"(T)o say that the individual is culturally constituted has become a truism. . . . We assume, almost without question, that a self belongs to a specific cultural world much as it speaks a native language." James Clifford

Friday, November 4, 2011

GlaxoSmithKline: Born Again Ethically?

GlaxoSmithKline, a drug company based in the E.U., agreed in 2011 to pay $3 billion to settle the U.S. Government’s civil and criminal investigations into the company’s Medicaid pricing practices and sales practices, including illegal marketing of Avandia, the diabetes drug linked to coronary problems. The settlement amount surpassed the previous record of $2.3 billion paid by Pfizer in 2009. Even so, it is doubtful that $3 billion proffered enough of a punch to motivate either Glaxo’s board or CEO to do what would be necessary to extirpate a corporate culture perhaps too comfortable with cutting corners.


The full essay is in the Introduction of Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

Thursday, October 27, 2011

Hedge Fund Lobby: Breaching Ethics

In a rule adopted by the SEC on October 26, 2011, hedge funds over a certain size must report information—the amounts required depending on the fund’s size. The devil, as it were, is in the details. In this case, they reflect the intense lobbying of hedge funds and their advocates. As a result of the lobbying, according to The New York Times, the “changes call for only the largest funds to report the most detailed information, eliminate any penalty of perjury for misleading reports and delay for six months the initial reports for all but the largest funds.”[1] Whereas the matter of the amount (and type) of information required involves or potentially puts at risk the funds’ secret strategic competitive advantages and the matter of a start date involves technical points such as how much effort is needed to cull the required information, the elimination of any penalty for perjury does not correspond to any legitimate business concern. Indeed, it makes on sense to require information if it can be misleading with impunity. It is as if the SEC regulators had told the hedge funds, You will have to submit information to us but it can be misleading. The fund managers would be apt to reply, Oh, ok.


The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  


1. Edward Wyatt, “Rule Allows Regulators a Look at Hedge Funds,” The New York Times, October 27, 2011.

Sunday, October 23, 2011

Deloitte: A Culture of Least Resistance

On October 17, 2011, the Public Company Accounting Oversight Board issued a statement saying audits should protect investors. “The board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report,” the statement said. Not having seen such progress at Deloitte, the board made its 2008 report on the firm public. The report “cited problems in 27 of the 61 Deloitte audits it reviewed, including three where the issuing company was forced to restate its financial statements.” This was “an unprecedented rebuke to a major accounting firm. In too many instances,” the report stated, inspectors from the board “observed that the engagements team’s support for significant areas of the audit consisted of management’s views or the results of inquiries of management.” In some cases, “Deloitte auditors did not bother to even consider whether accounting decisions made by companies were consistent with accounting rules. Instead, auditors accepted management assertions that the accounting was proper, the board’s report said.”[1] As a very young auditor at that firm, I was told to do just that.  


The full essay is at "Deloitte: A Culture of Least Resistance" in Institutional Conflicts of Interestwhich is available at Amazon.


1. I took the quotes for this paragraph from: Floyd Norris, “Accounting Board Criticizes Deloitte’s AuditingSystem,” The New York Times, October 17, 2011;  and Floyd Norris, “Audit Flaws Revealed, AtLong Last,” The New York Times, October 21, 2011

Saturday, October 22, 2011

Limited Tenure For CPA Firms?

Arthur Levitt, who headed the Securities and Exchange Commission from 1993 to 2001, “sought to root out conflicts of interest at audit firms in 2000, and urged Congress to adopt auditor term limits in 2002 after the Enron and WorldCom scandals.”[1]  Levitt did not buy the argument made by companies that it would cost them a lot of money to change audit firms. To be sure, he acknowledged that some added cost would be entailed in a system of mandatory auditor “term limits,” but a long auditor relationship “raises the perception,” he maintained, “that the auditor is very much beholden to the company and not totally independent. An environment of skepticism should trump the fraternal environment that tends to occur after a relationship has developed over a period of years.”[2] Indeed, Arthur Andersen’s people were well ensconced at Enron by the time the energy giant went bust. In fact, the auditors even approved the questionable “partnership” accounting (used to hide debt).  Nor did the auditors communicate any misgivings to the audit committee of the company’s board of directors. The auditors were “in” with a rancid management. 


The full essay has been incorporated into "A Proposal: Limited Tenures for CPA Firms"  at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.  


1. Emily Chasan, “Keeping Auditors on Their Toes,” The Wall Street Journal, October 19, 2011.
2. Ibid.

Friday, October 21, 2011

Conflicts of Interest at the Federal Reserve

In 2011, “(m)ore than a dozen members of the regional Federal Reserve boards have had ties to banks or companies that received emergency funds during the [2008 financial] crisis, according to [a GAO report]. The report highlights a close relationship between the Fed's regional banks and many of the institutions they were lending to, adding credence to concerns that the financial sector enjoyed a largely consequence-free rescue in the wake of the crisis, thanks to its connections with the federal government.”[1] Meanwhile, mortgage borrowers with houses “under water” got hammered. From the crisis to the release of the GAO report in October 2011, there were millions foreclosures in the United States, with very little in the way of mortgage modifications or refinancing for those homeowners who needed relief. In other words, the bankers had connections in the banking regulatory agency while Congress left the troubled homeowners—constituents—at the mercy of the bankers. Their agency having their backs, the bankers could afford to take a hard line on the mortgages. The playing field, in other words, is not at all level. 


Material from this essay has been incorporated into "The Federal Reserve" in  Institutional Conflicts of Interest, which is available in print and as an ebook at Amazon.  


1. Alexander Eichler, “Conflicts of Interest Abound at the Federal Reserve, Report Finds,” The Huffington Post, October 19, 2011.

