Coyote Blog

My wife and I signed up for Lifelock this week.  Lifelock is a company that puts rolling 90-day fraud alerts on your credit files at the major credit companies.  In practice, this means that the credit agency must call you and get your verbal permission to issue a credit report or check to any third party.  They also claim to stop most pre-approved credit offers.  Their approach to identity theft is the best one that I have heard about yet.   I will see how it works in practice.  Anyone with experiences with this or similar companies are encouraged to post comments.

By the way, I saw a week or so ago that there is a bill in Congress that touches on this practice in some way, but now I can't find the link.

Postscript:  I had trouble with their web sign-up using Firefox.  It went smoothly when I switched to IE.

I have already read several commenters who have wondered how Skilling could be convicted of fraud (in the form of obscuring Enron's true financial health) but acquitted of most charges of insider trading.  Larry Ribstein (via Professor Bainbridge) asks

"Does this mean that the jury thought he didn't know enough about what
was happening to bar him from trading, but that he did know enough to
go to jail for fraud?"

Here is how I reconcile it:  The jury decided that Skilling committed fraud, but that it was not for personal gain in his stock.  How can that be?  What other incentive might he have?  Here is my explanation, based on some personal knowledge of Skilling and the Enron business model.

Enron's business model was Skilling's brainchild.  It was nearly 100% his baby.  He invented it at McKinsey and then moved to Enron to make it reality.  The trading model Enron adopted reflected Skilling's ability to handle a lot of complexity and his facility for numbers.  The failure of Enron would be a direct personal failure of Skilling's, perhaps the first and certainly the largest of his life.  Even without holding a single share of stock, Skilling had every incentive to want Enron to survive and in fact thrive.  Enron's failure would be a repudiation of his vision, a forceful proof that maybe he was not as smart as everyone thought he was.

Like nearly every new financial trading business, Enron at first enjoyed large margins on their trading deals.  This has happened throughout history, as the first traders who discover an arbitrage opportunity make lots of money.  However, over time, competition and general knowledge of the arbitrage opportunity tends to erode margins.  Eroding margins are a problem in every business, but particularly in trading.  Here's why:

Trading businesses typically make their money by executing huge transactions at thin margins.  These transactions require a lot of capital, and since margins are narrow, trading companies need to maintain a very low cost of capital.  For a company like Enron, this means maintaining a high stock price and platinum level credit to minimize borrowing costs.

The trap Enron fell into was not a new one.  As trading margins inevitably eroded (as described above) the company had to do more and more volume to maintain profits (it takes twice the volume of transactions when margins are halved to maintain profits at an even level).  But remember, Enron needed a high and growing stock price to keep its cost of capital as low as possible.  So it needed to show ever growing profits, which means in an environment of falling margins, trading volumes had to go up almost exponentially.  But, increasing trading volumes means more capital, much of it in the form of debt.  Borrowing more increased cash demands and put pressure on ratings agencies to downgrade their debt, which would have disastrously increased borrowing costs.  At the same time, falling margins and rising debt meant falling coverage ratios.    Old line trading firms like Goldman Sachs and Soloman Brothers have mostly avoided this trap by carefully husbanding and building their capital over decades.  But Enron tried to build the trading business too fast.

So you see the tiger Enron management was riding.  Any blip in their cost of capital, whether it be a fall in stock price or a downgrading of their debt, would crash the whole company.  But falling margins and a growing need for debt nearly guaranteed that their cost of capital was going to go up.  At first, management sought new growth avenues (e.g. broadband) or windfalls (e.g. California energy crisis) to make ends meet.  Eventually, management appears to have fibbed to bond and equity markets, in the form of false statements and burying the bad stuff in SPE's, trying to keep things from crashing.  Eventually, outsiders figured out what was going on, the commercial paper market dried up, and Enron faced a liquidity crisis that brought the whole thing down rapidly.

In this context, Lay and Skilling's obfuscation of the underlying financial health of the company makes sense.  Enron had reached a point where bad news about the business would do more than just depress the stock price - it could start a chain reaction that would bring the whole company to bankruptcy.  Knowing this, Lay and Skilling apparently sought to hide the true condition of the company, to try to buy time to find some way out.  Skilling, much much smarter than Lay, at some point probably realized that the crash could not be avoided and that's why he suddenly quit.  The tragedy (self-induced, of course) for these men is that nothing was going to prevent the eventual crisis, and Lay and Skilling bought a few months delay in Enron's downfall at the cost of what will probably be their freedom for the next several decades.

