Felix Salmon

Randy Cohen, the NYT’s former Ethicist columnist, has now attempted an ethical defense of running red lights on his bicycle. “I flout the law when I’m on my bike,” he writes; “you do it when you are on foot, at least if you are like most New Yorkers.”

This, of course, is one of the weakest ethical defenses imaginable: if lots of other people are flouting the law, that doesn’t give anybody else the ethical right to do so, let alone the legal right. But Cohen continues:

I roll through a red light if and only if no pedestrian is in the crosswalk and no car is in the intersection — that is, if it will not endanger myself or anybody else. To put it another way, I treat red lights and stop signs as if they were yield signs. A fundamental concern of ethics is the effect of our actions on others. My actions harm no one. This moral reasoning may not sway the police officer writing me a ticket, but it would pass the test of Kant’s categorical imperative: I think all cyclists could — and should — ride like me.

The “should” at the end of this passage is utterly indefensible. At best, Cohen has demonstrated that he’s causing no harm to others (although I’ll take issue with that in a moment). But if Cohen is doing something illegal — which, by his own admission he is — then he needs something much stronger than “no harm to others” before he urges such behavior on all other cyclists.

There are cases where flouting the law can be the ethical thing to do, but those are generally cases where following the law, or standing idly by in the face of something which is clearly wrong, cannot be ethically justified. In this case, stopping at a red light and waiting for it to turn green does no harm to anybody, and there’s no morality I know of which would frown on such behavior.

It is important to cyclists that we get the full respect of drivers as fellow road users, with just as much right to be riding down the street as they have. The biggest danger facing cyclists is when drivers get annoyed if we slow them down, or drive as though we’re simply not there. Developing a relationship of mutual respect between drivers and cyclists is the most important thing we can do to improve cyclists’ safety, and to reduce the number of injuries and fatalities on the streets. And cyclists will find it much harder to earn that respect if they visibly flout the law every time they reach a red light.

Do pedestrians flout red-light laws all the time? Yes, of course they do. But they also fear cars, and respect the fact that the roadway is built for the purposes of cars and not for themselves. No pedestrian insists on the right to walk down the middle of the road at any time of day or night, and to be respected by drivers while doing so.

Similarly, Cohen — quite rightly — saying that cyclists “are a third thing, a distinct mode of transportation, requiring different practices and different rules”. I wrote as much myself, in my unified theory of New York biking. But that theory was based on the idea that the tragedy of New York cycling is that everybody — pedestrians, drivers, and cyclists — treat cyclists too much like pedestrians. Cohen, by contrast, says that “most of the resentment of rule-breaking riders like me, I suspect, derives from a false analogy: conceiving of bicycles as akin to cars”. I wish that New Yorkers would conceive of bicycles as akin to cars: pedestrians would look first before stepping out in front of us; cars would respect our right to be on the road; and fellow cyclists wouldn’t endanger everybody by riding the wrong way down the street.

One of the weirder parts of Cohen’s essay is that he extols Amsterdam and Copenhagen, which are cities where, to a first approximation, all cyclists always stop at all red lights, and don’t go again until the light turns green. Doesn’t he understand that in order for New York to work as a cycling city, cyclists will have to stop taking the law into their own hands? “Uninterrupted motion,” he writes, “gliding silently and swiftly, is a joy.” Well, yes, it is. Uninterrupted motion is quite nice for car drivers, too, but they stop at red lights. And even pedestrians generally wait until the way is clear before they cross the street.

More to the point, I simply don’t believe Cohen when he writes that he only breaks the red-light rule “if and only if no pedestrian is in the crosswalk and no car is in the intersection”. What about when there’s a pedestrian in the crosswalk who’s walking away from the bike? I’ll bet he does it then, too. The point is, when you can make up your own rules, you can also make up when to bend them. I can understand that Cohen would prefer it if New York had rules like Idaho’s. But whatever the rules are, we should obey them. If Cohen wants to agitate for a change in the rules, I’ll join him and support him. But I’m not going to pretend that it’s OK to break the rules just because you think the rules should be changed.

It’s quite common for pedestrians to thank me when I stop at a red light behind the crosswalk. That’s nice of them, I guess — but it’s also a bit depressing: it shows that most pedestrians expect most cyclists to flout the law. And that makes them afraid and resentful of cyclists in general. That’s the last thing anybody wants. And so for the time being it behooves all cyclists to adhere to the law as it stands, even if they’re convinced that they’re doing no harm. Running red lights is highly visible behavior, and every time a pedestrian or a driver seen Cohen do it, that only confirms in them their prejudice that cyclists are lawless people with no respect for the rules of the road. They can’t see the counterfactual case where Cohen would have stopped had there been a pedestrian in the way: all they see is the law-flouter.

I’m no angel on this front: I’ve done, on my bike, everything Cohen has done on his. I just don’t kid myself that I’m behaving ethically when I do so. And I’m trying to set a good example, even if I don’t always succeed. If you ever see me run a red light on my bike, feel free to tell me off. I’ll deserve it.

Business school professor Luigi Zingales, with the full agreement of fellow business-school professor Justin Wolfers, has an important op-ed under a provocative headline: “Do Business Schools Incubate Criminals?”

Zingales’s point is a good one: that the way business-school students study ethics is much like the way that entomologists study ants. Quite aside from the fact that ethics courses are generally taught by relatively junior professors, they also tend to shy away from actually telling students to be ethical:

Most business schools do offer ethics classes. Yet these classes are generally divided into two categories. Some simply illustrate ethical dilemmas without taking a position on how people are expected to act. It is as if students were presented with the pros and cons of racial segregation, leaving them to decide which side they wanted to take.

Others hide behind the concept of corporate social responsibility, suggesting that social obligations rest on firms, not on individuals…

My colleague Gary Becker pioneered the economic study of crime. Employing a basic utilitarian approach, he compared the benefits of a crime with the expected cost of punishment (that is, the cost of punishment times the probability of receiving that punishment). While very insightful, Becker’s model, which had no intention of telling people how they should behave, had some unintended consequences. A former student of Becker’s told me that he found many of his classmates to be remarkably amoral, a fact he took as a sign that they interpreted Becker’s descriptive model of crime as prescriptive. They perceived any failure to commit a high-benefit crime with a low expected cost as a failure to act rationally, almost a proof of stupidity.

At business school, there are lots of classes where students try to maximize profits; that’s nearly always considered to be the way to win in business. It’s easy to see, then, how Becker’s framing of unethical behavior as something with costs and benefits essentially strips the ethics away, leaving only a simple decision of whether the actor wants to take the risk of punishment.

And frankly the headline on Zingales’s piece makes a similar error. What it implies is that we should be worried about criminal behavior, rather than unethical behavior more generally. But I’m with Zingales: we need to go further than that.

When the economist Milton Friedman famously said the one and only responsibility of business is to increase its profits, he added “so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” That’s a very big caveat, and one that is not stressed nearly enough in our business schools.

Lobbying to secure a competitive advantage from the government certainly does not represent “open and free competition.” Similarly, preying on customers’ addictions or cognitive limitations constitutes deception, if not outright fraud.

There are interesting ethical debates to be had as to where to draw the line: for instance, all those “free offers” which require you to hand over your credit-card details and then bill you regularly unless you cancel. They prey on cognitive limitations, I’d say, and are less ethical than companies which don’t do that. Should business-school professors tell their students that they should avoid implementing such schemes? I don’t know. But I do think that acting ethically, even if such actions are legal and don’t maximize profits, is something that many more business-school students should be encouraged to consider.

This is a very large step, of course, from the kind of discourse which excuses illegal bribes by Walmex on the grounds that, hey, everybody does it. And in a way it’s closer to what I’m urging in a journalistic context: less emphasis on bright lines, such as what’s legal and what’s illegal, and more emphasis on acting as ethically as possible on a day-to-day basis. Treating your employees well, for instance, is sometimes good for the bottom line and sometimes bad for the bottom line. But I’m uncomfortable with arguments that urge companies to treat their employees well on the grounds that doing so will increase profits: the implication is that if it doesn’t increase profits, then the reason to do it goes away.

