Archive for February 2006

Sued for Taking a Bath

Via Overlawyered, is the incredible story of Shannon Peterson, who is being sued for taking a bath before work.  Really:

Many people find the sound of running water soothing and peaceful.

Not Marvin and Goldie Smith, who have sued their neighbor over her 5 a.m. baths.

The
couple, 83 and 78 respectively, live on the eighth floor of the Polo
Club Condominiums near the Cherry Creek Shopping Center. They claim the
water pipes they share with the woman below them vibrate so badly they
can't sleep through her early morning baths....

So the Smiths called their son, Sheldon, a
partner in the Holland and Hart law firm. He sent a letter, threatening
Peterson that her "intransigence ... and tortuous conduct have resulted
in incredible sleep deprivation for Mr. and Mrs. Smith. Your obstinacy
has ruled the day. That will now cease."

He then ordered Peterson to stop running water in her bathtub before 8 a.m....The Smiths sued Peterson just before Christmas, citing the "reckless and negligent use of her bathtub."

Unbelievable.

More LA Times Ignorance

Would it be at all possible that the LA Times assign people to the business section that know something about business?

Over the last several weeks of the Lay-Skilling Enron trial, the prosecution has been putting on witnesses to testify that Enron management managed their earnings in quarterly releases by adjusting accounting reserves to increase reported income.  Here is an example:  Many companies, when they book sales, keep a reserve for noncollectable accounts.  Let's say that if a company books $1 million in sales, they might book 3% or $30,000 as a reserve against noncollectable accounts.  This reduces reported income by $30,000.  But the 3% is fairly arbitrary.  What if the bosses suddenly called down and said, you know, I think its only going to be 2.5%.  Then the entries would be changed and suddenly the company has $5000 more income.  And, if they retroactively changed the 3 to 2.5 for the last several quarters, tens of thousands of dollars might be added to this quarter's income.  Of course, in Enron's case, these entries and reserves were orders of magnitude more complicated and arcane.

So what's my beef against the LA Times?  They headline of their story on the activity I just described is:

Witness Says Enron Raided Fund

Orders to dip into reserves to inflate profit violated accounting rules, a former company accountant testifies.

What fund?  They make it sound like Lay and Skilling went into some bank vault somewhere and took money.  These reserves are not wads of cash sitting in accounts - they are accounting entries providing estimates of future expenses to be booked against current revenues.  What is undisputed is that management changed their estimates of these future expenses, which caused these paper reserve accounts to be reduced, increasing paper earnings.  You might reasonably argue that the only purpose for changing these estimates was to manipulate reported earnings in an unlawful way, and that is what the jury has to decide.  But how can you describe this as "raiding" a "fund", unless you want to portray the defendants in the worst possible light.

My guess is that the people who wrote this at the LA Times are the same ones who keep writing about the "Social Security Trust Fund" as if it is an actual pile of cash in a bank vault somewhere, and not money long ago spent by Congress.

Uhaul Indicator of California Health

In today's Opinion Journal, the WSJ editorializes against the proposal to even further raise marginal income tax rates in California, to the highest in the country save in New York City.  The Journal argues that this is chasing productive, high income people out of California:

The
latest Census Bureau data indicate that, in 2005, 239,416 more
native-born Americans left the state than moved in. California is also
on pace to lose domestic population (not counting immigrants) this
year. The outmigration is such that the cost to rent a U-Haul trailer
to move from Los Angeles to Boise, Idaho, is $2,090--or some eight
times more than the cost of moving in the opposite direction.

I had seen this Uhaul metric before.  The logic is that Uhaul has to keep its fleet of trucks and trailers balanced.  If everyone is going one way with them, say from California to Utah, then they are going to end up with an enormous yard full of vehicles in Utah unless they 1)  pay to backhaul the trucks to CA empty, which is really expensive, or 2) increase the price of the route to Utah and decrease the price of the route back until they are in balance or until the price of the preferred direction covers the backhaul costs.

I had never tried this myself.  I always wondered if the examples people use in articles like this are hand-selected or representative.  So I tried, at random, LA to Salt Lake City  (I have Utah on the brain, I guess, because we are going skiing up there next week, woohoo!)  and chose a date far enough in the future I didn't run into any random demand peaks.  A one-way 26-foot truck rental from LA to SLC on May 15 was quoted at $1888.  The same truck from SLC to LA was quoted at $299!  Try it yourself.

Frequent readers of my blog know I am a big supporter of open immigration, but it cannot be a good thing to send a quarter of a million of your best educated and most productive people out every year and backfill them with lower-skilled, under-educated immigrants. 

Revisiting Arthur Anderson's Death Sentance

The firm of Arthur Anderson was put to death by government prosecutors.  Unlike human beings, Anderson was killed without ever receiving a trial, and was dead long before any appeal was mounted.  Many a media tear have been shed for Enron employees who lost their savings in the Enron 401-K, where they invested in Enron by choice, but I have seen few people sympathizing with the tens of thousands of people who lost their savings in the AA collapse, the vast vast majority of whom never touched the Enron account.

