Corporate Greed and Pathology

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THE LUCIFER EFECT refers to a book by that name, which does the best job I have seen of explaining how good people can be morphed into doing evil things. It is required reading in my opinion to understand the underlying causes of this latest financial pandemic, to understand how "everyone" in the entire financial business became complicit in the cause.

To give you a glimpse of another explanation or illustration of the Lucifer Effect, see the article below:
althought this document has no source, and no confirmed writer, it is written and hinted as if it came from Bernie Madoff. No proof of this exists, but yet it provides a pretty decent explanation for the question of what financial porn is.............



The PACIFIC GATE POST
Challenging Perception on Business, Culture & Politics

- "Raider of The Lost Bark" by JAMES RAIDER

Monday, January 19, 2009
Bernie Madoff - A Letter Of Explanation?
The Editors of The Pacific Gate Post received an envelope from persons unknown, containing a letter apparently discarded in an alley behind an Upper East Side, Manhattan apartment building. The letter had been crumpled up into a ball and partially torn, possibly having been thrown out of a penthouse window. Its reconstruction was completed and we publish it hereunder, confident that even though it is a piece of fiction, it may contain shreds of clarification on recent economic events.

Dear Friends,

As I sit in my Upper East Side apartment living room, with nowhere to go, I watch the news and read as many publications as I can have sent up. It’s almost like I am observing some other person everyone is talking about. That characterization in the news is not the Bernie I know. I feel an urgent need to clear the air because, I’m not the person being portrayed. This whole thing has been completely contorted by the media. I am not so different from the rest of Wall Street. So please bear with me.

I am under house arrest, and the authorities are even searching my mail. I have more than enough time to contemplate the last 48 years. It’s been that long since Ruth and I formed this business of ours, and I feel bad that the downturn in the economy has been so destructive. I was always a very private man, have never liked public affairs and I’ve pretty well stayed to myself. Although my wife, Ruth, who is also my best friend, dragged me out to functions, I like peace and quiet. I’ve been accused by some of being antisocial, but that’s not the case. I just like being by myself. Just ask her. Even when we go out for dinner, it’s just the two of us. That’s it. She’s very patient with my mood swings, and she’s the best thing that’s happened to me. I prize privacy as much as I despise failure.

I also can’t stand blowhards and the investment business is full of them. Since in the past I did not wish to cast insult on anyone by excluding him or her, Ruth and I mostly stay by ourselves, or with our family. These people running hedge funds and investment banking companies have overinflated perceptions of themselves. Everyone worships them. Hard working Americans think these money managers know what they’re doing, because CNBC, or Barron’s, or the Wall Street Journal tells them they do. I’ve spent my life with these people. I’ll tell you what. They don’t know anything extraordinary, but they’re good at pretending. They don’t produce much, but they get paid more than anyone who actually works for a living.

Let me explain something here. For years I ran a successful business. I was a trader and my goal was to become the most successful fund manager on Wall Street and build the biggest fund on the planet. We did it all. Hedge fund, broker-dealer, trader. We had the latest and best technology, which gave us an edge. Technology was critical. Our software made it possible for me to manage the reports and payouts on the enormous amount of money that were thrown at me. I developed a reputation, a really outstanding reputation. No one could touch me. I had the Midas touch and from Miami to London every money manager running anything bigger than a bingo scurried energetically to attract my attention. I understood the big money boys, and I delivered exactly what they wanted, reasonable and steady returns.

I’ve noticed that some people, who invested with us, now appear indignant and are claiming losses. Such hypocritical behavior is downright pathetic. Ask them how much they made with me, year after year. If they were fund managers or fund aggregators, here’s a hint, check their overseas travel schedules from past years. Check the files of travel agents. They’re full of good news for any investigator worth his salt. When you think of Geneva, what do you see? You probably envision an idyllic, very European city overlooking beautiful Lake Geneva surrounded by the Swiss Alps. For years when I saw Geneva, and a few other cities like it, they were deep wellsprings of cash exchanged for a piece of the action. I am using Geneva as a metaphor here. A metaphor suggesting mountains of cash sitting discreetly in banks and safety deposit boxes around the world from kickbacks or commissions.

Private bankers are guys who manage pools of capital. No one can check how much he or she gets in “kick backs” because there is usually no conspiracy. By that I mean, … there are only two people in the room. That’s not a conspiracy. Just check some of the feeder funds, or the funds of funds, and their deal-maker managers. Not all of them of course, but some. That’s where I started the game for crying out loud. I arranged for others to set up funds, and they fed that capital into my companies. Initially it was just small investment groups, but those snowballs grew, and grew and grew. I became bored with repeating the refrain about my split conversion strategy using both put and call options, but before you knew it, we were raising more money than anyone could invest intelligently.

So many money managers would come with their exasperating questions, and the pretence of due diligence. Some of the idiots who really took themselves seriously even came with forms, asking about trading strategies, governance, compensation and using terms like fiduciary standards or benchmark performance. Like these barnstormers had a shred of any moral standards. These were the same crackbrains who charged their clients millions for “reinvesting” the money elsewhere because they couldn’t run a fund themselves. They are the modern version of snake oil salesmen. Getting them out of my hair was easy. I just made myself unavailable. You want in, give me a check. If not, get out. It worked. They couldn’t wait to hand over money.

The principal key to success for me was “perception.” Great PR is absolutely everything. That’s something my father never had the privilege of understanding. He tried to get into the money game, but had little success. I somewhat fell into the character of the aloof and insulated investment banker by accident. I didn’t want to answer questions about my trading strategies, and even when I consented to meeting with potential investors directly, I kept all meetings short. My aversion to meet, worked wonders and the more I became unmeetable, the more people wanted access. This evolved to the point where people threw hundreds of millions at us, just so that they could get twenty minutes in my office, or so they could be seen having lunch with me. How weird is that? I made sure that I joined the right organizations, which provided me some credibility, but in fact they would end up bragging that I was on their board, or part of their group, or that I was an advisor. Through goodwill, I created a long series of what you might call recursive loops of gullibility that brought me an infinite source of investors.

The games in the investment business may have a few rules but these are just veneer. The complexities that have evolved are intended to circumvent or confuse oversight. How can anyone, even those intimately familiar with trading, catch a trader worth the name who’s front-running, or naked short selling, for example? Unless you’re sloppy, you can get around legal restrictions without detection. Investigators know the game, but they have insurmountable difficulties when it comes to getting hard evidence. Today, volume and technology make illicit trading difficult to detect, yet many people on Wall Street do it. You do what you have to do in order to remain ahead of the next guy. If you don’t believe me, do your own research on how many of the major firms have been fined over the last thirty years with timid slaps of the hand. What they were doing was illegal, but who went to jail?

Loyalty was critical to me, and a central part of my strategy was to make sure that all investors understood unambiguously, if they took their money out of my hands, they would never be allowed back in. As a result, most investors never asked for their principal. If someone invested, we also demanded that they not divulge anything about their investment, or our business. That guaranteed that they would spread the word in hushed voices, punctuating our image of exclusivity. No one can keep a secret, least of all an ego with a pressing need to brag of its admittance into the most exclusive investment club in the nation. They can’t now be accused of gullibility when greed was their motivation.

In the past decade or so our total volume under management created momentum. The size of our volume provided us a perceived ability to affect the markets. Investors assumed that we could manipulate market sectors to our financial advantage. They were willing opportunists and ardent participants, knowing full well that such manipulation would have been illegal. This was another critical element in my strategy. These deliberate and enthusiastic partners in my game asked no questions once they were in. Even people with serious money “don’t want to know” although they might suspect. No one is innocent. As I said, good, effective PR is everything. With the right image everything is overlooked, including what you have or have not done.

How do you think all those salaries and bonuses on Wall Street are justified? Their image. They don’t call it Ponzi, but what’s the difference? Money is vanishing. Why do you think no one is getting any accounting of where the bailout money of the banking industry has really gone? Well over a trillion dollars has mysteriously disappeared into a giant black hole. Bailout money is being used to pay hundreds of millions in bonuses? Is anyone accountable? Oh, sure, Congress pretends it is going to ask questions. That will be about as effective as those questions I was asked by those investors who wanted to understand my bookkeeping. Why so much complacency when there is so much anger at me? Am I just a scapegoat, and the object of venting, that is a necessary relief valve absolving all of Wall Street? All cameras are focused on my front door while taxpayer bailout money is siphoned off to distant islands and yachts not registered in the U.S.?

There has been an assumption about my sons, Andy and Mark, and other family members having participated in my schemes. They worked with me but had nothing to do with it. Nothing. I needed them to take care of our private family interests and our charitable work. That was a central component of the family’s communal focus. My kids turned me in. I asked them to. They just pulled the trigger a little early though, I had some plans for a few days before the authorities showed up at the door. Same goes for my brother, Peter, who has been a loyal associate taking his instructions from me, overseeing our trading operation, but leaving all of the senior fund management alone. He is a lawyer by training, confused by investment strategy as most people are, and he knew nothing about trading and money management.