Monday, September 5, 2011

AOL Ignores TechCrunch’s Conflict of Interest

According to The New York Times, “When Michael Arrington, the editor of the popular Web site TechCrunch, told his bosses at AOL that he was forming a venture capital company to finance some of the technology start-ups that his site wrote about, they did not fire him or ask for his resignation. Instead, . . .  they invested about $10 million in his fund.”[1] Tim Armstrong, AOL’s chief executive, issued the following statement when CrunchFund was announced: “TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”[2] As for Michael Arrington, Arianna Huffington claimed that he would have no influence on coverage—that there would be, in effect, a Chinese wall between TechCrunch’s news site and venture-capital firm. However earlier on the same day, Arrington stated, “I am TechCrunch and TechCrunch is me.”[3] 


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

1. David Carr, “Tech Blogger Who Leaps Over the Line,” The New York Times, September 5, 2011, p. B1.

Monday, August 29, 2011

In the Eye of the 24/7 News-Cycle: Profits & Attention-Seeking

For about a week toward the end of August 2011, the news networks in the U.S. seemed utterly captivated, or obsessed, with Hurricane “Irene,” which was running up the east coast from North Carolina to New England. The prognosis had been given as a fait accompli when the storm was just pulling out of the Bahamas. A rough convergence of the models was taken for certainty. If this obsessiveness sounds familiar, it may be because on virtually any major story, the 24-hour news networks have tended to crowd out other stories even when the marginal utility of the added coverage on the major story is very low. Editors go with filler on the major story rather than risk losing viewers by breaking away to cover the other news to a meaningful extent. Viewers who are not obsessed with the main story may view the networks as obsessed while the networks may view themselves as merely satisfying a growing obsession by viewers. In any case, the narrowness of coverage, as if a major story should crowd out other news, is problematic, for it ultimately leaves the American people less well informed than they would otherwise be of what is happening around them.
 
The constant coverage and hyperbole that typically accompany a major news story can whip some viewers into a frenzy of binge-watching, which doesn't hurt ratings. To be sure, some stories, such as the 2020 U.S. presidential election, contain their own built-in excitement. 

When the hurricane named Irene failed to strengthen after the Bahamas, little was made of it; reporters did not point out that the storm’s eyewall, which had collapsed, did not re-form out of a contracting outer wall. Instead, the media obsessed on where the storm would make landfall. According to James Franklin of the National Hurricane Center, “There were a lot of rain bands competing for the same energy. So when the eyewall collapsed, there were winds over a large area.”[1] Spread over a larger area, the winds were less intense. So what was predicted to be a Category 2 or possibly Category 3 storm at landfall in North Carolina was in fact a Category 1 storm. After North Carolina, the storm weakened even more rather than strengthening over the water east of Maryland and Delaware. The water was slightly cooler and the winds and drier area of another weather system kept the storm from strengthening. 

Even so, the media was reporting that the hurricane would reach New York City as a hurricane. No mention was made of the fact that the storm was downgraded to a tropical storm prior to reaching New York City. Instead, the media kept up the storyline of lower Manhattan being set to go underwater. Eventualities based on an assumed worst-case-scenario were played out ad nausea even after the storm had been downgraded from hurricane status! Not surprisingly, New Yorkers were underwhelmed and most of the rest of us might have wondered whether the five or six day marathon had been worthwhile.

To be sure, damage was in the billions of dollars (especially from flooding far from the coast). The storm was a Category 1 hurricane when it arrived in North Carolina and a large and very wet tropical storm when it headed from New Jersey to New York and into interior New England. Also, the hurricane had the potential early-on to be devastating to the major cities on the eastern seaboard. So getting the warning out, particularly to folks on North Carolina’s outer banks, was important. However, the overkill had its own costs, including the opportunity cost of foregone, neglected news. Other things were happening during that week in August 2011. At the very least, the American broadcast media suffered from tunnel vision, was slow in reacting to the diminished destructiveness of the storm and was partial in reporting the updated storm information as it came in.  The partiality was in line with perpetuating the rather dramatic worst-case-scenario. I contend that this did not happen by accident.

As if to vindicate all the attention devoted to the story and the catastrophic portant, at least one network showed water going over a reporter’s feet when the tropical storm was at New York City. After the storm, as the nonstop coverage astonishingly continued, one reporter was interviewed because at one point on a boardwalk she could see foam below the boards. So much for catastrophic. Along with the omission of data indicating the storm was weakening, the refusal to budge from the storyline of utter destructiveness points to something being up (i.e., even beyond acting on behalf of public officials in sounding the alarm).

It is as though the media were bound and determined to run through the storyline come hell or high water—even if there was neither. Better to keep on message than change course because the latter would imply that the original storyline had been wrong. In obsessing on the projected path of the storm, the media ignored data on the diminished strength. “(I)t was not surprising that the strength forecasts were off,” The New York Times observed. “The accuracy of such forecasts has hardly improved over the past several decades.”[2] In the wake of hurricane Irene, readers might have been thinking, now you tell us. However, it is not just overreliance on predictions; the media had an interest in ignoring the inherent inaccuracy.

The staff at the news networks might have wanted to take the limits of human knowledge to heart the next time a storm pops up in the Caribbean, and the rest of us might want to remember that it is in the self-interest of the media companies and their personalities to exaggerate the dramatic scenario and then pretend that they have done no such thing when things turn out differently. In other words, there is not apt to be a learning curve on this circulation of profits and attention around an eye of ego—this is one spin that can be predicted. The game is up, journalists, but whether anything can be done about your little scam is another story—one that no doubt will also be preempted by some pressing disaster that demands a monopoly of attention across the continent of North America and beyond.


1. Henry Fountain, “Hurricane Lost Steam as Experts Misjudged Structure and Next Move,” The New York Times, August 28, 2011. 
2. Ibid.

