Fine Print - February 2011
In mid-December, as Christmas 2010 loomed and the values of the season were on full display, The Charlotte Observer intruded upon the happy jingle of the cash register to pose a bona fide spiritual conversation starter. Is it time, the Observer asked, for the banking industry to stop focusing exclusively on what’s legal and start thinking about what’s moral and ethical? That’s a fine question, actually, and a treacherous one, too. Any conversation starting with that query can spin off into all kinds of uncomfortable directions with the smallest of nudges. Naturally, I’m the man to give it one.
In one sense, the Observer’s question — framed this way: How do Charlotte’s many church-going, God-fearing banking executives square their faith with their industry’s recent business practices? — was rhetorical. The answer is, they can’t. Jesus had very well-articulated views about wealth, lending and money-changers. None were favorable. Instead, what the Observer seemed to want to know is whether North Carolina’s bankers now have second thoughts about such things as the aggressive promotion of mortgage loans that required little income verification and the subsequent bundling of those loans into securities whose radioactivity eventually caused a financial market meltdown. Again, the answer is obvious: Sure, who wouldn’t now have second thoughts?
But before we wander off in other directions, there are two points to be made. First, remember that law and regulation have a way of crowding out ethical considerations. Rules tend to replace values. Take the federal tax code for example: Citizens have an ethical responsibility to pay their taxes, but the size and detail of the tax code practically demands that you game the system to your advantage. The banking and securities industry is subject to much regulation, but those rules are largely designed to foster transparency and equal access to information. Within the rules, competition, even ruthlessness, is encouraged. Second, remember that ethics in banking tend to be situational rather than fundamental. If there had been no real-estate crash, or had it been much less dramatic, would those subprime loans and mortgage-backed securities still have been ethically questionable? If both borrower and lender come out of a liar’s loan transaction OK, is there still an ethical lapse?
Yeah, I know: This is all theoretical and argumentative. It’s like debating whether the running of a red light in the middle of the night with no traffic around still constitutes a crime. Instead, now that the subject of ethics is on the table for discussion, let’s consider some real-life lapses.
For instance, consider the findings of a recent study by NC Policy Watch that examined sales of lottery tickets in North Carolina and identified the counties with the highest per-capita sales (for another look at the lottery, see page 22). It turns out that there’s an almost perfect correlation between poverty and lottery purchases. Of the 24 most impoverished counties in the state, only two bought lottery tickets at a rate below the state’s per capita average. The other 22 were above — and in most cases, well above. In short, the most reliable customers for the state’s legal gambling racket are the poorest among us. The people who can least afford it are the ones most prone to believe the state’s pie-in-the-sky claim that riches are within their grasp. Want to have a discussion about the ethics of that? Too bad. Lottery officials studiously avoid collecting any demographic information that might tell them exactly who is buying tickets. And if you want to add a little extra oomph to your outrage, NC Policy Watch also notes that the percentage of lottery money that goes to education (which is, after all, its reason for being) has been reduced so that more can be spent on marketing and prizes.
Then there’s the case of Raleigh lawyer Johnny Gaskins, who made his living defending killers, drug dealers and other assorted lowlifes. Many of his clients paid his fees in cash, and Gaskins kept much of it in a safe in his home. But at some point, nervous about having so much money around the house, he deposited it in the bank — in smallish chunks, in different banks. Gaskins had declared the money as income and paid taxes on it. Still, a little over a year ago, federal prosecutors succeeded in convicting him on a charge of structuring his bank deposits to avoid the attention of the Internal Revenue Service (to whom he had already reported the money). That’s known as a “derivative crime,” a charge to be piled on top of a grander prosecution. But there was no other charge. That’s all prosecutors had: Gaskins was peculiar in how he handled the money he had earned legally and paid taxes on. Did I mention he represented the kind of clients cops and prosecutors particularly loathe? Anybody want to address the ethics of that exercise in justice?
More? All right, think about this for a moment. In late December, the General Accountability Office declared that the federal 2010 “consolidated financial statement” — which is to say, our federal budget — was such a mess that it cannot be verified. Our government literally cannot explain where our money goes. Worse yet, a GAO spokesman told the Philadelphia Inquirer this is not an unusual turn of events: It’s happened at least 10 years in a row. Keep that in mind the next time some huge government program is sold to us as an ethically necessary betterment of society.