Mary Morrison has a nice analysis (pdf) of why Anderson was probably killed unfairly.  Her central argument is that the main fraud at Enron was perpetrated in the off-balance sheet special purpose entities, or SPE's, when third parties put up capital that the SPE called equity, but was in fact really a loan with a verbal (non-written) promise to repay by either the entity or Enron.  By disguising a loan as equity, and by by disgusing related parties as arms-length investors, Enron was able to avoid consolidation of the SPE's with its financial statements.

Ms. Morrison argues persuasively that since Anderson was not the auditor for any of these SPEs, it had no way to uncover the true nature of these sham financing agreements, since these SPEs were effectively different corporations with different auditors.  AA had to rely on signed statements by each deal's principals that the financing for the SPE was as described (which is standard practice in this type situation and is considered to represent adequate due dilligence).  Anderson had no way to know what was going on in the SPE's, and since the SPE's were separate legal entities from Enron, it had no legal right to poke around in these entities and of course no subpoena power.  It had no way to know about the hidden verbal second part of the financing agreements.  She argues AA was a victim of the fraud and of false statements by Enron and the SPE managers and investors. 

It is interesting to note that the prosecution of the Enron case is prosecuting Enron managers right at this minute for making such fraudulent statements to AA and for hiding the nature of the SPE's from AA.  In other words, the prosecution team that first gave AA the death penalty for allegedly conspiring with Enron to hide their problems is now prosecuting Enron managers on the legal theory that AA was innocent and duped by the managers, which was AA's defense before they were wiped out.

Tom Kirkendall has more on AA's martyrdom here.  He also continues his scary series of articles on prosecutorial abuse here.  The pressure brought to bear to prevent defense witnesses from testifying is particularly frightening.  When you read this, you are really left wondering how the auditors for the SPE's, which may include KPMG, escaped unscathed (in fact escaped richer, since they got their share of the now-defunct Anderson's clients) when Anderson was put to death.

What a Jerk

Via ABC News, comes this story of Congressman Randall Cunningham:

Prosecutors call it a corruption case with no parallel in the long
history of the U.S. Congress. And it keeps getting worse. Convicted
Rep. Randall "Duke" Cunningham actually priced the illegal services he
provided.

Prices came in the form of a "bribe menu" that detailed how much it
would cost contractors to essentially order multimillion-dollar
government contracts, according to documents submitted by federal
prosecutors for Cunningham's sentencing hearing this Friday....

The card shows an escalating scale for bribes, starting at $140,000
and a luxury yacht for a $16 million Defense Department contract. Each
additional $1 million in contract value required a $50,000 bribe.

The rate dropped to $25,000 per additional million once the contract went above $20 million.

What if We Treated Other Purchases Like Health Care

Daniel Weintraub has a nice take on our health care system in a post recently in the Sacramento Bee.

Imagine for a moment that your employer was required by law to buy a
plan to manage your nutrition needs - rather than simply paying you a
wage, out of which you buy the food you want to eat.

Or suppose the government required your employer to pay for a housing
plan, rather than paying you and letting you decide where and how to
live.

Finally, consider what it would be like if the company you work for was
mandated to design and finance a transportation plan for you, with a
list of options for how you could get to work and back home each day.

Each of these scenarios brings a few things to mind.

First, you'd probably get paid a lot less than you do today, because
your employer would be diverting much of your current wages to pay for
these plans instead.

Second, you would have less choice than you do now, because your
employer would have to standardize these food, housing and
transportation plans to fit the needs of many workers.

Third, the service you would get from your local grocery store,
landlord or automobile dealer would probably be worse, since your
relationship with each of them would now be muddled through the entry
of a third party, your employer. Your local grocer would have a greater
incentive to try to satisfy his real customer - your boss, or worse,
the food management company your boss chose - than to serve your needs.

Fourth, the costs of each of these goods would tend to rise over time -
especially if you and your fellow employees were able to eat as much as
you liked, or live in any size house or drive as far as you wanted
within the choices provided. While large employers might be able to use
their superior bargaining power to drive down costs a bit, their power
in the marketplace would be outweighed by the increased cost of
providing food, housing and transportation in quantities unlimited by
the discipline that comes when a consumer pays for something
out-of-pocket.

Finally, as the costs did start to rise, you would feel less secure
about where your next meal was coming from, or whether you'd have a
place to live tomorrow or a car to drive to work. With the management
of these essential items in the hands of a third party, you'd feel
vulnerable, worried about whether they might cut back on your choices
or on the quality of the offerings in order to save money.

Beyond these arguments, there is the threat of using publicly funded health care as a Trojan Horse for complete government micromanagement of our lives.

Time for Patent Reform

Its clearly time for patent reform as it applied to software.  In the last ten years, software engineers have apparently have been able to convince hardware-centric patent examiners that some pretty basic software concepts are "non-obvious" and patentable.  Guestblogging at Overlawyered last week, I mentioned one such patent, the Amazon "1-click ordering" patent, which to me is clearly copyrightable, but not patentable.

Rob Pegoraro makes a similar point in the Washington Post, editorializing on the Blackberry suit:

No, the problem here is simpler. There are too many bogus patents getting handed out.

One
solution would be to make more things unpatentable. Just as you can't
-- or shouldn't -- be able to patent a mathematical equation, in this
scenario you wouldn't be able to claim ownership of things like the
general workings of software (any individual program is already
protected by copyright) or business methods. The U.S. has been a
pioneer in turning those things into new types of intellectual
property; perhaps it's time to declare this experiment a failure.

