31 October 2008

GM-Chrysler Deal All Done Except Financing

All that stands between the historic merger of General Motors and Chrysler, two of the big three U.S. automakers, is some combination of a loan and/or government aid to finance the deal.

Given the psychological and economic importance of the automobile industry, and the relatively modest value of the companies given their current earnings and market valuations, securing government loans to finance the deal seems likely, and sources of funding have been identified.

A merger would be structured as a GM acquisition of Chrysler, which is currently privately held.

A merger would likely be followed by tens of thousands of white and blue collar layoffs, mostly in Michigan, the discontinuation of competing product lines, a shutdown of many factories, collateral impacts on major suppliers and local governments, and dealership closures nationwide. If this doesn't turn the combined companies, both of which are in financial distress, around, a bankruptcy could follow wiping out shareholders, bondholders and the substantial economic claims of retirees, laid off workers and closed dealers.

The private equity fund which currently owns Chrysler (including its finance company) and 51% of GMAC, would likely acquire all or most of the rest of GMAC, and hold onto Chrysler's finance company, in order to merge the two finance companies. Thus, the GM-Chrysler automobile manufacturer would be stripped of its all of its automobile finance interests.

Earlier this year a Ford-GM merger was considered, but failed.

This is more bad news for Detroit, because it may accelerate the inevitable local economic pain from the decline of the domestic automobile industry.

UPDATE: The Rocky Mountain News editorial board says let them go bankrupt, fearing a long line of industries all awaiting a bailout, and also some of these considerations:

A modest sigh of relief is in order with the announcement Friday that the U.S. Treasury Department will not hand over billions of dollars in federal aid to facilitate a merger between General Motors and Chrysler. . . . a lame-duck Bush administration is not eager to inject billions of taxpayer dollars in a merger that could lead to 40,000 layoffs. That's 40,000 jobs lost even if Uncle Sam pays up and the merger goes through. . . .

GM and Chrysler are indeed in terrible shape. They will hemorrhage money for the foreseeable future and may be terminal cases. (Ford isn't making profits, either, but it may have enough cash on hand to survive.) New car sales are about one-third below 2004 levels, and aren't expected to bounce back any time soon.

Then there are the "legacy" costs: GM and Chrysler face $90 billion in pension and medical expenses for retirees over the next decade. . . .

Bankruptcy may be the only way GM or Chrysler can survive without taxpayer support . . . a bankruptcy court could relieve some retirement costs and let the companies work out new salary and benefit packages that are more in line with the still-generous compensation that foreign-based carmakers offer their U.S. employees.

The court could also examine whether automakers deserve exemption from the state franchise laws giving dealerships what amounts to local monopolies. Would automakers be more likely to flourish if they could emulate Michael Dell, letting consumers custom-order cars directly from the factory and delivering them to their homes?


A recognize the skepticism that a federal bailout will help (I've previously noted that the most sensible thing to do may be to turn the company over to ownership by the retirees to whom those legacy costs are owed), but consolidation might make for a softere blow.

Federal Judge Slaps Down Colorado SOS

This afternoon, a federal judge ordered Colorado Secretary of State Mike Coffman, a Republican running for Congress in Congressional District 6, to stop removing names for the voter rolls in Colorado in violation of federal law immediately.

Coffman has taken every step within his power in his final days in office to prevent people from registering to vote, and to intimidate county clerks into doing the same. He continued to remove names from the rolls after reaching a settlement with voter advocated that was supposed to have ended the practice and largely validated votes by voters already removed from voter registration lists.

A variety of voting snafus in Colorado threaten to deny tens of thousands of people in Colorado an opportunity to vote.

The Three Cases That Changed Patent Law

Three important court cases, one each in 2006, 2007 and 2008 have dramatically changed patent law for the better.

In December of 2005, at a time when a patent dispute threatened to shut down the entire Blackberry wireless PDA system, the Los Angeles Times argued on its editorial page that:

[T]he U.S. patent system is profoundly flawed. Too many patents are issued for "innovations" that are obvious, vague or already in wide use. Too many patent holders try to extend their claims to devices and services that weren't even contemplated when the patents were granted. And it's a difficult, costly exercise to overturn a questionable patent after it has been awarded.

Compounding the problem, federal courts have been quick to hand patent holders a sledgehammer when their patents have been infringed. The appeals court in Washington takes the position that, except in exceptional circumstances, courts must issue permanent injunctions to stop infringers from using the inventions in dispute.


Research in Motion, which owns the Blackberry patent, ultimately caved and settled the patent case against it for more than $600 million. But, the law soon changed.

A few months after the Blackberry case settled, the U.S. Supreme Court issued a unanimous ruling in eBay Inc v. MercExchange, L.L.C., 547 U.S. 388 (2006). The ruling reduced the availablity of injunctive relief in patent law cases by holding that:

[A]n injunction should not automatically issue based on a finding of patent infringement, but also that an injunction should not be denied simply on the basis that the plaintiff does not practice the patented invention. Instead, a federal court must still weigh the four factors traditionally used to determine if an injunction should issue whenever such relief is requested.


The following year, the Supreme Court came to a unanimous decision in KSR International v. Teleflex, that broadened the definition of "obviousness" for patent law purposes beyond the narrow test previously applied by the U.S. Court of Appeals for the Federal Circuit. Since "obvious" inventions can't be patented, this narrowed the scope of matters which can be patented.

The "obviousness" test is particularly important in business method cases, because many are borderline obvious. As I explained at the time:

The SCOTUS analysis in KSR holds that patents must be reviewed to see if the proposed solution is obvious to solve any problem, not just the problem identified in the patent. It holds that "prior art" includes not just prior efforts at solving the problem identified in the patent, but also prior efforts to solve similar problems in other fields. And, finally, it ruled than when there are only so many ways to solve a problem which a skilled person in the field might have considered, that all of those possibilities are obvious, because that solution would have been "obvious to try" for a skilled person in the field, even though a skill person in the field would not have known just which solution would work best until a little experimentation was conducted.


Yesterday's en banc decision of the U.S. Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent appeals, was no doubt emboldened by the two previous unanimous decisions of the U.S. Supreme Court. The In re Bliski decision further narrowed the scope of patentability, primarily in business patent cases, that have come under attack for allowing ideas like tax planning strategies to be patented. It basically reversed a 1998 decision in the State Street Bank case that had opened the door to business method patents. Under the new rule, a business method patent is available only if it is (1) tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing. Thus, a purely procedural or mental business method cannot be patented now.

These three cases, taken together, will take a lot of heat away from the legislative effort to reform patent law, led by those who saw junk patents on business methods, a patents of small, mildly innovative elements of a complex high tech device discovered independently, as a threat to innovation.

As indicated by the amicus briefs in the Bliski case, the leading proponents of big business are divided on the issue, even within particular industries. Legislators are rarely able to take such decisive action in an area usually delegated to specialists, in the face of well financed lobbies on both sides of an issue. Legislators have even less incentive to do so now that the courts have changed their course and artfully addressed public concerns about patent law using the existing statutes.

Off stage, so to speak, in the Patent and Trademark Office, improved training and increased resources devoted to the examination of patents, funded in part with increased patent application fees, has also improved the rigor with which weak patents are weeded out in advance.

The new case law also discourages "counter-revolution" because the reforms wraught by these cases will be implemented slowly. Patents last a couple of decades once issued, and the most liberal interpretations of patent law have been in place for only a decade, so patents issued under the old law have many years left to run on them. Barring a major administrative effort, few patents which were issued under the old law, but are doubtful under the new law, will be revoked after they have been issued.

A recently enacted "pro-IP" law (see here and here) primarily concerned itself with remedies in copyright cases and "orphan copyright" situations where copyright owners cannot be located. But, it could indirectly impact IP law by creating an "Intellectual property czar" in the White House office. However, there is little indication that a President Obama will appoint someone to this post who will upset the apple cart that the U.S. Supreme Court and U.S. Court of Appeals for the Federal Circuit have carefully put in place in these three cases.

Existing patent holders have an incentive to let sleeping dogs lie. An unrevoked patent has considerable legal value because it is entitled to presumptive validity in litigation. But, the new law will still discourage holders of dubious patents from enforcing them, because the patentability and obviousness defenses that can be asserted in litigation will be much more likely to prevail, and because it will be harder for plaintiffs to obtain injunctions if they prevail, which can richly reward a patent law plaintiff (usually a "patent troll" assignee of the true inventor with no active trade or business) with a far larger share of the profits than would have been obtained if negotiations took place before the invention had shown economic success.

Economists who are sometimes oblivious of these legal developments may bemoan an apparent decline in American innovation as demonstrated by a reduced number of patents issuing in the wake of these decisions. But, in fact, by reducing uncertainty, patent law better protects innovators who can never know for sure if their inventions and ideas are non-infringing, because it is impossible to adequately index ideas that patents embody.

The consensus heartland of patent law, like patents on genuinely new drugs and inventions, remains largely unaffected by these cases. But, the nebulous gray areas of patent law, which so distress businesses in the high tech area and civil liberties proponents (the ACLU filed one of the amicus briefs in the Bliski case in favor of the side that ultimately won), can rest easier now.

With the patent law problems that existing at the end of 2005 largely solved, it is now time to examine the more familiar, but also more difficult question of how to prevent copyright laws from creating innovation gridlock in our economy. The greater detail found in the statutory and intentional treaty framework of copyright law, the greater number of players who understand it, and the greater number of forums in which it plays out all combine to make this a thornier problem to address.

