30 June 2007

How to Deflect an Accurate Accusation

Universal Express is a company that describes itself as "visionary" on its website. It brings "diversity and creativity to the logistics and transportation industries."

It certainly brings some creativity to the business of deflecting accusations.

Between 2001 and 2004, Universal Express issued 500 millions shares of common stock without filing registration statements. Not unsurprisingly, this had a diluting effect. Its stock price lagged. Universal Express, though, in the person of its head honcho (and sole director) Richard Altomare, soon became very ardent in claiming that "naked short sellers" were the problem. Its own stock-distribution policy couldn't be at fault.

The SEC brought a lawsuit against Universal Express for its unregistered issuance, and in due time (February of this year) it won. Part of its complaint involved the noise Altomare had been making about naked short selling -- on the rationale that Altomare used that as part of a smoke screen to explain away the depressive effect on stock price that his own stock issuances were having. The NY federal district court ordered the company to pay $9 million in disgorgement and $9 million in penalties.

On June 21, Thursday, seeing that no effort at disgorgement had been forthcoming, and claiming that the company had become simply a vehicle for fraud whence the investing public required protection, the SEC asked the court to appoint a receiver.

The next day, the New York Times published an article by Floyd Norris, "Resilience of Fraud." His fifth graf read thus: "The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its own merits. But it shows how hard it can be for the SEC to halt what it views as a fraud. The agency filed suit against Universal in 2004, but the company is still funding itself by issuing billions of unregistered shares."

The Times later ran a Norris follow-up, "S.E.C. Seeks Receiver for Universal Express, Calling it a Fraud."

Mr. Norris wrote, "If a receiver is appointed and no more shares are issued, the company might have trouble financing itself. In the first nine months of its fiscal year, through March 31, it reported $2.7 million in revenues and a net loss of $21 million. It took in $11 million by issuing new shares."

On Monday, June 25, Mr. Altomare put out a press release comparing him to Rosa Parks. You read that right. He's decided that the SEC really doesn't like him because he's made the case against "naked short selling," and the offenses it claims he committed are a trivial excuse for this punishment.

"I am sure that Rosa Parks, Susan B. Anthony and others, who questioned previously accepted 'legal' practices, were vilified, criticized and even demonized prior to the truth finally surfacing. When the cause is just, the enemy must be engaged. Naked short selling and the unchecked abuse of power of a governmental agency are such valuable causes worthy of the battle." And so forth in a megalomanaical rush.

At no point in that press release, or so far as I can tell anywhere else over the course of the litigation, does the company or its sole director dispute the crucial facts: the issuance of the unregistered stock. Nor is it entirely obvious why a law requiring registration is entirely on a par with, oh, a city ordinance prohibiting blacks from sitting in the front seats of a bus.

Not entirely, mind you....but if your only real product seems to be your company's own shares, you have business problems that you can't blame (well ... can't accurately blame) on exogenous forces. Your problems, Mr. Altomare, are self-generated. Rosa Parks didn't banish herself to the back seats and then seek to inspire a boycott of the Montgomery bus system.

29 June 2007

GM Decides What is "Core"

Yesterday, General Motors announced that it's selling Allison Transmissions to a pair of private-equity firms, for about $5.6 billion.

GM's stock price rose for the day, and one can take that as a "yes" vote in the ongoing referendum about corporate policies on Wall Street.

Still,it raises a puzzle. The spinners are portraying this as a case of a company selling off a "non-core" asset to raise some cash so it can better fix what ails its core.

But since when is the manufacture of transmissions non-core? What is the core? The assembly of automotive parts into a whole and their marketing and sale, presumably.

Isn't there something to be said for the view, though, that if the same company makes the transmissions, and then makes the cars, installing its own transmissions, there is an efficiency gain, because that company doesn't need to haggle with itself over transmission prices?

I suppose GM executives might well say, "yes, there is some gain in efficiency there, but the present discounted value of that gain is a good deal less than the $5.6 billion pricetag we've put on it." Maybe. The language of "core" versus "non-core" doesn't illuminate that question, though.

An old story about eating one's seed corn comes to mind, rather.

Do janitors clean out the GM executives' offices at night? Is that service contracted out to a separate operation, or are those janitors employees of GM? If the service isn't contracted out, should it be? The question of the boundaries of a firm, what it makes sense to keep within the hierarchical structure, what it makes sense to outsource, and why, is a complicated one, raised in clear theoretical form by Ronald Coase as long ago as 1937, in a fascinating essay, one that stills stands up to scrutiny today.

28 June 2007

Speaker of the House

Why is the presiding officer in the House of Representatives called the Speaker? and not (as in the Senate) the President or President pro tem, or (as in committees on both sides) the chairman, chairwoman, or chair?

Why "Speaker"?

I've heard that this is the case throughout the English-speaking world. Countries that used to be England's colonies have bicameral assemblies. One of those chambers is more "popular" than the other -- more frequent elections and all that. The popular assembly is presided over, in each case, by a Speaker. Why?

I half-believe that the practice dates to -- or at least was cemented by -- an event in 1642. Tensions were rising between the high-Church King and the low-Church House of Commons. Charles I and armed servants of his entered the House of Commons in hopes of arresting some MPs that he considered especially incendiary.

In those days, there weren't any cable news shows, and Charles didn't necessarily know what a particular MP looked like. He was the guy who had signed such-and-such a pamphlet, that was all. So the King walked up to the presiding officer, William Lenthall, and asked that Lenthall point out the perps he wanted.

