Sunday, May 24, 2015

Felons at the Gate...or maybe Vikings

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We know that if someone walked into a Citibank or Chase establishment with a face mask or a gun, pulled out a note stating that the teller should fork over, say, $547,000 and walked out of the place in broad daylight, he'd get 36 years in a federal prison.  Apparently, Chicago's own Joseph Banks, who during his trial reported that he was a "humble, anti-gun" bank robber, should have said that he was a FOREX trader.  That would have entitled him to keep 1/2 the money he stole just so long as he agreed to go three years without trying to do any other criminal activity.  Mr. Banks robbed a Chase Bank, a Citibank, and the First Commercial Bank in a string of robberies dating from August 2007 to August 2008.  He's a menace to society according to U.S. District Judge Rebecca Pallmeyer.  Maybe he should have dropped the humble bit and gone for the, "I'm a bank CEO," defense.  Then, his death-defying escape from the Metropolitan Correctional Center would have given him the opportunity to add "performance acrobatics" to his Linked-In executive profile.
Image from ABC7 Chicago

Barclays CEO Anthony Jenkins and Citi's CEO Michael Corbat "deeply regret" behavior that did not represent the banks' values.  UBS CEO Sergio Ermotti, JPMorgan Chase's illustrious Jamie Dimon and RBS Chairman Philip Hampton threw rogue employees under the bus while stating their commitment to controls and compliance.  FOREX traders brazenly used terms like "Bandits", "Mafia", and "Cartel" to fix foreign exchange rates to rob their clients of billions of dollars.  JPMorgan's Dimon went as far as to say that the bank's felony was "principally attributable to a single trader," in a refrain echoing his derivatives buck-passing in 2012 with the London Whale.   According to the headline grabbing U.S. Attorney General Loretta Lynch, Citi's $925 million fine will be, "the largest single fine ever imposed for a violation of the Sherman Act."

She'd barely completed crooning over the record setting fines levied against the banks when she went on to state the following hollow warning:

"the Department of Justice, under my watch, will not hesitate to file criminal charges for financial institutions that reoffend."

Oooohhh!  I can see the bank executives shaking in their boots with such an ominous warning.  "If you break the law," she is saying, "you'll have to share about 1/2 of the revenue from your illegal activity with the same institution that you manipulate on a regular basis and which uses public funds to bail you out in your wanton mismanagement." Oh and before you get all emotional about the "record" fines that the banks are paying (a jaw-dropping $5.7 billion), let's remember that Citi received $45 billion in equity, $300 billion in government guarantees, and nearly $2 trillion in loans from the Federal Reserve as a reward for bringing the global markets to their knees in 2008.  So, Loretta, forgive me for being entirely unimpressed with your crowning inaugural achievement - and confirming that your justice department, just like Eric's, is for sale.  But the public shouldn't fear.  Both felon banks in the U.S. were put on a 3-year probation during which they are to "cease all criminal activity" for the period.  Whew!  That's a relief.  Right?  Not so fast!  They've not been able to stay clean for half that period since December 2007 so a three year non-criminal run would be unprecedented.

I'm not sure which disappointed me more: the corporate felony admission or the fact that the media was impressed (along with the pseudo-activist public) with the penalty without ever reporting on the magnitude of the crime.  If the Federal Justice system used Mr. Bank's crime as a sentencing guideline, the 5 bank CEOs would be looking at a 355,393 year prison term.  Heck, I'm a merciful guy - let's let them all serve a cumulative concurrent sentence and have them go away for 71,078 years apiece.  Obviously, this would be ludicrous, right?  No one could serve a 71,000 year sentence.  But it used to be the case that you couldn't commit a crime when the numbers you were stealing were measured in the billions either.

