Iraq Not Rebuilt – $Billions Wasted

Just wonderful! Of course, it’s not much of surprise, there were already news stories and photographs of disastrous building projects and corporate contractual malfeasance. But here we are, billions in the hole, no doubt costing American lives as the Iraqis looked around and waited for us to fulfill promises our private contractors had little intention of doing in the first place. As long as the money rolled who cared about results. Here’s the lead in from the AP report

A $40 million prison sits in the desert north of Baghdad, empty. A $165 million children’s hospital goes unused in the south. A $100 million waste water treatment system in Fallujah has cost three times more than projected, yet sewage still runs through the streets

As the U.S. draws down in Iraq, it is leaving behind hundreds of abandoned or incomplete projects. More than $5 billion in American taxpayer funds has been wasted — more than 10 percent of the some $50 billion the U.S. has spent on reconstruction in Iraq, according to audits from a U.S. watchdog agency.

That amount is likely an underestimate, based on an analysis of more than 300 reports by auditors with the special inspector general for Iraq reconstruction. And it does not take into account security costs, which have run almost 17 percent for some projects.

Business Ethics NEWS – Governor Rick Perry Has Accumulated A Cool Million During Twenty Years Of Government Service?!

How do you do that? I guess you could be really clever. Or you could take some ethical shortcuts. I remember reading Milton Friedman, he says you are supposed to make the maximum profit for shareholders within the rules of the game. Now, I find ole Miltie utterly contemptible. However, that phrase “within the rules of the game” has always troubled me. What does that mean? Here is a situation in which the rules appear to be very flexible. What’s more – How vigorously can you fight or maintain the public interest with such “close” friends?

The Houston Chronicle suggests it might be like thisDuring two decades of full-time government service, Gov. Rick Perry has accumulated a net worth of about $1 million – perhaps through good investment timing.

However, almost everyone who steered Perry to his money-making deals has seen rewards from Texas government.

Six received key state government appointments or jobs. Two benefited from government actions that had the potential to enhance their real estate holdings. Another was poised to get a state grant for his business until the deal fell through.

The bottom line is, all of the real estate deals that made Perry money occurred because of an insider’s tip. The profits mostly go into a blind trust outside of public view or scrutiny.

“Every transaction I have been involved in has been at arms length, has been transparent and it has been reported on so many cotton-picking times that, if there was something there, it would have been reported on,” Perry said recently.

Southern Methodist University political scientist Cal Jillson said Perry’s real estate deals remind him of the story of Texas oilman Sid Richardson hiring future governor John Connally as a lawyer. Richardson told Connally his salary would not be big, but “I’ll put you in the way to make some money.”


Chinese Corruption

Russell Flannery covering the China beat for Forbes has an interview with Chinese ethicists. This is an excerpt from the article. This is only the introductory part I recommend you read the rest.

Last week brought a reminder of China’s troubling business ethics landscape when the government was forced to investigate reports that infants who consumed milk powder supplied by Nasdaq-listed Synutra International had premature breast growth. The Ministry of Health cleared Synutra, yet the allegations recalled the sale of tainted infant formula in 2008 and a long list of product safety and other problems involving business ethics  in the country.
Ultimately, what can be done to improve business ethics in China? I talked to two professionals working at the front line of research and education here, Professor Hengda Yang and Stephan Rothlin from the Center for International Business Ethics at the University of International Business and Economics in Beijing.  Yang is the author of a pioneering Chinese book about business ethics, “The Conscience of Business.”   Rothlin is also associated with the University of Zurich and the Insead Business School in Singapore.

Wikipedia has an entry on Chinese Corruption. Below is an excerpt.

The People’s Republic of China suffers from widespread corruption. For 2008, China was ranked 72 of 179 countries in Transparency International’s Corruption Perceptions Index. Means of corruption include graft, bribery, embezzlement, backdoor deals, nepotism, patronage, and statistical falsification.

Cadre corruption in post-1949 China lies in the “organizational involution” of the ruling party, including the regime’s policies, institutions, norms, and failure to adapt to a changing environment in the post-Mao era. Like other socialist economies that have gone through monumental transition, post-Mao China has experienced unprecedented levels of corruption, making the ruling Chinese Communist Party (CCP) “one of the most corrupt organisations the world has ever witnessed,” according to Will Hutton. Public surveys on the mainland since the late 1980s have shown that it is among the top concerns of the general public. According to Yan Sun, Associate Professor of Political Science at the City University of New York, it was corruption, rather than democracy as such, that lay at the root of the social dissatisfaction that led to the Tiananmen protest movement of 1989. Corruption undermines the legitimacy of the CCP, adds to economic inequality, undermines the environment, and fuels social unrest.

Since then, corruption has not slowed down as a result of greater economic freedom, but instead has grown more entrenched and severe in its character and scope. In popular perception, there are more dishonest CCP officials than honest ones, a reversal of the views held in the first decade of reform of the 1980s. China specialist Minxin Pei argues that failure to contain widespread corruption is among the most serious threats to China’s future economic and political stability. Bribery, kickbacks, theft, and misspending of public funds costs at least three percent of GDP.

Corruption as a key factor in the collapse of the former Soviet Union and its Eastern European client states. While there are no numbers to tell us the gravity of the problem in economic terms, it would a reasonable to conclude that only the rapid growth of manufacturing, the huge quantity of national resources, and the highly favorable media portrayal of China have prevented an accurate perception of the problem.

But there are stories of economic corruption in real estate and manufacturing. There are troubling accounts of disasters both natural and artificial concealed from the West and unreported in China itself.

I predict that by the end of this decade, corruption in China will become a brake on foreign economic investment.