You will read of endless “trusting” investors having been swindled and you’ll hear their rationalizations. Most of them were just greedy. I also predict that you will read about the closing of hedge funds, and funds of funds over the next couple of years. Their leadership will not be questioned, although their actions were not much different from mine. They will simply slip away into the night. I am proud that I have at least had the decency to step up and take the blame. I decided to plead guilty in order to end the stress on everyone around me. I have taken a giant leap onto my sword, and I have instructed my lawyers to make sure any deal they conclude with the District Attorney is final, and all-inclusive.

People are told, “don’t manage your own money, hire a professional.” Think about that statement. Why is it that money is such an enigma to so many people? Why do they listen to the so-called experts? Why do they persist in asking to get ripped off? Investors continue to place their money in the hands of people they don’t really know. Do you really know an acquaintance? Do you truly know a friend? We barely know ourselves, yet we trust others with our hard earned cash?

I am not like Wall Street, I am Wall Street. Today I will ask my lawyers to see if I can do consulting for the investigators and legislators. I know this game. I could be the best thing that’s happened to cleaning up The Street in a hundred years.

Sincerely,
Bernie

[admin]

Easy To Become Addicted To Money
By Linda Leatherdale, Toronto Sun | Published 10/16/2006 | Money Management |
Easy To Become Addicted To Money
We've all heard about addictions to sex, gambling, drugs and alcohol.

But what about being addicted to money?

Believe me, there are many out there who are obsessed with money. And sometimes their lusting after the almighty dollar can lead to a life of ill-gotten gains.

Take famous swindler Patrick Kinlin, who died in jail after defrauding 75 investors of $ 20 million.

This Bay Street financial adviser loved the good life. Chauffeur-driven Mercedes, luxurious residences, expensive champagne, trips abroad -- all at the expense of his clients.

Kinlin also loved the ladies, and having money made the ladies love him. He married three times, and had a string of affairs, even while in jail.

But as with any obsession, there's always a Day of Reckoning. By the time the house of cards finally collapsed, fraud police found Kinlin in the psychiatric ward of a U .S. hospital, where he was frail and on suicide watch.

He got five years in the slammer, but only lived to serve two of them.

Then, there's Perry, a Bay Street dynamo, who lived for the deal. He worked night and day to give his family the good life -- a mansion, expensive cars, trips, private school, etc.

But when markets soured, and a deal of a lifetime went south, he couldn't handle it. Secretly, he borrowed and borrowed as he tried to stay a float while slowly sinking into a deep depression.

Finally, he jumped off a bridge. To this day, his family is devastated -- emotionally and financially.

"It's easy to get addicted to money in this industry," admits Bay Street veteran Fred Ketchen, director of equity trading with ScotiaMcLeod. "There's always a carrot dangling in your face -- a bigger commission, a bigger bonus, a bigger deal, a bigger office."

Ketchen preaches the key to survival is living a balanced life, "not chasing money for 20 hours, sleeping for four, then waking up cranky."

He also warns burn-out can come quickly for the Stars of the Street, who've always got to watch their backsides.

Patricia Lovett- Reid, senior vice-president of TD Waterhouse, points out our new addiction to technology, like BlackBerrys, are only encouraging the money obsessed to become even more obsessed, by allowing instant access to trading and dealing.

Lovett- Reid, also author of Live Well, Retire Well, has a few mottos in life. She says her mother always told her: "Patti, you do not want to be the richest person in the graveyard."

Other mottos include, "Life is not about money, but money will allow you to live the lifestyle you want to live," and, "you can't work 24 -7 and you can't spend 24 -7."

Which leads to this: The other obsession with money. Spending it, even if you don't have it.

"Overspending is a compulsive problem and it's usually masking problems in a person's personal or professional lives, like low selfesteem and depression," says Laurie Campbell, executive director of the Credit Counselling Service of Toronto (creditcanada.com).

"If they spend, it gives them an instant high. So they go on a spending binge and blow the budget. Then, they hide what they bought and feel remorseful," Campbell said.

But even though there's a sense of guilt, they feel compulsed to overspend again, she adds. As in combatting addictions to gambling, drugs or alcohol -- only going cold turkey can cure the spendaholic, she says.

"It may be tough love, but you've got to cut off the access to credit. Cut up the credit cards, get rid of the line of credit and never allow access to equity in a home," she said.

If the problem's serious enough, psychological counselling may be needed. But for sure, go for credit counselling, she said. Then let the healing begin.

[admin]

Prison for Madoff? Send him to rehab
Article Comments (79)
SARAH HAMPSON
From Monday's Globe and Mail
January 18, 2009 at 10:48 PM EST
For a moment, at least, feel sorry for Bernard Madoff.

The disgraced New York investor, accused of running a $50-billion (U.S.) Ponzi scheme, may be a cash-oholic.

People become addicted to work, video games, sex, exercise, food. Why not to money?

Some people have an urge to make more and more of it – through any means. Could it have been a sickness beyond Mr. Madoff's control?
Maybe the guy needs rehab, not prison.

Money, after all, is like a drug in many ways. A boy I knew in my childhood, now a successful entrepreneur who has made and lost millions over his career, loved money from an early age. At 10, he had a paper route, and when he had collected the money from his customers, he would pull out the wad of dough from his pocket and waft it under my nose.

“Smell the money,” he would exhort. “Isn't it great?” Money – at least for him – was a mood enhancer.

Certainly, it has morphed into an entity well beyond its original and rational economic purpose: a unit representing a value, used as a means of exchange. While it retains its function as a mere utility, money has acquired surplus meanings and powers.

Karl Marx, the father of communism, thought of it as a form of capitalist exploitation. Freud had a theory about it as feces: a prized possession that each person creates. Georg Simmel argued in his tome, The Philosophy of Money, published in 1900, that it had come to embody the modern spirit of calculation and abstraction.

People in almost every culture in the world have an intimate dance with it. We love it. We hate it. We eschew it. We lust after it. It has the potential to create panic, status, sexual allure, power, wellbeing.

And some people who have a lot of money want (and need) to make more. Seemingly, they can't stop. They have more than they could possibly ever need or even spend, but they keep working (and in some cases, committing fraud) in pursuit of its accumulation.

Is greed your fault, though?

There is an underlying biochemical reason, some psychologists say.

“The chemical dopamine is excreted in our bodies when something exceeds our expectations, like a new purchase,” explains James Gottfurcht, a clinical psychologist and president of Psychology of Money Consultants in Los Angeles, California. “A lot of people self-medicate. There's alcohol, food, pills or purchases and money. You buy a shiny new car and it excites you. You are getting an emotional hit, but after a while it wears off because you have adapted to it, and you start at neutral again. So, you need to replace or repeat that high, in this case with money or purchases.”

Call it an acquisition addiction, which gives a new twist to the popular pastime known as retail therapy.

“It's a vicious cycle,” Dr. Gottfurcht says. “You can never fill an internal void with an external. If you're missing love, acceptance, belonging, empathy – whatever didn't happen for you in your life – you are not going to fill it for any length of time with any of these external [agents].”

Obsession with money is complex, of course, and a rich subject for psychologists. Some explain the accumulation of vast wealth less as a biochemical cycle of emotional highs and lows and more as a driving need to boost self-esteem and increase social rank.

“People's concern with status and reputation are really important,” says Paul Webley, an author and economic psychologist at the University of London in England. “And money is a convenient marker of that. If you are concerned with your status and rank in society or in your rank in the criminal fraternity, having more and more of this substance is like having more and more Olympic medals. But is someone like [decorated British rower] Stephen Redgrave addicted to Olympic medals? I don't think so. I think he was wanting to prove he is the best rower now or the best rower ever.”

Money as power is also a driving incentive, Prof. Webley says. “It is a very flattering position for someone to be wooed by those who act like supplicants because they need your money.”

Observations of what he calls “curiosities” of human behaviour about money led Prof. Webley to co-author a paper in 2005, while he was at the University of Exeter, titled Money as Tool, Money as Drug: The Biological Psychology of a Strong Incentive.

“The idea of money as a drug is a useful one because it captures the explanation of the apparent irrationality of behaviours around money and it also helps explain behaviour, which on the face of it is self-destructive,” he explains.

Addiction does come into play. “There are instances in which people are striving after money not for status reasons,” he says. “Money can have a druggy effect, drawing people into wider addiction. That is what you see with the lack of reduction in work hours, for example. You see quite the opposite across the board: an increase in the amount of working to gain more money – money as substance – and to borrow money … so you can go and spend it. In our societies, money has captured behaviour in ways that aren't particularly good for people's happiness and contentment.”

