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

by Rushworth M. Kidder

Here’s the latest from the “Letters We’d Like to See Written” department:

To: Mr. Kenneth R. Feinberg
United States Department of the Treasury
Washington, DC

Dear Mr. Feinberg:

You don’t know my name, but you’ll recognize my position. I’m one of those executives at AIG who, amid immense public outrage, received a bonus last March. At the suggestion of our chairman, Edward M. Liddy, I returned my payment to the company, as did most of my colleagues. Of my own free will? Yes. But also, I suspect, because I was receiving death threats.

That probably hasn’t happened to you in your current role as President Obama’s “compensation czar.” They never talked about this situation in my MBA program. It’s made me ask the tough moral questions: Why am I in this career? What does it all mean? Who am I?

A couple of years ago, I could answer that last question proudly: I’m an exec at AIG, the major global insurance company. I’m providing a needed service to customers. I’m part of an enormous flowering of global capitalism. And (let’s not kid ourselves) I’m getting a handsome paycheck.

Then came the public uproar after it was discovered that people in my division, Financial Products, were collecting massive bonuses for wrecking the company. You know the history. You know how we invented and sold mortgage-backed derivatives. You know how their value evaporated, how AIG had to accept a $180-billion bailout from taxpayers, and how, when it looked like taxpayer funds were paying our bonuses, the public went bananas.

Next March, as you also know, about $200 million in scheduled bonus payments will be due to our Financial Products team. That’s going to raise a tough choice for you. The lawyers agree these contracts are valid and the bonuses are legal. But Congress wants to tax them at 90 percent. You’ve got a dilemma: You don’t want to break the law by disallowing these bonuses, but you don’t want to be party to morally suspect legislation that uses the tax code to attack specific individuals.

So here’s my proposal — a kind of trilemma option, if you will. When I’m paid my next bonus, I won’t return it to AIG. I’ll accept it and then distribute it — all of it — to municipalities and nonprofits in need of funds. No law will make me do it. Instead, I’ll do it because it’s the right thing to do. Given AIG’s reputation, you may not trust me, so let me explain my reasoning.

For starters, we should have seen this collapse coming — all of us, including the leadership at AIG, Wall Street, Treasury, and Congress. But none of us did. Sure, we sensed a downturn, but we all thought it would be another straightforward economic recession. So we addressed it in the language of numbers — assessing risk, determining probabilities, and measuring markets.

There was only one problem: This wasn’t an economic recession, but an ethics recession. What collapsed wasn’t math but integrity. Over at AIG, as we bundled mortgages, we trusted the banks. We took it on faith that, in millions of conversations between loan officers and potential customers, the information was essentially honest — no lying by customers about income, no cover-ups by bankers about fine print. We thought these mortgages had been well vetted. We didn’t know they were improvised explosive devices with time-delay fuses.

I’m not saying we were innocent. We looked the other way, especially when we had doubts. We pushed our products hard, even though they were too complex to explain to our bosses. We thought we were doing what the culture wanted us to do: make money by taking risks.

And we got it wrong. But that’s also part of capitalism: When you fail, you lose money. So I’m prepared to give up the bonus money — but not to give it back.

The reason? I want AIG to succeed. I don’t mean to sound arrogant, but as the company winds down its exposure on these new products, it needs my AIG-specific knowledge and experience, so it needs to continue compensating me well. But the real key to AIG’s success doesn’t lie in the numbers. It lies in turning around its shockingly unethical public image. Unless that changes, none of us, no matter how well paid, can save AIG.

How to start that turnaround? Why not right where we live? I have in mind not my own home town (we’re plenty upscale) but a much grittier place three towns away, where education, police, and charities serving the elderly have taken enormous hits. That’s where I’ll make my contributions.

Will my name be attached to the gifts? Yes, but only in connection with AIG. The IRS will see the money coming from me, but the public will see it coming from an AIG executive.

Will my colleagues join me? I hope so: The $200 million in AIG bonuses being projected for next March could make a real dent in some of America’s poorer communities.

But wouldn’t it be simpler just to give my bonus back to AIG? Sure. But that would only help heal the economic recession. We need to heal the ethics recession. We need the country to realize that real individuals, not just faceless corporations or government agencies, are responding to real needs with real philanthropy.