James Pilant

A Brief Comic Strip Explaining CDO’s And How The Banks Use Them

Go to this web site.

Banks Created Fake Demand To Keep Home Sales Going

Back in 2006, when the housing market began to slow banks began to have difficulty moving their CDO’s (collateralized Debt Obligations). So, they created an artificial demand by selling them to each other.

Tens of billions of dollars in deals were exchanged between the banks. The CDO’s were becoming increasingly risky as solid mortgage investments disappeared. But the banks had strong influence over the managers who created the CDO’s and how couldn’t they? A billion dollar CDO made the manager a millionaire off that once transaction.

Without these deals keeping demand high and luring new investors into the game, the housing market would have slowed much earlier with much less damage.

Investment firms like Merrill Lynch cultivated the CDO managers –

As the head of Merrill’s CDO business, Ricciardi also wooed managers with golf outings and dinners. One Merrill executive summed up the overall arrangement: “I’m going to make you rich. You just have to be my bitch.”

The mortgage debts varied in risk, so the banks kept the top 80% and marketed the high risk bottom 20%. But bizarrely, the banks bought each others CDO’s. That’s right, the bottom 20%. But remember, a one billion dollar deal results in five to ten million in fees. That’s a lot of incentive to make bad deals. Bad for your bank but very, very good for you.

The banks were so successful in creating this artificial demand that in 2006, the amount being traded doubled in spite of the cooling real estate market reaching a value of 226 billion dollars.

These were the kind of toxic assets the banks were holding. The banking industry would have you believe that home buyers got in over their heads looking for easy loans. How does that figure when the banks are buying each others’ mortgage investments? How does that work when the banks are creating artificial demand?

And you know the end of the story, how the federal government used tax money to buy those toxic investments which the banks bought from each other knowing they were toxic investment. Do you feel good?

This is isn’t about overenthusiastic home buyers, this New Depression is the result of financial mismanagement and naked greed.

James Pilant

Gross National Happiness

Jigme Singye Wangchuck, the former king of Bhutan decided to develop an economic model more in tune with Bhuddist teachings. The result was a new measure call Gross National Happiness. This measure is designed to have a different emphasis than the economic measure, Gross National Product. Quoting from the first Global GNH Survey:

1. Economic Wellness: Indicated via direct survey and statistical measurement of economic metrics such as consumer debt, average income to consumer price index ratio and income distribution

2. Environmental Wellness: Indicated via direct survey and statistical measurement of environmental metrics such as pollution, noise and traffic

3. Physical Wellness: Indicated via statistical measurement of physical health metrics such as severe illnesses

4. Mental Wellness: Indicated via direct survey and statistical measurement of mental health metrics such as usage of antidepressants and rise or decline of psychotherapy patients

5. Workplace Wellness: Indicated via direct survey and statistical measurement of labor metrics such as jobless claims, job change, workplace complaints and lawsuits

6. Social Wellness: Indicated via direct survey and statistical measurement of social metrics such as discrimination, safety, divorce rates, complaints of domestic conflicts and family lawsuits, public lawsuits, crime rates

7. Political Wellness: Indicated via direct survey and statistical measurement of political metrics such as the quality of local democracy, individual freedom, and foreign conflicts.

Jewish Business Ethics


The rules of the Jewish faith do not begin and end at the door of the synagogue. In the Talmud, it is written that the first question you are asked by God on entry into heaven is, “Did you conduct your business affairs honestly?” The great commentator, Ramban, wrote that you can obey all the rules of the torah to the letter, and still be repulsive and pathetic human being. The spirit of the law must be followed not the letter.
Business ethics is the arena where the ethereal transcendent teachings of holiness and spirituality confront the often grubby business of making money and being engaged in the rat race that often comprises the marketplace. It is the acid test of whether religion is truly relevant or religion is simply relegated to an isolated sphere of human activity. It is business ethics, one could posit, above all, that shows God co-exists in the world rather than God and godliness being separate and apart. From Jewish Business Ethics: An Introductory Perspective by Rabbi Yitzchok Breitowitz

We Do Not Lie to Our Clients (via The Corporate Scribe: The Tembua CEO’s Blog)

I try to read several times a week other word press blogs discussing business ethics. Here is an interesting post that I discovered. I think you will like it, too. I add this one to my favorites, so you’ll probably be seeing more of it. Without further ado please read the following. James Pilant

This post was originally posted on the Tembua website on _______________. Got your attention with that title, didn’t I? Last week I heard an executive say (with a great deal of cynicism) that business ethics is an oxymoron. She got the expected laugh, but as I looked around, the expressions that floated across the other faces at the table showed she’d hit a nerve. Everyone followed the recent corporate accounting scandals. It’s not something to b … Read More

via The Corporate Scribe: The Tembua CEO’s Blog

Success at Selling Less (via The Business Ethics Blog)

Chris MacDonald has an intriguing entry this time. He discusses the conundrum of goods which with some moderation pose little harm but without moderation can do great harm. He, then unwilling to dodge the difficult questions, asks what responsibility if any does the producer in these cases have. I would summarize what he has to say, but my poor powers of exposition are nowhere in the league of the writing itself. You should read it.

James Pilant

A few months ago, I posted about Pepsi promising to stop selling its sugary drinks to kids at school (see The Ethics of Selling Less.) I pointed out that there's a significant problem for a company that sells a product that, when consumed in moderation, is totally harmless, but which when over-consumed is dangerous. It's hard to know what counts as success. Moderation is a nice word, but it's a hard corporate goal. I'm interested in the general i … Read More

via The Business Ethics Blog