That, according to this handy database, this person would have given the most commencement speeches during this current season of university graduation ceremonies.
Similarly, I would not have guessed the city in the world that is home to the most billionaires.
Yesterday brought the final installment of Kate Kelly’s extraordinary three–part W$J series on the fall of Bear Stearns (Kelly also contributed to today’s story on Bear’s final shareholders meeting). My goodness, was Kelly a fly on the wall over at Bear’s office during all of this? Dear John Thain has an interesting critical analysis of the series here, here and here, while Larry Ribstein and John Carney point out that Kelly apparently fell for what has become known as "the loophole legend" in regard to JP Morgan’s buyout of Bear.
Although all the articles in the series are fun reading, Kelly’s most insightful observation comes from the second installment:
It was the beginning of a frantic 72 hours that would bring the Wall Street firm to its knees and threaten the stability of the global financial system. . . . The brokerage’s sudden fall was a stark reminder of the fragility and ferocity of a financial system built to a remarkable degree on trust. Billions of dollars in securities are traded each day with nothing more than an implicit agreement that trading partners will pay up when asked. When investors became concerned that Bear Stearns wouldn’t be able to settle its trades with clients, that confidence evaporated in a flash. Trading partners, eager to avoid losses, began to disappear almost as quickly. That further fueled rumors of trouble. Some partners, spotting a chance to profit, made bets against Bear Stearns, helping accelerate its demise. . . .
Even after the Bear Stearns lesson, our understanding of the pesky trust-based business model is still not what it should be. Improving the investing public’s understanding of how best to hedge the risk of investing in trust-based businesses is a far more productive response to Bear Stearns-type business failures than this.
I swear, you can’t make this stuff up.
As Larry Ribstein cogently explains, Southwest Airlines has taken advantage of futures markets over the past several years to hedge its fuel costs (previous posts on Southwest’s hedging program are here). That hedging program has been one of the major factors in allowing Southwest to remain one of the only profitable U.S. airlines. Along the same lines, Bloomberg’s Matthew Lynn explains how such markets provide an essential function in re-directing resources in the overall economy.
Meanwhile, Congress is trying to hamstring the very markets (see also here) that provided Southwest and many other businesses with the platform on which they hedged fuel-cost and other business risk. The wealth and lower prices generated from those hedges is not inconsequential.
Finally, the Justice Department continues its advocacy of an effective life sentence for one of the men primarily responsible for developing the robust markets that facilitate Southwest and others’ wealth creation for shareholders and lower costs for customers.
And these folks in Congress and the Justice Department are supposed to be representing our interests?
Earlier this week, the owners of the National Football League elected to opt out of the final two years of the league’s Collective Bargaining Agreement with its Players Association. The Mile High Report and Stacey Brook do good jobs of analyzing the impact of the owners’ election and neither believe that a lockout or strike is likely before a new deal is struck. My sense is that they are probably right, but I did chuckle when I saw this AmLaw Daily blog post on the owners’ decision in regard to hiring counsel for the upcoming labor negotiations:
. . . [The NFL owners] hired L. Robert Batterman of Proskauer Rose. Batterman is well known in labor circles for his National Hockey League work. It was Batterman who presided over the NHL labor negotiations that scuttled the league’s 2004-05 season, making it the first North American pro sports league to lose a full year to labor strife. "Batterman bullied [the union] into submission," says one sports labor lawyer who requested anonymity. "If one accepts the conspiracy theory of collective bargaining, this means the NFL must be looking for trouble," says another. [. . .]
No official negotiations have been held. But the hiring of Batterman sent a clear signal to the union. Gene Upshaw, president of the NFL Players Association, told SportsBusiness Journal in April that his "concerns were heightened" when he heard Batterman had been retained, noting that NHL players crumbled before Batterman’s hard line. The NFLPA’s outside counsel, James Quinn of Weil, Gotshal & Manges, says that the owners "have this bizarre notion that they want to get tough, so they go get Bob Batterman." (Jeffrey Kessler of Dewey & LeBoeuf is also counsel to the NFLPA.)
Doesn’t sound exactly as if the NFL owners are preparing to play nice, now does it? ;^)
One of the under-appreciated benefits of living in the Houston metropolitan area is its varied and reasonably priced housing market, which is the subject of this Federal Reserve Bank of Dallas report. The report notes that Houston’s housing market has resisted the boom-and-bust syndrome that has been experienced in many other U.S. housing markets recently:
Given that Houstonians had access to the same new types of mortgages as the rest of the country and that Houston has had greater population growth than other large metros, we might expect price appreciation to be stronger in Houston than elsewhere. However, the opposite has been true.
Houston’s large supply of land means that demand growth primarily results in more construction, not higher prices. Construction levels are limited by the availability of two kinds of developable land: the previously undeveloped, generally found on a metro’s outskirts, and the redeveloping, usually in a city’s interior. In both cases, Houston’s policies are relatively permissive, making the metro friendly toward development.
