I ran across this comment by Joseph Mason, professor of finance at Louisiana State University in an article I was reading and I couldn’t resist sharing it with you.

“Wall Street will always have more lawyers and more accountants and more brains than the regulators.”

So I scavenged around and found a few more to make up today’s QQ list.

Let’s start with a Wall Street proverb that sounds as if it were written by Goldman.

“Buy on the rumor; sell on the news.”

Economist Paul A. Samuelson also seems to have a fairly jaundiced view of Wall Street;

“The stock market has forecast nine of the last five recessions”

I can’t imagine why, can you?

This next one is from everybody’s favorite crook, Bernard Madoff. Knowing what we know now makes this comment even more ironic.

“Whenever I go down to Washington and meet with the SEC and complain to them that the industry is either over regulated or the burdens are too great they all start to roll their eyes, just like all of our children do when we talk about the good old days.”

But it’s will Rogers who gets the last word today.

“Let Wall Street have a nightmare and the whole country has to help get them back in bed again”

Image credit: http://www.flickr.com/photos/stoneford/2671172459/

I am a fan of Adrian Gostick and Chester Elton; I reviewed both The Carrot Principle and The Levity Effect and highly recommend them. The books feel like fast reads, but digesting and using the (unconventional to some) wisdom found in each takes a bit longer.

The Daily Carrot Principle is the size of a desk calendar and offers much of that wisdom in bite-sized pieces by addressing one idea each day of the year, explaining it and providing a short description of the action needed to implement it.

I highly recommend The Daily Carrot Principle for yourself and for a gift—unlike a desk calendar you won’t want to get rid of it any time soon.

Recommendations

Many articles and books have/are being written about the Madoff scandal and dozens of other Ponzi schemes born of loose money and a wholesale ignoring of the old adage, “if it seems too good to be true it probably is.”

The most compelling book I’ve come across regarding Madoff is the inside look from Harry Markopolos detailing the eight years he spent trying to expose him and how the SEC refused to listen. Read this excerpt from How I Got the Goods on Madoff, and Why No One Would Listen to decide if it’s your cup of tea.

The message was practically the same in every one of those 14 meetings: “We have a special relationship with Mr. Madoff. He’s closed to new investors and he takes money only from us.”

When I heard that said the first time I accepted it. When I heard it the second time I began to get suspicious. And when I heard it 14 times in less than two weeks, I knew it was a Ponzi scheme. I didn’t say anything about the fact that I heard the same claim of exclusivity from several other funds. If I had, or if I had tried to warn anyone, they would have responded by dumping on me. Who was I to attack their god?

Another excerpt served up by Bloomberg Business Week offers a fascinating peek into Roger Lowenstein’s new book The End of Wall Street. Not that it is going away, but that its laissez-faire attitude may be.

The crash of 2008 put to rest the intellectual model that inspired, and to a large degree facilitated, the bubble. It spelled the end of the immodest faith in Wall Street’s ability to forecast.

Image credit: Simon & Schuster

When was it lost?

We choose whom to hire/follow/marry/date/befriend—or not.

Some of those choices work out and some don’t, but it’s when we choose someone who’s flawed, who just isn’t nice, that bothers us the most—think Bernie Madoff.

How could we have missed it—it always seems so obvious after the fact—and we end up wondering why our social judgment is so faulty.

A couple of years ago I read an article about research that shows infants do just as good a job discerning the difference between naughty and nice as Santa does.

Babies as young as 6 to 10 months old showed crucial social judging skills before they could talk, according to a study by researchers at Yale University’s Infant Cognition Center published in Thursday’s journal Nature…the Yale team has other preliminary research that shows similar responses even in 3-month-olds.

Ouch.

So what happens between 6 months and the future? Why do we hire/follow /marry/date/befriend the oh-so-obviously wrong people?

Why do we make so many poor choices?

Image credit: greyman on flickr

There’s a lot of talk that women wouldn’t have taken the same risks if they had been running Wall Street. According to Betty Spence, president of the National Association for Female Executives, that’s because “women don’t tend to bet the farm because their children live there.”