30 October 2008

3400 Posts

Hurray for meaningless round numbers!

In addition, I published 292 articles for Colorado Confidential when I was writing there, and have published a few dozen diaries at Daily Kos and Colorado Pols, as well as 35 posts at Wash Park Poet, although there are some cross posts in some of these cases. It is safe to say that I have written about 3700+ posts at all locations (excluding comments) since this blog was etablished.

About 250 of these posts and articles are about taxes, after removing double counted cross posts.

The most posts in a single month came in October 2005, when I made 278 posts. The slowest full months were February 2007, with just 33 posts, and July 2005 with 24 posts (both months had just 28 days during which this blog was active). October 20, 2005 was the day with the most posts, twenty-five of them. My topics then wouldn't be out of character today:

Day Time Populations
eHarmony
Hopeful Hypocrisy
Meta: Blogger Functionality Rant
Target Pharmacies.
The Power of Cross Examination.
Corporate Tax Abuse.
Shame On Ken Salazar
Texas Can't Speak Plain English.
Guns and Cheeseburgers.
About Cars
Why is General Motors in Trouble?
Exorcism School.
Soj Back (Low Profile)
Quasi-Public Law Schools.
Versatile Diamonds.
Is Rail Really Too Costly For I-70?
Creative Solutions To Global Warming.
Gratuitous Shout Outs
Free Digital TV Boxes Headed Your Way
Health News
Life in Prison For Kids.
Red Hot Growth in China.
So Much for Privacy.
Earthquake Death Toll.

Have a nice day and don't forget to vote. Halloween is the last day for in person early voting in Colorado.

Wash Park Prophet v. Law Prof Blogs

In the past year, according to SiteMeter, I've had 119,856 visits and 173,348 page views.

The top 35 law prof blogs, by the same measure of visits, each have 125,945 visits or more. The top 35 law prof blogs, by the same measure of views have 180,244 visits.

While I'm not a law prof, but comparison is notable, because I write on many of the same topics and frequently cite law prof blogs.

Time For Denver's City Attorney To Give Up

Denver's City Attorney has proven that their DNC protester cases are without merit.

In cases set for trial beginning last week, eight have been dismissed by the city attorney, three have been acquitted by juries, two were acquitted by judges and one faces retrial after a jury was unable to reach a verdict.


There have been no convictions. There are another sixty cases on the docket through January. The cases have been roundly criticized for the week evidence presented, with no witnesses to the alleged crimes and a "wrong place at the wrong time" approach.

It is time for the City of Denver to dismiss these cases and give up. It tried to prosecute them and has established that the cases don't have merit. The City is simply embarassing itself and wasting everyone's time and money at this point. This isn't in anyone's interest.

Business Methods Patents Limited

In the biggest business method patent case since State Street Bank, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, has narrowed the circumstances when a business method patent may be issued in the case In re Bliski.

In a nutshell, the new test requires a greater connection to some sort of machine for a business method to be eligible for a patent, rather than a merely human implemented idea. Specifically, in order to be eligible for protection, a claimed process must be (1) tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing. If it does neither it is an unpatentable mental process.

The full 132 page decision can be found here. A request for U.S. Supreme Court review is almost certain, although a grant of that review is never certain.

The case represents a major victory for "weak IP" proponents who argue that excessively broad intellectual property rights stifle innovation. This concern is particularly acute in patent law because independently developed ideas are excluded from the derivative works protections of copyright, but not from the protections of patent law. This decision also likely deals a major blow to "tax law patents" which have been extremely controversial in their own right, apart from the larger business method patent controversy.

Should Native American Be Different?

For most purposes, race is not properly a factor to be considered in legal proceedings. In parental rights cases, however, under the Indian Child Welfare Act, a federal law, a child's ethnicity not only may, but must be considered and impacts who has standing in the case and what burden of proof applies in termination of parental rights proceedings.

The Indian Child Welfare Act is not new, and presumably, challenges to it under the 14th Amendment have been attempted and failed.

This isn't the only situation where distinctions are made on ethnic status that would otherwise be improper is permitted when Native Americans are distinguished.

Dead bodies are treated differently if believed to be of Native American descent, Hawaii has a trust that benefits descendants of Native Hawaiians that might not otherwise be valid, and there are certain kinds of hunting and animal parts (whales and bald eagles, for example) that are permitted in a Native American context, likewise peyote can be used for Native American religious purposes where it wouldn't otherwise be allowed. This list is not exhaustive.

One justification for these acts is that they flow from a form of current nationality, a distinction which is proper not only for immigration purposes, but also for treaty purposes. Indeed, the U.S. Constitution, with its "Indians not taxed" clause has long recognized a different status for Native Americans some of the time. Foreign nationals sometimes have different rights, which the federal government may establish.

This justification seems thinner over time, as Native American tribe members have increasingly integrated into the general melting pot of American society. Treaties notwithstanding, in daily life, Indian tribes look less and less like sovereign nations. Liechtenstein and the Vatican have more elements of sovereignty. In particular, Indian tribes have the secondary kind of sovereignty associated with U.S. states and federal political divisions, rather than the absolute sovereignty associated with truly independent states. Indeed, Indian tribe governmental structures in most cases have the lesser sort of independence associated with territorial governments and municipalities within U.S. states, rather than the significant autonomy of U.S. states.

Another justification is that the distinctions made represent different activities. This argument suggests that the real life relationship between the community represented by a tribe and a parent is different that the real life relationship between non-Indians and their communities. Indian tribes might, for example, have a relationship collectively with an Indian tribe, morally equivalent to a grandparent's relationship with a grandchild in much of the rest of U.S. society. In tribes with their own living languages, language issues that cannot be addressed outside a tribe, may be relevant.

Similarly, supervised religious drug use may differ from recreational drug use in the rest of society, and while it might be theoretically possible that other groups have bona fide religious drug use, legislators may not be convinced in reality there are other such bona fide users out there.

A third justification, at least in the child custody area, might be that this is a form of affirmative action in response to a history of abuse by courts in this area in the past, based upon the conclusion that this history is proof of a greater risk of abuse in the future by the courts. Child custody is particularly prone to this risk because it makes judgments on parenting based upon largely uncodified cultural parenting norms of the judge, the jury and social services agencies.

I don't know the cases in Indian law very well, or the actual justifications that are the basis for existing law. Likewise, I'm not terribly worried about the exceptions. The percentage of cases, and the number of people, respectively, that are impacted is modest outside a very small number of jurisdictions near Indian reservations. The definition of Indian tribe membership, moreover, which is based upon how many ancestors of a certain degree one has from a tribe (which varies from tribe to tribe), prevent these special rules from ballooning in importance.

Further, the select legal privileges afforded Indian reservations seem, on the whole, to be outweighed by the miserable state of law enforcement, weak economic situations, and limited government services that exist on most of those reservations. And, many of these legal distinctions are distinct to matters on or related to aactivities that are based at reservations.

Perhaps the most interesting question about Indian law is whether it is constitutionally unique. Can one constitutionally have, for example, different family law rules for members of different cultures, as many countries do now and as Britain is considering doing.

In the case of polygamy, the courts have generally said no. In the case of cousin marriage and of the formalities of marriage (including common law marriage) divergent practice has been generally tolerated. Courts have been skeptical, but not completely dismissive, of rabinnical arbitration in family law cases. Perhaps most notably, courts have generally taken a mixed approach to community property rights, honoring community property rights that accrue while a couple live in a community propety jurisdiction, while applying their own laws to other time periods.

Also, even if distictions can be made, should they be made? Have the distinctions made between Indians and non-Indians in American law been a success? Are Native Americans collectively and individually better off as a result? Is the United States more honorable as a result? Has anyone been harmed by these rules, and if so, whom? Has the Indian Child Welfare Act been a net benefit to Indian children, for example?

The Indian Child Welfare Act is also a natural social experiment that couldn't otherwise be ethically conducted that tests whether stronger protections for parental rights have any meaningful impacts for good or ill.

Worth A Look

The New America Foundation is a wonderful little cauldron of innovative, original, and positive public policy ideas.

Colorado's Swing House Districts

The open seat in El Paso County's House District 17 (formerly held by Republican Stella Garza Hicks) between Democrat Dennis Apuan and Republican primary winner Catherine "Kit" Roupe shows signs that it might swing from red to blue.

Three incumbent Democrats running for re-election in Republican leaning House District 27 (Sara Gargliardi), House District 38 (Joe Rice), and House District 55 (Bernie Buescher) have strong fund raising edges and demonstrated abilities to win over unaffiliated voters and Republicans, but are in districts where early Republican turnout exceeds early Democratic turnout.

In the open seat in South suburban Denver's House District 40, previous held by Republican turned Democrat Debbie Stafford, Democrat Karen Wilde has raised less money than Republican Cindy Acree, and also faces a stiff Republcan edge in early turnout.

But, none of these crossover races are open and shut for either party. In all other house races in the state, a few of which are also close, the party that held the seat at the end of the last legislative session is leading in early and mail-in voter turnout.

Background

There are sixty-five state house districts in Colorado. Every seat is up for re-election every two years, and there is virtually no public polling of these races available.

