Business Law Prof Blog

North Dakota Energy Law Symposium: Nov. 3

The North Dakota Law Review is hosting an Energy Law Symposium this Thursday, November 3, 2011. The symposium will feature a variety of perspectives, including insight from speakers representing the practicing bar, education (legal and otherwise), and government.  The panelists will be discussing the economic, regulatory, environmental, and social issues facing the current energy boom, with a particular (though definitely not exclusive) emphasis on North Dakota and the western United States. Here's the agenda, including the list of distinguished speakers (plus me):

The North Dakota Energy Law Symposium is free and open to the public.  It has been approved for 4 hours of CLE credit in North Dakota and 3.75 hours of CLE credit in Minnesota.  

Schedule of Symposium Events

9:00 a.m. Welcome 
Kathryn Rand, Dean, UND School of Law

9:05 a.m. Introduction to the Energy Law Symposium

9:15 a.m. Hydraulic Fracturing in North Dakota: The Environment and the Economy: Hydraulic Fracturing as the Intersection of Sustainability

 - Professor Joshua Fershee
Moderator: Nate Martindale
Presentation followed by 15 minutes of Q & A

9:55 a.m. Practicing Energy Law in North Dakota 
 - Brian Bjella
 - Joshua Swanson
Moderator: Rob Carolin – Alumni Relations
Presentation followed by 20 minutes of Q & A

11:10 a.m. Break

11:25 a.m. New Energy Development
 - Marcilynn Burke
Moderator: Lindsay Harris
Presentation followed by 15 minutes of Q & A

12:15 p.m. Break

1:15 p.m. Energy Extraction on Federal and Native American Land 
 - Professor LeRoy Paddock
 - Professor Raymond Cross
Moderator: Joshua Fershee – Associate Dean
Presentation followed by 20 minutes of Q & A

2:35 p.m. Environmental Protections on Energy Extraction 
 - Heather Ash
 - Professor John Nagle
Moderator Dr. Steve Benson – Director of Petroleum Eng. Dept., UND
Presentation followed by 20 minutes of Q & A

--JPF

Live Blogging From the Central States Law Schools Association Annual Meeting

I'm blogging live from the Central States Law Schools Association Annual Meeting being held at the University of Toledo School of Law (we're currently on break for lunch).  You can find the schedule of panelists here.  So far I've attended the "Economics, Markets, & Wealth" panel, and the "Tax Law" panel.  Of the papers presented as part of the EMW panel, I was able to find Dustin Buehler's "Economic Evolution, Jurisdictional Revolution" on SSRN.  Here's the abstract:

In June 2011, the Supreme Court issued its first personal jurisdiction decision in two decades. In J. McIntyre Machinery, Ltd. v. Nicastro, the Court considered whether the placement of a product in the "stream of commerce" subjects a nonresident manufacturer to personal jurisdiction in states where the product is distributed. The Court issued a fractured opinion with no majority rule, with some justices expressing reluctance to "refashion basic jurisdictional rules" without additional information on "modern-day consequences." This Article explores the consequences of these rules by providing the first law-and-economics analysis of personal jurisdiction. A descriptive analysis initially demonstrates that jurisdictional rules significantly misalign litigation incentives. Unclear and restrictive personal jurisdiction rules increase the likelihood of procedural disputes, inflate litigation costs, and decrease the expected benefit of suit, making it less likely that plaintiffs will file lawsuits. This in turn skewers substantive law incentives - because jurisdictional rules make litigation less likely, many injurers escape liability and are inadequately deterred from engaging in wrongful conduct. Drawing on this descriptive analysis, the Article proceeds to a normative analysis of the stream of commerce theory. It argues that a broad version of the stream of commerce doctrine best aligns procedural and substantive law incentives, while protecting fundamental due process rights. Ultimately, this Article concludes that it is time for a procedural revolution: the Supreme Court should allow expansive personal jurisdiction over nonresident manufacturers in products liability cases.

