There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the new paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.


Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

The Fallacy of Giants | Part One

David and GoliathAn Essay by J. Richard Finlay

on corporate integrity in the post-bailout era

Recent multi-billion dollar settlements involving Bank of America and JPMorgan Chase show the staggering costs of ethical folly and the culture of moral hazard that places too many companies, and capitalism itself, at risk.

It is the curse of giants to believe in their own invincibility.  It is also the curse of their acolytes, as the White Star Line discovered with its “unsinkable” Titanic and the Philistines learned with the defeat of their champion Goliath at the hands of a young shepherd boy.  Yet these lessons, and countless others, over millennia have not dispelled such illusions in the world of business, where size is seen as an insulator against all manner of misadventures and the too-big-to-fail mentality shows few signs of abating.  Indeed, the extent to which America’s major banks and Wall Street icons were on the wrong track when it came to compliance with the law and standards of ethics during the great financial meltdown and even afterwards is becoming even more striking.  Recent reports involving Bank of America, Citigroup and JPMorgan Chase vividly make the point.

On these pages in the years and months leading up to the worst financial crisis since the Great Depression, and in numerous op-ed columns before that, I wrote about the dangers of relying on the myths of giants.  Until they were categorized as being too big to fail, corporate monoliths like Bank of America, Citigroup and JPMorgan Chase were viewed as being too smart to fail.  Trophy directors and fantastically compensated CEOs, with the assistance of huge PR departments that never seemed to sleep, worked overtime to present an image where success was virtually guaranteed.  The reality, however, was that too many boards were recklessly disengaged from what was happening around them.  Seeds of folly were being sewn by undersupervised employees more interested in creating clever short-term financial devices than sustainable building blocks of long-term business.  And too many investors and journalists had become prisoners of what I call cheerleader capture. First cousin to the condition of regulatory capture, this refers to the state where it is virtually impossible for any dissenting voices to penetrate the thundering chorus of cheers by insiders and their loud choir of supporters.

There were warning signs of the unwise effects of that mindset, to be sure.  Scandals involving security analysts, for instance, for which Henry Blodget became the poster-boy, revealed the dangers of a culture of cheerleader capture.  In too many cases, the analysts who were supposed to be delivering objective assessments of the financial health of companies enjoyed personal and career incentives that caused them to paint a more glowing picture than justified by the facts.  Citigroup was touched in several ways by that scandal.

There were the accounting frauds at Nortel, Enron and Worldcom that were so stunning they resulted in landmark legislation known as the Sarbanes-Oxley Act being passed.  The collapse of Hollinger and Livent provided an interesting coda to those scandals. If these events of just a few years earlier had been taken seriously, they would have produced a higher standard of boardroom oversight that might have prevented the blunders and financial chicanery that brought the world to the brink of the financial abyss in the first decade of the 21st century.

But even before the gales of that crisis rose to full force, this space questioned the governance practices of companies like JPMorgan Chase, Citigroup, Bank of America, as well as Countrywide and Merrill Lynch, two institutions which BofA bought.  We took frequent issue with the sweetheart boardroom deals that propelled their CEOs into the super-compensation stratosphere.  We felt that the excessive deference accorded many CEOs reflected a perilous level of disengagement on the part of boards which in turn were failing to exercise the independent judgment needed to fully protect investors and the public franchise of capitalism itself.

Many of the decisions these companies made were fraught with ethical failures, violations of the law and just bad business thinking.  Their consequences are coming home to roost even years later.  Bank of America recently agreed to pay $9.5 billion in fines to settle civil lawsuits with U.S. federal housing authorities.  Ken Lewis, the company’s former CEO, settled with regulators by paying $10 million personally.  All told, it has cost BofA some $50 billion to resolve a variety of claims stemming from the subprime era, including the fraudulent actions of Countrywide Financial and misleading statements made in connection with the bank’s purchase of Merrill Lynch.

Improprieties at JPMorgan Chase resulted in an astonishing $20 billion being handed over to various regulatory authorities.  The amount barely caused a ripple on Wall Street, where reaction to the announcement registered nothing untoward in respect of JPMorgan’s stock or the reputation of its CEO, Jamie Dimon.