And face it: I need to heal my doubts about my own integrity — the gnawing fear that I really don’t have much of a moral compass left, that ethics has somehow passed me by. Because that’s something else they never talked about in my MBA program: the crucial role of ethics in capitalism, and the need for all of us to give back.

I know I’m awfully late in asking, but can you let me play an active role in making the world a better place?

Sincerely…

©2009 Institute for Global Ethics

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

“I am from Liberia, sir; I was in Liberia throughout the 15 years of civil war, and I have experienced too much senseless violence in my lifetime, especially connected to diamonds. This has to be acknowledged and it has to stop.”

– Excerpt from a confidential memo by A. Kpandel Fayia, the leader of a team assessing Zimbabwe’s adherence to international standards meant to divorce the diamond industry from funding violence and warfare. Fayia’s memo says his team has found that Zimbabwe’s military has been “directly involved in illegal mining and that the authorities had carried out ‘horrific violence against civilians,’” reports the New York Times.

Source: New York Times, July 8.

For more information, see: Related Newsline story, Nov. 19, 2007 — Related Newsline story, July 23, 2007 — Related Newsline story, Dec. 11, 2006 — Related Newsline story, June 28, 2004 — Related Newsline story, Nov. 12, 2002.

Mortgage fraud soars as desperate homeowners and lenders try to maintain the standard of living enjoyed in boom times, says FBI; USA Today probe looks at ethics of overdraft loans; Bernard Madoff won’t appeal, making it a virtual certainly he will die in prison

NEW YORK and WASHINGTON
Financial-sector ethics were key to several top developments last week. Among them:

• Mortgage fraud has skyrocketed as desperate homeowners and industry professionals try to maintain the trappings of boom years, according to a report from the Reuters news agency. The triple whammy of the housing bust, the stock market implosion, and the credit crunch contributed to what an FBI report called “a rampant mortgage fraud climate fraught with opportunistic participants desperate to maintain or increase their current standard of living.” In total, mortgage fraud reports rose 36 percent last year, compared to the year before. Common frauds include falsifying sales data, phony reverse-mortgage schemes, bogus bankruptcy filings, and even arson to collect insurance money.
• A USA Today investigation claims that even as regulators crack down on abusive mortgage and credit card lending, there is another practice that can mire borrowers in a credit trap: “courtesy overdrafts.” While the practice of covering checks that were drawn on insufficient funds began as a courtesy, it has become a major revenue source — driven by stiff fees — that USA Today claims takes advantage of the most vulnerable customers. “Overdraft fees are the mother lode of (deposit) fees,” Michael Moebs of Moebs Services, an economic research firm, told USA Today. “If it weren’t for overdraft fees, 45% of banks and credit unions wouldn’t have made money in 2008.”
• Jailed swindler Bernard Madoff will not appeal his 150-year prison term, Bloomberg reports. The 71-year-old Madoff, who once was regarded as a lion of Wall Street, was sentenced for masterminding what appeared to be the largest Ponzi scheme in U.S. history. Bloomberg notes that it is likely Madoff will die in prison, because while federal guidelines allow for so-called compassionate releases of inmates who are nearing death, such actions are rare and must involve “extraordinary or compelling circumstances” that could not have been foreseen at the time of sentencing.

Sources: Reuters, July 9 — Bloomberg, July 9 — USA Today, July 9.

For more information, see: Related Newsline story, June 29 — Related Newsline story, June 22 — Related Newsline story, May 11 — Related Newsline story, Mar. 30 — Related Newsline story, Mar. 16.

New allegations of concealing intelligence activities; an unexpected development in the events surrounding Nevada Sen. John Ensign; former top aide to Rod Blagojevich appears poised to become prosecution witness; new ethics complaint is filed against Sarah Palin even as she prepares to step down

VARIOUS DATELINES
Ethical issues were highlighted in last week’s political news. Among the top stories:

