Category: Government Failure

State of the Nation – It’s About To Get Worse

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Teaching

The statistics coming in are generally aligned one way, they point down. We’ve had a rough ride so far and it’s going to get worse. The governments of the world are just reacting to the crisis and have no real concept of what to do. The United States government led by Barack Obama appears to have a vague idea that an economic stimulus might be a good idea. However, that same government has had no appetite for bold action and is unlikely to develop any.

We float between two eras. The line between the two time periods will be marked at the banking crisis of 2007-2009 (and the continuing economic crisis left in its wake) and the environmental disaster of 2010. There will be a different United States after these two crisis play themselves out.

Currently we are locked in a battle of ideas. I break them into two kinds. One set of ideas say that there are unchanging and permanent solutions to the economic and social problems we face. The other says that solutions differ with time, place and circumstance. I side for the most part with the second group.

I teach business law and business ethics at the college level. I try to explain to my students that there is no glorious past where everyone was good and obeyed the law, etc. The only promised land is the one we build ourselves. Currently the only promise we seem to feel of any importance is the promise of making money.

You see, if there is a glorious past in which everyone goes to church and everyone obeys the law and in which the nation is a “city on a hill,” then it follows that there are a set of beliefs that all we have to do is emulate. We duplicate the virtues and rules of these paragons of virtue and righteousness, and we become great.

One problem, there is no such time. American history is messy. A lot of people die, often for very little reason. A lot of people wind up suffering terrible discrimination for very little reason. And a lot of people are made to lives lives of pain because they believe something other than common beliefs, and very often, those unfashionable beliefs are the exact beliefs held by the majority now.

However, since there is a loud and vocal part in this country who believe virtue resides in a past America, history will just have to be rewritten. I went to Barnes and Noble on Saturday, and there they were, books explaining that the history of the United States was everything you’d want it to be, that is, if you believe in a kind of Disneyland/Hollywood view of the nation’s history. There is good money in “Disneylanding” history. I don’t want any of it myself. Reality is disgustingly painful, but I will do my best to live there.

If you don’t live in a world hoping for a return to an earlier American, you know, “Take America Back” style people, then you have to deal with current circumstances. The way forward is obscure and difficult. You can’t be sure what’s going to happen and what will work. It gives those advocating a return to the promised land an enormous advantage. They have certainty.

We live in a terrible time. It would be nice if things were simple. They are not. It would be nice if things were certain. They are not.

I do believe in ethics, right and wrong. There are definitely some eternal verities in ethical beliefs. However, the great nostrums I hear are seldom based on ethical principle. When “free market” economics takes on the trappings of religion, it is no more ethical an idea than it was before. When you discover that the founding fathers were all evangelicals and thus, America was based on the Christian religion, you aren’t ethical; you’re lying. When you say that killing, torture, stealing and lying are wrong, and that they always will be, you speak based on ethical principles and we are brothers and sisters under the skin.

I don’t know what is going to come. There is a lot of pain ahead. I believe current levels of unemployment, the highest in American history since the Great Depression, will continue through 2014. I do not believe our government is willing to deal with the challenges facing this country and that if they did, that they are not in any way competent to do so.

We are betwixt and between. Societies under these conditions change or shatter.

I think that what this web site is all about is doing the right thing. I firmly believe that if Americans try to do the right thing, not the greedy thing, the power thing or any thing other than just a sheer dogged devotion to acting as if our only end was what kind of world we would want to have after us, then we will get through this and have the kind of society that the righteous deserve. You get to live in the “City on the Hill” when you deserve it, not because you are supposed to have it.

James Pilant

“Ace” Greenberg – Not My Fault

On By southwerkIn business ethics, Government Failure1 Comment

Alan “Ace” Greenberg, a few days ago, gave an interview to Newsweek’s Nancy Cook. The former head of Bear-Stearns, took time from his busy schedule in order to enlighten and engage with us. It was everything that poor unlettered blogger like myself could have hoped for. The pearls of wisdom fell on me like a warm, summer rain.

When asked if he had any regrets about his time at Bear-Stearns, he had none. (During his tenure, the price of Bear Stearns stock went from a 52 week high of 133.20 to the ten dollars a share it finally sold for, although strangely enough, not as low as the two dollars that Bear Stearns originally agreed to.)

