Saturday, August 18, 2007

He Got Out While the Getting Was Good

Op-Ed Columnist
The New York Times
August 19, 2007

BACK in those heady days of late summer 2002, Andrew Card, then the president's chief of staff, told The New York Times why the much-anticipated push for war in Iraq hadn't yet arrived. "You don't introduce new products in August," he said, sounding like the mouthpiece for the Big Three automakers he once was. Sure enough, with an efficiency Detroit can only envy, the manufactured aluminum tubes and mushroom clouds rolled off the White House assembly line after Labor Day like clockwork.

Five summers later, we have the flip side of the Card corollary: You do recall defective products in August, whether you're Mattel or the Bush administration. Karl Rove's departure was both abrupt and fast. The ritualistic "for the sake of my family" rationale convinced no one, and the decision to leak the news in a friendly print interview (on The Wall Street Journal's op-ed page) rather than announce it in a White House spotlight came off as furtive. Inquiring Rove haters wanted to know: Was he one step ahead of yet another major new scandal? Was a Congressional investigation at last about to draw blood?

Perhaps, but the Republican reaction to Mr. Rove's departure is more revealing than the cries from his longtime critics. No G.O.P. presidential candidates paid tribute to Mr. Rove, and, except in the die-hard Bush bastions of Murdochland present (The Weekly Standard, Fox News) and future (The Journal), the conservative commentariat was often surprisingly harsh. It is this condemnation of Rove from his own ideological camp — not the Democrats' familiar litany about his corruption, polarizing partisanship, dirty tricks, etc. — that the White House and Mr. Rove wanted to bury in the August dog days.

What the Rove critics on the right recognize is that it may be even more difficult for their political party to dig out of his wreckage than it will be for America. Their angry bill of grievances only sporadically overlaps that of the Democrats. One popular conservative blogger, Michelle Malkin, mocked Mr. Rove and his interviewer, Paul Gigot, for ignoring "the Harriet Miers debacle, the botching of the Dubai ports battle, or the undeniable stumbles in post-Iraq invasion policies," not to mention "the spectacular disaster of the illegal alien shamnesty." Ms. Malkin, an Asian-American in her 30s, comes from a far different place than the Gigot-Fred Barnes-William Kristol axis of Bush-era ideological lock step.

Those Bush dead-enders are in a serious state of denial. Just how much so could be found in the Journal interview when Mr. Rove extolled his party's health by arguing, without contradiction from Mr. Gigot, that young people are more "pro-life" and "free-market" than their elders. Maybe he was talking about 12-year-olds. Back in the real world of potential voters, the latest New York Times-CBS News poll of Americans aged 17 to 29 found that their views on abortion were almost identical to the rest of the country's. (Only 24 percent want abortion outlawed.)

That poll also found that the percentage of young people who identify as Republicans, whether free-marketers or not, is down to 25, from a high of 37 at the end of the Reagan era. Tony Fabrizio, a Republican pollster, found that self-identified G.O.P. voters are trending older rapidly, with the percentage over age 55 jumping from 28 to 41 percent in a decade.

Every poll and demographic accounting finds the Republican Party on the losing side of history, both politically and culturally. Not even a miraculous armistice in Iraq or vintage Democratic incompetence may be able to ride to the rescue. A survey conducted by The Journal itself (with NBC News) in June reported G.O.P. approval numbers lower than any in that poll's two decades of existence. Such is the political legacy for a party to which Mr. Rove sold Mr. Bush as "a new kind of Republican," an exemplar of "compassionate conservatism" and the avatar of a permanent Republican majority.

That sales pitch, as we long ago learned, was all about packaging, not substance. The hope was that No Child Left Behind and a 2000 G.O.P. convention stacked with break dancers and gospel singers would peel away some independent and black voters from the Democrats. The promise of immigration reform would spread Bush's popularity among Hispanics. Another potential add-on to the Republican base was Muslims, a growing constituency that Mr. Rove's pal Grover Norquist plotted to herd into the coalition.

The rest is history. Any prospect of a rapprochement between the G.O.P. and African-Americans died in the New Orleans Superdome. The tardy, botched immigration initiative unleashed a wave of xenophobia against Hispanics, the fastest-growing voting bloc in the country. The Muslim outreach project disappeared into the memory hole after 9/11.

Forced to pick a single symbolic episode to encapsulate the collapse of Rovian Republicanism, however, I would not choose any of those national watersheds, or even the implosion of the Iraq war, but the George Allen "macaca" moment. Its first anniversary fell, fittingly enough, on the same day last weekend that Mitt Romney bought his victory at the desultory, poorly attended G.O.P. straw poll in Iowa.

A century seems to have passed since Mr. Allen, the Virginia Republican running for re-election to the Senate, was anointed by Washington insiders as the inevitable heir to the Bush-Rove mantle: a former governor whose jus'-folks personality, the Bushian camouflage for hard-edged conservatism, would propel him to the White House. Mr. Allen's senatorial campaign and presidential future melted down overnight after he insulted a Jim Webb campaign worker, the 20-year-old son of Indian immigrants, not just by calling him a monkey but by sarcastically welcoming him "to America" and "the real world of Virginia."

This incident had resonance well beyond Virginia and Mr. Allen for several reasons. First, it crystallized the monochromatic whiteness at the dark heart of Rovian Republicanism. For all the minstrel antics at the 2000 convention, the record speaks for itself: there is not a single black Republican serving in either the House or Senate, and little representation of other minorities, either. Far from looking like America, the G.O.P. caucus, like the party's presidential field, could pass for a Rotary Club, circa 1954. Meanwhile, a new census analysis released this month finds that nonwhites now make up a majority in nearly a third of the nation's most populous counties, with Houston overtaking Los Angeles in black population and metropolitan Chicago surpassing Honolulu in Asian residents. Even small towns and rural America are exploding in Hispanic growth.

Second, the Allen slur was a compact distillation of the brute nastiness of the Bush-Rove years, all that ostentatious "compassion" notwithstanding. Mr. Bush and Mr. Rove are not xenophobes, but the record will show that their White House spoke up too late and said too little when some of its political allies descended into Mexican-bashing during the immigration brawl. Mr. Bush and Mr. Rove winked at anti-immigrant bigotry, much as they did at the homophobia they inflamed with their incessant election-year demagoguery about same-sex marriage.

Finally, the "macaca" incident was a media touchstone. It became a national phenomenon when the video landed on YouTube, the rollicking Web site whose reach now threatens mainstream news outlets. A year later, leading Republicans are still clueless and panicked about this new medium, which is why they, unlike their Democratic counterparts, pulled out of even a tightly controlled CNN-YouTube debate. It took smart young conservative bloggers like a former Republican National Committee operative, Patrick Ruffini, to shame them into reinstating the debate for November, lest the entire G.O.P. field look as pathetically out of touch as it is.

The rise of YouTube certifies the passing of Mr. Rove's era, a cultural changing of the guard in the digital age. Mr. Rove made his name in direct-mail fund-raising and with fierce top-down message management. As the Internet erodes snail mail, so it upends direct mail. As YouTube threatens a politician's ability to rigidly control a message, so it threatens the Rove ethos that led Mr. Bush to campaign at "town hall" meetings attended only by hand-picked supporters.

It's no coincidence that this new culture is also threatening the Beltway journalistic establishment that celebrated Mr. Rove's invincibility well past its expiration date (much as it did James Carville's before him), extolling what Joshua Green, in his superb new Rove article in The Atlantic, calls the Cult of the Consultant. The YouTube video of Mr. Rove impersonating a rapper at one of those black-tie correspondents' dinners makes the Washington press corps look even more antediluvian than he is.

Last weekend's Iowa straw poll was a more somber but equally anachronistic spectacle. Again, it's a young conservative commentator, Ryan Sager, writing in The New York Sun, who put it best: "The face of the Republican Party in Iowa is the face of a losing party, full of hatred toward immigrants, lust for government subsidies, and the demand that any Republican seeking the office of the presidency acknowledge that he's little more than Jesus Christ's running mate."

That face, at once contemptuous and greedy and self-righteous, is Karl Rove's face. Unless someone in his party rolls out a revolutionary new product, it is indelible enough to serve as the Republican brand for a generation.

Seeing Is Believing

Op-Ed Columnist
The New York Times
August 19, 2007

Is the surge in Iraq working? That is the question that Gen. David Petraeus and U.S. Ambassador Ryan Crocker will answer for us next month. I, alas, am not interested in their opinions.

It is not because I don’t hold both men in very high regard. I do. But I’m still not interested in their opinions. I’m only interested in yours. Yes, you — the person reading this column. You know more than you think.

You see, I have a simple view about both Arab-Israeli peace-making and Iraqi surge-making, and it goes like this: Any Arab-Israeli peace overture that requires a Middle East expert to explain to you is not worth considering. It’s going nowhere.

Either a peace overture is so obvious and grabs you in the gut — Anwar Sadat’s trip to Israel — or it’s going nowhere. That is why the Saudi-Arab League peace overture is going nowhere. No emotional content. It was basically faxed to the Israeli people, and people don’t give up land for peace in a deal that comes over the fax.

Ditto with Iraqi surges. If it takes a Middle East expert to explain to you why it is working, it’s not working. To be sure, it is good news if the number of Iraqis found dead in Baghdad each night is diminishing. Indeed, it is good news if casualties are down everywhere that U.S. troops have made their presence felt. But all that tells me is something that was obvious from the start of the war, which Donald Rumsfeld ignored: where you put in large numbers of U.S. troops you get security, and where you don’t you get insecurity.

There’s only one thing at this stage that would truly impress me, and it is this: proof that there is an Iraq, proof that there is a coalition of Iraqi Shiites, Sunnis and Kurds who share our vision of a unified, multiparty, power-sharing, democratizing Iraq and who are willing to forge a social contract that will allow them to maintain such an Iraq — without U.S. troops.

Because if that is not the case, even if U.S. troops create more pockets of security via the surge, they will have no one to hand these pockets to who can maintain them without us. In other words, the only people who can prove that the surge is working are the Iraqis, and the way they prove that is by showing that violence is down in areas where there are no U.S. troops or where U.S. troops have come and gone.