Which leaves us with Mr. Madoff, whose character, motives and movements are the cultural discussion du jour. He was reportedly wearing a bulletproof vest as he left for the Manhattan federal courthouse last week – followed by paparazzi and filmed by cable news shows.

Perhaps his best move would be to make a plea for a little empathy.

X-Files actor David Duchovny went public with his sex addiction, after all. He entered rehab and months later was pictured with his wife, Téa Leoni, and children at a basketball game, as if everything was on the way to normalcy again.

Redemption, or at least the hope of it, always comes in the admission of weakness.

[admin]

Success - Its Not What You Think

Alain de Botton has a different idea; here’s a quote from his entertaining lecture (below) dealing with career crisis and the modern ideas about success:

“It is not the material goods we want, it is the rewards. (…) The next time you see someone driving a Ferrari, don’t think this is someone who is greedy, think this is someone who is incredibly vulnerable and in need of love.”
http://www.bankr.co.uk/2009/08/success- ... you-think/

see the video link above for a greater understanding of what drives those who appear pathalogically greedy

[admin]

I am coming to the realization that as far as regulators are concerned, there is a huge problem in paying them a huge salary. The problem is that when that huge salary is being paid by the very industry they are supposed to regulate, it turns them into automatons, willing to say and do anything to keep that salary.

Despite job descriptions, public protections, codes of conduct etc. The human instinct of self preservation seems to take priority over all else (for those who are less than professional) and they cave in. They become "bought" by the financial industry and they serve the needs of this industry very well.

This seems to be the case with Canadian securities regulators, where some 90 Ontario Securities Commission employees at one time earned more money each than the TOP man at the SEC in the United States earned. A hugely bought and paid for example.

You would think that with more money would come more responsibility and accountability, but in fact, the evidence points to an opposite conclusion. With more money, it could be that more people are just willing to sell their souls.

[admin]

As I was out walking the dogs yesterday, I pondered some simple, common sense explanations for our recent economic collapse. How to explain the complex world of derivatives, credit default swaps, hedges, bets and whatever else the rocket surgeons on wall street and Bay Street were making and using to skim millions in bonus money. Here is what I cam up with:

It is like new and exotic hallucinogenic drugs that are made in back alleys and meth labs around the country. They are new, unnatural, cooked up from chemicals and cough medicine that never should be cooked up together, including some toxins from less than scrupulous drug makers....?

If you apply that kind of mentality to the financial world. A childish sandbox mentality of "me, mine, more" with regard to anything and everything in the world, then you end up with financial scientists, alchemists and creationists who cook up complex products for sale to the world.
Why? Is it because they can create something new and valuable?
No. It is simply this. They can create something that is new and can be sold. The entire reason for existence of some areas of finance is to generate a commission or a fee. A new product, however foolish or misguided, can often be touted up (think of lipstick on a pig) and sold with mass misrepresentation to the public.

If you are tired of earning hundreds of thousands, in the investment business, you just need to find (or make) something to sell that will earn millions for you. Tired of earning millions, then build a synthetic investment that will earn billions. Since they are synthetic, they can be a distant relative to anything tangible or intangible. Your imagination (and your ethics) are your only limiting factor.

And here in Canada? No prosecutions. No matter how damaging, how dangerous and how misleading. We simply do not have a police of prosecution system to take care of financial crime in Canada.

So if you are having a hard time understanding Bay Street or Wall Street wizards, ignore all the technical stuff, and remember the image of a criminal in a crystal meth lab. You will be far closer to understanding current economic problems than any image I can think of.

I posted this message after just pondering it, and then today reading the following in the New York Times. I found it similar enough to my own thoughts that I decided to put it below.

[admin]

NEW YORK TIMES
By CALVIN TRILLIN
Published: October 13, 2009
“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked.

“Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.”

He did indeed look capable of buying his own drinks — one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

“But weren’t there smart guys on Wall Street in the first place?” I asked.

He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division. “You are either a lot younger than you look or you don’t have much of a memory,” he said. “One of the speakers at my 25th reunion said that, according to a survey he had done of those attending, income was now precisely in inverse proportion to academic standing in the class, and that was partly because everyone in the lower third of the class had become a Wall Street millionaire.”

I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge — earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks.

“That actually sounds more or less accurate,” I said.

“Of course it’s accurate,” he said. “Don’t get me wrong: the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren’t really greedy. They just wanted a nice house in Greenwich and maybe a sailboat. A lot of them were from families that had always been on Wall Street, so they were accustomed to nice houses in Greenwich. They didn’t feel the need to leverage the entire business so they could make the sort of money that easily supports the second oceangoing yacht.”

“So what happened?”

“I told you what happened. Smart guys started going to Wall Street.”

“Why?”

“I thought you’d never ask,” he said, making a practiced gesture with his eyebrows that caused the bartender to get started mixing another martini.

“Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place. That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”

“But you still haven’t told me how that brought on the financial crisis.”

“Did you ever hear the word ‘derivatives’?” he said. “Do you think our guys could have invented, say, credit default swaps? Give me a break! They couldn’t have done the math.”

“Why do I get the feeling that there’s one more step in this scenario?” I said.

“Because there is,” he said. “When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. All our guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness.”

“So having smart guys there almost caused Wall Street to collapse.”

“You got it,” he said. “It took you awhile, but you got it.”

The theory sounded too simple to be true, but right offhand I couldn’t find any flaws in it. I found myself contemplating the sort of havoc a horde of smart guys could wreak in other industries. I saw those industries falling one by one, done in by superior intelligence. “I think I need a drink,” I said.

He nodded at my glass and made another one of those eyebrow gestures to the bartender. “Please,” he said. “Allow me.”

Calvin Trillin is the author, most recently, of “Deciding the Next Decider: The 2008 Presidential Race in Rhyme.”

[admin]

.......or as Jim Roache of Ottawa so simply tells it:

“This recession was caused by corruption, plain and simple. Larry Elford, tells his story but amazingly gets other insiders to do likewise. I was blown away!
Jim Roache, Ottawa

sorry for the plug, but he was speaking in reaction to seeing the film journey BREACH OF TRUST at www.breachoftrust.ca
(view ten minutes of chapter 8 if you want the short and sweet summary version)

(It is probably not as good as Jim suggests, but investors are pretty damn starved for any message that comes from the real world, and not the "make believe" world of finance

[admin]

http://www.sec.gov/news/speech/1936/111236douglas.pdf


ADDRESS

by

WILLIAM O. DOUGLAS

Commissioner, Securities and Exchanee Commission

At the

NEW YORK STOCK EXCHANGE INSTITUTE

Thursday, November 12. 1936 8:45 a.m.

Customers' Men

Since this is a little university in Wall Street, I wish to speak to you in terms of education. I have no concern over the lack of any adequate opportunity which this institution will afford you to obtain necessary training and equipment for your professional work.

n I believe that you will be introduced to many of the mysteries of Wall Street.
n I believe your studies in economics, accounting and finance-will stand you in good stead and give you a broader perspective on your vocation.
n I believe you will be well trained to master the complicated financial machinery of which this spot is the physical center.
n I believe you will receive instruction designed to draw the line for you between legitimate and illegitimate; honorable and dishonorable business.
n I have no worry on the quality of your instruction.

n My only worry is what will happen to you as you move forward in your business.

I am particularly happy to discuss with you some of these problems, because you are and represent youth.

n Youth has both ambition and ideal-ism—an ambition to conquer; an idealism to make the homely virtues living realities.
n Youth is anxious to preserve the best from the past and to discard the worst.
n Youth is eager to repair the damage of these who preceded them and to build constructively and permanently.
n Youth is open-minded and forward-looking, not oppressed by prejudices engendered by habit, routine, and convention.
n Youth is the generating force whereby we move forward towards a fuller and better national life.

Hence, I welcome this opportunity to lay before you some constructive ideas for your consideration—ideas which relate to the business into which you are fast being integrated. One of the most difficult jobs is to view objectively one's own activity and conduct. This is likewise true of one's vocation or business. But I feel it will be worth your attempt if you undertake to do so.

In this connection, youth faces perplexing problems. There always have been and always will be subtle and subversive influences at work to corrupt the high functions which business, finance, and the other professions perform. For this reason one of the chief problems of youth is an ethical one. Friends, associates, environment, indeed time alone, work for this corruption. When I speak of corruption I do not mean gross extravagances in the form of larceny and the like. I refer to the practice of gentlemen teaching youth gentlemanly ways of redistributing the wealth of their clients so that they may get an inordinate share of it in extravagant ways.

n I mean the youth of the ideal of freedom of opportunity and private initiative to warrant or excuse exploitation.
n I mean the application of pressure from employers that these high virtues be exercised solely to the end that their earnings will increase.
n I include temptation to ape the activities of clever market operators so that acquisition of material wealth may be easy, effortless, and immediate.
n I refer to the urge to keep the customers' portfolios well churned so that by the quick inflow of commissions one may the sooner join the elite of high finance.

