Posted by Marc Hodak on March 12, 2008 under Scandal | 
“I hope the arrest can ease the minds of some in the community,” District Attorney Jim Woodall said.
I truly hope they found her killers, and that they pay dearly for their crime. But I’d just as soon get this kid a decent attorney to keep the system down there honest. One thing I learned about Durham police and ATM evidence is to reserve judgment.
I’m reminded by one hilarious, braided commenter: “If this is how the DA treated three white Duke lacrosse players, I don’t even know what he woulda done to my black ass.”
Update: One of the suspects in Eve Carson’s murder has now also been charged with the January murder of Duke student Abhijit Mahato. He’s the second person who has been charged with that murder. Two people charged with the same murder, you say? Yea. That’s what I’m wondering.
Posted by Marc Hodak on March 10, 2008 under Scandal |
So, Eliot Spitzer has had to publicly apologize for having sex with someone who wasn’t his wife. For money, that is. The pandemonium has begun, because everyone knows that sex-money-politics is the very best headline-grabbing mix.
Like most places, johns are rarely prosecuted in New York, according to Michael Bachner, a former prosecutor in the Manhattan District Attorney’s Office:
To the extent Mr. Spitzer is charged it would likely be under the Mann Act, which prohibits transportation of people across state lines with the intent to commit prostitution.
But “the Mann Act really was designed more towards those who get someone to travel against their will,” Mr. Bachner said. “If Spitzer gets indicted, it would seem to me he would be indicted based on who he is rather than what he’s done.
Oh noes. We wouldn’t want to selectively prosecute someone just for who he is rather than what he’s done. Why, that would be so unfair, so political. Mr. Bachner goes on to say:
Those who frequent prostitutes are very, very rarely the subjects of a federal prosecution when clearly it’s commercial and consensual.”
Why, that would be like seeking criminal sanctions for what are generally treated as civil cases.
As for possible state charges, he said “customers are rarely prosecuted in the state” and charges that are brought are typically disposed of with a plea to disorderly conduct, “which is akin to a traffic ticket,”
I, for one, would like to go on the record opposing the politicization of the state’s attorney’s office by hounding Mr. Spitzer in any such fashion. I think that would be a dangerous road to travel. It would create a power subject to horrible abuse.
Here is what I’d like to see instead.
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Posted by Marc Hodak on March 8, 2008 under Executive compensation |
Henry Waxman, Chairman of the House Oversight and Government Reform Committee, held hearings yesterday on executive compensation. The Wall Street Journal predicted:
It should make for good political theater. For added effect, Mr. Waxman has invited testimony from corporate-governance experts and Brenda Lawrence, the mayor of Southfield, Mich., a middle-class community that has been affected by the housing crisis.
(HT: Larry Ribstein)
Here are my qualms about Congress trying to substitute their judgment for that of directors on this issue:
1) Their analysis is post-hoc. The competition for talent in the executive suite is fierce–something Henry Waxman doesn’t really believe. The competition for returns in the corporate market is extremely fierce, something Henry Waxman doesn’t have a clue about. About ten percent of executives that were thought highly competent when they were hired will end up in the bottom ten percent of corporate returns, even on a sector-by-sector basis. “Why did the board pay these people so much money when they plainly were such poor CEOs?”
2) Even post-hoc, Congress is incapable of distinguishing perverse incentives from decent ones. It’s not that they’re stupid. I have quizzed institutional shareholders, securities analysts, corporate officers, even other compensation consultants on the incentive effects of certain compensation structures, and they often come to the wrong conclusion. “You mean that regular grants of restricted stock actually create an incentive to tank the stock price?” Could happen. I’m skeptical that our national Chamber of Unintended Consequences will come to the right conclusions.
3) I pity Compensation Committee members. Yea, there are a few who are careless, maybe even negligent. I’ve read about them, and can jump to conclusions as fast as any reader. And Nell is right that most compensation committee members don’t quite know what they’re doing in structuring packages, but that’s not their fault. We don’t generally hire incentive experts to the board, and their fiduciary responsibility demands that they apply incentive mechanisms to their packages, and incentives are tricky (see 2). Nevertheless, the directors I’ve personally worked with, to a man (or woman), have been highly conscientious and, if anything, wary of overpaying their CEO to the point of occasionally hurting their chances of retaining a very good person.
Personally, I believe that the answers to the ‘problem’ to exec comp are far more subtle than a congress-critter can manage.
Link here on “where does this committee the authority to investigate stuff like this?”
Posted by Marc Hodak on March 7, 2008 under Executive compensation |
Toll Brothers has somehow flushed a perfectly good bonus plan down the toilet.
Their old bonus plan gave the CEO a fixed 2.9 share of his company’s profit gains. There was no cap on the bonus, which presumably meant no cap on their performance. And their performance was good. In the good years, their CEO made big bucks. So did the shareholders, including the largest shareholder, the CEO.