Because many Americans no longer believe anything President Bush says about Iraq, he has outsourced the assessment of the surge to the firm of Petraeus & Crocker. But this puts them in an impossible position. I admire their efforts, and those of their soldiers, to try to salvage something decent in Iraq, especially when you see who we are losing to — Sunni suicide jihadists and Shiite militants, who murder fellow Muslims by the dozen and whose retrograde visions offer Iraqis only a future of tears. But we could never defeat them on our own. It takes a village, and right now too many of the Iraqi villagers won’t work together.

Most likely the Bush team will say the surge is a “partial” success and needs more time. But that is like your contractor telling you that your home is almost finished — the bricks are up, but there’s no cement. Thanks a lot.

The Democrats should not fight Petraeus & Crocker over their answer. They should redefine the question. They should say: “My fellow Americans, ask yourselves this: What will convey to you, in your gut — without anyone interpreting it — that the surge is working and worth sustaining?”

My answer: If I saw something with my own eyes that I hadn’t seen before — Iraq’s Shiite, Kurdish and Sunni leaders stepping forward, declaring their willingness to work out their differences by a set deadline and publicly asking us to stay until they do. That’s the only thing worth giving more time to develop.

But it may just be too late. Had the surge happened in 2003, when it should have, it might have prevented the kindling of all of Iraq’s sectarian passions. But now that those fires have been set, trying to unify Iraq feels like doing carpentry on a burning house.

I’ve been thinking about Iraq’s multi-religious soccer team, which just won the Asian Cup. The team was assembled from Iraqis who play for other pro teams outside Iraq. In fact, it was reported that the Iraqi soccer team hadn’t played a home game in 17 years because of violence or U.N. sanctions. In short, it’s a real team with a virtual country. That’s what I fear the surge is trying to protect: a unified Iraq that exists only in the imagination and on foreign soccer fields.

Only Iraqis living in Iraq can prove otherwise. So far, I don’t see it.

Funds Stopped Playing Before the Game Got Ugly

Fair Game
The New York Times
August 19, 2007

TAKE-TWO INTERACTIVE SOFTWARE, the maker of Grand Theft Auto, the shoot-’em-up video game, disclosed last week that it had received a Wells notice on Aug. 9 from the Securities and Exchange Commission, alerting the company to a possible enforcement action.

Take-Two said the notice relates to long-ago option grants that have been under scrutiny for months by the S.E.C. and Robert M. Morgenthau, the district attorney in Manhattan. Three former Take-Two executives pleaded guilty this year to falsifying records related to the options, a result of the investigation by Mr. Morgenthau’s office, which continues.

Well-timed option grants to executives have been a focus of investigators and journalists for the last year or so. But other, more recent developments at Take-Two are noteworthy: the recent selling by some big hedge funds that only last March got together to install new management at the company, and the suspicious trading just ahead of the company’s early August announcement that it could not deliver the newest version of Grand Theft Auto to stores this October.

The delay of the wildly awaited game has certainly hurt Take-Two. Throughout the year, its management repeatedly promised investors that the game would be delivered on time. It did so in April, in June and again on July 9.

But on Aug. 2, the story suddenly changed. Grand Theft Auto IV would be delayed until the second quarter of 2008 because extra development time was required, the company said after the close of trading. Take-Two’s stock fell 16 percent the next day and has declined further. It closed on Friday at $12.25, down 31 percent on the year.

Trading patterns, however, indicate that somebody may have known about the bad news ahead of time. Heavy sellers on Aug. 1 took Take-Two’s shares down almost 5 percent on more than double this year’s average daily trading volume. It was the heaviest trading in the company’s shares since the second-quarter earnings report.

ON an Aug. 2 conference call with investors to discuss the game’s delay, Strauss Zelnick, Take-Two’s chairman, said when asked about the suspicious trading that because the company is so closely watched and its game so anticipated, some leaks are normal. “Leaks aren’t wonderful,” he added. “Having said that, it’s not really the focus of our attention.”

Mr. Zelnick is right. It really is more of a regulator’s issue.

Perhaps more intriguing is the recent dumping of Take-Two shares by SAC Capital Advisors, run by Steven A. Cohen, and the Tudor Investment Corporation, overseen by Paul Tudor Jones. Documents filed by the two funds last week with the S.E.C. report sales they made in the second quarter of 2007. Both funds were involved in a boardroom coup that ousted Take-Two management and directors last spring, but they seem to be abandoning the very management and board they put in place.

Let’s go back to March 20, when Take-Two shares hit a high of $23.79. That was just three days before the annual shareholder meeting at which the company’s management and board were booted.

The removal was the work of three big hedge funds and one mutual fund that got together March 4 with the goal of bringing in a new broom to clean up the troubled Take-Two.

In the effort, SAC Capital and affiliates, which had amassed a 15.6 percent stake in Take-Two, much of it in January and February, and Tudor Investment and affiliates, with 18.7 percent, were joined by D. E. Shaw, a hedge fund, with 9 percent, and OppenheimerFunds, a longtime Take-Two investor, with 23.7 percent.

The foursome reported their collaboration to the S.E.C., as required, and on March 7, they said Mr. Zelnick, chief executive of ZelnickMedia, would lead the cleanup crew. Mr. Zelnick had run BMG Entertainment, the global music label, and 20th Century Fox, the movie studio. Since the funds controlled so many Take-Two shares, Mr. Zelnick was a shoo-in at the annual shareholder meeting on March 23.

Oddly, on April 2, shortly after the group put its new executive and directors in place, it disbanded. Usually, investors who install executives and board members stick around to watch them increase the values of their stakes.

Not SAC and Tudor. By June 30, SAC had dumped almost all its shares; only 10,300 shares remained, worth $123,000. In the same period, Tudor sold almost half its stake, leaving it with 1.9 million shares, valued at around $23 million. D. E. Shaw has not filed for the quarter; Oppenheimer still has a very large stake.

Had the funds gotten wind of problems with Grand Theft Auto IV when they dumped the huge stakes they had only recently amassed? Interestingly, while these professionals were selling their shares, takeover rumors regularly buoyed the stock.

Edward Nebb, a spokesman for Take-Two and Mr. Zelnick, said the funds could not have known because top management discovered only on Aug. 1 that the game was not ready. It told the public the next day. “The process of developing a game such as Grand Theft Auto IV is extremely complex,” Mr. Nebb said. “At some point, management had to make a decision to either ship a game that was not up to the Grand Theft Auto standards or to delay the launch until it was. And that point occurred immediately prior to the public disclosure on Aug. 2.”

So why did SAC and Tudor get out so quickly after they drafted Mr. Zelnick? Representatives for the funds and for D. E. Shaw declined to comment.

Then there is the timing of a recent grant to Mr. Zelnick. Under the terms of a management agreement made in March, he was to receive a large stock option grant at an unspecified date between June and late August. The grant was to be made at the prevailing market price.

The significant drop in Take-Two’s shares since the agreement was struck makes its grant date interesting. Had Take-Two given Mr. Zelnick his options in July, for example, they would have carried a strike price of around $20 a share, well above recent levels. But under an amended agreement made July 26, the stock option grant owed to Mr. Zelnick will now be struck on Aug. 27, reflecting the depressed prices related to the Grand Theft Auto IV delay.

The date is certainly within the time frame of the original agreement. But given that the amendment came on July 26, less than a week before Take-Two disclosed the game’s production delay, one wonders about the timing.

MR. NEBB said the board considered the date to be prudent.

“ZelnickMedia employees did not participate in the board of directors’ decision regarding the date of the option. Independent members of the board made the decision to set the date and announce it well in advance, and they chose Aug. 27, 2007,” he said.

Now Mr. Zelnick must deal with the disappointment of a delayed game and the missed revenue it would have produced in the latter part of the year.

Still, he is doing what he can to calm investors.

On Aug. 9, the day Take-Two received the Wells notice, Mr. Zelnick and other company officials were meeting with investors at an invitation-only event in Beaver Creek, Colo. The event, sponsored by Janco Partners, a brokerage firm in Greenwood Village, Colo., that has been a big bull on Take-Two’s shares, included a reception and dinner and, the next morning, a 45-mile bicycle trip to the Vail pass with Andy Hampsten, a former professional cyclist.

At least that pesky Wells notice didn’t ruin the fun.

The Death of a Fisherman in a Place of Good Water

Our Towns
The New York Times
August 19, 2007


The eulogies at Calvin Lester’s funeral were mostly about small acts, not big thoughts.

The time he and his friend, Billy Havens, ages 11 and 12, bought a 1954 Ford for $25, ripped the doors and fenders off and turned it into a dune buggy. His daughter Kelly’s remembrances of the bliss of being with her dad salvaging lobster gear after a storm off Gardiners Island.

“I just keep thinking he hated it when I cried,” his daughter’s eulogy read. “He doesn’t want us to cry over him. We have to pick up the pieces and carry on and keep fishing.”

But there were lots of tears this month when they parked Calvin Lester’s fishing dory outside the funeral home in East Hampton and buried him at the age of 54. There were tears because he died of cancer way too young, tears because he was so good at what he did, someone, it was said, who could drag a scallop dredge down a driveway and come up full of scallops.

And there were tears because everyone knew that when they buried Calvin Lester, they buried the most powerful link to the Hamptons’ fishing past, the person most at home in the disappearing world of South Fork baymen that was recounted in “Men’s Lives,” Peter Matthiessen’s 1986 book.

Calvin Lester’s father, Captain Bill Lester, fished well into his 80s. When he said, “Just as long as I can crawl, I’m going down there,” he could have been reciting the family creed. The Matthiessen book told of another family patriarch, Ted Lester, Calvin’s uncle, who, even when he was near death, “still had to jump into the car every damn morning, run down and make sure that ocean was still there.”

Calvin Lester quit school at 16 to fish full time. He learned from his father and others about tides and wind, where to find weakfish, bluefish and striped bass, how to operate fyke traps, pound traps and drift gill nets, most importantly how to run a five-man crew that set the ocean haul seines that were most effective in netting striped bass, the baymen’s money fish.

