Saturday, February 28, 2009

Youth Basketball: Passing Drills



Some readers may know I coach youth basketball on Saturdays. Today, my team finally started passing the ball effectively. (Not quite as good as the L.A. "Showtime" Lakers, but our team is indeed named the Lakers.) The first month of coaching, it's so hard to get the kids to do anything other than basics. Most of the kids don't know each other, and some personalities may clash, but after a few weeks, coaches should move the focus from basics to teamwork. In short, if you want your kids to play effectively, teach them to pass well.

One drill I use to teach kids to pass is "2 on 3." I pick a kid to play defense with me and the rest of the team forms a line in front of us. Then, the first three kids in line have to score against me and my defensive teammate. There is always one offensive player open because it's 2 defensive players against 3 offensive players. If either defensive player swats/blocks the ball, the entire non-defensive team does five pushups. Once there is a change of possession, the next three kids play offense, while the first three offensive players go to the back of the line.

Initially, I make sure any kid who doesn't take a wide open shot gets his shot swatted with authority (I've always wanted to use the phrase, "swatted with authority," in a sentence). After the entire team does pushups several times, no one wants to get his/her shot blocked again. As a result, this drill creates a team culture/peer pressure against taking covered shots.

After about five minutes of this swatfest, I ask who wants to play defense. By this time, the kids are either tired of doing pushups; think it's fun to block shots; or just want to follow the coach. Thus, the drill also manages to make playing defense fun. I highly recommend this drill.

The other passing drill is "2 on 2," with the offensive team having to pass the ball at least three times before taking a shot. The kids move from defense to offense and go through the line. The passes must be at least three feet away--no handoffs are allowed (I call this rule, "No football"). If anyone does a handoff, both offensive players do 10 pushups and move to the back of the line. For some reason, "2 on 3" is much more effective than "2 on 2."

Passing is the key to having an effective youth basketball team, and unfortunately, it is the most difficult skill to teach. Good luck to all the coaches out there, and please post a comment if you have other effective passing drills.

Friday, February 27, 2009

So You Want to Open Your Own Business

The 2/23/09 WSJ had a special report on small businesses, titled, "So, You Want to Be an Entrepreneur." It listed ten questions to ask yourself before becoming self-employed. Here are the two most relevant questions to ask:

1. Are you willing to sacrifice your lifestyle for (potentially) many years?
2. Are you a self-starter?

I found the WSJ's report timely, because I have a friend who left a well-paying job to go into business for herself, thinking she would be highly profitable the very first year. After over a year in business, she is becoming discouraged by the fact she made only $20,000, mainly from activities unrelated to her core business. I wish my friend had read the WSJ report, which warns, "Entrepreneurs frequently won't pay themselves a livable salary in the early years...until their business is financially sound. That can take eight years or longer."

From my battle-tested perspective, I think my friend is doing very well if she made $20,000 her very first year; however, because she made $80,000 in her old salaried job, she feels frustrated. If you're founding a business, it will take two years to lay the groundwork to get a consistent book of business. I don't care if you're doing law or construction--it takes time and money to advertise and get clients to recommend you to their friends. Think about it--would you recommend someone who hasn't been around for at least two years? Here's my advice: if you want your business to succeed, you need to first save enough money to last at least two years. Then, you need to make sure you're comfortable with the idea of not making a dime until the third year.

But it's question #2--whether you're a self-starter--that really grabs my heart. I call this the Mariah Carey/Chumbawamba rule, after two great songs by the aforementioned artists--"Shake It Off," and "Tubthumping." Basically, my rule is this: The last person standing wins. Therefore, if you want to be a successful businessperson, you need to be able to shake off failure, get back up again, and keep going forward. If you're ultra-persistent, you'll probably succeed. For example, an ex-girlfriend once called me a George Foreman lawyer--I don't have much style, but I just keep coming at you. Unless I run into a Muhammad Ali, chances are, I'll be the last man standing.

The WSJ has a curious term for this attitude--"hypomania," taken from John Gartner's book, The Hypomaniac Edge. The book "theorizes that many well-known entrepreneurs have a temperament called hypomania. They're highly creative, energetic, impatient, and very persistent--trait that help them persevere even when others lose faith." [Emphasis added.] I agree wholeheartedly, and I'm glad there's a positive name for my impatience and energy. Let the hypomania begin.

Wednesday, February 25, 2009

Apple's Annual Shareholder Meeting (2009)

Apple, Inc. (AAPL) held its 2009 annual shareholder meeting on February 25, 2009. The meeting took place at Apple's Cupertino, CA headquarters. The majority of shareholder attendees appeared to be 45+ years old (the sea of white hair in the room was noticeable). Apple sometimes offers some food on the second floor, but this year, only coffee and tea were available. I noticed an inspiring mural above the coffee canisters titled, "To the crazy ones." The full text is below, and it complemented pictures of famous non-conformists, including Muhammad Ali, Cesar Chavez, and John Lennon (I did not recognize the man on the top upper left hand side--if anyone knows who he is, please add a comment).

Here's to the crazy ones.
The misfits. The rebels.
The troublemakers. The round
pegs in the square holes - the
ones who see things differently.
They're not fond of rules and
they have no respect for
the status quo. You can praise
them, disagree with them,
quote them, disbelieve them,
glorify or vilify them.
About the only thing that you
can't do is ignore them.
Because they change things.

- Jack Kerouac
quoted in an Apple Computer Ad, 1997
(search youtube.com to see the ad)

It's the perfect way to summarize Apple's image, isn't it? Unfortunately, this year's meeting was uneventful due to the absence of Steve Jobs. The only other "celebrity," Al Gore--who is on Apple's board of directors--appeared again this year and was noticeably more trim. After Apple's general counsel, Dan Cooperman, concluded the formal part of the meeting, COO Tim Cook made a short presentation. Tim Cook appeared in jeans and a black collared shirt. If memory serves me well, Steve Jobs appeared in a black turtleneck and jeans last year. Mr. Cook appeared to be doing his best to mimic Steve Jobs, even using some of his mannerisms. Overall, Mr. Cook did a good job, but unconsciously or not, he's trying to copy Steve Jobs. It won't work--no one has Mr. Jobs' charisma, so Mr. Cook eventually needs to find his own style.

Before the Q&A session began, Mr. Cook emphasized some sales results. He said Apple had sold 55 million iPods in 2008. Apple had also sold 13.7 million iPhones in 2008, surpassing its goal of selling 10 million. Meanwhile, iTunes was a raging success--Mr. Cook noted that Apple was the #1 music reseller, asking "Do you know who number two is? Wal-Mart! Can you believe that Apple sold more of something than Wal-Mart?"

