Blogging Made an Honest Man of Him

The mysterious Fourteenth Banker says it is blogging that helped him to go straight:

While I have been clear with my truth in this anonymous blog, I have become clearer with my truth in the rest of my life. I have quietly begun to live the life of a reformer. My life is richer as a result.
So while I will leave this blog up, and may return to it if the situation warrants. I am moving on with my life. You may hear of me again in the public square, but it won’t be as the Fourteenth Banker, it will be a real person with a real name. I have decided to leave my big bank to look for honest work. This decision was mostly made of course at the time I started the blog, and was confirmed by what I learned as I wrote. How could I continue to work for an organization that sort of lumbers cluelessly along seeking its own survival by whatever means are convenient with no moral considerations?

Extaordinary.  Great blog, it will be missed. Though perhaps not the blogger, who will still be there somehow.

Goldman and Institutional Culture

The Browser showcases a pithy insight into institutional culture from a blog hitherto unknown to me:

You may violate certain portions of the Code of Ethics so long as your manager and team benefit and these violations are on the unspoken, unwritten “approved violation” list. Generally these will make lots of money for the firm and yourself.

That's from The Fourteenth Banker, watching the Goldman hearings. Good catch, and I mean no disrespect when I suggest that with a little bit of tweaking this describes any institution, not so? We all have our "rule book" and "how things are done," our langue and our parole. This doesn't need to be as cynical as it sounds; indeed it doesn't need to be cynical at all. Part of the point is that human conduct is too rich and various for any rulebook--witness how quickly the enterprise breaks down once the boys on the shop floor start "working to rule." And there is an important point here about leadership: maybe the folks on the bridge at Goldman said "wink wink," but there are others who will say "sorry. sonny, we just don't do it that way."

If Short-selling is Outlawed...

From the smart and clear-sighted Simon Johnson at Baseline Scenario:

Here’s the legal theory to keep in mind. Mr. Paulson only stood to gain on a massive scale (or at all) if the securities in question were mispriced, i.e., because their true nature (that they had been picked by Mr. Paulson) was not disclosed. In other words, the Paulson transactions at this stage of the game only made sense if they involved fraud (emphasis added).

If Simon means "some lawyer will argue this but I ain't buyin'," then okay. But if Simon buys it (and I am pretty sure that he does), then it is flat wrong. It is not true that the deals "only made sense if they involved fraud." They made sense if they involved fraud or if they involved a gargantuan self-delusion from which the Goldman execs (and the buyers) refused to recover.

There is, of course, a deep-seated core tension here--the ethics of entering into a transaction in which I know the other side is misled. If I buy a gewgaw from the guy at the street market knowing that it is a diamond, and knowing that the seller thinks it is just a rock, then maybe I ought to return it. Maybe, but maybe not. And as a forum for exploring these moral ambiguities, I hardly think Paulson's Wall Street is the right place to start.

I don't want to go overboard here. Simon says Paulson needs a good lawyer and no quarrel there. And it seems clear that the SEC has set about the task of mining the paper trail (in search of missives like this). But it's worth keeping in mind: short selling is not villainy. It is often the only island of sanity in a sea of mania.

Who Wants to Take Over the Banks?

This isn't exactly news but I am still impressed by how broad-based is the support for nationalizing the banks. I mean, no surprise that you've got Nouriel Raoubini and Paul Krugman. But then there's Alan Greenspan and Lindsay Graham. And John Makin from the American Enterprise Institute, of all places (and Underbelly too, now that we think of i: link, link).

Notables not on board include the President, and the Democrats' Congressional Finance Pointmen: Barney Frank and Tom Dodd. This makes sense, I suppose. It is hard to believe ethat Barney Frank would resist the opportunity to run a bank if it presented itself, but I suppose he understands that his embrace could queer the deal, and that he's much btter off letting the likes of Greesnspan and Graham carry the water.

Afterthought: But I still don't see why it needs to be a total takeover. Take preferred stock--just not the kind of funny money fake preferred we weighed in for at the time of the Fannie Freddie deal last year.