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Monthly Archives: March 2009
Henderson on the Nature of Government
David Henderson makes an insightful point about the Ryan Moats/Robert Powell run-in in Dallas last week in which Powell (the policeman) exhibited an utter lack of common sense, much less prosecutorial discretion (and this incident is apparently not the first time that Powell has exhibited this type of behavior):
So what is the essence? The issue of control. Read the abridged transcript of the interaction or, better yet, watch the whole 20-minute video. What comes out loud and clear is that the policeman was upset because the driver, Ryan Moats, tried passionately to tell him the nature of the emergency, whereas what Robert Powell saw as being primary was that Moats wait patiently while Powell wrote him a ticket. Even once a nurse came out from the hospital and assured the policeman that Moats’s mother-in-law was dying, Powell, writing the ticket, said, "I’m almost done." Must get that ticket written no matter why Moats jumped a red light. [. . .]
This is the nature of government whether the government employees are policemen with guns on their sides or sometimes in their hands or are teachers in government-financed schools. The whole Powell-Moats incident reminds me of a passage from Steven E. Landsburg’s book, Fair Play: What Your Child Can Teach You About Economics, Values, and the Meaning of Life. Landsburg tells of the propaganda his daughter Cayley’s teachers subjected her to about the importance of not letting the water run when she brushed her teeth. Landsburg writes:
[. . .]
Where is the pattern, then? What general rule compels us to conserve water but not to conserve on resources devoted to education? The blunt truth is that there is no pattern, and the general rule is simply this: Only the teacher can tell you which resources should be conserved. The whole exercise is not about toothbrushing; it is about authority.
The Moats-Powell incident is a micro example of the government’s proclivity to exert power arbitrarily. That essential nature is being largely ignored as the Obama Administration runs headlong into seeking even greater governmental regulation over broad sectors of the economy.
Given that one of the clearest lessons of the 20th century is the capacity of large government to cause unspeakable evil, any effort to centralize more power in the federal government should be subject to the most careful scrutiny and not the type of superficial posturing that Congress has exhibited to date.
Count me as not confident that Congress will oblige.
It’s 2009 Shell Houston Open Week
The Shell Houston Open has finally arrived as a big-time PGA Tour event.
After an ugly divorce from The Woodlands, and a difficult transition period in which most of the best PGA Tour players avoided the event, the 2009 tournament has attracted the best field in the history of the event and one of the top fields of the PGA Tour season to date. Although Tiger Woods will be tuning up in Florida for the Masters next week, 15 of the top 20 players (and 21 of the top 30) in the World Rankings will be playing, including No. 2 Phil Mickelson, No. 3 Sergio Garcia, No. 5 Padraig Harrigton and No. 6 Vijay Singh.
The first Houston Open was in 1922 and the tournament is tied with the Texas Open as the third oldest non-major championship on the PGA Tour behind only only the Western Open (1899) and the Canadian Open (1904). This is the fourth Houston Open to be played on the Tournament Course at Redstone Golf Club and the seventh event overall at Redstone, which hosted its first three Houston Opens on the club’s Jacobson-Hardy Course while the Tournament Course was being planned and built.
This is the SHO’s third year of being played the week before The Masters and, despite Woods’ policy of not playing the week before major championships, the strong field is confirmation that the SHO’s move to the pre-Masters date was the right one. The Houston Golf Association has done a good job of promoting the tournament with Tour players by grooming the Tournament Course in a manner similar to Augusta National, but the course is actually a flat-land course that bears little resemblance to the hilly venues of Augusta.
Even with its superior conditioning, the Tournament Course is a favorite of neither players nor spectators. The course actually has a nice variety of interesting holes, but the routing of the course is a disaster, with 16 of the holes separated by a long walk and a drainage ditch from the 1st and 18th holes, the driving range and the clubhouse. Unfortunately, there is not much the Houston Golf Association can do about that routing problem, so let’s just hope that the course’s superior conditioning and the SHO’s attractive tune-up date for The Masters keeps persuading the top players to overlook the routing problem.