The Q&A session itself was disappointing. After another shareholder called everyone socialists for advancing health care and environmental proposals, the running joke was "socialism." People jokingly said they were not socialists, used the word "socialist" whenever possible, and Mr. Cook opened the floor to questions from "conservatives and socialists alike." In any case, here is a short summary of the Q&A session:

1. Apple has "no comment" on the SEC investigation relating to Steve Jobs' health and a possible late disclosure of his health. (By the way, I am surprised Apple's lawyers don't cite the California Constitution and its right to privacy whenever this issue comes up--yes, an individual's health is important to a company, but it's also a private matter, and forcing a corporate officer to provide updates about his health would seem to violate the California Constitution. I realize the SEC is a federal agency and therefore not obligated to follow state law, but I don't see a direct conflict here--California's right to privacy is an extension of the federal right to privacy found in the U.S. Constitution.)

2. In the most lighthearted moment, an Apple shareholder asked everyone to stand up and sing Happy Birthday to Steve Jobs, whose birthday was yesterday. Most shareholders complied and delivered a rousing birthday song to Mr. Jobs. (You can't understand how devoted Apple shareholders are to Steve Jobs until you see the love in person--even when he's not there, shareholders make a point to include him.)

3. Another shareholder questioned Apple's diversity efforts. Its board of directors appears to be almost all Caucasian. (Apple does have an Iranian/Persian officer, Sina Tamaddon, as well as board member Andrea Jung of Avon Products, Inc., but like most companies, could use more diversity in its upper ranks.)

4. Another shareholder questioned why Apple pulled out of MacWorld. Mr. Cook responded that it had "other ways to reach many more customers."

5. A shareholder brought up Apple's advertising on risque shows, such as Two and Half Men. I thought the shareholder's comments backfired--she made explicit sexual references from the show, which must have been embarrassing, and probably got more people to become interested in watching Two and a Half Men.

The most interesting substantive issue was Apple's refusal to implement a shareholder proposal that passed last year. (This year, other than the re-election of directors, all shareholder proposals failed to pass.) Last year's successful proposal related to "Say on Pay" and executive compensation. I was very surprised to learn that when it comes to shareholder proposals, Apple operates like the Electoral College--a majority vote isn't enough to actually win. This was made all the more ironic by the presence of former presidential candidate Al Gore. It appears Apple is an iconoclast in every sense of the word--even when it means ignoring successful shareholder proposals. This seeming rebuke to shareholders won't dampen Apple's base, though. As long as Steve Jobs is around somewhere, shareholders will come to the Apple temple every year to engage in their own version of honoring their esteemed leader.

FYI: I was quoted briefly in this Reuters article:

http://blogs.reuters.com/mediafile/2009/02/26/apple-annual-meeting-proves-entertaining/

In case you're interested in another perspective, here is a shareholder meeting review I found to be accurate (except for the spelling of (Shelton) "Ehrlich"):

http://www.appleinsider.com/articles/09/02/25/apple_shareholder_meeting_dominated_by_politics.html

Disclosure: I own an insignificant number of Apple (AAPL) shares.

Treasury on Wells Fargo

Banking stocks have been volatile recently, partly because the government failed to aggressively counter notions of nationalization. The government finally issued more clarity about its intentions.

First, the Federal Reserve expressly stated it would not--I repeat, "not"--nationalize banks: “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said at the Senate Banking Committee hearing.

Second, President Obama said the government will continue to do whatever it takes to support banks, but with reasonable restrictions: "[The recovery plan] means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy." President Obama also signaled that executive pay and corporate junkets would probably be limited.

Overall, the federal government has explicitly signaled that the top nineteen banks are too big to fail. This policy seems reasonable if Bernanke's prediction--that the economy will stabilize by the end of 2009--comes true. Indeed, some banking stocks seem undervalued now that nationalization is no longer an option. Let's look at Wells Fargo (WFC), for example:

From the Treasury’s Monthly Intermediation Snapshot report, submitted January 30, 2009:

Wells Fargo maintained in Q4 2008 its longstanding policy of not originating interest only, stated income, option ARM or negative amortizing mortgage loans.

Wells Fargo has reached 94% of its customers whose mortgages are two or more payments past due. For every 10 of these customers, we have worked with seven on a solution. Of those who received a loan modification, one year later, approximately 70% were either current or less than 90 days past due.

Wells Fargo added over 400,000 new household customers in the last year.

Sounds like there's at least one big bank that will come out of this crisis stronger.

Disclosure: I own shares of Wells Fargo (WFC).

Tuesday, February 24, 2009

Robert Reich = The New Dr. Doom?

The Commonwealth Magazine featured a recent Robert Reich speech, where he seems to be auditioning for Nouriel Roubini's "Dr. Doom" title. Mr. Reich predicts that the unemployment rate will reach double-digits and the Dow will be "languishing around 7,050." Of course, Mr. Reich is no dummy--he conditions his predictions on a supremely vague qualifier--"without effective government action." Mr. Reich believes at least $900 billion is necessary to be effective--which isn't too far off from the $787 billion package actually passed. After almost $800 billion, it's hard to believe another $100 billion would make a difference either way.

It appears that some Democrats and some Democratic supporters like Reich and Krugman see this crisis as a way to get more money distributed to the middle class and poor. There's nothing wrong with taking that policy position, but it may explain why so many pundits are advocating for more stimulus. Even if no stimulus money reaches the mid- to lower-income classes directly, the more money the government prints, the less burdensome consumer debt becomes. In other words, assuming the poor and middle class hold most consumer debt, printing money creates inflation, which temporarily reduces a debtor's burden. Inflation, at moderate rates, isn't all bad--it reduces the value of savings but also debt, and may lead to salary increases in certain fields. If anything, resulting inflation will hurt Chinese and Japanese investment holdings the most, because they hold the most dollar-denominated assets.

Still, it's important to understand why so many Democrat-linked economists are calling for more stimulus. It's quite simple, really. Mr. Reich and Mr. Paul Krugman view the last 25 years as an unconscionable transfer of resources/income from the poor and middle class to the rich--and the numbers seem to support their conclusions, at least where net assets are concerned. Mr. Reich even coins a funny phrase for this phenomenon: "DINS--double income, no sex," to demonstrate how badly the non-rich have fared. (Mr. Reich wants us to believe the poor and middle class are so overworked, they don't have time for basic things, such as sex.) Mr. Reich ends his speech on a safe note: he says that economic recovery is "likely to be [here] in two or three years."

