Saturday, May 28, 2005


Chappelle back home

Apparently this is big news now, but we reported the same thing on May 7. Besides being the obvious place to look for him, we had heard of sightings from some friends.

The rural countryside around Yellow Springs is a great place to unwind and a milkshake from Youngs's Jersey Dairy will truly ease one's mind. We just hope everyone leaves him alone.


Coins are lousy investment - Part V

Just so everyone doesn't think we are speaking out of our asses when we talk about the problems of the lack of liquidity and transparency in the coin "market" - and the problems that will come when they try to liquidate them - we provide the following

The first are comments for experts interviewed for James Dao's piece in today's NYT:
Experts in state workers' compensation programs said they knew of no other states that invested in rare coins, largely because they are considered volatile commodities that are difficult to price, difficult to sell and easy to lose or steal. "I just can't imagine collectible rare coins being used as an investment," said Gregory Krohm , executive director of a trade association for government agencies that administer workers' compensation programs. "It's hard to make a market for them."
The next is from the "Coin Community" forum that - at least in this context - provides some fascinating comments about the coin business works:
[Question: W]hat happens to a dealer or private party that may have unknowingly or otherwise ended up purchasing the "missing" (stolen) merchandise? [Reply:] Kind of a touchy subject for me, but many believe that there is NO inventory, only a paper trail. In the high end market, a lot of investors never actually "see" the coins. They purchase the rights sort of like speculation in the stock market and the money is safe from taxes. You can claim losses or profits as you wish. In this case, now that the chips are on the table, it is possible that many of the high end dealers who work with investments are going to feel the microscope.
Elsewhere, another member of the forum suggests:
Noe should get a bunch of lousy coins and get them graded by "Gallery Grading company" as MS66 and he'll be in the clear.
Of course, we don't know jack-shit about coin collecting and there is no way to determine if these guys in this forum know what the hell they are talking about, but from a financial theory point of few they seem on target.

First, there is no independent way of measuring a coin's value. One dealer can legitimately say its worth peanuts because he has no buyers. Another can say it's worth thousands because he does have a buyer. But unlike public equity or private equity investments, there is not a ready market to set the price.

Second, apparently coin "investing" is a lot like investing in futures or forward contracts. Unless there is an unusual occurrence, all everyone normally has to do is settle up the differences in value at the end of a set period. No one typically has to come up with XX number of barrels of oil or YY number of pork bellies. That is, they don't unless there is a "shock" to the market that suggests that some of the parties in these transactions are not "good" for settling. It's kind of like how a bank will suddenly call in an outstanding loan when the lendee is under criminal investigation.

These appear to be the "trade secrets" Noe was trying to protect as he fought the search warrants.

Third, the investments side of this affair will probably take an unfortunate turn and end up prohibiting a lot - if not all - high risk investments. In fact, the problem with the investments was specifically not the risk, but BWC's inability to measure the risk.

Risk, in general is good. Financial theory suggests a direct relationship between risk and reward. We'd be the first to admit that measuring risk is not an easy task - but its a necessary one. It might take a few PhDs on staff, but even more exotic investments in options, futures, forwards, etc. can be readily measured. With those measurements in hand, a big fund like BWC or OPERS can weigh it against other risks to determine if it removes volatility of returns (a good thing) or increases volatility (a bad thing).

However, there is no acceptable way to measure the risk involved with coins and that is about as simple a reason as anyone will offer as to why other legitimate funds have steered clear of this kind of investment. Clearly, BWC's CIO and his AIOs were over their heads and flying blindly. They should step down, too.


Coingate memo, visits to Noe causes more erosion of Taft credibility

Without doing too much parsing of his words, it's clear that Taft has failed to come clean about what he knew about Tom Noe.

Taft has all along claimed that he first knew about the situation on April 3 when it was first reported by the Blade. But a story in today's Dispatch reveals the existence of a document that blows that story to smithereens:
But Taft’s recollection was called into question by the release of a memo that Conrad sent to him March 18 — 15 days before the first newspaper story. In the memo, Conrad warned that a story was likely "in the very near future," and he detailed Noe’s involvement and the performance of the rare-coin investments.

