Sunday 6 February 2011

Sunday, February 06, 2011 Posted by Jake 1 comment Labels: , , ,
Posted by Jake on Sunday, February 06, 2011 with 1 comment | Labels: , , ,

People can fail to understand anything if they are paid enough to not understand it.

For decades the bosses of the tobacco industry denied that smoking harmed your health. They would roll up for British parliamentary and US Congressional committees, look the nation straight in the eye and claim that the link between smoking and lung cancer was unproved. The nation would pour scorn over these men for their evident stupidity. The chief tobacco pushers, careless of their fellow citizens' opinion of them, would pocket their generous pay and allowances, and smugly go shopping under cover of this smog of their apparent ignorance.

The tobacco industry managed to fail to understand a tsunami of evidence building since the 1950's. In 1956 the American Cancer Society stated

35 years later a spokeswoman for British American Tobacco showed that they had successfully managed to fail to understand this, claiming

This tactic of failing to understand proved so successful for the tobacco industry that it was hardly going to be missed by the bankers. Captains of the banking industry spent the last two years misunderstanding their negligent crashing of the world economy excusing it as a run of extreme bad luck. The Chief Financial Officer of Goldman Sachs commented, in an interview with the Financial Times

The implication being
a)     The Credit Crunch was the result of a combination of a totally unlikely set of events it’s totally unreasonable to blame the clever bankers.
b)      We now need to pay really humungous bonuses and salaries to keep our clever bankers who know hard stuff like what “25 standard deviation” means.

Unfortunately for the CFO in question, the readers of the FT are more numerate than he. The probability of a 25-standard deviation event is lower than a monkey in a cage tossing a coin and getting 'heads' 625 times in a row.

The probability of this = 0.5625 = one chance in one hundred thirty-nine unsexagintillion two hundred thirty-four sexagintillion six hundred thirty-seven novemquinquagintillion nine hundred eighty-eight octoquinquagintillion nine hundred fifty-nine septenquinquagintillion. And based on our assumption that a banker is smarter than a monkey in a cage, the probability of the banker screwing up to this degree would be even lower. Taking a statistics lesson from one of James Bond's adversaries

"Mr Bond, they have a saying in Chicago: 'Once is happenstance. Twice is coincidence. The third time it's enemy action'." 

A 25 standard deviation event recurring several days in a row isn't bad luck. It is avarice aforethought.

Now they misunderstand its continuing effect, want us all to forgive and forget, and let them get back to business as usual. At a UK parliamentary Treasury Committee hearing in January 2011, Bob Diamond, the boss of Barclays Bank expected to pocket a £9m bonus this year, said it is time to stop apologising for the Credit Crisis.

The well incentivised Diamond fails to understand that the firestorm lit by the financial sector still burns fiercely destroying the lives of individuals as well as undermining the structure of societies. Putting aside swingeing cuts to jobs and services, at the sharp end of public service the massive defence cuts have surely made us all less secure. Or if they haven’t, what was all that massive defence spending that has been cut actually for? Weren’t those aircraft carriers and all that other hardware and booted wetware actually necessary – was that all another nice-for-some misunderstanding?

Well rewarded compensation committees of top firms also find basic maths spookily difficult to understand.  Eric Daniels, the boss of Lloyds Banking Group since 2003, is in line for a £2m bonus plus a further £2m in shares from a ‘long term incentive scheme’. Clear and precise data of the long-term effects of Mr. Daniels’ leadership is available in the form of a shareprice  graph.

One wonders what it took for the Compensation Committee to fail to understand the effect this has had on Lloyds investors.

But it’s not just the Bad and the Ugly who take cover under a carapace of incomprehension. Even the Goodish can rub their braincells together vigorously enough to generate that gratifying spark of incomprehension.

In 2003 a High Court Judge handed the government a 'get out of jail free' card when he slammed the BBC for saying the “Dodgy Dossier”, produced by the then government to help justify the Iraq war, was dodgy. His Lordship managed to fail to understand that the item in question had already been shown to be highly dodgy and was unanimously agreed to be a dossier.  The High Court in 2010 saved the banks billions in compensation payments when it blocked the Office of Fair Trading from taking action against excessive bank charges. Overturning a succession of judgements against the banks in the lower courts, presumably because the High Court failed to understand the role of the Office of Fair Trading in ensuring Fair Trading.

In 2007 and 2008 Ofcom issued a series of reprimands and fines on the main UK broadcasters – including Granada, ITV, GMTV, and the BBC. The reaction of the broadcasters to being caught out cheating their viewers in a wide range of competitions was that although they had done wrong, it wasn’t “venal”. It was all just a misunderstanding.

Michael Grade, the MD of ITV commented, following a review in 2007 by Deloittes commissioned by ITV –

This “cultural failing”, which won the companies involved valuable revenue and audience figures, afflicted not only ITV, but all the main British broadcasters, as well as Parliament – all of whom failed to understand that cheating the viewers was actually dishonest.

John Whittingdale, then chairman of the House of Commons Culture, Media, and Sport Select Committee, while questioning why no heads rolled, said

The most worrying aspect is that both Michael Grade and John Whittingdale were correct. In Britain, those with power no longer understand it to be ‘corruption’ to, in Ofcom’s words, “seriously and repeatedly mislead” the public.

All this misunderstanding by all those clever folk who make and apply our laws, and captain our industries? Or is it actually true that failing to understand is the best defence for ripping off Britons in Rip-Off Britain! 

1 comment:

  1. O2 are especially good at "intelligent ignorance" - see


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