Category: business ethics

Obama Broke His Promise To “Take A Back Seat To No One” On Net Neutrality

On By southwerkIn business ethics, ethics2 Comments

From Freepress’ news release –

“The new rules are riddled with loopholes, evidence that the chairman sought approval from AT&T instead of listening to the millions of Americans who asked for real Net Neutrality. These rules don’t do enough to stop the phone and cable companies from dividing the Internet into fast and slow lanes, and they fail to protect wireless users from discrimination. No longer can you get to the same Internet via your mobile device as you can via your laptop. The rules pave the way for AT&T to block your access to third-party applications and to require you to use its own preferred applications.

“Chairman Genachowski ignored President Obama’s promise to the American people to take a ‘back seat to no one’ on Net Neutrality. He ignored the 2 million voices who petitioned for real Net Neutrality and the hundreds who came to public hearings across the country to ask him to protect the open Internet. And he ignored policymakers who urged him to protect consumers and maintain the Internet as a platform for innovation. It’s unfortunate that the only voices he chose to listen to were those coming from the very industry he’s charged with overseeing.”

Well, just another day with the President’s decisions. In a way, it’s entertaining. After all, with many politicians their previous statements are often a guide to their actions. But with the President, it’s one surprise after another.

James Pilant

Just A Few Bank Burglaries?

On By southwerkIn business ethics, ethics, Government Failure, White Collar Crime

Felix Salmon writing in Reuters’ Analysis and Opinion –

In order to know that cases like these are “a tiny percentage of foreclosures,” you need to know what that percentage is, n’est-ce pas? So this defense is not particularly convincing, unless and until we can see some numbers. Surely, mistakes like these would happen occasionally even during the boom years. But if the percentages are rising, that’s clear empirical evidence that overwhelmed servicers are doing an increasingly shoddy job.

Next time a newspaper wants to write about this particular trend, then, let’s get the names of those bank representatives on the record, let’s ask them how they know that the proportion of dreadful mistakes they make is “tiny” or “minuscule,” and let’s be a bit more determined that we should be the ones making the determination as to how small the percentage is, rather than the bank’s own flacks.

Exactly. I made the same point several months ago when the banks said that only a handful of mortgages had been mishandled. The banks were lying about the scale of the problem. It turned out there were minimally hundreds of thousands. This does not give one confidence in bank claims of “just a few cases,” “a few bad apples,” and all those other things you say when you don’t want to admit the scale of your crimes.

I don’t believe Mr. Salmon is mistaken in his assessment. Breaking into people’s homes and taking their stuff is an extremely intimidating tactic. You can just imagine the desk bound suits chortling over a business lunch about how they forced the deadbeats out.

Let’s get some lawsuits going. They are the public’s last line of defense and we can be quite sure law enforcement, politicians and regulatory agencies will sit this one out.

James Pilant

Net Neutrality – Obama Caves, A Young Turks Interview With Timothy Karr

On By southwerkIn business ethics, Corporate Social Responsibility, ethics, Government Failure, Philosophy of Business, President Obama1 Comment

This is 18 minutes and 23 second. A bit long for many of my readers. Nevertheless, this is a good explanation about how the new rules amount to a surrender on net neutrality.

James Pilant

Will Wall Street Ever Pay For Its Crimes? Or Just Its Fair Share Of Taxes?

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Government Failure, Philosophy of Business, President Obama, White Collar Crime

These are brief interviews with Les Leopold. Here is a sample of his writing from Huffington Post –

We got into this crisis because Wall Street invented and pedaled fantasy financial instruments that turned out to be junk. While their party lasted, those complex derivatives were a gold mine for the largest financial institutions. According to the New York Times, the profits from the nine largest commercial banks “from early 2004 until the middle of 2007 were a combined $305 billion. But since 2007, those banks have marked down their valuations on loans and other assets by just over that amount.” In other words, the profits weren’t real.

He also has a book called The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It.

Can Chinese Students Save American Mill Town?

On By southwerkIn business ethics, Capitalism, Government Failure

An infusion of Chinese students would probably be good for any American town. But the reason is unusual. Some American communities have been devastated by free trade. These story is a tale of a community that has no resources.

James Pilant

News Of Death Net Neutrality Working Through The Media

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, President Obama

Okay, watching this thing is just painful. Not only are sites like mine going to suffer, if you want a decent internet speed so you can watch movies, you’re going to have to pay more for it.

It highlights once again, the President’s ability to take a solemn pledge on an issue, break it, and then declare victory.

Today, the White House hales a victory on Net Neutrality. Maybe they can sell that to the rubes but I can read law.

James Pilant

Internet Dead.

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, Government Failure, Philosophy of Business, President Obama

From Steven Axelrod on Salon –

The internet as we know it is officially doomed, as of today, and I’m already feeling nostalgic. Funny that a technology could move so fast across the landscape of my life – from a geeks-only fluke to a curiosity, to a useful tool, to a powerful engine of procrastination and finally a central venue for all my communications, research, entertainment and shopping, only to be reduced to the closed down, controlled, censored corporate cash cow it’s about to become, with the Obama administration’s blessing.

