Pope Francis: Religious and Secular Arguments for Governments Subordinating Markets to Social Norms

The documentary, Pope Francis: A Man of His Word (2018) chiefly lays out the pope’s critique of economic Man. The film begins with references to climate change too loosely linked to the global population figure of 8 million humans, 1 billion of whom are unnecessarily living in poverty. The viewer is left to fill in the gaps, such as that because as biological organisms we must consume and use energy, the hyperextended overpopulation of the species is the root cause of climate- and ecosystem-changing CO2 in the atmosphere and oceans. Arguably, the salvific Son of God or the means into the Kingdom of God enjoy pride of place in the gospels, but compassion for the poor as well as outcasts and the sick is indeed a message that Jesus stresses in the faith narratives. Rather than being a sign of sin, poverty, especially if voluntary,  can permit the sort of humility that is much superior to the pride of the Pharisees. In the documentary, Jorge Bergoglio, who took the name Francis in becoming pope of the Roman Catholic Church in 2013, is a practical man who points to the sickness or temptation of greed that keeps humanity from riding itself of poverty, unnecessarily. Moreover, the hegemony of the market, with its culture of consumerism and commoditization, comes at the cost of the common good, which to Francis has a spiritual basis. Abstractly speaking, harmony, which inherently respects its own limitations, should have priority over greed and markets. Both of these can go to excess without enough built-in constraints as occurred before and during the financial crisis of 2008, with poverty plaguing humanity more rather than less as a result.

The full essay is at "Pope Francis."

Financial Scandal in the Vatican: A Historical Perspective on Christian Economic Ethics

In the history of Christian economic thought, theologians, with the exception of Clement of Alexandria, interpreted the biblical story of the rich man who refuses to part with his wealth in order to follow Jesus as meaning that having wealth is itself indicative of the presence of the underlying sin of greed. The dominance of this anti-wealth paradigm only began to give way during the Commercial Revolution in the eleventh and twelfth centuries, when the expansion of trading made it possible for ordinary people to save, and thus hold wealth without any sense of an underlying sin. Hence, Aquinas differed from Aristotle in allowing for moderate profit without the assumption of any underlying greed. In the Renaissance, theologians generally agreed that the Christian virtues of liberality and munificence could justify even being rich. Even Cosimo de Medici, who made his fortune from the sin of usury (i.e., interest on loans), gained the approval of the Pope in Rome by donating a fraction of the fortune to the Church. Under the dominance of the pro-wealth paradigm, Christians could be wealthy without being assumed to be greedy.[1] As for the Church itself being able to hold wealth, the collective wealth, gained from donations and selling goods, of monasteries in the Middle Ages was the door-opener. It was not as if a greedy individual could be said to exist if a religious organization owned the wealth. Aquinas approved of such wealth, a stance that, with his approval of moderate profit earned (and held as wealth) by individual Christians, began the shift that would result in the hegemony of the pro-wealth paradigm.[2] Unlike individual Christians holding coin without being presumed greedy, monasteries owning substantial wealth could be subject to a critique based on Jesus’ objection to money-changers in the Temple. When I visited a convent in Tucson, Arizona once, a sister rebuffed my request to pick a couple of oranges from the trees behind the building. “We make juice that we sell,” she replied. I had the impression that I had witnessed greed over charity in a religious vocation. Such hypocrisy, enabled by the allowance for collective monastic wealth, rivals Pope Eugene IV’s absolution of Cosimo de Medici, in spite of his fortune having been gained entirely from usury, because he renovated a monastery in Florence. This historical background can help us situate the Vatican’s financial scandal that culminated in five Vatican officials being suspended in 2019.

The full essay is at "Financial Scandal in the Vatican."

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1. Skip Worden, God’s Gold: Beneath the Shifting Sands of Christian Thought on Profit-seeking and Wealth, available at Amazon. The related academic treatise, Godliness and Greed, is also available at Amazon.

