I've always been a law-and-order kind of guy. And yesterday I was horrified-- though not surprised-- when CIA Director John Brennan admitted the CIA had hacked Senate computers. Government officials do these kinds of things with alacrity because they know that even in the unlikely chance that they get caught, nothing happens to them anyway. Has Brennan been fired? Indicted? Jailed? Anything? Maybe given an award by Obama?Our elites don't suffer the consequences of their criminal behavior. Oh, maybe .0001% of the time but, basically, never. This week the NY Times clutched its worry beads over ethical lapses on (an unregulated, all-powerful) Wall Street but it took a commenter to get to the heart of the matter, entirely missed by The Times: where there is no meaningful punishment-- where the rule of law has been bought off-- where crime pays big!-- crime and criminals flourish. Oliver Budde:
I was a Wall Street lawyer at Skadden and then Lehman, so allow me to speak on behalf of myself, Jamie, Lloyd and my other former compatriots, and reveal for you our ethos in a nutshell: grab every dollar you can, for as long as you can, using every scheme you can think of, and pay out to yourself and your cronies as much as you possibly can, as quickly as you can. You don't sweat morals or ethics; if it looks doable without getting caught or at least without serious risk of penalty to the executives (who couldn't care less if the corporation has to kick back some of the loot later), you do it. So subprime MBS and CDOs rated safe as mothers' milk, lying to and stealing from clients, misleading investors and the public (including Congress, even under oath), cheating on taxes, financing drug lords, laundering terrorist and Ponzi cash, ripping off the central bank that just saved your bacon, hell, even proclaiming love for America while simultaneously raking in hundreds of millions persuading American corporations to move offshore or even driving your own bank right off the cliff if the money's right: it's all good in the 'hood if you like the odds. If you can just not think about the morals and ethics-- very easy to do when you are paid in the hundreds of thousands or more-- it's a sweet life. For the players, that is. As for the rest of the country, hey, tough luck; you should've gone to work on Wall Street.
Caveat: it is an ethos endemic throughout corporate America, not just Wall Street. Companies that discourage this kind of ethos-- really discourage it and keep it from taking root-- are rare and outliers. After a year at CBS Records (SONY) I decided to drive to South America. Luckily for me, I was recruited to work for Warner Bros Records, the music company that did consciously fight that way of thinking. Once they were bought by AOL-- I was a president by then-- we were clearly told that those days were for suckers and that they were over. At that very moment I decided to quit a 7-figure job. The company changed completely and went from the most profitable music company in history to a basket case that keeps its doors open by selling bonds to marks who are lured in by… Wall Street. And speaking of music industry tolerance for criminal behavior, Joe Isgro, the Mafia figure who was the bribery go-between with bribe-taking radio stations (i.e. all of them), was finally arrested-- after 40 years. He's using the same "defense" another Mafia associate, Republican Congressman Michael "Mikey Suits is using: deny everything, even the most obvious, and scream about having been a patriotic marine. You may have never heard of him but nothing got on mainstream radio-- NOTHING-- unless the Mafia, through Isgro, got their cut. And that includes every superstar from Michael Jackson and Stevie Wonder to Elton John and Madonna.
He has long been a reputed soldier in the Gambino crime family and recently promised to tell all about his life in a film still being developed, titled Hit Man.On Wednesday, Mr. Isgro, 66, added a new line to his biography, as he was arraigned in Manhattan on state charges that he helped run a sports book ring for the Gambino family.Mr. Isgro, who was arrested last week in Los Angeles, wore a red Marine Corps T-shirt and flip-flops as he pleaded not guilty to gambling, conspiracy and money laundering charges before Justice Bonnie G. Wittner in State Supreme Court.Mr. Isgro, who was released on $250,000 bond, declined to comment as he left the courtroom. His lawyer, Aaron M. Rubin, said Mr. Isgro “strenuously denies the charges.”An indictment unsealed last week characterized Mr. Isgro as a Gambino soldier who conspired with Joseph Giordano, a Gambino capo and bookmaker, to set up an operation that used offshore wire rooms in Costa Rica, under the names Elite and Cristal, and took bets from people in the United States. Mr. Giordano died of cancer in prison in October.…Prosecutors tried to revive the case for several years, but never managed to indict Mr. Isgro again. He continued to produce music, releasing albums by James Brown, Rick James and even a posthumous album from Tupac Shakur. He also got into movies, producing “Hoffa,” which starred Jack Nicholson.In 2000, he was accused of lending money at interest rates of up to 5 percent a week and sending thugs to beat borrowers who failed to pay. He pleaded guilty to extortion and was sentenced to 50 months in prison.Now the Manhattan district attorney, Cyrus R. Vance Jr., has said he has evidence that Mr. Isgro, after leaving prison, conspired with Mr. Giordano to help set up the offshore sports book in July 2009.“These charges go back more than five years,” Mr. Rubin said. “It looks to be an ancient, ancient investigation, so we are looking forward to having our day in court.”