This was about skill, strength, knowledge and cunning. But it was also very much about a way of life. So he became, in some ways, the last of the Bonackers, the East End natives, born of the sea. When the Lost Tribe of Accabonac was formed in 1984 to bring together natives of East Hampton, he became its president. When people looked for the consummate fisherman, someone who could catch any fish, find clams, oysters, scallops or lobsters when the season was right, that was Calvin Lester, too.

It was never an easy life, with mornings that began at 3. And members of the tribe feel it’s a life that’s been under assault for decades with restrictions on netting, rising costs for everything from gas to land. To him and others the harshest blow came in 1990 when the state banned ocean seines to catch striped bass, which many saw as a death blow to small fishermen.

Twenty years ago there were about 150 people working as full-time baymen. Now there are perhaps 20. His older children, Danny, 34, and Kelly, 30, do it part time. His youngest son, Paul, 28, it is said, could end up the last full-time bayman standing.

“It made him a bitter person,” Kelly said. “But he didn’t sit and cry. He had bills to pay and a family to support and he did what he had to do to stay on the water. And he was very proud that he could make a living on the water no matter what.”

HE was, everyone said, a man of few words, who took care of others before he took care of himself — witness the cigarette invariably dangling from his mouth. But his work and the life he led spoke for him. So, like his father, he went to the sea to the end, bringing in fish from the pound traps the weekend before he died.

“Calvin had an extraordinary connection to nature, to the sea, to the creatures who lived in it,” said Arnold Leo, who worked with him in the East Hampton Town Baymen’s Association. “He represented a strain of spiritual awareness and communal values, which we’re losing contact with every day.”

Calvin Lester, he said, was more than the embodiment of a quaint way of life that has to go because hedge fund managers need places to build houses on the beach. He was the embodiment of a set of skills, a turn of mind, a connection with nature that we lose at great cost.


Vick Is Trapped in His Circle of Friends

Sports of The Times
August 19, 2007

The crooked circle Michael Vick drew around himself has tripped and squeezed him.

The first to fail Vick was Davon Boddie, a cousin and personal chef. His marijuana possession charge in April led police to a white house with black buildings behind it on Moonlight Road in Surry County, Va.

The first to flip on Vick was Tony Taylor, a fast friend from Newport News, Va., with an arrest record for drug trafficking and a traffic record for reckless driving. He pleaded guilty last month in the macabre dogfighting case that has consumed the N.F.L.

The latest to betray Vick is Quanis L. Phillips, a friend since middle school. Along with Purnell A. Peace, Phillips, who once served jail time on a drug charge, accepted a plea deal Friday and implicated Vick as the owner and operator of a dogfighting ring. Vick was Phillips’s sole breadwinner. “At certain times,” a court summary of facts stated, “Phillips used a large portion of his money for living expenses.”

Vick employed friends and housed pals. As several athletes have told me over the years, it’s better to set up friends as personal employees than give them, as one said, a “roll of hundreds” every day.

“There is a feeling that being in business makes the relationship even tighter because now they can say, we have another thing that keeps us together,” said Jonathan F. Katz, a Manhattan sports psychologist and founding partner of High Performance Associates, who consults with amateur and professional athletes. “But it’s potentially very dangerous.”

Group dynamics can collapse under pressure. Vick has been abandoned, left to contemplate a plea deal that could imprison him and ruin his N.F.L. career. He is stunned, those in his camp say. Snitching is a street sin, isn’t it?

“That’s all make-believe,” said Cris Carter, a former star receiver who addresses players at the N.F.L.’s seminars about the dangers of dubious associations. “That’s too many TV shows. In the end, it’s about self-preservation.”

And yet the crew, as Vick once called them, was bound together by survival.

“We all stuck together before I was Mike Vick, before the fame and stardom, before the money,” Vick told The Atlanta Journal-Constitution in 2005. “There’s not one new guy in my circle. Everybody I have around me is out for my best interests.”

What a fool, right? But even a logical response — how could Vick risk millions in salary on what court documents say were $5,000 hits here or there for pals amid a ghoulish underworld? — has to include a complicated ethos.

“I just think there are some parents in the African-American culture who have preached a philosophy of you can’t trust white America,” Carter said. “The league is still run by Caucasian males. What’s engrained is mistrust. So guys hold tight to friends who always had their back.”

This is an observation by Carter, not an excuse, because he tells players that stereotyping will lead them nowhere, that dark associations will find light in a see-all society, and that, first and foremost, “They have to grow up.”

Arrested development is a creature of the star system. Vick flunked adult accountability in a superstar culture that doesn’t demand it. Repercussions are for second-stringers. With the Falcons, Vick always carried an explanation or apology or denial for everything, like the night friends were picked up for drug trafficking in his truck, or the false-bottomed bottle that was confiscated by security at an airport or the obscene gesture he made to fans.

The Falcons’ owner, Arthur Blank, was as much a sucker for Vick’s talent as he was for his quarterback’s disarming charm.

A solution for the N.F.L.’s entourage culture — one that has derailed Tank Johnson and Pacman Jones and even played a role in January’s shooting death of the Broncos’ Darrent Williams — is contradictory on its surface.

Can a hard line by teams be intertwined with a more open atmosphere?

There has to be more dialogue, as in real discussion about race relations and trust. And yet owners need to risk alienating stars — even losing games — to stop their serial enablement of entitlement.

By the time Commissioner Roger Goodell slips into his Judge Judy robe, it’s too late.

This doesn’t mean athletes have to cut out everyone. Relationships can be vital in a supportive role — with parameters of accountability. Years ago, when his workplace was Madison Square Garden, Marcus Camby housed a childhood friend, Tamia Murray, who was a street hustler and at the root of an agent scandal that disgraced Camby and UMass.

“Tamia is a guy who will always be in my corner,” Camby said at the time. “And I’ll always be in his corner.”

Camby employed Murray as his driver, but they rarely cruised. They hunkered down in a gated home. By going nowhere, they never found trouble when Camby was a Knick.

Sometimes, the best circle around a player is a moat.


An M.L.S. Rivalry Begins to Stir

Sports of The Times
August 19, 2007

East Rutherford, N.J.

The category is: Know your North American sports rivalries.

David Beckham is nothing if not astute. When asked to compare the rivalry between the Red Bulls of New York and his Galaxy of Los Angeles, Beckham referred to “the Yankees and Dodgers — am I right here?”

Beckham made his first Major League Soccer start last night and assisted on two goals by Carlos Pavón in the first eight minutes.

As a man who named his firstborn Brooklyn (that holy borough is where he and his wife, Posh Spice, were when they heard they were expecting), Beckham does have a feel for things American, and not only direct deposits into his account, either.

The Yankees and the Dodgers have not met in the so-called World Series since 1981, but they are mythic rivals forever, even though they exist on opposite ends of this large continent. The Galaxy and the Red Bulls have not exactly struck the same sparks in the first 11 years in Major League Soccer, but they are separately emerging from the old conservative game plan.

Beckham, the $32.5 million symbol of new priorities, created the flashbulb-popping, souvenir-shopping frenzy of the huge crowd at Giants Stadium last night, evoking the days when galácticos like Pelé and Beckenbauer and Chinaglia strode the land.

The Red Bulls are taking a different path, stocking up on talent, young and old, as different as the 31-year-old Colombian Juan Pablo Ángel and the 17-year-old American Jozy Altidore.

Rivalries only work when the teams are good. The Galaxy was a horrible team this year, at least until Beckham right-footed a free-kick goal and assisted on another goal in a SuperLiga match Wednesday night.

The Red Bulls are already revived in their first full season under Bruce Arena, who has merely improved the University of Virginia, D.C. United, the United States national team and now the Red Bulls.

Going into this year, the Red Bulls had a record of 134 victories, 157 losses and 47 draws, but before last night they were 9-7-3 in league matches. Arena has no problem with the Beckham model of urban renewal.

“David Beckham is a whole different animal,” Arena said the other day, comparing Beckham with some of the older stars who have played in this league.

“Let’s be fair about David Beckham,” Arena said, as close to gushing as he ever comes. “All right, maybe he wasn’t the FIFA player of the year, but he’s done just about everything else in his career. This guy is the real deal. Maybe he’s not Ronaldinho or Zidane or the Pelés of the world, but he’s fantastic.”

Meanwhile, Arena has put together a potent team with Ángel, from Medellín, and previously a striker for Aston Villa in the English Premier League.

“I always kept tabs on him,” Arena said. “He had a great start with Aston Villa last season, but then they brought in a new coach and all of a sudden he wasn’t playing. I said, We really ought to stay in touch with him. To be honest, I didn’t think we could get him, but he decided he wanted a new challenge.”

New York, which had been searching for the great Colombian hope, now has one in Ángel, who has recorded 10 goals and 3 assists in 13 league games. Part of Ángel’s success comes from being paired with the 6-foot-1, 175-pound Altidore, who turns 18 on Nov. 6. He was born in Livingston, N.J., to parents of Haitian descent, and was already in the hopper when Arena joined the Red Bulls last summer.

“As the national coach, I saw him with the under-17 team,” Arena recalled. “He wasn’t the player one could predict. The first time I met him last July, my first impression was his physical presence. There was no way he was only 16.

“The most impressive thing about him is that he is a bright young man, a respectful young man, very, very unique,” Arena volunteered. “He doesn’t shoot his mouth off, even if he disagrees with you. He listens. He was brought up the right way.”

Arena’s remarks could be taken in the context of Freddy Adu, who played his first league game at 14 and was also a mature young prospect but became impatient when he did not become a star. Now 18, Adu, is playing in Portugal, and more power to him.

Meanwhile, Altidore had five goals and four assists in 14 league games this year, after scoring the Red Bulls’ only goal in last year’s playoffs. (The club has won exactly one playoff series, back in 2000.)

“I hate to talk like this because I think we’ve made so many mistakes with kids with a bright potential,” Arena said. “But having said that, I think he’s a good one, compared to other players around the world.”

Arena noted that his first D.C. United championship team in 1996 had eight or nine national-level players. The Red Bulls have none. The Galaxy has David Beckham. Does that create a Dodgers-Yankees kind of rivalry?

It sold a ton of tickets for last night. Right now, that looks good to the entire league.