Citigroup, which has also paid out huge amounts to settle regulatory claims, recently failed the Fed’s financial stress test — for the second time in two years.  Its stock languishes at the unconsolidated 1-for-10 equivalent of the same $5 range it was at during the bailout crisis. Were its recent history of losses, bailouts and scandals not sufficient, there are new regulatory and legal issues arising from a potential fraud involving Banamex, a Mexican subsidiary. In one day early this April, Citigroup’s shareholders were hit with a double whammy.  The company said that it was unlikely to meet a key profit expectation it had set and then announced it was paying $1.12 billion to certain investors to settle claims stemming from mortgage securities sold before the financial crisis.

Yet the level of shareholder outrage one might think would be directed at Citigroup’s board for this Job-like litany of woes has, for the most part, failed to surface, just as tolerance of years of poor boardroom practices and bad decisions earlier led to a cascade of scandals and financial losses culminating in the bank’s  liquidity crisis that prompted the U.S. government bailout in 2008.

In no case has any banking or Wall Street executive faced jail time as a result of the misdeeds that resulted in these record massive payouts or those of other companies.  By contrast, in any given day on Main Street, courts routinely hand out jail sentences to elderly seniors convicted of  shoplifting and single mothers who pass bad cheques for even small amounts.

Like the notion of billions and billions of stars in the cosmos often attributed to the late Carl Sagan (with the help of Johnny Carson), it is hard to get the mind around the scale of these fines, payouts and penalties.  And in the case of Bank of America and JPMorgan Chase, and numerous other companies from drug makers to car manufacturers along the way, it seems nobody is even trying.

What seems to be happening instead is that the wrong-headed mindset that gave birth to excessive CEO pay has infected other fields of business responsibility and decision-making.  We explore this further in Part II.

Kevin O’Leary got it wrong about the purpose of business

Once again, Kevin O’Leary is spewing ideas that put business at odds with the rest of society. Fresh from pronouncing his joy over the world’s widening wealth gap (it encourages more poor people to emulate billionaires, he says) Mr. O’Leary, who seems to relish playing the role on TV of something between Cornelius Vanderbilt and The Simpsons’ Mr. Burns, recently told CNBC’s morning audience that the only mission of modern corporations should be to maximize shareholder wealth.  He claims that companies that divert resources to help make society better are a serious threat to capitalism.  The only social responsibility of business is to make a profit, he says.

In reality, it is the views of people like Mr. O’Leary that pose the greatest threat to the free enterprise system.

Twice in the span of a century, and most recently beginning in 2007, capitalism has had to turn to society to bail it out and save it from its own excesses.  This is further evidence that capitalism requires the support of more than just investors.  Indeed, it is fully invested in how society perceives it and entirely dependent upon society’s goodwill on many different levels for its survival.

Gaining public favor and the approval of consumers is an asset that is indispensable to any successful business.  Far from detracting from the maximization of wealth for shareholders, boards of directors would be guilty of malpractice if they did not take reasonably appropriate steps to ensure their companies are, and are seen to be, valued contributors to the well-being of society.

Moreover, no business can expect to stay healthy in a society that is hobbled by ills that remain unaddressed and dreams that cannot be fulfilled.  Nor can investors, or society for that matter, afford to leave all the solutions to society’s problems to the frequent inefficiencies of big government.

Think of the evolution of GE, one of the most impressive long-term success stories in American business.  It is no coincidence that a succession of CEOs from Owen Young to Jeffrey Immelt have felt a strong sense of responsibility to serve the needs of society and an obligation to perform in ways that garnered public approval as well as shareholder wealth.

A final test of how bankrupt Mr. O’Leary’s argument is can be seen in the actions of the leaders of capitalism and its most valued corporate institutions.  Not a single one has ever publicly endorsed the idea that the only purpose of business is to maximize shareholder worth.  To the contrary, CEOs are constantly hitting the podium to talk about the initiatives their companies are taking, from environmental protection to mental health, which they believe will make the world better and win the approval of the public.  Many aspire to be dubbed among the top companies to work for as much as they do to be ranked as the most investor-friendly.

Having been a part of the process that has attempted to illuminate the interaction between business and society for some four decades now, I have participated in hundreds of discussions with business leaders in private meetings and in public forums.  What has struck me about that experience is that it has been those who embrace an expansive view of their responsibilities whose companies have excelled and become industry — and often stock market — leaders.  This is not to suggest that all companies effectively manage their social interactions; many do not.  Nor is it to suggest that most companies could not do a better job of improving value to shareholders.  In my experience, there are often too many vested and entrenched interests in a corporation that stand in the way of innovation, effectiveness and even profitability.