When asked if he had learned anything from the financial collapse, he said, “Nothing that I didn’t know before.” (Could the concept that maybe your company shouldn’t acquire notional contract amounts of approximately $13.40 trillion in derivative financial instruments, of which $1.85 trillion were listed futures and option contracts, be something new to you?)

When asked about a remark in his new book that the presidents of companies never really know what’s going on, he said, “I don’t care how much you watch things or how acutely involved you are, there are probably bad things that happen.” (Is this the same thing as saying that the president of a company is never really at fault?)

The interview continued in this manner. Let me sum up for Mr. Greenberg. “I did nothing wrong. I did not exercise poor judgment. Banking institutions are already regulated enough. No new regulations are needed. Derivatives are good. Derivatives make money; how then can they be bad? People don’t understand derivatives. Bad loans made to people who couldn’t pay for the homes they bought are responsible for the crisis. Bear Stearns was in no way whatsoever at fault.”

It is interesting to contrast the interview with reports of what happened at Bear Stearns. They seem to be two different versions of reality. I remember reading in philosophy that attitude is a key element in happiness. Mr. Greenberg has an excellent attitude in regard to his personal happiness.

Unfortunately, reality is not easily mocked.

Karl Jaspers wrote in his book, General Psychopathology that a delusion has three central characteristics. The first is certainty. The belief is held with absolute conviction. The second is incorrigibility. That is, the belief is not subject to change by argument or facts. The third is the impossibility of the content. Bizarre, implausible or patently untrue.

Let’s go through the elements. Let’s begin with certainty. Was there any self doubt or questioning at any point in the interview? Let me quote Greenberg from the article: “Certainly at Bear Stearns, I think that I didn’t make many mistakes. But, you know, you have to keep in mind that the only people who don’t make mistakes are the ones who don’t do anything.” That’s as close as we’re going to get to self doubt in the interview.

The second element is that the belief is not subject to change by counter argument or facts. In the excerpt from the full interview, we don’t see Nancy Cook press very hard. However, I would point out that Greenberg says clearly that he learned nothing from what happened” Let’s look at the exchange –

(Nancy Cook) Do you feel like you, as a businessman, learned anything following the financial collapse?

(Alan “Ace” Greenberg) Nothing that I didn’t know before.

His belief system did not change under enormous pressure from contrary events. This is a good argument for incorrigiblity but not conclusive argument, I would like to see him challenged with facts in a tough interview. That may very well happen in the larger Newsweek article.

The third element is impossibility or falsity of content. Well, the idea that Bear Stearn’s only error was too much trust in other banks is a difficult concept considering the massive evidence of poor judgment, poor management and poor leadership.

Greenberg lives in a world where he is faultless, the economic system works fine and whether or not you make money is the only measure of human accomplishment. I tend to believe that a great many of those leading both the government of the United States and, more in particular, the “titans” of industry, believe these things. There is a problem with hubris here.

Once again quoting from wiki: Hubris often indicates being out of touch with reality and overestimating one’s own competence or capabilities, especially for people in positions of power.

Believing in your own infallibility has only limited potential for damage in isolated settlements, in a giant metropolis or a great nation, the possibilities of overreach and massive damage are far more likely. The worst and deadliest of the characteristics we see here is that even after financial catastrophe unrivaled since the Great Depression, there is no feeling of guilt or mistake. If you don’t acknowledge a mistake, you cannot change your behavior.

What will the next acts of these individuals be and where will they take us?

James Pilant

What’s The Verdict – Financial Reform?

On By southwerkIn business ethics, Government Failure

Loren Steffy of the Houston Chronicle writes, “Most of the provisions that would have forced Wall Street to change its ways were compromised out of this law weeks ago.”

John Talton of the Seattle Times chooses this title: Financial ‘reform’: Big bankers cry all the way to the…

David Moon writing from the Knoxville Biz entitled his blog entry – Financial reform is a political charade. The rest of the article is even tougher.

I was looking at this newspaper’s web site and discovered they had no new column on the financial reform disaster but they did make an excellent prediction and for that I must honor them. Read below.