Another,
somewhat overlapping solution would make it harder to get any patent.
The patent office would apply a higher standard of "non-obviousness" --
the idea that a patent shouldn't reward "inventions" any competent
individual could have thought up. And any outside party could submit
evidence against a patent before it became final.

I am generally sympathetic to Blackberry's plight, in part because I went to school with Jim Balsillie, the CEO of RIM.  One thing Pegoraro missed in his editorial:  The US Patent Office has already said it made a mistake in issuing the original patent that RIM was found to be violating.  The nullification of this patent is working through the system, and RIM is pleading that the injunction against them wait until this process is complete, sort of like a victim on death row begging not to be put to death because the prosecutor has admitted that based on new evidence, he shouldn't have pursued the case in the first place.  RIM has offered to settle with NTP (the patent holder)if there is a give-back if the patent is invalidated in the future, but NTP has refused this.  This all makes for an interesting drama, with a lot of brinksmanship.

By the way, though I am sympathetic to RIM to some extent, that sympathy is diminished by this:

In 2002, RIM sued software developer Good Technology for its wireless
mail-transfer technology and "smart phone" maker Handspring over its
miniaturized keyboard design. Both wound up forking over licensing fees.

As I wrote before, what goes around, comes around when you use the legal system and the long hand of the government to step on competitors.

Horrible Verdict

In what we may look back on as one of the worst and most destructive jury verdicts of the decade, three paint makers were found guilty of selling lead paint back when it was, well, legal:

A Rhode Island jury today found Sherwin-Williams Co. and two other
paintmakers guilty of creating a 'public nuisance' by manufacturing
lead paint after it was found to be dangerous." If upheld, the verdict
will force the companies to contribute millions toward abatement of
existing paint; a judge will also consider demands for punitive
damages. The ruling, the first of its kind, is also expected to
encourage the filing of more suits against the industry

As Walter Olson points out, the suit was dreamed up by veteran law firms from tobacco and asbestos lawsuits, using bits of both litigation models:

The verdict is an unfortunate confirmation that the "tobacco model" of
mass tort litigation remains alive and well. In particular,
contingency-fee private counsel have once again managed to 1) dream up
a novel idea for litigation based on the idea that some category of
public expenditure is really blameable on long-ago sales of a product;
2) sell the idea of suing to public officials who agree to front the
action, and who thus provide (along with advocacy groups) a suitably
public face for the lawsuit; and 3) manage to get liability attributed
retroactively to businesses whose actions decades ago were plainly
lawful under the standards of that time.

The firm Ness Motley who is RI's partner in this, is, surprise surprise, the largest single political donor in the state.

The WSJ($) has more thoughts today about why this verdict is so bad:

There are so many screwy aspects to this case that
it's hard to know where to begin. The jurors heard no evidence about an
injured party, nor were they informed of any specific house or building
that constituted the "nuisance." As for the defendants, Judge Michael
Silverstein instructed the jury that it wasn't necessary to find that
Sherwin-Williams, NL Industries and Millennium Holdings had actually
manufactured the paint present in Rhode Island or that they had even
sold it there.

Oh, and did we mention that at the time the companies
may or may not have sold lead paint in Rhode Island it was an entirely
lawful product? "The fact that the conduct that caused the nuisance is
lawful does not preclude liability," Judge Silverstein said. Lead paint
was banned for residential use in 1978.

So why is this such a big deal?  One only has to look at the situation in asbestos to see the potential ramifications.  The asbestos mess began, sensibly enough I guess, with lawyers suing makers and heavy users of asbestos products into bankruptcy for the benefit of people seriously ill (though one can argue that most of these cases belonged in the workers comp. system, but workers comp. doesn't allow those juicy punitive damage payments that pay the fuel bills for the lawyers' Gulfstream V's).  Eventually, the asbestos mass tort morphed into lawyers suing any company with deep pockets that had even heard of the word asbestos for the benefit of tens of thousands of people who had never been harmed but only claimed to have been present in the same zip code as asbestos. 

Here is the problem with the potential lead paint mass tort:  It has skipped right to the asbestos end-game, bypassing the "helping people who were seriously harmed" stage and jumping right to the settlements for billions without proof of any related injury.  And for all the ubiquity of asbestos, lead paint was even more prevalent in its day.  Will Sears be bankrupted for selling lead paint?  Will auto-makers and homebuilders be bankrupted for using it?   And, separately, will any of the settlement money that flows to states really go to lead paint abatement, or will most go to general revenue, as it did with tobacco?

OK, so its clear why those of use who care about stuff like property rights and individual responsibility might be appalled at this decision, but you progressive public policy types should be appalled as well.  If this thing gets rolling, the country will end up diverting hundreds of billions of dollars to a problem, mainly childhood lead poisoning, that while not solved has really been greatly reduced over the past few years.  Just to get a sense of scale, for example, we are talking about far more money potentially focused on lead paint than the total spent today publicly and privately on AIDS and cancer research combined.  Totally insane.

