The Education of Brett Kavanaugh - An Investigation

I recently read "The Education of Brett Kavanaugh - An Investigation" a 2019 book by two New York Times reporters, Robin Pogrebin and Kate Kelly, about the 2018 confirmation fight over Kavanaugh's nomination to the US Supreme Court. During which Kavanaugh was accused of (among other things) assaulting one woman and exposing himself to another. First I should acknowledge a bias in that I would prefer to live in a universe in which the charges against Kavanaugh are baseless. That said I don't think this is very worthwhile book because it adds little to the press coverage at the time.

The charges against Kavanaugh involve events that allegedly happened over 30 years ago. In evaluating them it is important to account for the fact that human memory is fallible. Not only do we forget things over time we can also form false memories of things that didn't happen. The book does not discuss this at all. I believe there is a large academic literature about false memories which I am too lazy too look up. Instead I will cite a couple of examples from my own experience.

I have a memory of my father (who died over 30 years ago) telling my mother and me (and maybe my brother) that he had gotten a good post-doctoral position which however depended on his receiving his PhD by a certain date which he had failed to do. However when I mentioned this to my mother she had no idea what I was talking about. My brother also has no recollection of such a conversation which I now doubt ever took place. What I suspect happened is that I dreamed the conversation. I don't pay attention to my dreams and usually have forgotten them a few minutes after waking up. However sometimes a particularly intense or vivid dream can form a lasting memory. If the dream events are superficially plausible I suspect that years later I could mistakenly accept such a lasting dream memory as real. Which is what I think happened in this case.

In another case I recently had a conversation with a friend about something that happened over 15 years ago. It turned out our memories differed about one detail. Prior to this discussion I would not have doubted my memory. Even afterwards I thought I was right but in attempting to verify this I found a contemporary email backing my friend's version of events. In this case I think my memory of a real event was contaminated by my memories of somewhat similar but unrelated events. An example of such contamination would be if you had a high school acquaintance named Victor Jordan but later mistakenly remembered his first name as Vernon or Michael because of confusing him with the more notable Vernon or Michael Jordan.

This sort of thing makes me reluctant to credit one person's unsupported recollection of long ago events particularly in politically charged cases like this. But as I said the book does not discuss false memories at all. Instead it just largely repeats the contemporaneus press coverage with little new material. So if you were paying any attention at the time this book won't add much. And if you weren't paying attention you probably aren't that interested in an account of this length (307 pages with end notes) containing lots of basically irrelevant details.

Middlesex Jury Duty

Last Monday I was summoned for jury duty at Middlesex County Courthouse in New Brunswick, New Jersey.  This is the second time I have been summoned for jury duty since I moved to New Jersey, but the previous time I was excused when I called in the night before.  No such luck this time.  However I wasn't selected for a trial Monday which fulfilled my obligation and means I am exempt for the next three years.

There is an information page for jurors but I don't think it was as helpful as it could have been for first time jurors like myself who aren't familiar with how the system works.  So I will describe my experience in some detail.

The reporting time was 8 AM.  This is earlier than I am used to getting up so I was paranoid about arriving on time.  I left my townhouse around 7 AM.  The drive was about 30 minutes and it took another 10-15 minutes to drive up to the fifth level of the parking garage, walk back down and walk a couple of blocks to the juror entrance.  So I got there about 7:45 AM.  Although the entrance was theoretically open at 7:30 AM when I arrived they were just starting to send people through the metal detector.  So I had to wait in line for the metal detector and then in some more lines to be checked off a list and get my juror badge.  It seemed clear no one would have cared much if I had been a few minutes (or maybe as much as an hour or so) late.

Once you are processed you are sent to the juror waiting room.  This was a big room which appeared to hold about 200 people.  It is important to realize that it is not a courtroom.  So while (as the juror information page states) lots of stuff is banned in courtrooms (like reading books or newspapers) it is all fine (within reason) in the juror waiting room.  So you can bring a book or electronic device to occupy yourself with while waiting.  You should also bring a bag to stuff it all in (out of sight) if you are summoned to a courtroom lest you be asked to leave it behind.  Fortunately I had done this without knowing for sure it was okay.

Once in the juror waiting room you are shown a short movie giving general instructions and extolling the virtues of the jury system and welcomed and sworn in by a judge.  Then you wait around.  Short smoking breaks outside are allowed as long as the staff knows where you are.  From time to time a list of about 40 names is read out.  These people are led away to a courtroom where a jury is selected for a particular trial.  There were 5 such lists (two in the morning and three in the afternoon) read out while I was there.  I was the first name on the second list so there might have been more (but probably no more than one) lists read out in the morning while I wasn't there.      