SJP

 

Wall Street Speaks

A friend sent me the "We are Wall Street" email that's apparently been going viral.  Here's a taste:

Go ahead and continue to take us down, but you’re only going to hurt yourselves. What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.

You can read the full letter here.  My friend thought I'd hate it, but I think it's terrific.  The issue of whether capitalism is indeed the least worst system (or, perhaps more importantly, how to best leverage capitalism so as to lift the most ships and provide some floor of subsistence to distinguish us from barbarians, while at the same time incentivizing the "frontrunners" maximally) is a complicated one.  I am not inclined to dismiss the Occupy protesters because I believe they represent a meaningful discontentment with what many perceive to be a corrupt system rigged to benefit the few at the expense of the many.  At the same time, I'm not going to dismiss the ideas represented in this letter either because I believe there is a great deal of truth represented therein as well.

SJP

WVU Fracking Conference: Drilling Down on Regulatory Challenges

Early tomorrow morning, I head east for an event at the West Virginia College of Law's Center for Energy and Sustainable Development.  The event announcement:

Drilling Down on Regulatory Challenges: Balancing Preservation and Profitability in the Development of Shale Gas Resources promises an unbiased and informative exploration of key topics that face the public, industry and policy makers across the nation regarding the responsible and practical regulation of shale gas production. 

The event has a lot of good speakers, plus me.  I will talking about the hydraulic fracturing experience in North Dakota. My talk is titled, The Environment and the Economy: Hydraulic Fracturing as the Intersection of Sustainability.    

Here are the topics to be covered:

Perspective of State Regulators in the Marcellus Region, including representatives from environmental protection agencies in New York, West Virginia, Pennsylvania and Ohio

Experience from Other Shale Regions, such as Barnett and Haynesville Shale

A Model Regulatory Framework for Hydraulic Fracturing, which is being developed by representatives from industry and environmental organizations.

Perspectives of Industry and Other Stakeholders, including representatives from industry, environmental organizations, community and public interest groups.

Local Regulation of Hydraulic Fracturing. Do local governments have a role in regulating hydraulic fracturing?.

The Economic Benefits of Hydraulic Fracturing, which will examine the economic benefits to a region and local communities associated with the development of shale gas resources

Points of view from across the spectrum will be shared by industry experts, regulators, policy makers, representatives of environmental groups, and concerned citizens in a thoughtful and inclusive discussion.

A reception, featuring U.S. Senator Joe Manchin, will be held Thursday evening, October 27, 2011 as part of the scheduled activities.

I'm looking forward to comparing notes with others close to the most recent energy boom. It should be fun.

--JPF

Decision Fatigue: An Attorney's (And Law Prof's) Occupational Hazard

This New York Times report asks, Do You Suffer From Decision Fatigue?: 

The mental work of ruling on case after case, whatever the individual merits, wore [judges] down. This sort of decision fatigue can make quarterbacks prone to dubious choices late in the game and C.F.O.’s prone to disastrous dalliances late in the evening. It routinely warps the judgment of everyone, executive and nonexecutive, rich and poor — in fact, it can take a special toll on the poor. Yet few people are even aware of it, and researchers are only beginning to understand why it happens and how to counteract it.

Decision fatigue helps explain why ordinarily sensible people get angry at colleagues and families, splurge on clothes, buy junk food at the supermarket and can’t resist the dealer’s offer to rustproof their new car. No matter how rational and high-minded you try to be, you can’t make decision after decision without paying a biological price. It’s different from ordinary physical fatigue — you’re not consciously aware of being tired — but you’re low on mental energy. The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways. One shortcut is to become reckless: to act impulsively instead of expending the energy to first think through the consequences. (Sure, tweet that photo! What could go wrong?) The other shortcut is the ultimate energy saver: do nothing. Instead of agonizing over decisions, avoid any choice. Ducking a decision often creates bigger problems in the long run, but for the moment, it eases the mental strain. You start to resist any change, any potentially risky move — like releasing a prisoner who might commit a crime. So the fatigued judge on a parole board takes the easy way out, and the prisoner keeps doing time.

