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Category Archives: Politics – General
Why is Timothy Geithner Still Employed?
Last week, we learned that Timothy Geithner, while the head of the New York Fed, let Goldman Sachs and several other large investment banks fleece the Fed in connection with the AIG bailout.
Then, over the weekend, we learn that the Geithner-orchestrated $2.3 billion federal government investment in C.I.T. Group last fall without requiring debtor-in-possession financing protections under chapter 11 of the Bankruptcy Code is going to result in a total loss of that investment. Why? Because C.I.T. has decided to file bankruptcy now.
Now, in the big scheme of things, $2.3 billion is not all that much money when placed in the context of the federal budget and the American economy.
Heck, it’s not even close to as much as Geithner left on the table for the investment banks in regard to the AIG bailout.
But Geithner has proven beyond a reasonable doubt that he is in over his head. This bailout stuff is not rocket science.
Why is Geithner still Treasury Secretary?
Fat chance
A couple of interesting health care-related items caught my eye today.
First, I went by my internist’s office for my annual physical and noticed that another group of doctors had leased a much larger office across the hall from my doctor’s office.
I peaked inside the new doctors’ office window and noticed that the reception area was nicely furnished with plush leather sofas and chairs, flat screen TV’s, handsome hardwood flooring and tasteful Persian rugs.
The opulence of the office prompted me to find out what kind of doctors were apparently doing so well, so I grabbed one of the doctor’s cards from the reception area. It read (not the real name):
"John Smith, M.D., Laparoscopic Obesity Surgery"
Meanwhile, this NY Times article reveals the utterly unsurprising fact that New York City regulations requiring fast food restaurants to post the caloric content of their food did not induce obese consumers from eating less:
A study of New York City’s pioneering law on posting calories in restaurant chains suggests that when it comes to deciding what to order, people’s stomachs are more powerful than their brains.
The study, by several professors at New York University and Yale, tracked customers at four fast-food chains — McDonald’s, Wendy’s, Burger King and Kentucky Fried Chicken — in poor neighborhoods of New York City where there are high rates of obesity.
It found that about half the customers noticed the calorie counts, which were prominently posted on menu boards. About 28 percent of those who noticed them said the information had influenced their ordering, and 9 out of 10 of those said they had made healthier choices as a result.
But when the researchers checked receipts afterward, they found that people had, in fact, ordered slightly more calories than the typical customer had before the labeling law went into effect, in July 2008.
The findings, to be published Tuesday in the online version of the journal Health Affairs come amid the spreading popularity of calorie-counting proposals as a way to improve public health across the country.
“I think it does show us that labels are not enough,” Brian Elbel, an assistant professor at the New York University School of Medicine and the lead author of the study, said in an interview.
"Labels are not enough?" Makes one wonder what regulation Professor Elbel will suggest next — maybe governmental rationing of fast food?
The argument in favor of these types of absurd governmental intrusions into our lives is that government subsidizes medical insurance, so government should attempt through regulation to decrease obesity, which unfairly heaps a portion of health-care costs relating to obesity on tax-paying citizens who are not obese.
But putting aside for a moment the debatable notion of whether obesity really increases health-care costs all that much, the far more effective regulation to decrease obesity would be to provide a financial incentive for citizens to lose weight. Namely, reduce the governmental subsidy of medical insurance for those who choose to remain obese.
Fat chance of that happening.
Confession and Avoidance
As our own country confronts the difficult issues involved in conducting war, it seems appropriate to recall the closing defense argument in one of the all-time great lawyer movies, Breaker Morant.
An illusion of safety, but at what cost?
The only two airline-security measures that really matter — fortified cockpit doors and the awareness of the flying public as to what a hijacking can mean — have been in place virtually since the attacks of September 11, 2001.
Nevertheless, as Patrick Smith explains, the wasteful airport security process that we have allowed the Transportation Security Administration to impose on us continues unabated at a substantial direct cost and an even greater indirect one.
It’s bad enough that the TSA’s procedures do virtually nothing to discourage serious terrorist threats. But what’s even worse is that the incompetent inspection process is really just "security theater" that makes a few naive travelers feel safer about airline travel.
And if all that weren’t bad enough, the worst news is that once a governmental "safeguard" such as the TSA procedures are adopted, Congress is not interested in dismantling it even when it’s clear that process is ineffective, expensive and obtrusive to citizens.
Smith sums up the dilemma well:
The novelty of the Sept. 11 attacks notwithstanding, the primary threat to commercial planes is, was and shall remain the smuggling aboard of explosives, which is what happened on Pan Am 103 [the Lockerbie explosion twenty years ago whose instigator was recently set free]. The bomb came onboard in a suitcase. The hijack paradigm changed forever on 9/11, rendering the inflight takeover concept unworkable for a terrorist. . . .