Once in a courtroom you are told a few details about the case and the names of the parties, their lawyers and potential witnesses so you can make the court aware of any conflicts.  If I understood correctly this was a civil case involving an automobile accident in Pennsylvania (it was unclear to me why it was being tried in New Jersey).  You are also given a list of questions you will be asked so you can look them over and be prepared when the judge questions you.  Then you are called up individually so the judge (and attorneys) can question you (semi-privately) at what was called a sidebar.

I was the first name on the list so I was the first person called up individually.  I was soon excused when I told the judge (entirely truthfully) that I sometimes have trouble staying awake.  I felt a little bad about this as I definitely didn't want to be selected and this felt a little like shirking.  However I also didn't want the judge yelling at me for falling asleep and listening to boring testimony after lunch is legitimately the sort of thing I might have trouble staying awake through.

In any case there were other questions on the list that might have gotten me excused.  One asked if you would give any different weight to the testimony of a police officer.  I expect the answer they want is no but I was prepared to justify at length why I would.  Another was about my view of  "tort reform" and I was prepared to expound at length about the deficiencies of the American tort system in my view.  I also had an issue with the introductory video we were shown which advised (among other things) that we might want to give to more credibility to witnesses who seemed confident.  It is my understanding that academic studies have shown this is bad advice, that confident witnesses are no more likely to accurately recall events than hesitant witnesses and I would have complained about this given an opening.

After you are excused from the panel you are supposed to go back to the main waiting room which I did.  However you are also supposed to check in so they know you are available to be called for another panel.  I didn't do this immediately because I didn't realize I was supposed to (although I expect they told us this several times somehow it didn't register).  I didn't figure it out until after the first panel had been selected in the afternoon so I unintentionally reduced my chances of being picked for a jury a little.

We were given an hour for lunch.  Our parking was covered but only for one interval in the parking garage so driving anywhere would have meant paying for the afternoon parking myself.  Fortunately there are a variety of deli type eating places within a few blocks.  I walked for a while and eventually bought 2 slices of pizza and a coke for about $5.  Which was edible if not great.  Then I walked back and went through the metal detector again in plenty of time for the afternoon session.  

We were repeatedly told we were obligated to be there until at least a certain time (4:12 PM if I remember correctly) no matter what but in practice we were let out a few minutes early once they they were sure no more jurors would be needed that day.  If you are selected for a trial you are required to show up for the duration (absent some sort of acceptable emergency excuse).  A few extra jurors are selected to allow for attrition but don't participate in deliberations unless needed.  For my panel the judge said we should be prepared for the trial to last all week (until Friday) although he was going to try to finish by Thursday.  This I expect wasn't including deliberation time which can sometimes be lengthy.

So all in all a tedious but bearable exercise if you are prepared with something to keep you occupied.  And fortunately my employer will still pay me for Monday as the $5 juror pay isn't going to go very far.      

My Vast Fortune

My local library had another Andrew Tobias book, his 1997 "My Vast Fortune", which I also checked out and reread.  I have mixed feelings about this book.  When Tobias keeps a light touch I find him an entertaining writer.  But when he gets all earnest and serious I find him less entertaining and sometimes actively annoying.  Much of this book humorously  chronicles Tobias's financial triumphs and misadventures and I generally liked that part.  But a big part of the book is devoted to Tobias's ill-fated crusade for no fault auto insurance which culminated in a 1996 California proposition which lost overwhelmingly.  He goes on at tedious length about the purported benefits of a no fault system and the perfidy of those, Ralph Nader foremost, who opposed it.  Even granting his case it is hard to understand why he thought logic and reason would count for much in a political fight and eventually his outraged sense of betrayal becomes a bit hard to take.

I also was a bit annoyed by Tobias's position that liberal programs like free legal services for the poor are fine ideas but they just need to be administered with a little discretion so as not to inconvenience people like Tobias.  I have no problem believing a case brought against Tobias by a former tenant was baseless but Tobias's proposal that legal services "settle" the case by having Tobias denote money to charity was ridiculous.    

I noticed a curious inconsistency between this book and "The Only Other Investment Guide You'll Ever Need".  In the earlier book Tobias recounted (p. 168-169) his investment in a research and development venture that was bought out by Johnson & Johnson doubling his money but leaving him (and some of the other limited partners) dissatisfied both with their return (they felt under the terms of their investment they should have tripled their money) and with the lawyer they had hired to sue to enforce their contract (who appeared to have lost interest).  But in this book he reports (p. 33) tripling his money in this deal.  So one is left wondering what happened.  Did his lawyer sudden spring to life and obtain a better deal or what?  I suppose it's probably just a mistake (possibly caused by confusion between a profit of double your investment and doubling your investment) though.    

