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Saturday, July 27, 2002

Department of Homeland Job Insecurity

Tony Adragna

Will, I just read the House Select Committe on Homeland Security's report on H.R. 5005, the ‘‘Homeland Security Act of 2002’’, and I can't find where "all the civil service and collective bargaining rights of federal employees [are] stripped out of it."[n.b.: Josh's criticism is correctly applied to the proposal that the president "sent up"]

At the same time, neither can I find anything to suggest, as the GOP lawmakers claim, that the bill would have a positive impact on the ability to defend the nation by getting rid of incompetents(something I could get behind).

The amendments to TITLE 5 , PART III , Subpart I contained at Sec 761 of the bill (pg 186) require that:
Any system established under subsection (a) shall
‘‘(1) be flexible;
‘‘(2) be contemporary;
‘‘(3) not waive, modify, or otherwise affect

‘‘(A) the public employment principles of merit and fitness set forth in section 2301, including the principles of hiring based on merit, fair treatment without regard to political affiliation or other non-merit considerations, equal pay for equal work, and protection of employees against reprisal for whistleblowing;
‘‘(B) any provision of section 2302, relating to prohibited personnel practices;
‘‘(C)(i) any provision of law referred to in section 2302(b)(1); or ‘‘(ii) any provision of law implementing any provision of law referred to in section 2302(b)(1) by
‘‘(I) providing for equal employmentopportunity through affirmative action; or
‘‘(II) providing any right or remedy available to any employee or applicant for employment in the civil service;
‘‘(D) any other provision of this title (asdescribed in subsection (c)); or
‘‘(E) any rule or regulation prescribed under any provision of law referred to in any of the preceding subparagraphs of this paragraph;

‘‘(4) ensure that employees may organize, bargain collectively, and participate through labor organizations of their own choosing in decisions which affect them, subject to any exclusion from coverage or limitation on negotiability established by law or under subsection (a) for employees engaged in intelligence, counterintelligence, investigative, or security work which directly affects national security;
The "exclusion" at (4) might be what's got everybody upset, but such an exclusion isn't exactly a new thing. TITLE 5 Sec 7103(b), dealing with "Definitions; application" of "Labor-Management Relations" provisions, already provides that:
The President may issue an order excluding any agency or subdivision thereof from coverage under this chapter if the President determines that -
(A) the agency or subdivision has as a primary function intelligence, counterintelligence, investigative, or national security work, and
(B) the provisions of this chapter cannot be applied to that agency or subdivision in a manner consistent with national security requirements and considerations.
The President may issue an order suspending any provision of this chapter with respect to any agency, installation, or activity located outside the 50 States and the District of Columbia, if the President determines that the suspension is necessary in the interest of national security
The argument that protections are being "stripped" is simply wrong.

What about the "flexibility" in hiring/firing, promotions, etc.? Well, I might be concerned if I thought that the legislation was going to have any actual effect on the way that department personnel are managed. It's a truism that department heads don't manage the day to day operation of their departments, so who does? Career civil servants, that's who.

You can change the regs to allow for -- even require -- a different way of doing business, but entrenched cultures aren't so easily moved: they'll find a way to apply old mindsets to new rules.

[Update: On the ability to remove federal employees for "unacceptable performance", see TITLE 5 , PART III , Subpart C , CHAPTER 43 , SUBCHAPTER I , Sec. 4303. -- the authority already exists, so what's the point?]

Even the oft bemoaned length of time it takes to hire an employee -- 5 to 6 months -- isn't likely to change. Much of that time is consumed with things like background checks for security clearances, and I don't suppose that the administration is proposing that corners be cut in that area.

Bottom line: GOP claims that there's something beneficial to Homeland Security in these provisions are overstated, as are Dem claims that the provisions hurt federal employees.

Friends, the Department of Homeland Security will be business as usual -- did anybody expect more?

Update II: It's also worth noting that Sec 3 of the report (pg 9 line 3) anticipates that some provisions of the act may be "unenforcebable or invalid", so they give instruction on how the courts ought construe the act, and even go so far as to provide for "severability." Talk about hedging: Nice touch!

Addendum: Nothing above should be construed as support for a Homeland Security Department -- I still think the whole concept not only inane, but counterproductive.

QP Saturday

Will Vehrs
Whew, Tony, it's been a busy week of travel for me, so that's why I've been pretty scarce. Next week looks even worse ... I'll knock out Punditwatch on Sunday afternoon, then head for Upstate New York all week. Hold down the fort for me, as you always do.

When I last posted, I was fascinated by the role of the "star" mindset that took over in corporate America during the 90's. Since then, I've seen several magazine articles and posts such as yours, Tony, on the subject, so I'll let it drop, except to say that maybe we wouldn't have had such a bubble followed by a wave of scandals if we hadn't allowed spoiled brats to run amuck.

