Tax Shelters Kill

The recent Washington Metro crash, one of the worst passenger train crashes in recent American history, may have been substantially the result of a tax shelter that kept a passenger car in service beyond its useful life.

Justice Dept Covers Up Prosecutors' Misconduct

The Department of Justice is in charge of handling complaints of unethical conduct by federal prosecutors. About 30% of cases involve prosecutors hiding exculpatory evidence in criminal cases from defense attorneys, in violation of the U.S. Constitution. But, rather than prosecute cases it sits on them, releases no public information (not even at a statistical level after 2006), and the punishments imposed are frequently minor (like private reprimands) even in situations that experienced federal judges see as serious violations and follow up upon.

Most of the degradation in the Office of Professional Responsibility, in charge of these cases in the Justice Department, apparently happened during the administration of George W. Bush and it isn't clear how much change President Obama will bring to the situation (incumbent U.S. Attorney General Eric Holder took office February 3, 2009, Deputy Attorney General David W. Ogden was confirmed March 12, 2009, as was Associate Attorney General Thomas J. Perrelli). Eric Holder's public statements about Justice Department reform are encouraging. It appears, however that H. Marshall Jarrett has led the Office of Professional Responsibility since 1998 (presumably as a senior civil servant) and that he, in turn, reports to the Deputy Attorney General and the investigated attorney's "component head" with the results of the investigation in each case. In Jarrett's defense, the Bush administration was not always cooperative (citing the New York Times):

Jarrett sought to investigate DOJ approval for the National Security Agency's domestic wiretapping program in 2006, but requisite security clearances were denied. On February 22, 2008, Jarrett announced an investigation of DOJ legal memoranda by John Yoo, Jay Bybee, Steven Bradbury, and others justifying waterboarding and other harsh interrogation techniques.

Then again, the fact that the investigation cited above started in 2005 and still hasn't concluded apparently, isn't impressive.

The evidence of weak attorney discipline at the Office of Professional Responsibility in the Justice Department, as reported by the American Bar Association Journal, suggests that the world's largest law office (i.e. the Justice Department) needs to hand off attorney regulation to disinterested third parties, in the same way that private firms are not permitted to judge their own lawyers. The truth of the matters is that professional and industry discipline agencies in almost every profession and industry tend towards regulatory capture, but most do take complaints of serious misconduct by individuals within the profession seriously.

The apparent failure of the Office of Professional Responsibility in the Justice Department is particular worrisome because some of the most culpable violations of civil liberties and incidents of torture were condoned by administration lawyers, like John Yoo, in ways that appear to violate professional ethics for lawyers in government service. The breakdown of professional ethics monitoring in the Justice Department may also color the rulings of judges who have first hand experience with these issues, in the Padilla v. Yoo civil lawsuit currently pending, where the complaint of Jose Padilla, who was detained as an enemy combatant and allegedly treated improperly while detained under the cover of a Department of Justice memoranda was held to state a claim for relief against a lawyer involved in writing those memoranda.

Detroit Law Firm Layoffs And Other Detroit Updates

Law is a service industry. When those whom they serve do well, lawyers do well. When those whom they serve do poorly, the lawyers are hurt along with their clients. Thus, just as New York City transaction based firms are laying off people in the wake of financial industry troubles (although Goldman Sachs is paying record bonuses), Detroit's two biggest law firms are laying off people in sync with the automobile industry around them, which is doing the same (and has two of the big three firms, plus the largest supplier in bankruptcy).

In related news, Ford is talking to a number of parties about selling the Volvo brand, which it owns. A Chinese company is among the bidders although Ford denies that there is a deal in place.

Also, a payroll audit at the Detroit Public Schools, which is currently under state receivership, turned up 257 individuals out of 13,880 workers on its payroll who are not on approved leave and may be "ghost employees" who aren't actually showing up to work at the school district.

CORRECTION: The operational part of Chrysler left bankruptcy two weeks ago and is already undergoing major shakeups under the supervision of its new owners from Fiat:

[Sergio] Marchionne, also the CEO of Italy's Fiat, has compressed eight layers of management into five. . . . There are senior or executive vice presidents, rather than vice presidents, followed by directors and senior managers. Every other salaried employee is simply considered a Level 5.

The product lineup will change too:

[T]he upscale Alfa Romeo brand to come to North America to compete against established sellers of luxury European cars. Some of those Alfa models are to be built here, too, and possibly exported to Europe. Aside from the tiny Fiat 500, which will be assembled in Toluca, Mexico, and introduced in mid-2011, new models with a European flavor will be branded as Alfa Romeos. . . .

Fiat's 500 minicar will be produced in Toluca, Mexico, and sold through Chrysler dealerships as a 500, much as BMW maintained its Mini as a separate brand. . . .

An Alfa version -- called the GTX -- of the 2011 Jeep Grand Cherokee and Dodge Durango will be produced at the Jefferson Avenue assembly plant. There is a strong likelihood Fiat will export some of those SUVs to Europe. . . .

[As a midsized SUV the] most likely choice appears to be a rear-wheel drive car that will share the basic dimensions of the 2011 Chrysler 300 and Dodge Charger. Fiat has looked at designing an Alfa Romeo 169 off the same structure, but sources inside the company said that decision has not been made. . . .

Fiat's C-EVO platform will be the base for the next Jeep Liberty, a small crossover that replaces the Dodge Caliber and a third model to be sold as the Alfa Romeo Milano . . . . In a daring idea that invites second-guessing, Chrysler and Fiat also are looking at putting a Jeep badge on the small, boxy Fiat Panda, now assembled through a joint venture with Ford in Poland. The Panda, if it comes to market, would probably be built in Toluca along with the 500.

