Man Without Qualities

Friday, August 16, 2002

On to 2004

Matt Miller writes:

Howard Dean ... is the little-known governor of Vermont who is running for president. From a recent conversation it’s clear he’s the only Democrat aspirant so far willing to discuss an agenda bold enough to challenge Bush. ... Dean, a physician, wants health coverage for every American. .. When you ask Dean how he’ll pay for this and his other priorities (like early childhood programs), he doesn’t hem or haw. “By getting rid of the president’s tax cut,” Dean says. Not freezing it, mind you — getting rid of it. All $1.7 trillion worth.

Actually, if the point is to have a balanced federal budget (which Dean seems to say he wants), universal health care and lots of government-funded "other priorities" like childhood programs, "getting rid of the president's tax cut" would hardly make a good sized downpayment. Direct deposit of most paychecks into the government till would be more like what would be needed. Has anyone reminded Mr.Dean that the standard of living in Sweden is now less than the standard of living in Mississippi? Or that the average Swede now does not live as well as the average African-American?

Mr. Miller seems to think Mr. Dean has a reasonable chance, at least of the Democrat nod. If so, that would give the nation a clear choice - and maybe at least break up some of the gridlock in Washington.

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Mr. Scowcroft Regrets

I don't understand why Brent Scowcroft's argument against invading Iraq is being taken seriously - if it really is. Here is an argument which depends on such choice pieces of drivel as : "Israel would have to expect to be the first casualty, as in 1991 when Saddam sought to bring Israel into the Gulf conflict." Mr. Scowcroft deposits this factoid even as Israel is pleading with the United States not to delay attacking Iraq!

Undeterred by the obvious inconsistency between Israel's long-established understanding of its own security interests, which he surely has long known, and his patronizing attitude towards those same interests ("Brent knows best!"), Mr. Scowcroft commits more howlers:

Possibly the most dire consequences would be the effect in the region. The shared view in the region is that Iraq is principally an obsession of the U.S. The obsession of the region, however, is the Israeli-Palestinian conflict. If we were seen to be turning our backs on that bitter conflict--which the region, rightly or wrongly, perceives to be clearly within our power to resolve--in order to go after Iraq, there would be an explosion of outrage against us. We would be seen as ignoring a key interest of the Muslim world in order to satisfy what is seen to be a narrow American interest.

The best that can be said for this paragraph is that it rejects the ersatz posturing found less than twenty lines above that Mr. Scowcroft is really looking out for Israel's interests more than Israel itself is looking out for those interests. Here, Mr. Scowcroft admits his argument just advances "a key interest of the Muslim world." But this article should bear a warning: "DICTATED BUT NOT READ."

Mr. Scowcroft is certainly entitled to craft arguments advancing what he sees as key interests of the Muslim world. But as a matter of historical fact, many of those "key interests" have of late been defined by current and recent Muslim leaders to be opposed to American interests - as Mr. Scowcroft admits ("in order to satisfy what is seen to be a narrow American interest"). For example, the utter and complete destruction of Israel is seen by most current Muslim leaders as "a key interest of the Muslim world" - and the preservation of Israel "is seen to be a narrow American interest." That is by no means the only example. So why does Mr. Scowcroft even think generally that the United States should not be seen as ignoring a key interest of the Muslim world in order to satisfy what is seen to be a narrow American interest?

In connection with the recent Afghan invasion, people sounding a lot like Mr. Scowcroft repeatedly warned of the risk of violent reaction in "the Arab street" to almost every American move. These arguments were utterly discredited in the fact. It is just impossible to take Mr. Scowcroft seriously where he again argues that "in order to go after Iraq, there would be an explosion of outrage against us" without demonstrating why this argument means more than did it's utterly discredited Afghan forefather.

Mr. Scowcroft's argument that Mr. Hussein will use whatever weapons of mass destruction it has if we invade ("Saddam would be likely to conclude he had nothing left to lose, leading him to unleash whatever weapons of mass destruction he possesses.") is all but frivolous. The United States can make clear that Mr. Hussein will not be personally, physically harmed unless he engages in what we consider unreasonable measures going forward, including unleashing weapons of mass destruction, genocidal acts and war crimes. One of the advantages of being a decent country like the United States with an honorable President like Mr. Bush is that promises of this sort will be taken seriously. That would give Mr. Hussein plenty "left to lose."