Some of your elders say that the thing that was wrong with 1929 as that they were too commission hungry. But human nature has not change. I see no reason to believe that youth cannot develop as ravenous an appetite. There will be inducements to do so, for the pressure to move onward and upward, according to cash-register standards will be almost irresistible. Hence, that which will at times appear to you, either by example or by precedent, as the end of the rainbow will be a carnation in your lapel and the comfortable club life of your city. These .are not matters which should depress youth and make it jaundiced and bitter. Rather they constitute a challenge-to youth to make constructive conquests and to capitalize opportunities missed by their elders.

Your profession has no particular claim to distinction in this respect. The same elements appear as a corroding influence in other professions. Our educational system has been too virile in production of men immunized from a sense or feeling of social responsibility; trained in the ,art of plunder in gentlemanly ways; imbued with the false ideal that the American way means exploitation. There has been too little emphasis on the principle that the basic essential of an education is the ability to think – to think in terms of human values, to think in terms of social responsibility, to think in terms of what the cumulative effect of your daily activities are in terms of your clients' welfare and of your character. This need, while not peculiar to your profession, is especially accented there because in final analysis yours is a profession affected with a public interest.

I can perhaps sharpen and make more specific some of the matters which cause this worry and concern, if I restrict my comments to one vocation which at least some of you will enter and which doubtless holds out bright prospects and hopes, especially as we move forward on the road of prosperity. This is the vocation of the customers' man.

I suppose you would say that a customers' man is not a salesman but an order clerk who transmits customers' orders, who makes sure that the orders are executed, and who reports the execution of the orders to his customers. You might say that although he contacts customers and solicits business for his employer, he does not have an inventory of securities to sell. When a customer makes a purchase through his firm, the firm does not (or certainly should not) sell the security which the customer buys. But, in spite of all this, the customers' man is a salesman, though he has nothing to sell but himself, his services, and his counsel.

The function of providing a mechanism where buyers and sellers can be brought together is..an important function to perform. Its importance is not restricted to the securities field. If you have mice and I have a mouse trap, the one who supplies the ready machinery whereby we may come together is performing an important function, at least judged from the viewpoint both of those who do not like mice and of- those who desire to sell mouse traps.

Securities exchanges similarly serve high function in providing the mechanism whereby buyer and sellers can readily come together. One of the problems raised by the institution of customers' men is the basic question of how far these markets should go towards providing salesmanship as distinguished from a market where purchases and sales can be effected.

Salesmanship like its brother, advertising, may be an indispensable ingredient of our system of business organization.

Salesmanship in the field of securities, however, has given rise to such a host of abuses that the most conservative safeguards are necessary.

Finance has used salesmanship as a short cut to profits.

Salesmen have not been able to forego those profits by telling customers not to buy this or that because it is not economically justified.

Salesmen have been told and have believed that their task is to sell customers whatever they want, and, if necessary, make them want what the salesmen have, at any price which the traffic will bear.

Those who have selling organizations on their hands would not take the larger view, as that is against their financial interests.

These selling organizations clamor for salable securities.

They like merchandise which is stylish and which has a popular demand, even though such merchandise usually reflects an exploited situation.

Hunger for commissions thus becomes at times the sole arbiter of the process of capital distribution and preservation.

When that happens, the securities business has become not a legitimate enterprise conducted for a profit but a business engaged in exploitation.

This type of salesmanship which I have described has no necessary relationship to the business of securities exchanges. These could be conducted without it and it could be conducted without them. And I do not wish to attribute to the exchanges, as such, the evils and abuses which such salesmanship has engendered. But it is important to consider the impetus to excesses which is provided when salesmanship of the type supplied by the customers' man is added to exchange trading. There is then added a stimulating factor. The glamorous limelight of exchange trading is sufficient in and of itself to attract the moths of speculation and investment. Customers' men may make that light seem brighter and more attractive than is warranted.

History teaches that the interest of customers' men frequently lies in encouraging customers to buy and sell not only often but promiscuously and indiscriminately; to be satisfied with small profits or to accept small losses; and to make the daily pace and direction of the stock market their measurement of value. Customers' men, being in constant contact with tickers and news, are frequently influenced by short-term considerations, rumors, inside dope and the like, and disseminate this influence among their customers and prospects. Furthermore, they have not only distributed other people's rumors; they have manufactured and distributed their own. Customers' men frequently have been 'primarily interested in generating trading by speculators, since their compensation is dependent, indirectly at least, upon the volume of business transacted through them. At times their activities reach the proportions of high pressure salesmen whose frantic telephoning and whose conduct are more compatible with the boiler room than with customers' rooms of member firms. Accordingly, they become an influence which stimulates speculation and encourages active and in-and-out trading.

Perhaps the tendency to such speculative activity has been accentuated by the nature of the customers’ men, since as I have said, they are primarily engaged in the solicitation of commission business in securities. In a sense they are order clerks who see to the interests of their -customers in transmitting orders, in making sure that the orders have been properly executed, and in reporting the execution of orders to the customers. By their constant observation of the market, of news and of tickers, they also keep their customers apprised of price trends of securities in which they cause their customers to be interested and of new developments affecting those securities. But it should be remembered that, as to counselor advice rendered by customers' men. they are not, for the most part, trained statisticians or economists. Their experience with securities has been largely gained in the street or financial district. At times their contacts in the financial district and elsewhere give them insight into the merits of certain securities. Yet even though they may make at times studies of corporation reports and statistical data, the advice or counsel which they are generally prepared to offer is neither that of the statistician nor that of the professional investment counsel. Thus it is that there is a growing belief that customers' men are of no use to bona fide investors; that persons who desire to invest money have ample facilities among the many sound and reliable institutions and member firms of securities exchanges without the necessity of the intervention of an additional agency like the customers' man.

These facts emphasize one of the dangers of attaching such a person to our already complicated and impersonal market machinery. It tends to separate by one further degree values from things. It tends to accentuate the dominant characteristic of securities exchanges as inanimate objects – impersonalized to such a degree that human and social values disappear' and economic facts become blurred and indistinct.

This separation of values from things is one of the most conspicuous danger points in our entire system. The progressive movement from barter, tokens and coins to paper money and securities has enabled finance to treat business as mere conglomerations of stocks. bonds, notes, debentures. Finance has not neglected the opportunity thus afforded. Through complicated financial structures, holding companies, collateral trusts, tribute in the form of hidden charges, and the like, it has created a system which at times makes almost impossible any intelligent determination of the relation between values repretsented by the securities and the things which securities represent. Or if the determination of such relationship is possible, the tendency is to treat the facts of transportation, manufacture, wholesaling, retailing, as secondary rather than primary. The weather vane of business becomes not the profit and loss account and the balance sheet, but the gyrations of these pieces of paper as revealed on the ticker. Under such influences, the ticker cannot become the pulse of business. Under such influences, the ticker cannot follow business -- the tendency is the false illusion: of business following the ticker. In other words, economic facts disappear from the picture or become blurred and indistinct. The fact that people who have saved are involved, and that their future and security are at stake is also forgotten. The social and human values disappear. When that transpires, the market becomes a place for games rather than orderly investment and liquidation processes. The consequence.is, as I have stated, an inanimate and impersonalized market devoid of human or social values and irresponsive for periods to economic facts. Tragedy in-the form of social disintegration is the end result.

Customers' men to the extent that they stimulate trading by their solicitation methods, accentuate this tendency. They add an artificial element to the market processes. They breed excitement and feverish interest. In their small way, they add to the churning of portfolios which in terms of basic economic functions has no significance. It is important only as measured in terms of cash-register standards. The activities of customers' men can have no other effect, so long as they parade themselves as understanding and knowing markets, market trends, and securities values, when in fact they do not have such understanding and knowledge.

These facts make abundantly clear that the whole institution of customers' men is at least of unestablished value. They stress anew the question of whether or not such a stimulating influence has any proper place in our sensitive and delicate market mechanism. They challenge you who are moving forward towards that profession to produce living evidence that the economic, human and social values involved in the exchange process not only will not be sacrificed, but, in fact, will be enhanced by virtue of your activity. If you do not produce that evidence, society or your exchange may feel that your function performs such a distinct disservice to investors as to justify a change in the system.

But if, and so long as, this vocation continues there are certain practices which need be eschewed, lest you further corrupt it and lest it corrupt you. In this brief paper I cannot mention all of them. A few will suffice for illustration.

