Recover the Bonuses

New York’s financial firms paid about $18.4 billion in bonuses for 2008, an amount the New York Times reports as the “sixth-largest haul on record.”  These are the same financial firms that lost billions of dollars, the same firms whose disastrous investment and risk management practices propelled the world economy into the worst downturn since the Great Depression.  Did these firms use Troubled Asset Relief Program (TARP) bailout money to pay bonuses? Money is fungible.  It’s a red herring to ask whether bonuses were paid with taxpayer money.  Any firm that accepted a dollar from TARP should be prohibited from paying employee bonuses.  The government should sue to recover any bonuses paid.  One theory of recovery is that the companies hold TARP funds in a constructive trust for use only in connection with disposition or workout of troubled assets.  Another theory is that the executives whose companies received TARP funds owe a fiduciary duty to taxpayers to ensure the funds are used for TARP purposes. The companies and their employees lost any right to privacy in bonus compensation when they took TARP funds. 

New York attorney general Andrew Cuomo is investigating these bonuses.  He issued subpoenas to former Merrill Lynch CEO John Thain and other executives at Merrill-acquirer Bank of America “asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.” The Wall Street Journal notes that Merrill incurred a net fourth-quarter loss of $15.31 billion. The finance industry claim “that they need to pay their best workers well in order to keep them” is hollow, clueless, and insulting to everyone outside the finance industry. 

The Emperor Exposed

Every year many of our most accomplished students, with the highest GPAs and academic honors, take jobs in finance.  Jobs on Wall Street have been the college carousel’s gold ring.  They carried the most prestige and paid the highest salaries–two ways of saying the same thing.  Our students’ entry-level salaries were not high in Wall Street terms; they were merely a taste of what was to come.  It was accepted wisdom that people on Wall Street deserved obscene amounts of money because they worked long hours and were just plain smarter than everyone else.  They earned what the market said they were worth, and the market was always right.

Can anyone say that today with a straight face?  Wall Street’s best and brightest have wreaked economic carnage.  The arrogance, greed, short-sightedness, and blind failure of Wall Street’s leaders to understand simple tenets of risk managment created the most cataclysmic loss of wealth in history.  Everyone is suffering because of their mistakes.  The market has repudiated every justification for their outsized compensation.  Whatever financial genius they possessed individually, they were not smart.  A smart creature does not gorge itself until it dies.  A boss used to say “pigs get fat, hogs get slaughtered.”  Wall Street was dominated by hogs, but we’re the ones being slaughtered.

How else can one respond to the $4 billion in bonuses paid by John A. Thain, former head of Merril Lynch, before it was acquired by Bank of America?  Merrill, recall, was on death’s door when Bank of America acquired it.  Another few days and it would joined Lehman Brothers in the financial afterlife.  It had failed.  Bank of America has received billions in taxpayer bailout money to absorb Merrill’s losses and its own losses.  Merrill paid these bonuses with our money.  As Merrill was sinking John Thain spent $1 million in office renovations, including two chairs for $87k and a $1,400 wastebasket.  This is one of the Wall Street geniuses who received hundreds of millions in compensation because that’s what you have to pay to get talent like his. 

Disgusting.  Incomprehensibly arrogant. Unfathomably stupid.  I second Mauren Dowd:  “How are these ruthless, careless ghouls who murdered the economy still walking around (not to mention that sociopathic sadist Bernie Madoff?) — and not as perps?  Bring on the shackles.  Let the show trials begin.”

As an icon of expertise, as an example of American genius, as a symbol of the wisdom of markets, Wall Street is dead.  It self-devoured.  It’s highly-compensated leaders deserve our scorn and contempt.

Fresh Air

How novel–a president who favors transparency over secrecy, openness over furtiveness, the rule of law over the rule of executive power.  One of President Obama’s first acts was to order federal agencies to “adopt a presumption in favor” of requests under the Freedom of Information Act.  His next act was to order recommendations to improve federal government transparency. As reported in the Washington Post President Obama wrote–

The Government should not keep information confidential merely because public officials might be embarrassed by disclosure, because errors and failures might be revealed, or because of speculative or abstract fears . . . In responding to requests under the FOIA, executive branch agenciesshould act promptly and in a spirit of cooperation, recognizing that such agencies are servants of the public.

Servants of the public. What a transformational concept.

