Business Corruption

I remember when I was a pre-teen and first realized that what I was being taught in school -- all those rah! rah! civics lessons -- didn't match reality. The official history always painted "us" as the good guys and everybody else as untrustworthy, devious, and mean. Then I discovered that the simple history lessons and glorified account of how government worked wasn't true. That was a jolt.

Sadly, most people never learn this lesson. It is so easy to be a knee-jerk patriot, a mindless booster of "us versus them". Sociologists run experiments that show that even the most flimsy and ridiculous divisions into "groups" can self-reinforce and get deep allegiance, e.g. the classic division of a schoolroom of all white kids into blue-eyed versus brown-eyed. People sign up and actually "believe" in these ridiculous divisions. They see "their side" as the good guys and everything done by "the other side" is suspicious and seems evil. This is scary. But it is human nature.

Here's Barry Ritholtz pointing out that most people simply refuse to acknowledge the "crony capitalism" going on over here. Back in 1997 they were more than willing to see "crony capitalism" everywhere in Asia, but they just can't see that there is any "serious" problem here:

Widespread Fraud, Option Backdating, Exec Felonies

by Barry Ritholtz

The amount of Corporate Fraud in our system is far greater and more endemic than most people want to believe.

That is the conclusion I have reached after watching The Street and senior corporate executives for 20 years. Not just at Wall Street banks, but at a vast number of publicly traded companies, the executive suite is rife with moral relativism, a daring catch-me-if-you-can attitude, and plain old venal criminality.

Now, there is further quantitative proof of this:

“The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study.

Researchers at the University of Houston’s C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices.

The study identified 141 companies with such advantageous options-granting practices that the researchers concluded they were highly likely to have been involved in backdating. Ninety-two of those companies never were publicly linked to investigations or announced earnings restatements related to backdating.”

So much for the market discovering and punishing transgressors . . .

What bugs me about this financial crisis is not just that I've lost almost half of my retirement savings and will live out the rest of my days having to be very frugal. It is the fact that both the crime and now the supposed Obama "cleanup" is costing ordinary people much more money than they realize. With interest rates effectively at zero, the savers as essentially "renting" their savings out for free to be used to "make whole" the crooks who destroyed the economy. With credit still frozen, honest businesses have to hunker down and hope they survive the years it will take for this economic storm to pass. The millions that lost jobs will never get back the lost years and studies show they will never "catch up" to those who held on to jobs during the crisis and got the typical pay increases during this period.

A lot of innocent people will pay the price for the greed of the few, and the tragedy is that Obama doesn't believe in either fixing the problem to prevent another catastrophe, nor does he believe in going after the miscreants to help create a deterence for those who would be tempted to commit these crimes in the future.