Zingales says that business-school professors actively foster a culture of amorality; that’s right. But the real problem isn’t business school; it’s the idea that there’s something ethically dubious about doing anything other than maximizing profits for shareholders. Which is one reason why I’m such a fan of b-corps.

I’ve just been told that it’s International Media Ethics Day in September, which is so far away that I’m bound to forget to post something. But I have been thinking a bit about media ethics of late, and especially the ever-increasing list of rules designed to ensure that journalists are neither conflicted nor seen to be conflicted. And the more I look at such things, the more I come to the conclusion that all too often they do a very good job of banning harmless activity, while at the same time proving quite ineffective against situations which are far more ethically problematic.

It’s easy to come up with a list of cases where ethics watchdogs in high places have come down too harshly on infractions which were pretty harmless. Think of Mike Albo being fired from his NYT column, or for that matter Neil Collins being fired from Reuters. In neither case did the punishment fit the crime, notwithstanding of the letter of the law as unilaterally interpreted by the news organization in question.

It’s also easy to come up with instances of news organizations tying themselves up in rather hilarious knots in order to meet their own self-imposed ethical standards. Len Downie and Mike Allen never vote, for instance, for fear that their private and secret ballot might in some way inform their journalism. And I was particularly tickled by the contortions that the WSJ went through when faced with an extremely good-natured wager by Dan Neil:

The Wall Street Journal, which I joined in February 2010, does not permit its journalists to engage in this kind of wagering, regardless of subject or beneficiary — even by critics and columnists like me who are paid to have and express their opinions. And that’s perfectly reasonable: You wouldn’t want a theater critic betting a play will succeed or fail. Moreover, it’s better for journalists to write about the story than to somehow become part of the story. However, since I undertook this obligation before my tenure at the WSJ, and since the outcome is a charitable contribution, the Journal allowed me to follow through.

There’s an implication here that if Neil had promised to pay Elon Musk $1,000, rather than Doctors Without Borders, then the WSJ would have considered his welshing on his bet to be more ethical than his making good on it. We don’t know, which is a bit problematic in itself.

The theme running through all of these cases is that of reductio ad absurdum. Organizations decide that their journalists should be above reproach, and draft a set of rules to that effect. They then consider themselves bound by the rules, rather than by the principle underlying those rules.

The risk of absurdity is particularly high when it comes to social media in general, and Twitter in particular. As Twitter inexorably erases the professional/personal distinction, sophisticated organizations are increasingly adopting social-media policies based on simple “don’t be stupid” principles, rather than on hard-and-fast rules.

What goes for Twitter goes more generally, too. Twitter has proved that journalists are human, which has upside as well as downside. Journalistic ethics should embrace that, rather than trying to force all journalists into being magisterially impartial observers.

What would ethics look like in a world which is messier and more transparent? For one thing, we would spend less effort ring-fencing journalists’ lives and conflicts, and more time simply being open about them. The end result could actually be a significant improvement.

The reason is that the single biggest problem, when it comes to journalistic bias, has nothing to do with journalists owning stock in companies, or being paid speaking fees. (Although with speaking fees, a simple would-you-be-happy-being-transparent-about-this test is often a very good place to start.) Rather, by far the most common way in which journalists are captured by corporate interests is precisely the same way that journalists get scoops: source cultivation.

Journalists don’t always have sex with their sources, but when you’re having long and often boozy meetings with people, it’s statistically inevitable that many journalists are going to end up liking some subset of those people. After all, sources aren’t necessarily bad or evil: some of them are very good, very charming people. And often journalists end up working incredibly closely with sources for weeks or months on end as stories progress. Sometimes, that work becomes formalized: after Gretchen Morgenson used Josh Rosner as a source during much of the financial crisis, she then co-authored a book with him. Other times, the source ends up marrying the journalist: think Alan Greenspan and Andrea Mitchell.

But most of the time, it’s not nearly as obvious as that. Especially when it comes to background dinners with no particular agenda, a lot of what’s going on is a complex game of two people trying to get comfortable with trusting each other. That trust needs to be built up over time, and building it up takes a substantial amount of effort. It can be hard to distinguish, sometimes, from friendship. And if the journalist writes something bad about the source or the source’s company, the whole relationship can be jeopardized.

Keith Winstein has a fantastic way of explaining why beat reporters don’t make great investigative reporters; it basically comes down to the fact that beat reporters need access, which is the one thing that no company wants to give to an investigative reporter. But all reporters, be they beat reporters or investigative reporters or opinion journalists or anything else, have human sources and understandably feel bad if they write something that upsets the sources they get along well with. And that ends up shaping news stories, at the margin, much more than any financial incentives they might have.

Source relationships are particularly fraught when it comes to short-sellers, most of whom have good relationships with a certain subset of the financial-journalism world. That makes perfect sense: short-sellers often uncover newsworthy frauds, and it’s in everybody’s interest for those frauds to be uncovered in a public manner. But the closer a short-seller gets to a journalist, the more problematic the relationship, just because the short seller is likely to have advance notice of a key precipitating event — the publication of the story in question.

Here’s the problem: let’s say I’m a short seller, and I’ve uncovered a big fraud. I can go short the stock, but doing so is fraught with danger: so long as the fraud isn’t public, the stock can rise a lot and I can get stopped out. And if I simply sit back and wait for some journalist or government agency to find the fraud on their own, I could be waiting a very long time indeed. So I make things happen by talking to a journalist I know I can trust. And somewhere along the way I get a reasonably good idea for when that journalist’s story is going to appear — a story which I’m pretty sure is going to result in the company’s share price falling. At that point, I have the holy grail for any short-seller: knowing not only that a stock is going to fall, but also when it’s going to fall. And I have that information just because of how close I am to the journalist. You can see how the journalist, in this light, looks a bit less like the impartial crusader of Truth, and a bit more like the willing patsy of the short-seller.

I don’t know how or even whether this problem can or should be addressed, but I suspect that a bit more transparency could only help. And that’s not the only area where more transparency would surely be a good thing. I’m a long-time reader and fan of Joe Nocera, for instance, and so I know that he has featured Westwood Capital’s Dan Alpert in his column numerous times, as well as letting Alpert guest-blog for him on occasion. Last August, Nocera introduced him, quite explicitly, as “my friend Daniel Alpert”.

Yesterday, Nocera wrote about the eminent-domain plan for seizing underwater mortgages; he concluded that “it’s time to give eminent domain a try”. In doing so, he ducked all of the questions I’ve raised about the plan he’s writing about: how Mortgage Resolution Partners is buying mortgages rather than homes, and performing mortgages rather than defaulted mortgages, and indeed is trying to buy performing mortgages for a fraction of their face value, even as investors are valuing them at or even sometimes above par. “Since the home has dropped dramatically in value, the mortgage is worth a lot less than its face value,” asserts Nocera — ignoring the fact that once a mortgage is seasoned and performing well, it has to be worth at least as much as a performing unsecured loan of the same amount.

Why was Nocera so seemingly blind to the weaknesses in the MRP plan? Maybe he considered and rejected them; maybe he didn’t consider them at all. Or, maybe, he was predisposed to like the MRP plan because his friend Dan Alpert is one of the principal movers behind it. I knew that Nocera had written about the MRP plan before I knew what Nocera had written about the MRP plan — but because I also knew about the Nocera-Alpert connection, I didn’t need to read the column to know what Nocera’s conclusion would be. Nocera was under no compulsion to write about the plan, and I’m reasonably certain that if he can’t say something nice about Dan Alpert, he’s not going to say anything at all.

Dan Alpert wasn’t mentioned in Nocera’s column, and neither was his company, so even a close reader of Nocera’s work would have found it difficult to notice what you might call the friendship conflict. Nocera gives paid speeches, including to securitization professionals, and I don’t think that the money he gets paid for giving those speeches affects his columns one bit — any more than his cruise-ship seminars do. But the NYT keeps very close tabs on all that extracurricular income, because it’s seen as raising potential ethical issues. Nocera’s connection with Alpert, on the other hand, isn’t scrutinized at all — it’s a perfectly unexceptional journalist-source relationship — despite the fact that it must have had some significant effect on the column.

