Ethics Newsline®

Dr. Rushworth Kidder, author of How Good People Make Tough Choices and Moral Courage, will host a symposium to discuss his next book (tentatively titled Good Kids, Tough Choices: Seven Lenses for Ethical Parenting), on September 23 in St. Louis, Missouri.

This special event will provide a forum for participants to discuss ethics and parenting issues with Dr. Kidder prior to the book’s publication. The symposium will be limited to 20 participants to ensure an intimate dialogue with Dr. Kidder.

To register or to receive more information, please email Andrea Curtis or call 800-729-2615. Further information also can be found in this PDF.

For more information, see this week’s Research Report.

by Rushworth M. Kidder

Admittedly, it’s a complex story. Last week’s plunge in the market values of Fannie Mae and Freddie Mac, the two institutions guaranteeing home mortgages in the United States, now will be used as evidence for any number of arguments. Should there be tighter regulation of the mortgage business? Were the rating agencies largely to blame? Were there too many dangerous innovations such as collateralized debt obligations? Would lobbying reforms have prevented the favored treatment granted these quasi-governmental giants? Most important, should Congress now use public funds to save Fannie and Freddie, or are these two behemoths, as London’s Financial Times opined over the weekend, nothing but “socialist turkeys coming home to roost in the U.S., home of free-market capitalism”?

Good questions, all, and worthy of expert debate. But unless we also see this debacle as a fundamentally ethical issue, we won’t extract its most useful lessons. Simply put, what brought Fannie and Freddie to their knees were millions of little gray lies. These petty fudgings misstated potential homeowners’ levels of income and overlooked un-credit-worthy histories. They happened over a decade. They occurred during conversations between potential borrowers and some mortgage lenders. They were often well meaning, sometimes noble, and invariably part of a bullish trend. And while, like lone locusts in a plague, no single lie was particularly significant, taken together they darkened the entire financial sky.

Like locusts, too, these exaggerations aren’t very complicated beasts. In fact, their simplicity made them look innocuous, for three reasons:

• They seemed morally justifiable. Home ownership, after all, long has been touted as an unmitigated good. The more homeowners, the better, especially in a rising market where a home is the largest asset for most families. To deny a family access to this investment vehicle seemed unfair, elitist, almost unpatriotic. Wasn’t there, in fact, a moral imperative for banks to engage in community lending rather than to practice old-style “redlining” of neighborhoods and denial of credit to deserving people?
• They seemed financially reasonable. What if some lenders accepted their customers’ self-reported income levels at face value without confirmation? Wasn’t that a form of trust? What if, in conversation, lenders encouraged buyers to embellish what they reported they could earn in the coming months, thereby qualifying themselves for larger loans? Wasn’t that smart financial counsel? Who could fault lenders for explaining that inflation probably would raise their clients’ incomes in the future, while mortgage payments would hold steady? And who could deny that buyers were invariably grateful to learn they could afford to borrow more than they thought?
• They seemed so inconsequential. Yes, these little lies would lead some families to slide into bankruptcy. But if most others did not, each default would be balanced by scores of well-performing loans. Wasn’t that, after all, the same model used so successfully by high-end venture capitalists and down-market credit-card vendors? Hadn’t they learned to thrive by taking risks and counting on a certain number of failures as the price of success?

In other words, the little tricks all seemed so reasonable — except that they hinged on a high tolerance for deception. Which is why, at bottom, regulation alone won’t set the mortgage market right. Unless the ethical mindset changes — unless lenders impose strict self-discipline on those in their fraternity who tolerate this pettifogging — the regulations will be either so incremental as to invite clever weaseling or so draconian as to stifle economic activity. And unless borrowers recognize that lying has real consequences, they won’t easily be regulated into higher ethical standards.

This won’t be easy. As a culture, we’ve long winked at little white lies on the grounds that they’re victimless crimes, isolated and harmless. But Fannie and Freddie may force us to rethink our winking. They remind us that when little white lies grow gray and concentrated, they turn black as a cloud of locusts, making us all victims as they devour everything in their path.