Although I’ve had my doubts that the HGA would be able to turnaround the SHO at Redstone, I’m happy to be wrong on that score. Houston has a rich golfing tradition and the HGA is a fine charitable organization that worked miracles in reviving the tournament during its 20-year run in The Woodlands. It’s going to be a great week at Redstone, so sit back and enjoy the SHO!
Our Congress at work
I swear, you can’t make this stuff up.
As regular readers of this blog know, I thought the federal bailout of AIG and various other Wall Street firms was a bad idea from the start because it prevented our bankruptcy system from allocating the risk of loss among the creditors of the financially-troubled firms.
Nevertheless, after various forces stoked a climate of fear, Congress approved broad bailout legislation even though it was clear at the time that few of the legislators understood what they were approving.
Not surprisingly, various large creditors of the financially-troubled firms did very well for themselves under the bailout legislation. Can’t blame them for protecting their shareholders’ interests, now can you?
So now, confronted with the fact that the bailout primarily benefited these large institutional creditors, various members of Congress and New York AG ("Attorney General" or "Aspiring Governor," take your pick) Andrew Cuomo are starting investigations into why AIG did precisely what it was supposed to do — i.e., pay its bills — with the bailout funds.
A little late, don’t you think?
Collision
Here is the trailer for Collision, the new Darren Doake-directed documentary about the series of debates and conversations between Christopher Hitchens and Douglas Wilson over the existence of God. Interestingly, Hitchens and Wilson became quite good friends during their travels and debates. The early reviews of the documentary indicate that it is even-handed and very well done.
Losing the grip on AIG
The business blogosphere was abuzz yesterday over publication of AIG executive Jake DeSantis’ remarkable resignation letter to AIG CEO, Ed Liddy.
But what was even more remarkable was the reaction of some commentators that makes abundantly clear that common sense often evaporates in the face of big money.
DeSantis is a longtime AIG executive who worked for one of AIG’s profitable units. When AIG was going down the tubes last year because of losses incurred in the company’s untethered CDS trading unit, DeSantis agreed to stay on at a nominal salary and continue making profits in his unit in return for a substantial, but not over-market, bonus.
Such arrangements are not unusual for financially-troubled companies and might very well have been arranged even had AIG gone into a chapter 11 reorganization rather than become the subject of an ill-advised government bailout. In short, it’s a good thing for creditors of AIG — including now U.S. taxpayers — that the company retain people such as DeSantis who might make the company profitable and valuable again.
Or course, we all know what happened when AIG disclosed publicly that it had made the bonus payments to DeSantis and other AIG executives. They were demonized in a manner that has not been seen since Enron.
DeSantis’ resignation letter lays this all out and notes the indisputable hypocrisy of AIG executives and government officials who knew about these compensation arrangements, but who flamed the public uproar rather than provide the quite simple and reasonable explanation for the bonuses.
I mean really. Who could argue that DeSantis and the other similarly-situated AIG executives were treated in an abominable manner?
Well, up to the plate steps one Brian Montopoli, a CBSNews.com political reporter, who establishes beyond any doubt that he needs to remain a political, rather than business, reporter:
Mr. DeSantis is not a plumber. He is a Wall Street executive who has made millions of dollars. And it’s safe to assume that most plumbers don’t believe he has gotten a bad deal, AIG scandal notwithstanding.
In essence, Montopoli reasons that other people are working just as hard as DeSantis and they would gladly trade places with him if they could have made as much scratch as he has earned over the years. Given that DeSantis made a lot of money while he was at AIG, Montopoli thinks he is "tone deaf" for pointing out the injustice of being unfairly demonized and cheated out of the compensation that was promised to him in return for staying on at AIG under extremely difficult circumstances.
In short, those evil capitalist roaders deserve most of our scorn and they should just shut the hell up.
