Sunday, May 31, 2009

Basketball: Orlando and Cleveland

Stat of the Orlando-Cleveland series: Ben Wallace, 22 total rebounds in six games. Remember when that would be his nightly production? I'm not blaming any single player for the loss, but Cleveland needs to give LeBron bigger/taller teammates.

When I look at Cleveland's roster, I see no defensive presence. Wallace is only 6'9''. Gibson, Szczerbiak, and Mo' Williams aren't great defenders. In fact, on many teams, they would be sixth men. I've said it before, and I'll say it again: you can't win an NBA Championship without great defense. If you could, Steve Nash's Phoenix Suns would have three rings now.

My prediction? Orlando in 7 against the Lakers. Orlando's success should not be surprising to fans who followed R. Lewis's career in Seattle. He was putting up 20 points a night regularly. With Turkoglu, Lewis, and Alston, Orlando is always a threat to make a three-pointer, which opens the paint for Howard. As we've seen, that inside-outside threat is difficult to handle. Also, between Pietrus and Howard, Orlando brings enough toughness on defense to win the championship. Pietrus's three-point shooting has been a nice surprise, and if he keeps shooting a high percentage, Orlando will always be in the game.

As for the Lakers, they have Gasol, but he's no Howard. Bynum isn't developed yet to make much of an impact (he scored a whopping 2 points in his most recent game). When you really look at the Lakers' roster, they've got Kobe and Gasol, with the occasional trey from "The Machine." That won't be enough to beat Orlando.

In fact, the only way I see the Lakers winning the championship is if the referees hand them the game. I give Orlando seven games to close out the Lakers, not because I think the talent level is close, but because I think the referees help the Lakers. Orlando is still a young team looking for respect, which hurts them when it comes to getting calls.

For example, did you see the ref call a taunting technical on Howard? On church-going, gospel-listening Dwight Howard?! Meanwhile, Kobe has become much better at handling the referees. Did you see him get Artest tossed? Hands in the air, a look of displeasure on his face, as if to say, "I can't believe I'm in the same room as you." And he still got Artest thrown out. If I'm Stan Van Gundy, I tell my team, "No technicals. I don't care how p*ssed you get. No technicals. We get the ball back and score. Forget the refs. If anyone gets tossed, it'll be me, not you."

Orlando in 7 or fewer.

Sotomayor a Yankees Fan?

The Boston Globe's Ellen Goodman has a great article (May 29, 2009) on Judge Sotomayor:

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/05/29/a_wise_person_for_the_court/

Apparently, Ms. Sotomayor is a Yankees fan. I'm no BoSox fan, but how can she be accused of being pro-underdog when she's cheering on the Yankees? She should have had the good sense to root for the Mets instead, like Julia Stiles.

Best line in the article? Someone describes Justice Roberts as a "relentless champion of the overdog." Hilarious.

Ellen Goodman makes another good point. She reminds us that Justice "O'Connor...praised her successor, John Roberts, saying, 'He's good in every way, except he's not a woman.'"

I talked about Sotomayor before in this post.

Saturday, May 30, 2009

Weekend Recap: Book and Film Rec

Last weekend, I saw a great movie and read a good book.

1. The movie, Sin Nombre, is about two immigrants. One is trying to cross the border to get to New Jersey, while the other is trying to escape being killed by his own gang members. The story is about redemption, loss, and perseverance. Catch this one if you can. A review is here.

2. Mohsin Hamid's book, The Reluctant Fundamentalist, is about an immigrant named Changez ("Changez" is Urdu for "Genghis" Khan, the Mongol invader who attacked the Muslim world). Although this story is about a legal immigrant, one wonders if Changez's troubles aren't as woe-inspiring as the two characters in Sin Nombre.

Changez, a Pakistani immigrant, attends Princeton and falls in love with a woman, who, at first glance, appears to be a beautiful "lioness." After 9/11, she changes, trying to burrow herself in the past, which prevents the relationship from moving forward. By this time, she has become an unexcisable part of Changez. In fact, he has willingly given up part of himself to ensure her happiness and acceptance. Despite gaining the trappings of wealth and prestige (and an American Express expense account), Changez eventually returns to his homeland, a fact we are told upfront.

The story begins with Changez telling his story to an American in a cafe in Lahore, Pakistan. Both men are tense and wary of each other, and while Changez tries to reassure his visitor, it is clear the visitor is on guard. Changez is also on guard, something we see as he provides clues about his visitor. For example, he wonders out loud whether a bulge in the visitor's pocket is a gun or a hidden fanny pack commonly used by theft-wary tourists. We do not know who the American is, but the story builds tension bit by bit and leaves us with an ending that will be interpreted by each reader differently. The Reluctant Fundamentalist can be called a foreign policy Rorschach test. Depending on how you interpret the ending, you will know your view of America, the world, and how they interact.

An interview with the author is here.

Friday, May 29, 2009

Netflix's Annual Shareholder Meeting (2009)

[Note: this 2009 post caused an uproar in the online community, leading to a small Facebook revolt and support from star Marlee Matlin. Within a few weeks, Netflix announced it would enable online captioning by 2010 (but didn't provide specific benchmarks). The real surprise? As of November 7, 2009, not a single mainstream media outlet had formally covered either the issue of online captioning or Netflix's response. Finally, on February 24, 2011, Netflix announced 80% of its streaming content would be captioned by the end of 2011. Thank you to everyone who supported the online captioning campaign.]

[Note: A major media outlet did eventually cover the issue of online captioning--a year later. See here for June 20, 2010 NYT story.]

Netflix, Inc. (NFLX) held its annual shareholder meeting yesterday at its headquarters in Los Gatos, California. The meeting lasted less than half an hour and around fifteen non-employees attended. As usual, only cookies, water, and soda were offered.

The meeting consisted of CEO and Founder Reed Hastings answering shareholder questions. There was no presentation.

I like Reed Hastings. He has great ideas on education reform, and he is smart enough to have caught the eye of Microsoft (MSFT), which placed him on its board of directors. When it comes to annual meetings, however, Mr. Hastings seems like he can't wait to get back to work. That's a laudable trait in a CEO, and most mathematicians (he majored in math) aren't known as overly social animals anyway.

Shareholders' comments were generally half-question, half-compliment. One shareholder praised Netflix's compensation factors, also known as "performance factors." (See 2009 proxy statement, pages 14-15: "to attract and retain outstanding performers, it must provide a challenging work environment. To this end, the Company strives to maintain a high-performance culture.")

Netflix also evaluates employee performance based on several factors, including judgment; innovation; impact; curiosity; communication; courage; honesty; selflessness; and passion. It's unusual for a company to openly tell shareholders that it bases compensation partly on goals like "honesty." Netflix rightfully deserves compliments for having a multi-faceted compensation analysis that includes an ethical component.

Another shareholder asked what the company was doing now that more players were entering the streaming video business. Mr. Hastings answered that Netflix "is always having to compete," and businesses like www.hulu.com were changing the competitive landscape. At the same time, he said, "It's a big landscape," and while there will be "more competition in the future," Netflix was continuing to add subscribers at a healthy rate. Mr. Hastings also said that the most competition came from cable and satellite companies.

Another shareholder asked what Netflix would look like in five to ten years. Mr. Hastings answered that he didn't have a crystal ball, but Netflix currently had millions of subscribers and he hoped to to keep increasing its customer base.

I asked two questions. Page 10 of Netflix's 10K states that Netflix had issues with Starz Play service:

Many of the [streaming video] licenses provide for the studios or distributor to withdraw content from our service relatively quickly...For example, in December 2008, certain content associated with our license from the Starz Play service was withdrawn on short notice.

I asked why Starz Play revoked its license in 2008. Mr. Hastings said he didn't know about that (perhaps he didn't understand my question) and said Netflix currently had a good relationship with Starz Play. When I later pointed him to the 10K, Mr. Hastings said he did not want to comment. He reiterated that Netflix currently has licenses for Starz Play. [Update: when I followed up on the Starz Play question, I read out loud the relevant section in the 10K to Mr. Hastings. He appeared to understand my question the second time and immediately said he had no comment.] I was a little stunned, because Mr. Hastings was not willing to answer a question about a publicly disclosed fact. I realize as a small shareholder, Mr. Hastings doesn't owe me answers on every question I ask, but the Starz Play revocation seemed like an important issue, and an issue that might impact the share price. Although I didn't say it, I was thinking, "If Netflix doesn't want to answer reasonable questions about its company, why did it go public?"

I then mentioned Netflix's failure to add captions/subtitles to its online streaming videos. Netflix's "instant play" option doesn't include captions, making its online video option unusable for many users. As a result of not offering captions, Netflix is alienating its hearing-impaired, deaf, and senior citizen customers. According to some estimates, there are 34 million hearing-impaired persons in the United States. One would think Netflix would think better than to alienate such a large customer base.

