Man Without Qualities

Saturday, June 22, 2002

Minority of One Report?

Alone among the reviews I have seem of the new Spielberg movie Minority Report, Joe Morgenstern is savage [link requires paid subscription]- all the worse for Mr. Spielberg that Mr. Morgenstern's savaging obviously comes with great reluctance.

Some choice Morgenstern anti-blurbs:

Has Mr. Spielberg, one of the greatest entertainers in movie history, given up on entertainment? Though his movie wraps challenging ideas and ingenious visual conceits in a futurist film-noir style, it's pretentious, didactic and intentionally but mercilessly bleak in ways that classic noir never was.

"Minority Report " punishes our need for pleasure.

But what a sour and oppressive vision it turns out to be, notwithstanding a few exciting chases, some elaborate (though occasionally tacky) special effects, a haunting performance by Samantha Morton as one of the Pre-Cogs, and the sentimentality of a tacked-on coda.

Why does a Spielberg film that is a Spielberg film revel in such repugnant, assaultive images as a slovenly doctor performing eye surgery in a pigsty apartment?

The trouble with "Minority Report " is a conflict between medium and content, between an old impulse to entertain and a new desire to scarify.

On the long journey from "1941" to 2054, more has been lost than gained.

How many people would go to a movie with "it's pretentious, didactic and intentionally but mercilessly bleak!" on the poster? This review seems to expand on the old publisher's rejection letter: "Your manuscript is good and original, unfortunately ..." Does the existence of one such high-profile condemnation qualify this movie as opening to "mixed reviews?" Maybe that's just "generally positive reviews."

I am still withholding judgment on the film (I mean the movie). For one thing, I disagree with some things in this review, especially Mr. Morgenstern's statement that: "The story is so timely that the director and his colleagues might pass for Pre-Cogs themselves. It raises questions both momentous and of the moment, when we're struggling to reconcile civil rights with pressure for pre-emptive action against potential terrorists."

For reasons discussed previously, in all meaningful respects this assertion is dead wrong in my view.

And, more generally, I question if Mr. Spielberg, whose work seems to reveal a remorseless drive to extirpate all subtlety and nuance, can really be called "one of the greatest entertainers in movie history?" I don't question the wisdom of studios that hire Mr. Spielberg and rely on his judgment. And I'm not saying that high box-office receipts and high-gain cartoon-like effects don't have their place - but complete reliance on them also puts the director in his place.

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Options II

The predecessor to this post discussed a highly confused Thursday front page Wall Street Journal article by David Wessel:

"The article, among other confusions, repeats criticism offered now by many who should know better, including the Wall Street Journal."

Well, to the Journal's credit, at least its editorial page - which I understand is run by quite a different team than those who determine what goes onto the front page - does know better, and in large measure said so.

Indeed, the Journal's editorial page perhaps seems embarrassed by that front page article. While not expressly identifying that article, Holman Jenkins produced on Friday (the day after Mr. Wessel's effort appeared) a screed that repudiates much of Mr. Wessel's efforts in all but name [Mr. Jenkin's article has been reproduced in today's OpinionJournal]. For example, after coyly asking whether corporate venality has increased, Mr. Wessel casts off his pretense and says such venality has increased, offering a silly pat pseudo-answer:

"The answer, put simply: A stock-market bubble magnified changes in business mores and brought trends that had been building for years to a climax. The victims: the very shareholders the executives were supposed to be serving. .... [T]he abuses of the 1990s can't easily be dismissed as the fault of a few flawed human beings. "The professional gatekeepers were greatly compromised by finding they could make tremendous profits by deferring to management," says Columbia's Mr. Coffee. But not one of the instances of egregious abuse of shareholder interest could have occurred if the CEO had simply said, 'No!' The climate made it commonplace. The incentives were perverse. The watchdogs were sleeping."

So one can rather guess as to whom Mr. Jenkins refers when he writes:

"A mythology of the moment holds that law enforcement has been sleeping while white-collar criminals run amok. The mysteries of individual CEO behavior aside, there isn't much new in the news. Coming up soon are the trials of two top executives of Cendant, whose blow-up was the Enron of 1998. A surprising number of software, food and apparel executives are doing time already, unheralded on any news show. On a single day in 1999, the SEC brought civil actions against 11 CEOs and 57 other senior officers, including Fran Tarkenton, the former NFL god and head of a software company. (He settled for six figures without admitting or denying wrongdoing.)"

Seems like that "mythology of the moment" happens to be the very same mythology that appeared in Mr. Wessel's front-page article the day before. Mr. Jenkins also takes on some of the other myths Mr. Wessel repeats - such as the fiction of increasing CEO dominance of the board of directors. In fact, Mr. Jenkins adduces evidence that the balance may have swung too far the other way - with the CEO taking on a role more like that of a star athlete rather than a true leader.

Now the Journal editorial page should hire somebody to repudiate the even more dangerous myth spread by Mr. Wessel that executive options are always pernicious - a point Mr. Jenkins sadly does not address in his article.