The first relates to the fiduciary position of customers' men. He who holds himself out as rendering this investment counsel and this service to customers should be held to high fiduciary standards of conduct. If he who gives this advice and encourages and stimulates his customer's purchases and sales, has a self-interest in the transaction over and above his salary or regular compensation, his customer is apt to receive not unbiased and disinterested advice but advice discolored by the self-interest which such purchases and sales will serve. The presence of this self-interest will deprive the customer of the benefit of disinterested and impartial advice, the very thing which presumably the customer thinks he is getting. The courts of law have refused to admit that the average individual could stand the stress and strain of such dual interests. When the issue is resolved in final analysis, it means that the counsel given will be likely to follow the bias and self-interest of the agent rather than the best interests of the customer. In any given case the factors in motivation are too subtle and tenuous to result in anything but guesses. But human experience teaches that a man cannot serve well two or more masters. In terms of customers' men, this fundamental principle of fiduciary relationship should mean at least two things.

(1) First and foremost customers' men should have no interest, directly or indirectly in any security for themselves, except that which they, have acquired for bona fide investment purposes. To many this will appear to be not only a mistake in business judgment but also a meticulous and unnecessary stretching of these ethical and legal rules. To be sure, such standard of conduct outruns the rule of law. But as a working rule of thumb, it is essential if the market place is to be rid of some of the subtle influences of biased and discolored advice by those who purport to be objective advisers. The question is not simply one of preventing specific transactions wherein the customers' man or his firm has a special adverse interest, transactions which should be beyond the pale, it is broader than that. It entails also avoidance of a situation whether by the customers' man, influenced consciously or otherwise, by his own glowing prospects in particular speculative transactions and impressed by his own infallible judgment, proceeds to advise his customers to follow in his footsteps. Meticulous regard for these standards should be had by reliable and competent persons purporting to render investment counsel. Needless to say, this would entail prohibition of margin accounts for customers’ men, directly, or indirectly through their wives, fathers, brothers, etc. In such cases, there are further reasons:

Not only will judgment be warped and biased; fair-weather customers' men will be so concerned with their own margin accounts that their clients' interests will suffer especially in times of market reactions.

(2) Customers' men should be prohibited from having any interest in an operation designed to distribute securities. Great abuses have occurred in the past by reason of the presence of such an interest. The practice of paying customers' men, directly or indirectly, for the placement of securities with their customers has not been abolished. Reputable firms will shun and avoid this practice. Eager and ambitious (and hungry) customers' men will be tempted by it. The temptation will always be present. Operators engaged in a secondary distribution will be vitally concerned with the task of putting the securities away in permanent hands. If they can work through the good offices of the customers' man and reach such purchasers, their operations will be made easier. Accordingly, they will attempt to buy the customers' man for a consideration. The end result is that for that consideration the customers' man is giving not disinterested advice but advice corrupted and biased – irreconcilable with his fiduciary status. His corruption violates legal and ethical standards of conduct of ancient origin. He then becomes not a useful or permissible cog in the financlal system, but a corroding influence. He may be able to ,survive the fair weather, of the markets. But the day of accounting comes sooner or later if he departs from the standard of giving advice on any basis other than his own free belief in the merits of the security.

In the second place~ the extravagances of the customers' men in connection with margin trading and discretionary accounts, weaken the case and challenge the justification for their existence.

Justifiable criticism of customers' men has been directed to their tendency to encourage over-trading by their customers. Frequently they have had no regard for margin regulations and they have permitted their customers to load up their accounts beyond the point of conservatism. Some customers' men have ~encouaged customers who have a limited or restricted, account to make new commitments which they cannot afford and which they must liquidate within the limit of the three business days allowed by Regulation T. Thus the spirit, if not the letter, of such regulations has been violated. This malpractice is not, to be sure, traceable entirely to the door of the customers' man but is one for which his employer should receive equal, if not greater, blame. The problem, as you know, has been recognized by your Exchange in its rather recent ruling that no member shall permit a customer "to make a practice" of effecting transactions requiring a margin and then either defer the furnishing of a margin beyond the time when such transactions would ordinarily be settled or cleared, or of meeting such demand for margin by the liquidation of the same or other commitments in his account. But the problem from the point of view of the customers' man is not only to see that there is no such regular practice but to prevent all other transgressions. As to the prevention of such excesses, the customers' man stands in a peculiarly strategic position and is recalcitrant in the performance of his obligations if he neglects to insist on meticulous fulfillment of such rules.

More important, however, are the abuses which have arisen in the past as a result of the employment of discretionary powers by customers' men. After your Exchange had adopted a rule according to which customers might delegate discretionary powers only to partners, it was known that such powers were in turn delegated by partners to customers' men; so that the spirit, if not the letter, of the rule was violated. That rule has, as you know, been altered by the Exchange so that no discretionary accounts may be handled either by partners or by customers' men without the consent of the Committee on Customers' men. But there appears to be valid consideration for a rule which would effectively prohibit customers' men from employment of any discretionary trading power. The interests of customers' men in general and those of their customers would be well served by such a prohibition.

The dangers of any other course are self-evident. Compensation of a customers' man will always be dependent indirectly, if not directly, on the commissions he brings the firm. If he has a discretionary account, the temptation will always be almost irresistible to keep that account well churned for the sake of commissions. Discretion, in other words, will tend to disappear. The daily or weekly record of the customers' man can be bolstered by a few transactions in the discretionary account. The guiding principle will tend to be the record of the customers' man in terms of commissions rather than his record in terms of sound and conservative judgment in the interests of his client. Here again motivation is a complex thing. Cause and effect will not always be easy to determine. But human experience (the record of the past) teaches us that an employee in such a position will tend to sacrifice the client's interest for his own record of achievement in terms of commissions.

In sum, if the institution of customers' men is to survive, it must have meticulous regard for the standards of conduct governing fiduciaries. It cannot survive if it ostensibly serves the customers but actually serves the employees and employers. It must redefine its functions. It must forsake the idea of salesmanship and concentrate on investment ser-vice. If the institution desires to survive,
· let customers' men become serious students of corporations;
· let them be in a position intelligently to advise clients on reorganization plans;
· let them qualify to render counsel to those solicited in proxy campaigns;
· let them be competent to advise on mergers, consolidations, recapitalizations and the like;
· let them lose their consuming interest in intermediate price movements;
· let them desist from calling their customers unless requested or except in serious emergencies;
· let them become studiously concerned with the fundamentals of business and of finance.

The only social vindication of that institution is to be found in such a course. Whether or not such a program of achievement can be attained will be in issue. Perhaps it is impossible of realization. Perhaps the fact that the customers' men are not paid by the clients but by the firms, from which the pressure to produce business will be strong, will provide an irreconcilable factor.

But as I stated earlier, the institution of customers' men has at present an unestablished value. In the past it has served as a method of churning portfolios, of creating frenzy and excitement, of manufacturing and distributing rumors and tips – in short, of serving as a fair-weather device to make the market a gaming place. 'Whether it can be made a valuable investment service adjunct to organized exchanges rests in the hands of your generation. It will not and should not survive if the corruption of which I earlier spoke intrudes.

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Winnipeg Free Press
January 4, 2010

The Canadian Press - ONLINE EDITION
Canada's 100 highest paid CEOs pocketed an of average $7.3 million in 2008
By: Romina Maurino, THE CANADIAN PRESS
3/01/2010 10:20 PM | Comments: 0