This is something to keep in mind in every facet of being an attorney, and being a law professor, too. I didn't necessarily know what to call it, but I know that over time there is a diminishing return to my continued work. It's why I grade exam questions in a different order, and it's why I try not to grade late into the night. I try to make sure that some portion of each student's work is viewed in a favorable time slot, to help ensure as equitable a review as possible.  

Of course, it's impossible to avoid decision fatigue if you're trying to work at a high rate and a strong output. That's just the way it is. But we can try to structure our days to be more productive. The close of the article explains it well:

“Even the wisest people won’t make good choices when they’re not rested and their glucose is low,” Baumeister points out. That’s why the truly wise don’t restructure the company at 4 p.m. They don’t make major commitments during the cocktail hour. And if a decision must be made late in the day, they know not to do it on an empty stomach. “The best decision makers,” Baumeister says, “are the ones who know when not to trust themselves.”

--JPF

More Readings on Capitalism

Steve recently put up a helpful list of "Readings on Capitalism."  Since I am agnostic when it comes to the assertion that capitalism is the least worst system possible, and because I believe that even if we all agreed on that point we'd still have much to debate about as to the details, I asked Frank Pasquale and Kent Greenfield for a quick list of books identifying some of the shortcomings of capitalism.  Here it is:

• 23 Things They Don't Tell You About Capitalism (Pasquale: "Ha-Joon Chang's LSE and RSA podcasts are on iTunes; highly recommended")

• The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

• The Illusion of Free Markets: Punishment and the Myth of Natural Order

• The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America

• Wealth and Democracy: A Political History of the American Rich

• The Spectre at the Feast: Capitalist Crisis and the Politics of Recession

• New Capitalism

• The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression

• Zombie Economics: How Dead Ideas Still Walk among Us

• Business as Usual: The Roots of the Global Financial Meltdown (Possible Futures)

• Wall Street at War: The Secret Struggle for the Global Economy (Pasquale: "particularly valuable as a testament to the ways in which finance capital has undermined productive enterprise")

SJP

Reporting Back From the Ohio Securities Conference

Yesterday, I had the privilege of participating in a panel discussion at the 2011 Ohio Securities Conference entitled, "Dodd-Frank: One Year Later."  A complete list of the panelists, along with a link to related material follows:

Barbara Black: How to Improve Retail Investor Protection After the Dodd-Frank Wall Street Reform and Consumer Protection Act

Eric Chaffee: The Dodd-Frank Wall Street Reform and Consumer Protection Act: A Failed Vision for Increasing Consumer Protection and Heightening Corporate Responsibility in International Financial Transactions

Stefan Padfield: The Dodd-Frank Corporation: More than a Nexus of Contracts

Geoffrey Rapp (moderator): Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions: Written Testimony Submitted to the U.S. House Committee on Financial Services

SJP

Defining the Rights and Responsibilities of Corporations

The Supreme Court has agreed to hear the appeal of KIOBEL V. ROYAL DUTCH PETROLEUM, 621 F.3d 111 (2d Cir. 2010).  One of the questions presented is as follows:

Whether corporations are immune from tort liability for violations of the law of nations such as torture, extrajudicial executions or genocide, as the court of appeals decisions provides, or if corporations may be sued in the same manner as any other private party defendant under the ATS for such egregious violations, as the Eleventh Circuit has explicitly held.

Over at the Huffington Post, Mike Saks opines:

[I]t would ... be quite odd for the Court, which found in Citizens United that the Framers intended the First Amendment to apply to corporate persons, to reject the concept when it comes to corporate liability for crimes against humanity under a Founding-era statute.

