Business Ethics – Page 7 – education and deconstruction.com

Diary of a Hedge Fund Manager

The Book of the Week is “Diary of a Hedge Fund Manager” by Keith McCullough and Rich Blake, published in 2010. This sloppily proofread ebook is about McCullough’s passion for ice hockey, and personal experience on Wall Street in the the single-digit 2000’s.

McCullough grew up playing hockey in the Thunder Bay area of Canada. He had a dream of playing professionally, but built a career in the stock market in the United States instead.

At the turn of the 21st century, Ivy-League college connections allowed McCullough to get a job with money managers. He spent a short time at a few places, having been lured to the next place by more money. The companies were able to run legalized Ponzi schemes because they had “… access to institutional channels, corporate and state pension funds, nonprofit foundations, and university endowments, not to mention the world’s wealthiest individuals…”

Most of the hedge funds of that period engaged in poisonous groupthink– cartelizing behavior (but apparently were never taken to task by the government for price-fixing/monopolistic practices)– they all bought the same stocks to overhype them and push up their prices artificially. They “… had devolved into nothing more than highly touted engines for producing excessive compensation.”

Read the book to learn:

the steps McCullough took to co-found a hedge fund and how he and it fared;
what else he has been doing;
how he defines a trade, a trend and a tail; and
the method he uses and philosophy he espouses to sense what is going to happen in the market.

Here are two hints: He thinks closing share prices and integrity are very important.

Too Late for the Festival – Bonus Post

This blogger skimmed “Too Late for the Festival” by Rhiannon Paine, published in 1999. This ebook recounts the expatriate experience of the author, a tech writer, at the Hewlett-Packard office in Japan starting in 1985.

Paine describes in detail the then-culture in Japan, which discriminated against women in the office. Fluent in English, “Miyuki had graduated from Keio, the top private university in Japan” and yet could get only a low-level secretarial job with H-P, where one of her tasks was to serve tea twice a day.

Paine was tolerated as a tech-writer because she was a foreigner, but was still treated as an outsider. She was on a long-term temp assignment, for which she was grossly overpaid. However, she felt unfulfilled, as the tech product was obsolete by the time she was done with her role in the project. As is typical at a lot of American companies, the boss was just giving her make-work to justify the department budget and his supervisory power.

One quirk of Japanese culture this blogger found interesting, was with regard to the commuter trains. The author was taking a train, and suddenly informed by a traveling mate that they were going the wrong way. The reason was that some commuter trains are split at a particular station so that one portion departs in one direction, and the other portion, in the opposite direction. That doesn’t happen in the United States.

Read the book to learn of many other aspects of Japanese culture, and the fate of the author.

The Law of the Jungle – Bonus Post

This blogger skimmed the ebook, “The Law of the Jungle” by Paul M. Barrett, published in 2014. This is the story of a decades-long court case involving oil contamination in the Amazonian rain forest of northeastern Ecuador, to which a number of cliches apply:

Pox on the houses of both the plaintiff and the defendant;

A man is known by the company he keeps; and

When you lie down with dogs, you get fleas.

Starting in 1993, the plaintiff, represented by a greedy, egotistical, loudmouthed, yet shrewd attorney– Steven Donziger– claimed that defendant, Texaco, and then successor Chevron oil company, had caused illness, deaths, and damage to the quality of life of thousands of farmers and tribesmen in Ecuador. The Amazonians were allegedly poisoned by the oil-contaminated streams where they fished, bathed and gathered drinking water. The oil company had established a presence in their villages since 1964, when it forged an agreement with the Ecuadorian government to drill on 3.5 million and later, 4 million acres in the Oriente region.

The author tells a suspenseful, controversial story that reveals valid arguments on both sides. There was evidence of serious disruption of villagers’ lives. This included cancer clusters and other health issues that plagued the Ecuadorians, pollution of the place where they lived, the unintended consequence of violent fighting for jobs and over income inequality between Indians and homesteaders, etc. directly attributable to the activities of, and inept cleanup of, oil that allowed spreading of toxic chemicals by, the petroleum companies. On the other hand, over the years, the economy of the country of Ecuador made great strides due to the companies’ building of, and heavy investment in, transportation infrastructure and the side effects of job creation and good political relations that would not have occurred but for the corporate presence in Ecuador.

