David Einhorn's book is an interesting introduction into the birth and life of a successful fund. Greenlight Capital doesn't trade so much as it invests in a thesis and is willing to take a longer term approach, a refreshing approach similar to my day job.
Einhorn's book is really a tale about managers, money and how things are wrong in so many parts of the industry. His book is most interesting for providing looks at the symptoms of a diseased system.
Einhorn tells the tale of someone trying to do the right thing and making a buck at the same time. His agenda and motives are clear.
Einhorn digs deeps like an investigative reporter cross bred with a forensic accountant. He discovers fraud and acts on it. The response to his actions from many institutions designed to engender faith in the American financial system are deeply disconcerting.
Caveat, I have only read Einhorn's book and so make these statements with limited knowledge.
The failing institutions include:
- Wall Street Journal and many business journalists
- SBA (small business administration which throws your tax money away)
- NYSE (New York Stock Exchange, which is appears to be mostly a pimp for paper profits)
- Mr. Spitzer's term as NY attorney general (which did some good, but was also a dangerous one man ego trip)
These failures appear to be symptoms of a disease of apathy and the lowering of ethical standards at the institutions that are designed to protect the integrity and thus the growth of financial markets and our economy. The sheriffs are asleep and corruption is seeping in, even worse people don't care or believe anymore.
WIIFM (pronounced wifm) is a powerful acronym taught to me by a friend named Gina Budde. WIIFM stands for What is in it for me. This is psychology 101. No news, self interest dominates behavior of individuals and groups, it always has and always will. Rarely does someone steps outside of a WIIFM mentality to "do the right thing". As I tell friends, ethics don't count until they cost. Talk is cheap.
Unfortunately Einhorn's motivation of making money and uncovering the truth is seen to be mistrusted by the very operators who are supposed to uphold the integrity of the markets. Journalists, regulators and government officials decide it is easier to go with the flow than to do the right thing. Accuse the accuser becomes an all too frequent episode in these pages.
:WIIFM over Ethics
Independent actors behaving fraudulently to increase their own WIIFM's is nothing new. What is highlighted clearly in this book is that many institutions by failing to uphold their intended charters fail to make ethics easy. In successful economies and cultures doing the right thing and WIIFM align by design. This is the basis for a stable growing economic and cultural system, think whistle blower laws.
When institutions fail ethically and rot from inside, markets eventually become less efficient and we all lose. Einhorn's book is less interesting for the story itself. The roles of rogue, thief and sad bureaucrat have been around since Sumerian's started recording grain shipments on clay tablets. The roles are the same only the names change. I am an anthropologist first and foremost.
What is most interesting in the book is the picture of the sorry state of our "soft" cultural institutions. It is my belief that "soft" cultural assets such as trust, integrity and belief in cultural institutions and pursuit of truth are what drive long term economic stability and growth. They are leading indicators. Ethics only count when they cost, and the prevailing attitude among some of America's most important cultural, government and financial institutions appears to be WIIFM.
This scatterplot below sums up why Americans should be concerned about the symptoms highlighted in Einhorns book. Slipping institutional integrity could be a negative leading economic indicator. Click on the image to see the raw data from nationmaster.com