The new bonus plan is based on undisclosed “varied” criteria. In my experience, this is pretty close to saying “discretionary.” Mr. Toll also continues to get 2 percent of the profit, so there is now marginally less emphasis on profitability, and more on other “varied” stuff. And his new plan is capped at $25 million. Two things puzzle me about this cap: it’s arbitrarily high, so it won’t likely be a practical limit, and it still manages to convey that we will cap performance when the wind is really to our back. This is almost the perfect way to convey the message that we will provide a token sop to our investors that doesn’t really help them.
What I don’t get is why Mr. Toll would go to the trouble of undermining a perfectly good bonus system for a few million more dollars. The man owns 29 million shares. It’s not like this extra $6 million he would have earned under the new plan would make up for the nearly $300 million he lost as a shareholder from the decline in his stock price. He can make this bonus amount with a one percent increase in his stock price.
Then, KB Homes, with the same, nearly flawless bonus plan, objective and profit-based, decides to override the market’s short-term verdict with a “discretionary” bonus of $6 million (coincidence?). Their explanation?
Otherwise he wouldn’t have received KB’s standard “annual incentive” for the top job, which is tied to profits under the builder’s current plan.
“Standard annual incentive?” What the hell is that? The bonus amount you get paid for not earning your bonus?
“This is the kind of stuff that makes us crazy,” says Richard Metcalf, director of public affairs at the Laborers International Union of North America, whose pension funds own stakes in both Toll and KB. “What kind of board of directors gives a $6 million bonus when the company’s stock falls 60%?”
It drives me crazy too. And it’s the kind of thing that invites Henry Waxman to pull CEOs into his Star Chamber, and the IRS to do stuff like this.
Posted by Marc Hodak on March 6, 2008 under Economics |
I’ve been so freakin’ busy this week, I’ve barely been able to get food and sleep, but I heard that NYU was offering a free lunch to hear Robert Frank. The irony alone would have compelled my attendance, but also I needed a break. Yeah, listening to an economist over lunch is what I consider a break.
So Frank gave his spiel on how the arms race for conspicuous consumption, or positional gain as he calls it, is economically inefficient. Everyone trying to keep up with the Joneses leaves everyone at the same place, relatively speaking. Fair enough? Actually, I don’t buy that there are no net societal gains from the dash toward nicer things, but I guess someone does because he’s selling books.
Anyway, during his talk, Frank concluded with his pet policy–a sharply progressive consumption tax. Frank basically believes in the incentive effects of this tax, which makes sense, and that otherwise diverting funds from wasteful consumption to productive infrastructure would be a great economic deal, which I consider a little more hopeful, to say the least. Frank specifically mentioned that he was hoping to hear a good libertarian rebuttal to this idea since, I guess, he hasn’t heard one yet. Well, this sounded like a personal invitation since I am NYU’s resident libertarian, though I couldn’t imagine what I might say that he wouldn’t have already heard from the GMU mafia, which I know he’s encountered.
So, question:
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Posted by Marc Hodak on March 1, 2008 under Revealed preference |
Congress regularly blasts the military for being inefficient. And when the military puts a major contract up for bid, and the best consortium wins, Congress is outraged because the consortium includes a European company.
The troubling thing is that Congressional outrage is generally reported at face value.
“It’s stunning to me that we would outsource the production of these airplanes to Europe instead of building them in America,” said Republican Senator Sam Brownback about the Pentagon’s decision.
“We should have an American tanker built by an American company with American workers,” said Republican Representative Todd Tiahrt.
The problem with the way these articles are written, emphasizing the party of the speakers rather than their home states, is that they separate important information across the page, leaving the reader with the impression that where the congressman stood was divorced from where they sat. I think it would have been more instructive to write it like this:
“It’s stunning to me that we would outsource the production of these airplanes to Europe instead of building them in America,” said Kansas Senator Sam Brownback about the Pentagon’s decision. Kansas is where Boeing, the losing bidder, had promised to build the plane if they had won the bid.
“We should have an American tanker built by an American company with American workers,” said Representative Todd Tiahrt, Representative to the Fourth Congressional District of Kansas, where Boeing would have made the planes.
Then there is no need to pretend that Congress speaks with one voice on this issue by burying this tidbit toward the end of the article.
Alabama Senator Richard Shelby welcomed the decision. “Not only is this the right decision for our military, but it is great news for Alabama,” he said.
By that point, you won’t have to guess where the winning bidders are assembling these planes.
Posted by Marc Hodak on February 29, 2008 under Unintended consequences |
One in 100 Americans are now in prison. That’s higher than Russia or China. Higher even than Cuba or Zimbabwe. Higher than any other nation, big or small, democratic or despotic. We have over one quarter of the world’s prison population. Thanks drug warriors. Way to go, Congress! Thanks Justices Kennedy and Scalia.
When breaking the law becomes so easy that one percent of your population is in jail, it erodes respect for the law. This statistic does not suggest that we have too many lawbreakers–it suggests we have too many laws.
Posted by Marc Hodak on under Scandal |
Mrs. Kroes has emerged as arguably the world’s most-feared antitrust enforcer.
Yay. Someone looking after my interests in Europe.