Lenthall replied,: "May it please your Majesty, I have neither eyes to see nor tongue to speak in this place but as the House is pleased to direct me, whose servant I am here."

Soon, England was at war with itself, and in due course, Parliament had King Charles executed.

This story explains why no subsequent monarch has set foot in the House of Commons.

But does it also really explain why people with the same function as Lenthall are called the Speaker? What title did Lenthall himself, or his precursors, have?

I'd love further explication from some wise reader of this humble blog.

27 June 2007

Stone versus Clay

The latest issue of The New Republic has a fascinating review by Jed Perl of the Greek and Roman Galleries at the Metropolitan Museum of Art, in New York.

What struck me was Perl's speculation, which he attributes to a scholar named John Onians, that the Greek sense of volume, mass, and weight -- the sense that underlies their pottery, architecture, and sculpture, follows from their creation myths.

Onians explains, says Perl, "that in Greek creation myths there is an idea that mankind was made from stone, and contrasts this with the thinking of people who" lived on flooded plains, and conceived of humans as created from something softer -- mud or clay.

The Renaissance inherited, or revived, the Greek sense of creation as distinct from that Mesopotamian alternative.

Onians' theory is, Perl writes, "a convincing prologue to the art of Michelangelo and Bancusi, in which the emphasis is always on the centeredness of the masses, on the gravitational pull of the forms, on the sense of the work of art as a massing of energies that displaces other energies in the world."

26 June 2007

Crazy Eddie

They weren't really insane. If they had been, they would have pleaded it as a defense.

Anybody of a certain age remembers the ads. The television actor who hopped about as if on speed and shouted "Our prices are innnn-sane" was Jerry Carroll. Since everything can be found somewhere in cyberspace, it probably won't surprise you to know that there's a tribute page for thos ads, at this address:


When I moved to Bridgeport in 1984, to open a law office, there was a downtown cheapskate electronics store calling itself "Crazy Freddy." I doubt there was any intellectual-property litigation as a result, the knock-off store seems to have failed quickly simply because the whole downtown area was depressed.

Anyway, the founder of the chain was Eddie Antar. By the middle of 1990, the SEC was investigating him and his associates (including his cousin Sam Antar) on suspicion that they were manipulating their books.

Eddie fled, and showed up in time in Israel. He was extradited to the US in 1992, and after four years of legal manuveuring he pled guilty to conspiracy and racketeering and spent seven years in prison.

Why do I bring all this up now? Because Antar has started showing his face in public again. To some degree, at least, he seems to want to rehabilitate his image. This weekend the Wall Street Journal ran an interview with Reformed Eddie, in which he said that although what he did was wrong, the business wasn't entirely a criminal enterprise. Real products were sold, real money was deposited in bank accounts, etc.

He also said that he sometimes runs into a satisfied customer who'll say something like "I bought my first stereo from you!"

One of the cable TV shows will run a piece on Eddie Antar tomorrow evening, I understand.

In the meantime, if you're interested, you can read an entertaining account of the Antar rise and fall here: http://www.acfe.com/documents/antarsample.pdf

25 June 2007

Poincare Conjecture

For those who, like me, have heard talk of the recently proven Poincare conjecture, but who have no grasp of higher mathematics, this is a neat story which conveys, at least, some sense of why people who DO have such a grasp are fascinated by the subject.


24 June 2007

Christopher Hitchens

I shared an elevator ride with someone famous during my Dublin sojourn. That's generally a good sign I was staying at an over-pricey hotel.

Christopher Hitchens, the pundit/polemicist, is on a book tour promoting "God is not great." http://www.amazon.com/God-Not-Great-Religion-Everything/dp/0446579807

Anyway, the morning after Bloomsday, June 17, I went to the elevator down the hall from my fourth floor room. Floors, by the way, are numbered at the Morrison in what I gather is typical European fashion. You can't safely walk onto the street from the "first floor," because it is what Americans call the second floor. So the fourth is the fifth.

Anyway, there was someone waiting by the 'vator. I walked in, and this somebody asked my not to press any button. So I gathered he was holding it for somebody else, and I shrugged.

The wait wasn't long. The fellow I sort-of-recognized as Christopher Hitchens walked in, and his 'vator-holding flunky walked in behind him. The latter fellow presses the button for the ground floor, and we're off.

Now I'm in a quandry. I don't want to say: "You look a lot like Christopher Hitchens" to this fellow. If he isn't, he replies, "oh, I get that a lot" with a tired voice, and I feel unnecessarily stupid.

If he replies, "Yes, that's who I am," then I suppose I'd have to say something like: "I've never read any of your books, but those columns you write for Slate are certainly spirited." But I'd again have to anticipate some tired/withering sequel. I could imagine him turning to his flunky to say, "You see? I can't even get away from them for a brief holiday!"

So I said nothing, and my brief story's three characters descended to the ground floor in nearly complete silence. Flunky said something about "when we're supposed to be there," and famous person grunted.

Twenty-four hours later, while I was waiting for a cab to take me to the airport, I glanced at a newspaper and saw that, yes, Christopher Hitchens had been in Dublin over the weekend to promote his book and take part in a debate with a theologian associated with Trinity College.

So, Chris, if you happen to read this:
1) the fellow in the lift with you that day wasn't really a mute
2) it's good to see a fellow "Christopher" make a mark in the world
3) i've never read any of your books, but those columns you write for Slate are certainly spirited.

