Posted 3:33 PM by Robert

The Pragmatic Sanction

Bertrand Russell famously said that pragmatism is like a warm bath; it warms up so imperceptibly you don't know when to scream. One's willingness to defend even unjustified assaults on a total loser is like that. Pragmatically, for more and more people, it just isn't worth the effort - no matter how peculiar the charges become. Al Gore is one such loser - his claims and the claims of his supporters that he was actually a winner made his real loser status all the worse, perhaps even created it. Could Marlon Brando's plea, "I could have been a contender," have made his character seem any more bathetic and delusional? It could have been written "I was a winner," but the effect would have been too obvious and crude for a melodrama like On the Waterfront.

Enron is another such loser. Never easy, pragmatically it just isn't worth the effort for almost anyone to try to fend off even merely colorable charges of direct or indirect Enron-related culpability - with the exceptions occurring where the stakes are truly huge. How bad is the resulting distortion?

Well, this is a country where Senator John Edwards announces his bid for the Presidency with the ringing populist cry that as a trial lawyer he had faced off against some of the country's biggest insurance companies and made them pay up. But the current Enron effect is enough to make the successful refusal of a bunch of big insurance companies to pay up on an Enron-related claim by JP Morgan Chase seem itself a populist triumph, even earning grudging, partial respect from the Wall Street Journal.

And this despite the fact that big insurance companies are among the world's most sophisticated players in the structured finance markets. Nevertheless, the companies' assertions that they were "misled" by Enron and JP Morgan Chase were enough to lead to a settlement that cut the insurance companies' exposure about in half.

The Journal construes the settlement as a quasi-recognition by the bank that it did wrong. But some of the insurance companies had offered to pay even before the bank sued them, and now they're paying hundreds of millions in settlement despite a litigation climate that could scarcely be more favorable to claims of Enron-related facilitation and fraud. The Man Without Qualities is no fan of Enron's lenders and investment banks - as indicated by many prior posts. But since when do insurance companies pay off hundreds of millions of dollars - half of a claim, and vastly more than their attorneys fees and costs of litigation - when they really think they were defrauded? In fact, the circumstances of this settlement are much more consistent with both sides knowing the insurance companies had not been defrauded, but the sides both also realizing that the current litigation climate is highly hostile to Morgan Chase.

Ask Senator Edwards.

Failure on the scale of Enron offends the gods. In the movie version of the classic myth Jason and the Argonauts, Phineas rebels against his torture by Harpies, flying bird-women who punish him for his sins against the gods by stealing his food every day. He cries out that he admits he was a sinner: "But I did not sin every day - so why must you punish me every day." But they do, anyway. And Enron has no Jason coming.