In the vast majority of cases, there are more early and mail-in ballots from Democrats than Republicans in seats that were held by Democrats at the end of the last legislative session, and the reverse is true in seats that were held by Republicans. There are exceptions, however.

Democratic Leaning Seats Previously Held By Republicans

Democrat have returned more ballots than Republicans in House District 17 (held by Republican Stella Garza Hicks in El Paso County), which is now an open seat. As of a few days ago, in House District 17, votes cast come from 1770 Democrats, 1549 Republicans, 948 unaffiliated voters, and 18 third party voters (an edge of 221 Democrats). This year's race is between Democrat Dennis Apuan and Republican primary winner Catherine "Kit" Roupe.

Apuan had $15,623.72 of cash on hand as of the last campaign finance reporting period and raised $29,797.96 in the campaign. Roupe had $12,111.85 of cash on hand, has raised $35,775.64 (net of a returned contribution and including "other receipts"), and has also received a $2,000 loan which remains outstanding.

Republican Leaning Seats Previously Held By Democrats

Republicans have returned more ballots than Democrats in House District 27 (held by Democrat Sara Gagliardi in Jefferson County), House District 38 (held by Democrat Joe Rice in Arapahoe County), House District 40 (held by party changed Democrat Debbie Stafford in Arapahoe and Elbert counties), and House District 55 (held by Democrat Bernie Bueschar in Mesa County).

Incumbent Democrat Sara Gagliardi is facing off against Republican John Bodnar in House District 27. At this point, votes cast come from 5396 Democrats, 6063 Republicans, 3594 unaffiliated voters, and 55 third party voters (an edge of 667 Republicans). Gagliardi has $23,554.92 of cash on hand and has raised $93,022.77 (net of returns) in contributions in this election. Bodnar has $22,187.27 of cash on hand and has raised $30,024.31 in contributions, in addition to receiving a currently unrepaid $1,000 loan.

Incumbent Democrat Joe Rice faces Republican Dave Kerber in House District 38. At this point, votes cast come from 4500 Democrats, 5477 Republicans, 2550 unaffiliated voters, and 33 third party voters (an edge of 977 Republicans). Rice has $33,310.86 of cash on hand and has raised $107,054 of contributions (net of returned contributions and including "other receipts"). The records aren't entirely clear, but it looks like a loan of $12,700 to Rice's campaign is from a prior cycle and was repaid. Rice has also received $12,391.64 in "in kind" contributions. Kerber has $12,798.42 of cash on hand and has raised $44,590 (net of returned contributions) and has received $10,000 of unrepaid loans.

House District 40 is an open seat that pits Democrat Karen Wilde and Republican Cindy Acree against each other. At this point, votes cast come from 3942 Democrats, 5753 Republicans, 2770 unaffiliated voters, and 49 third party voters (an edge of 1811 Republicans). Wilde has $4,382.97 of cash on hand and has raised $8,664.00 of contributions (net of returned contributions). Acree has $10,879.31 of cash on hand and has raised $38,500 of contributions (net of returned contributions).

Incumbent Democrat Bernie Buescher in House District 55 is facing Republican Laura Bradford. At this point, votes cast come from 3785 Democrats, 6669 Republicans, 3211 unaffilated voters, and 55 third party voters (an edge of 2884 Republicans). Buescher has $35,482.17 of cash on hand and has raised $245,782.95 of contributions (net of returned contributions). Buescher has also received $3,287.74 in "in kind" contributions. Bradford has $4,267.07 of cash on hand and has raised $49,338.56 of contributions, and in addition has received $1,495 of "in kind" contributions.

Analysis

These are not the only seats that are in play this election. A number of other seats previously held by Republicans or Democrats with early election returns matching the party affiliation of the previous incumbent are close. But, this is an important subgroup of close house races.

Each of these races has vigorous campaigns by bona fide credible candidates from each major party.

At least in the three seats where there are incumbents running, it is unwise to place too much emphasis on party affiliation. These individuals won previous races in precisely the same districts, at a time when there was less of a national trend to the left, on the basis of moderate positions and strong personal appeals to independent voters and affiliated voters who cross party lines.

Democrats can also offer prospective voters the lure of the power to represent their interests through membership in the majority party, and in the case of Bernie Buescher, a senior leadership position (he is currently the top house Democrat on the powerful joint budget committee).

None of these cross over races are so tight that they can't be won entirely on the strength of support from members of their own party and unaffiliated voter support, although in reality, some members of each party almost always vote for the other's party's candidate.

The partisan mix of early turnout and campaign contributions are really the only publicly available, neutral facts that are available to see how these races are going. Money doesn't translate directly into votes, but is often a reasonable proxy for grass roots support and campaign effectiveness.

By those measures, House District 17 is a very close race, with Democrat Dennis Apuan holding a slight turnout advantage and cash on hand advantage, and Republican Catherine "Kit" Roupe holding a modest edge in funds raised.

All three of the Democratic incumbents have raised far more money than their Republican opponents, have proven their appeal to their constituencies in prior elections.

Karen Wilde, in South suburban and ex-urban Denver has the most uphill fight of any Democrat in these five cross-over races. She lags in fund raising, although neither candidate has raised huge sums of money. The Republican early return edge is a large percentage of the unaffiliated voters in the district who have voted, so she needs a large share of all independent voters and significant Republican cross over voting. And, unlike candidates in the other races, voters in House District 40 haven't previously voted for a Democrat in recent years, even though their Republican representative was a moderate.

Still, none of these races are out of either side's reach and all five will be raised to watch Tuesday night.

Things Could Be Worse

There is a wide consensus that the United States is on the wrong track. But, while Thanksgiving is still four weeks away, it is worth noting that Americans still have a system worth saving. War, terrorism, governmental instability, and the threat of rampant deadly disease is very much the order of the day abroad.

India was hit yesterday by multilpe terrorist bombs that killed more than sixty and injured more than 300 people. Terrorist incidents are a regular occurance in India, happening monthly or more often, in multiple conflicts ranging from a Maoist insurgency, to violence related to the status of Kashmir, to attacks of nationalist Hindus on minority Muslims.

Northern Somolia was rocked by five suicide bombings.

The attackers struck a presidential palace, government security posts, United Nations offices and an Ethiopian consular unit within half an hour in two regions, with blasts in Hargeisa, capital of breakaway Somaliland, and in Bosasso, Puntland . . . the bombers struck between 10 a.m. and 10:30 a.m., first in Hargeisa, where they hit the presidential palace of Somaliland, an Ethiopian consulate office and a UN office. Several of the buildings were leveled by the attacks.

The president of Somaliland . . . said that his secretary and his adviser were killed in the attack on the palace . . . There was no immediate claim of responsibility for the attacks. [A security official for the government] blamed a militant Islamist group called the Shabab, which the United States considers a terrorist organization.

The Shabab has been waging war against Somalia's weak transitional government, but most attacks have been in south-central Somalia. Hargeisa, in northern Somalia, had been considered an oasis of peace and stability.

The Somaliland government has been credited with setting up a small but functioning democracy, and providing a degree of peace and safety to more than a million people. It was in the middle of presidential and government elections. . . .

The attack may have been timed to coincide with a meeting in Nairobi, capital of neighboring Kenya, between Somalia's transitional leaders and the foreign forces supporting them.

Militant Islamist groups were not invited to the talks and organizations like the Shabab have shunned the discussions. The group says it wants Somalia to be an Islamic state and has demanded the withdrawal of Ethiopian troops.

Ethiopia has backed the transitional government in Somalia and its troops have been targeted in previous suicide attacks claimed by the Shabab.

In the port of Bosasso, two huge blasts rocked the city at two offices of the Puntland security forces, killing a woman employed to clean and wounding six soldiers, residents and officials said.

The first bomb exploded at a security service intelligence office close to the presidential palace in Puntland, according to residents and officials. Two minutes later, another explosion hit an agency office in the Laanta Hawada neighborhood, killing one intelligence officer and wounding six others.

At a news conference, the Puntland president, Mohamud Muse Hersi, blamed the bombings on terrorists [from outside the area].


The U.S. encouraged Ethiopian military involvement in the area, and has provided slight military assistance in select raids on suspected terrorists and pirates, and provided some military assistance to the Ethopians, but has not taken a high profile role in the conflict or devoted major resources to it. There were five failed piracy attempts off the coast of Somolia on Tuesday; the U.S. Navy has helped in these cases to repel pirate attacks.

Rebel Taliban soldiers shot their way into national government offices in Kabul, Afghanistan, the capital, to clear the for a suicide bomber. The attack killed five. Only 39% of Afghans think they are better off now than they were under the Taliban regime, while 36% think that they are worse off.

While overall conditions are not improving in Afghanistan, modern opinion polling has reached all time sophistication there, and education is much improved:

[T]he survey [cited above] was conducted in all 34 provinces and was the largest comprehensive opinion poll ever conducted in Afghanistan. Some 6,593 people aged 18 years and older were interviewed in person by a team of 543 trained interviewers between June 12 and July 2. The margin of error was 2.4 percentage points . . . "the most widely enjoyed amenity is the availability of education for children which is judged by 70 percent of respondents to be good."

"Forty-four percent of respondents report improvements in access to schools in the last two years," it said.

Some 6 million Afghan children, including 2 million girls, now go to school every year, one of the most remarkable success stories in a country hit daily by negative headlines because of rampant violence.

During the Taliban's regime only 1 million boys went to school. Girls were banned from attending classes.


