Voter, Blame (Or Pat) Thyself

Cynicism pays.  Mitt Romney doesn't seem to be hurting from switching positions in the blink of an eye to whatever his audience of the moment wants to hear.  All his "then and now" video excerpts  played by Jon Stewart in the Daily Show and by other media haven't stopped his upward momentum in popularity.  With two weeks to go before elections he's pulled even with (or even slightly surpassed) Obama in national polls.  Pundits on average have Romney's chances of winning the election improving from less than one in four a month ago to almost even now (though NerdWallet still has him only at 29% today.)

And then we have India where corruption, the role of money in politics, inefficiency and populism has severely affected economic growth. Prime Minister Manmohan Singh with a clean image is called an underachiever by Time in its July 16 issue for failing to check corruption around him, and to stick his neck out for reforms.  With a few notable exceptions it looks like elected leaders of whatever party or political platform are on the take.

Looking at India and the US as examples, are the virtues of democracy as great as they're cracked up to be?

"Even the worst democracy is better than the best of dictatorship." Thus said then Prime Minister Yousuf Gilani of Pakistan in Feb. 2010 and I've heard this sagely intoned in our polite circles in India for decades. 

Really? Will average Chinese citizens trade places with their Indian counterparts, including the growth rates over the past quarter century that have made the Chinese thrice as rich?  A June 21, 2011 article in Business Insider lists the most economically successful dictators of the past century, and generally left their people a lot better off than before.  England's golden age was in the 16th century when Queen Elizabeth I reigned (1558-1603) wielding absolute power, seeding the idea of benevolent despotism. 

Still, the odds favor democracies.

Corruption and misuse of power can flourish in any political system, but democratic checks and balances like a free press and independent judiciary can better restrict the most egregious behavior.  An Oct. 26, 2012, NY Times story describes $2.7 billion of wealth amassed by the once humble family of Chinese Prime Minister Wen Jiabao.  Compare this to Robert Vadra, Sonia Gandhi's son-in-law and Priyanka's husband whose wealth grew in 3 years from $100,000 to "just" $60 million.  And consider that Robert Vadra's alleged misdeeds are being widely reported and criticized by Indian media, while a tight lid is kept in China on any adverse news about its leaders.

Democracy has another thing going for it - people choose their leaders and hence are responsible for their own plight.  Chance still plays a role, of course.  Two prime ministers, Narasimha Rao who started economic reforms and his successor from the opposing party A.B. Vajpayee, were better than expected, and India thrived.  Mr. Manmohan Singh isn't terrible but he fell short of his high promise.  In US recent history Presidents Bill Clinton and George W. Bush probably represent the opposite ends of the performance spectrum.  

Still, in past presidencies and the coming general elections of Nov. 6, US citizens decide on their leaders, for better or for worse.  There's no one else to blame or congratulate for that choice, whether it's made with eyes wide open, or out of ignorance.  Does there have to be a lot of the latter for the Republicans to win?  After all Republican stances on important issues like taxes, health care coverage and the social safety net are less favorable to the middle class (and the poor of course) than Democratic ones.  In the NY Times on Oct. 24 Nicholas Kristof describes how Obama's economic policies trump Romney's.  Instead of USA's steady if modest recovery under Obama, Europe style austerity measures favored by Romney and Republicans would have led to Europe style economic crisis.  Yet Republicans can only clinch elections with substantial middle class backing.

Election propaganda and voter ignorance of course play a role, but more complex factors may matter more.  Man does not live on bread alone, and factors beyond material and physical benefits may turn the scales to explain why many in the middle class identify with Republicans. 

Are Romney supporters oblivious of his duplicity, especially the 95% who lose out in Republican intent to "broaden the tax base" while lowering taxes for the richest? Some are, though many more may simply overlook it because his party's platform is closer to their disposition on social values, religious zeal, immigration and racial issues, etc. 

In a few days we'll know who and what wins out.  And with the US being a great democracy our voters will get to live with their choices.