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Friday, June 21, 2002

Enron Arbitrage

In a prior post the Man Without Qualities wrote:

[T]wo memos from Enron’s attorneys Stoel Rives ... and Brobeck have caused some fuss .... The Man Without Qualities has not commented on these memos (or the earlier story about a request by an employee of ISO, the State-created energy network, to Enron that it hike prices in at least one case in order to deny profits to a third party), because I have simply not been able to take the fuss seriously. For example, as Arnold Kling has pointed out, any sensible person ... who actually reads the memos should be left with the belief that the memos describe almost nothing but ordinary arbitrage moves decorated with silly names (Death Star, Fat Boy, etc). I agree with Mr. Kling. ... ...[E]ven the Stoel memo – described as the worst kind of “smoking gun" by Enron’s critics, such as Paul Krugman - quotes one Enron trader as describing one strategy as the “oldest game in the book” and then goes on to observe that “interestingly, this strategy appears to benefit the reliability of the ISO grid!” Does that sound like a "smoking gun?" The Brobeck memo is much more sophisticated and does much to explain why the Enron tactics did not amount to serious infractions. As Matt Miller put it: “[E]xperts parsing the details [of the “shocking memos] in court will show these practices are largely legal and common, they'll never work as a basis for getting California's money back.”

Since that earlier post, some very smart people with a lot of understanding of arbitrage economics have been studying Enron's activities, and some of them have posted the results of those studies on the internet, including Jonathan Falk, whose very interesting paper is summarized as follows on his web site:

In this paper the author critically examines the strategies cited as distorting the electricity market in California. Far from distorting the market, Mr. Falk finds that the majority of these strategies actually corrected potential distortions in complicated interrelated markets. He further concludes that to the extent that some of these strategies exploited market flaws to bring some of these markets out of alignment, there were obvious corrections available that policymakers should focus on rather than the futile, or at least unproductive, search for scapegoats.

The paper itself concludes:

[O]f the ten trading strategies cited by the memo, six increased market efficiency. There is no hint in any of the political invective that consumers and producers are clearly better off for the existence of the strategies named “Fat Boy” and “Get Shorty”. Other strategies, e.g. “Death Star,” had no impact on market efficiency at all. On balance, there is no evidence that Enron’s activities in California had any deleterious impact on electricity markets.

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Thursday, June 20, 2002


Today the United States stands at a point of prosperity almost inconceivable not only to our forebears, but to most witnesses to the economic decline and malaise of the 1970's.

The Man Without Qualities suggests keeping this observation in mind if one is subjected to talk about how American executive compensation, or capital markets or corporate governance "don't work as intended."

And when the talk comes in the form of a front page Wall Street Journal article [link requires paid subscription] on corporate honor with supporting quotes from Gordon Gekko and John Kenneth Galbraith, it is time, with apologies to Emerson, to count one's spoons in overdrive.

The article, among other confusions, repeats criticism offered now by many who should know better, including the Wall Street Journal [And at least the WSJ editorial page does! See Options II above.]. After framing the long-understood issue of the separation of ownership from corporate control with a quote from that trusted expert in corporate governance, Gordon Gekko, the article notes:

"The solution, widely embraced in American business, was to use stock options to link executives' and shareholders' interests. It sounded reasonable: Executives would benefit if they managed companies in a way that lifted share prices. It didn't work as intended. A soaring stock market rewarded executives not for good strategic management, but for riding the roller coaster. And when the stock price dipped below the exercise price -- essentially making the options worthless -- some companies simply revised the terms or, in Wall Street jargon, 'reloaded' them. Even worse, the incentives to do almost anything to increase the stock price were huge. And the incentives weren't to increase profits and share prices over a decade or two, but rather to increase profits -- never mind if they have to be restated later -- just long enough for executives to cash out, often without ever risking any of their own money to buy shares in the first place. Stock options, [Security and Exchange Commission Chief Harvey] Pitt says, were 'a device that was supposed to align shareholder and manager interests -- and actually disaligned them.' Not all executives were swayed, of course, but an ill-designed compensation system pushed them in the wrong direction."

Is this true? Must executive stock incentive plans create "incentives to do almost anything to increase the stock price?" Do options necessarily create incentives "to increase profits ...[that] have to be restated later?" It doesn't seem so. In fact, as with any form of compensation, the structure of the option package probably makes all the difference, and the WSJ reporter - David Wessel - may ambiguously suggest as much at the end of the above quote, but he is more naturally read as reporting that all executive option programs are "ill-designed compensation."

Consider two simplified stock option plans:

Plan #1 all at once gives executives a large number of fully vested options, immediately exercisable at the price the stock is trading on the grant date.

Plan #2 gives executives an even larger number of options, but they vest in escalating numbers in annual (or even semi-annual) installments and become exercisable at the time they vest and at the price the stock is trading on the grant date.

