Nigerian Barge case postponed again

The Enron Task Force’s recent decision to re-indict the defendants in the Enron-related Nigerian Barge case has caused another postponement of the trial in that case.
The trial, which was scheduled to begin on either August 16 or 17th, has been pushed back by U.S. District Judge Ewing Werlein until September 20. That trial schedule would still make it the first criminal case involving former Enron executives actually to go to trial since Enron’s collapse almost three years ago.
The government decided to re-indict the defendants recently because of concern over the U.S. Supreme Court’s recent Blakely decision (prior posts here), which has called into question the Constitutionality of both state and federal sentencing guidelines, particularly in cases in which the jury did not consider the alleged loss caused by the alleged crime.
Included in the new indictment in the Nigerian Barge case are allegations that a scheme to pretend Enron sold Nigerian barges caused the loss of more than $80 million, which, if proven, would add years to a sentence under the federal sentencing guidelines.
However, I am not following the governement’s theory of the case here. Neither Enron nor Merrill Lynch lost any money on this transaction, which was a relatively small deal in Enron’s world involving about $12 million in profits for Merrill Lynch. Moreover, the alleged illegal accounting treatment for the deal was not discovered until after Enron was well into its bankruptcy case, so public disclosure of that alleged impropriety had no market impact on Enron’s already worthless stock. Accordingly, I am still trying to figure out the government’s theory that the deal caused damages of $80 million. Oh well, maybe I’ll try to ask Jamie Olis.
At any rate, defense attorneys in the Nigerian Barge case had asked for the postponement because they said new expert financial testimony is necessary and new defenses need to be developed. The government asked Judge Werlein for a bifurcated trial in which the jury hears only about the alleged crimes in the first part and then, if there is a conviction, the jury would hear evidence of sentencing factors in the second stage.

Whose Constitution Is It, Anyway?

In this Wall Street Journal ($) book review, Northwestern University Law Professor John O. McGinniss reviews Stanford Law Dean and Professor Larry Kramer‘s new book — “The People Themselves” — in which he argues that the notion that the judiciary is the sole true arbiter of the Constitution under the American government is a fairly new and inaccurate view. As Professor McGinnis notes from Professor Kramer’s work:

. . . the men who wrote the Constitution would have been aghast at a judicial monopoly on its interpretation. At the time, judges did not claim some exclusive power of constitutional settlement. They believed that judicial review stemmed from their duty to interpret all relevant laws in the course of litigation. But they did not dispute that the White House and Congress had their own duty to interpret the Constitution in the course of their own official actions.
Only later, when the Federalists feared that they would be voted out of office, did the doctrine of judicial supremacy come into play, to insulate Federalist court decisions from correction. But Mr. Kramer shows that presidents from Jefferson to Lincoln refused to yield all authority to judges. They embraced “departmentalism” — each branch of government claiming an equal right to discover the Constitution’s true meaning.

Professor Kramer notes that the doctrine of judicial supremacy has serious implications to American government and society:

Because the court is selected from a narrow social class, he notes, it tends to reflect the views of a modern “aristocracy.” Only the willingness of other branches to disagree with the court prevents our constitutional republic from degenerating into a constitutional oligarchy — with a priestly caste ruling, in effect, by fiat.
Mr. Kramer goes even further. He believes that “the people themselves” should be principal enforcers of the Constitution, as they long enforced the British Constitution through such devices as jury nullification and mobbing — i.e., disturbing the peace. But the American Constitution differs from that of George III. In the U.S., the people themselves can reconstitute all branches of the government — by voting for certain candidates instead of others, of course, and by thus affecting political appointments. Electoral accountability is the essence of popular constitutional control. Thus Americans have not typically resorted to mob violence. The contrast with the British Constitution is striking.