Thursday, August 18, 2011

Fraud at S&P: A Conflict of Interest

By the summer of 2011, the U.S. Government had brought relatively few cases against large financial institutions for their roles in the financial crisis of 2008. For instance, the government investigated Washington Mutual and Countrywide without taking any further action in spite of reports of “liars’ loans.” In the case of the three major ratings agencies, the business model “is riddled with conflicts of interest, since rating agencies might make their grades more positive to please their customers. Before the financial crisis,“banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with [one of the agencies].”[1] In spite of accounts of the agencies’ mixing of business and ratings, the Dodd-Frank law of 2010 retained the issuer-pays business model while putting the agencies on the same legal liability level as accounting firms. 


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.


1.  Louise Story, “Justice Inquiry Is Said to Focus on S&P Ratings,” The New York Times, August 18, 2011. 

Monday, August 15, 2011

Congressional Earmarks: A Personal Conflict of Interest

Congressman Darrell Issa (R-Calif.) runs his local district office down the hall from where he runs his businesses worth hundreds of millions of dollars. According to the New York Times, his “dual careers” evince a “meshing of public and private interests rarely seen in government.”[1] While advocating for business in Congress, he split his holding company into separate multibillion-dollar businesses, started an insurance company, and retained a financial interest in his automobile-alarm business. At least some of his actions in government have made him richer.[2] Most notably, he secured Congressional earmarks for road widening and other public works projects that runs his local district office down the hall from where he runs  that he owns in his district. For example, earmarks that he arranged made possible the widening of a busy road in front of a medical plaza that he bought for $10.3 million. To be sure, his constituents applaud the easing of traffic, but what if the money would otherwise have been spent to relieve more severe congestion elsewhere? Even if no worse instances existed, that the congressman’s constituents benefitted from the street-widening does not mean that his action was ethical.


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.


1. Eric Lichtblau, “Helping His District, andHimself,” New York Times, August 15, 2011.
2. Ibid.


Wednesday, August 3, 2011

The Debt-Ceiling Disaster Flick, Hollywood-Style

During the last two weeks of July 2011, the American media was focused on the debt-ceiling negotiations. In the midst of a summer with plenty of natural distractions, an increasing number of Americans were cluing in to find their federal government at a stalemate as the clock ticked to a possible economic catastrophe said to begin on 12:01am on August 3, 2011. The U.S. Treasury department had estimated that it would run out of ways to make up for the lack of additional borrowing authority on August 2nd.  To the media, that meant a clock ticking down to 12 midnight. In actuality, tax revenues were up so the actual date was said to be around August 10th. In any case, the U.S. would not implode at precisely 12:01am on August 3rd by any account, yet that made better drama, which in turn increased viewership.


The full essay is at "The Debt-Ceiling."

Sunday, July 31, 2011

On the Entitlement to Exceptionalism

John Blake of CNN asks, “Have you ‘walked the aisle’ to ‘pray the prayer?’ Did you ever ‘name and claim’ something and, after getting it, announce, ‘I’m highly blessed and favored?’ . . . If this is you, some Christian pastors and scholars have some bad news: You may not know what you’re talking about. They say that many contemporary Christians have become pious parrots onstantly repeating Christian phrases that they don’t understand or distort.”[1] Unfortunately, the epistemological brain-freeze extends beyond religion onto business, thanks to marketers. 

For example, some Christians refer to “the rapture” without realizing that it is out of sync with historical Christian theology before 1850. According to Marcus Borg, a theologian, “People who speak Christian aren’t just mangling religious terminology, he says. They’re also inventing counterfeit Christian terms such as “the rapture” as if they were a part of essential church teaching. The rapture, a phrase used to describe the sudden transport of true Christians to heaven while the rest of humanity is left behind to suffer, actually contradicts historic Christian teaching, Borg says. ‘The rapture is a recent invention. Nobody had thought of what is now known as the rapture until about 1850.’”[2] Representing something as “a part of essential church teaching” without knowing what one is talking about evinces the “I can’t be wrong” attitude that typically goes along with ignorance in modern society.

For someone to say, I name and claim this house as mine, is really just a desire to possess it; the expression "name and claim" is simply a subterfuge for greed (i.e., a basic desire for more).  Accordingly, the prosperity gospel facilitates, or enables, greed, rather than constraining it. According to Blake, prosperity Christians, who believe that God rewards true belief with material wealth, “don’t say ‘I want that new Mercedes.’ They say they are going to ‘believe for a new Mercedes.’ They don’t say ‘I want a promotion.’ They say I ‘name and claim’ a promotion.”[3] However, it is impious in a religious sense to claim anything, not to mention something as profane as a job promotion. Moreover, the “claim” evinces a certain presumption to having true belief and furthermore that God the Omnipotent is constrained by the positive correlation between a certain belief and material riches. That is, besides providing a subterfuge for greed, the nonsensical phraseology represents an over-reaching by mere mortals in religious terms. Religion here functions as a lever dispensing coins.

Unfortunately, the practice of using words beyond their meaning or even incorrectly—essentially making a fool of oneself without realizing it because one thinks one can’t be wrong—pervades modern society. In business parlance, for example, some practitioners try to manipulate by urging others to “win the future.” Now, what exactly would a future lost look like? Does it even make sense? I suppose it would have to mean death, for a future lost is no future at all, and this to a human being is death. In fact, the daily grind in business is continuous rather than having a definite end-point in the future, as in a game of basketball. To refer to business managers therefore as “champions” and to urge them to “win success” mangles an already-overstretched sports analogy.

