K Marx The Spot

All Your Baselessness Are Belong to Us

A certain conservative weblog is scoffing at the notion, propounded here, that Benjamin Ginsberg violated the Rules of Professional Conduct of the District of Columbia Bar.

As a certain publisher of the affiliated magazine might once have said, poppycock.

The weblog claims that I misread the rules about fee agreements: "the ethics rules in question are designed to prevent a lawyer from taking advantage of his clients. They do not prevent a lawyer from waiving fees after the fact." First, it is true that one reason to require written agreements about fees is to provent even the appearance that a lawyer might take advantage of his clients. I have no firm grasp about what a top elections law expert crages per hour, but it's not pocket change. Who is to say that if Ginsberg decides to bill at his full rate that a 527 client might be taken aback? Not having such an agreement for a client that intends to be an active 527 group is indeed curious.

Second, a good reason for both client and lawyer to have a representation letter than firmly specifies fee arrangements is to protect attorney-client privilege in the case of court action. This is not just good ethics; it's just plain smart.

Third, it is true that lawyers can usually write down fees after the fact for typical clients. But political campaigns, political action committes, and groups like the Swift War Veterans for Truth (sic) constitute different beasts. For corporations to write off money owed by these organizations constitutes contributing to these organizations. The reason that presidential candidates like John Glenn spent so much time raising money to retire their campaign debts is that the corporations owed those debts could not simply write them off! Nothing prevents, for now, a law firm from making a donation to a 527 group. But making a de facto donation to a political client raises the question about whether the law firm is truly independent of that client. Too close a relationship is seldom good for either side.

As for my second allegation, is it obvious from the plain language of the rule on pro bono work what the bar association means by pro bono work. "A lawyer should participate in serving those persons, or groups of persons, who are unable to pay all or a portion of reasonable attorney's fees or who are otherwise unable to obtain counsel." That doesn't mean that helping out the political committes you like is pro bono publico. (Some conservatives complain that pro bono rules often mean throwing always advance liberal or leftist causes.) Perhaps Ginsberg is just sloppy about what pro bono means, but lawyers generally don't bandy that term about lightly.

One Downside of Hybrids

When California altered its Zero Emissions Vehicle requirements not too long ago, it was a boon for anyone looking for a hybrid vehicle, because each of those vehicles qualified as one-fifth of a full zero-emission vehicle. (Other cars with particularly low emissions, such as one version of the Ford Focus, also meet this standard.) That's great so far as it goes, because today's hybrid cars are good things.

But for some people, electric cars were wonderful things. They drove moderate amounts, so the fairly short range was not a problem. They generally used their cars for commuting, so the small size was a small issue. And because they leased their cars from their American makers, these drivers thought that they had a great deal. Until Ford, for example, refused to extend the leases or even to sell the cars at the end of the lease period.

And it gets worse. A Norwegian newspaper, Aftenposten, reports that Ford will not even sell its reclaimed Think cars back to the original Norwegian manufacturer, a company that has a list of eager customers to buy them.

The little "Think" cars that Ford leased for a few years have a loyal following, however, and their drivers wanted at the very least to be allowed to buy them. Protests also have been held recently in the San Francisco Bay area to fight the move by Ford.

There also are long waiting lists for the cars in Norway, where officials have encouraged use of electric vehicles. But Ford has said it doesn't want any liability for the vehicles. Instead of shipping them back to the new owner of Think Nordic north of Oslo, the cars are being collected and destroyed.

When George Bush Was My Age...

Tom Lehrer, the mathematician, humorist, musician, and social critic, quipped in 1965 that "it is a sobering thought, for example, that when Mozart was my age he had been dead for two years."

(Mozart died at the age of 35.)

You won't hear George W. Bush talk about any of the things that he did before he was my age. Note to the Kerry campaign: it's time to ask what George Bush was doing when your candidate was off in Vietnam.

Swift Boat Lawyer for Dodgy Ethics

By now, anyone paying attention to American national politics knows that Benjamin L. Ginsberg, an elections law specialist at Patton Boggs LLP and outside legal counsel to the Bush-Cheney campaign, has resigned from his position with the Bush campaign because he was also counsel to the campaign group Swift Boat Veterans for Truth [sic].