Perhaps most tellingly, one would think Mr. Scowcroft's complete resume would bear more attention. The Journal says: "Mr. Scowcroft, national security adviser under President Gerald Ford and George H.W. Bush, is founder and president of the Forum for International Policy." But the Journal should have written: "Mr. Scowcroft, national security adviser under President Gerald Ford and George H.W. Bush, was a key member of the White House team that decided not to depose Saddam Hussein and invade Baghdad during the Gulf War.

Identifying him that way might have made Mr. Scowcroft's bizarre Journal screed more understandable. Indeed, at least one book on the Gulf War says Mr. Scowcroft is "a workaholic with a bland exterior. His only passion is arms control, a subject he argues with "voice rising almost to a screech and his arms waving."

It is certainly interesting that the predictably absurd New York Times editorial exploiting Mr. Scowcroft's article, and the corresponding front page article (Why does the Times bother formally separating putative news and opinion now, anyway?) dwell much more on the fact that Mr. Scowcroft has presumed close personal relations within the GOP, especially with the President's father, and do not tarry over his incoherent argument. The Times editorial, for example, sweeps the substance of Mr. Scowcroft's argument under the rug with the wonderfully daffy: "Mr. Scowcroft and others are making abundantly clear that dealing with Iraq is a highly complicated matter that carries great potential to produce unintended and injurious consequences if handled rashly by Mr. Bush."

Did we need Mr. Scowcroft to show us that war is "a complicated matter", or that any serious issue in the Middle East is "a complicated matter"? Did we need Mr. Scowcroft to enlighten us that a war "carries great potential to produce unintended and injurious consequences if handled rashly?"

Or perhaps the Times or Mr. Scowcroft mean to argue that no such potential would exist if a war were handled rashly by someone other than Mr. Bush. The Times, at least, has believed and advanced stranger positions. For example, the Times front page article presents Kissinger as opposing an Iraq invasion. But OpinionJournal points out that "if you read on in the Times account, you'll find that Purdum and Tyler are not telling the truth about Kissinger, whom they quote as saying only that good planning for Iraq's postwar reconstruction is crucial--an assertion with which no reasonable person disagrees."


UPDATE: Now the Times says that Mr. Bush says that he is listening. That's good. It's good to listen. It's good for a President to listen. I just hope he's listening to things that make a lot more sense than what Mr. Scowcroft wrote in the Journal. For example, I hope the President is listening very carefully to the details of what will be involved in a logistical sense in mounting an invasion with little near-by support from Iraq's neighboring countries. Kuwait more than owes us one on that score.

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As TIME Goes By

Gee, I wonder if this means TIME will be taking more dictation of strange creative writing from ex-Clinton officials such as Sandy Berger.

Maybe Arthur Levitt will give an interview explaining that he sat Harvey Pitt down and explained and explained that those Enron financials were just NOT transparent, and something should be done about it by Mr. Pitt. The Clintonite could argue: "But did Mr. Pitt listen? No. And look what happended." Of course, sensible people would point out that Levitt can't say this without explaining why Levitt did nothing. But such considerations didn't stop Berger.

Surely TIME will have no trouble running that story. The story could end with a suggestion that these accounting investigations of AOL Time Warner are just the Bush Administration trying vindictively to get the company in reprisal for TIME's fearlessness in exposing that the Clinton Administration had told the incoming Bushies what to do to meet the bin Laden threat!

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Thursday, August 15, 2002

Not So Great Art

Composer Karlheinz Stockhausen was widely and strongly criticised when the media reported his response to a question about the September 11 attacks on the United States:

What happened there is - they all have to rearrange their brains now - is the greatest work of art ever. 'That characters can bring about in one act what we in music cannot dream of, that people practice madly for 10 year, completely, fanatically, for a concert and then die. That is the greatest work of art for the whole cosmos.

