Chronicle of the Conspiracy
Friday, October 06, 2006MY TAKE ON THE HP/DUNN AFFAIR My SmartMoney.com column today:
The Hewlett-Packard boardroom spying scandal has now reached a new and dangerous phase. This week California Attorney General Bill Lockyer obtained arrest warrants for former H-P Chairman Patricia Dunn and four others alleged to be involved in the plot.
I happen to know Patricia Dunn quite well. Pattie may be a jerk, but she's probably not a crook. More important, if I were an H-P shareholder, at this point I'd just want the cops to stay the heck out of things and let the company get on with its business.
I worked side by side with Pattie for 11 years at Barclays Global Investors. Pattie is a brilliant saleswoman and a gifted manager, and I'm grateful for having been her colleague.
That said, I've also seen her dark side. When I left Barclays, one of the knives in my back was Pattie's. Machiavelli wears Prada.
One of Pattie's knives was probably in the back of former H-P CEO Carly Fiorina, too. Pattie played a key role in Fiorina's firing, and became chairman when Fiorina was ousted. The queen is dead. Long live the queen. That's the way the game works.
So it's no surprise to me to hear that Pattie masterminded a scheme to spy on her own board of directors. Extreme? Yes. Distasteful? Yes. Bad business? Yes.
And yes, there's a part of me that is glad to see Pattie blow herself up. But this kind of corporate rough-housing isn't a crime. People get hurt, but in business that's all part of the game -- and everyone who plays expects it.
Between companies, the idea is to put your rival out of business if you can. Within companies, the idea is to elbow ahead of the other guy to get to the head of the board table.
Business is not a democracy, it's a jungle. And thank goodness. The freedom of American business to compete with itself and with global rivals, and for American corporate executives to compete with each other for power and riches, is what makes our economy the strongest in the world.
Still, there are laws against fraud and identity theft. And those are what Pattie stands accused of breaking.
But let's be clear about a couple of important points. First, Pattie and the others are not accused of any wrongdoing aimed at consumers. The fraud and identity theft in question were targeted against H-P's own board members, and against media reporters who covered H-P. And even there, the purpose was not to steal money or make fraudulent credit-card purchases or all the usual scams -- it was to discover who was leaking corporate information to the press.
I don't have a lot of sympathy for the victims here. They chose to play the dangerous game of corporate power-seeking -- they were well compensated for it and shouldn't be too shocked by what happened to them.
Business reporters are part of the corporate power game, too. And besides, if some investigative reporter had used the same shady techniques to get information for a story, he wouldn't be prosecuted for it -- he'd win a Pulitzer Prize.
Second, Pattie has claimed that she wasn't aware that illegal methods were being employed. Reading the arrest warrant, it's not at all clear to me that Attorney General Lockyer can prove that she was.
What is clear from reading the arrest warrant is that an act that took place within the special rules of corporate gamesmanship is now being treated like down-and-dirty street crime. Because of this warrant, Pattie is going to be fingerprinted, have her mug-shot taken, the whole nine yards -- as though she were a rapist or a drug dealer. I'm not convinced she deserves that kind of treatment.
From what I can tell, the reality here is that this is another case of self-promoting government prosecutors and sensation-seeking reporters ganging up on a successful businessperson, pandering to the public with the persecution of someone who can be portrayed as a wealthy corporate criminal.
This isn't Lockyer's first high-profile prosecution built on evidence that's less than solid. Just before issuing the warrant for Pattie, he announced that the State of California will be suing the top six American and Japanese auto makers for causing global warming.
Is there really any evidence -- that a courtroom would accept, that is -- global warming is even happening? If there is, is there any evidence that automobiles caused it? But if you're the attorney general, and someday you want to be governor, it costs you nothing to file a lawsuit. Never mind that it will cost millions upon millions for the auto makers to defend themselves. And never mind that the attorney general's time could be better spent tracking down rapists and drug dealers.
