Felix Salmon

Holding aggregators to journalistic standards

Felix Salmon
Nov 10, 2011 23:57 UTC

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.


I think reasonable minds can disagree as to whether Romenesko’s methods crossed the line. But what is most mystifying to me is that Moos was shocked, shocked to find this going on in her backyard. Either she is guilty of lax supervison of her underlings (“should have known”) or she did know and was panicked by the impending revelations from the Columbia person. It’s all rather like Reagan on Iran-Contra, she’s damned in both instances. Worse, though, is her pathetic attempt to replace Romenesko with her own plodding pontifications. Seems to me we have a case of: if you can’t hack it in journalism, you go into teaching it.

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Occupy Wall Street and media ethics

Felix Salmon
Oct 31, 2011 04:57 UTC

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.


My friends and I on both sides of the Pacific can’t help but think that a lot of the criticism waged against OWS, and a lot of the aggression coming from OWS, is just a distraction from one basic problem; that of increasing income disparity. Here’s a chart from a blog with info from the Congressional Budget Office that demonstrates the widening gap for the past thirty years: http://bit.ly/sCXVN4

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News Corp’s ethics cancer grows

Felix Salmon
Oct 13, 2011 06:39 UTC

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?


I think it’s fairly obvious to those who want to see it that Murdoch’s news empire is corrupt, and those who don’t want to see it will manage, once again, not to.

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How journalists deal with economists’ ethics

Felix Salmon
Sep 1, 2011 18:02 UTC

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.


Them too :p

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Did the NYT hack Fabrice Tourre’s email?

Felix Salmon
Jun 1, 2011 05:52 UTC

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.


Even more interesting than what this all says about the Times is what is illustrates about the shortcomings of blogs: Idle speculation (emphasis on “idle,” as in “not bothering to do the work of reporting”) spawns rumors that beget more idle speculation that beget more rumors. Asking questions is easy. Getting the right answers is hard.

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Immoral bankers

Felix Salmon
Dec 14, 2010 22:32 UTC

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.)


Thank you for the explanation.

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Can you ethically invest in unethical companies?

Felix Salmon
Oct 22, 2010 08:51 UTC

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?


@bernankesbubble, interesting point on China. Whatever the rationale, we will likely need to restart our domestic production at some point.

One problem with investing in “unethical” companies is that they face a greater risk of regulatory crackdown (and that can slam profits). I tend to be risk-averse, so I rarely take positions in such companies and am quick to sell when I do.

Posted by TFF | Report as abusive

The ethics of accepting BP’s money

Felix Salmon
Sep 20, 2010 19:46 UTC

There are serious ethical questions surrounding whether or not investors should own stock in BP. But is it also unethical for art galleries and museums to accept money from BP? Time’s Frances Perraudin gives the people who think so a lot of sympathetic space:

The cozy relationship between the arts and major corporations has often proved a controversial issue. But now, thanks to the Gulf of Mexico oil spill, protesters — already angered by oil’s role in climate change and human rights abuses — are focusing their crosshairs on BP…

“It’s so galling to see every single cultural attraction in London that I care about stained with this horrible, horrible sponsorship,” says Liberate Tate member Tom Costello…

Critics accuse BP of using blockbuster exhibitions and arts awards (the highlight of the National Portrait Gallery’s year is the “BP Portrait Award”) to direct attention away from their environmental and ethical crimes. “These sponsorship deals give companies like BP the social license to operate,” says Dan Gretton, co-founder of Platform, an arts and research charity that puts pressure on arts organizations to dump their oil partners. “Having these links with cultural organizations is a way for them to launder their image.”

I’ve always thought of arts sponsorship from the likes of Phillip Morris and BP as the silver lining to their unpleasant activities. Yes, the sponsorship is a form of image laundering — but hey, if image laundering results in millions of dollars being spent on worthy arts organizations, what’s not to like?

I’m sad to see entities like the Tate being vilified for accepting money from BP. The job of the Tate is to present great art to the public, not to adjudicate on questions of corporate worthiness. There’s no inherent conflict between accepting BP’s money and exhibiting art. So if BP wants to assuage its guilty conscience by sponsoring a slew of arts organizations, let it do so. The alternative is to simply let that money flow directly to BP’s shareholders, which I don’t think would be much of an improvement.