Newpaper Ad Revenue Way Down

Judge Richard Posner offers up some facts about the newspaper industry:

Newspaper ad revenues fell by almost 8 percent in 2007, a surprising drop in a non-recession year (the current economic downturn began in the late fall of that year), and by almost 23 percent the following year, and accelerated this year. In the first quarter of 2009 newspaper ad revenues fell 30 percent from their level in the first quarter of 2008. This fall in revenue, amplified by drops in print circulation (about 5 percent last year, and running at 7 percent this year--and readership is declining in all age groups, not just the young), have precipitated bankruptcies of major newspaper companies and, more important, the disappearance of a number of newspapers, including major ones, such as the Rocky Mountain News and the Seattle Post-Intelligencer. Falling revenues have led to layoffs of some 20,000 employees of the remaining newspapers. Print journalism has come to be regarded as a dying profession. Online viewership and revenues have grown but not nearly enough to offset the decline in ad revenues. Even the most prestigious newspapers, such as the New York Times, the Wall Street Journal, the Washington Post, and USA Today, have experienced staggering losses.

From here.

His suggestions for copyright protection as a remedy don't ring true, however. He suggests that:

Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

The newspaper's old business model may be dead. This doesn't mean that there is no business model by which news gathering can make economic sense. National Public radio, for example, receives very little of its funding from government sources, even though it has a government charter. The Colorado Independent, in the sidebar, also has a grant based business model, rather than an advertising or subscription based business model.

Before commercial investor owned, advertising funded companies came to dominate news collection in this country, political parties provided a funding base for most newspapers, including one of the predecessors of the Rocky Mountain News. Before newspapers that served the general public came along, we had "foreign correspondents" whose business model was similar to that of today's investment analysts. Notably, newspapers in a fair share of the world manage without any copyright protection at all for their news reporting.

The vast majority of the fine arts sector operates on a mix of fee for service, advertising and contributions for donors, something close to the National Public Radio business model. So do many private educational institutions, and most private hospitals started out that way although many are now profitable from fee for service alone.

Indeed, the Associated Press, as its name suggests, is not itself an advertising revenue driven, investor owned operation at all. It is a producer cooperative of participating newspapers, in which participating newspapers generate much of the total content available. Most of the member newspapers are advertising revenue driven, investor owned corporations, but the AP is not. Members contribute both funds and content to the shared enterprise with funding requirements based on audience size, just as NPR member stations do.

Also, fair use blogging of news stories is a big part of what drives traffic to newspaper websites. The notion that this kind of citation reduces newspaper website traffic is probably empirically wrong.

In Japan and New Zealand, at least, probably elsewhere, part of the way TV and radio ccontent is paid for is with a tax on each TV and radio you own.

The item by item licensing contemplated by copyright law is horrifically cumbersome in practice and if it was really required in practice, every commercial radio station in the country would soon collapse under a mountain of copyright suits. In fact, the only way commercial radio exists at all is for the copyrights in the vast majority of the songs to be available by paying a small number of blanket licenses based upon audience size, and then to impose record keeping requirements on licensees. The data from the radio stations is then used to divy up the the royalties to artists and music studios and others entitled to them.

Why do I get a newspaper even though I could get most of the content online? Simple. Ease of use and scanning issues aside, I want the coupons that come with it and it is nice to have the physical paper around the house for various purposes (like surface protection from children's paint projects).

SEC and CFTC Draw Derivative Regulation Lines

At a congressional hearing [Monday], Securities and Exchange Commission Chairman Mary L. Schapiro proposed that her agency oversee derivatives linked to stocks, bonds and securities and that the Commodity Futures Trading Commission oversee all other derivatives. CFTC Chairman Gary Gensler, sitting beside her, didn't offer his own proposal, but a spokesman said Gensler agrees with Schapiro, except on one outstanding issue. . . .

The accord between the SEC and CFTC awaits action by Congress, which a decade ago exempted derivatives from regulation. In a plan for retooling financial regulation announced last week, the Obama administration proposed new rules and heightened oversight for derivatives and the firms that trade in them. But the administration left the division of labor up to the SEC and CFTC, both independent agencies. . . .

Still being negotiated between the SEC and CFTC is oversight of derivatives linked to indexes -- for instance speculating on whether the Dow Jones industrial average will rise or fall.

From here.

The total nominal value of the derivatives market (a less than idea number because many derivatives, like credit default swaps, are essentially guarantees whose real value isn't reflected in their face value and more than total life insurance face value outstanding reflects the likely annual payouts of life insurance; in contrast, aggregate market capitalization has a far more direct relationship to the amount of bonds and stocks outstanding) is estimated to be about $400 trillion.

More transparency for "standard" form derivative would also be mandated under Obama's financial regulation package, but it appears that customized non-publicly offered derviative deals would continue to be largely exempt from regulation.

Will Obey Ferret Queen For Health Insurance

Our heroine was sure that the evil ferret queen controlled her giant bunny minons with her scent, which she thwarted with garlic. But, she was facing dire peril, because she was mistaken:

Girl Genius: Ah, so how do you control these creatures that under normal circumstances should flee from you in terror?

Ferret Queen: Free health insurance.

Colorado Amendment 54 Stayed

A Denver judge has put on hold the donation ban contained in Colorado Amendment 54, passed by 51% of voters in November, which would have prohibit certain government contractors and all public sector unions with a contract from making campaign contributions.

I am one of who argue that it is unconstitutional (see also November 6, 2009, November 13, 2008 and February 19, 2009). I also opposed I when it was being considered by the voters. See, e.g. October 1, 2008, and October 2, 2008.

The problem is not so much the notion of prohibiting "pay to play," as it is the vast overreach of the prohibition beyond this narrow situation so that political speech is barred without a clear nexus to the alleged influence on government contracts that results.