Think of the headline-grabbing cases against businessmen brought by New York Attorney General Eliot Spitzer. By publicly threatening companies with criminal prosecution, he was able to coerce some spectacular monetary settlements. But every time Spitzer met a victim who wouldn't just roll over -- someone who had the courage to take it all the way to a jury trial -- Spitzer has lost.
Think of the case of Frank Quattrone, another California businessman whom I know personally. Frank, an investment banker, had to endure no less than three separate trials on federal charges arising from his management of high-tech initial public offerings during the "bubble" stock market of the late 1990s. Finally, after expending millions of dollars and five years of his life defending himself, Quattrone has been exonerated.
For investors, the real story here may not be the tawdry tale of Pattie's little corporate intrigues. It's the larger story of the way over-reaching prosecutors are making it harder and harder for companies to find good executives to lead them. And the risk that Congress will pass some new law, like Sarbanes Oxley, that'll impose huge costs on all businesses because of the infractions of a very few.
The best thing to come out of this whole mess is that with Pattie out of the way, Mark Hurd, the supremely talented executive who has been H-P's CEO, is now its chairman, too. If Hurd can stay out of Bill Lockyer's clutches, then H-P may actually have a chance to once again be a great company.
Posted by Donald L. Luskin at 10:16 AM | link
NOW THAT'S THINKING! From Razor Sharp Claws:
The Honorable Paul S. Sarbanes 309 Hart Senate Office Building
Posted by Donald L. Luskin at 9:50 AM | link
WELL, WHAT DO YOU KNOW? Turns out this economy has been stronger than anyone has thought. From Bloomberg, covering this morning's jobs report:
The report also showed job growth during the 12 months ended in March may have been about 45 percent higher than previously reported. In a preliminary estimate, the Labor Department said payrolls for the 12 months ended in March 2006 will be revised higher by 810,000, the biggest revision since the Labor Department started benchmarking numbers in 1991. Currently, figures show 1.8 million jobs were added during that time. The final estimate will be issued in February.Reader Shawn Smith opines,
To think of how much the employment numbers move markets and influence the political world, you would think that with revisions like this someone would lose their job or the New York Times would vilify the Bureau of Labor Statistics for not reporting their numbers correctly in the first place...Shawn, the Times would only vilify the BLS if the revision had gone the other way. There is no penalty for doing just what the Times does -- systematically underplay the strength of the economy, especially where jobs are concerned.
Posted by Donald L. Luskin at 9:45 AM | link
SHORT-SELLERS AND THE SEC, TOGETHER AGAIN FOR THE FIRST TIME A nice op-ed in the New York Times this morning, celebrating the market efficiency role of the short-seller of stocks, and decrying the way short-sellers are vilified and over-regulated. Almost libertarian! But this is the New York Times -- inevitable was the last paragraph, suggesting how short-sellers might better aid market efficiency by aiding (of course) regulators, in the battle against the corporate crooks the Times loves to editorialize about.
Congress should provide the S.E.C. with discretion to pay bounties, similar to those available in insider trading cases, for tips resulting in successful financial fraud cases. This would give some degree of recognition to those contrarians who help keep the market honest by flagging problems concealed by companies — and missed by institutional analysts.And who is the author of this piece, using the Times to suggest this unholy alliance between short-sellers and regulators that would produce a new revenue stream for short-sellers?
Richard Sauer, a former administrator in the Securities and Exchange Commission’s enforcement division, joined the management at a short-biased hedge fund this week.Thanks to our anonymous DC lawyer/lobbyist friend for the link.
Posted by Donald L. Luskin at 8:33 AM | link
Thursday, October 05, 2006ANOTHER CONSPIRACY THEORY The GOP is doing it's best to blow itself up ahead of the November elections. But one thing it's got going for it is a strong economy -- which is why you don't hear much on the economy from the Dems these days. Leading the charge of economic good news is the drop in gasoline prices. Here's the best the Left can do to find something wrong with that:
WASHINGTON, October 5 -- According to Bob Woodward, in 2004 Saudi Ambassador Prince Bandar Bin Sultan promised George Bush that the Saudis would help bring oil prices down before the election by increasing the country's crude oil production.