In the face of such addled reasoning, it’s hard to know where to begin. But let’s start by pointing out that Montopoli ignores the rather important fact that no one has stopped him or anyone else from attempting to compete with DeSantis in his area of business and make just as much money as he has over the years. The reality is that there are relatively few people who do what DeSantis does well. That’s why he commands a larger salary than most of us.
The fact that DeSantis makes more money than we do doesn’t mean that it’s OK to screw him out of his compensation or that he shouldn’t be heard to set the record straight when such an injustice takes place.
Say what, Richard Justice?
The Chronicle’s primary sports page columnist, Richard Justice, is gushing over the Houston Rockets’ management now that the local club has seized first place in the NBA’s Southwest Division going into the last ten games of the regular season:
[Rockets General Manager] Daryl Morey has been perfect. Two years ago, he took over a playoff team, a team that had just won 52 games, and he did something remarkable with it.
He made it better. He did it without having a high draft pick or spending on a big-ticket free agent. He just evaluated talent better than some other teams evaluate it.
His hiring is a tribute to Rockets owner Leslie Alexander, too. Actually, everything the Rockets do begins with Alexander. [ . . .]
He’s this city’s best owner by miles, . . .
Of course, this is the same Richard Justice who less than two years ago was derisively calling Alexander "Clueless Les" and Morey "Boy Wonder."
So, which is it, Richard?
Well, the reality is neither.
Alexander has actually been a quite mediocre owner who had the good luck to inherit a strong roster when he bought the team. That group promptly won two straight NBA titles for Alexander in the mid-1990’s.
However, under Alexander’s management, the Rockets now have failed to win a playoff series in 12 straight seasons. That is a streak of futility that is matched by only a few other NBA teams.
Although Justice didn’t think so at the time, Alexander does appear to have made a good decision in hiring Morey, who has rebuilt the Rockets’ roster over the past two seasons despite having to deal with Tracy McGrady’s bloated contract. But geez, can’t we at least have a playoff series victory before deeming Morey the basketball version of Billy Beane?
How did someone such as Justice — who lacks any meaningful ability to analyze sports — become the Chronicle’s top sports columnist?
Houston golf is a bargain
As I’ve noted several times over the years, the value of Houston-area golf courses is often under-appreciated by golfers in other parts of the country. In this Golf.com Press Tent blog post , Gary VanSickle indirectly highlights one of the major reasons that Houston golf is under-appreciated:
You tell me what’s wrong with this picture. I flew into Miami International Airport . . . and thought I’d stop in at the Melreese Golf Course, a municipal track operated by the city of Miami. It’s basically just down the street from the rental car lots in an area that is not well-off — most of the neighborhood’s homes have bars over the windows.
It’s noon. It’s a Monday. It’s beautiful — 82 degrees, light wind. The course looks to be in outstanding condition, especially for a muni. When I ask if I can play a few holes, I’m told, sure, the course is wide open. In fact, it is all but deserted.
The girl working the register asks if I’m a Florida resident. Nope. She rings up my greens fee. That’ll be $158. What, I say? State residents play for $78, non-residents are $158. Do you have a nine-hole rate, I ask? No. I totally understand trying to keep a public course available for use by local golfers. They should get a big discount. It’s their course. But this isn’t a local discount, it’s statewide? What good does that do? You think anybody is going to fly down from Jacksonville to golf Melreese when there are 1,200 other courses in the state? City residents should get the golf discount.
So I settle on hitting a bag of 60 range balls (that’s what the sign in the shop says) for $6. When I dump the bag out on the practice range, it doesn’t look like 60 balls. I count them. There are 47. I’m 13 short. That’s more than 20 percent I’ve been shortchanged. And while many of the balls looked white and shiny, too many of them just didn’t get up in the air and go, no matter how well I hit them. Mushy range balls are a fact of life in golf. Getting 20 percent less product than I was promised, that’s something else.