23 June 2007

Bankruptcy as education

The chapter 11 process is and should be a very public, very transparent one. There shouldn't be any secrets about what goes on when a company asks a court to protect it from its creditors, then re-structures its debt and in time, if all goes well, re-emerges from into the marketplace from outside the court's protective wings.

There shouldn't be any secrets for a couple of good reasons. The most obvious is that many of the parties interested in the proceedings are likely to get cheated to the extent back-room deals can be cut. They'll be cheated anyway, in a sense (it is the whole point of the process to cheat somebody!), but the distribution of the losses always shifts to the disadvantage of those who don't have the pull in those back rooms.

That, then, is enough: don't let the players step into the back rooms. Keep everything in the arena.

Still, there's another and a better reason for openness. Corporate bankruptcy proceedings can be a medium whence the public can learn about the nature of the business cycle, and can in time perhaps be roused to do something about these boom and busts that so dislocate our lives.

In boom time, when credit is easy, when the banks not only lower their interest rates and compete with each other but are eager to give away their money, then times are so good for business that managerial sloppiness goes unpunished. People who have no aptitude for business end up running large ones, and they can fool themselves into thinking they have a calling for it so long as the money stays easy.

The problem, of course, is that while they’re fooling themselves and working through these loans, other people come to depend on them: employees, suppliers, creditors. The marginal and the sloppy work themselves into the social fabric. The goodness of such ‘good times’ is deceiving, because rot is building up.

At some point the lenders have to stop being so generous. Whether this takes place with the prodding of a central bank is another question, but a turn will take place.

The more liquid institutions are among the first victims of a turn. As the expansion crawls to a stop, every trader, every brokers, everyone who hangs casually around an exchange building, knows the turn is coming. Somebody will call in a margin that will force somebody else to liquidate. Nobody wants to be the liquidate, so they all become very cautious at the same time, and as counter-parties they all become demanding at the same time.

Long-Term Capital Management goes down before Enron does. Why? Because Enron had assets other than cash – assets that couldn’t be marked immediately to market – pipelines and generators. For the same reason, Enron with its “asset lite” philosophy, had to seek bankruptcy protection before a necessarily asset-heavy firm such as Delphi did.

(Delphi is an auto parts manufacturer that sought chapter 11 refuge in the autumn of 2005 and remains there still.)

The bankruptcy system is the best public forum for the documentation of the boom-bust cycle. Immersion there in could teach people painlessly that the way up is the way down, that the cheap credit that allows for the build-up of the rot is the real cause of the subsequent collapse, even that “irrational enthusiasm” is a central banker’s term for the sort of dislocation that central banking can cause.

22 June 2007

For Reading on the Plane

Before leaving the James Joyce Centre after the theatrical production I've described, I bought some trinkets at the gift shop. Among them was a volume of Joyce's "Occasional and Critical Writings," which I thought would be a fun read on the airplane ride home if I didn't like the movie.

I don't remember what the movie was, but it was one I had seen, which left me free to crack open the book. Thus, I learned two facts about Joyce that surprised me: the unsympathetic nature of his reaction to Oscar Wilde, and the unbridled enthusiasm he expressed for Ibsen. Had I been required to guess his responses to these two contemporaries, I would likely have posited them the other way around. Ibsen's drama was revolutionary in its own way, but it seems to me to be a revolution in a quite different direction from that which Joyce was effecting in the format of the novel. And for Wilde's aestheticism, I thought, Joyce would have had something kind to say.

The piece about Ibsen here is a review of his 1899 work, "When We Dead Awaken." You can read it here: http://www.classicreader.com/booktoc.php/sid.7/bookid.1958/

Joyce spoke glowingly of Ibsen's "large insight, artistic restraint, and sympathy. He sees ... steadily and whole, as from a great height, with perfect vision and an angelic dispassionateness, with the sight of one who may look on the sun with open eyes."

The Wilde essay says that its subject has "deceived himself by thinking he was the harbinger of the good news of neo-paganism to the suffering people" when he was really just re-packaging Catholicism.

Joyce also expressed some curiosity whether the "epileptic cast of his nervous system" might be some exculpation for the crime of sodomy -- no word in the essay doubts the criminal nature thereof.

As I say, new data. There is no such sin as gluttony as regards food for thought.

21 June 2007

When I Travel

When I travel, it is my habit to try to get a handle on the news of the place I'm visiting. I buy the local papers, and look for locality-specific stories.

Of course, nowadays, you can read almost anything anywhere. You can read the Irish Examiner, for example, here: http://www.irishexaminer.com

Still, I generally wouldn't think to read the Irish Examiner without the impetus of a trip to the place. And when I have that impetus, I try to make good use of it.

So this is what I learned. There's been a general election in Ireland recently, and the dust having settled, Fianna Fail has become the dominant political party within a ruling coalition. What does the Gaelic term "Fianna Fail" mean in English? "Soldiers of Ireland," literally, although party members seem to prefer "Soldiers of Destiny." Anyway, the coalition is of a center-left sort, and will include the Green Party, apparently for the first time.

There's much ink spilt on the challenges that the health-sector, and the ministry with responsibility for the same, will face in the months and years ahead. Mary Harney, a Progressive Democrat, will remain the Minister of Health, although the Prog. Dems lost seats in last month's voting. Her own position in the cabinet is stronger than it was, apparently because a nurses' strike during the election collapsed. Nurses, as one journalist with a gift for feline cliche put it, are "licking their wounds."

