The Difference Between Wrong and Illegal

Do you know the difference between a wrong action and an illegal action? If you don’t, you are not alone. But neither are you to be trusted. 

The Valukas Report

The Valukas Report was commissioned by a US court to determine the causes of Lehman’s bankruptcy. Made public last week, it has caused a bit of stir in certain quarters—including Wall Street, lawyers and accountants.

In a nutshell, the report accuses Lehman of using an accounting technique (called Repo 105) to temporarily move assets off its balance sheet just before quarter’s end, in order to show lower leverage ratios, then moving the assets back on-balance-sheet shortly after the end of the quarter. See details here.

The auditors of Lehman Brothers were Ernst & Young. Lehman’s source of legal advice for the Repo 105 tactic was the venerable British law firm Linklaters. Both are critized in the Valukas report.

The Financial Times headlined the story thusly: "Damning Insight into Corporate Culture Sheds Light on Fall of a Wall Street Giant." The story quotes one ‘senior Wall Street executive’ as saying, "I almost threw up when I read the report; it makes me sick of this industry."

Let’s stipulate that this is the language of “wrong,” at least for Valukas, the Financial Times, and one Wall Street executive. What should be the response of the various parties?

Responses to Charges of Wrong Doing

Let’s start with Dick Fuld, Lehman’s former CEO. His lawyer is quoted as saying

Mr Fuld did not know what those transactions were – he didn’t structure or negotiate them, nor was he aware of their accounting treatment. Furthermore, the evidence available to the Examiner shows that the Repo 105 transactions were done in accordance with an internal accounting policy, supported by legal opinions and approved by Ernst & Young, Lehman’s independent outside auditor.

And what does auditor Ernst & Young have to say

Last week, the group defended its signing-off of Lehman’s 2007 accounts and maintained the books were "fairly presented in accordance with [US] generally accepted accounting principles."

The Valukas report also criticized Linklaters, saying that “Lehman’s … turned to Linklaters for a legal opinion blessing the use of so-called "Repo 105" transactions when it could not obtain a suitable opinion from US lawyers.”

Here’s what Linklaters has to say

"The examiner’s report into the failure of Lehman Brothers includes references to English law opinions which Linklaters gave in relation to a number of Lehman transactions. The examiner . . . does not criticise those opinions or say or suggest that they were wrong or improper. We have reviewed the opinions and are not aware of any facts or circumstances which would justify any criticism."

Wrong is from Mars, Illegal is from Venus

Pick your own planetary metaphor: the point is that “wrong” is a moral concept, “illegal” is a legal concept–and key players in our global economy have come to brazenly deny the distinction.

The Valukas report resonates as a moral indictment. But the responses are from Planet Law.

When the charge of “wrong” is routinely answered by “it’s not illegal”—and we accept it–it means something is seriously wrong with our moral culture.   

The Financial Times blames the “US box-ticking culture.” 

It is far easier for an accountancy firm to retain a lucrative relationship with its clients if it does not sit in judgment on their activities, but simply adheres to a set of blind rules. Auditors can more easily defend lawsuits when things do go wrong if a rule book can be appealed to. But this is precisely why the whole system is so frustrating from the investors’ perspective. The more rule-driven auditors are, the less valuable their work is as due diligence.

Jim Peterson, a noted accounting commentator, talks about the failure of the massive Sarbanes/Oxley legislation to prevent just this moral meltdown:

A program of airport security will lack credibility, if so broadly applied as to deprive ordinary citizens of their ability to carry a bottle of wine or a tube of toothpaste, but that fails to identify terrorists whose deadly threat is limited only by their inept inability to detonate their shoes or their underwear.

Sarbanes/Oxley suffers the same defect: if it could not detect and deter an “outlier” on the scale of Lehman, then what beneficial effect can its proponents claim it has accomplished, by imposing an intrusive system of box-ticking on the vast bulk of corporate registrants?

Some recommend changing regulations.  Others suggest structural changes.  Still others recommend more enforcement.  But all these solutions have limitations; in particular, they are trying to solve a moral problem with more laws.  But this only exacerbates the issue.

You can’t solve a moral dilemma with more laws. There will always be a Dick Fuld, or a Lehman, willing to push beyond moral boundaries using absence-of-illegal as a sleight of hand.  It’s up to us to call them on it.

