Daily Archives: December 7, 2004

Global Crossing case drawing to a close

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The Securities and Exchange Commission is expected to fine at least three former executives of Global Crossing Ltd., the fiber-optic company that went bust in the business downtown earlier this decade.
The fine on the executives — including the company’s founder and former chairman, Gary Winnick — stems from alleged accounting fraud at the company that spiraled into an Enron-like bankruptcy three years ago under $12.4 billion of debt. Although Global Crossing was also accused of fraud, the reorganized company is currently struggling to obtain financing from key shareholders to remain solvent, so it will not be fined in the settlement.
However, what is most remarkable about all of this is that Global Crossing was forced into its chapter 11 case only a month after Enron and under similar circumstances as Enron. For example, Mr. Winnick sold $734 million in stock as the company plummeted into bankruptcy protection. Nevertheless, as analyzed in more detail in this earlier post, no one associated with Global Crossing has ever been indicted in a criminal case.
So long as we allow government to criminalize business behavior, such arbitrary results will be common. Not only does such governmental action dilute the moral force of law, it will eventually discourage beneficial risk taking that generates economic development and job creation.
Remember that, New York voters, as you decide whether to vote for Eliot Spitzer.

“AG” means “Aspiring Governor”

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New York Attorney General Eliot Spitzer – for whom New York Governor George Pataki‘s press secretary once noted that “AG” stood for “Aspiring Governor” – confirmed today what everyone who has not lived the past few years on a deserted island already knew — that he will run for governor of New York in 2006.
Mr. Spitzer’s political agenda is downright frightening for anyone trying to make a living running a business, as his investigations into investment banking, mutual-fund trading, and business insurance have shaken those industries to their core. Indeed, those investigations have arguably made him a more powerful regulatory force than the federal and state agencies that are chartered to regulate those industries.
Consequently, Mr. Spitzer will likely portray himself in the governor’s race as the crusading protector of the common investor against the Republican-backed behomeths of Wall Street. However, it’s far from clear at this point that Governor Pataki will even seek a fourth term in 2006. Interestingly, early polls show that Mr. Spitzer would beat Governor Pataki in a head-to-head race, but that former New York City Mayor Rudolph Giuliani would beat Mr. Spitzer handily in head-to-head polls. Nevertheless, Mr. Giuliani may well not not run for governor in order to keep his options for higher political office open.
Meanwhile, as far as horse races go, I’m pulling for Dick Grasso to kick Mr. Spitzer’s ass in their upcoming lawsuit over Mr. Grasso’s compensation and severance from the New York Stock Exchange. In fact, I hope that Mr. Grasso kicks Mr Spitzer’s rear decisively.
For a particularly good archive of well-reasoned analysis of Mr. Spitzer’s damaging methods of regulation, check out Professor Bainbridge’s resources on the topic.
Finally, if you want a taste of how the fawning mainstream media naively views Mr. Spitzer, check out this ludicrous Loren Steffy column from the Houston Chronicle.

Hey, it’s working

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On the heels of last week’s public disclosure of Barry Bonds’ use of steroids, humorist Argus Hamilton defends the Major League Baseball Players’ Union’s policy on performance enhancement drugs:

“Major League Baseball players’ union counsel Gene Orza maintained Sunday that the current steroid crackdown is working. It’s not that strict. The first year you get counseling, the second year you get fined, and the third year you get the MVP.”

Roland Thatcher survives Q School

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Roland Thatcher, the professional golfer who plays out of the Carlton Woods Golf Club here in The Woodlands, survived the PGA Tour’s Q School over the past weekend and was awarded a 2005 PGA Tour card.
Although 35 players are awarded Tour cards out of the Q School Tournament each year, there are many more excrutiating stories of failure, such as this one involving Tour veteran Joel Edwards:

Joel Edwards, another past PGA Tour champion, was on the cut line until hitting his tee shot into the water and taking double-bogey. He took a long walk to the parking lot, letting out guttural screams and pounding his bag along the way, paying his caddie and slamming his car door as he drove off.

“Kiddie Cocaine”

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This Christian Science Monitor article reports on Adderall, the prescription medication normally used to treat attention deficit disorder (ADD) and attention deficit hyperactivity disorder (ADHD), but which is now becoming the study amphetamine of choice on college campuses.

DeLay delivers for NASA

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This Washington Post article reports on how Houston congressman and House Majority Leader Tom DeLay secured NASA’s $16.2 billion portion of the $388 federal omnibus spending bill that Congress passed on November 20:

NASA was identified as a major sticking point when Senate and House conferees sat down to craft the final version of the omnibus spending bill near midnight Nov. 19, but Bolten, Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) and DeLay were holding out for more money.
The negotiators appeared to agree on $15.9 billion for NASA, but that wasn’t good enough, DeLay said later at the Space Center. “The main responsibility of the majority leader is to set the agenda for the House floor. I wouldn’t schedule the bill until NASA was taken care of,” he said.
And it was.
“Once you get into an omnibus bill, the leadership takes over, and you need to have an advocate in that circle,” Walsh said. DeLay “was getting me more allocation every time he stepped up to the plate. He made the difference.”

A positive sign in airline financing

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This NY Times article reports on the growing concern within the lending industry regarding the long-term ability of several of the legacy airline companies to service their existing financing. This follows the move last week reported on here of one of United’s lenders taking steps to repossess a portion of United’s fleet during the busy Thanksgiving travel season. The article notes:

Where once the idea of losing an airline was unthinkable, both the government and lenders now seem perfectly willing to let that happen. The mood swing was foretold in June, when a federal loan board turned down an application by United Airlines that the airline had thought was a sure bet. Since then, lenders have sat on their hands, watching the company take a chainsaw to its operations, refusing to commit until the airline’s final shape is known.
Aircraft lenders, who did their part after the attacks by loosening the terms of some deals, are tightening up again.
What is different now, experts say, is the growth of markets outside the United States, like Europe and Asia, where new airlines are forming, attracting passengers and expanding, making them far more attractive to lenders and airplane leaseholders.

This is a positive development for the airline industry, where allowing a couple of legacy airlines to go belly up would do wonders for the long term health of the industry. Now will the politicians allow it to happen?