Today starts the Blogathon for charity. I've put my money on Meryl Yourish, so check her out today as she attempts to make 48 posts in 24 hours for a good cause.

Dodd Harris' Caption Contest has settled into its new Thursday slot and appears to be as popular as ever, if a bit inhospitable to entries from QP Refugees. It used to be that one merely had to appeal to Dodd's whimsical sense of humor, but now he's hung up on 80's cultural references for his winners. That new focus didn't help me a couple of weeks ago when I linked George Brett's famous corked bat incident of 1983 and George W. Bush's Harken Energy problems, but I guess Dodd knows what 80's trivia he likes.

The Refuge has been a lively place lately, largely due to the presence of Guy Cabot, a combative blogger who seems to be one of those fierce partisans who gets up every morning determined to fire a blast at conservatives and Republicans. I'm not terribly impressed by that approach, but he's a smart, tenacious "guy." He's lured our friend MommaBear back to The Refuge and she's pretty combative in her own right, as well as holding strong opinions. Just play nice, everybody, we love a good discussion.

Thursday, July 25, 2002

The Fall of Glass-Steagall

Ginger emailed to ask what I thought about the repeal of Glass-Steagall -- otherwise known as the Bank Act of 1933. Before I get started, let me just correct what has been miscontstrued as "repeal" of Glass-Steagall. What the Gramm-Leach-Bliley Bill actually did was amend Glass-Steagall by repealing sections of the act.

But, the '99 act may as well have repealed the '33 act. Glass-Steagall's most important provisions were those that maintained the wall between banking, investment, and insurance. The most important provisions of Gramm-Leach-Bliley are at Title I —FACILITATING AFFILIATION AMONG BANKS, SECURITIES FIRMS, AND INSURANCE COMPANIES.

The loosening of restrictions was sold as good for consumers -- hey, we all want one stop shopping, right? And isn't it better for consumers that banks now have the ability to assess and advise on a clients total needs?

Well, of course, yes.Here's the deal though -- securities and insurance products were already being offered to bank clients by affiliates at bank branches before Gramm-Leach-Bliley passed. So, what was the point?


Got that? See, if I can sell a product directly to the consumer, then I can collect all of the revenue generated, rather than only picking up a fraction of the revenue for having referred the customer to an affiliate.

But, the walls still technically exist between banking and investment -- bankers simply have a lower wall that they can jump back & forth across. As long as the transaction happens on the proper side of the wall, then there should be no problem. The only concern here is that bankers have an obligation to ensure clients understand that securities involve risk to principle that isn't insured.

On the implications of "the repeal" vis a vis the specifics between Citigroup and Enron, the question is partly off-point. The Citigroup merger happened before Gramm-Leach-Bliley passed. The Citigroup - Enron deal also happened before Gramm-Leach-Bliley passed. "The repeal" does have broader policy implications that worry me -- Glass-Steagall had already been weakened by a series of court cases interpreting the act very loosely.

I thought congress should have amended the act to tell the courts that the law meant a strict separation of banking and investment. Instead, the bankers and brokers, each trying to get a piece of each others business (read: money), got what they wanted. As a general principle, I don't feel comfortable with the trend toward merging banking and investment.

The scenario that I proposed below assumes pressure brought to bear from corporate leadership to cut corners on one side of the business to give a break to clients brought over from the other side of the business -- especially when the client already has a relationship with both sides of the business. In this way you can expose the bank to risk without running afoul of prohibitions against using a bank's capital reserves -- intended to protect customers' assets -- to try to protect investments.

And this is all legal: Citigroup just seems to have gone too far in cutting corners -- you can fiddle around with the standards you use in deciding whether to make a loan, but when you've become duplicitous in fraud, then you've crossed the line

Both sides of Citigroup had an interest in trying to help Enron survive and recover -- Citibank was deep into Enron, too -- so why am I beating up on the investment banking side of the business? As I admitted below, the case is circumstantial, but my argument relies on Mr. Weill's history as a broker and the business that he brought to the merger.

Tuesday, July 23, 2002

Is The SEC Talking To Sandy Weill?

Tony Adragna
You know, Will, I had to spend some time considering whether I could write something about Citigroup's complicity in Enron's shady-side dealings without letting my personal bias get in the way. Don't know that I can, but that doesn't seem to slow Paul Krugman down any, so here goes.

Before I left Citibank in '99 I can remember getting that funny feeling in my tummy about the merger between Citicorp and Travellers Group. There was an undercurrent of that "we're gonna get screwed" feeling amongst some of us -- we just knew that Mr. Reed wasn't going to be around very long, and that would leave Mr. Weill alone at the helm.