So what is one to make of this OpinionJournal report in regard to a museum display of Hitler's art:

Timothy Cahill suggested in his Aug. 4 review for the Albany Times Union that we add Hitler to "the list of the 20th century's great artists" for having "choreographed World War II and the Holocaust as a mad act of aesthetic will." Martin Knelman, in his Aug. 11 review for the Toronto Star, saw Hitler as a master at staging "a really big show--the kind that millionaire rock stars now routinely offer their fans."

Aren't these reviewers even more off base than OpinionJournal indicates?

Or are we supposed to accept that the offense of Mr. Stockhausen's comment lay vastly less in what he said than in when he said it?
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Lower Level

The Wall Street Journal reports:

Federal prosecutors are pressing ahead with their criminal investigation of Mr. Skilling and other top Enron officials, in recent weeks bringing in several lower-level executives to testify before a Houston grand jury. Mr. Skilling, a subject of the probe, potentially could face securities-fraud and perjury charges, lawyers familiar with the matter said.

Certainly some activity suggests more enthusiasm on the part of the prosecutors than no activity would. So the Man Without Qualities may have been premature is detecting despair in the Department of Justice. But while there can always be surprises, it seems unlikely that the main criminal charges of which Mr. Skilling might be charged can likely be proved with testimony of lower-level executives. Of course, it is always possible that the prosecutors may uncover some other crime that can be proved that way: Al Capone did not serve time for murder or bootlegging. And that could help them bring pressure on Mr. Skilling.

Despite some silly statements by the prosecutors (and some fawning media) following their disastrous "win" of the Andersen conviction that "momentum" would force upper-level suspects to turn, nothing of the sort is reported to have happened. Unless one of the upper level suspects begins to cooperate with the prosecutors, the focus on lower-level executives seems more suggestive of desperation than confidence on the prosecutors' part. And the prosecutors' willingness to allow the SEC civil investigation to become more active recently is also not a positive sign in a case of this type, where the Justice Department is attempting to impose pressure on the criminal suspects and should desire complete control, at least if there is serious hope of bringing criminal charges that will stick.

A "low level" focus is better than nothing, and even "low level" grand jury activity should deflect the inevitable election-inspired charges that the Bush administration is allowing the criminal investigation to lapse. But for that very reason, it's hard to make much of this activity. For while I have no doubt that the Department of Justice would love to prosecute at least some Enron officials, I have seen nothing that suggests that is possible at this time. But even if the Department of Justice has despaired of bringing criminal charges, they surely would have enough sense to kick up some dust in the weeks before an election. Such dust could be kicked in perfectly good faith just by calling lower-level executives to the grand jury to see what they have to say under oath, even if nothing much is expected to come of it.

Of course, the prosecutors could almost certainly indict every Enron officer and board member right now. Conviction could be a quite different and potentially quite embarrassing matter - as the Andersen case demonstrated.

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Wednesday, August 14, 2002

Isn't What the FERC Says Interesting?

The Federal Energy Regulatory Commission has issued its preliminary report on the notorious Enron trading practices. If the preliminary findings contained in the report hold up, the new California grand jury empaneled by the Justice Department to investigate those practices won't have much to do. Here are some excerts:


While the exact economic impact of the trading strategies is difficult to determine precisely, Staff concludes that these now infamous trading strategies have adversely affected the confidence of markets far beyond their dollar impact on spot prices. is highly unlikely that the impact of the Enron trading strategies on spot prices alone accounted for a substantial portion of Enron's total revenues from long-and short-term trades.

On "Load Shift"

By Enron's own admission, its use of this trading strategy was not very successful in that Enron was not able to move the price paid for congestion management because the bidding strategy of other entities had a counter-balancing effort. In any event, Enron may have received approximately more [sic] congestion revenues due to this trading strategy. Nevertheless, whether successful or not, "load shift" involves deliberately creating congestion on a transmission line to increase the value of Enron's transmission rights, and is clearly an attempt to manipulate prices.