While school attendance of way up, girls are still only half as likely as boys to attend, and more than seven out of eight school aged children missed years of schooling during the Taliban regime. While Americans are debating how to get failing teens to finish high school, and how to pay for college for working and middle class kids, Afghans are struggling to achieve basic literacy for their children at the elementary school level.

When it comes to social issues, one of the hot issues between conservatives and moderates in Afghanistan is whether parents should continue to have the right to sell their school aged girls into involuntary arranged marriages with much older men. Tribal leaders are starting to take the progressive stand of stating that this is a bad thing that gives the country a bad name, against stiff resistance from more traditional factions.

Afghans want a theocracy, which is good, because their U.S. assisted constitution provides for one, making Islamic law the highest law of the land and providing for Islamic decision making by the country's highest court. Converting from Islam to Christianity, for example, is a criminal offense, although it is not a crime to be a Christian or a Jew in Afghanistan.

Asked about the role religious leaders should play in political life, 69 percent of respondents said religious leaders should be consulted on political matters, while around a quarter said politics and religion should not mix.

That number is up from the 61 percent in favor in the 2006 survey.


While American's fret about our soldiers in harms way in two two foreign wars, bodies of villagers in Goma, Congo are everywhere in the wave of raping, killing and pillaging at the hands of government soldiers (not that the rebels are any better). Today is the first day in a week when automatic weapons aren't rattling away in the distance. The fighting is preventing common people from receiving food and aid.

Congolese soldiers are infamous for training their guns on civilians and fleeing at the first sign of a real threat. The looting, pillaging, raping and killing seems to happen every time a city switches hands. . . . Nkunda, a renegade Congolese general, has said he is waging war to protect the Tutsi people. Congolese officials accuse him of being a front man for neighboring Rwanda, which is led by Tutsi, and say that Nkunda is trying to carve out a buffer zone between Congo and Rwanda. Rwandan officials deny this and on Thursday there were high level talks between the two countries.


There are U.N. peacekeepers on hand, but they have been less than successful at securing peace, and have engaged in abuses, like patronizing child prostitutes, themselves. The lastest U.N. forces commander resigned earlier this week after seven weeks on the job.

An earthquake in Pakistan killed 215 people and left homeless a population larger than the entire population of West Washington Park (about 15,000). The area hit is in Southwest Pakistan, in a mountainous area near the borders of Iran and Afghanistan. The earthquake's magnitude, 6.4, was a shadow of the 2005 magnitude 7.6 Earthquake that killed 80,000 people in Northern Pakistan, or the 7.5 magnitude quake in 1935 that killed 30,000 people in the same area as the current quake. One can build structures that survive earthquakes like these, but the people in this part of Pakistan are too poor to afford that kind of housing. The houses in the effected area were made out of mud and stone.

In Thailand, the elected prime minster operates out of the airport, because his own offices have been occupied for months by protestors in a sitaution that is starting to be marked by violent incidents. Earlier this month two people died and more than 400 injured when police and protestors clashed.

The previous prime minister who was removed in a 2006 coup, was convicted last week of "violating a conflict of interest law in a case relating to a real estate deal by his wife, who was acquitted. He had fled to Britain earlier saying he could not get a fair trial in Thailand." Voters approved the current government after the coup. In the background is an ongoing paramilitary conflict between minority Muslims and the majority non-Muslim Thais that has not reached a decisive conclusion.

Our health care system is failing. But, the U.S. is still relatively well off when it comes to infectious deadly diseases as a result of nearly invisible public health measures. This isn't the case in many other countries, even in parts of the Third World where public health systems are visible and relatively functional, like South Africa.

An outbreak of a deadly disease related to the Lassa Virus has been identified after it killed four earlier this month in South Africa. It is typically spread by rodents and by exchanging human bodily fluids.

South Africa already has one of the highest HIV infection rates in the world. About 29% of pregnant women attending pre-natal clinics there have HIV. For pregnant women aged 25-29 at the clinics, the rate is 38.7%. Given the state of available AIDS care, the chance of survival to adulthood for children of infected women is poor, and their mothers will almost certainly not live to see their babies become adults. Researchers estimate that one in nine South Africans over age two have HIV. About two in fifteen blacks are infected with HIV. Among white's the HIV infection rate is about one in 166. Three different models put the annual number of AIDS deaths in South Africa at between 336,000 to 350,000 for 2006, in a country of 44 million people. In the U.S., which has a population seven times as great, AIDS kills about 18,000 people a year. The death rate in South Africa from AIDS alone is roughly the same time as the death rate from all causes in the United States.

29 October 2008

Social Conservative Don't Mind Teen Pregnancies

Margaret Talbot writing for the The New Yorker has captured a key attitude difference between cultural liberals and cultural conservatives in the United States regarding teen pregnancy, in her article datelined November 3, 2008 titled "Red Sex, Blue Sex: Why do so many evangelical teen-agers become pregnant?"

The bottom line:

Social liberals in the country’s “blue states” tend to support sex education and are not particularly troubled by the idea that many teen-agers have sex before marriage, but would regard a teen-age daughter’s pregnancy as devastating news. And the social conservatives in “red states” generally advocate abstinence-only education and denounce sex before marriage, but are relatively unruffled if a teen-ager becomes pregnant, as long as she doesn’t choose to have an abortion.


The detail:

The vast majority of white evangelical adolescents—seventy-four per cent—say that they believe in abstaining from sex before marriage. (Only half of mainline Protestants, and a quarter of Jews, say that they believe in abstinence.) Moreover, among the major religious groups, evangelical virgins are the least likely to anticipate that sex will be pleasurable, and the most likely to believe that having sex will cause their partners to lose respect for them. (Jews most often cite pleasure as a reason to have sex, and say that an unplanned pregnancy would be an embarrassment.) But . . . evangelical teen-agers are more sexually active than Mormons, mainline Protestants, and Jews. On average, white evangelical Protestants make their “sexual d├ębut”—to use the festive term of social-science researchers—shortly after turning sixteen. Among major religious groups, only black Protestants begin having sex earlier. . . . evangelical Protestant teen-agers are significantly less likely than other groups to use contraception. . .

Nationwide, according to a 2001 estimate, some two and a half million people have taken a pledge to remain celibate until marriage. . . . More than half of those who take such pledges—which, unlike abstinence-only classes in public schools, are explicitly Christian—end up having sex before marriage, and not usually with their future spouse. . . . pledgers delay sex eighteen months longer than non-pledgers, and have fewer partners. Yet . . . communities with high rates of pledging also have high rates of S.T.D.s. . . .

Among blue-state social liberals, commitment to the institution of marriage tends to be unspoken or discreet, but marriage in practice typically works pretty well. . . .“red families” and “blue families” are “living different lives, with different moral imperatives.” . . . people start families earlier in red states—in part because they are more inclined to deal with an unplanned pregnancy by marrying rather than by seeking an abortion.

Of all variables, the age at marriage may be the pivotal difference between red and blue families. The five states with the lowest median age at marriage are Utah, Oklahoma, Idaho, Arkansas, and Kentucky, all red states, while those with the highest are all blue: Massachusetts, New York, Rhode Island, Connecticut, and New Jersey. The red-state model puts couples at greater risk for divorce; women who marry before their mid-twenties are significantly more likely to divorce than those who marry later. And younger couples are more likely to be contending with two of the biggest stressors on a marriage: financial struggles and the birth of a baby before, or soon after, the wedding.


Celibacy pledges work poorly if more than 30% of teens in an area take them. The sense of being a special minority is key to their success.

"Solidly middle- or upper-middle-class adolescents have considerable socioeconomic and educational expectations" which cause them to place a greater premium on postponing parenting. Researchers have suggested that if evangelicals are serious about chastity before marriage, that evangelicals need to do more to support young married couples, or their communities will suffer the downsides of young marriages.

Near the close of the piece, Talbot states:

Evangelicals are very good at articulating their sexual ideals, but they have little practical advice for their young followers. Social liberals, meanwhile, are not very good at articulating values on marriage and teen sexuality—indeed, they may feel that it’s unseemly or judgmental to do so. But in fact the new middle-class morality is squarely pro-family. Maybe these choices weren’t originally about values—maybe they were about maximizing education and careers—yet the result is a more stable family system. Not only do couples who marry later stay married longer; children born to older couples fare better on a variety of measures, including educational attainment, regardless of their parents’ economic circumstances. The new middle-class culture of intensive parenting has ridiculous aspects, but it’s pretty successful at turning out productive, emotionally resilient young adults. And its intensity may be one reason that teen-agers from close families see child-rearing as a project for which they’re not yet ready. For too long, the conventional wisdom has been that social conservatives are the upholders of family values, whereas liberals are the proponents of a polymorphous selfishness. This isn’t true, and, every once in a while, liberals might point that out.


I can imagine a conservative rebuttal that argues that if only more people went to church, porn was hard to get, God was recognized as a force in civil society, if fault based marriage remained on the books, if homosexuality wasn't tolerated in a way that undermined traditional values, and liberals stood by them on chasity because contraception and abortion wasn't available, that their approach would work. The evidence that this is true is doubtful, but more importantly, it simply is not going to happen. Not in five years, not in twenty-five years.

Social liberals would be happy to promote greater support for young families. They do believe in marriage and family. But, they aren't ready to emulate what they see as a failed red state value system.