On a lighter note, nudist groups are said to be stepping up their campaign to secure designated beaches in Ireland for the exercise of their preferred ... um ... means of total-tan-acquisition.

And I ended up reading about Tullow Oil. Tullow, founded in Ireland in 1985, has since moved its headquarters to London, UK, but is still listed on the ISE as well as the LSE. The newspapers tell me that it's just reported positive results from exploratory drilling in Uganda. They also mention rumors, which the company denies, that some of those positive results come on the other side of a border, in Kenya.

The stock price rose on this combination of confirmed and denied reports. After a long period of hovering around 5.5 euros, it increased its value by more than a third in days, to 7.5.

So, unless you're Irish, you probably now know much more than you need to about what'sbeen in their newspapers of late.

I won't speak of the sports pages here, but I did notice that on television the counting is up rather than down. A rugby match lasts 80 minutes. When I ducked into a pub for "a pint of plain" and saw that a match was in progress (South Africa versus Australia) the television showed the time as 78:00, then 78:01 etc. The viewer was expected to be able to figure out what that meant in terms of time left, unless the announcers were expected to remind him/her constantly -- and (since this was a close match) the latter is what happened.

South Africa, by the way, won the match. Twenty-two to eighteen.

20 June 2007


Dublin is not a city of skyscrapers. This isn't a matter of spontaneous equilibrium, either. The city's Site Planning Committee is vigilant on the point. It's a city of four or five story buildings for long stretches.

So when something does stand out of this low-level pattern, the site line extends a long distance. This is true of the two fine Gothic Cathedrals -- St. Patrick's and Christ's Church -- it is true of two beery corporate buildings -- Heineken's and Guinness -- it is true of "the spire," a 120 meter high needle-shaped hunk of concrete in the center of the shopping district.

Nobody to whom I spoke quite knew what, if anything, the spire is supposed to symbolize. A cabbie sardonically suggested that, given the drug activity on O'Connell Street at nights, it might symbolize a syringe. More serious suggestions made it out to be a matter of civic pride. "We're an important town and we can have a high needle if we want to."

The aesthetics of the needle didn't appeal to me. But there is much in Dublin to delight the eye. The two cathedrals I've mentioned above are examples. The eighteenth century neo-classical architecture of Trinity College is another.

On my tour through Trinity my group had as a leader a first year student of economics there who knew that he was attending a fine old college with a distinguished history but seemed vague on the particulars. He was telling us that a certain building -- which once housed a printing press -- is ("now that the college doesn't print its own books anymore") devoted to music and the recording arts. Another student, who just happened to be walking by, said, "Excuse me, that's electrical engineering." Our guide immediately accepted the correction and apologized.

The Trinity Library is known as "Berkeley Library," after the subjectivist philosopher George Berkeley, who was a fellow here early in the college's history. Our guide, of course, pronounced his name in the original old-world way, Barkley. (It has been Americanized in the name of the city in California and its university, though they too owe their names to the philosopher.)

Our guide didn't know the famous limerick illustrating Berkeley's philosophy with a tree in the quad, even though he had just led us through that very quad and any number of trees. Not to worry, reader, I informed him of the limerick.

As his last duty, our guide led us to a building where Trinity keeps some of its medieval treasures under glass. There I saw half of the Book of Kells. The book appears to have been chopped into four parts in the 1950s, the better to display it. Two of the quarters were put in one building, two in another. In each of the displays, one of the portions of the book is open to a page chiefly of text, the other is open to a page dominated by an illustration/illumination. Both are convincing demonstrations of early-medieval Celtic piety -- the force that pulled the west of Europe through the darkest of the dark ages.

19 June 2007

Bloomsday 2007

I can knock one item off this year's resolutions (and my life's to-do list) with a good conscience. I've been to Dublin on Bloomsday.

James Joyce's great novel, Ulysses, traces the movements through Dublin on June 16, 1904 of Leopold Bloom and Stephen Daedelus, beginning with their respective breakfasts.

The breakfast arranged for this day by the James Joyce society in Dublin each year has become so popular that it is now conducted in three shifts, at 8, 9:30, and 11. I was in the second of those seatings, and it was packed. (By the way, I've learned that "nine half" is a concise Irish idiom for nine thirty.)

I was wandering about the neighborhood of the society's building in advance of my nine half appointment, and found the Eccles Street address where Leopold and Molly would have lived. There is a plaque there commemorating this fact, although aside from that it looks like an ordinary residential address, not diferent from the others stretching off to both sides of it. I would imagine the present inhabitants are content with the fact that strangers take photos of their stoop every June.

Nine half came about, and I had my morning feast. The components were an amalgam of the two distinct breakfasts in the book -- Leopold's and Stephen's. The kidney did in fact (as the text specifies) smell of urine. Actors moved about in appropriate costume speaking lines from the novel and interacting a bit with the audience.

I didn't participate in the afternoon scheduled events, because I preferred to do some of my own Homeric wandering about the city. I was back, though, at the JJ centre for a theatrical performance about the life of Joyce and the love of his life, called Himself and Nora.

After a successful California run, Himself and Nora is poised for an opening in the west end of London next year. The performance in Dublin on Bloomsday itself, in a more intimate setting, wasn't a full production but a concert performance by three principals -- the composer/lyricist, and the actor and actress who'll be playing the leads in London. Composer Jonathan Brielle introduced the two stars and read spoken dialog for the other characters in the play, as necessary to set up their songs.