• The House Intelligence Committee is gathering information for a possible probe of the CIA after a report claimed that former vice president Dick Cheney ordered the agency to withhold information about a secret project from Congress, reports ABC News. The New York Times claims that Cheney concealed the still-secret project for eight years. The story is the latest development in an ongoing legal and ethical debate over the obligation of the executive branch to inform the legislative wing of intelligence activities, reports the Times, noting that the relevant legal language does give some wiggle room to the executive branch in providing a certain amount of secrecy from Congress in order to protect secret operations.
• A new wrinkle has developed in the ethics scandal surrounding Nevada senator John Ensign, who has admitted having an affair with a campaign staffer. MSNBC reports that an attorney for Ensign admitted that the senator’s parents paid the family of campaign staffer Cindy Hampton a total of $96,000. The lawyer’s statement says the payments were made as gifts, complied with all tax rules governing gifts, and came “after the Senator told his parents about the affair.” Ensign’s parents, according to the legal statement reprinted by MSNBC, “decided to make the gifts out of concern for the well-being of long-time family friends during a difficult time. The gifts are consistent with a pattern of generosity by the Ensign family to the Hamptons and others.”
• A top aide to former Illinois Gov. Rod Blagojevich became the first insider to agree to testify for the government, the Chicago Tribune reports. John Harris, a former chief of staff to the disgraced governor, entered a guilty plea in the corruption case against Blagojevich and is expected to offer testimony on one of the most lurid charges in the corruption case: that Blagojevich tried to auction off the senate seat held by Barack Obama.
• Alaska Gov. Sarah Palin still may face ethics actions against her even after she steps down from office, reports CNN. Several days after her surprise resignation announcement, a new ethics complaint was filed with state authorities claiming that Palin should not be entitled to per diem expenses when she stays at her home in Wasilla, Alaska, rather than in Anchorage or Juneau, the sites of her offices. Palin cited the slew of ethics complaints against her as one factor in her unexpected resignation.

Sources: New York Times, July 12 — ABC, July 11 — MSNBC, July 9 — Chicago Tribune, July 9 — CNN, July 9.

For more information, see: Related Newsline story, July 6 — Related Newsline story, June 8 — Related Newsline story, June 1 — Related Newsline story, Apr. 20 — Related Newsline story, Apr. 6.

Korea grapples with end-of-life issues; Australia ponders whether to pay women for egg donations; transplant doctors wonder whether to tell organ donors and recipients who believe they are related that in fact they are not

VARIOUS DATELINES
The moral aspects of several vexing medical issues were highlighted in last week’s international news. Among the coverage:

• Korean doctors, religious leaders, and families of terminally ill patients are debating “death with dignity” after Seoul National University Hospital published new guidelines for stopping “meaningless treatment” of dying patients that merely extends a painful life. The Seoul-based Korea Times says the dispute centers on whether withholding treatment is in fact a form of euthanasia, as some religious leaders maintain.
• In Australia, there’s an ethics controversy over whether women should be paid for donating their eggs to medical research. The Australian Broadcasting Corporation reports that some researchers are advocating payment, saying that the eggs are necessary for stem cell research that could lead to cures for a variety of diseases. University of Melbourne professor Loan Skene says payment is essential because the process of donating eggs is invasive and time consuming. “If there was suddenly a big breakthrough in embryonic stem cell research, which is clearly going to benefit hundreds of thousands of people, and eggs are needed to do that type of research — and eggs are not being donated because women are not prepared to do it without being paid for it — then isn’t there a large ethical argument to help all those sick people?” she asked. But critics interviewed by the Australian Broadcasting Corporation counter that paying for donated eggs opens the door to wholesale commercialization of the tissue and transplant process.
• Transplant physicians are encountering an evolving — and wrenching — ethical problem: telling prospective organ donors that they are not biologically related to their intended recipient, even though they believe they are. American Medical News, a publication of the American Medical Association, reports that “wrongly attributed paternity” is discovered during compatibility checks in 1 to 3 percent of all living kidney donations, according to recent studies. But should physicians inform donors that the intended recipient is not, for example, their real father? Fifty-seven percent of transplant physicians said no. Of potential recipients surveyed, 60 percent said yes. Those opposed to disclosure argued that the information should not be shared because it was not specifically sought and the knowledge is not necessarily medically relevant and, for obvious reasons, could be disruptive to the family. Those in favor of disclosure contend that people by and large have a right to their own medical information. Professional associations dealing with transplant surgery are working to formulate uniform ethics codes dealing with the problem, according to the article.
• About 2 percent of scientists who responded to a survey about academic fraud admitted they made up, falsified, or distorted data at least one time in their career. Cedar Rapids, Iowa, television station KCRG reports that the survey, conducted by a researcher from Scotland, showed about 34 percent of respondents admitting that they withheld data that contradicted their previous research or dropped data from analyses simply because they had a “gut feeling it was wrong.”