SJP

Pendulum Swing in the Market

At the end of the second quarter, Goldman Sachs reported a $1.85 per share earnings and Bank of America reported a per share decrease of $.99 after an $8.8 billion loss.  Today, the tables have turned with the third quarter filings.  Goldman Sachs is reporting a $.85 per share loss after a $428 million loss and Bank of America is reporting a $.56 per share gain after a $6.8 billion profit.  The Bank of America turn around may be short lived, however, as the boost in earnings is due, in part, to certain asset sales boosting cash and "one-time accounting adjustments."  Bank of America also remains exposed to investment risks ($485 million) in Greece.  Goldman Sachs, on the other hand, attributes the deflated earnings to a bad investment in the Industrial and Commercial Bank of China that resulted in a $1 billion loss and low returns in other equities.  

The switch in positions and the underlying reasons highlight the volatility that remains in the financial markets.

--Anne Tucker

 

Business-related cases and the Supremes

 

With the final round of 2011 oral arguments before the Supreme Court under way, I became curious to see what business and business-related cases are before the Supreme Court.  The October/November calendar is available here.  Below is a quick topical list with links to cases and supporting documents. 

Insider trading statute of limitations

• Credit Suisse Securities v. Simmonds (to be argued Nov. 29th)

Copyright and patent issues

• the ability to revive a copyright-- Golan v. Holder (argued Oct. 5th)
• the ability to patent blood tests used to detect a breast cancer-indicative gene:  Mayo Collaborative Services v. Prometheus Laboratories, Inc. (to be argued Dec. 7th)

Pre-emption

• Kurns v. Railroad Friction Products Corp. (to be argued Nov. 9th)
• National Meat Association v. Harris (to be argued Nov. 9th)

Federal jurisdiction for private suits under the Telephone Consumer Protection Act

• Mims v. Arrow Financial Services, LLC (to be argued Nov. 28th)

Medicare Benefits

• Consolidated Douglas cases (argued Oct. 3rd) 

Constitutionality of certain lawsuits under the Real Estate Settlement Services Act

• First American Financial Corp. v. Edwards (to be argued Nov. 28th)

Role of private arbitration under the Credit Repair Organizations Act

• CompuCredit Corp. v. Greenwood (argued Oct. 11th

 

-Anne Tucker

"Poker for Law Students" Course Update

I've previously written about my desire to teach a "Poker for Law Students" course (here).  To that end, I am always on the lookout for supporting documentation and course materials (as I've also previously blogged about here).  So, just in case this sort of thing interests you I thought I'd pass on a couple of additional items I've come across recently:

1. A PokerNews item on "Poker Players and Entrepreneurs: A Compatible Match"

2. A Texas Hold'Em Guide to Winning in Business

Somewhat relatedly, the American Gaming Association recently released a white paper that many feel is the best articulation yet of why and how the U.S. should legalize and regulate online poker.

SJP

Manesh on Contractual Freedom Under Delaware Alternative Entity Law

Mohsen Manesh has posted “Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs” on SSRN.  Here is the abstract:

Notwithstanding the ongoing academic debate, little is known empirically about how unincorporated alternative entities - LLCs and LPs - actually utilize the contractual freedom afforded under Delaware law. To what extent do alternative entities take advantage of contractual freedom to wholly eliminate fiduciary duties? And to what extent do alternative entities employ so-called “uncorporate” substitutes - certain contractual devices designed to discipline and incentivize mangers - in lieu of fiduciary duties? In response to calls for empirical evidence on this issue, this study analyzes the operating agreements of every publicly traded Delaware alternative entity in existence as of June 2011. This study, the first of its kind, provides a snapshot of contractual freedom as it is applied under Delaware alternative entity law.

In particular, this study finds that the use of fiduciary waiver and exculpation provisions among publicly traded Delaware alternative entities is widespread. Yet, despite the widespread use of such provisions, this study also finds that publicly traded alternative entities have either failed to adopt uncorporate substitutes or adopted uncorporate substitutes that only trivially constrain managerial discretion. Thus, this study suggests that publicly traded alternative entities have largely utilized the freedom of contract to reduce managerial accountability to investors without committing to significant offsetting constraints on managerial discretion.