According to the author, the plaintiff’s attorney went after “big oil” rather than “… a struggling national government responsible for letting down its people” because big oil had more sex appeal. It could also be that big oil had deeper pockets.

In sum, “The oil pollution suit was not unique. Ecuador’s judiciary had a well-earned reputation for corruption and chaos.”

Read the book to learn of the various sleazy tactics employed by both sides in the dispute, and to get a concise, eloquent summary of the whole story– read the “Conclusions” section of this ebook.

The Zeroes

The Book of the Week is “The Zeroes” by Randall Lane, published in 2010. This is the author’s personal account of his adventures in the magazine publishing business in the single-digit 2000’s.

Lane describes in detail, his mostly bad experiences with some of the world’s wealthiest people. They were the subjects of articles and ranked in lists in the magazines published by his company, Doubledown. They were mostly greedy Wall Street traders. He was obligated to throw lavish parties for them (paid for by his company) to sell advertising and subscriptions. He was pressured to write nice things about them, or have them pull their ads.

The author and his business partner also got caught up in the spirit of the times, which valued material possessions and growth financed through a staggering debt burden. He started a wine-tasting club, and a wristwatch club. He writes, “Character, focus, patience– all get sacrificed when you’re starved for 100% growth.” He organized events to raise money for non-profits. When an event’s promotional materials stated, “… a portion of the proceeds will go to charity” that usually meant 1 or 2%.

Read this suspenseful, eloquently written book to learn how the author and his company fared when the financial services sector got its comeuppance in 2008. Here’s a hint: “In all, 1,471 hedge funds closed their doors in 2008, with dozens more failing in 2009.”

The Truth with Jokes – Bonus Post

With the U.S. midterm elections approaching, this blogger paged through Al Franken’s book, “The Truth with jokes” (but it isn’t funny), published in 2005. It is mostly about: election, military and economic issues in connection with George W. Bush’s first term.

One controversial issue (still a relevant question years later) that Franken covers is that “…seven months into the [Iraq] war, Donald Rumsfeld wrote a memo asking whether we were creating more terrorists than we were eliminating. ‘We lack the metrics to know,’ he lamented at the time.” A few years later, the government admitted it had the metrics– statistics on terrorist attacks– and the answer was yes.

In 2000-2001, when Bush was first “elected,” Federal Reserve Chair Alan Greenspan was excited that “After eight years of Clinton-style fiscal discipline and economic growth, the era of big deficits was over, and we were running surpluses…” As is known now, Greenspan’s assessment of America’s financial shape turned out to be a bit off the mark. By 2005, the U.S. government had to borrow $2 trillion.

Therefore, the Bush administration might have been wrong in predicting that Social Security would run out of money by 2042. There were then murmurs about privatizing it. Al Franken and his political ilk squelched Bush’s attempt.

Nevertheless, Franken has done extensive economics research, as is shown in this video:

This blogger thinks it is well worth watching in its entirety.

Jeffrey Sachs

The Book of the Week is “Jeffrey Sachs: The Strange Case of Dr. Shock and Mr. Aid” by Japhy Wilson, published in 2014. This ebook emphatically argues that the highly influential Ivy League economist Jeffrey Sachs has wreaked havoc on at least three nations’ economies in the last thirty years with his non-stop publishing, lecturing and implementation on and of, (in the author’s opinion) delusional, elitist, anti-communist, anti-union schemes; he is, arguably, an economics criminal, so to speak (the counterpart to a war criminal) in that the implementation of his policies caused deaths. As an aside, this blogger disagrees with the author’s spelling of “publically” rather than “publicly.”

Sachs has refused to acknowledge that his “shock therapy” method employed in Bolivia, Russia and Poland was a dismal failure. It was supposed to help them make the transition to capitalism through conferring responsibility for previously government-led distribution of goods and services, to private citizens without warning them of extreme measures to be imposed in accomplishing this. The countries were forced to adopt a model at the far opposite end of the spectrum of the welfare state.