Plan #1 obviously creates some of the incentive described in the Wall Street Journal article. If the executives can get the stock price up, even for a moment, they can exercise, sell and get out rich. Does even this plan create a "huge incentive?" Well, if the stock inflation effort is a naked as the article describes, how about the little problem that to effect this scheme the executives probably have to engage in a criminal conspiracy. True, the conspiracy may be hard to prove and detect - but the downside risk is rather large (Leavenworth, fines and triple and punitive damages). Further, the collapse in a public stock price and a restatement of earnings are impossible to conceal. Although they do not themselves constitute actionable events creating claims against management, such public adverse developments, especially a post-exercise-and-sale restatement of earnings, certainly creates the basis for a civil class action and an SEC investigation. Once the action is filed, the plaintiffs have ample opportunity to explain to the jury why the plaintiffs think management "cooked the books to generally accepted standards," as Treasury Secretary O'Neill is quoted in the article. But if such a scheme succeeds, the payoff to management can be large - and some people will therefore take such large risks. But the considerations are vastly more complex than the trivializing assertions that stock incentive plans create "incentives to do almost anything to increase the stock price and "to increase profits ...[that] have to be restated later." And this is true even with respect to absurd Plan #1.

What about Plan #2? Suppose 100% of the options are granted the day the executive arrives, but only 10% vest then, with an additional 20% vesting on the first anniversary of the arrival, 30% on the second anniversary, and 40% on the third anniversary (a total vesting period longer than the life span of most internet companies). Suppose further that each year the executive receives a new batch of options exercisable at the trading price of the stock on the grant dates - and which vest in the same 10%, 20%, 30%, 40% sequence. If the executive manipulates the price at any particular time to a high that then collapses, not only does the executive run the risks described with respect to Plan #1 (but for a much smaller payoff), but the value of the portion of the options which vest thereafter will be impaired. In short, it is very hard to argue that Plan #2 create "incentives to do almost anything to increase the stock price and "to increase profits ...[that] have to be restated later."

The two stock option plans are simplified from those offered by most corporations. Many additional features can be included, especially relating to performance - of the company and of the executive. Each plan will create complex incentives that shift over time. Those incentives can be quantified using the same mathematical techniques used by, say, options traders to value those securities. The corporate board of directors should have such analyses performed.

Which leads to the real heart of the issue - not options, but boards of directors. The article says sweepingly: " One culprit was stock options , which gave executives huge incentives to boost near-term share prices regardless of long-term consequences. No CEO pay package seemed to strike any board of directors as too big." Well, if a board is going this route, options are the least of the company's worries. Certainly options can be used to gut a company in favor of its management - but options are hardly necessary for that. For example, the Enron board is accused (in part) of enriching the company's Chief Financial Officer the old fashioned way: selling pieces of it cheap to entities controlled by him. Whether or not the Enron board is culpable, the fact is that any board that is looking out for management rather than shareholders is big trouble. Options are just a tool - and, when properly used, they just happen to be the best tool for aligning the interests of shareholders and management that anyone has come up with. And anyone who tells you anything else is selling snake oil. Or, to put it another way, executive options are the worst way of aligning shareholder and management interests - except for all the others.

What about "reloading" - that is, resetting the exercise price of options that have become worthless? Well, this again is a tool - and it can be used for good or ill, if the board of directors cares to see the difference. First, most "reloading' is not accomplished by simply repricing at a chosen point in time - that is almost always destructive. Instead, most companies effect an exchange offer of new options for old, with the new options having an exercise price set at the stock's trading price, say, 90 days after the exchange offer is completed. this makes management bear at least a moderate amount of market risk.

Why would a company do that? Well, an example should make the answer clear. Consider MGM MIRAGE, the well-run gaming company. Following the disasters of September 11, gaming and hospitality companies, including MGM MIRAGE, saw their stock prices fall dramatically - this rendered many of the options of MGM MIRAGE management worthless. Did it make sense to charge MGM MIRAGE management with the consequences of September 11? Of course not. MGM MIRAGE effected an exchange offer like the one described in the above paragraph. This exchange offer was approved by the MGM MIRAGE board of directors - which is, of course, entirely determined by the company's largest shareholder: Kirk Kirkorian. Could anyone seriously believe Mr. Kirkorian didn't understand what he was doing or that the exchange offer was hostile to his interest as a stockholder? Of course not.

And the final irony in the MGM MIRAGE case is that by the time the exercise price of the new options was set, the MGM MIRAGE stock price had recovered - and management benefited hardly at all.

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Wednesday, June 19, 2002

Still Waiting For Big Mo

URGENT UPDATE!: Big Mo, YOU MUST MOVE FAST! The Minneapolis Star Tribune has already run an editorial blaming Terry Barton's husband for the Colorado fire!! Here's a choice excerpt:

"Whatever else John Barton is thinking about his infamous letter, and all the destruction and publicity attaching to it, it's a fair bet he's wishing he'd laid it in his own fireplace rather than the outgoing mail."

See, Big Mo, the moment threatens to escape you!

Look, you can play up the male insensitivity angle in a different way. Contrary to what the Star Tribune says about John, my guess is that he's home right now thinking something like: "That woman is buggier than a New York apartment. Thank God I moved out or she might have set me on fire!" Or some such unrepentant, insensitive thing of the male variety. But you must publish NOW. Already Kim Strassel at OpinionJournal is suggesting that Ms. Barton should be held responsible if she did what she is accused of! Don't let this happen, I implore you! YOU CAN CONNECT THE DOTS NOW, CAN'T YOU, BIG MO?!!


This is getting worse and worse. First the patriarchy conspired to hold without bail Terry Barton, the abused Forest Service technician who is accused of defying her estranged husband's letter by setting much of the State of Colorado ablaze. Now a federal grand jury has indicted her, saying she did it deliberately!