Aftermath Of Two More Shootings

In my last post I mentioned the July 27 mass shooting in an Aurora, CO movie theater as the latest example of the toll taken by lax US gun laws.  Since then there have been two more shootings that grabbed headlines with thankfully decreasing number of casualties.  Amidst these tragedies I'll talk for a change about some positive aspects, including those that touched us personally.

The Aug. 5 shooting by a white supremacist that claimed 6 Sikh lives in their Milwaukee temple also brought out the good and noble aspects of life and social values in America.  Over 40 people are murdered on average in the US every day, yet the media gave this wide, sympathetic and extended coverage because the crime targeted a specific minority community.   Politicians and leaders of all stripes including Republican VP candidate Paul Ryan and First Lady Michele Obama made it a point to personally visit and console the afflicted community.  President Obama even ordered flags to be flown at half mast to mourn the victims.

Despite some obvious and recurrent cracks in ethnic and religious harmony in India I've been proud of the general secular traditions and systems in the country of my birth.  After coming to the US I've seen that the overall acceptance, tolerance and politeness towards minorities here is of an even higher order.  Some of my Indian friends and relatives perceive racism and profiling that I mentioned on Aug. 10, 2009, a little of which is inevitable since everyone can't be perfect.  Still, it's probably less in the US than anywhere else in the world, and largely offset by sustained outreach to minorities.

After the Sikh temple shootings I got emails of concern and support from half a dozen friends in the US and Canada who know I'm from this community though my wife is Hindu.  While all these friends happened to be Asian (a Chinese and the rest Hindus, one of whom is married to a remarkable Muslim woman) I believe their decades of living here have infused them with additional sensitivity.  Most asked if our family was okay and hoped that we hadn't lost anyone close to us.  Logically speaking they shouldn't have worried.  I know about a couple of hundred Sikhs in the US among the estimated 200,000 to 500,000 living here so the chance of my knowing any of the victims is 1 in 200.  Still, it's their thoughts and sentiments that count.

The other and latest shooting on Aug. 24 outside the Empire State Building involved a single murder followed by police firing in which the gunman was killed and nine bystanders injured.  It was big news mainly because it took place near a national landmark in broad daylight in Manhattan. 

Our daughter Rubina works about a mile away at the Wall Street Journal and has recently taken up a new assignment dealing with social media.  Last Friday she too was sucked into the rapid fact gathering and dissemination as the news broke.  She was also interviewed on camera for the first time to give an insider's perspective of how information is gathered, verified and shared using the new tools of social media.  In a fast paced day she had an hour to prepare before her debut appearance.  She can be seen in this 5 minute clip, and did a good job. 
 

Arming And Coddling Our Criminals

Democrats and Republicans both provide comfort and help to our violent offenders. 

The Democrats (actually the Liberals who closely identify with them) have made jail terms shorter and more pleasant for felons.  They've had the death penalty abolished in 17 states and Washington, D.C., and cheered its erosion in the remaining 33.  The 12 killed and 58 injured by James Holmes in a Colorado movie theater have created headlines and the guilt or deliberate intent of the shooter is never in doubt.  Yet an insanity defense is almost certain and it will be many years if ever before this guy gets the ultimate punishment.  Something he would have dodged with certainty if he had chosen the "right" state - one of those 17 merciful ones - to stage his crimes.

Still, violent criminals everywhere should be heartened by the overall statistics.  There are about 14,000 murders committed in the US every year, and only about 43 of the guilty are eventually executed.  So the odds are very good that killers even if they're caught will spend their lives in prisons with decent food, stay, entertainment and health benefits, thanks to liberals' efforts and court directives by progressive judges.  Not to mention the opportunity to bask in media publicity and star in shows like "Lockup Raw."

