Tuesday, March 15, 2011

Saying Goodbye to Sleight of Hand

Dear Readers,

As I begin focusing on other ventures, I will no longer be posting to SOH. I hope everyone has gained at least a little knowledge and insight on the industry.

Please feel free to contact me anytime at nadine.sebai@gmail.com.

Onwards and Upwards,

Nadine

Monday, March 14, 2011

Another Inside Job

Via NYTimes. 
What the film didn’t point out, however, is that the crisis has spawned a whole new set of abuses, many of them illegal as well as immoral. And leading political figures are, at long last, showing some outrage. Unfortunately, this outrage is directed, not at banking abuses, but at those trying to hold banks accountable for these abuses.
The immediate flashpoint is a proposed settlement between state attorneys general and the mortgage servicing industry. That settlement is a “shakedown,” says Senator Richard Shelby of Alabama. The money banks would be required to allot to mortgage modification would be “extorted,” declares The Wall Street Journal. And the bankers themselves warn that any action against them would place economic recovery at risk.
...
First, the proposed settlement only calls for loan modifications that would produce a greater “net present value” than foreclosure — that is, for offering deals that are in the interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue to extract fees. How could ending this highway robbery be bad for the economy?
Second, the biggest obstacle to recovery isn’t the financial condition of major banks, which were bailed out once and are now profiting from the widespread perception that they’ll be bailed out again if anything goes wrong. It is, instead, the overhang of household debt combined with paralysis in the housing market. Getting banks to clear up mortgage debts — instead of stringing families along to extract a few more dollars — would help, not hurt, the economy.
Click Here to Read: Another Inside Job

Sunday, March 13, 2011

Lehman Probe Stalls; Chance of No Charges

Via Wall Street Journal (H/T Truth on the Market).
The U.S. government's investigation into the collapse of Lehman Brothers Holdings Inc. has hit daunting hurdles that could result in no civil or criminal charges ever being filed against the company's former executives, people familiar with the situation said.
In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels.
SEC officials also aren't confident they could win any lawsuit accusing former Lehman employees, including former Lehman Chief Executive Richard Fuld Jr., of failing to adequately mark down the value of the large real-estate portfolio acquired in Lehman's takeover of apartment developer Archstone-Smith Trust or to disclose the resulting losses to investors, according to people familiar with the matter.
...
A spokeswoman for the Justice Department declined to comment on Lehman. In a statement, she said the agency "will continue to root out financial fraud wherever it exists. When we find credible evidence of criminal conduct—by Wall Street financiers, lawyers, accountants or others—we will aggressively pursue justice. However, we can and will only bring charges when the facts and the law convince us that we can prove a crime beyond a reasonable doubt."
Click Here to Read: Lehman Probe Stalls; Chance of No Charges 

Saturday, March 12, 2011

Rewriting Pension History

Via WSJ (H/T Columbia Journalism Review).
Under current accounting rules, companies with defined-benefit pension plans, which promise to pay specified amounts to retirees, have the option to take several years to spread the cost of large pension gains and losses into earnings. That means that when a plan's investment results are much better or worse than expected—as with the 2008 market downturn—it can have a significant effect on earnings for years.
For that and other reasons, the system of accounting for pension results in earnings long has been widely criticized. The Financial Accounting Standards Board, the U.S. accounting rule maker, has examined the issue before but hasn't made any changes, though they may revisit it soon. AT&T, Verizon and Honeywell changed their accounting methods on their own initiative. While the details differ, all three said they would start recognizing some or all of their deferred losses in the year they occur, through a "mark-to-market" adjustment to fourth-quarter earnings to reflect their pension plan's returns for the year.
Click Here to Read: Rewriting Pension History

Friday, March 11, 2011

Apparently ‘The Purpose of Auditors Is Completely, Entirely, and Wholly’ to Look for Fraud and ‘Deloitte is the best. Period. End of Statement.’

Some Friday humor via Going Concern. This is very amusing...

Full Excerpt (via Going Concern). 
Remember China MediaExpress? That’s the company whose CEO – Zheng Cheng – responded to the accusations of fraud by evoking ‘reputable and well-known’ Deloitte to get the haters off their back. Even though the company is still taking heat, Mr Cheng will be happy to know that he’s got someone in his corner: Glen Bradford, CEO of ARM Holdings LLC, a Hedge Fund Advisory Company. The thing is, Mr Bradford seems a little confused about what an auditor’s purpose is (for fun, I added some emphasis):
I have received tons of messages that can be summarized by the belief that auditors do not look for fraud and that all they do is make sure things line up in the reports. I can say that this is not true simply by being practical. If we didn’t have auditors to verify the claims that companies make, then companies could claim whatever they want to. The purpose of auditors is completely, entirely, and wholly to look for indications of fraudulant activity — and to do their best to remove all possible doubt that the company is misrepresenting itself on its financial statements.
You can make of that what you will but then Glen continues:
Then, if things are OK, they sign off on them. Some auditors are better than others. Deloitte is the best. Period. End of Statement.
Well then! I’m sure Deloitte appreciates the ringing endorsement regardless if it comes from someone who is under the impression that “The purpose of auditors is completely, entirely, and wholly to look for indications of fraudulant activity.” At the very least, this is debatable point, so if you have a difference of opinion with anything above, feel free to share below.

Click Here to Read: Apparently ‘The Purpose of Auditors Is Completely, Entirely, and Wholly’ to Look for Fraud and ‘Deloitte is the best. Period. End of Statement.’ 

Thursday, March 10, 2011

Courts Repudiate Attempts to Find Loopholes in Supreme Court Foreign Cubed Decision

Via HLS Forum.
Citing the Supreme Court’s decision in Morrison v. National Australia Bank, on February 22 a federal district judge in New York threw out most of a securities class action jury verdict that plaintiffs’ lawyers had estimated was worth $9.3 billion. The jury’s verdict, rendered against the French media conglomerate Vivendi, S.A. thirteen months ago—before National Australia was argued and decided, and thus under now-overturned law—upheld claims that were predominantly “foreign-cubed” (asserted by foreign investors against a foreign issuer for losses on a foreign exchange) and “foreign-squared” (asserted by American investors against a foreign issuer for losses on a foreign exchange). In categorically dismissing all the claims of those investors, the decision in In re Vivendi Universal, S.A. Securities Litigation, No. 02 Civ. 5571 (RJH) (S.D.N.Y. Feb. 23, 2011), according to Vivendi and its counsel, eliminated at least 80%, and perhaps up to 90%, of the liability that the verdict could have produced.
...