2. Ibid.

Getting More For Doing Less: Bank Board Directors

Executive compensation is an art rather than a science. It is not as if numbers are fed into a computer and the correct compensation pops out. More discretion is involved than meets the eye. “Since the financial crisis,” The New York Times reported in 2013, “compensation for the directors of [America’s] biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay.” [1] Just five years after the financial crisis, it is interesting how the banks' respective managements decided to spend the TARP money from Congress and even more money from the Federal Reserve Bank. Also of note, board and upper management compensations seemed to be going in different directions in spite of both being presumably tied to the same firm performance. Even a performance-incentive approach tied to firm-performance can accommodate a lot of latitude, such that banks differ in how much they pay their respective boards. The discretion permits inside collusion and even outlandish demands by "celebrity" members whose advice does not necessarily come up to celebrity status. 

The full essay is at "Bank Boards Getting More for Doing Less."

1. Susanne Craig, “At Banks, Board Pay Soars Amid Cutbacks,” The New York Times, April 1, 2013.

Bankers or the Bank: Which Is Responsible?

Along with paying $2.6 billion to settle criminal and civil charges for having “failed, and failed miserably” to notify the SEC of warning signs that could have short-circuited Bernie Madoff’s $17 billion Ponzi operation, J.P. Morgan Chase only had to acknowledge that its actions were improper.[1] No criminal prosecution ensued. The electronic evidence against Madoff's operation was too damning for JP Morgan Chase to have missed it. Indeed, according to USA Today, “JPMorgan had suspicions about Madoff’s operation as early as December 1998, when a bank fund manager warned the investment returns were ‘possibly too good to be true.’”[2] Without submitting any “suspicious activity reports” to the U.S. Government as required by law, the bank had pulled $275 million of its own “feeder funds” from Madoff’s fund two months before Madoff’s financial services firm collapsed.[3] In other words, the bankers connected the dots well enough for the bank's financial interest and perhaps even their own, yet strangely  enough no one at the bank could manage to let the outside world  know, even though federal law mandated reporting the suspicions to the SEC.  and responsibility urged it.

The full essay is at "Bankers or the Bank: Which is responsible?"

J.P. Morgan hitting a man. Was he demonstrating that criminal law applies to human beings rather than to organizations themselves?  Image Source: Wikimedia Commons

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1. This was according to Manhattan U.S. Attorney Preet Bharara.Tim Mullaney and Kevin McCoy, “JPMorgan to Pay $2.6 billion in Madoff Case Settlements,” USA Today, January 8, 2014.

2. Ibid.

3. Ibid.

Business and Religion: Financial Ethics Found Lacking in the Vatican's Institute of Religious Works

In probing corruption leads in the Vatican Bank, Italian financial police stumbled onto a plot in July 2012 to smuggle €20 million into Italy. The alleged culprits included a monsignor, a financial broker, and a former member of Italy’s secret service. For his part, the cleric was said to have had people pretend to give him donations of €560,000 so he could furtively pay the financial broker for his role. Crime, Italian politics, and the Vatican Bank: hardly a novel discordant tune even then. That not just any bank, but that of a church, could stray so far from what would reasonably be expected from a bank whose formal name is the Institute of Religious Works still boggles the mind. Even so, the intersection of ethics, religion and business is fraught with complexity.  A religious verdict from ethical premises is possible nevertheless.

The full essay is at "Business Ethics in the Vatican."

The Banks’ Consultants: Guarding the Hen House

Leaving it to consultants hired by mortgage servicers to right the wrongs that the services inflicted on foreclosed homeowners was the unhappy consequence of bank regulators giving ambiguous guidance and failing to install viable oversight mechanisms. According to the Government Accounting Office, “regulators risked not achieving the intended goals of identifying as many harmed borrowers as possible.” Even if the reviews had been completed, there was on guarantee that wronged mortgage borrowers would have received any compensation. On the other side of the ledger, the banks had received billions from the U.S. Treasury with no strings attached. Whether intentional or not, the banking regulators put too much stock in the consultants, who, after all, had been hired by the mortgage servicers."