On Exporting Power out of California

While it may be true that any individual company may have acted in an economically rational manner by exporting its power to a market with higher prices, collectively the large amount of exports contributed to the scarcity in California during 2000-2001.

On "Ricochet"

Entities routinely engage in trying to capture profits from price differences that exist between different time periods, e.g., purchasing power day-ahead and selling it in real time. The actual price in the real-time market can be higher or lower than the original price paid in the day-ahead market. Entities assume this arbitrage risk where others are unwilling to do so.

On "Fat Boy"

Enron's use of the "fat boy" trading strategy did not set the market-clearing price in the Cal ISO's real-time market.

On "Get Shorty"

In this trading strategy, Enron would commit to provide the ancillary services in the Cal PX's day-ahead market and then cover its position by purchasing those services in the Cal ISO's hour-ahead market. There is a legitimate profit motive here: to sell high in the day-ahead market and buy back at a lower price in the real-time market.

Staff notes that Cal ISO Tariff Amendment No. 4, which the Commission accepted for filing,103 permits the "buy back" of ancillary services as a legitimate form of arbitrage.

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Zombie Phone Home

WorldCom appears to have died long before its Chapter 11 filing. But its expiration was allegedly concealed by the black arts of accounting fraud applied to over Seven Billion Dollars in operating expenses. Through all that period of concealment, WorldCom's competitors - AT&T, Sprint and others - had to compete with the WorldCom zombie. WorldCom's banks say the company's accounting fraud allowed WorldCom to obtain billions of dollars in funds under its bank loans which should not otherwise been available, funds which WorldCom used as an operating subsidy. That is to say, the effects of WorldCom's fraud on its competitors has already been economically similar to - although not yet as damaging as - the effects of the decisions of Eastern Airlines' bankruptcy judge on competing airlines.

In some ways related to solvency considerations, the telecom industry resembles the airline industry. An interesting Wall Street Journal article today asserts:

Buyers have begun rescuing financially troubled fiber-optic telecommunications networks for cents on the dollar, but by giving these companies new life they risk perpetuating the world-wide capacity glut that sent the industry into a tailspin. ... [W]ith rescue efforts under way for a number of these troubled telecom providers, including the latest bankruptcy filer, WorldCom Inc., that capacity may be here to stay.

What's the solution? Well, Stephane Teral, identified in the Journal article as research director at telecom industry-tracker RHK of South San Francisco, California, is quoted as saying: "If you want to solve the problems with the telecom industry in North America, you better liquidate, period."

But if Ms. Teral or the authors of the Wall Street Journal article think that liquidating WorldCom is going to make excess capacity in any way disappear from the market, they are mistaken. [Actually, I don't think Ms. Teral is suggesting any such thing - although the Journal article presents her quote that way. Ms. Teral is probably suggesting that a liquidation would help solve the problems with the telecom industry without eliminating any real capacity. That is essentially the view advanced below.]

The real assets of WorldCom, Global Crossing and every other company that overbuilt telecom capacity will not be destroyed by a legal liquidation of any company. Liquidation will simply cause the sale of those real assets to some other person. That is what has happened to Global Crossing, whose capacity is still very much a part of the market. Industry assets and excess capacity simply exist as real, physical things, there is no good reason to destroy those assets or remove them from the market - and a legal and financial liquidation will certainly not have that effect.

Does that mean that a liquidation of WorldCom is ill advised or that WorldCom's competitors are doomed? The answer is probably "no" to both questions. Ms. Teral is probably right - but perhaps not for the reasons her quote is offered to support.

Worldcom may either be reorganized or liquidated. If WorldCom is the most efficient user of its own assets, then reorganization may be in order. But WorldCom's need to conceal huge operating losses over a period of years while its competitors did not have to do that strongly suggests that WorldCom is NOT the most efficient user of its own assets. Recent industry history therefore suggests that those assets would probably be better used by WorldCom's competitors, who should be allowed to purchase them in liquidation. The liquidation price for those assets would be low, so the purchase should be affordable. The capacity will not disappear, but much will remain unused and dark, probably for the next few years.