To join in and banter something about that does not make sense makes one quite the fool, even if one is doing so simply to fit in. For instance, just because other business practitioners talk of “growing” their business (or, God forbid, “growing success”) does not mean that what applies in one sense to living organisms and in another to an entire economy (e.g. "economic growth") is something one's business "does." One does not grow a business. This represents an incorrect use of the verb. Furthermore, economic growth does not mean that profits grow; rather, net income increases. Engaging in verbal slippage, wherein a word is used extrinsic to its meanings, only makes one look stupid.

Typically, an ulterior motive is the culprit behind the disregard, or lack of respect, for how a society delimits the possible meanings of words in the interest of communication. The intentional lapse is akin to historical revisionism. In both cases, selfishness is combined with disrespect for society as a whole. Too bad if you don't understand how I'm using a word; even if it's not in your dictionary, you need to adjust because I'm going to use the word as I please. To go on and broadcast one’s ignorance in a commercial goes beyond stupidity to present one's greed and desire for self-promotion without any hint of shame. Unfortunately, such promotion of even a nonsensical use of a word or phrase, such as "winning success," can result in a multiplier effect wherein pretty soon everyone is applying it to anything even in spite of the vacuous meaning. In other words, the word itself loses its definitive meaning because it is being applied as a empty form indiscriminately. However, just because people agree to treat "winning success" as substantive does not mean that the phrase has any meaning. We can all agree and behave as though the emperor is wearing clothes when he is quite naked. Similarly, treating nonsense as though it had meaning does not in itself proffer any substance.

Even in everyday sayings, insipid or banal expressions can catch on like wild fire. For example, it is common to ask someone, How is your day going?—as if the day was yours (i.e., as if the day belonged to the person). It simply does not make sense. How is the day going for you? would be better. Unfortunately, a herd, once on the march, does not verve from its well-worn path. As still another example, waiters and waitresses typically ask their customers during the meal, Are you still working on that? When I hear that while I am eating, I am tempted to reply, No, but I am still eating it. Does one work on food like one works on a project?  I think this particular practice is merely carelessness combined with a habit of repetition and small talk. The extent (and limitation) of jargon can itself be off-putting (as evincing a certain fakeness).

Using words or phrases that one does not understand is contemptible enough; the herd-animal mentality that accompanies speaking as though chewing cud is downright unseemly. In other words, the sheer repetition of the phrases—as if the speaker is simply lazy or unwilling even to "mix it up a bit"—is disturbing. Add to this the word-game element, such as in saying “let’s win the future” in order to manipulate others to work harder (i.e., the ulterior motive), and a hidden agenda is evident. Deliberately misusing words in order to manipulate is odious. Of course, the managerial race might reply that it is marketing: snazzy little slogans that don’t make sense. However, it could be asked whether looking stupid detracts from a marketing campaign.

By way of explanation, I suspect that the claim involved is the key. That is, the distorted or nonsensical phrases are manifestations of excess democracy whereby everyone feels entitled to use words differently and thus in a new sense. In feeling entitled to create a new definition for a favored word, we presume that the current usage does not pertain to us, and, furthermore, that others are obliged to recognize our own construction. Consider, for example, how socialism came to “grow” a new meaning in 2010 at odds with its actual meaning. The new, politically convenient meaning essentially was stolen from “government regulation,” but this didn’t matter to those who felt entitled to make the switch. Such entitlement extends even to using expressions that do not even make any sense.

It is the entitlement wherein use itself justifies, independent of whether there is any meaning. It might be a bit like playing God in the sense of being creators. Ficino, a priest who lived in the fifteenth century, argued that by virtue of having a soul, we human beings are creators, or gods, on earth because we are able to mold its resources for our use. There is a certain arrogance involved in viewing ourselves as gods on earth, even as being able to create new meanings for words at odds with their extant meanings and even with making sense! In spite of creating nonsense (creation ex nihilo in reverse?), the self-anointed creators tend to get annoyed when their "right" to create even nonsense is not recognized. Indeed, they presume that the extant meaning is obliged to defend itself—as if somehow the new meaning (or lack thereof portrayed in terms of meaning) were de facto the default simply in being created ex nihilo.

Here is a project: try correcting a nonsensical or incorrect expression and watch the resentment ensue. You are presumed at fault for pointing it out by the very person who has oversteppedEven a vacuous meaning simply continues unabated, oblivious to having been flagged and uncovered. In the United States, for example, people having earned one degree in law or medicine somehow think they have doctorates in those academic disciplines simply because they have made a lateral move after receiving a first degree in another school/discipline (the lateral move having a political rather than an academic underpinning). For the record, a doctorate must be a terminal degree (i.e., the highest degree possible for a given academic discipline—e.g., the J.S.D. in law and the D.Sci. M in medicine, for which respectively the LLB/JD and MD are prerequisite, hence they are not terminal!), contain a comprehensive exam (prior to graduation, hence by professors rather than an industry board) and a dissertation of substantial original research (i.e., not a senior thesis in medicine). Even in spite of an over-reaching, unquestioned entitlement on the basis of an undergraduate program in law or medical school (i.e., two years of survey courses followed by senior seminars—not even including a major, unlike the B.S. and B.A.), the self-vaunting professional is apt to presume that he or she cannot be wrong. Survey courses—there's a clue, Sherlock. In fact, the "professional" is even apt to resent being corrected (being so used to being looked up to) instead of being ashamed for having erroneously claimed to have earned something. This mentality, I’m afraid, may be part of modernity in general and perhaps American culture in particular.