The full essay is at "The Banks' Consultants: A Conflict of Interest." For other cases, see my book, Institutional Conflicts of Interest: Business & Public Policy, available at Amazon.

Sources:

Ben Hallman and Eleazar Melendez, “GAO Foreclosure Report Finds Bank Regulators Failed to Provide ‘Key Oversight’,” The Huffington Post, April 3, 2013.

Dan Fitzpatrick, "'A Dose of Healthy Competition' For Banking Regulators," The Wall Street Journal, April 18, 2013.

The Underbelly of Corporate Charity as Corporate Social Responsibility

Why do corporate managements spend corporate money on charities? The obvious reason is to reduce the amount of corporate income tax due. Yet another motive, not as transparent, has to do with reputational capital, and that motive may also explain corporate social responsibility.

  Bernie Madoff, surrounded by police, after having been arrested. Wikimedia Commons

The full essay is at "Corporate Charity as Social Responsibility?"

Institutional Conflicts of Interest: Business and Public Policy

Typically people react emotionally much more severely to an exploited conflict of interest when a person gains a personal benefit such as through a bribe. If company, or even an office or department thereof, stands to benefit inordinately, American society typically looks the other way on the institutional conflict of interest rather than taking it apart. This may just be human nature. However, the troubling institutional arrangements within an organization or between them may be tolerated because of the erroneous assumption that conflicts of interest are unethical only when they are exploited. Accordingly, the book provides a solid grasp of the structure and essence of the conflict of interest in order to make the case that it is inherently unethical. Examples of institutional conflicts of interest readily come from business, with particular attention to corporate governance and the financial sector, as well as from how business and government relate, such as through regulation The reader should come away with a sense of just how pervasive and ethically problematic institutional conflict of interests are. 

The book, Institutional Conflicts of Interest: Business and Public Policy, is available in print and as an ebook at Amazon.com

Essays on the Financial Crisis

The financial crisis that peaked in the United States during the fall of 2008 is an excellent case study of what can go wrong with leadership and corporate governance in business, financial ethics, government regulation directed both to the firm level and that of the financial system itself, and legal accountability for the culprits. The collection of essays begins with a series of essays on Lehman Brothers, with particular attention on its last CEO, Richard Fuld. Given the fraud surrounding subprime-mortgage bonds at numerous banks, the second part of the book looks at why legal accountability was so elusive in the United States. Weaknesses in the financial regulation, with particular attention to whether agencies had been captured by their respective regulated firms, comprises the third part. The fourth part examines the culpability of the Federal Reserve Bank, which had perhaps been too close to its regulated banks to anticipate the crisis. The book concludes with essays on why business ethics had been so very weak. The careful reader will take from the book a sense that the financial system remained vulnerable even after government attempts to reduce the systemic risks of a big bank going under. 

The book: Essays on the Financial Crisis, is available in print and as an ebook at Amazon.com.

Bribery at Barclays: Can an Unethical Culture Be Changed?

Amid the financial crisis in 2008, Barclays raised $15 billion from Qatar and other investors. The infusion of capital saved the European bank from needing a government bailout. Unfortunately, the bank may not have disclosed the $390 million paid to the Qatari government for “advisory services” as part of the fund-raising, and the $3 billion loan facility that Barclays made available to that government.[1] The bank, along with three of its executives at the time were charged in 2017 with conspiracy to commit fraud by false representation, and providing unlawful financial assistance—in other words, paying a bribe to avoid needing an E.U. or state-level bailout. According to Amanda Staveley, a European financier, Barclays improperly favored the Qataris in the fund-raising. The relationship between the bank and the Qatari government rings of “mutual back-scratching.” Admittedly, any business deal involves both parties benefitting, and in much of the world bribery is de facto necessary cost of doing business. Nevertheless, Barclays may have had an organizational culture similar to that of Wells Fargo in which anything goes in pursuit of profit.

