Market Mind Games

Emotion, risk and market behaviors

Bad Behavior in Business

Is Capitalism the Bigger of the Evils?

With the nine billion dollar scandal at the computer company HP and the never-ending rumors and indictments for insider trading at SAC Capital, one of this world's largest and most revered hedge funds, it's no wonder that the rising zeitgeist of "blame the capitalists" continues unabated.

The business news media loves these stories of bad or stupid behavior.  The SEC, the ones after Steve Cohen, founder of SAC, may or may not understand his core skill - what to a trader is known as tape reading. He may or may not be guilty of crossing the line of insider trading but one thing is clear, for some reason, he has been in the government's sights for quite a few years. That alone raises my suspicions.

With HP, the media seems to have some justification in that their corporate history seems to be unfortunately awash in missteps. Misteps aren't deception however and it sure looks to me like the CEO of the company they bought, Mike Lynch of Autonomy, the one that caused the 8.8 billion write-down, has a history of rationalizing perception over the facts. My justification for saying so, beyond the convincing claims HP has made are here in a interview with Salon, dated in the year 2000.

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“Yes, but the whole point about perception is that it’s an artificial construction, because to the person who’s part of an alternative reality, it’s their reality. ... But coming back to the point, perception is a lot more powerful subject than people think, because you can argue that in terms of our view of the universe — or my view of the universe — perception can be more powerful than physics can be.”

So yes it looks like this capitalist took his philosophical musings maybe a tad too far.

Nevertheless, at it's core, capitalism is about providing a service or product that people want. Theoretically, it's about having multiple competitors competing for your business. One provider wins over another by doing a better job at providing what you need or want - better quality, better price or more features.

Somehow we have turned what is a fundamental "social good" into something bad. We have been encouraged to turn to the government to protect us from the evil capitalists.

But is this the best way to go?

Did you know that there is a millennia-long cycle of hating the banks? Did you know that it isn't new news to hate the "money changers"? Niall Ferguson's The Ascent of Money is an excellent primer for anyone interested in this topic.

With the government holding a percentage of debt that no individual or business could sustain, are they the best place to turn?

The economy is demanding that more and more people do free-lance work or open up their own pet stores, baking companies and service businesses. That is capitalism. We want these individual entrepreneurs to succeed - don't we?

Something happens however between being the local butcher and being the billion-dollar provider of beef, computers or what is known as "alternative investments" (hedge funds). For one it gets more complicated. More people and more room for error come into play. Like in any arena - kids soccer, charity or yes, business - some individuals' characters will cause them to try to win at all costs regardless of who they hurt.

This isn't germane to capitalism. In fact, capitalism in and of itself, unlike the soccer league or charity circuit, has a natural evolutionary way of weeding out the worst behavior. I am not so sure we can say this about government either.

 

Denise Shull is the author of Market Mind Games, a game-changer in how we think about anything that seems risky.

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