So, was Skilling a robber baron intent on nothing more than enriching himself at the expense of shareholders?  Or was he a visionary entrepreneur, who just couldn't accept that his dream and creation of over a decade's work was dying?  I don't really know, even having known the man personally, but the jury's verdict seems to point as much to the latter than the former.  And if it is the latter, has there ever been a visionary who was not the last person to admit his vision was a failure?  I can't tell you how many entrepreneurs I knew in the Internet bubble who were convinced their company was going to be successful almost right up to the day of bankruptcy.  Are we really better off as a society putting all these failed visionaries in jail?

I guess I end up with mixed feelings about the legacy of the case.  I certainly am worried about the prosecutorial abuse.  And cooking the books of a public company is bad and should result in jail time. Having worked once long ago with Skilling, I know for a fact that the man is brilliant and totally detail oriented.  There was no way he could not know about the SPE shenanigans, and for that alone he should face jail time.  My concern is that the other message, beyond just accounting fraud, of this case will be that we are criminalizing CEO's being overly optimistic about their company. And that strikes me as nuts.

Update:  Tom Kirkendall, who has been all over this case, has more here.  Larry Ribstein, whose question started this post, observed:

Many people think that there was so much loss associated Enron that the
guys at the center of it must have been villains. But they weren't
villains. The jury is saying they weren't even insider traders, as if
that would have made a difference. They lost as much as anybody, and
that's what drove them to lie, if they did lie. This doesn't make them
saints, but it should make even the most hardcore antibusiness types
queasy with the denouement of this tragedy. Locking these guys up for
pretty much the rest of their adult lives for being unable to face the
fact that their dream had ended is not the way a civilized society
would deal with this case.

Technorati Tags:  Enron, Skilling

Ken Lay and Jeff Skilling were convicted on numerous counts of fraud but were acquitted on most counts of insider training.  Professor Bainbridge has some quickie analysis.

I worked for Jeff Skilling for a brief period of time at McKinsey & Co.  Jeff was easily one of the smartest men I ever met, as well as the most detail-oriented.  It was this latter quality that forced me to concede that he was probably lying to Congress back when he said "I didn't know any of this stuff was going on in my organization."  Whatever else they did, Lay and Skilling will never be forgiven by my family for sucking in a couple of our family friends who were not business people (doctors and such) onto the Enron board, perhaps as dupes who had no hope of crying foul at the complex business machinations that were taken place.  Whatever the reason, our friends will spend the rest of their lives dealing with Enron lawsuits.

My only regret in this case is that I hate seeing some pretty scary prosecution practices get rewarded.  The guilt of Lay and Skilling does not change the fact that we need to start reigning in heavy-handed prosecutors, and disavowing the Thompson memo would be a good start. Update: Tom Kirkendall has much more on prosecutorial abuse in this case and possible appeal points.

Last week, Milberg-Weiss and two of its partners were formally charged with bribery and fraud surround their aggressive pursuit of class-action lawsuits, often against companies with falling share prices.  Walter Olson helps describe in detail what was going on, but the short answer is that the firm, as many of us suspected for years, appears to have been generating class action suits against large companies mainly for the benefit of itself and the legal fees generated.  A few months ago, I questioned shareholder suits and their fundamental logic when I was guestblogging at Overlawyered.

So I am happy that this particular rock is finally being turned over.  However, there are substantial problems on the prosecution side of this as well.  The Justice department is using the abusive Thompson Memo guidelines to go after Milberg-Weiss.  Larry Ribstein is concerned with the firm death penalty approach being taken here that was used to bring down Arthur Anderson.

Milberg is a different story. The case seems to be based on the
alleged misconduct of a couple of partners. If the partners did what
they are accused of, they should go down. Moreover, the firm will have
earned fees under questionable circumstances and should bear civil
consequences for that. But the criminal indictment casts a shadow on
the entire firm that it will have a hard time surviving, given the need
to establish its credibility for courts and institutional investors in
the highly competitive class action industry. Moreover, unlike AA, it's
not clear the indictment reveals a continuing public policy problem,
given the post-PSLRA reliance on unbribable plaintiffs.

We (and I) may not like Milberg's business. But the class action
part of it was one enabled by legal rules. The right way to deal with
the problems of this business is to change the rules, as I've argued
for securities class actions in my Fraud on a Noisy Market.
When we criminally condemn firms like Milberg because we don't like
their business, we set a precedent for other firms in controversial
lines of work -- e.g., Drexel Burnham.

More seriously, the power to criminalize a firm puts a potent tool
in the government's hands to get the firm to cooperate in sacrificing
the rights of criminal defendants. Here the cure seems patently worse
the disease. The questions are no less in Milberg than in KPMG just
because Milberg was in an unpopular line of work.