In its June 23rd editorial, the St. Petersburg Times said, “Congressional negotiators have a choice as they hammer out the final details on much-needed financial reform. They can stand for financial reform with real teeth and stand up to the pressure of the banking lobbyists. Or they can bow to those deep-pocket financial interests that have sponsored more than 800 fundraisers over the past year for members of the congressional banking committees. A weak reform bill that offers too little oversight and too many loopholes would not be in the nation’s best interest.”

I will follow up with more newspaper comments. I have looked at a dozen newspaper business pages after checking the ones above. It appears that the editorial pages have not caught up with the news. So, I will return to the subject probably on Monday.

James Pilant

Financial Reform Watered Down?

On By southwerkIn business ethics, Government Failure

Wall Street’s Incredible Victory

On By southwerkIn business ethics, Economic measurement, Government Failure

The LegislationIt’s difficult to conceive that a nation driven to the brink of financial collapse by an irresponsible, greedy, incompetent industry that runs an operation more comparable to Monte Carlo gambling casino than banking could escape meaningful regulation and yet, they did. It is a catastrophic failure on the part of the Presidency and Congress to protect the American people from rapacious financial predators.

I exaggerate you say? From wikipedia –

In a dramatic meeting on September 18, 2008, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout. Bernanke reportedly told them: “If we don’t do this, we may not have an economy on Monday.”

That sounds serious. A disinterested observer might conclude that an unregulated financial industry could be a problem. But remember we all know that the financial industry is self regulating. It’s watched over by a horde of business publications and reporters who would detect any problem long before it could happen. What’s more, the people, these amazing highly talented aces of industry who clearly merited the enormous sums they commanded were of such high intellectual capabilities and monumental experience that their unmatched stewardship would without any doubt guide their businesses and as a pleasant but wonderful and inevitable side effect, the United States of America to well deserved financial success.

Forgive me. I don’t want to spread the idea that the Chicago School of Economics might not understand economics.

The disaster that occurred in the financial industry in 2007 and 2008 and cost this nation more than ten million jobs should have been made impossible under a new set of rules. But the game is the same. The incentives are the same. The players are the same. The legislation changes none of that. An economic disaster resulting in millions of unemployed Americans is now avoidable through luck. Don’t you feel good?

There are plenty out there who say take what you get. We got more than could have been expected. No. Again no. This isn’t a matter where you can compromise. The survival of the United States as an economic power is an issue here. There are some who proclaim this an incredible victory over immense odds. You’d think they’d just blown up the Death Star, when they compromised with it and decided they could forgive that little Alderran incident as looking backward not forward.

There are some who say the banking industry got creamed. There is one guy who thinks this is a major success for Congress.

What does the banking industry think? Do they feel that it was a compromise in which they got some stuff and lost some stuff, a gain of one thing and the loss of another? No, that’s not how they feel about it. Let’s read the AP headline – Bank stocks soar on financial regulation agreement.

So, what do we do now? Nothing. The Congress and the President are not interested. They have created a piece of legislation with the correct sounding name. This will convince many that something has been done. But it’s just another joker, another game, another day in Washington where symbolism trumps reality.

I have read commentary that says that the government of the United States has been unable to deal with any major legislative crisis over the last thirty years, that the government is simply paralyzed only able to eek out temporary compromises, small bandages for large problems.

This is America. We can accomplish amazing things. We do not have to suffer the foolish and the greedy. We can do better than this.

(What do you think? If you disagree, don’t let me wonder about it. Tell me. I won’t learn if you don’t let me know. If you agree, I can be more confident that I speak for others as well as myself. Don’t be silent.)

James Pilant

The Supreme Court Is Right.

On By southwerkIn business ethics, ethics, Government Failure

I despise the Roberts court. After the Citizen’s United case in which the court addressed an issue that wasn’t even brought up in the case to give corporations the same rights as human beings meaning that they could spend unlimited amounts for advocacy. It seemed to me then and now that a paper entity and a citizen of the United States have striking differences.

Many, many people including me get upset when the obviously guilty walk free. I remember when Imelda Marcos evaded conviction with some anger and I could name some more. One of the most loathsome characters in the history of the United States and Canada is Lord Black also known as Conrad Black. This odious figure used a non-compete clause to enrich himself by many millions of dollars. Jeff Skilling, one of the architects of the Enron debacle, is also likely to walk free. It is difficult to contemplate any number of common criminal thefts and robberies that can close to Skillings incredible career of monetary destruction. Yet, it seems today that their convictions will be thrown out because of a Supreme Court decision.