Oakland Passes Anti-Individual Responsibility Tax

Oakland is fed up with high school kids that litter, throwing the lunch wrappers from their Big Mac on the ground rather than putting them in the trash.  The city is arguing that these folks' inconsiderate littering is making a mess of the town and costing the city a fortune in clean up.  The city wants to send a clear message to its kids that this is not going to be tolerated and they expect people to take responsibility for this, so the City Council has boldly passed a new law to ... tax McDonalds to clean up after the little darlings.

So City Council Member Jane Brunner is proposing to charge major fast
food restaurants a fee of $2,400 to hire crews to pick up garbage
around town. She says a study shows fast food restaurants account for
20-percent of Oakland's litter.

Vince Thomas, Kentucky Fried Chicken franchise owner: "I don't have any control over it once it leaves my lot."...

The Restaurant Association reminded the council it could be getting itself into a discrimination lawsuit.

Johnnise Downs, California Restaurant Association: "Because it singles
out and penalizes one specific group of businesses, and basically
places the entire burden of Oakland's litter problems on those
businesses."

You know what this reminds me of?  It's as if parents were frustrated that their kid never cleaned up after himself and always left messes around the house, so they choose to deal with it by hiring a maid to clean up after him.  What about actually, you know, enforcing litter laws.

By the way, here's another question.  We all know how little of the tobacco settlement that was ostensibly to fund health care actually went to health care.  I wonder in this case how much will actually go to incremental trash pickup and how much will just be dumped into general revenue.

Olympics Question

In a previous post, I discussed decision anchoring in judged events.  This week I have a simpler question:  Whose idea was it to give out CD-ROM's this time instead of regular medals?

Cdrom

Is this some kind of weird prelude to a Microsoft takeover of the games?  Or maybe these are just remaindered "Glitter" DVD's.  By the way, this picture does not do her justice, but Tanith Belbin is pretty hot.  She came in third in ESPN's page 2 hottest female athlete survey.  Better pictures here.

What is it About Houston and Surveillance?

I guess I avoided it when I was growing up in Houston, but there sure seems to be something in the water down there as first our Houston-raised president, and now Houston's police chief, seem awfully fond of surveillance.  From Tom Kirkendall:

Anne Linehan and Charles Kuffner are two of Houston's best bloggers on local political matters, and they have been covering an emerging story that amazingly appears to be flying below the radar screen of most Houstonians -- i.e., Houston Police Chief Harold Hurtt's
plan announced last week proposing to place surveillance cameras in
apartment complexes, downtown streets, shopping malls and even private homes to fight crime during a shortage of police officers.

Building permits should require malls and large apartment
complexes to install surveillance cameras, Hurtt said. And if a
homeowner requires repeated police response, it is reasonable to
require camera surveillance of the property, he said.

And the Chief's justification for surveillance cameras in private homes?:

"I know a lot of people are concerned about Big Brother,
but my response to that is, if you are not doing anything wrong, why
should you worry about it?"

H'mm. That is not the kind of reasoning that one would find in, say, The Federalist Papers, now is it?

Why George Will Gets Paid for Writing, and I Don't

While I bloviated for many screen-inches on wiretaps, detentions, and separation of powers (and here, and here), George Will nails what I was trying to say in about a paragraph.

But, then, perhaps no future president will ask for such congressional
involvement in the gravest decision government makes -- going to war. Why would
future presidents ask, if the present administration successfully asserts its
current doctrine? It is that whenever the nation is at war, the other two
branches of government have a radically diminished pertinence to governance, and
the president determines what that pertinence shall be. This monarchical
doctrine emerges from the administration's stance that warrant-less surveillance
by the National Security Agency targeting American citizens on American soil is
a legal exercise of the president's inherent powers as commander in chief, even
though it violates the clear language of the 1978 Foreign Intelligence
Surveillance Act, which was written to regulate wartime surveillance.

Will seems to think the wiretapping a reasonable approach, and thinks Congress should authorize it, but its very reasonableness or even necessity does not justify executive circumvention of the Constitution:

Besides, terrorism is not the only new danger of this era. Another is the
administration's argument that because the president is commander in chief, he
is the "sole organ for the nation in foreign affairs." That non sequitur is
refuted by the Constitution's plain language, which empowers Congress to ratify
treaties, declare war, fund and regulate military forces, and make laws
"necessary and proper" for the execution of all presidential powers
. Those
powers do not include deciding that a law -- FISA, for example -- is somehow
exempted from the presidential duty to "take care that the laws be faithfully
executed."

Separation of Powers

The separation of powers concept, so fundamental in our Constitution to checking government power grabs, seems to be on life support.  The reason I say this is that for separation of powers to work, each branch of the government has to, you know, actually monitor and try to check power grabs in other branches.   What I see today are three branches that have kind of reached some sort of peace treaty, agreeing to let the others run amok as long as it is allowed to do so itself.  To support this hypothesis, I make the following observations:

