Decision Quality Blog

My colleague, Clint Korver blogged the other day on the pickle Senator Kent Conrad finds himself in due to the appearance of favorable treatment at the hands of Countrywide Mortgage . . .

The Washington Post today showed this morning how it worked. Sen. Kent Conrad, D-N.D. upon advice from an old friend, called up Countrywide CEO Angelo Mozilo to obtain a $1.07 million loan for his Bethany Beach, Del. vacation home. Apparently they hit it off and Mozilo took up the cause of getting Sen. Conrad a good deal.

I don’t see any ethical issues for Mozilo with the above activities — so long as  Mozilo was not being deceptive about this practice. In fact, it sounds like he was quite open with his special favors. “It was something he handed out like party favors. He was fairly forthcoming with it,” said Guy Cecala, publisher of Inside Mortgage Finance Publications. “As long as I can remember, he was offering that.”Countrywide Gave Special Attention To Lawmakers - washingtonpost.com. Mozilo wasn’t being deceptive, he wasn’t stealing (company’s give discounts to customers for all kinds of reasons), and he wasn’t hurting anyone.

The ethics of the Sen. Conrad is potentially a different story. The Senate ethics committee has a gift rule that frowns on Senators getting benefits of this magnitude.

In today’s WSJ, Senator Conrad has this to say . . .

Regarding your June 16 editorial “Beltwaywide Financial,” I never once asked for or expected discounted mortgages or a so-called “sweetheart” deal from Countrywide Financial.

Here are the facts: In 2002 I was looking for a mortgage and went to several lending institutions. I also called a close friend of mine who knew a lot about mortgages for advice. My friend happened to be with the head of Countrywide Financial when I called and put him on the line. I spoke with a gentleman by the name of Angelo Mozilo for about 30 seconds, and he referred me to a junior loan officer.

Because I did not know if Countrywide would grant me a loan or what terms they would offer, I also consulted a mortgage broker in Washington, D.C. He offered me the identical rate as Countrywide. He is quoted in my hometown newspaper confirming that fact.

He goes on to detail other transactions and ends by saying . . .

In terms of questions about this matter, I immediately disclosed my personal financial records to the news media, answered every reporter’s question and sought out guidance from the Senate Ethics Committee.

There is nothing I value more in my public life than the trust I have earned from my constituents in North Dakota, and I will take every measure possible to ensure them that I sought no favor, expected no favor, and was not aware of any favor provided by Countrywide Financial.

Like I said, he’s in a pickle, how big remains to be seen.

The fact is, beyond his public position, Mr. Conrad is a homeowner and apparently the owner of at least one commercial property. The man needed a mortgage. Having spent a number of years consulting to financial institutions, I can assure you with 100% certainty, that regardless of what Mr. Conrad said or did, he got extra attention. There is simply no way that someone doing this piece of business wouldn’t note his day job and make a point of drawing it to the attention of anyone going near his loan. Screwing up a US Senators loan falls in the category of “bad”.

As Clint points out, the fact that the CEO of Countrywide let it be known that there was a special window for people of importance is a typical business practice. In fact, he didn’t make bones about it. Anyone in business reading this post or the articles referenced knows this. The fact that Senator Conrad compared the rate he was offered to what an independent loan broker could get him seems prudent on his part, though the idea that he was referred off to a “junior loan officer” is a huge stretch. I would bet serious money that part didn’t happen. Again, there’s no way the CEO of Countrywide was going to send this piece of business to a newbie. But not a hanging offense.

Clint doesn’t like words like “in comparison,” but in comparison to the excitement surrounding the dealings with Jack Abramoff, this one is a complete non-starter. Dollars to donuts says the Ethics Committee has nothing to say about this. I’m guessing this one doesn’t cost him much at the polls. That leaves his conscience. For public consumption, his story seems pretty sound. Like I said, it’s a pickle.

Tags: CountrywideFinancial, Senator Kent Conrad, mortgage, Ethics Committee, Jack Abramoff, Decision Making

It’s always interesting to wonder about the line of decision making that leads to something like this happening . . .