Sachs’ first victim, Bolivia, was experiencing 60,000% inflation and 20% unemployment in the summer of 1985. By 1987, pursuant to Sachs’ plan, a free market had been created, but the costs included a 50% higher unemployment rate and a 40% lower real-wage level. Over the next five years, the mining and industry sectors lost jobs by the tens of thousands.

In Russia, a few powerful wealth owners were already experienced in “managing” assets, so their receiving additional private property– with no laws requiring them to treat their workers in a humane manner– made them even more exploitative. In the early 1990’s, leader Boris Yeltsin became a convert of Sachs. The result was mass corruption. On the other hand, this has helped the United States and other nations with already evolved capitalist systems to maintain their economic dominance in the world. This blogger is not saying such a goal is right or wrong, but merely suggesting that this might have been Sachs’ goal.

Sachs also helped the rich get richer in Uganda, by providing specially chosen farming families with certain resources, such as fertilizer and seeds, in a few villages. The goal was to have those politically connected farmers “… magically combine entrepreneurial self-interest with community spirit, based on a patronizing representation of the deserving poor.” This smacks of a similar kind of mentality in the New York City schools under former Mayor Michael Bloomberg in the early 2000’s, based on the mistaken notion that all students were bound for college. Sachs’ program started charging money for conferring some of its resources, “… which inevitably privileges those with the ability to pay.” Bloomberg imposed various policies (still in effect as of this writing), that inevitably privilege those students who have the ability to pay for private school, and testing and tutoring services. That is just the tip of the iceberg in both cases.

A World Trade Organization conference in Seattle in 2000 was discontinued because “… Suddenly, this orderly world of billionaire philanthropy and elite policymaking was overturned by massive street protests involving unions, NGOs, and activist groups, demanding an end to the global neoliberal agenda of free trade, privatization, and corporate power.”

Read the book to learn of additional outrages associated with Jeffrey Sachs.

A Matter of Opinion

The Book of the Week is “A Matter of Opinion” by Victor S. Navasky, published in 2005. This tome details the decades the author has spent working at the more than 150-year old, politically left-wing weekly opinion journal, The Nation.

Typical for a publication of its nature, The Nation, as of the book’s writing, had turned a profit for only three fiscal years of its existence. It is supposed to have for-profit status. During their histories, all such journals that derive most of their revenue from subscribers and a little from advertising, consider becoming a non-profit organization. The major traits of non-profits include: the ability to accept tax-deductible contributions, lower postage costs, and the fact that they are prohibited from endorsing political candidates and are restricted in their lobbying of lawmakers.

The Nation has been a party to various lawsuits in connection with defamation, intellectual property and free speech issues. One of its goals is to expose the truth about the activities of the American government. Navasky wrote, “… claims of national security are all too often a cloak for government lies, cover-ups, and bureaucratic disinformation.” Started in 1979, one suit brought by Harper & Row dragged on for years over The Nation’s releasing a story on President Ford’s pardoning of Richard Nixon prior to the release of Ford’s new book; Harper & Row spent an estimated $250,000, but it was seeking damages of $12,500.

In 1989, the tiny, financially struggling Nation wrote a satirical letter to Time, Inc., the target of hostile corporate takeover offers by Gulf + Western and Paramount with an offer of its own. It said, “… we can do better than Paramount’s $175 per share offer… our plan is to pledge the assets of Time, Inc. as collateral on the loan we take out to buy you so cash will be no problem for us.”

Read the book to learn of Navasky’s stories on all the issues involving the running of an opinion journal in the Twentieth Century, into the early years of the Twenty-First Century.

Blood Will Out – Bonus Post

This blogger skimmed the book “Blood Will Out” by Walter Kirn, published in 2014. It is a personal account of the author’s relationship with the scammer, Clark Rockefeller, aka Christian Gerhartsreiter. Kirn, a novelist and journalist, befriended him in the late 1990’s.

