Did you notice how odd it was that during the shutdown and the subsequent debt ceiling game of chicken that there was precious little discussion of the international implications? I did. It worries me.
Thinking that the United States is invulnerable like Superman might make you confident but it can also make you dead.
What other nations think and do matters? How much was put at risk overseas by actions here? Did we put our allies at risk and give our enemies an advantage?
A few brains in Washington would be good, some working ones anyway.
BERLIN: Europeans agog at Americans’ inability to compromise, aghast at likely long-term impact | Politics | McClatchy DC
No one was amused, however. The United States, after all, is not a bit player on the international stage like Greece. It is the unquestioned global leader. And while after a decade of controversial war it’s not so unusual for Europeans to express hostility toward the United States, many were shocked to see how hostile Americans seem to be to one another – and disinterested in how their internal fight might affect the rest of the world.“This is pure domestic politics,” said Xenia Dormandy, an expert on the United States and its place in the world at the London think tank Chatham House. “Nobody cares about any of the international implications. There’s a lack of desire to even think about the repercussions.”The discord will have long-term consequences, even if the United States is able to see its way through this crisis to yet another battle over spending and the debt ceiling that will come early next year, some predict.
Speaking in the wake of a series of revelations in the Guardian about the extent of the National Security Agency’s surveillance operations, Rusbridger said: “Orwell could never have imagined anything as complete as this, this concept of scooping up everything all the time.
“This is something potentially astonishing about how life could be lived and the limitations on human freedom,” he said.
Rusbridger said the NSA stories were “clearly” not a story about totalitarianism, but that an infrastructure had been created that could be dangerous if it fell into the wrong hands.
“Obama is a nice guy. David Cameron is a nice social Democrat. About three hours from London in Greece there are some very nasty political parties. What there is is the infrastructure for total surveillance. In history, all the precedents are unhappy,” said Rusbridger, speaking at the Advertising Week conference.
I heartily share Alan Rubbridger’s concern about later governments. The possibilities for abuse are so incredible that it is difficult to wrap your mind around them.
But what about Business Ethics? What are the implications there?
The government is tracking all financial transactions, so they know who invests, in what and for how much in any and every American business. That’s power. Since they monitor all e-mails, they have every kind of inside information including promotion and firing decisions. They can do something no government has been able to do before: understand the inner workings of a corporation in detail and in real time. Since corporations have incredible power, this check to that power’s implications are hard to measure. But we could be on the edge of an era in which government management of data enables corporations both domestic and foreign to be brought to heel.
Of course, they know enough personal information to blackmail millions, discredit millions more and by implication of knowing silence tens of millions of others. I find these implications disturbing.
It may be that Obama will not abuse this power but where is the guarantee for those who will come in the future?
A number of high-profile websites will be taking part in an online protest tomorrow against the National Security Agency (NSA)’s surveillance of online activity and phone calls. The protest is organized by non-profit organization Fight for the Future, and will see participation from thousands of sites, including WordPress.org, Namecheap, Reddit, 4chan, Mozilla, Fark, TOR, Cheezburger, Demand Progress, MoveOn, and EFF, among others.
However, none of the tech companies – like Facebook or Google – whose cooperation with the NSA was outed in the PRISM reveal will be involved in tomorrow’s events.
(I honored to have the Ethics Sage, Steven Mintz, write a post for my blog. Please visit his blog at Ethics Sage.)
KPMG Insider Trading Scandal Damages the Reputation of the Accounting Profession
What possesses an audit partner to trade on inside information and violate the accounting profession’s most sacred ethical standard of audit independence from one’s client? Is it carelessness, greed, or ethical blindness? In the case of Scott London, the former partner in charge of the KPMG’s Southern California’s regional audit practice, it was some of each that motivated him to violate ethical standards and, in the course of doing so, causing the audit opinions signed by London on Skechers and Herbalife to be withdrawn by the accounting firm.
This case has a local twist as pointed out by Stephen Nellis in his column “Deckers, PCBC were victims of auditor leaks” in the April 19-25 Pacific Coast Business Times. Nellis notes that two companies affected are Goleta-based Deckers and Pacific Capital Bancorp, the former parent of Santa Barbara Bank & Trust now part of Union Bank.