Conrad Black should be in prison. He is a criminal.

Jeff Skilling is a criminal. He should be in prison.

But the Supreme court is right. The issue at question is the “honest services” law. Under the law if you fail to offer honest services you have committed a crime. The problem here is obvious – what are honest services? If you are late to work, are you late, stealing from your employer and thus liable under the law? The law gave enormous discretion to prosecutors, actually the word incredible come to mind. It was more a license to convict than a law. Alabama Gov. Don Siegelman was convicted under the law. His crime was to appoint a contributor to a position in exchange for his financial support for a campaign for a statewide lottery. It was a non-paying position that he had been appointed to several times under previous governors. That’s grounds for a federal prosecution?

What is worse about this whole stinking prosecutorial mess is that I believe that under the law, there were legitimate statutes under which to try most of these men, particularly simple fraud. The time is up for new criminal filings. Because the prosecutors opted for the easiest possible legal theory, there will be no convictions at all.

James Pilant

Ethics Roundup – Blogs 6/11/10

On By southwerkIn business ethics, Government Failure1 Comment

Chris MacDonald considers the ethical elements of what is owed the shareholders of British Petroleum. His conclusion is dramatic. (And I think giving the comments a read is a good idea on this one.)

Lauren Bloom takes on the question of Helen Thomas and what should have happened in the light of her remarks. She wants to know why Hearst Corporation didn’t provide any help for her in the crisis. (I was surprised to discover that my opinion in the matter was identical with Ms. Bloom’s.)

Alain Sherter is on fire today, at first, angry, satirical, and then he segues into a discussion of what constitutes a sophisticated investor and then he gets indignant and angry again. It’s the kind of writing I expect from him. Sherter is extremely knowledgeable about the world of finance, outraged at the unprosecuted and protected bandits of our economy and dismayed by the public’s lack of concern, the government’s craven inability to act and the docility and foolishness of beltway comedians who call themselves journalists. If a few hundred people shared his convictions and ability, wall street would be a different place.

Ethics Problems Around the World

On By southwerkIn business ethics, ethics, Government Failure

Ivory Coast – Toxic Waste Dumping.

Nigeria – In that country illegal gold mining puts lead into the water systems resulting in the deaths of children.

South Africa – Rigged bidding on a soccer stadium results in cover up, assassination and devastation to the local community.

Egypt – African migrants work their way to Egypt in order to cross the border into Israel.

Australia – Australia is putting out advertising to tell people of its new, tough laws on sexual tourism. Australian citizens who commit crimes against children in other nations can still be prosecuted in Australia.

Australia – Australian government investigates Google for privacy breach.

China – The county of Qingshuihe in far Northern China decided to relocate a town. So they built a new one. At least they started. After spending about 880 million dollars (translating the expenditure into American money), they have a few empty buildings in the middle of nowhere.

Burma – There is some evidence Burma has embarked on the construction of a nuclear weapon.

Russia – There are claims being made that Russians looted the bodies of the Polish citizens of the ill fated flight that crashed in April.

Germany – Banned genetically modified corn has been planted on acreage in several southern German states.

France – Jerome Kerviel is going on trial soon for breach of trust, forgery and unauthorized computer use. He is blamed for the loss of 4.9 billion Euros in losses by a French bank. (That’s about 6 billion American dollars.)

Scandinavia and the Baltic – Nordic bank Nordea has sold all its shares in British Petroleum. (That’s right. The oil spill will never reach them and they have the sense to punish wrong doing.)

India – Courts in India have found 8 people guilty in the Bhopal disaster and sentenced them to 2 years in prison. The Bhopal disaster resulted in the deaths of up to 18,000 people (those injured number up to 600,000) and occurred in 1984. So, the wheels of justice have been grinding for 26 years. These are the first convictions they have and one of those sentenced is dead and presumably is not concerned about his conviction. While there is definitely a business ethic element to the story, even the most casual reader will find it fascinating from purely an entertainment perspective and a cautionary tale of a nation that does things “differently.” (India is a glorious nation with an incredible history but 26 years to get your first convictions and a two year sentence for destroying a small city’s worth of people is not a recommendation for your justice system.)

Bangladesh – In the city of Dhaka, poorly constructed building housing hundreds are little more than death traps should they catch on fire.