The so-called “listed” securities theory. The most ambitious plaintiffs’ theory relied upon the statement in Morrison v. National Australia Bank that Section 10(b) of the Securities Exchange Act of 1934 applies “only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” (Emphasis added.) Plaintiffs’ lawyers took this to mean that whenever the home-country security of a foreign issuer was “listed” on a U.S. exchange (as must often be done, for example, in order to issue and list American Depositary Receipts), trades in that security anywhere in the world would be subject to Section 10(b). Thus, if a foreign company sponsored even a small issue of ADRs, or if it dual-listed its home-country shares on an American exchange, global foreign-cubed and foreign-squared class actions would be fair game.
Click Here to Read: Courts Repudiate Attempts to Find Loopholes in Supreme Court Foreign Cubed Decision 

Wednesday, March 9, 2011

Elizabeth Loftus: Catching Liars

Short piece by Elizabeth Loftus (H/T Neuroethics).
Using gaze aversion to decide that someone is lying can be dangerous for that someone’s health and happiness. And—what was news to me—some cultural or ethnic groups are more likely to show gaze aversion. For example, Blacks are particularly likely to show gaze aversion. So imagine now the problem that might arise when a White police officer interviews a Black suspect and interprets the gaze aversion as evidence of lying. This material needs to be put in the hands of interviewers to prevent this kind of cross-racial misinterpretation.
But all is not hopeless for catching liars, since happily some speech cues are more diagnostic of deception than nonverbal cues are. The authors recommend an ‘‘information gathering’’ approach to interviewing (rather than an accusatory approach). This type of interview will result in more information being gathered than can later be checked for inconsistencies against other available evidence. The authors also recommend asking unanticipated questions. A witness who claims to have been eating lunch at a restaurant might be asked, ‘‘Who finished their meal first?’’ Liars are apparently less likely to say ‘‘I don’t know’’ to unanticipated questions and to offer some answer, possibly because they are afraid that to do otherwise would look suspicious.
Click Here to Read: Catching Liars

Tuesday, March 8, 2011

Infographic: Gratuitous Randomness: You're a Liar

Via Westword (H/T The Big Picture).

In every romantic comedy, it all starts with a lie: a little lie that leads to zany antics, which in turn lead to more elaborate lies, which in turn lead to madcap misunderstandings, which in turn lead to love. And isn't that what it's all about? So today, because we care -- and also because it's Wednesday, the day that we bring you the best of our weird internets world in the form of images loosely related to whatever topic we happen to come up with -- we bring you this Forensic Psychology infographic about "How to Spot A Liar," which we interpret as "Avoid these Things to Become a Better Liar." Let the wacky shenanigans ensue.


Monday, March 7, 2011

Survey Finds ‘Widespread Mis-Selling’ by Brokers

Via DealBook. 
Financial advisers continue to sell risky products to unsuspecting investors — a “widespread” problem for the securities industry, according to a new survey of investment professionals. The survey respondents identified “mis-selling” by brokers as the top ethical problem facing the industry.
“It is hard for people to find high-quality, objective financial advice,” said one respondent to the survey, which is to be released later this month.
...
Registered investment advisers have a fiduciary duty to put their customers’ interests ahead of their own. Brokers, sometimes called financial advisers, currently face a lower standard that allows them to plow client money into any investment — so long as it is “suitable.”
Click Here to Read: Survey Finds ‘Widespread Mis-Selling’ by Brokers

Sunday, March 6, 2011

Honesty for Banks Is Still Such a Lonely Word

Good Read via Jonathan Weil @ Bloomberg (H/T Going Concern). 

Interesting Excerpts: 

Last August an electronics manufacturer named Molex Inc. (MOLX) did something remarkable, at least by today’s standards for disclosing bad news. It filed a special report with the Securities and Exchange Commission known as an 8-K, saying it had overstated its shareholder equity by $101 million and that investors shouldn’t rely on its financial statements for the previous three years.
What made this event so unusual is it was the only negative restatement disclosed in this manner last year by a company in the Standard & Poor’s 500 Index. That’s according to Audit Analytics, a Sutton, Massachusetts, research firm that tracks such data. Molex, based in Lisle, Illinois, included its corrected results in its fiscal 2010 annual report the same day.
...
“It’s one or the other,” says Don Whalen, research director at Audit Analytics. “Either companies’ internal controls have improved dramatically, so they’re not making mistakes. Or it’s too good to be true, and the information is not getting out.”
...
The figures for banks, in particular, look unnaturally low. Forty-four banks restated last year, one fewer than in 2009. Even more curious, there were 133 banks that issued corrections from 2008 through 2010. That was down from 169 banks during the previous three-year period, before the financial crisis took off in earnest, which makes no sense.
...
About 53 percent of all restatements by U.S. companies in 2010 were handled this way, on the grounds that the errors supposedly weren’t big enough to warrant more prominent disclosures. Sometimes called “stealth restatements,” the corrections instead got tucked elsewhere, such as footnotes in press releases or companies’ quarterly and annual reports.
Click Here to Read: Honesty for Banks Is Still Such a Lonely Word

Saturday, March 5, 2011

Howard Marks On Regulation

Via Howard Marks (H/T Value Investing World).
The bottom line as far as I’m concerned is that you can enact a law or rule and tell businesspeople precisely what to do, but you can’t make the economy or companies comply with policies and social aims. Regulations are limited in their scope and effect, and like a balloon, when you push in one place, self-interested behavior pops out in another. As these articles indicate, those who enact regulation sometimes get it right at first glance, but they’re rarely able to anticipate and control the response of those being regulated or the second-order consequences of the rules.
Errors and misdeeds will occur as long as imperfect, self-interested humans stray into excessive risk-taking. And as long as these things lead to bubbles and resulting crashes, the willingness to dispense with regulation and rely on free markets will never be complete, regardless of regulation’s limitations.
Click Here to Download: Howard Marks on Regulation

Friday, March 4, 2011

Is Neuroaccounting Waiting in the Wings?

