Don’t give the fox the keys to the henhouse. Government oversight was spotty, at best, and that led to a situation where BP was allowed to override the good judgment of its own engineers. Enforce the rules we’ve enacted to protect our people and our planet.
This is a quote from Shel Horowitz at his web site, Principled Profit. He has a list of six gulf spill lessons. I like this one.
According to a Wall Street Journal article, Americans are foregoing treatment more often than in the past. These are hard numbers based on insurance companies and other health providers.
There are several reasons given for the decline. First, the rise of the ranks of the unemployed. Second, many American businesses and families now buy insurance with extremely high deductibles. If you have to pay the first thousand dollars of hospitalization, you are more likely to stay away from the hospital no matter what you have.
What are the ethical dimensions of this?
Some would argue that increasing costs discourages people from seeking care for minor problems like colds and that it will also encourage people to adopt healthier life styles. I have several problems with this. The most significant is where are your numbers indicating that increasing costs has either of these effects, and if you have such numbers, at what point do people with serious problems stop coming in?
The patients are the stakeholders in this debate. Increasing costs for doctor visits and hospital stay does bring down the costs of health care. But is that the goal of health care – the least possible care for the greatest sum of money?
Health care is not like most products. Let’s say for example that I want to buy a car. I can buy a used one, a new one or seek some kind of specialty model. I have many, many choices as to what I can buy and what characteristics it has. I also can just keep driving my old car or seek public transportation or walk if that’s possible. If you don’t medical care when you need it, you suffer. Sometimes, you die. It’s bad enough if it’s you. It’s worse if it is your child or your spouse.
You can live without some kinds of medical care. You can give up yearly physicals and treatment for high blood pressure and other long term illnesses. You can decide to go to the hospital only if you cannot recover on your own and spend a week or more in pain to see if you can do it (I’ve done that several times). Are encouraging people to do these things wise? What effect does discouraging medical care have on people’s lives and on health care costs over the long term?
What’s are the ethical implications? Is there an inherent problem with private medical care? The disproportionate negotiating power is extreme under these circumstances. Picture this. You are in bed in a hospital. You can’t breath right. Every time you try to take in air, it takes a tremendous effort. You feel yourself gradually, slowly suffocating. How much will you pay to make it stop? How much would you pay for a minute without that pain?
Tell me. Under those kinds of circumstances, are you in a position of equality in negotiating with a hospital over your care?
I didn’t think so. I want a balance between discouraging frivolous hospital visits (if the data indicates that there is such a problem) but not at the costs of people giving up essential health care for themselves and their children.
James Pilant
Gary Hart has a post on his web site, Matters of Principle. He talks about his charming and hard working childhood in the bygone world of Ottawa, Kansas. Here’s a quote –
Everyone worked, in my case starting at the age of eleven. (I don’t think there were child labor laws then.) We didn’t spend money we didn’t have. There were no credit cards. And my parents would have been embarrassed to go to the bank and ask for a loan to buy more gadgets. The Depression taught them, and they taught me, don’t go into debt.
Gee, Gary, I’m glad that these Americans with poor judgment can still shape up and we can fix everything if they only start saving and, by the way, acting like you.
Of course, there are some pesky little problems associated with your point of view. The Middle Classes’ desperately slow wage increases over the last 30 years, the explosion of credit cards marketing and every other kind of heavily advertised easy credit, the rising costs of tuition, medical care and host of other necessary expenses. How about the slow grinding pain of America’s manufacturing disappearance and the good jobs that went with it? It’s not gadgets that gets Americans into debt, it’s trying to make ends meet, it’s trying to put food on the table, it’s trying to get through one more month.
It’s a fine thing to talk about personal responsibility when you lived in a time and place without these economic elements, without this kind of pain. Did you know that the average level of unemployment during the 1950’s averaged about 4% and that right now it is 9.5? Bother you any? Maybe every body worked in your happy childhood because they could find a job? It’s a fine time to blame the victims for the economic decline in America over the last thirty years. It is a fine deal when the incredible, amazing failure of this government to stand up for ordinary Americans, does not appear to figure in your fascinating blame game, where the victims are the perpetrators. Yeah, we all committed economic suicide.
Tell me something ole’ buddy, when the stock market went down from its high of 14,000 and demolished the values of pensions and 401k’s all over this great nation, where was the responsibility then? I guess those stupid lazy gadget buying Americans couldn’t be trusted to invest their hard earned money like they were urged to by their government, the business industry and every kind of serious of academic publication. Savings always gets its proper reward.