Mrs. Kroes announces big fines — €329 million on a cartel of zipper makers, for example — with relish at news conferences and denounces with bombast corporations she believes are trampling consumers.
Well, I guess enthusiasm can be a good thing. I mean, she’s not bombastically announcing huge fines just because she’s a media whore, right?
While U.S. regulators are more likely to wait and see what happens after a company becomes dominant, Mrs. Kroes is predisposed to pre-emptive action. If a company is “just blocking competition, then at the end of the day, there will be a type of monopoly,” she says.
Wait, how exactly does she distinguish aggressive competition from “blocking competition?” And how does she know which aggressive competitor is likely to become a monopoly? Even seasoned investors with a huge interest in knowing these things, and in a market like the U.S. without this kind of enforcement, can’t tell that. I mean, she must be super brilliant.
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Posted by Marc Hodak on February 27, 2008 under Revealed preference |
That comes from a famous quote by the recently departed William F. Buckley, Jr. The full quote was, “I’d rather be governed by the first 2000 names in the Boston phone book than by the dons of Harvard.”
Buckley was speaking to the leftist bias of Harvard’s faculty, but I have always preferred to repeat that quote, at least the first part, as a paean to randomness. In particular, I believe that a degree of randomness in who governs us would be a good thing–I would like to see legislators selected by lot, much as we select jurors.
Selecting legislators by lot would have various benefits:
– It would eliminate the rampant corruption of the legislature. I’m not taking about a congress-critter taking bribes on the sly to urge on some bill. I’m talking about the wholesale, routine purchase, or at least rental of legislators by their big money supporters. Legislators need campaign contributions. They can’t get elected without them. Therefore, they need to do what it takes to get those contributions, and what it takes is responsiveness to the concerns of the contributors.
– It would undercut the rationale for so much government spending. Most of those contributors want the government to do something for them. What kind of an ingrate would take a contributor’s money–cash they use to get elected–and then deny that contributor something they want from the government? A one-term ingrate. The economics of the market for political power is the same as other markets in that money talks, bullshit walks.
– It would end the extortion of citizens by the legislature. Most of those contributors who aren’t trying to get the government to do something for them are trying to keep the government from doing something to them. Legislators, especially powerful committee heads, are keenly aware of the power they wield, and they know how to use that power. In fact, they have little choice. Nature abhors a vacuum, worst of all a power vacuum. Whoever has the power to shake down moneyed interests stands to gain from using it. If they won’t, someone else will.
– It will eliminate the excuse to undermine our free speech and other civil rights. The reason we haven’t been able to stop money from corrupting our legislature is partly because so much is at stake, but also because campaign contributions are a protected form of speech. Limiting that speech endangers some of our bedrock liberties. Eliminate campaigns and you eliminate the need for campaign funding, and the need for any restrictions on campaign funding. Voila, more liberty.
– No more gerrymandering. Most people have a vague idea of how thoroughly corrupted the election process has become. While civic idealists trumpet the virtue of voting, most people instinctively know that they don’t choose their congressmen–their congressmen have chosen them, through the re-districting process. In my urb, there is no point having anything but a Democratic candidate. I didn’t choose her; the party bosses did that for me. Unless pictures come out in the week before election of her blowing a mule, this one has been decided. Even then, the election might still be close.
I know this modest proposal is far from perfect. The 25th guy in the Boston phone book might be a complete moron–I mean worse than the kind of people that typically get elected. Some of these people may not be rational, or even sociable. At least people who are elected are liked by some number of citizens.
There are those that might be concerned that Ma Kettle, Joe Sixpack, Don Ho, et. al might be too untrained and diverse to get much done. I think that’s a feature, not a bug. I just don’t think we are suffering from a dearth of laws, or that we just can’t live without more of them every single term.
Nevertheless, I think the random representatives would get stuff done. Having sat on a jury, I know that the average person is generally reasonable, especially in situations demanding group deliberation. If anything, too many people are willing to go along to get along. But, on the whole, I have found random juries (albeit with some judicial screening) to be conscientious, conservative, and reasonable.
I think it’s worth an experiment. Some town, or county perhaps, can try this before it gets promoted to the state or federal level. I think it would energize the citizenship of the place that adopted it. Let’s do it for Bill B., God bless him.
Posted by Marc Hodak on February 26, 2008 under Scandal |
I believe that most scandals have perverse incentives at their root. In the case of Health Net canceling the policies of ill patients, the incentives had an intended effect, but they couldn’t survive the sunshine rule:
During arbitration, Bates’ attorneys produced internal company documents that showed that Health Net was rewarding employees with bonuses based on the number of cancellations they got.
Employees were asked to meet cancellation quotas and were also rewarded based on the amount of money they saved the company. Bates’ lawyers argued that Health Net had saved more than $35 million by rescinding policyholders between 2002 and 2006.
I don’t know if I agree with those who don’t think $9 million is a sufficient penalty for Health Net. Don’t forget the enduring penalty of bad publicity. For instance, Health Net is our insurer, but probably not for long.