By Jacob Birnberg & Ananda Ganguly.

Abstract:      
This paper reviews a recently published handbook on neuroeconomics (Glimcher et al. 2009H) and extends the discussion to reasons why this newly emerging discipline should be of interest to behavioral accounting researchers. We evaluate the achieved and potential contribution of neuroeconomics to the study of human economic behavior, and examine what behavioral accountants can learn from neuroeconomics and whether we should expect to see a similar sub-field emerge within behavioral accounting in the near future. We conclude that while a separate sub-field within behavioral accounting is not likely in the near future due mostly to practical reasons, the behavioral accounting researcher would do well to follow this discipline closely, and behavioral accountants are likely to collaborate with neuroeconomists when feasible to examine questions of mutual interest.
Click Here to Download: Is Neuroaccounting Waiting in the Wings?

Thursday, March 3, 2011

Brain Scans as Evidence: Truths, Proofs, Lies, and Lessons

By Francis Shen & Owen Jones (H/T Neuroethics).

Interesting Excerpts:
In U.S. v. Semrau the government charged psychologist Dr. Lorne Semrau with Medicare/Medicaid fraud. Proving fraud requires proving that Semrau knowingly violated the law. And Semrau’s defense was built, in part, around brain scan results that allegedly demonstrated he was telling the truth when he claimed (some years after the fact) that even though he had mis-billed for services, he did not do so intending to defraud the government.
...
The central legal question in the case concerned Semrau’s mental state at the time of his acts: between 1999 and 2005, did Semrau “knowingly devise a scheme or artifice to defraud a health care benefit program in connection with the delivery of or payment for health care benefits, items, or services?”
...
In Laken’s own words: “What we can say is … that we believe his brain – he believes that he is telling the truth at least.”29 Verifying the truthfulness of a belief, of course, doesn’t provide the court with information on so-called “ground” truth, i.e. whether the belief is true to begin with. Rather, as Laken explained, “If [experimental subjects] say that this is the truth, then I believe them that this is the truth. At least that's what they are telling me is the truth. These are the truths of the statements.” (emphasis added).30 The truth of Semrau’s statements about mental states is, of course, distinct from the fact relevant to the case: Semrau’s actual mental states at the time of the billing.
...
Neuroscientist Nancy Kanwisher, for instance, argues that “making a false response when you are instructed to do so isn’t a lie, and it’s not deception. It’s simply doing what you are told. We could call it an ‘instructed falsehood.’” 54 And neuroscientist Kamila E. Sip and colleagues similarly argue that the “absence of this intentional aspect of deception in the experiments is … more than a mere experimental confound.”55 It fundamentally changes what the brain is being asked to do. Researchers, in this view, are indeed measuring something – but they are not necessarily measuring “lying”.
...
Using brain-based lie detection as an example, it has been noted that no laboratory study has been able to replicate the real-world, ecologically valid stakes (such as avoiding imprisonment) that often accompany lying.60 In Semrau, when Dr. Laken was asked on cross examination about ecological validity, he replied that “whether they're lying about biographical things, whether they're lying because they've been told a lie or not told a lie, whether they're lying about playing cards -- all of these things seem to be activating the same region. So it appears that irregardless of what type of lie, the same brain regions are out there.”61 This statement reflects an assumption that a lie – whether told in a scanner without consequence, or in the real world with great consequence – should be expected to activate the same brain regions. While theoretically plausible, there is no general acceptance of such an
assumption.
Click Here to Download: Brain Scans as Evidence: Truths, Proofs, Lies, and Lessons

Business Is Booming

Via The American Prospect (H/T Miguel @ SimoleonSense).
Just how mobile are these rootless corporations in their global chase for profits? It's hard to know, because they're anything but forthcoming about the extent of their employment abroad, much less the number of formerly U.S. jobs they've actually offshored. Some companies reveal the number of their foreign and domestic employees in their annual 10-K reports to the Securities and Exchange Commission, but many don't, as there's no requirement to do so. The Commerce Department's Bureau of Economic Analysis (BEA) releases its own report annually on the total number of workers employed by U.S. firms here at home and by their foreign subsidiaries. But there are almost no figures on how many employees work for foreign firms with which American companies contract to make all or part of their products -- the Foxconns of the world.
Still, looking at the BEA data on foreign and domestic employment from 1982 through 2008 (the most recent year available) gives us some sense of the shift in the employment patterns of U.S.-based multinationals. In 1982, 26 percent of the workers at these companies worked for their foreign affiliates. As recently as 2000, that figure had increased only to 28.9 percent, but by 2008, it had risen to 36 percent. The same growing shift toward foreign employment is evident for leading multinationals. In 1992, Ford reported that 53 percent of its employees were in the U.S. and Canada; by 2009, the share of its workers in North America (including Mexico as well) had shrunk to 37 percent. In 1993, Caterpillar's workforce was 74 percent domestic; by 2008, it was just 46 percent domestic.
Click Here to Read: Business Is Booming 

Wednesday, March 2, 2011

Hedge Funds and “Stock Manipulation”

Via AllAboutAlpha.
The researchers also found that this “manipulation” is more likely to occur in stocks owned by hedge funds with less diversified portfolios.  After all, it’s those funds that stand to gain the most by artificially inflating prices, since the stock in question has a larger impact on the fund’s overall performance.
They also find that stocks owned by hedge funds having a stellar year are more likely to be “manipulated” than stocks owned by poorly performing hedge funds.  The logic is a bit more muddled here though.  The authors suggest the incentives to manipulate are higher when funds are “competing for the highest positions on the list.”  Yet they also argue that manipulation is beneficial for hedge funds “…because is allows them to avoid a highly negative return…”.
New and smaller funds are fingered in the report since they have a higher “performance-flow” relationship.  (See this post for more on the propensity for new and small funds to avoid tiny losses and apparently to turn them into tiny gains).

