Author Danny Vinik

Joe Girardi’s Message to His Team: Support A-Rod

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Giardi made sure his team stuck up for A-Rod.

Giardi made sure his team stuck up for A-Rod.

It was coming at some point. The hatred for Alex Rodriguez is palpable throughout all of baseball. Players hate that their MLBPA dollars are going to his defense. And with the Red Sox and Yankees playing this weekend, it was all but certain that A-Rod would get plunked at least once. After two clean games, Ryan Dempster took it upon himself to take up the task. In the second inning, with no one out and no one on base, Dempster threw the first pitch behind Rodriguez’s back, then threw two more balls and, with a 3-0 count, hit him in the back. Sox manager John Farrell can claim otherwise as much as he wants, but the pitch was certainly intentional.

Home plate umpire Brian O’Nora warned both teams immediately, but did not eject Dempster. The benches briefly cleared, but the players never came together. Yankees manager Joe Girardi was incensed. He got in O’Nora’s face, screaming at the umpire and throwing his hat in disgust. Girardi was quickly ejected, but his point was clear: Alex Rodriquez is a member of the New York Yankees and players stick up for their teammates. After rumors surfaced last week that A-Rod had turned over evidence that implicated other MLB players in the Biogenesis scandal, including teammate Francisco Cervelli, it was fair to wonder how even his own teammates would treat him. Rodriguez has always been an outcast in the clubhouse, but if he had snitched on a teammate, would players even support him when he inevitably got beaned?

The answer is yes. The dugouts and bullpens cleared briefly, but the main action was Girardi’s tirade against O’Nora. He knew Dempster hit A-Rod on purpose and wanted the Sox starter ejected from the game. But the real reason for his explosion was to show his team that no matter what A-Rod has done, he’s still the starting third basemen for the New York Yankees and as such, they will defend him. They can ignore him in the clubhouse and after the game, but on the diamond, teammates protect each other. Period. Girardi sent that message loud and clear.

Eminent Domain and Fair Value

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It’s a slow news day so I’m going to return to my favorite pet subject: the use of eminent domain to help underwater homeowners. As regular readers know, I believe eminent domain could be used to help such borrowers, but the current plan being implemented in Richmond, California is outright fraud. Most analyses of it that I’ve seen have come to a similar conclusion, but University of Georgia Professor Stephen Mihm wrote a defense of the proposal last week. The piece is actually very good – particularly the history of the use of eminent domain to seize intangible assets (like mortgages). But Mihm misses the reason why Richmond’s plan is such a rip off. He writes:

Richmond’s plan is to seize 624 mortgages valued at more than the homes for which they were written. Relying on a private intermediary, the city would compensate the investor holding a mortgage at a price reflecting the home’s current value rather than an inflated bubble value.

This is the problem. Investors don’t own these homes – they own the mortgage-backed securities associated with him. Those MBS are not worth what the value of the home is. They are worth a certain amount depending on the future stream of payments from the mortgage, the initial par value of the loan, the current value of the home and the likelihood that the borrower defaults. In fact, the worst case scenario for investors is that the homeowner defaults immediately, they foreclose on the home and they only recoup the current value of the home. Thus, the minimum value of the MBS is the current home value. The actual value of the MBS is well above that. Yet, Mihm is arguing that paying those investors the current value of the home is fair value. It’s not at all.

Mihm concludes his piece by saying:

Yet to listen to the hysterical denunciations of the Richmond plan, a proposal to bring 624 mortgages in line with market prices is the epitome of eminent domain abuse. History suggests otherwise.

It may not be the greatest abuse of eminent domain, but it certainly is abuse. The private firm supplying the capital to purchase the securities – Mortgage Resolution Partners (MRP) – makes a tidy profit by buying the securities as well-below fair value. That’s the definition of abuse.

What makes this even worse is that eminent domain could be used to help those borrowers. Richmond would have to pay investors fair value for their investments – and they probably would still file lawsuits against the town – but the plan could work. Unfortunately, using eminent domain in this fraudulent manner prevents it from ever taking off in a legitimate one.