The government tactic de jour, as outlined in the Thompson memo, is to threaten a large company with extinction, telling them they might get off the hook but only if they agree to throw a number of their employees to the wolves.  These steps include the unbelievable step of forcing companies to waive attorney client privilege, including privilege between any company-paid attorney and any employee.  Does anyone doubt that if the company who employs you was given the choice of having the government prosecute them or you, who they would choose?  In this context, Arthur Anderson should be commended for not sacrificing its employees for its own survival.  KPMG survived, because it chose to roll over on its employees.  I commented on many of the problems with the AA takedown here, and on the dangers of the Thompson Memo here and here.  Tom Kirkendall is all over the story.

So we're going to build a wall and send an army to the border.

Maintaining a military to defend a group of people against outsiders who wish to use force against them is one of the core functions of government.  Even crazed libertarian anarcho-capitalists like myself concede it as a function of government.  If libertarians were to have their version of the ten commandments, the only phrase that would have to be on the stone is "Thou shalt not deal with thy neighbor through force or fraud."  The government maintains police and a military to handle the people who wish to violate this one commandment.

Throughout the years, countries have built armies and fortifications to defend against invaders who wanted to loot their lands, or steal their property, or impose their own version of racial or religious uniformity.  The US Army itself has fought for freedom, it has fought to restore democracy and individual rights, it has fought to stop genocides. 

Today, the US Army sallies forth again, to fight for and defend .... what? 

It fights to stop waves of Mexican immigrants that are dangerous because they ... want to freely exchange their labor with US Citizens?

It fights to protect Americans from ... competition for unskilled labor jobs?

It valiantly rides forth to make sure Americans never face the horror of ... interacting with someone with only broken English?

The soldiers racing to the borders are not fighting for me, because I am not in danger.  And neither is anyone around me here in Arizona -- no one from outside the border is threatening me with force or fraud (surprisingly frequent emailers sending me messages about Mexicans all being diseased criminals notwithstanding).  Its not like I live blithely ignorant of the border area in Kansas.  I life in Phoenix, and run businesses  right down on the border.  I don't feel a threat or danger.  In fact, the only danger I see is that the army may come down and drag families who are my friends out of their homes and out of the country (or into concentration camps, as one conservative writer longed for).

Immigration opponents are sometimes a little hazy about what danger they are trying to fix.  I agree there is a problem with the welfare state when it meets immigration, which I discussed here and proposed a solution for it here.  Democratic politicians still are confused on this particular problem, wanting some immigration solution but refusing to consider limiting access to the welfare state.   If the problem is infrastructure (police, prisons, schools, etc.) then it could be possible to provide national funds to border regions for this purpose, rather than for armies and walls (the Feds, after all, are handing out hundreds of billions to New Orleans).  And if the problem is too many people who don't look like us Anglo-Saxons, well, sorry  (If you don't think that this is the real issue for many anti-immigration folks, think about the recent scare headlines that soon a majority in the US may be Hispanic.  Can you imagine similar anxiety over the headline "majority of US may soon be of Canadian descent"?)

Update:  Nick Gillespie comments on the fact that Congress has given its official sanction to my speaking English.

Thank you, Middle Eastern 9/11 hijackers, for finally getting the point
through our thick skulls (forgive our slowness, but all too many of us are
descended from immigrants) that the greatest security threat to the United
States is the influx of Spanish speakers from across the border with Mexico.

Christ, it's bad enough that we have to eat foreign food, live in states
with Spanish-derived names, and answer that extra question about which
language to use at the ATM. (Thought experiment: How much is that extra
second or two of time slowing down the U.S. economy and driving down our
productivity, precisely at the moment when the Chinese are breathing down
our
necks like a bunch of post-industrial railroad coolies? You can be damn sure
that the Chinese government doesn't allow ATM users to pick their own
language.)

As I have written before, I have gotten more bizzaro emails on my pro-immigration stand than anything else I have written about.  Gillespie apparently has had the same experience.

In the next few weeks, Enron leaders Lay and Skilling will or will not be found guilty of various fraud-related charges (betting is that they will be).  You, in turn, may or may not agree with the verdict. (Disclosure:  I used to work with Skilling at McKinsey.  From my knowledge of his brilliant mind and his attention to detail, I thought that his Congressional testimony that he was unaware of the shenanigans in the SPE's was unconvincing, and so thought at the beginning of the trial he would be found guilty.  However, the prosecution's case has had surprisingly little to do with the SPE's and was weaker than I expected, so I am less sure now).

Wherever you are on guilt or innocence, you should be concerned about the increasingly aggressive tactics that prosecutors are getting away with in this and related cases.  Tom Kirkendall is all over this story, and reports:

the Enron Task Force refused Ken Lay and Jeff Skilling's request to
have the prosecution recommend to U.S. District Judge Sim Lake that
half-a-dozen former high-level Enron executives who have declined to
testify during the trial on Fifth Amendment grounds be granted immunity
from having their testimony used against them in a subsequent
prosecution.