©2008 Institute for Global Ethics

Questions or comments? Write to newsline@globalethics.org.

Newsline readers offered some interesting reactions to last week’s column by Rushworth Kidder, in which he questioned whether memorization is passé — and, moreover, whether a generation trained to use the Internet to summon snippets of information will form a hierarchy of knowledge and know, in effect, what to look for when searching for an answer.

In addition, Dr. Kidder asked: “Where will they form the taste for words, the relish for deftly expressed ideas and pithy epitomes of wisdom that help shape thought? And if they find such treasures, will the insistent bleating of the email grant them enough leisure, combined with enough concentration, to memorize anything?”

One reader posits that the problem went beyond the lack of ability to memorize: “‘They’ — being anyone under 30– are certainly techno-savvy with their iPods, iPhones and iBooks; however, when it comes to thinking through a problem to a solution, ‘they’ are totally baffled. If the answer isn’t found in the first screen page of a Google search ‘they’ move on to other issues.”

Another reader claims that there is a deeper problem behind the seemingly random regurgitation of result from search engines: “Google attempts to present you with the most popular search results, not the pages most relevant to your information needs. Google is great at locating the most popular viewpoint on any subject, but to learn

alternative viewpoints, a searcher will often have to click beyond the first five pages of results, something Google’s users rarely do.”

– Compiled by Ethics Newsline® editor Carl Hausman

“It is true that what the AMA did historically was awful. There were AMA local chapters that actually had rules against black members well into the late 1960s, and policies that made blacks not feel comfortable well into the 1980s.”

– Dr. Otis Brawley, chief medical officer of the American Cancer Society, talking to the Associated Press about last week’s apology by the American Medical Association (AMA) for its decades-long discrimination against black doctors

Source: AP, July 10.

‘Deep packet inspection’ can produce some startlingly detailed information about Web habits

WASHINGTON
The U.S. Senate last week grappled with the thorny ethics issue of how to guarantee consumers’ privacy while also allowing profitable online commerce.

Still struggling to earn reliable profits from advertising, evolving online media industries recognize that their main advantage in garnering revenue is the ability to deliver highly specific audiences based on demographic information, such as which sites a surfer has visited.

But privacy advocates worry that gathering such data is an intrusive process. Even if such information is not misused now, they note, there are no guarantees for the future.

Lawmakers, for their part, have been ambivalent about whether data collection is, as a Forbes analysis put it, “a healthy business driver for the Internet or a looming privacy threat needing regulation.”

Forbes reports that this precise scenario was played out in a Senate Commerce Committee hearing last week that focused on one controversial firm, California-based NebuAd. The company partners with Internet service providers to track all of a user’s activities on the Web and delivers parts of that information to its advertising network.

The collections of data, known in the trade as deep inspection packets, allow ISPs to examine the stream of activity coming from a consumer’s Internet line — a practice that committee member Sen. Byron Dorgan (D-N.D.) likened to wiretapping, according to a report from the Washington Post.

“If my ISP said, ‘Is it OK if we give everything you do to another company?’ I’d say of course it’s not OK,” Dorgan said, according to PC Magazine. “Online advertising is important; I understand that (but) there are so many unanswered questions about (online) information and how people navigate the Web.”

Deep packet inspection can produce startlingly focused groups of consumers for targeting with individualized ads, such as consumers who visited automotive sites and perused information about a specific make of car.

Representatives of NebuAd said they are fully compliant with the law.

At the heart of the issue is whether such tracking is fully anonymous, notes PC Magazine. While such detailed histories identify the internet protocol number of a computer, but not the individual user, it is not inconceivable that related data — such as the subject of individual searches– could be used easily to link online behavior to individuals.

The San Jose Mercury News points out that when search records for 658,000 AOL users were made public in 2006, several newspapers and watchdog groups were able to identify individual users.

Sources: Washington Post, July 10 — Forbes, July 10 — PC Magazine, July 10 — San Jose Mercury News, July 10.