NYTimes columnist, David Brooks, is right in saying, “The only way to restore trust is from the local community on up.”  It starts with people explaining to politicians, lawyers, newspaper editors and managers that just because it isn’t illegal, doesn’t mean it isn’t wrong.

Get mad: but get morally, not legally, mad. 



Wall Street, We Have a (Simple) Problem

Let’s keep it simple.

The first step toward dealing with a problem is admitting you have a problem.

I try to stay away from politics in this blog. But I know something about business, trust and society. And when issues of business trust arise, they need to be written about. 

The fact that some might view this as “political” is a deplorable bit of collateral damage brought about in great part by those who have abused business and trust in the first place.

So much has been written about the problem with our financial sector that it’s easy to become numbed. So let’s keep it very, very simple.

Does the financial sector “get it?” Never mind the suggestion of the President of the United States that they don’t. How about financial eminence grise Paul Volcker?

Here’s what Volcker had to say about excessive compensation at a high level bankers’ conference:

“Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”

Translation: too many don’t get it. 

Again, let’s keep it simple. The financial sector has grown, grown and grown in recent years. First, some perspective on profit and compensation growth from the IMF’s former chief economist:

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

Then, some perspective on the financial sector as a percentage of GDP from Nobel-prize-winning economist Paul Krugman: 

Even during the “go-go years,” the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P. The relative unimportance of finance was reflected in the list of stocks making up the Dow Jones Industrial Average, which until 1982 contained not a single financial company…

On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s. By early last year, the Dow contained five financial companies — giants like A.I.G., Citigroup and Bank of America.

Some say these data don’t account for the relative importance and innovation created by the financial sector. 

Here’s what Paul Volcker had to say about such claims:

[Volcker] said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”

[a clearly irritated Mr Volcker said that] the biggest innovation in the industry over the past 20 years had been the cash machine…“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”

Let’s keep it simple. Forget the mind-numbing details of what Warren Buffet called “financial weapons of mass destruction.”  There are some simple facts we need to remember.

This is a legitimate social question: not just a business question, and surely not just a political question. The financial sector has gotten too big. It pays itself too much. There are plenty of fine people in the industry, and I’ve had the privilege of working with many; but on balance, perhaps not enough.

Too much of the sector is built and managed on the basis of financial returns only, and on the short-term rather than the long-term. It is not—on balance—an industry being run for the betterment of society. The social benefits of globalized, digitized, productized, market-driven structures have been overwhelmed by the social costs of illiquidity (aka credit freeze), risk protection (aka bailout), opportunity cost (aka our best and brightest designing nano-second trading models) and social misery (aka unemployment).

A critical sector of the economy has become–on balance–systemically untrustworthy, and therefore unworthy of being trusted. Sellers’ needs are vastly over-emphasized relative to customers’ needs. On balance, the sector has come to equate ethical behavior with the absence of legally prohibited activity, and to do so unconsciously.

Society has a right to demand that its business sector conduct itself in ways that are constructive for society as a whole, not just for shareholders and management. That right supersedes any “right” of corporate entities and their management to do what they want according to some gross misreading of Adam Smith. 

Let’s keep it simple. Wall Street, we have a (simple) problem.

Soul Trust

From Reuters, a most curious story.
Would you pledge your soul as loan collateral?

RIGA (Reuters) – Ready to give your soul for a loan in these difficult economic times? In Latvia, where the crisis has raged more than in the rest of the European Union, you can.  Such a deal is being offered by the Kontora loan company, whose public face is Viktor Mirosiichenko, 34.

Clients have to sign a contract, with the words "Agreement" in bold letters at the top. The client agrees to the collateral, "that is, my immortal soul."

Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence. Signatories only have to give their first name and do not show any documents.

"If they don’t give it back, what can you do? They won’t have a soul, that’s all," he told Reuters in a basement office, with one desk, a computer and three chairs.

Think of all the literary touchstones this story elicits.  Gogol’s Dead Souls?  No, these souls are living.

How about the Robert Johnson Mississippi Delta myth of selling one’s soul at the crossroads; which led to Clapton’s Cream mega-hit Crossroad (and the comically serious Hollywood version, with Ralph (Karate Kid) Macchia doing the Robert Johnson role, with Ry Cooder standing in for Johnson/Macchia, and monster guitarist Steve Vai frankly blowing them all away as the devil).

