Thursday, February 09, 2012 4:33:22 AM
Mitt Romney's latest humiliation will goad him to unleash hell on his foes
Mitt Romney addresses supporters on a caucus night event in Denver, Colorado.
Photograph: Emmanuel Dunand/AFP/Getty Images
After a devastating triple defeat, Mitt Romney will seek to scatter his rivals in a cloud of negative campaigning
Jim Newell
guardian.co.uk, Wednesday 8 February 2012 15.10 EST
Those of us still basking in the glory of a humiliating three-state Mitt Romney [ http://www.guardian.co.uk/world/mittromney ] defeat last night should try to prolong the schadenfreude as much as possible. We're now entering a phase of vast nothingness in terms of Republican nominating contests until the Michigan and Arizona primaries are held on 28 February. What forms of ersatz political entertainment can we look to until the next set of Mitt Romney losses?
While last night's Missouri "beauty pageant" primary and the twin caucuses of Colorado and Minnesota were non-binding and didn't directly allocate delegates, the momentum shift towards Rick Santorum [ http://www.guardian.co.uk/world/rick-santorum ] will drag Mitt Romney back into his latest fresh hell. The demographic groups that make up the deeply conservative Republican base, who had flocked to Newt Gingrich [ http://www.guardian.co.uk/world/newt-gingrich ] as the primary Romney alternative in recent weeks, have shifted to Santorum [ http://www.publicpolicypolling.com/main/2012/02/big-day-for-santorum.html ]. And the emergence of a culture war issue like the Obama administration's battle over contraceptives with Catholic interest groups [ http://www.globalpost.com/dispatch/news/business-tech/120207/the-catholic-church-has-launched-fight-against-obama-thats-unprec ] has handed Santorum's campaign a new magnetism among social conservatives.
It's hard to believe that in 2012, six years after a grouchy Senator Santorum was crushed in a defining race of the 2006 Democratic sweep of Congress, that he would become the most viable conservative alternative to whatever slick robot presidential candidate the GOP establishment went about selecting this time. Yet here we are.
So what's Romney going to do about this weird has-been upstart? Oh, plenty.
No primary contests for the next three weeks will allow Romney to launch the end game he's been craving for so long: spreading out the field and discarding his rivals in a disorienting smoke cloud of multimedia attacks.
Just look at how his campaign has moved since Tuesday night's crushing losses to Santorum: his aides are already murmuring about the the dirty quest [ http://www.nytimes.com/2012/02/09/us/politics/santorum-sweep-sets-stage-for-new-battle-in-republican-race.html?pagewanted=all ] on which they'll soon embark, "defining" Santorum "aggressively and negatively, for voters who still see Mr Santorum largely as a blank slate". Between Romney's own cash-flush campaign and his insanely cash-flush Super Pac, a nationwide barrage of multimillion dollar ad buys should do the trick.
And yet who was the Romney campaign hitting today? Newt Gingrich, who is still running for president [ http://blogs.marketwatch.com/election/2012/02/08/after-loss-to-santorum-romney-targets-gingrich/ ], but didn't seem deserving of the great Romney machine's ire this morning. "Speaker Gingrich just doesn't seem to get it," a Romney spokesperson emailed reporters early today in its big message blast. "Our staggering national debt and recurring deficits are jeopardizing America's fiscal future – yet he attacks critics of his moon base proposal for being 'cheap' and 'stingy.'" This coincides with a Romney rally today in Georgia, a Super Tuesday state and Newt Gingrich's "home state", at least until he moved to northern Virginia, the better to lobby for major corporations.
It's not a bizarre strategy. Romney needs to win a southern or deeply conservative state and has picked Georgia, a move that could force Gingrich to defend and devote resources to the "home state" that he should be easily winning. From there, he'll hopscotch across the country doing photo-ops in nearly every state while his less wealthy rival campaign fail to keep the pace.
A big test for Romney, though, will be his speech at Washington's annual Conservative Political Action Conference (CPAC), which begins on Thursday. Romney, Gingrich and Santorum will each be speaking, and the former Massachusetts governor will have to dig deep to offer the ultra-conservative crowd something resembling emotional resonance, that proves to them he's on their side.
Because if he doesn't, conservatives might just keep voting for Rick Santorum.
© 2012 Guardian News and Media Limited
http://www.guardian.co.uk/commentisfree/cifamerica/2012/feb/08/mitt-romney-rick-santorum [with comments]
===
The 8 Biggest Lessons From Yesterday's Prop 8 Ruling
Reuters
By Andrew Cohen
Feb 8 2012, 8:10 AM ET
Now that I've had a few more hours to look a little more closely at yesterday's big same-sex marriage ruling -- the one that threads the eye of a needle [ http://www.theatlantic.com/national/archive/2012/02/whats-next-for-proposition-8/252671/ ] we've all been peering through for the past few years -- it's time to highlight a little more of the nuance that accompanied the 133 pages of the 9th Circuit ruling [ http://www.ca9.uscourts.gov/datastore/opinions/2012/02/07/1016696com.pdf ]. It's also time to step back and take the wider view. So, in honor of the ever-foundering Proposition 8, here are eight thoughts for the morning after.