Fed moves to halt market meltdown

By Nick Beams
18 August 2007

If a week is a long time in politics, then two days in the financial markets can be even longer. Last Wednesday, William Poole, president of the St Louis Federal Reserve Bank, told Bloomberg TV that the subprime mortgage rout did not threaten US economic growth and that only a “calamity” would justify an interest rate cut.

It was premature, he said, to suggest that “this upset in the market is changing the course of the economy in any fundamental way” and no one had “called up and said the sky is falling.”

It seems that the Federal Reserve Board and its chairman Ben Bernanke had different information. In a hastily summoned video conference on Thursday night they decided to cut the discount rate that banks have to pay on overnight loans. While the federal funds rate remains at 5.25 percent, the discount rate was reduced by 50 basis points from 6.25 percent to 5.75 percent.

Announcing the decision before the stock market opened on Friday, the Fed said that the deterioration in market conditions and tighter credit, coupled with increased uncertainty, had the “potential to restrain economic growth” in the future. It judged that “the downside risks to growth have increased appreciably.” Inflation, which, up to now the Fed had insisted was the main problem facing the economy, did not rate a mention—pointing to the strong possibility of a cut in the federal funds rate when the Fed’s open market committee meets on September 18.

The Fed maintained it was taking the action to “promote the restoration of orderly conditions in financial markets” and that the changes would “remain in place until the Federal Reserve determines that market liquidity has improved materially.” It would continue to accept a broad range of collateral for “discount window” loans, including home mortgage and related assets. One of the chief causes for the drying up of credit has been the inability of financial companies holding such assets to obtain short-term funds through the normal operations of financial markets.

The Fed intervention came after a wild day on Thursday, in which stocks fell by as much as 343 points. Had the plunge continued, the market would have dropped more than10 percent from its previous high, giving rise to concerns that, rather than a “correction”, something more serious was occurring.

With barely half an hour to go, a seemingly miraculous turnaround occurred. The market gained more than 200 points and, at one stage, entered positive territory, before closing just 15.69 points down.

The sudden turnaround suggests an organised intervention, possibly orchestrated by the President’s Working Group on Financial Institutions, sometimes known colloquially as the Plunge Protection Team.

Last Monday the Wall Street Journal reported that the group had already initiated action in response to growing instability:

“The market turmoil prompted the President’s Working Group on Financial Markets—the Treasury, the Fed, the SEC and the Commodities Futures Trading Commission—to trigger protocols established by Mr. Paulson shortly after he took office last year. They include a detailed list of who is going to call financial institutions, risk managers, traders and chief executives to keep tabs, how often they should call and the like. When he first joined Treasury from Goldman Sachs, Mr. Paulson instructed Emil Henry, then the Treasury official in charge of financial institutions, to craft guidelines for five or six ‘meltdown’ scenarios. One was a catch-all ‘General Withdrawal from Risk Taking’. Others include a liquidity crisis, stock-market meltdown and oil shock. The Working Group has held conference calls, principally among staff, at least once a day in recent days.”

Whether or not there was a direct intervention, it was clear that Thursday’s revival would not be sustained, and that unless immediate action were taken, the market would fall rapidly when trading opened on Friday. This was the immediate impetus for the Fed’s decision.

The necessity for action was underlined by Friday’s developments in Asian markets. Steady falls were recorded across the region in the morning and, in the afternoon, the Japanese share market plunged.

The benchmark Nikkei 225 index fell by 5.4 percent, its most rapid decline since the September 11, 2001 terrorist attacks. The chief cause of the slide was the 10 percent fall in the shares of export-oriented companies in the wake of a rise in the value of the yen.

Komatsu, the construction equipment manufacturer, which obtains most of its revenue from abroad, dropped 11.6 percent, Nippon Yusen, the country’s biggest shipbuilder, fell 10.4 percent and Toyota, the world’s biggest carmaker, fell 7.2 percent.

The increase in the yen’s value has been precipitated by the unwinding of the so-called carry trades, in which money borrowed in Japanese markets, where interest rates are relatively low, is invested in markets where the interest rate is higher. With credit tightening across world markets, investors moved out of riskier assets funded by loans in the Japanese currency, causing the yen’s value to rise.

In a bid to stabilise the situation, the Bank of Japan added 1.2 trillion yen ($10.7 billion) to money markets on Friday, making it the tenth time this year it has intervened to provide liquidity to the banks.

At Friday’s market closure, the Dow Jones index was 233 points up, no doubt bringing a sigh of relief from central bankers and government officials. But no serious observer believes the Fed’s intervention has solved the underlying problems in credit markets that are responsible for the crisis. It was, at best, a holding measure—until further problems bubble to the surface.

Fun and Games, and Hope

Op-Ed Columnist
The New York Times
August 18, 2007


I saw what probably was the biggest smile in the state of Massachusetts on Thursday, but I’ll get to that later.

The day started with a drive across an obscure two-lane bridge to an all-but-forgotten island in Boston Harbor. The city’s skyline glistened beyond the silvery expanse of water off to the left.

The mayor of Boston, Thomas Menino, was in the front seat of the S.U.V. I’ve been writing recently about kids trapped in urban combat zones where bullets are apt to fly at any moment and the residents in some neighborhoods are taking horrendous casualties. As we came off the bridge and passed through a wooded area, Mayor Menino promised that we were about to see the absolute antithesis of that kind of environment.

“You have to give kids hope and an alternative to the streets,” he said.

Mr. Menino’s alternative is a place called Camp Harbor View, a respite from city life that’s a 20-minute drive and light years away from Boston’s roughest neighborhoods.

The first thing you notice are the kids, hundreds of them in T-shirts and shorts engaged in a mind-boggling array of supervised activities: rope-climbing and soccer, baseball and basketball, swimming and hiking and fishing, dancing and singing and arts and crafts.

The grounds that the youngsters play on are pristine. A spotless beach slopes gently down to the harbor. The city shimmers on the other side of the water, like a mirage.

Harbor View is a day camp for kids 11 to 14 who are bused in each morning to an environment that is the closest some of them have come to nirvana.

“I didn’t know life could be like this,” said Nilza, a 12-year-old girl from Dorchester. “There’s no fighting ’cause that’s a rule here — not to fight.”

A boy standing beside her happily agreed.

“There’s no violence here,” he said. “And no trash on the ground.”

On the first day, the kids are issued backpacks, T-shirts, a couple of pairs of shorts, sneakers and other personal items.

The mayor said, “I can’t tell you how many of them ask, ‘Do we get to keep this?’ I tell them, ‘Yes. It’s yours.’ ”

The kids are given three meals a day, prepared by a first-rate catering company. Junk food is nowhere in sight. The camp experience lasts about a month, during which the kids are taught a variety of new skills and are encouraged to develop leadership traits.

The camp was Mayor Menino’s idea, but getting it going was a heavy lift. There was no money in the budget for such an initiative.

It took an extraordinary $10 million fund-raising effort by a retired advertising executive named Jack Connors, and an equally extraordinary construction effort by workers who at times pitched tents and slept on the island to get the camp ready for the kids by the start of this summer.

It hasn’t always been easy for the kids, either. A 14-year-old named Tyler has embraced the camp as a refuge from the violence in his South End neighborhood.

“Some of my friends have gone to jail already,” he said. “You know, for having guns and shooting. The people here aren’t like that.”

The mayor and camp officials told me later that some of Tyler’s friends have been harassing him, trying to persuade him to quit the camp.

“But he comes here every day,” Mr. Menino said.

Now there were voices raised behind us, and we turned to see a kid in a harness and helmet standing atop a pole about four stories high. The harness was attached to a network of ropes above the youngster, who was frightened.

He was supposed to jump and counselors controlling the ropes would guide him safely to the ground. But he couldn’t bring himself to do it.

Now a chorus of encouraging shouts went up. “You can do it! You’ll be fine! Jump!”

When the kid leaped from the pole, everybody cheered. He drifted toward the ground as though floating in a parachute and gently touched down. His smile lit up the afternoon.

Mayor Menino and the others responsible for Camp Harbor View haven’t remade the world. They’ve simply improved the environment, temporarily, for several hundred youngsters who deserved a break.

They’ve offered the kids a range of healthy activities and supervision. They’ve shown the kids that somebody cares about them. And they’ve tolerated no nonsense.

Mr. Menino’s grin, as we drove back over the two-lane bridge, was almost as wide as the smile on the kid who survived his four-story leap.

Of Mitt, Monks, and Mowers

Op-Ed Columnist
The New York Times
August 18, 2007

Mitt Romney’s campaign has been trying to position him as the conservative alternative to Rudy Giuliani. They went searching desperately for examples of Rudy’s closet liberalism that do not involve things Mitt himself was doing until about five minutes ago. (Divorces will only take you so far.) They pounced on immigration, and, suddenly, New Yorkers discovered they are living in a “sanctuary city.”

Who knew? In fact, according to Romney, New York is “the poster child for sanctuary cities in this country.” A whole new self-image thrust upon us. It’s like discovering that someone entered you in a reality contest without your knowledge and that you have been chosen to compete in “So You Want to Be a Capuchin Monk!” this fall on Fox.

At issue is the fact that, like the city’s mayors before and after, Rudy Giuliani told New York police officers, hospital workers and school officials that it was not their job to check people’s immigration status. This is a perfectly rational position. If you’ve got hundreds of thousands of undocumented people living in your town, you want them to be willing to report crimes, to go to a doctor if they have a communicable disease, to keep their kids in school and off the street.

That makes your city — a sanctuary! “Sanctuary city” is the new “amnesty” — a right-wing buzzword aimed at freaking out the red state voters. There is, of course, the small side effect of making it utterly impossible to have a rational policy-making discussion about a critical national issue.

But what the heck. We’re talking Iowa.

“If you look at the Web sites of sanctuary cities, New York is at the top of the list,” Romney told an audience there last week, launching into a plan to punish said cities by cutting off their federal funding. Iowans live in an aging farm state with a static population of about 2.9 million. According to Census Department estimates, the number of foreign-born residents has risen by about 12,000 in the last five years. You’d think they’d be happy to see somebody moving in.