This, then, is where a bit of first-person transparency would come in useful. “I’m biased: I’ve known Dan Alpert for years, and he’s a friend. But I still think this is a good idea.” It doesn’t take up much space, it’s perfectly natural, and it helps readers understand where the writer is coming from.

Was it unethical for Nocera not to disclose his relationship with Alpert? I wouldn’t go that far. But then again, I don’t think it’s particularly helpful to try to draw rules-based bright lines between “ethical” and “unethical”, and say that anything on one side of the line is fine, while anything on the other side of the line is unacceptable. We don’t want journalists to become like corporate executives, who, in the words of Eduardo Porter, “behave as corruptly as they can, within whatever constraints are imposed by law and reputation”.

Instead, I’d encourage all journalists to consider every action they do, every day, and ask whether it’s helpful or unhelpful, good or bad, at the margin. And the point here is to spend as much time trying to do things which are good as you do avoiding things which are bad.

Right now, US journalism has a rather Calvinist view of ethics: it’s all downside and no upside. But it seems to me that if publications encouraged their journalists to be more ethical, rather than just requiring them not to be unethical, things might get a lot better. We’d see more detailed disclosures like Kara Swisher’s at All Things D. We’d see fewer anonymous quotes, since there’s always something a bit dirty and secretive about them. We’d have fewer journalists automatically saying “yes” whenever anybody asked them if they could talk off the record. And we’d have columnists like Nocera explain their personal connections to the subjects they were writing about, even when doing so isn’t strictly necessary: it would still at the margin be better than not doing so.

My suggestion for Media Ethics Day, then, is that, this year, we stop talking about rules: what behaviors are OK, and what behaviors aren’t. I don’t have a problem with those rules existing, but I worry that an unintended consequence of putting those rules in place is that journalists end up worrying much more about the rules, and what side of the rules they’re on, than they do about the underlying ethics of what it is that they’re doing, or not doing. Similarly, I’d like to see a little less emphasis on what constitutes unethical behavior in journalism. While that’s an important topic, it’s also a constrained one. What I want to see more of is discussion of what constitutes ethical behavior in journalism — what kind of things can all journalists do to make their practice ever more ethically sound?

I’d particularly love to see that conversation take place in the context of an increasingly social world, where friendships and relationships are more out in the open than they have been in the past, and where grown-ups recognize that conflicts are a fact of life, rather than something which should always be avoided.

If you study ethics in a philosophy department, it’s a tough nut to crack, with lots of very difficult questions. In a journalistic context, by contrast, everybody seems far too keen to boil everything down to simple yes/no answers.

Kenneth Dam is an unusually reticent professor. Since he released his amicus brief in the case of Elliott vs. Argentina, I’ve phoned him and sent him multiple emails to two different addresses, but have received no reply at all. Which is odd, because he clearly feels very strongly about the case — strongly enough to enlist Kevin Reed, of the white-shoe law firm Quinn Emanuel Urquhart & Sullivan, to put together his brief and submit it to the Second Circuit.

Such services don’t come cheap: my guess is that Reed charged Dam well into six figures for his services.

So why would Dam spend hundreds of thousands of dollars to submit an amicus brief in this case, yet at the same time evince no interest in talking to the press about it? He hasn’t returned Bloomberg’s calls, either, and neither is he quoted in Michelle Celarier’s story in the NY Post. But Celarier has managed to come out and say what many of us suspected, when we first saw the brief:

Elliott Capital Management’s Paul Singer must be sweating it…

Singer has enlisted the support of ex-Treasury vet Kenneth Dam, who served under Ronald Reagan and was deputy secretary of the Treasury under George W. Bush, to write a “friends of the court” brief for Elliott in a case the US Court of Appeals for the Second Circuit is slated to hear later this month.

This wouldn’t be the first time that Elliott paid a venerable law professor to submit a brief in support of its case. But in this particular brief, there’s an unambiguous footnote:

Pursuant to Local Rule 29.1, Kenneth W. Dam states that he authored this brief and that it was not authored or funded by any party to this action.

On the off chance that you’re not familiar with Local Rule 29.1, it requires a disclosure statement under FRAP 29(c)(5), which in turn says that this footnote must indicate whether “a person — other than the amicus curiae, its members, or its counsel — contributed money that was intended to fund preparing or submitting the brief and, if so, identifies each such person”. Since Dam identifies no such person, I would normally conclude that he paid the costs of preparing and submitting this brief himself.

But Michelle Celarier is a veteran and very well-sourced journalist, and if she says that Dam’s brief was commissioned by Elliott, I’m inclined to believe her.

It’s all very peculiar. Within the brief itself, Dam’s only declared interest is this:

Prof. Dam has a substantial interest in the outcome of this action because it presents issues involving the international financial markets, the role of international financial institutions, and U.S. international policymaking that he has written on and studied extensively.

Which might explain why he’s interested in the outcome of the action, but doesn’t come close to explaining why he’s willing to spend a very large amount of money attempting to influence the outcome of the action.

All of this could be cleared up, of course, very easily, if only Dam or Elliott were willing to answer some simple questions. But instead we get this:

Dam didn’t return a phone message and e-mail sent to his law school office seeking comment on the filing. Peter Truell, a spokesman for New York-based Elliott Management, declined to comment.

I first tried to ask Dam about this back on May 2, and then tried again on May 7. So far, I’ve heard nothing. So if anybody out there knows Ken Dam, and gets the opportunity to ask him a simple question, I’d be much obliged if you could ask him whether he’s working for Elliott. Then, if he says yes, ask him why he didn’t say so in his brief. And if he says no, ask him how much it cost to file this brief, and whether he personally paid the full sum. I’d be fascinated to learn what his answers are.

Back in November 2006, Eduardo Castro-Wright, who was then the US president of Walmart, dispatched the company’s jet to pick up marketing head Julie Roehm in Chicago. She arrived late, in an ice storm, but made it in to the Walmart headquarters, where Castro-Wright started grilling her on the agency review process: how she had picked DraftFCB as the agency which would take over Walmart’s $1 billion-per-year account. Roehm had interviewed some 30 agencies before settling on Draft; the questions centered on whether she had allowed any of those agencies to pay for dinner while she was talking to them, and whether she had accepted a lift in the car of any of the agencies’ CEOs.

Four days later, Roehm was fired, for violations of Walmart’s extremely strict ethics policy. As Walmart expert Charles Fishman explains,

Wal-Mart had a kind of unbending almost obsessive adherence to even the trivialist elements of an ethical code. They’re a brutal competitor and everybody acknowledged that, but Wal-Mart was also the company that wouldn’t take a dinner from you, that wouldn’t let you provide a soda if you went to meet them to talk about business, where they wouldn’t join trade associations for many, many years because they didn’t want to pay dues and have a conflict of interest.

We now know, of course, that Castro-Wright was the man at the very center of the Walmex corruption scandal. Which raises the obvious question: did the corruption at Walmex appear despite Walmart’s ultra-strict ethics code? Or did it, paradoxically, appear because the code was so strict?

The point here is that Walmart left, essentially, nothing to its employees’ discretion. It didn’t trust them to do the right thing: it codified everything in a set of rules, and then told them to follow those rules. And you can see how that might have resulted in a kind of Calvinist scale-blindness, where accepting a soda when going to meet a vendor is exactly as bad as greasing Mexican wheels to the tune of 24 million dollars.

On top of that, the most senior executives at Walmart had a lot of discretion when it came to enforcing the rules. For someone like Roehm, who never fit in to the corporate culture, it was easy to find an infraction and fire her. On the other hand, when it came to allegations touching on Castro-Wright himself, it was similarly easy to hand the investigation off to one of his loyal subordinates, who did what he was expected to do and buried it.

Accepting a soda from a vendor, of course, is not illegal; engaging in sham investigations, on the other hand, is. Or can be, at any rate. At a grown-up organization, the Mexican allegations would have been a much darker shade of grey than anything that Roehm is alleged to have done, and would therefore have been taken much more seriously. But executives at Walmart, used to seeing the world in black and white, were unable to distinguish between the merely unethical and the downright illegal. As a result, there could be criminal charges for Walmart executives. Call it the ultimate unintended consequence of a strict ethics policy.