1. The High Court Will Have to Weigh In Eventually. Yes, it's true that the Supreme Court is less likely to take the appeal now because the 9th Circuit limited the potential impact of its ruling. The justices can more plausibly say that they let California try to sort things out for itself. But the legal conflict over same-sex marriage is a national issue, and eventually the justices will have to decide: aside from equal protection and due process questions, does the Full, Faith and Credit clause of the Constitution require all states to recognize same-sex marriage so long as one does?
2. The Parade of Horribles Will Continue. Let's say the Supreme Court declines the case. Then what? The legal problems, in California and elsewhere, will only get worse. Same-sex marriages would resume in California. There would be another ballot initiative there that would seek only to prospectively ban same-sex marriages. More states would recognize those marriages while others explicitly blocked them. For all the political action that has occurred on this front, the worst of the legal chaos is still to come.
3. The 'Rational Basis' for Prop 8 Isn't Very Rational. Judge N. Randy Smith's dissent is notable. "Our personal views regarding the political and sociological debate on marriage equality are irrelevant to our task," Judge Smith wrote, before whittling down to an absurd nub the legal standard to be applied to Prop 8. Thus, as his language grew more specious and abstract, the "rational basis" test became the "rational relation to some legitimate end" test, which became the "reasonably conceivable state of facts that could provide a rational basis" test, which became the "have arguable assumptions underlying its plausible rationales" test.
4. The Facts Have Mysteriously Vanished. U.S. District Judge Vaughn Walker, the now-retired Republican appointee who happened to be gay, presided over the trial that resulted in his August 2010 smack-down of Proposition 8. The trial was as unequivocal as any I have ever followed. His factual findings at the conclusion of that trial were devastating to Prop 8's proponents. So what happened to all those facts on appeal? Judge Stephen Reinhardt, who wrote the majority opinion, offered this:
In a thorough opinion in August 2010, the court made eighty findings of fact and adopted he relevant conclusions of law... The only findings to which we give any deferential weight -- those concerning the messages in support of Proposition 8 that Proponents communicated to the voters to encourage their approval of the measure -- are clearly "adjudicatory" facts.... Aside from these findings, the only fact found by the district court that matters to our analysis is that "domestic partnerships lack the social meaning associated with marriage" -- that the difference between the designation of 'marriage' and the designation of 'domestic partnership' is meaningful.
The only thing worse than being a federal appellate court judge is being a federal trial judge.
5. The Best Case for Prop 8 Is a Terrible One. Here's why I think the legal fight is already over. Judge Smith, making his best argument for Prop 8, wrote this:
Here, the people of California might have believed that withdrawing from same-sex couples the right to access the designation of marriage would, arguably, further the interests in promoting responsible procreation and optimal parenting. The assumptions underlying these rationales may be erroneous, but the very fact that they are 'arguable' is sufficient, on rational basis review.
This passage came right before the one in which Judge Smith wrote that the courts should uphold popular but discriminatory measures. He wrote:
However, Supreme Court precedent does not suggest that a measure is invalid under rational basis review simply because the means by which its purpose is accomplished rest on such biases. Rather, precedent indicates that such biases invalidate a measure if they are the only conceivable ends for the measure (emphasis in original).
This "prejudice is as prejudice does" argument is a terrible one -- and quite unlikely to impress Justice Anthony Kennedy, who is going to determine all this sooner or later.
6. Judge Smith Has a Short Memory. Let's get back to Judge Smith's dissent. Among its other failings, it is a weak, tortuous effort that negates the huge qualitative and quantitative difference in evidence presented at trial. Of Judge Walker's 80 findings of fact, most of which undermined the legal the positions of Prop 8's supporters, Judge Smith wrote: "After review, both sides offer evidence in support of their views..." Both sides? I remember Charles Cooper (right), Prop 8's trial attorney, telling Judge Walker that the facts of the case didn't matter. Who knew that he'd be right?
7. The Political Spin Will Center on "Judicial Activism.'" The 9th Circuit rested mightily upon the California Supreme Court's 2004 decisions, which first recognized same-sex marriage in the state. And the concept behind the majority's conclusion -- that married, same-sex couples in California had a vested constitutional right to those marriages because of those 2004 court decisions -- is based upon the premise that the 2004 state court decisions ("judicial activism" to conservatives) trumped Prop 8's majority vote. That's the political angle you'll be hearing about from Newt and Co.
8. Judge Walker Is Affirmed. To their eternal credit, all three 9th Circuit judges spent little time dispatching the argument that served both sides of this battle: the question of Judge Walker's sexuality. To Prop 8's supporters, Judge Walker's sexual orientation made him biased and thus worthy of being slandered; in their narrative, he became the reason they lost. To proponents of same-sex marriage, that argument itself highlighted the prejudices at play. But if same-sex marriage foes judge Judge Walker harshly, yesterday's decision is a hint that history will be far, far kinder.
Copyright © 2012 by The Atlantic Monthly Group
http://www.theatlantic.com/national/archive/2012/02/the-8-biggest-lessons-from-yesterdays-prop-8-ruling/252738/ [with comments]
===
Goldman, on Both Sides of a Deal, Is Now in Court
Harry Campbell
By STEVEN M. DAVIDOFF
February 7, 2012, 8:51 pm
Goldman Sachs appears to be everywhere in a $21.1 billion buyout of a giant pipeline and energy company — or at least on every side where money can be made.