Internet, we barely knew ye.

But of course the Proprietors of our Nation couldn’t allow this internet business to go on the way it was heading. What a frightening thought – free, unobstructed communications, with no control and no profit … people just saying whatever they want, whenever they want, leaking documents, downloading YouTube videos that make Proprietor-controlled media outlets look like liars. You knew there’d be repercussions after the “Colbert bombed at the Press Association Dinner” narrative was reduced to one more punchline, a million downloads later.

He’s right. It will take a while but these things you’re reading like my blog, the sites you surf will probably go the way of the dodo bird and the passenger pigeon.

You might be curious as to why I’m not outraged myself.

In fact, my most fire breathing, screaming fits of anger were over this issue some months ago.

I simply realized that the Obama administration will sell out the internet in a total reversal of the President’s stated position. As far as the President is concerned, words have no meaning. He says whatever is necessary to get whatever he wants at the time.

You want to argue with me.

If so much as one person objects, I will happily put up the You Tube videos where the President declares that he absolutely supports net neutrality and will not compromise. I put them up on a previous post. It took me about a minute to find four separate events where he said these things.

So, it was inevitable.

The best guide to this President’s actions are to go on You Tube, run the issue and see what the President said during the campaign. Expect him to do the opposite and you will only rarely be wrong.

The independence of the internet was critical to the kind of support and networking, the Obama campaign used to win election in 2008. You see, the President isn’t even smart.

It was unwise politically, damaging his own campaign infrastructure and limiting the influence of the blogosphere which did so much for him during the campaign. It also alienates the aforementioned bloggers, who if they are anything like me, will never forget this latest outrage.

I’m not going to forget it.

What happens to me and this blog. Well, I’m going to keep going and I have a monitor that tells me the loading speed for the web site, when it gets longer than say five seconds, I’ll start considering shutting down.

I am stubborn though, maybe I’ll hang on until it’s just me and some close friends who tell me that they log on when don’t or can’t.

And it gets better. Our President is planning on fixing the tax code next year.

Of course, he’s going to cut up Social Security like a butchered steer, George W. Bush’s dream come true.

I’d like someone to tell me what the hell happened?

I want to know.

I can get being betrayed.

I can get changes of allegiance.

I definitely understant political expediency.

But this President makes decisions that don’t even make sense from an election point of view.

Earlier, I said that you could take the opposite of what the President said as a guide, but there is another one. If there are two options and one is the more politically foolish, the White House chooses that one.

Net neutrality is dead. Happy Christmas.

James Pilant

We Invite You To Predict When China Will Overtake America – The Economist

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business4 Comments

The Economist magazine asks this intriguing question.

It posts a comparison of economic growth between the two countries and points out that at the current rate of economic growth, China will overtake the United States in 2019. They then suggest you plug-in your estimates of growth for the Chinese and Americans and arrive at your own figure.

Okay, here’s my prediction of when the Chinese are going to overtake the United States.

Never.

It’s all nonsense. Chinese corruption is endemic. Their real estate market crashed two years ago. They had to do an economic stimulus of 400 billion dollars two and a half years ago. They have foreign policy disputes with almost every bordering country and a large number of those that are not. They are building a fleet to challenge the American Seventh fleet in the South China Sea. The difference in economic development between the coastal and interior provinces borders on the incredible. There are rumors (probably true) of gathering Muslim unrest in the far West. I could go on.

It seems likely to me that the estimates of economic growth put out by the Chinese government bear a strange similarity to East Germany’s constant high economic growth before the country disintegrated in 1989.

And watching the Chinese lurch from one foreign police misstep after another hardly gives one any confidence in the nation’s future. If you’re willing to force the Philippines to take your lead painted toy imports by threatening economic retaliation, you have only the vaguest concept of a) right and wrong and b) how you appear to the rest of the world. If one of your ship captains decides to deliberately ram a Japanese naval vessel and you get him out of it by threats, that might not have long term positive results. If a dissident gets a Nobel Peace Prize and you demonize the award rather than keeping a discrete silence and resort to every measure short of blackmail to discourage other countries from attending, you’re not demonstrating balanced judgment. If when faced with a dissident receiving a Nobel Peace Prize, you create, fairly instantly,a bogus “Confucius” prize which you then present to the former President of Taiwan who admits he doesn’t know what it is and fails to appear for the ceremony, you don’t impress anybody.

Never.

This is all just part of the policy narrative from the media beltway. As always, they only ask hard questions of ideas they oppose. This isn’t one of them. The terror of Chinese competition, of their eventual success, is a reproach to criticism of free trade and authortarianism. It calls the very importance of democracy for economic success into question. It makes the idea of open society with rights of privacy seem unnecesary to a nation’s future.