But when a genuine culture of responsibility is created within an organization, it infuses every aspect of its actions, including how it interacts with customers, employees and investors.  It drives the effort to add value to every phase of those interactions.  So if a company thinks it can improve the lot of some in the world, and enhance its own position in the process, such as by raising the minimum wage it pays its employees, as The Gap and other companies recently announced, or by supporting a program to provide opportunities to minority youth of the kind recently announced by U.S. President Barack Obama, few voices of opposition are heard.  In a modern recasting of Charlie Wilson’s observation about what is good for General Motors, investors today know that, by and large, what is good for society is most often good for business.

Capitalism would not have survived in the past, nor will it have any chance of flourishing in the future, if left to the folly of the ill-informed thoughts of people like Mr. O’Leary.  Capitalism works best, and ensures its longer-term survival, when it is driven by a wider set of values, and not just the creation of greater shareholder value.  These values include bringing a spirit of enterprise to the public agenda and acting in a manner that inspires the support and respect of all the stakeholders of modern business, and not just its stockholders.  Everyone needs to feel the benefits of capitalism.

No one who truly claims to support this flawed but still truly remarkable economic system could seriously argue otherwise.

News Corp Scandal Shows The High Cost of Ethical Folly — Once More

The purest treasure mortal times afford is spotless reputation.

Shakespeare, King Richard II

Two universal facts remain unchanged in the News Corporation saga of serial hacking and management misjudgments:  First, a company with a weak ethical culture, no matter how successful financially, will never fully survive the winds of public outrage when it flounders upon the shoals of moral misdeeds.  Secondly, it is the board of directors that must ultimately ensure that there is a culture of ethics that is unswervingly heeded and vigorously enforced in any major publicly traded corporation.   Given recent events, it is doubtful that News Corp’s board fully grasps its role as an ethical steward for the company.  Since eight out of 17 directors are insiders and family members, Rupert Murdoch holds the posts of CEO and board chair and the board itself met on only six occasions in 2010 (the last year for which such figures were reported) it is very unlikely that News Corp’s board understands its other duties as well.

It is no surprise, therefore, that Sir Roderick Eddington, the company’s most senior independent voice and so-called lead director, has not offered a word to shareholders or the public on the calamity facing News Corp.  In this kind of family dominated operation, the surprise would be that the board might exercise some independent thinking and step up to the plate which shareholders actually expect directors to occasionally grace. No company could possibly have a genuine culture of ethics and still find itself in such a state of public odium.  No serious board or senior management team could have allowed the warning signs that were evident years ago on this subject go unheeded.  It is particularly troublesome that James Murdoch, the so-called heir apparent, was prominent among that senior management group.  These are all signs that ethics was the missing voice in the News Corp boardroom.

This is a scene that has been played out in the great corporate fiascos of the past 100 years, from the demise of Penn Central Railroad and Barings to the collapse of Hollinger and Livent.  One might have thought a lesson would have been learned from the disintegration of Robert Maxwell’s media empire some years ago, which foundered in an ocean of corruption and deceit.  (Mr. Maxwell actually did drown at sea.)  But the only lasting lesson to be learned from these kinds of situations is that the lessons of the past are never remembered by those who need to remember them.

For more than four decades, I have been writing, commenting and advising on what I have called the high cost of ethical folly.  One of those articles from the past is reprised below. In these tragedies, which are always avoidable, the cast of actors  may change but their lines of feeble defense and mock surprise at the scandals that unfold on their watch remain immutable, as does the ultimate carnage of players and others at the end.  I have spent many a frustrating time over the years with skeptical boards and CEOs, trying to counsel a greater commitment to ethical issues only to see later that their blindness, indifference and arrogance has landed them in a very thick ethical soup.

What is amazing is that for all the progress there has been in the corporate world during this period, for all the sophisticated MBA programs and record levels of pay for CEOs and directors, not to mention the abundance of painful examples of moral failure, these silent ethical sentries of the boardroom are still tolerated.

Why?  Some thoughts, below, of more than a decade ago may still be valid.


BUSINESS ETHICS IS NOT A ‘SOFT’ ISSUE, IT’S A MATTER OF SURVIVAL: Until boards and management become serious about ethics there will be more Barings

J. Richard Finlay

11 March 1995

The Financial Post

(Copyright J. Richard Finlay)

What several European revolutions, two world wars and numerous depressions could not do to London’s Barings Bank in more than 200 years, one28-year-old employee accomplished with a few computer key strokes. And the bank collapsed.