I asked what Netflix was doing to make its website and online video accessible to everyone. Mr. Hastings said other online streaming sites didn't offer captions, and mentioned hulu.com as one of them. He said as time progresses, captioning technology will become more widespread, and Netflix would then incorporate it into its own technology. He also said that customers can continue to receive DVDs through the mail, and most DVDs contained captions.

Unfortunately for Mr. Hastings, I use hulu.com to watch Simpsons episodes. Except for a few episodes, every Simpsons episode I've watched had captions. Obviously, the technology exists to make online video accessible to everyone, so I wasn't quite ready to let this topic pass. I gave Mr. Hastings another chance to explain how he would make his business accessible to everyone. I mentioned that hulu.com did indeed offer captions, and I said (paraphrased), "It sounds like you're not planning to do anything to add captions to your site. Am I correct in understanding that you don't plan on making your online videos accessible to the disabled?" Mr. Hastings said he would check out hulu.com, but essentially agreed that adding captions wasn't an active agenda item. Now, I don't want to go Kanye West on anyone, but it didn't feel like Mr. Hastings or Netflix cares about deaf people.

Mr. Hastings is making a poor business decision by not maximizing his site's accessibility. First, Netflix has already signed up the "low-hanging fruit." In order to keep growing and to justify its relatively high P/E, it will now have to maximize its customer outreach efforts. By not even trying to make online video accessible to the disabled, Netflix is losing goodwill and a large potential customer base.

Second, although Netflix wants to grow its online video business, it is subject to the whims of the studios and other content providers. Netflix doesn't have much leverage over the studios, who control their online content and may wonder why they should license content to Netflix. The December 2008 Starz Play incident shows just how vulnerable Netflix is to having its access unilaterally cut off. To encourage content providers to grant Netflix licenses on reasonable terms, Netflix needs to add something of value. Providing captions for online content may be one low-cost method of offering value to content providers. (I don't know exactly how much it would cost to create online video captions, but there are plenty of people in English-friendly countries who would be willing to do the work.)

Third, being insensitive to the disabled will harm Netflix's public image. I am surprised that Microsoft's good corporate citizenship in this area hasn't rubbed off on Mr. Hastings. Although Microsoft gets a lot of bad publicity, it is actually at the forefront when it comes to offering tools to assist the disabled. Here is a list of the awards it has received as a result of its work on behalf of the disabled. Here is one relating to the hearing-impaired community:

Microsoft was recognized among 12 companies and two educational institutions for "extraordinary efforts in promoting equal access to telecommunications and media for consumers who are deaf, hard-of-hearing, late-deafened or deaf-blind..." "TDI commends Microsoft for its special commitment and allocation of resources over the years to introduce and offer accessible and usable software applications for all Americans. With this technology, deaf and hard-of-hearing Americans can fulfill their potential as full, active participants in the general mainstream—regardless of differences in culture, language and communication."

Bet you didn't know about Microsoft's good reputation in the disabled community. That reputation has created lots of Microsoft supporters willing to speak up when others bash the company. In short, there is no need for Netflix to alienate an entire community, especially not one that contains millions of potential customers.

I understand that Mr. Hastings founded Netflix, controls much of the stock, and probably feels like he doesn't need to listen to anyone. At the same time, Netflix needs to more carefully manage its reputation so it maximizes its customer base. It already has many loyal fans and will probably keep growing (though its rate of growth may not be as high as some shareholders would like). Despite my criticism, I love Netflix and am a huge fan of the company. The algorithm that recommends movies has pointed me to many wonderful films I might have never found on my own, like Germany's Ali: Fear Eats the Soul, China's Shower, and Iran's Children of Heaven.

Mr. Hastings did shake my hand after the meeting and told me he wished he had better answers for me. He gets points for that gesture. I hope he will actually do something about Netflix's inaccessible features. In the meantime, I will not be adding to my small position in the stock. Absent a buyout, perhaps from Microsoft, Netflix looks fairly valued to me.

Bonus: I also blogged about last year's annual meeting here, calling it one of the strangest meetings I've attended.

Disclosure: I own an insignificant number of Netflix (NFLX) shares.

Update on June 1, 2009: unfortunately, this doesn't apply to online video, but if you have a complaint about a television show not being captioned, the following link shows you how to make an effective complaint:

http://www.hearinglossweb.com/Issues/Access/Captioning/Television/file.htm

Update on June 13, 2009: Netflix finally issued a statement re: captioning:

Captioning is in our development plans but is about a year away...I would expect to deliver subtitles or captions to Silverlight clients sometime in 2010...

It appears Netflix has changed its tune somewhat, but if you read the comments on the Netflix post, many readers are questioning Netflix's explanations and statements.

As of today, the Facebook group, "Netflix Watch-Instantly Needs Closed Captions!" had 983 members--most of whom joined after my review of Netflix's annual meeting was published.

Update on June 18, 2009: Here is my follow-up post to this story. The pro-captioning Facebook group continues to grow--"Netflix Watch" has 1,129 members.

Update on August 29, 2009: "Netflix Watch" now has over 2,000 members.

Update on April 18, 2010: Netflix has finally captioned some online videos, but only 100 so far. More here. Looking at hulu.com's options, which include online captioning and transcripts, I am still not happy with NFLX's slow progress. I guess it's a start, and better than nothing. Thanks to everyone who helped NFLX realize the importance of online captioning.

Thursday, May 28, 2009

Sotomayor and Judicial Realism

1. Next time people want to place their faith in a judge, remember this name: Judge Samuel Kent. He was a judge in the Southern District of Texas who was sentenced to almost three years in prison for lying about his assaults on two women who worked for him. (See WSJ, 5/28/09, A5). Judge Kent was a federal judge--which confers a lifetime appointment. Guess who appointed him to the bench? President George Bush the First.

2. And now let's move on to Judge Sotomayor. I don't know her. I don't really care, because she'll be replacing a judge who seems to rule in a similar fashion. I'll get interested when someone replaces Alito, Roberts, Kennedy, Thomas, or Scalia. The idea, though, that she's unqualified to be a Supreme Court justice is ludicrous. She made a comment indicating that a Latina female would have a different perspective than a white male. I heard Justice Sandra Day O'Connor--a conservative Reagan appointee--talk about the exact same thing in a Santa Clara Law school lecture many years ago (around 2002).

Justice O'Connor was talking about the Gail Atwater case, where a small-town cop hauled a Texas soccer mom to jail because her kids weren't wearing seatbelts. Justice O'Connor dissented in that opinion. See Atwater v. Lago Vista, (2001). Every single justice in the majority opinion was male. Every single female justice dissented. Justice O'Connor mentioned the gender disparity in her speech with a sigh and a shaking of her head. I interpreted her body language to mean that if more women were involved, the case would have been decided differently.

It should go without saying that a person's background will influence his or her personal opinions. For example, growing up female will present someone with a different--not better, not worse--perspective than growing up male. Does a person's ethnicity or gender mean that s/he will not be impartial when applying the law? Of course not.

Why, then, should we care about diversity on the bench? First, judges hold so much power over Americans--a non-homogeneous group of people--that diversity on the bench is a laudable goal, as long as excellence is not sacrificed. Second, most of us would probably recoil at the idea of a Supreme Court that is 100% African-American, 100% homosexual, 100% Hispanic, or 100% Muslim--why is that the case, if someone's background is irrelevant? I think it's because a lack of diversity indicates that the system for selecting powerful people is flawed. Assuming there are many people qualified to be on the Supreme Court, we should be able to draw from a wide pool of applicants, not just people from one particular ethnicity or gender.

Here, Judge Sotomayor's most relevant characteristic--the diversity of her work experience--is outstanding. She has been a criminal prosecutor (government lawyer); a civil litigator (private lawyer); and even a solo practitioner.

In any case, if Judge Sotomayor is a radical judicial activist, then so is Justice O'Connor.

Battle of the Sexes

Classic line, from Elia Kazan's A Face in the Crowd (1957):

You cold-fish respectable girls...inside, you crave the same thing as the rest of 'em.

The single most regressive piece of American culture is our attitude towards sex. Because we can't address it in an adult fashion, Americans only seem to accept sex when it's watered or dumbed down. Even in Hollywood--hardly a bedrock of decency or morality--Paris Hilton gets attacked by comedians for being sexually promiscuous. Meanwhile, to paraphrase anthropologist Helen Fisher, "If you think men are more promiscuous than women, who do think the men are sleeping with?" (Another one of her gems is, "We were built for reproduction, not happiness.")

I am not sure where I was going with this, except to say that gender stereotypes are as alive as ever. We've progressed from burning witches at the stake, but until women fully harness their sexual power by becoming comfortable with their bodies, it seems they will never attain full power in America. That's a shame. At the end of the day, although men and women are surely different, it makes no sense to use a naturally connecting activity to drive them apart.

A memorable exchange from Kazan's film:

-For a mild man, you sound vicious.

-Didn't you know? All mild men are vicious. They hate themselves for being mild and hate the extroverts whose violence seems to have an attraction for nice girls who should know better.