  • The executive branch continues to try to accumulate power, adding "indefinite detentions without trial" and "warrantless searches" to its arsenal, justifying nearly anything with the blanket argument that "the world is different post 9/11."  The Supreme Court has generally proved itself unwilling to do anything about it, which should be all the more the case in the future since both Bush appointees seem very comfortable with accretions of executive power.  Even the opposition party, though willing to make verbal assaults, seems unwilling to take any real measures.
  • Congress seems perfectly willing to spend their time wallowing in pork and dreaming up new earmarks to satisfy prominent donors.  The current budgeting process is a fiasco, and the executive branch seems unwilling to exercise any adult supervision, including an incredible record of zero vetos is nearly 6 years.  Congress has shied away from working on any issues of any seriousness (e.g. Social Security) which is perhaps good for us, since their only attempt to fix runaway spending in Medicare resulted in them adding an expensive and ridiculously complex drug benefit.  Congress and the President conspired to pass the egregious McCain-Feingold speech limit bill, which effectively helps protect the job of Congressional incumbents and protects them from 3rd party criticism when approaching an election.
  • With Congress unwilling to address any legislative issues of substance, the judiciary seems perfectly happy to take their place, creating new law in hundreds of areas.  And Congress seems willing to let them.  It can only be dangerous for a Congressperson to deal with hot-button issues like gay marriage and abortion - its much better to let the judiciary do it for you.  Often Congressman can get the outcomes they want, without actually having to create a legislative record on the issue that might come up in a campaign.

The whole situation depresses me just writing about it.

We Don't Need No Stinking Consistency

For the past 6-months, gas station owners have been under attack by state regulators for their pricing practices just after Katrina, when fears of shut-in Gulf oil production and refining capacity led to a temporary spike in gas prices.  Gas station owners have tried to patiently explain about supply and demand and market dynamics, but to no avail, and are starting to settle:

Sunoco Inc. became the second oil company to
settle a price gouging lawsuit brought by New Jersey authorities,
agreeing to pay $325,000 but admitting no wrongdoing....

As part of a state probe into all oil companies doing business
in New Jersey, more than 100 violations were found at 400 gas
stations in the first week of September, the most common of which
were prices being raised more than once every 24 hours, and
stations showing different prices at the pump compared to their
posted prices, officials said.

Nobody is really getting fined hundreds of thousands of dollars for changing their prices more than once in a day.  Gasoline retailers are getting fined for being unliked, and because politicians find it a populist boon to their reelection to wack on oil companies every once in a while.  One of the reasons that gasoline retailers get fined for petty crap like this is that they are the only retail industry that I know of that actually posts their prices so you can see them on the street when you drive by.  A while back we also highlighted this funny bit of high-handedness in Illinois:

Illinois State Attorney General Lisa Madigan asked 18
operators whose prices jumped significantly after Hurricane Katrina to
donate $1,000 to the American Red Cross or risk a potential consumer
fraud lawsuit, reports the Chicago Tribune.

And you just knew enemy-of-Antarctica and Aspiring Governor Eliot Spitzer couldn't miss out on the populist fun:

Illinois isn't the only state to go after retailers for
price gouging after Hurricane Katrina; New York Attorney General Eliot
Spitzer fined 15 operators $10,000 for pumping up their prices.

Anyway, I guess we still haven't gotten to the "consistency" thing I mentioned in the title.  Having been at the receiving end of such ill-conceived and populist price-gouging and anti-trust lawsuits, what is the gas station trade group doing this week?  Why, appearing in front of Congress to accuse someone else of price-gouging.  In this case, they have dragged credit card companies in front of Congress to demand action on interchange fees:

All consumers pay more at the store and at the pump" as
a result of high interchange rates, added Mierzwinski. He also noted
that "legally suspect" practices have led to market power of the card
associations, and that banks engage in a variety of deceptive practices
to steer customers toward higher transaction fees, such as charging
customers who use PIN debit, as opposed to signature-based debit, which
is much less secure yet carries a higher transaction fee to the
retailer.

Of course, he is all for free markets, as he says with this pious piece of BS:

I believe in the light of day and I believe in free
markets," noted Armour, in explaining what retailers are--and
aren't--seeking with regard to interchange. He stressed that retailers
are not requesting price caps and price controls, but rather a better
understanding of why U.S. interchange rates are so high.

Right.  Then why are we dragging these people in front of Congress, except that you want to use the coercive power of government to change their business practices?  If you have Ralph Nader's PIRG behind you, then you are looking to weild the government's hammer to achieve something you couldn't achieve through free, voluntary association and negotiation.

As a retailer, credit card companies piss me off too, but I don't run to Uncle Sam for relief.  I just don't accept certain types of cards, like ATM cards with PIN verification, since they cost a fortune in fees.   And in a lot of locations, I don't accept cards at all.  We have put ATM's onsite in a lot of places, reasoning that if consumers want debit card convinience, they can pay the fees by using the ATM machine and then paying us in cash.

Shareholder Suits

I posted on shareholder suits over at Overlawyered.  A reader sent me this great article from 2000 in Fortune on Bill Lerach, the kind of shareholder suits.  These thoughts echo my own (or, since I guess this was written long before my post, my thoughts echoes these):

Stanford law professor Joseph Grundfest, a former
SEC commissioner, goes so far as to describe the current system governing
securities fraud as "nuts." As he sees it, class-action settlements amount
to nothing more than an unproductive "transfer payment" from current shareholders
to past shareholders--with big contingency fees skimmed off the top. "The
plaintiffs lawyers are getting a cut of the money that flows from our left
pocket to our right pocket," he says. Even in those cases involving genuine
wrongdoing, he adds, the individual perpetrators rarely pay anything out
of their own pockets, thanks to insurance and indemnification policies.
Nor do the shareholders get much--generally no more than 15% of their losses,
studies show. "Fraud is wrong," says Grundfest. "It has to be punished.
But what we have here is a shell game."