Fed Drops Interest Rates To Historic Lows

The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low . . . . ``If the economy weakens further, it may open the door for another 25 or 50 basis points in December,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina.'' . . .

The Fed also lowered the discount rate a half point to 1.25 percent. . . [The Fed cut] the main rate during the past 13 months from 5.25 percent . . . The spread between the cost of overnight loans in New York and three-month dollar loans in London widened to 4.02 percent on Oct. 10 as investors fled risk following Lehman's Sept. 15 bankruptcy. The spread averaged 0.27 percentage point for all of last year. It has since fallen back to 2.5 percentage points. . . .

The Fed . . . agree[d] to finance the commercial paper issuance of General Electric Co. and other corporations and help money-market mutual funds raise cash to meet shareholder redemptions. . . .

The central bank's new loan programs have expanded assets on its balance sheet by 104 percent during the past year to $1.804 trillion, or 12.6 percent of GDP.

Borrowing costs have remained high. U.S. 30-year mortgage rates tracked by Freddie Mac were 6.04 percent last week versus 6.07 percent on Jan. 3.


From here.

The low interest rate news was so widely anticipated that the stock market has added nothing to a record surge yesterday in anticipation of an interest rate cut. The Dow closed down 99 points to 8,966, giving up some of yesterday's almost 899 point gain.

Major banks have followed suit, lowering the "prime rate" to 4.0%. As Wikipedia explains:

Six common indices in the United States are:

11th District Cost of Funds Index (COFI)
London Interbank Offered Rate (LIBOR)
12-month Treasury Average Index (MTA)
Constant Maturity Treasury (CMT)
National Average Contract Mortgage Rate
Bank Bill Swap Rate (BBSW)

In some countries, banks may publish a prime lending rate which is used as the index.


Loans based on the prime rate, or on Treasury rates are headed towards an interest rate decrease. Loans based on the LIBOR are headed towards an interest rate increase. National Average Contract Mortgage Rates are fairly stable, by comparison.

The Trouble With Economists

The quality of scholarship in contemporary academic economics is regrettably low. It focuses too much on complex mathematical theory that makes unreasonable assumptions, and hence proves nothing, while devoting too little effort to describing the empirical reality. Their colleagues in the business schools of the United States typically do a better job of explaining the same things.

A recent, sloppy and inaccurate analysis of effective marginal tax rates under the McCain and Obama tax plans by Greg Mankiw, a Harvard economist, is typical of the discipline's sins.

He concludes, based upon a grossly oversimplified mathematical model, that his true marginal rate is 93% under Obama and 83% under McCain. But, his assumptions about how someone with high income actually invests, and actually makes work or don't work decisions, in the face of the incentives before them, are profoundly flawed. He isn't a tax practioner and it shows. Opportunities to cap tax liabilities abound, and decisions about whether or not to do the work that produces income turn out to be far more "lumpy," and less amenable to incentives, than a conventional marginal income tax rate analysis suggests.

28 October 2008

Colorado Early and Mail Voting Estimate

A diarist at Daily Kos has a good fact based estimate of mail in and early voting in Colorado. The numbers suggest that a very high percentage of all voters will vote early or by mail.

The race is about 51 Obama to 45 McCain for ballots actually voted, and 55 Obama to 44 McCain when requested ballots are included.

The diarist uses the partisan affiliations of those who have voted or requested ballots, and recent polling to determine the voting breakdown of each group. The imponderables in the numbers are the percentage of requested ballots that won't be returned (particularly in heavily Democratic Denver, which is getting many of its ballots out late due to technical difficulties), and the degree to which active registered voters (and inactive registered voters) will turn out on election day.

Absolute estimated numbers:

Obama early voting: 46,367
McCain early voting: 35,650

Obama received mail-in ballots: 243,840
McCain received mail-in ballots: 221,645

Obama requested mail-in ballots: 880,139
McCain requested mail-in ballots: 704,860

Total number of active registered voters: 2,602,815


Typically, one would expect 80%-90% turnout for active registered voters in a Presidential election year, and considerably less than 100% return rates for requested ballots.

Don't Blame The CRA For The Crisis

Did a federal government mandate on banks to lend in a non-discriminatory way in low income neighborhoods make a significant contribution to the subprime mortgage crisis or the financial crisis that followed? No.

The current financial crisis is not the result of the extension of credit to low- to moderate-income and highly concentrated minority communities as urged by the [Community Reinvestment Act] CRA. The CRA was established in 1977 and “is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate.” . . . the current financial distress is a recent phenomenon created largely by institutions that are not subject to CRA requirements. Over the last several years lending by mortgage bankers and other non-depository intermediaries has eclipsed the production of depository lenders, accounting for more than half of the mortgage loans originated over the past five years. Additionally, a review of data provided by mortgage lenders pursuant to the Home Mortgage Disclosure Act reveals that lenders that are not subject to oversight by a federal banking agency (i.e. not subject to CRA) originated over half of the higher-priced conventional mortgage loans reported in 2005.

CRA did not push banks and other institutions to make loans to unqualified borrowers nor did it encourage them to relax underwriting criteria to the point where they failed to consider a borrower’s capacity to repay the loan. . . .

New data from state housing finance agency-originated loans shows that these loans made primarily to low- and middle-income households, with average to below-average credit scores, have foreclosure rates significantly better than subprime.

According to the Mortgage Bankers Association, 4.26 percent of subprime loans began the foreclosure process in the second quarter this year. In contrast, foreclosure rates among community land trust (CLT) homeowners (who are workforce families) is approximately 30 times lower than the national foreclosure rate[.]


In fact 90.8% of subprime loans were made by financial companies not covered by the CRA (see also this addendum to the linked report). "CRA Banks were 58 percent less likely than other lenders to originate high cost loans to" low and middle income borrowers.

Equally important:

It is unlikely that a rush to qualify new home owners in previous years, CRA-related or otherwise, resulted in the credit crunch we are facing today. Whereas over half of subprime mortgages were refinances between 1998 and 2006, less than 10 percent of subprime mortgage originations went to first-time home buyers.


Neither the timing, nor the incentives were right:

CRA was passed in 1977. The explosive growth in subprime lending occurred more than two decades later, nearly doubling from 2001-2006 alone. No major changes to CRA were enacted during this time. . . . CRA penalizes banks for reckless, irresponsible and otherwise predatory lending.


The underwriting practices favored by the CRA were hardly radical. For example, when a potential homebuyer had no credit history, as opposed to a negative credit history, regulators suggested that "Willingness to pay debt promptly can be determined through alternative sources of information including timely rent, utility bills, and other scheduled payments," which do not show up on credit reports, but do show creditworthiness.

Republican Socialism

One of the main talking points for Republicans in this Presidential election has been to label Obama a "Socialist." But, when it comes to nationalizing industries, involving government in private economic decision making, favoring existing programs to redistribute wealth, and increasing government's share of the economy, Republicans look a lot like socialists themselves.

Governor Palin is a firm supporter of the socialist message of collective ownership of resources so that the government can share the wealth with the common man.

A few weeks before she was nominated for Vice-President, she told a visiting journalist—Philip Gourevitch, of this magazine—that "we’re set up, unlike other states in the union, where it’s collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs."


From here.

McCain has repeatedly favored taxing the wealthy more than the middle and working class, something he now attacked Obama for as a form of "Socialism." Republicans also voted together with Democrats, and President Bush agreed, to create Medicare Part D, the new prescription drug program that is the largest expansion of the social safety net in the United States in a couple of decades. Medicare Part D costs an amount comparable to the cost of providing bare bones universal health care to all in the United States.

The Bush Administration, as a result of a proposal that both McCain and Obama voted in favor of, and that both men went to the White House to help negotiate, is currently in the process of taking equity stakes in all nine of the biggest banks in America, plans to do the same with many smaller banks, and has taken an 80% stake in Fannie Mae and Freddie Mac, that collectively own 50% of the mortgages in America. The foreign press, and some of the domestic press, has accurately described this as a partial nationalization of the banking system.

The Bush Administration has also invested in a major international insurance company (AIG), brokered a banking merger (PNC and National City) designed to avoid the limitations on golden parachutes in the bailout bill despite the fact that the merger is financed with bailout bill money, and is reported by the Wall Street Journal to be working on a plan to use $5 billion in federal funds to broker a General Motors acquisition of privately held Chrysler.

According to the conservative Cato Institute:

President Bush has presided over the largest overall increase in inflation-adjusted federal spending since Lyndon B. Johnson. Even after excluding spending on defense and homeland security, Bush is still the biggest-spending president in 30 years. His 2006 budget doesn’t cut enough spending to change his place in history, either.

Total government spending grew by 33 percent during Bush’s first term. The federal budget as a share of the economy grew from 18.5 percent of GDP on Clinton’s last day in office to 20.3 percent by the end of Bush’s first term.

The Republican Congress has enthusiastically assisted the budget bloat. Inflation-adjusted spending on the combined budgets of the 101 largest programs they vowed to eliminate in 1995 has grown by 27 percent.


Fiscal responsibility has suffered as a result. Bush has run up record deficits and is not the exception in this regard either. Republican Presidents have added far more to the federal debt than Democratic Presidents.

In the wake of 9-11, one of the Bush Administration's first responses was to nationalize the previously private sector function of providing airport security screening, creating the Transportation Security Administration (TSA). The TSA is the biggest new federal government function, in terms of employees added to the federal payroll, in recent memory, and has made a name for itself for its ham handed handling of its job.