Such is the high cost of ethical folly in the ’90s. It is a lesson that has been demonstrated before by companies such as Drexel Burnham Lambert Inc.,which could not survive the fallout from its conviction for securities fraud and the $600-million fine levied against it in the 1980s. Prudential Securities is still reeling from the estimated $1.4 billion in penalties and restitution costs arising from wrongdoings in its limited partnerships. Kidder, Peabody & Co.recently disappeared after a scandal involving phantom profits and lax accountability. And then there are the Canadian cases of Standard Trustco and the Northland Bank that were seized by regulators, leaving a trail of questions about ethics and accountability practices in their wake. Ethical concerns also have been raised in connection with the collapse of Confederation Life last summer.

What these examples demonstrate is that ethics, far from being the esoteric ”soft” issue many in business think it to be, is about as bottom-line focused as you can get. It is a key to survival in a financial world that depends more and more upon confidence and accountability as the twin pillars of success.

There is, however, no great surprise in the fact that these kinds of disasters continue to surface with predictable regularity. The real surprise is that there aren’t more of them. The structure of many companies almost invites such catastrophe. Most organizations have very weak codes of ethics that are poorly supervised and almost never audited. If the same approach were taken to financial performance, investors would desert the company in droves.

Short-term thinking, often prompted by the lure of quick profit, is another cause of ethical folly. In the case of Barings, management was alerted months ago to the inadequacies of its oversight systems. But management chose to ignore that advice, presumably because everyone seemed to benefit from the system as it was. ”Why fix something when it’s not broken?” is a bromide that many advocates of strengthened corporate ethics systems hear time and again. Ethics also gets short shrift because it is easy to ignore. Slap the pre-packaged code of ethics into the employee manual and you create the impression of an ethically sensitive organization. Drexel Burnham Lambert, Prudential Securities and Kidder, Peabody each had a code of ethics. But without a strategy for embedding ethics into the culture of the organization, without a commitment to making it an overriding component in every decision of the organization, a code of ethics is little more than window dressing.

Ethical performance doesn’t just happen. Like product quality, customer satisfaction, competitiveness and any other important ingredient of success, the ethical performance of a company needs to be managed. It requires clear goals, the understanding and involvement of employees, continuous training, regular evaluation, periodic auditing and, most of all, the commitment of top management.

It is this latter category that is so often the missing – and fatal – component in the ethical equation of organizations. Unless senior management is fully dedicated to ensuring the highest standards of ethical performance, and incorporates compliance and supervision practices into the structure of the organization, ethics will never move from theory to reality. In this connection, the role of the board of directors is paramount.

The board is ultimately responsible for preserving the integrity and the continuation of the organization. But too few boards have ethics committees or make regular examinations of the ethics practices of their organizations. Does the company have an ethics training program and hold ethics seminars?

Should an ethics ombudsman or external ethics counsellor be hired? Is there an adequate whistle-blower policy? Can outside members of the board be reached independent of top management?  Many scandals have developed because initial problems were covered up by management. As author Peter Drucker has noted, the board was always the last group to hear of trouble in the great business catastrophes of the 20th century. This latest disaster shows that many boards are still in the dark over such issues.

As the Barings saga unfolds, it will doubtless reveal the existence of warning signs that should have been heeded by management and the board, weaknesses in the bank’s accountability structure that no prudent firm should tolerate and excesses in behavior of the offending trader that should have sent up red flags everywhere. And people will say, as they always do in such cases, how could that have happened? The answer is that until boards and top management become serious about business ethics, and realize that it is survival ethics, such catastrophes cannot but continue to occur.

(Ed. note) J. Richard Finlay heads a Toronto-based management consulting firm specializing in ethics and governance issues.

The Brilliance of Fraudsters -or is it the Dimness of the Guardians?

As the fraud at Satyam is dissected, it will reveal red flags that should have been obvious to attentive bodies and a level of complacency on the part of directors, auditors and regulators that should never have occurred.

Once again, we are invited to believe that one man has outwitted a huge group of purportedly intelligent and conscientious directors (two were on the faculty of Harvard  University) and PricewaterhouseCoopers, one of the largest accounting firms in the world, along with a host of securities regulators in India and the United States.   The latest scandal installment comes with the resignation of B. Ramalinga Raju, founder and chairman of India-based (and NYSE traded) Satyam Computer Services Ltd., who admitted today in a letter to directors and securities regulators that he had committed accounting fraud to falsify profits.