Asked yesterday whether he had read the memo, Taft said, "I don’t know what memo you’re referring to."

That answer prompted legislative Democrats, assembled outside the governor’s Statehouse office, to question Taft’s veracity and leadership.

"Either he’s incompetent or he’s a liar," said Sen. Marc Dann, a suburban Youngstown Democrat. "If he didn’t know, then he wasn’t doing his job, and we should be more concerned about that."

Jon Allison, Taft’s chief of staff, who was sent a copy of the memo, later said that Taft did not read the memo until the day the initial Blade story was published.

Allison and Taft’s staff decided that because the memo was not reporting anything wrong, it did not need to be given to Taft immediately, Allison said.
Actually, we suspect that Allison is the one who can first be put in the "incompetent or liar" category.

Look, anyone that has been around the top leaders of any enterprise, especially a political one like the governor's office, knows that when your most trusted manager takes the time to write a warning in a memo you, you sure as fuck better read it over more than once.

We haven't read the memo, but Conrad wouldn't have bothered to write it if it wasn't to warn Taft, Allison and the rest of his staff that a major shit-storm was coming down from the Blade.

If Allison read it and, indeed, kept it from Taft, then he should resign.

The truth is that none of the press corps is buying into the "we didn't read it" memo theory.

But this is somewhat of a tempest in a teapot development. It only makes a difference of 15 days. Certainly, that's more that enough to establish Taft as a liar, but not enough to really tie him directly to the Noe circle.

The Blade starts doing that for us. The Drew Crew's story today has more of Taft's verbal tap dancing related to what the governor's relationship was with Noe and what he knew about an investment deal with the State:
Mr. Taft denied yesterday that Mr. Noe had ever “informed me or to my knowledge, any member of my senior staff “ about his state contract with the Ohio Bureau of Workers’ Compensation
Obviously, this statement falls far short of saying that he had no knowledge of, and that no one ever told him Noe had any business relationship with the state.

Further, the story indicates that Taft and Noe were closer that the governor would want Ohioans to believe:
In response to a question, Mr. Taft said he had visited Mr. Noe’s coin shop in Monclova Township, where authorities executed a search warrant Thursday.

The governor said he didn’t know how many times he had visited the coin shop and when asked why he went there, Mr. Taft replied: “Just a visit.” An aide to Mr. Taft said he didn’t have any dates of when Mr. Taft dropped by Vintage Coins & Collectibles.

Asked if he and his high-ranking staff members solicited Mr. Noe to raise campaign contributions for President Bush’s re-election and the Republican Governors Association, Mr. Taft replied: “I’m sure we did.”
The drumming hasn't started for Taft to leave office yet, but the drums are being rolled out. He cannot sustain more stories like this.

With record low approval ratings, this might be a way for Republicans to cut their losses. Maybe it's time for Bob Bennett to call in another White House chit and see if there still isn't some appointment or ambassadorship available.

Friday, May 27, 2005


What to watch on Coingate next week

Friday's news offers some clues about what and when the next develoments will be in the Noe/GOP affair.

First, we have to acknowledge the excellent job the Drew Crew (Blade writers Jim Drew, Mike Wilkinson, Steve Eder) are continuing to do on this story. The Dispatch is providing nothing new.

Our expectation is that the Sandy Theis' team at the Plain Dealer - who have been hot on the Larry Householder trail - are continuing to focus on that angle and that they will eventually cross paths with the Drew Crew.

So, we had Franklin Co. Prosecutor Ron O'Brian making these statements:
“I have reason to believe it is more than just missing assets or lost assets or otherwise,” said Mr. O’Brien, a Republican. “I have reason to believe there is actual misappropriation of state funds involved ... I’m talking about conversion for personal use.”

It is unclear whether Mr. Noe used some of the state’s money to make contributions to Republican candidates, including President Bush’s re-election campaign, Mr. O’Brien said.