In wearing different hats in Kinder Morgan’s proposed acquisition of the El Paso Corporation, Goldman may have done nothing improper. Still, a lawsuit challenging the deal raises some important questions about how investment banks do business.
Goldman has a long, close-knit history with Kinder Morgan. The investment bank was instrumental in helping Kinder Morgan’s chief executive, Richard D. Kinder, take Kinder Morgan private in 2006. Goldman’s private equity [ http://dealbook.nytimes.com/category/main-topics/private-equity/ ] arm owns 19.1 percent of Kinder Morgan and has two appointees on its board. Goldman then led Kinder Morgan’s initial public offering last year, earning billions for Mr. Kinder and Goldman’s private equity investors. And the main investment banker representing Goldman on Kinder Morgan’s acquisition had worked with El Paso for about eight years.
But when Kinder Morgan first approached El Paso about a combination, Goldman was advising the company on a possible spinoff of its exploration and production business.
So Goldman’s interests on both sides of this transaction would appear to be a clear conflict.
Indeed, both El Paso and Kinder Morgan realized immediately that Goldman had too many fingers in the pot. Even Goldman did. Once Kinder Morgan began considering a bid, Goldman’s two director appointees on the Kinder Morgan board recused themselves immediately from discussions about this potential purchase.
Goldman’s own internal conflicts committee reviewed the situation and informed El Paso that Goldman could still advise El Paso, but that another investment bank should be retained. The lucky bank turned out to be Morgan Stanley, which was hired to be El Paso’s main adviser on a potential sale. El Paso was also being advised by the law firm Wachtell, Lipton, Rosen & Kratz.
What happened next is the subject of debate.
El Paso shareholders have brought a lawsuit in Delaware, contending that Goldman’s conflicts resulted in El Paso being sold too cheaply. They say that despite the steps taken to deal with its conflict, Goldman still steered the El Paso directors toward an acquisition, pushing them to ignore the benefits of remaining independent and spinning off the exploration and production business. Goldman, according to the lawsuit, was in league with El Paso executives, who were said to be interested in buying the exploration and production business after a sale of El Paso to Kinder Morgan.
The plaintiffs say that this occurred because Goldman continued to advise El Paso on a sale for a fee of $20 million. The presence of Morgan Stanley as an adviser to the board did not ease the conflict, because at Goldman’s behest, Morgan Stanley was permitted to advise only on the sale and not on alternative transactions, like a spinoff. Because Morgan Stanley’s $35 million fee was contingent on a sale occurring, the shareholders claim that Morgan Stanley did not have an adequate incentive to present all alternatives to the El Paso board.
The plaintiffs also note that Goldman had a powerful incentive to steer the process toward a sale of El Paso at a low price. Every dollar shaved off El Paso’s share price would translate into a savings of $150 million for Goldman’s private equity arm. There is even an e-mail that plaintiffs say supports their case. Their lawsuit says that a Morgan Stanley banker wrote the following:
“Over Wachtell’s objection, GS got a letter signed which engaged them as an advisor in the sale of the company. …Between that fact and the enormous conflict as a 22 percent shareholder of Kinder. …this is GS at its most shameless.”
Goldman, El Paso and Kinder all dispute the allegations.
In separate briefs filed with the court, each asserts that the conflict was recognized and addressed. On the Kinder Morgan side, the Goldman directors recused themselves; on the El Paso side, an independent investment bank was hired to become El Paso’s main adviser. Moreover, when Kinder started suggesting it might take the bid hostile, Goldman stopped providing advice to El Paso on the sale except for updating some numbers on the potential of a spinoff.
Besides, the premium offered in the acquisition was rather large — 37 percent over the closing share price the day before. As for that e-mail, Goldman Sachs said in a court filing that it was a “selective” quote and the parts eliminated showed that Goldman had a significantly reduced role in the sale. Clearly, fighting between Morgan Stanley and Goldman Sachs is nothing new.
El Paso and Kinder Morgan argue that the plaintiffs’ claims are innuendo. Goldman’s private equity division is separate from its investment banking unit. Goldman’s conflict, they say, was recognized, disclosed and managed.
The plaintiffs’ complaint feeds in part off Goldman’s public reputation as a “vampire squid,” greedy and overreaching.
Yet the real test of their case will come on Thursday, when a Delaware State Court will consider the shareholders’ request that the El Paso sale be halted until the company retains a third independent adviser and runs a new sales process, one that allows for full consideration of a spinoff.
It does seem odd that El Paso’s board did not appear to consider more seriously completing the spinoff and selling the remaining pipeline business to Kinder. The board appeared to decide that this was not a viable option, perhaps because Kinder Morgan threatened a hostile approach. When Kinder Morgan increased its bid by $2 a share, or 11 percent above its initial offer, El Paso agreed to a deal.
Delaware courts have been quite hard on investment banks of late, most recently in the litigation over the $5 billion buyout of Del Monte Foods. In that case, the court found that Barclays Capital had unduly influenced the sale process for Del Monte. The case was settled for $89.4 million.