Those witnesses -- several of whom have been mentioned prominently
in testimony during the trial -- would likely provide exculpatory
testimony for Lay and Skilling if they were to testify. The
Lay-Skilling defense team limited their immunity request to those six
witnesses even though the Task Force fingered the unprecedented number
of the Task Force identified over 100 former Enron executives
as unindicted co-conspirators in the case for the transparent purpose
of preventing the jury from hearing the full story of what happened at
Enron.

Another potential outcome may be the weakening of attorney-client privilege.

First, a little background as I understand workers comp:  Years ago, government, workers and employers effectively made a deal that has worked pretty well for everyone.  In that deal, workers gave up the right to sue for workplace injuries in exchange for a program where employers were required to contribute to a workers comp fund and employees are paid by a government bureaucracy for their health care and lost time.  The system is "no-fault" to the extent that it does not matter if the worker is hurt because the employer had unsafe conditions or if the worker is hurt because he did something boneheaded in violation of rules - either way he gets paid the same.  The system avoids moral hazard at least on the employers side by charging higher premiums to employers that have higher claims rates  (based on an experience mod system explained here).  Employee moral hazard (ie cheating) is supposed to be policed by the bureaucracy, and one can evaluate how much cheating is going on by how high the rates in the state are.  California used to have very high rates and lots of cheating, but has cracked down of late and things are better.  Florida is the king of workers comp fraud and employee cheating, so much so that many national insurers won't touch Florida and our rates are twice as high (or more) in Florida than in other states.

Already frustrated with Florida over the high amount of cheating and high rates, two things I have seen here of late make me doubly depressed.  First, in the last year or so we have started to see claims paid where in addition to, say, $20,000 in actual compensation to a worker, there is an equal amount paid to lawyers.  The first time, I was irate.  Why are my workers comp dollars going to lawyers?  The whole point of the workers comp system is to substitute an administrative no-fault claims system for expensive lawyers and trials.

So this week I get my second surprise about Florida workers comp.  I am down in Florida, doing some business as well as visiting the in-laws (which is why blogging has been light) when I start to hear radio commercials by law firms that say "If you have been hurt at work, call us first before you claim workers comp."  The message is not even, "call us if you think the administrative decision was unfair" but was "get us involved with every little claim."  Does this mean that I am going to start seeing a lawyer 'tax' on every workers comp claim in Florida?  If so, Floridians must have passed some pretty dumb legislation somewhere along the way.  Now, I might understand this if this was a worker backlash in some state that administratively is over-tough on workers in filing their claims, but Florida has historically been the most generous already.  I am sure most of the employers in this state have experienced the "debilitating injury the day before I was going to quit,"  a tried and true Florida technique for supplementing unemployment insurance for a bit of paid vacation. 

Maybe some of the readers can confirm if Florida did something new legislatively over the past few years that opened this up.  By the way, and I apologize in advance to all my hard-working readers in Florida, but I don't think there is any other state with a larger population of searching-for-something-for-nothing freeloaders than one can find in Florida.  Something culturally seems to be wrong here, and I wonder if Florida might not be the next California, with businesses heading for the exits.

The firm of Arthur Anderson was put to death by government prosecutors.  Unlike human beings, Anderson was killed without ever receiving a trial, and was dead long before any appeal was mounted.  Many a media tear have been shed for Enron employees who lost their savings in the Enron 401-K, where they invested in Enron by choice, but I have seen few people sympathizing with the tens of thousands of people who lost their savings in the AA collapse, the vast vast majority of whom never touched the Enron account.

Mary Morrison has a nice analysis (pdf) of why Anderson was probably killed unfairly.  Her central argument is that the main fraud at Enron was perpetrated in the off-balance sheet special purpose entities, or SPE's, when third parties put up capital that the SPE called equity, but was in fact really a loan with a verbal (non-written) promise to repay by either the entity or Enron.  By disguising a loan as equity, and by by disgusing related parties as arms-length investors, Enron was able to avoid consolidation of the SPE's with its financial statements.

Ms. Morrison argues persuasively that since Anderson was not the auditor for any of these SPEs, it had no way to uncover the true nature of these sham financing agreements, since these SPEs were effectively different corporations with different auditors.  AA had to rely on signed statements by each deal's principals that the financing for the SPE was as described (which is standard practice in this type situation and is considered to represent adequate due dilligence).  Anderson had no way to know what was going on in the SPE's, and since the SPE's were separate legal entities from Enron, it had no legal right to poke around in these entities and of course no subpoena power.  It had no way to know about the hidden verbal second part of the financing agreements.  She argues AA was a victim of the fraud and of false statements by Enron and the SPE managers and investors. 