The full essay is at "Essays on the Financial Crisis , available in print and as an ebook at Amazon.

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1. Chad Bray, “Former Barclays Executives Appear in Court Over Qatar Deal,” The New York Times, July 3, 2017.

How to Regain Reputational Capital: The Case of Wells Fargo

How does a firm rebound from the toll taken in reputational capital from a track-record of unethical practices? Paying $175 million to settle accusations without admitting any wrongdoing, such as Wells Fargo did in 2012, does not suffice, but neither does merely admitting culpability without real change going forward. The case of Wells Fargo may provide an explanation for how reputation recovers.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Biblically-Based Investment Funds: A Matter of Priorities

Is it biblical to say a Christian can serve both God and money? In the Gospels, Jesus speaks to this point directly; it is not possible. In early 2017, Inspire Investing established two new exchange-traded funds having a “biblically responsible” approach to investing—meaning that they would avoid buying shares in companies that have “any degree of participation in activities that do not align with biblical values.”[1] That such activities include even tolerance for gay employees raises the question of just how practical an evangelical investment strategy is after the U.S. Supreme Court made gay marriage legal in all of the 50 republics making up the U.S.

The full essay is at "Biblically-Based Investment Funds."

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1. Liz Moyer, “Alongside Faith in Investing, Funds Offer Investment Rooted in Faith,” The New York Times, February 28, 2017.

Societal Norms Understating Unethical Corporate Cultures: The Case of Wells Fargo

The case of Wells Fargo suggests that even when a massive scandal is revealed to the general public, the moral depravity of a company’s culture is skirted rather than fully perceived. Wells Fargo was fined a total of $185 million by regulatory agencies including the Consumer Financial Protection Bureau, which had accused the bank of creating as many as 1.5 million deposit accounts and 565,000 credit-card accounts that for which consumers never asked. The bank fired 5,300 employees over the course of about five years after it was revealed those employees had opened the accounts and credit cards.[1] Wells Fargo's CEO at the time, John Stumpf, "opted" for a cushy early retirement after an abysmal performance before a U.S. Senate committee; he walked away from the bank with around $130 million[2], and none of the other members of senior management were fired, or "retired," obliterating any hope societally that any of the senior managers would be held accountable. This result is particularly troubling, given the true extent to which that management had turned the bank into an ethically compromised organization.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Fraud in Selling Sub-Prime Mortgage-Based Bonds: Beyond Accountability

“In December 2011, the S.E.C. publicized its civil securities fraud charges against top executives from Fannie Mae and Freddie Mac for understating their exposure to subprime mortgages, which resulted in the government taking them over.”[1] Robert Khuzami, then the head of the S.E.C.’s enforcement division, said at the time that “all individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”[2] Pursuing even senior ranks has the air of fairness economically as well as in terms of the dictum, no one is above the law. So much for words; how about the accompanying deeds?

The full essay is at "Fraud in Selling Sub-Prime Bonds."

1. Peter Henning, “Prosecution of Financial Crisis Fraud Ends With a Whimper,” The New York Times, August 29, 2016.

2. Ibid.

Politics over Finance at the Vatican: The Status Quo Vanquishes a Reformer

Late in 2015, Cardinal Pell hired PricewaterhouseCoupers to conduct a comprehensive audit of the Vatican’s finances. Beforehand, he had hired McKinsey to do a review of assets; that company found a total of €1.4 billion (about $1.6 billion) “tucked away” off the books.[1] Other church officials, led by Cardinal Pietro Parolin, the Secretary of State, let Pell know that the audit wouldn’t happen. This was a setback for the financial overhaul that Pope Francis had charged Pell with wide authority to do a thorough job. That pope had been given the mandate to clean up the Curia, as the last pope had resigned amid allegations of “cronyism, inefficiency and corruption.”[2] So why did Pope Francis take Parolin’s side in scrapping any audit even though that pope had given Pell the o.k. to have it done?

The full essay is at "Politics over Finance at the Vatican."