Posted by Donald L. Luskin at 10:25 PM | link
UH OH... Things are getting worse for the Republicans in the Senate. The individual Tradesports Senate contracts have been showing 4 losses for the GOP, and 3 for the Democrats. Now Tennessee has fallen below 50% for the GOP, making 5 losses -- and New Jersey has moved above 50% for the Dems, making only 2 losses.
Posted by Donald L. Luskin at 8:30 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 9:52 AM | link
GUNS 'N' BUTTER Here's a new blog featuring laughs from the vast right wing conspiracy. Check out a few of their headlines:
Posted by Donald L. Luskin at 12:08 AM | link
Wednesday, October 04, 2006WORST JOB IN THE WORLD Which circle of Hell would this be, exactly? For one's sins, one spends eternity as a Democratic spokesman with the duty of finding a rationale for why everything is terrible:
According to one Democratic operative, the Dow's record close is "not an achievement but a failure." Robert Weiner, a Democratic strategist and former member of the Clinton administration, said people should remember it's taken nearly seven years for the Dow to break its previous record close, which happened on Jan. 14, 2000 - near the end of Bill Clinton's presidency... He said Tuesday's stock market milestone is "at best a modest achievement and in reality a sad statement of a slow return to prosperity, delayed and not assisted by current Administration economic policies."Thanks to reader Keith Mitchell for the link.
Posted by Donald L. Luskin at 9:06 AM | link
STUDY-BIAS IN STUDY OF BIAS An academic paper on the possible political effect of Fox News:
They find that the introduction of Fox News had a small but statistically significant effect on the vote share in Presidential elections between 1996 and 2000. Republicans gained an estimate of between 0.4 and 0.7 percentage points in the towns that broadcast Fox News. They also find that Fox News had a significant effect on Senate vote share and on voter turnout. Their estimates imply that Fox News convinced 3 to 8 percent of its viewers to vote Republican according to a first audience measure, and 11 to 28 percent according to a second, more restrictive audience measure.I haven't seen any commentary about this paper anywhere, but I have no doubt that the Left will use it to try to prove that Fox is Right-biased. Fine -- but such a comment suggests, as this paper seems to, that Fox is uniquely biased. As the late entrant into the 24-hour cable news game, Fox suffers from being uniquely able to be studied by academics looking for marginal effects -- such studies, by their very nature, treating the status quo ante as a neutral backdrop. What if Fox had been first -- and what if television news had been generally Right-biased as, in fact, it was Left-biased -- and CNN the new entrant? Then no doubt we would see in the study's results an influence to the Left.
Thanks to Jameson Campaigne for the link.
Posted by Donald L. Luskin at 12:31 AM | link
Tuesday, October 03, 2006WRONG PROBLEM, WRONG SOLUTION Economist Joseph Stiglitz writes for the New York Times this morning "How to Fix the Global Economy." What's wrong with it in the first place? He really doesn't say much about the global economy -- his gripe is entirely with the United States. According to Stiglitz, "the United States borrows close to $3 billion a day." But that's a substantial exaggeration. According to the US Treasury, the US government's net borrowing for the month of August, 2006 was $64 billion, or just about $2 billion a day (see page 20). You think even $2 billion is a big number? Maybe. But why didn't Stiglitz think it was big enough to cite it accurately? How are we to trust anything Stiglitz subsequently says when the first paragraph of his column gets a critical figure like that wrong by a factor of 50%?
And you don't even need to read the column to know his prescription. It's utterly predictable: "...expenditure cuts combined with an increase in taxes on upper-income Americans and a reduction in taxes on lower-income Americans." Oh, yeah. That will help. Force rich people to sell their Treasury bonds so that those Treasury bonds can be redeemed, confiscate the proceeds, and give it to poor people so they can buy more potato chips at Wal-Mart.