In a case that echoes the corporate spying scandal at Hewlett-Packard, Deutsche Telekom said there had been “severe and far-reaching” misuse of private data involving contacts between board members and reporters.

The disclosure, prompted by a report Saturday on the Web site of the news magazine Der Spiegel, set off a storm of protest from privacy advocates, journalists and labor representatives at the company.

The German government, which effectively controls Deutsche Telekom through a 32 percent stake, demanded a thorough investigation, describing the spying operation as a “serious breach of trust.”

I’m absolutely convinced that given the perceived context, this decision made sense to someone at the time. Now that it’s splashed all over the Internet, it looks much different. People will swing for this, maybe even those that ordered it up, but who’s to say. I can think of many examples where that didn’t happen.

Another reminder that privacy is a 19th century dream.

Tags: DeutscheTelekom, Spying, ethics, decision making

The New York Times tells the story of recruiting firms taking money from both students and universities to facilitate placement of students . . .

When Xiaoxi Li, a 20-year-old from Beijing, decided she should go to college in the United States, she applied only to Ohio University — not that she knew much about it.

What brought her here was the recommendation of a Chinese recruiting agent, JJL Overseas Education Consulting and Service Company. For about $3,000, JJL helped Ms. Li choose a college, complete the application and prepare for the all-important visa interview.

“Everyone I know used an agent,” she said. “They are professionals. They suggested Ohio University might be the best for me. They have a good relationship with Ohio University.”

Actually, JJL has more than a good relationship with Ohio University. Unknown to Ms. Li, it has a contract, under which the agent gets a $1,000 commission for each undergraduate it sends.

British and Australian universities have for years paid commissions to overseas recruiting agents, and as a result have attracted a growing share of international students. Now the practice is spreading in the United States, especially at community colleges and public universities eager to enroll more international students, who may pay several times the in-state tuition. 

But the use of agents is raising uncomfortable questions and strong feelings, with some education officials queasy about a system in which those who advise students on their college selection have a financial stake in the choice, an approach they fear could make the college-admissions process into a global bounty hunt.

“Putting recruiters on any kind of commission makes them out and out sales agents,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

Like JJL, many agents collect hefty fees from both sides — the students they advise, and the universities they contract with — leaving some to question whose interest is being served. Even some advocates of recruiting agents see a need for an ethics code.

“. . . could make the process into a global bounty hunt”. You think?

Separately, a saga unwatched by anyone not deeply invested in the New England Patriots continues to play out with yet another round of alleged cheating and impropriety, most recently around illegal taping of the other team’s activities . . .

The N.F.L. team executive said the Patriots were the subject of most of the accusations discussed in the rules committee’s deliberations. The team’s recent success and tight-lipped approach, as personified by Belichick, has played a role.

“They were the only team, really,” the executive said. “Clearly, they were the team mentioned far more than anybody else.”

Once the Patriots were caught taping, it only served to heighten speculation about what else they might be doing.

In the case of the piece on academic recruiting, I’ll concede the point that it was an exercise in reporting vs. Op Ed. Still, the prevaricating language does a poor job of masking the obvious: taking money from both sides of an advice-based relationship isn’t “dubious”, or “borderline,” or anything of the sort. It’s unethical.

I put these two examples, student bounty hunting and sports cheating in juxtaposition to each other to illustrate an important point. It doesn’t take much to erode confidence in the fairness of any system, game, or institution. I have friends who decry any mention of the idea of a “slippery slope,” but I don’t buy it. It’s an easy slide to the bottom once you start playing in the dark (to mix a metaphor). I suprised that self-proclaimed bastions of ethical behavior like Ohio State (where academic plagerism is cause for expulsion) participate in such a sham at all. The NFL is another matter entirely.

Tags: Cheating, Recruiting, Ethics, New England Patriots, NFL. JJL Overseas Education Consulting and Service Company, Ohio State

I know of at least one college professor who is planning to discuss the case of Alton Logan in an upcoming ethics class. The facts are there.

