Published CommPro.biz 2014.02.04

The Bad Apples

Every year Harris Interactive surveys Americans on our level of trust in a group of nineteen industries. Over the last ten years a dismal outlook has gotten worse. Harris asks, "Which of these industries do you think are generally honest and trustworthy – so that you normally believe a statement by a company in that industry?" Not a single industry met that standard in the minds of even half of Americans, not one in the last decade. Most businesses are trustworthy, it’s the few bad apples that drag everyone down

Supermarkets did best at 30%. That means 70% of us do not trust supermarkets. The list gets worse quickly. All but one of the remaining 18 industries scores in the teens or a single digit. Oil and tobacco companies are at the bottom of the list. Oil comes in at 4%, putting their distrust level at 96%, tobacco scores 3% putting their distrust level at 97%. Fitting for a couple of industries that have fed the grim reaper millions of people around the world? Tobacco is at the bottom. We can’t imagine how anyone could have a positive outlook when it comes to tobacco. It’s more like a criminal enterprise that has killed more people than all the dictators of the 20^th century combined. Imagine, more than the big three –Mao Zedong, Jozef Stalin and Adolf Hitler– plus all the minor tyrants of the last century. 

Hospitals came in second at 28%, dropping from 36% in 2012, a result of the wide range of healthCARE entities that have become healthGreed entities. Banks come in at number four with a trust level of 18%. That means eight out of ten Americans have no trust in anything our bankers say. In 2004 the banks had a 40% trust level. That collapsed with the recession and recognition by the public that the monster banks are out of control. We would guess the 18% who trust banks are referring to their local community bank. In the same poll the number of Americans who say banks should face stronger regulation jumped 50% in the last decade. No surprise given what’s happened since the banksters lobbied away the regulations that protected us for almost a century. 

Industries sharing a low trust level and support for more regulation are topped by two that are literally killing us, tobacco and oil. The health care industries follow close behind. Driving costs out of control are Big Pharma, insurers and hospitals focused on money in this industry group that is immune to competition. Any fix is being blocked by those we elect to protect our interests. Our legislative bodies, in the states and at the national level are controlled by the lobbyists who pour money into their pockets. That leaves all of us out in the cold, spending more by far than on healthcare any nation on earth and getting third world outcomes.  

"Am I wrong?"--"Am I Nuts?"--

"What do you think?"--"Do you agree?"

The Wages Of Trust

In less than forty-eight hours two of the most breathtaking ethical breaches in memory popped up in the news. Last Wednesday evening (12/10/08) legendary Wall Streeter Bernard Madoff reportedly met with two of his key executives and told them his money-management business was “all just one big lie;” “basically, a giant Ponzi scheme.” The senior employees understood him to be saying that he had for years been paying returns to investors out of the cash received from other investors. In that conversation, Madoff said, “he was ‘finished,’ that he had ‘absolutely nothing.’ ”

The next morning he was arrested by federal agents accused of fraud, a multibillion-dollar scheme — $50 billion by Madoff’s own estimate. Wealthy people found themselves broke; charitable organizations, colleges and universities learned that their endowments were diminished or gone. No one knows how long this elegant con man had been bilking his clients. His firm had been in business almost fifty years.

Over the weekend another jaw dropping story emerged. A high flying lawyer, Marc Dreier, popped up in the news. Seems the wheels have been falling off his practice over the last couple months. Dreier set up his own firm a dozen years ago. He soon had several branch offices and was able to attract lawyers from the top of the talent pool with lavish financial deals. Flashy is the only way to describe the firm and its founder.

Dreier is said to have used his connections with clients to bilk outside investors by issuing phony promissory notes. Is that gutsy or what? To keep the scheme afloat he was paying interest on the notes, perhaps from cash coming in from new investors, another Ponzi scheme. One of his clients began to smell a rat after Dreier showed up with a group of people in their conference room for a meeting that nobody in the company knew about. The light dawned when the company’s CEO got a phone call asking about the firm’s promissory notes Dreier was offering. Fake notes as it turned out.

Earlier this month Dreier showed up in the offices of a public service pension fund, again with a group of potential investors. However, a savvy receptionist cut him off on his way to the conference room and called the cops. Dreier ended up in the slammer. Even then he was still squirming and managed to grab $10 million from a client’s escrow fund. Now it turns out that most of the firm’s escrow funds are empty.

Compared to Bernie Madoff’s huge $50 billion rip-off, Marc Dreier’s deals that add up to a few hundred million seem like peanuts. It’s not the size of their deals that lines these con men up beside each other, it’s the trust relationships they preyed on and betrayed. We are way beyond the ethics realm and into bizarre criminal behavior. However Madoff and Drier played on the vital ingredient of ethical behavior: “trust.” Do their actions damage the vast majority of us who strive for an ethical climate? You bet!

But honest folks should have no fear of these deals. There was good reason to doubt both Madoff and Dreier. In Madoff’s case it was the age old rule, “If it sounds too good to be true, it probably isn’t.” Many in the financial world were onto Madoff years ago and refused to buy into his deals for that very reason; the returns he promised were too good to be true.

In Dreier’s case it was the seller who was out of place. Lawyers have many important roles, but hawking financial instruments is not one of them. It’s pretty safe to say, “Never allow lawyers to be involved in business decisions, especially where money is involved.” They can advise if something is within the law, or suggest wording, but they are notoriously bad business people and just don’t have any business in business.

Am I blaming the victims of these con men? Yes! While those who were led into Madoff’s deals by financial pros may deserve a little slack, they still should have paid more attention to the deals. And anyone who buys a financial instrument from a lawyer should know that it may not be worth the paper it’s printed on.

Beware “Blind” trust.