I disagree. My main issue is with Mr. Reich's view that the last 25 years were a terrible time for the middle class and poor. Economics is not a zero-sum game. First, although the rich have gotten richer, the middle class is now enjoying an unprecedented quality of life. To be poor in America in 2009 is to be the envy of 90% of the world's population, many of whom work for less than $2 a day. I don't need economic statistics to prove this point--you can just look at how many foreign citizens apply for asylum here every year, or who are willing to risk their lives to cross America's border.

Second, it is true that other countries have more equitable distributions of income--but almost all those populations are smaller, less diverse, and declining. In large, diverse populations, including China and Brazil, income distribution is usually heavily concentrated at the top. The most notable exceptions are Canada and Australia, which have massive stores of natural resources and smaller military budgets. Unless America becomes energy-independent and more willing to cut defense spending, income equality will probably persist. This won't be because of a conservative Republican plot--it's just that too many Americans appear unwilling to advocate for a smaller military budget and, in recent history, too willing to go to war. That's a terrible combination, because as Californians are starting to learn, you can't have it all. At some point, the piper comes calling, and the bills become due.

In fact, Democrats like Reich and Krugman are stealing a page from the GOP's playbook. In the old days, Republicans would spend trillions of dollars on wasteful defense projects and then scapegoat poor single mothers on welfare. Now, Democrats are demonizing bankers and Wall Street to divert the public's focus from their own act of generational theft (America's future generations will be paying for the recent stimulus package). So while Republicans ran up deficits to increase the military, Democrats are running up deficits to send taxpayer money to their core constituents--education, local and state governments, and unionized interests. In the end, government gets bigger under either administration--it's just a matter of where the dollars go.

Meanwhile, fiscal conservatives like me are left screaming in the dark and wondering when Ron Paul will make a comeback. I hear Estonia's a nice place for anti-war libertarians like myself (see the incredible film, The Singing Revolution, to understand where I'm coming from). I might just go on a visit and not come back till Congress learns some fiscal discipline. If I do leave, however, it won't be because I think the rich in America have it out for the middle class, or that America's poor have terrible lives--it'll be because our two-party system has failed the average American who saves money, lives modestly, and tries to create a future where American children will be better off than their parents.

Monday, February 23, 2009

Roubini: Banks will be Nationalized

N. Roubini is getting on my nerves, because he's been pessimistic forever. When the market dived in 2008, suddenly everyone anointed him a guru--even though he was bringing the same negative shtick for over a decade. Now, he's made a prediction I think will be proven false:

And how long will it be before the administration goes in formally for nationalization? “I think that we’re going to see the policy adopted in the next few months . . . in six months or so.”

Set your calendars. If by August 22, 2009, Bank of America (BAC) and Citigroup (C) are still private entities, Roubini will be wrong. In fact, it looks like he's already wrong--the White House has publicly announced it will not nationalize banks and has taken action to prop up Citigroup.

Bonus: I've never heard of a Jim Morrison market, but apparently it's when "The future's uncertain and the end is always near." Check out this pessimistic Barron's article.

I would have preferred the more optimistic "Take it as it Comes" instead:

Go real slow
You'll like it more and more
Take it as it comes

In other words, slow down, Mr. Roubini.

Saturday, February 21, 2009

Friday, February 20, 2009

Buy and Hold Wins over the Long Term

My Money Blog had a great article about what happens when investors try to time the market. I hedge my bets by trading actively in my regular accounts, and buying/holding in my retirement accounts. Right now, actively trading is working out better than buying and holding. At the same time, my regular account balances fluctuate wildly, so I've had to develop an iron stomach. Who would have thought trading "blue chips" like General Electric (GE) and Wells Fargo (WFC) would be akin to high stakes gambling?

Thursday, February 19, 2009

Bank Market Caps

Barry Ritholtz almost always has great stuff on his blog, The Big Picture. Here's one particularly interesting post, showing how much banks have declined in value:

http://www.ritholtz.com/blog/2009/02/bank-market-caps-then-now/

Oh, the lack of prudence.

Tuesday, February 17, 2009

Police Kill 350 People Annually

The SF Chronicle recently had an interesting story about police officers killing others in the line of duty. According to the SF Chronicle, police officers kill 350 people annually and tend to get acquitted of murder charges. Full story here.

In contrast, fifty-seven (57) law enforcement officers were feloniously killed in 2007. See FBI chart here. Another chart indicates that eighty-three (83) officers were accidentally killed in 2007, mainly because of traffic accidents.

Officers appear to die at a rate of 140 per year, while killing 350 people per year. Do law enforcement officer have safer jobs than most people think?

Update: I finally researched my theory about whether police officers have relatively safe jobs. My findings are HERE.

[Note: this post has been edited since its publication.]

Monday, February 16, 2009

Helicopter Ben vs. Commander Pessimism

I am shocked by the pessimism I see all around me. GE is around 11 dollars a share. Wells Fargo is around 16 dollars a share. Both are blue chip companies that will definitely survive, especially after the recent bailout; yet, they are being priced as if bankruptcy is imminent.

The problem with Mr. Market is that he tends to swing wildly in both directions. From 2004 to 2007, he swung too high, and now, he is swinging far too low. CNBC and other media channels mimic or just forward information given to them. Their constant repetition of bad news creates a self-fulfilling loop that leads consumers to believe the sky is falling. In reality, every major country in the world is working together to ensure more money is pumped into the economy. To be bearish now is to bet against every major country in the world. Even if you believe you are smarter than every major government, once the stimulus money gets into the hands of consumers, you will also be betting against worldwide consumers. The key issue is getting the stimulus money into the hands of consumers that will spend it, i.e., the middle class and poor. The current stimulus package, while imperfect, accomplishes that task by spreading its largess across multiple and diverse fronts, from high-tech workers to construction laborers. I would have preferred that the government give tax credits of 1,500 dollars to everyone who made less than 75,000 dollars AGI in 2008 and tell banks accepting taxpayer money to lower all monthly mortgage payments by 25%, but I'm not an elected official.

Will inflation eventually occur because America is printing trillions of dollars? Yes, and inflation is terrible for consumers in ordinary times. But these are not ordinary times. in an era where housing prices--the primary source of most Americans' wealth--have deflated, inflation is not an imminent threat. Focusing on inflation now is like a commander refusing to send tanks and planes against invading ground forces because he is reserving them to fight a distant, advancing Navy--yes, fighting the Navy will be important, but allowing ground troops to invade now is unacceptable, because failing to properly combat them will result in immediate defeat.

