My two kids don't like it much when their parents talk about them. Most kids don't, and I was no different. In my fuzzy, pre-lawyer mind I claimed a non-existent copyright in the details of my early life.  So how much worse it must be for Mariana (age 12) and Walter (10) that I occasionally write about them here.

While my kids are never far from my mind, I have been spending extra time with them lately as the school year wound down, sports days and school assemblies started to crowd my diary and the approaching summer drew us all outdoors. For a brother and sister they get on very well, with some passions they share, World Cup Soccer, The New York Mets and cool technology (I wonder where they get these from?) and other interests that diverge.

Where Walter can spend hours playing MLB Baseball on the Wii, Mariana prefers building artificial environments in The Sims.  Mariana likes to watch movies and tv re-runs on Hulu, while also devouring thousand-page novels, whereas Walter would happily spend his entire day playing catch or watching repeats of last season's NBA slam dunk contest.

The end of the school year is a special time for kids.  The long hot summer beckons with what appears in June to be an infinite expanse of days sans homework. There are some melancholy moments -- saying goodbye to a favored teacher or not getting the right older kids to sign your yearbook -- but mostly it is a time to celebrate.

From a parent's perspective, I would prefer the kids to stay in school through June as they did in London, but have more holidays during the year.  However, I suspect it suits the teachers, not to mention the owners of summer camps, to have three free months each summer -- much like it suited the pilots in the early days of British Airways (then BOAC) to schedule flights when convenient for them rather than their customers.

Speaking of flying, our family is fortunate to be able to visit grandparents in Finland and godparents and friends in France and England, so I get to spend a lot of time in the air with my kids.  In our slightly twisted modern life, this also passes for "quality time" - that elusive, fully interacting mode that the television psychologists tell us we should aspire to.  For the Glocers it gives us the chance to watch a movie together, and laugh when we can't get four video streams to start at the same time, and share a meal at which we don't have to play the Russian roulette equivalent  of "who is going to get up and fetch the Tabasco."

I have a great job which I enjoy, but which consumes a huge amount of what would otherwise be family time; however, there  is never any doubt who or what comes first.  As someone I admire often observes, work is what we do, not who we are.

I seldom comment on contentious current events, let alone those that affect clients of Thomson Reuters.  However, the intense global criticism of Goldman, Sachs prompts me to join the debate.  No sooner had the SEC surprised the firm and the market with its charges of fraud relating to the structuring and marketing of a 2007 synthetic collateral debt obligation (CDO) offering, than commentators up to and including British Prime Minister Gordon Brown fell all over themselves to convict Goldman as being “morally bankrupt.”  It just seems too easy and too politically expedient to jump on this bandwagon.

Perhaps the firm will eventually be found liable of these charges, although I rather doubt it.  But what happened to our prized principles of maintaining innocence prior to being proven guilty?  What is it about our media-driven society that prompts normally thoughtful observers to rush to judgment --even those who couch their indictments in the form of “well, if they did do what the SEC accuses them of, they are [morally reprehensible]?"

Enough already.  Goldman has 36,000 employees, among them no doubt a couple of bad apples.  Among them are also many upstanding, ethically decent mothers and fathers who deserve better than to be branded as the source of financial contagion.  I know many of them personally – they are certainly not the poor, the homeless or the oppressed, but they deserve to be judged on their merits, not condemned in a hasty trial in the court of public opinion.  Even the SEC was split 3-2 along partisan lines, which is relatively unusual in such cases.

Has it ever dawned on those quick to judgment that we may not yet know all the facts?   Goldman is accused of failing to disclose to the purchasers of the CDOs that Paulson & Co. intended to short these securities and had some involvement (yet not exclusive) in the selection of the underlying mortgages to which these securities related.  I imagine that the actual legal proceedings will turn on the precise nature of the obligation that an offeror may have to the sophisticated purchasers of such securities and the highly fact-specific nature of what “he said, she said” – as interpreted after the fact from the ever-present email trail.

These proceedings are best left to the securities and regulatory lawyers, but let’s try to relate Goldman’s alleged conduct to some less exotic commercial dealings.  Let’s imagine instead that you are a sophisticated real estate investor looking to buy a house which is located in an area that has been hit by flooding two times in the last 15 years.  The selling family is represented by a prestigious real estate agent, “Goldman Reality,” and imagine further that the sellers have confided in Goldman that they believe another flood may soon occur and that in addition to selling their house, the sellers will be placing legal bets in Las Vegas which will pay them millions if another flood occurs within a year of selling their house to you.