SJP

Another Meaningless Question: Has the Check Cleared?

The New York Court of Appeals has decided that the term "cleared"  with regard to a bank check is ambiguous. Greenberg, Trager & Herbst, LLP v HSBC Bank USA,  2011 NY Slip Op. 07144 (Oct. 13, 2011). H/T Above the Law & Eric Turkewitz) 

From the opinion:

On September 27, 2007, a [Greenberg, Trager & Herbst, LLP (GTH)] partner called a representative of HSBC inquiring as to whether the check had "cleared" and if the funds were available for disbursement.[*4]According to GTH, a five year banking relationship existed between them. GTH was informed that the funds were available. Later that day, GTH wired $187,500 from its account to Hong Kong pursuant to the wiring instructions it received from Northlink. GTH claims that, but for the assurance that the check had "cleared," it would not have forwarded the funds. On September 28, 2007, HSBC confirmed to GTH that the wire transfer had been consummated.

On October 2, 2007, HSBC received an EARNS notice from Citibank that the check was being dishonored as "RTM [return to maker] Suspect Counterfeit." An HSBC Branch Manager later contacted GTH, informing them that the check had been dishonored and returned as counterfeit. HSBC then revoked its provisional settlement and charged back GTH's account.

. . . .

GTH's claim is based on the alleged oral statement by the HSBC representative that the check had "cleared" — an ambiguous remark that may have been intended to mean only that the amount of the check was available (as indeed it was) in GTH's account. Reliance on this statement as assurance that final settlement had occurred was, under the circumstances here, unreasonable as a matter of law. (footnote omitted)

Wow.  I would have thought that was the right question to ask, too.  The dissent explains:

HSBC makes much of the fact that the word "cleared" is not found in the UCC and the majority finds it to be ambiguous. However, UCC § 1-205 defines "course of dealing and usage of trade" as encompassing "any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question" (UCC § 1-205 [2]). The term "cleared" is used liberally in the banking business. Indeed, the Federal Trade Commission in a bulletin addressed to consumers states that "it's best not to rely on money from any type of check . . . unless you know and trust the person you're dealing with or, better yet — until the bank confirms that the check has cleared" (Federal Trade Commission Facts for Consumers, Giving the Bounce for to Counterfeit Check Scams, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre40.pdf [January 2007]). Therefore, I disagree with the majority's position that relying on this statement was unreasonable as a matter of law (see majority op at 16)^[FN9]. I suspect many business professionals would have done the same thing as Trager. . . . 

Footnote 9: If the term “cleared” means anything in common banking usage, it is that final settlement has occurred (see Black's Law Dictionary [9th ed 2009] [defining the term as it relates to a bank as "to pay (a check or draft) out of funds held on behalf of the maker (the bank cleared the employee's check)"] [defining the term as it relates to "a check or draft" as "to be paid by the drawee bank out of funds held on behalf of the maker (the check cleared yesterday)"]). 

I agree that a lot of business professionals would have done the same thing, too.  If "cleared" is too ambiguous, what would I ask my banker? The majority doesn't suggest what would have been the proper question.  Does the bank never have to tell me if the money is really mine or not?  I just have to guess?   It appears so.  The courts explains that "GTH was in the best position to guard against the risk of a counterfeit check by knowing its client."  

Silly me.  I had always thought the bank, at some point, would be able to tell me whether a check was good or not, even if it came from a Nigerian prince or someone seeking help collecting on a divorce settlement "in my jursidiction."  I mean, this is all electronic -- if nothing else, isn't there a time when the bank knows the money is real?  It's one thing for a bank to say, "The money is available to you now, but we won't know for sure the money was actually transferred and available for X days, so you proceed at your own risk."  