So in summary I found this book too flawed to recommend but I did find some of it entertaining.

Lehman Valukas Report

While poking around on the internet in connection with the Valukas report to GM I was surprised to find that Anton Valukas was also the Examiner in the Lehman Brothers bankruptcy and had produced a long report about the firm's demise.  Since this is a subject of interest to me I went through the report.  I don't recommend this, the report is over 2000 pages long, full of legalese, sometimes repetitive and rather narrowly focused on who if anybody could the bankruptcy estate sue to try to recover some of Lehman's losses.  Still I felt it gave me a better idea of what had happened. 

Based on the report, the root cause of Lehman's failure was a disastrous 2006 decision by its CEO, Richard Fuld.  At a time when cracks were appearing  in the financial world, especially with regard to residential real estate, and other financial institutions were getting nervous, Fuld decided to vastly increase Lehman's exposure in the areas that were starting to appear shaky.  This involved making a lot of risky, illiquid investments.  (An illiquid investment is one which is expensive to sell, they tend to have the nasty habit of becoming especially illiquid (expensive to sell) at exactly the times you are most likely to need the money.)  Just the sort of poison a highly leveraged firm like Lehman doesn't need on its balance sheet in bad times.  The report calls this course of action a countercyclical strategy which appears to be an euphemism for a reckless gamble.  Of course as the report points out Lehman was in the business of taking risks.  However managing a firm like Lehman is all about limiting risk, trying to ensure that a little bit of bad luck or a single bad decision isn't catastrophic.   So Fuld's decision was bad in two ways, he misjudged the severity of the coming problems and less excusably he risked far too much on his judgment being correct endangering the firm.

Of course the initial decision wasn't fatal in itself, Fuld could have changed his mind and reversed course the next day and little harm would have been done.  But as the decision was implemented in 2006 and 2007 the risk to Lehman mounted. Eventually Lehman stopped adding to its exposure but didn't take any effective steps to reduce it.  When the markets moved against Lehman in 2008 bankruptcy (absent a government bailout) became inevitable.  It is unclear when the point of no return was passed.  Perhaps the Lehman could have survived (albeit severely damaged) if suitably decisive action had been taken early in 2008.  But this would have required Fuld to face up to the fact that he had made a horrendous blunder which seems to have been beyond him.  So instead Fuld seems to have tried to keep up appearances as long as possible while hoping for a market turn in Lehman's favor or a government bailout neither of which was forthcoming.

When Lehman did go bankrupt and its assets were liquidated there turned out to be a big gap between the value of the assets as recorded in Lehman's books and what they could actually be sold for resulting in large losses for Lehman's creditors.  I had been of the general opinion that this indicated some sort of huge fraud had taken place.  But according to the report this may be wrong.  There are several other potential explanations.  First fair market value for accounting purposes is defined as the price a willing buyer and willing seller would agree on.  It is not intended to reflect the price that could be obtained in a distress sale.  Nor does it reflect sales expenses.  This is fine if the asset holder intends (and has the financial capacity) to hold the asset indefinitely but means for illiquid assets there is likely to be a big gap between the value in the accounts and what can be realized in a forced sale.  That said it also appears that near the end when potential buyers were given access to Lehman's books they were not pleased with what they found although it is a little unclear whether this was just because they found Lehman's assets hard to value rather than definitely over valued.  It is inherently difficult to value illiquid assets with few comparable recent sales.   The report does acknowledge a few instances where Lehman's marks (values assigned to Lehman's assets in the accounts) were definitely inflated (outside even the wide range of possible good faith values for illiquid assets).  But this seems to have mostly reflected a failure to keep up with rapidly deteriorating market conditions rather than conscious deliberate fraud.

The rapidly deteriorating market also meant considerable loss of value could occur between the appraisal valuation dates reflected in Lehman's books and the dates Lehman's assets were liquidated.  Of course a substantial part of this loss of value was caused by Lehman's bankruptcy itself.

Another issue was winding up Lehman's derivative contracts.  A derivative contract is basically a bet between two parties about future events.  The parties post collateral to guarantee payment.  When one party goes bankrupt the other party is generally allowed to terminate the contract early and claim the current contract value.  This value can be hard to assess objectively so the initial claim will often be on the high side so as to establish a negotiating position.  This seems to have been the case with Lehman's contracts with the Lehman estate ultimately able to obtain more favorable settlement values than initially offered by its counterparties.  It seems possible there was still some loss of value though, the rules are not set up to favor defaulting parties.  