But in the longer view, what is most troubling is what both the banks' leaders anemic contrition and the faux justice charade mask.  The concept of a bank represented an innovation in society in which a trusted agent would hold assets for safe-keeping and, based on the public trust, play a vital role in the circulation of money so that it served a utilitarian function in the economy.  When we see the current state of affairs, what we see is not the behavior of a bank.  Rather, we see organized crime which seeks to rob the public of its money under a government sanctioned racket in which the government is fully complicit.  And why would the government be willing to go along with this?  For the simple reason that they are a part of the bank's business beholden to the felons for their own public delusion.  Take away the complicity of the banks and the manipulated markets and we'd find out that none of the foundation of our current economic system works on its own.  It requires criminal acts to prop up the illusion.

And as long as We The People decide that the ultimate scorecard in life is the dollars we think we control (now, all of which are merely digital records which could be expunged by anyone in an instant), we'll feign disgust and go on using the exact same system that we know is parasitically extracting from us that which we think we own.  Capital One had a successful ad campaign, "What's in your wallet?", which cost them a reported $285 million to turn into an iconic message.  It's time this question takes on a whole new meaning.  Look at your credit cards, your car payments, your mortgage, your student loans and see if you're doing business with a felon.  And if you are, ask yourself if that's the kind of world in which you want to live.  If not: Change IT!


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Sunday, May 17, 2015

Sipping a Pisco Sour Listening to Phonograms

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I find it fascinating that in the hundreds of pages of provisions set forth in the Trans-Pacific Partnership Agreement (TPP), the one token request from Chile - to secure the name "Pisco" for their signature drink the way France got Champagne - was opposed by Australia, the United States, Peru, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Mexico, Canada and Japan. 

What a terrible day to be the trade negotiator from Chile.

"Listen Eduardo, we know that we're going to have pharmaceutical, agrochemical, and digital rights from the U.S. shoved down our throats so at least get us our signature drink protected!", Chile's President said as the trade delegation was leaving Santiago.

"Si, El Presidente," Eduardo nodded beaming from ear-to-ear with his chance to do his country proud.

… followed by….

"Um, El Presidente, the U.S. got Mickey Mouse protected for 120 years and got to extend the copyright for phonograms for 95 years - longer than their own law allows…"

"Yes, yes, Eduardo," the President waited, "and what of our Pisco sours?"

"Well," Eduardo cleared his throat and kicked his well worn shoes into the pavement, "it doesn't look good."

If you listened to President Obama and Congressional leaders this week, you heard that the United States was urgently seeking to conclude a vital piece of trade legislation paving the way for the TPP.  Senate Bill 995 also known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (CTPA) allegedly will boost the U.S. export market for its goods and services.  Supported by the American Association of Port Authorities, the National Council of Textile Organizations, the U.S. Business Coalition for TPP, Honeywell, and others, Congress feigned opposition long enough to attempt to placate labor momentarily only then to give the President most of what he wanted.  To date, we don't have a lot of visibility into what the TPP includes but, from the CTPA, we can get a great clue as to the identities who have shaped it. 

Leading off the list of campaign contributors would be U.S. pharmaceutical companies.  In the copy of the TPP published by Wikileaks last year, the leading provisions for trade enforcement begin with specified protections for U.S. pharmaceuticals (§QQ.E.16) followed by agrochemicals (§QQ.E.XXX) rounded out by recorded media and software (§QQ.G.1).  The CTPA adds color to this list by highlighting interests of U.S. industrial agriculture and about a dozen specified industries.  Under the TPP, many protections afforded to U.S. exporters exceed the current U.S. legal protections for commerce rights (patents, copyrights, trademarks and the like) despite the fact that the CTPA clearly states that no trade agreement shall have provisions that supersede U.S. law.  Apparently, what this means is that as long as it is as favorable or more so to U.S. commercial interests, we're willing to impose our most greedy position on other nations but if the inverse is the case, it's right out.