When China has failed to become number one, it will have outlived its usefulness, their will be a new narrative of America losing out. Will it be India, Islamic nations, South Asia or even a resurgent Japan? Who knows? But its’ necessary. It’s a club against policies you don’t like and it works.

James Pilant

Is Regulation A Form Of Socialism?

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Philosophy of Business

The Economist says that many of the charges of socialism directed at financial regulation are misplaced. Such regulation has been a normal part of the American economy for more than fifty years and was in effect during the height of the cold war.

Apparently all over the United States, charges of socialism and communism are bandied about as if Soviet style governing committees has sprung up all over the United States. Ironically, many of these same individuals are worried by the specter of Sharia law, not a likely possibility and fully contradictory to a anti religious Marxism. The latest and quite possibly strangest concept of all is liberal facism. Liberals were opposed to both Italian and German fascism early on and paid for it in blood. Yet the example of their courage to the point of sacrificing everything has no effect on the current dialogue. It is okay to affiliate one of the opposing belief systems that brought down Nazism because the phrase, National Socialist, has the word, socialist, in it? Is that academic analysis? Does that bespeak intelligence? Or judgment?

Read what the Economist has to say.

From the Economist –

The Economist is in favour of free markets, but both words are important. If banks are too big to fail, then their cost of capital is implicitly subsidised. This creates barriers to entry and encourages risk-taking at the taxpayers’ expense; the market is thus not truly free. In an ideal world, we ought to be able to let banks fail in the same way that we let widget manufacturers fail. But since bank failures have a devastating economic impact, we need to have some approach to regulating them. Markets also have externalities, a concept long established in academia; a chemical company cannot be free to pollute a river, for example.

To say that any further regulation is socialism, or that any consideration of inequality is misguided, seems wilfully blind. If banks earn huge profits, and their traders huge bonuses, only because of an implicit state subsidy, that seems a legitimate matter of public concern. For those who believe this is the road to Cuba, one might easily respond that the other camp is on the road to 18th century France, where wealth was concentrated in the hands of a tiny, hereditary elite. A gross caricature? No more than the Cuba example. After all, the evidence suggests that social mobility is falling in America and Britain, probably because the wealthy can gain advantages for their offspring via private education.

The issues of education, a level playing field and “too big to fail” are not going away. The issue of whether to regulate or not to regulate is a legitimate one. There is no religious imperative to not regulate. The same people who say that Marxism failed and would have failed no matter how it was practiced are unwilling to believe the same thing about unregulated markets, but the evidence is clear. Unregulated markets are inherently predatory. There is no historical example that can be pointed to where this was not the case.

Market choice and regulation are choices of policy. They require intelligence to apply. They are not matters of faith.

James Pilant

Accounting Fraud – Why Does It Pay So Well?

On By southwerkIn business ethics1 Comment

Can allowing the market to solve all problems really work? Why does accounting fraud work so well? What makes it profitable? Read the following from William K. Black’s column from the Huffington Post.

The “market” also does not deal effectively with externalities (and they can be lethal) and with market power. The neoclassical claim that cartels cannot persist and that potential entry solves prevents all serious ills proved false in the real world. Here, however, I will discuss only why control fraud turns “markets” perverse. Accounting control frauds are guaranteed to report high profits in the early years. This is why Akerlof & Romer (1993) agreed with white-collar criminologists that such frauds were a “sure thing.” I’ve explained why the four-part recipe for optimizing fictional accounting income maximizes executive bonuses — and real losses. In the interest of brevity I will merely mention four ways in which accounting control frauds make markets, and “private market discipline” perverse.

1. The fictional profits fool creditors and shareholders — they are eager to lend to and invest in firms reporting record profits. Rather than discipline accounting control frauds, creditors and shareholders fund their massive growth.

2. The fictional profits and the large bonuses they drive create a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace. The CFO that fails to emulate the fraud recipe will report far lower profits in the near term and will fear losing his job. More junior executives whose compensation is based on the firm’s reported income have perverse incentives to engage in accounting fraud to ensure that the firm “hits the number” and have reduced incentives to blow the whistle on frauds.

3. Lenders engaged in accounting control fraud create “echo” epidemics of fraud. They use their powers to hire and fire and create compensation systems to create perverse incentives in other fields: among their employees, “independent” professionals, and agents (e.g., loan brokers).

4. When several large lenders follow similar fraud strategies they can hyper-inflate financial bubbles.

Accounting fraud is very effective in turning enormours profits for the fraudsters.

This kind of fraud can only be detected by other accountants. Generally speaking an examination of the books is going to take place only after there is suspicion that this is an accounting problem. In these kinds of schemes, that suspicion usually becomes significant at the very end of the fraud.

That’s why it’s important to discourage financial fraud by rigorous ethics training while accountants are in school, legal and corporate protection for accountants acting professonally, and serious penalties for abuse.
James Pilant