When the New York Times originally contacted Ginsberg, before his resignation, he said something very illuminating and indeed damning, about his relationship with that campaign group:

The lawyer, Benjamin L. Ginsberg, said that the group, Swift Boat Veterans for Truth, called him last month to ask for his help and that he agreed. Mr. Ginsberg said that he had yet to work out payment details with the group and that he might consider doing the work pro bono.

Mr. Ginsberg, the chief outside counsel to the Bush-Cheney re-election effort, agreed to an interview after several telephone calls to him and the campaign's asking that he explain his role. He said that he was helping the group comply with campaign finance rules and that his work was entirely separate from his work for the president.

Ginsberg effectively admits to one violation and hints at another violation of the Rules of Professional Conduct of the District of Columbia Bar. Note that Ginsberg claims that he and his client had not worked out payment details, and that he might do work for the Swift Boat group pro bono. According to the Patton Boggs website, Ginsberg is a member of the District of Columbia bar and no other bar.

The District of Columbia Bar Association has ethics rules that are a bit different than those of the bars of many states. Rule 1.5(b), on fees, is explicit in requiring written agreement on fees with new clients.

When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation.

It is possible, that Ginsberg could claim that the Swift Boat veterans are simply a group of Republicans that he has represented before, but doing so would lend credence to the notion that the Section 527 group is not really independent of other groups. He could claim that late August is still within a "reasonable time" to make written fee arrangements. But, according to the group's filing with the Internal Revenue Service, it was spending and raising serious amounts of money in June 2004. Surely they had consulted with their elections law expert by then to determine whether they were within the bounds of elections law! And surely three months pushes the notion of "reasonable time" a bit much.

But wait: there's more. Ginsberg mentioned that he might do his work for the Swift Boat Veterans for Truth [sic] pro bono. And the District of Columbia Bar Association is quite explicit about what constitutes work done pro bono publico:

A lawyer should participate in serving those persons, or groups of persons, who are unable to pay all or a portion of reasonable attorney's fees or who are otherwise unable to obtain counsel. A lawyer may discharge this responsibility by providing professional services at no fee, or at a substantially reduced fee, to persons and groups who are unable to afford or obtain counsel, or by active participation in the work of organizations that provide legal services to them. When personal representation is not feasible, a lawyer may discharge this responsibility by providing financial support for organizations that provide legal representation to those unable to obtain counsel.

The Swift Boat Veterans group raised over $150,000 by the end of June and has since spent upwards of $500,000 on television advertisements. it is hardly unable to pay reasonable attorney's fees. it is clearly able to obtain counsel. There is nothing wrong with Ginsberg helping the Swift Boat Veterans, but there is nothing right with his implying that the work could constitute pro bono work.

Rule 8.4(a) of the Rules of Professional Conduct of the District of Columbia Bar states that professional misconduct includes acts in which lawyers "[v]iolate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another." Ginsberg has violated Rule 1.5, on written agreement on fees, and has indicated that he may violate Rule 6.4, on pro bono work. What moral titans these Republicans are!

KMarx Attic: Ronald Reagan, Rest in Peace

It's time to sweep out the Attic of Mothballed Posts here at K Marx the Spot.

Ronald Reagan has been dead almost three months, and, thank Hegel, the syrupy media love-fest is over. (If you weren't paying attention in the 1980s, a lot of Americans couldn't stand Reagan.) To his family, his death was surely a sad occasion but also a relief from the strain of caring for a loved one with any form of dementia. To millions of Americans, Reagan was a hero who will be missed. As far as I am concerned, I am sorry that he is dead, but I will not miss him. Reagan is dead, but his legacy lives on.

It was the Reagan administration that finished the transformation of the Republican party that accelerated with Barry Goldwater. For a long time, the Republican party was a curious aggregate of upper-class capitalists and social liberals. Republicans had their share of miscreants, but the party of overt racism was the Democratic party until 1948, when the national Democrats started subscribing to the radical notion that African-Americans were people. Starting with men like Strom Thurmond and building through the 1964 campaign of Barry Goldwater and the 1968 campaign of Richard Nixon, the Republican party gradually became the party of traditional economic conservatives and social reactionaries. Ronald Reagan showed that Nixon's "southern strategy" of appealing to Southern racists could work even after the disgrace of its originator. The sordid legacy lives on, every time George Bush rallies his troops against the icky spectacle of a gay or lesbian couple being married, every time a Republican disputes evolution, and every time a Republican proclaims the Bible as the cornerstone of civilization.