We’ve been down this road before with Barings, Société Générale, Enron, WorldCom, Tyco, Computer Associates and Hollinger, to name a few.  A similar drama on a particularly spectacular scale appears to be unfolding in connection with the alleged multi billion Ponzi scheme of Wall Street’s fabled Bernard Madoff.   He, it is said, managed to fool the most sophisticated investors and regulators at the highest levels for a number of years.  

Usually, it is the act of the individual culprit that most regard as the scandal.  In truth, there is much that is scandalous in the actions, or very often inactions, of those entrusted with overseeing and regulating entities that operate with other people’s money.

As the fraud is dissected, it will reveal red flags that should have been obvious to attentive bodies and a level of complacency on the part of directors, auditors and regulators that should never have occurred.  A good starting point would for the auditors, and the board audit committee, to explain how they could certify the books of a company where there was supposed to be a billion dollars in cash but in fact there was less than $100 million.

Good luck on that one.

Mr. and Mrs. America Ride to Capitalism’s Rescue –Again

A brief essay on the subprime credit consequences when CEOs fail to lead, directors fail to direct and regulators fail to regulate

It began as a term that few had even heard of barely 18 months ago and most experts dismissed as an insignificant blip in a fundamentally robust economy. But yesterday, George W. Bush signed into law the most extensive -and expensive- free market repair bill since the Great Depression, thanks to what we have come to know as the subprime mortgage meltdown. The legislation marks another ironic milestone for this Republican, MBA-trained apostle of the private enterprise system. In 2002, he put his signature to the Sarbanes-Oxley Act, which, in the wake of Enron and numerous more accounting-related corporate frauds, also brought the power of the federal government closer to the boardroom than at any time since the 1930s.

The Housing and Economic Recovery Act of 2008, which also serves as a bailout for Fannie Mae and Freddie Mac, addresses precisely the flaws and failures which successive business leaders and government officials said would never occur in the modern era. Depression-time failures, runs on banks, and the collapse of huge financial institutions that were typical of the 1930s, they said, were a thing of the past. But just as those events were a product of human shortcomings and unbridled greed, so too is the present day crisis the result of CEOs whose bonus-obsessed lack of vision made them unsuited to lead, directors whose risk-oblivious nature made them incapable of directing and regulators whose focus on the battles of the past made them incapable of regulating. Exhibit One in this regard is the more than $30 million in compensation the CEOs of Fannie Mae and Freddie Mac, the struggling mortgage giants that prompted the recent government bailout, were awarded by the boards of those companies during the past year when the seeds of their horrific losses were being sewn.

Only a few months ago, the priority of the new treasury secretary, Henry M. Paulson Jr., and the Bush administration was to roll back enforcement under Sarbanes-Oxley, which many in the business community claimed was hampering American competitiveness. Blue ribbon committees composed of impressive and accomplished corporate men and women were formed to look at ways of blunting the regulation of business. All the time they were focused on this objective, the time bomb of the subprime credit disaster was ticking away. But the business world, and Wall Street in particular, disposed typically to hearing only the siren song of great bonuses and increased fees, did not heed the tick, tick, tick of impending calamity that was of their own making. No alarm bells sounded, at least on Wall Street, about the overly complex financial instruments that were being created, or the possibility that the ever- faster moving gravy train would meet with an abrupt generational derailment. So much has the landscape shifted that the man from Wall Street who was brought in to loosen the reins of corporate regulation has now become the architect of the most sweeping government intervention since FDR. And his boss, the first MBA graduate in presidential history, will have presided over the most staggering run up of the national debt in U.S. history.

Republicans and other traditional advocates of government restraint have fallen so far from their Milton Friedman, laissez-faire pedestals that they have given Secretary Paulson what amounts to a blank check for unlimited backing of these government-sponsored enterprises whose names sound like something out of a 1920s Gershwin musical. It is a hard swing from earlier days, when Fed chairman Ben S. Bernanke testified before Congress that he didn’t expect the credit crisis would spread to other parts of the economy. Just days before the meltdown at Fannie and Freddie, Henry Paulson was predicting “we are closer to the end of this problem than we are to the beginning.”

Much of the litter prompting the actions of the Bush clean-up crew came about through Wall Street’s obsession with bigger bonuses and more fees, and insufficient attention as to how they were achieved. A good part of the world, though happily we did not count ourselves among this group, really believed for a while that some of these fellows actually deserved and earned their bonuses, which, in many cases, amounted to $40 million, $50 million or even more than $100 million in a single year. We have long contended on the subject of excessive CEO pay that it is well to remember that its recipients are endowed with no superhuman traits.