Of course, the terrible flood occurs.  Do you bring fraud charges against the real estate agent or do you rely on federal flood insurance to bail you out (as of course the sophisticated bank purchasers did in the actual Goldman case)?  Do you complain more bitterly if the selling family is subsequently lauded as a great real estate speculator or flood predictor? Let’s all remember that when the actual CDO offering was made in 2007, John Paulson was not recognized to be the great investor he is seen as today. 

Goldman does not need me to defend them – they have far better lawyers on retainer.  But when most of the world is ready to convict and condemn before trial, my sense of fairness suggests we should suspend judgment until the full story emerges. 

My last post about the 25 books that influenced me the most (see How to Get into my Good Books), has led, predictably, to requests that I compile a similar list for musical influences.  These requests also reveal an interesting correlation between the age of the writer and the recording format of choice.  Troglodytes of my generation mostly sought my favorite “records” or “albums;" while younger writers sought the corresponding “songs” or “tracks.” 

I am going to go with albums and adopt the rules that (i) no more than one album per artist/group and (ii) no greatest hits albums.  As with my list of books, this musical compilation is not an attempt to list the “best” 25 albums of all time, nor even my current or all-time favorites; but rather, the music that has had the most important influence in my life, for a variety of ultimately idiosyncratic reasons.

With those ground rules in mind:

Bach, Goldberg Variations (Gould)

Beethoven, 9 Symphonies (von Karajan)

Berlioz, Symphonie Fantastique (Dutoit)

The Clash, London Calling

Coldplay, X&Y

Miles Davis, Kind of Blue

Bob Dylan, Highway 61 Revisited

Genesis, The Lamb Lies Down on Broadway

Getz/Gilberto, Live at Carnegie Hall

Grateful Dead, Europe '72

Jimi Hendrix, Are you Experienced

Keith Jarrett, The Koln Concert

Kool and the Gang, Wild and Peaceful

Led Zeppelin, Led Zeppelin II

Georges Moustaki, Moustaki

Nirvana, Nevermind

Pink Floyd, Dark Side of the Moon

R.E.M., Automatic for the People

Bruce Springstein, Greetings from Asbury Park

Talking Heads, Remain in Light

U2, The Joshua Tree

Bob Weir, Ace

George Winston, December

Neil Young, After the Gold Rush

Yes, Close to the Edge

The girls in the family and I took Walter and ten of his classmates to the Rangers game as his 10^th birthday party.  No greater test of parental love has every been devised than stopping 10 soda-fueled boys from inflicting permanent inner ear damage on one another -- not to mention 18,200 innocent hockey fans at the Garden.    It is truly a miracle of Darwinian selection that so many of these boys outlive their every attempt to blind one another with a flicked bottle cap, cross-check one another over the guard rail or generally attempt to maim, torture or trip one another. I have new found respect for the incredible policing, let alone teaching, prowess of the teachers at Walter’s fine boys’ school.

In the event, we were all rewarded with an exciting Ranger win over the Devils.  Henrik Lundqvist was particularly sharp in goal in the 3-1 game.  What I had forgotten in years of only watching hockey at home was (i) how much better it is to watch in person and (ii) how much of a throwback it is to witness the spectacle of hockey fights in our era of organized and highly regulated violence in sport.  I will leave it to the sociologists to explain why we do not permit tall black men to fight in the NBA but seemingly encourage stocky white men to do so in the NHL.  I just don’t feel it adds to the game in any sport, while I nonetheless recognize the passion with which the game is played.

This was very much my week for hockey as earlier in the week, I hosted a party at the Thomson Reuters sponsored ice rink at Canary Wharf in London.  What I had not counted on was that my hosting duties included actually playing 3-on-3 hockey with clients and colleagues.  However, one of the fringe benefits of being the ceo is that I was paired with NHL Hall of Famer, Luc Robitaille as one of my two teammates.  Never in his 19 record-setting seasons did the former LA Kings star ever work harder to score a measly assist.  Despite Luc’s every effort to place the puck on my stick in front of the goal, I failed to score a single goal in my first appearance on ice in 30 years.  Fortunately, however, across the many games, others including Luc and the Canadian High Commissioner did score, resulting in $28,000 going to Haiti earthquake relief at $500 per goal.

Now that Congress is well on its way to passing healthcare (or more accurately, health insurance) reform, it is time for me to return to the topic of financial regulation.  My worry is that with the current predilection of our legislators for policy by sound bite, we are unlikely to emerge with thoughtful reform.

