom
Justice Kennedy notices a couple of troubling issues
Overcriminalization of life and the appalling condition of our countryís prison facilities have been frequent subjects on this blog over the years. At least one member of the U.S. Supreme Court has taken notice:
U.S. Supreme Court Justice Anthony M. Kennedy criticized California sentencing policies and crowded prisons Wednesday night, calling the influence that unionized prison guards had in passing the three-strikes law "sick."
In an otherwise courtly and humorous address to the Los Angeles legal community, Kennedy expressed obvious dismay over the state of corrections and rehabilitation in the country. He said U.S. sentences are eight times longer than those issued by European courts.
"California now has 185,000 people in prison at $32,500 a year" each, he said. He then urged voters and officials to compare that expense to what taxpayers spend per pupil in elementary schools.
"The three-strikes law sponsor is the correctional officers’ union and that is sick!" Kennedy said of the measure mandating life sentences for third-time criminal offenders.
As Doug Berman points out, perhaps Justice Kennedyís remarks are a prelude to the Supreme Courtís consideration of several important sentencing cases in its upcoming term. At some point, we need to ask ourselves the question ñ why are we doing this to ourselves?
Different eras, similar swings
Ben Hogan and Anthony Kim.
How to complete a census
2010 is a census year, so itís a good time to recall one of the best Saturday Night Live skits ever, Christopher Walken answering a census takerís questions. Enjoy.
Running into the abyss
17th century philosopher Blaise Pascal observed in his Penses that we run heedlessly into the abyss after putting something in front of us to stop us seeing it.
Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, observed something similar in his quarterly report regarding the troubled TARP program:
The government’s bailout of financial institutions deemed "too big to fail" has created a risk that the United States could face a worse fiscal meltdown in the future, an independent watchdog assigned to review the program told Congress on Sunday.
The Troubled Assets Relief Program, known as TARP, has not addressed the problems that led to the last crisis and in some case those problems have festered and are a bigger threat than before, warned Neil Barofsky, the special inspector general at the Treasury Department.
"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.
Barofsky wrote the $700 billion financial bailout has encouraged more risk-taking because bank executives, who are still receiving massive bonuses, figure the government will come to the rescue the next time they steer their ships nearly aground. . . .
None of what Barofsky reports is a surprise to regular readers of this blog. It was not rocket science.
The Thrilla in Manila
As we prepare for the media tedium this Super Bowl week, it is a good time to appreciate the SI Vault, Sports Illustratedís wonderful web archive of outstanding sports stories from the past.
For example, check out this article by Mark Kram chronicling 1975ís Thrilla in Manila, the epic heavyweight championship fight between Muhammad Ali and his arch-nemesis, Joe Frazier. The following is his conclusion:
In his suite the next morning [the victorious Ali] talked quietly.
"I heard some-thin’ once," he said. "When somebody asked a marathon runner what goes through his mind in the last mile or two, he said that you ask yourself, Why am I doin’ this? You get so tired. It takes so much out of you mentally. It changes you. It makes you go a little insane. I was thinkin’ that at the end. Why am I doin’ this? What am I doin’ in here against this beast of a man? It’s so painful. I must be crazy.î
ìI always bring out the best in the men I fight, but Joe Frazier, I’ll tell the world right now, brings out the best in me. I’m gonna tell ya, that’s one helluva man, and God bless him."
Lone Survivor
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I recently finished reading Lone Survivor: The Eyewitness Account of Operation Redwing and the Lost Heroes of SEAL Team 10 (Little, Brown and Company 2009), Marcus Luttrell’s engrossing story of his experience in surviving a vicious battle against the Taliban in Afghanistan. I recommend the book highly to anyone who is interested in United States foreign policy.
Lone Survivor is not a great book. A substantial part of it – particularly the parts of Luttrell’s Navy SEAL training – are repetitive and unnecessary. Likewise, Luttrell’s political views are somewhat simplistic and do not add much to the story.
But Luttrell’s story is spot on in portraying the troubling problem that the U.S. Armed Forces face in fighting wars under rules of engagement that constrain doing what is necessary to accomplish the purpose of the war. During their mission, Luttrell and his squad mates had to make a key decision under the rules of engagement — and it was not even a clearly wrong one — that ultimately resulted in a disaster for the squad.
Luttrell’s story is also insightful from a cultural standpoint. After fending off over a hundred Taliban attackers in battle, Luttrell was ultimately saved by members of an Afghan community who decided to resist the Taliban. The cultural dynamics at play are as confusing as they are fascinating.
Should the United States be sending true American heroes such as Luttrell and his comrades into such a complicated cultural conflict under rules that hinder them from accomplishing the mission?
It is a question that should be much more difficult for our government’s leaders than it appears to be.
At one time, the NY Times was an interesting place to work
From Big Think, Guy Talese wonders how on earth he and his co-workers at the New York Times ever got the paper to publication:
Tales of Two Lives
Wednesdayís Congressional testimony of Treasury Secretary Timothy Geithner and the Department of Justiceís incredible shrinking case against former Enron CEO Jeff Skilling got me to thinking.