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[1] Francis Rocca, “Vatican Finance Chief Runs into Resistance,” The Wall Street Journal, September 8, 2016.

[2] Ibid.

SEC Investigating a Hedge-Fund Priest: Christianity’s Pro-Wealth Paradigm Lapsing into Greed?

It is against U.S. securities law to knowingly make false statements or publish false information about a company you are shorting (selling stock now and buying the shares later, hence betting the stock price will go down). In other words, you can’t try to drive the company’s stock price down you are shorting so you can profit from the trade. Besides being illegal, the practice is unethical. Just go to Kant for that! The guy was fanatical against lying.

The full essay is at "SEC Investigating a Hedge-Fund Priest ."

American Consumers Using Gas-Savings to Reduce Debt: Frugality or Responsibility?

The steep drop in the price of oil in July 2015 was a concern for traders. Drillers and other energy companies comprise a significant portion of the S&P 500 index. “The upside to falling oil is that all the money that drivers are saving at the gas pump should mean more spending by them at stores — and a faster-growing U.S. economy. But Americans are choosing to pay off debt instead of going shopping.”[1] Is this a bad thing? In reckoning it as such, Wall Street analysts are missing the big picture, even financially.

The full essay is at “Wall Street Defining American Society.”

Gas at a station in January 2015 (ABC News)

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[1] Bernard Condon and Ken Sweet, “Why Stocks Are Tumbling 6 Years into the Bull Market,” The Associated Press, August 23, 2015.

Banks Guilty of Colluding to Set Euro-Dollar Exchange-Rate Fix: Toward a Competitive Market

In May 2015, Citicorp, JPMorgan Chase, Barclays, and the Royal Bank of Scotland both acknowledged colluding to set the “fix” rate in foreign exchange markets, and agreed both to change their internal cultures and pay criminal fines of over $2.5 billion.[1] The U.S. Attorney General, Loretta Lynch, stated that her department would “vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American customers.”[2] I submit that this does not go far enough, given the size and power of the banks and the condition of the sector.

The full essay is at “Banks Guilty.”

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[1] Loretta Lynch, “Attorney General Lynch Delivers Remarks at a Press Conference on Foreign Exchange Spot Market Manipulation,” The U.S. Department of Justice, May 20-, 2015.

[2] Ibid.

Stockholder Activism at DuPont: A Conflict of Interest for Management

In American corporate governance law, the business judgment rule gives management expertise the benefit of the doubt over stockholder proposals. Compared with executive skill, they look rather populist and thus potentially irrational in nature. Nevertheless, with the rule chaffing up against the property-rights foundation of corporate capitalism, the managerial prerogative can be said to be dubious. Indeed, a strict private-property basis justifies displacing the default profit-maximization mission for a given corporation. Alternatively, stockholders may want to use their concentrated, collective wealth for other purposes, such as to alleviate hunger. Once enough profit has been made for the business to be sustained for another year or two, any additional surplus would be spent on food pantries, for example, rather than going out as dividends or being retained by the corporation. Because managerial skill is premised on the profit-maximization goal and its associated strategies, corporate executives intrinsically resist alternatives proposed by stockholders. The managers face a conflict of interest in providing their recommendation for stockholders. Even when the proposal assumes profit-maximization but differs from a current strategy (i.e., adopted by management), a conflict of interest exists should the management seek to provide a recommendation for the stockholders. In this essay, I use the activism of Trian Fund Management at DuPont to illustrate this point.

The full essay is at “Stockholder Activism at DuPont.”

Is Dark Trading Ethical?

“Dark trading” has a subterranean connotation, as if it were done by slithering snakes in the river Styx. In actuality, the term refers to trading in stocks that is done on computers that are less public than the exchanges. That is to say, the bid-and-ask quotations on a given computer network are known only to participants on it, and not to the traders on the public exchanges. Ethically, the public-private dichotomy is relevant. I submit that it reflects a wider trend in American society.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.