To be utterly accurate, New York City is not at the top of the list on “sanctuary city” Web sites, which tend to be alphabetized. We are middle-of-the-pack people, far, far below the “C” residents in Cambridge, Mass., whose city was near the top of the list when Romney was governor.

Cheap-shot break: Mitt Romney’s well-manicured suburban lawn was kept that way by illegal immigrants. The workers were hired through a local landscaping company. The Boston Globe tracked some of them down back in their native Guatemala, and they said they worked for $9 to $10 an hour and that Romney had never inquired about their legal status, reserving his interaction to an occasional “buenos días.”

I am only bringing this up because there seems to be a modern-day political rule under which people who hire illegal immigrants as nannies become ineligible for public service in any form, while those who hire illegal immigrants as lawn mowers and hedge trimmers get a free pass. I’m sure there is an excellent reason for this that has nothing to do with the fact that the nannies do work normally performed by women while mowing the lawn is a guy’s job.

When Romney was governor, his very, very short list of anti-illegal immigrant efforts included signing a bill giving state police officers the power to enforce federal immigration laws. The impact on undocumented residents of Massachusetts was reminiscent of Mitt’s famous drive to elect more Republicans to the State Legislature, which led to an increase in the number of Democrats. One of the Romneys’ illegal immigrant gardeners told The Globe that when the state policeman who parked in the governor’s driveway all day asked for his papers, he resolved the problem by promising to go get them and then not walking past the trooper’s car anymore.

There’s nothing wrong with being worried about the nation’s porous borders, violent criminals who manage to avoid deportation and the massive number of undocumented people living here without any ties to the community. We should have this discussion. Like it or not, we’ve got 14 months of presidential campaign to go. Nobody on the voter side wants to spend it listening to politicians shriek meaningless catchphrases.

By the way, doesn’t the term “sanctuary city” sound sort of nice, actually? Remember all those sci-fi movies where the heroes were stuck in a terrible world where everybody but them was a mutant or a pod person or a hologram and their only hope was to reach a legendary and possibly mythical refuge?

Next time you hear a politician ranting about a “sanctuary city,” say: “Wasn’t that where Keanu Reeves was trying to get in “The Matrix?”

Even Quants Wobble When Markets Quake

Talking Business
The New York Times
August 18, 2007

“We have to atone to our clients, but we have no right to whine for ourselves,” said Clifford Asness, the co-founder of AQR Capital Management, a money management firm that has been much in the news recently. “When we succeed, we make a boatload of money, we get imitators, and our risk increases. That’s how capitalism works.”

We were speaking on Thursday, a week after one of the lousiest market days of his life. Along with James Simons of Renaissance Technologies and David Shaw of D. E. Shaw, Mr. Asness is one of the leading practitioners of what is called quantitative investing, using computer models to buy and sell thousands of stocks (and bonds and derivatives and commodities and currencies and country indexes and just about anything else that can be traded). Mr. Simons, Mr. Shaw and Mr. Asness, in particular, use these quant models to run what are called in the business “market neutral” hedge funds, meaning that their gains (or losses) are not dependent on whether the market goes up or down.

AQR has about $37 billion under management, with $27 billion of that in plain vanilla equity funds. The rest is invested in its quant hedge funds, its best-known operations. Indeed, over the last seven years, AQR’s flagship hedge fund has been up, on average, 13.7 percent a year, after fees, handily outperforming the Standard &Poor’s 500, which gained only 1.9 percent annualized during that time.

Mr. Asness himself is known for being ridiculously smart, highly engaging, and funny, with more one-liners than Henny Youngman. I got to know him, and to like him, a few years ago, when I wrote about him for The New York Times Magazine. He can get a little full of himself, but most of the time he can be brought back to earth with a small, friendly jab. In other words, he’s the rare hedge fund manager you’d like to have a beer with.

Anyway, back to that awful Thursday. As you may recall, the market ended Aug. 9 down more than 380 points. That kind of day isn’t fun for anybody, but it was an especially brutal day for firms that are supposed to be indifferent to market ups and downs — namely, quant funds like those run by Mr. Asness and his partners. What made it especially painful is that their troubles on Thursday really had nothing to do with the market’s fall.

In the days leading up to Thursday, Mr. Asness’s fund — and most other quant funds — had gotten clobbered. When the AQR flagship fund opened for business on Friday, Aug. 10, it was down 13 percent for August. Mr. Simons’s famed Medallion fund, which has rarely had a down month during nearly two decades of incredible performance, lost 8.7 percent in early August. By mid-August, Goldman Sachs’s flagship Global Alpha fund was down 26 percent for the year. Everywhere you looked in the little town of Quantsville, it was ugly.

And then, in the blink of an eye, it turned around, at least for the moment. As of today, Mr. Asness’s fund had gained back half of what it lost in the previous two weeks, and was at break-even for the year. I hear through the grapevine that Mr. Simons has already made back every penny Medallion lost in early August. During its conference call earlier in the week, Goldman announced that it had rounded up $3 billion for one of its battered hedge funds; I’ll bet a steak dinner that that fund has seen some gains this week as well.

All of which poses some big questions: What really happened during the Great Quant Meltdown of early August? More to the point, should it scare us or reassure us?

Let’s be honest here. You hear the words “quant fund meltdown,” and one firm comes to mind: Long-Term Capital Management.

Back in 1998, that now infamous quant fund really did melt down, not only liquidating, but shaking the entire global financial system. Long-Term used complex computer models that failed to anticipate some severe once-in-a-lifetime market events, and it was shockingly leveraged — it was using $100 of borrowed money for every dollar of its own capital — which magnified its losses. It was also run by some of the smartest people on Wall Street. “When Geniuses Fail” was the apt title to Roger Lowenstein’s fine book about that fiasco.

Ever since, whenever quant funds stumble, it’s “When Geniuses Fail Redux.” Wall Street wags begin to wonder if those losses will lead to something truly cataclysmic, while newspaper reporters take a certain undisguised glee in reporting on really smart people losing money. Even now, there’s enough Luddite schadenfreude in the air that rumors continue to circulate that AQR is continuing to absorb substantial losses — which is the exact opposite of the truth, Mr. Asness says.

What is scary in this case is not that the quant funds were the initial source of a ripple effect on the rest of the market; they weren’t. The quant funds were the recipients of a ripple that began in a corner of the market that they had little to do with —namely, the subprime mortgage crisis. It’s the way the subprime contagion shook the quants, whose subsequent downturn then added to the ripple effect, that’s what is nervous-making.

Mr. Asness’s hedge fund offers a case in point. Does his fund deal with the subprime business? Not in any significant way. Rather, the securities that cost AQR so much money were good old-fashioned equities.

To oversimplify (sorry: you can’t explain this stuff without oversimplifying), AQR’s market neutral funds use computers to sort through a set of complex but common-sensical criteria to identify all sorts of assets — including stocks — that it believes are undervalued but gaining some momentum, which means that both price and fundamentals are improving. It buys, literally, thousands of those stocks. Then it seeks out stocks it believes are overvalued and starting to lose momentum. It shorts those stocks. What makes the fund “market neutral” is that it always tries to have the same amount long as short. Mr. Asness likes to say that it’s not really rocket science but intuitive investing; the computers mainly allow him to do it across thousands of stocks at the same time.

Mr. Asness does not suggest that he is going to be on the winning side of every trade. Not even close. Nor does Mr. Asness suggest that his strategy is risk-free. It’s not. “If you don’t take any risk, you won’t make any money,” he said. Even when things are going swimmingly, he’s going to have almost as many losing trades as winning ones. But over time the winning trades will add to better-than-average gains. In a down market, he hopes that his shorts will fall more than his longs, and in an up market, he wants the longs to rise more than the shorts.

As for risk, he adds leverage to bolster returns; indeed using borrowed money to calibrate risk is a major part of his strategy. But it’s not crazy stuff like Long-Term Capital Management, and it would be hard to argue with his results over time.

What happened in August is something that happens to every investor at times, even Warren E. Buffett: his strategy stopped working. So did Mr. Simons’s strategy and that of all the other quants. Mr. Asness’s trades weren’t just a little off — they were hugely off. The undervalued stocks he was buying were dropping steeply, but he wasn’t getting any help from the short side of his portfolio. Several “quants” I spoke to — market veterans who had been through the 1987 market crash and the 1998 Long-Term Capital disaster — told me they had never seen anything quite like it.

Why did it happen? In the immortal words of the market sage, James Grant, “On Wall Street, every good idea is driven into the ground like a tomato stake.” Quant investing, as practiced by the likes of Mr. Asness, Mr. Simons and others, has been enormously successful. And anything that’s successful on Wall Street is invariably going to be copied by others. That is exactly what’s happened in many cases at firms that did other things besides quant investing — like trading in derivatives built around subprime loans.

As these subprime instruments have cratered, investors have lost faith not just in them but in other credit derivatives. The holders of these securities had to meet margin calls and make other payments. So they had to start selling more liquid securities like, well, the kind of easily traded securities held in their quant equity portfolios, like Microsoft or I.B.M. or General Electric. And as they sold, other quant shops, like AQR, which held many of the same stocks, saw huge drops instead of small gains. Is it any wonder traders are calling this a contagion?

One line making the rounds on Wall Street is that the events of last week show that, just as with Long-Term Capital Management, the quants’ models didn’t work — that bloodless computers simply can’t anticipate events outside the norm. That line drives Mr. Asness bonkers. “In theory, what just happened is impossible, so if we stuck to the theory, we’d be dead,” he said. “We know this stuff happens.” Once they realized the magnitude, he and his partners quickly began a mild “deleveraging” to protect against even bigger losses. Eventually, AQR started buying cheap stock again — which had become even cheaper thanks to the short-term panic.

In the view of several big-time quants I spoke to, their big mistake was in not realizing that their little corner of Wall Street had become so crowded with imitators — and that when others were forced to sell, they were going to get hurt. Now they are all trying to figure out how to factor that into their thinking for the future — Mr. Asness very much included. “We have a new risk factor in our world,” he said.

So how should the rest of us feel about what just happened? Even though the worst seems to be over, I still think we should still be worried. But not because computer-driven quant funds took a tumble. That’s a symptom, not a cause. The larger issue is the contagion itself — the fact that something so out of left field, like subprime, could wind up hurting the quants.