Overall, Shaw is charged with leaking confidential information to his friend, Brian Shaw, about Deckers, Pacific Capital Bancorp, Manhattan Beach-based Skechers, and Los Angeles-based Herbalife. The leak of information about quarterly earnings information led to Shaw’s unjust enrichment of $1.27 million. Shaw, a jewelry store owner and country club friend of London repaid London with $50,000 in cash and a Rolex watch, according to legal filings.
The leaking of financial information about a company to anyone prior to its public release affects the level playing field that should exist with respect to personal and business contacts of the leaker and the general public. It violates the fairness doctrine in treating equals, equally, and it violates basic integrity standards. The KPMG scandal concerns me because a pattern of such improprieties may be developing.
In 2010, Deloitte and Touche was investigated by the SEC for repeated insider trading by Thomas P. Flanagan, a former management advisory partner and a Vice Chairman at Deloitte. Flanagan traded in the securities of multiple Deloitte clients on the basis of inside information that he learned through his duties at the firm. The inside information concerned market moving events such as earnings results, revisions to earnings guidance, sales figures and cost cutting, and an acquisition. Flanagan’s illegal trading resulted in profits of more than $430,000. In the SEC action, Flanagan was sentenced to 21 months in prison after he pleaded guilty to securities fraud. Flanagan also tipped his son, Patrick, to certain of this material non-public information. Patrick then traded based on that information. His illegal trading resulted in profits of more than $57,000.
The KPMG case is a particularly egregious one because it involves insider trading by an auditor of client stock. This incident jogged my memory and I came up with a characterization of London’s actions as “stupid is as stupid does.” Scott London, the partner in charge of audits of Herbalife Ltd. and Skechers USA Inc., traded on inside information for personal gain. KPMG resigned as the auditor of both companies after learning that London provided non-public information about the companies to a third party, who then used the information in stock trades. The firm fired London.
In resigning the two audit accounts, KPMG said it was withdrawing its blessing on the financial statements of Herbalife for the past three years and of Skechers for the past two. KPMG stressed, however, that it had no reason to believe there were any errors in the companies’ books. Both companies said they are moving to find new auditors.
In a statement that should raise red flags for all CPA firms that audit public companies, KPMG stated it had concluded it was not independent because of alleged insider trading. Independence is the foundation of the accounting profession and the cornerstone of an audit conducted in accordance with generally accepted auditing standards. The public (i.e., shareholders and creditors) relies on auditors’ independence, objectivity, and integrity to ensure that the audit has been conducted in accordance with such standards and that the financial statements are free of material misstatements.
I’m having a hard time understanding the stupidity and moral blindness of London in this case. Surely he knew of his ethical obligations. All audit firms supposedly have been carefully assessing independence in the aftermath of financial frauds in the late 1990s and early 2000s (i.e., Enron and WorldCom). Firms generally have quality controls in place to prevent compromises to audit independence.
Trading on insider information for cash and gifts is bad enough, and when done by an audit partner it is unforgiveable. Even more baffling to me is that the quid pro quo for passing along stock tips about clients to a friend for London was to receive cash and gifts in return. According to London, he received a discount on a watch, and the friend bought him dinners from time to time and on a couple of occasions gave him $1,000 to $2,000 in cash. A cynic might say he sold himself cheap.
So, what happens next? Both Herbalife and Skechers will need to have their financial statements re-audited, not an inexpensive proposition. Even though the companies were not at fault, the public may misunderstand and think the companies were complicit in the matter.
For KPMG, the insider trading investigation is a setback. The accounting firm has worked hard to rehabilitate its reputation after coming under scrutiny last decade in a wave of corporate accounting scandals and the firm’s role in the marketing of fraudulent tax shelters. KPMG paid large nine-figure settlements to resolve lawsuits related to accounting scandals at the drugstore chain Rite-Aid and Oxford Health Plans. In 2005, the firm paid a $456 million penalty to the government related to tax fraud.
I have to wonder whether insider trading by partners at Deloitte and KPMG portends a larger scandal on the horizon. It seems every ten years or so the accounting profession finds itself in a “pickle” and hauled before Congress to explain its actions. It is about that time following financial frauds at Enron, WorldCom and a host of other companies. I don’t know how to get the message across to those in the profession that every time such incidents occur, and now insider trading, the public loses patience with the profession and doubts begin to surface about whether the profession truly acts to protect the public interest.