Tuesday, May 26, 2009

California Supreme Court on Prop 8

There's been a lot of confusion about Prop 8. The California Supreme Court held that the amendment (i.e., Prop 8, which defines marriage as between a man and a woman) does not prevent gay persons from actually raising kids, choosing the partner of their choice, or "entering into an officially recognized and protected family relationship with the person of one's choice." As a result, Prop 8 does not interfere with "substantive" rights and may be lawfully upheld.

The Court, through Justice George, contends that Prop 8 is a semantics issue, because all it does is prevent a particular word, "marriage," from attaching to a particular relationship. Since there's no "inalienable" right to call a relationship by any particular word, the Court reasons that Prop 8 does not infringe upon anyone's state Constitutional rights.

In addition, California has passed other laws protecting civil unions and guaranteeing similar rights to gay persons, so there's little evidence of widespread state discrimination against gay persons on the issue of fundamental rights. [Justice Moreno disagrees, saying the Court already found gay persons to be a suspect class previously, which requires them to use a "strict scrutiny" analysis. A "strict scrutiny" analysis means the Court has to strike down a law unless it is necessary to achieve an end result.]

Justice Werdegar concurs in the opinion, but makes a point of saying that laws actually discriminating on the basis of sexual orientation must "survive the highest level of scrutiny" (she seems to agree with Justice Moreno in spirit). Although she doesn't quite say it, Justice Werdegar apparently doesn't think this particular amendment actually discriminates on the basis of sexual orientation because civil unions provide the same protections as opposite-sex marriage. [She really should have written the opinion--she has a more balanced writing style than Justice George, who is thorough, but pedantic.]

Justice Moreno, the only dissenter, says that once you enact a law, you must treat everyone equally under it. He says that the whole point of the state Constitution is to protect all, not some, individuals from arbitrary government power. Once you overturn that framework, you alter the state Constitution, and the Court has the power to prevent a fundamental alteration to the Constitution. He starts with a great quote from a recent Iowa case:

The absolute equality of all persons before the law [is] the very foundation principle of our government. -- Varnum v. Brien (Iowa 2009)


So it comes down to this: is being able to call your relationship a "marriage" an "inalienable right"? The Court seems to say that "a rose by any other name would smell as sweet."

Personally, I don't think courts can change anyone's personal beliefs, so I am not outraged by the opinion. If anything, I hope this shows the public that the law is generally toothless when it comes to advancing progressive civil liberties. Why is that? Well, the Court decided the issue correctly, at least from a legal standpoint. All but one Justice agreed, which shows you this was an "easy" case to decide. That's just my point: the law isn't designed to change anything--it's designed to provide stability and predictability--the exact opposite of change. Of course, it is also supposed to protect minorities, but here, the Court saw the presence of civil unions as sufficient legal protection. Ironically, if the state had failed to enact civil unions, this case might/should have gone the other way.

The real problem is that the entire institution of marriage is failing. Instead of trying to fix the relatively high divorce rate, marriage proponents have fixated on strengthening the marriage "club" by excluding others from it. Exclusivity is indeed one way of adding value--anyone who belongs to a country club knows that--but it's certainly not the best way. The fact that pro-marriage types have to resort to Prop 8 shows that marriage itself is failing. As a result, this decision isn't a victory for marriage--it's a sign that marriage is so frayed, so weak, that it now relies on negative traits--i.e., excluding others--not positive ones, to bolster itself.

People keep asking how this could happen in California when supposedly more conservative Iowa allows greater protection for same-sex couples. I bet Iowans are more secure in their marriages than Californians and don't mind other people getting married. Gay marriage is a "threat" if you think your own marriage is falling apart and need an external boost to prop it up. On the other hand, if your marriage is fine, and your friends' marriages are doing well, you probably don't feel the need to butt your nose in anyone else's business. Iowans--who basically gave President Obama the Democratic presidential nomination and therefore his eventual election--are probably on the right side of history again.

I interpret the court's decision as a narrow one. The Court held that there is no "inalienable" right under the state Constitution for anyone--opposite-sex or same-sex--to call themselves "married." There is, however, a fundamental right to choose your own partner and raise the kids of your choice. In some ways, this decision might help gay persons get better access to adoption agencies, which I've heard discriminate against gay couples. There is another silver lining: the Court ruled that the 18,000 gay couples who got married before Prop 8 was enacted are still "married" because taking away their marriage would violate due process.

Update: here is Family Code 297.5, which establishes equality between same-sex and opposite-sex unions:

297.5. (a) Registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses.

The California Court's ruling applies only within the state of California. A state supreme court cannot decide federal issues or issues relating to other states' substantive rights.

All of the comments I've heard against the decision--immigration, tax issues, and cross-border rights--relate to federal issues that are unreachable by a state supreme court. Again, state courts cannot interfere or decide federally pre-empted issues. Why not? Because then Californians might be subject to what Mississippi courts decide, and vice-versa. That potential for conflict is why we have a federal government to step in when these kinds of conflicts occur. Unfortunately, our federal legislative body, Congress, is not progressive when it comes to same-sex civil unions. As a result, the issue of same-sex civil unions will probably be resolved by the U.S. Supreme Court. Once you understand the limits of state courts, you should understand that California's state supreme Court decided the case properly and rendered a decision that is pro-gay-rights within the boundaries of its jurisdiction.

How could the United States Supreme Court protect same-sex couples and their ability to enter into state-sanctioned unions? The answer is that the Court must first determine whether gay persons are a protected class, thereby requiring a "strict scrutiny" analysis. The Court might use the passage of the "Defense of Marriage Act" to show governmental animus and bias against gay persons, but that might be a stretch, given that President Clinton signed the bill.

Still, as Justice Moreno points out, there is much supporting evidence that allows a finding of a protected class, such as "Don't Ask, Don't Tell" (i.e., military service discrimination); use of sexual-orientation-based epithets by government officials (see criticism of Barney Frank and the now-discredited belief that gay government employees posed security risks); previous criminalization of gay behavior; and horrific hate crimes committed against gay persons, including but not limited to Matthew Shepard.

There may be a more unorthodox way for the United States Supreme Court to decide these issues. The U.S. Supreme Court could rely on existing case law, which establishes that all persons have a Constitutional right to privacy. Following that principle, the government has no business invading the privacy of persons who wish to marry. Thus, to the extent that any law requires the government to extend a right based on analyzing an individual's sexual relations, then the government is violating an individual's privacy rights. Therefore, if the government chooses to be involved in granting rights based on marriage, it must extend such rights without regard to sexual behavior--which includes sexual orientation.

If I was a betting man, I'd bet that the Supreme Court would prefer to rely on privacy rights to render a decision rather than creating a new protected class. I don't think the Supreme Court would use my exact logic above, but it's important to note that Justice Kennedy, the swing vote, was the writer of the Lawrence v. Texas (2003) opinion. Here is the opening paragraph of that opinion:

Liberty protects the person from unwarranted government intrusions into a dwelling or other private places. In our tradition the State is not omnipresent in the home. And there are other spheres of our lives and existence, outside the home, where the State should not be a dominant presence. Freedom extends beyond spatial bounds. Liberty presumes an autonomy of self that includes freedom of thought, belief, expression, and certain intimate conduct. The instant case involves liberty of the person both in its spatial and more transcendent dimensions. [Emphasis added.]

I am hopeful that the U.S. Supreme Court will decide these issues correctly. But insofar as the California Supreme Court is concerned, it made a legally-defensible decision within the boundaries of its limited jurisdiction.

Update 2: here are some comments I posted on Facebook on this issue:

Do you believe people can invent any term to define a relationship and then force that definition on others? If so, then at what point may a Court step in and say that a particular relationship is invalid and undeserving of tax breaks, the ability to adopt, the ability to inherit money, etc.? The Court's answer is that it must step in when discrimination against "substantive" rights occurs between opposite-sex unions and same-sex unions. Here, in California, the substantive rights--all the ones I just mentioned above--of gay persons are the exact same as non-gay persons because of the state's option of civil unions. The Court had to draw the line somewhere and seems to have chosen a legally-defensible place to draw it by choosing substance over form...

All the court did was rule that the majority of the people can choose to call a particular relationship a "marriage," as long as the state doesn't create "substantive" differences in rights between marriages and civil unions. Thus, as long as "civil unions" confer the same substantive rights as "marriages," people can choose to call one of them a "marriage." In time, most scholars will see the decision as pro-gay rights, b/c the Court strives to ensure that "substantive" rights are protected for all persons, including gay persons...

I agree it would be "separate but equal," except that the Court did not deal with any ongoing government services like schools, water access, or transportation. The Court talked about one word, "marriage." It did not deny anyone's right to have a ceremony, to love a particular person, or to raise kids with that person. The Court saw the issue as pure semantics, i.e., you say tomato (marriage), we say tomatoe (civil unions).