In my earlier post, Towards a New Capitalism (November 2008), I argued that free market capitalism and sound government regulation were not inconsistent goals, and that after attending to the primary task of returning the underlying economy to job-creating growth, the new administration should undertake a thorough overhaul of financial regulation.  Unfortunately, there is so much misinformation and superficial thinking coming out of Washington that I fear we will get lots of regulation but little reform. Let me cite some examples.

Last year Senator Grassley introduced an amendment to the TARP legislation that would have barred financial institutions that received TARP funds (whether they asked for those funds or were just ordered to take them) from hiring foreign workers on H-1B visas.  This was part of a broader political backlash against immigrants “taking American jobs.”  Not only do I find this trend to be dumb public policy but downright un-American.  

First, from a policy prospective, no matter how sympathetic one is about the unemployed 50 year-old autoworker in Detroit, he is very unlikely to return to work in place of the 23 year-old Indian math wiz at Goldman, Sachs.  I believe we should do everything possible to retrain the unemployed, provide a decent social safety net (including health insurance) and create real jobs in the economy, but ordering banks not to hire the best talent available is not the way to rebuild America.  Unfortunately, however, it makes for good politics and great media sound bites: “I am not going to sit idly by and let taxpayer-supplied bank bailout funds go to replace American workers with foreign temps.”   In fact, the immigration of talented workers to the US has been a great engine of GDP growth, and compared to European nations with falling populations, the US economy can be expected to continue to benefit from immigration over the coming years.

Second, I think bashing immigrants is counter to the great promise of America.  Anyone for “Give me your tired, your poor, your huddled masses yearning to breathe free”?  I recognize that the US has not always been a welcoming shore for immigrants throughout our history, but this is our national myth, what is “written on the box,” what we aspire to.  It is a worrying sign that we may have turned to keeping others from sharing the pie, rather than working together to increase the size of the pie.  A land of “manifest destiny” does not look inwards.

Another worrying example is the diversionary focus in Washington on banker pay.  I do not mean to suggest that there have not been some egregious examples of mis-aligned incentives.  However, for me the key issue was a mispricing and unfair allocation of risk.  Quite simply, the system permitted the gains to be privatized and the costs to be socialized.  Prior to the financial crisis, many institutions were, effectively, overstating the earnings out of which they were paying large bonuses by not sufficiently reflecting the true cost of the risks they were incurring.  This was neither illegal nor in violation of applicable accounting standards, but led just as surely to outsize profits as if an industrial company under-accrued for future taxes liabilities

Post crisis, there is another pay controversy.  Many banks made large profits in 2009 on the back of unprecedented government intervention during the crisis and a steep yield curve.  Politicians and pundits, pointing to an angry public, are seeking to ban or tax the potentially large bonuses that may be payable.  The UK attempt to tax banks into limiting bonus payments seems to be backfiring per the usual law of unintended consequences, and now shareholders are beginning to complain that they will be saddled with lower returns.  Again, there is a simpler way.  Governments have effectively underpriced the value of their 2008 market interventions and thus bank profits are recovering pre-maturely.  It is not unusual for bank regulators to encourage banks to recapitalize over time via extraordinary profits (often abetted by inflation), but absent further regulation, it should not then be surprising that this will lead to large bonus gains.  

The final irony for me is the political pressure that has been applied upon banks around the world to change the form as well as the quantum of compensation.  It is no bad thing to require a large proportion of comp to be paid in the form of equity that must be held for three to five years at a minimum.  Most public companies already work that way.  However, it is naïve to think that pay plan design alone will solve all the issues.  We should not forget that the “poster child” for banker greed, Dick Fuld already complied with exactly what the reformers would like to mandate.  He took most of his pay in Lehman stock, and went down with a $1 billion loss.  If this is not skin in the game, then I don’t know what is.

Prudent regulation of financial institutions is necessary because of the important credit intermediation role they play in the modern market economy.  But no system of regulation or incentive compensation is self-effectuating.  The rules should establish a principled framework in which managers and directors are given the responsibility to act in the best interests of their institutions and held accountable when they fail to live up to those standards.  Rather than setting pay limits, regulators should focus on fair, accurate and transparent accounting standards.  If the true long-term costs of various activities were accurately reflected in a bank’s accounts and compensation system, there would be no need for “Pay Czars” or windfall taxes.

The American democracy has been prone to cycles of extreme political polarization. It is unfortunate when the climax of one of these cycles coincides with a period in which the nation needs sound policy-making over politics by sound bite.