Tuesday, March 1, 2011

Banker Bonus Deferrals Won't Help

Via The Atlantic.
First, money not in bankers' hands is viewed as more worthless with each year that passes. This is a problem for regulators who hoped deferred bonuses were the answer. If all bankers care about is what they get up-front, then they'll continue to seek short-term profit and ignore long-term risk: they'll consider any deferred payments marginal anyway, so they won't care of they're lost.
Second, it appears to provide a surprising observation on bankers' risk adversity when it comes to their own money. Their risk tolerance appears very low. Think about the example above where there's a 75% chance of receiving some money now or more money later. If you are more risk adverse, then you would prefer less money now, because you would not want to factor future uncertainty in as a variable for pay out. Bankers don't appear to be comfortable with the risk time poses, even though the expected value of the payout is nearly double.
Click Here to Read: Banker Bonus Deferrals Won't Help

Rajat Gupta: Bigger Than Madoff?

Via NetNet.
One of the reasons we rarely see such charges against people with the stature and wealth of Gupta is that insider trading makes so little logical sense for such people. There’s really no reason Gupta should leak confidential information to a hedge fund manager. He doesn’t need money, access, prestige or any favors at all.
If he did tip off his hedge fund manager friend, it was something darker than greed or ambition. It was something close to sociopathic narcissism—perhaps a belief that he was somehow above the law, immune to the rules that govern the rest of us. The sort of thing we see in Madoff.
Of course, there’s another explanation: that Gupta didn’t do what the SEC claims he did. That those phone calls to accused insider trader Raj Rajaratnam, made within seconds of the conclusion of board meetings, were just social calls.

The Big Financial Lie – How Growing Income Inequality, Too Big To Fail Banks, and Stock Market Delusion Swindled the American Public and Dissolved the Middle Class

Via Foreclosure Blues.
What then of reform?  The banking system needs a complete overhaul.  Investment banking and commercial banking need to be split right down the middle.  There should be a zero guarantee on any investment bank activity and absolutely no access to the Federal Reserve.  You want to gamble you do it with your own capital.  It is simply amazing that we haven’t had this accomplished even after having our own rendition of the Great Depression.  Instead, to solve the problem of too big to fail the too big to fail got even bigger.  To solve our debt problems we went into deeper debt.  So not only are the banks central to the crisis not brought to justice but they are rewarded to become even bigger with taxpayer backing.  It is amazing that people aren’t on the streets because of this.
This isn’t a chapter from Alice in Wonderland or 1984 but the serious financial reality of today.  The stock market rally is based on fumes just like we are to believe that the $5.4 trillion in deposits at FDIC insured banks is somehow “backed” by a deposit insurance fund with no money.  It is entirely based on faith.  Since moral hazard is now built into the system you can rest assured another crisis is only around the corner.  Why are we to expect anything different?  The amount of toxic loans still out there is enough to sink the entire banking system.  Instead, we are to pretend that all is well because the banks now have access to the hard work and system we know as the American economy.

Monday, February 28, 2011

The Madoff Tapes - Must Read!

It has been a while since I've found an article so compelling. This is a definite must read. Being able to get into the thought processes of criminals is perhaps the most riveting aspect of this industry. It's remarkable. 

Nadine

By Steve Fishman @ New York.

(Many) Interesting Excerpts: 

And so, sitting alone with his therapist, in the prison khakis he irons himself, he seeks reassurance. “Everybody on the outside kept claiming I was a sociopath,” Madoff told her one day. “I asked her, ‘Am I a sociopath?’ ” He waited expectantly, his eyelids squeezing open and shut, that famous tic. “She said, ‘You’re absolutely not a sociopath. You have morals. You have remorse.’ ” Madoff paused as he related this. His voice settled. He said to me, “I am a good person.” 

...

“Does anybody want to hear that I had a successful business and did all these wonderful things for the industry?” he continued. “And got all these awards? And so did my family? I did all of this during the legitimate years. No. You don’t read any of that.”

...
The pain that Madoff visited upon those closest to him has certain echoes in his own background, part of what drove him to succeed. “I had a father who was very successful in business,” he told me, a sporting-goods-manufacturing business. “He invented the punching-bag stand,” Madoff said. “The Joe Palooka punching-bag stand.” But the business failed when Madoff was in college. “You watch that happen,” said Madoff, “you see a father whom you idolize all of a sudden lose everything, and you’re frightened about something like that happening.”

...
He’d come up with a new trading strategy based on index options. But the new strategy needed volatility to work, and in the early nineties, the recession had settled in. “The market went to sleep,” said Madoff. He had too much of other people’s money and not enough to invest in. 

...
“The chairman of Banco Santander came down to see me, the chairman of Credit Suisse came down, chairman of UBS came down; I had all of these major banks. You know, Safra coming down and entertaining me and trying [to invest with Madoff]. It is a head trip. [Those people] sitting there, telling you, ‘You can do this.’ It feeds your ego. All of a sudden, these banks which wouldn’t give you the time of day, they’re willing to give you a billion dollars,” he explained. “It wasn’t like I needed the money. It was just that I thought it was a temporary thing, and all of a sudden, everybody is throwing billions of dollars at you. Saying, ‘Listen, if you can do this stuff for us, we’ll be your clients forever.’ ” 

...
But it was business that kept the boys on the edge of their seats. They sat raptly at the dinner table listening to their father’s adventures taking on the powers of Wall Street. And wherever they went, they heard of his mastery—strangers lavished on them tales of their father’s genius. Their father was a Wall Street player, a wizard, a man who’d made a lot of people a lot of money. At the time, these were reasons to follow in his footsteps. In fact, neither of the boys seemed to ever experience a rebellious impulse—“Mark wouldn’t wear pink,” said a friend from high school—and neither considered any employer besides BLMIS. In that high-school-yearbook entry, Andrew wrote, “Mark—future partner MADF,” and continued, “u’ll all see—I’m the 1.” 

...
However happy Madoff was to have his family in the office with him, he made no bones about whose business it was. He once shouted at his brother, “Until your name is the name on the door, don’t tell me what to do.” The business revolved around Madoff, his thoughts, his needs, his idiosyncrasies, including his compulsion for order. “I definitely have obsessive-compulsive tendencies,” he said; everyone remembered him on his knees, straightening the venetian blinds. 