It's also a huge leap--and almost insulting to the Civil Rights movement--to compare Jim Crow's lynchings, police dogs, and separate schools to the current status of gay life in California. I am being very deliberate when I say "California," and not "Wyoming," "Mississippi," or "Maine." It makes me sad to say this, but perhaps the Court and California voters need to see more Matthew Shepards and Charles Howards before they see the denial of gay marriage as a moral issue deserving of legal redress rather than a purely semantic issue.

Funny: Ellen's Commencement Speech

Monday, May 25, 2009

Random Thought: Kazan's Face in the Crowd

I'm going to start calling Rush Limbaugh "Lonesome Rhodes." It's amazing how similar he is to the character in the 1957 Kazan film, A Face in the Crowd.

In Kazan's film, a hillbilly named Rhodes rises up and becomes the voice of the common man in America. Later on, drunk on his own power, he loses his audience.

History Will See this as One of America's Best Speeches

Senator Richard "Dick" Durbin (D-IL):

FLOOR STATEMENT: Treatment of Detainees at Guantanamo Bay

Tuesday, June 14, 2005

Mr. President, there has been a lot of discussion in recent days about whether to close the detention center at Guantanamo Bay. This debate misses the point. It is not a question of whether detainees are held at Guantanamo Bay or some other location. The question is how we should treat those who have been detained there. Whether we treat them according to the law or not does not depend on their address. It depends on our policy as a nation.

How should we treat them? This is not a new question. We are not writing on a blank slate. We have entered into treaties over the years, saying this is how we will treat wartime detainees. The United States has ratified these treaties. They are the law of the land as much as any statute we passed. They have served our country well in past wars. We have held ourselves to be a civilized country, willing to play by the rules, even in time of war.

Unfortunately, without even consulting Congress, the Bush administration unilaterally decided to set aside these treaties and create their own rules about the treatment of prisoners.

Frankly, this Congress has failed to hold the administration accountable for its failure to follow the law of the land when it comes to the torture and mistreatment of prisoners and detainees.

I am a member of the Judiciary Committee. For two years, I have asked for hearings on this issue. I am glad Chairman Specter will hold a hearing on wartime detention policies tomorrow. I thank him for taking this step. I wish other members of his party would be willing to hold this administration accountable as well.

It is worth reflecting for a moment about how we have reached this point. Many people who read history remember, as World War II began with the attack on Pearl Harbor, a country in fear after being attacked decided one way to protect America was to gather together Japanese Americans and literally imprison them, put them in internment camps for fear they would be traitors and turn on the United States. We did that. Thousands of lives were changed. Thousands of businesses destroyed. Thousands of people, good American citizens, who happened to be of Japanese ancestry, were treated like common criminals.

It took almost 40 years for us to acknowledge that we were wrong, to admit that these people should never have been imprisoned. It was a shameful period in American history and one that very few, if any, try to defend today.

I believe the torture techniques that have been used at Abu Ghraib and Guantanamo and other places fall into that same category. I am confident, sadly confident, as I stand here, that decades from now people will look back and say: What were they thinking? America, this great, kind leader of a nation, treated people who were detained and imprisoned, interrogated people in the crudest way? I am afraid this is going to be one of the bitter legacies of the invasion of Iraq.

We were attacked on September 11, 2001. We were clearly at war.

We have held prisoners in every armed conflict in which we have engaged. The law was clear, but some of the President's top advisers questioned whether we should follow it or whether we should write new standards.

Alberto Gonzales, then-White House chief counsel, recommended to the President the Geneva Convention should not apply to the war on terrorism.

Colin Powell, who was then Secretary of State, objected strenuously to Alberto Gonzales' conclusions. I give him credit. Colin Powell argued that we could effectively fight the war on terrorism and still follow the law, still comply with the Geneva Conventions. In a memo to Alberto Gonzales, Secretary Powell pointed out the Geneva Conventions would not limit our ability to question the detainees or hold them even indefinitely. He pointed out that under Geneva Conventions, members of al-Qaida and other terrorists would not be considered prisoners of war.

There is a lot of confusion about that so let me repeat it. The Geneva Conventions do not give POW status to terrorists.

In his memo to Gonzales, Secretary Powell went on to say setting aside the Geneva Conventions "will reverse over a century of U.S. policy and practice... and undermine the protections of the law of war for our own troops... It will undermine public support among critical allies, making military cooperation more difficult to sustain."

When you look at the negative publicity about Guantanamo, Secretary Colin Powell was prophetic.

Unfortunately, the President rejected Secretary Powell's wise counsel, and instead accepted Alberto Gonzales' recommendation, issuing a memo setting aside the Geneva Conventions and concluding that we needed "new thinking in the law of war."

After the President decided to ignore Geneva Conventions, the administration unilaterally created a new detention policy. They claim the right to seize anyone, including even American citizens, anywhere in the world, including in the United States, and hold them until the end of the war on terrorism, whenever that may be.

For example, they have even argued in court they have the right to indefinitely detain an elderly lady from Switzerland who writes checks to what she thinks is a charity that helps orphans but actually is a front that finances terrorism.

They claim a person detained in the war on terrorism has no legal rights -- no right to a lawyer, no right to see the evidence against them, no right to challenge their detention. In fact, the Government has claimed detainees have no right to challenge their detention, even if they claim they were being tortured or executed.

This violates the Geneva Conventions, which protect everyone captured during wartime. The official commentary on the convention states: "Nobody in enemy hands can fall outside the law."

That is clear as it can be. But it was clearly rejected by the Bush administration when Alberto Gonzales as White House counsel recommended otherwise.

U.S. military lawyers called this detention system "a legal black hole." The Red Cross concluded, "U.S. authorities have placed the internees in Guantanamo beyond the law."

Using their new detention policy, the administration has detained thousands of individuals in secret detention centers all around the world, some of them unknown to Members of Congress. While it is the most well-known, Guantanamo Bay is only one of them. Most have been captured in Afghanistan and Iraq, but some people who never raised arms against us have been taken prisoner far from the battlefield.

Who are the Guantanamo detainees? Back in 2002, Secretary Rumsfeld described them as "the hardest of the hard core." However, the administration has since released many of them, and it has now become clear that Secretary Rumsfeld's assertion was not completely true.

Military sources, according to the media, indicate that many detainees have no connection to al-Qaida or the Taliban and were sent to Guantanamo over the objections of intelligence personnel who recommended their release. One military officer said: "We're basically condemning these guys to a long-term imprisonment. If they weren't terrorists before, they certainly could be now."

Last year, in two landmark decisions, the Supreme Court rejected the administration's detention policy. The Court held that the detainees' claims that they were detained for over two years without charge and without access to counsel "unquestionably describe custody in violation of the Constitution, or laws or treaties of the United States."

The Court also held that an American citizen held as an enemy combatant must be told the basis for his detention and have a fair opportunity to challenge the Government's claims. Justice Sandra Day O'Connor wrote for the majority: "A state of war is not a blank check for the President when it comes to the rights of the Nation's citizens."

You would think that would be obvious, wouldn't you? But yet, this administration, in this war, has viewed it much differently.

I had hoped the Supreme Court decision would change the administration policy. Unfortunately, the administration has resisted complying with the Supreme Court's decision.

The administration acknowledges detainees can challenge their detention in court, but it still claims that once they get to court, they have no legal rights. In other words, the administration believes a detainee can get to the courthouse door but cannot come inside.

A Federal court has already held the administration has failed to comply with the Supreme Court's rulings. The court concluded that the detainees do have legal rights, and the administration's policies "deprive the detainees of sufficient notice of the factual bases for their detention and deny them a fair opportunity to challenge their incarceration."

The administration also established a new interrogation policy that allows cruel and inhuman interrogation techniques.

Remember what Secretary of State Colin Powell said? It is not a matter of following the law because we said we would, it is a matter of how our troops will be treated in the future. That is something often overlooked here. If we want standards of civilized conduct to be applied to Americans captured in a warlike situation, we have to extend the same manner and type of treatment to those whom we detain, our prisoners.

Secretary Rumsfeld approved numerous abusive interrogation tactics against prisoners in Guantanamo. The Red Cross concluded that the use of those methods was "a form of torture."

The United States, which each year issues a human rights report, holding the world accountable for outrageous conduct, is engaged in the same outrageous conduct when it comes to these prisoners.

Numerous FBI agents who observed interrogations at Guantanamo Bay complained to their supervisors. In one e-mail that has been made public, an FBI agent complained that interrogators were using "torture techniques."

That phrase did not come from a reporter or politician. It came from an FBI agent describing what Americans were doing to these prisoners.

With no input from Congress, the administration set aside our treaty obligations and secretly created new rules for detention and interrogation. They claim the courts have no right to review these rules. But under our Constitution, it is Congress's job to make the laws, and the court's job to judge whether they are constitutional.

This administration wants all the power: legislator, executive, and judge. Our founding father were warned us about the dangers of the Executive Branch violating the separation of powers during wartime. James Madison wrote: "The accumulation of all powers, legislative, executive, and judiciary, in the same hands may justly be pronounced the very definition of tyranny."