The Journal article suggests that WorldCom may emerge from bankruptcy as a fierce competitor:

As struggling companies are bailed out, and the massive debt they incurred to build their lines is wiped away, they "are in a much stronger position to compete on pricing," says To Chee Eng, a Singapore-based analyst with the U.S. market-research and consulting firm Gartner Inc. A revived WorldCom could be an especially nettlesome competitor for the likes of AT&T Corp. and Sprint Corp. Upstart companies such as Global Crossing or Williams still have to fight inch-by-inch to win the largest corporate customers. But WorldCom already has those relationships, and if it eventually slashes prices it will put the most direct pressure on big competitors such as Ma Bell.

But the capacity problem already exists - it is a problem of overabundant, real assets. WorldCom's competitors therefore probably don't have the choice of turning away from the market or this business. If WorldCom's only competitive advantage is financial, as suggested by Mr. Eng, then WorldCom's competitors will have to stay in the market, cut their prices and use their competitive advantages in operations to the extent possible - an advantage which has already been clearly demonstrated by their not having run up huge operating expenses they found necessary to conceal, unlike WorldCom. In the process, one or more of WorldCom's competitors may join it in bankruptcy. If so, once they are reorganized, WorldCom will have no advantage over them - it would be a battle of the zombies. WorldCom will probably simply be driven out of the business again, and require liquidation or further reorganization. In bankruptcy parlance, a WorldCom plan of reorganization based solely on the supposed financial advantage identified by Mr. Eng, and which does not correct the operating deficiencies which have driven WorldCom's losses, is almost certainly not feasible. Under the requirements of Chapter 11, no such plan of reorganization should be confirmed by a bankruptcy court.

But many such plans have been confirmed.

And worse could happen. If the WorldCom bankruptcy court were to adopt the "public service" approach to the case, WorldCom might function as a "reorganizing debtor" under Chapter 11 and court protection for a long time, all the while consuming its own assets the way Eastern Airlines did. That would tend to eliminate real capacity over time. But the effects of such an "elimination" on WorldCom's competitors would probably be even worse than those resulting from WorldCom's emerging from Chapter 11 as a reorganized, recapitalized zombie.

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Tuesday, August 13, 2002

Flying Zombies

In a competitive market with few competitors but excess capacity, one might expect that the bankruptcy of one competitor would lift the prospects of the survivors. But when US Air filed for Chapter 11 protection, its competitors' stock prices were savaged. Why?

The Times says:

[US Airways] took another step yesterday toward trimming its labor costs by presenting a proposal for concessions to the International Association of Machinists, which represents US Airways' 5,500 fleet service workers. The union, which also represents 6,800 mechanics at the carrier, said both of those groups of workers would vote on concessions before the end of the month. US Airways has already reached agreements with its pilots and flight attendants for concessions that would save about $550 million a year. By bringing down its costs, US Airways will put competitive pressure on other carriers to do the same and give them more leverage in negotiations with their unions, analysts said. Cutting back its capacity is likely to mean more revenue for competitors, nudging them toward profitability. And US Airways could lower its costs enough to make room to experiment with a simplified fare structure.

But if US Airways unions are willing to grant it concessions, isn't it reasonable to think other airlines will be able to obtain the same concessions? And these developments that the Times' analysts say will give other airlines "more leverage in negotiations with their unions" and "more revenue ... nudging them toward profitability" hardly seems the stuff of stock price savaging. Is the market that out of touch?

No. In fact, there are very serious historical reasons to view the US Airways bankruptcy as a potential disaster for competing airlines. Consider the bankruptcy of the old Eastern Airlines. As with many airlines bankruptcies, the Eastern Airlines bankruptcy court viewed the airline as a "public service" - a characterization which the court used to justify Eastern's consumption of virtually all of its cash, equipment and other assets. In the end, even the secured creditors and administrative creditors of Eastern Airlines received just a few pennies for each dollar of debt. In the case of the secured creditors, the court allowed the airline to so run down and cannibalize the equipment securing the debt that when the creditors were finally able to foreclose, the equipment was often worthless. The so-called "administrative creditors" were unsecured creditors who advanced credit to the airline (sometimes involuntarily) after the bankruptcy. Such creditors did poorly, but they beat out the general, unsecured creditors, who received absolutely nothing.