Neil Irwin tried explaining Wall Street ethics at The Times but he went after them with a toothpick instead of a howitzer.
The financial crisis that nearly brought down the global economy was triggered in no small part by the aggressive culture and spotty ethics within the world’s biggest banks. But after six years and countless efforts to reform finance, the banking scandals never seem to end.The important question that doesn’t yet have a satisfying answer is why.Why are the ethical breaches at megabanks so routine that it is hard to keep them straight? Why do banks seem to have so many scandals-- and ensuing multimillion dollar legal settlements-- compared with other large companies like retailers, airlines or manufacturers?… The latest British banking scandal was enough to make [Bank of England Governor Mark] Carney, a former Goldman Sachs investment banker, sound like an Occupy Wall Street populist.…Carney has company among top bank regulators. Bill Dudley, the president of the Federal Reserve Bank of New York, said in a speech last November that “there is evidence of deep-seated cultural and ethical failures at many large financial institutions.” The Financial Times reported this week that New York Fed officials were putting the screws to major banks in private meetings, insisting they strengthen their ethical standards and culture.It is telling that two of the regulators who have become most publicly angry at the banking industry for its repeated lapses are also those with the most experience with the industry. Mr. Dudley is also a former Goldman Sachs executive, and his role at the helm of the New York Fed puts him at the front lines of overseeing the biggest and most complex American banks.You know it is a sign that things are bad when people like Mark Carney and Bill Dudley think the banking industry has an ethics problem, and feel so strongly about it that they say so publicly. You might have thought that the 2008 crisis would have scared everybody in the banking industry straight-- and resulted in less pushing of the ethical boundaries. But many of today’s scandals involve actions that happened post-crisis; the Lloyds interest rate manipulation that Mr. Carney assailed this week took place in 2009.The fact that these scandals have all occurred since the crisis raises the uncomfortable possibility that these problems go deeper than a few executives in a few banks who push boundaries, and involve something fundamental about how the industry is organized.A study of Citigroup’s ethics policies in the wake of several dot-com era scandals, by Justin O’Brien of Queen’s University in Belfast, revealed the problem. In effect, Citi created a range of rules and internal controls to try to stop the kind of fast-and-loose practices in its research department that landed the bank in legal trouble. It might not be enough, Mr. O’Brien argued in the International Journal of Business Governance and Ethics.Ethical programs “must be linked to material incentives in order to be effective,” he wrote. Any deviation from the ethics program, “even if financially lucrative, must be punishable by nonpayment or clawback of bonuses,” he said, adding, “Sharp practice that complies with the law but causes reputational damage should be penalized.”…For a darker view of why there is so much fraud in banking, consider this from Richard Posner, the federal judge and University of Chicago professor, who offered one answer in a 2012 blog post titled “Is Banking Unusually Corrupt, and if So, Why?”Both a bank’s financial capital and its human capital are short-term propositions, Mr. Posner wrote, meaning both investors and employees can readily jump to a better opportunity at a moment’s notice. “Any firm that has short-term capital is under great pressure to compete ferociously, as it is in constant danger of losing its capital to fiercer, less scrupulous competitors, who can offer its investors and its key employees higher returns,” he wrote.“Such a business model attracts people who have a taste for risk and attach a very high utility to money. The complexity of modern finance, the greed and gullibility of individual financial consumers, and the difficulty that so many ordinary people have in understanding credit facilitate financial fraud, and financial sharp practices that fall short of fraud, enabling financial fraudsters to skirt criminal sanctions.”In other words, the ethical breaches that Mr. Carney and other regulators assail may just have deeper roots-- and thus more elusive solutions-- than anyone might like to see.