For more information, see: Related Newsline story, July 7 — Related Newsline story, June 30 — Related Newsline story, June 9 — Related Newsline story, June 2 — Related Newsline story, May 19.

Some measures are merely inconveniences, while others, say critics, are draconian

BEIJING
China is tightening controls in order to present a firm show of safety and order at the upcoming Olympics — with critics continuing to question the ethical propriety of some of the measures, according to various press reports. Among last week’s activities:

• The BBC reports that security measures around the capital are expected to result in inconvenience, annoyance, and even detention. In order to curb air pollution, private cars will be banned from Beijing on alternate days. A security cordon has been set up on roads surrounding the capital, and some migrant workers have been told to leave the capital altogether. Most ominous, according to the BBC report, are threats designed to keep political activists from causing trouble. One human rights advocate, Hou Wenzhuo, said she was detained without charges for 18 days as a warning to keep a low profile during the Olympics.
• With the games looming, Chinese authorities are trying to reassure the world that calm has returned to Tibet. But according to a report from the Economist, many monks remain in custody and the situation remains, in the words of one monk, “very tense.” Despite China’s promises of greater openness for coverage of the Olympics, foreign journalists still need special permission to enter Tibet, and most applications are refused, according to the report.
• New York Times correspondent Jake Hooker, stationed in Beijing, writes that the approach of the Olympics has resulted in a vise-like crackdown, including arrests, of parents who are seeking answers to why schools collapsed during the May earthquake. He notes that after a “brief period of openness,” the government has begun cracking down on those with questions. “[W]ith the Olympic Games in Beijing approaching, the issue increasingly looked like a time bomb for the authorities, and they scurried to defuse it,” Hooker writes. “The Propaganda Department banned coverage of destroyed schools in the domestic press. Paramilitary police officers blocked foreign reporters from demonstrations. Activists who tried to gather and publish information about school construction were detained.”

Sources: BBC, July 11 — Economist, July 11– New York Times, July 11.

For more information, see: Related Newsline story, July 7 — Related Newsline story, June 30 — Related Newsline story, June 23 — Related Newsline story, June 16 — Related Newsline story, June 9.

The subprime meltdown, speculation on food supplies, and investing in China’s building boom capture the attention of financial and professional publications

NEW YORK and LONDON
There were some interesting moral takes on investment news last week. Among them:

• The subprime mortgage crisis, exceeding even the most pessimistic forecasts, continued to broaden and deepen last week with news that the two U.S. quasi-governmental agencies that own or guarantee $4 trillion in mortgages — Fannie Mae and Freddy Mac — are themselves struggling. Fortune reports that while there is no immediate sign of collapse, the agencies may be damaged to the point where they could be seriously impaired, making loans even more difficult to come by and possibly shifting billions of debt onto taxpayers. The mortgage crisis remains one of the most visible ethics issues in finance because of alleged malfeasance by multiple parties, including lenders who sold mortgages that could not reasonably be expected to be repaid and by securities agencies that sliced and diced mortgage obligations into a dizzying array of investment vehicles that obscured the risk. The resulting troubles have raised questions about the so-called moral hazard invoked when the government bails out private business that made reckless investments.
• The U.K. version of the Motley Fool investment website last week raised a newly emerging ethical-investment question: Is it morally right to speculate on food. Rising food costs, sometimes called “agflaton,” have been blamed at least in part on food speculators — investors who can, depending on their strategy, make a profit when food prices go up or down. Fool columnist Padraig O’Hannelly concludes that while speculators may profit from soaring prices, which are a direct result of food shortages, speculation does not have a cause-and-effect relationship to shortages. But O’Hannelly admits it’s a complex area and invites readers to correct him if he’s wrong by posting a response on the Fool site.
• The influential, century-old publication Architectural Record last week pondered whether it is ethical for architects, builders, investors, and developers to profit from China’s building boom. According to the Record’s Dorian Davis, while the building-boom money is flooding in, there are ramifications: “In Beijing, the government has allegedly displaced more than one million people since 2001 in order to construct new buildings and infrastructure, according to the Geneva-based Center on Housing and Eviction Rights. Additionally, it has razed traditional courtyard housing complexes known as hutongs, regarded by many as historic relics that merit preservation.”

