Author: Matthew G. Saroff

The Arbitration Industry is Hopelessly Corrupt

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Normally, this is the sort of crap I don’t give a damn about, specifically Dov Charney, CEO of American Apparrel, and his raft of sexual harassment lawsuits, but the machinations of this specific case show just how unbelievably corrupt this system is.

You see, Mr. Charney settled with one of his victims, and part of the agreement was that in addition to the money and a non disclosure agreement, that they enter into a “special” arbitration:

Los Angeles’ 2nd District Court of Appeal revealed in an unpublished ruling Oct. 28 that attorneys for Charney, CEO of American Apparel Inc., a public company known for its racy ads, had conspired with lawyers for former sales manager Mary Nelson. Both sides had agreed, the ruling says, to enter into an arbitration whose outcome was preordained to favor Charney, and agreed to a press release stating that Charney “never sexualized, propositioned or made any sexual advances of any nature whatsoever toward Mary Nelson.” Nelson, in turn, would get $1.3 million if she kept the settlement secret, according to the ruling.

The 2nd District, in an opinion authored by Justice Paul Turner, said that settlement — which never went through — would have raised “considerations of illegality, injustice and fraud.” The court also held that the purpose of the proposed press release “was to mislead journalists and the public.”

Of course this raises the obvious question:

The attempted under-the-table agreement raised some questions about whether JAMS Inc. arbitrator Daniel Weinstein — a retired San Francisco Superior Court judge and co-founder of the 20-year-old JAMS — had gone along with the ruse.

The answer is that it would have been impossible for him not to have known, of course, because of the precedent that they wanted used:

The appellate decision lays out the sham arbitration of the settlement. It stipulated that the arbitrator would absolve Charney of the sexual harassment claims based solely on his consideration of a California case, Lyle v. Warner Brothers Television Productions.

In that case, the California Supreme Court in 2006 reversed a lower court’s finding that a writer’s assistant on the television show Friends did not come up with enough evidence for a “hostile work environment claim” by contending that the writer used sexually explicit language during the writing of the show.

Any arbitrator, particularly one who is a retired Superior Court Judge, would look at the filings and think that one side was deliberately throwing the case. At that point, they would be required by legal ethics to notify the bar.

That Economic Data is Worse than It Looks

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One of the common things that I’ve noticed since I’ve started following government economic data is that the preliminary data comes in better than the final data.

When you compare month to month, you are comparing preliminary data to the prior month’s final data, so the delta, which is what the press covers, looks much better than what it is in reality.

Well, Dean Baker just caught a doozy on October industrial production data.

In bullet points:

  • September hurricanes artificially depressed that month’s stats.
  • September data was then revised down.
  • October preliminary data, which showed a “rise” is flat when comparing preliminary to preliminary.
  • If you look at just manufacturing data, which strips out the noisier utility and mining segments, that number is down from September manufacturing data.

Republican Party Has Lost The Economist

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In an editorial, they call the ‘Phants, a Ship of fools, and lambast them for systematically becoming anti-idea and anti-thought over the past 30 years.

It’s a good read, and the last sentence, “Richard Weaver, one of the founders of modern conservatism, once wrote a book entitled “Ideas have Consequences”; unfortunately, too many Republicans are still refusing to acknowledge that idiocy has consequences, too,” had me cleaning my screen.

While there is much wrong with the Republican party, they are correct that the anti-intellectual anti though bent of the modern Republican party is at the core of much of this.

It’s a good read.

5 Gitmo Detainees Ordered Released

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This ruling is significant for a number of reasons, not the least of which that the judge used very strong language to express his displeasure with the government:

Ruling from the bench, Judge Richard Leon of U.S. District Court in Washington said that the information gathered on the men had been sufficient to hold them for intelligence purposes, but was not strong enough in court.

“To rest on so thin a reed would be inconsistent with this court’s obligation,” he said. He directed that the five men be released “forthwith” and urged the government not to appeal.

Also note that Judge Leon is a major wingnut, so this is not some wild eyed liberal “legislating from the bench.”

Senator Harkin To Introduce Bill to Force Derivatives Onto Regulated Exchanges

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I think that it’s a good idea, because the markets need transparency:

Senate Agriculture Committee Chairman Tom Harkin plans to introduce a bill Thursday that would force all over-the-counter derivatives, including credit-default swaps, onto regulated futures exchanges.

The problem for some folks, like hedge funds and former Lehman employees is that this will shut their business model down, because it is predicated on secrecy.

It’s not a problem for me, though. Just shut it down, and the stuff that continues, let a Commodity Futures Trading Commission with serious teeth aggressively enforce this.

Any business model that is predicated on information asymmetry and secrecy is dishonest at its foundations, and should be restricted.

Future 3rd World Nations

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First, we have the now neutered Celtic Tiger, Ireland, which is one of the biggest economies of Europe, with:

  • Farmers unable to sell produce because of collapsing prices.
  • Potential public strikes in the public services.
  • Bank of Ireland shares cheaper than toilet paper.
  • Rumors that their ATM system will be shutting down.

Meanwhile, the Irish government is in the midst working out the finer points of an enormous bank rescue plan, and Irish lenders are now requiring 20% down for mortgages.

You know, if you had done that last one 3-5 years ago, you would not be up the creek now.

In the mean time, Iceland just got a $10.2 billion bailout loan from the IMF, Scandinavian countries, and the UK.

The money goes primarily to the Icelandic deposit guarantee agency, their version of the IMF, so most of the money is going right back to foreigners from the countries who made the loan, but the Iclandic people will be left with the debt, by my calculations about $34 thousand for every man, woman and child on the island.