I don’t think it’s a problem to take their money with two stipulations:

First, there shouldn’t be any stipulations about what kind of art is presented. I don’t see any reason to think there are.

Second, people who receive or benefit from it don’t use it as an excuse for bad behavior. The curators getting the donations aren’t arguing against heavy consequences for spills ( if they even had power to do so), as far as I’ve seen.

Better to make their donations to non-profits than to politicians.

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The ethics of owning BP stock

Felix Salmon
Jul 6, 2010 03:27 UTC

Value investor Whitney Tilson is long BP, and answered my ethics question in a Q&A sent to his investors:

Q: Regardless of how cheap BP’s stock is, is it immoral to try to profit from owning it, in light of the company’s bad behavior?

A: As noted earlier, BP appears to have an atrocious safety record. In owning the stock, we are not endorsing its behavior, either before or after the Deepwater Horizon accident. But as value investors, we sometimes have to hold our noses when we invest because the cheapest stocks are often the ones of companies that have behaved badly or are otherwise tainted. Example include McDonald’s, which many believe bears responsibility for the obesity epidemic in this country (see Fast Food Nation and Super Size Me), and Goldman Sachs, which many blame for the global financial crisis (see The Great American Bubble Machine).

That said, we would have a problem owning stock in a company if we believed that its core business harmed people – most subprime lenders at the peak of the housing bubble, certain multi-level marketing firms and tobacco companies come to mind. BP certainly doesn’t fall into this category.

As for BP’s safety record, we don’t defend it, but we don’t think BP is deliberately blowing up its own rigs and refineries and killing its employees. If an email emerged that the CEO or board of BP were warned that the Deepwater Horizon rig was likely to explode and failed to act, we would certainly rethink the morality of holding the stock.

I don’t find this answer compelling at all. First is the language in which Tilson talks about his comparables, McDonald’s and Goldman Sachs. He writes about what “many believe” and what “many blame”, and cites the most shrill and stringent critics in both cases. Being a contrarian value investor is all about making your own mind up, and what’s germane here is what (and whether) the investor thinks about the ethics of the investment, rather than what someone like Morgan Spurlock or Matt Taibbi thinks.

Tilson then says there are companies he’d have a problem investing in, if they make harmful products. That seems to imply that it’s worth taking a serious look at the ethics of owning stock in BP. But his conclusion is trite, setting up a straw man of BP deliberately killing its employees, and saying that he’d only have a serious ethical problem with BP if it knew the explosion was likely.

Note the definite article here: Tilson is saying that he’d only have qualms if BP knew this particular explosion was likely. But the ethical case against BP is that it acted with reckless indifference towards safety standards in general, that it cut corners knowing that doing so increased the likelihood of disaster, and that it should have known that an explosion was likely, at some point, and that the chances of this explosion happening at a BP rig were significantly higher than the equivalent probability at other big oil companies.

This has important implications for the stock, of course. BP has thousands of oil rigs; the chances of one of them exploding are not much smaller today than they were a few months ago. The clean-up and other costs associated with the Deepwater Horizon are one thing, but how much will BP be forced to spend on upgrading the safety systems at all of its other rigs, now? We’ve learned our lesson, and surely all want to ensure that this kind of thing doesn’t happen again. But we’ve barely started to think about what that kind of root-and-branch revamp of BP’s physical and managerial safety systems might cost, both in terms of cash and in terms of opportunity cost. I’d be interested in what Paul O’Neill thinks — before he was Treasury secretary, he did amazing things for Alcoa’s safety record. If Tony Hayward’s successor wants to do something similar, it won’t be easy, and it won’t be cheap.


Would it be unethical for Exxon-Mobil to take over BP and put all of its substantial corporate resources behind the cleanup? Would it be ethical for indignant investors to destroy BP financially, making it impossible for them to meet their cleanup obligations?

It would be unethical for an investor to condone or encourage cost-cutting practices that compromise safety, but I see nothing evil in buying shares to sustain BP’s viability as an ongoing concern. Dragging BP down benefits nobody at this point (except for whatever vultures take over its assets in the fire sale).

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