Daily Archives: May 24, 2005

Update on Enron’s “NatWest Three”

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Natwest three.jpgOne of the more interesting sidelights to the criminal investigations into Enron Corp. has been the saga of the “NatWest Three” — David Bermingham, Gary Mulgrew and Giles Darby, the three former National Westminster Bank PLC bankers based in London who are charged in Houston with bilking their former employer of $7.3 million in a scheme allegedly engineered by former Enron CFO Andrew Fastow. Here are the previous posts on the NatWest Three.
Earlier this morning, English Home Secretary Charles Clarke approved the extradition of the NatWest Three to Houston to face the seven counts of wire fraud that each of them face under the U.S. indictment. The NatWest Three have two weeks to appeal Mr. Clarke’s decision, and an appeal would likely tie the matter up further in U.K. courts.
The case of the NatWest Three is gaining increased public interest in England because the three bankers have contended that, if a fraud case should be prosecuted against them at all, then the case should go forward in England because the men are all British and the alleged offenses were committed against a United Kingdom company. If a British prosecution against the three were to proceed, then the U.S. prosecution would be delayed because the British charges would take precedence over foreign ones. A British prosecution would also raise all sorts of double jeopardy and collateral estoppel issues that could at least complicate any subsequent U.S. prosecution.
The U.K.’s Serious Fraud office decided not to prosecute the three former bankers, but the three bankers last month won a judicial review of that decision. Although Mr. Clarke was not required to consider the judicial review issue in deciding whether to approve the men’s extradition, British legal commentators are now openly questioning why the British government is giving in so easily to a U.S. government extradition request relating to reputable U.K. businessmen, particularly in regard to an extradition that would result in a prosecution of those U.K. citizens in Houston’s anti-Enron environment for alleged crimes that the U.K. government has declined to prosecute?
That’s a pretty darn good question.

Crandall on the Wright Amendment

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crandall.jpgBefore retiring in 1998, former American Airlines chairman and CEO Robert Crandall steered American successfully through the first two decades after deregulation of the American airline industry.
Mr. Crandall was viewed as a hard-knuckled but successful executive during his tenure at American. Always worried about the tendency of airlines to price cut themselves to ruination, Mr. Crandall was tape-recorded (some would say set up) by the CEO of bankrupt Braniff Airlines, who prompted Mr. Crandall to make the unremarkable statement that both airlines would benefit if they raised prices. The Justice Department censured Mr. Crandall for broaching price fixing over that incident. In his campaign to control rising costs during the new era of deregulation, Mr. Crandall took on the airline labor unions, prompting a flight attendant strike in 1993 and a pilot strike in 1997. However, when he retired, American was a much healthier company financially than it is now.
While running American, Mr. Crandall did not enjoy the competition that Dallas-based American faced from Dallas-based discounter, Southwest Airlines. In this WSJ ($) letter to the editor, Mr. Crandall takes the Journal to task for what he considers revisionist history regarding the controversial Wright Amendment, which restricts Southwest from flying most interstate routes from its Dallas Love Field hub:

In the 1960s, the cities of Dallas and Fort Worth made an agreement with the U.S. government and with the airlines then serving the two cities. The U.S. had told the cities that it wouldn’t provide continued support for two airports, but that if they could agree on a single airport, the government would provide help in creating it. The cities agreed to prohibit competition with DFW from any other airport, the airlines serving both city airports agreed to move and to take on the financial burden of paying off the bonds with which DFW would be built and sustained, and the new airport was built. During construction, Southwest was created, and when the airlines moved to DFW, Southwest found a legal loophole that allowed it to remain at Love Field, which is much closer to the businesses, hotels and high-income residential areas of Dallas. Thus, Southwest gained a unique monopoly position in one of the country’s premier markets and avoided bearing any of the cost of creating and sustaining DFW.
The city of Dallas could and should have closed Love Field to fulfill its promise to prevent competition against DFW, as Denver did when it closed Stapleton to prevent it from competing with the new Denver airport. Unfortunately, Dallas lacked the moral courage to fulfill its obligation. In retrospect, it was a mistake for American and others to agree to the compromise that the Wright Amendment represented, for Southwest and others now mischaracterize it at every opportunity.