I am no banking expert, but I do know there is a lot of nuance to all of this.  It just seems to me that the people in the best position to prevent this kind of loss, are the people who understand this nuance.  Why not have a rule that requires banks to tell it like it is, or at least say, "We're not sure, either."?  The reason the banking system works, and e-commerce has been so successful is because we can count on it. This decision says to me you can until you can't. Talk about ambiguous. 

--JPF 

BLPB Nominated for LexisNexis Top 25 Business Law Blogs of 2011

We made the top 25 last year.  Please vote for us again this year here.

SJP

Discount M&A

Discount chains seem to be a hot source of M&A action this year.  Admittedly, I don’t know if this reflects a trend of generating higher-value within discount firms post-recession, or if there has traditionally been movement of this same nature within the industry.  

Today’s inquiry was prompted by news that the 99 Cent Only chain of stores agreed to a $1.6 billion dollar acquisition by Ares Management LLC and the Canada Pension Plan Investment Board who hope to find a permanent buyer for the company within 6 months.  For up-to-the minute financials and company information, check out the stats on 99 Cent Only (trading as NDN).  After a volitale month, the stock is trading high on the news of the merger.

99 Cent Only is not the "only" discount brand in play right now.  Earlier this year Big Lots (financials available here) was rumored to be for sale, but then acquired Liquidiation World, a Canadian discount retailer with 98 stores for $1.8 billion.  The initial news that Big Lots was being investigated by a Goldman Sachs client triggered rising stock prices in competitive discount chains like Family Dollar. In February of 2011, Family Dollar rejected a hedge fund bid (and adopted a 10% poison pill cap), but is now back in the M&A news as Bill Ackman's hedge fund has recently doubled its ownership interest in the company and is now courting Dollar General as a potential buyer.

Below is a snapshot of discount/value stores' trading performance today.

The industry as a whole is having a strong second and beginning of a third quarter, has been the subject of M&A action, and continues to trade well.  It will be interesting to see what else happens within this industry and how its performance continues for the remainder of 2011.

-Anne Tucker

How North Dakota Became Saudi Arabia & How to Keep It That Way

The Wall Street Journal's recent Weekend Interview was of particular interest to me, and I thought it worth mentioning.  The article was titled, How North Dakota Became Saudi Arabia: Harold Hamm, discoverer of the Bakken fields of the northern Great Plains, on America's oil future and why OPEC's days are numbered.

It's an interesting interview with Harold Hamm, who is the founder and CEO of Continental Resources. Mr. Hamm is certainly a leader in the U.S. oil resurgence, and his views carry a lot of weight in many circles. His facts are hard to refute, though I might put a little different spin on it.  Here's a key part of the article:

One reason for the [U.S. oil industry] renaissance has been OPEC's erosion of market power. "For nearly 50 years in this country nobody looked for oil here and drilling was in steady decline. Every time the domestic industry picked itself up, the Saudis would open the taps and drown us with cheap oil," he recalls. "They had unlimited production capacity, and company after company would go bust."

This is certainly true. OPEC cannot dictate the market in the same way as they once could, because the market for oil has increased so dramatically, especially in India and China. As such, increased production will simply lead to modestly lower prices, as emerging markets take all the oil the market is willing sell. The article continues: 

Today OPEC's market share is falling and no longer dictates the world price. This is huge, Mr. Hamm says. "Finally we have an opportunity to go out and explore for oil and drill without fear of price collapse." When OPEC was at its peak in the 1990s, the U.S. imported about two-thirds of its oil. Now we import less than half of it, and about 40% of what we do import comes from Mexico and Canada. That's why Mr. Hamm thinks North America can achieve oil independence.

This is true, too, although there is an implication here that OPEC is no longer a factor.  That's not true, just because their market share had dropped. Most certainly, OPEC's ability to impact price in the ways it did in the 1970s, 1980s, and 1990s, has been diminished.  Still, OPEC is a power player, and the revenues U.S. oil companies are seeing are coming into OPEC, too.  After all, it's nice to have 80% market share of a $1 million industry, but it's better to have 20% of $10 million market.  Of course, here were talking about a lot more zeroes than that.  