I own and am long General Electric (GE) and Wells Fargo (WFC). By mid-2009, the market should begin swinging back to normalcy as stimulus money reaches consumers. If you can time the exact moment that Mr. Market will moderate himself, good luck to you. For those of us not blessed with prescience, we can only buy now and hold for the long term. Mr. Market will regain his optimism at some point--trillions of dollars are enough to make even the most depressed person happy, at least over the short term.

Disclaimer: under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Immigrants Add to American Economy

Thomas Friedman echoes my take on immigration here:

According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005.

Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself. The benefits of legal immigration seem obvious in a supply-and-demand economy. Older, educated, and legal immigrants will usually be financial positives for several reasons: one, they are happy to be here, so they usually don't commit crimes; two, they're already educated, so the state doesn't have to subsidize their education or training; and three, being new residents, they cannot inherit anything or rely on family for income or assets; as a result, they must buy rent houses, cars, and other big ticket items, which helps the economy.

I've written about this issue before here.

Clark Winter agrees with Mr. Friedman and me. See here. So does Alan Greenspan. See here.

Sunday, February 15, 2009

Foreign Holders of U.S. Debt

If you were wondering which foreign countries own most of our debt, here is the list:

http://www.treas.gov/tic/mfh.txt

China, as expected, is the top holder of U.S. debt.

Saturday, February 14, 2009

CS Monitor on Madoff

The CS Monitor has an interesting article on Madoff:

http://www.csmonitor.com/2009/0209/p15s04-wmgn.html

According to the article, Madoff's investors will probably not get a full bailout, but will be able to deduct their losses:

"I've been telling people to renounce their claims," says Robert Willens, a tax attorney in New York. Closing out litigation and other investor-protection claims, he says, opens the door to a "theft-loss" deduction. This lets investors recoup the entire loss minus 10 percent of their gross adjusted income. "Otherwise you'll only get pennies on the dollar," says Mr. Willens.

With the tax deductions, Madoff's investors will be paying fewer or no taxes. That means the Treasury gets less revenue in a year when it desperately needs more. Bailout or no bailout, Madoff has harmed the average taxpayer.

Tragically, some of Madoff's investors have committed suicide. The most publicized suicides during this recession have been rich people (Rene-Thierry Magon de la Villehuchet, William Foxton, et al), not middle class or poor people. That's party because hedge funds and feeder funds relied on a closed circle of affluent investors and connections to supply Madoff with fresh money. Still, it's surprising to see the uber-rich commit suicide, because even without their Madoff investment, they must have property or enough money to be middle class.

Friday, February 13, 2009

Fareed Zakaria on Canadian Banks

Fareed Zakaria is known for his political commentary, but this article shows why I like the Canadian dollar (FXC). Canada's banks don't have the problems American banks are experiencing, making the country's currency attractive. Canada's currency may also rebound as demand for its natural resources increases, and in the meantime, investors can collect a 2.5% yield.

Thursday, February 12, 2009

Dolby Laboratories Shareholder Meeting (2009)

Dolby's S.F. brick building

CEO Jasper, me, and Mr. Dolby

I attended Dolby Laboratories Inc.'s (DLB) annual shareholder meeting in San Francisco on February 10, 2009. Shareholders were invited to the third floor, where Dolby had coffee and tea available prior to the meeting. Full size bars of Ghirardelli chocolate were also available to shareholders. I split some white chocolate with two other shareholders, who were initially reluctant to break the bars until I decided to dive in.

The meeting itself took place in a small auditorium and lasted around fifty minutes. President and CEO N. William Jasper, Jr. aka Bill Jasper, ran most of the meeting. Mr. Jasper efficiently completed the formal portion of the meeting, which included an election of directors. The informal portion of the meeting consisted of two presentations. The first one was Dolby's Las Vegas CES presentation, and the second one consisted of charts and financial numbers. It was a good combination--serious, dry numbers alongside highly entertaining visuals. I would have switched the order and done the numbers presentation first and ended with the CES presentation, but that's just a stylistic preference.

The CES presentation was a lot of fun--not surprising for a company whose motto is "every bit amazing." Dolby strutted its product lines clearly and powerfully, showing clips from major films that had used Dolby products. Shareholders saw clips from Iron Man and Spiderman to illustrate how Dolby boosts sound quality. The narrator of Dolby's CES presentation showed what a scene in Spiderman sounded like without "Dolby mobile"--basically, flat and lifeless--and with "Dolby mobile," which produced superior sound. At this point, I should probably point out that I'm hearing-impaired--and even I could tell the difference. Now that's darn good technology.

The next part showed how "Dolby volume" allows users to get consistent levels of sound across all media players. In short, "Dolby volume" minimizes sound distortions. To demonstrate, Dolby showed shareholders other movie clips without Dolby, then with Dolby--and again, the difference was highly noticeable.

The next product was Dolby Axon. Gamers can use Dolby Axon to create a more realistic gaming experience. Rather than have one constant sound level for gaming characters, Dolby Axon modulates a character's voice based on his/her/its surroundings. The video narrator demonstrated the technology by playing a video game where Dolby Axon modulated a character's voice in real-time. For example, if the character went behind a wall, his voice was muffled. If the character moved closer to the screen, his voice increased in volume and sharpness. Gamers can also adjust their character's voice, making it deeper or higher. Of all the Dolby products shown, this one seemed most poised for growth.

The CES video ended with a rousing rendition of the song "Human," by The Killers.

In the next presentation, Mr. Jasper continued to explain Dolby's different customers and product lines. Dolby sells its products to content creators (movie studios); broadcasters (BBC, PBS); gaming companies (Electronic Arts); cinemas; and PC-related companies. It receives most of its revenue--around 85%--from licensing and royalties. Mr. Jasper proudly talked about the fact that Dolby had been around for 44 years, and 3 billion products had been sold using Dolby technology. (A side note: Dolby has only been public since 2005, and apparently went public to assist the founder, Ray Dolby, with estate planning purposes; in other words, Dolby had a healthy balance sheet and didn't go public because it needed a cash infusion.)

Mr. Jasper then said something that endeared himself to any investor who appreciates honesty. He said that although Dolby's recent results had met expectations, Dolby's licensees report results/sales on a lagging basis. As a result, the recently released numbers compiled sales information up to September 2008--before the worldwide financial meltdown. Mr. Jasper said that Dolby's March results would be "more revealing." How refreshing is that? Mr. Jasper didn't have to downplay his company's numbers, but chose to do so to be more transparent. (Bank CEOs could learn a thing or two from Mr. Jasper.)

