30 September 2007

Changing the Proxy Rules II

Electing your friends to the board isn't the only way you, as a corporate activust/dissident, might decide to use proxies. You might seek to force votes at the annual meeting, or press the board to take a stand, on a range of actions through the non-binding resolution for example: that the company will stop doing business with country X until the dictator for life in country X promises free elections.

How much of that should be allowed, and when does it become a pointless distraction that the management and incumbent board can rightly keep off the ballots?

Previous efforts by the Securities and Exchange Commission to codify principles on such points has led to the creation of rule 14a-8. Here's the URL for an outline of 14a-8 prepared by the University of Cincinnati College of Law.


The present shenanigans arose over one particular provision of this rule, 14a-8(i)(8), which says specifically that a company has no obligation to present a shareholder proposal in its proxy materials if that proposal "relates to an election."

The U.S. Court of Appeals, Second Circuit, kicked over this applecart in September 2006, when it ruled in a lawsuit brought by the American Federation of State, County, and Municipal Employees against American International Group Inc. that although an issuer such as AIG can exclude rule changes that "relate to a particular election," it can't exclude rule changes that "like AFSCME's, would establish the procedural rules governing elections generally." [Emphasis added.]

The Second Circuit includes the federal district courts of Vermont, Connecticut, and New York. It seems to have gone "off the reservation" here, though. The other circuits generally understand the federal rule to mean that an issuer can exclude changes about a corporation's election rules full stop, regardless of whether their terms are "general" or "specific." By interpreting the ability to exclude narrowly, the circuit court has given shareholder activists a new target -- to try to change corporate policy by holding these meta-elections, votes about the procedures for future votes.

So the SEC has now proposed two distinct re-workings of 14a-8(i)(8). They are mutually inconsistent, but the SEC hasn't chosen between them. It has put them both out for public comment, saying, "Hey, everyone, help us decide what to do about the AFSCME case!"

In the eyes of most activists or would be activists, the SEC shouldn't do anything about the AFSCME case except embrace it.

But both of the proposals fall short of an embrace. One would allow the meta-elections, but would also set out a very restrictive set of rules about how they would be conducted. The other would disallow them completely.

Personally, I'm in favor of the third option. The SEC should reject both of its own proposals and just embrace the Second Circuit's reading, opening the doors wide (not just a crack) to meta-elections with activist intent.

Why? I'll explain tomorrow, completing this triptych.

29 September 2007

Changing the Proxy Rules I

The Securities and Exchange Commission has under consideration two proposed changes to the proxy rules. Whatever change it makes will be a relatively minor adjustment to the system of "corporate governance" prevailing in the US at the moment, but there are issues of principle involved, so let's talk about this for a bit.

In fact, I'll make this a three parter, so if you're fascinated by today's entry, you'll be sure to check in tomorrow and Monday! If you're nodding off already, set the alarm for Tuesday.

For those still here: A corporation typically has a hierarchy of managers, with the C-suite at the top (CFO, COO, CEO). The managers are responsible to the board of directors, who are in some sense or other -- this is the nub -- responsible to the whole body of stockholders, the owners of the company.

The specific relations between shareholders, the board, and the management are known, generically, as "corporate governance," which I'll just abbreviate CG hereafter. Most of the CG rules are set by Delaware, where the major US corporations are generally chartered. Other states folow its lead, and any regulations at the federal levels have to build on that foundation. It is Delaware's law that requires an annual meeting, that provides for the election of directors at that meeting, that determines the issues on which the shareholders have a right to vote, and that supplies a quorum requirement.

It was a judge (technically, a vice-chancellor) in that state, Leo Strine, who in a decision handed down five years ago spelled out the reason why stockholders who disagree with the policies of a particular board of directors have a right to nominate their own alternative slate of directors and wage and campaign to elect them instead of the incumbents.

"As the nominating process circumscribes the range of choice to be made, it is a fundamental and outcome-determinative step in the election of officeholders," Strine said. "To allow for voting while maintaining a closed selection process thus renders the former an empty an empty enterprise."

So much for the foundations. Tomorrow we'll talk about what the SEC is proposing to do about the proxy/election process.

28 September 2007

After a brief strike

The United Auto Workers and General Motors reached an agreement Wednesday. The two day strike served like the prospect of a hanging, to focus the attention of both parties.

The gist of the agreement is this: GM wants to get out of the pension-fund management business. The UAW is willing to take over that role, given various agreements designed to smooth the transition.

The parties will create a trust, to be known as the Voluntary Employees' Beneficiary Association, or VEBA, that is expected to shift more than $50 billion worth of retiree health care obligations to the union.

From the point of view of a retiree, or a GM worker who might become a retiree at some point in the next few years, does this move in the provenance of the pension money make the stream of contracted-for payments more secure, less secure, or is it a wash? I'm not sure. It seems to me that the simply shift of the fund responsibility from one administering organization to another matters little. What matters is (a) the money coming in, (b) the money going out, and (c) the skill of the managers who handle it in the meantime.

I doubt much wil change with (c). The UAW will hire the same sort of folks to run VEBA who've beenhandling this money until now - it might even hire literally the same people to a great degree. Nor will (b) change short term. The commitments and demographics are what they are. So everything depends on (a). Will the new GM/UAW deal allow for the infusion of new cash into VEBA?

It seems to me that this is the idea, although the provisions for that infusion are rather indirect.

Wall Street loves the idea. Because it has visions of VEBA's money managers knocking at the doors of the brokerages, shouting, "puh-leeze help us make money. Puh-leez." It also has visions of Ford and newly-re-Americanized Chrysler joining the VEBA money pool too.

Come on in, the water's fine.

27 September 2007

Hung Jury

New evidence is now in confirming a widely-held hypothesis that southern California's juries will not convict a celebrity.

Yesterday, the jury that had deliberated on whether Phil Spector was guilty of the murder of Lana Clarkson informed Judge Fidler that they couldn't reach a conclusion. It appears that the final vote was 10 for "guilty," two for "not guilty."

The judge declared a mistrial. The prosecution says that it intends to try the case again. Jeopardy doesn't "attach" with a mere mistrial declaration, so double jeopardy isn't an issue. Still, most attorneys who practice criminal law will tell you that it gets harder for the prosecution on a repeat -- it's unlikely the result will be better for them.