In the final analysis it's clear that both the TPP and the Orrin Hatch / Paul Ryan sponsored CTPA are evidence of the Executive and Legislative branches of government selling the law for patronage.  Wrapped in whimsical nostalgia about creating U.S. employment, protecting the rights of workers, and caring for the environment, a detailed reading of these documents (including that unfortunate TPP §QQ.D.12 which screws Chile and its one drink of note), shows that these efforts are purely protectionist.  Changing the terms of copyrights, forcing the recognition of U.S. pharmaceutical patent rights (including their term extensions based on U.S. regulatory delays), and criminalizing IP theft while allowing "traditional knowledge" abuses to be a best efforts compliance is an affront to the principles of genuine competition. 

The implications of TPP abuses are not ephemeral.  This past week, I was the target of a very angry investor who alleged that I had "ruined his retirement" by threatening the value of a stock in which he held a sizable position.  Early in the week, M∙CAM published a detailed report showing that the patents supporting the drug Revlimid® made by Celgene were clearly subject to legitimate invalidity findings.  Making matters worse, just one week earlier, the European Patent Office had arrived at the same conclusion.  The arrogance with which the company dismissed this critical ruling and the U.S. market's contempt for the European decision - with numerous analysts stating that the European decision didn't matter because it had no bearing on the U.S. patent - was disgusting.  Never mind the fact that a good friend of mine in Australia, suffering from a form of cancer for which Revlimid® is indicated but for whom the drug is excluded by virtue of the patent-inflated cost, faces a worse prognosis because of a patent system abuse.  By showing that Celgene had at best exerted influence and at worst, outright mislead authorities, apparently I was the reason why an investor was "ruined" - the same investor who likely laments the cost of prescription drugs in the U.S. and has no knowledge of the patent manipulation upon which his investment rides.  In a TPP world, my Australian friend will be even more likely to suffer and die so that my U.S. investor acquaintance can get enriched.  Stock chatrooms were alight with suspicions that M∙CAM had been hired by a notable equity trader to do a "hatchet job" paying NO attention to the facts of unfair competition and systemic abuse.

I'm not na├»ve.  I know that governments and corporations collude now just like they have from the beginning of delegated sovereignty.  Furthermore, it has been and remains the case that the economically and militarily powerful typically get to make the rules that they get to impose on others.  While I think that this is reprehensible, I don't see many people seriously seeking to transform this reality.  But what I find most tragic is the silent assent We The People give to those who, after taking every advantage, still have to cheat to win.  While Congress talks about staying competitive, our trade negotiators are still using the term "phonograms" which signifies the state of awareness of the thinking (or lack thereof) in those who craft and manipulate the rules.

Worst of all, in the Commerce and Congressional activities around the TPP and the CTPA, we're neglecting a profound problem.  The system of industrial drug addiction, genetically modified caloric production (formerly known as agriculture), digital media hypnosis, and monotonic industrial design has been leading to decreased economic status in the U.S. middle class (to say nothing of the unemployed and uninsured lower class).  The model of planned obsolescence - made famous by industrial designer Brooks Stephens - has itself become obsolete.  And now, rather than calling for a renaissance of quality and aesthetic improvement, we're merely placing the rest of the world under the screws of a system that failed us.  It may be the case that no one in the U.S. is capable of waking from the hypnosis to architect a More Perfect Union but certainly, someone in  Australia, Chile, Peru, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Mexico, Canada or Japan could wake up before this protectionist train-wreck is allowed to take effect.  Or maybe, just maybe, too many have simply given up.

Cue the phonograph, pour yourself a Pisco sour, and, in the waning moments that we have to actually do something about these reckless abuses of ourselves and our Earth, consider whether you wish to stand for a better tomorrow.

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Sunday, May 10, 2015

Fairness Fallacy

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The American Society of Appraisers (ASA) defines "Fair Market Value" or FMV as the price (in money) that two parties would reasonably exchange when they are "neither under any compulsion to buy or sell, and both are fully aware of all relevant facts."  Reading the financial news this week, I was intrigued by how many analysts used the notion of fair value when it came to the near-floating Chinese currency, the value of Greek and Spanish debt, the importance of maintaining the eurozone, the consequence of the U.K. holding a referendum on EU affiliation, the appropriateness of the jobs statistics coming out of the U.S., or market effects of the Trans-Pacific Partnership (TPP) which is an oxymoron when referred to as a "partnership". 

