Commercial Paper

As today's Financial Times reports, more and more companies are being frozen out of the commercial paper market, the main source of day-to-day corporate funding. Not surprisingly, a number of the companies being frozen out are from the telecommuncations sector. They include Qwest, Sprint and a number of others to be named sooner rather than later.

Last year, I wrote a column about the woes of telecom that dealt, in part, with the sector's staggering debt loads. Those debt loads are getting a much harder look in the wake of the Enron/Global Crossing debacles. When a company like Qwest (which is not just a fiber-optic network but an RBOC as well) gets tossed out onto the street by the commercial paper market, then the game really has changed.

Greaseball

A time-honored practice of big-time journalism is the "source greaser." It's a fairly straightforward transaction. Source delivers good documents, source gets good press. But what happens when the source being greased is controversial, to say the least? Well, if you're The New York Times, you just gut it out and hope that no one notices.

Today, the Times reported that William Lerach had been named lead counsel for the institutional shareholders of Enron stock. Absent from the story were two salient facts about Mr. Lerach. First, his law firm is presently the target of a federal grand jury investigation in Los Angeles. Second, in 1999 his firm had to pay out $50 million to settle an "abuse of process" suit brought by a Chicago consulting firm.

To banish these facts from a front-of-the-Business Section story strikes me, at least, as yet more evidence of journalistic decline at The New York Times. But then, Mr. Lerach will soon be sitting atop the Mother Lode of Enron documents and depositions. Give good documents, get good press.

Getting Worse.

A while back, I wrote a grim column about the future of New York City. Looking back on what I wrote, I now think that I probably understated things.

The basic math is straightforward. New York City's $43 billion budget is roughly $4.8 billion in the red. The cost of debt service will escalate dramatically in the upcoming "out" years, leaving less money for basic services. A study conducted by the world's leading consulting firms found that September 11th amounted to an $83 billion hit, not all of which will be covered by insurance and federal disaster relief. Not surprisingly, tax receipts are down sharply. And byte flight -- the departure of information age companies from Manhattan -- is proceeding apace. Recently, both Morgan Stanley and Goldman Sachs announced they would be relocating some of their operations to, respectively, White Plains and New Jersey. There are literally dozens of other firms that will soon be packing up parts of their operations and heading out to the Island, or Connecticut or Westchester County or New Jersey (or, for that matter, Dallas, Atlanta and Virginia).

As bad as all that is, what's truly disturbing is what a friend of mine calls the return of the menace. The other day my wife was driving to work and was accosted by a squeegee man on Columbus Avenue. Another friend was chased down the street by a crazed homeless person, who threatened my friend with death by box-cutter ("I'll box-cutter you, you little faggot" were his exact words). Everywhere you go in New York City these days, there's a keen sense that the menace, which was simply not tolerated during the Giuliani era, is back.

Who Benefits?

It's always the key question. The Campaign finance "reform" legislation that passed the House early this morning appears to have three key beneficiaries. They are: (1) incumbents, (2) media and (3) Republicans.

Regarding the first, why are you not surprised? Incumbent protection is the goal of virtually every piece of legislation. This particular piece of legislation makes it even more difficult for challengers to get their message out. That's what made its passage possible in the House and what makes passage through the Senate a foregone conclusion.

Regarding the second, why are you not surprised? It is, of course, obscene for the media to be cheerleading for legislation that curtails political speech. But it's a whore business. And the media whores sincerely believe that free speech for anti-abortion groups is bad, free speech for journalists is the cornerstone of a free society.

Regarding the third, get ready for campaign finance "reform" reform, coming soon to a newspaper box near you. Republicans should be able to raise significantly higher amounts of "hard" money than Democrats. This imbalance will not be felt in this year's mid-term elections (the legislation will not take effect until November 6th, one day after Election Day). But it will work to President Bush's benefit in 2004. Once this consequence of "reform" is understood, Democrats and their media allies will start beating the drums for still more campaign finance "reform."

Buried in the coverage of campaign finance "reform" was the news that the DNC is planning to build a new headquarters in Washington. Expected cost exceeds $200 million. That's a ton of money that many Democrats may feel would be better spent in their districts and states.

Rise and Shine

Get up! That's the latest advice from the scientific community. A new study shows that those who sleep 6-to-7 hours a night live longer than those who rack out for 8 hours or longer. Turns out Mom was right after all.

Wolfie

The man the President of the United States calls "Wolfie" is Paul Wolfowitz, deputy secretary of defense. There's a good piece about him in the new issue of The Atlantic Monthly. As of this afternoon, it was not posted on The Atlantic's website. But I assume it will be shortly. James Fallows wrote the piece.