Geithner has made his share of dubious decisions over the past several years. I think he was wrong not to allow the markets to allocate the risk that many financial institutions took, particularly in regard to American Insurance Group. As a result of these decisions, I donít think he should be the Secretary of the Treasury.
But I do not think it is fair to question that Geithner honestly believed that the actions he took were necessary to save the U.S. and world financial systems from chaos. You, like me, may not believe he was right about that, but there is little question that he honestly believed that he was mitigating the risk of a financial tsunami.
Turning to Skilling, the DOJís case against Skilling now boils down to several alleged misrepresentations that Skilling approved regarding a couple of financially-troubled divisions of Enron. But the overwhelming evidence at trial was that Skilling truly believed that the statements he approved regarding those divisions were accurate.
For example, one of those divisions ñ Enron Broadband ñ was attempting to develop and deliver the video-on-demand service that is now a popular and profitable product of digital television and such gadgets as Apple’s iPod. These systems are a creative accommodation to copyrighted music and video programming that has generated enormous wealth for artists and shareholders of companies in the business.
Skilling testified at trial about his optimism regarding Broadband:
ìAnd one last thing — I’ll make the last one argument for Broadband because people criticize me about Broadband, and I will take the criticism. We — certainly, we made a mistake. But it wasn’t big. I mean, it was a billion dollars. We invested a billion dollars in the Broadband business. If it had worked, it could have been worth $30 billion. It didn’t work. We lost a billion dollars, but if you can make those kinds of bets, that’s the kind of the risk you [should be taking] as a corporation. And if you do a lot of [deals with a] downside of a billion and upside of 30 [billion], you’re doing a good job for your shareholders in the long run, in my opinion. This one didn’t work.î
Given the current value of video-on-demand technology, Skilling’s valuation of Enron’s Broadband business opportunity was probably low. But regardless of the wisdom of Enronís timing in investing in that technology, there is little question that Skilling honestly believed that Enron Broadband could generate enormous wealth for Enronís shareholders.
Geithner will probably leave the Treasury soon and return to a Wall Street firm to make his fortune. Skilling lost his fortune and remains in a Colorado prison, where he is enduring a 24-year prison sentence.
I submit that no rational basis exists for the radically different futures of these two men.
The DOJ’s Merits Brief in the Skilling Appeal
On the heels of last monthís filing with the U.S. Supreme Court of Jeff Skillingís brief on the merits of his appeal to the U.S. Supreme Court, the Department of Justice filed its brief on the merits of Skillingís appeal earlier this week.
A copy of the brief is below, but I recommend downloading it so that you will have the version bookmarked in Adobe Acrobat that facilitates review of the brief.
The DOJís brief is surprising in a couple of key respects.
First, the DOJís case against Skilling has shrunk dramatically. The DOJ now bases its entire case on Skillingís involvement in alleged misrepresentations that were made to the market regarding two Enron divisions, Enron Broadband Services and Enron Energy Services. Nothing in regard to the dubious Nigerian Barge transaction. No mention of the theory that Enronís earnings were lagging in 1999 and thatís why the reason why Skilling supposedly had former CFO Andrew Fastow engineer the allegedly corrupt LJM special purpose entity. Heck, there is not even a mention of the supposedly key Global Galactic Agreement. I mean really ñ is the DOJ even talking about the same case that it tried?
Stated simply, has the DOJís entire case against Skilling now been reduced to his optimistic statements about those two divisions?
The other surprising aspect of the brief is the DOJís apparent surrender on the lack of private gain issue in regard to Skillingís conviction on honest services wire fraud. Check out this reasoning from p. 50 of the brief:
Petitioner had, and acted upon, his personal financial interests, which conflicted with those of the shareholders to whom he owed a fiduciary duty. The company and its shareholders attempted to align their long-term interests with petitionerís by linking his compensation to stock price. But the obvious premise of that arrangement was that petitioner would act to maximize shareholder wealth. Petitioner subverted that premise, and placed his interests in conflict with that of the shareholders,when, for his own financial benefit, he engaged in an undisclosed scheme to artificially inflate the stockís price by deceiving the shareholders and others about the companyís true financial condition. That conduct constituted fraud. The only question here is whether the public nature of petitionerís compensation scheme prevents his conduct from constituting honest services fraud. It does not. Although petitionerís basic compensation scheme was public, his scheme to artificially inflate the companyís stock price by misrepresenting its financial condition, in order to derive additional personal benefits at the expense of shareholders, was not. Petitionerís deception deprived shareholders of the information they needed to make informed decisions and thereby defrauded them of his honest services.
So, what about the shareholders who sold stock at the allegedly inflated price resulting from Skillingís supposed deceptions? Did Skilling defraud them, too? If so, I can think of quite a few investors who wouldnít mind being defrauded like that.
And what about Skilling himself, who continued to acquire large amounts of Enron stock right up to the time he resigned from the company several months before its collapse. Did Skillingís alleged ìdeception deprive [Skilling] of the information [he] needed to make informed decisions and thereby defrauded [himself] of his honest services.î
Iíll bet that reasoning will raise a few questions during oral argument, which is currently scheduled for the afternoon of March 1st.