Sources: Korea Times, July 9 — New York Post, July 9 — San Francisco Chronicle, July 9 — KCRG, Cedar Rapids, Iowa, July 9 — American Medical News, July 9 — Australian Broadcasting Corporation, July 7.

For more information, see: Related Newsline story, July 7 — Related Newsline story, Apr. 13 — Related Newsline story, Apr. 7 — Related Newsline story, Mar. 16 — Related Newsline story, Feb. 9 — Research fraud study, PloS ONE, May 29.

Washington Post says it will examine safeguards to avoid repeat of recent fiasco; food blogging at center of L.A. ethics controversy; New Jersey judge rules that bloggers don’t automatically enjoy same legal protections as mainstream journalists

VARIOUS DATELINES
Questions involving mainstream media and bloggers raised issues and eyebrows last week. Among them:

• The Washington Post, stung by a scandal in which it was revealed that a planned series of pay-per-event “salons” were to have brought together lobbyists and Post journalists, initiated what it called “internal reviews to ensure that its business practices do not compromise its journalistic ethics when the newspaper organizes conferences or private events funded by sponsors.” While noting that other prominent news organizations host events that feature reporters on roundtables, the Post concedes that most of those events are open to the public and journalists are free to report what was discussed. The Post salons were promoted as “off the record.” The Post’s publisher admitted that the salons were a mistake but said that the events had been prematurely promoted by a new employee who distributed a flyer without authorization.
• Remarks by a blogger on a food site has triggered an ethics controversy that percolated up to the mainstream media. The Los Angeles Times reports that an item on a site titled “Eater LA” consisted of an anonymous tip claiming that a prominent local wine bar, The Must, violated health codes and substituted inferior items that were not the same as the ones listed on their menu. The blog at first declined to remove the post when contacted by the restaurant, but eventually relented and apologized. The Times notes: “To an outsider it may seem a minor brouhaha, but the online dust-up between the Must and Eater LA highlights the larger ethical quandaries that blogs face. Nowhere is this clearer or more intense than in the restaurant business, which (aside from chain eateries) is driven far more by word of mouth than by ad dollars.”
• A New Jersey court ruled last week that a blogger could be sued for libel and was not protected by shield laws that protect news reporters. Superior Court judge Louis Locascio concluded that the defendant, blogger Shellee Hale, was not a journalist but “a private person with unexplained motives for her postings” and cannot be afforded the same protection as a reporter who compiles information through standard news gathering, the Newark Star-Ledger reports. In a 19-page opinion, Locascio wrote: “Courts are now being faced with the task of evaluating a virtually limitless number of people who claim to be ‘reporting’ on issues, but who are, many times, doing little more than shouting from atop a digital soapbox…. When New Jersey’s Legislature enacted the shield law, it could not have anticipated the instantaneity with which people can now transmit information.” While existing law is fairly clear that bloggers can be sued for libel, notes the Star-Ledger, the current case clarifies — to an extent — the assumption that bloggers do not have the right to keep their sources secret. The incident involves a business that claims Hale wrote defamatory remarks on her blog, and demanded that Hale reveal her sources for the allegations.

Sources: Washington Post, July 9 — Los Angeles Times, July 7 — Newark Star-Ledger, July 7.

For more information, see: Related Newsline story, July 6 — Related Newsline story, July 6 — Related Newsline story, Jun 29 — Related Newsline story, June 22 — Related Newsline story, June 8.

But legal analyst says case is probably far from over

DENVER
A controversial professor who characterized victims of the 9/11 terrorist attacks as “little Eichmanns” lost his bid to be reinstated to his job last week, although there are reports indicating the case is far from over.

Last week’s ruling means that Ward Churchill cannot return to his University of Colorado classroom even though he won an April lawsuit charging that his firing was racially motivated, the Associated Press reports.

Churchill fanned an academic and ethical firestorm after he wrote a 2001 essay with the Eichmanns reference, an implication that workers in the World Trade Center were akin to the architect of the Holocaust, who claimed he was only in charge of mechanics and transportation.