Further, oil independence has its appeal, certainly, but it's not all it might seem.  In this instance, the only reason we might be able to achieve independence from foreign-sourced oil is because oil prices are so high.  Are we really better off being energy independent with oil at $90 per barrel, or would the U.S. economy be better served with Saudi oil at $25 per barrel?  At $25 or even $50 per barrel, the broad-scale U.S. oil industry can't compete with other world producers.  

But the market has changed. Mr. Hamm is right that the U.S. oil industry doesn't need to worry about the boom-and-bust cycle of years past because the price is not going back to $25 per barrel.  The new market is great for him, great for those with new jobs, and great for those cashing royalty checks. And it's been great for many parts of North Dakota. I appreciate all of that, and I think regulators, politicians, and citizens should be looking at these facts as they consider energy and other economic policy.

Mr. Hamm finally argues that taxes are likely to stop drilling.  He explains:

The White House proposal to raise $40 billion of taxes on oil and gas—by excluding those industries from credits that go to all domestic manufacturers—is also a major hindrance to exploration and drilling. "That just stops the drilling," Mr. Hamm believes. "I've seen these things come about before, like [Jimmy] Carter's windfall profits tax." He says America's rig count on active wells went from 4,500 to less than 55 in a matter of months. "That was a dumb idea. Thank God, Reagan got rid of that."

Here's where we diverge. I am not arguing that President Carter's windfall profits tax had an impact -- it was not good policy at the time.  But that was in part because of OPEC's market power.  The U.S. oil industry was operating in the zone where the profit margin was such that the tax rate could impact drilling.  From what I understand, most North Dakota oil drilling is profitable with oil at about $65-$70 per barrel. Thus, at $85 per barrel, there's a lot of room to increase taxes without having an impact on the drilling. I'm not suggesting that a large new tax would be a great move, but it's not likely to have the dire consequences it could have had in years past. I'm at least okay with the status quo here. Perhaps we would get more drilling if we added more incentives to oil exploration, but my suspicion is that we would be rewarding people for doing what they were going to do anyway. 

I think the energy industry, including traditional resources, is vital to U.S. economic interests, and I think our policies should support the current growing and evolving oil and gas industry. I happen to think there is room for everyone.  My biggest worry for the oil and gas industry is that someone gets careless with their new drilling methods and causes a major environmental disaster. The harm to the environment would be a major concern, of course, but I think most people want that protected.  This is not news.

The greater harm to the industry, and the economy, though, of such a disaster is often missed.  The economic key to this oil and gas boom is to keep it going -- and the biggest threats are no longer OPEC, taxes, or the electric car.  It's an environmental disaster that leads to a large-scale shutdown.  That would be the ultimate lose-lose situation. 

--JPF

The Failure to Regulate as Success

H.R. 2308, the “SEC Regulatory Accountability Act,” would establish a significant number of additional specific standards for cost-benefit analyses for Commission rules and orders.  Said SEC Chairperson Mary Shapiro:

My fear about this legislation is that it layers so much analysis on top of what we already do that we’re set up to fail.  There is no way this agency or any other agency could do all of these things, some of which conflict.

Well, perhaps not so much “fail” as “fail to regulate.”  To some that’s failure, to others that’s success.

SJP

If you love corporations, you might want to start taking the protesters a bit more seriously.

Yesterday, Stephen Bainbridge explained why he loves corporations.  In the course of his post he referenced "The Company," by John Micklethwait and Adrian Wooldridge.  I, too, am a fan of that book--though not because (as Bainbridge notes) the authors identify the corporation as "the best hope for the future of the rest of the world."  (I am at best agnostic on that point.)  Rather, my recollection of the book (which I admit may well be distorted by the passage of years since I last read it) is that the authors did a decent of job of acknowledging that the history of corporations is marked by evil as well as goodness, including "imperialism and speculation, appalling rip-offs and even massacres" (p. xx).  Of course, the authors do note that corporations "pillage the Third World less than they used to" (p. 188).