[. . . ]

Mr. O’Brien said he didn’t have details of the alleged misappropriation, but he confirmed it involved money provided by the Ohio Bureau of Workers’ Compensation to Mr. Noe’s Capital Coin funds.

[. . . ]

Asked where the state’s money went, Mr. O’Brien replied: “I don’t know the answers to that question. The search warrant might partly answer that.”
Those are pretty ballsy assertions from O'Brien, himself a Republican. We think he understands the gravity of making such statements if you don't have something strong to back them up.

Interestingly, nobody - including Noe's attorneys - seem to be directly denying what O'Brien said.
Jon Richardson, who is representing Mr. Noe regarding the federal investigation, said he has not been contacted regarding the criminal allegations made by Mr. O’Brien.
Later in the same story comes some news about the campaign contributions wing of the Noe affair:
A federal grand jury is expected to begin hearing from witnesses Wednesday. The U.S. attorney’s office has acknowledged that it is investigating Mr. Noe and law enforcement sources have said it centers on contributions made to a Bush-Cheney fund-raiser in October, 2003, at which Mr. Noe sponsored a table.

[. . .]

Sam Thurber, husband of Lucas County Commissioner Maggie Thurber, said last night that he has been called to testify before the grand jury. He spoke briefly outside a fund-raiser for Betty Shultz, an at-large Toledo city council member.

Mr. Thurber, Ms. Thurber, and Ms. Shultz donated to the Bush-Cheney campaign at the time, although the Thurbers each contributed $1,950, records show.
Look, this is pretty simple stuff. The prosecutor seizes Noe's bank records. He sees checks written to the two Thurbers and Ms. Shultz for $2,000. He tells them to keep $50 for parking and expenses, but buy tickets for the fundraiser with the balance. You bring the three of them before a grand jury and ask them why they suddenly had checks from Noe.

Wednesday's testimony will probably be along the same lines. Let the fun begin!


Ohio 2nd District news

This may be old news in some quarters, but we would like to recommend a recently new blog that is both following the upcoming election to select a replacement for Rob Portman and is also covering general political news in the southwestern part of the state.

Check out the folks at Ohio 2nd.


Coins versus baseball cards, stamps & action figures

Sam Seder tortures BWC here. Great hold music, too!


Uh - isn't this a little late and transparent?

From the Dispatch:
Buffeted by scandals involving high-profile Republicans, Ohio GOP Chairman Robert T. Bennett plans to require any Ohio candidate seeking state party support to attend ethics training.
Well, Bob, you and the rest of the state - especially the grand juries - know that problems evolved from being ethical mistakes to criminal activities years ago.

Actually, from what we understand, Bennett better be spending his time looking for a replacement and talking to his own lawyer.


Dann right: Time for Coingate special prosecutor

Finally, finally, the Dems have found a voice in this matter and are starting to get some decent framing going:
Democrats called on Ohio GOP leaders yesterday to take responsibility for the rare-coin scandal and to rid Columbus of its "culture of corruption."

[. . .]

They also called for Republicans to return contributions from Mr. Noe and appoint an independent special prosecutor to investigate.

State Sen. Marc Dann, a Democrat from suburban Youngstown and one of the most vocal critics of the coin venture, said Republican leadership only took action once they were "shamed" by the actions of Mr. Noe, who has contributed thousands of dollars to their political campaigns.

"It's just tragic that the people charged with watching our money were totally asleep on the job," Mr. Dann said, remarking that 55 days have passed since The Blade first reported on Mr. Noe's rare-coin venture. In that time, he added, "Nobody did their job."

Mr. Dann said the ramifications of the scandal will be far-reaching, implicating the current administration as well as Republican gubernatorial candidates.

"It's too late, governor," Mr. Dann said, adding that Gov. Bob Taft, Attorney General Jim Petro, and State Auditor Betty Montgomery "were accomplices in Tom Noe's stealing from small businesses and workers in the state of Ohio."