Update on Kentucky Domain-Name Seizure

Last fall the State of Kentucky convinced a trial court judge to order the seizure of 141 domain names belonging to Internet gambling sites (see posts here and here). The judge ruled that the domain names were gaming devices under state law.  This week the Kentucky Court of Appeals overturned the trial court’s seizure order, holding that “it stretches credulity to conclude that a series of numbers of Internet address, can be said to constitute ‘a machine or any mechanical or other device . . . designed and manufactured primarily for use in connection with gambling.”  The Court of Appeals declined reading “domain names” into the relevant Kentucky statute.  Citizen Law Media Project has a more detailed post about the Court of Appeals decision.

Kentucky’s attempt to seize the names is motivated by money, not morality; the state believes the gaming sites “drained money away from Kentucky’s legitimate gambling.”  The state announced that it will appeal the Court of the Appeals decision to the Kentucky Supreme Court.

No Constitutional Right to High School Sports

The Massachusetts Supreme Judicial Court ruled this week in Mancuso v Massachusetts Interscholastic Athletic Association that under Massachusetts law there is no property right to participate in interscholastic athletics and thus denial of a student’s right to participate on her high school swim team did not violate her Constitutional right to due process.   Elizabeth Mancuso spent her ninth-grade year at Austin Prep, then transferred to Andover High School where she repeated the ninth grade.  (She was a year younger than most of her classmates and repeated ninth grade to catch up.)  Mancuso, who was “considered one of the fastest high school swimmers in the Commonwealth,” competed on the Andover High School swim team during her repeated freshman, sophomore, and junior years.  The MIAA, which regulates high school athletics in Massachusetts, deemed her ineligible to swim for Andover during her senior year under its rule that “[a] student shall be eligible for interscholastic competition for no more than 12 consecutive athletic seasons (i.e. four consecutive years) beyond the first completion of grade 8.”  The Andover principal asked the MIAA to waive the rule, the MIAA declined, and after her administrative appeals were exhausted Mancuso sued in Superior Court to enjoin enforcement of the rule and allow her to compete during her senior year, claiming (among other things) that the MIAA denied her right to due process and right to equal protection.  A court granted a preliminary injunction allowing her to compete.  The MIAA, however, prevailed at the trial court on  (apparently after the season was over) and Mancuso appealed.

The SJC first addressed Mancuso’s claim under 42 U.S.C. s. 1983 that the MIAA violated her federal civil rights.  There was no question that the MIAA is a state actor.  “The only issue on appeal regarding the validity of the plaintiff’s claims under § 1983 is whether the MIAA has deprived her of any “rights, privileges, or immunities secured by [Federal law].”  Mancuso argued that the MIAA deprived her of two constitutional rights.  First, she argued  “that she has a property interest in her participation in interscholastic athletics that arises either under State law or under the rules governing interscholastic athletics promulgated by the MIAA, and that the MIAA has deprived her of this interest without due process in violation of her rights under the Fourteenth Amendment.”  Second, she argued that the MIAA “treated her differently from other students who participate in both interscholastic swimming and in private swimming clubs by denying her one year of eligibility” and thus denied her equal protection of the law.

The due process claim turned on whether Massachusetts law created some property interest in Mancuso’s participation in interscholastic athletics.  The court rejected both of her contentions, that the right to education (including physical education) under the Massachusetts constitution implied an entitlement to play  interscholastic athletics and that, after three years of eligible participation on the swim team, MIAA eligibility rules conferred an expectation of her continued eligibility.

[T]he right to a public education, even one with a mandatory physical education component, is not synonymous with the right to participate in extracurricular activities, such as interscholastic athletics. Although such activities may serve as a beneficial supplement to required physical education, they are by their nature separate from that curriculum.  Practices and competitions for interscholastic athletic teams generally take place outside of regular school hours and, as is true for Andover’s swim team, may take place in nonschool facilities.

Mancuso’s claim of entitlement to continued benefit under MIAA’s eligibility rules is defeated by the express language of the rule limiting elibility to “12 consecutive athletic seasons (i.e. four consecutive years).”  “To the extent the MIAA’s eligibility rules create any property interest in the plaintiff’s eligibility, that interest is “defined by the terms of [those rules].”  [cite omitted]

The court rejected Mancuso’s claim that she was denied equal protection of the law “as a class of one” because her evidence at trial failed “to show that the MIAA granted waivers with respect to other swimmers who were similarly situated to the plaintiff” and because “even if the plaintiff had presented evidence sufficient to prove that other similarly situated persons were granted a waiver, the plaintiff introduced no evidence tending to show that this alleged differential treatment resulted from “invidious discrimination,” “fundamental procedural unfairness,” or a “gross abuse” of the MIAA’s power.”

