August 7, 2007, 3:56 pm
Ignorance Is Not An Excuse
The closely watched criminal trial of Gregory Reyes, the former chief executive of Brocade Communications ended in a conviction today. He was accused of backdating option grants.
Mr. Reyes’ defense was a classic. His lawyers did not argue that he did not do it. Instead, they argued that lots of people in the company knew it was going on, and that the government had not proved that Mr. Reyes understood options accounting rules. If he did not know what he was doing was wrong, then there could be no crime.
The judge had put off a ruling on whether to dismiss the case, and some thought he had bought the argument. But today he said he had rejected the dismissal motion.
Mr. Reyes’ defense might have had a better chance if he had not denied backdating when questioned by company investigators. And he was hurt when an employee quoted him as saying “It’s not illegal if you don’t get caught.”
The basic CEO defense of “I was too important to worry about accounting details” would have become very popular if it had worked.
A staple of journalism is the noble local business arrayed against the evil national chain. In the Sunset Park section of Brooklyn, we learn that Johnny’s Pizza is facing competition from Papa John’s, a chain, and has responded with a petition drive against the chain.
The last paragraph of the article in today’s Times, we learn, from a friendly competitor just how the local Pizza competition was handled, pre-Papa John’s.
“If we get short on cheese or tomatoes, we go to him or he comes to us,” said Gino Campese, the owner of Scotti’s Pizza. “When it’s time to raise prices, we get together. There’s room for everybody. But not for Papa John’s.”
For now, the proprietor of Johhny’s says he won’t be raising the cost of a slice, even though cheese prices are up.
Tomorrow the government will report on productivity figures for the United States. They have not been rising very rapidly of late, adding to economic concerns.
The Times’ coverage of Tom Glavine’s 300th win includes a graphic giving the career records of the 23 pitchers who have won that many games. I got out my spreadsheet and went to work. How, I wondered, has the productivity of pitchers changed?
I ranked those 23 elite pitchers on games started per season, which ignores relief appearances, and on innings pitched per season. By either measure, pitchers worked a lot harder in the 19th century.
All seven who started their careers before 1900 averaged at least 37 starts and 300 innings per season. None of the players who started in the 20th century could match either statistic. Broadly speaking, the number of starts per season by elite pitchers does not seem to have changed much since World War II.
The Iron Man award goes to Charley Radbourn, who managed to win 309 games in just 11 seasons from 1881 to 1891. He averaged almost 46 starts per season, and had a few relief appearances as well.
In his best year, 1884, his record was 59-12, with a 1.38 earned run average. According to his Major League baseball statistics page, he started 73 games that year, and completed every one of them. (That he ended up with only 71 decisions is a fact I cannot explain. Were there two ties?) He also had 2 relief appearances, and appeared in 12 games in which he did not pitch.
Of course, he only lasted 11 seasons — 12 counting his first season, when he did not pitch — retiring at the age of 36. Most of the great 19th century pitchers had relatively short careers, so maybe the current fad of pitch counting really does prolong careers, even if it does mean pitchers pitch less per game now than they used to do.
Cy Young, on the other hand, won 511 games over 22 seasons, starting in 1890. He averaged 37 starts (and 4 relied appearances) per year and won more than 30 games five times.
Thanks to relief appearances, he, Radbourn and Kid Nichols (1890-1906) each averaged more than nine innings per start.
By one measure, it is clear that we ask less of elite pitchers now than ever before. In terms of innings pitched per start, the three lowest figures among 300 game winners belong to the three active pitchers on the list. Glavine has 6.5, while Greg Maddux is at 6.8 and Roger Clemens has 7.0.
Okay, so they put in less effort, on average, per game. And they still get 300 wins. On average, Glavine has gained one win per every 14.3 innings pitched, which puts him in the top half of the 300-game winners — and a little ahead of Cy Young himself.
So remember that rising productivity means getting more output for less input. So if we define productivity as more wins per amount of effort, then pitchers today are as productive as ever.
My column today uses a quote from “Lombard Street” by Walter Bagehot: “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.”
A reader, Ben Mealey, points out that the end of the paragraph in which that sentence appears is also worth recalling: “Those who live under a great and firm system of credit must consider that if they break up that one they will never see another, for it will take years upon years to make a successor to it.” (That quote is on page 69 of my copy of Lombard Street [the 1999 Wiley edition], or you can read it in context here).
Worries about our “great and firm system of credit” are going to be used to put pressure on the Fed to stop worrying about inflation and start easing. Greg Valliere of the Stanford Group has this to say about the opinions of Lyle Gramley, a former Fed governor who is now an adviser to that group:
“Gramley thinks the Fed may have to send a signal that it stands ready to inject liquidity into the reeling mortgage market. And he thinks the chances of recession have risen so sharply – possibly as high as 45% – that a bias toward ease and an eventual rate cut can’t be ruled out this fall if the housing market doesn’t stabilize.”
When I called Mr. Gramley, I got a voicemail message saying he was out of the country and not picking up messages. So I have not talked to him.
It may be worth noting that Mr. Gramley is also a director of IndyMac Bancorp, a big mortgage lender that disclosed yesterday it will scale back lending because nobody wants to buy mortgage securities anymore, at least unless they come with a federal guarantee.
In my column, I note that Countrywide Credit tried to reassure investors of its credit last night. Today Bear Stearns did the same. Both stocks are down today, for reasons easily explained by the Bagehot quotation above.
During Bear’s conference call, Samuel Molinaro Jr., Bear’s chief financial officer, had this to say: “I’ve been at this for 22 years, and this is about as bad as I have seen it in the fixed income market.”