But Professor McGinnis is not completely sold on Professor Kramer’s theory that varied interpretations of the Constitution protect our society against the tyranny of the majority:

The American Constitution also differs from the (unwritten) British one in its source of authority. In 1789 the Framers drafted a specific text that the people themselves ratified in every state. It is this consensus that gives the Constitution its power and justifies the disregard of even democratically made laws that conflict with it. But the meaning of that consensus can be discovered only by referring to the words themselves and to their historical context — not by relying on the “political-legal” interpretation that Mr. Kramer suggests. Constitutional interpretation based on politics places the people’s own considered judgments at the mercy of rash and temporary majorities. Only a document fixed by law — and subject to strict rules of amendment — can protect, in the words of Justice David Brewer, “Peter Sober from Peter Drunk.”

Read the whole piece. Good stuff.

El Paso announces restatement of earnings from 1999-2003

Houston-based El Paso Corp. announced today that an internal review of its accounting has prompted the company to restate quarterly earnings from 1999 to 2003. El Paso noted in its announcement that stockholders’ equity would be reduced by the move, but that “cash flow” would not be affected. As if this latter assurance is going to make creditors any more willing to provide credit to El Paso!
It has not been a good year for El Paso, which has been the subject of an overstatement of reserves scandal and multiple resulting investigations. Here are the previous posts on El Paso’s troubles.
The restatement will result in increases and decreases in El Paso’s quarterly earnings at its merchant energy and production units, and that earnings at the parent company level will also be restated. El Paso also noted that it had received waivers under its $3 billion revolving-credit facility giving it a Sept. 30 deadline to file its 2003 10-K, which the company believes it will be able to meet. An El Paso spokesperson contended that the restatements would not cause the company to default on any debt covenants.
The bankruptcy watch for El Paso continues, and there is nothing in this latest announcement that indicates that such a result is any less likely.

Ken Lay presses for a speedy trial

In an astounding move in a case of nearly unprecedented negative publicity, Ex-Enron Chairman and CEO Kenneth Lay requested U.S. District Judge Sim Lake today to grant a speedy trial — even possibly waving a jury trial to get it — in pleadings filed today in his pending criminal case in Houston.
Mr. Lay, who is presently facing 11 criminal charges in the same case as former Enron CEO and COO Jeffrey Skilling and ex-chief accountant Richard Causey, requested that Judge Lake sever Mr. Lay’s case from that of Messrs. Skilling and Causey, and commence the trial of Lay in mid-September, just a month away.
Mike Ramsey — Mr. Lay’s criminal counsel — estimated that the 11 criminal counts against Mr. Lay can be tried in three weeks to Judge Lake and about eight weeks if a jury hears it. In addressing the media at Houston’s federal courthouse while filing pleadings on behalf of Mr. Lay today, Mr. Ramsey chided the Enron Task Force prosecutorial team for allegedly politicizing Mr. Lay’s criminal case in inflammatory prosecutorial press conferences.
Mr. Lay’s request for a speedy trial is a high risk strategy, but there are few alternatives in defending an Enron-related case that are not high-risk because of the noteriety of the Enron. The big fringe benefit of a quick trial to Mr. Lay is the severance of his case from that of Messrs. Skilling and Causey, who Mr. Lay will likely portray as being in control of the day-to-day affairs of Enron.
Also in pleadings filed today, the Enron Task Force noted that Lay has set aside $15 million to a legal defense fund, which Mr. Ramsey contended is not accurate because of the illiquid nature of a large portion of the assets transferred into the fund. Even with that hefty war chest, Mr. Lay is still running second to Mr. Skilling, who socked away $23 million of cold, hard cash in his legal defense fund.
The Enron Task Force is opposing Mr. Lay’s request for a September trail date, but has proposed a fairly quick schedule that includes a March 2005 trial date. As one would expect, the Task Force prefers to try all there defendants together.
Judge Lake has scheduled a Wednesday hearing to discuss a trial date for the Mr. Lay’s case.
Somewhat overshadowed in today’s developments is the fact that, more than two and a half years after Enron collapsed into bankruptcy, the first criminal trial involving former Enron executives is currently scheduled to begin in Houston next Monday before U.S. District Judge Ewing Werlein in the case known as “The Nigerian Barge case.”