Sources: Fortune, July 10 — Architectural Record, July 10 — Motley Fool, July 3.

For more information, see: Related Newsline Commentary, July 14 — Related Newsline story, July 7 — Related Newsline Commentary, June 23 — Related Newsline story, June 9 — Related Newsline story, June 2 — Related Newsline story, May 27.

While the voluntary measure bans trinkets and restaurant meals, it is silent on consulting fees; various state laws, however, are stepping in to address issue

NEW YORK
The major trade association for the pharmaceutical industry last week announced that it is toughening its voluntary ethics code restricting industry gifts to doctors.

According to Bloomberg, the revised code bans gifts such as pens, mugs, and restaurant meals. The code, however, does not limit fees doctors collect for speaking or consulting, which can run into the thousands of dollars.

The Pharmaceutical Research and Manufacturers of America says it is asking members to tighten their policies in response to concerns that drug company marketing is affecting the way doctors prescribe medicines, reports the San Francisco Chronicle.

Critics of the announcement, such as Dr. Jerome Kassirier, a professor of medicine at Tufts and the author of a book on the relationship between drug companies and doctors, dismiss it as “a P.R. ploy. It is really a meaningless gesture,” he told the Baltimore Sun.

The ethical gray areas involving drug company payments and gifts to doctors have been the fulcrum of legal and legislative action in recent years, with several states and the District of Columbia banning all gifts outright or requiring pharmaceutical companies to disclose payments to doctors.

In Massachusetts, a pending bill, already unanimously approved in the Senate, would ban all gifts to doctors and would require drug and medical-device companies to report to the state Department of Public Health any speaking or consulting fees paid to physicians. That information also would be posted on the department’s website, according to the Boston Globe.

Sources: Baltimore Sun, July 11 — Boston Globe, July 11 — San Francisco Chronicle, July 11 — Bloomberg, July 10.

For more information, see: Related Newsline story, May 19 — Related Newsline story, Mar. 17 — Related Newsline story, Mar. 10 — Related Newsline story, Mar. 3 — Related Newsline story, Feb. 11.

Oncologists, who pay for medicines up front, sometimes find themselves in personal debt when patients can’t pay or insurance companies won’t reimburse; many wonder whether the astounding cost is worth a few extra weeks or months of life

NEW YORK
Breathtakingly expensive cancer drugs are changing the ethos of medical treatment, according to a series of press reports last week.

The Wall Street Journal describes how hyper-expensive chemotherapy agents — some of which cost more than $100,000 a year — are creating money issues that disrupt relationships with patients, cause doctors to go into debt, and threaten to interfere with treatment options.

According to the Journal, unlike most physicians who write prescriptions that are filled at a pharmacy, oncologists buy many of their medications, which are given intravenously, up front. When patients don’t pay or when insurance companies are slow to reimburse or refuse payment outright, physicians get stuck with the bill, often winding up in deep personal debt.

Even for patients with insurance, the co-pays on new cancer drugs can be well beyond the patient’s reach, forcing doctors, as Journal reporter Marilyn Chase puts it, “into new and nerve-racking territory: weighing costs alongside a drug’s potential effectiveness.”

UPI and MarketWatch report that one of these extremely expensive cancer medications, Avastin, poses a particularly vexing dilemma: It may prolong life by only a few months or weeks at a price many times higher than other treatments.

In Canada, Avastin — after months of lobbying by cancer patients who went into debt and held fundraisers so they could buy the medication — was approved for reimbursement by Ontario’s government-run health system. Provincial officials, according to the Canadian Press, have earmarked $30 million for Avastin, along with $20 million for two other pricey cancer drugs.

Sources: Wall Street Journal, July 7 — UPI, July 7 — MarketWatch, July 7 — Canadian Press, July 2.

