Malignant Narcissism in the Porn Industry: A Case of Flaccid Industry Self-Regulation

In early February, 2011, the Los Angeles city council voted unanimously to draft an ordinance that would require condoms to be used on the set of every pornographic movie made within city limits. “We can’t keep our heads in the sand any longer,” City Councilman Bill Rosendahl said. “These people should be using condoms. Period.” According to the New York Times, the "city law would be the first to impose safety standards specifically on the pornographic film industry, which has largely been allowed to police itself." Until the late 1990's, the industry went unregulated. On the heels of lawsuits filed against production companies by several actresses who had contracted H.I.V., the industry created the Adult Industry Medical Healthcare Foundation in 1998. The nonprofit clinic was financed by contributions from production companies and offered STD tests for the talent. Producers agreed not to hire performers who had not been tested within thirty days. Even though the county health department accused the industry's self-regulation of failing to protect the talent and their sexual partners, the production companies claimed that the system worked well. “This has been working for years,” said Steven Hirsch, founder of Vivid Entertainment. “If we saw people getting sick, we would go to mandatory condoms.” However, STDs remained rampant among pornographic film performers. Rates of chlamydia and gonorrhea are seven times higher than those in the general population.  Taking Steven Hirsch's own statement, it could be argued that waiting until an actor looks sick to require him to wear a condom is a bit like waiting until the horse has left the barn. “Testing just acts as a fig leaf for producers, who suggest that it is a reasonable substitute for condoms, which it is not,” said Michael Weinstein, president of the AIDS Healthcare Foundation.

The full essay is at "On the Perils of Industry Self-Regulation."

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.

Fixing the Foreclosing Banks: A Hidden Conflict of Interest in Regulatory Compliance

After the financial crisis of 2008, regulators in the U.S. ordered banks to hire consultants to implement more than 130 “enforcement actions,” which represent 15% of the cases. In 2011 alone, regulators mandated that eleven banks hire consultants to determine whether mortgage borrowers had been wrongfully evicted. The consultants collected about $2 billion in fees, which amount to more than half of what homeowners were to receive under the $8.5 billion settlement that ended the consultants’ work. According to regulators, the consultants’ work was plagued with inefficiencies. This is probably the least of it, for virtually any expectations for “an industry that is paid billions of dollars by the same banks it is expected to police” are bound to be chimerical in nature.

The full essay is at Institutional Conflicts of Interest, available at Amazon.

A Future of Regulators at Fault?

The typical case in the U.S. is that the industry being regulated resists being regulated, while the regulators insist on enforcing the regulations. To be sure, particularly strong firms in an industry may propose incremental regulations for strategic advantage—knowing that smaller or less profitable firms in the industry would have more trouble complying financially. The strategic use of regulation is an under-appreciated phenomenon in the de-regulation movement. Perhaps even more bizarre is the case of an industry complaining about lax enforcement of existing regulations and demanding even more. What industry might fit this bill? As a hint, look for a major scandal that did reputational harm to an industry.

The full essay is at "A Future of Regulators at Fault?"