But as far as competing airlines are concerned, the real importance of the bankruptcy court's treatment of airline cases does not lie solely in the outrageous treatment of the airline's creditors. Rather, the problem for the competing airlines is that they have to compete against an airline which is empowered to exploit its creditors for an operating subsidy which the non-bankrupt airlines don't have unless they, too, declare bankruptcy. Competing with a bankrupt, zombie airline is very expensive. Eastern Airlines converted several billion dollars of its creditors' funds into operating subsidies with the blessing of its bankruptcy court.

But it gets worse. If the bankruptcy courts continue to advance their "public service" approach to airline bankruptcies, creditors of existing airlines must take into account not only the increased likelihood that their debtor will seek bankruptcy protection resulting from the need to compete with a zombie, but also the likelihood that the creditors will be subject to Eastern Airlines style gutting of creditors rights if such a bankruptcy occurs. That means the cost of credit to competing, non-bankrupt airlines will rise substantially - further increasing the risk of bankruptcy. This vicious cycle could easily expand without limit. With the current structure of the airline industry and its weakened condition, it is no exaggeration to say that the US Airways bankruptcy has the potential to destroy the entire worldwide airline industry if US bankruptcy courts insist on following precedents such as Eastern Airlines. And the policies of insolvency courts of other jurisdictions are generally worse than those of the US courts, further exacerbating the potential problem.

The best possible thing the US Airways bankruptcy court can do for the nation and the national airline business is to take a very hard look at US Airways viability - and utterly reject the ill-conceived "public service" model. If the US Airways plan of reorganization is not quickly produced and clearly shown to be viable, US Airways should be promptly liquidated.

But historically, that has not been the way bankruptcy courts have treated airline bankruptcies.

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Big Mo's Guide to St. Alban's (Columbine) Populism II

Whatever Al Gore did to tick off the nabobs at the New York Times, he did it in spades.

It's been almost a hit-a-day recently in the Times for poor ole Al.

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Would That Which We Call a Blog...?

UPDATE: Ann Salisbury comes up with some additional good thoughts.


The question of pseudonymous blogging comes up from time to time. Now, it is Steven Den Beste writing that "someone who pontificates anonymously is suspect."

Perhaps this is a variant on, or a corollary of, the old French adage: "He who is absent is guilty!" Regardless, one would hope that someone who pontificates is generally suspect, regardless of whether such pontification is issued under a given name or under an assumed name, as the Popes issue their pontifications.

Steven seems to have entered these considerations by way of a discussion with Demosthenes, who has his own reasons for pseudonymous blogging, reasons with which Steven does not agree. Those are not the reasons of the Man Without Qualities, as explored in what I believe was a rather thoughtful discussion with Charles Murtagh, Derek Lowe and "Max Power" - but not referenced by Steven. I am generally sympathetic to many of Steven's musings. But I think that the context in which this dispute arose seems to have caused some confusion between arguments applicable to what weight one should give to what a particular blogger writes and arguments applicable to the issue of whether pseudonymous blogging is somehow improper.

I, personally, do not invite my readers to assume my writings have extra validity because of the way I apply them in my life – which I keep almost a complete cipher. The focus here is on the ideas and their formulation ("you do not write poems with ideas, you write them with words") – not on any credential I may have by way of education or experience or success. The Man Without Qualities is, as far as his reader knows, without those Qualities – perhaps without a single one of the Four Qualities some deem prerequisites for avoiding condemnation as “worthless drivel” not worth reading.

Other than that, I don't have much to add now that wasn't aired when Charles previously raised the issue - except that I tend to the rather catholic view recently summarized nicely by InstaPundit.

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O, Glenn, You Say the Sweetest Things!

Instapundit asks:

Is Atrios really Bob Shrum? Is Robert Musil really Alan Greenspan? (Almost certainly not, in both cases, but the fun doesn't end there....)