Here's a URL for a review of the play in its California ru, although you'll have to scroll down past another review to get to it.


Quite incidentally, I learned that the name of the river that bissects Dublin into northern and southern halves should be pronounced to rhyme with jiffy, not so as to rhyme with "wifey"! I learned this during an amusing number in which Joyce is trying to teach English to Italians to learn his living while in his self-imposed exile, working on Ulysses.

Tonorrow, I'll try to give you, dear readers, the benefit of some of my other wanderings while in my short stay in this history-intoxicated city. On Thursday, I'll update you on current events in Ireland, at least as I gathered them from my reading of the local papers there. And on Friday, I'll have a bit more to say about Mr. Joyce.

13 June 2007

Taking a Break

I'll be away for a few days, and won't be doing any blogging. I should be back at this on June 20 or 21st or thereabouts, with new material to share.

In the meantime, follow the link to a brief, skeptical comment on the latest Loch Ness monster claims. And sing along with me,

"Dragons live forever/ Not so little boys...."


12 June 2007

More on Overstock.com

In Saturday's entry I discussed certain controversies concerning the internet retailer Overstock, and gave my view that the company's problems aren't the result of a short-seller's conspiracy, but of a flawed business plan.

As some of the evidence of the company's troubles, recall that three members of the board of directors have quit in the last year. The first to go was the CEO's father, John Byrne, last July.

This February, John A. Fisher left the board. He was explicit about why. The company had just filed a lawsuit against several brokerage firms (separate from the lawsuit I discussed yesterday involving short sellers and an independent research firm -- although brought on a related conspiratorial theory). The "prime brokers" supposedly enabled the naked short-selling of their clients. And they have deep pockets. Fisher said that his disagreement with the pursuit of this lawsuit had precipitated his own exit. What could he mean by that, though? The most reasonable interpretation is that he believes the company has deeper problems, and that the pursuit of such crusades distracts attention therefrom. If that's what he thinks, he's probably right.

Last month, Ray Groves left the board too. Again, he said the prime broker lawsuit was his reason. But, if so, why didn't he leave soon after the suit was filed? Why didn't he leave when Fisher left?

Well ... sometimes when the water is getting hot slowly, one isn't sure just when to jump out of the tub. Groves was apparently harder to boil than Fisher.

Here's another bit of evidence of Overstock's troubles to consider:


Obviously,internet traffic, the number of eyeballs the company's website gets, is a crucial metric for an internet retailer. There was a sharp drop off in early December, as you can see from the chart. The company gained some ground back with a late-month spike, perhaps representing last-minute Christmas shoppers. Then it resumed the downward move.

I don't give investment advice on this blog. And you shouldn't look to blogs for investment advice anyway, on general principle! So, speaking only for myself: I won't be investing in Overstock.

11 June 2007

Sad admission of insolvency

The World Union of Jewish Students, an advocacy organization with an 83 year history, is near insolvency.

The first president of the WUJS was Albert Einstein.

The organization's decline since that day has, it appears, been calamitous. Here's a story on the particulars.


It sounds to me like an organization that still has a role to play in a world where anti-Semitism continues to be a threat (and denying or belittling the Holocaust has become a sport in some quarters.)

Mazel Tov.

10 June 2007

Who is on that coin?

Jesus' phrase, "Give to Caesar what is Caesars" is often quoted as if it constitutes divine support for secular authority, an injunction against tax protests for example.

But it doesn't. There were different sorts of coins circulating about in the Levant in the first century AD, after all. Some of them had Caesar's face. Others didn't.

When the Philistines asked Jesus whether it was lawful to pay taxes, he asked them for a coin. Receiving one, he asked, "Whose image is on this coin?" The significance of this question is hardly rhetorical. It wasn't, "Why do we rabbis answer every question with a question?" "Why should you not?"

"Whose image is on this coin?" exposed the interlocutors as, in a word, collaborators. Of the various media of exchange floating about the Near East in the day, they were using that associated with the military occupation and its forces.

"Give to Caesar what is Caesar's," then, might with gain to clarity be re-written: "If you've got the Emperor's picture, get rid of it. Find another way to do business."

Hardly a "turn the other cheek" type moment. More like, "Here's a non-violent way of slapping the occupier. Join the underground economy folks."

09 June 2007

Overstock: What About the Losses?

The big news for Overstock in the final days of May this year was victory in an appellate court of the state of California regarding its "Sith Lord" lawsuit.

(I haven't written about this matter since I moved over from blog-city, so if you know Pragmatism Refreshed only in its blogspot variant you may not know about the Overstock imbroglio. I'll remedy that today.)

On Aug. 11, 2005, Overstock.com, a web-based discount retailer, (known for the sultry woman who says "it's all about the O" on television) and one of its investors, Mary Helburn, filed a lawsuit in Marin County (Calif.) alleging that David Rocker and various associates and vehicles under his control had conspired to drive down Overstock's stock price in order to profit from short sales.

It alleged in particular that (1) Overstock was in cahoots with a purportedly independent stock analyst firm called Gradient Analytics, (2) Gradient allowed Rocker to write reports blasting Overstock, which Gradient then distributed as its own, (3) the fact that they were coming from an 'independent' source gave the charges credibility and did lower the price, enriching Rocker at the expense of such "long side" investors as Ms Helburn. And of course at the expense of the company itself, since (4) a lower stock price creates capital-raising difficulties going forward.