While you're visiting The Atlantic's web-site, you might want to check out the e-mail exchange between Fallows and Walter Mead on US foreign policy. It's well worth it.

Great Books

From time to time, I plan to post book recommendations. And since there's no time like the present, I'll begin with two books by two old friends. In the non-fiction category, Walter Mead's new book is a must read for those interested in the forces that shape US foreign policy. In the fiction section, Joe Kanon's third novel is his best yet. As the hero investigates a murder, the author explores the larger crime scene.

The Big Easy

Back from New Orleans, after four days of Mardi Gras revelry. Our host was Sam Israel, New Orleans native and legendary hedge-fund manager. His local connections enabled us to ride in the Orpheus Parade, on top of the Smoothy King float. Eight hours after arriving at the Convention Center, we finally reached the beginning of the official parade route and began throwing beads to the throngs below. If you ever get the chance, take it. We had a ball.

Mid-term Prognosis

A good friend from Michigan weighs in on the mid-term election outlook:

"You didn't ask, but -- my view as of now:

In general it seems that the Republicans have a pretty
good chance of holding the House. To summarize:

The three things nominally going AGAINST the GOP are:
(a) history, (b) the economy, and (c) Social Security-health care.

History. The President's party normally loses seats in
elections comparable to the one this year, but that assumes there was at
least some coattail impact on the House in the Presidential election --
ergo, providing space for the pendulum to swing back. Not so in 2000,
except in the sense that the Republicans didn't lose as many seats as they
might have.

Economy. Unless the current situation turns into a
double-dip recession and begins to really impact the middle class (the kind
of folks who actually vote in House elections), the effect should be
muted. (The type of people whom a mild recession effects directly tend to be
both non-voters and residents of CDs which are not contestable.)
There could be some real danger should weakness show up in the general public
perception numbers -- "consumer confidence", for example.

Social Security, Medicare (especially prescription drugs), HMOs.
This still gives the Democrats some leverage (the poll reported
by Roll Call notwithstanding); how much depends on what happens in the
next few months.


The Republicans have some (other) things going FOR them:
(a) off-year demographics, (b) re-apportionment, and (c) (maybe) a
very popular President.

Demographics. The electorate is always more Republican
in off-year elections and I don't see anything about the hotly-contests
gubernatorial & Senate elections that is likely to change that significantly re
the House contests.

Re-Apportionment. With the notable exception of CA, my sense is
the GOP is getting a bit of an edge from the re-districting.

Presidential Popularity. Normally not a big deal in
marginal House seats, but as of now it's so strong a force that
we are in uncharted territory. Of course, I need not tell anyone old
enough to remember "41", that sky-high Presidential poll numbers can turn south in
a big hurry.

As far as I know, there is no marginal House district in Michigan.
Republican Candice Miller (currently Secretary of State) and Democrat Carl
Marlinga (currently Macomb County Prosecutor) will tear each other's hearts
out, throw them on the gound and stomp on them, while all the time
screaming wildly, but at the end of the day Miller should win."

Pataki

New York Governor George Pataki (R) is, by almost every measure, well positioned to win re-election this year. He has no primary opposition (which is a key incumbent killer). He's been given relatively high marks for his performance following the 11th of September. His overall job approval rating is reasonably good. He's raised a ton of dough. Best of all, he has two challengers, State Comptroller Carl McCall and former HUD Secretary Andrew Cuomo, who are already at each other's throats.

The primary will be held on September 10, which leaves the eventual Democratic nominee not much time to put together a good general election campaign. Generally speaking, what happens in situations like this is that both challengers raise a lot of money but end up spending it all in the primary. And much, if not most, of those expenditures go to negative advertisements. Cuomo says McCall is an incompetent fool. McCall says Cuomo is arrogant and unqualified. All of it works to the benefit of Governor Pataki.

And yet. I suspect that Governor Pataki will win in November, but with the barest of majorities (he barely got a majority of the vote in 1998, when he had virtually no opposition). Pataki's problem is that conservatives are disenchanted with him. They think he's become Mario-lite. Conservatives will never vote for either McCall or Cuomo. But they might not vote at all (there's no Senate race this year and the contested House races are few).

Mid-term elections are largely determined by small increases/decreases at the margins of turnout. If base Republican voter turnout declines 4% and base Democratic voter turnout increases 3%, Pataki's margin of comfort dwindles. One can't yet rank the New York gubernatorial race a toss-up. But it's a lot closer than you think. Over to you, Charlie Cook.