Clear Thinkersí favorite basketball stathead Dave Berri knows. The answer may surprise you:
Drexlerís career averages top Kobeís marks with respect to shooting efficiency, rebounds, steals, blocked shots, and assists. And yet Kobe is considered by many to be the better player.
There appear to be three explanations for why Kobe is thought to be the better player. First . . . Kobe is the more prolific scorer. Of course, this is because Kobe leads Drexler in field goal attempts.
Another issue is that Kobe spent his career with the Lakers while Drexler played for Portland and Houston. In general, players for teams located in LA and New York tend to get more media exposure and therefore are thought of as better players.
And then there is the issue of championships won. People tend to think players on championship teams are better than those who toil for teams that tend to lose in the playoffs. Itís easy to point out the absurdity of such logic. Teams win championships and one can pick up a ring just because you happen to have the right teammates. After all, does anyone think Luc Longley (three titles) was a better center than Patrick Ewing (0 titles)? Or that Robert Horry (seven titles) was a better forward than Dominique Wilkins or Karl Malone (0 titles)? Despite such obvious arguments, people will note that Kobeís four titles must mean heís a better guard than Drexler (1 title).
Berri goes on to provide a fascinating analysis of the Olajuwon-Drexler-Barkley Rockets team of the mid-1990ís and explains how close that team came to being really good.
I attended the first game that Clyde the Glide played at the University of Houston as a freshman in the early 1980ís. I was amazed at his all-around talent from that first game and that was well before Drexler developed an outside shot, which he learned to do after he entered the NBA.
Drexler was an outstanding in all phases of the game. Itís pleasing that smart folks such as Berri are teaching us that such a well-rounded player is more valuable than the narrow scorers that NBA teams and their fans have traditionally coveted.
The Metropolitan Transit Authority has been in the news recently mostly because of a good, old-fashioned document-shredding scandal and yet another spectacular crash.
But the more important issue facing Houstonians is that Metro is preparing to force large swaths of the community — including the key Uptown area near the Galleria — to incur the enormous cost of enduring construction of its inefficient and impractical rail lines.
Bill King has spent a considerable amount of his time over the past several years studying Metro and Houstonís transit problems. In this devastating post, King finds that Metro is close to barreling completely out of any semblance of fiscal control:
There could hardly be a more fitting image for the close of the current Metro administration than the recent photographs for a wrecked Metro buses in front of Metro’s headquarters after having been broad-sided by Metro’s Main Street light rail.
The last six years are likely to be remembered as the most ruinous time for public transportation in Houston’s history as Metro has pursued a single-minded obsession to build its version of an at-grade rail system regardless of the cost, both in financial terms and in the degradation of the bus system on which over 100,000 Houstonians rely daily.
Fortunately, Mayor Parker has ordered top-to-bottom review of the agency. Here is what that review is likely to find.
Decline in Ridership. Since 2004, Houston population has grown by over 10% from just over 2 million to 2.25 million. At the same time gas prices rose 47% from $1.81 per gallon to $2.67 per gallon. These two factors should have virtually guaranteed an increase in transit.
However, exactly the opposite has occurred as bus boardings dropped almost 24% from 88 million in 2004 to 67 million in 2009. Instead of increasing bus service by 50% as it promised the voters in the 2003 referendum, Metro has slashed bus routes and increased fares by over 50%.
Today Metro actually operates 225 fewer buses than it did in 2003. An outside performance audit in 2008 found that on-time performance fell by 29% from 2004 to 2008.
Financial Disaster. Since 2003, Metro’s sales tax revenues have increased by 43%, rising from $357 million to $512 million. At the same time, its fare revenue increased by 41% from $42 million to $60 million by charging an ever dwindling ridership more.
Yet, Metro is in the worst financial shape in recent history. At year end 2003 Metro’s current assets exceeded its current liabilities by $125 million. The budget just adopted by the Metro board projects that it will have current accounts deficit of $165 million by the end of this fiscal year, a stunning loss of nearly $300 million in just five years.
Over the same period, Metro’s debt has swelled by nearly 50% from $546 million to $816 million. [. . .] In the meantime, the cost of the [Metro’s Light Rail Transit lines] has risen from the $1.2 billion originally estimated to something well in excess of $3 billion.
Metro is seeking to borrow $2.6 billion to build the LRT, over four times what it promised the voters would be the limit in the 2003 referendum.
Originally, Metro assured voters that it could build the LRT without tapping the mobility payments that are so critical to the Houston and the other member cities. Metro’s projections now show that it can only afford the LRT if those payments are terminated in 2014. [. . .]