Rocker and Gradient have denied the charges.

On August 17, Mr. Byrne appeared on the program "Street Signs" on CNBC, with Ron Insana. Byrne gave a jaw-dropper of a performance. He spoke of a conspiracy among journalists, hedge funds, research firms, all headed by a mysterious "Sith Lord" whom Mr. Byrne refused to name.

The Sith Lord, in the terms original significance, is the evil mastermind of the recent Star Wars movie, who seduced Anakin Skywalker, turning him into the Darth Vader we all knew and feared in the 1980s when we watched the good Star Wars movies. Byrne seems to be casting himself as Yoda, the implacable enemy of the Sith Lord.

This would be just an amusing cat fight between Messrs Rocker and Byrne, were it not for the fact that it has tapped into broader animosities about (a) short selling as a practice and (b) "naked shorting" as an abuse of that practice.

Very briefly: most short selling involves borrowing stock certificates. Suppose I borrow a certificate of Overstock from a broker, and then "short sell," i.e. promise delivery of the stock to someone who believes in the company's prospects, (let's call her Mary) in 60 days, at today's price. Between now and then, I have to buy it outright from the folks I had borrowed it from, and then make the delivery. So my profit requires that the price of the stock fall after I make the deal. I buy it at the lower price, sell it to Mary at the higher earlier price, and use some of that profit to cover the cost of borrowing the share in the first place.

The significance of borrowing the share is enormous. (Or, as Yoda would say, "significant, this is.") It ensures that the share exists -- I'm not trading on imaginary stock. The fact that I've borrowed and am in possession of a share of the stock protects Mary against a fail-to-deliver. It also limits the amount of shorting that would net a profit, because I'm not just betting on a fall, but on enough of a fall to cover the securities-borrowing cost.

The controversy over shorting, and over the spreading of rumors or biased analyses for which shorters are always blamed, gets intertwined then with another controversy, over how much "naked shorting" takes place -- i.e. how many shorts don't borrow the stock before selling it. Resolution of those issues apparently will have to wait for the various lawsuits to wind their way through the courts. In the interim, pitched battles involving complex conspiracy theories, name-calling and the occasional rational argument are being fought online.

As for the independent research firm that was allegedly bribed to badmouth Overstock, it of course denies the accusation. Fortunately for those of us who've been trying to cover the story, although the short sellers themselves have been very closed-mouthed about the lawsuit, the researchers, as alleged co-conspirators, have been quite vocal. A typical press release from there side put it thus: "Gradient researches, draws conclusions and issues reports based on work conducted by highly-trained analysts who report to Gradient and Gradient alone. We will continue to do so, despite efforts like these to discredit the valuable and insightful analysis we provide to investors and shareholders.”

Anyway, in late May 2007, one year and three quarters after the lawsuit was filed, Overstock won a victory in a state appellate court that may end Gradient's and Rocker's hopes of bringing an early end to the lawsuit on procedural motions. This may have to go through the process of "discovery" and to a finding on the facts.

Still, I have to ask: what about the fact that Overstock keeps losing money? Doesn't that make it a bad idea for an investment, alleged conspiracies notwithstanding???

In the first quarter of this year, Overstock lost more than $17 million. That might be tolerable if Overstock were moving in the right direction, "you have to lose money to make money" and that sort of thing. But its moving the other way. Its first quarter losses for 2007 are $3.5 million greater than its first-quarter losses for 2006. "You have to lose money in order to lose larger amounts later," seems the implicit motto here.

There may, for all I know, be problems and abuses among short sellers. It would be surprising if there were none, since they're made of the same fallible human flesh as the rest of us. But that isn't the problem with the Overstock stock price. Its problem is that it has a business model that works like a yard sale. Overstock's only real reason for existing at this point is as a vehicle for its lawsuits. Its remaining investors might reasonably hope for a decent "go away" settlement down the line -- if not from the Rocker/Gradient defendants, perhaps from those in another of its lawsuits, notably one against most of the brokerage firms on Wall Street.

08 June 2007

Beyond the Cynical Answer

My brother asked me yesterday how the US antitrust authorities could ever have allowed Exxon and Mobil to merge. Don't we still even have antitrust laws?

There was a time (the late 1970s and early 1980s, to be precise) when I was very well versed on those laws and on then-current trends in their application. I wrote a casenote for my school's law review on an antitrust enforcement action involving physicians' fees. In my final year at law school I interviewed with a Justice Department official about a job at in their antitrust division. So it wasn't too odd for my brother to think I'd have an informed opinion on the subject.

But my life and the directions of my thinking have gone in very different directions, and I had no idea how to answer the question.

I do know that according to standard operating procedure, any significant merger involving two firms in the same industry will be reviewed by either the relevant division of the Justice Department (the ones who didn't give me the job, not that I'm bitter, grrrrr) or by the Federal Trade Commission. I assumed, during our brief diner conversation on this subject yesterday, that some such review took place in one of those institutions or the other in 1999, when the Exxon/Mobil merger was in the offing.

Mind the date: 1999. You can't blame the Bush administration for this one. The only answer that came to mind was the cynical one. Perhaps Exxon and Mobil are just too powerful for any White House, and its attendant Justice Department or FTC, to cross.
I didn't give that answer, though. I hemmed and hawed about how complicated it was.