There are exceptions, the Alger Hiss case was one of them. Just for the trip down memory lane -- Hiss stole documents from the State Department in 1938. Whittaker Chambers later produced some of them. Hiss and Chambers were part of a single CP cell in the US, funnelling such documents to the Soviets.

By 1948, when the matter became notorious in Congressional hearings, the statute of limitations had expired on any espionage charges. So when Hiss was tried, the following year, the charge was perjury -- the crime was that he had lied before the House committee when he had denied espionage.

The first trial ended in July 1949 with a hung jury. The government retried the case, and Hiss was convicted in January 1950.

One might with some plausibility attribute this difference to a change in the political atmosphere over that half-year. There may have been some sentiment among the first set of jurors that the Soviets were our ally in the recent war, so why is sharing information with them espionage exactly? If so, the sentiment was not in accord with the pertinent law. Unauthorized sharing of secrets even with the friendliest of allies is still espionage. Also, the Soviets weren't allies in 1938. Still, sentiment is always a factor in jury trials.

Perhaps over the second half of 1949 that view was fading, and the Soviets came to be seen less ambiguously as enemies in the new battle for hearts and minds, etc.

Anyway, it is a high-profile example from more than half a century ago and doesn't really affect my assessment of the prosecutions chances in a retial of Phil Spector. Slim and none.

26 September 2007

collegiate gothic

I saw a neat story in the Wall Street Journal of yesterday, written by Catesby Leigh.

It concerns architecture and, in particular, the style known as "collegiate gothic." Despite the proliferation of modernist boxes on campuses, there is still an idea at large that the Ur-college building should have (Leigh's words) "picturesque asymmetries, crenellated towers, elaborate oriels, and eye-catching grostesquries."

The Hogwarts portrayed in the Harry Potter movies is prep school gothic, but it has such crucial features as the limestone and the high-ceilinged halls right.

Anyway, Leigh was writing as part of the Journal's Leisure and the Arts section, praising the architect of new construction on the campus of Princeton University. That architect is Demetri Porphyrios, who is scheduled to lecture on his designs today, in advance of the formal dedication of the new buildings tomorrow.

The new construction came about because Meg Whitman, the president and chief executive of eBay, donated milions to Princeton, and the new buildings, for both classrooms and dorms, were what the college decided to do with it.

The result? a resurrection of collegiate gothic, an "irregularly sloping landscape populated by an architectural ensemble that echoes in the imagination" and so forth.

And some of you thought there'd never be a good reason for a trip to New Jersey. Tsk.

25 September 2007

Uncontrolled Growth

Our "thought for the day" comes from Michael Crichton, and from the novel that made him famous, The Andromeda Strain (1969).

"The mathematics of uncontrolled growth are frightening. A single cell of the bacterium E. coli would, under ideal circumstances, divide every twenty minutes. That is not particularly disturbing until you think about it, but the fact is that bacteria multiply geometrically: one becomes two, two become four, four become eight, and so on. In this way it can be shown that in a single day, one cell of E. coli could produce a super-colony equal in size and weight to the entire planet Earth."

The mathematics of geometrical progression is what famously freaked out the Reverend Malthus, too.

24 September 2007

Greenspan and Clinton

Some of the most quoted passages in the book concern Greenspan's high view of Bill Clinton.

"Here was a fellow information hound and, like me, Clinton clearly enjoyed exploring ideas. I walked away impressed, yet not entirely sure what I thought. Clearly, for sheer inteligence, Bill Clinton was on a par with Richard Nixon, who, despite his obvious flaws, was the smartest president I'd met to that point. And either Clinton shared many of my views on the way the economic system was evolving and on what should be done, or he was the cleverest chameleon I'd ever encountered."

Eventually, he drops the clever chameleon theory. "I was impressed that he did not seem to be trying to fudge reality to the extent politicians ordinarily do. He was forcing himself to live in the real world on the economic outlook and monetary policy. His subsequent decision to go ahead and fight for the deficit cuts was an act of political courage."

The whole of Chapter Seven, "A Democrat's Agenda," dealing basically with the first Clinton term, gives me the impression that Greenspan was a victim of the famous Clinton charm and the strategy of triangulation that BC so often employed that charm to serve.

Clinton persuaded people like Greenspan and, say, David Gergen, that they had to help him in order to ward off the danger that lefties like James Carville or Henry Gonzalez would otherwise pose. At the same time, of course, he earned the loyalty of the Carvilles and Gonzalezes by posing as their champion against Republican wheeler-dealers like Greenspan and Gergen. So far as Greenspan was concerned, this seems to have worked perfectly, and still to be working. Cleverest chameleon, indeed.

23 September 2007

Angelic Sex

Although some believers use the term "angel" loosely, in a pop-cultural sense, to refer to the condition of the soul of a deceased body after its entrance into paradise, in Christian theology generally the word has a different meaning than that. The angels properly speaking -- like Michael or Gabriel -- were created as angels, and have never had bodies.

If they can't have bodies, one naturally wants to ask: can they have sex? and if they can't have that either, how real is their paradise?

When I say "one" wants to ask this, I don't mean myself alone. No less of an inquirer into matters high and mysterious than John Milton asked this, and offered an answer.

In Book 8 of PARADISE LOST, Raphael visits the Garden of Eden. He talks of various serious matters with Adam -- Eve leaves the table when the talk turns to astronomy, because as she says she wants to hear such things directly from Adam.

Anyway, after astronomy is disposed of, Adam asks his guest another man-to-man question:

Bear with me then, if lawful what I ask;
Love not the heav`nly Spirits, and how their Love
Express they, by looks only, or do they mix
Irradiance, virtual or immediate touch?


Raphael glows "celestial rosy red" at this question -- he's blushing.

But he answers:

Whatever pure thou in the body enjoy`st
(And pure thou wert created) we enjoy
In eminence, and obstacle find none
Of membrane, joint, or limb, exclusive bars:
Easier then Air with Air, if Spirits embrace,
Total they mix, Union of Pure with Pure
Desiring; nor restrain`d conveyance need
As Flesh to mix with Flesh, or Soul with Soul.

22 September 2007

Inside the book

On Wednesday I discussed the dust jacket of Alan Greenspan's new book THE AGE OF TURBULENCE: ADVENTURES IN A NEW WORLD.