The El Paso case will be the next test of how the Delaware court manages banker conflicts. Yet unless the court finds that Goldman or management deliberately steered this process toward Kinder Morgan, the plaintiffs will have a hard time winning.
The El Paso board consisted of 11 independent directors. Goldman might have done better in stepping back from the transaction, but the sale decision was made based on advice from Morgan Stanley. (Goldman declined to comment for this column.)
The market is changing. The conduct of investment banks is increasingly scrutinized and any ties are inherently suspicious. There have been too many examples where management or a banker appears to have steered a deal.
In this light, some may argue that Goldman should have fully recused itself from Day 1. Instead, it tried to still advise El Paso and bowed out only when things started to get heated. While recusal may not be required legally, it may be the better practice.
In any case, the dispute shows that it is hard being Goldman these days. Being on all sides of a deal is becoming increasingly more difficult. And when it happens, as in the El Paso-Kinder Morgan deal, it is only a misstep or an embarrassing e-mail away from liability or another public relations disaster. And that is not a good place for any investment bank to be.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/02/07/goldman-on-both-sides-of-a-deal-is-now-in-court/ [with comments]
===
The Zuckerberg Tax
Edel Rodriguez
By DAVID S. MILLER
Published: February 7, 2012
WHEN Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth. The $5 billion he will receive upon exercising those options will be treated as salary, and Mr. Zuckerberg will have a tax bill of more than $2 billion, quite possibly making him the largest taxpayer in history. He is expected to sell enough stock to pay his tax.
But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That’s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world.
If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.
Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.
Now compare Mr. Zuckerberg with Lady Gaga. Last year she told Ellen DeGeneres that she had to get “completely wasted” to sign her tax returns because she owed so much. Lady Gaga reportedly earned $90 million in 2010. Because she earns fees and royalties, she’s subject to the highest income-tax rate. So, assuming she’s just as successful this year, she will certainly pay more than $30 million in taxes and probably more than $45 million, which is infinitely more tax than Mr. Zuckerberg will pay on the $23 billion of Facebook stock he now holds.
Why is this?
Our tax system is based on the concept of “realization.” Individuals are not taxed until they actually sell property and realize their gains. But this system makes less sense for the publicly traded stocks of the superwealthy. A drastic change is necessary to fix this fundamental flaw in our tax system and finally require people like Warren E. Buffett, Mr. Ellison and others to pay at least a little income tax on their unsold shares. The fix is called mark-to-market taxation.
For individuals and married couples who earn, say, more than $2.2 million in income, or own $5.7 million or more in publicly traded securities (representing the top 0.1 percent of families), the appreciation in their publicly traded stock and securities would be “marked to market” and taxed annually as if they had sold their positions at year’s end, regardless of whether the securities were actually sold. The tax could be imposed at long-term capital gains rates so tax rates would stay as they were.
We could call this tax the “Zuckerberg tax.” Under it, Mr. Zuckerberg would owe an additional $3.45 billion when Facebook went public (that’s 15 percent of the value of the roughly $23 billion of stock he owns). He could sell some shares to pay the tax (and would be left with over $20 billion of Facebook stock after tax), or borrow to pay the tax.
If his Facebook shares decline in value next year, he’d get a refund.
President Obama has proposed a “Buffett rule” that would require millionaires to pay tax at a 30 percent effective minimum rate. Under the rule, Mr. Buffett’s taxes might have doubled to $12 million in 2010, but this would represent only a trivial amount of additional tax for him. If the Buffett rule applied in 2010, Mr. Buffett’s effective tax rate would be only about 2/100 of 1 percent on the $8 billion in appreciation of his holdings. A Zuckerberg tax would be far better: under it Mr. Buffett would have paid $1.2 billion in tax in 2010.
A mark-to-market system of taxation on the top one-tenth of 1 percent would raise hundreds of billions of dollars of new revenue over the next 10 years. The new revenue could be used to lower payroll taxes, extend the George W. Bush tax cuts, repeal the alternative minimum tax, reduce the budget deficit, prevent military cuts or a combination of all of these.
This tax would not affect the middle class, or even most wealthy Americans. Nor would it affect small-business owners. It would affect only individuals who were undeniably, extraordinarily rich. Only publicly traded stock would be marked to market.
Some would argue that it is inherently unfair to tax “paper gains” before they are realized — Mr. Zuckerberg won’t receive $28 billion in cash; he holds only paper. Moreover, markets are inherently volatile; one year’s paper gains is another’s real losses. However, these arguments are far less credible when paper losses give rise to real tax refunds. Moreover, in a downturn, the mark-to-market tax would act as a fiscal stimulus — the cash refunds would offset a declining stock market.
This proposal follows the Ronald Reagan model by broadening the “base” of tax without increasing rates. In fact, Reagan was responsible for the last major reform of our antiquated realization system when he signed a law requiring taxpayers to pay a tax on interest that accrued on bonds but was not paid.
The most profound effect of a mark-to-market tax would be to level the playing field between wage earners, on one hand, and founders and investors on the other. Superwealthy holders of publicly traded securities could no longer escape tax on their vast wealth.
David S. Miller is a tax lawyer.