This is dreadful. Where is Anita Hill to extol what seem to count with a vengeance as Ms. Barton's "outsider values" with respect to insiders at the tired, male Forest Service. But most importantly, where is Maureen Dowd - "Big Mo" - to trumpet and defend this "plucky strawberry blonde" and call out all the GOOD women do in confronting male dominated organizations such as the Forest Service? Where is that masterly hand who writes of possible nuclear demolition of the nation's capital with "[b]oth the bad guys and the good guys are playing with our heads and ratcheting up the fear factor" in a way that deliberately leaves the reader thinking Mo believes that many "bad guys" work at 1600 Pennsylvania Avenue, extending her repeated deliberate suggestions that those she differs with politically are like murderous terrorists and the dictators who nurture them.

But with a very light touch!.

Come on, Big Mo. You owe it to Ms. Barton. This is her hour of need!

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Trickle Down Vice

The perceptive Matt Miller notes disturbing signs that a culture of corruption may be permeating the society from above.

His observations are interesting, although the general deterioration in at least certain types of personal ethics has been going on for some time. For example, it has been quite some time since comic books ceased to offer readers the chance to sell flower seeds door-to-door. At a fairly identifiable point in time the kids just stopped returning the money or the seeds.

And I have one quibble with his take: The examples he uses (recent tales of CEO payoffs, possibly felonious bishops, corrupt auditors, self-dealing stock analysts and a deranged Harvard policy of admitting students who have agreed to go elsewhere) are too new to be the likely basis of any mass learning.

However, eight years of the Clinton Administration's freewheeling manipulations of the truth may well have taken the toll Mr. Miller now detects. For example, Hillary Clinton is not questioned continually by the media about her $100,000 (in 1970's dollars - today worth much more than the $200,000 Martha Stewart's critics are talking about in connection with the ImClone collapse) overnight commodities market profits. Until she provides a satisfactory answer, why should the media not remind people that they are entitled to regard this United States Senator as likely having taken a bribe on behalf of her then-Governor husband? The passage of even more time did not dampen the media's recent enthusiasm for Watergate 30th-anniversary stories. That the media are not tireless with Ms. Clinton has allowed her to get away with offering no real explanation (her initial statements that she based her trades on Wall Street Journal information were promptly exposed as obvious lies). Again, the likely mass destruction and/or concealment of White House documents that probably occurred under the direction of White House Counsel Bernard Nussbaum following the death of Vince Foster was also a likely prolegomenon to the Andersen/Enron shredding effort. Then, of course, there was actual Presidential perjury on Bill Clinton's part - which has probably inspired millions of two-bit liars and executive crooks to persevere bravely.

But all of this really pales as a political matter in comparision with the 1992 Clinton presidential campaign, during which we now know the Clintons harbored a secret plan to remake the nation's healthcare system (over 15% of the economy), a plan which they denied having and refused to share with the voters even though that plan included what were arguably the most important facts in that campaign. Then, following the campaign, the Clintons' formulated their phony "medical care advisory committee" run by Hillary - knowing all the while that the committee's report would be ignored, since the real plan had already been chosen. When the terms of that plan were revealed, the Clinton Administration suffered a body blow - and it is reasonable to believe that if the Clintons had not lied to the voters by withholding that plan during the election, Bill Clinton would probably never have been elected. So the Clinton Administration from its inception was based on a breach of trust with the electorate.

The examples are more than examples. They prick out the destructive principles of the Clinton-Gore era. Indeed, some of the examples Mr. Miller cites may even have been informed and influenced by the eight-year spectacle of the Clinton's "getting away with it." For example, is it too much to wonder if the now-indicted former Tyco chief - and perhaps a whole generation of a certain stripe of corporate sophisticates - went to school on the Clintons' spectacularly successful shenanigans? And, of course, the current Harvard President behind the degraded admissions policy Mr. Miller condemns is Larry Summers - Mr. Clinton's very own Treasury Secretary, among other things in that Administration.

In short, I largely agree with Mr. Miller and the old Greek adage: "A fish rots from the head."

But the fish head here is likely and largely the well-coifed Presidential noggin of Bill Clinton: His particular, characteristic, enduring legacy.

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Second Thoughts on Soccer

On his way out the door, InstaPundit notes that "the print Wall Street Journal picked up InstaPundit reader Jorge Schmidt's emailed comments on Latin reaction to the U.S. soccer team."

For people who don't have a print copy of the WSJ and would like to see the a WSJ reference to Mr.Schmidt's soccer thought, a reference also appears in yesterday's (Tuesday's) "Best of the Web, which links to InstaPundit and notes: "Second Thoughts on Soccer .... Then again, maybe soccer will win us over yet. has a lovely letter from reader Jorge Schmidt." The letter itself follows.

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Tuesday, June 18, 2002

Blade Runner Redux?

In 1982 the movie Blade Runner opened to rather weak reviews, and did not do all that well in its first run. Over time, it has become the rare cult classic which is admired by much more than a cult audience.

