Le Blog’Ich

This is the first of potentially, many posts, regarding my being annoyed (shall I say pissed?) by the level of incompetence, intellectual laziness and greed that we have been faced with in the past ten years or so.

In this section, I will post a few basic sanity checks, and rules of thumbs that unfortunately have been forgotten, if they were ever known. So here goes.

Ich’sm #1: for a system to work, there is a need for rules, and punishment if those rules are not abided with.

What is the cause of the current crisis? mortgages, junk securities, consumer confidence blablabla. We all know this by heart.

But looking at the bigger picture, I see three parties at fault: Greed, Incompetence, and Intellectual Laziness.

1. Greed

- Because bankers, but also people value quick money and are willing to close their eyes as regards a few realities; Seriously, Madoff? the firm beat the market for what? 10 years straight? Doesn’t this contradicts the basics of finance theory? With an accounting firm next door that no one has heard about, employing three people?
- Seriously, in a land / country where density is still not so high and even though real-estate prices are a function of scarcity, (I live in Chicago a fairly developed city vs. some other places in the US, and there is still A LOT of empty space to build), people thought that the value of their house in the middle of nowhere would double in two years, so why not buy four of them, even though they could barely afford one?
- Seriously, how many crashes have we experienced in less than 10 years? Dot-com bubble, Enron, now this? (I am not including September 11, because that is a different animal of course). Isn’t the race for short-term value and quick, effortless money, destroying value in the long-run?
- Because, even today CEOs are cashing their bonuses and stock-options with obscene amounts just for their ability to outsource and improve the “look” of a balance sheet with limited concern for the long-term implications for the company? Why aren’t business leaders stepping-up to the market and challenging the fact that such strategies are ultimately flawed, that one can never jeopardize its rents?

2. Incompetence

- Because supposedly very smart people, are actually not that smart or have been blinded enough by the appeal of short-term profit that they have not done the minimum of diligence, required by their function.
- Where are the guys who bought Madoff without looking? Shouldn’t they all be fired? I mean, if your job is to offer the best investments for your clients, if the tickets are in the Million dollars and if you make millions in commission yourself out of it, shouldn’t you AT LEAST, look at who audits the firm? And if you do not, isn’t that an unacceptable professional mistake, that should cost you your job in a meritocracy?
- Where are the “business guys” who looked at a formula for valuing risk and saw its shortcomings? I mean, I can correlate the price of oil, with the monthly variation of geese flock in Australia. Over several years too! Seriously…
- Why are the “experts”, the same experts than before the crash, still on TV commenting on what happened, what will happen next etc. when they were nowhere to be found in the first place to blow the whistle when it was time to do so? Or for those who did blow the whistle, why are the guys who did not listen to them still in place? Seriously I know it is all about appearances, but do the concepts of credibility, and losing face still mean anything?
- I could go on forever… The Car manufacturers flying in private jets, the Jet acquisition by Citibank… When you are so off from reality or so stupid, I am sorry but you do not deserve your job.

3. Intellectual Laziness

- Who challenged the fact that a company should not be valued by its ability to lose money in the early 2000s even though that will probably remain as one of the most stupid ideas ever in business?
- Who challenged the fact, that money does not grow on trees, and that YOU CANNOT GROW FOREVER. The real estate bubble has many causes, but stupidity is one of them.
- Who mentioned that there would be another crash in September 2008 while it was so easy to look at the pattern of mortgages taken by consumer since 2002 and checking that there were even more in 2003, and that their anniversary date would culminate in September and seeing that it takes 5 years for the rates to be raised by the banks, leading to so many people defaulting, this crash was predictable. In sinpler terms, it was basically: 2003 mortgages (much more than in 2002) + 5 years for change in rate (high probability of default) = September 08. I know that there were other factors at stake but if I could do this simple math, being neither in finance, nor in real estate why couldn’t experts do it?
- Why are we still looking up to experts today? Why isn’t there anyone to say “enough” with this BS?

Let me be clear: everyone makes mistakes. It is impossible to foresee everything. But c’mon. I am talking about a minimum of diligence and self-esteem here. Let’s institute a “3-strikes and you’re out” rule where you should not be able to recover from such gross errors.

For a society -especially a capitalist one- to function, there is a need for a basic set of rules and values. Those should not be very complicated. There is a need for decency, justice and a minimum of maturity as citizens. If we are in a meritocracy, well 90% of the leaders out there have failed and then they should be not be rewarded, if not ousted. If we are in a meritocracy, the smartest guy in the room should not be able to make such gross mistakes as we have seen these days. And hence they should be reevaluated as the low-level analyst that they are (I am being generous) or be fired. If, as a CEO, I get my bonus while the economy is hurting so bad, and while my employees do not get anything, I just send the signal that I am not a “colleague” leading the direction of the company, I am a king who does as he pleases, regardless of what the plebe is thinking.

- Taking responsibility for mistakes is one of the values that were are missing. The “I did not know”, “It’s not my fault” is not the trait of a leader, at least the way I have been trained to look up to a leader.
- Demanding answers and punishing as necessary is another value that we need; the people that are behind those Ponzi schemes, those mortgage back securities etc. should go to jail, plain and simple. Not just one guy as an example: all of them At this stage, this is not an intelligence problem, it is an ethical one. Without ethics, a society and a system is doomed to fail. Without punishment, those behaviors are likely to be repeated since there will be no fear of retaliation.
- Doing one’s diligence and not looking up to “experts” just because there is the “expert” mention below their name on the screen. Yes that would remove a lot of people, but there are also a lot of unknown voices that we could try to listen to.

I am not a socialist, nor do I have any personal vendetta. I love business, I like profit, I understand that talent should be rewarded and I can make the case for the occasional lay-off or outsourcing, even if painful. I get that.

But right now, it just pains me that this is not working and for the wrong reasons. As long as we do not bring back some decency, intellect, professionalism, and ethics with a reward/ punishment system this will happen again. There will be another smart guy cooking up a new formula that the SEC will not be able to monitor nor understand and this will happen again. The next bubble in my mind? Green, which will be the new dot-com of the coming years (which is good since this also means growth for some time, but that’s a different topic).

Let’s have a big trial and put the cuffs on those who deserve them. Let’s not take numbers for granted rather than trying to understand what they mean and if they should make sense. Let’s remember that money does not grow on trees. Let’s bring back some values people! Otherwise we are doomed to fail, as a system and as a society.

Filed under: business, Ich'sms, thoughts Tagged: | business, capitalism, Capitalism 2.0, Intellectual Laziness, justice, Manifesto, Mediocrity, Meritocracy, rules, Society, Value Creation, Values