Error itself may even be presumed to have a certain right to (an over-reaching) hegemony over truth in an epoch wherein higher education is typically reduced to vocation. Critical thinking is incorrectly thought to be superior to analytical and synthetic thinking because what matters is decision-making and problem-solving. How eclipses why. We cannot be wrong about this, or anything else, for we are all above average—all entitled to recreate society’s artifacts (and even religion) in our own personal images. Ultimately, reality itself becomes a screen filled with the projections of ourselves. At work, we are all professionals. We presume that we are in the club. Some customers are “members.” Some businesses are low-class enough to charge guests. Meanwhile, as per our own presumed entitlement to presumption, no one is watching the distended, or bloated, store. To borrow from Nietzsche, no one is watching the herd but the herd itself, which is in actuality wandering as though in blindness before the dawn. Certain herd animals, wanting so to dominate the herd, have relegated the cowboys by nonsensical utterances, which to the men on horses sound like garbled cud being spewed by imbeciles not worth rounding up—not tasty enough, being so full of themselves.

1. John Blake, “Do You Speak Christian?” CNN, July 31, 2011. 
2. Ibid.
3. Ibid. 

Tuesday, July 26, 2011

Bad Psychology and Political Violence: A Toxic Cocktail

Before the assassination attempt on Rep. Gabrielle Giffords in early 2011, it had been quite some time since there had been a major assassination attempt on American soil. The attempt on President Reagan had been almost thirty years earlier. During the intervening time, the naive view that American politics had outgrown such barbaric acts of political violence could grow and thrive. Then in July 2011, the world witnessed an anti-Muslim European go on a shooting spree in a delusional sense of being at war. In his mind, there was an actual war and his acts were justified. In fact, he viewed himself after the fact as a savior. Undoubtedly, there was no internal check in his mind for how far his sense of political reality could get from the “facts on the ground.”


Tuesday, July 19, 2011

Jamie Dimon of JPMorganChase Exploits an Institutional Conflict of Interest

U.S. Treasury Secretary, Tim Geithner, said on July 18, 2011 that he was not concerned about dire warnings from Jamie Dimon, CEO of JP Morgan Chase, a bank that was too big to fail and thus evinced systemic risk. Jamie Dimon, CEO of JPMorgan Chase, said the government regulations may have been suffocating the economic recovery. While it was nice of Jamie Dimon to be so civic-minded as to want to protect the recovery, his real objective was likely to increase his bank’s profitability through relaxed financial regulations in the U.S. If so, his ulterior motive was not in line with the economy overall, much less with society and the common good.


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

Saturday, June 18, 2011

Banks on Reserve Requirements: An Institutional Conflict of Interest

As regulators were getting close to an international agreement on how much additional capital large banks that are deemed too big to fail should hold. In 2010, international policy makers met in Basil and agreed to 7 percent. The Dodd-Frank law passed in that same year in the U.S. meant that the Federal Reserve Bank would have to “impose tougher capital standards on ‘systemically important financial institutions’.”[1]  Hence, American officials wanted “to coordinate with global regulators so that U.S. firms aren’t put at a disadvantage.”[2] Not wanting to divert more capital to protect themselves from losses, banks were busy lobbying the regulators to reject the proposed 2.0 to 2.5 percentage points above the 7 percent set at Basil.


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

1. Deborah Solomon and Victoria McGrane, “Lenders Dig in on Rules,” The Wall Street Journal, June 16, 2011.
2. Ibid.

Friday, June 17, 2011

Amtrak’s Conflict of Interest

On June 15, 2011, U.S. House Republicans called for the breakup of Amtrak’s de facto monopoly of intercity and interstate passenger-rail transport in the United States. Specifically, Republican lawmakers proposed that the lucrative northeast routes be opened to private providers. For example, Richard Branson’s Virgin Trains had been seeking to provide service between Boston and Washington. Of course, letting one of the providers build and own the tracks even as other providers use the tracks would put that owner-provider in a conflict of interest in charging the other providers for their use of the track, so it would be preferable to have the U.S. Government supply the tracks and charge all of the private providers of train service.


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

Long Term Capital Management: An Institutional Conflict of Interest

By 1997, “after three years of strong profits for LTCM, the opportunities were drying up. There was too much money chasing the same investments. . . . In early 1998, LTMC decided to give a large portion of its capital back to its original investors because profitable opportunities were so hard to find. At the end of 1997, LTCM had nearly $7.5 billion under management, compared to $1 billion when it started, and it now returned $2.7 billion of that to investors. The partners also figured that they could, if necessary, simply leverage their portfolio further to compensate for the loss of capital, which would compound their personal gains. Greed was at the heart of what turned out to be a disastrous decision. . . . Unable to reproduce the returns of the first three years, LTCM took increasingly more risk, abandoning its purer arbitrage for the kinds of ‘directional’ investments Soros made and LTCM had so long disdained—such as trying to forecast interest rate and currency movements. More and more of these trades were unhedged.”[1] Furthermore, “LTCM’s risk models—VAR and related statistical tools . . . –were misleading.”[2] For example, diversification was little protection if there was a run on the banks. When Russia defaulted on August 17, 1997, LTCM’s hedges against its Russian investments were worthless. Furthermore, because all fixed income assets fell sharply in value, “diversification, it turned out, did not matter. The finely calculated relationships on which LTCM was built and which the firm always believed would hold started to come apart. VAR could  not account for such an unlikely but sweeping event—an event in which everyone wanted out at the same time and almost all investments fell significantly in price. The use of VAR itself precipitated much of the selling. Commercial banks under the jurisdiction of the Basel Agreements, which . . . set capital requirements based on the level of VAR (the lower the VAR, the lower the capital required), were forced to sell assets to raise capital.”[3] LTCM lost $1.9 billion that August. Eventually, fourteen banks, organized by the Fed, put together loans of more than $3.5 billion to purchase 90 percent of the firm.” LTCM “did manage to sell down assets in an orderly fashion and by early 2000 it was essentially out of business”[4] 


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

1. Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011), 277-81.
2. Ibid.
3. Ibid.
4. Ibid.

Monday, June 6, 2011

Wall Street Banks: Price-Making and Law-Breaking?