Finally Lehman as a going concern was an intricate web of relationships (with for example many legally distinct corporate entities some operating under foreign law).  Sorting out the mess when it all came crashing down was unavoidably expensive requiring millions in fees to be paid to people like Valukas, his law firm and the financial advisors he hired to help compile his report.

So perhaps the gap between the value of Lehman's assets in Lehman's books and what they realized when sold was not generally due to fraudulent books.  Still I would like to see somewhere a detailed explanation of how the gap arose.  This is not to be found in this report or anywhere else that I am aware of.

As the report explains under the business judgment rule the courts generally don't second guess business decisions even stupid ones which work out badly.  So the government couldn't prosecute Fuld for being an idiot.  But according to the report during 2008 Lehman attempted to make use of an accounting loophole to disguise how leveraged they were.  By performing a series of transactions (with no economic purpose) they could avoid listing some their debt on their balance sheet reducing the amount Lehman appeared to be leveraged.  It is unclear whether Lehman actually managed to satisfy the conditions of the accounting rule they were attempting to exploit but as the report points out it doesn't really matter, there is a general accounting rule that you can't report materially misleading accounts even if you are arguably in technical compliance with the more specific rules.  So it appears that high Lehman officials (including Fuld) could have been prosecuted for fraud (for deliberately reporting materially misleading results) if the government had chosen to do so.  But for political reasons I have never really understood the Obama administration gave Fuld (along with most everybody else) a pass for potentially criminal behavior in the lead up to the financial crisis. 

However this bad behavior wasn't a major cause of Lehman's collapse, it occurred after Lehman was already in big trouble.  Perhaps you can argue it was a contributing factor in that it was a form of denial without which Lehman might have been more likely to take the drastic painful steps needed to give it a chance to survive.   This seems pretty speculative however.  The misleading public statements did of course hurt anyone who relied on them to invest in Lehman which is all you need to prosecute.

In short this report fills in some of the details regarding Lehman's collapse but it is not a good big picture account for the interested layman.  As far as I know no such account has yet been written.

GM Valukas Report

I recently read the report (119 MB pdf download) by Anton R. Valukas to the GM board of directors about GM's recent recall of millions of cars with defective ignition switches.  Because of a poor design the torque (twisting force) required to turn the key and move the switch position from "Run" to "Accessory" is unduly small enabling unintended accidental shutdowns of the engine while driving.  This causes loss of the power assists to steering and braking although in most cases the car will remain controllable.  Less obviously it also means the airbags will no longer activate in a crash.  This long (325 page) report is by an outside lawyer tasked with determining why the mistake was made and why it took GM so long (10+ years) to realize there was a safety problem and issue a recall. I found the report interesting (although I just skimmed it in a few places) and think it raises a number points worth noting.

The first point is why GM thought it best to assign this report to a lawyer rather than an engineer.  This suggests that they feel the legal aspects are more important than the engineering aspects.  They are probably correct (especially going forward) but this means the report (in my view at least) somewhat neglects the engineering aspects.  The report also seems to avoid asking questions which might aggravate GM's legal problems.

The GM engineer responsible for the ignition switch design had inherited the design from another engineer.  When the first prototypes from the outside supplier (Eaton which was later purchased by Delphi) failed to meet the torque requirement he chose to waive it.  It appears he did so because he did not focus on the role of the requirement in preventing unintended operation of the switch while driving.  The report (and others) have emphasized the fact that the switch didn't meet GM's requirement but this seems just a matter of semantics to me.  GM could just as well have changed the requirement rather than waiving it.  The requirement doesn't appear to have been based on any sort of careful analysis of what was required to prevent unintended operation of the switch.  It would not surprise me if it had just been copied from an earlier design. 

After the car went into production it soon became apparent there was a problem.  There were numerous complaints about inadvertent operation of the switch while driving.  This seems to have occurred most often when the driver had a key ring with lots of things on it and bumped them with their knee.  This is not a rare situation, currently I have 8 keys (besides 2 car keys) on my key ring and they are normally in contact with my knee as I drive.  I have never had the impression for my current car (or any of my previous cars) that this was risking accidental operation of the switch and I certainly would be extremely annoyed if I bought a car where this was a problem.  In my case although I have a bunch of keys on my key ring there is sufficient space for the key ring to hang freely from the ignition key.  This limits the torque you can exert by pulling on the other keys (because the lever arm is so short).  I have vague recollections of seeing people with key rings so tightly packed with stuff that they might not hang freely which would greatly increase the lever arm and the potential for a problem.  The report does not discuss this apparently assuming the weight of the key ring is the only important factor.  Nor does the report perform any sort of comparison with other ignition switches, it would interesting to know how much of an outlier the switch really was.