Apparently, Mirosiichenko is not kidding. 

Mirosiichenko said his company was basically trusting people to repay the small amounts they borrowed, which has so far been up to 250 lats ($500) for between 1 and 90 days at a hefty interest rate.

He said about 200 people had taken out loans over the two months the business was in operation.

What does this say about trust?  The lender isn’t accepting collateral in the traditional sense (unless a rebuyer of souls, a la Gogol’s plotline, shows up).  Rather, he’s betting on the meaning of the oath to those who take it. 

Soul-pledging: the antithesis of asset-based lending.

Does this amount to a fear-based manipulation of primitives?  Or is it a sophisticated form of appeal to a character-based sense of honor?

Somewhat less seriously, what would Wall Street add to the question?

•    Are some souls more bankable than others?  Can a fair virginal maiden of 18 pull down a bigger loan than an aging prostitute?  
•    Are soul contracts assignable?
•    What’s the value of a tranche of securitized soul contracts?
•    Can you short soul contracts?  (Unfortunately, as of yesterday, naked shorts are now illegal).  
•    Is the soul sufficient consideration for a loan?
•    How do you foreclose on a soul?
•    What happens if the market value of a soul drops to the point where you’re underwater vis a vis the loan?  Can you go soul-bankrupt?
•    What if you commit a mortal sin after you sign the contract, thereby reducing the value of the collateral?

(co-author credits on this blogpost go to Susan Kleiner and Stewart Hirsch, specialists in soul law).

Wall Street and Broken Social Trust

I’m hardly the first to cast the financial meltdown in terms of broken trust. But usually that means something like "we can’t trust they’ll still give us credit." There is a much deeper, distinctive pattern that leads to broken trust, and it works the same personally as it does socially and economically.

That pattern is the fragmentation of relationships. When relationships are turned into transactions separated by time or space—the predictable result is a lowering of trustworthy behavior, resulting in a lowering of trust.

Here are a few examples:

• Marriage researcher John Gottman says that couples who argue can be quite successful—they remain engaged, in relationship. It’s when the parties disengage, withdraw, refuse to interact, that the marriage is doomed. The relationship is fragmented—trust disappears.

• The airline industry in the 60s (if I recall my corporate finance cases) was funded largely by insurance companies, which lent money to the industry at large, thereby restricting competitive binges of excess capacity. When banks took over the lending, they championed specific carriers. This quickly led to over-capacity, with airlines returning to their customary unprofitable ways. A relationship of industry to industry, fragmented into competitive bank-airline duos, resulted in systemically bad results.

• If you let your teenager stay out at all hours of the night, your teenager will probably get in trouble. A family system fragmented, results in untrustworthy behavior.

• The US regulates banks and stocks. The CDOs which lay at the heart of the mortgage-driven meltdown were not regulated. No one had purview or a common interest across the entire range of financial products. A fragmented relationship, and resultant low trust.

• 30 years ago, the mortgage industry was a system of brokers, banks, and homeowners. All had a common long-term interest in that system, and all had long-term relationships with each other. With the fragmenting advent of specialized brokers, securitized loan packages and the like, no one had to relate to the whole picture, nor to each other for any length of time. Result—abuse and breakdowns of trust.

• The game theory classic Prisoner’s Dilemma pits our fears and aggressions against another player. If you both give in to fear, you both lose. But if you give, and the other person takes, you suffer the worst of all outcomes. The “trick” to successfully playing the game is to increase the number of times it is played—to create a relationship over time.  Which creates trust.

• Another prisoner’s dilemma winning strategy is to make each play more personal—face to face, looking each other in the eye, handshakes. A relationship as opposed to an impersonal connection. Resulting in more trust.

• Pure economic competition is unstable, because all competitors strive for their competitors’ elimination—the absence of relationship. Some form of social interference—rules, regulations, time-outs, referees—is necessary to keep the game going at all.

• Jonathan Knee’s book The Accidental Investment Banker tells of the cynical investment banker acronym IBGYBG—I’ll be gone, you’ll be gone, let’s do the deal. Fragmented transactions, no long-term relationships. And no trust.