Update: EJ Fagan has a very smart take on all this.

There’s a difference between having a soda bought for you and buying someone a soda. Internally, maybe Wal-Mart did not want its employees to make economically inefficient decisions based on who bestowed upon them the most favor, just like people in Mexico don’t want their government making decisions they wouldn’t otherwise make if an agent from a giant multinationals didn’t transfer six figures to their offshore bank account. Their ethics policy may be designed to support what’s good for Wal-Mart, not necessarily to follow any sort of legal or moral code. We shouldn’t expect anything else from a profit-seeking corporation in a competitive marketplace.

Perhaps the most surprising thing about the NYT’s Walmart exposé this weekend is that it was such a surprise to the market. Note this, for instance:

In December, after learning of The Times’s reporting in Mexico, Wal-Mart informed the Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act, a federal law that makes it a crime for American corporations and their subsidiaries to bribe foreign officials. Wal-Mart said the company had learned of possible problems with how it obtained permits, but stressed that the issues were limited to “discrete” cases.

“We do not believe that these matters will have a material adverse effect on our business,” the company said in a filing with the Securities and Exchange Commission.

The filing in question was Walmart’s quarterly report, which was filed with the SEC on December 8. These things take a significant amount of time to put together; it’s reasonable to assume that Walmart has known about this NYT investigation, then, for a full five months at this point. And while the story carries the sole byline of David Barstow, it was reported with the help of James McKinley in Mexico City, as well as the fabulously-named Alejandra Xanic von Bertrab. The newspaper was surely extremely assiduous in its reporting and fact-checking; I’m sure that there was an extremely large number of sources who had some inkling of what was being reported.

And yet the market was taken by surprise, with $12 billion of market capitalization evaporating from Walmart and Walmex in one day.

Which raises the obvious question: shouldn’t the NYT, which can always use a bit of extra revenue, take advantage of the fact that its stories can move markets so much? Not directly: I’m not suggesting that the New York Times Company should start buying out-of-the-money put options on Mexican corporates in advance of its own stories. But how much would hedge funds pay to be able to see the NYT’s big investigative stories during the trading day prior to the appearance of the story? It’s entirely normal, and perfectly ethical, for news organizations, including Reuters, to give faster access to the best-paying customers.

What’s more, good journalism is increasingly being done by people who unabashedly have skin in the game. The Muddy Waters report on Sino Forest, for instance, was explicitly written by someone with a big short position in the company. And today Anonymous Analytics, a forensic-accountancy spin-off of the hacker group, has released a detailed report on Huabao International which is similarly likely to cause a substantial fall in its share price. They write:

Anonymous Analytics holds no direct or indirect interest or position in any of the securities profiled in this report. However, you should assume that certain contributors to this report, as well as their members, partners, affiliates, colleagues, employees, consultants, muppets clients and investors, as well as our clients have a short position in the stock of Huabao International Holdings Limited (HK: 336, “Huabao” or the “Company”) and/or options of the stock, and therefore stand to gain substantially in the event that the price of the stock declines.

It’s a good report, well worth a read for connoisseurs of short-seller research. My favorite bit is where they flew to Botswana to try to find out what on earth the Huabao operation there was up to, tracking down the plant despite the fact that the company had photoshopped its photograph to make it impossible to work out where it was. This is a kind of long-form journalism, and it can be extremely remunerative. If the NYT is working on similar stories, why not take advantage of that fact and allow other people to make money off what you’re doing anyway?

The reporters and even the editors on any given story need never have any connection with any hedge fund or corporate client. All that’s needed is that when a big story is entering the final stages of layout and fact-checking, a version is sent under strict embargo to a client or clients who have paid for that access. They can then act on the story in the markets.

The main potential problem I see here is that if such an arrangement were in place, corporate whistleblowers might be risking prosecution as insider traders. But I’m sure the lawyers could work that one out. The church-lady types would I’m sure faint with horror. But if hedge funds are willing to pay the NYT large sums of money to be able to get a glimpse of stories before they’re made fully public, what fiduciary could simply turn such hedge funds away?

Many thanks to Paul Starobin for getting to the bottom of the question of journalists being paid by Wall Street to give speeches. This is one of those issues, a bit like the exact meaning of “off the record”, where everybody thinks they know what the standard is, but everybody also thinks it’s different.

It turns out there are lots of different standards. At one end of the spectrum you have the Wall Street Journal which simply bans its journalists from accepting speaking fees at all. Interestingly, it’s also the most influential financial news outlet, according to Gorkana’s recent survey. Second on the Gorkana list is Bloomberg, which also bans its journalists from accepting speaking fees, but loopholes can be found. Bloomberg View editorial board member Clive Crook, for instance, is not a full-time Bloomberg staffer, and thus feels free to accept such fees.

Third on the Gorkana list is the New York Times, which has a slightly messier and more nuanced approach to speaking fees: basically, you’re allowed to take them, but only from non-profit organizations like universities. And even that rule can be bent: when Joe Nocera gave a speech to a securities conference in Miami, New York Times spokesperson Eileen Murphy told Erik Wemple that “there is some flexibility to our guidelines around speaking engagements”.

Fourth on the Gorkana list is Reuters, which isn’t mentioned in Starobin’s story. Our policy is that “payment should not be sought or accepted”, but travel and lodging reimbursements may be accepted.

After that, it becomes more of a free-for-all. At the FT, both Gillian Tett and Martin Wolf can and do accept speaking fees from anyone they want; Tett’s income from such things is “well into the six figures”, she says, and she has chosen to give “most” of it to a UK charity. And the FT seems to be more the rule than the exception, if Starobin is to be believed:

Many journalists give paid speeches to businesses and business groups. And Wall Street, as it happens, is probably the top source of such engagements. Household names like Bank of America as well as obscure hedge funds, private-equity firms, and others in the financial world frequently hire journalists—including scribes who regularly cover Wall Street—to deliver speeches at events ranging from publicized conferences to small private dinners with select clients. Millions of dollars have flowed to journalists in speaking fees in recent years.

We’re moving to a world where brands are more personal than they are corporate — where the likes of Michael Lewis and Malcolm Gladwell and Jim Surowiecki and Bill Cohan and Bethany McLean and Sarah Ellison and Niall Ferguson and so on and so forth are self-employed freelancers for various publications, rather than being full-time employees. As such, they have to make up their own rules about speaking fees, and it’s incredibly easy when you’re in that situation to tell yourself that you would never be unduly influenced by corporate interests and that therefore no harm could be done by taking Wall Street’s dollar.

Given that all these other stars are likely to be happy accepting paid speaking gigs, it’s easy to see how employers like the FT and CNN feel the need to allow their stars to give paid speeches too. (Fareed Zakaria has a rack rate of $75,000, and has given speeches to a long list of financial firms, including Merrill Lynch and T. Rowe Price.)

So what should be done? The vision of Gretchen Morgenson tying herself up in ethical knots before deciding what she can and can’t do is not a particularly edifying one: there’s got to be a better way than this.

On occasion she gives paid speeches to universities, as Times policy permits, and sometimes she appears, for free, at financial-industry events—but not without doing due diligence. “I did recently participate in a one-hour question-and-answer session about the state of the economy and markets with about 50 clients of First Long Island Investors, a small, local registered investment advisory firm,” she said in an e-mail. “It does business only in New York and Florida, has 200 or so accounts, and does not conduct securities underwriting or trading for its own account. As such, it would not be a firm I would cover. I received no honorarium for my participation in this session and before I agreed to participate, I checked that the firm had not been subject to any regulatory or disciplinary actions.”

My feeling is that for full-time employees of media organizations, a single, named ethics chief should make final determinations in all cases where a journalist wants to give a paid speech. It’s silly to ask the journalists themselves to make such determinations unilaterally, since they’re the ones being paid. The rules could be written or unwritten, but at least there would be someone being clear about what is allowed and what isn’t. Alternatively a blanket ban, like the WSJ has, works just as well.