• Alton Logan is convicted of killing a man in a McDonald’s.
• Andrew Wilson tells his attorneys that he, not Logan killed the guard.
• The attorney’s, "bound" by the ethical code of privilege, keep this secret for 26 years.
• Wilson is in jail for other heinous crimes. Wilson finally dies.
• The attorney’s come forward and petition the court on behalf of Logan
• Logan may or may not go free.

The attorneys present themselves as wracked with anguish.

Kunz says he knows some people might find his actions outrageous. His obligation, though, was to Wilson.

"If I had ratted him out … then I could feel guilty, then I could not live with myself," he says. "I’m anguished and always have been over the sad injustice of Alton Logan’s conviction. Should I do the right thing by Alton Logan and put my client’s neck in the noose or not? It’s clear where my responsibility lies and my responsibility lies with my client."

So here are the choices that the attorney’s perceived they had:

1. Remain silent. To do otherwise would be to violate their code of ethics.
2. Remain silent. To do otherwise would put their client, already guilty of other capital crimes, at risk of another verdict and perhaps a death sentence.
3. Speak up and risk censure and/or civil action by their client.
4. Resign and speak up and risk the possibility of civil action by their client.

According to the article, it was their plan to "do something" if Logan was sentenced to death which he wasn’t. They also apparently made numerous attempts to find a way through the ethical thicket with no apparent outcome. Finally Wilson died in prison and they came forward. Logan is astonishingly philosophical.

After spending almost half his 54 years as an inmate, this slight man with a fringe of gray beard, stooped shoulders and weary eyes seems resigned to the reality that his fate is beyond his control.

"I have to accept whatever comes down," he says, sitting in a visitor’s room at the Stateville Correctional Center in Joliet.

He insists he’s not angry with Hope — the man who first said he was innocent — or even Wilson. He says he once approached Wilson in prison and asked him to "come clean. Tell the truth." Wilson just smiled and kept walking.

Nor is Logan angry with the lawyers who kept the secret. But he wonders if there wasn’t some way they could have done more.

"What I can’t understand is you know the truth, you held the truth and you know the consequences of that not coming forward?" he says of the lawyers. "Is (a) job more important than an individual’s life?"

Tags: AltonLogan, Ethics, Code, Andrew Wilson, Innocent Man, decision making

This will feel arcane if you don’t follow finance, but the short of it is that banks are lying to us and each other to mask how desperate they are for cash. This is chapter 27 of an ongoing saga of people and entities packaging the truth–lying–for business gain. Hard to make good decisions in this environment.

In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London inter-bank offered rate, known as Libor, is becoming unreliable.

Libor plays a crucial role in the global financial system. Calculated every morning in London from information supplied by banks all over the world, it’s a measure of the average interest rate at which banks make short-term loans to one another. Libor provides a key indicator of their health, rising when banks are in trouble. Its influence extends far beyond banking: The interest rates on trillions of dollars in corporate debt, home mortgages and financial contracts reset according to Libor.

In recent months, the financial crisis sparked by subprime-mortgage problems has jolted banks and sent Libor sharply upward. The growing suspicions about Libor’s veracity suggest that banks’ troubles could be worse than they’re willing to admit.

The concern: Some banks don’t want to report the high rates they’re paying for short-term loans because they don’t want to tip off the market that they’re desperate for cash. The Libor system depends on banks to tell the truth about their borrowing rates. Fibbing by banks could mean that millions of borrowers around the world are paying artificially low rates on their loans. That’s good for borrowers, but could be very bad for the banks and other financial institutions that lend to them.

Tags: LIBOR, lying, banks, mortgage mess, decision making

This just feels wrong. I thought the point of having laws was to enforce them? Now it appears that unlike regular citizens, corporations can just buy there way out of criminal prosecution.

In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.

Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.

Deferred prosecutions have become a favorite tool of the Bush administration. But some legal experts now wonder if the policy shift has led companies, in particular financial institutions now under investigation for their roles in the subprime mortgage debacle, to test the limits of corporate anti-fraud laws.

Firms have readily agreed to the deferred prosecutions, said Vikramaditya S. Khanna, a law professor at the University of Michigan who has studied their use, because “clearly it avoids a bigger headache for them.”