It's half memoir and half treatise, and today I'd like to go inside the covers, to discuss a bit of history that Greenspan treats of rather briefly in the memoiristic portion.

As you may remember, the "savings and loan" system, which once upon a time was treated as an entity distinct from actual "banking" for regulatory purposes, blew apart in rather spectacular fashion in the mid 1980s. IMHO, there's a sense in which it all worked out for the best, because there was no logic to that compartmentalization anyway. Still, the blow up was messy, and people got hurt.

Some of them got hurt by virtue of trusting Charles Keating, who ran the Lincoln Savings & Loan association, of California. In a classic bubble-burst scenario, Lincoln's assets under management quintupled in the four years when Keating was in charge of it (1984-88), then evaporated virtually overnight.

Some of that phenomenal increase was the result of making risky investments that, for a time, paid off. But some of it was a result of finangling with the books.

Fairly early on in the expansion of this bubble, in 1985, Alan Greenspan (who was then in the private sector as a consultant, though he had numerous informal ties with the Reagan economic team) had been employed by Keating's lawyers to write a study evaluating whether Lincoln was financially healthy enough to be allowed to invest directly in real estate. The study was to be presented to the Federal Home Loan Bank Board, which had to give its approval for such investments.

In his book, Greenspan writes (p. 115) that he concluded "that with its then highly liquid balance sheet, it could do so safely. This was before Keating undertook dangerous increases in the leveraging of his balance sheet and long before he was exposed as a scoundrel. To this day I don't know whether he'd started committing crimes by the time I began my research."

The FHLBB, unpersuaded, denied the Keating request, but of course Keating found ways to waste his depositors' money anyway.

Greenspan's involvement wasn't central. He helped Keating apply for a permission he didn't get. Still, one would like to know more about this than the brief mention it gets here. He mentions it chiefly to say that it embarrassed him later, after his appointment as Fed chief when the buble finally did burst. It also caused difficulties at work for a woman with whom he was romantically involved, newscaster Andrea Mitchell. They didn't marry until 1997.

At any rate, Greenspan's big regret about the clean bill of health he gave to Lincoln seems to be that Ms Mitchell wasn't allowed to cover the Keating hearings on Capitol Hill as a result.

Personally, I would like to have learned more about this from him. And I would like him to have beenmore curious, too. "To this day I don't know whether...?" So on his own account Keating either (a) went over to the dark side later or (b) was already on the dark side when Greenspan checked him out, but tricked him.

Has Greenspan tried very hard to figure out whether it was (a) or (b)? So far as we can tell here, not at all. Those who do not study the history of bubbles, are doomed to help blow new ones.

21 September 2007

Abu Dhabi Buys Into Carlyle

The Carlyle Group has just sold 7.5% of its equity to an arm of the Abu Dhabi government.

Specifically, the buyer is the Mubadala Development Co., which paid $1.35 billion for the stake. Oddly, the two parties announced that this deal values the whole of The Carlyle Group at $20 billion.

Really? If 7.5% of an enterprise's equity is worth paying $1.35 billion, then a straightforward calculation suggests the parties implicitly value the whole enterprise at $18 billion. Is my math wrong, or is theirs?

My math is right, backed up by my trusty Texas Instruments toy. Their calculation isn't so straightforward, though. They've announced that Mubadala is getting a 10% "liquidity discount" off what would otherwise have been the fair market value for their purchase. A liquidity discount? As in "Carlyle needs the money NOW"???

Carlyle is a very prominent private equity firm -- it owns Dunkin' Donuts, Nielson, and a maker of automobile seats, Britax. This spring, around the time of the Blackstone frenzy, there was talk that Carlyle, too, would go public. But the great market volatility of the summer seems to have put the kibosh on that, so it's evidently selling itself piecemeal.

Actually, there's a lot else that might have had the effect of putting on ice Carlyle's hopes for an IPO this year. There's the continuing debate in Congress about the taxation of carried interest. That debate seems to have been stoked by Blackstone and the honchos at Carlyle simply may not wish to be similarly provocative.

So, yes, Carlyle does need the money NOW. They can't wait until markets calm down and/or the political heat goes away to have their IPO and raise their hypothetical $20 billion. And the 10% liquidity discount is a disturbing sign of how bad the credit crunch has become.

20 September 2007

HJ on Flaubert

I know nothing about Flaubert, but I find this comment intriguing.

Henry James Jr., my intellectual mentor's bright kid brother, wrote a review of
"The Temptation of Saint Anthony," in 1874. Although he began with that book, he quickly turned his attention to the whole arc of Flaubert's literary career.

Although he acknowledged that Madame Bovary was a great work, HJ expressed disappointment with the rest of the curve, and especially with the work before him as its culmination.

"M. Flaubert and his contemporaries have pushed so far the education of the sense and the cultivation of the grotesque in literature and the arts that it has left them morally stranded and helpless. In the perception of the materially curious, in fantastic refinement of taste and marked ingenuity of expression, they seem to us now to have reached the limits of the possible."

Who is that "us" in the final clause? Henry was simply employing the privilege of reviewers to speak in the first person plural, "we, the arbiters of taste who understand these things...."

The review interests me precisely because this isn't "just" a critic. This isn't Pauline Kael writing about Alfred Hitchcock. This is the 19th century literary equivalent of John Ford writing about Hitchcock.

Tolstoy's screed against Shakespeare is analogous, except that Tolstoy was past the peak of his own powers at the time, a former artist turned eccentric sage.

Was there justice in James' complaint that Flaubert had cultivated the grotesque to an extent that left him "morally stranded and helpless"?

I end as I began -- I have no idea. I'd be happy to hear from those who know about Flaubert's post-Bovary writings though.

19 September 2007

Greenspan's photo

I bought the new book -- part memoir, part tract -- by former fed chairman Alan Greenspan yesterday.

I'll discuss its contents here some other time. What I want to talk about just now is the photo on the dust jacket. It's quite intentionally low key, and hardly registers at first glance. But if you come back to it, you may find it disturbingly asymmetrical.

A line drawn down the center of the photo will almost miss his head completely -- just about slicing off his ear.

Nothing odd about that in itself, but I suppose I'd expect asymmetry in placement to be balanced by the direction of his gaze. In other words, a head on the left side of the photo should be tilted somewhat to the right and vice versa. Greenspan's head is on the left side, and he's looking further left, off the margin. Why? Is the photographer hiding something from us?