Posted by Donald L. Luskin at 8:41 AM | link
THE FOUNTAINHEAD ON TV The 1949 film of Ayn Rand's great novel of individualism, The Fountainhead, will be shown on the Turner Classic Movies channel tomorrow. It's a campy classic, whose campiness actually serves to underscore the romantic power of Rand's theme. Economists and investors will love the scene where the villain, Ellsworth Toohey, sneers into the camera this immortal line: "I play the stock market of the spirit -- and I sell short!"
Don't miss tomorrow's broadcast. Turner always shows very fine prints, and runs them without commercial interruption. Also, for the first time, The Fountainhead is scheduled to be released on DVD on November 7. You can pre-order it from Amazon.com by clicking this link.
Thanks to our correspondent "Irrational Exuberance" for the heads-up.
Update... And then, there's this great movie line.
Posted by Donald L. Luskin at 7:56 AM | link
Monday, October 02, 2006CLOSE CALL IN THE SENATE The Club for Growth has put together a "Senate Control Index," based on aggregating data on the Tradesports futures contracts on all the individual Senate races. At last posting, the Club is estimating that the GOP will lose 3 seats (and that the Democrats will gain those 3 seats). I've done the same exercise with slightly different methodology, and come up with slightly different results. I show the GOP losing 4 seats and the Dems losing 3, for a net GOP loss of 1. But that's too optimistic, because one of those Dem losses is Joe Lieberman, and another is Jim Jeffords -- two races in which a Dem loss is not a GOP gain. On the other hand, you could argue that the GOP loss of Chafee isn't really a loss -- true in terms of voting, but not true in terms of the margin of control which determines committee chairmanships. This is going to be close.
Posted by Donald L. Luskin at 2:09 PM | link
WHAT IS "SELFISH"?
Readers of my blog know that I have no sympathy for the simplistic ways that economists apply the apparent axioms of economics to complex real-world problems. Yet I find the fundamental assumption of "rational self interest" nevertheless a completely compelling axiom. We can argue about what is meant by "self" -- is it an individual, a family, a social collective, a gene? -- but regardless, assuming self interest somehow defined is a practical necessity: somehow, we have survived and prospered, so whatever it is we have been doing all these years must be rational self interest.
I fear that many who attack the science of economics for its embedded exaltation of "selfishness" are really engaging in culture warfare, not science. They start with the ethical commandment that individual's interests should be sacrificed to some greater good, and seek to undermine any purported science that seems to achieve reasonable explanatory and predictive power by assuming selfishness. If the nature of selfishness is more complicated that economics typically assumes, if it is indeed tied up in considerations of family, friends, nation, species -- whatever -- then let the science of economics try to adopt itself to those complexities. But those complexities merely redefine and broaden the meaning of selfishness, they do not overturn it. They do not even begin to justify systematic self-sacrifice or coerced altruism. Nor do they lead to scientific rationales for why particular collectivist policies touted in the name of the greater good are either moral or effective.
Update... Economist John Seater opines,
Beautifully expressed. I couldn't agree more. I agree with your skepticism (stated in the first paragraph) of many attempts to explain complex phenomena with current underdeveloped economic theories. Economists know about the limitations of existing theories and always are looking for ways to improve the theories. That's what economic research is all about. In the meantime, they try to use what they've got. For some applications, it works; for others, it doesn't.
Posted by Donald L. Luskin at 1:58 PM | link
Sunday, October 01, 2006REAGAN: THE BEST! Reader Jameson Campaigne sends along the links to the speeches that Ronald Reagan gave every year to the American Conservative Union. As Jameson says, "These are wonderful and fun. Save, dip into every now and then, pass on." Will do. Here are the links:
I started at the top, with 1988. I was stunned by this passage, revealing that Democratic spin doctors back then were pulling the same tricks they pull today, to downplay the economic success of a GOP-led prosperity:
Reagan was the best. Command of the facts. Genuine wit. And a sense of personal warmth that showed through even when he was savaging his opponents.
Posted by Donald L. Luskin at 12:20 AM | link