How dare you. I know these people, the ones that worked for twenty years at a factory that left and went over seas, the people whose medical expenses destroyed their lives, and the unemployed who got nailed by a financial crisis they had nothing to do with.
While you write your comic crap, they suffer.
James Pilant
But there is yet another factor underlying this crisis that is the broadest of all, pervasive throughout our society today. It was well expressed in a letter I received from a Vanguard shareholder who described the global financial crisis as “a crisis of ethic proportions.” Substituting “ethic” for “epic” is a fine turn of phrase, and it accurately places a heavy responsibility for the meltdown on a broad deterioration in our society’s traditional ethical standards.
This is a quote from an article by John C. Bogle. It directly faces the question of the collapse of business ethics and the role in played in the financial melt down of 2008.
Generally speaking, articles dealing with the crisis focus on derivatives, Sallie Mae, the business press, rating agencies, etc. They all share blame and a lot of it. I have always been convinced that the underlying problem was greed, self interest, the corrosive effects of Milton Friedman’s bizarre doctrine of economic utopia, and the replacement of critical scrutiny by frantic cheerleading in the financial press, and I have some more villains to name.
Bogle doesn’t dodge the ethical question. He wonders how we got here and how we can get out. He longs for the day when businessmen understood the value of trust and fair dealing. I’m not surprised to find that Mr. Bogle has no simple solution. It took four decades of worship of the financial means of production of little more than electronic impulses to triumph over the creation of actual goods. This isn’t going to be easy, and it it likely to fail subjecting this country to a chain of financial meltdowns each one of which will severely damage the lives of millions of Americans who will bear the chief cost not only of their way of life but paying for the meltdown themselves out of their “widow’s mite.”
Here’s Bogle discussing his beliefs:
Among those in the know, someone who believes in doing what is right. So, I would pay attention to this gentleman.
James Pilant
I am calling for Elizabeth Warren to made the head of the Consumer Financial Protection Bureau. I am not a great voice in the press or in politics, but I am a voice on the internet in my small way. Sometimes an issue comes along where ethics and morality demand action. We have labored under a system is which the consumer has often been little more than a prey animal – rabbits to be cultivated as long as profit is possible and discarded when not. Elizabeth Warren has fought for the incomes, the rights and sustainability of the American middle class. This fight has been abandoned by the politicians of both parties. This is a test for the current administration. Will it be Warren or a corporate flack? This is a turning point for the current government. If they have no willingness to defend the public from such vicious predation, where will they draw the line to fight for the public interest or is there a line at all.
James Pilant
This is Elizabeth Warren discussing the coming commercial real estate market –
In an article written for the New York Times by Gretchen Morgenson, she discusses what major investment banks did after they discovered that many of their loans were going south.
The answer is brief, they kept the ball rolling. The profits were too good and the risks (for them) were to low for them to back out.
This is a quote from the article citing a remark from Massachusetts Attorney General Martha Coakley, as follows -“Our focus has been on the borrower,” she said in an interview last week, “but as we’ve peeled back the onion we’ve gotten the picture of the role Wall Street played through the financing of these loans.”
This is Gretchen Morgenson on a program called “Dialogue.” Here she explains in some depth her views on the financial crisis (28 minutes).
This is capitalism run off the tracks. Greed out weighed simple good judgment. Obvious signs of trouble, not just obvious but certain evidence of approaching disaster, were ignored as money piled up.
The market was supposed to be self regulating. Read a little Milton Friedman. This economic freedom to innovate was supposed to lead to better lives for all Americans, perhaps the whole world. This utopia, this nirvana, has thus far failed to appear. But incomes in a handful of the well placed are measured in the billions.
Justice is not coming. These people are immune to justice. They go to the right churches, have the right friends and are protected by the government while that same government ignores or casts their citizenry away from the door of the statehouse or congress. The people of the United States, the hard working American who lives a moral, ethical life; their goodness counts for nothing. They will have mortgages that will find no help. They will not have jobs and when they can find no work they suffer the slings and arrows of an economic elite that claims they cannot get along with other workers and do not work, that they are lazy. That’s right, Americans, the most productive workers in the world, the ones that work more hours and more days than other workers in the entire world, they are lazy, they can’t get along, they brought this upon themselves.
Right?