Some lawyers suggest that companies may be willing to take more risks because they know that, if they are caught, the chances of getting a deferred prosecution are good. “Some companies may bear the risk” of legally questionable business practices if they believe they can cut a deal to defer their prosecution indefinitely, Mr. Khanna said.

Under this schema, fraud and other criminal acts can now be thought of as a cost of doing business. Not good.

Tags: Ethics, Decision Making, Decision Quality, Deferred Prosecution

The action is all in the story. More on that in a few paragraphs. This story didn’t make it above the fold in my newspaper, but it has the potential to be a doozy. Here’s the lead . . .

With United Airlines the fourth major carrier to ground planes in the past month because of maintenance concerns, critics claim the Federal Aviation Administration (FAA) is "too cozy" with the airlines it regulates.

As evidence, critics point to a wave of recent problems:

• Crossed wiring led two United Airlines jets to skid off runways.

• Federal inspectors blew the whistle on Southwest Airlines for flying planes after learning that critical safety checks had not been conducted on schedule.

• A 20-square-foot piece of wing broke off a US Airways jet over Maryland.

The disclosures have raised concerns in Congress and among safety experts about airlines’ maintenance practices and prompted a major congressional hearing today on the issue.

Words like "critics" and "too cozy" send important signals about how the author sees the situation. He or she uses words, emphasis, and order to narrate a set of "facts" to show what he or she thinks is important, interesting, cause and effect.

Here’s another take on the same story from the same article

FAA acting Administrator Robert Sturgell said the preliminary results of the audit showed that the industry is safe. Out of 2,392 audits at 117 airlines, the agency found seven possible violations at four carriers, the agency said.

Same facts, different story. "Safe." "No Accident." The implication is that there’s a lot of complexity and a lot of people involved here. Things fall through the cracks. But we’re on top of things.

My partner, Clint Korver, has yet a different take, his from an ethical angle.

Here is the short story: two FAA inspectors, Bobby Boutris and Douglas Peters, claim the FAA looked the other way as Southwest flew 46 planes long past their mandatory inspection dates — without them being inspected. After much back and forth (I’ll get to that in a moment) Southwest finally had the 46 aircraft inspected to find that 6 planes had cracks in the fuselage, or skin, and dozens more were long overdue for checkups of the backup rudder-control mechanisms.

It is not reported what else Mr. Boutris did to bring these issues to the attention of his management, but by last fall, he became so fed up with his management’s approach that he brought this situation to the attention of the Office of Special Counsel who, after finding the allegations credible, alerted Congress and here we are.

It would be easy, but inappropriate, to lay all of this at the feet of a few bad individuals inside the FAA. Transgressions such as these are often indicative of the culture of an organization. Mr. Boutris, in his statement to the Office of Special Counsel wrote “[for three years] the message I have been getting is not to ‘rock the boat.’”

Look again at the first paragraph. 46 planes flew for 30 months without proper inspections. That’s probably at least 8 flights per day per plane. That’s 331,200 flights. At 80% capacity, that’s about 100 people per flight. So that’s over 33 million people put at risk. The good news is that only 6 of the planes actually had cracks. So that means only 4.3 million people were put at risk. And none of the planes crashed, so gosh, the system must be working.

Or course yet another version of the story might be told from the standpoint of one of those passengers. I’ve flown well over one million miles in the last ten years. So I’ve been on a lot of planes. So it’s reasonable to extrapolate that I’ve been on at least one plane that had not been properly inspected and was flying with something wrong. The fact that I’m here typing about it doesn’t make it right.

The news is just full of stories like this. There are lots of "chicken soup" truisms that come immediately to mind, the first of which is that the truth usually lies somewhere in the middle of all these stories. After all, there is no such thing as an impartial observer. It’s hard to say right here and now how this particular story will unfold. Some will see this as yet another example in a larger pattern of neglect and a studied indifference to enforcement that has characterized Washington over the past seven years. Other’s will see something less sinister. Some will see something truly rotten.