At this point GM decided the problem was a customer satisfaction issue rather than a safety issue.  While it is true that inadvertent operation of the switch would not always (or even usually) cause an accident it obviously is potentially hazardous.  But there seemed to be a feeling that something wasn't a safety issue unless it contravened some specific government safety regulation and the government has neglected to specify torque standards for ignition switches.  Of course the government has specified standards for airbags but apparently no one was alert to the fact that shutting down the engine also turns off the airbag actuator.  This would not have been a major problem if inadvertent operation of the switch and serious accidents were uncorrelated rare events as in that case having both happen at the same time would have been extremely unlikely.  However there is no reason to believe these events are uncorrelated.  There is clearly potential for unexpected operation of the switch to trigger an accident although it is unclear how likely this is.  GM received numerous complaints about unintended operation of the switch but the report doesn't mention (as I recall) that any claimed that this had caused an accident.  Of course if the driver is killed in the accident he isn't in a position to complain but if accidents are being triggered I would expect non-fatal accidents to be much more common.  Another possibility is for the accident sequence to trigger unintended operation of the switch prior to the final impact.  This could occur for example if the driver lost control and ran off the road for some distance before hitting a tree.  The bumpy ride before the final impact could operate the switch, turn off the engine and deactivate the airbags (if there is sufficient delay prior to the final impact, the final impact itself should not deactivate the airbag actuator before it triggers).  Apparently this scenario is consistent with several serious accidents in which the airbags unexpectedly failed to deploy.

An issue here is the somewhat artificial distinction between customer satisfaction problems for which cost benefit analysis is deemed appropriate and safety issues which are supposedly fixed regardless of cost.  Since in reality cost will always be a consideration this encourages a hidden cost benefit calculation which results in classifying safety problems that don't seem to be worth fixing as customer satisfaction  issues.  While this may have legal and public relations benefits the double think involved is likely causing a misallocation of resources with some safety issues receiving too much attention and others too little.

Eventually GM started to be sued over serious or fatal accidents in which airbags unexpectedly failed to deploy.  It took GM a very long time to realize that this was likely a consequence of inadvertent operation of the ignition switch.  According to the report this was due in part to the fact that many of the people involved either didn't know or didn't appropriately consider the fact that switching off the ignition also (after a slight delay) deactivates the airbags. 

A complicating factor was the switch was modified after a few years in a way that alleviated the problem.  Much has been made of the fact that the GM engineer that approved the modification (the same one responsible for the bad design) didn't assign a new part number and later claimed (including under oath in a lawsuit) no changes had been made.  Perhaps this was all part of a conscious cover up by the engineer of his original error but I am not totally convinced.  Another report suggested the change was initiated by the part's supplier and the GM engineer just signed off on it.  In which case it is vaguely plausible that several years later he would have forgotten doing so.  The part number issue also doesn't seem totally clear cut, I expect parts are changed all the time in apparently minor ways without a new part number being assigned.  Suppose for example the part supplier had itself changed spring suppliers (a spring within the switch held the switch in position, the modification seems to have been basically use of a stronger spring).  Would this have required a new part number?  However it does appear clear the GM engineer was not eager to acknowledge his original error in waiving the specification.  In any case this delayed GM's recognition that the switch was the problem as the investigators didn't understand how the switch could be responsible for a problem that had gone away if the switch hadn't been changed.  Although perhaps they put undue weight on the GM engineer's claim that no changes had been made.  It seems like double checking with the supplier at least would have been prudent. 

An issue here is that it is impractical for car companies to initiate a recall without understanding the problem enough to have a fix in place.  It is not very feasible to provide millions of loaner cars while GM tries to figure out what the problem is and how to fix it.  However it is clear that GM didn't give this sufficient attention.

It is in fact unclear whether GM even now really understands the problem.  While GM contends the modified switch is safe they also have recalled hundreds of thousands of cars just because of a slight possibility that the cars may have had a repair in which the new switch was replaced with the old switch.  GM claims it is not practical to tell the switches apart (which is in tension with their claim that a new part number was clearly required).  But it should be easy to measure how much force is required to operate the switch.  Even if there is some overlap between the old switches and the new switches this should distinguish between safe switches and unsafe switches which is the important point.  However setting a cutoff point between safe and unsafe would involve the sort of cost benefit analysis that GM doesn't want to acknowledge conducting with regard to safety issues.  Even though no switch is going to be totally safe (incapable of inadvertent operation under all circumstances no matter how unlikely).