What I liked about the book is that the authors recognized that "[t]o keep on doing business, the modern company still needs a franchise from society, and the terms of that franchise still matter enormously" (p. 186).  Furthermore, they acknowledged that "[t]here is a widespread feeling that companies have not fulfilled their part of the social contract: people have been sacked or fear that they are about to be sacked; they work longer hours, see less of their families--all for institutions that Edward Coke castigated four hundred years ago for having no souls" (p. 188).  (Note that these are all pre-financial crisis quotes.)

All of which leads me to conclude that if you love corporations you might want to start taking the "Occupy" protesters a little more seriously.  You may think they are "illiterates," silly and absurd--but they are growing in number and they may well end up having something to say about the nature of the franchise corporations need in order to survive.

SJP

Lions, and Tigers, and Bears

As a life-long Detroit sports fan, this has been a good fall.  The historically woeful Detroit Lions are 4-0, and the Detroit Tigers, after ousting the loaded New York Yankees last night, will play for the American League pennant.  These are good things, at least from my perspective.

Bears, on the other hand, less so.  The Wall Street Journal reports: Market Nears Bear Territory: U.S. Stocks Down Almost 17% Since April High on Europe, Economic Concerns.  The report explains:

By midday Tuesday in Asia, Japan's Nikkei average fell 1.6%, South Korea's Kospi fell 4.6% and Hong Kong's Heng Seng slipped 0.2%.

Investors blamed the drop on continuing fears of European debt defaults, which are sowing fears of a global recession. They pointed to a warning from Greece that it would fail to meet its government-deficit targets this year, which reinforced a widespread concern that Greece would default.

A global manufacturing index compiled by J.P. Morgan showed the manufacturing sector contracting for the first time in more than two years as indexes of industrial activity in Europe, Japan and Brazil all showed output falling.

That report trumped somewhat positive U.S. economic news. September manufacturing activity and vehicle sales were slightly better than expected, as was August construction data, although all three remain soft.

What do these "animals" have in common?  Well, the question to me is whether the bear market is paralleling the Lions' struggles, which culminated in the first-ever 0-16 season in 2008 or is more like the Tigers of 2009. In 2009, the Tigers had a epic collapse to end the season (though less epic, perhaps, than this year's Red Sox), when they missed the playoffs, losing to the Twins in a 163rd and deciding game.

The 2008 Lions were just bad.  They lacked the talent and ability to do what was necessary.  The 2009 Tigers had some talent, had the ability, but lacked the belief they could do what was necessary.  My view of the market is that it is closer to the 2009 Tigers.  There's some good things happening, but no one believes in those good things enough to turn the corner.  But maybe I'm wrong; maybe the market is the 2008 Lions.  Either way, as the Journal points out, it looks like it's going to be a Bear.

--JPF

Steve Jobs, The Ultimate Entrepreneur

Today’s blogs and news outlets are filled with eulogies for Steve Jobs. I’m not an Apple acolyte; the only Apple appliance I own is an old iPod my children gave me. But I have a deep appreciation for Jobs as an entrepreneur. He created markets that didn’t exist and gave people products they didn’t realize they needed.

I recently finished the book I Am John Galt, by Donald L. Luskin and Andrew Greta. Luskin and Greta try to find contemporary figures analogous to the characters in Ayn Rand’s fiction. They envision Steve Jobs as Howard Roark, the hero of The Fountainhead. They say about Jobs:

Someday death will come to him, as it must to all of us. What he’s built for the world will make him an immortal figure in the history of technology and business. But he’s immortal in another sense, in the way that all self-motivated and self-consistent people are—that they don’t die a little bit every day by compromising themselves, that during their lifetimes they truly live.

-Steve Bradford