Republicans have also favored prohibiting voluntary accurate labeling of U.S. farm products or additional inspections of U.S. farm products that would increase the marketability of these products abroad. Concerns about the safety of imports of food from the U.S. in the absence of these inspections and labeling has led to riots in the streets of Seoul, South Korea. And, the Bush Administration has also strongly favored protectionist prohibitions on importing prescription drugs from Canada, despite the fact that there are no genuine reasons to doubt the safety of Canadian drugs. Both Bush and McCain have proposed setting government targets in imports of oil to the United States. This doesn't sound like a party driven by a desire for free trade.

Pro-government conservatives have become one of the main constituencies for the Republican party as the Pew Research Center has noted for several years. They make up 10% of registered voters, and are 58% Republican, with most of the balance considering themselves to be independent voters. While pro-business "Enterprisers" and "Social Conservatives" make up larger shares of the Republican Party coalition, pro-government conservatives make up much of the balance of the Republican party.

In short, present day Republicans seem to favor bigger government, a larger role for government in the economy, redistribution of wealth, and a bigger social safety net, without much concern for the size of the national debt. This makes the sting of their "socialist" taunts unimpressive.

Coming Attractions

On December 4, 2008, I will be part of a faculty panel in a continuing legal education class entitled "An Attorney's Guide To Asset Protection." My presentation will discuss "Safeguarding Your Assets From Would-Be Creditors" and "In Your Client's Best Interest - Ethical Consideration."

My colleagues at the December 4, 2008 presentation, Edward D. Brown and Frank James Danzo II, will be discussing "Asset Protection Through Integrated Estate Planning", "The Role of Asset Protection In Estate Planning," and "The Best Tools For State and Federal Estate, Inheritance and Gift Tax."

I will also be presenting a paper at the May 2009 Law and Society Annual Meeting in Denver, titled: “This Financial Crisis Was Brought To You By The Internal Revenue Code.” It will argue that:

Tax incentives that favor personal debt, favor corporate debt over equity, and favor executive compensation modes such as stock options have shaped American attitudes towards risk and debt among both elites and ordinary people that helped create the Financial Crisis of 2007-2008. These choices flow from societal values formed in prior panics. In contrast, tax incentives in Continental Europe have been important in driving a societal distaste for debt and risk that has reduced systemic risk there.

Bad Economic News

Consumer confidence is at a 40 year low.

Housing prices are down 16% from a year ago, nationally.

Colorado Ballot Issue Polling

UPDATE (more results from the Rocky Poll cited below):

Amendment 46 (End Affirmative Action) 53-40
Amendment 47 (Union Management Fees) 42-53
Amendment 50 (Gambling) 64-34

My prediction on the margin of victory for 50 is revised from a narrow win to a big win.

OLD POST:

According to the Rocky Mountain News (Public Opinion Strategies, October 21-23, 500 RV, MOE 4.38%):

Amendment 48 (Egg as Person) 27-69
Amendment 58 (End Severance Tax Breaks) 48-45
Amendment 59 (DeBruce Colorado) 50-42

By Qunnipiac University (Oct. 8-12, 1000 LV, MOE 3%):

Amendment 46 (End Affirmative Action): 63-21

By Ciruli Associates (Sept. 19-23, 501 LV, MOE 4.4%):

Amendment 47 (Union Management Fees): 39-40
Amendment 49 (Payroll Deductions): 44-33
Amendment 50 (Gambling): 55-28
Amendment 52 (Severance Tax For Roads): 64-12
Amendment 54 (Ban Contrib. From Gov't Contractors and Unions): 45-22
Amendment 58 (End Severance Tax Breaks): 51-25
Amendment 59 (DeBruce Colorado): 45-33
Amendment L (21 year old legislators): 27-55
Amendment O (Const. Amendments): 38-26

Polling on several amendments that were pulled from the ballot was as follows in Ciruli's poll 53 (criminal responsibility for executives) 58-18, 56 (health insurance mandate) 48-30 and 57 (tort damages in worker's comp cases) 41-37. Amendment 55 (just cause firing) was also withdrawn.

By Rasmussen Reports (Aug. 13, 700 LV):

Amendment 46 (End Affirmative Action): 55-23

I also recall seeing on poll showing a lead for Amendment 51 (sales tax for developmental disability), with slightly more than 50% support, with a moderate percentage opposed and many undecided early on in the election season, but can't find a link to it.

I haven't seen polling on Amendments M and N, both of which end obsolete constitutional language, but there is a long history of obsolete language measures passing in the state by wide margins.

I haven't seen polling on Denver's issue 3A (school bonds). There is a strong history of support for school taxation issues in Denver, but it is hard to know how hard economic times will impact that support.

Analysis

All other things being equal, the historically in Colorado, the vast majority of those undecided about a ballot measure will eventually vote "no."

The most vigorous campaigning this election season has been with regard to the anti-union measures Amendments 47, 49 and 54 which a number of Colorado business groups have joined labor in opposing and funding opposition for, in part in exchange for withdrawing four measures that business lobbies didn't like (53, 55, 56, and 57). Their has been campaigning in favor of those three measures as well, but it has been far weaker. So, I would suspect that those measures have lost ground since late September polling.

Influential Republicans have fought Amendment 52, and Democrats have not been strong in support of it either, but neither side has devoted much effort to spreading the word, so it isn't clear that there will be anything but the ordinary skepticism to influence Amendment 52's outcome.

There is no organized opposition to Amendment 51, but the pro-51 campaign has been modest, frankly acknowledging the pressed economic situation of voters and recognizing that they have a tough case to make this year.

My predictions (not my preferences):

Amendment 46 (End Affirmative Action): Pass -- Easily
Amendment 47 (Union Management Fees): Fail
Amendment 48 (Egg As Person): Fail -- Overwhelmingly
Amendment 49 (Payroll Deductions): Fail -- Narrowly
Amendment 50 (Gambling): Pass -- Narrowly
Amendment 51 (Sales Tax For Developmentally Disabled): Fail -- Narrowly
Amendment 52 (Severance Tax For Highways): Pass
Amendment 54 (Government Contractor and Union Contributions): Fail
Amendment 58 (End Severance Tax Breaks): Fail -- Narrowly
Amendment 59 (DeBruce Colorado):Pass -- Narrowly
Amendment L (21 year old legislators): Fail
Amendment M (Obsolete Constitutional Language): Pass -- Easily
Amendment N (Obsolete Constitutional Language): Pass -- Easily
Amendment O (Constitutional Amendments): Pass -- Narrowly
Denver 3A (School Bonds): Pass

27 October 2008

Stocks Down Again

Today, "credit ratings agency Moody's Investors Service . . . downgraded General Motors Corp. further into "junk" status." The stock market fell again with the Dow dropping about 203 points to 8,175.77 at the close.

Hedge Funds 101

There are about 7,000 hedge funds in the world. While hedge funds were conceived in 1949, the industry started to get noticed in the 1960s, fewer than a thousand of them existed worldwide prior to 1990, and they have grown dramatically every year since then. Hedge fund managers are among the wealthiest people in the world, some making billions of dollars a year, and in particular, are among the wealthiest individuals within the financial community which itself has taken the lion's share of the economic gains of the current boom. Hedge funds have also attracted notice because they tend to engage in heavy trading that influences the day to day pricing of the financial markets.

Hedge funds currently have about $2,000 billion under management (before the late 2008 crash), a 50 fold increase since 1990. Most are fairly small, however. "Firms with less than $500m under management account for about three-quarters of the world’s 7,000-odd hedge funds, although they manage less than a tenth of the industry’s assets." The average hedge fund with less than $500 million in assets manages about $38 million. The average hedge fund with more than $500 million in assets manages about $1 billion in assets.

By comparison, at the end of September, 2008, the total capitalization of the U.S. stock market, based upon current stock prices, was about $12,500 billion. The market capitalization of publicly held companies outside the U.S. is at least as great as the market capitalization of the U.S. market. So, worldwide, the total hedge fund market is less than 10% of all equity investments (and of course, the aggregate capitalization of the world bond markets is also huge).

The funds are only modestly regulated because they deal only with sophisticated investors. About 32% of investments are from high net worth individuals, 5% from endowments, 6% from institutions, 10% from pension funds and 46% from funds of hedge funds which "act as intermediaries for private banks, some institutions and individuals who are merely affluent," as opposed to the very wealthy.

Typically hedge funds allow investors to take out money only quarterly, a small number allow monthly withdrawals, and a few allow withdrawals only every few years. They typically have performance related fees, and may not receive any of those until they restore the peak value they achieved before a slump in value. They also have "a symbiotic relationship with prime brokers at investment banks, who provide them with credit, execute trades and help administer their funds." Industry boosters fear that client withdrawals and denials of credit from investment banks could greatly contract the industry.

Surprisingly, most hedge funds are not terribly leveraged (although this differs from one type of strategy to another). For the industry as a whole, asset to equity ratios of 1.3 to 3 are estimated, far less than either commercial banks or investment banks, and more in line with operating companies, although this conceals leverage in the underlying investments, many of which are derivatives. Unsurprisingly, given the leverage information, investment banks has done more to drag down hedge funds than hedge funds have done to drag down investment banks.

