Check out this interesting TCS Central piece by San Diego attorney and former Harvard history professor Michael Rosen that compares this year’s Presidential campaign with that of 1904. Good stuff.
Lessons from another ’04 campaign
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Monthly Archives: August 2004
Clear thinking on Social Security and Health Care Finance
In this TCS Central piece, Arnold Kling addresses what he would like to hear President Bush say in his upcoming speech accepting the Republican nomination for President. On the key issue of financing Social Security and health care, Mr. Kling advises Mr. Bush to say the following:
Going forward, the most important issues are Social Security and the government’s role in health care. The Administration should focus on pursuing modernization and reform in those two areas.
On Social Security, the President should say that the system works for today’s seniors, but it does not work for younger people. As important as it is to keep our promises to those who are in retirement or close to it, it is just as important that we not leave Social Security as it is for people in their 20’s, 30’s, and 40’s.
The American people need to know that the money that workers put into Social Security now does not belong to them, but instead goes into the general Treasury, where Congress spends it as it pleases. You might think that the money you put into Social Security goes into an account where it belongs to you and nobody else can touch it. However, it does not work that way. It can work that way. It should work that way. It will work that way once reforms are enacted. Privatization is the ultimate lockbox.
Social Security also needs to be more flexible. Our existing system was designed when reaching the age of 65 meant that your active life was probably over, and you were likely to die within a decade. Going forward, we need a system that can accommodate everything from early retirement to seniors taking on second careers and new challenges in their 80’s. Personal accounts are the key to giving people more options as they age.
Then, Mr. Kling turns to financing health care:
On health care, reforms should adhere to some basic principles. These principles will promote personal choice and continued innovation.
The first principle is to give as much decision-making authority as possible to patients and doctors. Today, treatment choices can be distorted by Medicare regulations, fear of lawsuits, and other mechanisms. Reform should aim to minimize such sources of distortion.
The second principle is that taxes should be used to pay for health care only for those who truly need assistance. To the extent that the government pays health care expenses for everyone, your medical bills will go down but your tax bills will go up by much more. We need only limited paternalism.
A good start would be enhancing the recently established Health Savings Accounts, which are addressed in this prior post.
VDH on European animus toward America
Victor Davis Hanson has another compelling Wall Street Journal ($) op-ed today in which he points out that the European desire that George Bush be defeated in the upcoming election could very well backfire on European interests:
Yet the European meddling in this particular presidential election is. Less talked about is that the image of an allied Europe has been shattered here at home. And all the retired NATO brass and Council on Foreign Relations grandees are finding it hard to put the pieces back together again. The American public now wants to be told exactly why thousands in their undermanned military are stationed in a continent larger and richer than our own without conventional enemies on its borders. If Europeans think it is nonsensical to connect Iraq with our own post 9/11 security, then Americans believe it is far more absurd to envision an American-led NATO patrolling their skies and roads 15 years after a nearby hostile empire collapsed — especially when NATO turns out to be as isolationist as America is expected to be engaged abroad.
The election of John Kerry would probably not reverse either the current policy in Iraq or the ongoing reappraisal of our foreign relations. The European fixation with the upcoming election and rabid hatred of George Bush instead may backfire here at home; indeed, even now European animus acerbates our own growing unease with what we read and see abroad
The psychology of leading
The Wall Street Journal’s ($) Holman Jenkins weighs in today with this column regarding the ideas regarding the psychology of leading of Stanley Renshon, who is a psychologist and political scientist at the City University of New York Graduate Center.
Mr. Renshon has written a new book set for publication in September called “In His Father’s Shadow,” in which Mr. Renshon addresses George W Bush’s emergence from an “erratic commitment to conventional success” in early adulthood to an “embrace of responsibility and sustained success that would have been little expected from his performance until then.” Mr. Renshon is also the author of a number of other works on the psychology of American presidents, inlcuding the award-winning account of Bill Clinton’s first term, “High Hopes.”