About two thirds of our murders are committed with use of firearms.  And this is where the NRA backed Republicans are key to ensuring that our criminals are well supplied.  Some precautions like background checks are rendered meaningless when you can avoid them in gun shows.  But as remarkable is letting assault weapons like AK 47s or hand guns with high round magazines be owned for self-protection under the 2nd Amendment.  There have been ample studies like this one of Feb. 2010 in News Medical about how guns in homes do far more harm than good to the owners themselves, leave alone other victims.  Mere facts can't compete of course with the NRA's "Founding Fathers" rhetoric. If it was valid 200 years ago (when slavery and subservience of women was also the norm) many Americans think that alone is a good enough reason to continue such practices. 

There were several media laments about how Obama uttered platitudes but did nothing substantial after the Colorado massacre to force gun control.  But this close to elections I don't blame him.  A large chunk of independents or undecideds can be turned off by such a measure, and those who favor it may be upset, but they'll never switch to Romney.  And conversely, the same may hold though to a much smaller extent for Romney to stick to the NRA playbook. 

After the elections there should be a serious overhaul.  In September 2009 I suggested key changes to our criminal justice system, though these may shock Liberals as well as those on the hard right.  An articulate and astute President supported by some key Congressional leaders with similar qualities from both parties could make this happen.  They can win broad acceptance and acclaim from the "non-fringe" populace, and find alternative sources of campaign funding and support to replace some they'll lose from their extreme base.  See how many of these proposed changes you agree with.

On Rajat After The Verdict

A month ago on June 15 a jury found Rajat Gupta guilty of insider trading.  He faces sentencing with substantial jail time in October, although he will appeal and his lawyer said "This is only Round 1."  His best case scenario is overturning of the verdict on appeal, followed by retrial with a more favorable outcome - a harrowing process that will last years.

Headlines like the one in WSJ said "Insider Case Lands Big Catch" but this is misleading. It implies snaring someone who played a huge part in, or was at the root of insider trading.  Instead, Rajat's "bigness" lies in his fame and prominence in contributions to business and philanthropy, or the respect and esteem he was held in prior to being charged in this insider case. Any wrongful gains as a result of his alleged insider tip-offs adding up to a few million dollars to his friends (none to him personally) are dwarfed by his positive contributions to society, business and philanthropy.  Those could easily run into tens of billions of dollars, if quantifiable in monetary terms, quite apart from the way he profoundly touched people in personal contact with him.

Assuming he's guilty as charged (a jury's findings don't necessarily make it so) what caused him to act that way?  Even the prosecution said it wasn't for greed or "quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships." The Financial Times on June 19 and the WSJ on June 18 offer insights on how the Indian culture and way of helping friends could have affected Rajat's perceptions about passing on inside information.  While it is illegal just like in the US, "insider trading is widespread in India, and often not considered a serious crime."

Anant Rangaswami in his June 16 article "Rajat is no criminal, he's just an Indian" in FirstPost says, "... in India, many of us are bemused by the accusations and the conviction. A man goes to jail because he shared information with a friend? By that yardstick, half of India would be in jail.  Knowing people in power and to benefit from the knowledge and contacts that they possess is the ladder to success that Indians have recognised centuries ago.  It’s an ethos and a culture – and it’s deep-rooted...That’s the first step to insider information, to an unfair advantage.  But that’s what India is all about – having the contacts and taking advantage of the contacts to give one an edge...The moment everybody does it, we forget that, in the first place, what is being done IS wrong. And when everybody does it for decades and centuries, it’s so much a part of us, part of the way we behave and interact." 

But the US is very different with very tough laws against leaking of and trading on non-public information, right?  Well, no. It just depends on who is doing the leaking and the trading, and on the type of information.  Rampant legalized corruption existed right through till April 4, 2012 when under media glare and public pressure the Stop Trading On Congressional Knowledge (STOCK) Act was finally passed.  Till then Congressional leaders and their staffers could freely trade on stocks even if they knew these would be drastically affected by their pending or forthcoming legislation that wasn't public knowledge.  And even this law has deliberate loopholes that would let a truck through.