You can see the photo yourself on the amazon page. Tell me it isn't just a bit creepy.

There's also that slight smile, as if to say, "This is what Mona Lisa looked like after rigor mortis kicked in."

18 September 2007

The Great War

Here's one way to look at it. The war we know in retrospect as World War I, the one that was known in its day simply as The Great War, broke out as a culmination of competing imperial powers and their long struggle to carve out zones of control and influence through the continent of Africa.

In 1904, for example, France reached agreement with both Spain and Great Britain that they wouldn't challenge French dominion in Morocco.

Kaiser Wilhelm had been kept in the dark about these negotiations and when the agreement was announced, he was ticked off. The countries/imperial seats to his west were, it seemed, uniting to freeze him out of northern Africa. The Kaiser then announced support for Moroccan independence. Things spiralled almost -- but not quite -- out of hand in the following months. In December 1905, Germany mobilized its army reserves. In January 1906, France moved troops to the border.

Why didn't a general European War break out over that crisis? In part, I suspect, because the Germans simply weren't ready yet. Part of that unreadiness was the public-relations job, the psychological mobilization of a population. The German population wasn't sufficiently whipped up about fighting for free trade with Morocco.

Part of the reason, too, was alliance management. Austria-Hungary would have to watch Germany's back in any general war, and the Austria's had no dog in the African pit. Now, if there were a crisis in which, say, a member of Austria's royal family had been killed, that calculation would be different....

So the Germans backed down, and by April 1906 accepted French control there.

That was just one of many incidents in the rivalry for control of Africa, a rivalry that extended all the way from the banks of the Mediterranean to the Transvaal.

17 September 2007

Free Speech for the Rat

I saw a news story recently about an inflatable rat as a free speech case.

At a labor union rally, in Lawrence, NJ, the event organizers set up a super-sized inflatable rubber rat, standing on its hind legs and baring its fangs. The rat was (it seems to me) a rather eloquent form of speech saying, roughly, "guess how we feel about non-union workers undermining our collective-bargaining efforts."

Lawrence Township apparently has an ordinance prohibiting the use of banners, streamers and inflatable signs, except those announcing grand openings.

That "except" ordinance smells fishy to me. On what principled basis does the manager of a new car dealership have greater rights than a union boss? The car dealership might want to set up a giant inflatable Cougar or Impala. That's okay but the rat threatens some interest that the township police need to protect?

A labor official was fined $100 plus court costs. Not a huge deal, but it's the principle of the thing that rankles. A $1 fine would be excessive if it violates his rights -- either to speak freely or to be treated as an equal of the manager of a business having a grand opening.

New Jersey's constitution, BTW, says this: "Every person may freely speak, write and publish his sentiments on all subjects, being responsible for the abuse of that right."

I like that language. It indicates that the right and responsibility for its abuse are two statements of the same fact, not two distinct facts. All to the good. So ... how did an inflatable rat constitute "abuse"?

16 September 2007

God and the Moral Philosopher

Some comments today, in accord of course with the name and originating purpose of this blog, about the philosopher William James, especially his essay "The Moral Philosopher and the Moral Life."

Toward the end of that essay he asks himself the question (I'm paraphrasing) whether a secular humanist ethics is enough, or whether a coherent sense of good and evil requires a belief in God.

The answer? A secular ethic can be logically coherent but would not ordinarily be psychologically self-sufficient, because an understanding of ethical philosophy leads naturally beyond this world, to an understanding of the divine source of the energies that make for goodness.

The secular ethic can be logically self-sufficient because, as James strove to show, goodness is an inter-subjective fact. All anyone has to acknowledge in order to get a basic grasp on the issues of right and wrong is that there are a variety of different minds in the world, and that they conflict. The goal of reconciliation will naturally suggest itself. Furthermore, in James' view at least, there is a pattern of moral progress in history, a movement toward "our civilizd society" and away from "the older savage ways." An atheist can observe that pattern in the documents as well as a theist. He can draw conclusions from it an act accordingly.

Even, James writes, in a "merely human world without a God" life can be "a genuinely ethical symphony," although in such a world the range of its octaves is narrow.

Why are they narrow? To understand that, we ought to back up and define the essence of James' moral vision. It has both a conservative and a rebellious side -- the conservative respects and defends the social equilibrium that has developed, against the savage or the fraudulent and the threats each presents. But the rebellious
says that no equilibrium is final, and puishes forward toward something more inclusive, more tolerant...higher.

A thoroughly secular view can grasp both halves of this vision, as a logical matter. But depth in contemplation of the human predicament, James says, will lead an ethical philosopher to wonder what motivates and what sustains the rebels who challenge the existing order and upon whose efforts the pattern of moral progress depends. In one passage in MPML James said that every one of "hundreds of ideals has its special champion already provided in the shape of some genius
expressly born to feel it, and to fight to death in its behalf".

Expressly born? A champion already provided? Provided by whom? The most natural hypothesis is that champions -- saints, we may call them, to recall the lectures on sainthood and its uses in VARIETIES -- they come to us and are sustained by what James near the end of "The Moral Philosopher" calls "a divine thinker with all-enveloping demands."

15 September 2007

Celebrating bad news

The SCO Group filed for bankruptcy protection yesterday.


SCO seems to me to be a intellectual-property troll writ large.

Patent "trolling," for those of you who don't know the lingo, is the creation of dubious claims to intellectual property in the expectation that the mere nuisance value of litigation will be worth a payoff. Sometimes they're called "patent hoarders."

Both terms obviously have a negative connotation, which is as it should be, because the unproductive misuse of patents is a brake on the economic system.

To be technical, though, SCO's trolling actually involved copyright, which is more rare, but an IP troll is a troll all the same.

Just one week before its bankruptcy filing, SCO lost big in court. Specifically, in the Utah courtroom of the Hon. Dale Kimball, federal district court judge.

Kimball decided that Novell is the true owner of the crucial intellectual property that SCO has been claiming for years, and on the basis of which SCO has brought its spate of lawsuits -- such as a lawsuit against AutoZone for running versions of the Linux operating system in the course of its business.

I'm reminded of an episode of the now defunct sitcom Newhart. Not the one where Bob played a psychologist - the one where he was an innkeeper. At any rate, Bob's character is introduced to an elderly and welathy man. Asked how he made his money, the old coot said, "I'm a sewer." Or at least that's how it sounded.