Mr. Renshon first notes that the public’s pre-election evaluation of Mr. Bush’s leadership style overlooked an important part of his personality. As Mr. Jenkins notes:
He came to office promising to be a “uniter not a divider”; his reputation in the traditionally weak Texas governor’s office was that of a consensus seeker. Those who expected more of the same in the White House have been pleasantly (or unpleasantly) surprised because, says Mr. Renshon, they overlooked an aspect of Mr. Bush’s character: His rare capacity to “stand apart,” even from friends and supporters, and withstand abuse and criticism when he believes a policy course is the right one.
He also ended up with a political character noticeably different from that of his loved and admired papa, who famously derided the “vision thing” and sought compromise with every critic. “Mr. Bush is a president who is comfortable taking controversial stands and sticking with them,” Mr. Renshon writes. “He is able to do so through sometimes severe storms of public anxiety and critics’ cries to change course.”
Using Mr. Renshon’s analysis, Mr. Jenkins speculates on the probable course of Mr. Kerry’s leadership style if elected president:
GOP harping on Mr. Kerry’s “liberal” record would seem to imply he has philosophical commitments that he’s prepared to sacrifice for. The label “Massachusetts liberal” perhaps points closer to the truth. Unlike Mr. Bush, he built his life and self-image around elective office, and in a state and party where survival required adhering to certain unfashionable and arguably obsolescing norms. He’s risk averse where Mr. Bush is a risk taker.
His leadership style is strongly at odds with Mr. Bush’s — and one that Democrats are hoping Americans are in the mood for right now. That’s the real message of his constant invoking of Vietnam. That’s the real strength of his campaign: I was daring and adventurous then, and had my fill. Witness my career ever since: cautious, “nuanced,” utterly lacking in the “go for it” certainty of my opponent.
Contrary to much campaign rhetoric, the difference probably wouldn’t be felt in the war on terror, to which both parties are now committed. It’s on domestic issues that history has trapped Democrats in the role of reactionary party, reflexively defending a status quo.
On Social Security, Medicare, education, you name it: Republicans at least grapple realistically with the need to reshape these programs to keep them solvent and delivering value in the 21st century. Democrats don’t. A lot of voters would be pleasantly (or unpleasantly) surprised by Mr. Kerry if he turned out to be a politician willing to court controversy and criticism to change that.
I do not agree with Mr. Jenkins’ assessment that the Republican Party is “at least grappling” with the issues relating to reshaping the above-cited governmental programs. On the contrary, the only reason that this Presidential race is likely to be a close one is because the electorate senses that this Republican Administration and Republican-controlled Congress have largely failed to take any constructive action in addressing these issues.
Nevertheless, Mr. Jenkins is correct that the success of either a second Bush Administration term or a Kerry Presidency will likely depend on the willingness of the leader to take risks and to adhere to unpopular positions that will lead to a sound goal. Bush has proven that he has the capacity to do that in regard to his foreign policy against the Islamic fascists. Does Kerry have that attribute?
Read the entire article.
The cost of having an Enron-related deal tried to a jury rather than a judge
An English court yesterday provided a glimpse of the difference between the civil justice there and the American system as it relates to controversial business practices such as those that Enron Corporation practiced.
In this decision handed down by an English court yesterday, J.P. Morgan Chase & Co. won a lawsuit against a WestLB AG-led banking syndicate related to Morgan’s Enron financing in which the English judge ordered the WestLb syndicate to honor a $165 million letter of credit that the syndicate had previously refused to pay.
That’s the first big difference. In the United States, there is no way that a plaintiff in this lawsuit would not attempt to take advantage of the public bias against Enron by demanding a jury trial. In the English system, jury trials in lawsuits over complicated business transactions are rare.
The case involved Morgan’s involvement in an offshore financing vehicle called Mahonia Ltd. In a complex trading arrangement, Morgan provided money to Enron, which then returned the payments to Morgan in the form of contracts for the future delivery of gas. Those payments — known as “gas prepay contracts” — were paid through an offshore vehicle called Mahonia.
When Enron collapsed in late 2001, Morgan had to commence litigation to collect on its security for the Enron-related financing. WestLB was the leader of a banking syndicate that had posted a $165 million letter of credit, which is a common form of security in which the WestLB syndicate receives a fee for taking the risk of Enron’s insolvency in regard to the financing — i.e., WestLB agrees to pay Morgan $165 million and assume Morgan’s rights against Enron if Enron goes bust on the deal.