Read the whole article.  In many of the anecdotes, Lerach seems to be channeling Tony Soprano.

Welcome New Readers

Guestblogging at Overlawyered

Posting may be light this week as I am guest-blogging at Overlawyered.com.  Come visit me there!

Getting the Government's Permission to do Business

As I mentioned in an earlier post, we recently won the concession for Elk Creek Marina on Blue Mesa Lake, Colorado.  For the last week, I have been scrambling to take the steps necessary to take over this business without disrupting service to customers. There are a lot of things to do from a customer service standpoint to get the business up and running, but there is a staggering list of permissions and licenses we need from the state of Colorado and other government bodies to be able to conduct this business, particularly since this is our first entry into Colorado.  Here is what we know we need so far, though I caution that this list continues to grow at the rate of 2-3 more items a day as we learn more:

  • Our corporation must register with the Colorado Secretary of State as a "foreign" corporation, foreign in this case meaning that we are registered in another state.
  • To register as a foreign corporation, we need to hire a person to be a "registered agent" to be a contact with the state.  The only real purpose of this person I have ever found is to provide an avenue for mail to get lost
  • We have to register to pay Colorado unemployment insurance tax
  • We have to register to withhold Colorado income taxes from our employees
  • We have to register to pay state corporate income taxes and franchise taxes
  • We have to register to collect sales taxes
  • I think we have to get a special license for collecting electricity taxes, since we sell power to boats at some of the docks
  • We need to go through an extensive application process to transfer three current liquor licenses into our name.  I wrote about liquor license hassles here.
  • The person on the phone today told me a corporation in Colorado cannot own more than two liquor licenses.  If this is true, we will have to form a second company in Colorado, repeating all the tasks above plus the initial work just to form the company
  • I need to fly to Colorado to get fingerprinted for my FBI background check that is needed for the license.  This despite the fact that I have been fingerprinted and background-checked for liquor licenses in several other states.
  • Since the company will hire out fishing guides from the marina, the company has to have a Colorado outfitter license, which includes a 13 page application and very detailed regulations and required contract terms I must use to provide the life-and-death service of helping people find fish.
  • The outfitter license requires that I post a bond, which in turn requires I submit detailed financial and background information to get the bond approved
  • Our managers need to attend food handlers training in Colorado.  Of course, they have attended the exact same course in California, but Colorado wants them to sit through it again within their state's borders
  • We need to fill out a pretty elaborate application to sell Colorado fishing licenses, and may need to post another bond to do so. (Update: Confirmed, we need a $4000 bond).
  • We will likely need an occupancy license from the county
  • We will need a health department inspection and license for the two retail stores, since they sell packaged foods, and a more detailed inspection for the restaurant
  • We will need a fire inspection of the restaurant
  • We will need Coast Guard inspection and certificate for the docks
  • We will need to change the registration of all 45 boats that are kept at the marina for boat rentals  (imagine standing at the DMV to register 45 cars).
  • We will need Coast Guard inspection of all the boats

75 days until we open.  Eeek.

Judged Olympic Events

I have an experiment I would love to run.  I would love to compare the actual winners of Olympic events with the pre-event favorites, in two categories:  Those events with objective standards (time, distance, etc) and those that are judged (e.g. skating).  My hypothesis is that in judged events, barring a disaster (e.g. falling in a skating jump) judges tend to give high marks to those who they come in expecting to win.  I would expect that for people deeply tied into a sport (which Olympic judges are) it is impossible to totally separate the contestant's past body of work from their current performance.  I therefore would guess that favorites fail to win at objectively measured events more often than in judged events (again barring Michelle-Kwan-like falls).

Update: In another great moment in Coyote's reinventing the wheel, a reader emails to say that this phenomenon is called "anchoring":

Anchoring or focalism is a term used in psychology
to describe the common human tendency to rely too heavily, or "anchor,"
on one trait or piece of information when making decisions.

During normal decision making, individuals anchor, or overly rely,
on specific information or a specific value and then adjust to that
value to account for other elements of the circumstance. Usually once
the anchor is set, there is a bias toward that value.

This apparently occurs even when the number has nothing to do with the decision:

according to Daniel Kahneman if an audience is asked firstly to memorise the last 4 digits of their social security number and then to estimate the number of physicians in New York the correlation between the two numbers is around 0.4"”far
beyond what would be expected by chance. The simple act of thinking of
the first number strongly influences the second, even though there is
no logical connection between them.

I would presume that a number that was more related, like a figure skating pairs couple's world ranking upon entering the competition, would have an even greater impact on the decision.

 

TV Regulation Mess

If my blog was a satellite TV station, the following would be illegal:  Investigators Slam Katrina Response.  (hint - answer is NOT in the attached article, which is random)
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.
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I'm sorry, did you miss it?  What did I do that was so wrong?  What I did was let you view content directly from a national content provider.  In the past, Reuters traditionally distributed its content through local distribution arms called newspapers.  This distribution model was required based on old technologies, where printing was a local not a national business.  Now that new technologies allow content providers to distribute their material nationally without these intermediaries, many have chosen to do so, as does Reuters at their web site.  This is one of the many reasons why newspapers today are struggling.