It was the Reagan adminstration whose tax policy boiled down to one basic idea: reduce the top income tax rate, no matter what happens. For years, Republicans had proclaimed deficits to be anathema to a healthy economy—their holding was orthodox but not dangerously so. (To get even a mildly progressive government, of course, the Left needs the government to spend money, so traditionally sound fiscal policy is something to defeat.) But the Reaganites saw a triple benefit in slashing income taxes. First, the cuts themselves helped the affluent, their natural economic allies. Second, big deficits could hamstring future Democratic Congresses and presidents from enacting any sort of big spending program. Third, ignoring deficits meant that Republicans could still engage in pork barrel politics (while decrying the continuance of "big government"). How angry Republicans must have been when Bill Clinton eliminated the federal government's annual deficit—enlarged by 12 years of Republican tax polict—in only 6 years, thanks in no small part to the run-up in the stock market. It took George Bush almost no time to crib tax policy from Ronald Reagan's notes. Progressive spending programs have to contend yet again with huge budget deficits and an income tax scheme rigged to reward the idle rich and throw pocket change at the working class.

It was the Reagan administration that used anti-Communism as its all-purpose foreign policy yardstick. In Latin America, atrocities were overlooked, if our friends in Guatemala or El Salvador or Nicaragua were involved. Our friends in Pakistan were trying to build nuclear weapons, but Reagan's men ignored the yellow and black warning triangles, because Zia al-Haq was fully prepared to fund the "freedom fighters" in Afghanistan. In Iraq, our fast friend was Saddam Hussein, who was not only anti-Communist, but anti-Shiite to boot. Even in South Africa, where the leaders were convinced that the wrong side won the last World War, the United States gave the National Party aid and comfort because the Communists were supportive of black majority rule. So many of today's foreign policy failures stem from blinkered decisions of 20 years ago. Our misadventures in Iraq and Afghanistan stem in large part from geopolitical blunders committed to prevent the Soviet Union from egtting too comfortable in Afghanistan. Our shoddy, insanely expensive anti-missile system is not too different from the insanely expensive program begun under Reagan.

Reagan was not wholly meritless as a president. He knew how to connect with Americans who disagreed with his policies. And behind his avuncular persona lurked a shrewd negotiator. His agreement with Mikhail Gorbachev to eliminate intermediate range nuclear missiles from Europe was brilliant, as far as it went—Reagan missed the chance to save his country hundreds of billions of dolalrs by scrapping his missile defense system in exchange for Soviet concessions.

George W. Bush may hope that Americans remember Ronald Reagan fondly, and will therefore bless him with their votes in November. Alas, it is hard to imagine that many Americans view Bush as as an improvement, in almost any way, over Reagan.

Another Reason to Question Free Trade

John Quiggin recently analyzed the links between free trade agreements and unaffordable health care. (It's quite amazing how defenders of the free market love restrictions on intellectual property.)

Most of my blogging time this week [think, "two weeks ago"] has been devoted to criticism of the Free Trade Agreement between Australia and the United States. Wait! Don't stop reading yet!

I know that "Trade agreement said harmful to small faraway country" is the stereotype of a boring newspaper story, but this one is really important to Americans as well as Australians, and to anyone interested in health policy. If you ever hope to see affordable health care in the US, you'd better hope that (against all the odds) this agreement falls at the final hurdle.

Drug companies are playing american consumers for saps, and why shouldn't they? We keep electing politicians who do their bidding, over and over again.

They Live

The always entertaining and erudite Digby of that wonderful blog Hullaballoo explains just what is it about neoconservatives that reminds one of the undead. Go read it: it's not long and quite accurate.

How the Mighty Have Fallen

Pity poor Gregory Mankiw. Once the well-regarded author and economist (orthodox division), now a blogger manqué, reduced to forwarding news analyses of administration proposals to movers and shakers in cyberspace.

among his recipients was one J. Bradford DeLong, who helpfully posted what Mankiw hath wrought.