Taking advantage of the unprecedented public outcry over Enron’s business practices when Enron collapse, WestLB refused to honor the letter of credit, alleging that the transactions were part of a “fraudulent scheme” that essentially disguised Morgan’s loans to Enron. Given the due diligence that takes place on these types of transactions, WestLB’s claims bordered on the preposterous, but then trying to weasel out of an Enron-related obligation is fair game these days. Morgan sued WestLB, WestLB countersued, and the trial began in London’s High Court of Justice in January.
The London case was just the latest litigation for Morgan over the Mahonia deal. When it set up the deal with Enron, Morgan hedged its risk by arranging to have several insurance companies issue $935 million of surety bonds to ensure Morgan against the risk of Enron’s default on the deal. When Enron filed for bankruptcy protection, those insurers — just like the WestAB syndicate — refused to pay using the same argument that the deal was a fraud designed to disguise loans to Enron. That dispute ended up in a jury trial in federal district court in Manhattan. Immediately before the jury was about to render a verdict in the case in January 2003, Morgan and the insurers agreed to a settlement in which the insurers paid 60% of the costs relating to Enron’s default, leaving Morgan holding the bag for the balance (approximately $400 million).
In the English case, High Court Justice Jeremy Cooke on Tuesday ruled in favor of Morgan and Mahonia by concluding that Enron’s accounting for the transaction did not breach U.S. accounting and securities rules. He ordered the WestLB banking syndicate to pay on the letter of credit, plus interest and costs, which is what the WestLB syndicate would have normally done in the first place but for the public outcry over anything related to Enron.
There is no question in my mind that Morgan would have agreed to settle with the WestAB syndicate on the same terms that it settled with the insurers over the Mahonia deal if this dispute had been tried to a probably biased American jury rather than a dispassionate English judge. Thus, that change in venue just saved Morgan at least a cool $70 million.
The Mahonia-related trading arrangement has been the subject of extensive scrutiny in connection with Enron’s chapter 11 case and related litigation. Last year, Morgan and Citigroup entered into a settlement with the Securities and Exchange Commission and U.S. regulators in which they agreed to pay fines and penalties totaling about $300 million related to their involvement with Enron and Dynegy Inc., a Houston-based energy company that attempted to acquire Enron immediately before the commencement of the Enron chapter 11 case.
Stros edge Braves
The Rocket bounced back from being thrown out of his kid’s youth league game and pitched the Stros to a 3-2 win over the Braves straight win in the first game of their three game set at the Juice Box. It was the Stros’ third straight win.
Clemens was magnificent, giving up one earned run on four hits in seven innings while walking three. The Braves’ Russ Ortiz was almost as good, giving up two runs in seven innings while torturing the Stros’ hitters with his array of drop balls and change-ups. The Stros finally pushed across runs in the sixth, seventh and eighth to take the lead, including Bidg‘s solo yak and a key pinch hit by Lamb to set up the go ahead run in the eighth. Lidge was overpowering in saving the win as he K’Oed the side in the top of the ninth.
Inexplicably, the Stros trot Tim Redding out again on Wednesday to provide the Braves with some extended batting practice in between walks. The Stros’ hitters better gut up because they will likely need to score a bunch of runs to have a chance to win this one.
Schlotzsky’s tanks
Popular Austin-based delicatessen franchiser Schlotzky’s, Inc. filed a chapter 11 reorganization case (case no. 04-54504) today in San Antonio.
The case was assigned to U.S. Bankruptcy Judge Leif Clark, who is an able and experienced bankruptcy jurist. A team from Haynes & Boone, LLP — led by Dallas-based partner Robert Albergotti — is representing Schlotzky’s in the chapter 11 case. Judge Clark has set a hearing for 10:30 a.m. tomorrow in San Antonio to hear a slew of “first day” motions that Haynes & Boone filed on behalf of Schlotzky’s today.
The company has more than 500 outlets in 36 states and six countries. Upon filing, Schlotzsky’s issued a public statement saying that operations at its shops would continue normally during the reorganization, but it’s a safe bet that more than a few of those shops will close during the reorganization. Schlotzky’s owns 21 “company” shops and franchisees own the balance of the stores.
