Author Archives: Tom

Warning labels?

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Enron%20stock%20price.gifRemember when the various credit-rating agencies contended that their relatively sanguine ratings of Enron’s debt up until the company went belly-up were the result of the company’s misrepresentations? One of the more ludicrous allegations was that the rating agencies didn’t understand the true nature of such relatively common structured finance transactions as derivative pre-pay transactions. Yeah, right.
Fast forward a few years and get a load of this W$J article:

In an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody’s Corp. said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles.
The credit-rating firm is considering an overhaul of its rating procedures that could include new labels to help investors distinguish collateralized debt obligations and other structured-finance investments from corporate bonds and Treasury securities. . .
More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings.

Warning labels on highly-volatile structured finance investment vehicles? Barry Ritholtz has some fun with that one.

Are they finally getting serious?

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Continental%20Airlines%20logo%20020708.jpgThe Wall Street Journal ($) reported yesterday afternoon that Houston-based Continental Airlines seemingly perpetual merger negotiations (see also here) with Chicago-based United Airlines are accelerating for a variety of reasons. A Continental-United deal is contingent on Northwest Airlines’ ongoing merger negotiations with Delta Airlines because Northwest currently owns the right to block a Continental merger. However, that right evaporates if Northwest merges with Delta.
Whether all of this is the product of rational thought or irrational exuberance remains is another issue. As noted recently here and many other times on this blog, the airline industry is a mess overall and combining two large airlines does not necessarily provide any meaningful competitive benefit. Continental performed in the middle of the airline industry last year, doing reasonably well financially and operationally, but ranking ninth-worst in terms of frequency of bumping customers from flights. Only Delta was worse at bumping customers among the major carriers.
United, on the other hand, has been a basket case for years. In its first full year of operations after emerging from its long bankruptcy case, United’s earnings were among the worst in the industry last year (only JetBlue’s were worse). Moreover, United struggled with operations, ranking seventh in on-time percentage after a disastrous December that included numerous cancellations and delays. Meanwhile, United’s rate of customer complaints was second-worst, ahead of only US Airways, as Professor Bainbridge would attest.
So, what to make of all this? At this point, it’s hard to say, other than management of both airlines are probably betting that the biggest airlines have the best chance of survival when the inevitable shakeout of the industry finally is allowed to happen (chronic reorganizations of distressed airlines have delayed that process up to now).
Color me as skeptical.

The importance of recruiting classes

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football%20player.gifThe institutionalized fanaticism that is college football recruiting reached its annual zenith yesterday as hundreds of the nation’s best high school senior football players signed National Letters of Intent with various big-time college football programs. It never fails to amaze me how much interest the competition between big-time college programs for 17 and 18 year-olds generates among the supporters of those programs.
But as this earlier post noted, there is no doubt that it is important to the success of the programs. For example, over the past decade, the respective programs of the University of Texas and Texas A&M have mostly been going in the opposite direction, UT up and A&M down. This Suzanne Halliburton/Austin-American Statesman article reviews the past ten UT recruiting classes, while Ryan over at TAMABINP does the same here with regard to A&M’s recruiting classes over the same period. As noted earlier here, A&M remains well a decided step below UT in the overall quality of its recruiting classes.
By the way, this website developed by three Stetson School of Business and Economics at Mercer University economists contains information about an econometric football recruiting model that predicts the collegiate choices of high school football players. Check it out.

A nice reward

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Pebble%20Beach%20no%207.jpgSo, what’s the reward for inducing Microsoft to overpay for Yahoo!?
Answer: Playing in the AT&T Pebble Beach National Pro-Am (scroll down to the bottom of the list).
Perhaps Bear Stearns’ board should have thought of such a reward? ;^)
By the way, Yang will be able to compare notes during the tournament with Houston’s Jim Crane, who can tell him a thing or two about a takeover battle.
Update: The Epicurean Dealmaker provides this alternately witty and elegant analysis of the Microsoft bid for Yahoo!

The First and Last 100 Days?

