Monthly Archives: April 2004

More on Skilling’s New York Adventure

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As noted earlier here, the Enron Task Force has requested that the Court in its criminal case against former Enron CEO Jeff Skilling impose additional conditions on Skilling’s pre-trial release because of Skilling’s well-publicized bender in New York City on April 9 that resulted in Skilling’s brief hospitalization in New York.
Now, Skilling’s lawyers on Wednesday filed pleadings in the criminal case that basically assert that Skilling’s New York adventure was no big deal and accuses the government of prejudicing the jury pool by improperly releasing Skilling’s high blood alcohol level in the Task Force’s pleadings. The Task Force is asking that Skilling be placed under a midnight curfew, restricted more in his travel, report weekly to probation department officials, and post an additional $2 million bond as a result of the New York incident.
Interestingly, Skilling’s pleading does not contest that Skilling’s blood alcohol content was measured at .19 during his brief hospitalization, but notes that hospital workers said that he appeared “only mildly intoxicated.”
New York City hospital workers obviously have high standards for concluding that someone is “very intoxicated.”

Stros lose to Pirates

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After being nasty weathered out last night, the Stros wasted another strong pitching performance from Roy O and lost to the Pittsburgh Pirates on Wednesday night, 4-2. The loss was the Astros’ fifth in their last seven games. Andy Pettitte comes off the disabled list on Thursday afternoon to pitch the final game of the series in Pittsburgh before the Stros come back to Minute Maid Park on Friday night behind the Rocket to begin a four game set with the Cincinnati Reds. Ricky Stone was sent down to AAA New Orleans to make room for Pettitte on the 25 man roster.

On the ground in Baghdad

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Yass Alkafaji is a Northeastern Illinois University accounting professor and an ÈmigrÈ from Iraq. Professor Alkafaji went to Baghdad in January as the director of finance for the Ministry of Higher Education of the Coalition Provisional Authority. In this Chicago Tribune (free subscription required) interview, he relates what it’s like on the ground in Baghdad. Read the entire interview, but here are a few highlights:

Alkafaji recently left Baghdad during one of the bloodiest months of the U.S. occupation. We shared chai lattes at a Starbucks in Sauganash to discuss what he saw and heard while he was there. We thought he would be full of tales of violence in Sadr City, mutilations in Fallujah and bombings in Basra. But, oddly enough, he said that while he was there, he hardly noticed these events that made headlines all over the world.

Q. You were in Iraq during some of the worst anti-American violence of the occupation. How did that affect your work?

A. I did not notice it. Even though I was in the middle of it, I was apart from it. It was not something we thought about on a daily basis. We got briefings, and we’d hear people saying things here and there. Sometimes I would receive calls from my wife, and she was telling me what was happening in the green zone, where I was living, but I didn’t know it. Or we would be working in the middle of the day at our computers and we would hear explosions, boom boom, and we would simply look up and go back to work.

Q. What is your take on the mood of the Iraqi people?

A. They are thankful to the U.S. for getting rid of Saddam Hussein, and they are content that the military needs to be there. But after that, they are divided between how long should the U.S. military stay and whether they are doing a good job or not. The U.S. military presence is very visible, and they [the soldiers] are really scared, so their posture is very offensive. They see Iraqis, and they put guns in your face. They move in convoys, and they tell people to get away from them. When the convoys are in a traffic jam in the middle of Baghdad, that is the most dangerous thing. So they shout at people to get out of the way, and they drive up on the sidewalk of some stores. That creates a lot of hard feelings for the Iraqis.

Q. What about the economic and employment situation with ordinary Iraqis?

A. Most of the people are not informed of what the U.S. is doing because they don’t see the visible improvement of their livelihood, especially those who don’t have a government job . . . I think there is still a lot of confusion about who is the good Iraqi and who is the bad Iraqi. I think [the U.S.] has shown to the rest of the world that we are really ignorant when it comes to dealing with other cultures. We have a great military power, but when it comes to building nations we have no idea. You can see the tension in the clashes between the British and Americans in the palace. The Americans will say `do this or do that’ and the British will just be shaking their head. But the British have a much longer history in the Middle East, and they know how to deal with the Arab mentality. They feel very marginalized.

Q. Depending on how people want to spin it, they characterize the recent violence as a few bad apples or a popular uprising. How do you see it?