Yet whether by virtue of incompetence or willful ignorance, TSA continues to waste untold time and untold millions of dollars on a tedious, zero-tolerance fixation with blades and sharps. This does nothing to make us safer, and in fact draws security resources away from worthy pursuits.
Yes, TSA scans most bags for explosives. Mandates were put in place after 9/11 that have greatly increased the percentage of bags that are run through high-tech detectors, with a goal of screening all of them. But eight years later, screening is still not fully comprehensive. It does not yet include 100 percent of luggage and cargo, and procedures remain inadequate at many overseas airports from which thousands of U.S.-registered jetliners depart each week. Neither is there widespread screening for explosive materials that somebody can carry on his or her person. Good luck getting a hobby knife through a concourse checkpoint, while a pocket full of Semtex is unlikely to be noticed. . . .
There is a level of inherent risk that we simply must learn to accept. But, if we are going to have an airport security apparatus, and if we are going to devote millions of tax dollars to the cause of thwarting attacks, can we please do it smartly and at least improve our odds? Am I the only one who finds it maddening, and even a little scary, that we can’t get this right? Is it not a national disgrace that TSA should spend its time confiscating butter knives from uniformed pilots rather than focusing on deadly threats with a long historical precedent?
Where are the voices of protest? As I’ve said before, the airlines ought to be speaking out and pressuring TSA to revise its policies. I know it puts them in a tough spot, liability-wise — carriers don’t want to be perceived as opposing security, even when that security isn’t helpful — but much of what people despise about flying pertains to the TSA rigmarole.
And passengers, for their part, are apparently content with, or at least resigned to, the idea of security theater in lieu of the real thing. Indeed, rather than demand or expect change, hundreds of thousands of Americans have paid good money for the chance to simply circumvent the hassle of TSA.
Food for thought as Congress considers the creation of an even larger governmental apparatus as the "solution" to problems in the U.S. health care finance system.
Rationing health care in a disaster
If you read one article health care-related this week, make it this extraordinary Sheri Fink/NY Times Magazine article on the impossible choices that the heroic doctors — including Dr. Anna Pou — faced at the former Memorial Medical Center in New Orleans in rationing limited medical and evacuation services for their patients during the chaotic aftermath of Hurricane Katrina.
Ms. Fink summarizes the issues raised by the issues that Dr. Pou and her colleagues well:
The story of Memorial Medical Center raises other questions:
Which patients should get a share of limited resources, and who decides?
What does it mean to do the greatest good for the greatest number, and does that end justify all means?
Where is the line between appropriate comfort care and mercy killing?
How, if at all, should doctors and nurses be held accountable for their actions in the most desperate of circumstances, especially when their government fails them?
Interestingly, after the federal, state and local governments largely failed the doctors, other workers and patients at Memorial in the aftermath of Katrina, get a load of how the government forces acted once the decision was made to arrest Dr. Pou:
AT ABOUT 9 P.M. on July 17, 2006 — nearly a year after floodwaters from Katrina swamped Memorial hospital — Pou opened the door of her home to find state and federal agents, clad in body armor and carrying weapons. They told her they had a warrant for her arrest on four counts of principal to second-degree murder.
Pou was wearing rumpled surgical scrubs from several hours of surgery she performed earlier in the day. She knew she was a target of the investigation, but her lawyer thought he had assurance that she could surrender voluntarily. “What about my patients?” she asked reflexively. An agent suggested that Pou call a colleague to take over their care. She was allowed to freshen up and then was read her rights, handcuffed and ultimately driven to the Orleans Parish jail. . . .
Read the entire article. Whose judgment do you trust more? Dr. Pou and her colleagues? Or that of those governmental officials who decided to arrest her?
Robert D. Novak, R.I.P.
Longtime Washington political columnist and television political pundit Robert D. Novak died yesterday, ending a virtually unparalleled 60-year career of reporting on national politics from the nation’s capitol. David Broder, Jack Shafer. Tim Carney, Stephen Miller, Jeffrey Bell and the WSJ Editors do a good job of putting this formidable career and fascinating man in perspective.
Inasmuch as I was not particularly interested in Novak’s obsessive-style of political reporting in his columns and on television, I didn’t appreciate Novak until late in life. That changed when a friend recommended Novak’s The Prince of Darkness: 50 Years Reporting in Washington (Crown 2007) (prior post here), which I probably would never have read but for my friend’s urging.
Turns out that The Prince of Darkness is a thoroughly enjoyable read, particularly because Novak passes along his reflections on the relationships he had with virtually every major figure in American politics over the past 60 years, which pretty well spans my lifetime. I went from not really being interested in Novak to not being able to put the book down. It remains one of the most unexpectedly delightful books that I’ve read in the past couple of years.
Characters such as Novak are rare these days, and we are not the better for that.
A good sign
One of the many fascinating aspects of golf is that you can learn much about a person by playing a round of golf with them.