Since I know you aim for honest, unbiased commentary on your blog, I know you will be interested in this new study from factcheck.org...

As one might expect of something trumpeted by the Bush White House, it's a lazy, lousy analysis. What I want to know is why Mankiw has been reduced to trying to get good press for his overlords from liberal webloggers—isn't he supposed to be one of the deepthinkers in this administration?

All Praise the Omnipotent Market

What fun it must be to be a free-market conservative, for all things can be explained by the bounty and providence that the free market provides. Any other explanation for human behavior be damned! A case in point comes from yesterday's Boston Globe, where Jeff Jacoby decided to explain how price gouging in Florida in the aftermath of a devastating hurricane was actually a good thing:

But why should it be news, let alone a crime, when soaring demand and/or tight supplies send prices through the roof? Air fares climb during peak travel periods, hotels charge more during the tourist season—and yes, Virginia, ice sells at a premium when tens of thousands of Florida homes are without refrigeration and air conditioning in the middle of August. It isn't gouging to charge what the market will bear. It isn't greedy or brazen. It's how goods and services get allocated in a free society—without the chronic shortages and corruption that are the usual result of price controls and rationing. And never is the flexibility of an unhampered market more essential than in the aftermath of a catastrophe.

Of course, price spikes are infuriating, especially to someone whose life has just been thrown into turmoil by a deadly storm.

But they do far more good than harm. Higher prices make it possible for victims to get the help they need to ride out the crisis and for the devastated region to recover as quickly as possible. They do so by sending the message that critical supplies and skills are urgently needed, and by inducing consumers with less-pressing needs to voluntarily defer to those whose needs are more exigent. When customers in Florida are willing to pay $10 for ice that usually goes for $2, or $400 to rent a generator that usually fetches $250, producers everywhere have a powerful incentive to ship truckloads of ice and generators to Florida. The higher price is justified not only by the higher demand, but by the higher costs associated with doing business in a disaster area. Newsday last week quoted the owner of a tree removal company, who had driven down from Miami and was charging twice his normal rate "because I've got to deal with more aggravation."

Jacoby loves to think that the market solves all ills, even to the extent of extolling the price gougers of Florida. Yet when he perceives a liberal bias in the mainstream media, the idea that the marketplace of ideas could explain this behavior never appears in his work.

I nevertheless think that jacoby should further his argument and seek to implement it more widely. Hospitals faced with casualties from a terrorist attack could best ration their care by raising their normal prices, directing their care to those best equipped to pay. Our troops in Iraq and Afghanistan could start demanding kickbacks for their services, because their supply is limited and the need for security there is quite great. And think of the benefits that we would all enjoy if every retailer adjusted its prices upwards on items as the stock on the shelves shrank.

What a brave new world to have such thinkers in it!

An Exemplary Tax Policy

How is the upcoming sales tax holiday in Massachusetts truly exemplary of the adminstration of Governor Mitt Romney? It's exemplary in the third sense of the word: "[s]erving as an illustration; typical."

A recent economic stimulus package has decreed that purchases of $2,500 or less—except for cars, motorcycles, boats, utilities, and meals—on this Saturday will be exempt from the state's 5% sales tax. (In many states, sales tax holidays are designed to ease the burden on back-to-school shopping. But Massachusetts already exempts the first $175 on any item of clothing from sales tax.) For many shoppers, the sales tax holiday will simply shift their purchases from some other day to Saturday. The Boston Globe has a fair summary of what tax experts think of this tax policy manqué.

"Sales tax holidays are the ultimate political
gimmick," said David Brunori, contributing editor to State Tax Notes, an Arlington, Va. trade publication. "The consumer is no better off. It only changes when they shop, not how much they shop."

Despite their unpopularity with economists, tax holidays are nonetheless catching on with consumers, retailers, and political leaders. Since New York became the first state to adopt a sales tax holiday in 1997, 11 other states and Washington, D.C., have
followed, typically holding them during the back-to-school season.

Analysts say the tax holidays are hard for political leaders to resist. Not only can Republicans claim to cut taxes, Democrats can say they are helping working families—and it also doesn't cost very much. Saturday's tax holiday, for example, will cost Massachusetts only $6 million to $10 million in lost revenue. The state collected $3.75 billion in sales tax in the fiscal year that ended June 30.