A. Surveys show about 70 percent of the Iraqi people accept that there is a need for the American military to be in Iraq, otherwise it will be chaotic and there will be no security on the ground. Of course, if you talk to someone in Sadr City with a first-grade education, they will say otherwise. One day I was waiting seven hours to try to leave the compound to try to see my sister. We had some thugs from the Sadr group demonstrating 15 feet away saying, “We want the U.S. out.” So I said, “OK, the U.S. is out and then what next? Who is going to control the country?” They don’t think about the implications of what they say.

Hat tip to Daniel Drezner for the link to this interesting interview.

Comcast bid for Disney is dead

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Comcast announced this morning that it is dropping its stagnating bid for Disney.
Not surprisingly, Comcast shares rose 51 cents to $30.48 in mid-morning trading on Nasdaq.

Wyeth gets hammered in Beaumont

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Brilliant Houston trial lawyer John O’Quinn strikes again.
Update: Dylan over at Slithery D observes that Mr. O’Quinn’s formidable talents are often misdirected.

America’s health care finance mentality

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Holman Jenkins of the Wall Street Journal ($) has some interesting observations about America’s health care finance mentality today in his weekly Business World column. The subject of the column is the rather inane political issue involved in the importation of government subsidized prescription drugs from Canada, but Mr. Jenkins uses the subject to clear up some common misconceptions regarding how American drug companies finance development of drugs and how America’s health care finance mentality affects such development.
Inasmuch as American drug company profit margins are relatively high, some politicians who are in favor of imports from Canada suggest that American drug prices are too high and that the companies are greedy, which Mr. Jenkins quickly debunks:

What can it possibly mean to call an industry “greedy”? Drug companies are said to be an unconscionable exception because their profits are comparatively high, 15.4%, when measured as a percentage of sales. But here’s a question: Grocery stores have a measly return on sales of 1.4%, and liquor stores an even measlier 1%. So why does anybody invest in these businesses rather than the drug business? Last time we looked, the grocery industry and liquor stores still existed.
Such indictments of the drug industry overlook the fact that profits are a cost — the cost of a company’s capital. Nobody pays back their investors more than they are obligated to. By the same token, if your capital costs are 15.4% of your total costs, profits had better be 15.4% of your revenues or you won’t be in business long. Measures of profitability, in short, tell you a lot more about an industry’s need for capital than about its “greed.”

And how about the demagogues’ allegation that the excessive amount of money that drug companies spend on advertising is proof that they make too much money? Mr. Jenkins explains:

Wrong. Companies spend money on advertising because it generates profits, not because it consumes them. You’ve spent 10 years and $500 million to develop a new product and haven’t rung up your first sale yet. What could be a smarter investment than spending a few dollars more to let the world know the product exists? Advertising actually makes companies more willing to invest in R&D. Capital can be earned back faster; fixed costs can be spread over a larger number of customers, allowing each to be charged a lower price.

But then Mr. Jenkins bears down on the real problem relating to financing of prescription drug development — America’s health care finance mentality:

America’s real problem is that drugs have been roped into the same perverse incentives that govern most health care spending. Consumers don’t weigh cost vs. benefit; drug companies focus their development efforts on drugs aimed at large populations of price-insensitive, insured patients. At the same time, consumers who don’t have drug insurance and pay out of their own pockets scream bloody murder because drugs seem like a violation of a natural order in which medical care is increasingly perceived as a costless entitlement.
Think we exaggerate? Everybody noticed when HCA, the big hospital chain, earlier this month put aside $700 million to cover the bad debts of uninsured patients, who are typically good for only seven cents on the dollar. Little noticed was the fact the company also has to cover the bad debts of insured patients, who routinely skip out on their co-payments and deductibles. Nowadays these people are good for only 45 cents on the dollar on average.
Medical bills seem to have become optional to Americans when deciding which envelopes to toss in the trash unopened at the end of the month. “Hospitals are ninth” on the payment list, HCA’s Chief Jack Bovender told Reuters in February, well behind mortgages, car payments and cable-TV bills. “The only thing people pay worse is the student loan program.”

Read the entire column. Good stuff again from Mr. Jenkins.