• When Marie Antoinette said “let them eat cake,” she articulated a deeply riven society. Which turned out to be untenable, especially for her. No relationship, no trust.

Fragmenting relationships can lead to growth and to scale economies. Teen-agers grow up and learn to handle freedom. Outsourcing business processes can result in larger scale and lower costs. Fragmenting the mortgage industry did result in lower costs and more liquidity. The flip side, of course, is untrustworthy behavior.

Wall Street is just one example of a broader dilemma we face in an increasingly inter-related, interconnected world. How do we balance the scale economies of fragmented business relationships, industries, and business processes, with the trust-creating power of some kind of integrative force?

Regulation is one obvious integrating force. There are also industry associations, and a sense of honor (personal, professional or societal).

We’re running a little low on self-regulation just now (see for example How to Get Your Industry Regulated and Great Moments in Self-Regulation—Financial Planners). And how’s the world doing these days on ethics, public service, and collaboration?

Personally and institutionally, the more we are linked, the more trust flourishes. The more we are disconnected—structurally or personally—the more we distrust.

Turning systems into fragmented markets can increase scale, power and performance—and raise the risk of untrustworthiness. Linking relationships is the countervailing force—the more we view ourselves and our institutions as in relationship, the more we create trust.

As the world gets smaller and more linked, we need to shift more toward the latter.


Bear Stearns, Enron, and Some Confusion About Trust

Is there such a thing as an inherently trust-based business? Houston Attorney Tom Kirkendall, who writes a blog called Houston’s Clear Thinkers, seems to think so.

In a provocatively titled post called That Pesky Trust-based Business Model, Kirkendall writes:

"The fact of the matter is that Enron was — and Bear Stearns and AIG are — trust-based businesses that fundamentally depend on the trust of the markets to sustain their value. Once that trust is lost, such companies lose value quickly and dramatically. "

I’m not so sure about that. Presumably he means most financial businesses are leveraged—they lend out, or put to work, considerably more money than their base capital. And as long as people trust them, it works If they lose that trust, well, that’s when you get a run on the bank. That’s what I understand Mr. Kirkendall to mean, anyway.

But try shouting "roaches!" in a restaurant. What happens to Wendy’s stock price if someone finds a finger in a bowl of chili? What happens to a pharmaceutical company if someone finds a tainted pill bottle? What happens to a toy company if it’s found to have imported toys made of hazardous materials? What happens to a securities-rating agency when AAA-rated securities turn to junk in months?

I haven’t thought this through fully yet, but the idea that some businesses may be structurally more "trust-based" may be a distinction without a difference—or at least one of degree only.

What is clear to me is that all businesses can be run in a trustworthy manner—or not.

For example, when the CEO of Bear Stearns, Alan Schwartz, said on CNBC on the morning of March 12 that the firm’s liquidity was fine, a Bear Stearns shareholder might reasonably “trust” that the firm wouldn’t lose billions and implode in about four days.


Back to Kirkendall, who goes on to say:

Although unfortunate for the owners of such companies, such a dramatic loss of wealth does not necessarily mean that any criminal conduct caused or was even involved in the loss. Rather, such loss is simply one of the risks of investing in a company based on a trust-based business model.

Granted criminality is not the only warranted deduction. There is also venality that hasn’t been outlawed. And, most common of all, garden-variety incompetence with its handmaiden hubris.

Here’s what mega-investor Saudi Prince Alwaleed had to say just a few months ago about former CEO Chuck Prince’s similar situation at Citibank:

You cannot come to the public and say that this normalization is expected in the fourth quarter and then three weeks later, not three months later, you come and say there is an $11 billion writeoff. This is unacceptable. That’s when the events changed completely. My backing was withdrawn dramatically.

You should never commit to something that you can’t deliver. Never…I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely.

Both CEOs Prince and Schwartz said one thing, clearly and confidently—and were very quickly proven either liars or incompetents. Schwartz just got there a lot faster.

Alwaleed considers this patently unacceptable. Kirkendall considers it “simply one of the risks.”

But where is Kirkendall going with all this?

The sooner we all recognize and understand this risk — and avoid the mainstream media’s promotion of myths about them — the quicker we can put a stop to injustices such as this while advancing the discussion of how best to hedge the risk of such potential losses.