Unfortunately, too many in the boardroom and on the stock exchange floor seemed to think the more a CEO received, the more he was able to jump over tall buildings in a single bound. But as Merrill Lynch’s Stanley O’Neal and Citigroup’s Charles O. Prince schlepped out of their offices for the last time after presiding over record multi-billion-dollar losses, they seemed remarkably fallible -even with the millions in bonuses and severance they carted away in the process. Also gone with the toppling of CEO after CEO who failed to live up to their Marvel Action Comics billing is the idea that their compensation is the business just of shareholders. Look at the casualties of home ownership and the record foreclosures that are sweeping America, a trend that can be traced to the creation of flimsy investment vehicles designed only for their quick fee and bonus producing content for Wall Street and mortgage lenders, and you see how much Main Street America has at stake in the compensation inducements that crony boards hand out to their country club CEO buddies.

It was a nice party while it lasted. Shareholders did well. Directors commanded ever higher fees for their slumbering counsel in what was an impressive reprise of their roles during the Enron era scandals and long before, during another time of Wall Street excess culminating in the market crash of 1929. Top management became elevated to god-like status with remuneration packages commensurate with that standing.

The shell game continues. Just this week, Merrill Lynch announced that it was selling off $6.7 billion in what many regard as toxic mortgage investments. The problem is, only two weeks ago those assets were valued by the company at $11.1 billion. The company’s write-downs -so far- we are told exceed some $40 billion. But to be honest, whenever numbers climb over the $25 billion mark we generally have to reach for the oxygen mask and lose track of the details in the process. Another problem: Merrill has to loan the buyer most of the money to take over the sludge. It’s a little like the Fed buying up $29 billion in feeble Bear Stearns assets to help out with the JPMorgan Chase deal. Except they called it a loan at the time. Nobody is calling it that now. Thinking about Fannie Mae, one is reminded of the scandal there when government investigators found top management fiddled with the books in order to prop up their bonuses. In 2006, U.S. regulators filed more than 100 civil charges against former CEO Franklin Raines and other officials of the company, accusing them of manipulating earnings to maximize their bonuses. It was among many ethical lapses that will be uncovered during the heady times of recent years.

Now the party is over. And, as they had to in the 1930s, it is the taxpayer who must pick up the tab for the broken furniture and all the other casualties of the splurge of over-indulgence that marked what we have called before the Modern Gilded Era. When incomes in America begin to approach the level of disparity which existed in the 1920s, as they did in the past couple of years, perhaps it is a warning sign that reason and judgment have reached a dangerous state of undersupply in the economy, and in society as well.

With the stroke of a pen this week, America’s debt will have been increased by nearly a trillion dollars; its deficit now the greatest in the country’s history. Many of the owners of the corporations who gambled and lost on these ill-conceived schemes will be bailed out. Some homeowners may benefit from the legislation, and a higher standard of regulation -which should not have required a Titanic-like catastrophe before its need became obvious, will prove beneficial in the future. But the greatest beneficiary is Wall Street, which has consistently held the view that there is no better system than modern free market capitalism, except, of course, modern government enterprise when it shows up with its purse open. For there is no more beautiful sight to the errant Wall Streeter than when Mr. and Mrs. America come to junior’s rescue after he wraps the BMW of self-aggrandizement around the lamppost of ever looming, but never fully contemplated, reality.

The point of all of this is not to disparage capitalism, especially the idea of responsible capitalism -a principle we have long advocated and believe is fundamental to the innovation, creativity and advancement of a free and prosperous society. But it is to further illustrate that capitalism is merely an engine, not an Adam Smith-invented autopilot. How well it operates, what value it creates, what havoc it wreaks are dependent upon the skills, vision and integrity of the men and women to whom it is entrusted.

Many of the wrong people were entrusted with it this time. The price has been steep. The damage to the reputation of this unique economic system has been considerable. The consequences of insatiable greed, and of governance and regulatory systems that failed to check it, have been historic.

It might be hoped that for the hundreds of billions of dollars American taxpayers are shelling out for the economic debacle which in some respects rivals the Great Depression, they also will have paid for the education of future actors on Wall Street, in the boardroom and in the regulatory halls of government, who will have learned something of the vice of unrestrained excess, something of the virtue of a financial system more grounded in both value and values and something of the sacred trust that is bestowed when society loans power and opportunity to those whom it allows to lead, direct and regulate.