Texas public school finance reform

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Marc Levin is associate editor of The Austin Review, a conservative monthly journal, and President of the American Freedom Center. He writes this op-ed today in the Chronicle proposing an alternative to the rather mundane public school finance proposals currently being floated in the special session of the Texas Legislature:

One almost universal assumption in the school finance debate is that everyone must pay the same type of tax. While no tax is pleasant, what if Texans could choose how they want to pay their share of the cost of public education? The Legislature should consider completely replacing the property tax for education with an increased statewide sales tax coupled with an opt-out for Texans who choose to pay a flat income-based assessment instead.
Such a system would have many benefits. First, it would allow for the complete elimination of highly unpopular school property taxes, which are subject to the vagaries of the appraisal process. As our society has become increasingly mobile and driven by technology, real property has become a less reliable measure of a person’s wealth.
The business property tax for education, which this proposal would also eliminate, is even more antiquated. Today, many highly profitable businesses have little physical property.
Furthermore, to encourage businesses to locate in Texas as opposed to the other 49 states, most economists agree that ideally there should be no state taxes on business. The current business property and franchise taxes, a gross receipts tax, or any other business tax make Texas less attractive for business investment and undermine the competitiveness of Texas businesses in exporting goods and services.
In addition to abolishing the residential and business school property tax, this proposal would also allow for full statewide equity in school funding without recapture. No longer would school districts be dependent on the taxable value of the property within their boundaries.
On the other side of the ledger, such a system would also provide greater revenue stability for the state. The drawback of a sales tax is that revenues can decline in absolute terms during a recession. However, average income tends to increase, or at least remain constant, during all economic periods. Therefore, those who choose an income assessment would provide a buffer that would help even out state revenues over time.

Read the entire op-ed, which is quite well-reasoned and, as a result, probably has a zero chance of being noticed in the current legislative session. I don’t know about you, but it seems to me rather pathetic that Texas legislators are considering basing something as important as public school finance on notoriously unreliable revenue generated from taxes on use of slot machines, consumption of cigarettes, and viewing of exotic dancers.

The Bush Administration and scientific research

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Randall Parker over at FuturePundit has this excellent post that analyzes the Bush Administration’s proposed funding of research in the 2005 budget, to which he concludes:

The Bush Administation’s plans for research and development spending are short-sighted. Scientific advances can solve problems in ways that pay back orders of magnitude more than the original research will cost to fund. Budget deficits and huge unfunded liabilities for those who are going to become elderly in the coming decades combined with the threat of terrorism and the greater global competition for a limited supply of oil call for mammoth attempts to research and innovate our way to solutions.

The consequences of inadequate security

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Daniel Drezner points to this San Francisco Chronicle article about the Iraq experience of Larry Diamond, a senior fellow of the Hoover Institute who was an advisor to the Coalition Provisional Authority in Iraq and a promoter of democratic principles in government. As Mr. Drezner’s post points out, Diamond is still a promoter of democracy, but is not optimistic about Iraq, primarily because of the United States’ failure to provide adequate security for the Iraqi people willing to risk commitment to democratic principles. As the Chronicle article notes:

We just bungled this so badly,” said Diamond, a 52-year-old senior fellow at Stanford University’s Hoover Institution. “We just weren’t honest with ourselves or with the American people about what was going to be needed to secure the country.”
“You can’t develop democracy without security,” he said. “In Iraq, it’s really a security nightmare that did not have to be. If you don’t get that right, nothing else is possible. Everything else is connected to that.”

Diamond relates that his realization of the deficiencies in the American security force came to him while speaking to a woman’s group in Baghdad:

“I had one of those moments when you cut through all the bull,” he said. “I was speaking to this women’s group, and one woman got up and asked, ‘If we do all these things, who’s going to protect us?’ ” Diamond recalled. “That was the moment when I said to myself, ‘Oh my God, some of these women are going to be assassinated because they are here listening to me.’ It just struck me between the eyes.”
As the violence spread, Diamond said, he felt ever more painfully the mistake the United States had made by not sending in more troops to keep the insurgents at bay.
The American policies basically encouraged Iraqis to stand up — only to face the threat of being mowed down for doing so, he said.
“It was totally hypocritical of us to do one and not the other,” Diamond said of the lack of security.

The entire article is interesting and thought provoking, so read it all.