The most fundamental difference between Houston and other cities lies in how they provide (or in Houston’s case, do not provide) water, sewer and drainage to developments on the urban fringe. In Houston, developers can create a municipal utility district, or MUD, to provide these services on their properties and can finance these with tax-free bonds. Houston requires developers to build MUDs in such a way that they eventually could be connected to the city’s corresponding infrastructure, but they begin as self-sufficient enterprises.
In other cities, developments must be connected to the city’s water and sewer lines, confining new projects to nearby or adjacent land since the cost of building lengthy lines is prohibitive. In metro Houston, by contrast, virtually any large parcel of land can become a new suburb, especially given the metro’s expansive highway system. Experience bears out this conceptual framework, with significant Houston suburbs like Katy and Spring developing and prospering before many closer-in areas.
On Friday, February 11, 2005, shares of American International Group closed at $73.12 per share.
Last Friday, after Eliot Spitzer and the meltdown in the subprime mortgage markets, AIG’s shares closed at $39.34 per share.
James Freeman of the Wall $treet Journal, one of the only mainstream media outlets to expose Spitzer’s extortion of AIG for what it truly was, reports here on the massive reduction of wealth to which Spitzer’s unbridled regulation of AIG contributed greatly. Larry Ribstein, who was one of the first bloggers to shed light on this injustice, surveys the economic carnage here.
My question: Where is the rest of the mainstream media in reporting on this enormous destruction of wealth to AIG shareholders?
Well, well, well. Look who is resurfacing in connection with the creation of the Justice Department’s latest criminal Task Force to investigate whether crimes were committed when the subprime-mortgage market collapsed (just what we need — another corporate crime lottery):
Federal prosecutors are stepping up their scrutiny of players in the subprime-mortgage crisis, with a focus on Wall Street firms and mortgage lenders.
Prosecutors in the Eastern District of New York in Brooklyn have formed a task force of federal, state and local agencies that will involve as many as 15 law-enforcement agents and investigators.
The U.S. attorney for the office, Benton J. Campbell, who supervises about 150 prosecutors, said the group will look into potential crimes ranging from mortgage fraud by brokers to securities fraud, insider trading and accounting fraud.
You may remember Campbell. He was the lead prosecutor on the Enron-related criminal trial known in these parts as the first Enron Broadband trial, which ended in an embarrassing loss for Enron Task Force after the prosecution was caught threatening defense witnesses (see also here) and propounding false testimony from one of its key witnesses during the trial. Sort of what you would expect from a trial in which the Task Force advocated an unwarranted expansion of a criminal law intended to punish kickbacks and bribes against business executives who did no such thing.
Interestingly, in the Wall Street investigation, Campbell thinks there actually may be a non-criminal explanation about the meltdown in the sub-prime market:
Mr. Campbell said the "jury is still out" on just how much criminal activity the office might find, particularly on Wall Street, which saw a sudden decline in the value of securities backed by pools of mortgages last year. "There are market forces in play in that area, and that doesn’t necessarily mean there is fraud," said Mr. Campbell, 41 years old.
H’mm. How many damaged lives and careers would have been salvaged had Campbell and his fellow Enron Task Force prosecutors been so open-minded?
Given the editorial slant of the Houston Chronicle over the past several years, it’s not particularly surprising that the editors ran this editorial calling for polar bears to be declared an endangered species under the federal Endangered Species Act.
Unfortunately, it’s also not surprising that the Chron editorial failed to mention that the oil and gas business — a key source of jobs and wealth for Houston and the nation — is likely to suffer considerable financial damage as a result of the polar bear listing push, which Hugh Hewitt notes "is not only an abuse of the ESA’s original intent but also unsupported by the facts concerning the ice and the polar bears."
Putting aside for the moment airline industry’s seemingly intractable financial problems, lousy airline service has become such an issue that even Judge Posner and Gary Becker are trying to figure out what to do about it. At least painful airline service provides the fodder for this amusing segment of Brian Regan’s stand-up comedy show:
The NY Times is reporting that the on-again, off-again merger negotiations between Houston-based Continental Airlines and Chicago-based United Airlines are coming to a conclusion and that a definitive merger deal is likely to be announced by the end of next week.
Continental, the nation’s fourth-largest carrier based on traffic, has long been the natural merger partner for United, which is the No. 2 airline. If they strike a deal, the merger would produce the world’s largest airline, bigger even than the combined Delta-Northwest and significantly outdistancing American, which is currently No. 1.
Speaking of the Delta-Northwest deal, those partners this week reported an astounding, combined first quarter loss of $10.5 billion, reflecting that the two airlines are now worth far less than when they emerged from bankruptcy a year ago.
Two drunks holding each other up is rarely a good idea. ;^)
Update: The Chron is reporting that Continental’s board has decided to reject any merger proposals "at least for now." The NY Times reports that Continental backed off because of United’s worse-than-expected first quarter losses.