Billy Goldberg, R.I.P.

Billy Goldberg.jpgLongtime Houston businessman and Texas Democratic leader Billy Goldberg died this past weekend at the age of 90. The Chronicle story on Billy’s life and death is here.
Billy was one of the many colorful larger-than-life characters who I have had the privilege of getting to know while practicing law in Houston over the past 27 years. A well-known Democratic Party activist for much of his life, Billy was in his late 70’s when I first met him. By that time, he had put most of his political activities aside to concentrate on business interests.
Billy was a risk-taker in business, so he had his share of financial and legal challenges. Eight or nine years ago, when he was in his early 80’s, Billy called me to help him work out a particularly complex jumble of business and legal problems. After a long but delightful meeting in which Billy laid out his problems in between anecdotes about LBJ and John Connally — and reminding me of possible help that he could receive from Clinton Administration officials — I presented a couple of alternative strategies, one of which was simply to pull back and prepare for retirement:

“Billy, you’re in your early 80’s,” I reasoned. “This approach would allow you to retire comfortably. Doesn’t that make most sense at this point in your life?”
“No, Tom, I don’t think so,” replied Billy with a wry smile. “The way I see it, I’ve only got six or seven more years of really good income-producing potential before I think about retiring. I don’t want to waste that potential!”

Six or seven more “really good income-producing years” after the age of 80? I just hope I have a fraction of Billy’s energy if I reach my early 80’s! Rest in peace, friend.

The intrigue of the NFL Draft

reggiebush-usc07b.jpgThis NY Times article from over the weekend discusses the ups and downs that prospects endure in the run-up for the annual National Football League draft, but even that did not prepare me for this:

For the first time, there is legitimate reason to think that USC running back Reggie Bush is not going to be wind up in Houston, the city that currently holds the No. 1 overall pick.
This does not come from one source or from one team. This comes from multiple sources, from across the league, without any agenda to push.
The mounting evidence includes this:
As of Monday, the Texans had not had any contract discussions with Bush and his representatives. None.
Yet the Texans have approached North Carolina State defensive end Mario Williams, trying to see if he would be receptive to discussing a deal.
But the evidence goes beyond contracts. When Bush was in Houston, a certain segment of the organization never introduced itself to the running back. This might not be unusual, but if the organization was convinced it was taking a certain player, it should be rolling out the welcome mat with everyone trying to make the player feel as at home as possible. This, according to those who know Bush, did not happen.

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Oil settles at over $70 per barrel

oil_well19.jpgCrude oil closed above $70 a barrel yesterday for the first time despite the fact that U.S. oil inventories are at their highest levels in nearly eight years. Thus, this current price spike appears to be a reflection of a new phenomenon — investment in oil futures driving higher prices rather than the typical principles of supply-and-demand.
The U.S. is the world’s largest oil market, generating almost a quarter of world demand of about 85 million barrels a day. U.S. benchmark oil for May delivery settled at a record of $70.40 a barrel yesterday on the New York Mercantile Exchange, up $1.08 a barrel. Although oil prices are up almost 15% for the year, the inflation-adjusted record price for oil remains the April 1980 price, which equates to $97.21 in 2006 dollars. Yesterday’s price came after the U.S. Energy Department reported last week that commercial crude-oil inventories had risen to 346 million barrels, the highest level since May 29, 1998. At that time, the crude-oil market was about to crash and, by the end of 1998, prices fell below $11 a barrel from an average of over $18 in late 1997.
The seeming contradiction of rising prices and inventories probably is best explained by concern over supply constraints in Iraq and Nigeria and the steadily increasing demand in large countries such as China and India. As a result, investors are flocking to oil markets where it is currently estimated that investment managers are holding between $100 to $125 billion in commodities investments, which compares to less than $10 billion in such investments back in 2000. That level of investment indicates that the market is betting that demand for oil will continue to rise under tightening supplies.
For over a year now, the three-year bull market in oil has resulted in what energy traders call “contango” — i.e., futures contracts for a given product are priced substantially higher than that same product for near-term delivery. As a result, it pays to buy and hold oil now to sell it later at the higher price. “Backwardation” is the opposite of contango and occurs when near-term prices are higher than long-term contracts. That market condition would prompt buyers to dump inventories, which would in turn dampen prices considerably.
For more expert views on the current spike in oil prices, check out James Hamilton (also here and here) and the Oil Drum.