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uh%20fountain.pngOver at the University of Houston, the university is celebrating the arrival of its impressive new Chancellor and President, Renu Khator. As a part of that celebration, the university has posted this interesting website entitled Building Our Future: The First 100 Days that solicits ideas from the university and Houston communities on the direction of the city’s primary public university. Check it out and participate in an exciting time for UH.
Meanwhile, on the other side of the optimism scale, the desperate state of Texas Southern University continues. Ubu Roi over at blogHouston.net provides this good overview of the daunting challenges facing new TSU President, John Rudley (previous posts on TSU are here). As Roi points out, one of TSU’s better schools — its law school — is at risk of losing its accreditation, and that news comes on the heels of a regional accrediting body recently placing the entire university on probation. Meanwhile, President Rudley is wrestling with the legislative requirements for obtaining $40 million in emergency funding that the institution desperately needs just to keep the lights on.
As noted earlier here, here, and here, TSU is a once-essential institution that is at serious risk of becoming irrelevant. During the era of segregated education in Texas, TSU was arguably Texas’ best university for minority students. The institution educated many of Texas’ finest minority leaders, including Barbara Jordan and Mickey Leland. However, over the past 20 years, TSU has been bypassed by both the University of Houston-Downtown Campus and Houston Community College as the preferred open admissions alternatives for the Houston area’s college students.
At this point, a merger of TSU with one of the other university systems probably makes the most sense, but even that alternative is not easy. Merging UH-Downtown and TSU would serve the purpose of largely consolidating Houston’s open admissions institutions, but the UH system does not have sufficient endowed capital to absorb TSU, a shameful legacy of Texas’ underfunding of UH’s endowment in comparison to the other two major public university systems in Texas, the University of Texas and Texas A&M University systems. Texas A&M already has an open admissions university in its system at Prairie View A&M and UT probably has little interest in increasing its investment in the Houston area given the UT Health Science Center’s huge presence in the Texas Medical Center. So, TSU is not a particularly good fit for those far wealthier systems, either.
Thus, at least for the time being, TSU will continue to muddle along. But don’t be fooled. TSU is on life support and the emergency measures for keeping it alive are are inadequate to provide the long-term vision that the university needs. It’s well past time for state and community leaders to put their parochial interests aside and come up with a long-term plan for TSU that provides the institution with a specific purpose within the framework of college alternatives for Houston area residents. Sadly, dangling $40 million in front of TSU to keep the lights on is not going to accomplish much of anything in defining TSU’s purpose.

Waxing philosophic on bad announcing

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buck%20and%20aikman.jpgMy standards for announcers of football games are not high, but it seemed to me that the Fox Sports announcing team of Joe Buck and Troy Aikman in last weekend’s Super Bowl LXII game were unusually bad. For example, neither of them made much of Coach Belichick’s dubious decision of going for it on 4th and 13 on the Giants 32 yard line rather trying a long field goal (49 yards) that is made easier by the pristine conditions in which the game was played. In particular, Aikman — who has that annoying ability to say absolutely nothing of substance while reciting overlapping clichÈs — could not bring himself to stop rhapsodizing about Tom Brady’s “coolness under fire” despite the fact that Brady was missing badly on relatively easy passes while looking antsy in the pocket over the brutal pounding that he was enduring from the Giants’ front seven.
Noting the same mediocrity in announcing quality, Michael BÈrubÈ takes up another key call in the game and provides this imaginary dialogue between Buck and Aikman.
We can only dream. ;^)

The human cost of questionable prosecutions

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Gary%20Mulgrew.jpgOne of the more discouraging aspects of the societal tide of resentment and scapegoating that has permeated the Enron related criminal prosecutions has been the utter lack of perspective or compassion regarding the horrendous human cost of those prosecutions.
We already know the horrendous financial cost (see also here) of those prosecutions. However, the the starkest example of the human cost is what happened to the family of the death of Ken Lay, who endured the decline of a loving father and grandfather as he defended himself against questionable charges that in a less-heated environment would likely never have been pursued. Almost equally barbaric is the unsupportable 24-year prison sentence assessed to former Enron CEO Jeff Skilling, whose children are threatened with the loss of their father for most of the rest of his life.
The Enron-related criminal prosecutions have thrown numerous other families into turmoil, such as those of the four former Merrill Lynch executives (see also here) who were unjustly jailed for a year in the Nigerian Barge case. Dozens more have lived their lives in fear over the past several years as Enron Task Force prosecutors routinely threatened prosecutions against most anyone who could provide exculpatory testimony for a defendant looking down the Task Force’s gun barrel.
But the enormous human toll of these prosecutions was reinforced by this London TimesOnline article, which reports on the heartbreaking child custody case involving the daughter of Gary Mulgrew, one of the former UK bankers known as the NatWest Three who recently entered into a plea bargain of dubious charges against them. Turns out that Mulgrew — while forced to live in the US away from his family for most of the past two years — has had to endure the emotional trauma of having his six-year-old daughter taken by his estranged ex-wife to live in Tunisia with the ex-wife’s new boyfriend, “Abdul.” Based on the difficulty of attempting to enforce Western legal obligations in an Islamic legal system, Mulgrew and his family must be going through a living hell in trying to rescue his daughter from a repressive Islamic culture.
To my knowledge, none of this human drama has been mentioned in the US mainstream media, which has moved on from Enron in its inexhaustible search for the next scapegoats. Wasn’t the damage to families and careers that the government and the mainstream media left in the wake of the Enron-related prosecutions enough to satiate our resentment?
Sadly, I don’t think so.