The U.S. Senate Permanent Subcommittee on Investigations found in 2011 that “two Goldman employees, Deeb Salem and David Swenson, tried to manipulate prices of securities used to bet against mortgages. Both tried to help Goldman pile on larger bets against the mortgage market, and they wanted to be able to buy such negative bets more cheaply, the report said. Goldman, as a broker, was able to affect prices in the market through the bids and offers it gave out. Mr. Swenson wrote in May 2007 that the bank should try to ‘start killing’ prices on certain positions so that Goldman would be able to ‘pick some high quality stuff,’ according to the Senate report. The strategy, Mr. Swenson wrote, would ‘have people totally demoralized.’ The pair were unsuccessful in their attempt, and both denied making it to the Senate committee. Mr. van Praag said last week that the report had no evidence of manipulation. Still, the Senate report said that ‘trading with the intent to manipulate market prices, even if unsuccessful, is a violation of the federal securities laws.’”[1] I submit that it was also unethical. 


The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacityavailable at Amazon.com.

1. Louise Story and Gretchen Morgenson, “S.E.C. Case Stands Out Because It Stands Alone,” The New York Times, May 31, 2011.

Friday, June 3, 2011

Ignoring Institutional Conflicts of Interest

I submit for your consideration the thesis that people, particularly in American society at least, tend to have keen radar for conflicts of interest specific to individuals while institutional conflicts of interest tend to go undetected. The reason may be that a conflict of interest in which a specific person benefits is more tangible (e.g., receiving a bribe of $50,000) than is the on-going pressure on a department or organization to pursue an unethical policy or decision from an institutional conflict of interest. It may also be that we, as human beings, are more envious when another human being enriches oneself unethically than when an institution profits at the public’s expense—even if the ethical and financial damage of the latter is greater.


The full essay is at Institutional Conflicts of Interestavailable at Amazon.

Tuesday, May 31, 2011

FIFA: Weaving an Unethical Web in a Sport

Soccer is the world’s most popular sport. Unfortunately, the Federation Internationale de Football Association (FIFA), the international association of soccer, has “repeatedly faced charges of corruption while operating with a lack of transparency and little oversight.”[1] Even though corruption comes naturally to individuals, institutional processes and structure too can be unethical in themselves. In such cases, it is not sufficient to isolate and remove the sordid persons; structural reform is needed too.

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon.

1. Jeré Longman, “Accusations Are Replaced by Anger at FIFA,” The New York Times, May 30, 2011.

Sunday, May 29, 2011

Partisan Journalism at Fox News: Stockholders and Democracy

Roger Ailes “is the most successful executive in television by a wide margin, and he has been so for more than a decade. He is also, in a sense, the head of the Republican Party, having employed five prospective presidential candidates and done perhaps more than anyone to alter the balance of power in the national media in favor of the Republicans. ‘Because of his political work’—Ailes was a media strategist for Nixon, Reagan, and George H. W. Bush—‘he understood there was an audience,’ Ed Rollins, the veteran GOP consultant, [said in 2011]. [Ailes] knew there were a couple million conservatives who were a potential audience, and he built Fox to reach them.’ For most of his tenure, the roles of network chief and GOP kingmaker have been in perfect synergy. Ailes’s network has dominated the cable news race for most of the past decade, and for much of that time, Fox News attracted more viewers than CNN and MSNBC combined. Throughout the George W. Bush years, the network’s patriotic cheerleading helped to marginalize the Democrats. . . . The problem wasn’t that ratings had been slipping that much— [Glenn] Beck’s show declined by 30 percent from record highs, but the ratings were still nearly double those from before he joined the network. It was that, with an actual presidential election on the horizon, the Fox candidates’ poll numbers remain dismally low (Sarah Palin is polling 12 percent; Newt Gingrich and Rick Santorum, 10 percent and 2 percent, respectively). Ailes’s ­candidates-in-­waiting were coming up small. And, for all his programming genius, he was more interested in a real narrative than a television narrative—he wanted to elect a president.”[1] The last sentence of the quoted passage is particularly revealing: “(H)e wanted to elect a president.”  With Beck’s 30% drop in ratings still leaving him with a profitable rating, Ailes’ motive was not commercial, neither was it to improve the network’s journalism. Typically, news networks are criticized for sacrificing good journalism for commercial interests. Here, journalistic integrity and profit played second fiddle to partisan objectives. 


The full essay is at "Partisan Journalism."

1, Gabriel Sherman, “The Elephant in the Green Room,” New York Magazine, May 22, 2011.

Wednesday, May 25, 2011

Rating Moody’s and S & P: A Structural Conflict of Interest

For years, banks and other issuers have paid rating agencies to rate their securities. This is a bit like restaurants paying food critics to write on their food.  In the wake of the SEC’s charge that  people at Goldman Sachs built the Abacus investment to fall apart so a hedge fund manager, John A. Paulson, could bet against it, the Senate’s Permanent Subcommittee on Investigations questioned representatives from Moody’s and Standard & Poor’s about how they rate risky securities. Carl M. Levin, the Michigan Democrat who heads the Senate panel, said in a statement: “A conveyor belt of high-risk securities, backed by toxic mortgages, got AAA ratings that turned out not to be worth the paper they were printed on.” Throughout the testimony, the institutional conflict of interest was salient whereby credit-rating agencies put market-share considerations foremost in rating securities presented by the banks that are paying the agencies.


The full essay is at Institutional Conflicts of Interestavailable at Amazon. 