It’s going to be close, folks

Pejman Yousefzadeh, who was noted in this earlier post regarding his work on the benefits of futures markets in predicting terrorist attacks, has this interesting analysis of how the Electoral College vote is stacking up in regard to the upcoming Presidential election based on the current status of future markets. Check it out.

Fix the tax code in regard to health care finance

Wall Street Journal Editorial Board member Susan Lee proposes in today’s WSJ ($) that the U.S. tax code be overhauled to mitigate the negative effects of the third party payor system that most Americans use to pay for health care:

Anybody who gives a few hours of thought to the current health-care system can identify the mother of these problems — the widespread existence of a third-party payer system. Third party-payers come in the form of government, employers (who self-insure) or insurance companies. This arrangement insulates consumers of health care from its true cost and encourages overconsumption.

And as Ms. Lee notes, such an inefficient system makes perfect sense under the current U.S. Tax Code:

This kind of employer-sponsored plan actually makes sense since employer payments are excluded from taxes while direct, or out-of-pocket, payments by employees are made with after-tax dollars. In fact, the tax exclusion is the chief reason that employers pay $5 out of every $6 spent in the private market.

Inasmuch as the tax system causes the unfortunate third party payor system, Ms. Lee touts a reform that economists John Cogan, Glenn Hubbard and Daniel Kessler have proposed — expand tax deductibility to out-of-pocket expenses and individually purchased health insurance. The syllabus for their proposal is here, and incorporates the recent legislation creating Health Savings Accounts (“HSA’s), which are more fully explained in this previous post. Ms. Lee points out that the Messrs. Cogan, Hubbard, and Kessler’s study indicates that such a proposal would have two effects:

The expansion of tax deductibility would have two effects. First would be the commonsense — and perverse — impact of increasing consumption and costs. Expanding tax deductibility would lower overall health care prices to consumers and thus increase demand.
But the second effect goes the other way, reducing heath-care consumption and costs. Currently, by making employer plans cheaper than individually purchased ones, the tax exclusion creates a bias toward employer plans and away from direct purchase. So extending the tax exclusion to direct purchases of health care would level the playing field. . .
For both the self-employed and those with employer-provided insurance, making out-of-pocket costs deductible will lower the price of direct health-care purchases relative to purchases made through insurance. Thus, insurance with higher deductibles and coinsurance, and fewer covered services — that requires lower premiums — will become more attractive. The shift will reduce the consumption of health- care services and reduce costs.
Lower premium prices are the key to this shift. When out-of-pocket costs are reduced by the proposed tax deduction, it will make less economic sense to pay the higher premiums charged for high deductible, high coinsurance policies. And, as it turns out, premium costs are very sensitive to the level of deductions and coinsurance.
Since low coinsurance and deductions are the engine behind rocketing costs and wasteful medical practices, providing consumers with the incentive to shift to policies with high coinsurance and deductibles is an elegant remedy. Extending the tax deductibility will do just that. Better yet, it is done without resorting to a larger government role in the health-care system.

The probable financial benefits of such a move are not insubstantial:

Although the theoretical impact of these two effects are ambiguous, the economists’ empirical work demonstrates that the second effect will very likely overwhelm the first. For the first effect — extension of the tax deduction will increase consumption and costs — the economists estimate that it will cause annual health care spending to rise by about $5 billion. Then add another $1 billion in the increased coverage coming from those who are currently uninsured, and the total increase comes to $6 billion.
As for the second effect — extension of the tax deduction will decrease costs because people shift to higher deductible, higher coinsurance policies — the economists estimate that if the average deductible rises from $250 to $500, health-care spending would decline by $43 billion. If coinsurance rates also rise to 25%, health care spending would decline by $69 billion.
The bottom line is that the net reduction of spending on health care would be $63 billion a year.