Ethics Roundup – June 7th, 2010

On By southwerkIn business ethics, Government Failure2 Comments

Josh Lipton writing on Minyanville discusses the major historical bills regulating Wall Street as compared to the current effort. (It’s got a video!)

Karl Stephan writing in the Engineering Ethics Blog (his blog) talks about the lessons of Nuremberg for engineers and everyone else. The Nuremberg trials were the war crimes trials held by the victorious Allies at the end of the second world war. Many prominent Nazi’s and other war criminals were sentenced to death or to long terms of imprisonment. Stephan believes that the primary lessons of Nuremberg were the reduction of human beings to objects to be manipulated. He says that culminated in abortion, euthanasia and embryonic stem cell research.
(I am quite familiar with the Nuremberg Trials and the death camps and many other Nazi not to mention Japanese and Italian war crimes. I in no way agree with Karl Stephan’s conclusions. Nevertheless, it’s a good read.)

Simon Propper writing on the web site, Ethical Corporation, discusses the corporate responsibility movement and British Petroleum. BP was an enthusiastic user of the CR model and things have not worked out well. Propper discusses the ramifications of these events.

Epic.org, the Electronic Privacy Center, wants it known that internet privacy has become a major issue in the California governor’s race.

Loren Steffy writing in the Houston Chronicle predicts a high likelihood of skyrocketing oil prices in the wake of British Petroleum’s disaster.

Chris MacDonald writing on his site, the Business Ethics Blog, discusses the phenomenon of “Greenwash.” (I recommended an article from the site, Ethical Corporation, which discusses some of the same issues. I recommend reading MacDonald’s take and then checking out Simon Propper’s views.) MacDonald’s perception is tough on BP and accurate.

David Gushee writes about marriage. Normally I would just have gone on by his article since its relevance to business ethics is very limited. But Gushee is excellent in his analysis of ethical issues from a Christian perspective and I want to encourage that. So I include it.

Jon Talton writes about a world in which “entire professions have been vaporized.” I boil with rage over off sourcing, temps instead of real jobs, – every kind of pain placed on the producers in this economy and it never stops. It has gotten worse every year that I have been alive and it shows no sign of improvement. Can we live in a country without well paying jobs and far too few of any kind of job? This is not a problem of personal initiative or re-training. This is a political problem only solvable by action at the national level. But even in Talton’s article he quotes another writer thusly,
“You have to stay on top of what’s changing, how that affects your industry and your specific job and how you’ll remain relevant and valuable. Most people don’t change until they feel the heat. Sometimes, that’s too late …” Also, “Prepare for ‘hurricanes, sinkholes and manana,’ which is all about what to do so you’re not caught off guard, but instead prepared.” As for older workers, “look for ways to demonstrate you’re ‘not old’ in your thinking, in your attitudes, in your skills and how you look.”
When whole professions have been vaporized, personal initiative is useless. When there is one job for every six applicants, there is no amount of personal drive and guts that can get more than one of those six that job. When the entire economy of the United States and the world has been severely damaged, telling everyone to tighten their belt and get tough is no cure. It’s just nonsense. At what point do you look at an international catastrophe and stop saying if we individually get tough enough we can ride it out. At what point does the nonsensical cure of personal initiative, of there’s always dawn after the darkness, light at the end of the tunnel, only thing left after you hit bottom is up, think and grow rich, have optimistic thoughts and opportunity will find you and this continuing empty drivel of self help, when the only thing that can make a difference is collective action. Is it just impossible to say that the government should implement policies to protect American jobs? It is too radical to suggest that shipping American jobs overseas is unpatriotic and counter productive? It is just plain bizarre to suggest that making the absolute last dime is not the most important thing for an individual, a company or a nation? Can we think seriously about the problem or just stay in a land of fantasy where the exercise of a mythical absolute free will makes us demi-gods upon the earth?

Let’s Do Real Banking Reform!

On By southwerkIn business ethics, Government Failure

Richard W. Fisher spoke to the Southwest School of Banking on June 3rd. His speech was called “Financial Reform or Financial Dementia?” He tells us what reforms are likely to be effective, what reforms are are likely to be ineffective and how to get the best outcome. Is anybody going to pay any attention?

Fisher discusses the financial crisis in 2008 –