© 2012 The New York Times Company
http://www.nytimes.com/2012/02/08/opinion/the-zuckerberg-tax.html
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Mitt Romney addresses supporters on a caucus night event in Denver, Colorado.
Photograph: Emmanuel Dunand/AFP/Getty Images
After a devastating triple defeat, Mitt Romney will seek to scatter his rivals in a cloud of negative campaigning
Jim Newell
guardian.co.uk, Wednesday 8 February 2012 15.10 EST
Those of us still basking in the glory of a humiliating three-state Mitt Romney [ http://www.guardian.co.uk/world/mittromney ] defeat last night should try to prolong the schadenfreude as much as possible. We're now entering a phase of vast nothingness in terms of Republican nominating contests until the Michigan and Arizona primaries are held on 28 February. What forms of ersatz political entertainment can we look to until the next set of Mitt Romney losses?
While last night's Missouri "beauty pageant" primary and the twin caucuses of Colorado and Minnesota were non-binding and didn't directly allocate delegates, the momentum shift towards Rick Santorum [ http://www.guardian.co.uk/world/rick-santorum ] will drag Mitt Romney back into his latest fresh hell. The demographic groups that make up the deeply conservative Republican base, who had flocked to Newt Gingrich [ http://www.guardian.co.uk/world/newt-gingrich ] as the primary Romney alternative in recent weeks, have shifted to Santorum [ http://www.publicpolicypolling.com/main/2012/02/big-day-for-santorum.html ]. And the emergence of a culture war issue like the Obama administration's battle over contraceptives with Catholic interest groups [ http://www.globalpost.com/dispatch/news/business-tech/120207/the-catholic-church-has-launched-fight-against-obama-thats-unprec ] has handed Santorum's campaign a new magnetism among social conservatives.
It's hard to believe that in 2012, six years after a grouchy Senator Santorum was crushed in a defining race of the 2006 Democratic sweep of Congress, that he would become the most viable conservative alternative to whatever slick robot presidential candidate the GOP establishment went about selecting this time. Yet here we are.
So what's Romney going to do about this weird has-been upstart? Oh, plenty.
No primary contests for the next three weeks will allow Romney to launch the end game he's been craving for so long: spreading out the field and discarding his rivals in a disorienting smoke cloud of multimedia attacks.
Just look at how his campaign has moved since Tuesday night's crushing losses to Santorum: his aides are already murmuring about the the dirty quest [ http://www.nytimes.com/2012/02/09/us/politics/santorum-sweep-sets-stage-for-new-battle-in-republican-race.html?pagewanted=all ] on which they'll soon embark, "defining" Santorum "aggressively and negatively, for voters who still see Mr Santorum largely as a blank slate". Between Romney's own cash-flush campaign and his insanely cash-flush Super Pac, a nationwide barrage of multimillion dollar ad buys should do the trick.
And yet who was the Romney campaign hitting today? Newt Gingrich, who is still running for president [ http://blogs.marketwatch.com/election/2012/02/08/after-loss-to-santorum-romney-targets-gingrich/ ], but didn't seem deserving of the great Romney machine's ire this morning. "Speaker Gingrich just doesn't seem to get it," a Romney spokesperson emailed reporters early today in its big message blast. "Our staggering national debt and recurring deficits are jeopardizing America's fiscal future – yet he attacks critics of his moon base proposal for being 'cheap' and 'stingy.'" This coincides with a Romney rally today in Georgia, a Super Tuesday state and Newt Gingrich's "home state", at least until he moved to northern Virginia, the better to lobby for major corporations.
It's not a bizarre strategy. Romney needs to win a southern or deeply conservative state and has picked Georgia, a move that could force Gingrich to defend and devote resources to the "home state" that he should be easily winning. From there, he'll hopscotch across the country doing photo-ops in nearly every state while his less wealthy rival campaign fail to keep the pace.
A big test for Romney, though, will be his speech at Washington's annual Conservative Political Action Conference (CPAC), which begins on Thursday. Romney, Gingrich and Santorum will each be speaking, and the former Massachusetts governor will have to dig deep to offer the ultra-conservative crowd something resembling emotional resonance, that proves to them he's on their side.
Because if he doesn't, conservatives might just keep voting for Rick Santorum.
© 2012 Guardian News and Media Limited
http://www.guardian.co.uk/commentisfree/cifamerica/2012/feb/08/mitt-romney-rick-santorum [with comments]
===
The 8 Biggest Lessons From Yesterday's Prop 8 Ruling
Reuters
By Andrew Cohen
Feb 8 2012, 8:10 AM ET
Now that I've had a few more hours to look a little more closely at yesterday's big same-sex marriage ruling -- the one that threads the eye of a needle [ http://www.theatlantic.com/national/archive/2012/02/whats-next-for-proposition-8/252671/ ] we've all been peering through for the past few years -- it's time to highlight a little more of the nuance that accompanied the 133 pages of the 9th Circuit ruling [ http://www.ca9.uscourts.gov/datastore/opinions/2012/02/07/1016696com.pdf ]. It's also time to step back and take the wider view. So, in honor of the ever-foundering Proposition 8, here are eight thoughts for the morning after.