Don’t be too sure.

Perhaps women just haven’t been in a position to bet it, but they’re getting there.

“As early as this week, though, an American start-up company, AltaRock Energy, will begin using nearly the same method [that caused earthquakes in Basel, Switzerland]  to drill deep into ground laced with fault lines in an area two hours’ drive north of San Francisco.”

Susan Petty, a veteran geothermal researcher, founded Alta Rock to do geo-thermal research.

“In a report on seismic impact that AltaRock was required to file, the company failed to mention that the Basel program was shut down because of the earthquake it caused. AltaRock claimed it was uncertain that the project had caused the quake, even though Swiss government seismologists and officials on the Basel project agreed that it did.”

Am I the only one who is reminded of the expert warnings that were disregarded from people such as Warren Buffet regarding derivatives 5 years before they blew up or Harry Markopolos warnings a decade before the lid blew off Bernie Madoff’s Ponzi scheme?

Maybe Bella Abzug’s comment that “our struggle today…is for a woman schlemiel to get as quickly promoted as a male schlemiel” is finally coming true.

Image credit: doug88888 on flickr

Just three short goodies today.

Profits guaranteed. Isn’t it nice to know that some folks will make money as a result of the current disaster—and it isn’t even off stock options. All you need is a law degree and a spot at the right firm. Of course, you know who’s going to foot the bill, right?

Two other bits from Business Week; one could be considered investment intel and the other answers the question of why Ponzi schemes are popping up like mushrooms after a heavy rain.

Let Them Eat Big Macs

The swelling ranks of jobless can’t afford to dine out like they used to. While that’s bruising full-service restaurants, austerity is usually a plus for McDonald’s. The chain, which has been playing up its cheap eats, said on Jan. 26 that same-store sales jumped 7.2% worldwide in the fourth quarter, while operating income rose 11%. To pump up its numbers further in 2009, McDonald’s said it will spend $2.1 billion on construction, including 1,000 new outlets.

Ponzi, Ponzi Everywhere

Bernard Madoff may have pulled off the mother of all Ponzi schemes, but the downturn seems to be exposing lots of smaller-fry variants. On Jan. 26, for example, Nicholas Cosmo, suspected in a $380 million scam, surrendered to federal authorities on Long Island. The next day, FBI agents arrested Arthur Nadel, a Florida hedge fund adviser accused of bilking clients of tens of millions of dollars. Other cases in Florida, Georgia, Idaho, and Pennsylvania have recently come to light. Why now? Because in a downturn, investors often try to get their money out—and there’s no new cash coming in to pay them.

Image credit: flickr

The scandal at Satyam in India brings forth an interesting thought. In an article by him, Jitendra Singh, a Wharton management professor who is currently dean of the Nanyang Business School in Singapore says, “…companies with “the bluest of blue-chip reputations [such as] Infosys and TCS” could actually gain in the current environment, because of a potential “flight to quality” among client companies.” The third-tier and weaker companies will probably undergo a lot more scrutiny.”

Why does it make sense to do in-depth due diligence on third-or-lower tier companies, while taking top tier companies on faith and accepting their reputations with only cursory review.

Until their dirty linen came to light. Bernard Madoff’s hedge fund, Jeff Skilling’s Enron, WorldCom and Tyco were all considered top-tier.

This attitude of blindly accepting what is said by the top and increasing due diligence on lower levels is found everywhere, but it really permeates the hiring process.

I’ve lost count of the executives and managers I’ve known who went with cursory or no reference checks because the candidate

• was a C-level executive;
• graduated from a top-tier school;
• earned over $100K;
• had a PhD;
• was referred by an executive or board member;
• etc.

but ran exhaustive reference checks on every candidate below VP or director, including credit and criminal checks.

Does that make any sense to you?

Image credit: flickr

If I had spent the entire year scouring for business quotes to fit this title I probably wouldn’t find as perfect a selection as the ten offered up by Business Week in the Worst Predictions About 2008.

Here are my favorites, which do you like?