It is interesting to note that the prosecution of the Enron case is prosecuting Enron managers right at this minute for making such fraudulent statements to AA and for hiding the nature of the SPE's from AA.  In other words, the prosecution team that first gave AA the death penalty for allegedly conspiring with Enron to hide their problems is now prosecuting Enron managers on the legal theory that AA was innocent and duped by the managers, which was AA's defense before they were wiped out.

Tom Kirkendall has more on AA's martyrdom here.  He also continues his scary series of articles on prosecutorial abuse here.  The pressure brought to bear to prevent defense witnesses from testifying is particularly frightening.  When you read this, you are really left wondering how the auditors for the SPE's, which may include KPMG, escaped unscathed (in fact escaped richer, since they got their share of the now-defunct Anderson's clients) when Anderson was put to death.

I posted on shareholder suits over at Overlawyered.  A reader sent me this great article from 2000 in Fortune on Bill Lerach, the kind of shareholder suits.  These thoughts echo my own (or, since I guess this was written long before my post, my thoughts echoes these):

Stanford law professor Joseph Grundfest, a former
SEC commissioner, goes so far as to describe the current system governing
securities fraud as "nuts." As he sees it, class-action settlements amount
to nothing more than an unproductive "transfer payment" from current shareholders
to past shareholders--with big contingency fees skimmed off the top. "The
plaintiffs lawyers are getting a cut of the money that flows from our left
pocket to our right pocket," he says. Even in those cases involving genuine
wrongdoing, he adds, the individual perpetrators rarely pay anything out
of their own pockets, thanks to insurance and indemnification policies.
Nor do the shareholders get much--generally no more than 15% of their losses,
studies show. "Fraud is wrong," says Grundfest. "It has to be punished.
But what we have here is a shell game."

Read the whole article.  In many of the anecdotes, Lerach seems to be channeling Tony Soprano.

Below in my first post on the old 1968 edition of The Population Bomb, I said one of the key mistakes of these doomsayers was static analysis, which I described as:

blind projection of trendlines without any allowance for individuals
actually doing something to alter those trends, particularly in
response to pricing signals.  This leads not only to predictions of
disaster, but to the consistent conclusion that only governments
coercing individuals on a massive scale can avert dire consequences for
humanity

A great example of the static analysis fallacy in action today in in the debate on school choice.  School choice opponents often bring out some or all of these arguments:

• Private schools are often more expensive than public schools, so even with vouchers set at the state per pupil spending, many won't be able to afford private schools
• Private schools have admissions requirements and testing, such that many students will not be able to meet the cut
• Private schools are disproportionately religious, leaving few options for secular parents
• There are no where near enough private schools for the potential demand

Do you see the consistent fallacy?  All the arguments assume that private schools, in terms of pricing, mission, supply, etc., will remain static and unchanged after a voucher program is instituted.  I hate to waste electrons stating the obvious, but the private schools that exist today did not evolve in a vacuum.  They evolved in a world of monopoly public schools, and their nature is based on that reality.  Change that backdrop, and the schools will change.

For example, take the cost issue.  Sure, many private schools are expensive.  The main reason is that private schools have been created in an environment where their customers must have the ability to pay for their kid's education twice.  My kids go to private school, and every month I pay their bill to go to a public school they don't attend (via my property taxes) and then I pay a second bill to the private school they do attend.  As a result, many private schools have high prices, because their customer base can pay.  If the government instituted a special tax so that everyone received a government-funded Yugo, don't you think that the number of inexpensive cars sold by private companies might dry up some?

But private schooling does not have to be expensive.  My kids go to a fantastic school here in Phoenix.  We have moved around a lot, and we have been lucky enough to be able to send our kids to some very good and sometimes very expensive private schools, and I can say with confidence that their school here is both the best and the cheapest!  In fact, the tuition I pay for an education far, far superior to the local public schools is less than what the state of Arizona spends as an average per pupil in the public schools.

The same type of rebuttal can be made to all the other arguments.  Private schools often have tough admissions requirements because the public schools have already staked out the niche for the lowest-common-denominator education, so private schools differentiate themselves by serving an intellectual elite.  But does anyone doubt that if millions of average kids suddenly had $6000 vouchers in their hands, someone would step up to serve the heart, rather than the tail, of the normal distribution?  And I addressed here the huge potential for private school to evolve to serve a diverse range of viewpoints.

Arizona Watch has a nice post on this same topic, including similar thoughts in response to criticisms of school choice:

The statist arguments against HB 2004 are more clearly spelled out in Mike
McClellan's blog
on AZCentral in which he calls HB 2004 "tuition tax fraud." Mike is (surprise
surprise) a public school teacher. Indicative of the quality of public school
education in Arizona, Mike's arguments against HB 2004 are weak, but I'll
briefly refute them here.

1. Private schools can choose who they take "“ many have entrance exams that
will block some students from entering the school.