Imagine the mischief had the court decided for Mancuso.  Could students sue because they were cut from the varsity team, or benched during a playoff game with college recruiters in attendance?  Would the student denied the lead in the school play be entitled to her day in court?  The court acknowledged how troublesome a contrary ruling would be:

[W]e do not expand the contours of a student’s property interest in public education to include within it every extracurricular activity that might enrich the educational experience, however meaningful those activities might be to individual students.  See, e.g., Ryan v. California Interscholastic Fed’n-San Diego Section, 94 Cal.App.4th 1048, 1063 (2001); Proulx v. Illinois High Sch. Ass’n, 125 Ill.App.3d 781, 786-787 (1984); Adamek v. Pennsylvania Interscholastic Athletic Ass’n, 57 Pa. Commw. 261, 263-265 (1981) (collecting cases).  “The myriad activities which combine to form that educational process cannot be dissected to create hundreds of separate property rights, each cognizable under the Constitution.  Otherwise, removal from a particular class, dismissal from an athletic team, a club or any extracurricular activity, would each require ultimate satisfaction of procedural due process.”  Dallam v. Cumberland Valley Sch. Dist., 391 F.Supp. 358, 361 (M.D.Pa.1975).

Awaiting Instructions

I read a few reports today about the Conficker (or Downadup) worm that in recent weeks has infected as many as nine million PCs around the world.  Particularly disturbing is that his worm “seems to be the first step of a multistep attack,” waiting quietly in infected host computers for instructions to combine into a “unified system[] called [a] botnet[]” and engage in concerted destruction.  Encryption prevents access to the worm’s operative code and the worm “uses an elaborate shell-game-style technique to permit someone to command it remotely.”  It generates a list of 250 domain names each day and will obey instructions from any one of those domains. “To control the botnet, an attacker would need only to register a single domain to send instructions to the botnet globally.”  Many have warned over the years of an Internet “Pearl Harbor” or “9-11” event; the NYT article that is the source of this post quotes a computer security consultant:  “If you’re looking for a digital Pearl Harbor, we now have the Japanese ships steaming towards us on the horizon.”  I might have chosen a reference that did not dig up old grievances with current trading partners–perhaps the sleeping aliens from War of the Worlds–but he makes his point.  Computer security experts are watching and waiting for the instructions that will activate the botnet.  Microsoft issued a patch in October to address the vulnerability allowing this worm to spread, but the article cites researchers’ belief that up to 30 percent of Internet-connected Windows-based computers have not installed patch.  Are 70% of PC users truly up to date on their Microsoft updates?  That seems high, based solely on my anecdotal experience.

Scary stuff.

Complete This Triad

Milli Vanilli’s entire career . . . Ashlee Simpson on SNL . . . Yo-Yo Ma and Itzhak Perlman at the Inauguration?

Say it ain’t so, Yo-Yo.

‘Fraid so.  Because the cold and wind threatened piano, cello, and violin strings the Ma/Perlman/Two Other Musicians quartet string-synced to a recording of the inaugural piece they had made two days earlier, listening to it through headphones to match its broadcast.  Said Ma we “knew we couldn’t have any technical or instrumental malfunction on that occasion. A broken string was not an option. It was wicked cold.”

He gets points for sounding like he is from Boston, although a true local would have said “wicked pissah cold.”

Schneier on Impersonation

Bruce Schneier wrote a terrific piece about impersonation and identity authentication at He uses the various “physical tokens” we carry in our wallets to argue that “[d]ecentralized authentication systems work better than centralized ones:” loss or compromise of your credit or health club membership card does not compromise your driver’s license or library card. He concludes “[t]his is one of the reasons that centralized systems like REAL-ID make us less secure.”

Not Ready to Tap Dance

Last week I graduated from crutches to cane to walking unaided, all in 24 hours.  There is no pain and only slight discomfort, some muscular stiffness around the incision.  What I don’t feel is my femur rubbing against the acetabulum, for the first time in months.  I’m ready to go, and none too soon: my first class is 40 hours from now.

It all went as I planned.  How often can a person say that?