Richard Bookstaber, a former quant manager, has recently written a book, called “A Demon of Our Own Design” (Wiley, 2007), which has become a small sensation on Wall Street. In it, he argues that the proliferation of complex financial products like derivatives, combined with use of leverage to bolster returns, will inevitably mean that there will be a regular stream of market contagions like the one we’re having now — one of which, someday, could be calamitous. To him, last week’s quant crisis is a classic case in point. “I think crises become inevitable when you have a financial structure like ours,” he said. “How deep or how frequent they are, I wouldn’t want to predict.” Well, who would?

So yes, it really is a scary world out there. But quants like Mr. Asness aren’t the reason.

Beckham’s Gift for Glamour and Goals

Sports of The Times
August 18, 2007

He was born with the gift. Even at 8 or 9, he could thump the ball harder and farther than his friends.

David Beckham’s weary eyes, already burdened with more time zones than he ever encountered in Europe, actually gleamed a bit yesterday when he recalled one ball he drilled as a tyke.

“I scored one from the halfway line,” he volunteered — and this does not seem to be a man who embellishes.

From 50 yards? At 8 or 9? Yes, Beckham nodded solemnly. This mysterious gift was just there, like the rifle arm of a born right fielder like Roberto Clemente or the slap shot of a born right wing like Mike Bossy.

The gift survives to this day, and an entire league is counting on the one individual skill that can produce a goal at any time. His talent produced the aura that had men chanting his name in Harlem yesterday during a youth clinic and tourists lining a Midtown lobby to catch a glimpse of him.

“A bit of glamour and glitz, some people like that,” he said unapologetically during a news conference.

Beckham’s club, the Los Angeles Galaxy, plays the Red Bulls in Giants Stadium this evening. Not many Major League Soccer matches come with this notice: Tickets are going fast, a tribute to Master Beckham.

He is being paid at least $32.5 million over five years, with up to $250 million in incentives. And in his first start for his new team the other night, he drilled one goal from an estimated 28 yards and laid out a perfect pass to set up another in a 2-0 victory against D.C. United.

Let’s be perfectly honest about this: despite the hard core of soccer buffs in America (more of us than one would think following European soccer via the Internet and cable TV), the sport will not grow easily in the United States. It needs some glamour, some glitz, and, oh yes, some goals. David Beckham, 32 years old, formerly of Manchester United and Real Madrid, husband of Posh Spice, is that rarest of players who can make a goal by himself once in a while.

Beckham’s coming to America is not like Babe Ruth’s advancing the home run past its rudimentary stage, but just the possibility of the occasional 30-yard free-kick goal is enough to float a league, give it a buzz, move jerseys, sell tickets.

The other night, the lad who boomed free kicks for the Ridgeway Rovers outside London at the age of 8 or 9 did it in his first start for his new team, after hobbling around for a month with a bad ankle. How many promises are kept that well? Did you ever like that 10-in-1 kitchen tool you bought off a late-night television commercial? Or a used car off a lot?

Beckham actually produced. His free kick in the 26th minute had Beckhamesque spin, swerving into the side netting, untouched by the only two human hands that mattered, those of D.C. United goalkeeper Troy Perkins.

Afterward, Perkins told reporters that he had come up with the amazing strategy of “cheating,” meaning he chose to move in one direction, hoping to guess right.

“I was in a bad spot and he caught me,” Perkins said, adding, “You get a player who can hit a ball to either side and you have to pick a side to make him beat you.”

Well, yes. Been going on for some time now. And Beckham could do it again. Free kicks are awarded in just about every match. Sometimes it is stunning how many players flub their chance into the mezzanine, but Beckham sometimes puts them into the netting. He’s also one of the more brilliant passers with a live ball.

M.L.S., however, is coming to grips with having to share Beckham with England whenever there are international dates on the calendar. On Wednesday, Beckham will be in London, where England plays Germany in what it is called “a friendly.” (“I’m not sure that any match with Germany is a friendly,” Beckham said.)

He had been cashiered off the national roster by the new coach, Steve McClaren, after the 2006 World Cup 13 months ago, but McClaren surveyed his roster and, to his credit, recalled Beckham, apparently not for a farewell tour, either.

Beckham hopes to play for England on Wednesday at the rebuilt Wembley, then fly to Los Angeles for a Galaxy match Thursday, putting him in the same intercontinental mode as the harried traveler in the old Arlo Guthrie song (“Coming in from London, From over the Pole,” although that song was not about soccer).

He never thought he would be recalled, but hopes to play at Euro 2008 next summer and still be in the mix for the 2010 World Cup. His life has turned even more complicated. The prodigy at 8 or 9 still has that gift.


Friday, August 17, 2007

With Markets Moving Wildly, Insight Suffers

High & Low Finance
The New York Times
August 17, 2007

Twenty-first-century financial markets react with lightning speed to events halfway around the world. Investors in China can immediately see what happened in New York and make trades in London based on the news.

So why is the credit panic of 2007 being played out in slow motion?

One reason is that those involved have never seen anything like this before. Information may arrive instantly, but insight takes longer.

It seemed unlikely, if not absurd, that the American economy and credit system could be shaken because a few people with poor credit fell behind on their mortgages. Why should that slow consumer spending? Why should it affect companies that made mortgage loans only to people with good credit? Why should it bring a halt to the leveraged buyout boom?

Perhaps none of those things should happen. But fears that they may take place have sent the stock market on a wild ride over the last month, culminating yesterday with the Dow Jones industrial average falling more than 300 points before gaining nearly all of them back in the final hour of trading, amid speculation that the Federal Reserve would find a way to keep troubled financial companies from failing. Not long ago — four weeks, to be exact — Larry A. Goldstone, the president of Thornburg Mortgage, a real estate investment trust, was feeling good. He had seen the subprime mortgage disaster unfold, and believed it was good for his company.

“The current credit crisis is the market environment today,” he said in a conference call on July 20, as the stock rose above $27. “The liquidity issues in the marketplace are creating a very, very nice opportunity for us. This is not a big surprise to us.”

The way he saw it, the crisis was shaking out his competitors, the ones who had made those imprudent loans. With them gone, he could make more money.

Within days, he bought 10,000 shares. The chairman and chief executive, Garrett Thornburg, invested almost $13 million in company stock. Four other insiders, including the chief financial officer, were also buyers.

But last week, things got dicey. Thornburg Mortgage owned a lot of AAA-rated mortgage securities, and had borrowed up to 95 percent of their value. Now the lenders, suspecting the securities were worth less, wanted more cash. To get it, Thornburg had to sell securities, and few wanted to buy. Suddenly the commercial paper market, so willing to lend to Thornburg at small margins just weeks before, was not interested in lending even at much higher rates.

As for the share price, it went into a free fall on Tuesday, amid rumors that the company could not meet its obligation. Trading was halted with the stock under $8. On Tuesday night, it conceded it was having trouble raising money to finance mortgages. It said the dividend it had promised to pay on Wednesday would be delayed by a month.

But it insisted that it was not bankrupt. Even marking down the value of its assets to current market value, it said, it was worth $14.28 a share on Monday, down from $19.38 at the end of June.

That provided some reassurance, and since then the shares have climbed back above $12.

Thornburg has prospered until now with a fairly simple formula. Organized as a REIT, it paid big dividends representing all of its taxable income. It grew by issuing more shares, which it could sell at prices above its book value because individual investors valued the high yield. The shares wound up in a lot of retirement accounts, and the fact that people paid more than book value enabled the book value per share to grow.

The insiders profited hugely from that. The company gets away with not disclosing how much the bosses are paid because it is managed by a separate company owned by some of the bosses. That management company gets incentive fees based on the company’s total book value and profits, a formula that would seem familiar to a hedge fund manager. Effectively, the bosses get a cut every time the company sells new stock, and keep getting cuts from those sales every year.

Now Thornburg, like many other companies, needs a quick unfreezing of the credit markets. But even if they get it — if the Fed tells banks to rescue them with emergency loans — many may find that they cannot safely operate with such high leverage. And without the leverage, profits will be harder to make even if Thornburg can charge more for mortgage loans.

The unfortunate series of events that got us here — remember the proverb in which a kingdom is lost for want of a nail — began with a weakening housing market. That caused some mortgages to go into default, which raised questions about the value of mortgage securities and the credibility of the ratings that enabled the securities to be sold.

That led to the questioning of other types of loans that had been financed by selling packages of securities that were structures in similar ways to ones that had financed the mortgages. It became more difficult for companies to borrow. Now it seems to be spilling over to the real economy, with consumers getting nervous.

“We are going through a psychological event,” Mr. Goldstone said. “It has everybody in a panic. There is nothing fundamental here.”

He may be wrong about that last part. There may not have been a fundamental change in the health of his business, but such a change is taking place in the credit markets. There, buyers with available cash are few, and many of them are in no hurry to buy when so many need to sell.

It is sort of like a game of musical chairs in which the music stops and it turns out that all the chairs have vanished.

The Opinionator

August 17, 2007, 5:59 pm
Why Wall Street Won’t Suffer
By Chris Suellentrop

“The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued,” writes Fortune senior editor-at-large Allan Sloan. He adds:

If you believe in markets — which I do — this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars’ worth of suspect mortgages from marginal U.S. borrowers — and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.

Somehow analysts at credit-rating agencies, looking at computerized scenarios rather than at the real world, decided that the bulk of the securities backed by these trashy loans could be rated triple-A.

It’s really amazing: Most of the loans to substandard creditors borrowing 100 percent of the purchase price of homes they couldn’t afford were rated the same as GE and the federal government. That makes no sense. But the money rolled in, and Wall Street — by which I mean the world’s biggest and most important financial institutions — didn’t care about the real world or ask any questions. It was too busy making money, and cashing bonus checks generated by subprime-mortgage profits.
Sloan grants that we don’t want “the world’s financial system to implode,” so it’s a good thing that Federal Reserve chairman Ben Bernanke and the world’s other central bankers think some institutions are “too big to fail.” But Sloan wants those big institutions to pay a price for their bailouts:
I’d feel a lot better if the Street had to pay a serious price to its rescuers — say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.