For instance, Ron DeLegge in ETFguide on April 12 writes: "When a hedge fund or an influence peddling individual wants inside information, they can still buy it – by paying members of Congress or other high level officials for something called "political intelligence." This rogue but still legal practice of gathering information from lawmakers and Hill aides is regularly used by Wall Street to steer money into profitable investments. It's nothing more than legalized cheating, because he with the most money and political influence wins.  CASE STUDY: Former US Treasury Secretary, Henry Paulson sold political intelligence when he tipped off hedge funds about Fannie Mae's rescue in 2008 while he was serving as the U.S. Treasury Secretary. Paulson's hedge funds pals made billions in illicit profits. That type of unethical conduct is still legal under the "new and improved" STOCK Act. ... Here's another gaping omission: The STOCK Act still allows elected officials to own stock in industries they can affect with their political power." 

On the non-government side another Paulson, hedge fund manager John ("JP") Paulson, packaged the worst mortgage backed securities he could find into the "Abacus" fund and bet heavily against them.  He then colluded with Goldman Sachs to dupe its own clients into buying these funds, causing them heavy losses.  "JP" as the counter party made $1 billion from this and got clean away with it. And a July 15, '12 NYT story describes how hedge funds and big investors widely use as yet non-public analyst inputs to gain improper trading advantages.

In sum the ethos in India as well as in US financial circles may have shaped the actions of an otherwise upright Rajat whose goodness and modesty I saw and mentioned in my March 29, '11 post.  He may not have considered it that big a deal to share scraps of yet-to-be-public information with a friend, especially if he was not personally benefiting from this.  Of course he must now be regretting if he did it, and is paying a terrible price.

Interestingly, my May 12, '12 post analogy about even Mother Teresa being prosecuted in our justice system if she committed a robbery was repeated almost verbatim by Judge Rakoff in court 5 days later.  He may have seen my post, or simply thought of the same analogy.  Either way he also hopefully considers a person's history of good deeds and overall conduct, though irrelevant in the charging and jury trial stage, to be a key factor when it comes to sentencing. 

Rajat is almost the diametric opposite of a face for financial greed and misdeed.   Unsavory Wall Street titans often give a portion of their ill-gotten wealth to charity or philanthropy to burnish their image, salve their conscience or feed their egos while lavishing the rest of it on themselves.  Rajat in contrast has used his talents and energies for doing good that outweighs the value of alleged illegal favors to friends by a thousandfold.  As for any personal gains he made none and ironically was instead stiffed out of $10 million by Rajaratnam who quietly withdrew his own investment from his ailing Voyager fund without informing Rajat. 

Some of the more sympathetic media coverage has highlighted Rajat's contributions and philanthropy in the abstract sense.  Yet just as much it's the personal goodwill and concern for those around him that has rallied friends to his side, including the 300 plus who signed an open letter at a website set up to support him.  I've interacted with him just about a dozen times, and yet he made a profound impression.  To see why, consider for example my first meeting with him and his ever warm and kindly wife Anita. (They may not even recall any of this as I understand that this was quite typical of their behavior.)

It was early 1991 and my family had just joined me from Shimla, India a few months after I joined my Ph.D. program at the University of Chicago.  The saintly Mr. P.K. Mattoo, retired Chief Secretary of Himachal state and my ex-boss whom I loved and respected had sent a little gift packet through my wife Anita to be given to his niece Anita Gupta.  All we knew through Mr. Mattoo was that his niece had married a fellow IIT student named Rajat "who after completing his MBA in the US had settled into a nice job in Chicago."

 I called Anita Gupta and learned they lived in the northern suburb of Winnetka on the opposite side of Chicago from our Hyde Park campus.  We combined dropping off their packet with a Sunday evening drive to pick up Indian groceries and dine in Chicago's Indian sector of Devon Street that was much closer to their home.  Keen to spare them any hassles (as we were strangers merely carrying an uncle's gift) I said to Anita Gupta, "We'll just have eaten so no food or drinks for us. We'll hand over the package, say hi and be on our way home. We'll be a little late - will about 8 to 8:30pm be okay?"