For freelancers, however, things become a lot more difficult. The NYT, for one, tries to hold its freelancers to the same standards as its full-time journalists, but that’s hard, especially when the NYT isn’t paying them nearly as much. At the very least, we need more disclosure. This is very telling:

With the notable exceptions of Gillian Tett, Michael Lewis, and Martin Wolf, most of the journalists I tried to talk to about their speaking appearances resisted comment, or would only talk anonymously—which is a little ironic. One prominent scribe pleaded not to be mentioned at all. (Sorry, no passes.) I still have the bite marks on my neck from a telephone conversation with another who demanded to know whether he was the target of a “hostile inquiry.”

If you’re not proud to be giving a paid speech, and happy to be open about that fact, then it seems to me you shouldn’t be doing it. And that applies whether you’re self-employed or not.

What on earth did Hank Paulson think his job was in the summer of 2008? As far as most of us were concerned, he was secretary of the US Treasury, answerable to the US people and to the president. But at the same time, in secret meetings, Paulson was hanging out with his old Goldman Sachs buddies, giving them invaluable information about what he was thinking in his new job.

The first news of this behavior came in October 2009, when Andrew Ross Sorkin revealed that Paulson had met with the entire board of Goldman Sachs in a Moscow hotel suite for an hour at the end of June 2008. He told them his views of the US and global economies, he previewed a market-moving speech he was about to give, and he even talked about the possibility that Lehman Brothers might blow up. Maybe it’s not so surprising that Goldman Sachs turned out to be so well positioned when Lehman did indeed do just that a few months later.

Today we learn that the Goldman meeting in Moscow was not some kind of aberration. A few weeks later, on July 28 2008, Paulson met with a who’s who of the hedge-fund world in the headquarters of Eton Park Capital Management — a fund founded by former Goldman superstar Eric Mindich.

The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets…

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out…

The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

When we found out about the Moscow meeting, I asked how on earth Paulson thought such behavior was OK. But now I think he was downright pathological in giving inside information to his old Wall Street buddies. And the crazy thing is that we have no idea how many of these meetings there were, or how long they went on for — the only way that we ever find out about them is when reporters like Sorkin or Bloomberg’s Richard Teitelbaum manage to find a source who was in the meeting and is willing to talk about what happened.

Given that it’s taken two years since the release of Sorkin’s book for the Eton Park meeting to be made public, it’s fair to assume that there were other meetings, too — possibly many others. Paulson was giving inside tips to Wall Street in general, and to Goldman types in particular: exactly the kind of behavior that “Government Sachs” conspiracy theorists have been speculating about for years. Turns out, they were right.

Paulson, says Teitelbaum, “is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations”. I’d take issue with the “distinguished” bit. Unless it means “distinguished by an astonishing black hole where his ethics ought to be”.

Now I’ve got my rant off my chest, let me try to add a bigger-picture point to the noise surrounding Romeneskogate. The unanimous reaction to Julie Moos’s ridiculous piece has held little back: Hamilton Nolan called it “perhaps the most bullshit nonexistent plagiarism case in the annals of online journalism”, while Rem Rieder called her “portentous, not to say sanctimonious” and said that Romenesko “doesn’t deserve to be treated this way”.

So, let’s just declare this Moos 0-1 Romenesko and move on to the kind of thinking which underlies Moos’s post. As Choire Sicha documents very well, Moos likes to write self-contained journalistic stories including lots of links. Many other bloggers — myself included — do the same thing. But here’s the thing: Moos is judging Romenesko by her own standards, when what Romenesko does is not what she does.

Some of the most insufferable prose in Moos’s post comes at the points where she appeals to Holy Writ, a/k/a the Ethics Guidelines for Poynter Publishing:

Our practice is to enclose verbatim language in quotation marks, and to set off longer excerpts in blockquotes. While I have no reason to believe this practice has spread beyond one writer, I will check the work of other contributors to determine for certain whether anyone else has been guilty of the same shortcut…

We spent weeks in 2004 developing explicit publishing guidelines with the understanding and expectation that they would be adopted. How often, how consistently and universally did we articulate our values and standards and confirm that others share them? Not enough. Never enough.

Moos, here, is taking a classic rules-based approach to ethical questions. Here are 1,800 words of ethical rules. If you follow the rules, you’re fine; if you break the rules, you’re unethical. Contrast John Paton’s Employee Rules For Using Social Media at JRC, which make a lot more sense, and which total exactly zero words.

It’s pretty simple, really. Under Moos’s rules, Romenesko did something wrong. Under Paton’s rules, Romenesko did nothing wrong. Romenesko did nothing wrong. Therefore, Paton’s approach wins.

Moos is declaring, here, that she needs to be consistently and universally reiterating explicit publishing guidelines. How dreadful! Being a journalist in such an organization must feel like being a naughty schoolchild, always fearful of being found in transgression of some rule or other. It’s a sad end to the story of a blog which Poynter acquired precisely because Romenesko was doing something wonderful which Poynter was incapable of producing internally.

What Romenesko was doing — to spell this out — was aggregating and curating news about the media. He was not writing stories with lots of links in them: he was putting links together, and occasionally quoting from the articles he was linking to. Eventually, if you read him for long enough, you could start to discern what Choire describes as his “careful and sometimes sly” voice. But when Moos bellyaches about how “the words may appear to belong to Jim”, she’s spectacularly missing the point. The vast majority of Romenesko’s readers never even stopped to think that the words they were reading might “belong” to Romenesko in some way — they were always clearly attributed to the journalist he was quoting. In fact, the more common confusion almost certainly went the other way: when Romenesko put something well, people ended up giving credit to the person he was quoting.

Moos is using the standards of original journalism, here, to judge a blogger who was never about original journalism. Copy-and-pasting other people’s stories is what Romenesko did, at high volume, and with astonishing speed and reliability, for many years. And the media community, including Poynter, loved him for it.

Moos might have “spent weeks in 2004 developing explicit publishing guidelines with the understanding and expectation that they would be adopted”, but guidelines are always reverse-engineered from already-existing best practice. And Romenesko is a shining example of best practice in the aggregation world. If he’s violating the guidelines, then it’s the guidelines which are at fault, not Romenesko.

Petty bureaucrats like Moos love to codify things, so that they can cite chapter and verse when telling people off. But if you’re running a grown-up media organization, please: follow Paton’s lead, and not Moos’s. Journalists will behave unethically, sometimes. When they do, they should be reprimanded or even fired. But basic common sense is always the best guide to whether a journalist has done something wrong. And when Julie Moos presumes to judge Jim Romenesko by the standards of a Moos-written rulebook, it’s right and proper that the wrath of the Twittersphere come down on her as a result.

Update: I’ve got a few more thoughts on this subject here.

Occupy Wall Street seems to be throwing up much more than its fair share of media-ethics questions — from a news-organization perspective, it’s a movement which seems to be very easy to respond to badly, and very difficult to respond to well.

That’s partly because OWS is a leaderless organization lacking an official spokesperson or a clearly-defined political goal. So journalists wander down to Zuccotti Park and can credibly file anything they like. One notorious story in the NYT, for instance, declared in its opening sentence that OWS “had a default ambassador in a half-naked woman who called herself Zuni Tikka”; the New York Post, going one better, decided the whole thing was rife with anti-semitism. Journalists want to be able to explain OWS; to declare exactly what it stands for, ideally in terms which can place the movement neatly on a left-right spectrum.

The best coverage of OWS, I think, has come from the media organizations which embrace its distributed nature, and let the stories simply flow — by creating Tumblrs telling the stories of the 99%, for instance, or setting up a live webcam where protestors can speak directly without intermediation. When journalists and editors start putting together stories themselves, I like the results which have a narrow focus, or at the very least the ones which are explicit about the difficulty of pinning such a broad movement down.

And some of the stories are very narrow — for instance the ones which Xeni Jardin, Conor Friedersdorf , and I wrote about the Abacus sign. What none of us ever dreamed when we were writing those stories, however, was that the woman holding the sign in the air — Caitlin Curran — would get fired for doing so, by “inconsolably angry” public-radio producer Mark Effron. He was backed up by WNYC spokesperson Jennifer Houlihan, who told the Atlantic Wire that “when Ms. Curran made the decision to participate in the protest and make herself part of the story, she violated our editorial standards”.

