Sunday, January 25, 2009


Two interesting takes on remorse and recognition of guilt this week.

Frost/Nixon hit the movie theatres here in Victoria (yes I realize that we are behind the times). There the central plot question (aside from whether or not David Frost would go bankrupt) was "would Nixon show remorse and contrition for what he did?" The pivotal moment of the show for the Nixon character is when he realizes that he has to choose between obfuscating his role in the Watergate break-in and cover-up or conceding that he had been involved and showing some remorse. He chooses, grudgingly, the latter route and while not being enough to save him from the trash bin of history his choice undoubtedly allowed him the modest rehabilitation he did achieve prior to his death.

The New York Times magazine this week (for Saturday, January 24, 2009) looks at the massive financial scandals we have uncovered over the last few months and asks, "where is the remorse on the part of the perpetrators?" In surveying the various villains such as Bernie Madoff and Richard Fulds the article finds little remorse and no signs of contrition. What is even more remarkable in the eyes of the NYT is that there are no signs of angry mobs with pitchforks seeking to lynch the evildoers if they do not beg forgiveness (and maybe even if they do).

There may be a number of explanations for the differences in the times. An elaborate explanation could be built around the idea that we live in a remorseless age where we are not taught contrition. Even for Catholics the Pope has to make a cry for a revival of the withering sacrament of confession and in popular culture remorse is seen as weakness, at best. However, I think there is a simpler explanation.

Richard Nixon's sins were personal and were a betrayal. When Nixon was elected, the citizenry who voted for him genuinely believed in him. They believed he had the mind and the will to take the United States out of Viet Nam and redeem the country from what many conservatives viewed as the lawlessness of the 1960's. That lawlessness was, in the general culture, viewed as being a feature of the left or the counter-culture, rather than the right and the mainstream. What Watergate began was the process of demonstrating to Americans that lawlessness has become deeply entrenched in their very government. In time the details of the J. Edgar Hoover's actions would become public, but Nixon was the leading edge of these revelations for mainstream America. Once it became clear that Nixon could act criminally in small things (like break-ins and cover-ups, the idea that he could act criminally in big things (like carpet bombing Cambodia) became more comprehensible. It suddenly revealed to Americans that their leaders could be corrupt and that the United States was not an exceptional place or nation. Nixon's personal follies thus had a profound effect on the confidence of people in their country and democracy -- but they were personal follies.

The recent financial scandals are very different -- the personal follies of the various villains that have been brought forward implicate all of us on an individual basis. Bernie Madoff is a perfect example of this. He is the perpetrator of a Ponzi scheme -- that is a scheme where new investors essentially pay the old investors the money that gives them their return. The scheme carries on until it is not possible to find enough investors to put a new layer on the bottom of the pyramid and suddenly the last layer of investors starts asking questions, starts looking for their money back and the whole pyramid collapses. What is interesting about a pyramid scheme is that the man at the top (Madoff) is not necessarily the prime beneficiary of the fraud. Every layer above the bottom layer benefits from the folly of the lower layer. Most of the lost money has not vanished into caviar for Bernie Madoff; it has vanished into returns for other investors who were happy not to ask too many questions. If Bernie has to pay it back then why don't all the other layers who got a return on the same basis? Madoff ultimately will not show real remorse because many of his victims were, in fact, his willfully blind (though perhaps unwitting) accomplies.

Richard Fulds (the erstwhile leader of Lehman Brothers) is really no different. Much of the stock market and the reasons it exists is a glorified Ponzi scheme. Everyone who has an RRSP, a 401(k) or a pension supported by a pension fund is living in a world that is built on the assumption that there is always going to be another layer to add to the pyramid to support dreams of Freedom 55 (or Freedom 60) by generating unending returns of 8%-12% year after year. We need this to make the idea that we can run a society where people live to be 80 to 90 years old but leave the workforce at 55 or 60 after entering it at 25 or 30. This model depends really on a large group of investors (aka "marks" for people like Fulds and Madoff) being around to support the huge numbers of non-workers who depend upon their daily bread coming from investment return. Until recently the new layers came from young domestic workers entering the workforce but in recent years, as the baby boom ended, we have come to depend more and more on our marks being supplied by Asia and, I think, we are really seeing the end of this dream now.

Slowly we are all waking up to see that thoughts of early retirement and long comfortable years of sailing in the Caribbean were fantasies. For the millions who are all ready retired or about to retire and were depending upon the money that Madoff and Fulds and their like were supposed to bring in from new generations of marks, this is a fearful prospect given their savings earmarked to support them through those years has largely vanished and they do not have twenty years to wait for their investments to come back again. For the younger ones the prospect of working into our late sixties and early seventies and setting our retirement goals at a somewhat more modest level is a prospect we are starting to become adjusted to. All in all I suspect this is not a bad thing -- the prospect of 20 years or more of shuffleboard gives me dread -- but it is a real adjustment in our vision of our lives.

As for Bernie and Richard they are not remorseful because they look at us as accomplices -- we wanted the return and the dream and wanted them to do what had to be done to deliver it.

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