After all, that’s the Wall Street way.

August 17, 2007, 10:02 am
A Call for the Fed to ‘Stand Back’
By Chris Suellentrop

An editorial in The Economist says the Federal Reserve and other central banks “must stand back” from intervening, through interest rate cuts, in the credit crisis that’s causing a panic in the world’s stock markets. The editorial concludes:

The retreat to a new level of risk was never going to be orderly or free of casualties. Neither should it be. Bankers and investors need to suffer precisely because the methods of modern finance have been found wanting. It sounds Darwinian, but the brutal demonstration that you pay for your sins is what leads the system to evolve. Markets learn from their mistakes. Only fear will spur investors to price risks better and get them to put more effort into monitoring their counterparties.

If these lessons are to sink in, central bankers must stand back — ­as, by and large, they have done. Every intervention now will be taken as a sign of what the regulators will do next time. If they bail out banks that have mispriced risk, the mispricing will continue. And when the central banks do step in, it should not be to save the financiers. The cost of intervention is warranted only to save the rest of the economy from the financiers’ folly. By that test, central banks were right to lend money to the banks in recent days, because it ensured that a liquidity crisis did not become a solvency crisis. They may yet have to take over a failed bank, though only if that is needed to stop a run. It is still far too soon to cut interest rates.

Because this crisis taps so deeply into the newly devised structures of finance, anyone who says the worst is definitely over is either a fool or someone with a position to protect. As risk has become bewilderingly dispersed, so too has information. Nobody yet knows who will bear what losses from mortgages — ­because nobody can be sure what those loans are really worth. Nobody knows if tighter lending standards will oblige borrowers to raise more capital, triggering more sales in stockmarkets and more pain. Nobody knows how messy the inevitable bankruptcies will turn out to be. What markets need now is time to piece that information back together.

Wild gyrations on world markets

By Nick Beams
17 August 2007

Despite continuing interventions by the world’s central banks, global stock markets have continued to fluctuate wildly amid fears that the credit crisis that started in the US subprime mortgage market is spreading to other sectors.

On Thursday, Wall Street experienced a day of violent swings, plunging by 343 points at one stage, to finally end the day 15.69 points down.

Earlier, Asian and Europeans markets were hit by a wave of selling following Wednesday’s drop on Wall Street, which saw the Dow fall below 13,000, registering a more than 800-point loss in five days.

The Australian market closed down by 1.54 percent, after plunging more than 5 percent earlier in the day. The Japanese market was off by 2 percent, Singapore by 4.3 percent, Mumbai 3.7 percent and Manila 6 percent. In South Korea, where banks and investors are expected to lose at least 10 percent on their holdings of $850 million in US subprime-mortgage-related bonds, stocks dived almost 7 percent, despite urgings by the country’s president Roh Moohyun that investors should not panic.

But across the region, fear was the order of the day. As one Malaysian financial analyst told Bloomberg: “Blood is hitting the streets. Everyone seems to be panicking, and there’s a reason to panic. There’s been so much blow-up, we don’t know where it’s going to end. Liquidity is drying up.”

The sell-off continued in Europe, where Britain’s FTSE index dropped 4 percent to end below 6,000 for the first time since March, bringing the total losses on leading stocks during the past week to $216.9 billion. The biggest declines were in financial stocks, reflecting concerns over credit conditions. But metal stocks also showed a significant decline, amid fears that the financial crisis would impact on global economic growth.

In France, the CAC index dropped by almost 2.5 percent, while Germany’s DAX index fell nearly 2 percent. Analysts at Credit Suisse told the Wall Street Journal that Thursday’s trading could mark a “watershed between a ‘healthy’ correction to riskier assets and something far more sinister which could lead to real economic distress.”

When Wall Street opened Thursday, the Dow immediately dropped 80 points on warnings that the market for commercial paper—the means by which major companies raise short-term loans, and considered one of the safest investments—had all but dried up. The Wall Street Journal reported that a real estate unit at the private equity giant Kohlberg Kravis Roberts was trying to postpone repaying $5 billion in commercial paper, describing the move as “the biggest blowup” to hit that market.

The potential consequences of such a crisis were indicated in a sell recommendation for America’s largest home-mortgage lender, Countrywide Financial, issued by Merrill Lynch analyst Kenneth Bruce, in which he warned that the firm could go bankrupt.

“If enough financial pressure is placed on Countrywide, or if the market loses confidence in its ability to function properly,” he wrote on Wednesday, “then the model can break, leading to an effective insolvency.” If liquidations occurred in a weak market, then it was possible for Countrywide “to go bankrupt.”

Before the market opened Thursday, Countrywide advised that it had drawn down an $11.5 billion credit line provided by a group of 40 banks. Countrywide shares, which have already lost more than half their value so far this year, continued to drop on the news.

The extent of the recession in home building, one of the causes of the crisis in mortgage financing, was underlined by figures from the Commerce Department showing a more than 6 percent decline in new housing starts for the month of July. New home starts are now at their lowest level for more than a decade, with no sign of an end to the 18-month recession.

Global Insight economist Brian Bethune told Bloomberg the housing market was “still in a downward spiral” with “weak demand” being “hollowed out further by much tighter lending conditions in the mortgage credit markets.” At the same time, sales of existing homes fell in 41 states, with home prices down in one-third of metropolitan areas.

In his first public comment on the financial market downturn, US Treasury Secretary Henry Paulson said that while the turmoil would “extract a penalty on the growth of the economy” both the markets and the US economy were “strong enough” to absorb the losses without provoking a recession. He told the Wall Street Journal that the turbulence was taking place “against a backdrop of a very healthy global economy with strong fundamentals.”

Paulson, a former chairman and chief executive officer of Goldman Sachs, said that looking back over the periods of stress he had seen in his 32-year career on Wall Street “this is the strongest global economy we’ve had.”

This was the major difference, Paulson said, between the present crisis and the situation in 1998 when the Russian default and the collapse of the US hedge fund Long Term Capital Management threatened a seizure of global credit markets.

While the US economy had slowed, the International Monetary Fund recently forecast that the world economy would expand by more than 5 percent this year after three years of unusually strong growth.

The strong growth in the world economy over the recent period does not mean, however, that the present crisis is merely some kind of “market storm” that will soon blow over. This is because the turbulence is itself a product of two fundamental processes—the expansion of credit and cuts in real wages—underlying the present phase of world economic growth.

Cutting interest rates

The origins of the present crisis go back more than a decade to the US stock market bubble that developed from the mid-1990s. By 1996, as subsequent minutes of its meetings made clear, the Federal Reserve Board and its chairman, Alan Greenspan, were aware that the rise of the market was increasingly unrelated to growth in the underlying real economy.

But after ferocious opposition to an interest rate rise in early 1997, Greenspan dropped any notion of trying to curb “irrational exuberance.” The financial bubble expanded even more rapidly in the wake of the interest rate cuts that followed the 1997 Asian financial crisis and the Russian default.

As the market reached new heights, the Fed chairman became its chief booster, declaring that the inflated share values were the product of productivity gains produced by technological advances in the “new economy.” Shares continued to rise as money poured into the markets. But while this giant Ponzi scheme could continue for a period, the extent of the rise was limited, in the final analysis, by the underlying profit rate on the capital represented by the shares.

And here, as the US national accounts figures demonstrate, the movement was in the other direction. While share prices escalated rapidly after 1997, the rate of profit for US non-financial corporations was going down. This led to the market downturn of 2000-2001 and the exposure of the fraudulent operations of such market high-flyers as Enron and WorldComm.

In Greenspan’s view, the chief lesson of this experience was not that the Fed should try to prevent financial bubbles from forming, but that when they burst it had to cut interest rates—in other words, create a new bubble. Accordingly, the Fed began cutting rates in 2001, reducing the benchmark short-term rate to just 1 percent in May 2003, where it remained until June 2004, when incremental increases of 0.25 percentage points were initiated.

The interest rate cuts created the conditions for a new financial bubble—this time in the home mortgage market. As house prices climbed, Wall Street finance houses seized on the opportunity to boost profits by buying and selling collateralized debt obligations (CDOs) created by slicing up large numbers of home mortgages and repackaging them according to different levels of risk. And the biggest profits were to be made in the areas of highest risk—the so-called sub-prime mortgages, given to people who could not afford them.

The first no-documentation loans were made in the mid-1990s, but for no more than 70 percent of the purchase price of the house. After 2001 this changed, and Wall Street firms offered to buy 90 percent and then 100 percent no-document loans. Consequently, lenders made more and more subprime loans, secure in the knowledge such loans would be taken off their hands by the big financial institutions. New subprime loans totaled more than $600 billion in 2005 and 2006, compared to just $160 billion in 2001.

Wages stagnate while profits soar

So long as interest rates remained low and money kept flowing into the market, the housing bubble continued to grow. But it was soon to run into one of the other fundamental features of the present-day US and global economy—the stagnation in real wages and the shift in the distribution of national income from wages to profits.

On March 29, the Center on Budget and Policy Priorities noted that, according to Commerce Department figures, the share of national income going to wages and salaries in 2006 was the lowest since records began. The share going to profits was the highest on record.

Furthermore, in the period of economic recovery since 2001, corporate profits had grown at a faster rate than in any equivalent period since World War II. Only 34 percent of the increase in national income since the end of 2001 had gone to increases in workers’ pay. Moreover, for the first time on record, profits captured a larger share—46 percent—of the increase in national income than wages.

If the recovery after the 2001 recession had followed the pattern of the 1990s, the share of national income going to wages would have been 1.5 percentage points higher than it is today. Since each percentage point of national income represents about $117 billion, this means that more than $160 billion has been redistributed from the wages of ordinary working people to the bottom line of the major financial institutions and corporations.

It was this redistribution of income, so significant for the maintenance of profit rates, that signified the housing bubble was destined to end. Definite limits had been placed on the capacity of working people to continue to pay ever-increasing house prices.

The collapse of the subprime market, and the increasing problems in the mortgage market as a whole, have now led to the eruption of a global financial storm. It is surely a measure of the historic crisis of the world capitalist economy that a global economic disaster could now occur because of the dependence of major financial institutions on dubious financial schemes aimed at taking advantage of the daily struggle of millions of working people to secure a family home.