Wednesday, May 11, 2011

Wall St. Bonuses and TARP: A Tale of Two Cities

Wall Street profits totaled $21.4 billion during the first three quarters of 2010. The prior year's record of $61.4 billion was fueled by the bailout financed by American taxpayers. Wall Street paid out $20.3 billion in bonuses on the 2009 profits. According to New York City Comptroller John Liu, "The astounding recovery of financial firm profitability in 2009 has been followed by a mixed year in 2010, yet total compensation in the industry is expected to be up modestly once year-end bonuses are paid." Goldman Sachs’ CEO Lloyd C. Blankfein and his top subordinate executives collected about $111.3 million in stock in January 2011. It was a delayed payoff from 2009 and the bank’s record-setting 2007 bonuses, according to a Bloomberg News report. Within a year after the bonuses had been approved, Goldman Sachs took $10 billion from the U.S. Treasury, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs, Bloomberg reported. In 2010, the bank paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage-security company sold in 2007.


The full essay is at "Bonuses and TARP."

Sunday, May 1, 2011

Paper Tigers: Firewalls Forestalling Institutional Conflicts of Interest

Structural, or institutional, conflicts of interest are of great significance in applied ethics, even though they often play second fiddle to the conflicts centered on a person’s particular interests. An organizational or institutional conflict of interest, whether within one organization or in the arrangements between organizations, is not any less unethical than a personal conflict of interest.  Therefore, when we take the claims of vested organizational interests that their internal firewalls are more than just paper tigers at face value, our foolhardiness can really be at our detriment. I present a few cases to suggest that “firewalls” in an organization to prevent it from a conflict of interest are, in general, insufficient and thus ought not be relied on. Instead, the public (or government regulatory agencies) should insist that one of the two interests in an institutional conflict of interest be given up.


The full essay is at Institutional Conflicts of Interestavailable at Amazon. 

Saturday, April 30, 2011

Goldman's Ethical Conflict of Interest: Obviated or Enabled?

According to U.S. Senator Carl Levin, Goldman Sachs “profited by taking advantage of its clients’ reasonable expection[s] that it would not sell products that it did not want to succeed and that there was no conflict of economic interest between the firm and the customers that it had pledged to serve.”[1] Not only was the bank secretly betting against housing-related securities while selling them to clients, in at least one case a client shorting such a security was allowed to have a hand in picking the bonds. What is perhaps most striking, however, is how little Goldman Sachs has had to pay for acting at the expense of some of its clients. One might predict on this basis that the unethical culture at the bank is ongoing.


The full essay is at Institutional Conflicts of Interestavailable at Amazon.


1. William D. Cohan, Money and Power: How Goldman Sachs Came to Rule the World (NY: Doubleday, 2011), p. 19.

Monday, April 25, 2011

Going to Work: Is Money the Exclusive Motive?

In the month before the Oscars, Turner Classic Movies runs films under the promo, "Thirty One Days of Oscar."  Interestingly, in promoting this series, the network reminds viewers to watch the Oscars on another network.  Although the strategy could be that if people watch the Oscars, they will be more likely to watch TCM, it could also be that the people who operate TCM really do love movies and they are not bothered at all by viewers going to another network to view the gold standard of cinema: the Oscars. In other words, it could be that a passion for film trumps the incessant drive for more profit (i.e., greed) that typically occupies the attention of business managers. I submit that this is rare in business. 

The implication is that business as usual, the typical rationale for  business, can and should be questioned.  All of us can ask ourselves whether we feel the way about our respective industries the way that people love what they produce feel. A way to test whether you are in the right field is if you find yourself saying, I can't believe someone pays me to do this.  I suspect that few people can even imagine feeling that way.  Even so, I contend that human nature thrives in it and dies in a sense without it. That something so vital as work is so commonly relegated or dismissed outright in favor of expediency or greed is short-sighted, for he who does what he loves is apt to do it better than otherwise and thus earn more money. 

We in the West at least are so used to businesses being constantly attuned to getting the next dollar or euro that it is surprising when the managers of a company put the interests of their passion above their own company's narrow interests. We ought not, in other words, to take business as usual for our default. Rather, we ought to look for creaks of passion particularly where it checks greed, even if just for special events, at the balcony.  If passion spreads such that we put things before ourselves, society would feel much different. I suspect that we have no idea how much, being locked in as though frozen in constant motion.


On doing what you love, see "Corporate Analogies." 

On curtailing greed, see "God's Gold through the Centuries."

Wednesday, April 20, 2011

Business Ethics in the Business World: A Glimpse from Goldman Sachs

Goldman Sachs’ ethics code reads in part, “[We] expect our people to maintain high ethical standards in everything they do. . . . From time to time, the firm may waive certain provisions of this Code.”[1]  The explicit conditionality is notable and significant. I contend that among other reasons, a negative impact on the bank’s financial position and/or profits is apt to trigger such a waiver not only at Goldman Sachs, but from the business standpoint more generally.


The full essay is in Cases of Unethical Business, available at Amazon.com.


1. William D. Cohan, Money and Power: How Goldman Sachs Came toRule the World (NY: Doubleday, 2011).

A Structural Conflict of Interest in Feinberg's BP-Claims Disbursement Office

A year after the BP oil rig explosion in the Gulf of Mexico, only $4 billion of the $20 billion fund alloted by BP had been paid to claimants. Out of 800,000 claims submitted, two-thirds had been processed.  That is to say, two-thirds of the claims translates into 20% of the available funds. It appears that Ken Feinberg, the lawyer tasked with administering the funds, was being too stingy.


The full essay is at Institutional Conflicts of Interestavailable in print and as an ebook at Amazon.

Tuesday, April 19, 2011

Conflicts of Interest for Public Officials: How Broad?

