Kevin Spacey is a national treasure.
Casino Jack Abramoff
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Kevin Spacey is a national treasure.
Monthly Archives: December 2010
Johnny Carson on Politicians
The late Ross Lence, my mentor in undergraduate school, used to laugh when his students decried the lies of politicians. Lence contended that we expect – indeed, we want – our politicians to lie in order to make us feel better about the myths that we rely on about ourselves and our country in our day-to-day lives.
The late Johnny Carson provides a hilarious take on politicians’ lies in this classic video from almost 30 years ago. Enjoy.
Bill Murray on Robert Duvall
Rocky Top
Protecting the Children
No, really. this is not from The Onion:
The Center for Science in the Public Interest has filed a lawsuit against McDonald’s Corp., claiming that the company’s meals with toys unfairly entice children into eating food that can do them harm.
The Washington advocacy group warned McDonald’s in June that it would sue if the company did not stop providing toys with children’s meals that have high amounts of sugar, calories, fat and salt. The suit, filed in San Francisco Superior Court, seeks class-action status.[. . .]
The lead plaintiff in the suit is Monica Parham, a mother of two from Sacramento who said the company "uses toys as bait to induce her kids to clamor to go to McDonald’s," the organization said.
Ms. Parham has to sue McDonald’s rather than simply telling her children “no”? Walter Olson chronicles here.
The 40-Year War
Gary Becker makes a good point about a frequent topic on this blog – the enormous cost of the government’s drug prohibition policy:
[The Miron and Waldock study does] a good job of estimating the amount directly spent by the United States in fighting the war on drugs. They calculate about $41 billion is spent on this fight by state and local governments, and by the federal government, through policing efforts, the cost of court personnel and buildings used to try and convict drug offenders, and the cost of the guards and other resources used to imprison those convicting of drug offenses. . . . These estimated direct costs of the war are significant, yet they are regrettably only a small fraction of the total social costs due to the war on drugs. [ . . .]
Perhaps, however, the worse results of the American war on drugs are found in its effects on other countries, especially Mexico, Colombia, and other Latin American countries. Mexico is also engaged in a war on drugs, but it is a war almost entirely fought against drugs shipped from Mexico into the United States. The overwhelming majority of drugs that are either produced in Mexico, or that enter Mexico from other countries, are destined for shipment across the border to the United States. The two main drugs shipped from Mexico are marijuana and cocaine, the same two drugs that Miron and Waldock show constitute the vast majority of drugs used by American consumers.
Mexico is engaged in a real war, with advanced military equipment used by the drug gangs; often the gangs have better weapons than the army does. The casualties have been huge: an estimated 30,000 + persons have been killed in recent years as a result of the drug violence, far greater than the combined deaths of American and allied forces in Iraq and Afghanistan. Many of these deaths are of drug cartel members, but a considerable number also are of soldiers and policemen, journalists, and innocent bystanders.
After the drug lords discovered that they are very good at violence and intimidation, they expanded geographically and into other activities. They have spread out from concentration in enclaves near the border or in the West of Mexico into many other areas, including major cities like Monterrey. Some towns have become uninhabitable, as former residents fled from the violence, some entering illegally into the US. Drug lords have taken control in many places of prostitution, gambling, extraction of monies from businesses for “protection” services, and indirectly also various local governments. [. . .]
No one has estimated the social cost of American drug policy on Mexico, Colombia, and other countries, but it has to be immense. Perhaps these countries should just allow drugs to be shipped to the US, and put the full burden of stopping these shipments on American enforcement agencies. The American government would protest, but such a result would provide a clearer picture to the American people of the full cost of current policy, including the major costs imposed on other countries. One can hope that then we will get a serious rethinking of the American war on drugs, and some real political movement toward decriminalization and legalization of various drugs.
Malkiel on investing
Burton Malkiel’s WSJ op-ed yesterday on the importance of investing in China’s growth reminded me of this lengthy and engaging lecture that he gave earlier this year. It may take several sessions to get through the entire talk, but it’s definitely worth the effort.