Analyzing mediocre intelligence

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Robert Baer is a former CIA intelligence field officer who has written extensively (“Sleeping With the Devil: How Washington Sold Our Soul for Saudi Crude“; “See No Evil: The True Story of a Ground Soldier in the CIA’s War on Terrorism“) about how political wrangling in Washington over the past 30 years has badly damaged the ability of the CIA and other intelligence gathering agencies to generate an effective product for our nation’s leaders for use in evaluating and implementing foreign policy.
In this Wall Street Journal ($) op-ed, Mr. Baer uses his extensive experience in intelligence matters to evaluate the recently declassified and now famous August 6, 2001 Presidential Daily Briefing (“PDB”) that President Bush and his advisors reviewed a little more than a month before the attacks of September 11, 2001. Mr. Baer begins by explaining the nature of a PDB:

. . . PDBs are the crown jewels. They meld the best information from the CIA’s clandestine sources, our embassies all over the world, the National Security Agency, the Federal Bureau of Investigation, and every other federal agency with a possible input. Like crown jewels, too, they are protected to within an inch of their lives. In all my years in the CIA, I never once was given access to a PDB, and I was by far the rule, not the exception. Compartmentation rules forbid it. Sources and methods are too valuable.
The Aug. 6, 2001, PDB, in short, represents the very best intelligence we then had on Osama bin Laden and his plans.

So, Mr. Baer asks, how good was the August 6, 2001 PDB?:

In fact, pretty awful. The first item in the PDB refers the president to two interviews that Osama bin Laden gave to American TV in 1997 and 1998. In the interviews, bin Laden promises to “bring the fighting to America,” following “the example of World Trade Center bomber Ramzi Yousef.” As it turns out, bin Laden was telling the truth, but that’s not the point. In intelligence documents as in corporate reports and the evening news, the best stuff goes up top, and in this case the best was cribbed straight from the boob tube.
How about items two and three? The information in both relates to bin Laden’s intention to attack the U.S., but it is from “liaison services” — i.e. foreign governments. We now know from leaks what those liaison services were, but we don’t know the provenance of the information. Was our friendly liaison reading it in the local paper? Was it fabricating, as happened with the Italians and the Niger yellow cake that was supposedly going to Saddam Hussein? The CIA rule used to be that you never ever trust liaison reporting unless you can confirm it with your own sources. Imagine The Wall Street Journal relying on Mad magazine for its investigative sourcing, and you’ll see just where such sloppy vetting can lead.

And what of the PDB’s disclosure of a bin Laden cell in New York recruiting Muslim-American youth for attacks? Mr. Baer is not impressed:

Not until three-quarters of the way through the PDB do we finally get to our own intelligence: a clandestine source who reported directly to a U.S. official that “a bin Laden cell in New York was recruiting Muslim-American youth for attacks.” Why bury this seemingly valuable nugget? Perhaps because our own source was dead wrong. Sept. 11 was planned and organized in Afghanistan and Germany. The 19 hijackers found their own way here and relied on their own funds. Support inside the U.S. came from unwitting contacts. No American Muslim was recruited to help the hijackers.
What’s in the PDB is damning enough, but to me, maybe the most alarming part is what’s not there. In the entire document — this crown jewel of intelligence — there isn’t a single mention of Saudi Arabia, the real Ground Zero of 9/11. Apparently, we had no idea suicide bombers were being recruited there or that cash was being raised for an attack on America.

Mr. Baer closes with a cautious observation regarding the future of American intelligence gathering:

In his testimony before the 9/11 Commission, CIA director George Tenet — the most candid of any of the witnesses, by the way — said we need five more years to catch up. I think he’s optimistic. It takes a generation to build an effective clandestine service. In the meantime, we have no choice but to rely on the Saudis to tell us whether we need to worry about all the killing going on in the Kingdom, whether it really has the petroleum reserves it claims to have, and a lot of other issues vital to our national security.
Personally, I would like to have my own source to tell me what’s happening inside the Kingdom’s fire-breathing mosques. That’s the only way we’re going to find out if more young Saudis are being recruited and money raised for another 9/11. Until then, we’re flying blind not just on Osama bin Laden but on Islamic extremism throughout the Arab world and our own. That’s the opposite of intelligence.

Over the past generation, each Democratic and Republican administration has contributed in varying degrees to the progressive evisceration of the American government’s intelligence gathering capability. The government’s failure to anticipate the 9/11 attacks was in large part the result of that gradual weakening of intelligence over the past 30 years. Consequently, during this political season, make sure that any politician who criticizes the present administration’s production or use of intelligence is not one of the politicians who was contributed to the demise of such intelligence in the first place.