The larger lesson you might take from this is actually the simplest. Pay attention to the story and who’s telling it. The story tells you as much about the story teller as it does the actual situation. So a fair question you might ask is, "What is it about this story that’s important to the person telling it?" Perhaps they have an agenda. Or perhaps you can glean an insight into how this person thinks; about what this person thinks is important.

In a similar vein, it’s often useful to track your own reaction to the story. It might give you some insights into what lights you up and what doesn’t . . . useful insights when it comes to both figuring out what’s "really going on" and to understanding the decisions you and others make.

Tags: FAA, Southwest Airlines, Too Cozy, Ethics, Office of teh Special counsel, Story, Story Telling, Story Teller, Ethics, Deceit, Lying, Decision Making

As if there isn’t enough to worry about, the New York Times reports that a couple of guys are bringing a law suit to stop CERN from lighting up their cool new toy, the Large Hadron Collider. Why? It might destroy the universe.

More fighting in Iraq. Somalia in chaos. People in this country can’t afford their mortgages and in some places now they can’t even afford rice.

Scientists say that is very unlikely — though they have done some checking just to make sure.

The world’s physicists have spent 14 years and $8 billion building the Large Hadron Collider, in which the colliding protons will recreate energies and conditions last seen a trillionth of a second after the Big Bang. Researchers will sift the debris from these primordial recreations for clues to the nature of mass and new forces and symmetries of nature.

In the world of decision making, we call that an "uncertainty." The way you explore it mathematically is by doing something called a sensitivity analysis. Basically you ask the smartest people you can find, what’s the outcome if you’re wrong on the bad side? What about on the good side? What’s your base expectation?

So if you were thinking about buying a vacation home, you might ask yourself what you think the value of the home might be in ten years time: low side, high side, base expectation. The idea is to be 90% confident that the answer is in that range. So you make the range big. Most people don’t make it big enough, but that’s another discussion.

In the case of the the super collider . . . we’ll I’m not even sure where to start. Apparently the "down side" is total obliteration of the earth, or maybe even the universe. Bummer. That sounds bad. The upside is that we may or may not get some cool new insights into the nature of matter. Hmmmm. Well I guess that sounds useful. The good news is that apparently, and I say that guardedly, the probability that CERN will destroy the universe is pretty small. Too, as my wife points out, if they do that, why do we care? It’s not like we’ll be around to see what it’s like.

I have no additional insights to offer to this debate. Doomsday predictions have a long and lustrous history of not working out, at least not yet. Of deeper interest is the ongoing debate, currently being engaged in by 17 people, as to how much big science is enough. Or, better stated, who gets to decide when chasing after something just because it appears scientifically possible is okay, and when is it not? Ever see Terminator?

Tags: CERN, end of world, LHC, Large Hadron Collider, Terminator, decision making, ethics, sensitivity analysis

Vernon Hill, a director at Bankstocks.com has an interesting take on the Spitzer fiasco, one I must confess I completely missed. His issue? Spitzer was taken down by his bank who is required by law to snoop and report on his financial activities.

You will have your own view as to the aptness of poetic justice that was served up to Eliot Spitzer this week.

But if you’re concerned about actual, legal justice, you should be worried. The Spitzer case illustrates loud and clear the extent to which the banking industry has been turned into an arm of federal law enforcement. In particular, anti-money-laundering laws, such as 1970’s Bank Security Act (BSA), originally designed to fight terrorism and organized crime, give the federal government the right to peep in on the financial affairs of philandering pols like Spitzer—and people like you and me, as well.

Banks have no choice in the matter. They are required to snoop on the private financial affairs of every single one of their customers, and are then required to report to federal authorities anything irregular that they find.

In the case of Eliot Spitzer, the soon-to-be-ex-governor’s fall began when his bank reported to the Feds (as it’s legally required to) certain cash withdrawals out of his bank accounts. So this massive invasion of privacy serves up yet another politician, snared by never-ending and intrusive Federal regulations and laws.

Most banking customers don’t have a clue—nor should they accept—that they no longer have a shred of financial privacy. Big Brother, in the form of your bank, is watching everything you do.