During a recent speech at the University of Notre Dame's Executive MBA graduating class, I discussed the ethics of lying.  Lying, it turns out, is a prevalent social utility for the most part because it works most of the time.  The willful concoction of a false statement to mislead another person or the selective obscuring of something that would inform another is as prevalent as conversation itself.  People manufacture stories about their past in hopes to achieve notoriety or advantage in the present.  People promote preferred dogmatic beliefs while selectively ignoring odious statements in their own codified texts.  Financial statements, tax forms, product or service promotions, religious historicism, you name it - falsehood abounds in overt and covert fashion.

It's interesting to note that lying was not listed as one of the "thou shalt nots" that many of us were taught from the tablets of stone.  While many infer that the ninth commandment about bearing false witness is a moratorium on lying, this is not likely to be entirely the case.  Bearing false witness is a very precise (and in certain eras, quite grave consequential) activity.  This is to actively make up an untrue accusation, not, say, pretending to remember it was someone's birthday a day after you were caught not remembering it.  In one of the cherished lying stories in the Bible, a couple who said that they had been charitable were allegedly struck dead for lying! 

In the class as in most conversations, the response to the question, "What's wrong with lying?" is, "Getting caught."  Interesting that the reflexive impulse around the act of lying is to suggest that its detrimental effect is its discovery. 

In business as in the rest of life, there are several more subtle, albeit equally consequential, forms of lying. 

Seduction:  seeking to appeal to an impulse that someone finds enticing to have the effect of achieving a response that, with full introspection, would not likely be engaged is a cunning form of lying.  The Latin term from which the word comes has the connotation of having someone abandon their duty.  What is most fascinating about seduction is the level of careful awareness of another that is required for this social utility to work.  If I know enough about you to know your vulnerabilities, there's a particular intimacy that must be honed on my part to know how to offer a compelling impulse sufficiently distracting to make you abandon your thoughtful judgment. 

Consumer-based marketing:  selective messaging to appeal to the desires, wants or needs of another.  One cannot interact with any form of media without having intrusive messages placed in the front of awareness.  I'm not interested in insurance, feminine hygiene products, drinkable industrial nutritional sludge, or expensive mattresses but, today, prior to reading or watching what I was actually interested in, I was bombarded by Geico, Tampax, Ensure, and TempurPedic.  Now why would I throw this activity under the lying bus?  Well, the answer is simple.  When I get a message about a good or service, I'm not getting ALL of the information.  I'm not informed of all relevant facts.

Which begs a question from the ASA FMV definition:  who determines relevant?  Does Bougainville Copper Ltd. have a duty to inform local landowners how it invests the money it didn't pay them for near 25 years before offering them a paltry settlement?  Does President Obama owe an explanation to the American people as to why the TPP must be negotiated in 'Classified' sessions when its about "free trade"?  Does a minority-owned asset manager need to explain to investors how they invest in businesses that promote diversity?  Do Geico, Tampax, Ensure, and TempurPedic have a responsibility of informing me of all the facts that I would want before making an informed purchase?

May it be appropriate to consider building models of human engagement - social, business, or otherwise - where a primary (if not main) objective is to deliver value inclusive of informing all parties of all facts - not just those selectively deemed relevant by the disclosing party?  Wouldn't it be interesting to see transactions where the value exchanged between parties included a premium for making sure that complete knowledge was shared and that, in the end, "best" was defined both by quality but also by completeness of transparency?  If you haven't disclosed to me the nature of your determination of relevance, can you ever expect me to be a willing participant in any transaction?  In other words, can I be anonymous and still receive from you the truth?

Why does any of this matter?  The answer is simple.  If we are to build robust models of human interaction and engagement, we must transform our acquiescence to the socially acceptable use of lying.  We must see willful exploitation of the ignorance of others as a part of lying and actively build transparency and integrity into the core of all our actions and interactions.   



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