Hedge funds have sold themselves on the suggestion that they can produce steady returns in good times and bad, but have actually managed only to outperform the market in bad times. The hedge fund description conceals a variety of different investment strategies, some of which have worked as advertised, while others, like exploiting anomalies between convertible bond prices and stock prices, have produced losses as severe as those in the ordinary stock market.

Recent increases in regulation of short selling have hurt the funds, which often simultaneously put and short the same investment (the classic definition of a hedge) to limit both upside and downside risk. Take away the option to short sell in a particular situation, and you don't have a hedge any more.

Pardon's Profiled

I found that of the 157 full pardons issued by President Bush to date, almost 2/3 went to people whose convictions had occurred more than 20 years before they were pardoned. Only a handful of pardons went to people convicted less than ten years before the pardon. Every single pardon recipient had fully served their sentence years before they were pardoned. Twenty-one of the pardon grants went to people convicted more than 35 years before, and eight of those pardoned were convicted in the 1940s and 50s.

By far the most frequently pardoned offenses are those falling into the general category of theft and fraud. But President Bush has also pardoned 29 drug offenders, 11 people convicted of a firearms-related offense, and eight tax evaders. In addition to the usual complement of bootleggers (11) and car thieves (7), there are teller embezzlers, thieving postal workers, gamblers, illegal dumpers, draft dodgers, and election law violators. The batch also includes the obligatory odometer cheat....

Only 18 of the 157 people pardoned spent more than two years in prison, and 16 of these were convicted of drug offenses. (The other two were an S&L fraudster sentenced to three years, and an armed bank robber sentenced to 12 years’ imprisonment.) Most surprising to me, more than two thirds of those pardoned spent no time in prison at all....

Something else that may be surprising to some, most of those pardoned (113) were not represented by a lawyer. Only one of the five individuals whose sentence was commuted was represented by counsel in connection with his clemency application.


From here.

IIRC about four people have had their sentences partially commuted while still serving those sentences, rather than receiving a pardon.

There are a great many people who have the stigma of being classified as a criminal, yet committed only a relatively minor crime long ago. Those pardoned by the President are only the tip of the iceberg. Typically, civil rehabilitation, which many states afford those convicted as a matter of course by an automatic or near automatic administrative device, is sought to allow someone to obtain a license, or be eligible for a job, or own a gun, or vote.

While there is strong evidence that recent crimes are pertinent to an individual's likelihood of recidivism and other negative conduct, there is far less evidence that this is relevant in the case of decades old crimes.

Military Recruiting

Selected Statistics on U.S. Military Recuits:

High School Graduates: Air Force 99%, Army 83%, All Services 92%
Top 50% on Armed Forces Qualification Test: Air Force 79%, Army 62%, All Services 69%

Percentage of Army jobs that are "combat related": 15%

Narrative:

The army used to have higher standards, but fear of combat and anti-war attitudes of many parents forced the army to lower the bar during the last five years. Improved selection and training methods kept army performance up. Note that most of the fall-off in recruits were for non-combat jobs. . . . Only the army had any problems recruiting during the war. For most of the last eight years, the air force and navy have actually been reducing their strength, and thus were able to be more picky when it came to new recruits. The marines are disproportionately a combat force, and one with a high reputation for being challenging and life-changing. They have no trouble getting the people they need. The navy provides most of the support services, including the medics who serve with marine infantry platoons.


Analysis:

The tip of the spear of the American military is thin. There are about 75,000 Army combat specialty soldiers. Add in the combat specialties in the Marines, and you still have remarkably few soldiers whose primary duty is engaging directly in ground warfare.

The military as a whole appears to be able to reject more than 55% of potential recruits with below average AFQT scores. If AFQT scores had a cutoff, it would be about the 28th percentile for the military as a whole, but higher for the Air Force and lower for the Army.

Most of the socio-economic edge that veterans have over the general population comes from excluding most high school dropouts and most very low performers on AFQT tests and other military qualification screens. This increases averages and medians on socio-economic measures, even though the military also has a quite low share of college bound young adults.

The post doesn't mention it, but a disproprotionate share of the drop in Army support job recruiting comes from the African American community.

The post also neglects the fact that retaining skilled personnel is difficult. The Air Force loses more than 30% of its best pilots despite signing bonuses for re-enlisting after eight years of up to $125,000. The Army is having trouble holding onto NCOs and officers with combat experience; some want out, while others are lured by big dollar contracts with mercenary contractors.

Efforts to lure military personnel from other service to the Army have also been largely unsuccessful, although the Navy and Air Force have both created units that mimic Army functions or support them. For example, the Navy has deployed "maritime patrol aircraft" (i.e. the P-3C) outfitted with new avionics, for reconnaisance missions in landlocked Afghanistan.

Good News For RTD?

The headlines in the run up to elections for the RTD Board of Directors have focused on how RTD will deal with cost overruns in the FasTracks light rail expansion project.

But, good news is on the horizon. Plunging oil prices are freeing up funds in the RTD operating budget, yet the increased fares, and consumption reducing choices of consumers driven by high gasoline prices in recent months to live closer to work, buy more fuel efficient vehicles, and start using transit, remain in place.

Another key factor in rising construction prices has been the rising cost of materials like the metals that go into light rail lines. Metal prices are down 18% from a month ago, and 33% from a year ago, according to The Economist commodity-price index.

It also seems likely that the sustained slump in the construction industry will eventually restrain soaring labor costs on this project. Many steel heavy downtown construction projects are being cancelled. Workers with the skills to make high rises also have the skills to make light rail lines.

Even falling real estate prices are good for FasTracks, because they reduce property acquisition costs.

Now, the news isn't all good. Sales tax revenues are quite cyclical, so sales tax revenues can be expected to fall. But, the Denver metro area's economy as a whole, because it is now diversified, offers hope that the tax revenue slump will be more mild in Denver than it will be in a city like New York that relies overwhelmingly on taxes from an industry that has crashed.

While I have little doubt that there will have to be some action to address FasTracks shortfalls, there is reason to hope that the problems RTD is now facing is not as bad as it now seems.

26 October 2008

Weekend Reflections

The Borders Bookstore in Northfield, Stapleton (a shopping district in Denver), is truly delightful. One of the best in Denver. Among other things, it has an excellent collection of Manga, a good mix of classics and new releases -- many not available at the many book stores that chase the best seller lists, instead of driving it, and does an excellent job of displaying books in a way that makes you want to buy them. Their kid's activity was also well attended, and their cafe (run by Seattle's Best) had a healthy following as well.

While my daughter was at a birthday party at Northfield, my son and I made our way to Dick's Field, which, in addition to being home to the Colorado Rapids, also has many soccer fields used by amateur teams. While he and I honed his goal keeping skills, a woman's rubgy game played in the background. I'd never seen women's rugby before, which was interesting, as was the post game ritual in which all the women on both teams stripped down to their sports bras to return their jerseys.

A new modern apartment complex has sprung up between Colfax and 17th on Colorado Boulevard. It is an infill development that replaced some sorry small houses in poor repair that had filled the block before, and no doubt will improve the neighborhood, despite bringing dreaded density, and even worse, renters.

Further North on Colorado Boulevard, Lefty Martins, one of the best loved appliance stores and local businesses in that neighborhood is still in business, surviving by becoming part of the Appliance Factory Outlet chain. Churches Chicken, a stunted franchise, manages to do a good trade nearby.

Predominantly black churches are on every corner. Some are large and present an aura of modest respectibility. Others look they they are held together with gum and duct tape, and have names that sound like they come out of bad 1970s sit-coms. Are they suffering the same kinds of declining enrollments that mainline Christian churches are experiencing? Most predeominantly white churches from evangelical to Catholic to mainline, are moving towards a worship style closer to one that predominantly black churches have been distinguished by for decades. What are the worship style trends in these churches? I have no idea.

A neighborhood hardware store on South Broadway, General Hardware, is going out of business. Home Depot dealt the first blow. Ace Hardware near Alameda and South Broadway dealt the killing blow. But, much of the harm was self-inflicted. While I preferred the store and its service to the competitors, it was never open when I needed to go there. It closed early on weekdays, it was closed on many banker's holidays, and it was closed on Sundays. Working homeowners like me have to shop then, so what can I do.

In good times and bad, the endless parade of weddings in Washington Park is unabated.

Disney's dominance in kid's entertainment these days is undeniable. Between their radio, movie and television offerings, both of which are dominanted by their own products, they determine what is "in," dominant character merchandising to kids, and are really creating their own independent voice distinct from adult genres. Disney's world has a big tent. There is significant country cross over in their musical mix, along with R&B influences. Almost every production is consciously multi-racial to a far greater degree than almost all of the kids in their audiences. Unlike their competition for the youth market, which is more influenced by adult genres, Disney seems to see emotional depth as a vice, and bubbly optimism as the sine quo non of professionalism.

According to the Sunday newspaper, it has finally dawned upon the computer industry that people are utterly exasperated with having to spend three minutes waiting for their computers to boot up, and are working on a new line of products to remedy the problem. According to Microsoft, only 35% of Vista users can boot up in less than 30 seconds, which sounds optimistic to me.

In real life, I saw a $300 laptop computer at Target with all open source software. I'd heard about them months ago, but this weekend was the first time that I'd actually seen one. Acer is also offering a $300 computer, but its offering runs Windows XP.