This is, frankly, bonkers. Here’s what the sign said, in full:

It’s wrong to create a mortgage-backed security filled with loans you know are going to fail so that you can sell it to a client who isn’t aware that you sabotaged it by intentionally picking the misleadingly rated loans most likely to be defaulted upon.

It’s possible, in the vast expanse of the internet, to find someone willing to quibble with that sentiment — but it’s not easy. And even he thinks that the decision to fire Curran is “philosophically indefensible”. There’s a crazy double standard here: you can go down to OWS wearing your journalistic hat and write anything you like. That’s fine, you won’t get fired. On the other hand, if you just want to express dismay at an action which was found illegal and for which Goldman Sachs paid a record-breaking fine of more than half a billion dollars, well, that’s a firing offense.

Now it’s possible for a journalist to become part of the OWS story in a bad way; I was peripherally involved in one recent example like that; it involves Greg Palast, Democracy Now, and my beloved Lower East Side People’s Federal Credit Union. (Blink and you’ll miss it, but my name appears underneath that of Goldman Sachs, at about the 3:29 point in the video.)

Palast is a very smart and unabashedly partisan reporter. He’s also happy to deliberately mislead if doing so will further his political ends. Amy Goodman frames the story at the beginning: “Did Goldman Sachs actually use US taxpayer bailout money to attack Occupy Wall Street’s not-for-profit community bank?” The answer to the question is a vehement no: there was no bailout money involved, even by Palast’s tortured definition of what constitutes bailout money, and in any case Goldman didn’t attack anybody.

I’m not going to get into the details of this story, which was covered much more fairly last week by Robert Frank. But in no conceivable sense is it true that “Goldman Sachs has declared war” on LESPFCU, as Palast says at the top of his piece. He also knows it’s not true, as he’s about as well-sourced at LESPFCU as it’s possible to get. His ex-wife is the CEO, after all.

It’s also not true that Goldman’s donation to the credit union was required under the Community Reinvestment Act, or even that Goldman was donating CRA funds to the gala event in question. And Palast’s statement that “it’s not Goldman’s money, it’s our money”, along with his idea that CRA money is the same as TARP money (which, in any event, has of course been fully repaid), is also simply false.

There are important and interesting articles to be written about the linkages between OWS, the credit union movement, and the Move Your Money campaign. One good place to start is the Alternative Banking group at OWS, which has some pretty important members and is moving in very interesting directions. There are also, always, great articles to be written about individual credit unions, including LESFCU, which do wonderful things for their low-income membership and which are an intriguing alternative to banking with a too-big-to-fail institution.

But the fact is that accessible community banking — much like OWS itself — is a cause which cuts across party lines. One of the reasons that America has so many banks is that lawmakers on both sides of the aisle have expended a lot of effort in making sure that small banks can compete effectively against the big guys.

So let’s celebrate the diversity of OWS, and let’s appreciate that a lot of what it stands for is wholly uncontroversial. Small-enough-to-fail banks are good things. The Abacus deal was wrong. The Great Recession was caused in large part by the misadventures of huge financial institutions which then got bailed out. The top 1% have become spectacularly wealthy in recent years, even as the rest of the country has struggled. Saying these things is not grounds for being fired as a journalist — saying these things is journalism. And if you say one of these things in a way which goes viral on the internet, that’s good journalism.

There’s too much real conflict in the Occupy movement, but it’s largely confined to the conflict between the protestors and the police. It’s very hard to find anybody who will come out against OWS — even the likes of Vikram Pandit are expressing sympathy with the protestors and saying that he’d be “happy to talk to them anytime”.

Journalists love conflict, of course, and so when they cover OWS there’s a tendency to try to gin up the story with imaginary beefs — OWS hates the Jews! Goldman has declared war on OWS’s bankers! Etc. This is not helpful. So let’s celebrate, rather than fire, the people who successfully get the message out. We need to save that ire for the practitioners of all the shoddy OWS journalism out there.

The latest shenanigans at News Corp are particularly shocking because they took place at the Wall Street Journal — the flagship publication which was meant to be insulated, at least in part, from Murdoch sleaziness. But this is really bad: the WSJ Europe was telling its advertisers that it had a circulation of 75,000 — but in fact fully 31,000 of those copies were bought for as little as 1 cent apiece by companies which never saw them, and pawned them off onto random students.

And when one of those companies decided that even 1 cent per copy was too much to pay, the WSJ decided to simply buy up the papers itself, with its own money.

Oh, and the WSJ also demolished the wall between editorial and advertising, promising — and delivering — editorial coverage to the companies it was doing business with.

There was a whistleblower, too, who wound up with the sack:

European human resources executive Carol Bosack emailed the whistleblower: “You are expected to keep details and your reaction or beliefs about the recent events confidential and not shared with anyone external or internal to the business. This matter is to be kept between us, Andrew [Langhoff], Internal Audit and Corporate Legal.” No action was apparently taken at that time on the whistleblower’s allegations. The whistleblower, who had worked for Dow Jones for 9 years, was made redundant in January.

Only after the Guardian started asking questions was Langhoff finally forced to resign.

Jack Shafer makes some very good points about all this — among them, that the suspect news stories were in “special sections” which nobody reads, and that the real scandal about the WSJE’s circulation was that even padded it only managed to reach 75,000. Rupert Murdoch is probably dying to kill off this paper as he did the News of the World; it surely loses him a fortune.

But the thing which jumps out at me is that News Corp is still keeping true to its strategy of covering up anything embarrassing until Nick Davies uncovers it, at which point an executive or two is thrown under the bus. As crisis management goes, it’s a disaster — and now it’s claimed the scalp of senior Dow Jones employee number two. (The first, of course, was Les Hinton.)

As a result, the rest of the world is simply going to assume the worst — that anything rumored or imagined is probably true and has just been successfully covered up for the time being. That’s really bad for News Corp. The only silver lining is that for the time being, all of the wrongdoing has been confined to the newspaper businesses. If anything gets uncovered at Fox or Sky or HarperCollins, it’s surely all over for Rupert — the culture of corruption will have been shown to have infected the entire organization. News Corp has kept things quiet until now, in those organizations. But how long can it continue to do so?

Craig Silverman emails with some questions about the proposed economists’ code of ethics, which I think is an excellent idea. He has an interesting angle: how does this affect journalists? Here are his questions, with my answers.

I’m first of all wondering if you knew there wasn’t a code of ethics from the American Economists Association? If it’s new to you, I’d like to hear your thoughts on the lack of a code.

Absolutely. I’ve been writing about this for a while, and a lot of credit has to go to Charles Ferguson, who made the issue a central part of his Oscar-winning documentary, Inside Job, from which the above clip is taken.

There are lots of good reasons why there isn’t a code, with the main one being obvious to any economist: economists make more money when there isn’t a code than they would if such a code existed. And economists, even more than normal people, tend to act to maximize their own income.

Mostly, economists delude themselves that what they publish is exactly what they think, and is not tweaked so that the conclusion is what the people paying them want it to be. This isn’t true.

If you were aware of it, I’m wondering if you have thoughts on whether this presents a problem for journalists interviewing economists?

There’s definitely a problem here. For instance, Ric Mishkin was a natural interview on the subject of Iceland, seeing as how he’d written an in-depth study of the country. The study didn’t mention that he was paid a six-figure sum to write it, however — and journalists talking to him could easily be excused for not knowing that fact. What’s more, journalists shouldn’t feel the need to ask about conflicts and payments every time they talk to an economist — it makes interviews unnecessarily adversarial.

As a result of the calls to adopt a code, the AEA created an ad hoc committee to examine whether one should be created. What would you like to see in a code for economists?

Ideally, a code of ethics would say that economists can’t write papers about people and institutions they’re receiving money from. A disclosure rule is a poor alternative, but it’s better than nothing. Such a rule could be really simple: if you’re an economist with an academic affiliation, then you have to disclose all sources of outside income; such disclosure would include exactly how much you’re being paid. After all, the degree of conflict clearly increases with the amount of money involved: a million-dollar payday is going to have more effect on what an economist is likely to say than a hundred-dollar check.

As a financial journalist, I’m wondering if you have advice for other journalists in terms of using economists as sources. For example, do you ask if they have any conflicts of interest related to the issue you’re talking about? If they’re with a university, do you check their academic CV to see who they’ve consulted for?