GM has reportedly fired 15 people in connection with this incident.  Based on the report this seems rather harsh in cases where as the report acknowledges the failures were largely due to systematic problems rather than individual lapses.  This doesn't apply to the engineer responsible for the design who (assuming the account in the report has some relation to reality) seems to have failed in multiple ways, approving a bad design and then failing to step up and get the problem fixed.  I was initially sympathetic for the top GM lawyer involved who seems to have been fired largely for failing to tell his boss about the issue as I doubt this would have made a difference.  But upon reflection Warren Buffett tells his managers that he hear wants to learn about serious problems in their domain from them and not by reading about them in the newspapers which makes sense to me so I suppose the lawyer did have a responsibility to recognize the potential magnitude of the problem and inform his boss (GM's general counsel).  However I have trouble with coming up with 15 people who deserved being fired.  Of course GM can claim that public outrage demanded some scapegoats and they have little real choice than to provide them.  Sufficiently generous severance arrangements (which haven't been made public as far as I know) could mitigate some of the unfairness involved. 

In summary this long report won't be of much interest to many people but I found some of the issues raised thought provoking.

Annual Funding Notice

Last week I received the Annual Funding Notice for the IBM Personal Pension Plan (which is paying me a pension). Rather than require companies to adequately fund their pension plans Congress instead makes them send all participants annually a report on their plan's financial status. This is pretty pointless as most people won't get much from the disclosure. Pension accounting is inherently complicated and to make matters worse current rules are full of loopholes which can make a plan appear to be in better shape than it actually is. So the report is pretty opaque. And even if your plan is currently in good shape the weak regulations mean it may not stay in good shape. So I expect most people pay little attention to this notice and just hope for the best.

This year I actually tried to understand the report. Although the IBM plan is relatively easy to evaluate because it was frozen some years ago (which means participants are no longer accruing benefits) this proved rather difficult. Besides the notice for this year (2013) I looked at prior year notices, the 2013 IBM annual report and documents on the Department of Labor website for 2012 (the documents for 2013 aren't available yet). As best I can tell the only numbers in the notice worth paying attention to are in the "Fair Market Value of Assets" section. For IBM this says:

As of December 31, 2013, the fair market value of the Plan's assets was $53,953,692,333. On this same date, the Plan's liabilities were $47,920,350,174.

The key points here are that the valuation date is at year's end (as opposed  to 1/1/2013 or earlier elsewhere in the notice) so is relatively recent.  The assets are valued at fair market value which is fairly straightforward as opposed to elsewhere in the notice where a bogus accounting value can be used (although IBM does not do this)  based on what the assets would have been worth if the plan had achieved its expected rate of return.   Valuing the plan liabilities is a bit less straightforward as you have to figure the present value of future obligations which requires choosing a discount rate.  This should be determined by looking at the current yields of safe bonds which is not that complicated.  However elsewhere in the notice an artificially high discount rate is used which makes the plan liabilities look smaller than they really are.  This artificially high rate is a recent loophole created by Congress to allow companies to reduce their contributions to their pension plans while pretending they are adequately funded.  The notice for 2012 in the Fair Market Value section using a realistic (or at least more realistic) discount rate valued the plan liabilities at $52,939,309,074 (at 12/31/2012) while the artificially low discount rate used elsewhere in the 2013 notice gave a plan liability value of $40,044,112,196 (at 1/1/2013) which illustrates the magnitude of the loophole.  The actual discount rates used in the Fair Market Value section are not stated in the notice.  The IBM annual report lists discount rates of 4.5% and 3.6% for year end 2013 and 2012 respectively which may be the rates being used.  As best I can tell the present value of future plan administrative costs aren't included in plan liabilities which means they are understated a bit.  Still the IBM plan appears to be in reasonable shape.  And since it is frozen it less dependent on regular additional funding from IBM than active plans.

IBM assumes an 8% annual return on its US pension fund investments.  This is too high in the current environment but doesn't affect the above liability numbers as IBM (as a private company) is not allowed to discount plan liabilities using this rate.  In contrast public entity pension plans can and do discount their liabilities using their assumed rate of return (which is typically in the 7% to 8% range) thus grossly understating their actual liabilities.  IBM's assumed rate does affect IBM's reported earnings.