1. The High Court Will Have to Weigh In Eventually. Yes, it's true that the Supreme Court is less likely to take the appeal now because the 9th Circuit limited the potential impact of its ruling. The justices can more plausibly say that they let California try to sort things out for itself. But the legal conflict over same-sex marriage is a national issue, and eventually the justices will have to decide: aside from equal protection and due process questions, does the Full, Faith and Credit clause of the Constitution require all states to recognize same-sex marriage so long as one does?
2. The Parade of Horribles Will Continue. Let's say the Supreme Court declines the case. Then what? The legal problems, in California and elsewhere, will only get worse. Same-sex marriages would resume in California. There would be another ballot initiative there that would seek only to prospectively ban same-sex marriages. More states would recognize those marriages while others explicitly blocked them. For all the political action that has occurred on this front, the worst of the legal chaos is still to come.
3. The 'Rational Basis' for Prop 8 Isn't Very Rational. Judge N. Randy Smith's dissent is notable. "Our personal views regarding the political and sociological debate on marriage equality are irrelevant to our task," Judge Smith wrote, before whittling down to an absurd nub the legal standard to be applied to Prop 8. Thus, as his language grew more specious and abstract, the "rational basis" test became the "rational relation to some legitimate end" test, which became the "reasonably conceivable state of facts that could provide a rational basis" test, which became the "have arguable assumptions underlying its plausible rationales" test.
4. The Facts Have Mysteriously Vanished. U.S. District Judge Vaughn Walker, the now-retired Republican appointee who happened to be gay, presided over the trial that resulted in his August 2010 smack-down of Proposition 8. The trial was as unequivocal as any I have ever followed. His factual findings at the conclusion of that trial were devastating to Prop 8's proponents. So what happened to all those facts on appeal? Judge Stephen Reinhardt, who wrote the majority opinion, offered this:
In a thorough opinion in August 2010, the court made eighty findings of fact and adopted he relevant conclusions of law... The only findings to which we give any deferential weight -- those concerning the messages in support of Proposition 8 that Proponents communicated to the voters to encourage their approval of the measure -- are clearly "adjudicatory" facts.... Aside from these findings, the only fact found by the district court that matters to our analysis is that "domestic partnerships lack the social meaning associated with marriage" -- that the difference between the designation of 'marriage' and the designation of 'domestic partnership' is meaningful.
The only thing worse than being a federal appellate court judge is being a federal trial judge.
5. The Best Case for Prop 8 Is a Terrible One. Here's why I think the legal fight is already over. Judge Smith, making his best argument for Prop 8, wrote this:
Here, the people of California might have believed that withdrawing from same-sex couples the right to access the designation of marriage would, arguably, further the interests in promoting responsible procreation and optimal parenting. The assumptions underlying these rationales may be erroneous, but the very fact that they are 'arguable' is sufficient, on rational basis review.
This passage came right before the one in which Judge Smith wrote that the courts should uphold popular but discriminatory measures. He wrote:
However, Supreme Court precedent does not suggest that a measure is invalid under rational basis review simply because the means by which its purpose is accomplished rest on such biases. Rather, precedent indicates that such biases invalidate a measure if they are the only conceivable ends for the measure (emphasis in original).
This "prejudice is as prejudice does" argument is a terrible one -- and quite unlikely to impress Justice Anthony Kennedy, who is going to determine all this sooner or later.
6. Judge Smith Has a Short Memory. Let's get back to Judge Smith's dissent. Among its other failings, it is a weak, tortuous effort that negates the huge qualitative and quantitative difference in evidence presented at trial. Of Judge Walker's 80 findings of fact, most of which undermined the legal the positions of Prop 8's supporters, Judge Smith wrote: "After review, both sides offer evidence in support of their views..." Both sides? I remember Charles Cooper (right), Prop 8's trial attorney, telling Judge Walker that the facts of the case didn't matter. Who knew that he'd be right?
7. The Political Spin Will Center on "Judicial Activism.'" The 9th Circuit rested mightily upon the California Supreme Court's 2004 decisions, which first recognized same-sex marriage in the state. And the concept behind the majority's conclusion -- that married, same-sex couples in California had a vested constitutional right to those marriages because of those 2004 court decisions -- is based upon the premise that the 2004 state court decisions ("judicial activism" to conservatives) trumped Prop 8's majority vote. That's the political angle you'll be hearing about from Newt and Co.
8. Judge Walker Is Affirmed. To their eternal credit, all three 9th Circuit judges spent little time dispatching the argument that served both sides of this battle: the question of Judge Walker's sexuality. To Prop 8's supporters, Judge Walker's sexual orientation made him biased and thus worthy of being slandered; in their narrative, he became the reason they lost. To proponents of same-sex marriage, that argument itself highlighted the prejudices at play. But if same-sex marriage foes judge Judge Walker harshly, yesterday's decision is a hint that history will be far, far kinder.
Copyright © 2012 by The Atlantic Monthly Group
http://www.theatlantic.com/national/archive/2012/02/the-8-biggest-lessons-from-yesterdays-prop-8-ruling/252738/ [with comments]
===
Goldman, on Both Sides of a Deal, Is Now in Court
Harry Campbell
By STEVEN M. DAVIDOFF
February 7, 2012, 8:51 pm
Goldman Sachs appears to be everywhere in a $21.1 billion buyout of a giant pipeline and energy company — or at least on every side where money can be made.