University of Colorado officials were pressured to fire Churchill, but did not, citing academic freedom. Instead, officials pressed allegations of research misconduct against Churchill, and succeeded in removing him from his tenured post.

Churchill sued and won a civil verdict affirming that the firing violated his First Amendment rights.

But last week, reports the Chronicle of Higher Education, another judge vacated that decision and ruled there was no reason Churchill must be reinstated.

In his ruling, judge Larry Naves ruled that the University of Colorado’s board of regents had the proper authority to investigate and fire Churchill and had acted properly, reports trade journal Inside Higher Ed.

An analysis by Churchill’s attorney, published in the Denver Post, concludes that Naves’s verdict leaves a door ajar for an appeal because it is based on a complex legal doctrine known as “quasi-judicial immunity,” meaning that the board of regents set up appropriate panels that served a judicial function and therefore the board itself cannot be sued.

The doctrine, says the Post piece, pits liability law against free-speech entitlements — a treacherous legal intersection that is likely to produce several more collisions before the case is settled, possibly by the U.S. Supreme Court.

Sources: Chronicle of Higher Education, July 8 — Inside Higher Ed, July 8 — AP, July 8 — Denver Post, July 7.

For more information, see: Related Newsline story, Apr. 6 — Related Newsline story, May 5, 2008 — Related Newsline story, Aug. 7, 2006 — Related Newsline story, Mar 14, 2005.

But new poll indicates that pope’s plan is a tough sell with the public

ROME
Pope Benedict XVI last week called for a “profoundly new way” of organizing global finance that includes an ethical dimension to capitalism.

The U.K. Guardian reports that the pope’s encyclical, titled “Charity in Truth,” urges the financial sector to “rediscover the genuinely ethical foundation of their activity” and advocates increased oversight of the world economy by the United Nations.

Pope Benedict’s encyclical, timed to coincide with the G8 economic summit, unequivocally blamed greed for the worldwide financial process.

“Profit,” he wrote, “is useful as a means to an end” but becomes dangerous when pursued as an exclusive goal, according to a summary in the Calgary Herald.

An analysis by the Toronto Globe & Mail notes that the pope attacks outsourcing and hedge funds in the document: “What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit.”

A late-week poll from Rasmussen warns that the pope faces a skeptical public. “Just 17% of Americans agree with Pope Benedict XVI’s call for more international regulation of the U.S. economy, as part of a new papal encyclical urging world leaders to steer the world economy in a more moral direction,” notes the polling group. In addition, “59% of American adults believe international organizations like the United Nations should have less influence on U.S. economic policy, not more.”

Sources: Press Association, July 12 — Calgary Herald, July 12 — Globe & Mail, July 9 — Guardian, July 7 — Guardian, July 7.

For more information, see: Related Newsline Research Report, July 13 — Related Newsline story, July 6 — Related Newsline story, Apr. 6 — Related Newsline story, Mar. 23 — Related Newsline story, Dec. 15, 2008.

Only 17 percent of the U.S. public agrees with pope’s push for more international regulation of the U.S. economy as part of moral directive, reports Rasmussen

From Rasmussen Reports:

“Just 17% of Americans agree with Pope Benedict XVI’s call for more international regulation of the U.S. economy, as part of a new papal encyclical urging world leaders to steer the world economy in a more moral direction.

“A new Rasmussen Reports national telephone survey finds that 59% of American adults believe international organizations like the United Nations should have less influence on U.S. economic policy, not more. Twenty-four percent (24%) are not sure.

“Investors are even more adamant: 67% favor less international regulation of the American economy….

“The pope released the encyclical on Tuesday in advance of his meeting later in the week with President Obama, but only 25% of Americans believe it is possible to regulate the world economy to steer it in the direction of morality and a pursuit of the common good.

“Forty-seven percent (47%) say it is not possible to regulate the world economy to achieve these goals….

“Most Americans (51%) continue to believe that decisions made by U.S. business leaders to help their own businesses grow will do more to help the U.S. economy than decisions made by world leaders to grow the global economy….”

For the full press release from Rasmussen, July 9, click here.

“The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding.”

– Louis D. Brandeis (U.S. Supreme Court justice, 1856-1941)