CitiBank Whistleblower Richard Bowen: The Ethics Merry Go Round

The McCuistion program, which airs in Dallas/Fort Worth on PBS station KERA, recently re-aired its program, Ethics and Transparency as Antidotes to Financial Fraud. Host Dennis McCuistion asked the guests what ethics and the lack of transparency may have done to contribute to the 2008 financial crisis?

One of his guests, Marianne Jennings, J.D.: Professor Emeritus Arizona State University Ethical and Legal Studies, author of The Seven Signs of Ethical Collapse; commended as a top 100 thought leader on ethics and one of the most influential people in ethics by Ethics Magazine, responded, ”I’m getting tired of doing this because it’s the same story over and over again. What happens is there are regulations and people find little loopholes.”

I was hooked- such a true statement. There is no question that the lack of ethics and transparency greatly contributed to our financial meltdown in 2008 and we aren’t learning anything new as the egregious lack of ethics still continues in the financial industry. Ms. Jennings commented that everything that is now regulated was at one time an ethics issue- and used a graph to firmly illustrate her point regarding social, regulatory and litigation cycles.

According to Ms. Jennings, people look for loopholes to get around rules and regulations, which while they maybe legal are not necessarily ethical. If you act fairly ethically and stay within the “wriggle room” parameters you’re fine. Step outside that and you enter the Awareness stage, and perhaps a major newspaper such as the Wall Street Journal catches it and reports on it. In the Activism stage, the pitchfork stage,  USA Today, reports on it, people are outraged, storm the castle and demand action be taken. In turn this leads to the Regulation stage and government sets regulations and more rules, with new loopholes, and the cycle starts all over again.

According to Ms. Jennings, as long as ethical issues are made within wriggle room parameters, proper disclosures made and transparency followed, all is fairly well. As she states, not all ethical issues are the same, there are layers of influence. If we treat all ethical issues equally, then one may erroneously think fixing the rogue players who exhibited unethical behavior will solve the problem.

However an individual may make an unethical decision because he or she was influenced by an organization’s culture, its expectations and what is rewarded. Ethical decisions are also driven by peer pressure within the industry which forces those organizations who want to continue to stay in business to go along to get along. What is really not acceptable then becomes an industry standard.

In the financial services industry this played a major role.  For example, the industry started widely accepting a borrower’s word as to his or her income and employment (a.k.a. “stated” or “no doc” loans) so these products became an integral part of doing business in the financial services industry. Those organizations that had misgivings but wanted to stay in business thus conformed to the new norm and embraced the new loan products.

After a while society goes along with the new norm, after all everyone else is doing it- why can’t we? Speeding, cheating on exams and taxes, the teenager’s “all my friend’s Moms let them do it” whine!!!!

Richard Ebeling, PhD: Distinguished Professor of Ethics and Free Enterprise Leadership at the Citadel, former President of the Foundation for Economic Education and V. P. Future of Freedom Foundation, the program’s second guest, says the financial industry has always been heavily regulated. When the Fed loosened its policies to keep interest rates low, there was no longer transparency and market forces were then not allowed to dictate interest rates and the Fed’s artificially low interest rates fueled the 2008 bubble.

Fannie Mae and Freddie Mac compounded the problem as they responded to Congressional pressure to loosen credit standards. By ensuring banks they could relax their underwriting standards and Fannie and Freddie would still buy the loans, market dictated risk parameters no longer applied and the banks were off to the races.

Dr. Ebeling believes it was our government agencies, like Fannie and Freddie, that helped undermine the financial market and threw sound ethical decisions out the window. His explanation fits Ms. Jennings layers of ethical issues. Eventually society starts accepting what is going on as everyone else is doing it too.

My soap box all over again. Ethics makes for good business. Yet even though it is talked about at length, codes of conduct are written, classes are taught, accountability-or-else mandates are made, there is still in the financial industry and in other business arenas as well a glaring lack of ethics and egregious lapses of conduct.

If we don’t solve the underlying problems, then ethics don’t matter because there is a payoff, with no consequences, for breaking them. Solutions become almost impossible. I’m with Ms. Jennings- ”I’m getting tired of doing this because it’s the same story over and over again.”

Livinglies Posts $100 Reward for HERS Fabrication Index

Announcing the establishment of the Homeowners Electronic Registration System (HERS) to assist in mortgage negotiations, litigation, foreclosures and modifications. HERS v MERS, Get It?

We are looking for someone to go through the comments and blog posts that give the name of an officer or other person signing any paper involved in the mortgage or foreclosure of property and to create a index using EXCEL or ACCESS cross referencing the state, financial institution, actual employer etc. that was revealed. If you are successful we will set up a subscription site for people to pay for the inquiries and you will receive income from that site.

You must submit your resume and all relevant contact information to by March 31, 2010. And you must commit to having the project in final form, subject to continuing revisions no later than April 30, 2010. Upon your selection you will receive a check for $100 in advance.

Good Comment from Rand:

It’s a good idea but you should put a few more requirements for the database. It’s not enough to simply look at the affidavits of indebtedness. Any affidavit filed is worthy of note because if you can establish than any of them were signed by a questionable, including an affidavit by another law firm or attorney verifying the validity of the attorneys fees being sought as reasonable (requirement here in FL to get attorneys fees) then you can through the entire case in doubt.

Example, bad attorney who gets cited personally by a judge or the local bar, any case he’s signed an affidavit in is questionable. I don’t know say “Coucgh”ivd “hack”ern. or the elk.

Finally, there is no such thing as narrowing the focus to filings withing a state. With due respect Ian the person who signs for PA probably also signs for FL, CA and anywhere else that’s not within 100 miles of where they live in MO. However, it’s important to not only note who signs, but when and where. How else could the sign in two different states on the same day? Better be ready to show plane tickets.

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