Mike's correct: private schools can choose the students they accept. Some
students may not qualify for their first choice school. The real point he's
making here is that some students may not have access to private schools even
with the corporate funding "“ that the bill would create a class divide in
education. That's absolutely incorrect. If private schools become affordable to
a significant portion of the population, then more private schools will emerge.
These schools will assuredly serve different market segments. There will be prep
schools, technical schools, art schools, religious schools, atheist schools, and
schools that just provide a decent basic education. There will even be schools
that specifically serve challenged students "“ those students who Mike claims
won't have access to private schooling. The opposite is true. Schools will be
better able to serve a variety of students in a manner far more effecting than
the current one-size-fits-all public school system.

2. Even if they can attend the school, the tuition might not cover all the
costs the student will incur "“ books, uniforms, other fees. If the schools won't
waive those costs "“ and many can't afford to do that "“ the student's family
might not be able to make up the difference.

Certainly some private schools will be more expensive than the tuition grants
can cover. However, many more will design their tuition structure specifically
to stay within the limits covered by the tuition grants. It is absurd to think
that schools would deliberately price themselves out of the market. If the
demand exists, private schools are going to find a way to meet that demand and
earn those tuition dollars.

3. And here's the big one: Republicans apparently believe there are quality
private schools everywhere. They oughta take a more careful look. While Phoenix
and Tucson have plenty of private schools "“ some far too expensive for the
Republican plan, by the way "“ that is not the case in the rest of the
state.

Do you see a trend here? The answer to this last argument is the same as the
answers to the previous two. Tuition grants will create demand for private
schools. New private schools will emerge to meet that demand and collect that
grant money. This is basic economics.

The one concern I have is that statists and choice opponents have many ways to block private schools.  Even with vouchers, zoning and land use laws in many areas have provided a powerful tool to block private school expansion.

By the way, here is one way to test whether people who make these arguments against choice really mean them or are using them to hide the true reasons that they object to school choice:  If they are right, then what are they worrying about?  No new schools will open, no publicly educated kids will be able to afford or meet the admissions standards of those schools that do exist, so nothing will change.  But they seem really worried about school choice, which makes me think that they don't even believe their own arguments.

This holiday season, several gasoline retailers found extortion notes from the state AG in their stockings.  In Illinois:

Illinois State Attorney General Lisa Madigan asked 18
operators whose prices jumped significantly after Hurricane Katrina to
donate $1,000 to the American Red Cross or risk a potential consumer
fraud lawsuit, reports the Chicago Tribune.

I would define consumer fraud as getting something from a retailer different than was promised.  I am not sure how it is fraud if retailers put their prices on a great big sign right on the street, and then actually charge those prices as promised.  Unfortunately, we seem to have filled positions of political power with the economically ignorant, who are stuck on cost-based pricing:

"When we're in an emergency situation, such as we were,
retailers have the obligation not to increase their prices to the
general public over what wholesalers are charging them," Hagan told the
Associated Press.

Uh, why?  Retailers move their markup around all the time.  Most every retailer has drastically higher markups on December 1 for Christmas tree ornaments than they do on December 27, but no one seems to complain.  Workers increased the price of their labor post-Katrina, sometimes by a factor of three, and their costs weren't going up at all, so why weren't they gouging?  Its just bizarre how we treat gasoline so much different than every other product we buy.  Perhaps its because they are the only retail product that actually posts their current prices right on the street. 

As I read this article, AG Hagan reminded me of my least favorite Aspiring Governor, fellow Princetonian and enemy-of-Antarctica Eliot Spitzer.  So it was funny when the article continued on to discuss similar actions taken by Spitzer.  This was the quote I loved:

Spitzer told the Press & Sun-Bulletin that
he "hoped it would send a clear message to others that 'you cannot,
under New York law, use an environmental emergency to raise prices.'"

OK, but can I use a massive supply-demand imbalance caused by an environmental disaster to raise prices?  And I sure bet that politicians can use an environmental emergency to raise taxes  (in fact, since NY's gas tax is a percentage of the price rather than fixed, the state of NY did indeed contribute to the post-Katrina price hike). 

Here is my quote back to Mr. Spitzer:

"I hope to send a clear message that the state Attorney General position cannot be used for grandstanding forays against innocent but unpopular business entities* in order to raise one's profile to run for higher office"

*See Dick Grasso, Microsoft, et al.

Update:  More at Professor Bainbridge on Elito Spitzer  (and here)

A woman in Nigeria wants to buy 10 of my wife's handbags.   Right now, we have paypal's foreign credit card option turned off, and of course the Nigeria angle sends off warning bells.  Are there any good ways to accept money from Nigeria with minimal risk of fraud?