Turned out he meant to say that he was a professional plaintiff -- a suer.

Some people may make money that way but the rest of us are the poorer, and I'm very glad that SCO won't get to be a sewer any longer.

14 September 2007


The US has several outstanding complaints against China before the World Trade Organization.

In conjunction with Mexico, the US has complained for example that China is providing illegal subsidies to its paper industry. Separately, the US claims a failure on China's part to protect intellectual property rights, and has joined with the European Union to object to China's tax system which effectively blocks the import of foreign-made auto parts.

Some of this is simply political cover. The administration wants to be able to make the case that its addressing the trade imbalance. The fact, though, is that the imbalance has macro causes and the WTO offers only micro solutions.

"So what is a solution" you might ask. I don't know that there is one, certainly not on a bilateral basis. To use an example I've picked up from George Will: I have a grave trade imbalance with my barber. I regularly pay him for a haircut and a shave, and he never buys anything from me - because he has no need of a writer.

The trick is to be in balance over-all. If my writing -- or Mr. Wills' -- brings either of us enough income to buy haircuts and everything else we want to buy, we needn't worry about bilateral balances.

Unfortunately, the US isn't in that situation either. We have an over-all trade deficit, and have had one for a long time. It amounted to $190 billion dollars more spent than received in the second quarter of 2007. That is worrisome.

Should I now act like a responsible citizen and propose something that can be done about it? Nah. I'm an anarchist, after all. An anarcho-capitalist, to be exact. Sovereignty is at the heart of the world's problems, and what to do about all of them is to free our minds from the grip of that premise.

Still ... such statistics do indicate to me that we in North America have a rocky road ahead of us and we continue to fall into debt buying the rest of the world's stuff. The bills will come due. And complaints to the WTO won't help us much.

13 September 2007

Pothole Pictures

Pothole Pictures hosted a film festival Saturday in the picture-book downtown of Shelburne Falls, Massachusetts. The festival was a pilot, if you will. Organizers hope to make of it an annual event.

The films shown Saturday were a mixed assortment. The old classification of fiction/non-fiction rather breaks down when one is confronted, for example, with a claymation take on the Battle of Trafalgar. There was only one movie bearing the label "documentary," -- it was an awful piece of tripe about why co-operation is good, so competitive sports are bad because somebody loses. Or something like that.

There was also a movie on "tomboys": the concept, some of the girls it's used to describe, and the women they've become. This one wasn't labelled a documentary, but I suppose it could have been. At any rate, the anti-competition movie and the tomboys movie might have made an appropriate pairing had they been played back-to-back. If there's anything that can fairly be said about the girls/women it described, it is that they were/are intensely competitive.

Backing up, though.

The very first film shown had a neat conceit at its core -- a young man who has evidently just suffered romantic disappointment enters a coffee shop and encounters there the ghosts of Emily Dickinson, Sylvia Plath, and Anne Sexton. The filmmakers obviously wanted us to see this as a scene in which those deceased poets provided him with encouragement and advice. It doesn't work out, though, because the lines of recited poetry sound too much like recited poetry. The conceit of the film demands that they be delivered in a more conversational style than these actresses could deliver.

Still, there was much better stuff than this. There was an original take on the Mad Hatter's tea party, and a hilarious send-up of "The Da Vinci Code" set in New England and called (of course) The Norman Rockwell Code.

Now that was a conceit that really came off in the execution.

12 September 2007

Jury Deliberations

We're now well into the jury deliberations phase of the Phil Spector/Lana Clarkson murder trial.

Outside the hearing of the jury, the judge and attorneys have been in something of an uproar over comments Spector allegedly made to an interviewer for The Mail, a UK publication.

My understanding is that if he gave an interview at all, Spector was in defiance of a gag order. But if you're facing a murder conviction, a citation for contempt of court probably looks like small beer.

What was amazing to me was a scene in which Spector's wife, Rachelle, opened defied the trial judge, essentially daring him to lock her up. Here's a link if any of you would like to read all about it.


We'll see how long this takes.

11 September 2007

W.D. Ross

Today I'm going to describe the ethical theory of Scottish philosopher W.D. Ross, author of THE RIGHT AND THE GOOD (1930).

Why? Well ... because Ross' view, which he called intuitionism, was for a time influential, although it has siince fallen into obscurity, and such Ozymandias-type theories are intrinsically interesting.

Also, because Ross' views seem a British-isles re-write of Jamesianism, of the sort of pluralism expounded in The Moral Philosopher and the Moral Life.

Ross argued that there are several obligations that play a role in moral reasoning -- in deciding what we ought to do. Each of these obligations is in itself ony a "prima facie duty," because any of them can be counter-balanced by others. The "absolute duty" is by definition that which, in a given situation, outweighs any others.

How do we know which duty in cases of conflict is the absolute one? Our intuition (hence the name for the theory) will tell us case-by-case, which feels weightier.

Technically, Ross' views are classed as "deontology," that is an example of views in which the right dominates the good, duty exists separate and sometimes above the issue of making-the-world-better. Well, Ross' list of duties included at least two that a making-the-world-better philosopher would approve of. We have a duty of self-improvement and we have a duty of beneficience -- of improving the lives of others. Still, there are lots of other duties on his list that can run against these, such as fidelity and gratitude, so if he's right, then there will be times when my duty will be to act in such a manner as to decrease the amount of good.


10 September 2007


There's a brief article on a fellow called Judd Bagley in wikipedia, and there's an "Articles for Deletion" page on Bagley as well.

I find myself in an odd position here, because something I wrote has apparently been cited as one of the reasons why Judd is notable enough to warrant an encyclopedia article of his own.

Editor Phil Sandifer wrote, "Bagley is involved in a financial scandal with coverage in the New York Post, New York Times, Bloomberg, and the HedgeWorld Daily."

Well, I wrote the last of those. In fact, Bagley is mentioned exactly three times in the pages of HedgeWorld, and each of those three times the byline is mine. Here's one of them.

But I don't think he warrants a wikipedia entry of his own. He's worth the sporadic mention he gets because of his position as "director of social media" at Overstock, a company I've mentioned more than one here I think.