While I will reserve judgment until I actually see it, I can't help but be struck by just how awful the new Steven Spielberg movie Minority Report appears from its pre-release publicity. Worse, to the extent reviews are available, they are enthusiastic. That's a problem because the best things described in the reviews seem to be lifted lock, stock and replacement eyeballs from Blade Runner. (Who could forget the Blade Runner scientist growing artificial eyes in the same clear, cold liquid in which he is murdered?)

Or how about this review excerpt:

"Longtime Spielberg cinematographer Janusz Kaminski's desaturated color pulls all the disparate worlds -- the scruffy streets, cold and gleaming interiors, magnetic highways and the womblike Pre-Cog Chamber -- into a dark, unified whole. As more aspects of science and crime-fighting in this future society emerge, the film probes the moral underpinnnings. The Orwellian nature of the new technology is obvious, but Spielberg see this less as the intrusion of Big Brother than Big Business."

Didn't Ridley Scott pull all those disparate worlds together twenty years ago?

Perhaps this Spielberg effort will be less derivative and less awful (stewed psychics?) than its publicity suggests. Perhaps the reviewers are correct.

But it is particularly annoying that the film seems at this point to be essentially Spielbergian Blade Runner redux - while the actual Blade Runner's first-run financial success was hampered by the success of a grossly inferior movie: E.T.: The Extra-Terrestrial.

POSTSCIPT: The similarities in the movies are not surprising. Blade Runner was based on science-fiction writer Philip K. Dick's 1968 novel, Do Androids Dream of Electric Sheep? Minority Report is based on an earlier short story by the same author. At this point, tt appears Ridley Scott chose earlier and better than Spielberg.

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Ticked Off in London?

UPDATE: Several erudite readers have written to tell me that in British slang, "to tick off" can mean "to reprimand, disparage, dismiss." So Ms. Smith's sentence means, "I have lost count of the times I have been reprimanded in recent months, sometimes by quite senior politicians, for suggesting that George W Bush is a complete idiot."


Having innocently linked to one of those interesting quotes on the side of More Than Zero, I found myself reading the opening sentence in a standard-issue (if a little coy) "George Bush is stupid" article originally from the London Newspaper "The Independent":

"I have lost count of the times I have been ticked off in recent months, sometimes by quite senior politicians, for suggesting that George W Bush is a complete idiot."

Now, I realize this is a London writer, and British and American usage can differ. But I have never seen "ticked off" used in this way. In fact, I can't quite figure out what meaning it is supposed to have as it is used in this article.

At first I thought the writer - Joan Smith - was saying "I have lost count of the times I have been made angry in recent months, sometimes at quite senior politicians, for their suggesting that George W Bush is a complete idiot."

But Ms. Smith's sentence doesn't seem to say that. In fact, if one suppresses the parenthetical (", sometimes by quite senior politicians,"), the sentence reads: "I have lost count of the times I have been ticked off in recent months... for suggesting that George W Bush is a complete idiot." By my understanding of the normal rules of English grammar, this is what the sentence is supposed to mean. But that sentence seems to say that Ms. Smith many times made herself angry by her own suggestions that "George W Bush is a complete idiot,” which doesn't seem likely. After all, if she's making herself angry in this way, she can just stop making such suggestions - and there's no need to bring it to her readership's attention.

Then I thought that there might be one of those British/American nuances going on. Maybe Ms. Smith means that she has made uncountably many other people (especially senior politicians) angry ("ticked off") when she repeatedly suggested to them that "George W Bush is a complete idiot." But a quick and, admittedly, incomplete scan through the 25,400 responses to my Yahoo! advanced search under "ticked off" did not yield a single obvious use of the term with this meaning.

What to do?

Well, I still think that Ms. Smith means to say: "I have lost count of the times I have been made angry in recent months, sometimes at quite senior politicians, for their suggesting that George W Bush is a complete idiot."

But it is troubling that she expresses herself in what can only be considered "halting English." You'd think she'd be fluent by now.

Whatever it is that she's really getting mad at, it seems to be happening a lot.
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In Serum Veritas?

UPDATE: An alert reader writes to tell me that in Latin not of the pig variety, the title would be "In Sero Veritas."

There's been a surprising amount of discussion of the use of torture over on the Volokh Conspiracy, unsurprisingly all of it a lot better than any contribution made by Harvard Law Professor Dershowitz, who had earlier used the topic to grab a little ill-considered publicity for himself.

The Man Without Qualities does not think he is smart enough to handle torture debates, and, frankly, finds the topic a little icky.

Maybe worthy, but icky. Like gastroenterology.

On the other hand, there is the interesting question of truth serum,, which is addressed in very sophisticated terms by E.V Kontorovich in his excellent OpinionJournal column today.

I know it may ultimately raise all the same issues as torture, but it doesn't make me feel quite so queasy. I'm sure not everyone will agree with either point.
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In the mean time, in between time, ain't we got fun?

Max Power crafts a wonderful criticism of a New York Times effort to show the rich basically absorb all the new prosperity.

Mickey Kaus takes on the same effort.

Mickey and Max had better watch out. Mr. Raines may get "uncomfortable" with them.
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Send In the Pre-Cogs

The ongoing dust-up over the state of the nation's intelligence services should bring home that we are forever condemned to make the best of a world in which nobody does or ever can know the future other than in very narrow categories, which we call "hard science," and then only in limited respects and under serious assumptions. Most people never forgot that, of course, but it is such an uncomfortable fact that most people care not to dwell on it either. The consequences of September 11 require quite a bit more such dwelling than most people are used to or comfortable with.