...
And Madoff insists that rather than the pursuer, he was usually the pursued. People begged him to take their money. Madoff says that he waved red flags, issued caveats that should have been obvious to even an unsophisticated investor. “They were all told by me, ‘Don’t invest any more money than you could afford to lose. This is the stock market. There’s always stuff that can happen. Brokerage firms can fail. I could go crazy and do something stupid. If you want a [safe thing], put your money in government bonds. So everybody understood this. 

...
And now there are limits to his sympathy. He sees himself not as some evil mastermind but as part of a system of corruption, maybe its linchpin, but he believes that people have lost their perspective on what actually occurred. “Look, none of my clients, even if they lost every penny they put in there, can plead poverty,” he said. “Look, it doesn’t mean I’m excusing what I did, doesn’t mean I don’t feel sorry for them. I’m embarrassed … It was the people that came in very late in the game that got hurt. All of my friends, most of my individual clients, are not net losers,” he said. “Now if you listen to [them], they’re living out of Dumpsters and they don’t have any money, and I’m sure it’s a traumatic experience to some, but I made a lot of money for people. Does it justify it? No.

“When you deal with people’s money, as I did for all my life,” he continues, “you realize how strange they are; it’s all like, ‘What have you done for me lately?’ If you made money for me, I was smart because I gave you the money and I went there, and if you lose money, then it’s all your fault. So you become somewhat callous about people lying.”

...
“I was always able to rationalize it … Look, I tried to give moneys back to my individual clients when I realized it was impossible to get myself out. I tried to return funds to my friends, moneys to the smaller clients. They wouldn’t take it back … Everybody said, ‘No, you can’t do that. You can’t send me my money back. I’ve been a friend of yours, or a client, for years’ … I couldn’t tell them I would have been doing them a favor. I couldn’t. I mean, could I have insisted? Yes.

“I did block it out of my mind,” he said. “I had no choice.”

...
He faced $7 billion in redemptions, which he didn’t have. He’d been feverishly trying to raise money and in fact had commitments for $700 million, which could have kept the scheme afloat for several more weeks. “What was the point? It wasn’t going to solve my problem. And I was so exhausted and deep down with worry, and so on. I just said to hell with it. I decided I wasn’t going to take [the money]. There was no point in me hurting additional people,” he told me. The authorities found checks for $173 million in his desk—uncashed. 

...
Mark developed an addiction to news about his father’s case and the family’s troubles, and that made it almost impossible for him to move forward. Andrew could only do so much before losing his temper. “Shut off your fucking computer,” he told his brother. But Mark couldn’t. And so, says a close friend, “he saw the world’s perception of him through the eyes of these hateful people.” 

...
But the world is not as Madoff imagines it from behind prison bars. To a friend, Andrew mocked his father’s thoughts: “Yes, I stole every penny that you had, and you’ve got to dive into a Dumpster to get a meal, but, you know, that’s the past, get over it.

Click Here to Read: The Madoff Tapes

Sunday, February 27, 2011

Rule By Banks Instead of Rule By Law

Via LivingLies (H/T Foreclosure Blues). 
The astonishing part is that the banking industry continues to maintain that it really didn’t do anything wrong, all it did was make some technical errors. That so grossly understates the degree of its recklessness and malfeasance as to be beyond Belief.
It’s no surprise that the so-called Foreclosure Task Force which spent a mere eight weeks reviewing servicer activities and didn’t find much. The timeframe of its exam assured that it would not verify servicer records and accounts against borrower experience and records. It is almost certain that they also did not look at how servicer software credited payments and charges, when there is widespread evidence of violations of agreements with borrowers and RESPA.
Click Here to Read: Rule By Banks Instead of Rule By Law

Saturday, February 26, 2011

Milgram's Obedience Studies - Not About Obedience After All?

Via Research Digest. 
Attempts to explore the issue through replication have stalled in recent decades because of concerns the experiment could be distressing for participants. Jerry Burger at Santa Clara University found a partial solution to this problem in a 2009 study, after he realised that 79 per cent of Milgram's participants who went beyond the 150-volt level (at which the 'learner' was first heard to call out in distress) subsequently went on to apply the maximum lethal shock level of 450 volts, almost as if the 150-volt level were a point of no return [further information]. Burger conducted a modern replication up to the 150-volt level and found that a similar proportion of people (70 per cent) were willing to go beyond this point as were willing to do so in the 1960s (82.5 per cent). Presumably, most of these participants would have gone all the way to 450 volts level had the experiment not been stopped short.
Now Burger and his colleagues have studied the utterances made by the modern-day participants during the 2009 partial-replication, and afterwards during de-briefing. They found that participants who expressed a sense that they were responsible for their actions were the ones least likely to go beyond the crucial 150-volt level. Relevant to this is that Milgram's participants (and Burger's) were told, if they asked, that responsibility for any harm caused to the learner rested with the experimenter.
Click Here to Read: Milgram's Obedience Studies - Not About Obedience After All?

Friday, February 25, 2011

How Did Citigroup’s Internal Controls Cut the Mustard with KPMG?

Via Going Concern.
Jonathan Weil writes in his column today about Citigroup and their “acceptable group of auditors,” (aka KPMG) and he’s having trouble connecting the dots on a few things. Specifically, how a love letter (it was sent on February 14, 2008, after all) sent by the Office of the Comptroller of the Currency to Citigroup CEO Vikram Pandit:
"The gist of the regulator’s findings: Citigroup’s internal controls were a mess. So were its valuation methods for subprime mortgage bonds, which had spawned record losses at the bank. Among other things, “weaknesses were noted with model documentation, validation and control group oversight,” the letter said. The main valuation model Citigroup was using “is not in a controlled environment.” In other words, the model wasn’t reliable."
Okay, so the bank’s internal controls weren’t worth the paper they were printed on. Ordinarily, one could reasonably expect management and perhaps their auditors to be aware of such a fact and that they were handling the situation accordingly.
Click Here to Read: How Did Citigroup’s Internal Controls Cut the Mustard with KPMG? 