Pro Dome? Or just anti-Emmett?

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dome%20020508.jpegI understand that Ed Emmett is not the Chronicle’s favored candidate for Harris County Judge. But isn’t it a bit odd for the Chron to be fanning criticism of Emmett for showing rare leadership over the pie-in-the-sky Astrodome hotel redevelopment deal (previous posts here)?
Look, this is really very simple. No equity investor or financial institution in their right mind is going to invest upwards of half a billion dollars to redevelop the Dome into a convention hotel. If there were such investors, they would have stepped up in the over three years that this proposal has been floating about town and the financial markets. The fact that the Astrodome hotel would not even have the primary right to use the Reliant Park space that it sits upon for over a month out of the year (roughly 22 days for the Houston Live Stock Show & Rodeo and another dozen or so days for the Texans) only makes the hotel proposal more speculative in nature. That several County Commissioners continue to think that it’s a good idea to pursue the Astrodome hotel project does not make it one. Rather, it simply shows why they are County Commissioners and not businesspeople responsible for creating jobs and turning a profit.
And reliance on a poll of Houstonians to keep the Astrodome hotel dream alive is just plain silly. Sure, most Houstonians would like to preserve the Dome. It’s a landmark and an architectural treasure. But I doubt that poll revealed to its participants that mothballing the Dome over the past three years has already cost the County $12-15 million that could have been spent on improving roads, flood control or park improvements. Similarly, that poll almost certainly did not disclose to its participants the financial risk that the County would be taking if an Astrodome convention hotel craters, as many such hotels tend to do. If a poll is taken with such information supplied to its participants, then my bet is that the number of Houstonians wanting to preserve this financial black hole would diminish rapidly.
Emmett is showing leadership in moving the decision-making process on the Dome along. The Chronicle is playing politics in criticizing him for it. Set a reasonable deadline for proposals, consider them and then either move forward with one that makes financial sense or raze the Dome and build a parking ramp for Reliant Park that would generate revenue to pay off the bonded indebtedness that remains on the Dome. That may not be the sexist thing alternative, but it’s the responsible thing to do.

What was so super about that?

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Phoenix%20stadium.jpgWhile most Americans who watched Sunday’s Super Bowl XLII were thrilled with a close game that wasn’t decided until the final seconds, Financial Times ($) Simon Kuper examines why American football does not translate well to other cultures:

. . . few foreigners watch American sports. The media agency Initiative tallies audiences for sporting events, counting only the average number of live viewers who watched from home, and not in places like bars. It estimated that of the Super Bowlís 93 million live viewers in 2005, just three million were outside north America, including nearly one million in Mexico.
Meanwhile, game four of baseballís World Series in 2005 attracted about 21 million viewers in north America and Mexico, and fewer than one million elsewhere (all of them possibly American expats). And the last game of the NBA finals in 2005 drew fewer than one million live viewers outside the US, according to Initiative.
American sports suffer partly from having arrived late: the British empire got everywhere first. Kevin Alavy, an analyst at Initiative, says: ìIf people have been following the same sports for 50 or 100 years in a country, itís hard to break into that.î

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A birthday wish

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entitlements.gif.pngDon’t miss Greg Mankiw’s birthday wish:

My birthday wish is for all of us to stop asking what the government can do for us today. Instead, we should focus on what we can do together to prepare the economy for our children and grandchildren. That means getting ready to care more for ourselves in old age, perhaps by retiring later, perhaps by saving more. I hope that when I celebrate my 100th birthday in 2058, my descendants wonít look upon Grandpa and his generation as the biggest economic problem of their time.

Read the entire op-ed. Salient thought for a political season.