UH Law Center Dean Rapoport resigns

dean rapaport.jpgUniversity of Houston Law Center Dean Nancy Rapoport resigned yesterday. This Chronicle article on the resignation suggests that the resignation was prompted by a stormy meeting last week in which the Dean was criticized by students and faculty for, among other things, a drop by the UH Law Center of almost 20 places (from 50 to 69) over the past four years in U.S. News & World Report rankings of U.S. law schools. Christine Hurt over at Conglomerate provides perspective on Dean Rapoport’s tenure at UH.
I do not know the reasons for Dean Rapoport’s resignation, but if it is truly a result of criticism over the drop in the U.S. News & World Report rankings, then the critics ought to be ashamed of themselves. True experts in law school evaluation have long considered the U.S. News rankings as highly defective and misleading. University of Texas Law Professor Brian Leiter, who authors a much more well-reasoned and objective ranking of U.S. law schools than the U.S. News rankings, currently ranks the UH Law Center faculty as the second-best of Texas law schools (behind only UT) and better than the faculties of the law schools at SMU and Baylor, both of which are ranked higher than UH in the U.S. News rankings.

TSU cans Slade for cause

slade4.jpgThe Board of Regents of Texas Southern University voted Monday to terminate the employment of embattled TSU president Priscilla Slade for cause after an outside law firm’s report concluded that Slade and TSU’s former chief financial officer had violated TSU policy regarding reimbursement of hundreds of thousands of dollars of Slade’s expenses. The prior posts on the Slade affair are here.
Slade’s problems began in January after she had moved into a new home near Memorial Park. Slade billed TSU for $86,467 in home furnishings, $138,159 in landscaping services and $56,010 in security-related equipment for the new home. After regents questioned certain of the expenses, she reimbursed the university for the landscaping expenses, which Slade contends she always planned to pay but which TSU employees mistakenly paid. However, a report by Bracewell & Giuliani — the outside law firm that the board hired to conduct an investigation into Slade’s expenses — found that Slade authorized the landscaping work without knowing how she would pay for it and without prior approval of the board. The law firm concluded that Slade initially intended for the university to cover the costs.
Of course, it didn’t help Slade that TSU’s former CFO who actually signed the checks for the reimbursements to Slade has a criminal background stemming from passing hot checks several years ago. No one has explained to date how the former CFO got the position at TSU in the first place.
The DA’s office continues to investigate the matter.

Simmons on the NBA

nbalogo.jpgAs noted in earlier posts here and here, it has been rather easy for Houstonians to ignore the NBA generally because the local team — Houston Rockets — has been mediocre over the past decade or so, although at least some recent management decisions look encouraging.
Thus, when I want to know what’s going on in the NBA, I usually just check in on ESPN Page 2 columnist Bill Simmons, whose latest column on the NBA provides about a fine overview on the season to date.
Simmons — who also penned this hilarious column on the Texas-USC National Championship football game — is one of the most entertaining and insightful sports columnists on the scene today. Check him out.

Gretchen Morgenson’s worst nightmare

morgensongretchen.jpgFor years, NY Times business columnist Gretchen Morgenson was able to publish her columns about the morality plays of greedy and conniving American businesspersons without critical analysis, save for an occasional letter to the editor.
But the blogosphere has changed all that. Now, sharp analysis of columnists’ views is available almost immediately for all the world to review and absorb. In particular, Larry Ribstein is exposing the vacuous nature of Ms. Morgenson’s columns, the latest of which is this column on John Bogle’s proposal to require disclosure of fund manager compensation. Professor Ribstein comments on Ms. Morgenson’s relentless bashing of what she perceives as excessive executive compensation:

While we’re constructing conspiracy theories about the incentives of all kinds of business people we might ask about Morgenson’s incentives. As I’ve discussed, Morgenson has an incentive to entertain readers, not inform. So she constructs the most entertaining scenario ñ a conspiracy of silence about mutual fund manager pay. Then it’s off to the races, manipulating every argument so that it fits the plot.
Because I find Morgenson to be such a particularly shining example of distortion of business issues by prominent business writers, I’ve decided to institute fisking of her columns as a regular feature of this blog. So after you curl up with the Sunday New York Times, be sure to tune in here for the real story.

Criminalizing the right to counsel

kpmg logo40.jpgThis earlier post examined the Justice Department’s policy under the controversial Thompson Memo to threaten to go Arthur Andersen on companies that fulfill an obligation to pay defense counsel for current or former employees who are under criminal investigation or indictment by the DOJ.
According to the Thompson Memo, the DOJ expects companies under investigation to surrender any right against self-incrimination and to cut their accused employees adrift. The memo is incredibly bad public policy in that it now places a business executive on notice that even seeking legal counsel from company counsel could later be used against the executive in court as evidence that the executive knew what he or she was doing might not be proper. Under those circumstances, what rational executive would seek legal advice from company counsel in the first place?
Now, this Lynnlee Browning/NY Times article reports on U.S. District Judge Lewis Kaplan’s decision to conduct a hearing in the criminal case against the former KPMG partners who the firm served up as sacrifical lambs in connection with the DOJ’s probe of KPMG in connection with the firm’s creation and promotion of allegedly illegal tax shelters. Judge Kaplan is clearly troubled by the DOJ’s pressure on the accounting firm to stop paying the defense costs of the former KPMG partners. Peter Lattman (here and here), Ellen Podgor (here and here) and the Wired GC also comment on this development.
Although the DOJ attempted to characterize KPMG’s decision to cut off support for a former employee as “voluntary,” it appears that Judge Kaplan has seen that ruse. As a practical matter, few CEO’s or corporate boards will risk becoming the next Arthur Andersen by not cooperating with the DOJ, so the “cooperation” that the DOJ “suggest” under the Thompson Memo is hardly optional. In an earlier hearing in the KPMG case, when Judge Kaplan questioned the fairness of pressuring companies to throw their employees into the grease, the Assistant U.S. Attorney handling the hearing replied that companies are “free to say, ‘We’re not going to cooperate.'” Judge Kaplan replied: “That’s lame.”