Tags: EliotSpitzer, BSA, Bank Security Act, Ethics, Privacy, Decision Making

The writing is on the wall. Governor Spitzer’s political career is over, at least for the time being. While it’s not yet certain if this will rise to the level of national importance that Britney Spear’s or Lindsey Lohan’s slow-motion implosions did, it is well on its way to being an ink and blog magnet of the first order.

People will find meaning from all directions in this. It’s a morality tale. No, it’s about the pitfalls of power. No, it’s just another example of the evils men do. Ahh, it’s a story of comeuppance, the prince of ethics and the Sheriff of Wall Street reaping the whirlwind

Some snips . . .

NYT

“I think biologists could tell you this has something to do with natural selection — the person who acquires power becomes the alpha male,” said Tom Fiedler, who teaches a course in press and politics at Harvard’s Kennedy School. He was involved in reporting Gary Hart’s notorious fling with Donna Rice in 1987 that terminated the senator’s presidential bid.

Politics and sex is an old story, and as Mr. Fiedler and others point out, it simply reinforces the lessons of the aphrodisiac of power taught in Shakespeare. Its prime characters constitute a crowded society.

WSJ

The news stunned traders on Wall Street, where Mr. Spitzer long has been viewed with fear and contempt. Some view the revelations as a huge hypocrisy for a man, who as New York’s attorney general, had aggressively pushed for ethics and fair play on Wall Street earlier this decade. People who clashed hardest with Mr. Spitzer are among those crowing the loudest.

“He actually believes he’s above the law,” said Ken Langone, a former New York Stock Exchange director who now heads a small investment-banking firm. In his role as prosecutor, Mr. Spitzer sued Mr. Langone for his role in doling out the large pay package of former New York Stock Exchange CEO Dick Grasso. “I have never had any doubt about his lack of character and integrity — and he’s proven me correct.”

His political rivals, too, jumped into the fray.

“This is not a victimless crime,” said U.S. Rep. Peter King, Republican of Long Island. “I’ve never known anyone who was more self-righteous and unforgiving than Eliot Spitzer.”

Mr. Spitzer’s fall from grace could mark the end of the public career of a man who has had a profound impact on corporate America. Amid the rash of corporate scandals that plagued Wall Street early this decade, he was the single most visible force trying to weed out abuses and bring down wayward chief executives.

AP

Why do otherwise smart, successful people do such risky things? For psychologists and political analysts who found themselves dissecting the Spitzer story, it was a question of the chicken or the egg: In such situations, does the risky behavior precede the powerful job? Or does something about being in power cause the behavior?

Many speculated that it was a combination of the two. “We’re all human,” said Leon Hoffman, a psychoanalyst in New York.

And yet, Hoffman said, there may be something about the aura of power surrounding a prominent politician that makes him feel potentially immune from consequences.

“There’s the psychology of the exception,” said Hoffman, former chairman of the American Psychoanalytic Association’s public information committee. “People in power sometimes feel they can do things that us, mere mortals, are forbidden to do. There’s a sense, as with adolescents, that ‘I won’t get caught.’ “

Political analyst Steven Cohen was wary of trying to draw any conclusions about the corrupting influence of power.

“The problem is we don’t know when this behavior started for this person,” said Cohen, a professor of public administration at Columbia University. “Politicians are like the rest of us. The fact that they’re flawed and do stupid things shouldn’t surprise us.”

Half a dozen stories from literature and antiquity come to mind as well–Icarus and Narcissus are two that come to mind–warning of the follies of ambition and hubris.

In the end, Governor Spitzer will or won’t come to grip with the shadows and dark energies he’s carrying with him. Maybe he goes into the cave and sees Darth Vader and maybe he doesn’t. Maybe he learns something important about himself, and maybe he doesn’t . . . this time around.

If there is a lesson here, it’s that. Nobody can carry that much anger, than much self-righteousness, and that much ego around and not fall down. It’s just a matter of when and how.The rest is just prurient interest and politics.

Tags: ElliotSpitzer, Icarus, Narcissus, Ethics, Morals, Morality, Decision Making, Decision Quality, What Was He Thinking?