I have often criticized Aspiring Governor Eliot Spitzer for his overreaching tactics aimed more at keeping himself on the front page (and in the hearts and minds of voters) than in really catching bad guys.  However, one of the reasons Spitzer gets support for his tactics is that there seems to be an enforcement vacuum at the SEC in pursuing corporate and banking fraud.  The Adelphia case brings us a great example, courtesy of Professor Bainbridge.  It appears that the Rigas family is going to get off with forfeiting some of the assets they plundered - no jail time and no fines!

The Securities and Exchange Commission today announced that it and the United
States Attorney's Office for the Southern District of New York (USAO) reached an
agreement to settle a civil enforcement action and resolve criminal charges
against Adelphia Communications Corporation, its founder John J. Rigas, and his
three sons, Timothy J. Rigas, Michael J. Rigas and James P. Rigas, in one of the
most extensive financial frauds ever to take place at a public company.

In its complaint, the Commission charged that Adelphia, at the direction of
the individual defendants: (1) fraudulently excluded billions of dollars in
liabilities from its consolidated financial statements by hiding them on the
books of off-balance sheet affiliates; (2) falsified operating statistics and
inflated earnings to meet Wall Street estimates; and (3) concealed rampant
self-dealing by the Rigas family, including the undisclosed use of corporate
funds for purchases of Adelphia stock and luxury condominiums. The USAO also
announced that it had entered into a Non-Prosecution Agreement with Adelphia and
had settled forfeiture claims against Rigas family members.

Under the settlement agreement, which is subject to the approval of the
District and Bankruptcy Courts for the Southern District of New York, the Rigas
family members will forfeit in excess of $1.5 billion in assets that they
derived from the fraud, including the Rigas family's interests in certain cable
properties.

This is absurd.  The stay-at-home wife of the treasurer of Enron is in the slammer right now but the Rigas's get to walk?  Note that the Rigas's last year were convicted of numerous criminal charges, but there sentencing was delayed so they could negotiate.  I guess they negotiated pretty well.  In my understanding of the cases, this is a much worse case of fraud than Enron.  These guys looted the company for personal gain, and raped their minority stockholders.   Shame on the SEC.

When it comes to defending abortion, women's groups are great libertarians. They will point out that abortion is about the right to choose and about protecting the "fundamental civil and human right of women to make the most intimate decisions about their bodies and their lives".  Its about not letting the government interfere with individual decision-making or a "woman's right to privacy".  Its about assuming women are grown-up enough to make difficult choices about their fetus and their own health and safety.  Opponents of such choice are "ultra-conservatives trying to deny women control over their own bodies".  (all quotes from the NOW web site).

So, women's groups seem to be good libertarians concerned with the primacy of women's decision-making over their own body.  Except when they're not.  NOW has been feverishly campaigning to get the government to limit a women's right to choose breast augmentation, despite the fact that the science is overwhelmingly behind the safety of implants.  Sure, as in any medical procedure, there are some risks, but I defy anyone to tell me that the risks associated with breast implants are greater than the risks associated with abortion.  Abortion is a much weightier and more difficult decision, and, unlike breast implants, it is irreversible.  If women are mature enough to make abortion decisions, they certainly are mature enough to weigh the risks of breast implants.  Or take the birth control pill -- the impact to a woman's body of silicone sacks in their boobs is far less than that of trashing their entire hormone balance.  Sure, the pill makes sense for a lot of people and its great that the option exists, but don't tell me that the the changes the pill engenders in the body are OK but bags of silicone are not.

The real issue, as pointed out early and often by Virginia Postrel, is that feminists consider breast implants as at best frivolous, and at worst a demeaning surrender to male objectification of the female's body.  They don't think women who choose these implants are making the right choice, so they, in their elite holier-than-thou wisdom, want to take the decision away from women.  Hmmm.  Freedom for me but not for thee.  More along the line of distrusting individual decision-making here.

Update:  My main point of this post was on breast implants, and comparing feminist retoric on that issue vs. their retoric on abortion.  I feel the need, though, to mention that I don't accept that abortion is necesarily a pure individual choice situation.  Individual decision-making should be trusted when individuals make choices that affect only themselves, without coersion or fraud.  The problem in the case of abortion is whether the fetus is a piece of tissue that is a part of a woman's body, or an independent life.  In the former case, its removal is subject to individual decision making, but not in the latter.  As I have written before, I think the fetus is protoplasm at 1 week and a baby at 8 months.  At some point in between we draw an arbitrary line between part-of-the-mom and independent life.