I’ll save you the trouble of clicking through the links. The “myths” he is talking about are that "myth" that Enron was about criminal behavior, rather than prosecutorial misconduct. Enron investors could have and should have shorted Enron (true enough). Kirkendall seems to think this is all part of a conspiracy, that Skilling has been unfairly demonized. He says, “I continue to hope that Jeff Skilling’s unjust conviction and sentence are reversed on appeal, not only for his and his family’s benefit, but also for ours.”

O-kay. That’s one view. Here’s another, from someone with standing:

Jeff was indeed the "smartest guy in the room" and a micro-manager to boot—which certainly made it clear to me that the idea that he was unaware of details of his subordinates’ affairs was utterly absurd. Likewise the idea that he was ignorant of the shades of gray and then black concerning the border between legal and illegal market manipulation insults his intelligence. So I guess I conclude "beyond a shadow of a doubt" that the prosecutors and the jury got it right.

That’s by Tom Peters. Tom knew Skilling because he worked with him. Read Tom Peter’s full post on Skilling, Lay and Enron here. It’s enlightening not just about Enron and ethics, but about what a real trust-based business looks like. Tom believes in Cowboy Capitalism. He also believes that those in charge bear some responsibility to those who entrust them with their money. Tom Peters, in my book, does Clear Thinking.

It strikes me as disingenuous at best to describe some business models as "trust-based," and to then use that as a facade for an argument against the accountability of those who are chosen precisely for their ability to navigate treacherous waters and who are paid handsomely for their doing so. If there is no line to cross, then there is no such thing as ethical behavior. And if there is a line, someone’s likely to try crossing it. C’est la vie.

The key issue isn’t whether a business model is "trust-based." It’s whether we can put our trust in the people running the business.

How Does Wealth Inequality Affect Trust?

An old Frank Zappa lyric went, “What’s the ugliest part of your body? I think it’s your mind.”

Similarly, we might ask, “What’s the lowest-trust place in (corporate) America? I think it’s Wall Street.”

Which brings us to the latest issue of Harvard Business School Working Knowledge.

I find HBSWK a pleasure to read—they identify the coolest topics for study. The treatment of those topics—well, that can be quirky.

One fascinating current item is “The Dynamic Interplay of Inequality and Trust: An Experimental Study,” by Ben Greiner, Axel Ockenfels, and Peter Werner.

Here’s the (partial) synopsis:

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable.

Cool! An egalitarian society shows a greater decay of trust than one with initially disparate endowments? The implications for political theory, economic policy and social dynamics are juicy, to say the least.

The “dynamic game” the authors use to add some empirical juice to theoretical discussions involves a trustor and a trustee. In a series of interactions, the trustor offers a sum of money to the trustee, which sum is then multiplied by the game; the trustee then returns a certain amount to the trustor.

As the authors say, “The amount sent can be interpreted as a measure of trust, while the amount returned measures the degree of trustworthiness.”

Then ensues 20 pages of analytical bludgeoning. Did you know about the Wilcoxon Matched Pairs Signed Ranks (WMPSR) test? Me neither. Did you know the lowest Gini factor ever measured was in Bulgaria in 1968?

I am numbed and humbled; you could say I’m numbled.

And sure enough, the graphs show a decrease in trust if all players start equally, vs. a low-trust start with sustained low trust if players begin with inequality.

But wait a minute! What happened to Frank Zappa?

The appendix lists the instructions given to the players in this game. Here they are:

Welcome! You can earn money in this experiment. How much money you earn depends on your decisions and the decisions of the other participants…it is guaranteed that you do not ineract with the same participant in two subsequent rounds…The identity of the participant you are interacting with is secret, and no other participant will be informed about your identity.

OK, so I want to measure the role of trust and inequality in an economy. Where should I go?

Los Angeles? Omaha? Detroit?

Nah. Let’s go somewhere people aren’t distracted by entertainment, or meat-packing, or cars.

Let’s go where people interact solely around money. Anonymously. And never with the same person twice. (Blindfolds and knives might make it even more interesting).

And let’s call that a trust experiment.

If this game had a geographical correlate, it would have to be the Land of Gekko, where Fear and Greed are baseline hiring criteria—Wall Street.

Not exactly where I would have suggested one go searching for insights about trust.

What’s the ugliest part of that trust? I think it’s the game.