After I hit balls, I chipped and putted on the practice green (which was in very nice shape) for more than an hour. A couple of German guys who’d been hitting on the range did the same. They eventually left. So did I. I spent less than $10 at the course — I bought range balls, plus a drink and crackers. I gladly would have paid $80 to play, but not $158. So due to excessive pricing, the course got zero.
Melreese used to be an example of how to run a muni. Improved conditions usually brings more play, more golfers. I was there for 90 minutes and saw no one tee off. I saw a couple of twosomes, a threesome and a single already on the course. The old parking lot was closed due to construction of a new clubhouse and, I presume, a new cart barn.
Somebody has to pay for that. But it’s not going to be my $158.
What’s wrong with golf? Gee, I can’t imagine.
VanSickle could have hit the same number of range balls and played 18 holes at Houston’s venerable muni, Memorial Golf Course (which is a better course than Miami’s Melreese) for $42 if he took a cart, $31 if he walked. $15 more if he called ahead to reserve a tee time.
Getting a Grip on AIG
Geez. I leave the country for ten days on a European trip and, upon my return, the entire U.S. body politic appears to be going batshit over a couple hundred million dollars of performance bonuses that the now-thoroughly Enronized American International Group paid to its employees.
What on earth is going on here?
Well, Michael Lewis pretty well nails the dynamic in this Bloomberg.com article:
To the political process, all big numbers look alike; above a certain number the money becomes purely symbolic. The general public has no ability to feel the relative weight of 173 billion and 165 million. You can generate as much political action and public anger over millions as you can over billions. Maybe more: the larger the number the more abstract it becomes and, therefore, the easier to ignore. . . .
Of course, the 173 billion that Lewis refers to in the foregoing passage is the amount that the federal government funneled through AIG to Goldman Sachs and various other big AIG creditors.
Meanwhile, Goldman is feeling some of the shrapnel from the AIG-bonus explosion and has disclosed publicly for the first time the details of why it would not have really been damaged all that much by an AIG bankruptcy.
When the U.S. Treasury started throwing money at AIG in September, Goldman had already gathered from AIG $7.5 billion of collateral against insurance that AIG had written on a $20 billion portfolio of debt securities.
Moreover, Goldman arranged $2.5 billion in primarily credit derivative hedges on AIG because Goldman was betting that the value of the securities portfolio was substantially lower than AIG’s was betting.
Finally, Goldman received another $2.5 billion of collateral from AIG between September and the end of last year and the Fed transferred another $5.6 billion to Goldman to purchase the AIG-insured securities for the Maiden Lane III bail-out entity.
Meanwhile, Goldman continues to extract additional collateral on about $6 billion of securities that did not qualify for Maiden Lane III.
None of the foregoing is particularly surprising. Goldman is one of the world’s largest trading entitles and AIG is one of the world’s largest insurers, so it is inevitable that their affairs are going to be intertwined.
When the federal government caved to fears of a global financial calamity and bailed AIG out, Goldman secured its position in regard to AIG in a manner that was consistent with Goldman’s best interests. As Joe Weisenthal points out, it really doesn’t make any sense to get angry at Goldman for taking advantage of the federal government’s bad financial decisions.
So, let’s lay off the AIG bonuses — in the big scheme of things, they are innocuous. Similarly, let’s not hyperventilate over Goldman and various other AIG creditors taking advantage of the federal government’s dubious investment in AIG. If we are honest, then most of us would admit that we would have done the same thing had we been in the creditors’ position.
But let’s do start insisting that our representatives get out of the way and allow the market to force these creditors to endure the true cost of the risk that they took in entering into contractual relationships with AIG.
Until that risk of loss is properly allocated, investment capital is going to remain on the sidelines, particularly while the government continues to make ill-advised investments that postpones and distorts such allocation.
It’s already been an expensive lesson, but one that might well be worth the cost if the counterproductive nature of the governmental actions in regard to AIG comes to be better understood.
Leaving Florence at dusk