Many abortion supporters, unwilling to risk that society might draw this line earlier in the pregnancy than they might want it, take the extra step of arguing that the very determination of whether the fetus is a life or not at 2 or 5 or 7 months should be up to individual taste, and that the government should have no say in that determination.  That strikes even me as the hardcore libertarian as going too far.  Certainly in its limited role of protecting individual rights, the government has a role in determining just who is an individual with rights subject to protection.  Determining if a fetus is an individual with independent rights and at what point in the pregnancy it is treated as such are reasonable roles for government legislation.

Frequent readers of this site will know that I am a strong opponent of how the current tort system works.  However, I am not a big supporter of damage caps.  Damage caps may limit the harm of a broken tort system, but they don't fix the root problem - the jackpot justice that seeks wealth transfers from wealthy parties irrespective of who was really at fault.  For example, note this case, where teens who were not wearing their seat belts were killed by a driver breaking the speed limit and with a blood alcohol level over twice the legal limit.  The jury decided the accident was 90% the fault of... Ford, for designing a car with the same glass used by everyone else in the auto industry.  But the unfairness of the decision is only the beginning of the outright nuttiness and fraud by the plaintiff in this case.  Make sure to go to this article - you have to scroll to the article on Ford appealing frontier justice, but the extra finger work is justified.

Coyote's Law states:

When the same set of facts can be explained equally well by

1. A massive conspiracy coodinated without a single leak between hundreds or even thousands of people    -OR -
2. Sustained stupidity, confusion and/or incompetance

Assume stupidity.

Protein Wisdom links to this report Caltec/MIT report debunking a lot of the recent voter fraud accusations.  Here is the money quote that is a dead-on reformulation of Coyote's Law:

Well, I don't want to write off legitimate questions about the integrity of the voting system. But turn the question around: Which is more likely -- that an exit polling system that has been consistently wrong and troubled turned out to be wrong and troubled again, or that a vast conspiracy carried out by scores and scores of county and state election officials was successfully carried off to distort millions of American votes?

Our business is seasonal, meaning that most of the facilities we run are open from about mid-April to mid-September.  Our employees are hired in the spring and then laid off in the early fall.

The unemployment bill is a killer.  Everyone we lay off in the fall, whether they intend to work in the winter or not, files for unemployment.  Like any insurance, your premiums are based on your actual claims, and as a result our unemployment insurance rates are sky-high. 

A few or our employees are actively looking for winter work, and I am OK with their claiming unemployment.  However, the vast vast majority of our employees work for the summer and vacation all winter, since working for us really just supplements their retirement pay.  I know for a fact that some of those who have claimed unemployment in the past weeks are in Mexico on vacation or on the Colorado River or wherever.

Unemployment agencies are NOT doing their job.  By law, in most states, they are not supposed to pay unemployment to people unless they are actively looking for work.  Heck, most of our employees, during the winter, are not even in the state that is paying them unemployment - they are down south or even out of the country vacationing.  However, I have not found a state agency yet that has any interest in dealing with this fraud.

The workers compensation program in Florida is broken. In a previous post, I discussed why, almost no matter how broken it is, workers comp is still better than an alternate world without it. Sometimes, though, Florida tests me on this.

If you don't know, Florida is one of a couple of states (California and New York are others) that national carriers of workers comp insurance avoid because it is such a mess. Fraud is high, costs are high, benefits are low.

I found a new reason to dislike Florida workers comp today. Apparently, there are lawyers out there in Florida advertising that a worker will never get their fair shake out of the insurer unless they hire a lawyer. We have an ex-employee who was injured in a vehicle accident while at work. A claim was filed, and the workers comp system is processing the claim (though a bit delayed due to 4, count them 4 hurricanes to hit Florida in one month). So, for some reason, the employee has hired a lawyer. I do not know what he will get with the lawyer, but this is an awful trend, because the only redeeming feature of the workers comp system is that it keeps lawyers and their costs out of it. I have no idea how the lawyer gets compensated, but I am sure at some point, I will be paying his fees one way or the other. If the employee is paying for him directly, I really feel bad for the employee, because I don't know what value he is getting for his money.

So, the lawyer, putting in a good 15 seconds of work (which he probably bills an hour or two for) pulls a xeroxed set of discovery questions and sends them to me. There are thirty four questions, all with things I have to look up or xerox and send to him. None of them are tailored to this case, so most will end up being irrelevent and all my info gathering a waste of time. So, not only is there the cost of the attorney's fees adding to the process, but the externalities of the cost of my and my employees' time to feed him with data. All to probably get the same recovery for the patient the system would have given him without intervention.

This is what I really dislike about the law profession nowadays. They are the only people except for the government who can arbitrarily demand a ton of my time calling up data that no one will ever look at. Other people try this - for example, some vendors have sent me huge credit applications that would take weeks to complete - but in their case I can say "no" and tell them if they insist, they don't get my business. Lawyers and the government, though, can demand arbitrarily intrusive and time-consuming document collection and there is not a thing I can do about it.