The Bad

“I’m not an economist, but I do believe that we’re growing.” —President George W. Bush, July 15, 2008 Nope. GDP shrank at a 0.5% annual rate in the July-September quarter. On Dec. 1, the National Bureau of Economic Research declared that a recession had begun in December 2007. (I thought that’s why presidents have advisers, so they didn’t have to be an expert in everything.)

The Worse

“A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008 (This is not the guy you want editing your investment advice.)

“I think Bob Steel’s the one guy I trust to turn this bank around, which is why I’ve told you on weakness to buy Wachovia.” —Jim Cramer, CNBC commentator, Sept. 15, 2008 Two weeks later, Wachovia shares lost half their value from Sept. 15 to Dec. 29. nearly failed as depositors fled. CEO Steel eventually  agreed to a takeover by Wells Fargo. (Can you imagine who he distrusts?)

The Ugly

“I expect there will be some failures…. I don’t anticipate any serious problems of that sort among the large internationally active banks.” —Ben Bernanke, Federal Reserve Chairman, Feb. 28, 2008 In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup needed an even bigger rescue in November. (Come on. If you’re gonna head the Fed you need to prognosticate at least as well as you obfuscate!)

“In today’s regulatory environment, it’s virtually impossible to violate rules.” —Bernard Madoff, money manager, Oct. 20, 2007 On Dec. 11, Madoff was arrested for allegedly running a Ponzi scheme that may have cost investors $50 billion. (Unless your name is Bernie and you’ve been doing it for a decade.)

OK, your turn now. Click the link and choose your favorites or supply your own in comments.

Your comments—priceless

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In 1992 the SEC investigated a Madoff feeder fund.

In May, 1999 and again in 2005, Harry Markopolos, money manager and investment investigator, presented his research on the Madoff Hedge Fund to the SEC in which he concluded that the fund was a giant Ponzi scheme…

“I used the Mosaic Theory to assemble my set of observations. My observations were collected first-hand by listening to fund of fund investors talk about their investments in a hedge fund run by Madoff Investment Securities, LLC, a SEC registered firm. I have also spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers I spoke with told me that Bernie Madoff was a fraud.”

Nothing happened.

In Warren Buffet’s 2002 letter to his stockholders he said,

“We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

Nothing happened.

But you know all this; you’ve been reading and hearing about it for weeks, so why am I bringing it up yet again?

Because the lesson we all need to learn from this is not to ignore the stuff that makes us uncomfortable; the information that doesn’t fit with our world view; the messy stuff; the unhappy stuff. Large, small or miniscule, it needs to be dealt with, not left alone to grow larger and larger until it overpowers everything around it.

Because when stuff is ignored it doesn’t go away, it gets worse.

Because that’s what leaders do, they deal.

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The level of accountability finger-pointing in the fiscal world accelerated steeply with the crash of the giant, 20 year-old Ponzi scheme orchestrated by Bernard Madoff. Financial experts are seeking to lay the blame/responsibility for this current financial crisis on regulators, but, as with derivatives, there were warning signs that could—should—have been read by the financially savvy.

Unlike other Wall Street wizards, it is almost certain that Madoff will be jailed, but most will walk away to plum new jobs far richer than they were and accelerate their status as role models to our youth.

Excuses will be made for them; those embarrassed by association will seek to bury their deeds in oblivion, and in a few short years people will forget.

And it gets more blatant with each passing year; witness Illinois Governor Rod Blagojevich alleged effort to sell Obama’s Senate seat.

Danny Schechter discusses the acceleration in a fascinating Media Channel column.

“The latest cases are staggering in their audacity in a corporate culture where an illegal act becomes a crime only when you get caught.”

In a recent TV show, the lead character comments, “It’s counter-productive to raise children in a world without consequences,” yet that is what we’re doing.

Kids see that lack of consequences in politics, business, athletics and religion throughout the media and much closer to home in their own lives.

Little by little those charged with educating kids are eliminating accountability, often at the instigation of the parents. If kids complain that a teacher is too tough the solution is to fire the teacher, rather than doing their job as a parent by setting boundaries and standards and then making sure kids are held accountable.

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