TORONTO - Canada's 100 highest paid CEOs pocketed an of average $7.3o million in 2008, the same year Canadians were hard hit by the emergence of the worldwide recession, according to a new report by the Canadian Centre for Policy Alternatives.
Economist Hugh Mackenzie, who authored the report, said that's 174 times more than the average Canadian wage.
And while the average compensation for the top CEOs outpaced inflation by 70 per cent between 1998 and 2008, people earning the average income lost six per cent to inflation over that period, he said.
"To put that in perspective, Canadians will work full-time throughout the year to earn the national average of $42,305," Mackenzie said.
"The top 100 CEOs pocket that amount by 1:01 p.m. on Jan. 4 - the first working day of the year."
Thomas Glocer of Thomson Reuters Corp. was the top earner with a total salary of $36.6 million, followed by the late Ted Rogers at $21.5 million.
Big bank executives were also on the list with healthy compensation, despite a federal government bank bailout in the form of mortgage purchasing that helped banks preserve their annual profit-making, the report said.
TD Bank CEO Edmund Clark made $11.1 million in 2008, while National Bank's Louis Vachon pocketed $10.5 million and Gordon Nixon of Royal Bank took home $9.6 million.
Richard Waugh of the Bank of Nova Scotia had total earnings of $9.2 million, William Downe of the Bank of Montreal made $6.4 million and CIBC's Gerry McCaughey had a salary of $6.3 million.
None of the CEOs from troubled automakers GM and Chrysler, which at the height of the economic crisis received billions in government bailouts, made it onto the list since those companies are U.S.-based.
Magna International chairman Frank Stronach, however, was No. 16 with earnings of $10.8 million in 2008.
Mackenzie said in an interview he was surprised at how high the compensation was given what happened to the economy in 2008, adding that several corporations have either two or three executives who share the chief executive title - and all two or three can make the list.
"If you rolled up some of those double and triple counts you'd have some pretty stratospheric numbers for what executives are paid," he said.
The numbers, he added, also showed quite a bit of resilience in the face not only of the downturn of the economy but also "increasing criticism of the corporate executive pay system, both from significant political leaders and from... leaders within the business academic community."
"In a year in which we dropped into the biggest recession since the '30s, (you'd think) you would have seen executive compensation go down," said Mackenzie.
"Yet we still saw the top 100 get an average of $161,000 a year in bonuses related to stock options and much more than that in stock grants."
Rupert Duchesne of Groupe Aeroplan Inc. was in the 100th spot with earnings of $3.2 million.
-
Here is a list of their salaries, from highest to lowest, as compiled by the Canadian Centre for Policy Alternatives:
-Thomas Glocer, Thomson Reuters Corp. $36.6 million.
-Ted Rogers, Rogers Communications Inc. $21.5 million.
-J. M. Lipton, Nova Chemicals Corp. $19.8 million.
-George Cope, BCE Inc. $19.6 million.
-Robert Brown, CAE Inc.$17.3 million.
-William Doyle, Potash Corp. of Saskatchewan $17 million.
-Hunter Harrison, Canadian National Railway Co. $13.4 million.
-Dominic D'Alessandro, Manulife Financial Corp. $13.3 million.
-Stephen Wetmore, Bell Aliant Regional Com. Income Fund $11.6 million.
-Serafino Iacono (co-chairman), Pacific Rubiales Energy Corp. $11.3 million.
-Miguel de la Campa (co-chairman), Pacific Rubiales Energy Corp. $11.3 million.
-Jeffrey Orr, Power Financial Corp. $11.3 million.
-Jean Claude Gandur, Addax Petroleum Corp. $11.2 million.
-Edmund Clark, Toronto-Dominion Bank $11.1 million.
-Tye Burt, Kinross Gold Corp. $11.1 million.
-Frank Stronach (Chairman), Magna International Inc. $10.8 million.
-Louis Vachon, National Bank of Canada $10.5 million.
-Randall Eresman, EnCana Corp. $10.3 million.
-Gordon Nixon, Royal Bank of Canada $9.6 million.
-Ron Brenneman, Petro-Canada $9.2 million
-Richard Waugh, Bank of Nova Scotia $9.2 million.
-Michael Wilson, Agrium Inc. $9.2 million.
-Gregory Wilkins, Barrick Gold Corp. $8.9 million.
-John A Manzoni, Talisman Energy Inc. $8.8 million.
-Allan Leighton, Loblaw Cos. Ltd./Weston $8.8 million.
-Kevin McArthur, Goldcorp Inc. $8.7 million.
-Craig H. Muhlhauser, Celestica Inc $8.7 million.
-Harold Kvisle, TransCanada Corp. $8.6 million.
-Eugene C. McBurney, (Chairman) GMP Corp. $8.3 million.
-Jim Shaw, Shaw Communications Inc. $8.2 million.
-Richard George, Suncor Energy Inc. $8 million.
-Pierre Beaudoin, Bombardier Inc.$7.8 million.
-Richard J. Harrington, Thomson Reuters Corp. $7.8 million.
-D.A. Loney, Great-West Lifeco Inc. $7.3 million.
-Pierre Peladeau, Quebecor Inc. $7 million.
-James Kinnear, Pengrowth Energy Trust $6.9 million.
-Darren Entwistle, TELUS Corp. $6.9 million.
-Stephen Snyder, TransAlta Corp. $6.9 million.
-Donald Stewart, Sun Life Financial Inc. $6.6 million.
-Robert A. Milton, ACE Aviation Holdings Inc. $6.6 million.
-Donald Lindsay, Teck Cominco Ltd. $6.5 million.
-Peter Munk, Barrick Gold Corp. $6.5 million.
-Patrick Daniel, Enbridge Inc. $6.5 million.
-William Downe, Bank of Montreal $6.4 million.
-Nancy Southern, Atco Ltd./Canadian Utilities Ltd. $6.3 million.
-Gerry McCaughey, Canadian Imperial Bank of Commerce $6.3 million.
-Jacques Lamarre, SNC-Lavalin Group Inc. $6.3 million.
-Charles Fischer, Nexen Inc. $6.2 million.
-Bruce Aitken, Methanex Corp. $5.9 million.
-Donald Walker, Magna International Inc.$5.9 million.
-Jurgen Schreiber, Shoppers Drug Mart Corp. $5.9 million.
-Edward M. Siegel Jr., Russel Metals Inc. $5.8 million.
-Siegfried Wolf, Magna International Inc. $5.7 million.
-David Goodman, Dundee Wealth $5.6 million.
-Mario Longhi, Gerdau Ameristeel Corp. $5.6 million.
-Ronald Pantin, Pacific Rubiales Energy Corp. $5.5 million.
-Allen Chan, Sino-Forest Corp. $5.3 million.
-Geoffrey T. Martin, CCL Industries $5.3 million.
-Sean Boyd, Agnico-Eagle Mines Ltd. $5.3 million.
-Scott Saxberg, Crescent Point Energy Trust $5.3 million.
-Ian Greenberg, Astral Media Inc. $5.3 million.
-Paul Desmarais Jr., Power Corp. of Canada $5.2 million.
-James Balsillie, Research in Motion Ltd. $5.2 million.
-Michael Lazaridis, Research in Motion Ltd. $5.2 million.
-Andre Desmarais, Power Corp. of Canada $5 million.
-Francois Coutu, Jean Coutu Group $4.9 million.
-Jay Hennick, FirstService Corp. $4.8 million.
-John Lau, Husky Energy Inc. $4.8 million.
-Frederic Green, Canadian Pacific Railway Ltd. $4.7 million.
-John Macken, Ivanhoe Mines Ltd. $4.7 million.
-Steve Laut, Canadian Natural Resources Ltd. $4.6 million.
-Peter R. Jones, HudBay Minerals Inc. $4.6 million.
-Gerald Grandey, Cameco Corp. $4.6 million.
- Marc Tellier, Yellow Pages Income Fund $4.6 million.
-Mayo M. Schmidt, Viterra Inc. $4.5 million.
-Marvin F. Romanow, Nexen Inc. $4.5 million.
-M.H. McCain, Maple Leaf Foods Inc. $4.4 million.
-Keith A. Carrigan, BFI Canada Ltd. $4.4 million.
-Alain Bedard, TransForce Inc. $4.3 million.
-Wm. Wells, Biovail Corp. $4.3 million.
-Gerald Schwartz, Onex Corp. $4.3 million.
-Raymond McFeetors, Great-West Lifeco Inc. $4.2 million.
-Ellis Jacob, Cineplex Galaxy Income Fund $4.1 million.
-Robert S Pritchard, Torstar Corp. $4.1 million.
-Michael Waites, Finning International Inc. $4.1 million.
-Stephen H. Sorenson, Uex Corp $4 million.
-B.H. March, Imperial Oil Ltd. $4 million.
-Charles Jeannes, Goldcorp Inc. $4 million.
-Luc Desjardins, Transcontinental Inc. $4 million.
-Stanley Marshall, Fortis Inc. $3.9 million.
-Peter Marrone, Yamana Gold Inc. $3.9 million.
-Marcel Coutu, Canadian Oil Sands Trust $3.7 million.
-Kevin Loughrey, Thompson Creek Metals Co. Inc.$ 3.7 million.
-Thomas Gauld, Canadian Tire Corp. $3.6 million.
-Brett Herman, TriStar Oil & Gas Ltd. $3.6 million.
-S. Defalco, MDS Inc. $3.5 million.
-W.P. Buckley, ShawCor Ltd. $3.5 million.
-D.L. Rogers, Sears Canada Inc. $3.5 million.
-Edward Sonshine, RioCan REIT $3.4 million.
-Rupert Duchesne, Groupe Aeroplan Inc. $3.2 million.
Source: The Canadian Centre for Policy Alternatives.
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How Psychological Pitfalls Generated
the Global Financial Crisis

Hersh Shefrin
Mario L. Belotti Professor of Finance
Santa Clara University
Santa Clara, California


Forthcoming in Voices of Wisdom: Understanding the Global Financial Crisis. Edited by
Laurence B. Siegel. Charlottesville, VA: Research Foundation of CFA Institute.