Ms. Lee then notes a study by Kaiser Permenante Institute for Health Policy staff economists Laura Tollen and Jason Lee that indicates that higher coinsurance and deductibles make health care consumers more aware of the true cost of medical services and thus, will reduce non-essential heath-care utilization. Stated simply, when consumers have more “skin in the game,” they will become more cost conscious and make better choices.
Finally, Ms. Lee notes that decreasing reliance on the employer funded health insurance system — a system that arose during World War II to attract scare labor during a time of wage controls — would have another fringe benefit:

But extending the tax exclusion has another nice effect. Under the current system, health insurance is a form of compensation to employees. That is, money wages are reduced by the amount of insurance the employer provides. Once the tax exclusion is extended, however, workers no longer have an incentive to take compensation in the form of pricey health insurance. They will shift to plans with higher deductibles and coinsurance and — given a competitive market — the savings from lower insurance premiums will be passed on to them in the form of higher money wages.

I have only one question regarding the foregoing commen sense proposal: Why isn’t either Presidential candidate embracing such a commen sense proposal?

Expos rub Stros’ noses in the dirt

The Expos won their first series on the road this season by taking advantage of the Stros’ feckless offense in winning Sunday’s matinee at the Juice Box against Roger Clemens, 5-2.
There will be much knashing of the teeth in the media over this latest Stros debacle, but it’s really not much of a surprise. Since May 11th, when the Stros had their best record after 32 games in club history (21-11), the moribund Expos actually have a better record than the Stros (Expos: 34-44/Stros: 34-45). That’s how sorry the Stros have been this season.
Clemens was solid again today, giving up only one earned run on eight hits over seven innings. But the Stros’ hitters continue to scruff away at the plate. Today, they were only able to manage six singles and Ensberg‘s solo tater against mediocre Expos pitching. The three Expos starters in this series had a combined negative 32 runs saved against average this season, meaning that they have given up 32 more runs than an average National Leage pitcher has this season. The Stros were only able to manage seven runs in three games off of those well below average pitchers. Ouch!
The Stros players’ runs created against average (“RCAA”) and runs saved against average (“RSAA” and RCAA explained here) have not changed much from last week, so I will hold off on publishing them again until next week. Suffice to say for now that the Stros continue to tread water.
Berkman continues to be one of the ten best hitters in baseball, while Beltran also is quite solid if his numbers with the Royals are included — his numbers with the Stros only are decent, but not as good as I hoped they would be. Bidg is starting to fade a bit, which is to be expected, and Bags has had a modest resurgance, although he is still only generating about half of the production this season than he did last season. Lamb is the only other Stro who is an above-average hitter this season. Every single other player is either below average or well below average, which means that the fact that the Stros’ are 10th among the 16 N.L. teams in hitting is not surprising.
The Stros pitchers’ RSAA is better (third in the N.L.), but that is somewhat deceptive. Miller has contributed a +11 RSAA, but is unlikely to pitch again this season. Clemens, Oswalt, and Lidge are all solid, but the remainder of the pitchers are either just above average or just below average, with the exception of Harville and Redding, who are pitching poorly and probably should be shipped to AAA to regain confidence.
The Stros’ power drain this season has been deep and pervasive. Bidg is the only Stros’ hitter who is hitting better this season than last season, although Berkman continues to hit at a very high level. As noted above, Bags is half the hitter he was last season, and last season was his fifth straight season of declining numbers. Ensberg has produced 32 fewer runs this season than last season, and Hidalgo‘s numbers were even worse than that before he left. Kent has gone from being a +13 RCAA last season to a 0 RCAA this season. Interestingly, Kent is an example of precisely an average National League hitter so far this season with his batting average/on base average/slugging percentage of .288/.342/.484.
The Stros get an off day tomorrow to think about all this, and then they begin a nine game road trip in New York on Tuesday against the Mets. At least Richard Hidalgo has cooled off so the Stros probably won’t have to deal with the humiliation of Hidalgo going nuclear on them. On the other hand, the way this season has gone, the Stros will probably ignite Hidalgo into one of his legendary hitting streaks.