The most interesting slide related to Dolby's shift in product sales. In 2004, personal computers were only 25% of Dolby's business, while consumer electronics were 60%. In 2008, PCs were 40% of Dolby's business, while consumer electronics were 25%.

In the ensuing Q&A session, I asked the CEO to specify Dolby's top five sources of licensing revenue. The CEO listed the top three: PCs (software), DVDs, and TVs. What this tells me is that if more consumers adopt the Blu-ray DVD format and buy new DVD players, Dolby will benefit.

I didn't hear the next question properly, but I believe another shareholder asked about the locations of Dolby employees and Dolby R&D facilities. Mr. Jasper listed several locations, both domestic and worldwide. Later, in response to another question, he added that in terms of numbers, Dolby was not downsizing employees and planned to add 100 jobs net.

I asked how Dolby was dealing with IP issues in China. ( Given the size of China's consumer market, if Dolby fails to protect its IP, its growth may stall.) Mr. Jasper said that Dolby was "attacking" the IP problem in several ways. He said Dolby performed license audits; had persons monitoring trade shows to discover unauthorized sellers; and had agents in the field monitoring sales of consumer electronics. I liked the specifics, and to be quite frank, there's no magic bullet that will solve the international IP theft problem. It seems like Dolby is taking the problem seriously and is being pro-active.

I asked about the top three countries in terms of revenue sources. The CEO listed 1) United States; 2) Japan; and 3) China and Greater China (including Taiwan and Hong Kong). This was interesting, because Dolby's 10K indicates it receives the majority of its revenue from abroad. I realize the numbers could be 40% U.S., 30% Japan, 20% China, and 10% EU, but investors may want more disclosure in terms of sales per specific country. Such a breakdown, if released every year, would show more transparently how Dolby is doing in terms of international expansion.

Another shareholder asked how Dolby was dealing with the economic downturn. Mr. Jasper confidently answered the question by saying that Dolby's shareholders focused on a long term strategy and were long-term shareholders. Basically, Mr. Jasper was saying that Dolby had been around 44 years and its diversified product line and balance sheet placed the company in a favorable long term position. For a minute, it felt like Mr. Jasper was channeling Warren Buffett and Mr. Buffett's preference for the long term view.

I asked the final question. I asked what Mr. Jasper would do to fix the economy if he were President for a day. Mr. Jasper first joked that he would first sign an executive order mandating use of Dolby Sound in all consumer electronic products. He then became more serious and said that R&D tax credits, especially for small businesses and consumer electronics manufacturers, would be helpful.

Overall, Mr. Jasper presented his company with confidence and clarity. After the meeting, he was open enough to allow me a picture with himself and Mr. Ray Dolby, the founder. To give you an idea of Mr. Jasper's kindness, he patiently waited outside until Mr. Dolby came down so we could all take a picture. (Readers may go to the very top of this post to see two pictures, one of Dolby's S.F. building, and another of the CEO and founder.)

I have only two remaining remarks, both of which are tangential to the company's overall outlook: one, I couldn't find Mr. Jasper's full name anywhere, and I'm still curious what the "N" in his name stands for; and two, all the directors, except for one person, appeared to be Caucasian men. A company doesn't necessarily need diversity to do well; however, with Dolby expanding in China, it makes sense to add at least one director who has experience with Chinese laws and Chinese culture.

In any case, investors who want to open new positions in Dolby stock may want to wait until after its next earnings report, when numbers may not be as sanguine. Long term, however, assuming that it aggressively protects its IP, Dolby seems well-positioned for future growth. After all, even in a recession, most consumers won't stop going to movies, replacing computers, or listening to music.

Disclosure
: I own an insignificant number of Dolby (DLB) shares.

Update: an astute friend tells me that Mr. Jasper's first name is "Norval." See

http://www.haas.berkeley.edu/groups/pubs/calbusiness/summer2005/alumni04.html

Wednesday, February 11, 2009

Tuesday, February 10, 2009

Jury Trials in the Bay Area

The SJ Mercury News (2/05/09, 3B, Leigh Potinger) recently compiled the number of Bay Area jury trials for the fiscal year 2006-2007.

San Francisco County had 509 jury trials.
Contra Costa County had 305 jury trials.
Santa Clara County had 291 jury trials.
Alameda County had 223 jury trials.
San Mateo County had 139 jury trials.
Santa Cruz County had 59 jury trials.

Out of the thousands of cases filed, only a few make it to a jury. The most commonly cited statistic is that only 5% to 10% of cases go to trial, which I presume includes both bench and jury trials. I just completed my first jury trial where I represented an employee alleging retaliation and gender/age discrimination. Here are my thoughts:

1. If you want to win, the jury must like your client. No matter how good your case is legally, if the jury doesn't like your client, you will lose. In employment cases, performance evaluations and peer reviews can be used by either side to show that a plaintiff was either well-liked or unpopular. Although I find a lot of these reviews irrelevant, the Court will probably admit them if one of the performance factors the employer evaluates is "teamwork."

2. Even if you catch the employer/defendant in a lie, it's not over. Jurors told me that yes, I made some people look bad or shifty, but the particular misrepresentations I caught weren't big enough to deliver a slam dunk. Jurors are looking for a major lie and will disregard non-major lies. In general, making your client's supervisors look like morons isn't good enough (though it may make your client very, very happy). Lawyers should try to show that the company came up with special rules or something new or unusual to harass or retaliate against an employee. Plaintiffs' employment lawyers should also try to show their clients were doing one type of work before the discriminatory/retaliatory time period, but after a new supervisor came, they started doing another type of work.

3. Not all corporations are alike. Some corporations have good reputations. If the defendant is a used car dealership or big pharma, you'll probably have an easier time as the plaintiff. But most jurors see technology companies as non-evil. Post-trial, I heard one juror tell the defendant, "Keep making those [semiconductor] chips." I could only sigh to myself.

Big corporations also have advantages because of their pre-determined performance processes, such as giving an employee 90 days to improve performance before termination. Almost every juror mentioned that the employer went through a pre-determined termination process, which, to them, meant my client's termination was probably justified. I was surprised to see jurors acting like the company's disciplinary process was some kind of holy grail. Once again, I could only sigh. Couldn't these people see that the company might have used its internal process to exaggerate minor complaints against my client? Didn't they hear me get an employee handling the process to say he actively solicited negative information about my client? Apparently not. The corporation had involved different people at different stages, making it hard for jurors to believe there was a corporate conspiracy against my client to fire her. The jury didn't buy the idea that general corporate inertia or an poorly done investigation could result in a discriminatory termination.