In 2003, after a spirited public debate, this community approved, by a narrow margin, a consensus plan to enhance public transportation with a multi-modal approach. Part of that bargain was a limited experiment with a light rail system. The voters specifically limited the resources that Metro could devote to the light rail for fear that the cost might undermine the solid, dependable bus service that existed at that time. Metro’s leadership has shredded that contract with the voters in favor of its own grandiose vision of transit that has little to do actually solving Houston’s mobility problems. In the meantime, traffic congestion continues to get worse and working families that rely on public transportation to get their jobs everyday find riding Metro a more difficult and more expensive proposition.
Read King’s entire post. Metro’s defenders typically rely on the 2003 referendum as the primary basis for their continued support of such wasteful spending. But the problem with such referendums is that they ask voters to approve large public ventures such as Metro in a vacuum while ignoring Peter Gordon’s three elegantly simple questions regarding economic choices:
1) At what cost?
2) Compared to what? and
3) How do you know?
For example, assume for a moment that voters were informed of the fact that the average urban freeway lane costs about $10 million per mile and that the average light rail line costs over $50 million per mile while carrying less than one-fifth as many people as the freeway lane. And these are only average figures.
Moreover, let’s assume that voters were informed that the expenditure of a billion or so of public money on expanding a lightly-used light rail system has real consequences, such as leaving inadequate funds to make improvements to Houston’s infrastructure that would dramatically decrease the risk of death and property damage from flooding. Or whether the billion or so being flushed down the light rail drain would be better used to fix various area traffic “hotspots” where accidents or bottlenecks occur with high frequency.
No one knows for sure, but my bet is that voting results would be dramatically different if the foregoing costs and alternatives were included as a part of the referendum.
Unfortunately, the relatively small groups that benefit from these urban boondoggles have a vested interest in keeping that threshold issue from ever being re-examined. The economic benefit of light rail is highly concentrated in only a few interest groups, such as political representatives of minority communities who tout the political accomplishment of shiny toy rail lines while ignoring their constituents need for more effective mass transit; environmental groups striving for political influence; construction-related firms that feed at the trough of Metro’s poor investment decisions; and private real estate developers who enrich themselves through the increase in their property values along the rail line.
As Professor Gordon wryly-noted in another post: “It adds up to a winning coalition.”
Unfortunately, once such coalitions are successful in establishing a governmental policy subsidizing such boondoggles, it is much more difficult to end the public subsidy of the boondoggle than to start it in the first place.
None of these above-stated reasons for mass transit appeal to the vast majority of the electorate, so this amalgamation of interest groups continues to disguise their true interests behind amorphous claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable).
How do these interest groups get away with this? The costs of such systems are widely dispersed among the local population of an area such as Houston, so the many who stand to lose will lose only a little while the few who stand to gain will gain a lot.
As a result, these small interest groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying or simply taking the time to vote against an uneconomic rail system.
Metro’s rail system is a bad virus that has infected Houston. The cost of treating this civic virus is growing larger each month. Without immediate re-examination of Metro’s light rail plan, the increasing costs of this plan risk turning this currently manageable problem into a major civic fiscal crisis that could negatively affect the Houston area’s growth and prosperity.
As Bill King exhibits, real leadership involves recognizing that risk and addressing it, not indulging it.
Mike over at the Crime and Federalism blog (a good blog, by the way) thinks my explanation yesterday of Lehman Brothers’ controversial repo 105 transactions is bullshit.
Well, I’m as full of bullshit as anyone, but my sense is that Mike’s analysis is flawed. That’s not to say that the folks involved in reporting Lehman’s earnings to the marketplace after those repo 105 transactions didn’t commit fraud. I don’t know enough about the facts to know one way or the other.
The main point of my post is that a whole bunch of of executives, accountants, auditors, counterparties and governmental officials were swirling around Lehman at the time of these repo 105 transactions. As a result, the responsibility for any fraud is better allocated among the responsible parties in the civil justice system than in the criminal justice system, where guilt is adjudicated with a sledgehammer when a scalpel is more appropriate.
But one of the interesting aspects about Mike’s post is that he is very sure that he understands that Lehman committed fraud. So, let’s take a look at his example of what he thinks happened with regard to Lehman and the repo 105 transactions (my observations are in italics below each of his statements):
I ask you to invest $100,000 in my new business. You ask me how much money I have in my business account. I only have $5,000, but do not tell you this.
Okay, as my prior post noted, I concede that Lehman may have misrepresented its true liquidity position through the repo 105 deals.
I can sell everything the business owns (including all of our inventory) to a pawn shop for $100,000.