Growing up, Gerhartsreiter had had permissive parents, who “… excused and coddled their naughty son.” This might have led to his thinking he could get away with bad behavior, including murder, as an adult. He was, to the dismay of his ex-wife, initially caught for a different crime– trying to abscond with his young daughter. This was in 2008, a year fraught with stories of dishonest dealings on a large scale– Lehman Brothers, Bernie Madoff, subprime lenders, etc.

Read the book to learn how and why Kirn was suckered into a lopsided friendship with a swindling phony.

Louis Renault, A Biography

The Book of the Week is “Louis Renault, A Biography” by Anthony Rhodes, published in 1969.

Renault, an automobile entrepreneur, was born in February 1877. When he began his career, there were only two classes of any real importance in France– the aristocracy and the bourgeoisie. Renault sold vehicles initially for commercial purposes like taxis, public buses and milk delivery trucks.

By 1905, there were 22 intensely competing European automakers. The year 1908 saw six-cylinder engines made by eight French, ten American, three Belgian and one German manufacturer. In 1909, Renault sold his cars in New York. The goal was to sell 1,200 to 1,500 of them.

In the 1920’s, Citroen, Renault’s chief rival, employed many women in his factories. He conducted an ongoing direct-marketing campaign, mailing letters to potential first-time and new car buyers who had visited the local showroom and expressed interest in a purchase. He also made toy models of his cars for kids. Renault and Citroen competed in starting bus lines between cities in France. Citroen was taken over by Michelin after going bankrupt in 1935.

Read the book to learn of Renault’s accumulation of wealth, his company’s corporate culture and labor troubles, what transpired among automakers during the World Wars and through the decades, and how history dealt Renault a serious blow toward the end of his life.

In the Name of Profit – Bonus Post

This blogger skimmed the ebook, “In the Name of Profit” by multiple co-authors, originally published in 1972. This depressing set of anecdotes on corporate greed simply reminds the reader that there is nothing new under the sun.

One theme is that through the 1950’s and 1960’s, big manufacturers such as Goodrich and General Motors had constructive knowledge that the products they sold were defective. Purchasers had bad experiences, and were seriously injured or were killed by those products. The companies’ attorneys and their employees rationalized that “‘planned obsolescence” meant progress. “But the meaning is clear: ‘Go cheapen the product so we can make more money.” In the case of drug company Richardson-Merrell, the product wasn’t cheapened, but rather, serious side effects were downplayed or hushed up and the results of FDA pre-approval testing were fabricated. Unsurprisingly, the company and its subsidiaries hired top-dollar attorneys skilled at helping businesses weasel out of legal trouble.

Another topic covered was Napalm, whose evolution began at Guadalcanal during WWII. “The Napalm fire bomb was deliberately designed as an indiscriminate terror weapon for mass destruction and death among civilians.” When people in Vietnam were harmed, Dow Chemical’s legal defense was bolstered by the fact that it had received orders by the U.S. Government to make the controversial product.

This ebook also discussed stock manipulation and corporate takeover. SEC laws were shown to be very lax in the 1950’s and 1960’s, as one particular perpetrator did jail time for various securities violations, but after his release, went right back to his old tricks. One Herbert Korholz repeatedly gamed the system with acquisitions. President of the Susquehanna corporation, he was able to bribe directors and officers in taking over another company with a secret tender offer of a share price higher than what was to be offered to the general share-owning public. “Profit-making firms can cut their taxes magnificently by merging with big losers…” One Maurice Schy, an attorney, attempted to make the government aware of Korholz’s unethical, unlawful and disgusting behavior, by filing lawsuits through the years, to no avail. Government officials were mired in conflicts of interest (favorable to Korholz’s interest) and ruled against Schy every time except one; a ruling was pending as this book was being released in 1972. Schy had finally gotten a possible break only because there was another case brought by another party against Korholz’s companies’ illegal activities.

In sum, we human beings are a mixed bag of evolutionary traits; altruism and greed among them. On many occasions, greed wins out, and we never seem to learn from those past occasions.