The TV business has historically had the same business model for roughly the same technological reasons.  National content providers (e.g. NBC, CBS) distributed content through local affiliates because broadcasting technologies were very local.  Today, with Satellite and cable, it is perfectly easy for anyone to access the national feeds, like you did in reading the Reuters site above.  EXCEPT, the US Congress has outlawed this practice.  Satellite providers, with a few exceptions for rural viewers, cannot provide viewers with the national feed -- it is illegal.  Unlike with print media, Congress has succumbed to powerful interest groups in the local TV market to protect their dying business model. 

As a result, DirectTV has satellites in space using up bandwidth by broadcasting 50 or more nearly identical copies of the same national feed, because it is forced to use the local affiliate's feed for each local market.   One of many adverse results is that while the price of print content has fallen to nearly zero, the price of broadcast content goes up.  And, from a personal standpoint, I nearly killed myself adjusting an old fashioned TV aerial on my roof last night because that is the only way I can get NBC's Olympics HDTV content, since my satellite provider can't afford to duplicated hundreds of local stations to get the networks on satellite in HDTV under the current asinine rules.  And I refuse to get cable because it was in large part for exactly this reason, to force customers away from satellite to cable, that the must-carry and related rules were passed, and I refuse to give them the satisfaction.

Postscript:  By the way, the Reuters article linked is worth reading too.  Take this snippet:

Richard Skinner, the inspector general of the Department of Homeland
Security, told the committee that FEMA purchased 24,967 manufactured
homes at a cost of $857.8 million to temporarily house Katrina victims.
But most of those homes are unused and the government is paying to
store them, he said.

Nearly 11,000 are sitting are sitting at a
government site in Hope, Arkansas, and are deteriorating because they
were improperly stored, he said.

More Prosecutorial Abuse

As I suspected in this post last week, it is increasingly clear that Wayne Gretzky's name was leaked by the NJ Police and/or prosecutors in order to raise the profile of their investigation, and therefore their work.  For those not following the case, initially they accused one or more B-list hockey players of running an illegal bookmaking business.  When that failed to get their investigation on the front page, they leaked the fact that they had tapes of Wayne Gretzky proving he knew about the alleged illegal activity. 

Well, that helped them achieve their goal.  They got their investigation on the front page everywhere, and set up a feeding frenzy as the media tried to climb all over each other to throw mud at one of the heretofore last unsullied great names in sports.  Now, as I suspected, we find out that they really had nothing on Wayne, and misrepresented what they had to get themselves headlines:

One of Canada's all-time great
heroes may get the change to keep that title, after a long week in an
ugly spotlight. The heat's being taken off Wayne Gretzky.

Gretzky was
beaten down by the media spotlight since early February, when his wife
and assistant coach were implicated in an alleged illegal gambling
ring. Gretzky was pulled into the fray a couple of days later, when
sources suggested he was in the loop on the whole thing. But there's
new information on a wiretap conversation between Wayne Gretzky and
Rich Tocchet, which seems to support Gretzky's contention that he had
no prior knowledge of an illegal gambling ring allegedly involving
Tocchet.

It turns out the conversation on how Gretzky's wife
could avoid being named as a participant was recorded last Monday, the
day after Janet Jones allegedly won money betting on the Super Bowl.
Also, Gretzky's wife Jane was alleged to have laid a half million
dollars in bets -- but that also appears to have been false
information. It's believed she only bet about a fifth of that.

OMG, I guess they told the truth -- they did have tapes that showed Wayne Gretzky knew about the abuses.  Of course, what they did not say last week was that the tapes were made AFTER the whole mess became public.  OK, I confess, I too knew about the bettin scandal after it became public.  There goes my reputation.

Unfortunately, our country is increasingly being operated as if we have a inalienable right to be titillated that trumps stuff like, oh, due process.  I made a similar observation in response to leaks of grand jury testimony on steroids.  I also recently posted on prosecutorial abuses in the Enron trials.

Update:  Apparently, NJ prosecutors are now saying that the bets Janet Gretsky allegedly made are not even illegal in the state of NJ.  So they leaked damaging information about both the Gretsky's "involvement", then 2 weeks later let the other shoe drop and made it clear they really didn't do anything illegal.  It couldn't be clearer that the police and prosecutors released the Gretsky's names to the press to grab the front-line headlines they were not getting with their B-list targets.

Our First National Park Service Contract

Why blog if you can't engage in a little personal vanity?  Our company just won our first contract with the National Park Service, to run the Elk Creek Marina and other facilities on Blue Mesa Reservoir in the Curecanti National Recreation Area in Colorado.

Woohoo.

Viva Las Vegas!

There are probably a lot of reasons out there to criticize Las Vegas, but one thing it is great for is that it is perhaps the best and least expensive place in the country for a small business like mine to put on a national managers meeting.

We bring 60 managers in from all over the country.  We held our event at a hotel/casino a mile or two off the strip called the Orleans, where two years running we have gotten nice clean rooms and great service.  Beyond the good service and more-than-acceptable rooms, we get:

  • $60 room rates for mini-suites
  • Two days of lunches, breakfasts, snacks, coffee, an open bar with appetizers, and a meeting room all for less than $100 per person
  • Bar none, the best airline connections of any destination city except maybe Chicago, and they are all cheap (lots of America West and Southwest flights)

On top of all this, my people love it there.  Anyone running a national meeting on a budget should definitely consider it.