Politically, the question really is more complicated than the cynical answer will allow. In the midst of the Lewinsky impeachment trial, Clinton really had little to lose by picking a fight with Exxon and Mobil. It would have cheered his political base immensely, and they surely could have used the cheering. It wouldn't have angered anyone who wasn't already furiously against him.

Institutionally, too, the question is tangled. The career civil servants who would have had to pass on the subject in one of the afore-mentioned agencies would have been, I'm confident, unlikely to act in any crudely corrupt manner. They didn't go around with Exxon's thousand-dollar-bills sticking out of their pockets while working on their assessments. I'm pretty sure we would have heard about it if they had.

So what DID happen? The Exxon/Mobil merger put together again roughly the Standard Oil trust that Teddy Roosevelt had shattered in the heroic early days of antitrust law. This makes it a puzzle on a psychological level: didn't that matter to anyone?

So when I had a chance I went to a computer and did some research. It was the FTC, not the Justice Dept., that drew the short straw on this one. And these are the reasons they gave for allowing the merger:


07 June 2007

T.S. Eliot

Eliot prefaces "Four Quartets" with two of Heraclitus' epigrams.

Eliot, in his dare-to-be-obscure way, gives only the Greek. I'll give only the English.

"Though the logos is common, most men live as if they had a private source of understanding."

"A road is, upwards and downwards, one and the same."

Wisdom for the 21st century, surely.

Eliot cites Diels for these fragments. Hermann Alexander Diels was an inexhaustible German classicist who collected all the "fragments of the pre-Socratic philosophers" as transmitted to us by later writers, and supporting materials.

Diels' three volumes have become the source for all subsequent students of philosophers from Thales to Protagoras. From "everything is water" to "man is the measure of all things," scholars footnote such sentiments to Diels. And so Diels secured his own measure of immortality by helping to transmit and organize this wisdom (mixed, as all human wisdom is, with folly, but wisdom still.)

Diels, in short, helped bring the earliest philosophers out of the realm of the "private understanding" of an elite into that of the common logos.

Heraclitus would have smiled, while stepping only once into a river.

05 June 2007


With a friend's encouragement, I went this weekend to a performance of two classically trained guitarists, Mark and Beverly Davis.

They performed a wide range of folks songs, some from the British isles, some from Spain ... some recent compositions inspired by Chinese poetry.

It was excellently done. Here's a plug for them, accordingly.

There's a CD of their material, Ayres and Dances for Two Guitars, recorded by Signature Sounds, Pomfret, CT. You can order it through the following website:


A Maltese Saint

Pope Benedict canonized four new saints this Sunday.

Among them, the first-ever Maltese saint, Father Giorgio Preca, who died in 1962.

My vague understanding of my childhood religion classes tells me that the Church thereby recognizes Preca as someone who didn't have to spend any time in Purgatory before his admission to Heaven -- one of those who got to take the express train.

It seems a bit surprising that the Church, which has a rather long roll of saints by now, should only now be recognizing one from Malta. Its an island rich in religious and specifically Catholic history and connotation. According to the Book of Acts, chapters 27-28, the first evangelist there was ... Paul.

The Knights Hospitalers (as they were originally known) adopted Malta as their fixed home in the early sixteenth century, and ran the place -- becoming known as the Knights of Malta -- until Bonaparte expelled them at the end of the eighteenth, on his Egyptian expedition.

Now the knights are gone, but two centuries later Malta has a saint. I wish there were some resounding lesson there.

I can't write this much about Malta without thinking of a Humphrey Bogart movie with the adjectival form of the name in its title. A Bogart movie had to have a maguffine, after all. But the Falcon turned out not to be what everyone thought it was. But it worked fine as a maguffin.

04 June 2007

Henry Lee

Dr. Henry Lee, Connecticut's favorite son in the world of forensic science, has acquired something of a resume stain in the Phil Spector trial.

Here's a resume of that resume.

Chief Emeritus, Division of Scientific Services
Commissioner, Connecticut Department of Public Safety
Chief Criminalist, State of Connecticut
Director, Connecticut State Police Forensic Science Laboratory
Professor, Forensic Science Program, University of New Haven
Research Scientist, New York University Medical Center
Captain, Taipei Police Headquarters, Taiwan

But Larry Fidler, the presiding judge in the trial of Phil Spector has concluded that Lee hid or destroyed evidence pertinent to Lana Clarkson's death. The judge in that case concluded that Lee hid or destroyed evidence from the scene of an actress's death, evidence that the prosecution contends was potentially damaging to the music producer's case.

Lee, who has testified in the trials of O.J. Simpson and William Kennedy Smith, who has consulted in the matter of JonBenet Ramsey, who has posted an 85 page (85 page!)resume on his web site, is now alleged to have taken something (something small and white -- a piece of a tooth?) from the Spector/Clarkson crime scene.

I understand that the defense still intends to call Lee as an expert witness, and the prosecution will then get to introduce the same evidence that seems to have persuaded Fidler of some wrong-doing on his part, in front of the jury.

Here, by the way, is that 85 page resume's URL. http://www.drhenrylee.com/about/dr_lee_cv_resume.pdf

I doubt that Lee did anything intentionally wrong. But even if he just pocketed something he shouldn't, this could hurt him. Fewer celebrity trial appearance in the future

03 June 2007

Thinking Through the Prosecution's Case

I'm still trying to think through some of the implications of the Milberg Weiss prosecution, with its now-looming settlement. There's a good deal of "At last! Bravo!" commentary in the blogosphere this weekend that seems directed not at MW in particular but at a broader target.