All the wrangling over how much evidence should constitute "probable cause" for a search warrant and similar intelligence issues are at bottom different aspects of the same question: How much can and should the government know before it can take action against an individual?

And this single question is forever troubled by two questions with only the most approximate answers: How is the government supposed to acquire the initial batch of evidence? What rules are supposed to be invoked to extrapolate from the evidence and patterns perceived in the past to guess at likely future events?

A movie which posits an intelligence service which employs in-house psychics (called "pre-cogs" in the movie, perhaps to distract the viewer from associations with Miss Cleo) who are never wrong about the future is therefore irrelevant to everything raised by September 11 and the aftermath, right?

Not to Steven Spielberg. The publicity for his new movie "Minority Report" aims to prove that it was with September 11 that psychics (excuse me, "pre-cogs") really came into their own:

"Tom Cruise plays John Anderton, top man in the Justice Department's Pre-Crime unit. His job is interpreting the visions of crimes yet to be committed that are fished out of the extra-sensory perceptions of a trio of so-called Pre-Cogs, psychics nurtured in a flotation tank, whose soothsaying has never been proved wrong. Pulling together their fleeting premonitions like a conductor taking an orchestra through the score, Cruise and the cops zero in on the criminal - like the crime passionel in the film's "overture," foiled with seconds to spare before a jealous husband can knife his wife and her lover."

See, the Bush Administration is moving to emphasize prevention of terrorist attacks - and Spielberg's movie is about police who emphasize prevention of crime by using psychics (I mean, "pre-cogs"). So, according to the studio execs and the buzz they're stirring up (especially through Matt Drudge, it seems) IT'S ALL PRETTY MUCH THE SAME THING! I guess it's just supposed to be a detail that the Administration wants to prevent future attacks by holding people accountable for things they have already done (like conspiring to effect those attacks) where the movie is said by its publicists to be about holding people accountable for things they have not yet done or even thought about doing.

Can't blame a boy for trying.

The movie police even “bug” buildings with little robot spiders that look into the occupants’ eyes while they’re having sex! Hey, practical nanotechnology! Glenn, take a look!

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Monday, June 17, 2002

Waiting For Big Mo

For some reason it has become common for columnists, mostly women and mostly liberal and silly (Maureen Dowd – aka the Big Mo), but occasionally conservative and substantive (Peggy Noonan), to wonder out loud at just how much GOOD women suspended in "male-dominated" systems do. Coleen Rowley (the woman who wrote the FBI memorandum) and Sherron Watkins (the woman who wrote the Enron memorandum) are only two recent examples - but Ms. Dowd especially can tell us about so many more.

Now, just what can U.S. Magistrate Michael Watanabe and U.S. Attorney John Suthers be thinking by trying to keep Terry Barton, the Forest Service technician who burned down half of Colorado, in jail without bail?

First of all, don't they realize that they are both men? This obvious act of male supremacy and jealousy over a feisty female seizing the quintessentially male image of FIRE will not go unnoticed or unpunished. For God's sakes, couldn't they at least have found a female Assistant U.S. Attorney to argue the matter before a female magistrate? Messrs. Watanabe and Suthers should each be required to see "Divine Secrets of the Ya-Ya Sisterhood" ten times and read every Maureen Dowd column published this year five times just to obtain absolution for their egregious new-age sin.

Now it's true that burning thousands of people out of their homes and casting an entire state into chaos is not entirely civic minded - but need I remind the authorities that we are talking about something provoked by a letter from an estranged husband?! And don’t they “get” that Ms. Barton was burdened, even righteously maddened, by having to work within the male-dominated Forest Service?! The woman was obviously abused by men. Surely Ms. Dowd will be able to whip up a little "Thelma and Louise" perspective on this one no lo sweatto.

Let's just get one thing straight: Women are responsible for everything good that has ever happened in the world (heads up, Mr. Vermeer, I'm talking to you), except that women are absolutely never, ever responsible for their own actions, especially when there is an estranged husband skulking around. Jeez - every right-thinking pop feminist knows that Russell "Rusty" Yates was the one really responsible for killing the Yates children - and that Andrea was obviously insane, which made "her incompetent to stand trial. Texas criminal law on insanity as a defense [being] illogical and archaic and an embarrassment to a progressive society." And don't forget that Andrea had a male doctor. Didn't Messrs. Watanabe and Suthers learn anything from that miscarriage of justice?

It's incredible that one has to keep reminding people about such obvious things.

But surely the Big Mo will give it a try this time, too. I can hardly wait.

UPDATE: Some people are already getting into the spirit. The New York Times reports a Colorado couple had this reaction to Ms. Barton:

"Bob and Leeann Cunningham ... are evacuees from Indian Creek, a subdivision well southwest of Denver. She was willing to sympathize. He was not."

"'I feel sorry for her,' Mrs. Cunningham said. 'You can't be mad at her.'"

There. That's the ticket. Big Mo, take note.