As a rule, I don’t. And academic CVs, as a rule, tend not to include precisely the consultancy and speaking gigs which raise the most conflicts. This is one reason why the absence of any code of ethics is such a problem: there’s almost no way to find the necessary disclosures any other way. As a result, it’s all too easy to end up in situations like this one, where a story needs to be updated/corrected when a conflict is pointed out.

In general, do you think a professional code of ethics can have an impact on the way someone — economist or otherwise — conducts themselves with a journalist?

I’d like to hope so. All too often economists and other professionals feel comfortable with lies of omission when talking to journalists, simply not mentioning a fact that they know is germane. A good code of ethics should address this: even if there’s a disclosure somewhere about a conflict, the onus should not be on the journalist to find it, but rather on the economist to proactively mention that conflict to the journalist.

Finally, I’m wondering if you see any parallels with the Ben Stein story and this issue? (I realize he is not a professional economist, but he does identify himself as one…)

There are a couple of parallels: Ben Stein had a public gig at a respected institution (the New York Times), and he had to give up that gig when he started accepting money from the evil FreeScore.com. Similarly, if economists want to take lots of money from big corporations like banks or hedge funds or oil companies, then they should first consider the ethics of doing so, and how they will reflect on their academic institutions. There are similar conflicts in the life sciences, but it seems to me that the debates there are more out in the open. Economists don’t even seem to like to talk about ethics, let alone actually adopt a formal code. Which is sad, but, given the incentives involved, understandable.

Louise Story and Gretchen Morgenson have a long and rambling story about the court case against Goldman’s Fabrice Tourre, which is mainly interesting for how it was sourced:

These legal replies, which are not public, were provided to The New York Times by Nancy Cohen, an artist and filmmaker in New York also known as Nancy Koan, who says she found the materials in a laptop she had been given by a friend in 2006.

The friend told her he had happened upon the laptop discarded in a garbage area in a downtown apartment building. E-mail messages for Mr. Tourre continued streaming into the device, but Ms. Cohen said she had ignored them until she heard Mr. Tourre’s name in news reports about the S.E.C. case. She then provided the material to The Times. Mr. Tourre’s lawyer did not respond to an inquiry for comment.

I’m sure this was extremely carefully formulated, but it does raise a lot of questions without answering them. Tourre’s name was splashed over the newspapers in April 2010, so it stands to reason that the NYT has had some kind of access to Tourre’s private, password-protected email account — not to mention archives going back at least to 2006 — for a good year at this point. I’d also guess that the NYT is going public with its source now because Tourre finally got around to changing his password, and the stream of emails then dried up.

Was the NYT, then, hacking into Tourre’s private emails in much the same way as the News of the World was hacking into private voicemails? The NYT certainly didn’t think much of that activity, even when it was done through an outside contractor rather than a newsroom employee. So I don’t think it makes a lot of difference whether the computer was in the possession of Cohen or of the NYT.

The NYT quotes one email from October 10*, long after Tourre was all over the news in April. So it seems reasonable to assume the NYT was accessing Tourre’s emails even after the reporters were initially approached by Nancy Cohen. In order to do access Tourre’s emails, they would need Tourre’s password, or a computer with the password on it.

I understand that the computer was found in a garbage area, and that there’s a long tradition of investigative reporters using information found in the trash. But if Tourre left a key to his apartment in the trash, that wouldn’t give reporters the right to use that key to enter his apartment and snoop around. The laptop was essentially a key to Tourre’s email account — which held highly confidential correspondence between Tourre and his lawyers. An email account, these days, is arguably more private than an apartment, and breaking into a password-protected email account is clearly wrong.

How is what the NYT did not hacking into a private email account? I can think of three defenses, only one of which has any real merit.

The first defense is that it’s only hacking if you somehow type in the password: if all you have to do is open up the email application and the emails just stream in automatically, then there’s no hacking involved. I don’t buy this defense at all. If Cohen found Tourre’s password on his computer and gave it to the NYT, they could then build an identical laptop for themselves — and doing so would clearly be hacking. It just doesn’t make sense that if you’re looking at two identical computers, using one to snoop through emails is ethically fine, but using the other is beyond the pale. The laptop is essentially the physical manifestation of the password, and using it is the same as using the password. Using someone else’s password to access their email is wrong, even if you found that password in the trash.

The second defense is that it wasn’t the NYT reporters who were snooping through Tourre’s emails, but rather Nancy Cohen. Again, I don’t buy this one — Cohen was clearly delivering to the reporters exactly what they asked her for. If she was doing their bidding and acting as their agent, then they bear responsibility for her actions.

The third possible defense is that Cohen waited for a good six months* after Tourre was in the news before dumping all of his emails onto some kind of drive and delivering it to the NYT in a one-shot deal. The NYT, with a trove of data in its lap, then combed through the emails and wrote its story, without asking Cohen to keep further tabs on Tourre’s email or give them any further data. That I think would come closest to the we-found-this-in-the-trash scenario, and doesn’t involve the NYT taking advantage of having password-protected access to Tourre’s email account. But it’s also pretty improbable.

It goes without saying that Tourre is extremely upset right now, and feels violated by the NYT. He’s not wrong to feel that way. The question is whether the NYT was wrong to snoop around his emails while fishing for a story — even if doing so meant hacking into his private account.

Update: The Stored Communications Act of 1986 makes it a crime to “intentionally accesses without authorization a facility through which an electronic communication service is provided”.

Update 2: The NYT has released a statement:

As we disclosed in our story, certain documents were provided to us by a named source. The Times did not “hack” any email accounts or ask anyone to do so.  We are confident that our receipt and use of those documents was in keeping with our journalistic standards and complied with the law.

Update 3: John Cook has a very smart take on all this, and some more information from the NYT:

Murphy also strongly suggested that the laptop at issue didn’t belong to Tourre: “All but one [emails referenced in the story] came from the Senate report and are public and none came from Mr. Tourre’s email system.” If it didn’t come from Tourre’s email system, it’s hard to see how it came from his laptop.

As Choire Sicha has noted, Goldman is quite the professional organization when it comes to information security, and emails don’t just “stream” unbidden to Goldman-authorized devices. So it’s likely that it was a computer belonging to one of his attorneys—if the laptop’s “Sent Items” mailbox was synced via IMAP or Microsoft Exchange, for instance, with Tourre’s attorney’s email account, then “messages for Mr. Tourre” would have continued streaming to it.

I like the idea that it wasn’t Tourre’s laptop, but rather a laptop belonging to someone who was emailing Tourre. But that would imply that Cohen was not only reading a stream of emails, but was keeping close tabs on the “sent items” folder as it updated, and noticed Tourre’s name popping up in that folder periodically. Anything’s possible, I guess.

*Update 4: Nick Rizzo points out that the October email quoted by the NYT actually looks as though it dates from October 2009, rather than October 2010. Here’s the NYT story:

In the fall of 2009, when Mr. Tourre learned that he had become a target of investigators for helping to sell a mortgage security called Abacus, he protested that he had not acted alone.

That fall, his lawyers drafted private responses to the S.E.C., maintaining that Mr. Tourre was part of a “collaborative effort” at Goldman, according to documents obtained by The New York Times…

<snip 961 words>

…In their Oct. 10 response to the S.E.C., Mr. Tourre’s lawyers, including Pamela Chepiga of Allen & Overy, made an argument that they have not emphasized publicly.

If the NYT only obtained emails to Tourre dating from before they were contacted by Cohen, then as I say, that would absolve them of hacking charges. I read the NYT’s reference to October as meaning last October, since the SEC case against Tourre only became public in 2010, and because if people mean two Octobers ago they normally say so. But revisiting the article, it seems more likely that the email in question was sent in 2009, a good six months before the SEC case against Tourre was made public. In that case, it’s no longer prima facie evidence that the NYT was hacking into anybody’s email.  Although it’s still very unclear why the NYT waited more than a year between being given the emails and publishing this story. If it’s because they were still monitoring email to Tourre up until recently, then the hacking allegations don’t go away.