Also in the Sunday newspaper, a new rotavirus vaccine for kids under two (first offered in 2006) is dramatically reducing ER visits and hospitalizations for severe childhood diarhea, even though only about half of kids get the vaccine. Estimates are that incidence is down 80% or more. Several other diseases like pnemonia, menengitis and strep are also being reduced with new childhood vaccines. This vaccine, along with the new HPV vaccine, seem to show that the highly effective public health measure of vaccines continues to have major room to improve health outcomes. I got my flu shot this weekened and hope that we won't have a dud this year as we have in the last couple of years.

Obama signs outnumber McCain signs in my neighborhood by ten to one or more.

There are a number of "Yes on 47" (anti-closed shop) billboards, but I've seen only one "Yes on 47" sign in front of a person's home. It was a Country Club mansion. I'm sure that the owner is terribly worried that he might have to pay a management fee of the union that covers his job, which he opted out of membership in.

A flyer in favor of 47, 49 and 54, the three anti-union measures, lie about what each of those measures will do. Contrary to the flier, with or without 47, there is "no forced unionization" in the United States. Contrary to the flier, 49 does not "Stop unwanted payroll deductions from employee checks for political activity," as those deductions can be made only voluntarily under current law. And contrary to the flier, 54 bans far more than "pay to play schemes between corporations and politicians handing out contracts." There is also, contrary to the flier, no credible economic evidence that 47, 49 or 54 will help "the little guy" in the face of Wall Street problems, help workers survive "the coming economic depression," help retailers, reduce bankruptcies, or provide bailout options, as the flier impies, nor does it eliminate fraud and expensive government mandates, or support small business and hard-working Coloradans. In short, the "Western Skies Coalition," operating out of a post office box in Littleton, is nothing more than a craven bunch of big money fat cats willing to lie brazenly to support an anti-worker, anti-union agenda. Misrepresenting what ballot issues actually say shows just how despicable scum like Jake Jabs and Coors and John Andrews, who are helping to back these measures are as people. They could have taken a high road and described their measures accurately and argued for them on the basis of the reasons that they actually want them -- to cripple unions in Colorado. But, they didn't.

CORRECTION: Jon Caldara, and not John Andrews, was the intended target of my rant. I regret the error.

24 October 2008

Interesting Policing Statistics

* No more than 25% of calls to police are about crimes, and many of those turn out not to involve crimes upon the arrival of police at the scene. Closer to 7-10% of calls involve actual crimes. Frequently police restore order when a situation that might escalate to a crime results in a call.
* Only about 13% of reported crimes are violent crimes.
* Most reported crimes are cold by the time police arrive.
* In 1990, the average U.S. police officer made 19 arrests per year.
* About 15% of police resources are devoted to investigating crimes.
* The vast majority of crimes are not solved; in those that are solved a suspect is usually quickly determined on the basis of interview with physical evidence only rarely pointing to a suspect as opposed to confirming the guilt of, or exonerating a suspect from guilty. Most suspects confess.
* A large share of burglaries are solved through confessions by burglars caught in another burglary.
* Detectives spend half an hour on paperwork for each hour spent talking to people and looking for evidence.
* About 7% of police resources are devoted to traffic control (third after investigating crime which is second, and general patrol and response to calls, which is the main activity of police). These three activities account for about 85% of police resources and another 9% or so is consumed by adminstrative duties.

From "Policing" by Tim Newburn (2004) quoting at length from "Police For the Future" by David Bayley (1994).

Another Bad Week In The Stock Market

Somebody didn't get the memo about the bailout bill stabilizing the stock market.

By the close, the Dow fell 312.30, or 3.59 percent, to 8,378.95 . . . .The S&P 500 index declined 31.34, or 3.45 percent, to 876.77, and the Nasdaq composite index fell 51.88, or 3.23 percent, to 1,552.03.

Friday's finish was the lowest for the Dow since April 25, 2003, when it ended at 8,306.35. For the S&P 500, it was the lowest ending since April 11, 2003, when the index finished at 868.30. It was the Nasdaq's lowest close since a May 23, 2003, finish of 1,510.09.

The Russell 2000 index of smaller companies ended Friday down 18.80, or 3.84 percent, at 471.12. . . .

For the week, the Dow fell 5.35 percent, the S&P 500 lost 6.78 percent and the Nasdaq fell 9.31 percent. The week's selling left the Dow down 40.9 percent from its Oct. 9, 2007, record close of 14,164.53, while the S&P 500 is off 44 percent from its peak of a year ago. The Nasdaq is down 45.7 percent. . . .

The Dow Jones Wilshire 5000 Composite Index—a free-float weighted index that measures 5,000 U.S. based companies—ended at 9,514.37, down 403.02 points, or 4.24 percent, for the week. A year ago, the index was at 15,337.70.


The Dow is a couple thousand points below the level where it is when President Bush took office, and we've had roughly 25% inflation since then. Adjusting for inflation, the Dow is down about 41% since President Bush took office in 2001.

Treasury bills and bonds are trading at yields significantly below the annualized inflation rate in each of the last twelve months. After inflation, and before taxation, a T-Bill investor is losing about 4% of the amount invested per year. Treasury bond investors are losing money at a rate of 1 to 2 percent a year on the same basis.

One way to interpret this data is to conclude that the market's current assessment of the risk free rate of return in our economy, sometimes called the "real time value of money" is negative. Another is that the market anticipates deflation over the next three months, and very low inflation over the longer term. Neither of these intepretations are happy ones.

The one good piece of news that flows from the flight to Treasuries, however, is that it reduces the amount of interest that taxpayers must pay on the national debt, and thereby eases the national budget deficit. The reduced interest payments, however, are unlikely to fully mitigate reduced tax collections for 2008.

The Wall Street Journal is advising readers with non-retirement stocks and mutual funds to cash out their losses now for tax purposes, and then reinvest (in something else, so as not to defeat the purpose from a tax perspective). The New York Times meanwhile, has to worry about keeping its own financial house in order, as its bonds have been downgraded to junk status.

The bailout bill was passed October 3rd, followed almost immediately by a market plunge, and implementation started on October 14th. We are now already into the second tier of the spending authorized by the bill. The third tier of spending under the bill is subject to a Congressional veto.

Where is that bailout money going? To finance bank takeovers. This is legal, because there were no strings attached to how banks could use the bailout funding.

The Market Speaks Again On Vista v. Windows XP

Computer maker Dell is offering down downgrade customers from Windows Vista to Windows XP, for a price. And, people are paying that price.

You know that you deeply, horribly screwed up your product upgrade, when people are paying extra to get the supposedly inferior product. What was Microsoft thinking?

Vestal Vespa Back

She is appealing for modesty in our nation, and reflecting on the state of the Englewood, a Denver suburb.

How Do We Encourage Honesty

We live in a civilized society. Important decisions in our society are made by voters, by judges and juries, by business managers whose words govern the conduct of their businesses, and by business people in business transactions.

Criminals find little niches of our life where might matters. But, crime is at decades long lows and isn't that economically important. A bank robber makes less money in a typical heist than a used car dealer does in a single sale. Less grand crimes tend to be even less economically productive. And, crime has to be conducted stealthily, because the overwhelming force of the state overwhelms any overt attempt to defy criminal laws. We don't live in the Wild West any more. The evidence also suggest very strongly that the vast majority of those who regularly commit crimes get caught and are punished severely for their crimes. We do not have a large class of common criminals who operate with impunity.

Might also matters on the international scene, but recent wars are better characterized as foreign military adventures than as anything that puts our own national security genuinely at risk.

The result of our civilized state of affairs is that decisions are made based upon what people say to decision makers. In this society, the truthfulness of communications is key to outcomes.

The importance of truthfulness to important outcomes creates intense incentives to be less than honest. Newspapers and websites routinely catalog a host of dishonest claims made in election campaigns. It would probably take fewer column inches to recite the truthful claims than the deceptive ones. Business advertising is only marginally better -- marketing has become the art of being deceptive without actually saying something that is factually false. In courts, not only do cops lie, they are kept on the force after they have been caught. Large swaths of the business community routinely cheat on their taxes. Psychological studies have shown that people who can lie convincingly are more successful than those who cannot.

Simply passing more laws that punish incidents of lying with punitive sanctions seems unlikely to be fruitful. White collar crimes, frauds and public deceits are rarely prosecuted criminally. You can count on your fingers the number of perjury prosecutions that took place in Colorado last year, for example, despite the fact that perjury happens in a significant number of all court cases and communications subject to penalties of perjury. Libels and slanders are likewise common place, despite the fact that they are rarely resolved in the courts. Punitive sanctions for deceitful conduct may discourage the most blatant offenses and put a finger in the dike, but aren't up to the task of meaningfully regulating areas of discourse where dishonesty has become the rule rather than the exception.

How can we create a situation where it is in people's own interests to be honest, with something other than draconian criminal and punitive sanctions from officials ill inclined to impose them? Is it possible to have a civilized society where free speech and a culture of honesty can co-exist? What would motivate people to tell the truth in high pressure situations, even when it is against their own interests to do so?

In what domains are people most honest, and why? Why does Wikipedia do a better job of ferreting out facts than political debates? Are some kinds of dishonestly more harmful than others, and are there ways to particularly restrain the most harmful kinds? If we create a forum where there is a higher standard of honesty, will it squeeze out dishonest forums, or does dishonest tend to bury honesty?