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Sunday, June 16, 2002

My One and Only

According to post trial interviews, it turns out that the Andersen jury did not rely on Judge Harmon's instruction that they need not settle on one agreed "corrupt persuader." The jury in fact unanimously identified a single corrupt persuader: Nancy Temple, the Andersen attorney in Chicago. The jury apparently came up with its own theory of guilt, one that the prosecutors had not even advanced. The massive destruction of e-mails and documents so celebrated by the government and the media was dismissed by the jury as "largely superficial and largely circumstantial.'' The Associated Press reports:

Jury foreman Oscar Criner, who was the last holdout before the panel delivered the verdict after 10 days of deliberations, called all the evidence regarding mass shredding and e-mail deletion ``largely superficial and largely circumstantial.''

Instead, the jury focused on the suggestion that Temple, based at Andersen's headquarters in Chicago, gave Duncan regarding a memo he was writing about a conversation he had with Enron chief accounting officer Rick Causey.

Temple asked Duncan to remove a sentence and to eliminate her as an addressee because it might increase ``the chances that I might be a witness, which I prefer to avoid,'' according to testimony and court documents. She also suggested Duncan delete ``language that might suggest we have concluded the (Enron earnings) release was misleading.''

On the other hand, the Associated Press also reports that "the same jury said it didn't believe in Duncan's guilt, even though he entered a guilty plea earlier this year." Duncan is to be sentenced August 26.

It is worth keeping in mind that the mere statement by dismissed jury members that they did not rely on Judge Harmon's erroneous jury instruction is not in itself enough to eliminate the possibility of reversal of the conviction for that error. Rather, appeals courts "review allegedly erroneous jury instructions de novo to determine [whether] the instructions, taken as a whole, show a tendency to confuse or mislead the jury with respect to the applicable principles of law." The appeal will be determined on the official court record - and the out-of-court statements by dismissed jury members won't count for much unless there is a claim of actual jury misconduct.

In short, Judge Harmon's erroneous jury instruction may be an error on which the jury did not rely, but which may require reversal of the Andersen conviction anyway. Perhaps the prosecutors now wish they hadn't won that round. [UPDATE: And correspondingly, Andersen is probably happy that the issue wasn't corrected - contrary to the harpings of the Man Without Qualities. Boy, that Mr. Hardin's intuitive, folksy genius is really something to watch in action!]

The prosecution may now consider indicting Ms. Temple for "obstruction of justice" - and then try to pressure her into cooperating or try to prove the case against her if she won't cooperate. Both of these possibilities seem unlikely. The jury's theory of guilt seems hopelessly wrong. That's probably the reason the government didn't try arguing it in the first place. Specifically, the jury "found that Ms. Temple's editing suggestion to David B. Duncan, the lead partner in the Enron account, on a single memorandum obstructed justice. Ms. Temple, 38, recommended that Mr. Duncan remove a passage that described a disagreement with an Enron executive over whether the wording of a news release on the company's finances was misleading." If the Andersen attorneys had known the jury might veer in this direction, it would not have been hard to introduce evidence highlighting how ambiguous these actions of Ms. Temple were. It therefore seems unlikely that the prosecutors will want to try to repeat this fluke by actually going to trial against Ms. Temple on the theory - and the government's own theory that Ms. Temple cleverly induced destruction of documents by citing to the Andersen "document retention policy" was rejected by the jury. Ms. Temple is a former litigation partner at one of the best law firms in the country, so she probably understands all that.

Further, as an Andersen in-house lawyer, much of her involvement is likely covered by attorney-client privilege which only Andersen (not Ms. Temple) can waive. There are exceptions to that privilege - such as advice given to advance a crime - but those exceptions do not come easily. So Ms. Temple may not have all that much to offer even in the unlikely event she wants to cooperate.
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Clueless In Houston

Perhaps distraught that it got one aspect of the Enron/Andersen mess in correct focus, the New York Times now says "the successful prosecution has gained government lawyers more than it cost them in their continued investigation of Enron — the company that, after all, is supposed to be at the center of their inquiry," where only yesterday the message was: "The trial was an opening act to the eventual prosecution of Enron executives. But it appears to have done little to aid that effort and, in some ways, may have hurt it. Moreover, the verdict does little to advance the cause of reform in the auditing industry."

What happened - other than the reporter, Kurt Eichenwald, maybe belatedly realizing that he had wandered from the Times party line? One surely can't fault Mr. Eichenwald's healthy sense of self-preservation at the new Howell Raines demented Times. What if Mr. Raines were to wake up one day and find he was no longer comfortable with Mr. Eichenwald? Andrew Sullivan knows. Remember, Kurt, this is class war!

Well, it seems that Mr. Eichenwald spoke to new experts who snapped him out if it. Some of these experts are actually named. There is Stephen L. Meagher (a former federal prosecutor), John J. Fahy, (a certified public accountant and former federal prosecutor), Robert A. Mintz (a former federal prosecutor), Lee Hamel (described as a "prominent Houston lawyer" with no other credentials - but other sources describe Mr. Hamel as a former prosecutor), and - O, dear me, there is nobody else named except current prosecutors involved in this case. So all of the named Times experts are former or current prosecutors. There is even a supporting quote from Leslie R. Caldwell, the head of the Enron task force at the Justice Department! Even allowing for the fact that good criminal defense attorneys are often former prosecutors, doesn't that selection seem, well, a little lacking in diversity. Couldn't Mr. Eichenwald have dug up a law school professor, or a single criminal defense attorney who was NOT a former prosecutor (there are quite a few)?