"Agreed, and that's perfectly fine," Anita Gupta assured.

We were late reaching Devon driving in traffic on unfamiliar roads (this was before the GPS and cell phone era) and further bogged down in shopping amid the crowds.  I reached Anita Gupta from a pay phone and asked if arriving as late as 9:30pm was okay as we'd been held up.  She again said it wasn't any problem.  "Remember, no food or drink for us," I reminded, "and we won't stop at this unearthly hour." "Okay, Baba," she said, "but just come in for a minute."

Using maps and directions we actually reached the Gupta home after 9:45pm.  The large estates and stately homes in the area set it apart from our typical neighborhoods.  Anita and Rajat with their three daughters behind them (their fourth was just a few months old) welcomed us at the door of  their mansion-like home.  After handing Mr. Mattoo's packet at that late hour on a Sunday we were ready to leave but Anita and Rajat urged us to come inside.

We were surprised when they led us to a large dining table set with four placements and a nice dinner.  They had guessed (correctly, despite my fibs on phone) that we may not have eaten properly at Devon.  "We've kept a little food for you," said Rajat softly, sounding almost apologetic for having ignored my request not to serve us anything.

Our kids had had a long day and our older daughter Sheena wanted to lie down right away.  Anita Gupta made soothing noises and their eldest daughter Geetanjali cheerfully led the way to her room where Sheena hit the bed and promptly fell asleep.

Then Anita Gupta and Rajat who had already eaten sat with us at the dining table as Rubina, Anita and I tucked into the food.  By the time we were done, both the Anitas were chatting like good friends as they cleared the table and put the dishes away.  The Gupta daughters were remarkably sweet and unspoilt considering their family's obvious wealth.  After dinner the elder three took Rubina away for play and kept her happily occupied.

Rajat and I went to the living room to be joined later by the two Anitas.  Rajat was as good a listener as he was gracious and time passed quickly.  I looked around and solemnly proclaimed that his company must be paying him really well to have a home like this.  The Guptas laughed and Rajat explained what he did.  That's the first time I had heard of McKinsey and it sparked my interest in management consulting.  He didn't let on about his stature at McKinsey.  Nor (so as not to rush us and I only learned of this by chance) that he had to leave for work at 6:15am the next morning.

When we finally collected our kids to leave the Guptas came out to see us off.  They weren't at all fazed at the sight of our battered old Honda Accord hatchback sitting incongruously in their driveway, and Rajat opened its door to help me settle the children in the rear seat. They solicitously gave us directions to I-94S for the drive home and we were on our way.  It was past 11pm.

 

More On Rajat Before The Trial

To me, ideal justice should reward or punish a person in proportion to the net of all the good and bad deeds done over a lifetime.  In this "Judgement Day" sense society is enormously indebted to Rajat Gupta about whom I last wrote in March 2011.  The world is a better place because of his work at McKinsey and after, including with the Gates Foundation, the American India Foundation, and in his helping set up ISB, the best business school in India.  And this is in addition to his grace, generosity and goodwill towards those who came into personal contact with him.

Rajat allegedly leaked board meeting information that led to insider trading gains of up to a few million dollars cumulatively to his friend Rajaratnam, though none to Rajat personally.  Even if true this sum is dwarfed by Rajat's services to humanity that (if you can put a monetary value on them) are worth billions - or tens of billions - of dollars. 

Of course, our man made system of justice is of necessity a lot more limited, with no offsetting credits for unrelated acts. Even Mother Teresa would have been prosecuted if she had committed a robbery.  For proven offenses penalties are at most mitigated when the judge at the time of sentencing considers a defendant's good deeds.  All I'm saying is that I continue wishing the best for Rajat, and regardless of the outcome of his trial starting on May 21 he remains in my books an admirable and thoroughly decent human being.

