Daily Archives: January 11, 2006

George Will nails the GOP

Posted on by
1

georgewill.jpgIt’s never pretty for the Republicans when George Will lays the wood to them, this time over the Abramoff scandal:

The national pastime is no longer baseball, it is rent-seeking — bending public power for private advantage. There are two reasons why rent-seeking has become so lurid, but those reasons for today’s dystopian politics are reasons why most suggested cures seem utopian.
The first reason is big government — the regulatory state. This year Washington will disperse $2.6 trillion, which is a small portion of Washington’s economic consequences, considering the costs and benefits distributed by incessant fiddling with the tax code, and by government’s regulatory fidgets.
Second, House Republicans, after 40 years in the minority, have, since 1994, wallowed in the pleasures of power. They have practiced DeLayism, or “K Street conservatism.” This involves exuberantly serving rent-seekers, who hire K Street lobbyists as helpers. For House Republicans the aim of the game is to build political support. But Republicans shed their conservatism in the process of securing their seats in the service, they say, of conservatism.
. . . “K Street conservatism” compounds unseemliness with hypocrisy. Until the Bush administration, with its incontinent spending, unleashed an especially conscienceless Republican control of both political branches, conservatives pretended to believe in limited government. The last five years, during which the number of registered lobbyists more than doubled, have proved that, for some Republicans, conservative virtue was merely the absence of opportunity for vice.

Read the entire piece.

A benign regulation that distracts from mischief

Posted on by
Reply

SEC_SEC2.jpgInasmuch as I am critical of the SEC in this earlier post today, it’s only fair to compliment the agency for one of its regulatory initiatives that could have a beneficial impact.
This NY Times article reviews the SEC’s new proposed rules on disclosure of executive compensation, which — even though the new rules address a problem that probably would not break the top 20 in current corporate governance problems — could work to keep the SEC busy from pursuing more damaging regulatory actions. Larry Ribstein has the most insightful comments on the proposed new rules (here, here and here) and points out the possible mischief-saving nature of the SEC initiative:

By focusing on executive compensation disclosure, [SEC chairman] Cox manages to get a big pile of political capital from the pro-regulatory populists, while at the same time causing relatively little harm compared to many other things he could be doing. . . . .[D]isclosing executive compensation is probably . . . not going to be hugely costly. If it deters abuses, that’s not so bad. Meanwhile, maybe Cox can use the political capital he gains from this move to meaningfully shrink regulation.

What’s exactly so “ugly” about the Bags-Stros situation?

Posted on by
Reply

JeffBagwell6.jpgWhy do some media reporters make up disputes where none exist in connection with an already newsworthy story?
In his most recent column, Chronicle columnist Richard Justice updates the status of Stros firstbaseman and future Hall-of-Famer, Jeff Bagwell. As regular readers of this blog know, the Stros situation with Bags is a tad difficult at this point. Bags is at the end of his career and is a shadow of his former stature due to a chronically arthritic right shoulder that prevents him from throwing a ball effectively. The Stros backloaded Bags’ most recent contract so that he will receive approximately $24 million in this final season of the contract ($17 million in salary and $7 million to buy out an option for next season). That’s far in excess of Bags’ value as a player at this point, but what the heck — you win under some long-term contracts and you lose under others.
Inasmuch as Bags is probably no longer capable of being an every-day player, the Stros prefer to work out a settlement with Bags under which the club would declare Bags disabled under the club’s disability insurance policy, the club and the insurer would either litigate that claim or settle it, the club would pay Bags his $24 million and Bags would retire as the greatest player in club history. Bags, for his part, states publicly that he would prefer to play out this season, but he has to say that because saying that he cannot and retiring is the only way that he would not be entitled to recover the $24 million that the Stros still owe him under his contract. For their part, the Stros have never said or done anything that indicates that they would not pay the balance of Bags’ contract according to its terms.
While discussing all of this, Justice illogically criticizes the Stros’ desire to declare Bags disabled and make a claim on the club’s disability insurance policy, and then observes as follows:

Before this gets ugly ó and it could get ugly as each side presses its case ó the signing of veteran outfielder Preston Wilson indicates where the Astros believe this is headed.

So, what’s “ugly” about the situation? That the Stros prefer to settle up with the best player in club history rather than have him languish on the bench for a season as an over-priced pinch-hitter? What would be ugly would be for the Stros to use a disabled player in their everyday lineup simply because the club doesn’t want to eat his contract. Rather than being critical of the club, Justice should be complimenting the Stros for not doing just that.

The SEC protects Carl Icahn, too

Posted on by
Reply

icahn2.jpgIt’s a pretty sure sign that securities regulators do not have enough to do when they are busy trying to protect the likes of Carl Icahn.
As noted in this earlier post, Icahn was outmaneuvered in late 2004 by New York-based Perry Corporation in connection with Mylan Laboratories’ bid for the generic drug maker, King Pharmaceuticals. Icahn — who owned a bit less than 10% of Mylan — pursued his typical strategy of attempting to extract some ransom from Mylan’s takeover bid by opposing the company’s bid for King.
But Perry’s moves in connection with the proposed deal made Icahn look totally 1980’s in comparison. Perry owned a big chunk of King shares and would have made around $28 million if Mylan’s bid had been successful. However, in making its play, Perry set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that the block of Mylan’s voting equity that Mylan controlled (which was just a tad larger than Icahn’s) had limited exposure to fluctuations in Mylan’s share price. Perry accomplished this by buying its stake in Mylan while having Bear Stearns and Goldman Sachs “short” the same number of shares.
Well, as the earlier post indicated, Perry’s moves outraged Icahn, who filed a lawsuit and started sounding as if he was the spokesman for CALPERS’ shareholder activist committee. Alas, Mylan’s bid for King collapsed, Icahn dropped his lawsuit and most folks thought that was the end of the entertaining match of wits between well-heeled investment types.
But not so fast. Perry disclosed to its investors this week that the SEC recently sent a Wells notice to Perry informing the hedge fund that the agency is considering a civil enforcement action over the fund’s Mylan-King hedging strategy. According to Perry’s disclosure, the SEC’s enforcement division is recommending that the agency accuse Perry of violating the antifraud provisions of securities laws, which require large investors to disclose pertinent financial information about their holdings. Perry is currently preparing a response to the Wells notice — called a “Wells submission” — in which the firm will challenge the basis of the SEC’s proposed action against the firm. That’s not surprising given that Perry’s hedging strategy in regard to Mylan-King deal was utterly transparent and reported in the business sections of virtually every major media outlet.
In the meantime, however, we can all rest more comfortably with the knowledge that the SEC is protecting Mr. Icahn. He has created a tremendous amount of shareholder wealth over his long career. It’s nice to see that the SEC is actively protecting him in his twilight years when he really needs it. ;^)