Blog Posted by Steven Mintz, aka Ethics Sage, on April 12, 2013
Richard (RJ) Eskow: The Price of Evil at JPMorgan Chase
You’d think shareholders would be up in arms at Dimon and the Board of Directors for mismanaging their bank so badly. And yet they’re all still in their seats, thanks in part to the way large corporations are allowed to manipulate their own corporate governance. Dimon is both CEO and Board Chair, an extraordinarily privileged position he was not asked to give up after the London Whale scandal.
And about that scandal: There are four things worth knowing about the Whale:
The trades were illegal, according to all the evidence.
Despite the bank’s bragging about its risk management model — which it publicized widely as a lure to investors — that model wasn’t followed by the London office.
Jamie Dimon’s publicists and politician friends have burnished his reputation as “America’s best banker” – and he bypassed his bank’s org chart so that the London unit reported directly to him.
His friends and publicists have also burnished his reputation as the country’s most ethical banker. As Henny Youngman used to say, How do ya like me now?
We’ve been all over JPMorgan Chase and Jamie Dimon for a long time. (See below for a partial listing), so we’re glad to see the public tide finally turning against the bank and its leader. One of the triggers for that shift was the Senate’s report on the bank’s trade, which is as damning in its own way as Rosner’s.
The Virginia planters were prone to leave the care of their estates too much to their overseers, and to think personal labor a degradation. Washington carried into his rural affairs the same method, activity, and circumspection that had distinguished him in military life. He kept his own accounts, posted up his books and balanced them with mercantile exactness. We have examined them as well as his diaries recording his daily occupations, and his letter-books, containing entries of shipments of tobacco, and correspondence with his London agents. They are monuments of his business habits. [Footnote: The following letter of Washington to his London correspondents will give an idea of the early intercourse of the Virginia planters with the mother country.
“Our goods by the Liberty, Capt. Walker, came to hand in good order and soon after his arrival, as they generally do when shipped in a vessel to this river [the Potomac], and scarce ever when they go to any others; for it don’t often happen that a vessel bound to one river has goods of any consequence to another; and the masters, in these cases, keep the packages till an accidental conveyance offers, and for want of better opportunities frequently commit them to boatmen who care very little for the goods so they get their freight, and often land them wherever it suits their convenience, not where they have engaged to do so. … A ship from London to Virginia may be in Rappahannock or any of the other rivers three months before I know any thing of their arrival, and may make twenty voyages without my seeing or even hearing of the captain.”]
The products of his estate also became so noted for the faithfulness, as to quality and quantity, with which they were put up, that it is said any barrel of flour that bore the brand of George Washington, Mount Vernon, was exempted from the customary inspection in the West India ports. [Footnote: Speech of the Hon. Robert C. Winthrop on laying the corner-stone of Washington’s Monument.]
Washington practiced good business ethics by keeping his own accounts and maintaining a reputation for accuracy and competence.
Banks Will Always Suck At Trading, Badly Need A Volcker-Like Rule: Study
A new study by economists Arnoud Boot at the University of Amsterdam and Lev Ratnovski at the International Monetary Fund finds that recent blow-ups in the banking sector — JPMorgan Chase’s $6.8 billion “London Whale” losses and that whole financial-crisis thingy, to name two — are not isolated events, but “a sign of deeper structural problems in the financial system.”
The only prescription? Less trading by big dumb banks.
“Without policy action, crises associated with trading by banks are bound to recur,” Boot and Ratnovski write in a blog post about the paper. “Even strong supervision will not be able to prevent them. Consequently, it appears necessary to restrict trading by banks.”
If you read the fuller article, and I recommend you do, you will find that banks have incentives to do what is essentially speculative trading. Right now with interest rates low, there is a terrible temptation to take their money and gamble with it since there is little profit in traditional investments. And, of course, why do legitimate investments in business, industry and homes, when you can make so much more money speculating?
The banks have to be regulated to perform their traditional functions of lending to build a strong economy. We protect banks from collapse and insure their deposits with taxpayer money because when they loan money that develops the economy and creates opportunities. What we are getting now is a lot less useful investing and a lot more gambling at the public’s expense.