Thursday, February 24, 2011

Following the Crowd: Brain Images Offer Clues to How and Why We Conform

Via Health Canal (H/T Association for Psychological Science). You can read more about this study here.
What is conformity? A true adoption of what other people think—or a guise to avoid social rejection? Scientists have been vexed sorting the two out, even when they’ve questioned people in private.
Now three Harvard University psychological scientists have used brain scans to show what happens when we take others’ opinions to heart: We take them “to brain”—specifically, to the orbitofrontal cortex and nucleus accumbens. These regions compute what we value and feel rewarded by, both primitive things like water and food and socially meaningful things like money.
The study—by Jamil Zaki, Jessica Schirmer, and Jason Mitchell—is published in Psychological Science, a journal of the Association of Psychological Science.
“Conformity gets a bad rap,” says Zaki, a postdoctoral fellow. “That is partially predicated on the idea that it is a form of lying: you’re lying about yourself to try to fit in. Our data suggest that at a deep emotional level you really are changing your view.”
Click Here to Read: Following the Crowd: Brain Images Offer Clues to How and Why We Conform

Wednesday, February 23, 2011

Wall St. Often Slow to Disclose Brokers’ Sins

Via DealBook.
The case casts a light on a persistent problem: the failure of financial firms to properly report infractions to Finra’s central database, a critical tool that large and small investors rely on to vet stockbrokers and other financial professionals.
“It’s really no different than if you’re talking to a doctor,” said Charles Rotblut, a longtime investor and a vice president of the American Association of Individual Investors. “You have to trust who you’re working with.”
For its part, Morgan Stanley Smith Barney says it followed the correct procedures regarding Mr. Erzinger, disclosing the matter once the related court documents became available. The reporting requirement, said Jim Wiggins, a spokesman for the firm, was met in “an accurate and timely manner.”
...
Finra in 2010 fined Citigroup $150,000 for filing “inaccurate” disclosures about 120 brokers who were fired or resigned after being accused of theft or fraud. In its disciplinary action, the regulator said Citigroup had “hindered the investing public’s ability to access pertinent background information.” Finra fined JPMorgan Chase $150,000 for similar violations in 2009.
Alex Samuelson, a spokesman for Citi, said the bank had “a robust internal reporting system and follows all Finra rules on client complaints and brokers’ records.” A JPMorgan spokesman declined to comment.
Click Here to Read: Wall St. Often Slow to Disclose Brokers’ Sins 

How To Cheat a Brain-Scan-Based Lie Detector

Via Research Digest.
Sure, it's possible to differentiate patterns of truth-telling brain activity from patterns of lying-related activity. But contrary to media hype, experts have been quick to point out that the accuracy of brain-scan based lie detection is often no better than with traditional approaches, such as the polygraph. Furthermore, these experts warn, brain-scan methods could, in theory, be easily thwarted by liars with even modest levels of guile. That claim is no longer purely theoretical, for in a new study, Girgio Ganis and his colleagues have used a popular paradigm to show just how easy it is for lying participants to trick the brain-scanner.
Twenty-six participants had their brains scanned whilst they looked at the same six dates appearing for half a second each, one at a time, on a screen. For each date they had to indicate with a button press whether it was their date of birth - yes or no. This was repeated several times. In the truth-telling condition, none of the dates was their birth date and the participants simply told the truth and said 'no' to each date. In the lying condition, one of the dates was their birth date and their task was to lie and indicate 'no' whenever it appeared. An equivalent set-up in a real-life criminal case might involve a suspect repeatedly looking at the same selection of knives and indicating whether they owned any of them. One further twist to the task was that participants had to look out for a further specific meaningless date - this was just to make sure they stayed engaged with the task.

Click Here to Read: How To Cheat a Brain-Scan-Based Lie Detector

The Myth of FASB Due Process: And the Fact of Undue Influence

Via The Accounting Onion. 
So the first point I want to make is that "due process" as a description of the FASB's policies is a misnomer. The FASB's use (along with that of the monkey-see-monkey-do IASB) of the term is merely another instance of its tactical use of weasel words and phrases to cast an aura of gravitas on a process without having to actually specify that process in any significant detail. Of course, the guarantees of due process in law are highly specified, even though they may be intensely debated. Among other things, they consist of the right to a full and fair trial, governed by rules of evidence, impartiality, burden of proof, etc.
There are no real rules for due process at the FASB, like we see in the law: rules of evidence, decision criteria, etc. All we are provided by the FASB's Rules of Procedure (page 5) are vague statements that pretty much allow the FASB to do what it wants, when it wants. Maybe a new standard will be evidenced-based, or maybe it won't. Maybe a new standard will be consistent with the concepts statements (although those are also like nailing jell-o to a tree), or maybe it won't.
And, in case you're wondering, the term due process is nowhere to be found in the securities laws or in the way the SEC, the main source of the FASB's legitimacy, describes its own rulemaking activities.  The SEC simply states that "the Commissioners consider what they have learned from the public exposure of the proposed rule, and seek to agree on the specifics of a final rule." In other words, SEC evaluation of public comments is not part of a "due process" (or a democratic process) but simply purports to be a learning process.
Click Here to Read: The Myth of FASB Due Process: And the Fact of Undue Influence

Study Links Brain and White-Collar Crime

Full Excerpt via The Independent (H/T Neuroethics & Law Blog).
People who commit "white collar" crime such as credit-card fraud and computer hacking have been found to have brains that are structurally different from the brains of non-criminals with similar backgrounds, scientists have found.
Psychological tests on white-collar criminals also showed that they were better at making decisions in the kind of "higher executive" brain functions associated with being good at business, researchers said.
The study found that, in effect, white-collar criminals had more grey matter than a comparable group of non-criminals, suggesting that there may be a biological basis for this kind of criminal behaviour, according to Adrian Raine, a criminologist at the University of Pennsylvania.
"They have better executive functions. They have better executive skills, such as planning, regulation and control. So in a sense these people have all the advantages we really want in successful business people," Dr Raine said.
"This study is agnostic in terms of the cause of these differences. All it is saying is that there are some differences."
The study, which has been submitted for publication in a scientific journal, used magnetic resonance brain scanners to compare 21 convicted white-collar criminals with a similar group of people of the same age and social class who had not committed such crimes, Dr Raine said.
He emphasised that the study did not show that difference in brain structure was the cause of someone turning to crime, only that there was an association between the two that might indicate a cause and effect.