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It’s 2006 Shell Houston Open Week

shologo6.gifThis is Shell Houston Open week, and this year’s tournament is a particularly interesting edition of the venerable local stop on the PGA Tour.
As noted in this earlier post, the SHO is still recovering from a series of dubious decisions and unfortunate circumstances that have combined to place the tournament well out of the elite, non-major events on the PGA Tour. In an attempt to elevate the tournament’s stature, the Houston Golf Association — the local organization that manages the event — is putting on the tournament for the first time at its new home — the Rees Jones-designed Tournament Course at Redstone Golf Club. Moreover, next season, the tournament moves to a new date on the PGA Tour schedule in the slot on the Tour schedule the weekend before the Masters Tournament, which the HGA believes will be a superior date to the current one, which is plagued by the best players taking time off after the run-up to the Masters and before the U.S. Open in June.
The field this year certainly validates the HGA’s concern over the current date of the tournament. Only two players with top 10 World Golf rankings are playing — defending champ Vijay Singh (No. 3) and David Toms (No. 7) — and only ten others in the top 60 in the World Rankings are showing up: 2005 tournament runner-up John Daly (No. 50), No. 17 Darren Clarke, No. 30 Padraig Harrington, 1999 champion Stuart Appleby (No. 32), No. 38 Mike Weir, No. 42 K.J. Choi of The Woodlands, No. 44 Brandt Jobe, No. 47 Justin Leonard, No. 49 Greg Owen and No. 52 Lucas Glover.
Moreover, Chad Campbell (No. 14), the best Texas player on the PGA Tour this year, is not playing in his home state this week, and local favorites Steve Elkington and Fred Couples are not playing this week, Elk because of injury and Couples because, well, the SHO is not currently worth troubling with two weeks after the Masters. So, the HGA certainly has its work cut out for it over the next several years in attempting to sell the new course and the new tournament date to a currently skeptical bunch of top PGA Tour members. Although I have my doubts that the SHO will be as successful at Redstone as the HGA desires, I hope I’m wrong because Houston is a wonderful golfing community that deserves a top-flight PGA Tour event.
The following links will provide you with useful information on this year’s SHO tournament, which will be televised next weekend in the afternoon by CBS and on Thursday and Friday afternoons on USA Network:

My review of the Tournament Players Course at Redstone, including a my FilmLoop photo loop and this Chonicle/Doug Pike review of the new course.

The Shell Houston Open website where you can buy and print passes to the tournament.
A good friend who will be particularly missed during this year’s tournament.
The consequences of bad decisions regarding the SHO and the impact of next year’s new date for the tournament.
And what would golf be in Texas without a little of Clear Thinkers favorite, Dan Jenkins.

The Great Waste

Skillingheadshot.jpgGreenberg23.jpgAs noted earlier here, I was able to attend the Lay-Skilling trial for several hours on a couple of afternoons this past week. As I watched Jeff Skilling defend himself against criminal charges amidst the overwhelming societal bias that exists today regarding anything having to do with Enron, one thought kept knawing at me — the enormous waste caused by the government’s policy of criminalizing corporate agency costs.
As noted in this earlier post on the high price of asserting innocence, the known direct costs of the Lay-Skilling trial are sizable. The defense costs are currently in the $75 million range and the cost of the prosecution is at least that high, probably more. Skilling’s remaining net worth — around $50 million — has been frozen by the government, so that wealth has been stagnant for almost three years now. Defending themselves against criminal charges that could put them in prison for the remainder of their lives has been a full-time job for Skilling and Lay, so another cost is that neither of these undeniably-talented businessmen has been in a position to create wealth or jobs for well over three years now. Add in the horrific cost attributable to the Enron Task Force’s dubious decision to prosecute Arthur Andersen out of business and you have quite a direct expense ledger.
However, as enormous as those direct costs are, the indirect costs of criminalizing bad business judgments dwarfs the direct ones. Whether management makes such judgments correctly is a fundamental risk of business ownership. Criminalizing that risk — through the prism of hindsight bias — will simply make executives in the future less likely to take the risks necessary to build wealth and create jobs while not deterring in the slightest the Andy Fastows of the world from embezzling money. Business owners deserve protection from theft, but not from risk taking, and it’s not clear that government prosecutors know — or even care about — the difference.

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