Schlotzsky’s has been reeling for some time in the intensely competitive deli business that Subway and Quizno’s dominates. Schlotzsky’s recently cut 20 percent of its corporate staff and closed 15 company-owned shops in July. The company reported a net loss of $11.7 million in 2003 in comparison to a loss of about $200,000 in 2002, and lost another $671,000 in the first quarter of 2004.
Placing terror threats in perspective
Professor Gordon places the recent Al Qaeda threats against eastern United States financial institutions into the proper perspective:
Primitives and Targets
The only silver lining in the War on Terror is that our enemies are primitives who believe that striking the NYSE or Citibank headquarters or even the IMF or the World Bank would have major economic consequences. We will win because they don’t get it. We are economically (and spatially) decentralized. More than they can grasp. Terrible as the loss of life and the psychological hit would be, the economic consequences would be minor.
The World Trade Center Towers were tall and auspicious because of New York politics. They had no economic rhyme or reason. Losing them was a terrible loss of life but had little economic consequence. In fact, no major natural disaster in U.S. history (not Hurricane Andrew, not the Northridge Earthquake, nor any other that I can think of) had significant economic impact.
The primitives don’t get it. Indeed, they cannot grasp the essence or the durability of decentralized systems. They are, after all, primitives.
The Rocket is a competitor
Just reported by the AP:
Clemens asked to leave son’s baseball game
Associated Press
CRAIG, Colo. — Houston Astros pitcher Roger Clemens was asked to leave a youth baseball game over the weekend for arguing a close call that went against his son’s team.
Clemens was at the game Saturday watching his son, Kacy, compete in a 10-and-under game organized by Triple Crown Sports when Clemens contested a call at second base that went against the Katy Cowboys.
He spit sunflower seeds at an umpire’s leg and was asked to leave, said Jim Carpenter, a field supervisor with Triple Crown.
“I supported the umpire’s decision and he (Clemens) respectfully left,” Carpenter told the Craig Daily Press.
Katy lost the game to the Bakersfield Curve, 11-5.
Triple Crown Sports features a franchise system aimed at pitting top teams from across the country against each other.
Clemens’ agent, Randall Hendricks, did not immediately return a call today. Clemens has racked up 322 wins and 4,240 strikeouts in his 21-year major league career.
Thank goodness the ump’s name was not Piazza!
Blakely Redux
With strong prompting from the Justice Department, the issues regarding the validity of federal and state sentencing guidelines generated by the U.S. Supreme Court’s recent Blakely v. Washington decision are going to be teed up again soon in the Supreme Court. Here are my previous posts on the aftermath of the Blakely decision.
Early this week, the U.S. Supreme Court Justices are expected to grant expedited review of at least one of several post-Blakely lower court rulings that present the issue of whether federal sentencing guidelines are unconstitutional in light of the Court’s decision in Blakely. That ruling struck down a Washington state sentencing system similar to sentencing in over a dozen states and in the federal system, and requires that juries determine facts that increase a defendant’s sentence.
When a landmark high court decision is such as Blakely is handed down, the Supreme Court usually allows a reasonable amount of time (i.e., several years) to address follow-up issues that arise before the Court re-addresses the core issue. However, Blakely unleashed most U.S. District Judges’ pent-up antipathy for the sentencing guidelines and their corresponding limitations on the exercise of judicial discretion in federal sentencing. Thus, with many judges devising their own methods for coping with Blakely in regard to sentencing matters, the Justice Department is pushing the Supreme Court for an unusually quick reassessment of the issues raised in Blakely.
The SCOTUS clarification of the impact of Blakely is being followed particularly closely by the criminal defense bar in Houston, which is already dealing with new indictments in Enron-related criminal cases as the Justice Department scurries to comply with the requirements of Blakely. Moreover, the sad case of Jamie Olis — in which the absurdly long 25 year sentence was issued prior to Blakely — could also be affected by that decision and its progeny.
Ohio State University law professor Douglas Berman‘s blog Sentencing Law and Policy is the best website for keeping up with analysis of post-Blakely developments.