Saturday, December 13, 2008

Power and Greed, II

A few days ago I wrote about a small group of people whose raison d'etre is accumulating power and wealth by whatever means they can get away with. They are smart, and they generally weigh their decisions carefully, but they are also ruthless. Most of us have never been close enough to people like this to really understand the depth of their lack of principle; they are sociopaths, and they know how to fit into society and manipulate people and organizations to achieve their ends. They are responsible for a lot of the pain in the world.

Since I wrote those words, three more people who seem to meet this description have been exposed. Illinois governor Blagojevich ran on an anti-corruption platform but is now accused of attempting to sell whatever an appointment to the U.S. Senate. Bernard Madoff, the former chairman of NASDAQ, has been arrested for masterminding a Ponzi scheme that may have cost investors a mind-boggling $50 billion. Marc Dreier, a well-know New York City attorney, has been arrested for allegedly defrauding several hedge funds of up to $380 million. They are three very smart and capable people who have likely caused incredible chaos by taking huge risks to accumulate power and wealth.

During the past week I've heard several financial experts claim that regulation can't keep up with the evil creativity of those who are driven to "succeed" at whatever cost. They may be right. But, why aren't the big-time con artists exposed more quickly? I suspect these people succeed largely because their "customers" fail to exercise due diligence when doing business with them. Their personal magnetism or pedigree is such that their proposals are not checked out appropriately for transations of the magnitude they deal in. And, they are not afraid to intimidate or ridicule people who may obstruct their plans. Consequently, one successful fraud serves as the base for the next, by increasing the perpetrator's power and wealth.

You have probably heard the word "transparency" often, lately. It means that the purposes and details of agreements or transactions should be completely disclosed to those who are affected by them. Government officials and corporate managements, in particular, are being encouraged to be more "transparent" because they can often gain unfairly by keeping their purposes and transaction details secret. In some instances, such as in the selection of an appointed senator or the awarding of a major contract, transparency before the act is impractical but a requirement to keep detailed records and submit to post-review may provide adequate oversight.

The primary objection to transparency is that it "slows the process" by creating unnecessary work before and after transactions. In my view, this argument usually comes from prime movers who hate the idea that outsiders would have some power over them. We should be sceptical. Hampering those who might sell senate seats, bilk people out of $50 billion or $380 million, or invest a bank's capital in ultra-risky morgages seems more reasonable every day.


Anonymous said...

The "financial experts" are once again giving a false dichotomy: we can regulate poorly, or we can not regulate at all.

Why has effective government become such a completely alien concept?

Emily said...

It seems to me that transparency should simply be considered part of the process, rather than a hinderance.