If Mike can sell all the assets of the business to a pawn shop for $100,000, then the business owns much more than $100,000 in assets. Pawn shops – much like the financial institutions with whom Lehman was dealing – do not engage in repo 105 transactions unless they are darn sure that they can liquidate the assets that they purchase for more than they paid if the seller breaches his obligation to repurchase the assets.
The pawn shop will sell me everything back for $105,000 if I come up with the money within 48 hours. They won’t even take possession of the property if I pay them within 48 hours.
I do not know of any pawn shop – or financial institution for that matter – that would be willing to leave property that they purchased in the hands of a financially-troubled seller, even for just 48 hours. Moreover, my understanding of the repo 105 transactions is that Lehman was not obligated to repurchase the asset for the sale price plus 5%. My understanding is that the “105” in repo 105 relates to the fact that financial institutions require property at least worth 105% of the purchase price that the financial institution pays the seller for the asset. I’m sure that Lehman’s counterparties required a steep fee for engaging in the repo 105 sales, but not 5% of the purchase price.
I make the “sale” to the pawn shop. I show you a copy of my bank statement. You can see that I have $105,000 cash in my bank account. I’m, in other words, liquid 100 grand. You loan me $100,000.
Here is where Mike is confused. Prior to taking the $100,000 loan, his company’s balance sheet actually looks a bit worse because of his sale to the pawn shop. The company has sold assets worth more than $100,000 in order to increase its liquidity to $105,000. No rational investor would make a $100,000 unsecured loan to a company with assets of only $105,000 cash that the investor would not have been willing to make when the company had $5,000 cash and over a $100,000 in non-liquid assets. But let’s play along with Mike to get to his main point. After the loan, his company now has $205,000 in cash with a $100,000 liability.
I buy my stuff back for $105,000. I now have, thanks to you and some quick accounting fraud, $95,000.
No, that’s only part of it. The company now has repurchased its assets that are worth over $100,000, it has cash of $100,000 and a $100,000 liability. So, the company’s balance sheet is pretty much the same had the investor made his loan when the company only had $5,000 cash and over $100,000 of non-liquid assets. The only difference is that the investor feels deceived because he would not have made the loan under those circumstances.
So, maybe Mike’s investor in the example above has a good fraud case against the company (I’m not sure that’s the best way for the investor to recover his loan, but that’s another issue). But maybe not, too. And the situation that Lehman faced was far more complex than Mike’s hypothetical and involved a large number of well-intentioned people who were attempting to find any loophole available to save Lehman.
And that’s no bullshit.
The big news in the business world at the end of last week and over the weekend was the publication of the examiner’s report in the Lehman Brothers bankruptcy case.
The mainstream media jumped all over the report as a precursor to criminal indictments of former Lehman executives because of allegations in the report (that’s all they are at this point) that Lehman used repo 105 transactions at the end of several quarters to make its balance sheet look more attractive than it really was.
Fancy that, executives trying to stem a run on a trust-based business!
Despite the gathering MSM lynch mob, the truth is that the examiner’s report is shaky grounds, at best, for criminal indictments against former Lehman executives.
As folks who are experienced in bankruptcy realize — but those who aren’t don’t — an examiner’s report is hardly an objective analysis of a debtor’s affairs. Bankruptcy examiners are highly incentivized to recommend as many legal actions against the debtor’s insiders and counter-parties as possible.
The fruits of those legal actions inure to the benefit of the bankruptcy debtor’s creditors, which is really the only constituency in most bankruptcy cases that really can effectively challenge an examiner’s compensation. As a result, feather nesting is not an unusual tactic of bankruptcy examiners.
Moreover, examiner’s reports in bankruptcy cases are far from dispositive. I haven’t read the Lehman examiner’s report yet, but I’m skeptical of the MSM’s initial rave reviews. The Enron examiner’s report met with similar early favorable reaction, but it turned out to be chock full of plain factual errors and dubious conclusions based on those errors.
For example, the MSM’s reporting of the examiner’s conclusions regarding the timing of the repo 105 transactions doesn’t make sense to me.
As I understand those transactions, they improved Lehman’s balance sheet by increasing its liquidity position at the end of several quarters through converting non-liquid assets to cash. When Lehman repurchased the assets after the date of the financial statement, the balance sheet didn’t change much except for showing less liquidity because the repurchased asset – which went back on the balance sheet after the repurchase – was probably worth more than the liquidity used to repurchase it (I seriously doubt that the sharpies who were dealing with Lehman as it was going down in flames were consenting to using Lehman’s trash assets in the repo deals).
At any rate, Peter Henning and Larry Ribstein have both done a good job of analyzing the main problem facing the Lehman insiders from a criminal standpoint. It is different and potentially more troublesome than the honest services wire fraud theory that was the basis of most Enron-related prosecutions. That is, the Lehman executives are subject to the provisions in the Sarbanes-Oxley legislation enacted after Enron’s bankruptcy that impose criminal liability on executives who falsely certify the (i) accuracy of the financial statements and (ii) absence of deficiencies in internal controls regarding the preparation of the financial statements.