I might as well mention, though, that Susan Antilla, a finance journalist, wrote a column for Bloomberg in February of this year on what she called the "bizaare battle against naked shorts" being waged by Overstock CEO Patrick Byrne and Mr. Bagley. The gist of the column was that although Mr. Byrne is "pro at creating havoc [he] isn't so good at creating profits," as indicated by Overstock's history.

This Antilla column generated an odd response from Mr. Bagley on the InvestorVillage message board. He referred to Dennis H. Leibowitz, founder of the New York hedge fund firm Act II Capital LLC, as Ms. Antilla's husband. He also said that this provides "a wee bit of context" on her column -- he left, and I think he meant to leave, the implication that the Leibowitz/Antilla marriage is itself a microcosm of a broader hedge fund/financial media conspiracy.

On March 14, on his AntiSocialMedia web site (which Mr. Bagley appears to maintain of his own initiative, outside the scope of his employment at Overstock), Mr. Bagley acknowledged that he had read on another web site or blog that Ms. Antilla and Mr. Leibowitz are divorced. He responded, "I went on to spend about 10,000 moments online searching for evidence of that divorce, yet found no record of the dissolution of the Antilla-Leibowitz union. In fact, I'm on the verge of advising Ms. Antilla to ask her divorce lawyer for her money back."

The divorce lawyer in question can keep his fee, though. The records of the Family Division of the Superior Court for the State of Connecticut in Stamford clearly show that Ms. Antilla filed for divorce on Feb. 2, 2005. The marriage was formally dissolved Oct. 31, 2006, months in advance of the Bloomberg column that drew Mr. Bagley's effort at that "wee bit" of contextualizing.

The nature of social media is such that Mr. Bagley was soon directed to this document, and backed down from an impossible position, acknowledging the divorce.

People outside Mr. Bagley's own limited social circle seem to mention him chiefly in conexts like that -- contexts in which he made demonstrably false assertions. Hardly a sufficient reason to give him a wikipedia entry of his own, IMHO.


P.S. Subsequent to my composition of the above, the Bagley article was in fact deleted from wikipedia, pursuant to its Afd procedure.


09 September 2007


I carry a large load of ideas around in my head, and it isn't at all obvious that they are consistent with one another. Indeed, I usually have no need to check for consistency.

So, for example, in certain contexts I may assert that emotions get in the way of rational judgment, while in others I might assert quite as sincerely that, "you'll never get it right if you don't feel it!" The different social contexts might prevent me from ever having to straighten out my views on the epistemic value or disvalue of passion.

And ... so what? Unless it is my business to get such things right, I can live with such inconsistencies. My guess is that most people do.

That's why this site is such a challenge.


The software uncovered the following inconsistency in my own answers (I'll use its words and will refrain from arguing with it): "The contradiction is that on the first ocassion (Loch Ness monster) you agreed that the absence of evidence or argument is enough to rationally justify belief in the non-existence of the Loch Ness monster, but on this occasion (God), you do not."

The software found two other alleged contradictions in my statement -- I won't paste them here, as it would become redundant.

There are two distinct ways to suffer a loss in this game. Either the software finds a contradiction in your views, which is called "taking a hit" from a logical sniper, OR you "bite a bullet," i.e. you assert a belief "that most people would find strange, incredible or unpalatable." For example, if I were willing to say that belief in the Loch Ness monster is rational even after years of searching for the monster have yielded nothing, so long as it remains logically possible that the monster is successfully hiding from us -- I would have bitten a bullet.

The point, of course, is that it is rather difficult to avoid one or the other, to straighten out one's beliefs in God consistently while also avoiding belief in strikingly counter-intuitive things, to avoid both the sniper and the biting exercise.

08 September 2007

Capital Gains

What is a "capital gain"? and why is it taxed at a rate lower than than of ordinary income?

The textbook answer to the first of those questions: a capital gain is the amount by which proceeds from the sale of an asset exceed the original cost.

Further, there is at least one obvious and intuitive reason for treating capital gains differently. The income from the sale of an asset that a taxpayer has held for several years realizes the accretion of value over each of those years, whereas his/her salary, wages, tips etc.(paradigms of "ordinary income") represent the return on labor expended in the taxable year involved. This means that if the income from the sale of a house were taxed as ordinary income the year of the sale, the homeowner would experience an enormous hit that year. This is called the "bunching effect," i.e. taxable events from several years bunched into the year of realization. That, in turn, would freeze up assets -- everyone would become afraid to sell anything valuable for fear of the tax hit -- with disastrous economic effect.

So far, so good. But there are also short-term intra-year capital gains. Why aren't they taxed as ordinary income? Suppose I bought a house in February 2006 for purpose of flipping it. Did so in April 2006. Why shouldn't my profit be treated as ordinary income? The best argument against doing so is that there would still be a "lock-in effect" even without any bunching. We (policy makers or others putting ourselves in their shoes) want people to be able to flip house, because they contribute to the liquidity of the marketplace -- to the ease with which non-speculators too can find something to buy or sell when the time is right.

But the intuitive appeal of that argument is weaker, it would seem, than the appeal of the bunching argument for longer-term investments.

And since we're thinking about it ... there might be better ways of dealing with the "bunching effect" in the case of long term investments too. Conceivably, the accretion of value to my house could be taxed each year as it happens, so that the final sale would have no or only a very slight significance for tax purposes. (Yes, there would be obvious practical difficulties there.)

Aside from the bunching and lock-in effects, the only significant remaining argument for differential treatment of capital gains is this: taxing such gains discourages investment or (what is the same) discourages savings, encouraging immediate consumption and indebtedness.

Does it, though? The late Milton Friedman always used to maintain that fiscal policy is much less efficacious at shaping behavior than policy-makers flatter themselves it is. I wonder about this one.

Also, there seem to be a number of areas defined by law as "capital gains" arbitrarily, or simply as a response to lobbying power and cronyism, where the definition isn't warranted by any of these arguments. But more of that another time perhaps.

07 September 2007

Synopsis of Book

I've been writing to literary agents, seeking someone who might help me nevigate a course to the publication of a novel about antebellum America and the growth of north/south tensions. Today I received a first tiny nibble. One agent wants to see a synopsis.

I don't really want to synopsize for her the whole first draft, which takes a long windy route from 1830 to the firing on Fort Sumter in 1861. Instead, I want to tighten up the book, so that after a prologue (still set in 1830), we jump ahead to 1843, and then finish up in 1850. Everything after 1850 can only come in by way of foreshadowing, and everything between 1831 and 1842 in the original can only come in by way of character background.