James Pilant
Credit ratings are one way to measure the risk a borrower poses. It is ironic that during the housing bubble that a low credit rating often got one a mortgage while today it takes it a high one to get a similar or lessor mortgage.
An article in the New York Times discusses this problem.
It seems that lenders are overusing credit ratings because of their simplicity and a misunderstanding of their limitations. The score is an algorithm based on a collection of data by one of three major rating agencies: Transunion, Equifax and Experian. But there are no rules on how information is gathered. Lending companies and other debt organizations have a great deal of freedom in choosing what to disclose and where to disclose it.
This is a quote from the article:
You would think, given the critical importance of an accurate score, that there would be rules about the information that is submitted to them. There aren’t. Lenders can submit information about your credit history to one of the bureaus, all of them or none of them. Some of them turn over information right away; some take months; some don’t do it at all. Some are sticklers for accuracy; others are sloppy. The point is that the credit score is derived after an information-gathering process that is anything but rigorous.
The author went on to point out many errors in his report. These companies are unregulated and make up their own rules. But their decisions can be disastrous for individuals. Whether or not you can buy a house or a car is a critical decision for most people. Not to mention, the interest rate to be paid and whether or not you can get adjustments in rates are also factors determined in whole or part by credit ratings.
There need to be rules. These credit agencies have more power than most parts of the federal government, certainly more than the states. Isn’t it objectionable to you that there is a private company determining without oversight some of the most important elements of your life? Shouldn’t we do something about it?
How about just a small thing? Let’s make them correct errors not when they want to but whenever there is an error. Why don’t we standardize the rules about to whom and about what lending companies must report? How about criminal or civil penalties when reports are deliberately falsified? We can fix the problems that bedevil capitalism. There should always be ground rules. It is unfortunate that we cannot rely on the morals and honesty of individuals but that is not the case.
These companies have virtually unfettered power. Is that good for anyone or any organization at any time? Let’s change the rules. As citizens in a democracy we are entitled to fairness.
James Pilant
No kidding! The Star Telegram reports that there will some changes in the law regarding textbooks. The Higher Education Opportunity Act of 2008 requires that publishers provide professors with detailed information about pricing and any alternatives in formats. Students will no longer have to buy CD’s and other materials formerly bundled with textbooks so you would have to buy them. Now they will all be separate items.
The changes are good but they don’t go far enough. Textbooks can run on average $800 to $1200 per student per semester. Are the almost mathematical predictable (two to three years and 12% on the average more expensive) upgrades to textbooks necessary? What are the profit margins? Are there any cozy deals between professors and book companies?
There is a lot more that can be done. We should as a nation be more supportive of education and those willing to take the time and effort to improve themselves rather than offering them up as casual sacrifices to publisher profits.
See this video on overpriced textbooks –
Stephanie Lewis commented on your post:
“James, I firmly believe in rental programs at schools. My undergrad college had one such program. My books were $12 a book with an option to buy. To get your grades, you had to turn your books in or be charged full price. They were on 1 year rotations for subjects in which the information changes frequently. Others were on two-year rotations and the bulk were on 3 year rotations. At the end of every semester, there would be a book sale to get rid of retired inventory ($1 a book). Of course, that meant the school had to run its own bookstore and not outsource it to another company and have the storage and staff for its inventory and maintenance, but it was a bargain for me and saved me a boat load in student loan money. Trust me, next to medical books, art history books are some of the most expensive. California is currently transitioning all of its state schools to rental programs and has been for a few years. I firmly believe in rental programs. BTW, I went to my undergrad college from 1990-1994 and that rental price didn’t change. Currently, they still only charge $17.50 a book.”
President Obama faces a choice and this choice will tell us a lot about the administration. Does this administration intend serious oversight of the finance industry. The choices are simple, Elizabeth Warren, a long time defender of the public interest or someone acceptable to Geithner and the Department of the Treasury. Who counts in this country, the millions of individuals who suffer from the fees and often the cruelty of these institutions or the institutions and their political muscle? We’ll know soon. In the meantime, read this fine analysis from Simon Johnson!
This is one of Elizabeth Warren’s appearances before Congress:
This a news analysis of the July 20th, drop in Goldman Sachs’ shares. Forgive the commercial that opens it. I can’t get around it.
This is a PBS two part series on how Goldman Sachs’ profit. If you want to understand our economy’s problems and what is likely to continue to go wrong, this is a good place to start.
This is the second part.
Pilant's Business Ethics Blog 
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