For the S.E.C., Problems of Time and Money

Via Peter Henning @ White Collar Watch. 
In 2003, the S.E.C.’s enforcement program was under attack from Wall Street, which complained that overregulation and too much enforcement hampered the effectiveness of American markets in competition with financial centers in London and Asia. The S.E.C., like other agencies involved in the investigation and prosecution of white-collar crimes, received fewer resources to work with as the federal government ramped up its spending on antiterrorism programs.
It is not surprising that a case involving options backdating in that time period would be de-emphasized, at least before the practice gained the national attention in March 2006 when The Wall Street Journal began publishing a series of articles titled “The Perfect Payday” that outlined the huge gains that some executives reaped from backdating. As accounting cases went, it did not look anything like the types of frauds that occurred at companies like Enron and WorldCom, which were the S.E.C.’s primary focus at that time.
Click Here to Read: For the S.E.C., Problems of Time and Money

Tuesday, February 22, 2011

SEC Expert on Why It is a Wuss at Litigation

Via Naked Capitalism. 
The underlying issue is that there is no such thing as a free lunch. Americans (at least certain Americans) love to grumble about their taxes. Yet Europeans and Australians are more heavily taxed and are happier with the services they get from their governments (I heard no complaining in Oz and I circulated pretty widely; surveys confirm my impressions re Europe).
One wag remarked that maybe the reason Europeans aren’t unhappy with their government services is that their countries are better at that than the US is. That could actually be true, particularly since the game plan here over the last 30 years seems to have been to make government less competent as a justification for shrinking it further.
But a second reason is our system has become deeply corrupt, and having failed to be attentive to safeguards early on, it is not clear how to reverse that. The US has long been suspicious of career bureaucrats (even though they are the backbone of important agencies like the Department of Defense and the Department of State), yet when the are seen in their societies as an elite (think of the status held by federal judges), they can attract people with a sense of professionalism who are willing to take a bit less than private sector pay to have a stable career, demonstrably important work, and respectability. That may sound simplistic (and there are plenty of cases where the mandarin model falls short of its promise) but right now, even the not-that-successful implementations look a ton better than the revolving door between agencies of the Executive Branch and power broker law firms.
Click Here to Read: SEC Expert on Why It is a Wuss at Litigation

Monday, February 21, 2011

In Praise of the Handshake

Via Dan Ariely (H/T Abnormal Returns).
A CEO of a large internet company recently told me about one of the worst decisions of his career. He instituted a very specific performance-evaluation matrix that would determine 10% of his employees’ compensation. Before this, the firm, like most, had a general agreement with its employees—they had to work hard, behave well, and were measured on certain goals. In return they were rewarded with salary increases, bonuses, and benefits. This CEO believed he could eliminate the uncertainty of the incomplete contract and better define ideal performance.
The complete-contract approach backfired. Employees became obsessively focused on meeting the specific terms of their contracts, even when it came at the expense of colleagues and the company. Morale sank, as did overall performance.
Even lawyers see the risks of complete contracts. As part of my research, I asked the dean of Duke’s law school, David Levi, if I could take a look at the school’s honor code. Expecting a detailed contract written by lawyers for lawyers, I was shocked to find that the code went something like this: If a student does anything the faculty doesn’t approve of, the student won’t be allowed to take the bar exam. It was, in essence, a handshake agreement!
Click Here to Read: In Praise of the Handshake

Sunday, February 20, 2011

Another Reminder That Crime Pays

Via Naked Capitalism. 
The second reason is timid prosecutors. A commonly invoked excuse for the failure to file criminal cases is that they are hard to win. But the standard set by the investigators seems to be that they will win all or most of the cases, which is bizarre. As long as a prosecution does not look foolish or overreaching, filing cases where there are good grounds for doing so does have deterrence value. High profile cases are costly to the targets: they consume management time and generate bad PR. Stanley Sporkin, the SEC’s head of enforcement in the 1970s was feared all over Wall Street precisely because he was not afraid to go after questionable behavior, even if he might not prevail in court.
And you aren’t going to be any good at litigating financial cases if you are afraid to try them. That in turn leads to a vicious circle: you won’t attract high caliber law school grads if you aren’t seen as being a good training ground (by contrast, the County of New York Robert Morgenthau was always able to attract talent because it was recognized in the law profession as a top flight operation; Sonia Sotomayor, Eliot Spitzer, and Andrew Cuomo were all assistant DAs under Morgenthau).
An obvious example is the SEC’s recent failed prosecution against former Bear Stearn hedge funds executives. Conventional wisdom is that the outcome proves that the loss confirms that it is hard to win complex criminal cases. But Enron was vastly more complex, yet it resulted in a raft of settlements (with jail time and big fines) and convictions. The fact is the SEC did a bad job. It made rookie mistakes, like relying overmuch on e-mails that looked damaging and failing to do adequate discovery on the surrounding circumstances.
Click Here to Read: Another Reminder That Crime Pays

Friday, February 18, 2011

Behavioral Motivations: When CEO’s Cook the Books & Why do firms issue financial misstatements?

Via Kellogg. H/T SimoleonSense. Great read. 
When the dot-com bubble of the late 1990s sent stock prices soaring, something else soared, too: CEOs’ perceptions of their net wealth. That theory alone may explain a large part of the psychology and behavior of why some corporate managers allowed their accounting books to get cooked.
On March 10, 2000, the dot-com bubble burst abruptly and as a result many firms had to issue accounting restatements well into the next decade. Let’s face it, a lot of people lost a lot of money, and not just the CEOs who watched large portions of their own stock holdings in their own companies vaporize. Let’s also not forget the chasm of broken trust that opened between the business community and the public.
So what happened? Did the CEOs transmogrify into greed-poisoned crooks? That answer may satisfy our human desire for a villain, but that is not exactly how things played out, says Anup Srivastava, an assistant professor of accounting information and management at the Kellogg School of Management.
Click Here to Read: Behavioral Motivations: When CEO’s Cook the Books & Why do firms issue financial misstatements?