In other words, $6 to $10 million in lost revenue (roughly $1 to $1.50 per person in the Commonwealth) is supposed to be a magical elixir for the economy? That's pathetic, even for our current governor, who, to be fair, is claiming that the holiday represents a small break for the average consumer. Perhaps so. I would scoff at the retailer who raised a ruckus for its awesome 4.8% storewide sale—that's the "break" that a consumer gets for avoiding the 5% sales tax.

The Globe also brings up a salient point. If a one-day holiday won't really help retailers, and won't save consumers that much money, what will the real impact be?

"Any purchase that would be worth the savings in sales tax would be a large-ticket item, and that savings is not going to factor into my buying decision," said Regina Caggiano of Woburn. "Large-ticket items are not impulse buys. You determine if you need it, why you want it, how much you want to spend—and then you go to New Hampshire to get it."

New Hampshire, of course, has no sales tax. So, the tax holiday might be a way to steal business from New Hampshire retailers who lure consumers from metropoltan Boston. But it's hardly a clever ruse: if you're angling to be President of the United States (never mind God of Your Own Planet), do you really want to tick off the governor of New Hampshire, where the first 2008 presidential primary will take place?

Why Does Pat Robertson Hate America?

No, really. Why does he hate America?

It is now clear that Pat Robertson has a much stronger link to the mass murderers of al-Qaeda than Saddam Hussein ever did. And the common element—Charles Taylor, the former dictator of Liberia— is a wholly reprehensible mass murderer in his own right.

Robertson's joint venture with Taylor dates back to 1999. As colbert King of the Washington Post explained in a column from shortly after the 11 September attacks, Robertson hoped to make a bundle of filthy lucre.

But in May 1999, Robertson, through Freedom Gold Limited, an offshore company registered in the Cayman Islands but based at CBN headquarters in Virginia Beach, signed an agreement with Taylor and key cabinet members allowing the for-profit Freedom Gold to explore and receive mining rights in southeastern Liberia, where gold is believed to be in the ground.

It's a great deal for Liberia, which is now an economic basket case thanks to the long civil war and Taylor's corruption. It's also good for Freedom Gold, which was formed by Robertson in 1998. Liberia—and for all practical purposes we're talking Taylor—gains 10 percent ownership of Freedom Gold.

As The Post's Douglas Farah reported in January, huge amounts of the country's funds have been siphoned off by a small group of Taylor's associates and relatives. Taylor "has his hand in everything and gets a cut of everything," a businessman told The Post. Other Liberians, probably Taylor's gang, are entitled to buy at least 15 percent of Freedom Gold's shares after the exploration period.

Robertson has defended his dealings with Taylor, and often describes Taylor as a Christian beset by Muslims. When George Bush last year called for Taylor, beset by allegations of war crimes, to step down, Robertson cried foul.

"How dare the president of the United States say to the duly elected president of another country, 'You've got to step down,'" Robertson said Monday on "The 700 Club," broadcast from his Christian Broadcasting Network....

"So we're undermining a Christian, Baptist president to bring in Muslim rebels to take over the country," he said in the broadcast.

Robertson told The Washington Post in an interview published Thursday that he has "written off in my own mind" an $8 million investment in a Liberian gold mining venture he made four years ago, under an agreement with Taylor's government.

And now evidence is growing that Taylor had active and extensive ties with al-Qaeda ranging from money laundering to harboring of al-Qaeda members inside Liberia. Douglas Farah and Richard Shultz described last month in the Washington Post how corruption in Africa and ignorance by the West have allowed the flourishing of terrorist groups and their enablers.

The ties of former Liberian president Charles Taylor to al Qaeda have been corroborated by the FBI and the U.N.-backed Special Court for Sierra Leone, which is charged with investigating crimes against humanity in that nation's brutal civil war. The now-identifiable presence of al Qaeda in other countries shows that these once-marginal wars and regions matter. We ignore the warnings at our peril.