Now, HUSH, Glenn, you naughty, naughty man!
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Isn't That Interesting

Paul Krugman writes that "Enron executives may have deluded and defrauded their shareholders without actually breaking the law."

It is by no means clear what Mr. Krugman meant when he created this mysterious glyph. But whatever else is intended, it is relatively clear that Mr. Krugman wants his readers to believe that Enron executives may not have broken the fraud laws at all. Fancy that. This, after the New York Times and countless other media outlets and liberal blogs long ago convicted the entire Enron management team and its board of directors of obvious and egregious fraud. Perhaps Mr. Krugman now also wants his readers to believe that the Enron people may, under current law, be guilty of at most negligence or gross negligence. Where could he have read that? But we have no Rosetta Stone for his glyph, because even though his discovery appears momentous, Mr. Krugman does not share with us his analysis of the law and economics of the Enron matter that has led him to want to lead his readers into believing that the law may not have been broken after all.

Readers of the Man Without Qualities may consider the remainder of Mr. Krugman's column for themselves, and ponder how it is that a putative economist seems to want his readers to conclude that the big current problem with the American economy is the widespread failure to expense options, even though the expensing of options would disgorge no new information into the markets. For example, Mr. Krugman notes: Byron Wien of Morgan Stanley recently told a group of security analysts that "stock options malevolence" is at the root of corporate scandal, and that "anyone who says that stock options aren't an expense destroys his credibility on all other issues."

I will pass over Mr. Krugman's preposterous suggestion that Cisco's stock performance is somehow attributable to a subtle, unidentified accounting fraud that isn't, but should be, illegal. Cisco's real offense in Mr. Krugman's mind seems to be adding credibility to George Bush's Waco economic forum - which by Mr. Krugman's rules more than warrants a suggestion of fraud. But I did I enjoy the sentence "What Cisco did was definitely legal" brutally inserted onto the end of the accusing paragraph, a sentence stylistically and substantively inconsistent with the rest of the paragraph, as if it had been penned and demanded by some alarmed libel lawyer. And it may be worth noting that by Mr. Krugman's lights, it appears that Salon, the on-line liberal singspiel, must also be the product of some fraud substantially more virulent than whatever it is Mr. Krugman wants his readers to believe ails the still-$100-Billion-Cisco.

It is not an accident that my discussion above does not say that "Mr. Krugman believes" anything at all, only that he appears to want his readers to believe various things: things a serious economist would have serious trouble accepting. In fact, Mr. Krugman's entire column is a fascinating exercise in watching a writer advance proposals to his readers from which the writer simultaneously distances himself. So it is also not an accident that Mr. Krugman quotes the unknown Mr. Wien - who the heck is he, anyway? - rather than reveal Mr. Krugman's own beliefs on this matter.

In the mean time, for example, Intel refuses for the present to expense its options. Nevertheless, my guess is that the genius Andy Grove retains more than a little "credibility" in the business world - regardless of whether Intel eventually expenses its options. Credibility like Mr. Grove's tends to happen and hang around when one makes tens of billions of real dollars for one's investors over a period of many years, even if one doesn't expense one's options. In Silicon Valley they might consider calling that "stickiness," now that the other trendy use for that term is no longer in favor.


UPDATE: Hoystory and MinuteMan and Caruso have interesting things to say about this Krugman effort. However, I don't agree with much of Hoystory's approach (how could anyone think Mr. Krugman’s "real goal" might be "correcting the problem" rather than attacking the President by whatever means available?). Further, if the Justice department were preparing to bring criminal charges, would the SEC be allowing it's civil team to go into high gear in the same area with no mention of coordination with the Justice Department - potentially disrupting the more serious criminal case? The new activity of the SEC in the Enron case that Hoystory notes is more suggestive of despair at Justice, with a corresponding willingness to let the SEC do what it can on the easier civil front. Such Justice Department desperation would also be consistent with the Justice Department convening another, California, grand jury to investigate Enron trading activities many economists say actually increased the efficiency of the energy markets.

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