Rational Philosophy

On industrious criminals and the lure of lucra.

As law enforcement officials round up members of the Gambino, Bonanno and Genovese crime families, I find myself pausing at a phrase in the NY Times piece on the arrests — “the scope of the schemes carried out by [La Cosa Nostra's] members are limited only by their imagination and industriousness.” Imagination and industriousness. These are not dull-witted layabouts. Surely with such imagination and industry members of these families could make money legally, but they have found a niche and a sure-fire way of maximizing profit — exploit what’s illegal. For the mob, illegality becomes leverage. Looked at purely as a business philosophy it makes a lot of sense. If cable companies can make money selling cable access legally, for instance, the mob knows it can make more money pirating cable channels and selling them illegally. It’s all about knowing your business and seeing the angle.

I’m not trying to justify or glamorize illegal activity, just unearth a philosophical truth.

Jerome Kerviel saw the angles, too. Driven by a desire to demonstrate his trading genius, he ended up demonstrating instead that he was a lousy trader but an excellent fraud. He figured out how to work around the Societe Generale’s controls and systems to make trades that he shouldn’t have been making, then cover these up with more trades that he shouldn’t have been making, until the bank was in the hole for $7.2 billion.

Research suggests that Monsieur Kerviel’s urge to trade, even in the face of losses, may not be so unusual. Making money can stimulate the same kind of gratifying response as having sex, apparently. “If you make money and make money again,” says Jason Zweig who wrote a book on the subject, “it is very similar to a chemical addiction and it becomes very hard to let go.” Brain imaging of drug addicts and traders supports the theory.

Two philosophical questions present themselves: What is the connection between material success and a rational theory of life? And why would imaginative and industrious people stick with a business model founded on illegality?

Unlike taking drugs or having sex, making money, while it can have physiological effects, stimulates our sense of gratification entirely mentally. The only impulse is one’s consciousness of making money.

So, the concept of making money must be closely connected to something directly felt. Money represents bartering power and prestige. If you have a billion under your belt, having another billion isn’t going to buy you anything that the first billion can’t buy you. So the directly felt thing must be not increased bartering power but prestige. (This is just what Kerviel described when he explained his feelings about trading, even though he kept his trades secret — he wanted to be seen as brilliant.)

People experience these kinds of feelings whether they’re risking any real bartering power or not. If we play gin rummy for points with no money on the game, for instance, the same powerful feelings of gratification can arise when we win. This confirms that a sense of increased prestige, a sense of being a winner, is sufficient to cause the rush. If I end a game of gin rummy with 100 points, what does that matter to me if my opponent has 101?

The answer to the second question follows from the answer to the first. I imagine that members of La Cosa Nostra would tip my second question on its head and ask “why make money legally if you can make it illegally?” If we’re talking about the rush of success, making money illegally must up the ante by adding considerable risk to the transaction. The possibility of getting caught must speed the flow of juices in the same way that for Kerviel the fluctuations of the market made his trades unpredictable. The greater the risk, the greater the feeling of gratification when one succeeds.

Just as the market eventually caught up to Kerviel, so too the law has caught up to the Gambinos, Bonannos and Genoveses. While crime and fraud can inspire imagination and industry, they’re not the most rational of pursuits.

Clouds over Olympic competition in Beijing, mammoth trading fraud in Paris and synthesized life.

Apparently smog and pollution levels in Beijing, host to this year’s Olympics, are nearly five times above World Health Organization standards for safety. Track cyclist Colby Pearce saw smog floating inside the velodrome in Beijing. He developed bronchitis, he said, because of air pollution. Fears of the dire effects of pollution on Olympic athletes run so high that the U.S. Olympic Training Center has been developing strategies to combat the performance-diminishing effects of smog, and a special mask to filter out most of the worst pollutants. Here’s the odd thing: As the U.S. and other countries have worked intensely on protecting their athletes from smog and pollution, they have protected their findings as fiercely as an athlete protects his lead in a race. Where is the Olympic spirit? Do we want athletes to win just because they’ve had access to a $25 face mask that poorer countries couldn’t afford to research and develop? How does this make for a level playing field?

Unfortunately, an early version of a NY Times story about massive fraud at Société Générale, complete with a couple of splendidly portentous quotes from a bank representative, has already been revised and those quotes removed. I’ll try to paraphrase: a bank spokesman referred to his state of serenity; he was very calm about the loss of $7.1 billion, he said, because it had been through the act of a clever individual and didn’t reflect badly on the bank’s fundamental solidity and stability… Hmmm. The most recent version of the story reveals a little less bullishness on the bank’s part. It tells of the dismissal of four others — including its head of global equity and derivatives trading, Luc François. And the bank’s chairman describes the debacle as “a very grave loss.” The rogue trader is “on the run.”

While the loss of $7 billion or so interests me, this wasn’t the amount that the trader stole, simply the amount that he put the bank in the hole for when it had to extricate itself from his fraudulent transactions. I found myself wanting to know how much money the trader (Jerome Kerviel, right) actually got away with. After the first few million, is it really worth it? And, further, if you have a job as a trader, aren’t you doing pretty well in the first place? (And, if this guy applied for a job at your organization would you hire him?)
Like many things in life, it seems that if you’re going to cheat you should at least be rational about it.

Far be it from me to give advice to those who want to defraud a bank, but surely it’s not rational to take positions that can add up to losses of billions of dollars. With numbers this big, eventually someone will notice, even a smug bank bigwig.

Back to Beijing: Surely the International Olympic Committee should be coordinating research that will protect the health and competitive effectiveness of Olympic athletes. Couldn’t the IOC fork out $25 for face masks, give advice on pre-games training, etc.? I know that world-class athletes have had a bad rap recently for gaining unfair advantages through the use of performance-enhancing drugs, but isn’t it rational that if you want to win you want to win on your merits not because you’re from a wealthier nation?

In what’s becoming something of a rationalphilosophy series on the risks of messing with things natural, I have to mention the success of scientists in synthesizing life from its constituent chemicals. Part of me rejoices at this achievement. If scientists can create life from chemicals then the supposed mystery of life’s appearance on earth gets a step closer to being demystified. That’s a good thing. But synthesized life could also mean the end of life on earth, or at least human life, unless we’re very careful.

I just got back from an evening out with a friend (hi, Neil). I was discussing these stories and he made the point that people just do some crazy, irrational things. I think that’s right. From the scientists synthesizing life because they can, to the trader defrauding the bank because he can, to the athletes and their training bodies seeking a smog advantage because they can, people just do stuff. I guess we are organisms that just do stuff. Being rational is kind of a new thing for us from an evolutionary perspective and often we find it hard to overcome the excitement of just doing stuff because we can…