Several lessons that have a direct bearing on intelligence reform can be drawn from the activities of al Qaeda and Hezbollah in West Africa. One is that terrorist and other armed groups are sophisticated in their exploitation of "gray areas" where governments are weak, corruption is rampant and the rule of law is nonexistent. They use areas such as West Africa to finance their activities, correctly betting that Western intelligence services do not have the capacity, resources or interest to track their activities there....

In 2000, among those operating simultaneously in Liberia under Taylor were: senior al Qaeda operatives; Hezbollah financiers; Victor Bout, an arms merchant who was supplying weapons across Africa and to both the Taliban and the Northern Alliance in Afghanistan; Leonid Minin, a Ukrainian-Israeli drug dealer and arms merchant; and Aziz Nassour, the onetime bagman for Mobutu Sese Seko in Zaire and middleman for al Qaeda and Hezbollah.

Chaos in countries like Liberia leads not just to arms dealers and terrorists haunting the halls of power, but also to charlatans like Pat Robertson hoping to cash in. If American governments generally paid close attention to more African countries that lack huge oil reserves, perhaps charles taylor would not have been as successful at looting his country. And certainly Pat Robertson would have found it harder to try to make off with some of the loot.

Sick Sad World

When Seymour Hersh spoke last month at the membership dinner of the ACLU, he mentioned additional abuses at the Abu Ghraib prison complex that were both sadistic and criminal.

Hersh has yet to publish anything since then in the New Yorker, but it's now apparent what he was talking about. The current issue of Rolling Stone has the heartrending story of prisoners sodomized and raped by American troops and translators. It is compelling reading, but it should embarrass the mainstream press that a music magazine has found the sort of atrocities that the Pentagon has classified in order to hide the truth from the American public. The Iraqi victims, of course, already know what happened to them.

The new classified military documents offer a chilling picture of what happened at Abu Ghraib—including detailed reports that U.S. troops and translators sodomized and raped Iraqi prisoners. The secret files—106 "annexes" that the Defense Department withheld from the Taguba report last spring—include nearly 6,000 pages of internal Army memos and e-mails, reports on prison riots and escapes, and sworn statements by soldiers, officers, private contractors and detainees. The files depict a prison in complete chaos. Prisoners were fed bug-infested food and forced to live in squalid conditions; detainees and U.S. soldiers alike were killed and wounded in nightly mortar attacks; and loyalists of Saddam Hussein served as guards in the facility, apparently smuggling weapons to prisoners inside.

The files make clear that responsibility for what Taguba called "sadistic, blatant and wanton" abuses extends to several high-ranking officers still serving in command positions. Maj. Gen. Geoffrey Miller, who is now in charge of all military prisons in Iraq, was dispatched to Abu Ghraib by Defense Secretary Donald Rumsfeld last August. In a report marked secret, Miller recommended that military police at the prison be "actively engaged in setting the conditions for successful exploitation of the internees." After his plan was adopted, guards began depriving prisoners of sleep and food, subjecting them to painful "stress positions" and terrorizing them with dogs. A former Army intelligence officer tells Rolling Stone that the intent of Miller's report was clear to everyone involved: "It means treat the detainees like shit until they will sell their mother for a blanket, some food without bugs in it and some sleep." In the files, prisoner after prisoner at Abu Ghraib describes acts of torture that Taguba found "credible based on the clarity of their statements and supporting evidence provided by other witnesses." The abuses took place at the Hard Site, a two-story cinder-block unit at the sprawling prison that housed Iraqi criminals and insurgents, not members of Al Qaeda or other terrorist organizations. In one sworn statement, Kasim Mehaddi Hilas, detainee number 151108, said he witnessed a translator referred to only as Abu Hamid raping a teenage boy. "I saw Abu Hamid, who was wearing the military uniform, putting his dick in the little kid's ass," Hilas testified. "The kid was hurting very bad." A female soldier took pictures of the rape, Hilas said.

Ultimately, the responsibility for the abuses at Abu Ghraib falls squarely on the civilian masters at the Pentagon and the White House, who found reason after reason to waive the normal rules of not just war but civilized society when terrorists might be involved. This administration is handling the abuses at Abu Ghraib through prayer; with God's help, the whole thing will blow over and no one who matters will notice.