It seems the winter of our discontent is spreading around the world. A small movement, the 99 percenters, continues to catch fire. I wonder if the great corporations are having studies done on the globalization of dissent?
Social media is not limited geographically to the United States, and that is increasingly important. The multinationals could organize for decades both on a national and international basis with little competition from dissent but that advantage is gone.
Occupy Wall Street, the US protest against the financial elite and the banking sector, is spreading around the world. There are demonstrations planned for London’s financial district – and also for The Hague and Amsterdam. Occupy The Hague is demanding attention for a gamut of economic and political problems.
The Wall Street protests, which began last month, against “corporate greed and corrupt politics” have not only been repeated elsewhere in the country, in cities like Chicago, Los Angeles and Boston, the movement has spread to Canada and Europe. Demonstrations are planned for 15 October in The Hague and a day later in Amsterdam. But Occupy The Hague goes beyond a protest against the financial system.
“The protest has scope for a range of opinions and interests,” spokesperson Robin van Boven says, “varying from the economic crisis to the Libyan uprising.”
“All these things are cause for concern. The point is that we want people to be aware of the problems that exist, and join us in looking for a solution. We think that at the moment politicians haven’t taken enough action.”
There is a lot of anger in this article. But I too share disgust with this government’s willingness to help out every kind of financial institution while ignoring the needs of the Middle Class. These people no longer have a defender in the government just a facilitator of the predation
U.S.Seeks Ideas on Renting Out Foreclosed Property By EDWARD WYATT Published: August 10, 2011 WASHINGTON— Uncle Sam wants you — to rent a house from Uncle Sam. The Obama administration said on Wednesday that it was soliciting ideas on how to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private enterprises or sold in bulk. The goal, the administration said, is to stabilize neighborhoo … Read More
We have learned that Chris MacDonald quickly analyzes current events for ethical issues and can be counted on to get a post up in a day or less. This is one of those.
My favorite paragraph is this one –
The question is complicated by questions of precedence. Tech companies have come under fire for assisting governments in, for example, China, to crack down on dissidents. Of course, the UK government isn’t anything like China’s repressive regime. But at least some people are pointing to underlying social unrest, unemployment etc., in the UK as part of the reason — if not justification — for the riots. And besides, even if it’s clear that the UK riots are unjustifiable and that the UK government is a decent one, companies like RIM are global companies, engaged in a whole spectrum of social and political settings, ones that will stubbornly refuse to be categorized. Should a tech company help a repressive regime stifle peaceful protest? No. Should a tech company help a good and just government fight crime? Yes. But with regard to governments, as with regard to social unrest, there’s much more grey in the world than black and white.
We’re going to come across this issue again and again. Modern social unrest, justified, unjustified or simply beyond our understanding, is now also a product of social networking. As these machines gain complexity and power, so will the possibilities of social action. We are entering a new world in which a protest or similar action can be organized in very short chunks of times. Flyers and bullhorns are as obsolete as Egyptian hieroglyphs in this new climate of computer assisted unrest.
The intersection of social media with social unrest is a massive topic these days. Twitter has been credited with playing an important role in coordinating the pro-democracy protests in Egypt, and Facebook played a role in helping police track down culprits after the Vancouver hockey riots. But the mostly-unstated truth behind these “technologies of the people” is that they are corporate technologies, ones developed, fostered, and controlled by c … Read More
This is an English web site discussing what has become of Franklin’s London lodgings in the intervening years. It celebrates Franklin, which leads me to believe that the little inconveniences of Franklin’s leadership in revolution and creation of a spy service against Britain have apparently been forgiven or forgotten. The link to the Franklin House is wonderful and I recommend you take a look at it. To my astonishment and delight, they have a piece of music you can listen to, that Franklin composed. So, to all of Franklin’s many accomplishments, I can add composer. I shouldn’t be surprised. What field of human endeavor did he not find interesting?
Benjamin Frankln first came to London as a young printer in 1725. He spent 18 months working for James Watts, whose printing shop was in Wild Court, St Giles. Wild Court is still there, now an alley behind the new City Lit. Some would say there is nothing there, but you try walking along Wild Court and tell me there are no ghosts of it's past. During Victorian times it was a slum. Whilst working in Wild Court, Benjamin Franklin lodged nearby in … Read More