The Hellfighter is dead

One of Houston’s genuine colorful characters of the past half-century — Paul N. “Red” Adair — has died on Saturday night at the age of 89 in Houston. In a rather stunning oversight, the Houston Chronicle does not have an article posted on Mr. Adair’s death as of Sunday morning. Update: Finally, here is the Chronicle story.
Mr. Adair was a world-renowned oil well firefighter who revolutionized the science of capping oil and gas wells that had exploded and were burning. Although his work was incredibly dangerous, Mr. Adair often boasted that none of his employees ever suffered a serious injury while fighting the fires.
Mr. Adair founded Red Adair Co. Inc. in Houston in 1959. He is credited with battling more than 2,000 land and offshore oil well fires, including the hundreds of wells left burning after the Iraqis fled Kuwait at the end of the Persian Gulf War in 1991. The Houston native spent his 76th birthday clad in his traditional red overalls, swinging valves in place as his crews capped 117 Kuwaiti wells left burning by retreating Iraqi troops. Mr. Adair’s expertise contributed to making a firefighting operation expected to last three to five years a nine month operation, which saved millions of barrels of oil and prevented a potential air pollution disaster.
Mr. Adair used explosives, drilling mud and concrete to control and cap wild well fires. His reputation for having never met a blowout he couldn’t cap earned him the nickname “Hellfighter,” which inspired the title of a 1968 movie based on Adair’s life starring John Wayne. Mr. Adair always considered having Mr. Wayne play him in a movie was one of the highest honors that he ever received.

Expos pound Stros

The Expos scored six runs on six hits against a trio of the Stros’ middle relievers as they embarrassed the home town club, 8-3 on Saturday night at the Juice Box.
Andy Pettitte went five innings and threw 57 pitches, gave up two runs on two hits, and left the game with a 3-2 lead. But Weathers (bad), Harville (awful), and Gallo (bad again) stunk up the place and, by the top of the eighth, the Expos had an 8-3 lead. Given the Stros’ feeble hitting, that’s tantamount to an insurmountable lead.
The Stros trotted out their typical popgun attack, flaring ten hits but producing only 13 total bases in the process. At least Phil Garner had the good sense finally to play Mike Lamb, who proceeded to produce a couple of the Stros’ runs. Garner apparently knew what was coming on this evening and elected to take an early shower while arguing a dubious second inning out call on Vizcaino, who appeared simply to avoid the Expos pitcher on a close play at first, but was tagged out after the ump contended that he had evinced an intent to go to second. It’s been that kind of season for the Stros.
The Rocket strides to the hill in the Sunday matinee as the Stros attempt to avoid the ignominy of losing a series to the lowly Expos. The Stros then leave for their last long roadie of the season to play the Mets, Expos, and Phillies before returning to the Juice Box on August 20 to play the Cubbies.

Gordon Wood on Ben Franklin

Gordon Wood is the Alva O. Way university professor at Brown University and one of America’s foremost authorities on the history and philosophy of the American Revolution. His brilliant books “Radicalism of the American Revolution” and “Creation of the American Republic” are essential for an understanding of American politics and its political system from the Founding Fathers era to the present. The subject of this previous post is Professor Wood’s review of University of Pennsylvania professor Walter A. McDougall’s new book, ”Freedom Just Around the Corner,”which is a fine book that I am currently enjoying greatly.
Now, Professor Wood has produced what it appears to be another fine book. In this NY Times Review of Books review, the reviewer points out that one of the most intriguing aspects of Professor Wood’s new book on Benjamin Franklin — “The Americanization of Benjamin Franklin” — is the approach in which it was written:

This study is not a biography, at least not a conventional one. Wood focuses on Franklin’s personal development and constructs his narrative around various turning points in the life, almost like a bildungsroman. We learn the choices Franklin made, the conflicts he had to resolve. This is the most dramatic of the recent Franklin books.