There's a feeling afoot that "ambulance chasers" do something inherently suspect, and that the corporate version of the form -- class action and shareholder derivatives action attorneys like MW which sue large publicly-held corporations, are the worst of the lot, regardless of the specific rent-a-plaintiff facts alleged.

Attorneys in the field will tell you that they've been targeted as a cynical matter by the corporate elite which doesn't want to be held accountable in the courts, and a lapdog media that spreads horror stories about any threats to that elite.

I don't generally see myself as a middle-of-the-road kind of guy, but in this case I have to take my stand in ... the middle of the road. I hope there's a safe traffic island there, with some grass. I can't buy either the "scavenger/parasite" theory or the "hero/martyr" theory of attorneys who bring private actions (class actions or otherwise) against publicly held corporations.

Anyone with libertarian sympathies should see one argument in their favor at once. They aren't government regulators or prosecutors. If corporations are to be held accountable at all, shouldn't it be in decentralized fashion, by private plaintiffs who themselves can be required to show the harm that gives them an interest in the matter, and by the attorneys those plaintiffs hire -- who work, after all, in a competitive marketplace with one another, and who work for the profit motive? It seems that what MW has been doing represents a free market alternative to a big-regulatory state, not a wing of the same.

Yet there are counter arguments to that. I'm not aware of any real see-saw effect. In other words, good times for private plaintiffs' attorneys don't seem to coincide with a decrease in the extent of government regulation or prosecution. Indeed, the two seem to be correlated, so a theoretical preference for one as an alternative to the other may not mean much if, in empirical observation, they rise and fall as a package.

And does plaintiffs' counsel really play the corporate-abuse-checking role if what he does is to draft a complaint after some regulatory authority has already made waves? That's what often seems to happen. For example, New York's attorney general began a very public investigation of late-trading in mutual funds in 2003, and soon Milberg Weiss and other firms were bringing class actions against the same fund management companies that were already in Eliot Spitzer's sights. It isn't clear that MW brought anything new to the table. It shot the wounded horse lying on the track.

On the other hand -- is this a third "hand" or are we back to the first one or what? -- perhaps the Spitzer/MW relationship simply proves that plaintiffs' counsel, like most of us in one way or another, have to be weaned from the public teat. If Spitzer wasn't around then MW would have to invent him -- in-house. Which is what policy pragmatists should want.

02 June 2007

Prisoner's Dilemma at Milberg Weiss

There are reports now that federal prosecutors are deep in settlement negotiations both with Milberg Weiss & Bershad LLP as an entity, and with one of the individual defendants in the same case, David Bershad.

I haven't mentioned this case since my move from blog-city, so here's some catch up. Thirteen months ago, a federal grand jury in California indicted MWB in a rent-a-plaintiff scheme. There's an old saying that a prosecutor who so desires can get a grand jury to "indict a ham sandwich," and this surely seemed to be a case where the decision making was effectively in the hands of the US attorney's office, not the jurors themselves. (Weiss was never indicted, and Milberg is deceased.)

There were frantic negotiations in the days before the indictment that appear to have involved an effort by the US Atty to persuade the firm to waive pertinent privileges and let the government look at some internal documents. If Milberg Weiss had agreed to that, perhaps only individuals would have been indicted. In the end the firm refused and the govt. went ahead with the RICO indictment.

There are important policy considerations against the sort of secretive kickbacks to named plaintiffs in shareholder derivatives lawsuits and class actions that are alleged here. But I view with some skepticism the government's case, and how easily we as a country have allowed prosecutorial discretion to grow to a really monstrous level.

These negotiations, "squeal on your firm and we'll cut you a better deal," while in another room, another member of the prosecution is saying, "squeal on your name partner Bershad and we'll cut the firm a better deal," of course do nothing to relieve me of that skepticism.

01 June 2007

Auto Insurance Premiums

Peter Brink, writing in TheStreet.com yesterday, said that auto insurance premiums are falling. Why would that happen? Aren't auto insurance companies greedy bastards? as much so as any other capitalists?

Brink attributes the decline to the fact that vehicles are safer now than they were 10 years ago. http://www.thestreet.com/funds/ratings/10359691.html?puc=googlefi But, we might ask him: so what? If a business can keep selling its product for the same amount of money even though its costs are dropping, why wouldn't/shouldn't it? It's called profit maximization, isn't it?

Yes. For the sake of clarity, we ought to think this through a bit further. Suppose two brothers, Frick and Frack, have founded two insurance companies. Each has specialized in the field he thinks likely to be most lucrative. Frick sells auto insurance. Frack sells flood insurance. Suppose, now that both lines of business prove to be equally profitable. There is no incentive for either to change his business model, because each is doing as well as the other. What might change this nice equilibrium?

A sharp drop in auto claims, due to increasingly safe models of car over ten years, might change it. Frick continues to charge premiums at the price the market will bear. Since he pays out less money, his profit of course increases. This means he's doing better than Frack now. Some of the Fracks in the world will become dissatisfied with this situation, and will move into auto insurance themselves. The increasing competition (in the absence of prohibitive barriers to entry) will lead to lower rates after all.

That's how its been written up in books at least since Alfred Marshall's day. And that is what seems to be underway.

Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.