Abstract
The root cause of the financial crisis that erupted in 2008 is psychological. In the events which
led up to the crisis, heuristics, biases, and framing effects strongly influenced the judgments and
decisions of financial firms, rating agencies, elected officials, government regulators, and
institutional investors. Examples involving UBS, Merrill Lynch, Citigroup, Standard & Poor’s,
the SEC, and end investors illustrate this point. Among the many lessons to be learned from the
crisis is the importance of focusing on the behavioral aspects of organizational process.

Holy shit.......talk about hitting the nail on the head Batman!! (advocate comments) I find it amazing to think of folks so "tuned in" to human behaviors.

[admin]

Fraudonomics: 10 Fun Fraud Facts
CONFESSIONS OF A WALL ST. NIHILIST: FORGET ABOUT GOLDMAN SACHS, OUR ENTIRE ECONOMY IS BUILT ON FRAUD
By Mark Ames

Ever since I got kicked out of Russia and forced back home, I’ve been collecting all kinds of news articles about fraud, in a document file titled “America Is Russia.” Here’s a little taste of the wonderful world of American Fraud:

1). Accounting Fraud: Last year, America’s leading banks were insolvent. They had tens or hundreds of billions in losses on their books, and the only way to wipe those losses out would be to either a) own up to the mess, raise enormous amounts of money on top of all the bailout money; or b) get out a big fat eraser, and wipe those losses off the books as if they never existed. The first option was nice and all, but a real hassle. So Geithner and Larry Summers chose Door Number Two: Accounting Fraud. They forced the FASB to accept a rule-change in the accounting methodology called “mark-to-model” which let banks decide how much their assets were worth, rather than letting the markets decide. So if for example a BofA owned a complex security called “Orion Butt Fungus” that was worth 5 pesos on the open market, but BofA was too broke to go out and raise 5 pesos to cover that loss, under the new accounting rules, the government told BofA that rather than pricing “Orion Butt Fungus” at what the market will actually pay for it, why not first ask, “How much would BofA like ‘Orion Butt Fungus’ to be worth, in a perfect world?’” If BofA answers, “Doyee, gee I dunno, how about $500 million?” then under the “mark-to-model” accounting rules, BofA could now value “Orion Butt Fungus” at $500 million, and voila! Their problems are over. That wasn’t so hard, was it? Suddenly, BofA looks like it knows how to pick winners! And no one’s going to second-guess them, because everyone else is mark-to-modeling their “Orion Butt Fungi” too! The end result: under the old rules, BofA would have had to raise money just to cover its debts, sort of like you and me have to do, and that’s just a lot of money going to waste. But now that its portfolio is so profitable, BofA has a much easier time raising money, which it uses to pay ginormous bonuses to its executives.

2). Big Pharma Fraud. Remember that scene early in Fight Club, when Edward Norton explained his job, when it was more profitable to let a car defect go and pay whatever lawsuit settlements come from the deaths, and when it’s better to recall the cars because the number of deaths will result in too many lawsuits? This is humanitarian do-gooder stuff compared to the savage real-world fraud-for-profit model that drives America’s drug companies. It’s really simple and it goes like this: the more fraud a drug company commits, so long as it’s off-the-scale fraud with the most horrible consequences for the victims, the drug company’s profits always outdo the criminal fines and lawsuits by factors of 20, 30, 100… It’s as simple as that. Because the billion in penalties here or the two billion in class action lawsuit settlements there are always far less than the tens of billions you earn from pushing harmful drugs on unsuspecting idiots. To wit: Between May 2004 and March 2010, a handful of top drug companies like Pfizer, Eli Lilly and Bristol-Myers paid over $7 billion in criminal penalties for bribing doctors to prescribe drugs for unapproved uses, with sometimes deadly consequences. However, as a Bloomberg report noted, the fines are always a fraction of the profits—Pfizer alone paid almost $3 billion in criminal fines since 2004, yet that was just one percent of their total revenues; Eli Lilly got busted bribing doctors to prescribe a schizophrenia drug, Zyprexa, to elderly patients suffering from dementia, even though company-run clinical trials showed an alarming death rate of 31 people out of 1,184 participants (double the placebo rate). Whatever—the market for elderly dementia patients meant billions in extra revenues. So Eli Lilly continued pushing Zyprexa on the elderly for another four years until it the Feds busted them. Eli Lilly got hit with $1.42 billion fine, but that was peanuts compared to the $36 billion it earned on Zyprexa sales from 2000-2008. To make it happen, the drug companies buy off all the checks and balances: lawsuits revealed the enormous bribes they pay to doctors, and even America’s medical journals are so corrupted by drug company influence that they’re no longer reliable as much more than hidden advertisements, according to a recent UCSF study. Medical journals are 5 times more likely to publish “positive” drug reviews than negative reviews, and one-quarter of all clinical trials are never published at all, leading doctors to prescribe drugs assuming they have all the information. The result: prescription drugs kill one American every five minutes …while Americans pay more for drugs than anyone in the world, spending a total of $12 billion on drugs in 1980 to spending $291 billion in 2008—a 1,700% increase. America is ranked only 17th in the world in life expectancy.

3). Alan Greenspan: Fraudonomics Maestro. America’s central banker from 1987-2006 once told a do-gooder regulator not to fuck with the bankers’ fraud schemes, because in Greenspan’s mind, fraud was not a crime and didn’t need to be regulated. Then Greenspan forced the regulator, Brooksley Born, to resign. Just in time for his next and final act as Central Bank chief: from 2001-2004, Greenspan pumped up the biggest housing bubble in human history by holding rates down to nothing, while touring the country promoting the glories of subprime and Alt-A mortgages. Then in late 2005, when the bubble was ready to burst, Greenspan tendered his resignation and switched over to the other side, signing lucrative contracts with three investment firms all of which bet big against gullible American homeowners, and reaped billions. First, Greenspan signed up to work for Deutsche Bank, which is being sued for securities fraud for selling an Abacus-like CDO to a Warren Buffett-owned bank, M&T; Greenspan also worked for Pimco, which earned $2 billion in a single day in September 2008, when Fannie Mae and Freddie Mac were nationalized with Greenspan’s lobbying help; and lastly, Greenspan went to work for Paulson & Co., the hedge fund that raked in $1 billion off the same Abacus CDO deal that brought the SEC fraud suit against Goldman Sachs. It’s an unusually perfect record for Greenspan, given his atrocious forecasting record at the Fed. It recalls the old Greenspan circa 1984-5, when he worked as a lobbyist for Charles Keating trying to push regulators off his back and vouching on the record for Keating’s character…Keating was eventually jailed for fraud in the worst savings and loan collapse of all.

4). Municipal Debt Fraud. America’s $2.8 trillion municipal bond market is rife with fraud of the sort you’d expect in an emerging tinpot economy: opacity rather than transparency, plenty of corruption and kickbacks, resulting in decimated budgets and services cutbacks in communities across the country. The problem all stems from way the bonds are issued these days: instead of holding open tenders, nearly all are the result of backroom deals. Back in 1970, only 15 percent of municipal bond contracts were awarded through no-bid contracts; last year, 85% of muni bond deals were assigned in no-bid, non-transparent agreements of the sort that made Halliburton rich in Iraq. Studies show that no-bid bonds invariably cost municipalities more than bonds resulting from open tenders. So far, fraud and corruption charges have been leveled against state employees and city councilors in Florida, New York, New Mexico, Alabama and California, to name a few. Muni bond defaults soared from just $348 million in 2007 to $7.4 billion in 2008—that’s an increase of 20 times– with growing numbers of cities, counties and states on the verge of bankruptcy. And here’s the real kicker: the biggest bailed-out banks and funds stand to make huge profits again if California’s state and city bonds fail–meaning they make big fees selling the bonds in corrupt deals, then they bet against the bonds buying CDS derivatives. Right now Wall Street has a $27 billion bet against the California bonds they helped to sell–and you better believe Wall Street will use every trick in the book to push California into bankruptcy and make those CDS bets pay off big. In fact just last year, the big banks made $1 billion in fees by selling off Obama-stimulus-backed Build America Bonds which were basically a way of massively overpaying bankrupt banks to lined up bankrupt cities and states with skittish investors to fund corrupt projects–like the San Francisco Bay Bridge modernization, which went from $1.8 billion to $13.6 billion, $8 billion just in interest. Good news is that Wall Street is making tons of money, which is always something to cheer–and of course, the bill is all being charged to regular car-driving suckers, who pay a $5 toll today to cross the bridge, up from $2 in 2003.