Others who have interacted closely with Rajat seem to feel the same way.  FriendsofRajat.com is a website established by friend and former McKinsey colleague Atul Kanaghat where folks of varying prominence have rallied to support Rajat. It contains several fervent testimonials and positive accounts from those who know him well.  Many people who are eager to cultivate relationships with celebrities abandon them just as quickly when they come under a cloud. Rajat in contrast having steadfast friends speaks well of both.

And then as his friends maintain, the allegations against Rajat may simply be untrue.  They are out of character with the person I know.  Rajat's defense team is expected to stress that (a) there is no direct evidence of Rajat's wrongdoing, (b) the timing of his calls to Rajaratnam does not mean that he leaked confidential information since he had many other matters to discuss, and (c) Rajat had just lost his entire $10M investment in Rajaratnam's funds which had strained their relationship so he'd hardly want to go out of his way to help Rajaratnam.

There are other developments.  AP reported on April 19 that prosecutors acknowledged Goldman employee(s) (not Rajat) also fed Rajaratnam inside information.  A May 3 article in the WSJ also described how Goldman's stock had been rising for several minutes even before Rajat called Rajaratnam and the latter made his "inside" trade, meaning that someone else had already leaked this information.  

Prof. Jagdish Bhagwati with whom I've co-written health care articles also has a sympathetic perspective as reported in the media about an Indian propensity to over-share that could cause problems. He said:

“You go to a meeting and you hear something which technically could be considered insider information and you go to your friend and you say ‘Arrey you know what happened?’  And he doesn’t realize - and that is Rajat’s bad judgment - that this guy is a crook. I think this is what may have happened. It is the product of Indian culture...  I think most people will see Rajat as somewhat of a victim. The fact that he has been doing a lot of good things for India and the Indian American community is going to stand in his favor. There will be cynicism among some people, but the vast majority will see him as a good man, who got caught on the wrong side of the street.”

Knowing what I do about Rajat and wanting to see justice served in a more holistic sense, I hope he gets through his crisis and regains universal acclaim for his achievements and innate decency.

We Are Gullible And Easily Manipulated

The title of this post is my understanding in plain words of the essence of behavioral economics, particularly as applied to politics and public discourse.  A series of studies have validated this view that people often don't realize what's (fairly obviously) in their best interest and hence undermine it.

It explains for example, why more Americans disapprove rather than approve of the 2009 health reforms (inadequate and marred by compromise as they were) that overall better their lot.  Or how so many Americans fall for Tea Party tax ideals that basically favor the top 1% at the expense of the 95% (even if not all the 99%.)

Now The Economist in its March 24, 2012 article "Nudge, Nudge, Think, Think" describes how forces for public good can use behavioral economics to manipulate people back to collectively bettering their lot. The article informs how the two authors of "Nudge" are helping governments and socio-political campaigns. Cass Sunstein, has been recruited by Barack Obama to the White House. Richard Thaler has been advising policymakers in several countries including Denmark, France and, above all, Britain, where David Cameron has established a Behavioural Insights Team, nicknamed the Nudge Unit.

Prof. Richard Thaler has since my University of Chicago days in the 1990s been engaged in a vigorous and running though largely good-natured debate with his "efficient markets" colleagues.  The latter who dominated our University's financial ideas say that investors as a whole make completely rational decisions based on their self-interest. Can there be irrational investors who pay more or sell securities for less than what they're worth according to publicly available information?  Sure.  But according to efficient markets theory there are enough rational counter parties to benefit from their stupidity to drive the prices back to the "correct" level.

The University to its credit brought in Thaler and others to enrich its diversity of economic ideas instead of stacking its faculty ranks with just its renowned efficient market theorists.  Thaler's thinking has increasingly gained traction in academic, financial, social and political circles.

Behavioral economics is of course a double edged sword and special interests have been using it to dupe people into supporting their causes even at the expense of the general populace.  Now genuine reformers in politics and government can harness the concepts to swing the pendulum back towards gaining popular approval for the best public interests.