Other Presidents have overreached during times of war, claiming legislative powers, but the courts have reined them back in. During the Korean war, President Truman, faced with a steel strike, issued an Executive order to seize and operate the Nation's steel mills. The Supreme Court found that the seizure was an unconstitutional infringement on the Congress's lawmaking power. Justice Hugo Black, writing for the majority, said: "The Constitution is neither silent nor equivocal about who shall make the laws which the President is to execute ... The Founders of this Nation entrusted the lawmaking power to the Congress alone in both good times and bad."

To win the war on terrorism, we must remain true to the principles upon which our country was founded. This Administration's detention and interrogation policies are placing our troops at risk and making it harder to combat terrorism.

Former Congressman Pete Peterson of Florida, a man I call a good friend and a man I served with in the House of Representatives, is a unique individual. He is one of the most cheerful people you would ever want to meet. You would never know, when you meet him, he was an Air Force pilot taken prisoner of war in Vietnam and spent 6 1/2 years in a Vietnamese prison. Here is what he said about this issue in a letter that he sent to me. Pete Peterson wrote:

From my 6 1/2 years of captivity in Vietnam, I know what life in a foreign prison is like. To a large degree, I credit the Geneva Conventions for my survival....This is one reason the United States has led the world in upholding treaties governing the status and care of enemy prisoners: because these standards also protect us....We need absolute clarity that America will continue to set the gold standard in the treatment of prisoners in wartime.

Abusive detention and interrogation policies make it much more difficult to win the support of people around the world, particularly those in the Muslim world. The war on terrorism is not a popularity contest, but anti-American sentiment breeds sympathy for anti-American terrorist organizations and makes it far easier for them to recruit young terrorists.

Polls show that Muslims have positive attitudes toward the American people and our values. However, overall, favorable ratings toward the United States and its Government are very low. This is driven largely by the negative attitudes toward the policies of this administration.

Muslims respect our values, but we must convince them that our actions reflect these values. That's why the 9/11 Commission recommended: "We should offer an example of moral leadership in the world, committed to treat people humanely, abide by the rule of law, and be generous and caring to our neighbors."

What should we do? Imagine if the President had followed Colin Powell's advice and respected our treaty obligations. How would things have been different?

We still would have the ability to hold detainees and to interrogate them aggressively. Members of al-Qaida would not be prisoners of war. We would be able to do everything we need to do to keep our country safe. The difference is, we would not have damaged our reputation in the international community in the process.

When you read some of the graphic descriptions of what has occurred here -- I almost hesitate to put them in the record, and yet they have to be added to this debate. Let me read to you what one FBI agent saw. And I quote from his report:

On a couple of occasions, I entered interview rooms to find a detainee chained hand and foot in a fetal position to the floor, with no chair, food or water. Most times they urinated or defecated on themselves, and had been left there for 18-24 hours or more. On one occasion, the air conditioning had been turned down so far and the temperature was so cold in the room, that the barefooted detainee was shaking with cold....On another occasion, the [air conditioner] had been turned off, making the temperature in the unventilated room well over 100 degrees. The detainee was almost unconscious on the floor, with a pile of hair next to him. He had apparently been literally pulling his hair out throughout the night. On another occasion, not only was the temperature unbearably hot, but extremely loud rap music was being played in the room, and had been since the day before, with the detainee chained hand and foot in the fetal position on the tile floor.

If I read this to you and did not tell you that it was an FBI agent describing what Americans had done to prisoners in their control, you would most certainly believe this must have been done by Nazis, Soviets in their gulags, or some mad regime -- Pol Pot or others -- that had no concern for human beings. Sadly, that is not the case. This was the action of Americans in the treatment of their prisoners.

It is not too late. I hope we will learn from history. I hope we will change course.

The President could declare the United States will apply the Geneva Conventions to the war on terrorism. He could declare, as he should, that the United States will not, under any circumstances, subject any detainee to torture, or cruel, inhuman, or degrading treatment. The administration could give all detainees a meaningful opportunity to challenge their detention before a neutral decisionmaker.

Such a change of course would dramatically improve our image and it would make us safer. I hope this administration will choose that course. If they do not, Congress must step in.

The issue debated in the press today misses the point. The issue is not about closing Guantanamo Bay. It is not a question of the address of these prisoners. It is a question of how we treat these prisoners. To close down Guantanamo and ship these prisoners off to undisclosed locations in other countries, beyond the reach of publicity, beyond the reach of any surveillance, is to give up on the most basic and fundamental commitment to justice and fairness, a commitment we made when we signed the Geneva Convention and said the United States accepts it as the law of the land, a commitment which we have made over and over again when it comes to the issue of torture. To criticize the rest of the world for using torture and to turn a blind eye to what we are doing in this war is wrong, and it is not American.

During the Civil War, President Lincoln, one of our greatest presidents, suspended habeas corpus, which gives prisoners the right to challenge their detention. The Supreme Court stood up to the President and said prisoners have the right to judicial review even during war.

Let me read what that Court said:

The Constitution of the United States is a law for rulers and people, equally in war and in peace, and covers with the shield of its protection all classes of men, at all times, and under all circumstances. No doctrine, involving more pernicious consequences, was ever invented by the wit of man than that any of its provisions could be suspended during any of the great exigencies of government. Such a doctrine leads directly to anarchy or despotism.

Mr. President, those words still ring true today. The Constitution is a law for this administration, equally in war and in peace. If the Constitution could withstand the Civil War, when our nation was literally divided against itself, surely it will withstand the war on terrorism.

I yield the floor.

Sunday, May 24, 2009

Mark Cuban on the Stock Market

Mark Cuban on the stock market and misaligned incentives:

http://blogmaverick.com/2009/05/06/the-problem-with-the-stock-market

We give far more money to people who play games with financial instruments than we give to people who come up with ideas for the next big thing. That needs to change if we want to remain a leader in this world.

Makes sense, doesn't it?

Friday, May 22, 2009

Berkshire Hathaway (2009) Live Blogging Link

I can't believe I didn't see this link before:

http://www.omaha.com/index.php?u_page=1208&u_sid=10622671

Click on the "replay" button in the middle of the screen, and you'll get a live blogging report from the 2009 Berkshire Hathaway shareholder meeting.

According to the blogger, Charlie Munger made a comment about the subjectivity of bank earnings:

General accounting principles allow banks to show high earnings based on foolish investments. Munger says that kind of accounting should not be allowed.

Thursday, May 21, 2009

War and its Consequences


I hate showing pictures like this, but it's important to see what "collateral damage" really means:

http://english.aljazeera.net/news/asia/2009/05/20095672330997508.html

A US led air strike in Afghanistan is believed to have killed as many as 100 civilians, including many women and children.

This is why war should always be the last resort--no matter how careful anyone is, women and children usually end up paying the price for governments' grand schemes.

On a somewhat related note, President Obama is refusing to release pictures of detainee abuse. It is true that the pictures will be used to recruit terrorists and to fuel fire against American troops, but once the information is made public, America can begin to address the causes of the inhumane conduct and prevent them from happening again. Without disclosure, we look hypocritical when we complain about human rights abuses in other countries. We also run the risk of implicitly condoning inhumane conduct and government secrecy. The worst part is that President Obama switched positions on releasing the pictures, which makes it seem as if the evidence of abuse is so terrible, once the President actually saw the pictures, he thought better than to release them.

Pierluigi Oliverio: My Kind of Politician?

San Jose District 6 voters are lucky to have Pierluigi Oliverio as their representative. He has recognized the need to cut spending and talks about the issue in a sensible manner. He has a blog:

http://www.sanjoseinside.com/sji/blog/pierluigioliverio

Update on October 13, 2009: I recently spoke with someone who is familiar with Pierluigi Oliverio. This person indicated that Pierluigi Oliverio said all the right things, but may not necessarily have the respect or consensus on the Council to garner enough support for his proposals. She did, however, praise Sam Liccardo and Chuck Reed.

Update on October 27, 2009: Mr. Oliverio recently voted against government transparency. Sam Liccardo, bless his soul, voted for government transparency. See here for more.

Update on November 10, 2010: perhaps my contact within the City issued a premature judgment about Mr. Oliverio. Mr. Oliverio helped support Measures V and W, which passed with overwhelming support.

Bonus: here is President Obama's ASU commencement speech. An excerpt:

In recent years, in many ways, we've become enamored with our own success - lulled into complacency by our own achievements.

We've become accustomed to the title of "military super-power," forgetting the qualities that earned us that title - not just a build-up of arms, or accumulation of victories, but the Marshall Plan, the Peace Corps, our commitment to working with other nations to pursue the ideals of opportunity, equality and freedom that have made us who we are.

We've become accustomed to our economic dominance in the world, forgetting that it wasn't reckless deals and get-rich-quick schemes that got us there; but hard work and smart ideas -quality products and wise investments. So we started taking shortcuts. We started living on credit, instead of building up savings. We saw businesses focus more on rebranding and repackaging than innovating and developing new ideas and products that improve our lives.