Anyway, this is the synopsis I've been working on today. I'll send something like it to the agent soon enough.

Title: Lengthy Preparation for a Duel


Prologue 1830.

Webster gives his “reply to Hayne,” and indirectly to the doctrines of John Calhoun. The scene is realistically portrayed, with but one important fictional element – the presence of a young staffer in the British embassy in Washington, Henry Nofield.

I introduce Nofield as he sits in the gallery taking notes on the debate.


I. 1843

Bureaugard Felt, a freedman hitherto has lived in Louisiana, arrives in Nauvoo, Illinois, now the center of Mormonism. Felt’s there as a messenger, to deliver news to the elder who manages the town’s bank, Parley Campbell, with regard to Campbell’s brother in New Orleans.

There’s nothing for him any longer in Louisiana, and after delivering the intra-family message entrusted to him, Felt decides to stay in Nauvoo.

At about the same time, a Rhode Island based ship builder, Nathanial Berne, in need of cash for his expansion plans, travels to Washington DC for a meeting with a visiting dignitary, a Rothschild. He doesn’t get the loan, but he does meet a brilliant naval engineer, John Ericsson, co-inventor of the screw propeller, and new business opportunities suggest themselves.

II. 1844

We learn that Berne has a daughter, Gertrude, who years ago married an English lord, known to us as Henry Nofield. But Gertrude’s true love, and Berne’s protégé in the shipping business, is a freemason named Isaiah Jerome. In May 1844, Nofield shows up at the Berne house in Providence looking for Isaiah, about whose relations with his wife he has heard scandalous things, and demanding an affair of honor.

III. 1845

Back in Nauvoo, Joseph Smith is now dead, and there is a power struggle under way to determine his successor. Campbell and Felt are caught up in this. Meanwhile, the hostility of neighboring towns has intensified and the Latter-Day Saints begin to talk of a migration west.

Nofield has discovered that he can’t duel Jerome because Jerome has a pegleg due to an old horse riding accident. It wouldn’t be gentlemanly for a whole man to call out a cripple. But still looking for appropriate revenge, Nofield searches for ugly truths about Jerome’s past. His search takes him to Springfield, Illinois and an encounter with a prominent lawyer there.

IV. 1846

Installments of a comic narrative called “The Puking Conspirator” begin to run in a Providence, RI newspaper. Jerome recognizes this as a satire on certain incidents in his earlier life, though at least at first no one else in town makes the connection. Consumed with curiosity about who is doing this, Jerome keeps vigil by the office door of the newspaper where the next installment is due. He is abducted there.

V. 1847

Brigham Young has now solidified his position at the head of the LDS, and the westward migration is underway. Our two acquaintances have moved in different directions. Parley Campbell has become disenchanted with Young’s leadership, and has headed for Ireland, as a missionary for a breakaway Mormon sect. But Beauregard Felt has become Young’s confident and secretary.

VI. 1848

We catch up with Parley’s brother, Paul Campbell, in New Orleans. His business – a cotton exchange – fails in a credit contraction. But he hears news from California of the discovery of gold.

We also learn what happened to Jerome after his abduction, how he escaped alive.

VII. 1849

Nofield, his American travels and vendetta having drained his fisc, can’t lead the life of country nobility. He takes a colonial position in Madras. While hunting a tiger there, he loses an arm, and decides that one cripple may honorably challenge another to a duel, so he may yet conclude his business with Jerome.

We also glimpse Gertrude in London, and learn that she has adapted to life without either husband or lover.

Epilogue 1850. We’re in the Senate chamber again, for the final confrontation of Webster and Calhoun over the nature of the union. Calhoun has to be carried in on a litter, such is his proximity to death. But there is still the old fire in the two antagonist’s eyes.

06 September 2007


DISCUSSION OF THE FINAL HARRY POTTER NOVEL HERE. I'm about to give away at least a couple of plot twists you might otherwise be surprised by. But you have no one but yourself to blame if you keep reading beyond ... say ... here.

I've been reading it in bits and pieces, and estimate I'm now about 2/5ths of the way through.

A couple of nice bits of plotting strike me. A throwaway detail from the first book comes back to us in the golden snitch that Harry caught to win the first game of Quidditch he ever played.

Dumbledore left that snitch to Harry in his will. The in turn causes the new head of the Ministry of Magic to believe that Harry's touch will open the snitch and reveal a secret. So he, the Minister, insists that Harry touch it -- and Hermione informs them both that the snitch has a flesh memory -- it will remember who first touched it.

Harry does take hold of the snitch with his hand and ... nothing happens. Later Harry reminds us that he didn't "catch" the snitch in the first game as a Seeker. Rather, he nearly swallowed it, the coughed it up. So the snitch's flesh memory would presumably respond to his mouth, not his hand. We're delighted to see the Minister outsmarted by a detail that we, the reader, likely remembered.

A more central theme of the book at least in its early stages is the relation of wizards to their house elves. You'll recall that Hermione has long sought to liberate the elves, it an apparently ineffacacious crusade that has earned her a good deal of ridicule from other witches and wizards. But in this book, she gets her vindication on that point. Even the nasty-seeming house elf of the Black family has a sympathetic and important back story, and when Potter and Ron come to join Hermione in seeing him as a ... how shall I put it? ... as a fellow sufferer in this veil of tears ... they discover that he has powerful magic, which Voldemort has already at least once underestimated.

Bravo. I'll keep reading.

05 September 2007

Civil Wars

I wrote a brief post Monday about the cause of war. So you won't have to re-read it, I'll remind you. My own dumbass view is that wars generally come about because (a) resources are always scarce, and (b) we as humans are biologically inclined to take this as a reason to fight -- we are pack animals inclined to us-against-them attitudes.

Civil wars, though, are especially confusing and the question of how they come about is fascinating.

By definition, a civil war is one between "us" and "us," not "us" and "them." Or, to put it differently, at some point a community because so badly split that some of the former "us" has now become a "them."

Is there anything we can say in general about why this happens? Anything that would cover England under the early Stuarts as well as the United States in the time of weak Presidents and strong Senators?

I'll just leave that now for the pondering.

04 September 2007

Condé Nast: Portfolio

Yesterday I purchased the second issue of the new Condé Nast business periodical, Portfolio.