Graglia on judicial activism

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graglia_lino_lg.jpgLino A Graglia is the A. Dalton Cross Professor of Law at the University of Texas Law School and Texas’ foremost Constitutional law scholar. From time to time, he has also been one of the more outspoken and controversial commentators on application of Constitutional law to social issues in American society.
In this Opinion Journal op-ed, Professor Graglia notes that modern Constitutional law is narrowly based:

The essential irrelevance of the Constitution to contemporary constitutional law should be clear enough from the fact that the great majority of Supreme Court rulings of unconstitutionality involve state, not federal, law; and nearly all of them purport to be based on a single constitutional provision, the 14th Amendment–in fact, on only four words in one sentence of the Amendment, “due process” and “equal protection.” The 14th Amendment has to a large extent become a second constitution, replacing the original. . .
The problem is that the Supreme Court justices have made the due process and equal protection clauses empty vessels into which they can pour any meaning. This converts the clauses into simple transferences of policy-making power from elected legislators to the justices, authorizing a court majority to remove any policy issue from the ordinary political process and assign it to themselves for decision. This fundamentally changes the system of government created by the Constitution
The basic principles of the Constitution are representative democracy, federalism and the separation of powers, which places all lawmaking power in an elected legislature with the judiciary merely applying the law to individual cases. Undemocratic and centralized lawmaking by the judiciary is the antithesis of the constitutional system. . .
Plato argued for government by philosopher-kings, but who could argue for a system of government by lawyer-kings? No one can argue openly that leaving the final decision on issues of basic social policy to majority vote of nine lawyers–unelected and life-tenured, making policy decisions for the nation as a whole from Washington, D.C.–is an improvement on the democratic federalist system created by the Constitution. Yet that is the form of government we now have.
The claim that the court’s rulings of unconstitutionality are mandates of the Constitution, or anything more than policy preferences of a majority of the justices, is false. Rule by judges is in violation, not enforcement, of the Constitution. Ending it requires nothing more complex than insistence that the court’s rulings of unconstitutionality should be based on the Constitution–which assigns “All legislative Power” to Congress–in fact as well as name.

Read the entire piece.

Competition in regulation markets

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Spitzer11.jpgAs noted in this earlier post, the Lord of Regulation latest political grandstanding strategy has been to launch an investigation into the sub-prime lending industry, which provides the valuable service of lending money for home loans at higher interest rates to those who cannot qualify for a conventional mortgage because of insufficient income, lack of assets or credit problems. It’s almost certain that his investigation will damage the industry and thus, reduce the number of people it can profitably serve while scaling back the growth rate in home-ownership. As with many of Mr. Spitzer’s investigations, the real victims are not the ones he pretends to threaten.
Well, apparently the banks are not rolling over for Mr. Spitzer quite as quickly as most of his other targets. This Wall Street Journal ($) article reports that certain of the banks in Mr. Spitzer’s latest probe may decline to cooperate because the primary regulator of national banks is the Office of the Comptroller of the Currency and not Mr. Spitzer’s office.
As usual, the Lord of Regulation is not reacting well to competition on his turf of regulating all alleged business corruption. Last week during a speech in Washington, Mr. Spitzer accused the OCC of trying to thwart his lending investigation and, in so doing, noted a telephone call he received from the OCC’s acting comptroller, Julie L. Williams.
That did not sit well with Ms. Williams, who criticized Mr. Spitzer for launcing an investigation into an area that is clearly within the regulatory mandate of the OCC:

“I was surprised and disappointed to see what I had understood to be a personal conversation recounted as part of a speech.”

Given Mr. Spitzer’s general disdain for markets in regulating business, wouldn’t it be delicious irony for one of his investigations to be thwarted by competition within the regulatory marketplace?