But the important thing is what the experts say - not some presumed bias they may have. Well what do they say?

Mr. Meagher says: "The fact that it was supposed to be a lay-down and turned out to be more complicated than expected doesn't diminish the fact that it was charged, it was tried and the firm was convicted. ... To future witnesses, the experience with Andersen will mean that cutting a deal with the government may be the way to go." So Mr. Meagher thinks that the jury's inability to agree that even Andersen Partner David Duncan had committed the crime to which he had already confessed "doesn't diminish" the government's win and will spur other witnesses to confess? Very interesting. If I ever need a criminal defense attorney, I will keep Mr. Meagher on my list - although perhaps not at the very top.

Then Mr. Fahy weighs in with: "A jury hearing about that conviction will know that Andersen did something wrong. ... From a legal perspective it gives more credibility that the books may have been cooked." Yes. true, all true. A conviction certainly beats an acquittal in the "credibility" department. But are we supposed to think that yesterday the Times didn't realize that a criminal conviction indicates that "Andersen did something wrong?" Did Mr. Fray bring that to their attention? And one wonders how many defendants have been sent straight to jail once the jury was told the defendant's accountants did something bad.

And what about the chances of a reversal? That aspect of the case is coyly mentioned but set aside throughout the Times article. Is there some reason why not a single one of these experts offers an opinion on whether Judge Harmon's key ruling that the jury didn't have to agree to an individual "corrupt persuader" was reversible error? Doesn't that have some bearing on the significance of the conviction - or whether it imparts "momentum" to the government's efforts? Probably this gap is just an oversight on the Times' part - or maybe the experts became unaccountably shy at that point in the interviews - or maybe they couldn't be heard through their apoplectic sputtering that erupted after the question was asked?

Mr. Hamel, the "prominent Houston lawyer" who appears to have forgot to include his credentials in the Times interview also seems to have forgot to include any supporting reasoning or justification for his conclusion: "A win is a sweet victory anytime, but here the implications are much greater because it is part of the fabric of the Enron investigation. ... This is obviously a huge leg up on gaining the moral high ground in the overall Enron-related matters, and it strengthens the prosecution's hand in dealing with the Enron issues." Absolutely, Mr. Hamel! Whatever you say! These are surely adequate grounds for the Times to have reversed its take on the significance of the conviction.

Doing detail work, Mr. Mintz only addresses whether the "government lawyers ... will face questions about whether the indictment amounted to prosecutorial overkill, and whether they wasted too much time and resources on what amounted to a sideshow to the Enron case. 'That issue will now soon be behind them,' said Mintz. 'And they can move ahead with the most significant part of this case.'" Mr. Mintz is absolutely correct - and also absolutely correct not to opine on where, exactly, "the most significant part of this case" will go following this "conviction."

Well, perhaps I missed it - but I couldn't exactly locate the force of the experts' opinions that "the Andersen conviction provides prosecutors with critical momentum as they turn their attention to other potential defendants in the Enron debacle," as the Times now puts it.

The Times also reports that “Strangely, the fact that the Andersen case is now seen as weaker than previously believed could bolster government efforts, because potential witnesses will now recognize that these prosecutors, unlike some, are willing to move fast and go to trial even in cases where victory is not assured.”

I also seem to have missed the support for this conclusion. The government began the Andersen prosecution as a misperceived “slam dunk.” So anyone who thinks this conviction shows these prosecutors will bring what they understand to be weak cases is not reading the fine print

With respect to the future fraud cases, there is the troubling fact for the government that Mr. Duncan, the government's star witness in this case, "repeatedly asserted that he never engaged in fraud, and, with few exceptions, attested to the propriety of Enron's accounting. That information is sure to be used by any future defendants accused of accounting fraud, as they essentially argue that they relied on the advice of Andersen in deciding that their financial machinations were proper. Under the law, defendants can be cleared of fraud charges if their actions were the result of their reliance on the advice of professionals, such as accountants and lawyers."

Are the prosecutors worried? No! "'[P]rosecutors dismissed that criticism, saying Mr. Duncan's testimony in this case will have little effect on their future course. 'To the extent that David Duncan testified that he believed his accounting advice to Enron was appropriate,' Ms. Caldwell said, 'it will really have no effect on our future actions and decisions in this case.'"

So it comes to this: Having failed to convince the jury that Mr. Duncan even corruptly destroyed documents even with the help of his own confession and in complete reliance on his credibility as a witness, the prosecutors are now going to show that he committed fraud, a crime which he adamantly denies.

The effort is not completely hopeless. Maybe the prosecutors can get Howell Raines to come down to Houston and order the future jury to convict. It may have worked on Mr. Eichenwald.

O, and by the way. Does anyone else think that a future jury will be struck by Mr. Duncan's refusal to admit to fraud notwithstanding prosecutorial pressure and the fact that any one of his co-agents could have turned state's evidence against him at any time and put him in jail? Perhaps the prosecutors will try not to highlight that aspect of the proceedings.