Fifth Third Bancorp v. Dudenhoeffer

The Supreme Court heard arguments Wednesday in the case Fifth Third Bancorp v. Dudenheffer.  The case concerns the obligations of the managers (fiduciaries) of a employee stock ownership plan (ESOP) when they have some evidence that the company stock is a bad investment.  The defendants (Fifth Third Bancorp) want a rule that it is presumptively prudent for a ESOP to buy and hold company stock.  This seems sensible to me.  Some (by which I mean one or more) of the Supreme Court Justices seemed concerned about establishing a special rule for ESOPs but I see this as an application of a more general rule that it is presumptively prudent for fiduciaries to obey instructions.  It is common for defined contribution retirement plans to allow participants to direct how their contributions are invested.  Naturally some participants will make better decisions than others but I don't think it is practical (or sensible) to require a fiduciary of such a plan to routinely independently evaluate (and possibly overrule) the participant's instructions.   

There is a complication in the current case in that the negative information was "inside information" which it can be illegal to act on.  The plaintiff's lawyer appeared to be arguing that even if the defendants could not legally act on the information they could nevertheless be liable for failure to act.  The government lawyer appeared to concede that the defendants could not be held liable for obeying the law but were obligated to do everything they could without breaking the law.  Considering the rather unclear state of insider trading law this would put fiduciaries in possession of inside information in a very difficult position.  In particular the government claimed that although you could not legally sell on the basis of inside information you could legally stop buying.  Perhaps this is actually the law (although some Justices noted no lawyer from the SEC had signed off on the government brief) but it makes no logical sense.  As I understand it employees are allowed to participate in stock purchase plans in which a fixed percentage of their pay is regularly used to buy company stock even if this means they are sometimes buying when in possession of favorable inside information.  The idea is they are not buying because of the favorable inside information.  But if you allow them to suspend purchases when in possession of negative inside information this rational disappears.  Now all of their purchases are based in part on inside information, namely that there is no pending undisclosed bad news.  Thus giving them the sort of insider advantage that the prohibition against inside trading is supposed to prevent.

Retarded

The Supreme Court heard arguments Monday in Hall v. Florida.  I was not impressed.  This is a follow up case to Atkins v. Maryland, a 2002 case in which the Supreme Court ruled it was unconstitutional to execute the mentally retarded.  In Hall v. Florida Hall's lowest tested IQ was 71 which is above the IQ 70 cutoff for mental retardation.  So Hall was denied the exemption provided by Atkins v. Maryland.  But Hall argues IQ tests have a margin of error so even though his tested IQ was 71 his true IQ could be at or below the 70 cutoff.  This argument would have some force if the state was required to prove Hall is not retarded.  But since it was undisputed at oral argument that the burden of proof is on Hall to prove that he is mentally retarded his objection seems basically frivolous.  A tested IQ of 71 indicates it is more likely than not his true IQ is 71 or higher which is above the cutoff so it is more likely than not that he is not retarded.  Whereas he had the burden of showing at a minimum that it is more likely than not that he is retarded.  Which he has not done even if he has shown there is a substantial chance that he is retarded.  But while this seems perfectly clear to me the Supreme Court justices and advocates seemed rather muddled and confused about this point.  So it is possible, perhaps likely, that they will rule for Hall out of distaste for the death penalty and justify their decision with a confused and illogical opinion.

Value Line Fair Fund

This is kind of puzzling. Back in 2009 Value Line settled charges that from 1986 through 2004 it had been cheating investors in its mutual funds by having the funds pay inflated commissions which were then partially kicked back to Value Line. As part of settlement the Value Line Fair Fund was set up to reimburse damaged shareholders. Since I was a shareholder in two of the funds during the period in question (see here and here)  I was eventually sent a claim form which I duly filled out and returned in June of 2011.  My claim was initially denied (for bogus reasons) but I submitted an appeal and additional documentation in February of 2012 which was accepted.

Recently I became curious as to why I hadn't heard anything more about this.  I poked around a little on the internet and found that on April 26, 2013 the SEC had issued (34-69469) an "Order Directing Disbursement of Fair Fund",  This order says in part:

The Plan provides that a portion of the Fair Fund consisting of disgorgement,  prejudgment interest, and civil penalties, plus any accrued interest less a reserve for expenses and taxes, be transferred by the Commission to The Huntington National Bank for distribution by the Fund Administrator when a validated list of payees with the identification information required to make the distribution has been received and accepted by the staff. The validated list of payees, which is for a total disbursement amount of $21,053,635.14, has been received and accepted.

Accordingly, it is ORDERED that the Commission staff shall transfer $21,053,635.14 of the Fair Fund to The Huntington National Bank, and the Fund Administrator shall distribute such monies to investors, as provided for in the Plan.

This started me worrying that my check had been sent to my old address or lost in the mail or something.  But when I called the Fair Fund help number they told me that despite the above the SEC was still reviewing the claims list and they had no idea when the money would be distributed.

