I wanted to start with The Bad and then move on to The Ugly so that I can end on a positive note with The Good.
So over the past couple days I’ve read several articles in which someone who is publicly an adamant proponent of righteous behaviour was exposed as being a complete hypocrite (think essentially any politician). And this really got me to thinking about the epidemic that has befallen America. We no longer have anyone in positions of trust acting with any sense of integrity. Our policymakers, bankers, corporations, unions, etc., all of these institutions have become nothing but a mechanism to enhance the personal positions of those who have the ability to directly or indirectly control the actions of those institutions.
By the late 1990’s the world was in the most prolonged period of global peace since WWII. Accordingly, military budgets around the world were being slashed. And so those with the powers that be decided the world therefore required some new wars to ensure peace continued (not kidding that is exactly what they argued), as I evidenced in an article last year, The Most Essential Lessons of History that No One Wants to Admit. Now the thing is, it’s not just politicians and policymakers that are devoid of any common decency these days but those who can manipulate every facet of our society.
Let’s look at central bankers for instance. The other day David Stockman wrote a great article highlighting the ridiculousness of statements by the Fed Vice Chair, Stanley Fischer. The point is Fischer is either out of touch, out of his mind or lying to us. But it’s not just at the highest levels that we see this type of human decay. Not at all. Let’s look to an area that so many of us know intimately, the financial services sector. Now there are a lot of examples we could use here but let’s look at a particularly interesting firm infamous for its culture of indiscretions. Jefferies LLC, which used to be Jefferies & Company Inc., is a mid tier investment bank, similar to Goldman Sachs in that it has no retail branches.
In 2012 Richard Handler, CEO of Jefferies, was actually the highest paid banker on Wall Street. And not to be left out in the cold, Handler’s number two, Brian Friedman also topped the charts as discussed in a Bloomberg article from 2013which explored the credit risk such payouts create. Now making absurd amounts of money may or may not be ethical but what I find more interesting is the blatant hypocrisy of guys like Richard and Brian. As has been written about many times (e.g. here and here) is the fact that Richard and Brian put out a monthly company wide letter with words of ‘wisdom’ that are to guide and encourage their employees to rise above the fray. They look something like this from a recent monthly letter…
“…By the way, the capitalism concept really never took hold in Russia because the only way lasting, open markets work is through transparency, a culture of integrity and rule-following, and a true legal system.”
Now that sounds admirable on the surface, however, the reality when we look at the culture at Jefferies is anything but above the fray.
Remember Jesse Litvak? He’s the only banker that has been personally prosecuted, convicted and sent to prison for fraud related to TARP and was a Jefferies Managing Director at the time. Now for those of you that don’t remember, Litvak was caught lying to a customer when an employee of his accidentally sent that client an email exposing the lie. In the end, Litvak tried to explain away his actions to the court by saying it was common practice at Jefferies. The government agreed according to a quote from a bloomberg report, “Litvak wasn’t the only employee who lied to his customers, the government said. ”
Now some might feel well one example doesn’t prove a corrupt culture, right? And I only wish it were but a fleeting example, unfortunately though isn’t. Perhaps the most outrageous banking scandal of all time was Sage Kelly, Head of Global Health Care Investment Banking, for Jefferies. Sage Kelly is the real deal. He is Wall Street anthropomorphized in all its glory as depicted in a classic article by the boys at ZeroHedge. And again it appears that it wasn’t just poor behaviour by one man but a culture taken on by several top investment bankers at Jefferies. And surely the severely outlandish culture adopted by these bankers is not the type of behaviour that goes unnoticed. For unlike artists, legends in banking are known, not in death, but in the here and now.
What is less known is that Jefferies was actually sued by UBS for the way in which they acquired Sage and his Investment banking group from UBS, as this article by the NYT describes. But it appears that for Richard Handler and his executive officers, being called out for inappropriate behaviour is not a deterrent as some 3 years later Jefferies was sued by Newedge for the very same thing, as described in this FT article. It’s beginning to seem that despite Richard and Brian’s monthly words of moral and ethical enlightenment to their employees, it is them that have failed to live up to the benchmark they preach.
Now when a CEO is making $58M a year he should be held to a higher standard of accountability. But what we find is quite the opposite, as we regularly see now in America those in positions of notable status are exempt from consequences. The Rich Handlers, Donald Rumsfelds, Hilary Clintons of the world reap all the upside and zero downside. Similar to the market having a Fed put, members of America’s upper class have a legal put. They simply are not held to the same standard to which the rest of us are held. And so if Litvak had the letters CEO in front of his name surely he would have been spared any prison time. Instead a large fine would have been paid into the Treasury’s General Fund and all would have been forgiven.
And so the consequences are worn by the non-elites, that is, the rest of us. The Rumsfeld lies that took us to Iraq and all of the subsequent continued fallout (now ISIS) are worn by soldiers fighting a synthetic enemy created in a social laboratory to perpetually expand defense industry contracts. The selling of favours and foreign policy deals by Hillary are worn by the families that lost loved ones in Benghazi. The multiple failures of Handler to properly manage risk and culture inside his firm led to rising legal and regulatory costs and declining business further leading him to shut down, only three years after purchasing, Pru Bache, a 130 year old company that had weathered the worst of storms. His failures are worn by thousands of non-six-figure income financial services sector employees that lost their jobs when he closed the doors on the 130 year old company but while he continues to receive his 8 figure compensation.
We can all think of literally a hundred examples of the legal put provided to those in the American upper class. And while any single example has a story of tragedy behind it, it is the assumed immunity we give across the board to those with a notable status that perpetuates their self serving indifference to those for which their duties are naturally responsible but now unaccountable. Yet we give them immunity, in part, because they do a fantastic job of portraying themselves as having concern for right and wrong and falling on wrong only due to circumstances outside of their control.
This really pinpoints the issue. While we listen to politicians, central bankers and CEO’s preach publicly about doing what’s right, ensuring economic stability, protecting the middle class and watching out for our employees and customers, it’s all absolute bullshit now isn’t it. That is, while guys like Rich and Brian pretend to be angelic proponents of good behaviour their firm is clearly an absolute disgrace in an industry already known for its lack of integrity. And it’s surely not just Jefferies but the general corporate and political culture in this nation that suffers from a lack of accountability and a lack of character. Apologies and fines are great but they don’t deter the bad behaviour that always lands on the rest of us, that much is clear.
This nation has become a land where character and integrity are secondary to profits for the few and self serving interests of the powerful. And as we are seeing already for the third time in this millennium’s infancy, stability and prosperity can be but short lived for even the highest paid CEO’s in such a world.
In Part II, I am going to expose The Ugly by releasing a recorded conversation of perhaps, contextually, the ugliest example of just how callous and inhumane our banking executives have become. Watch for it.