In wearing different hats in Kinder Morgan’s proposed acquisition of the El Paso Corporation, Goldman may have done nothing improper. Still, a lawsuit challenging the deal raises some important questions about how investment banks do business.
Goldman has a long, close-knit history with Kinder Morgan. The investment bank was instrumental in helping Kinder Morgan’s chief executive, Richard D. Kinder, take Kinder Morgan private in 2006. Goldman’s private equity [ http://dealbook.nytimes.com/category/main-topics/private-equity/ ] arm owns 19.1 percent of Kinder Morgan and has two appointees on its board. Goldman then led Kinder Morgan’s initial public offering last year, earning billions for Mr. Kinder and Goldman’s private equity investors. And the main investment banker representing Goldman on Kinder Morgan’s acquisition had worked with El Paso for about eight years.
But when Kinder Morgan first approached El Paso about a combination, Goldman was advising the company on a possible spinoff of its exploration and production business.
So Goldman’s interests on both sides of this transaction would appear to be a clear conflict.
Indeed, both El Paso and Kinder Morgan realized immediately that Goldman had too many fingers in the pot. Even Goldman did. Once Kinder Morgan began considering a bid, Goldman’s two director appointees on the Kinder Morgan board recused themselves immediately from discussions about this potential purchase.
Goldman’s own internal conflicts committee reviewed the situation and informed El Paso that Goldman could still advise El Paso, but that another investment bank should be retained. The lucky bank turned out to be Morgan Stanley, which was hired to be El Paso’s main adviser on a potential sale. El Paso was also being advised by the law firm Wachtell, Lipton, Rosen & Kratz.
What happened next is the subject of debate.
El Paso shareholders have brought a lawsuit in Delaware, contending that Goldman’s conflicts resulted in El Paso being sold too cheaply. They say that despite the steps taken to deal with its conflict, Goldman still steered the El Paso directors toward an acquisition, pushing them to ignore the benefits of remaining independent and spinning off the exploration and production business. Goldman, according to the lawsuit, was in league with El Paso executives, who were said to be interested in buying the exploration and production business after a sale of El Paso to Kinder Morgan.
The plaintiffs say that this occurred because Goldman continued to advise El Paso on a sale for a fee of $20 million. The presence of Morgan Stanley as an adviser to the board did not ease the conflict, because at Goldman’s behest, Morgan Stanley was permitted to advise only on the sale and not on alternative transactions, like a spinoff. Because Morgan Stanley’s $35 million fee was contingent on a sale occurring, the shareholders claim that Morgan Stanley did not have an adequate incentive to present all alternatives to the El Paso board.
The plaintiffs also note that Goldman had a powerful incentive to steer the process toward a sale of El Paso at a low price. Every dollar shaved off El Paso’s share price would translate into a savings of $150 million for Goldman’s private equity arm. There is even an e-mail that plaintiffs say supports their case. Their lawsuit says that a Morgan Stanley banker wrote the following:
“Over Wachtell’s objection, GS got a letter signed which engaged them as an advisor in the sale of the company. …Between that fact and the enormous conflict as a 22 percent shareholder of Kinder. …this is GS at its most shameless.”
Goldman, El Paso and Kinder all dispute the allegations.
In separate briefs filed with the court, each asserts that the conflict was recognized and addressed. On the Kinder Morgan side, the Goldman directors recused themselves; on the El Paso side, an independent investment bank was hired to become El Paso’s main adviser. Moreover, when Kinder started suggesting it might take the bid hostile, Goldman stopped providing advice to El Paso on the sale except for updating some numbers on the potential of a spinoff.
Besides, the premium offered in the acquisition was rather large — 37 percent over the closing share price the day before. As for that e-mail, Goldman Sachs said in a court filing that it was a “selective” quote and the parts eliminated showed that Goldman had a significantly reduced role in the sale. Clearly, fighting between Morgan Stanley and Goldman Sachs is nothing new.
El Paso and Kinder Morgan argue that the plaintiffs’ claims are innuendo. Goldman’s private equity division is separate from its investment banking unit. Goldman’s conflict, they say, was recognized, disclosed and managed.
The plaintiffs’ complaint feeds in part off Goldman’s public reputation as a “vampire squid,” greedy and overreaching.
Yet the real test of their case will come on Thursday, when a Delaware State Court will consider the shareholders’ request that the El Paso sale be halted until the company retains a third independent adviser and runs a new sales process, one that allows for full consideration of a spinoff.
It does seem odd that El Paso’s board did not appear to consider more seriously completing the spinoff and selling the remaining pipeline business to Kinder. The board appeared to decide that this was not a viable option, perhaps because Kinder Morgan threatened a hostile approach. When Kinder Morgan increased its bid by $2 a share, or 11 percent above its initial offer, El Paso agreed to a deal.
Delaware courts have been quite hard on investment banks of late, most recently in the litigation over the $5 billion buyout of Del Monte Foods. In that case, the court found that Barclays Capital had unduly influenced the sale process for Del Monte. The case was settled for $89.4 million.
The El Paso case will be the next test of how the Delaware court manages banker conflicts. Yet unless the court finds that Goldman or management deliberately steered this process toward Kinder Morgan, the plaintiffs will have a hard time winning.