4. Not even the best lawyering can save "difficult" facts. Jurors told me I did the best I could with the facts I had. It still wasn't good enough. I don't know if they were being polite, but only two jurors were willing to give me criticism. (I specifically asked jurors to tell me what I could have done better.) Overall, however, no juror seemed to think I could have done any better. They believed the semiconductor company complied with its internal procedure and, as far as they were concerned, that was the alpha and the omega.

5. Lawyers should suck up to the judge. (Or, as my friend says, "As far as you're concerned, the judge is G-d.") I know most lawyers defer to judges anyway, but as a matter of principle, I only suck up to people I genuinely like. I've learned I need to suck up to everyone during trial. Any trial, even a jury trial, isn't the best time to let out your inner George "Anti-Establishment" Carlin. Once a judge decides he dislikes your case, he can make the trial as difficult as possible for you.

For example, the defense deemed some of my questions too vague, even though the witnesses probably understood what I was asking. The judge would usually sustain the defense's objection or demand more specificity. The defense's objections caused me to add many details to my questions, making them more difficult to follow. I never anticipated a situation where my questions would be less ambiguous but more confusing. At one point, even after I specified the time period, the location, and the persons involved, the defense and judge only backed off when I looked directly at the jury and asked, "How can I possibly make the question more specific?" Some judges might disregard objections to the form of the question, but only if the attorney is moving his/her case along quickly and being very respectful to the Court. The lesson? Don't count on having your pre-drafted questions automatically accepted, even if you think a witness will understand them.

Behind the scenes, it wasn't much better. The judge wouldn't accommodate my request to take one of my witnesses out of order. Earlier, he said it was okay to take one witness out of order because of her child care responsibilities, but around two days later, he said it was my problem, not his (he's right--it is the lawyer's responsibility to have his/her witnesses available). Still, that's a major problem when the judge also tells you if you don't get done with the witness on Friday, and she can't come back on Monday, he's going to strike her entire testimony.

You haven't even heard the best part. The defense, on the day this witness was going to testify, knew about my witness availability problem and asked for an earlier lunch time. The judge granted their request and the defense got a 2 hour lunch instead of the normal 1.5 or 1.75 hours--the only time during the whole trial I remember having such a long lunch. That's about 30 minutes of precious time taken away from me. Does the jury know anything about this? Nope. So when I finally get my witness on the stand, and the judge tells me to slow down because I'm speaking too fast, I look stupid. Score one for the defense, zero for transparency. (Thankfully, the witness got done in time.)

What was really unexpected, though, was how the judge kept telling me what not to do or say. For example, my client had a male coworker who was much younger than her. I referred to this coworker as a younger male (after all, my case involved age and gender discrimination claims). Later, in chambers, the judge told me that I could no longer use the terms, "younger" and "male" when mentioning this younger male coworker in my questions. The defense hadn't requested this particular instruction--the judge, on his own, felt it was prejudicial to the defense.

Perhaps another judge would not have told me in chambers what I couldn't do (e.g., you can't read from the deposition transcript anymore--you're being too dramatic); or would not have added objections for the other side (Defense: Objection: vague, ambiguous. Judge: it's also argumentative. Sustained. Me: silently, to myself--I can't believe I actually thought I was going to get a decent shot against this major corporation and its army of lawyers.")

For the record, I do not think the judge was biased. I've had two other bench trials before him, and he ruled against my client in one case, and in favor of my client in the other case. In this (jury) trial, he was a little too involved for my liking, but that's his call.

6. Know the hearsay rule and its exceptions by heart. I was surprised at what the judge wouldn't let in. Even when I said the documents were not being offered for the truth of the matter asserted or just to show the defendant received notice of a complaint on a particular date, the judge wouldn't let in my documents. He said my witness could testify orally about the content of the emails, and the emails themselves appeared redundant. You have to be willing to get the evidence in through oral testimony, or to redact documents before asking the court to admit them. Always have a backup plan.

Remember: even if your document isn't admitted, your witness still has it in front of him because you gave him a copy that was marked for identification. Not having it admitted just means the jury can't look at it--your witness can still see the document. So don't get discouraged if a document isn't admitted--just ask a question using the information in the document, like, "On January 2, 2007, did you discuss your workload with Peter, your supervisor? A: Yes. Q: What did you discuss? A: (witness may glance at the email before answering.)"

Doing it this way, I was able to get what I wanted published to a jury, except it came through direct testimony rather than documents. Did this unorthodox method endear me to the judge? No. See paragraph 5, above.

7. The judge may disregard the CACI jury instructions. Despite CRC 2.11050(a) and (e), this judge didn't have much respect for the CACI instructions. He modified them and also accepted most of the defense's special jury instructions, which I thought diluted the impact of the more neutral CACI instructions. By the time he was done, I thought the combination of special and CACI jury instructions bore little resemblance to what the judicial council had issued. When I said the whole point of having pre-drafted jury instructions was to create uniformity and predictability, the judge muttered that I wasn't there when the Judicial Council drafted the CACI instructions.

In addition, this judge wanted us in chambers every morning before trial to discuss the jury instructions. That is ordinarily a really good idea. I just didn't expect to get up at 7:00AM every morning instead of 7:30AM. That extra 30 minutes means a lot when you need as much rest as possible.

When discussing jury instructions, you have to argue that the modified instructions mis-state the law or are prejudicial somehow. Make sure you put your objections on the record to each one. Otherwise, when the judge reads the instructions to the jury, s/he'll probably tell them all the lawyers agreed that the instructions properly state the law.

8. The evidence code stacks the deck against individual plaintiffs. The business records exception to the hearsay rule allows corporations to let in almost any document. A company can offer performance evaluations written by Person X, without ever needing to call Person X to the stand for cross-examination. Sound unfair? You're darn right it's unfair, but that's the way the code is written. To counter this defense tactic, if you're the plaintiff, you may want to subpoena people you think will criticize your client.

In addition, if plaintiff sent an email that referred to other pieces of evidence, like charts or data, the judge may demand those sections be redacted. As this judge told me, your client can't vouch for the accuracy of any of these charts or data she is referring to, so it's inadmissible hearsay. No matter what I said--state of mind, just offering it to show my client's understanding, offering it only to show that words were said on this particular date, we're not saying it's true, etc.--it didn't work. Some judges treat jurors like Pavlovian dogs who, if exposed to certain statements or words, will suddenly rule in favor of Plaintiff based on pure emotion. I find this attitude distasteful and patronizing. I see it as reducing the power of jurors to hear the full facts of a case and to decide themselves whether those facts are accurate. But I'm not a judge. My opinions don't matter.