He said, "If I were them, I would resign in embarrassment."
GOP Chair Bob Bennett may be crying crocodile tears now, but reporters should demand that he go on record about whether he supports the special prosecutor proposal.

And every Democrat candidate in the state ought to be running against the "Culture of Corruption."


Conrad gone - others to follow

As we predicted on several earlier occasions, Coingate has now caught up with Jim Conrad.

It's a sad end to one of the state's better administrators. But Conrad though he could slide his way through this controversy with a little PR and a few phone calls. But you can't do that with something that has so many tenticles and with the feds probing into every corner.

If Conrad was a good manager, he is also a good soldier. In otherwords, he won't finger anybody else and he has always known that he might have to fall on his sword someday.

Short of a criminal indictment - which doesn't seem likely at this point, he'll land on his feet somewhere.

Taft is clearly scrambling to distance himself:
Neither agency Administrator James Conrad nor any member of his staff told the governor about the state's investment in coins, Taft said. When questions came out about the investment in April, agency officials told Taft the investment was profitable and safe.
Let's face it, this is simply not credible. Yes, it may be that Taft didn't know the dirty details of the investment. But it is simply absurd for Taft to claim he had no idea that Ohio's biggest GOP fundraiser was not doing business with one of the governor's top lieutenants.

If the governor's race wasn't next year, it would be appropriate to start clamoring for a recall.

Thursday, May 26, 2005


Noe admits to millions missing, now fun begins

From the Blade crew:
The Ohio Attorney General’s office announced today that the state will immediately pursue civil and criminal measures against Maumee coin dealer Tom Noe after his legal counsel informed the state that a substantial amount of assets from his Capital Coin Funds are missing.

Mr. Noe’s legal counsel advised the state that $10 million to $12 million of the state’s assets held by Capital Coin are unaccounted for.
Yes, its bad - very bad when you own attorney says the money is missing.

But, for politics watchers, the speculation starts about what kind of deal Noe can cut. And deals, in this case go in two directions: the fed's campaign donations case and who knew what about the coin deal.

Deals in the first category will be career-enders for many top Republicans and may involve some national RNC folks. Maybe Club Fed time, too.

Outcomes to the second will be career enders for BWC staffers and maybe Conrad, himself, besides more high-level Repubs including lobbyists and consultants.

Also, a tip from one of our readers raises in interesting question. Turns out Attorney Bill Wilkinson represents (at least represented as of last December) Larry Householder. That would be the same Bill Wilkinson that represents Tom Noe.

Shouldn't someone be asking Wilkinson which client's interests he is really representing. Actually, we suspect both Householder and Noe are asking him the same question at this point.

Tuesday, May 24, 2005


Politicians need to stay out of coin liquidation

There is one important point in the Coingate affair that hasn't received enough consideration - primarly because credibility-challenged BWC officials are the ones who have been trying to raise it - is the matter of how much information to disclose about the coins and their appraised worth.

We think they have a valid point here, and it is one that the Three Stooges Investigations, Inc. could totally screw up in their zeal to score political points. From a financial point of view, the concern is the flip side of the argument that the coins were a lousy investment in the first place. As we have pointed out several times, one of the major problems with this type of investment is that the is not a robust, transparent market for rare coins.

In more concrete terms, despite the intrinsic value of the gold or silver they may be composed of, or a value that some buyer paid once in a past auction, the value of the coins is extremely hard to determine. As an investment entity, the coins are not very liquid - at least in the sense that one can easily trade them for something close to what they are worth.

People involved in similar kinds of investments understand that successful investments - where you make money or at least break even - depend on asymetric information. In other words, one side knows more than the other.

Like dealers in art, one side knows how the maximum a buyer is willing to pay for a particular piece, and the art seller knows how minimum the artist will accept. But neither will - or should - share that information with the other. Like the prisoner's dilemma, the first person to show his cards provides further incentive for the other to hide theirs.

The investigations should go on, but there is a good reason for some of the information about the value of the individual coins to be kept confidential.