Callaway vs. Lamborghini
Judge Kozinski on the criminalization of business lottery
Larry Ribstein — the law professor who has done more than anyone in the blogosphere to decry the enormous financial and human cost of the federal government’s criminalization of business lottery over the past decade – highlights in this blog post Ninth Circuit Judge Alex Kozinski’s lucid concurrence in the Ninth Circuit’s reversal of the business fraud conviction of former Network Associates CFO, Prabhat Goyal:
This case has consumed an inordinate amount of taxpayer resources, and has no doubt devastated the defendant’s personal and professional life. The defendant’s former employer also paid a price, footing a multimillion dollar bill for the defense. And, in the end, the government couldn’t prove that the defendant engaged in any criminal conduct. This is just one of a string of recent cases in which courts have found that federal prosecutors overreached by trying to stretch criminal law beyond its proper bounds. See Arthur Andersen LLP v.United States, 544 U.S. 696, 705-08 (2005); United States v. Reyes, 577 F.3d 1069, 1078 (9th Cir. 2009); United States v. Brown, 459 F.3d 509, 523-25 (5th Cir. 2006); cf. United States v. Moore, 612 F.3d 698, 703 (D.C. Cir. 2010) (Kavanaugh, J., concurring) (breadth of 18 U.S.C. ¬ß 1001 creates risk of prosecutorial abuse).
This is not the way criminal law is supposed to work. Civil law often covers conduct that falls in a gray area of arguable legality. But criminal law should clearly separate conduct that is criminal from conduct that is legal. This is not only because of the dire consequences of a conviction-including disenfranchisement, incarceration and even deportation-but also because criminal law represents the community’s sense of the type of behavior that merits the moral condemnation of society. See United States v. Bass, 404 U.S. 336, 348 (1971) (“[C]riminal punishment usually represents the moral condemnation of the community . . . .”); see also Wade v. United States, 426 F.2d 64, 69 (9th Cir. 1970) (“[T]he declaration that a person is criminally responsible for his actions is a moral judgment of the community . . . .”). When prosecutors have to stretch the law or the evidence to secure a conviction, as they did here, it can hardly be said that such moral judgment is warranted.
Mr. Goyal had the benefit of exceptionally fine advocacy on appeal, so he is spared the punishment for a crime he didn’t commit. But not everyone is so lucky. The government shouldn’t have brought charges unless it had clear evidence of wrongdoing, and the trial judge should have dismissed the case when the prosecution rested and it was clear the evidence could not support a conviction. Although we now vindicate Mr. Goyal, much damage has been done. One can only hope that he and his family will recover from the ordeal. And, perhaps, that the government will be more cautious in the future.
As Professor Ribstein has been saying for years, the problem with this policy is that the government is prosecuting agency costs, such as KPMG pushing the edge of the envelope on tax shelters or Andersen not using very good sense in carrying out its document retention policy.
There is a big difference between prosecuting agency costs and prosecuting clear-cut crimes, such as embezzlement. The difference relates primarily to the nature of the evidence involved, the relevance of contracts, and the subtleties of dividing responsibility between corporate actors.
Professor Ribstein has put it this way. Suppose somebody mugs you on the street. There is no question that is a crime.
However, what if the mugger asks you first if he can borrow your wallet, you loan it to him, and then he doesn’t give it back in time? What if the mugger asks your employee who’s running the store for you whether he can borrow some money, the employee allows it and then the mugger doesn’t pay it back? What if the "thief" is another employee who says the manager gave him the money as bonus compensation?
Who is liable in these situations turns on the contracts among the various parties. Proof depends on who said what to whom. Can we rely on what the witnesses say about this? What if the prosecutor tells the employee who’s minding the store that he’ll not face prosecution for conspiracy if he spills the beans on the other employee who says that the manager gave him bonus compensation?
Society needs to have appropriate punishment and accounting for clear-cut crimes. But in cases such as Enron or Lehman Brothers, the civil lawsuits — unlike the criminal prosecution – included all the people involved, including the directors who approved wrongful corporate conduct and accountants and lawyers who may have facilitated it. That is a much more rational and effective way in which to deal with agency costs than attempting to make them appear to be clear-cut crimes, which they simply are not.
Finally, criminal prosecutions over merely questionable business judgment obscure the true nature of risk and fuel the myth that investment loss results primarily from criminal misconduct. Taking business risk is what leads to valuable innovation and wealth creation. Throwing creative and productive business executives such as Michael Milken and Jeff Skilling in prison does nothing to educate investors about the true nature of risk and the importance of diversification.
The supposed payoff to criminal prosecutions of agency costs is deterrence. But some businesspeople will keep on pulling these shenanigans regardless of the prosecutions, while the legitimate risk-takers who create jobs and wealth for the community sorts will be the ones who are deterred.
I’m not suggesting that the Bernie Madoffs of the world should be encouraged. But the cases against businesspeople such as Milken, Skilling, Hank Greenberg, Jamie Olis, the NatWest Three and the Merrill Lynch bankers are fundamentally different than Madoff’s scam, and I am not comfortable that politically ambitious prosecutors can tell the difference. As Professor Ribstein notes in another article, “prosecutors turn up the fire [in mounting dubious business prosecutions] and then sell extinguishers.“