Enron Trial Update

As the Enron trial lumbers towards the end of its second week, Tom Kirkendall continues to have good analysis (keep scrolling).  While the Enron bankruptcy has spawned a number of books, it is likely that the Enron prosecution may spawn a few of its own.  Already, the prosecution has botched trials thought to be lay-ups and has demonstrated a new level of presecutorial abuse.  I know that most people have little sympathy for the defendants, but one has to be concerned with the tactics being used in these cases.  From reading his posts, while its early in the game, the defense may be ahead on points, as the prosecution made another tactical error in leading with and spending far too long with a weak witness, indicating that they are ready to commit on the same mistakes they made in the failed broadband trial.

By the way, this snippet is very funny - the indictment against Skilling and Lay is apparently so unclear and confusing and poorly written that the prosecution, who wrote it, is asking that the judge not allow it to be mentioned or quoted in the trial.  LOL - they are asking that no one mention the charges against the defendants in front of the jury.  Which is actually pretty appropriate, since in effect the prosecution is going to try to get Skilling and Lay convicted of being rich and unlikable rather than convicted of any specific charges.

By the way, we in Phoenix have been watching the revelations about gambling surrounding our Coyotes coaching staff.  The leaks by the police of as-yet unproven charges against prominent people is yet another abuse that happens all-too-often.  Beyond my own questions as to why gambling of this sort is even illegal in this day and age, it is crystal clear to me that the NJ police are going out of their way to leak insinuations of Gretsky involvement, which I don't think they can prove, merely to get press and attention for themselves.

Fantastic Interview with Andrew Napolitano

Over the past few days, I have posted a lot on first and fourth amendment issues, from wiretaps and detentions to free speech to prosecutorial abuses.  It turns out I could have saved my self a lot of time and just linked this great interview with former Judge Andrew Napolitano.

We are in a fit of
constitutional chaos when the government views constitutional guarantees as
discretionary. As Americans, we order our lives on the belief that we have
extraordinary freedoms. We believe those freedoms don't come from the
government. They come from our humanity. The government doesn't
give freedom; the government
under the Constitution is restrained from
interfering with it. I can
basically say whatever I want about the government. I can basically travel
wherever I want to go. I can basically worship however I see fit. If the
government comes to the view that those freedoms are discretionary, no matter
how noble the stated [reason to restrict them] may be, then we're in a state of
constitutional chaos. We will not be able to order our lives based on freedom.
We won't know who will be prosecuted or who'll just be swept away.

On the Patriot Act:

Let's put aside all of
the procedural problems with enacting it. Forget about the fact that there was
no debate. Forget about the fact that most members of Congress didn't even have
an opportunity to read it. It is a direct assault on at least three amendments
to the Constitution: the First Amendment, the Fourth Amendment, and the Fifth
Amendment. The
PATRIOT Act legitimates the notion that if we
give up certain freedoms, the government will keep us safer. I reject that
notion from a moral and legal point of view. I also reject it from a practical
point of view. It doesn't work. The government doesn't need our freedoms to
keep us safer. No one"”no lawyer, judge, or historian"”can point to a single
incident in American history where national security was impaired because
someone insisted on their right to free speech or their right to privacy or
their right to due process.

The PATRIOT Act encourages what the
government calls "national security letters""”basically, self-written search
warrants. It violates the Fourth Amendment, which prohibits self-written search
warrants. The
PATRIOT Act and two of its predecessors, the Foreign
Intelligence Security Act of 1977 [
FISA] and the Electronic
Privacy Act of 1986, authorized the government to obtain search warrants by
bypassing [longstanding tradition in] the courts. Today an
FBI agent investigating a
person need only satisfy her or himself that the person under investigation is
a threat to national security. The agent doesn't have to demonstrate evidence
to a judge

On the regulatory state:

[The FDR era] began, in my view,
the dark part of American history where the federal government believed that it
could solve any problem that was national in scope, irrespective of whether it
was a
federal problem. A federal problem is one arising
under the 18 specific enumerated powers given to the federal government under
the Constitution. A
national problem is something
that exists in New Jersey and California and Texas and Illinois. But just
because it's national doesn't mean it's federal and therefore can be addressed
by the federal government....

In terms of the
government control of our lives, in terms of the percentage of our income that
the government takes from us, in terms of the types and the areas of human
behavior we let the government regulate, we are infinitely less free. And as
Jefferson once said, it is in the natural order of things that the government
should be greater and human
liberty lesser.

Women have
much more freedom. African Americans have much more freedom. Gays have much
more freedom. The discrimination that was rampant, and often caused by the
government, 40 or 50 or 60 years ago"”there's been progress in those areas. But
the destruction of federalism, the centralization of power in Washington, the
belief that Washington can regulate all aspects of our lives will, if not
checked, lead us to a totalitarian form of government. Freedom is the power and
ability to obey your own free will and conscience rather than the free wills
and consciences of others.

The interview also has a very useful short summary of the history of FISA and the Patriot act, and demonstrates how the incremental assaults on the fourth amendment have added up.  I encourage you to read it all.  In addition to this interview, Reason also had a good debate on the Patriot Act here.