The lesson? Don't assume you'll get any of your emails or documents in if those documents refer to anything that isn't within your client's personal knowledge. Did your client write to Human Resources that her boss made her watch porn with a coworker on the Sabbath? With some judges, you better make sure your client can identify the pornstars in the movie, the exact brand of the DVD player, and the particular way the boss was waxing his carrot before you try to get that document in. I am kidding--sort of. When in doubt, subpoena all persons who have the most direct personal knowledge on a particular point you want published to the jury.

In my case, the judge said that the charts my client sent to her boss about her workload relative to her peers were inadmissible. He said that even though my client's direct supervisor required monthly reports about the workload of my client and her coworkers; the supervisor received these reports on a regular basis; and the supervisor hadn't questioned their accuracy, it wasn't good enough. The supervisor himself had no direct personal knowledge of his employees' workload, so it was hearsay. When I said I wasn't offering it for the truth of the charts, only to show my client's good faith belief about her unbalanced workload, the judge said I was offering it for the truth, and that was that. (As you can see, judges have a lot of discretion when it comes to evidence.)

I might not have had a problem in federal court publishing company emails to the jury. According to the Hon. James Rosenbaum, District Judge for Minnesota, FRE 808 automatically allows corporate emails and trumps 403 (relevance), 602 (personal knowledge), 902 (authentication), and 803 and 804 (declarant's availability or unavailability). See 12 Green Bag 2D 165, "In Defense of Rule 808, Federal Rules of Evidence." However, I cannot find any trace of FRE 808 anywhere except in this judge's published article. A rule regulating admission of corporate communications seems long overdue. In terms of reliability, there is much difference between a handwritten note and a corporate email between a supervisor and an employee stored on a company's servers.

To be fair, no judge wants to get overturned on appeal. The way the legal system is set up, it's easier for a judge to leave out a piece of evidence than to admit it if there's even a small doubt that admitting it will prejudice the jury. Unfortunately, it's also more likely that a large corporation will have the resources to appeal, which creates systemic problems with administering justice when corporations and individuals are suing each other.

9. Be careful when putting on hostile witnesses on your own direct examination. In my case, opposing counsel used a hostile witness I called to read performance evaluations written by third parties (business records exception to hearsay rule). The defense got in damaging information about my client as part of my own case in chief. (They would have gotten in the information later on, but the timing helped them.)

10. Jurors don't want to talk to your client if they ruled against him or her. They are usually happy to talk to the lawyers, but not the actual individual who lost the case. I made the mistake of putting some jurors in an awkward position by trying to get them to talk to my client.

That's all I can think of right now. I still wish my client had prevailed. My desire in writing this post is to stimulate an informed dialogue about our legal system. Good night, and good luck.

Monday, February 9, 2009

Law Firms Freeze Salaries

The NY Times talks about salary freezes at law firms:

http://www.nytimes.com/2009/01/25/jobs/25lawyers.html?_r=1

I found the section on legal salaries illuminating:

According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.

If you do the math, 46% of new lawyers make between 55K and 160K. Assuming most mid-sized and small law firms pay around 70K starting, 84% of new lawyers probably make between 25K and 70K. If you're a law school student, remember those salary numbers when you're taking out loans and dining out. Cut back on expenses while in law school, and you'll have an easier time paying off debt if you don't land the big firm position or the big money position right away.

I managed to pay off my loans fairly soon after law school because I practiced self-denial religiously. For example, I ate PB&J almost every day in law school and for a year after law school. I also didn't go to Starbucks or Peet's more than once a month while in law school. Anyway, I haven't had a PB&J sandwich in a long time. Like the 99 cent Jack in the Box chicken sandwich I ate all the time while at UC Davis, it tastes like poverty--disgusting and dry. But these days, I go to Peet's and drop three bucks on coffee almost every day. It doesn't sound like much, but if I hadn't denied myself the good things in life while in law school, I'd still be eating PB&J and drinking fountain water for lunch and dinner.

Sunday, February 8, 2009

Banking Consolidation

The Winter 2009 Edition of City Journal has an interesting banking statistic. From Nicole Gelinas' "Can the Feds Uncrunch Credit?" (pps. 22-23)

Because of last year's [2008] flurry of bank mergers, the nation's top four banks now hold 36.2 percent of deposits in the country, up from 24.8 percent in 2007, according to SNL Financial. We thus may be setting up the next bubble-fueled crisis as we speak--and this time, it may be too big to recover from.

I am not sure what the author means. Is she saying that if the top four banks go under, the nation's savings will be toast? Perhaps she is warning that if the top four banks continue to lend recklessly, they will create another bubble. Neither of those scenarios makes much sense to me. The top four banks won't go under--they will be federalized before that happens. Moreover, banks are so scared, if anything, they're not lending enough.

Bonus: in the same issue, on page 58, Roger Scruton does his best impression of Samuel Huntington and writes about how Islamic and Western ideas differ. The problem with such generalizations, of course, is that they're generalizations--and it's nonsensical to apply them to billions of people. Still, Mr. Scruton had one particularly interesting paragraph that made much sense:

By living in a spirit of forgiveness, we not only uphold the core value of citizenship but also find the path of social membership that we need. Happiness does not come from the pursuit of pleasure, nor is it guaranteed by freedom. It comes from sacrifice: that is the great message that all the memorable works of our culture convey.

Unfortunately, Mr. Scruton makes an almost unforgivable mistake when he assumes that only Christianity favors such sacrifice and forgiveness. The idea that any religion has a monopoly on forgiveness is propaganda, pure and simple. If the three dominant religions believe in one G-d, then forgiveness must flow from the same fountain. A clash of civilizations may indeed occur in some form, but it won't be because one particular religion favors forgiveness more than any other religion. By creating false dichotomies, Mr. Scruton helps catalyze a clash of civilizations that need not necessarily occur.

Thomas Frank's What's the Matter with Kansas?

I just finished Thomas Frank's book, What's the Matter with Kansas? Mr. Frank's enthusiasm for his state comes through loud and clear. I also enjoyed reading about how the Republican Party created a false, too-simple divide between "salt of the earth" red-state residents and "latte-drinking liberals." Still, I can't recommend the book, because I did not pick up any major insights. Also, some of the book comes across as elitist pablum. (More here.)

The entire gist of Mr. Frank's book can be summarized in one sentence: using moral polemics, especially abortion, the Republicans have extracted common sense from the people and caused them to vote against their own interests. Of course, Mr. Frank expands on his thesis, but I've just given you 99% of his literary enchilada.