Update 5: This just gets weirder. The NYT emails Rizzo to say that none of the emails cited in the NYT story “came from Mr. Tourre’s email system on the computer”. Which implies that the NYT was reading Tourre’s emails on the computer, but for some reason didn’t use any of those emails in its story. Of course, as far as hacking into email systems is concerned, I can’t see that it makes any difference whether you print them or not.

Update 6: Nancy Cohen has a spokesman! His name is Curtis Ellis, and Nick Rizzo has spoken to him. Ellis’s story goes like this: Cohen was given Tourre’s laptop in 2006, from a friend who had found it in the garbage section of the basement of a luxury downtown building. Four years later, when Tourre is in in the news, Cohen realizes it’s the same person who’s name is on the computer. She opens up Outlook, and it starts downloading a bunch of his emails, which she doesn’t read. She tries to get in touch with various media outlets, but none of them is interested, until, eventually, a couple of months ago — almost a year after first making the connection and downloading Tourre’s emails — Cohen finds someone at the NYT (neither Story nor Morgenson, it seems, but someone else) who says they’ll take a look and see if there’s anything there. She then delivered the emails on an external hard drive to the NYT.

If this story is true, then it does pretty much exonerate the NYT from allegations of hacking — Cohen really did simply deliver all of Tourre’s emails to the NYT, long after he was in the news, in a one-shot deal. It sounds pretty crazy, to be sure. But weirder things happen in New York every day.

The UK’s Institutional Investor Council has issued a blistering report on the excessive fees that investment banks charge companies to issue new shares — fees which one issuer are “usually immoral”. It certainly seems that way, looking at this chart: fees have been steadily increasing over time, even as the discount at which the new shares are issued has got larger and larger. The bigger the discount, of course, the less risk taken on by the underwriter, since the more that the share price would have to plunge overnight in order for the underwriter to risk losing money on the deal.

Yes, this chart includes the financial crisis, and it stands to reason that fees for rights issues would rise during a crisis. But we’re not in a crisis any more, and the fees aren’t coming down to their historical levels, even though the discounts are still enormous. And it’s notable that fees hit these highs on a percentage basis just as the amount of underwriting was surging:

What we’re seeing here is a textbook example of banks squeezing every last dollar they can out of their clients just when those clients are most desperate for money. And it stands in stark contrast to legal fees, which were considered fair by issuers and which have not risen visibly at all over the past few years.

None of this is illegal, of course, but it’s fair to call it unethical, if ethics are fundamentally based on the principle of “treat others as you would like to be treated”.

Christina Rexrode had a long article on banking and ethics in Sunday’s Charlotte Observer, and she concentrated on the kind of behavior which steps close to or even over the line into outright illegality. Maybe it’s just so blindingly obvious that banks behave in a fundamentally immoral manner most of the time that her editors considered that not to be news — charging $35 for a $2 cup of coffee, slapping enormous overdraft fees onto those who can least afford them, pushing high-interest credit cards on desperate customers, locating credit-card operations in South Dakota where usury laws are at their laxest, encouraging people to use the bonkers anachronism that is signature debit, steering customers into the financial products which pay the highest commissions, etc etc. All of this is legal, and all of it is designed to funnel as much money as possible from the customers’ pocket to the bank’s bottom line, and none of it is in the customer’s best interest, which means that none of it can really be considered moral.

More generally, Wall Street is an inherently adversarial place, where players are constantly trying to benefit from the misfortune of others. I’ll happily sell this stock to you at $40, because I think it’s going down, and I think that you’ll be sorry you bought it. Ethics and morals are very narrowly defined, when it comes to finance, and generally just mean being honest. Of course there’s much more to morality than simple honesty — and in any event honesty in financial markets is never simple.

So the issuers are absolutely right that the bankers are immoral — and the bankers are going to continue to ignore such questions, because ignoring such questions is how they make the big bucks. Here’s Rexrode:

The Observer broached the topic of banking and ethics with more than 50 people, almost all of them bankers or former bankers. Only 10 of the bankers agreed to be interviewed on the record. Some said they would speak only under anonymity because they feared retaliation from their employers…

People who spoke up could be seen as disloyal. The units that churned out the most revenue held the most sway with executives and other decision makers.

“To throw a flag in the sand and say, ‘I’m not sure about this’ – you’re not having a philosophical discussion with your priest, you’re saying to the guy in the next cubicle, ‘I’m not sure you should be making as much money as you’re making,’” said William Atwood, executive director of the Illinois State Board of Investment, an investor in major banks.

Ethics are great, of course. But money? In finance, that’s always greater.

(HT Dealbook, although they neglected to link to the report.)

I first met my friend David Neubert in the context of a website he co-founded, called The Panelist, devoted to “responsible and ethical investment advice”. Dave’s moved on to other things now, but he still has opinions on the ethical-investment front. If you refuse to buy stock in unethical companies, he says, you lose diversification. Instead, Neubert looks to change the behavior of companies he’s invested in:

I exercise my ethics through shareholder activism–by supporting, or rejecting, shareholder resolutions with my vote. I like to think of this practice as socially conscious investing…

You have more power than you might think. For example, I own 2,600 shares of Valero Energy, which means my vote amounts to 1/220,000 of the company. Maybe that doesn’t sound like a lot, but compare that to my vote for president of the United States (1/130,000,000 voters); or even mayor of New York (1/4,000,000 voters).

And believe it or not, your shareholder vote may very well make a greater difference than the votes of institutional investors. Most company boards realize that individual investors tend to be more enduring in their views and a whole lot more loyal, making them more desirable shareholders than fickle institutions. If an individual voices an opinion at a shareholder meeting or writes a letter, corporations recognize that there are likely thousands of others just like them and they listen.

I don’t buy it. For one thing, using the vote as a comparison is setting the bar unbelievably low, since voting is statistically certain to make no difference at all:

Even for the most passionate partisan, it’s hard to argue that voting is a good use of your time. Instead of waiting in line to vote, you could wait in line to buy a lottery ticket, hoping to win $100 million and use it to advance your causes—and all with an almost indescribably greater chance of success than you’d have in the voting booth.

And what of Valero, a dirty oil refiner? Is it likely to listen to small shareholders like Neubert? Well, Valero has spent $4 million of its shareholders’ money in support of Proposition 23, which would void California’s 2006 Global Warming Solutions Act. Shareholders like the Unitarian Universalist Association are opposed to that spending, for good reason: the act is a good one and Valero is essentially lobbying for the right to profit from pollution, even after a law banning such activity has been passed.

Here’s how the LA Times reported the shareholder move:

The challenge was dismissed by officials at Valero, which has contributed $4 million to the Proposition 23 campaign. Like the other resolutions, the one offered to Valero’s board comes from a relatively minor shareholder: the Unitarian church…

The filers are a “stockholder activist group,” said Valero spokesman Bill Day in describing the Unitarian Universalist Assn. of Congregations…

The resolutions’ backers acknowledge that they are unlikely to have an immediate effect on campaign spending by oil companies.

The Unitarians have about $15,000 of stock in Valero; Neubert has about $46,000. Clearly, these sums are dwarfed by Valero’s donations to the Prop 23 campaign and equally clearly Valero has made its mind up that theses people are gadflies who should probably just be ignored.

The fact is that Neubert and people like him are not going to change Valero’s behavior. And the diversification benefits of owning Valero stock have never been lower, in these days of ultra-high stock market correlation.

If you consider yourself an ethical investor and you care about global warming, then it’s really hard to justify an investment in Valero, a company which is spending millions of dollars trying to repeal one of the few U.S. laws which takes global warming seriously. Certainly the diversification benefits of owning Valero stock aren’t in themselves sufficient to offset the fact that you, as a shareholder, are ultimately responsible for Valero’s expenditures on the Prop 23 campaign.

Ethical investing can and must go further than the simple obligation which all shareholders have to take their ownership stakes seriously and to vote on shareholder resolutions. It’s all well and good being conscious of the fact that your company is behaving unethically — but once you come to that conclusion, the ethical thing to do is to sell those shares. Otherwise, you bear 1/220,000 of the responsibility for precisely that unethical behavior. Dave Neubert has, in effect, spent $18 in support of Prop 23. What has he done to offset that expenditure?