Insurance Fraud, Short-Selling and Why You Can’t Trust Stock Analysts

8AM, July 17, 1989: I’m driving on Route 2 outside Concord Massachusetts, lights flashing and horn honking, fighting rush hour traffic. My son is nearly being born in the back of the car. We reach Emerson Hospital; nurses rush my wife to the ER; I park the car and run back.

Birth time: about one minute after reaching the hospital. Delivery: by the good nurses, a minute before the obstetrician on duty arrives to bless what’s now history.

Two weeks later, the bill arrives. It includes several thousand dollars for the obstretrician. I call to complain. “What do you care,” the office says, “it’s all covered by your insurance.”

9:20AM May 12, 2007: I’m flying from Amsterdam Schiphol back home, reading Joseph Nocera in the Herald Tribune, Why Short-sellers Should Have Their Say. Think of short-selling as the “opposite” of buying stocks—betting that a stock will go down, rather than up.

Since precisely 50% of stock trades involve selling, you’d think Wall Street would put roughly the same emphasis on when to sell as on when to buy. Of course, you’d be wrong. There are few short-sellers, and they are often reviled, harrassed, even sued.

Reasons often given for the dearth of short-sellers are that losses from short-selling are potentially unlimited (true), that short-selling goes against the long-term natural rise of the market (true so far), and that human psychology is basically optimistic (debatable). But those are weak explanations.

The real reason is—wait for it—money. Wall Street gains more when you buy and trade than when you sell. This is one reason securities analysts overwhelmingly issue positive, not negative, ratings. But there’s more.

Companies don’t like negative ratings. To be more precise, CEOs and senior managers of companies with compensation tied to stock performance don’t like negative ratings. Many leaders call the analysts’ parent company to complain, even issue veiled threats to switch to other providers of financial services. Even sue.

And voila, the analysts either withdraw the negative rating or just stop covering the company.

The analyst will blame management for telling him to emphasize positive reviews. Thus he justifies his lapse in professionalism: the devil made me do it.

The poorly rated company blames the analyst for “unfair” analysis (meaning it hurts the CEO in the wallet). Easier to blame the analyst than to take responsibilty for the shortcomings identified.

Management of the analyst firm also caves in, blaming the blackmail tactics of the rated company.

Fingers point everywhere but back. Blame instead of responsibility And blame feeds the rot.

Our social “solutions” propagate the problem. We opt for an expensive regulatory program like Sarbanes-Oxley, to protect everyone from their presumed innate selfish tendencies. Our approach resembles airport security—“somebody will always cheat: let’s constrict everyone’s freedom, in order to stop the few.” But securities markets are not airports.

Far from stopping a culture of blame-throwing, this approach enables it by assuming bad motives.

Instead, we should selectively prosecute the hell out of individuals who behave badly. Prosecute analysts who won’t honor their role, CEOs who blackmail bankers, and bankers who cave in, and who lack the guts to call the cops.

A vibrant community of short-sellers would have seen Enron coming. A few people could have spotted the lies, and made a lot of money by publicizing the rot—saving a lot of lifes’ savings and careers. An MBA class at Cornell did just that—analyzed the numbers and recommended shorting Enron well before it imploded. No one was listening.

Business has no right complaining about government intervention if it can’t bring to bear the pressure of capitalism upon itself. Greed and lies aren’t the stuff of business—they’re the death of business, as long as they stay in dark rooms.

July, 1998, Madison, New Jersey: I go to a collision damage repair shop.

“I’ve got a dent in the back door of my car, can you punch it out? It doesn’t have to be perfect."

“Nah, we’d have to replace the whole door.”

“No you wouldn’t—the gas station will do it for me for a hundred bucks, I figure you guys could just do a better job. It’s a simple job to punch it out, I’d do it myself if I had the tools.”

“Buddy—god alone couldn’t fix that door, we’ll replace it or do nothing at all.”

Translation: “what do you care, your insurance company is paying. And we’re not about to ruin a good scam by being customer-focused.”

We don’t have to put up with this crap. Call your better business bureau. Call your state regulatory agency. Call your insurance company. Write a letter to the editor. Rat these people out.

With the market in nosebleed territory, you might want to short a few stocks yourself. If your broker doesn’t know how, then help create trust and integrity in the market while you make money—by getting a new broker.