By the way, although Henning’s analysis is quite good, his analogy of the repo 105 transactions to the Nigerian Barge transaction in the Enron-related criminal prosecutions is a stretch.
The Nigerian Barge transaction was a relatively small deal in which Enron — about an $80 billion market cap company at the time — sold its interest in the Nigerian barges to Merrill Lynch to make a $12 million profit at the end of the particular quarter.
On the other hand, the examiner alleges that Lehman was using repo 105 transactions to raise $35 – $50 billion of liquidity at the end of several quarters. Big difference.
Also, flying beneath the radar (as usual) is current Treasury Secretary Timothy Geithner and former Treasury Secretary Hank Paulson’s role in all of this.
As closely as Geithner (as head of the New York Federal Reserve) and Paulson (as Treasury Secretary) were monitoring Lehman during much of this time, it strains credulity that Geithner and Paulson didn’t have at least some idea of what Lehman was doing to make its balance sheet as attractive as possible. Both Geithner and Paulson were intimately involved in attempting to broker a Bear Stearns-type bailout of Lehman.
So, if Geithner and Paulson knew what was going on, then how on earth is the federal government going to single out Richard Fuld and other former Lehman executives for criminal conduct?
Which brings us to the real lesson of all this — that is, the inherently fragile nature of a trust-based business and the misguided nature of the notion that more governmental regulation will somehow protect investors from the next bust of such a business.
Larry Ribstein has been insightfully pointing out for years that more regulation of those businesses will not prevent the next meltdown, just as the more stringent regulations added under Sarbanes-Oxley after Enron’s collapse did not prevent Lehman Brothers from failing.
More responsive forms of business ownership certainly are a hedge to the inherent risk of investment in a trust-based business. But also helpful would be better investor understanding of the wisdom of hedging that risk and the importance of short sellers in providing information on troubled companies to the marketplace.
And as for criminal prosecutions? Unless there is evidence beyond a reasonable doubt of a crime, far better to allow the civil justice system allocate responsibility for Lehman’s failure among the multitude of potentially responsible parties. Professor Ribstein nails this point in the final paragraph of his post:
The lesson here is that pursuing high-profile criminal prosecutions in Lehman after the problems with such prosecutions in these situations proved so manifest in Enron would prove that after a decade of hugely costly trials and a massive new law that was supposed to change everything, we still haven’t learned a thing about the unsuitability of criminal liability for these kinds of cases.
Finally, Lawrence Kudlow and John Carney have an excellent seven-minute discussion below of the failure of governmental regulation in regard to Lehman:
Conrad Blackís prison routine allows him time to think and write, which is a good thing in view of the enormous waste that results from his dubious imprisonment.
This week Lord Black takes aim at the myth of American exceptionalism promoted in this recent Richard Lowry and Ramesh Ponnurus essay (Walter McDougall has examined the origins of this myth in detail in the first two books of his fine three-part series on American history). In challenging the myth, Lord Black takes dead aim at a common topic on this blog ñ the overcriminalization of American life:
The wages of this [Cold War] victory have included the stale-dating of the authorsí claim that America ìis freer, more individualistic, more democratic, and more open and dynamic than any other nation on earth.î It is more dynamic because of its size, the torpor of Europe and Japan, and the shambles of Russia.
But Americans do not do themselves a favor by not recognizing the terrible erosion of their countryís education, justice, and political systems, the shortcomings of U.S. health care, the collapse of its financial industry, the flight of most of its manufacturing, and the steep and generally unlamented decline of its prestige.
. . . Rampaging and often lawless prosecutors win 95 percent of their cases (compared to 55 percent in Canada), by softening the pursuit of some in exchange for inculpatory perjury against others, in the plea-bargain system. The U.S. has six to fourteen times as many imprisoned people as other advanced prosperous democracies, and they languish in a corrupt carceral system that retains as many people as possible for as long as possible. There are an astounding 47 million Americans with a ìrecord,î and the country glories with unseemly glee in the joys of the death penalty. Due process and the other guarantees of individual rights of the Fifth, Sixth, and Eighth Amendments (such as the grand jury as any sort of assurance against capricious prosecution) scarcely exist in practice.
Most of the Congress is an infestation of paid-for legislators from rotten boroughs, representing the interests that finance their elections and exchanging earmarks with their colleagues like casbah hucksters. . . .
Lord Black can sure still turn a phrase — ìcasbah hucksters.î Ha!