All the while, the rest of the world has grown hungrier and more restless - in constant motion to build and discover - not content with where they are right now, determined to strive for more.

I love President Obama's emphasis on complacency. America has become too complacent--we spend and spend and forget at some point, the bills need to be paid. We used to have the younger generation as our conscience, but we've loaded them with so much educational debt, they've become part of the establishment out of financial necessity. That's a shame. The road ahead will be long and hard, but America has fought through worse battles before and emerged stronger.

Wednesday, May 20, 2009

Random Thoughts: Tucker Max and Watergate

Random Thoughts:

1. Tucker Max is basically a frat boy version of Hunter Thompson. Am I right or am I right?

2. The song, "Sweet Home Alabama," contains these lyrics, which seem to condone Nixon's Watergate:

In Birmingham they love the governor
Now we all did what we could do
Now Watergate does not bother me
Does your conscience bother you?
Tell the truth

Well, to tell you the truth, it bothers me that my government engaged in campaign fraud, burglary, improper tax audits, and illegal wiretapping. I know the song is supposed to promote its own brand of rebellion, but this just seems to go too far. I can't enjoy this song now that I actually studied the lyrics for the first time. Yet another instance when curiosity killed the song. Sigh.

The Wire: Simon's 2008 Letter

As a fan of HBO's The Wire, I don't know how I missed this. Here is David Simon's 2008 (closing) letter:

http://www.hbo.com/thewire/finaleletter/

We are a culture without the will to seriously examine our own problems. We eschew that which is complex, contradictory or confusing. As a culture, we seek simple solutions. We enjoy being provoked and titillated, but resist the rigorous, painstaking examination of issues that might, in the end, bring us to the point of recognizing our problems, which is the essential first step to solving any of them.

Oh, the agony and the ecstasy of the truth.

Tuesday, May 19, 2009

Susan Faludi, 9/11, and the Military

I was wondering what Susan Faludi was up to these days. Turns out, she's written a new book, on 9/11. She also has her own website:

http://www.susanfaludi.com/index.html

She currently lives in S.F., so perhaps one day I'll get to meet her. I loved reading Backlash and Stiffed.

Surprisingly, the NY Times trashed her new book, The Terror Dream, which I haven't read. Ms. Faludi's main thesis seems to be that 9/11 caused American culture to revert to the old-fashioned paradigms--men as protectors and women as helpless beings needing male protection. I think Ms. Faludi makes a good point, but my angle would have been that fear became a big business post-9/11, which negatively impacts both genders.

When the culture is in a state of fear, it's easy to finance war and more difficult to speak up for peace. For instance, our deficits require us to cut spending, but the 2010 defense budget will be at least $533 billion--a 4% increase over 2009, and the largest expenditure in the 2010 budget when funding is viewed by department. Advocating defense spending cuts doesn't mean you also have to cut soldiers' salaries. It's possible to give America's armed forces a pay raise and still cut the defense budget substantially.

To put the Dept of Defense's $533 billion budget in perspective, the Dept of Homeland Security will receive $42.7 billion in 2010; the Dept of Treasury gets $13.3 billion; and the Dept of Transportation gets $72.5 billion. More stats can be found here.

At least President Obama got rid of the costly F-22 project, for which he should be lauded. Some other defense items were also cut, including a program called a "transformational satellite" (TSAT). "The Government Accountability Office (GAO) noted that the revised date for the launch of the first satellite was 2019 -- almost four years later than previously scheduled."

Random fact: 227,500 men and women from California serve in the military.

Monday, May 18, 2009

Unconventional Thinking, Congress, and Facebook: the War against the Average American

I love these paragraphs from a recent New Yorker article on basketball (Malcolm Gladwell, May 11, 2009, "How David Beats Goliath"):

This is the second half of the insurgent’s creed. Insurgents work harder than Goliath. But their other advantage is that they will do what is “socially horrifying”—they will challenge the conventions about how battles are supposed to be fought. All the things that distinguish the ideal basketball player are acts of skill and coordination. When the game becomes about effort over ability, it becomes unrecognizable—a shocking mixture of broken plays and flailing limbs and usually competent players panicking and throwing the ball out of bounds. You have to be outside the establishment—a foreigner new to the game or a skinny kid from New York at the end of the bench—to have the audacity to play it that way. George Washington couldn’t do it. His dream, before the war, was to be a British Army officer, finely turned out in a red coat and brass buttons. He found the guerrillas who had served the American Revolution so well to be “an exceeding dirty and nasty people.” He couldn’t fight the establishment, because he was the establishment.
T. E. Lawrence, by contrast, was the farthest thing from a proper British Army officer. He did not graduate with honors from Sandhurst. He was an archeologist by trade, a dreamy poet. He wore sandals and full Bedouin dress when he went to see his military superiors. He spoke Arabic like a native, and handled a camel as if he had been riding one all his life. And David, let’s not forget, was a shepherd. He came at Goliath with a slingshot and staff because those were the tools of his trade. He didn’t know that duels with Philistines were supposed to proceed formally, with the crossing of swords. “When the lion or the bear would come and carry off a sheep from the herd, I would go out after him and strike him down and rescue it from his clutches,” David explained to Saul. He brought a shepherd’s rules to the battlefield.
The price that the outsider pays for being so heedless of custom is, of course, the disapproval of the insider. Why did the Ivy League schools of the nineteen-twenties limit the admission of Jewish immigrants? Because they were the establishment and the Jews were the insurgents, scrambling and pressing and playing by immigrant rules that must have seemed to the Wasp √©lite of the time to be socially horrifying. “Their accomplishment is well over a hundred per cent of their ability on account of their tremendous energy and ambition,” the dean of Columbia College said of the insurgents from Brooklyn, the Bronx, and the Lower East Side. He wasn’t being complimentary. Goliath does not simply dwarf David. He brings the full force of social convention against him; he has contempt for David.

I am citing this New Yorker piece in-depth because it perfectly summarizes my own mentality ("tremendous energy"). The "outsider" mentality may be one reason few people can tell I'm a lawyer. Like the immigrant basketball coach, I wholeheartedly agree with playing unconventionally to win, and I'd like to think my own outsider status causes me to act differently than 99% of lawyers. Like the New Yorker-profiled basketball team, I fight corporate Goliaths on a more-than-average basis, and I've gained the ire and disapproval of several of the ultimate insiders--judges. Why should you care? Because, as I will show you, America's legal and political systems are tilted in favor of the establishment and against the middle class.

The problem with the author's basketball/war analogies is they don't emphasize an unfortunate third party--referees. In a large athletic conference, in court, or in war, the bigger entities tend to get the benefit of the call (i.e., a favorable appellate court reversal or the ability to escape war crime prosecution) as well as the benefit of being repeat participants. The author mentioned that in one game when the referees didn't like the coach's style, they called fouls against the team at a 4-1 ratio, causing the unconventional team to lose. The same bias sometimes happens in court.

In court, the big firms and companies sometimes get "assists" from the legal system, even if neither side will ever admit it. Part of that is due to the convoluted evidence code and the expense in admitting certain documents, which are much easier to handle for corporations with large litigation budgets. But even removing the evidence code's rigors, bigger firms and companies are repeat players in court, which builds a familiarity with judges, clerks, and other government workers. For example, I had a case where my client had sued a county. The judge's office was in the same building as the lawyers representing the defendant/government. Whom do you think is going to get the benefit of the doubt in that case?

Making matters worse, many judges tend to be former D.A.s or city/county attorneys. Thus, in many modern day governments, workers in the legislative, executive, and judicial branches tend to know each other. Instead of breeding contempt, this familiarity tends to create an implicit "scratch-your-back and I'll scratch yours, and we'll all retire with our government pensions" culture. Such a culture is against the idea of America itself, which was created with three separate, independent branches so that various factions would fight each other if one branch attempted to increase its power. The founders may not have envisioned a situation where all three branches were riding high on government pensions, automatic payroll deductions from government employees via taxpayers, and lobbyist funding, thereby creating fewer incentives to look out for individual constituents. Indeed, when politicians have lobbyist money, who needs actual voters, except on one day every few years?

In short, corruption doesn't have to involve quid pro quo to result in public harm. All that's necessary is to align interests so no one in power wants to rock the boat. If you look at what's happened with gerrymandering--where the Dems and Republicans have carved up easy-to-win voting districts (in the name of racial justice, no less), it's an easy example of incentives causing corruption.

Consider defense spending. The defense budget is massive--easily one of the largest sources of government expenditures, i.e., taxpayer dollars. Many defense projects involve systems that will not be used more than a few times--making them questionable expenditures--or systems that will not be functional until 2017 and beyond, meaning such projects can afford to have further delays until America has a better balance sheet.