The El Paso board consisted of 11 independent directors. Goldman might have done better in stepping back from the transaction, but the sale decision was made based on advice from Morgan Stanley. (Goldman declined to comment for this column.)
The market is changing. The conduct of investment banks is increasingly scrutinized and any ties are inherently suspicious. There have been too many examples where management or a banker appears to have steered a deal.
In this light, some may argue that Goldman should have fully recused itself from Day 1. Instead, it tried to still advise El Paso and bowed out only when things started to get heated. While recusal may not be required legally, it may be the better practice.
In any case, the dispute shows that it is hard being Goldman these days. Being on all sides of a deal is becoming increasingly more difficult. And when it happens, as in the El Paso-Kinder Morgan deal, it is only a misstep or an embarrassing e-mail away from liability or another public relations disaster. And that is not a good place for any investment bank to be.
Copyright 2012 The New York Times Company
http://dealbook.nytimes.com/2012/02/07/goldman-on-both-sides-of-a-deal-is-now-in-court/ [with comments]
===
The Zuckerberg Tax
Edel Rodriguez
By DAVID S. MILLER
Published: February 7, 2012
WHEN Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth. The $5 billion he will receive upon exercising those options will be treated as salary, and Mr. Zuckerberg will have a tax bill of more than $2 billion, quite possibly making him the largest taxpayer in history. He is expected to sell enough stock to pay his tax.
But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That’s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world.
If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.
Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.
Now compare Mr. Zuckerberg with Lady Gaga. Last year she told Ellen DeGeneres that she had to get “completely wasted” to sign her tax returns because she owed so much. Lady Gaga reportedly earned $90 million in 2010. Because she earns fees and royalties, she’s subject to the highest income-tax rate. So, assuming she’s just as successful this year, she will certainly pay more than $30 million in taxes and probably more than $45 million, which is infinitely more tax than Mr. Zuckerberg will pay on the $23 billion of Facebook stock he now holds.
Why is this?
Our tax system is based on the concept of “realization.” Individuals are not taxed until they actually sell property and realize their gains. But this system makes less sense for the publicly traded stocks of the superwealthy. A drastic change is necessary to fix this fundamental flaw in our tax system and finally require people like Warren E. Buffett, Mr. Ellison and others to pay at least a little income tax on their unsold shares. The fix is called mark-to-market taxation.
For individuals and married couples who earn, say, more than $2.2 million in income, or own $5.7 million or more in publicly traded securities (representing the top 0.1 percent of families), the appreciation in their publicly traded stock and securities would be “marked to market” and taxed annually as if they had sold their positions at year’s end, regardless of whether the securities were actually sold. The tax could be imposed at long-term capital gains rates so tax rates would stay as they were.
We could call this tax the “Zuckerberg tax.” Under it, Mr. Zuckerberg would owe an additional $3.45 billion when Facebook went public (that’s 15 percent of the value of the roughly $23 billion of stock he owns). He could sell some shares to pay the tax (and would be left with over $20 billion of Facebook stock after tax), or borrow to pay the tax.
If his Facebook shares decline in value next year, he’d get a refund.
President Obama has proposed a “Buffett rule” that would require millionaires to pay tax at a 30 percent effective minimum rate. Under the rule, Mr. Buffett’s taxes might have doubled to $12 million in 2010, but this would represent only a trivial amount of additional tax for him. If the Buffett rule applied in 2010, Mr. Buffett’s effective tax rate would be only about 2/100 of 1 percent on the $8 billion in appreciation of his holdings. A Zuckerberg tax would be far better: under it Mr. Buffett would have paid $1.2 billion in tax in 2010.
A mark-to-market system of taxation on the top one-tenth of 1 percent would raise hundreds of billions of dollars of new revenue over the next 10 years. The new revenue could be used to lower payroll taxes, extend the George W. Bush tax cuts, repeal the alternative minimum tax, reduce the budget deficit, prevent military cuts or a combination of all of these.
This tax would not affect the middle class, or even most wealthy Americans. Nor would it affect small-business owners. It would affect only individuals who were undeniably, extraordinarily rich. Only publicly traded stock would be marked to market.
Some would argue that it is inherently unfair to tax “paper gains” before they are realized — Mr. Zuckerberg won’t receive $28 billion in cash; he holds only paper. Moreover, markets are inherently volatile; one year’s paper gains is another’s real losses. However, these arguments are far less credible when paper losses give rise to real tax refunds. Moreover, in a downturn, the mark-to-market tax would act as a fiscal stimulus — the cash refunds would offset a declining stock market.
This proposal follows the Ronald Reagan model by broadening the “base” of tax without increasing rates. In fact, Reagan was responsible for the last major reform of our antiquated realization system when he signed a law requiring taxpayers to pay a tax on interest that accrued on bonds but was not paid.
The most profound effect of a mark-to-market tax would be to level the playing field between wage earners, on one hand, and founders and investors on the other. Superwealthy holders of publicly traded securities could no longer escape tax on their vast wealth.
David S. Miller is a tax lawyer.
© 2012 The New York Times Company
http://www.nytimes.com/2012/02/08/opinion/the-zuckerberg-tax.html
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