Hopefully it won't be too much longer.  The whole process has been more than a bit annoying.  It will be really aggravating if it turns out my claim is valued at less than $10 in which case I won't receive anything (the claims forms provided no useful advice as how to estimate your claim value and thus determine if it was worth expending the considerable effort and some expense involved in filing a claim).

Shipping Options

TurboTax (the tax program I have used for the last few years) was on sale at Amazon this week so I decided I might as well order a copy although I won't be ready to do my taxes for a while yet (still waiting for a lot of the tax documents I will need).  So naturally I chose the free but slow shipping option over the faster but more expensive choices that Amazon also offered.  Curiously when I was placing the order (late Monday night) this free option showed an expected delivery date of next week but when I received a confirmation of shipping the next day the expected delivery date was Thursday (when it duly arrived via the USPS).  Which leaves me wondering if Amazon is deliberately giving pessimistic arrival times for the free shipping option on the checkout screen to discourage use.  And if so about the legality of this. 


The program installed without any trouble which was a bit of a relief since if I recall correctly I had considerable difficulty getting it to install correctly last year (perhaps connected with a malware problem I had early last year).

Zimmerman Verdict

I think the verdict was correct.  Under Florida law (as would be the case in most states) the state had to prove beyond a reasonable doubt that Zimmerman didn't have a reasonable belief he was acting in self-defense when he shot Martin.  In my view the state didn't come close to meeting its burden.  The prosecution attempted to pick away at Zimmerman's version of events but never offered a compelling alternative.  This simply isn't enough to meet the proof beyond a reasonable doubt standard.  This was a very weak case.  Cases this weak are not normally prosecuted which naturally leads to suspicions of improper motives on the part of the prosecutors in this case.

On the other hand I don't agree that this case had nothing to do with Florida's "Stand Your Ground" (SYG) law.  SYG laws in general encourage (by not discouraging as in "duty to retreat" jurisdictions) people to get into violent confrontations while armed.  This will inevitably produce more shootings like this one (even if the defense didn't need to rely on the SYG law in this case).  It should be noted that in a "duty to retreat" jurisdiction Martin too would have had a duty to avoid a violent confrontation (as it appears he could have done by going inside when he got home instead of reversing his path and confronting Zimmerman).  Encouraging people to stand their ground can get them killed.   You can argue that the negative effects of SYG laws are outweighed by positive effects but I think it is disingenuous to argue that there are no negative effects.  For my part I think the law should encourage (within reason) law abiding citizens to avoid trouble.  So I generally favor a "duty to retreat".     

Maryland v. King

Monday the Supreme Court ruled 5-4 in the case Maryland v. King that it is constitutional for Maryland to extract (via a cheek swab) DNA samples from people arrested and detained for serious crimes.  I agree with the majority.  As a general matter I support crime fighting measures when the benefit to society clearly outweighs the costs imposed on innocent citizens.  Here the costs seem trivial and the benefits significant so I would be reluctant to find Maryland's law unconstitutional.  And I see no legal requirement to do so, the Fourth Amendment just requires that such searches and seizures be reasonable and there were no obviously controlling precedents so the Court was basically free to as it felt best.

Incidentally while Scalia's dissent accuses Kennedy's majority opinion of slanting the facts to support his argument the dissent does not appear to be perfect in this regard.  In footnote 2 Scalia claims:

By the way, this procedure has nothing to do with exonerating the wrongfully convicted, as the Court soothingly promises. See ante, at 17. The FBI CODIS database includes DNA from unsolved crimes. I know of no indication (and the Court cites none) that it also includes DNA from all-or even any-crimes whose perpetrators have already been convicted.

 

While Scalia is correct that DNA from "solved" crimes is not routinely checked against the offender database wrongfully convicted people have been exonerated after special checks.  A Westchester case with which I am familiar is that of Jeffrey Deskovic.  A somewhat weird kid he was convicted based on a false confession of the rape murder of a high school classmate despite that fact that he was not a match for DNA found on the victim (on the unsupported theory that the DNA was from a boyfriend).  After many years in prison he convinced a new DA to run the DNA against the offender database.  This hit against a prisoner serving a life term for a different murder.  The prisoner confessed and Deskovic was exonerated.  Now in this case the prisoner had already been convicted so under Supreme Court precedent it was okay to extract his DNA regardless of the outcome of King v. Maryland which concerns taking DNA samples from people who are accused but not yet convicted of serious crimes.  Still it should be clear that people in Deskovic's unfortunate situation are more likely to be exonerated when broader criteria are used to build the offender database.