The defense contractors realized that they had to align incentives to keep the money coming, so they started building different pieces of their systems in different states, spreading the wealth and guaranteeing Congressional votes. Some of these projects are unnecessary, but no Senator wants to be the one who tells his district Lockheed Martin is taking its business to another state. So who wins? Defense contractors and defense employees. Who loses? The people--who have to pay the bills for these systems, which requires America to print more money, which weakens the American dollar, restricts future flexibility in spending, and/or causes inflation. Thus, taxpayers, our children, and the country suffer while defense contractors and employees run to the bank. It's not corruption per se, but another case of misaligned incentives.

There are numerous instances of these kinds of misaligned incentives, and the legal system is especially rife with them. First, who makes the laws? You think your Senator and his/her staff are in a D.C. office typing up the next draft of legislation? Usually not. Typically, it's the lobbyist who pays money to get the Senator's ear and then who gives the Senator a proposed bill of law. Who can afford lobbyists? Megacorps and large organizations (such as national unions), not Joe the Plumber or Matt the Small Town Lawyer. Can you see the problem of misaligned incentives yet?

Let me make it even more clear. Congresspersons rely on donations for re-election campaigns and happy constituents. These factors tend to favor the status quo and rich people. For instance, whom do you think has the most money to donate to political campaigns? Joe Six-Pack, Big Labor, or Big Corp? If you think Congress spends its days trying to help the little guy, just remember this: politicians still have to get elected, and to get elected, they need the majority and/or money; thus, Congress can't realistically force the majority to give anything substantial to the minority. In other words, as long as Congress makes the laws, the laws will rarely help minorities who lack substantial assets, such as people of color (generally speaking), the average American family, most small business owners, etc.

One example of corporate America's obvious influence over Congress is copyright law. The internet companies managed to get Congress to pass a law (Digital Millennium Copyright Act, or DCMA) protecting them for hosting copyrighted material on their sites. To summarize, YouTube, Google, Yahoo, Craigslist, and other internet companies get a free pass as long as they follow some guidelines. Now, you'd think Congress would try to protect the end user, i.e., the internet user, who tends to vote. Not at all. If you download a copyrighted song or TV snippet on your PC that belongs to Viacom, Viacom can come after you and sue you and receive statutory damages. If it has filed for a copyright, it may ask for its attorneys' fees, even if it hasn't suffered any actual monetary loss (it's hard to prove that companies actually lose money, because many people wouldn't necessarily have bought the song or TV show they've downloaded for free). [See 17 USC 505 for attorneys' fees provision.]

The attorneys' fees provision is especially terrible for the consumer because it creates an incentive to go after the casual internet user, even if this person hasn't caused the company more than de minimus financial loss. It's also unnecessary, because corporate America has plenty of lawyers on call it can afford to pay out of pocket--it doesn't need a fee-shifting statute to protect its rights.
But what about the small town author who writes a book, only to see someone put it online for free? I've thought about this issue, and I can't come up with a reasonable compromise involving attorneys' fees, but I'm still inclined to just remove the attorneys' fees provision. Without such a provision, copyright holders would leave individuals alone and only sue entities or individuals that caused them major damages or that had enough money to pay damages. (If readers can think of a way to allow copyright holders attorneys' fees in a way that doesn't provide an incentive to sue small-time infringers when damages are de minimus, please add your comments.)

In any case, Congress gave corporate America a sweet deal when it came to copyright laws. Why didn't Congress make some effort to protect the average internet user? Well, the people who drafted the DCMA legislation were affiliated with major internet companies. They wrote what the internet companies wanted and helped get it passed. Congress rubber-stamped the proposal and didn't seem to care enough to protect the average American. Copyright is an issue that impacts almost every average voter. If Congress didn't care enough to protect the average American on this issue, what do you think happens when other laws are passed?
Here's another quick example that shows Congress passes laws to help corporations, not consumers. Facebook users, by using Facebook, have to consent to this provision (as of the time of this publication):

"If anyone brings a claim against us related to your actions or your content on Facebook, you will indemnify and hold us harmless from and against all damages, losses, and expenses of any kind (including reasonable legal fees and costs) related to such claim."

In other words, if you post a music video on your wall, and Facebook gets sued because you posted copyrighted material, you have to pay Facebook's legal fees and damages if it loses in court. Facebook has made you, the average American, an insurer for its business. Will Facebook actually utilize this provision against one of its users? Probably not. Still, the lesson remains the same: Congress clearly cares about corporations and their lobbyists, not the average American; otherwise, it would have made such one-sided indemnification provisions illegal, or at least placed a cap on indemnification reimbursement. In the end, people who think they can change society through new laws are naive. Most of the time, a new law just gives a power-hungry lawyer who happens to know the state Governor or legislator the power to interfere in your life.

I will talk more about the legal system another time. For now, I'll just say that if more non-lawyers knew how the legal system actually worked, more Americans would be libertarians. You want to make America a better place? Start with the tax code. The tax code may be a set of laws, but it's really a system of financial incentives that happens to be codified. Right now, the tax code favors big corporations, nonprofits, large banks, and housing speculation. It doesn't help small businesses much. It doesn't help families enough. That's a shame, but at least it shows who Congress is looking out for these days--mortgage lenders, developers, insurance companies, and big corporations. Where's the anger?

Sunday, May 17, 2009

Sports Time: Chauncey Billups

Just a great, great article on Billups, by Tom Friend:

http://sports.espn.go.com/espn/eticket/story?page=090511/billups

Fantastic reporting. I always liked Billups. Now that I know his background, I like him even more. years ago, I saw Billups and Richard "Rip" Hamilton doing a "Love Connection" celebrity show for charity. Billups and Rip had such a good relationship, it was as if they were real-life brothers.

What's even better about the Denver Nuggets is that they have another player, Chris "Birdman" Andersen, who was also considered washed-up before he joined Denver. Andersen provides the "Dennis Rodman" grit every playoff contender needs. I don't like Kenyon Martin (remember the days when he would flagrantly foul everyone?), and I'm lukewarm on Carmelo Anthony, but Denver has a good shot at making the finals. They have great scorers and decent defenders. When J.R. Smith is on fire, he can make treys from anywhere. With 'Melo giving his teammates open looks, Billups controlling the ball, and Martin, Nene, and Andersen protecting the paint, Denver looks like a good team. Not good enough to win a ring, but maybe good enough to make the finals.

Saturday, May 16, 2009

Bad Teachers: the System Will Protect You

Good teachers, especially the newer ones who haven't had their idealism stamped out, should be treasured. Bad teachers, on the other hand, absolutely tick me off:

http://www.latimes.com/news/local/la-me-teachers3-2009may03,0,679507.story

Kathleen Collins, associate general counsel for L.A. Unified, explained it this way: "Kids don't have a union."

Why do California taxpayers--who are footing the enormous education bills--put up with this?

GE's former CEO Jack Welch talked about teachers' unions at a recent Commonwealth Club event in Santa Clara. He said if you support teachers' unions, you're not pro-kids--you're pro-management. He's correct--teachers' unions represent teachers, not children. If teachers' unions cared about children, they wouldn't make it so hard to get rid of under-performing teachers. They'd also give up some of their lavish benefits, which would allow taxpayers to pay new teachers higher salaries.

Friday, May 15, 2009

The GOP's Problem

Want to know why the GOP has lost its way? John Georgiton from Columbus, Ohio, summed it up perfectly in the WSJ (May 7, 2009, Letters to Editor, A16):

http://online.wsj.com/article/SB124165448243293979.html

Government expenditures can be broken down into major categories: the military, Social Security, Medicare and Medicaid. All other government agencies constitute the final 20% of the budget. The GOP has a hands-off policy for the military and it is not politically possible to make large cuts in Social Security, Medicare and Medicaid and still get elected. If the GOP ran for office telling the 80 million people who will rely on these programs over the next 20 years that the GOP plans to cut their Medicare and Social Security benefits by 50% to give wealthy taxpayers tax cuts, it just wouldn't fly.

The author points out that the GOP considers defense spending a sacred cow. Consistent with its small government platform, the GOP should be willing to cut defense spending. We spend $1.2 trillion on defense--more than the next largest fourteen countries combined. The sooner the GOP returns to its glory days of Eisenhower and Goldwater, the better.

Update: the May 8, 2009 WSJ says we will spend at least $550 billion on defense spending in 2010.

Thursday, May 14, 2009

Safeway Inc.'s Annual Shareholder Meeting (2009)

Safeway Inc. (SWY) held its 2009 annual meeting at its Pleasanton, California corporate headquarters. Shareholders were offered fruits and other food items on a large table. After the meeting, shareholders received a reusable bag with eco-friendly light bulbs and a box of tissues from Safeway's in-house brand, "Bright Green."

Safeway ran its meeting professionally--there were no glitches, and everyone knew exactly what to do and when to do it. One way to measure a well-run meeting is whether the company allows comments on shareholder proposals. (Google did not, causing problems at its meeting.) Safeway passed this basic test--it allowed shareholders to comment on various proposals prior to closing the polls. It also limited comments on the proposals to two minutes.

General Counsel Robert Gordon handled the business portion of the meeting. He started off with some jokes about politicians and lawyers, drawing laughs. He then moved on to the shareholder proposals.