Welcome to the third world.

And while we’re at it, scroll down on this article, and note that Turkey is going to get screwed again by world financial markets, even though they paid off their debts a few years back, and have been doing everything right.

The lesson here is that if you play by the WTO rules of international trade, you will never be allowed to come out of debt and control your own destiny.

Bigots Look For Separate Church

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In this case, it’s the right wing nuts of the Episcopal Church,

When I last heard about this, they had allied themselves to a Nigerian nutcase Bishop who wanted imprison and/or execute gays, in the hope of forming an affiliation with the Nigerian communion.

Now they want to form a parallel church, all because there has been a gay Bishop consecrated hundreds of miles away from them, and they feel the need to hate.

There are differing counts of how many congregations are willing to leave, but all indications are that the number is relatively small, and it will likely will remain small, unless the mainstream Episcopals feel compelled to make nice.

From a pragmatic perspective, making nice would allow the people who are arguing for bigotry to keep buildings and other assets accrued, and there are a lot of people who won’t go along with the bigots if it means losing their church and school buildings.

From a moral perspective, people who use their God as an excuse to hate should not be humored.

Hank Paulson, Go Cheney Yourself

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So now Secretary of the Treasury Hank Paulson is warning that the financial meltdown might create too restrictive a regulatory environment for financial companies:

Treasury Secretary Henry Paulson called the financial crisis now plaguing the world economy a “once or twice” in a 100 years event, even as he warned Thursday against imposing too-strict regulations to prevent a repeat calamity.

The translation for this is, “I made my money because the SEC and the CFTC were muzzled, so I could use deception and extortion to get money out of the average working Joe’s pocket, and this should not change, because I have relatives.”

Paulson is an idiot. While the financial crisis we’re having right now mirrors the stock market crash in 1928, almost 80 years ago, the fact is that these fiscal implosions have gotten more common as we have backed off regulation, and before 19289, they happened every decade or so.

The reason that nothing has happened in the past 80 years is because of the regulations you dispise, and the reason that it is happening now is because of the slow deregulatory movements from about 1975-2001, and the rush to deregulate since then.

More Obama Appointments

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Janet Napolitano as head of DHS. Which means, I guess that she won’t be challenging McCain in his run for reelection to the Senate in 2 years, which is a bummer, she could beat him, and it means that the Dems won’t have a check on districting in Arizona.

Also there is a report that Penny Pritzker was offered the position of Commerce Secrretary, but that she turned it down for “business considerations.”

By “business considerations”, I think that they mean that her role in the Superior Bank of Chicago, which pretty much created the subprime lending model, and then failed in 2001.

My guess is that they (correctly) figured that this would engender a destructive media circus.

Because they Have Lost the People Who Worship Power

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If you thought that the Republican Party’s poll numbers could not go any lower, you would be wrong, they can, and they have.

Favorable/Unfavorable has gone from 40/53 to 34/61.

The real change is that a month ago, Obama had not won the election, so people who cling to power were still with them.

There are always people who want to hang with the winning team, not matter how repugnant, and those rats have boarded the lifeboats.

Economics Update

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Well, the obvious lede is the unemployment numbers, with the weekly new unemployment claims, which are a very noisy metric, and continuing claims, which are not, beinb positively ghastly.

Weekly numbers rose to 542,000, whichn is the highest since mid 1992, and well above the estimate of 502,000 and continuing unemployment claims hit 4,012,000, up 109,000, the highest level since 1982.

Therefore, it is no surprise that the index of leading economic indicators fell in October, as die the Philadelphia Federal Reserve’s business activity index, to an 18 year low, and the Architecture Billings Index, an indicator of future construction activity, fell to an all time low.

Meanwhile in the bond market, so many people are fleeing to US treasuries that rates have been driven to historic, and near historic lows, while the costs of insuring private bonds has returned to the stratosphere.

For what it’s worth, we have some good news for a bond insurer, specifically Ambac, which has managed to negotiate a cancellation of $3.5 billion in insurance contracts, which is obviously a serious reduction in liabilities.

In energy, oil briefly fell under $50/bbl, and retail gasoline prices seem to be heading below $2/gallon.

In currency, the dollar is mixed.

Not Enough Bullets

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This time, it’s longtime CEO and founder of South Financial Group, who moved up his retirement date to preserve an $18 million dollar severance:

Meanwhile, corporate governance analyst Hodgson said that Whittle’s deal — nominally a retirement, but treated as a severance — is all too typical of golden parachutes: “If you and I decided to retire, we might get what’s left of our 401(k). But for some reason the rules seem to be different for executives. They get severance even though they’re retiring. There’s no logic to it at all.”

These guys need to be tattooed with verses insulting Mohammad, and parachuted into a Taliban camp.

Court of Appeals Invalidated Business Process Patents

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The decision reversing the 1998 case which allowed things like risk hedging strategies, the “U.S. Court of Appeals for the Federal Circuit, in Washington, voted 9-3 that patents should be limited to ‘physical objects or substances’ and not be awarded to ‘abstractions’ like a bank’s risk-hedging strategy.”

Thiw will doubtless go to the Supreme Court, but this is fundamentally a good decision:

In its 132-page decision, the court said a patent can cover a “process that transforms a particular article to a specified different state or thing by applying a fundamental principle” but cannot cover the principle itself.

This is, I think, a response to the fact that the Supreme Court consistently reversing the court, and an understanding that they can no longer subscribe to the theory that everything should be patentable.