One of Professor Wood’s points is that Franklin was hard to pin down as a personality. For example, many of today’s politically correct on the left would have a hard time dealing with Franklin:

The politically correct would most likely hector him if they could. For Franklin was a slaveholder. It’s true he turned against slavery, and ardently so, at the very end of his life, but he took a long time getting there. He could be a bigot as well. He wrote nativist diatribes against the large German population in his own colony of Pennsylvania. In 1751 he argued for excluding everyone from Pennsylvania except the English; Morgan calls him ”the first spokesman for a lily-white America.” Franklin loved the company of women, but he was no feminist. He treated his wife miserably, and he admonished young brides to attend to the word ”obey” in their vows. He worried that handouts to the poor would encourage laziness, and he was a fervent supporter of a strong military.

On the other hand, those on the right of the political spectrum would also have a difficult time embracing Franklin:

Modern right-wingers would probably be even more uncomfortable with him than left-wingers. Take his religious views. Franklin was a deist; God, in his opinion, was a distant presence in the affairs of men. He was no churchgoer. He accepted neither the sacredness of the Bible nor the divinity of Jesus. His ideas about property rights were similarly unorthodox. Beyond basic necessities, he said, all property belonged to ”the public, who by their laws have created it.” Brands calls such remarks ”strikingly socialistic.”
What most sets Franklin apart from contemporary conservatives, however, is his attitude toward that panoply of issues gathered under the heading of ”family values.” As a young man he consorted with ”low women,” and fathered an illegitimate child. In 1745 he wrote a letter to a youthful friend — long suppressed — offering advice on choosing a lover. (Older women, he declared, were preferable to younger ones.) Franklin was always an incorrigible flirt. How much actual sex was involved is anybody’s guess, but one incident stands out among the rest. When he was in his 70’s and living in Paris, he became enamored of the captivating 33-year-old Mme. Anne-Louise Brillon, one of the leading lights of Parisian society. Even the puritanical John Adams was enchanted by her. She was no less taken with Franklin, and their vivacious correspondence consisted of a determined campaign on his part to bed her and her equally stalwart resistance, based on the customs of the day and what was proper between a widower and a married woman. Their bantering give-and-take, as quoted by Brands, constitutes one of the most charming episodes in early American history and — since as far as the historians can tell they never did sleep together — also one of the most poignant.

As a result of Franklin’s extraordinary nature and accomplishments, Americans tend to sentimentalize him, which Professor Wood cautions against:

The other problematic theme concerns Franklin’s ”Americanness.” He seems almost a checklist for those national qualities Americans take pride in — and others despise us for. Yet Wood alerts us to be careful in how we think about this aspect of his character. For he was the most cosmopolitan of the founders, at home anywhere. Twenty-five of the last 33 years of his life were spent abroad, and those years were anything but a hardship for him. He was wined and dined and celebrated by the Europeans more than he ever was by his own countrymen. Soon after arriving in London he was complaining about the provinciality and vulgarity of Americans. In Paris he was quite simply a superstar, acclaimed as the equal of Voltaire, and he gave thought to settling permanently in ”the civilest Nation upon Earth.” These sentiments did not go unnoticed back home, and Franklin fell under suspicion of being a foreign agent, first for the British, then for the French. When he returned to Philadelphia for the last time in 1785, it was in part to clear his name.

In the end, Professor Wood’s book attempts to answer the difficult question: What changed Benjamin Franklin from a citizen of the world to a citizen of the United States?

The Revolution was not a conflict over taxation or home rule, not even a dispute over the rights of Englishmen. For him it represented something universal, a world-historical event, ”a miracle in human affairs.” That is, Franklin never stopped being the urbane cosmopolitan, the ultimate sophisticate. He stayed true to himself. But by 1776 he had concluded that the only way to remain a citizen of the world was to become an American.

Gordon Wood on Ben Franklin. Don’t miss it.