One shareholder submitted two proposals. The first dealt with cumulative voting. According to the SEC, "cumulative voting is a type of voting process that helps strengthen the ability of minority shareholders to elect a director." Put more simply, cumulative voting allows minority shareholders more power by allowing them to concentrate their votes on a single candidate. For example, let's assume you own 100 shares, and there are two director vacancies. Ordinarily, you could only vote 100 shares for each director; however, with cumulative voting, you could combine your votes and vote 200 shares for one director. This proposal failed.

The second proposal was a shareholder "Bill of Rights":

1. Shareholder proposals should be binding, not merely advisory; after all, shareholders own the company and should be treated as owners, not advisory members.

2. Auditing firms should be rotated every five years, because long tenure tends to dilute independence and vigilance. (After several companies have restated results due to shoddy accounting practices, I sympathize with this idea. Who's the watching the watchmen?)

3. Institutional owners should not be able to vote blocks of shares without express approval from their shareholders. (Shareholder Shelton Ehrlich pointed out this might require shareholders who hold mutual funds to sift through hundreds of corporate proxy statements each year. I've seen similar shareholder proposals, including one that required institutional owners to abstain from voting at all.) This proposal also failed.

The final proposal was submitted by Scott Adams (not related to Dilbert's Scott Adams) of the American Federation of State County and Municipal Employees Pension Plan Fund (AFSCME). I've seen Mr. Adams make similar proposals, seeking to ban "golden coffins." He is very effective because he speaks clearly and entertains his audience with humor and visual props, such as a gold-plated nail. "Golden coffins," which AFSCME wants to ban, reward executives and upper management for dying. (You read that right.) Many CEOs, upper managers, and their families receive cash payments when they die. In this case, Safeway also pays former executives cash if they die when they're not working for Safeway, i.e., during retirement. (Again, you read that right.) The key sticking point is that death benefits are unrelated to executive performance and therefore amount to a giveaway of shareholder money. This proposal received 38% of the vote.

I agree with the proposal. If executives want death benefits, why can't they use their own ample salaries to buy themselves and their families life insurance policies? One would think after being paid millions of dollars, executives could afford a policy or an annuity. More important, there is no "pay for performance" element involved in this executive benefit. Companies offer it because other companies also offer it. It's never a good argument to do something because someone else happens to be doing it. Companies and their compensation committees need to understand that executive compensation has become a lightning rod for criticism. As a result, companies that offer excessive salaries and unnecessary benefits reveal how out-of-touch they are, and no one wants to invest in a company that's out-of-touch.

CEO Steve Burd handled the rest of the presentation. I've never met Mr. Burd before, but I became a huge fan. He doesn't avoid questions, knows his company inside-out, is focused, and projects professionalism and confidence without arrogance. I have no doubt that Safeway would be in much worse shape if not for him. During his tenure, Safeway introduced "O Organics" and handily caught the organic food wave. It is now trying to capture the "green" consumer wave with its "Bright Green" product line. Safeway also offers a line of "Eating Right" products to help consumers eat more healthy food. Safeway's other product lines, like "mom to mom" and "Waterfront Bistro," would benefit from more advertising and promotion, but in time, they may become as successful as "O."

It is easy now to admire the strength of Safeway's in-house products, but it is never easy to establish a brand. Under Mr. Burd, Safeway created its "O" brand in less than three years. That's remarkable.

Mr. Burd was especially proud of how his company has managed healthcare expenses. He said Safeway had "flat-lined" healthcare costs, while its competitors had seen 38% increases in costs. Mr. Burd hasn't seemed to sacrifice quality, either. During the meeting, a Safeway employee and cancer survivor stood up and shared an emotional story about how Safeway helped her fight and beat cancer. Mr. Burd was recently invited to the White House to discuss his success in managing healthcare costs with President Obama.

After going through various slides, Mr. Burd opened the floor to questions. A shareholder asked about Safeway's pension and whether it was underfunded. Mr. Burd said that market conditions had reduced the pension's assets, but under a 2006 law, Safeway has time to correct underfunding and increase contributions. (The law is the Pension Protection Act of 2006, and it appears that companies have seven years to correct underfunding).

I asked questions about Safeway's relationship with its unions. I asked what percentage of the company was unionized (i.e., part of a bargaining unit). I also asked what made Safeway able to do so well while offering substantial employee benefits. I added that Safeway must have a special relationship with its unions because most unionized companies fail, or major tension exists between management and labor. One look at car companies (GM, Ford, Chrysler) and airline companies (Delta, Northwest, etc.) shows that unions tend to harm companies that rely on discretionary consumer spending. Safeway and other grocery companies seem to have dodged the union bullet.

Mr. Burd said 80 to 85% of Safeway's workforce is unionized, and Safeway had "very good" relations with Safeway's unions (he seemed to push back on my assumption that Safeway had a great or "special" relationship with its unions). He talked about having realistic expectations. He said that Safeway competes with several non-union companies, and this competition adds discipline [to negotiations]. He also mentioned Safeway's success in controlling healthcare costs. Having relatively fixed healthcare costs means there is more money for overall compensation. (From my angle, saving money on healthcare because employees are healthier not only frees up more money for shareholders and employees, but also results in a happier workforce.)

I also asked Mr. Burd what he was most worried about in terms of competition. Mr. Burd said he wasn't a worrier. He said, "I worry about my kids [not Safeway]." Coming from anyone else, this response might have seemed flippant or arrogant, but when Mr. Burd said it, he sounded sincere. He said his concern was a variant of the real estate mantra of "location, location, location." In his case, however, it was "sales, sales, sales." He pointed out that Safeway was in a unique position--it could borrow money at "less than 1%" interest.

After a few other shareholders asked questions, the meeting ended.

Before I go into my analysis of the stock, I want to commend Safeway's employees. Whenever I go into a Safeway, I receive excellent customer service. Every single time I've asked a question, a Safeway employee will go out of his or her way to help me. In an era where good customer service and just plain decent manners are declining, Safeway stands head and shoulders above most of its competition. I chatted with a Safeway employee on the way to the meeting, and he said he's worked for Albertson's before. He said Albertson's didn't have a good relationship with its union and its employees. I asked what made Safeway better. His response was classic: "Safeway treats me like a human being." Based on my own limited anecdotal evidence, I feel Safeway is doing exceptionally well when it comes to customer service and employee job satisfaction. The only other grocery store where I get a similar feeling is Nob Hill Foods, a Raley's division.

Even though I like shopping at Safeway, I don't own many Safeway shares, which are trading near a 52-week low. Despite having a great CEO and a decent dividend, Safeway shareholders may have a long road ahead. First, as Mr. Burd mentioned, 80 to 85% of Safeway's workforce is unionized. As a shareholder, it's difficult to justify investing in a company where 85% of its workforce, if unhappy, can strike and bring the company to a standstill. (Although Safeway is doing well overall in labor relations, just a few weeks ago, Safeway workers in Denver, Colorado voted to go on strike.)

But Safeway's biggest problem may be what I call the "curse of the middle." In almost every business catering to Americans, the "middle" players have been crushed because of America's steadily declining middle class. In retail, for example, Neiman Marcus and Tiffany (upscale players) have done reasonably well, as have Walmart (WMT), Ross (ROST), and Target (TGT) (cost-conscious players). Mid-level players, however, like Sears, Mervyn's, and Montgomery Wards, have gone bankrupt or are not major threats. The lesson to me seems simple--you either have to win on volume at the lower end of the scale, or on margin at the higher end.

Safeway is a middle-level company, in size and focus. It's much smaller than Walmart and Target, but bigger than Whole Foods Market (WFMI) and Trader Joe's. Safeway's competition is focusing on specific customer niches to win market share, which may harm Safeway's profits. For example, Walmart and Target are aggressively expanding their selection of food products. Safeway's products are generally priced higher than Walmart's. If Walmart continues to expand its selection of food products, it could take business away from some of Safeway's cost-conscious consumers. Meanwhile, affluent consumers may already be going to Trader Joe's or Whole Foods Market instead of Safeway. Thus, Safeway is caught in the middle and may have to rely on cost-cutting to improve shareholder value. As great as Mr. Burd is, a company can only cut expenses so much, especially when it is heavily unionized.

At the same time, Safeway has many positive factors. Most consumers will not buy their produce or food from Target or Walmart. There seems to be a built-in bias right now against buying food at Target or Walmart. Also, Safeway will remain competitive because it offers better quality, convenience, and service than Walmart, Costco (COST), and Target.

I will continue to keep an eye on Safeway. If it maintains its dividend, it could represent a decent value play. Although Safeway stock probably won't ever be a large percentage of my portfolio, I will be rooting for Mr. Burd. At the very minimum, America can learn from Safeway's experience cutting healthcare costs.

Disclosure: I own fewer than 10 shares of Safeway (SWY).

Update on June 13, 2009: CEO Burd recently wrote an op-ed on cutting healthcare costs:

http://online.wsj.com/article/SB124476804026308603.html