Based on this Time article (h/t Geoff Shackelford), President Obama sounds as if he would fit in quite well with the groups in which I play golf regularly.
That makes me feel better.
Unintended Consequences
A daunting jury verdict for deal lawyers
Flying a bit under the radar this past weekend was the dreaded "we’re sure as hell not coming back on Monday" verdict that the jury returned on Friday afternoon in the Refco, Inc-related criminal case against Mayer Brown partner, Joseph P. Collins.
Collins was Refco’s outside corporate counsel for ten years or so before Refco disintegrated into bankruptcy in October, 2005. A New York city federal jury found Collins guilty on five of 14 criminal counts, including two counts of wire fraud, two counts of securities fraud and conspiracy, and a mistrial was declared on the other nine counts. Sentencing is scheduled for November 3rd. A previous post on the indictment is here and a copy of the original indictment against Collins is here and previous posts about the Refco case are here.
The jury verdict against Collins crosses the Rubicon in terms of the federal government’s willingness to prosecute an outside deal lawyer for merely advising a client in regard to structuring transactions that are not intrinsically illegal. As is typical of most business prosecutions over the past several years that criminalize questionable business judgment rather than clear white collar criminal acts such as embezzlement, the case against Collins was a jumble of conclusory allegations of fraud without any specific allegations of what Collins did that was criminal.
Heck, it was undisputed at trial that Collins barely worked on the transactions on which the prosecutors based their case against him. Essentially, the prosecution alleged that Collins assisted former Refco CEO and controlling shareholder Phillip Bennett in using Refco’s credit to reduce indebtedness to Refco of an affiliate controlled by Bennett. That’s not a crime, but the government asserted that Collins committed a crime by aiding Bennett in misleading Refco auditors and investors by not telling them about the use of Refco’s credit to reduce the affiliate’s debt to Refco.
It didn’t help Colling that a couple of other former Refco officers who copped pleas testified for the prosecution, although Bennett was not one of them. And the fact that a couple of partners from Weil Gotshal — which replaced Mayer Brown as Refco’s corporate counsel after Thomas H. Lee Partners bought a majority stake in the firm a few months before Refco’s public offering — also testified against Collins. I’d bet that testimony didn’t help relations between the two firms.
What’s curious about all of this is that numerous lawyers, accountants and investment bankers scrutinized and presumably profited from Refco over the past several years in connection with various investments in the firm, including its well-publicized public offering that valued the company at $4 billion five months before it disintegrated into bankruptcy. Not only did those professionals fail to uncover the alleged fraud, but none of them other than Collins was targeted as a criminal. See why these matters are better suited for civil cases in which responsibility for wrongdoing can be allocated among all the responsible parties?
Moreover, as this earlier post notes, if Collins knew about a massive fraud at Refco, then why on earth did he allow the company to be bought by Thomas H. Lee Partners and then go public where discovery of the fraud would likely lead to far more draconian consequences than if Refco had remained private?
Collins testified in his own defense and rightfully contended that it was never the job of Collins — or generally any outside corporate counsel, for that matter — to monitor the company’s transactions, which would be an impossible task for outside counsel. Collins went on to testify that was never informed of the hidden debt and that Refco’s top executives lied to him from the beginning.
At any rate, at the end of the trial, the prosecution contended that none of the specifics really meant much. Collins and Mayer Brown made millions off of Refco, which ultimately tanked. Thus, Collins must have done something wrong, right? Even this apparently divided jury agreed with that twisted logic.
Here’s hoping that the trial judge will set aside the verdict against Collins, but that’s probably wishful thinking in these anti-business times. The problem with this emerging governmental policy of prosecuting transactional lawyers is similar to the policy of criminalizing agency costs against corporate officers. There is a big difference between prosecuting agency costs and prosecuting clear-cut crimes, such as embezzlement. The difference relates primarily to the nature of the evidence involved, the relevance of contracts, and the subtleties of dividing responsibility between corporate actors.
Larry Ribstein has put it this way. Suppose somebody mugs you on the street. There is no question that is a crime. However, what if they ask you first if they can borrow your wallet, you loan it to them, and then they don’t give it back in time? What if they ask your employee who’s running the store for you whether they can borrow some money, the employee loans it to them and then they don’t pay it back? What if the "thief" is another employee who says the manager gave him the money as bonus compensation?
Who is liable in these situations turns on the contracts and the legal relationships among the various parties. Proof depends on who said what to whom. Can we rely on what the witnesses say about this? What if the prosecutor tells the guy who’s minding the store that he’ll not face a prosecution for conspiracy if he spills the beans on the employee?
In the meantime, the Collins verdict sends an ominous message to transactional lawyers everywhere. Rest assured that American business — and ultimately all of us — will endure the additional costs that deal lawyers will charge to endure the risk that the government will prosecute them for a crime that they do not know about.