Another point Mr. Frank makes is that political parties have succeeded in pulling the wool over voters' eyes by getting them to view preferences as most relevant to a person's true intentions:

They call them the liberal elite and they talk about their tastes and their preferences all the time. They run these TV commercials that say liberals are supposed to sip Chardonnay and eat fancy cheese and drink lattés—lattés are especially identified with liberals. And Volvos.

See this interview for more of Mr. Frank's ideas. After you read the interview, if you want to read more about the same ideas, check out Mr. Frank's book.

Bonus round: I didn't read all of it yet, but I already feel comfortable recommending Lowenstein's While America Aged. Below are two links relating to Mr. Lowenstein's book:

http://www.nytimes.com/2008/05/04/books/review/Madrick-t.html

http://fora.tv/2008/05/06/Roger_Lowenstein-While_America_Aged#chapter_01

Saturday, February 7, 2009

National Geographic on Genetics

I always like learning about how our bodies work. I am particularly surprised at how similar our genetic makeup is compared to other species. From February 2009's National Geographic (page. 70):

The notion of genetic switches explains the humiliating surprise that human beings appear to have no special human genes. Over the past decade, as scientists compared the human genome with that of other creatures, it has emerged that we inherit not just the same number of genes as a mouse--fewer than 21,000--but in most cases the very same genes. Just as you don't need different words to write different books, so you don't need different genes to make new species: You can just change the order and pattern of their use.

Perhaps more scientists should have realized this sooner than they did. After all, bodies are not assembled, like machines in factories. They grow and develop, so evolution was always going to be about changing the process of growth rather than specifying the end product of that growth. In other words, a giraffe doesn't have special genes for a long neck. Its neck-growing genes are the same as a mouse's; they may just be switched on for a longer time, so the giraffe ends up with a longer neck.

Isn't that incredible? The analogy comparing "words and books" to "genes and species" made the concept much easier to understand.

Friday, February 6, 2009

Economic Protectionism

Another blogger has an interesting post on protectionism:

http://theendisalwaysnear.blogspot.com/2009/02/p-is-for.html

An excerpt:

P is also for patriotism, a bullet proof cloak that protectionists love to drape around themselves, especially in times of crisis. [Yet,] the free flow of goods and services around the globe can benefit the world.

Thursday, February 5, 2009

CA Bonds Downgraded Again

S&P downgraded California's debt again:

http://online.wsj.com/article/SB123306751662819585.html

http://www.latimes.com/news/local/la-me-budget4-2009feb04,0,2705277.story

California's debt is now the lowest rated in the entire United States. What does this mean for investors? If you don't think California is going to default, you may be able to get good prices on California bonds. As a California resident, however, I am disgusted--and I even predicted this bond downgrade here (on December 19, 2007):

California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk.

I apparently live in a state where legislators can't agree that cutting spending is essential to achieving a balanced budget. My representatives must believe they don't have to exercise fiscal discipline. This stance is troubling when the recession guarantees that state tax receipts will be lower than previous years. Where's Mr. Smith when you need him?

Wednesday, February 4, 2009

Law Firms Not Immune to Recession

The WSJ had a great article on recessions and law firms:

http://online.wsj.com/article/SB123292954232713979.html

What really interests me is the assumptions these now-defunct law firms made. For example, why were they so confident that complex cases, like the Microsoft anti-trust matter, would continue indefinitely? Didn't they realize at some point, all those associates had to work on other cases to bill a sufficient number of hours?

It looks like the recession bankrupted law firms that were inefficient and that failed to diversify. What's the lesson? Whoever ignores the rule of "not putting all your eggs in one basket" does so at his own peril. In law and in stocks, it pays to diversify.

Tuesday, February 3, 2009

A Fun Re-Post about Money

I posted this article a long time ago, but it didn't get too many hits. That made me sad, because it's one of my favorite posts. Here's one part I thought was hilarious:

James Boswell: "In civilized society, personal merit will not serve you so much as money will. Sir, you may make the experiment. Go into the street, and give one man a lecture on morality, and another a shilling, and see which one will respect you the most."

Like Chris Rock's stand-up comedy, it's funny because there's some truth to it. (And to those who haven't seen Chris Rock in action, I highly recommend Never Scared.)

Anyway, the post with the money quotes is here.

Monday, February 2, 2009

Military Intelligence

The Winter 2009 Wilson Quarterly reminds us that even in peacetime, military intelligence is an oxymoron:

The most dramatic instance of a failure to override occurred in the Persian Gulf on July 3, 1988, during a patrol mission of the U.S.S. Vincennes. The ship had been nicknamed ­“Robo-­cruiser,” both because of the new Aegis radar system it was carrying and because its captain had a reputation for being overly aggressive. That day, the Vincennes’s radars spotted Iran Air Flight 655, an Airbus passenger jet. The jet was on a consistent course and speed and was broadcasting a radar and radio signal that showed it to be civilian. The automated Aegis system, though, had been designed for managing battles against attacking Soviet bombers in the open North Atlantic, not for dealing with skies crowded with civilian aircraft like those over the gulf. The computer system registered the plane with an icon on the screen that made it appear to be an Iranian F-14 fighter (a plane half the size), and hence an “assumed enemy.”

Though the hard data were telling the human crew that the plane wasn’t a fighter jet, they trusted the computer more. Aegis was in semi-­automatic mode, giving it the least amount of autonomy, but not one of the 18 sailors and officers in the command crew challenged the computer’s wisdom. They authorized it to fire. (That they even had the authority to do so without seeking permission from more senior officers in the fleet, as their counterparts on any other ship would have had to do, was itself a product of the fact that the Navy had greater confidence in Aegis than in a ­human-­crewed ship without it.) Only after the fact did the crew members realize that they had accidentally shot down an airliner, killing all 290 passengers and crew, including 66 ­children.

The tragedy of Flight 655 was no isolated incident. Indeed, much the same scenario was repeated a few years ago, when U.S. Patriot missile batteries accidentally shot down two allied planes during the Iraq invasion of 2003. The Patriot systems classified the craft as Iraqi rockets. There were only a few seconds to make a decision. So machine judgment trumped any human decisions. In both of these cases, the human power “in the loop” was actually only veto power, and even that was a power that military personnel were unwilling to use against the quicker (and what they viewed as superior) judgment of a ­computer.

Oh, the lack of common sense.

Update: another blogger discusses this issue here.

Sunday, February 1, 2009

Judge to Juror: "Hi Mom"

This blog post, about a judge who keeps his mom on the jury, is fun to read:

http://jurylaw.typepad.com/deliberations/2008/04/judges-mother-o.html

Small towns seem like interesting places.