Friday, December 19, 2008

Being a Bystander

In a recent article Nassim Nicholas Taleb and Pablo Triana co-wrote a piece, Bystanders to the Financial Crisis Were Many for the Financial Times. In it they write of the not so innocent role bystanders play in financial crises, one that continues to hail quantitative methods such as Value-at-Risk that have been proven faulty and destructive.

As in the Black Swan, Taleb does not give those who teach and continue to ascribe to such methods, including Nobel economists, a break. He considers them disingenuous. Taleb has little regard for the position of Nobels; his quest is toward an empiricism that challenges such theories that continue to create greater risks than the value such Value-at-Risk methods purport.

The article goes a little further and requires us all to get off the bystander fence and act. The article begins with a historic event where a woman was raped and robbed while others stood near and not come to her rescue. The authors conclude that there are no innocent bystanders.

Taleb and Triana have a “bias for action” as Tom Peters would say. Action is needed by all and the lack thereof is akin to those who have actually committed the crime. Aligned with this type of criminal behavior is that of professors and the like who continue to teach methods that have been proven to be faulty, perpetuating fallacies. Everybody has a responsibility. There are no innocent bystanders.

Reading the article, I could not help but to align the many investors who invested with Bernard Madoff who proclaim him now to be a crook but who themselves had great returns beforehand, probably the likes that would raise the eyebrow of a neophyte investor, let alone one who has done so for many years to the tune of hundreds of millions of dollars.

Over these few days I have heard known and unknown investors talk about the Madoff Ponzi scheme. Those well-known ones speak of the criminal behavior of Madoff, but after reading this article I wonder about their implicit or complicit role in the scandal.

Some investors seemed to have literally been duped by Madoff and their life savings and earnings devastated. But others seem to have washed their hands of him taking the loss now after the great gains before.

These investors now come across as bystanders, innocent of any guilt. But after reading this article I come away with a different perception. Perhaps they too, as the bystanders in the this, are indeed not guilt-less.


Ellington Ellis said...

Judith, this is a great analysis. It seems to me that inherent in capitalism is deviancy. We need only to look at some of the great economies preceding ours; the Dutch “Tulip Economy” readily comes to mind.
In my opinion, Madoff’s Ponzi scheme only mirrored acceptable leverage in the industry; such as credit default swaps, mark to the market, and exotic derivative packages. All of these being deem legal by a self regulated market. Madoff’s, however, being adjudicated as illegal by a problematic criminal system. Both schemes I see, nonetheless, as unethical at best and criminal at worst in light of who gets hurts; the little guy.
Maybe this is a good time to reassess capitalism as we know it. If we choose not to reevaluate I am afraid Madoff will come in many more exotic stripes, MAKING OFF with much more than what MADOFF MADE OFF with.

judith ellis said...

Ellington - Thank you for that. I would tend to agree that inherent in the practices of capitalism is deviancy. But I also believe that inherent in many systems and practices is the same. Capitalism has brought about much good in many places in the world, elevating a great many people out of poverty. But with most things there need be regulation and ethics, for greed is an all-consuming force. "The love of money is the root of all evil."

I also would agree that "Madoff's Ponzi scheme only mirrored acceptable leverage in the industry." Most would agree with that, I gather. I also appreciate your analysis of the unethical and criminal. Capitalism as we know it is most certainly being re-assessed, as any system should be. A continual re-assessment is forever necessary. Last week Creative Capitalism by Michael Kinsley arrived on my doorstep. It is a collection of essays on Capitalism by some good thinkers and businessmen, including Gates and Buffett. If you do not already have it, you might enjoy the read.

I had not heard of the Dutch Tulip Economy but I will read up on it. It appears that there is no greater law or system than the law of love. "Love thy neighbor as yourself" is a system of self-regulation. The question is whether we in and of ourselves can abide by such a beautiful law?

Cynthia said...

I also read one article that goes
further to say, the majority of
the people "scamed" knew better,
really to give all all of your life
savings? or people who are educated
and savy; were propelled by their
own greed.
Young single mothers living in
low rent housing. Retired couple
eating one meal a day. These are
the people I would shed tears for
if they lost what little money
they had or tried to grasp a humble
brass ring for decent shelter food
and clothing.
However, something tells me this
fellow did not approach the above

As always thanks for offering such
intelligent insight Judith, you have become my mentor of the mind.

judith ellis said...

Cynthia – The unfortunate thing is the charities many of the above had were greatly impacted by this and the single mother, the retired couple, and those in soup lines will be impacted too. I have worked to find funding for nonprofit organizations so I know a little about how this works.

These organizations live on the funding of charitable organizations like those who invested with Madoff. Often times these organizations are tax havens for the super rich and burden lifters too. These tax havens are worthy ones; why give the money to the government when such nonprofit organizations can better serve the community? Government is necessary but such nonprofits meet the immediate need more efficiently.

In thinking of those who set up charities as a way to right continued wrongs, no amount of their good deeds will justify wrong doing. "Man looks at the outward appearance but
God looks at the heart."

To determine the heart of a certain pious rich man who came to Jesus telling him all of the good things he had done from his childhood up, Jesus told him to go and sell all that he had and give to the poor. The pious rich man simply walked away sorrowful for he had much and would not even entertain the thought. But Jesus sought to give him so much more.

One might wonder why Jesus would seek to make the rich man poor and the poor rich. "The first shall be last and the last shall be first." The very thought is transformative. Jesus was not seeking to strip the rich man of his riches but to determine his motive. He sought to show him himself. The rich man had come to him with a great question: "How can I receive eternal life?" We receive eternal life by giving in love out of a pure heart.

Thank you, Cynthia, for your encouraging words. As you know, I love your poetry.

Cynthia said...

Thank you Judith for your insights
and knowledge and the willingness
to enlighten others.

judith ellis said...

Cynthia - It's my pleasure, really.