The bottom line is that investigators should let the investment staff at BWC - who seemed to have attempted to sound the alarm about Noe and the coins - liquidate the coins in a professional, knowledgeable manner.


Poll on Blackwell amendment good news

Categorize this in the "things aren't always as they appear" department. Although the PD's Julie Carr Smyth's story from this weekend about poll showing that 51% of the respondents support Ken Blackwell's amendment, the data is what we would consider very, very good news.

Actually, the poll is in sharp contrast from the rantings of Blackwell who have been claiming support levels in excess of 70%.

The 51% support number doesn't worry us at all. Unless someone understands how a expenditure limit amendment really works, it sounds goddam wonderful! Hell, if we didn't know better, we'd vote for the thing just to spite the unaccountable fuckers in Columbus - and that's apparently why a lot of respondents in the poll are voting for it, too:
Evelyn Cornelius of Cleveland would also vote yes - in protest of how state lawmakers have ignored big cities.

"Unless they're going to take the money and put it into schools, then I think that's the way it should be," said Cornelius, 71. "As much money as the state spends, the smaller, less-fortunate people have had no say-so."
The biggest danger about potential support for this amendment is that voters will use it as a way to punish elected officials. We don't claim to have our fingers on the pulse of Ohio, but you don't have to have the sensitivity of a braille reader either to discern that an enormous number of voters are absolutely, totally, completely alienated from their elected officials. That includes alienation from their legislators, county commissioners, city council members and school boards.

Everyday, we hear from and read about citizens complaining about very basic issues. Schools. Prescription prices. Health care. Pensions. Jobs. Law enforcement.

Regardless, the 51% vote has got to be viewed as a high-water mark - one that is reached before anyone starts to raise arguments and objections to it. The amendment is the kind of thing that 1) sounds good, 2) then sound "too good to be true", and 3) eventually sounds like just more bullshit cooked up by another politician who has his interests - not the publics - in mind.

With 51% of the vote, the only person that's got some explaining to do is Blackwell.


Stick a fork in Blackwell "lite" amendment

'cause it's done.

While Jim Siegel's piece doesn't shed any new light on the amendment issue, per se, but his story does serve to document that the "moderates" have no independent strategy on how to stop Blackwell.

Back in mid-March, we noted that the PD was saying that Ohio senate prez Bill Harris vowed that a Lite version was a lock:
Those leading Republicans have been meeting privately and appear to be moving closer to proposing their own spending limit amendment. Harris, the only one who'd previously opposed such an amendment, is now predicting that one will show up on the Nov. 8 ballot and that he will have helped put it there.

[. . .]
Blackwell's plan by more than 2 to 1. With that sort of head start, opponents know the measure would be difficult - and expensive - to beat.

Reinforcing their belief is Blackwell's announcement that he has $1 million in commitments to help ensure that it passes. No opponent has stepped forward with a plan to raise the millions more needed to make sure it does not.
One problem, of course, is how to craft an alternative. A watered down version is nearly as bad as the original. A true alternative - something that also demanded action on government expenditures related to education and health care - would be equally repulsive to the radical right.

Again, as we pointed out in March, we don't think there is going to be any problem to raising $1 million to fight Blackwell. We don't think there is going to be a problem of raising $5 million-$10 million. Many in the Ohio business community, for example, seems to understand that a similar amendment in Colorado has been a nightmare for every sector of that state. The Ohio media is universally and loudly against it. The do-gooders like the League of Women Voters oppose it.

We don't agree with Jim Trakas on many things, but we agree with him on this:
"If [the amendment is] something you don’t want to see done, you should just go out and beat it," said Rep. James P. Trakas, R-Independence. "I don’t think an alternate plan makes sense because it still isn’t the right thing to do."


State will seize funds

At least that is what we hear. Actually, they don't have any choice. With Noe literally barring the door, it's only a matter of time and it may happen today. Any bettors? Any takers?

And with Kenny-come-lately jumping into the fray, the simplistic attempts of the Montgomery, Petro, and Blackwell to "investigate" should provide more laughs than the CAPA's Stooge-A-Rama.

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