In May, after photos of the torture were published, Rumsfeld declared that he would take "all measures necessary" to ensure that such abuse "does not happen again." But the defense secretary had already sent a clear signal to commanders in Iraq about his position on the proper way to interrogate prisoners. In April, Rumsfeld transferred Gen. Miller from Guantánamo to Baghdad, putting him in charge of all military prisons in Iraq. Instead of court-martialing the man who authored the plan to subject prisoners at Abu Ghraib to harsh abuses, Rumsfeld has left him in charge of the facility.

Stock It To Me

In 2005, American companies will be forced to show the cost of stock options granted to employees as an expense on their audited financial statements. That is, they will unless Congress can block or modify the implementation of the rule.

Yesterday, the New York Times twitted the House of Representatives for caving to lobbyists for technology companies:

Trying to repeat one of its great victories of the 1990s, the tech industry is urging Congress to reject once again the accounting standards that would force companies to include the cost of stock options when reporting their income.

The House of Representatives recently played along with this charade. The only nod to the corporate scandals of the intervening years in a bill passed to protect the status quo was a requirement that each company count as expenses the options granted to the five highest-paid executives. This surreal compromise shows why House members shouldn't be setting accounting standards—try explaining to shareholders why options granted to one employee are an expense that dilutes their ownership of the company[.]

The Times correctly points out the absurdity of treating some stock options differently from stock options doled out to all of the other employees in a company. But it took a supporter of blocking the implementation of the rule to point out the real problem with the debate about expensing stock options.

Rep. David Dreier (R-Calif.) added that "Nowhere have stock options been more effective than in the technology sector. Stock options do not cost a company money, but they do have an impact on share value. This bill has language that requires the disclosure of the total number of options outstanding. FASB is just plain wrong."

Yes, Dreier said that options affect the value of the company.

How to value stock options is hardly simple stuff. Black and Scholes in fact won a Nobel Prize in Economics for their model to fairly price stock options. Versions of their model are used every day by traders in stock markets all over the world.

The problem with stock options for investors is that their existence dilutes the value of the company. A company's auditors, whose duty includes verifying the assets and profits of a company, are supposed to take options into account. At present, and in the past, their clients—the companies—have generally argued that options do not affect the annual profit of the company, in spite of generally accepted academic economics that says that the options have real, calculable, value.

And here is where Dreier's claim comes into play. The Efficient Market Hypothesis asserts that in a financial market, the price of a commodity or stock already reflects all publicly known information. But the debate about stock options should cast a whole lot of doubt on the wisdom of this hypothesis. Every American company that issues stock options to its employees is required to summarize the option program in its financial statements, and to explain in the footnotes to those statements what the effect on earnings per share would be if the options were taken into income. According to the Efficient Market Hypothesis, that information, being public, is already factored into the stock price.

Except that it's not. Otherwise, no company would care about putting the cost of the stock options into a different part of the financial statements Whether options are expensed does not affect a company's cash flow, its taxable income, its inventory, its trade secrets, or any tangible asset of the company. None of the things that should make a company valuable would change. But one thing would change: the earnings per share number.

Ultimately, the reason that the technology sector has a problem with expensing stock options is that for many companies, meeting Wall Street estimates for "the number" has become the most important quarterly task. Worse yet, many investors judge companies not on their fundamental attributes, but on their abilities to hit their numbers. If the numbers decline, even if the fundamentals are unchanged, then the companies must be worth less.

I suppose that it is an achievement that an advanced industrial society has become so good at commodity fetishism that it how features numerical fetishism, wherein the upper class conflates numbers with actual commodities.

(Really) Anybody But Bush

The clever folks behind the wonderful magazine Stay Free (we've been linking to them for well nigh three years now) have a wicked and funny site devoted to determining just how deep your anti-Bush sentiment goes.

Give it a whirl: you can even nominate someone to oppose Our Dear Leader and see how he or she or it stacks up.

Television News [sic]

If you really think that the American commercial television networks care about politics, consider this. Each of them devoted three hours last week the the Democratic National Convention.

Al-Jazeera, that supposedly anti-American channel from Qatar, planned to broadcast 12 hours of coverage. It's surely aggravating to the news divisions that political conventions involve discussions of policy and platforms and detract from discussions of polls and political horse races.