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Tag Archives: Moral hazard

Doing God’s Work, Moral Bankruptcy and the Blues Brothers

Does it take the Blues Brothers for us to learn about faith, God and choosing to do the right thing?  In light of Goldman Sachs and Bank of America, I am sending my kids to the movies for a religious experience.  At least Jake and Elwood were convinced they were on “a mission from God” to reunite their band and keep the orphanage they grew up in from bankruptcy.  In fact, you don’t have to rely on my judgement of their intentions.  In observance of the 30th anniversary of the movies release in June 2010, the Vatican’s official newspaper L’Osservatore Romano has dubbed The Blues Brothers a “Catholic classic”.  In contrast Lloyd Blankfein, the CEO of the 143 year old investment bank Goldman Sachs stated in a November 2009 interview with The Times of London that he’s just a banker “doing God’s work”.  I guess in this case, toxic credit default swaps, government bailouts, excessive bonuses and acting with intent against the best interest of his customers are the work of a deeply humble religious man.  To put it bluntly then Greg’s Smith deftly penned op-ed fair-well was the work of an atheist or agnostic.  Another words Mr. Smith began doubting the holiness with which Mr. Blankfien served the creator.  This blight of the pen cost Goldman Sachs shareholders 2.2 billion dollars on paper and will make me think twice about how my business ethics and behaviors intersect with my religious beliefs.

Until next time, be good and cultivate your community of friends.

I am just a banker “doing God’s work”  Lloyd Blankfein CEO Goldman Sachs November 2009

 

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Bad Business Decisions, Moral Hazards and the Legal Way to Defraud the Public

As a business owner with numerous customers that have gone bankrupt in the last few years, there is one particular striking element that keeps me questioning the structure of our bankruptcy laws.  Recently I received a “Summary of Trustee’s Final Report and Applications for Compensation” from a former customer.  At one time this customer operated six retail stores before some bad business decisions and failure to pivot and adapt to customer demand ultimately caused his business to fail.  What is striking about the Trustees Summary is the amount of money owed to creditors $ 1,754,000.    The receipts from the debtor are $20,587.87.  Of course the bankruptcy attorney and trustee are receiving their fees paid in full.  After these fees totaling 11,217.64 are paid, this leaves $9,370.23 to be split among the creditors that are owed over $1.7 million.  Just as an example, the mall owner where these stores were located is owed $350,000 and will be paid $1,800.  I am owed $1,400 and will receive $1.36.

This begs the question many of have asked regarding the financial meltdown and this situation I describe.  At what point did the principal know he was going to fail and he made a conscious decision to extract as much cash from the entity knowing that there would never be re-payment.  In the case of AIG, Fanny Mae and Freddy Mac there is an inherent moral hazard with the full faith and backing of the federal government.  If profits are declining, increasing risk is a possibility to gain higher returns since a government bailout can be counted on.  I would pose a similar question to my former customer–at what point did he know bankruptcy was imminent yet he continued to spend other people’s money?

As my father taught me many years ago, life is not fair and the sooner you get over this notion is when you can be proactive and address some of life’s inequalities.  So if I walk into Walgreen’s tomorrow and I leave without paying for a roll of toilet paper, I can be arrested and charged with a crime.  However a bad or poor business decision that affects and hurts many more people will not be prosecuted.  I have many more similar stories to share at a later date.

When you wake up tomorrow morning, start your day by being honest with yourself and your product or service and make sure you are providing what the market values and demands.

Until next time, be good and cultivate your community of friends.