Daily Archives: April 26, 2007

Applying the Apple Rule

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My, what a flurry of activity with regard to Apple.

First, the San Jose Mercury News reports last weekend that Apple CEO Steve Jobs appeared to be in the clear of the risk of criminal charges in regard to the investigation into backdating of stock options at Apple.

Next, on Tuesday, Dealbreaker’s John Carney noted that two former Apple executives in the crosshairs of the SEC’s parallel investigation — general counsel Nancy Heinen and CFO Fred Anderson — are taking very different approaches to dealing with the investigation.

On one hand, Heinen is fighting the SEC charges, while Anderson has settled up with the SEC.

But then, in a somewhat unusual development in such matters, Anderson proceeded to issue a public statement that appears to contradict Jobs’ story that he didn’t really understand the implications of this whole backdating thing.

Finally, after all this, Apple’s stock price went through the roof on Wednesday on the heels of strong second quarter earnings.

So, leave it to the originator of the Apple Rule to size up the possible implications of these events:

Indeed, it may be that all this backdating stuff really is all about stock price. When the alleged backdating was going on at Apple, the stock was hovering at around 20. Under several more years of Jobs leadership, it’s up over 90. Backdating could bring it back to 20.

No free speech in Beaumont?

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In this WSJ Law Blog post, Paul Davies of the WSJ Law Blog passes along this Chronicle article about Beaumont plaintiff’s attorney Brent Coon issuing a subpoena to the editor and a reporter of a new weekly paper called the Southeast Texas Record, which is bankrolled by the U.S. Chamber of Commerce Institute for Legal Reform in Washington to promote an tort reform agenda (the Chronicle’s Mary Flood has more). Coon’s purpose in issuing the subpoena is that he believes that the editor and the reporter of the newspaper were attempting to taint jurors in one of his pending asbestos cases with regard to the newspaper’s April 2 inaugural issue. “This shameful propaganda machine is deceptive and demonstrates a willingness to misrepresent fact,” Coon complained as he was charging that the editor and reporter might have committed a “criminal act.”
Sounds as if Mr. Coon is better at pursuing plaintiff’s cases than Constitutional Law. The editor and the reporter’s writings are clearly protected free speech under the First Amendment. Not even a close call. Even in Beaumont.

Making sense of the subprime markets

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subprime%20042607.jpgIn this WSJ ($) op-ed, American Enterprise Institute fellow Ted Frank provides a particularly lucid explanation of the many benefits of the markets relating to subprime mortgages and the absurd nature of the attempt by some plaintiffs’ firms to extract some ransom from some institutional investors in those markets. While reviewing how certain members of Congress refuse to allow their ignorance to stop them from attempting to make matters worse, Ted asks:

“Shouldn’t at least one of the two political parties have someone heading up the House Financial Services Committee who understands financial services?”

Meanwhile, Michael Lewis asks three common sense questions in regard to the allegations of wrongdoing in regard to subprime mortgages:

1) If the subprime home-loan market was a cynical conspiracy, why did so many of the putative conspirators wind up taking so much of the risk? [. . .]
2) Why does the most financially obsessed and presumably well-informed character on earth, the American Investor, insist on playing the fool? [. . .]
3) Why in this new drama is it so easy to imagine borrowers in a different role, other than the one in which they are currently cast: The Victim? [. . .]

Messrs. Frank and Lewis both hit on an important characteristic of American markets in general and the subprime markets, in particular. The U.S. mortgage market is the most efficient in the world largely because it is the most securitized. Banks don’t need to take the risk that doomed many of them back in 1980’s when they commonly held on to home mortgages that they originated. Now, banks sell them into the bond market to institutional investors who disperse the risk to those who can afford to take it.
Interestingly, a strong case can be made that the mortgage-backed securities markets is a descendant of the liquidity crunch in home mortgage lending that resulted from the savings and loan crisis of the 1980’s, Just as Congress had a big hand in causing the S&L debacle, the current Congressional crusaders are threatening the markets that corrected the 1980’s downturn in home mortgage lending.