For more information, see: Related Newsline story, July 2, 2007 — Related Newsline story, May 29, 2007 — Related Newsline story, Apr. 18, 2005 — Related Newsline story, Oct. 6, 2003 — Related Newsline story, Sep. 2, 2003.

Times of London offers computerized test for instant individual results; aggregate data will be published in the fall

LONDON
A British professor has designed a test he claims can help gauge a person’s “moral DNA,” reports the Times of London.

Roger Steare, professor of Organizational Ethics at Cass Business School, says his test is based on five years of research and classifies ethical decision making into three basic moral philosophies: principle conscience, social conscience, and rules compliance.

Steare says that while there are clear lines of cleavage among moral philosophies based on age, gender, education, and politics, there is “also a common threat that unites almost all humanity.”

The Times offers the test online, with results viewable afterwards. The Times will collect aggregate data and publish wide-scale results in the fall.

Source: Times of London, July 10.

For more information, see: Related Newsline story, May 5 — Related Newsline story, Feb. 12, 2007 — Related Newsline story, Jan. 29, 2007 — Related Newsline story, Jan. 8, 2007 — Related Newsline Commentary, June 14, 1999 — Online site for the test offered by the Times of London.

Gallup finds that half of the U.S. public perceives ’structural economic inequality in the country’

From Gallup:

“Along with their mounting concerns about national economic conditions in recent years, Americans have grown more likely to perceive structural economic inequality in the country. Nearly half of Americans, 49%, now say the nation is divided into two groups: the ‘haves’ and the ‘have-nots.’ This is up from 45% two years ago, and from 37% in June 2004.

“The perception of an unequal society has risen at an especially sharp rate among blacks and Hispanics, although non-Hispanic whites are also more likely to perceive a haves/have-nots division today than they were four years ago. Nearly three-quarters of blacks (72%) and close to half of Hispanics (49%) and whites (45%) now believe the nation is divided along have/have-not lines….

“At the same time that more Americans see an economic class divide in the country, the percentage of Americans holding a profoundly negative view of the U.S. economy has jumped sharply, from 41% in June 2004 to 55% in June 2006 to 84% in June 2008.

“Majority Still Identify Themselves as ‘Haves’

“Despite their heightened sense that America is a land of the haves and have-nots, Americans have not changed the way they categorize themselves along the same lines. Since 2004, the percentage of Americans identifying themselves as a member of the ‘haves’ in Gallup polling has registered just under 60%, while about a third have consistently considered themselves ‘have-nots.’ (An additional 8% to 12% don’t put themselves in either group.)

“There are no meaningful differences among Americans of different household income levels in their perceptions of whether the country is divided into the haves and have-nots. High-, medium-, and low-income groups are all about evenly split on the question.

“However, as expected, there is a high correlation between self-identification as a have or have-not and one’s household income. About three-quarters of high-income Americans (those making $75,000 or more annually) call themselves ‘haves,’ compared with a much smaller majority of middle-income households (those earning between $30,000 and $50,000), and only 33% of the lowest income group (those making less than $20,000)….

“Perhaps most interesting is that even at comparable income levels, middle- and upper-income blacks and Hispanics are less likely than whites to consider themselves ‘haves.’

• “Among those earning between $30,000 and $74,999 per year, 63% of whites, but only 48% of blacks and 47% of Hispanics, classify themselves as ‘haves.’
• “Similarly, among those earning $75,000 or more, fully 80% of whites, compared with 66% of blacks and 65% of Hispanics, call themselves ‘haves.’

“…Blacks and Hispanics — even those living in high-income households — lag significantly behind whites in believing they are among the nation’s ‘haves.’ Beyond financial issues, these groups may be more likely today than four years ago to perceive that certain obstacles stand in the way of members of their own racial and ethnic groups’ ability to break into the advantaged class….”

For the full press release from Gallup, July 11, click here.

“A disease known is half cured.”

– Thomas Fuller (English clergyman and author, 1608-1661)