See, we worried that the bank would end up getting treated like Sanford Weill's stepchild -- he's a broker, not a banker. Sandy's favourite would of course be the investment side of the business, and I particularly worried that the bank would suffer, especially if the bank ended up being used to prop up the investment house.

OK, so the recently reported transactions flowed through Citigroup's business banking unit -- the banks fingerprints are at the scene of the crime.

But, the encephelogram of some shrewed financial strategist is all over the deal.

Salomon Smith Barney, which Mr. Weill brought to the merger as part of Travellers and is Citigroup's investment banking unit, was way deep into Enron. It's just a waypoint on the journey, though -- the destination is an office a bit plusher than Mr. Rubin's.

I'll hafta catch today's hearing in replay. I hope Sandy was there -- I'm gettin' that funny feeling in my tummy again, and you 'member what you tol' me that means...

Update: The merger was completed in October '98, and the deal with Enron seems to have been agreed upon in late '98 or early '99 -- well before Mr. Rubin joined Citigroup. It's looking like my hunch is correct.

Update II: Gotta pay attention -- the story makes quite clear that:
In [the Roosevelt] deal, Citigroup agreed in late 1998 to transfer to Enron $500 million for six months as part of a prepay, with the company committing itself to deliver natural gas and oil at a future date[...]

"Enron characterizes this as a `favor' — they do not wish to repay Roosevelt without full corresponding refinancing," according to an April 19, 1999, e-mail message from Mr. Reilly.
All of this happened between the completion of the merger in Oct '98 and Mr. Rubin's arrival at Citigroup in Oct '99 -- can hardly pin the blame on Rubin.

I know that it's circumstantial, but this deal is conspicuous for its association with SSB, which I had already noted was in deep on Enron. "Officials in the loan department of Citigroup were 'very negative' on the proposal" to extend Enron some time -- wanna bet where the pressure to sidestep came from?

The Star Culture

Makes perfect sense, Will. It explains how somebody as "hands on" as Mr. White could not know that his business unit was being used by another business unit in a strategy to pervert the energy market. The absence of constraints across business units seems to have included absenting business unit leaders from vital aspects of their roles as business unit leaders.

Yes, management fraud is hard to catch. But, in the case of Enron there were some fairly flagrant ehtical lapses in management decisions. For instance, it wasn't a secret to anybody on the board or at senior management that Fastow was conflicted -- they approved a waiver.

It's also hard to make a case that Andersen's failure to catch the funky accounting was excusable -- Andersen consulted on the transactions and signed off on the treatment.

Corporate Scandals: Another Angle

Will Vehrs
Tony, I'm in a bit of a rush, but I want to share an exchange I had with Dr. Robert G. Eccles, Ph.D, who was on the Washington Post's "Live Online" feature. I'll talk about this more in a later post:

Richmond, Va: There was a provocative article in The New Yorker recently about the "star" culture at Enron. "Star" employees were allowed to pursue their own business initiatives unconstrained by the clear lines of organizational business units. Isn't this type of culture difficult for traditional accounting firms to audit? Don't people designated as "stars," operating in an unfettered environment that rewards self-confidence and hype, lack enough checks and balances to keep them from pushing ethical and legal boundaries?

Dr. Robert G. Eccles, Ph.D.: The "star" culture definitely presents significant challenges. The problem is especially great in investment banks, where we saw the "star" culture of sell-side analysts turn them into media darlings. They got carried away with themselves, in my view, and ended up hyping companies' stocks rather than providing good research. When it comes to the role of accounting firms, your point is a good one. What most people don't realize is that the audit is not designed to detect management fraud. This can be done through a kind of "forensic accounting" approach but it takes a lot more resources and would be a lot more expensive. Unless shareholders want to pay for that, investors depend upon management and the board to create the right culture and set the right "tone at the top" to discourage stars from thinking they can get away with things that others cannot.

An Honest Accounting

Tony Adragna
E.J. Dionne links the WorldCom scandal to the Catholic church's problem.

Well, sorta...

The corporate accounting scandals and the church's sexual abuse scandals share some traits: both have resulted in a crisis of confidence, and both could have been avoided had the entities been honest.

Monday, July 22, 2002

"A Financial Neutron Bomb"

Tony Adragna
Will, while you were busy talking to Kurtz, I was busy stealing your quote of the week. On tonight's Newshour Terry Savage used the above qouted language to describe the WorldCom bankruptcy -- the property is still there, the connections still exist, but all of the money is gone.

She made another very obvious point about all of the money lost in the bear market -- look folks, you weren't complaining when that money magically appeared in your accounts, now get used to the fact that it can vanish just as quickly.

Both Savage and the other guest -- David Kotok, president of Cumberland Advisors -- also made a point that I've harped on: some people really shouldn't have their money in stocks.