Video: The Psychological Power of the Status Quo

Via The Situationist from 2009.

Part I




Part II
 


Part III
 

Thursday, February 17, 2011

Emotion, Neuroscience, and Law: A Comment on Darwin and Greene

By John Mikhail (H/T Neuroethics). 

Abstract:  
Darwin’s (1871) observation that evolution has produced in us certain emotions responding to right and wrong conduct that lack any obvious basis in individual utility is a useful springboard from which to clarify the role of emotion in moral judgment. The problem is whether a certain class of moral judgments is “constituted” or “driven by” emotion (Greene 2008, p. 108) or merely correlated with emotion while being generated by unconscious computations (e.g., Huebner et al. 2008). With one exception, all of the “personal” vignettes devised by Greene and colleagues (2001, 2004) and subsequently used by other researchers (e.g., Koenigs et al. 2007) in their fMRI and behavioral studies of emotional engagement in moral judgment involve violent crimes or torts. These studies thus do much more than highlight the role of emotion in moral judgment; they also support the classical rationalist thesis that moral rules are engraved in the mind.
Click Here to Download: Emotion, Neuroscience, and Law: A Comment on Darwin and Greene  

Wednesday, February 16, 2011

Why Isn't Wall Street in Jail?

Very good (yet sad) article via Rolling Stones (Many thanks to Miguel @ SimoleonSense for finding this).
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."
...
That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
Click Here to Read: Why Isn't Wall Street in Jail? 

Tuesday, February 15, 2011

The FASB Could Rescue the Financial System – But It Won't

Via The Accounting Onion. 
Complacency exists in part because the certain cost of being anything more than passive is not expected to be offset by the uncertain benefits. The vast majority of investors choose to place their trust in the integrity of the financial reporting regulators – to have put in place a system that clearly signals when financial performance has lagged, or that excessive risks have been taken.
That the accounting standard setters have utterly failed to live up to the trust that investors have placed in them is the overarching theme of this blog. Only the notion of investor complacency can explain why investors have not yet stormed the FASB's headquarters, much as Egyptians demonstrated in Tahriri Square to protest a plutocracy operating behind the fa├žade of democracy and due process.
I have no suggestions for altering the calculus leading to consistent investor complacency. The only solution is for regulators, most especially accounting standard setters, to embrace the reality that investors will not tend to exercise their right to be heard, rather than to exploit that vulnerability. For example, accounting standards should acknowledge that investor preferences dictate that disclosure – even under the best possible circumstances – cannot be an adequate substitute for financial statement recognition. They should also acknowledge that due process is clearly not working even though thousands of comments against a proposed standard have been received from issuers, largely with the objective of drowing out those few investors who care to be heard.
Click Here to Read: The FASB Could Rescue the Financial System – But It Won't

Auditors and Consulting: Claims Of No Conflict Strain Credibility

Via Francine McKenna.
The financial crisis and companies concerns over costs have driven audit fees to flat or down in all the firms, on average, worldwide. However, the independence issues that led three of the four to sell their consulting businesses by 2002 still exist, even more so with the contraction in the number of firms available in many markets to take on larger and more complex non-audit projects and engagements.
At the same time, the audit firms are behaving as if the requirement to be independent at all times is an annoyance rather than an impediment. That may be because auditors are not strictly prohibited from consulting in the UK, for example, as long as the company isn’t listed in the US. But since the PCAOB only recently gained inspection access to UK firms, we may find lax compliance once they catch up on inspections. For non- Sarbanes-Oxley companies, UK firms accept consulting engagements for audit clients at will and with only honor to guide them.
In the United States, in spite of prohibitions on a list of advisory services that can be performed by auditors of companies subject to Sarbanes-Oxley, the level of enforcement of these independence prohibitions is practically nil. Not only are the regulators loathe to single out a firm for large transgressions, they have limited time and budgets available to track them down at all, especially because of new the volume of matters generated by the financial crisis.
...
The hunger for more consulting revenue also causes the audit firms to forget they are audit firms first and foremost.  Aggressive sales activities and “relationship building” tactics common in the systems integrator business are tolerated by the audit firms for the sake of winning major long term engagements with prestige clients and realizing the return on big acquisition and practice-building investments.
Outside the US, the prohibitions in some countries on foreign ownership of their audit partnerships is breaking down and the international firms are taking control of everything else away from local partners who “cannot realize the growth potential.”
Click Here to Read: Auditors and Consulting: Claims Of No Conflict Strain Credibility

Monday, February 14, 2011

If At First You Don't Succeed...

I couldn't resist.

 

Book: Extraordinary Popular Delusions and the Madness of Crowds

This is a great read! Highly recommend this to anyone who wants to understand the psyche of our marketplace. It's hard for me stop reading it.

By Charles Mackay (H/T to Miguel & Money Science).

Preface (Via Charles Mackay):

In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.
...
Some delusions, though notorious to all the world, have subsisted for ages, flourishing as widely among civilized and polished nations as among the early barbarians with whom they originated, -- that of duelling, for instance, and the belief in omens and divination of the future, which seem to defy the progress of knowledge to eradicate entirely from the popular mind. Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
...
In the present state of civilization, society has often shown itself very prone to run a career of folly from the last-mentioned cases. This infatuation has seized upon whole nations in a most extraordinary manner. France, with her Mississippi madness, set the first great example, and was very soon imitated by England with her South Sea Bubble. At an earlier period, Holland made herself still more ridiculous in the eyes of the world, by the frenzy which came over her people for the love of Tulips. Melancholy as all these delusions were in their ultimate results, their history is most amusing. A more ludicrous and yet painful spectacle, than that which Holland presented in the years 1635 and 1636, or France in 1719 and 1720, can hardly be imagined. Taking them in the order of their importance, we shall commence our history with John Law and the famous Mississippi scheme of the years above mentioned.
Click Here to Read: Extraordinary Popular Delusions and the Madness of Crowds