5. Finance is broken.

—The Medinge Group: The Brand Manifesto. Medinge 2002.

I had an old issue (July–August 2008) of The Atlantic open on this advertisement’s page for months, wanting to share it with you, but one thing led to another and life got a bit busy. (Especially last week, if anyone wants to read about my Frank Spencer experience with technology.)
   It’s an ad for a pamphlet—it does not say book—called The True Patriot.
   The headline begins: ‘Global warming. / 50 million Americans uninsured. / Massive budget deficits. / Failing public schools. / A tarnished national image. / These are not policy failures.’
   The last line is a surprise but I think we can mostly agree that the other lines are relevant, and are issues that the US faces today.
   The copy begins:

Actually, these crises are the inevitable result of the policies we’ve chosen. Today’s policies were designed to treat our dependence on oil as a given, our basic health as a luxury, an adequate education as a privilege, and our children’s wealth as our own.
   No, our policies are working exactly as designed. The problem is, they all spring from a framework of principles and morals that is broken and bankrupt. American politics today is dominated by a morality of short-term over long-term, every man for himself, might makes right, the lowest get least, and actions without consequences.
   If patriotism means “country before self,” today’s moral framework is not patriotic. We can do better—and in these challenging times, we must.
   Stewardship. Shared sacrifice. Mutual obligation. Responsibility for the common good. Equality of opportunity.
   These were the truly patriotic moral values that animated America’s founding generation, and they are the principles we must return to if America is to sustain its greatness. We’ve written a little book that chllanges each of us to answer the question: What is true patriotism? It’s not a question of policy. It’s a question of morality.

   The authors are Eric Liu and Nick Hanauer, and they give a website at truepat.org.
   Now, I haven’t read this pamphlet, but the issues the copy raises are poignant enough.
   When in a week a Wal-mart worker back east gets trampled to death for the sake of customers’ shopping—let me say that again, shopping—and two blokes pull guns on one another at Toys ’R’ Us, the much-bandied idea that President George W. Bush is responsible for the declining American standard doesn’t hold much water. Want to restore American prestige? The buck might stop at the White House, but Dubya—or Clinton, or Bush 41—is not the cause. It’s the way much of life is now conducted—and the problem is hardly exclusive to the United States. (And now you also know why I resisted blaming the President for the decline in American soft power.)
   I have often talked of the failure of the technocracy—a viewpoint that certain members of the new National government here, I might add, do not appear to agree with—so I can agree from a business perspective with Messrs Liu and Hanauer on their pamphlet’s rationale.
   The idea of every man for himself is incompatible with a more connected world that demands that people see and do something about what is going on.
   What is morally bankrupt is the continued decrease in substance behind words such as patriotism, honour and duty; responsibility seems to mean increasingly less.
   While Messrs Liu and Hanauer talk about everyday American life, what I have seen of everyday American business certainly follows their concerns. The difference between the early 1990s and the 2000s is huge and this is not because I am looking back with a pleasing sense of nostalgia. This decade, American businesses alone have tried to cheat my company out of thousands in shipping, for example. And when I follow the matter up, it’s usually a blame game.
   In business, the sub-prime comedy video from Bird and Fortune that I posted here on this blog, which actually dates back over a year, is eeriely accurate. It was about taking debts that had no real value on them and relabelling them as AAA-ranked bonds.
   Writes Michael Lewis, one of America’s best business authors, in my view, in this month’s (December 2008) Condé Nast Portfolio:

[Financial analyst Steve] Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 per cent of the new total being rated AAA. But he couldn’t figure out how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming that home prices would keep going up,” Eisman says.

   These BBBs were traded even further:

Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. [collateralized debt obligation.] The reason they did this was that the rating agencies, presented witht he pile of bonds, backed by dubious loans, would pronounce most of them AAA. These bounds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities.

   The big banks were all too keen to trade these even further. And when the collapse came, the losses were greater by many times than the original loans.
   It may be time for recriminations and finger-pointing at the end of 2008 but it is irresponsible and dishonest to do what the financial industry has done.
   In 2001–2, my early work in my books and on the Medinge Group highlighted the problems surrounding branding and the failure of that industry to reflect realities. We talked about corporate social responsibility and branding’s potentially positive role in it. And in the 2002 meeting, Chris Macrae talked about how valuation was dead as far as the stock market was concerned. He was absolutely right.
   We have made some impact on how branding is perceived and should be done, and highlighted how many people in our industry have no idea what they are talking about.
   The financial industry makes the worst of the branding industry look pretty good, because this mess shows that many people in finance did not know what they were doing. It makes the legal profession, the one I turned my back on after graduating with pretty good marks after law school, look very honourable indeed.
   I once said that a Dow going over 10,000 was just crazy, but I felt like an idiot for years when the system just kept on and on. My knowledge then lay only in a simple knowledge of valuation. Little did I know just how bad things were. And why my instincts to stay away from the markets for most of my adult life have proved justified—a good part being this simple truth: if someone needs to bury his or her work’s rationale in jargon, then it cannot be a particularly good profession.
   The ideas do need to start at education, but we have generations that have shown themselves to be selfish. To quote Lewis again, speaking about his 1989 book, Liar’s Poker, where he exposed the dishonesty and nonsense of Wall Street:

I had no great agenda … but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” …
   Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

   I can only hope those entering the business world today can see the mess for what it is, rather than be suckered in to “business as usual”. The crash of 1987 did not create a generation that became aware in some postmodern fashion about the nonsense of their world. Maybe this one can wake a few more people up—certainly when everyday Americans realize their entire 401 (k) has gone, or they are being kicked out of homes, it might. This time, a lot more people are involved, because they placed their trust in institutions that had a fiduciary obligation to be honest with them. In many cases, their only defence is that they never had any intention to deceive, because they were too daft to know just how insecure those AAA bonds were.
   The lack of substance in today’s words rears its ugly head once more. Posted by Jack Yan, 04:46  permalink

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