5). Journalism fraud. The Washington Post got caught whoring out their venerable editorial staff to corporate lobbyists for anywhere from $25,000 to $250,000 a date, depending on the access. The Atlantic Monthly admitted to TalkingPointsMemo that it routinely sold access to its editorial staff for cash. As for business journalism, all sorts of articles and studies have asked the obvious question: “How did every mainstream business outlet miss the financial collapse of 2008?” Among all the self-flagellating mea-kinda-culpas, you won’t find the word “fraud” in their answer. Speaking of business journalism and fraud, The Business Insider, one of the top business news blogs, published a pair of articles defending Goldman Sachs against the SEC fraud charges. The author of the articles defending Goldman Sachs is Business Insider’s co-founder and editor, Henry Blodget. In 2003, Blodget himself was charged with securities fraud by the SEC for repeatedly misleading clients into buying stocks of companies that in private emails Blodget referred to as “piece of shit.” Under the terms of Blodget’s settlement with the SEC, he agreed to a lifetime ban from the securities industry, and he paid $4 million in fines and disgorgements. Since he is not barred from the world of business journalism, Blodget was able to post an article last Friday headlined: “HOLD EVERYTHING: The SEC’s Fraud Case Against Goldman Seems VERY Weak.”

6). Fraudonomics K-12. If you want your kid to grow up to succeed in a fraud-based economy, you need to teach him the ABC’s of cheating starting at a young age. This is one area where America’s schools aren’t failing their students. Cheating is so rampant in schools that nowadays if the student doesn’t cheat on his exam, chances are his teacher or administrator will cheat on his test for him. One in five elementary schools in Georgia are currently being investigated for tampering with the students’ standardized test scores—although suspicious patterns of erasing and remarking answers showed up in half of the state’s elementary schools. In California, as many as two-thirds of its public schools admitted to fudging its students’ standardized test scores. A survey of graduate school students found that 53 percent of business school grad students admitted to cheating, more than any other grad school discipline. Overall, up to 98 percent of college students today admit to cheating, compared to just 20 percent who cheated in 1940.

7). Boardroom Fraud. Corporate America’s boardrooms are stacked up these days in tight, intertwined relationships that turn public companies into crime scenes, plundering money from unsuspecting shareholders and divvying up the loot among the directors and top executives. In 2008, Chesapeake Energy’s stock price collapsed from $74 per share to $9.84, wiping out $33 billion in shareholder value. The CEO, Aubrey McClendon, gambled and lost 94% of his stock in the company on a margin call, personally losing about $2 billion. So what did the board of directors do? They voted to award McClendon $112 million for 2008, the highest of any CEO in America. Shareholders were outraged, calling it a “bailout,” and several pension funds tried suing Chesapeake, but the courts in Oklahoma blocked the lawsuits. That’s because Aubrey McClendon is sort of the George Bush of Oklahoma—a spoiled fuck-up with a rich and powerful granddaddy—Robert Kerr, former governor and senator, and founder of Kerr-McGee—meaning plenty of VIP connections for the loser grandkid. So on Chesapeake’s board, you had Aubrey’s cousin, Breene Kerr; Frank Keating, Republican ex-governor of Oklahoma whose son Chip (and Chip’s wife) works for Chesapeake; Don Nickles, Republican ex-Senator of Oklahoma who co-funded with Aubrey the Republican anti-gay marriage campaign in 2004; Richard Davidson, the former head of Union Pacific, whose corrupt board of directors (which included the head of the US Chamber of Commerce) lavished Davidson with tens of millions in bonuses and a $2.7 million per year pension when he retired… Now multiply a board of directors like this by the sum total of “Corporate America” and you get…a corrupt, tin-pot corporate culture masquerading as a civilized First World corporate culture. That’s us. (You can read about this problem in an excellent new book Money For Nothing: How The Failure of Corporate Boards is Ruining American Business and Costing Us Trillions.)

8). Corrupt credit rating agencies. The only way big institutional investors like pension funds could justify buying a piece of the Orion Butt Fungus CDO pie was if ratings agencies like S&P or Moody’s gave it a top-notch seal of approval: AAA rated, with a little star on the forehead for good behavior. And in the world of fraudonomics, good behavior looks like this email from a Standard & Poor ratings analyst in December 2006:

“Rating agencies continue to create an even bigger monster _ the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”

The happy ending to this story is that a huge percentage of thieving scum like this emailer saw their hopes become reality: they got wealthy and retired before the CDO market crashed in a trillion-plus dollar heap of shit. And if they didn’t retire, even better—because bonuses in 2009 were soaring, thanks to the always-gullible American taxpayer.

9). Regulatory Fraud: In the OTS, OCC, Fed, pension benefit guaranty agency and of course the SEC, where whistleblowers were routinely ignored because the regulators were too busy painting their monitors while surfing sites like http://www.fuck-my-wife.com.

10). Judicial Fraud: Juvenile court judges in Pennsylvania took millions of dollars in kickbacks from privately run prisons in exchange for sentencing thousands of innocent kids to juvenile prison terms. Chronic on-the-bench masturbation is running rampant: an Oklahoma judge was accused of using a penis pump on the bench, while nearby in Texas, a Harris County judge masturbated and ejaculated on a defendant’s hand. Speaking of Texas, the entire juvenile prison system there was turned into a sex abuse racket involving Texas state officials–over 750 official complaints about prison administrators molesting or raping underaged inmates in all 13 juvenile facilities had been officially logged between 2000 and 2007.

The list goes on and on. Hell, even our literature was corrupted with fraud: James Frey’s addiction “memoir” A Million Little Pieces turned out to be A Million Pieces of Bullshit, the biggest literary fraud of our time. Fooled readers sued, Oprah chewed him out and Frey is now a bestelling “fiction” author. Frey was just one literary con-artist among many, recounting fake tales of street prostitution, being raised by wolves, even fake Holocaust memoirs (read John Dolan’s article about literary frauds).
This is just scratching the surface, but you get the point. We’re way past the point of redemption. No wonder everyone’s dreaming of a violent apocalypse to wipe the slate clean, and take us away to another plane where everything would be better. Anything but this.

[admin]

A reader who is another former advisor and now happy to be out of the game forwarded the following
after my message a few days ago about the high rise in investor complaints to the OBSI.


http://www.thestar.com/article/828689-- ... tual-funds


How can we sum up all these rip-offs in life, whether it be financial advisors or other areas of life. I think it is simple.


1.) There is no morally right substitute for being upfront and honest.

2.) There is no morally right substitute for doing the right thing


If 1 and 2 are not followed, then it is just a matter of the degree of deception that replaces them.

Why certain people cannot just be upfront with customers or clients baffles me.
When it comes to relationships, it baffles me all the more. Those who do it think they are clever.
However, they are deluding themselves.

Deceptive practices show a lack of character, a personality driven by ego, an ego that cannot permit itself to accept responsibility.

When all of the above is condoned by regulators and their respective provincial government finance departments,
it is nothing more than a "legalized scam" to mislead the investing public.

Deception comes in a large variety of ways, but suffice to say that it is one person taking advantage of another
usually during a trusting relationship. To put it bluntly, deception of any sort is simply a lie.

Large numbers of people have become fed up placing trust in those who just sit in wait to earn fat commissions off them.

The financial industry in particular have their work cut out to regain the trust they have lost over the years.

Thanks to the internet, online investing combined with new low cost options is just what the doctor ordered, so to speak.


Be careful who you place your trust in. The world is full of illusionary promises.


Regards to all,

RBR

[admin]

this paper
http://www2.parl.gc.ca/Content/LOP/Rese ... 0526-e.htm

from the Canadian Library of Parliament that was prepared by Tara Gry back in August 2005. For those of you that don't know what a dual class share structure is, here's the definition from the paper:

"Many company founders wish to avoid the dilution of control that normally accompanies the public issuance of shares. One mechanism at their disposal is to issue different classes of shares that confer different voting rights on the holder. These are known as dual-class share structures, or, alternatively, as restricted- or subordinate-voting share structures."

In Canada, there are several examples including Shaw, Bombardier, Onex, Magna, Power Corporation and of course, Hollinger International. The Magna/Frank Stronach story is in the media right now because he has just been paid nearly a billion dollars for his multiple voting shares by the company he founded. As it stood before the deal was struck, Frank Stronach held 0.6% of the total shares outstanding but had 66% of the voting rights.

Back to Conrad Black. Here's a quote from the section of the paper entitled "Disadvantages":

"Hollinger International Inc. presents an extreme example of the detrimental effects of dual-class share structures. Former Chief Executive Officer Conrad Black controlled all of the company’s Class B shares, which gave him 30% of the equity and 73% of the voting power. Holders of publicly traded shares of Hollinger had limited rights to make decisions in terms of executive compensation, board appointments, and mergers and acquisitions. According to a report made public by the Securities and Exchange Commission, Mr. Black appointed the majority of board members, who, in turn, were unlikely or unwilling to oppose his authority. The same report found that Mr. Black exacted excessive management fees, consulting payments, and personal dividends from the company. In all, the aggregate funds taken by Mr. Black and Hollinger’s other chief executives were estimated at 95.2% of Hollinger’s entire adjusted net income during 1997-2003, sums in excess of $400 million."

from http://viableopposition.blogspot.com/