Gotta go read the Punditwatch Special Edition -- I'll be back with my thoughts If I have something to say...

Sissies of the Seminary

Will Vehrs
Tony, I agree with you wholeheartedly. What a wimp-out excuse--hetrosexuals in the seminary being driven away by homosexuals. You'd think someone who would be called upon to minister to convicts, drug users, and gang members would be able to handle gay colleagues.

While I think the Church must move toward voluntary celibacy just to keep itself staffed, if nothing else, I firmly believe that your call for a forum on sexuality for seminarians--an interactive one--is absolutely necessary now.

On another topic, Tony, I've been talking to Howard Kurtz of the Washington Post again and I've written about it in a special edition of Punditwatch. Howard also addressed something that Dawson might appreciate, so I've included that, too.

Sexuality In The Seminary

Tony Adragna
In my previous writing on the state of formation in Roman Catholic seminaries I may have been too optimistic. My own experience in the early '80s was of a setting -- the weekly formation meetings -- where issues of sex and sexuality were openly discussed. But, memory being what it is, it seems that I've misremembered -- though there was much open discussion amongst the student body, what we got from the faculty was "It was talked about to us."

Seems that things haven't changed.

Some things to keep in mind:
The Theological College at Catholic University isn't an undergradute school where you'll find impressional young students just coming out of highschool. Rather, it's a graduate school where you would expect people to be mature enough to handle honest and open discussion.

The faculty is advising students to come to terms with sexuality and at the same time advising students to remain in the closet. Talk about dishonesty.

The main subjects of the story both cite the failure to openly and honestly discuss issues of sexuality as the root problem.
One claim that I particularly object to is that homosexuals are driving out heterosexuals in seminaries. What's really happening is that some few (and getting fewer over the years) heterosexuals simply can't feel anything other than discomfort when in the company of homosexuals. Admittedly, some homosexuals share blame -- it's unfair to blame a straight man for feeling uncomfortable when being ogled by another man. But, it's also unfair to make a generalized charge that the presence of homosexuals is The Problem.

To directly respond to the "driving out" charge I will merely observe that if a seminarian can't get over the discomfort, then he probably shouldn't be a priest. A man may end up feeling bitter over being driven out -- most cases of which, from what I can tell, involve voluntary withdrawal -- but consider the alternative: a man makes it through the formation process, is ordained, then is confronted with homosexuality in a postoral setting [if he can't deal with it in formation, then I question whether he can deal with it in ministry].

That's what the debate should be about: not challenging the church's teachings on sexuality, but challenging the way that the church prepares men for ministry. In the pastoral setting a priest doesn't have the luxury of choosing where and to whom he wants to minister.

Most disturbing to me, however, is the fact that seminarians still don't have a good forum for dealing with their own conflicts vis a vis the natural tension between a calling to the life of celibacy and being a sexual being irrespective of orientation. Worse is the fact that in focusing on dealing with homosexuality in the specific, the seminaries are failing heterosexual candidates for whom the discipline of celibacy may be even more demanding.

When will the church awaken to the obvious that the problem isn't whether a candidate is gay or straight, but whether the candidate would make a good pastor? That question hits particularly close to home for me: my own spiritual director was adamant in his belief that I would have been a great pastor, but if the "zero homosexual" lobby has its way, then I would be excluded.

Update: Mike Hardy says that I'm "maybe a bit tough on heterosexuals who got driven out. It is an adjustment to head into an environment with such an unusual number of gay folk."

OK, so my get over it verbiage sounds tough, and Mike's observation about making "an adjustment" is valid. But my point still stands: the candidate is going to need to come to terms with homosexuality at some point before ordination, that means during formation. Will says it best in the post above -- "You'd think someone who would be called upon to minister to convicts, drug users, and gang members would be able to handle gay colleagues."

The seminary rector and the candidate's bishop need to be sure that the candidate will be an effective minister to all of the faithfull, including homosexuals -- if the candidate can't do that, then he oughtn't be a priest...

Addendum: To those "driven out", I ask: Where was the Holy Spirit in your lives? Did you turn to our source of strength along the ascent?

No! You gave up -- on yourself and on what you thought was your vocation!

Don't blame others for your own failings...

Sunday, July 21, 2002

Billy Joe Shaver and Gordon Gekko As Pundits

Will Vehrs
If you're tired of the same old pundit line-up, a couple of new faces appeared. Read about them in Punditwatch, just posted.

Because of The British Open, This Week was not available in my area. Can you imagine Meet the Press being totally pre-empted, or not being offered to another outlet?

I thought the IBM ad that showed on a lot of the pundit shows was interesting. It showed a woman leaving a boring business meeting, saying "the network was down." In reality, she was meeting a guy in a sports car for a little getaway.

Evidently, you can't trust business people at any level.