Michael Carrigan, a member of the City Council in Sparks, Nevada, “says he was trying to make sure his vote on a proposed casino, one that his campaign manager helped develop, did not pose an ethics problem.”[1] Carrigan backed the Lazy 8 casino project proposed by Red Hawk Land Co. Carrigan’s friend and campaign manager, Carlos Vasquez, worked as a consultant on the project. The question is whether the elected official’s relationship to his campaign manager who was a consultant on a project to be voted on constitutes a conflict of interest sufficient for the official to have not voted. The Sparks city attorney told Carrigan that he could vote on the project as long as he publicly disclosed his relationship with the project consultant. The attorney was obviously thinking in terms of transparency. Carrigan made the recommended disclosure. The Nevada Ethics Commission, however, claimed after the vote that Carrigan had a conflict of interest and should have abstained even with the transparency. In its reprimand, the commission cited ethics law that says public officials must not vote when their judgment could be affected by a commitment or relationship to someone in their household, a relative, business partner, or a person “substantially similar” to those specified. The commission classifies the campaign manager in the “substantially similar” category because Carrigan’s loyalties to his campaign manager would have affected his judgment. Caren Jenkins, executive director of the Nevada Ethics Commission, explains, “Here was a friend, a buddy, a close confidant. If Mr. Carrigan ever thought it was in his best interest to vote against the project, would he have?”[2] Carrigan sued the commission for its reprimand, claiming it violated his free speech rights. The Nevada Supreme Court sided with Carrigan, who pointed to the fact that he was not in business with his campaign manager. The Nevada Supreme Court said the catch-all category the commission cited failed to “limit the statute’s potential reach (or) guide public officers as to what relationships require recusal.”[3] The state court said the law “thus chilled speech.” In its appeal to the U.S. Supreme Court, the lawyer representing the commission argues, “State and local legislators have no personal ‘free speech’ right to cast votes on particular matters, much less ones in which they have a personal interest.”[4] The Reporters Committee for Freedom of the Press similarly claims that rules such as Nevada’s are important to ensure politicians don’t vote based on personal interests.

In 2009, the U.S. Supreme Court ruled by 5-4 that a West Virginia judge should have withdrawn from case because of a risk of bias. The court majority said judges must sit out a case when a risk of bias arises because a person with a significant stake in the case “had a significant and disproportionate influence” in getting the judge on the bench. In the present case, Carrigan’s campaign manager had a significant influence in getting Carrigan elected, but did his consulting role at the casino constitute a significant stake, and, if so, was it only in the past, or did the consultant/campaign manager stand to benefit financially after the vote? 
Regarding the Nevada ethics law, a campaign manager can be regarded as similar to a business partner. The vagueness of last category in the law is poor legislation, but it does not nullify the similarity in the present case. In fact, I contend that the law does not go far enough, for it excludes friendship. Presumably a public official would want to see one of his friends benefit even if there is no financial relationship between the official and the friend. Suddenly the vagueness in the law does not seem to be a formidable problem, but, rather, a virtue. 

In general, a conflict of interest in politics or business need not involve a financial relationship between the decision-maker and the other person.  The problem with sidestepping votes to avoid any conflict of interest is that too many votes may be missed. Moreover, evading votes when an official might be tempted to vote in line with his or her more particular interest can be interpreted as giving up on the civic duty to vote in line with the public good; it is assumed that if there is a personal interest involved, the official will act on it rather than the good of the city. In other words, the Nevada law essentially punts by separating a voting official from conditions in which voting in the public interest would be felt as a duty (there being an opposing motive in line with the official’s own interest extended out to business associates, relatives and friends.

As for the Nevada ethics law, that its vagueness somehow “chills speech” is perplexing. The same kind of conflation seems to take place when spending money is reckoned as political speech. The court seems to have been assuming that the vagueness would mean that officials would be skipping many votes, and therefore “silenced” by the law.  Even if the law is too broad in its coverage, to consider voting as “speech” is patently absurd.  To vote is not to speak.  To claim that one is proffering his opinion by voting magnifies a side-effect out of what it means to vote. A vote takes place after the give and take of opinions in order to settle the question.  Hence, “the vote is on the question” rather than being an elaboration of the question.  A vote is a collective decision rather than a dialogue.  We are therefore back to the problem of whether too many votes would be skipped.

At some point, if the duty of civic virtue is trampled upon, no law can bracket the corruption.  In the end, it is up to the popular sovereign, the people, to evaluate their elected officials with respect to the voting records. As for the officials, skipping a vote to avoid a conflict of interest must be weighed against the duty to vote.  From the standpoint of the latter, a skipped vote is a failure, even if it is to obviate a hard choice. Ideally, public officials would stand up to their particular relations and explain to them that the public trust is bigger than them and the relations. Yet if the official foresees himself succumbing to the temptation of expediency, skipping a vote would be worth evading the duty.


1. Joan Biskupic, “Nev. Official’s Vote Turns Free-Speech Case,” USA Today, April 18, 2011, p. 6A.
2. Ibid.
3. Ibid.
4. Ibid.

Tuesday, April 12, 2011

Labor-Management Relations: Starving Workers as a Childish Tactic

Before the industrialization in the nineteenth century, nothing "intrinsic or permanent separated those who hired from those who hired out" because "many laborers could hope to ear and saven enough to become their own employers." (1) That is to say, the employee/employer distinction was not overlaid with connotations of disparate distinctions, such as child/parent and subject/ruler. Relatedly, the two parties to the economic agreements bearing on labor in exchange for money had roughly equal bargaining power. As the United States industrialized, however, a distinct working class developed as industrial workers found their upward mobility cut off by rising start-up costs and other barriers to entry. Additionally, the advent of the monopolies (and oligopolies) swung the balance of power in contract negotiations strongly in favor of the corporations. With the added leverage came pretensions going far beyond what could be justified by the relation of labor and capital in a commercial contract. The case of the first transcontinental railroad, which was completed in 1869, demonstrates just how distended, or bloated, the pretensions on the corporate side had become.


The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.