US federal officials cover up deadly conditions in Utah mine

By Jerry White
17 August 2007

Eleven days since the August 6 cave-in at the Crandall Canyon Mine in Utah, families and friends of the six trapped coal miners are continuing their vigil although there has been no contact with the men and it is unlikely that they will be found alive. Because of the instability of the mine and further cave-ins, rescuers have cut through less than half of the fallen rock and coal in the path to where the miners are believed to be. At this pace, it would take nearly two weeks to reach them.

In an all-too-familiar scene in coal communities, from the western US states to Appalachia, hundreds of people from the surrounding small towns of Huntington, Cleveland, Helper, Price and Orangeville have joined the rescue effort, held fundraisers for “Our Six” and rallied to support the families of the victims. Among those involved in these efforts are survivors of the 1984 fire at the nearby Wilberg Mine, which claimed the lives of 27 miners. One of the trapped miners in Crandall Canyon, 24-year-old Brandon Phillips, who had been on the job just three weeks before the mine collapsed, lost an uncle in the Wilberg fire, the worst mine disaster in Utah history.

The current tragedy has been felt as far away as Mexico, where two of the trapped men—Jose Luis Hernandez, 23, and Juan Carlos Payan, 22—recently left families behind in order to seek higher wages in Utah’s mines. Expressions of sympathy and solidarity have arrived from many quarters, including from the families of the 12 miners who perished in the Sago Mine disaster in January 2006.

This outpouring by ordinary working people contrasts with the self-serving efforts by the mine’s owner, top officials from the federal Mine Safety and Health Administration (MSHA) and the national news media, who have to sought to conceal the real reasons for this disaster and scores of others that have claimed the lives of at least 60 miners over the last 19 months. As in other recent cases, there were ample warnings of an impending catastrophe, which were ignored by company management and government officials in charge of regulating the industry.

Despite the well-publicized promises by Democratic and Republican politicians after the Sago disaster, no serious safety improvements have been made, and the technology to locate and rescue trapped miners continues to be outmoded. Searchers have been forced to rely on the time-consuming task of drilling 1,500-foot boreholes from the surface of the mine, in what part-owner Robert E. Murray, chairman of Murray Energy Corp. of Cleveland, Ohio, admits is a “trial-and-error” approach to finding the miners, whose exact location is not known. To listen for any movement, rescuers are using “geo-phones”—a 26-year-old audio technology that “has never located a trapped miner,” according to a memo written by MSHA head Richard Stickler.

Due to opposition by the mining industry, the legislation passed by Congress last year gave the mine owners until 2009 to develop and install wireless communication systems. Had these been in effect at the Crandall Canyon Mine, if the men had survived the initial cave-in they would have been able to radio rescuers and relay their exact location, allowing searchers to take the most efficient route to save them.

In the place of any serious examination of the causes of this and other tragedies, a platform has been given to Crandall Canyon Mine’s co-owner, Robert Murray, who has used the media to conduct a tightly scripted public relations campaign to detract attention from the unsafe conditions at the mine. Adopting the mantel of a paternalistic employer who has no other interests than protecting “his miners,” Murray has donned a miner’s helmet, conducted daily press conferences and taken television crews underground to view the progress of the safety operation.

From the beginning, Murray has set out to provide himself with an alibi. First, he claimed that an earthquake had caused the mine collapse, despite scientific evidence showing that the cave-in itself was responsible for the seismic activity recorded by geologists. He then denied that his company was engaged in the dangerous practice of “retreat mining,” in which coal pillars holding up the roof of a mine are removed, leading to intentional roof collapses. This, too, was proven false.

Despite these lies—and Murray’s well-known record of operating unsafe mines in other states, his vocal opposition to safety and environmental regulations and his close ties to the Bush administration—no one in the media has challenged Murray or questioned why he should be allowed to set the tone for the coverage of this event.

It is clear the methods employed at the mine and approved by federal mine safety officials were inherently unsafe, and that these methods are widely used in other mines, particularly in Utah and other western states.

While Murray initially denied that retreat mining was being used, MSHA officials said that the technique was used in the mine. Documents show that on June 15, MSHA district manager Allyn Davis accepted a “roof control amendment,” permitting retreat mining along the southern tunnels where the trapped men were working.

In order to extract the last amounts of coal from the mine, which was nearing the end of its life, the company was cutting out coal pillars that were holding up a massive amount of rock above the main tunnels. Because huge sections on either side of the tunnels had already been mined by longwall machines and had collapsed, these thick coal pillars were the only support for the main tunnels for the mountain that rises as much as 2,200 feet.

During retreat mining, the removal or reducing in size of the coal pillars produces seismic jolts, “bumps” or “bounces” caused by the compression of coal pillars under the massive weight of the rock above. In recent weeks, several miners, including one of the trapped men, 41-year-old veteran miner Manuel Sanchez, had expressed concern about working in the deepest areas of the mine—Belt 7—because the floors had been “heaving” or buckling up from intense pressure. Workers said supervisors at the mine knew of the problem.

According to the New York Times, mining engineers consider 1,800 feet to be the depth where coal reaches its maximum load-bearing capacity. However, the paper wrote, “Over the last two decades, mines in Utah and in some other coal-producing areas have pushed past depths of 1,500 feet, which has been considered an impassible barrier with older technologies. (Appalachian coal mines are typically much shallower than those in the West.)”

Miners in 7 of Utah’s 10 mines, including Crandall Canyon, are forced to work in depths of 1,600 to 2,000 feet. An eighth mine is expected to push through 1,800 feet in the next few years. Relu Burlacu, a seismologist at the University of Utah, told the Times, “With depth, the overburden increases. And when the overburden is bigger, the stress is bigger.”

These other facts have also emerged:

* A memo obtained by the Salt Lake Tribune showed operators at the mine entirely abandoned work in an area about 900 feet from where six miners were trapped because of “serious structural problems” in March. The memo shows that mine owners were trying to work around poor roof conditions before halting mining of the northern tunnels in early March after a “large bump occurred...resulting in heavy damage” in those tunnels.

The memo, prepared by Agapito, a Colorado engineering company contracted by the operators, indicates the owners “knew the tremendous pressures of the mountain bearing down on the mine were creating problems with the roof,” according to the Tribune, “and they were searching for a way to safely keep the mine from falling in as they cut away the coal pillars supporting the structure.”

Robert Murray, part owner of the mine, told the Tribune he was not aware of any prior roof concerns. “It’s the first time I’ve heard of this,” he said of the March incident.

The March bump did enormous damage to nearly 800 feet in the Crandall mine, leading the company to shut down operations in that area. Such events are supposed to be reported to the MSHA, but public data shows the last reported roof fall was in 1998, according to the Tribune.

* While acknowledging the March incident, Richard Stickler, the head of the MSHA, said it occurred in an area hundreds of feet away, suggesting that it was not a serious concern. However, mine safety experts say such severely unstable roof conditions would not be limited to a single area of the mine. In a mine that stretches for miles, conditions in both areas would be “nearly identical,” according to Robert Ferriter, director of the mine safety program at the Colorado School of Mines and a 27-year MSHA veteran.

“If you had problems up there on the north side, I would expect you would have the same problem on the south side,” Ferriter told the Tribune. The damage from the cave-in stretched hundreds of yards, with rubble blocking entries more than half a mile away and numerous additional bumps making rescue work unsafe.

After the March event, operators decided to abandon mining in the northern tunnels. However, Agapito determined the southernmost main tunnels could be mined if larger pillars were used to support the roof. It is not clear if the wider pillars were being used. “Our mining plan, when it was recommended by Agapito, was approved by the federal Mine Safety and Health Administration,” and those who question it are “incorrect,” Murray said.

During a review of the company’s proposal in late May, inspectors found some problems, MSHA coal administrator Kevin Stricklin told the Charleston Gazette last week, but they were “corrected” and the plan was approved.

Safety experts question how the MSHA could have approved such a plan. Tony Oppegard, a former senior advisor at the MSHA and Kentucky mining regulator, told the Tribune the approval raised questions about the reliability of the MSHA. “Everyone understands that in the West you have tremendous pressure on those coal pillars from the overburden and they are subject to bursting or bursting of the ribs,” Oppegard said. “In either case, that can be deadly for coal miners.”

“I’m surprised that they would try to take that last section,” Ferriter said. “I would’ve thought that would have triggered someone from MSHA to say, ‘Wait a minute, let’s take a look at this.’ ” He continued, “What is MSHA doing in all this? They’re the ones who are supposed to catch this sort of thing.”

The decision by top MSHA officials to turn a blind eye to safety conditions was at the center of several mine disasters last year, including those at the Sago, Aracoma and Darby mines that killed 19 miners. After this was publicly exposed, Stickler wrote a memo to MSHA employees decrying “deeply disturbing” problems in its enforcement program. Stickler created an Office of Accountability to oversee management and enforcement programs in the agency, whose top positions have not been filled.

Like many of the top officials in the MSHA appointed by the Bush administration, Stickler is a former mine boss who has long advocated the self-regulation of the industry by the coal operators and blocked any significant improvements that would cut into the profits of the coal bosses. In return, the coal industry, including Crandall Canyon Mine owner Murray, have poured in vast amounts to fund the reelection campaign of Republican Party politicians, including Kentucky Senator Mitch McConnell, who is married to Labor Secretary Elaine Chao, whose agency oversees mine safety.

The tragic conditions facing miners today are the product of the unrelenting drive by the energy giants to slash jobs, cut labor costs and boost productivity—a process that has led to a 20 percent drop in real wages for miners since 1984, ever-more-deadly working conditions and widespread poverty in coal mining areas across the country. It is also the product of the impotency and failure of the United Mine Workers union (UMW), whose pro-business collaboration with the coal companies and the Democratic Party has produced a catastrophe for miners and their families.

In the face of clear evidence of criminal negligence, a serious investigation must be carried out into the causes of the Crandall Canyon disaster. This must be conducted independently of the MSHA, the two big business parties and the UMW—who in one way or another are beholden to the profit interests of Big Coal.

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