I used the term "periodical" in the preceding sentence, although I'm not sure what "period" is supposed to be involved. According to the hype surrounding its lauch this spring, it was supposed to be a monthly. I reported my own (negative) impressions of that first issue in my April 21 entry in this very blog. Yet I am, in early September, reading only the second issue of this "monthly".

Is something wrong there or is it just me?

Well, they still have to work some kinks out of the mechanics of production, I suppose.

Staying within the "four corners" of the text of the new issue, though: I have to say that this one is an improvement over the last. There is nothing so show-offish as the Tom Wolfe star turn that last time out. And there is a wonderful piece by Kurt Eichenwald about a cemetery trust-fund scam.

Funeral homes sell pre-needs contracts. You might pay now for your burial costs in the expectation that this will remove a financial burden from your spouse or kin when you die. It might include not just the immediate costs but the maintenance of the grave sites in perpetuity. Obviosuly, the only prudent way for an ongoing business to spend the money received from customers on a pre-needs contract is to put it into a conservatively managed trust fund, designed to earn enough money to take care of those contracted-for liability.

Human nature is a nasty business, though, and some people aren't above looting those trust funds.

Eichenwald gives the corporate board-room intrigue as well as the ordinary-folk consequence. On July 1, 2006, a 99 year old woman in Memphis named Vesta Foshee died. Her son Donald called the local cemetery that day. He was grieving, but confident at least that his mother's funeral was paid for.

Sorry, the funeral home told him. The trust fund doesn't have enough money in it to pay. The family Foshee family had to pony up an additional $3,100 to bury Vesta. Donald called the local TV news, which ran a story that evening.

Ghastly stuff. And the Foshee family heartbreak wasn't just an isolated case, as Eichewald shows. Tens of thousands of people -- the sort of frail, elderly folk who make arrangements for their own death -- were cheated, collectively, out of $80 million.

This issue of Portfolio also includes a story on Mark Swartz' new life in prison, as inmate 05A04823 in New York State's penal system. Mark Swartz is the former chief financial officer of Tyco and by all creditable accounts (including those the jurors heard and believed) he illegally pocketed $50 million of Tyco's funds, while helping the CEO of the company do even better.

Swartz is in protective custody in Oneida. Portfolio's reporter, Katrina Brooker, extends him some sympathy, but not a lot. I believe she gets the balance about right.

So the Eichenwald and the Brooker stories share a common theme, white-collar crime. This is not to say that the whole issue shares that theme, but I do hope Portfolio moves further in that direction. If it wants to find a niche -- a type of story whence Forbes and Fortune shy -- this may be it.

03 September 2007

War. What is it good for?

Absolutely nothing.

Before the copyright lawyers start sending out letters, let me move on to a related but less lyrical line of thought.

Why are there wars? Not this one or that one, but in general? I think that in quite abstract terms we can say this: there is a primordial mammalian instinct to distinguish between "us" and "them," between "our pack" and "those packs."

Wars are the result of the competition of organized packs in a world of limited resources. Not "money," by the way, which is just a medium. Resources: petroleum, access to fresh water, navigational paths through salt water, land (both as soil and as living space) and so forth.

Wars are, then, all caused by two facts: the limits on resources, and the pack-oriented way through which we instinctively address that. They aren't caused by religion, although religion can help articulate either the views of the advocates of a war or the views of the war's resistors. Nor are they caused by "money." Not only is money a medium of exchange, rather than ever being the actual resource at issue ... money implies commerce, and that can produce a level of cross-border activity and co-operation that can over time tame the temptation for the packs to fight.

02 September 2007

Meanings of Realism

I suspected there'd be a lot, but I wouldn't have been right had I guessed at a number.

Just for some geeky fun, I entered the word "realism" in the search engine of wikipedia this morning. Such a search generally gets you to a "disambiguation page," which is what it sounds like. It tells you that the word you entered could refer to any of X number of articles, and lets you click from there to the one you want.

So, how many different sorts of realism are represented by the collective efforts thus far of wikipedia editors?

By my count (the lay-out is complicated enough that there are different ways of counting) ... there are sixty-four realisms.

There are twelve realisms under the category "art" alone. And art doesn't include literature, which has another eight. (Actually, there's some overlap in the realisms listed in those two categories, which I'll ignore.) There are seven realisms in international relations, three under law, twenty-six in philosophy, two in physics, and four listed as "other."

Artistic realism in the first-listed, and most abstract, sense is "the depiction of subjects as they appear in life, without embellishment or interpretation." Is it "realistic" to believe that "realism" in that sense ever exists? Surely not, but it isn't only on this list, it's on this list twice -- once for the dramatic arts and once for the literary arts. Actually, you could make the case that it's on the list three times, with a slight variance of wording the third time. Whatever.

My favorite of the philosophical realisms is "Australian realism," which is apparently the technical term for the outlandish theory that Australia is an actual place, not just an invention of the Monty Python troupe.

I kid. Australian realism is a materialist/reductionist school of thought associated with several philosophers from down under, some of whom aren't even named Bruce.

01 September 2007

A Smart Guy, But....

There's no doubt Federal Reserve chairman Ben Bernanke is a smart guy. In fact, on the scale of Bush administration appointees he's off the charts.

He was the chairman of the economics department at Princeton University, and the editor of the American Economic Review, to name just two dandy resume brighteners in his bio.

But you have to wonder, in view of recent events, whether this isn't the sort of brightness that can hurt more than it helps in real-world applications.

Jim Cramer was right in a bit of his now-famous televised meltdown. Bernanke doesn't have any idea. But Cramer was right in the wrong way. Cramer was demanding, with veins popping in forehead and all, that the Fed bail out the big Wall Street institutions with a discount rate cut. To prove that he did have a clue. Bernanke agreed with the scary guy and did exactly that, proving the contrary.

The business cycle is always a credit cycle. When credit is too easy, an upswing becomesd an unsustainable bubble. The only rational thing to do about a bubble is to pop it, and accept the consequences. Instead, the easy thing to do is to work to preserve and continue expanding the bubble, which is the course Bernanke has taken.

That always means that the popping will be worse when it does come. And it will.

Bernanke once gave a speech speculating about the use of a helicopter to drop dollar bills and save the economy. He seems to be trying to do that:


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.