Financial malpractice, religion and politics

David Smith, upon admission of wrongdoing, was convicted and sentenced to six years' imprisonment in the Turks and Caicos Islands. His guilty plea in a Florida court concerning money laundering, wire fraud, and conspiracy surrounding misuse or fraudulent conversion of over US$220 million of clients' funds prompted, as anticipated, news reports, comment, and review in the Jamaican media. One of the more interesting comments is that of Pastor Devon Dick of Boulevard Baptist Church in Thursday's Gleaner, April 7.

The pastor believes the Church must repent for "promoting, participating, and persuading others to participate in Olint".

The Church of which he speaks is not "an individual or a local congregation or a single denomination, but rather, the collective Christian presence in Jamaica. Ideally, it should be the same umbrella group that called for Prime Minister Bruce Golding to resign, and has been strident in its opposition to gambling".

I am not sure whether by this call he means to say the collective Christian presence in Jamaica has sinned by "promoting, participating and persuading others".

If that is what he intends, the proposition is problematic, for the collective Church of which he speaks is guilty merely of gullibility at best, gross stupidity at worst. If, however, he means that its gullibility was fuelled by the sins of greed, avarice, and covetousness, that's another matter entirely.

Behavioural analysts consider the environment surrounding actions of individuals and groups along with the specified behaviours of interest, whether the task is profiling a criminal to better be able to capture him/her, or attempting to change antisocial or personally destructive behaviour.

Economic historians and experts in finance worth their salt take note of the euphoria that relentlessly builds up in a period of rising asset values immediately preceding a financial crash.

If we compare the behaviours of clients or borrowers taking loans for speculative real-estate investment, depositors in insurance company time deposits—called commercial paper—paying high interest rates subject to no tax of the late 1980s up to mid-1996 in Jamaica, and our indigenous financial institutions overinvestment in real estate to the more recent Cash Plus and OLINT inferno, there are interesting parallels.

These parallels are like recurring decimals in history.

First, the purveyor of the good life must display it—lavishly. His lifestyle should admit to no material want. So Smith, as the pastor tells it, "hosted guests and paid all their expenses at hotels and restaurants, sponsored a jazz festival in Jamaica, purchased expensive vehicles for himself and his friends, gambled at casinos, and made political contributions".

Anyone able to do all this must be on to a good thing. Consider the three-card trickster at the fair. He has an accomplice who wins. It is this demonstration, this evidence of immediate gain that pulls in the 'mark'— the unwitting victim.

OLINT's unbelievably high monthly return paid to initial club members was akin to the accomplice. A young bank clerk married with one child, making her family's way in a hostile world, having recently acquired a dwelling in Portmore, asked me what I thought of Cash Plus.

I answered her with a question of my own: What economic activity can lead to asset growth or profits so great as to sustain the trebling of a million-dollar deposit in less than 12 months?.

She could not answer me. Perhaps illegal drug-peddling was her only guess. So I advised her that once her initial deposit was recouped by the monthly interest received, she could leave it in the scheme and hope for the best. Instead, she borrowed in excess of J$100,000 to enhance her participation. She lost it all.

lost savings

Another young man swore that OLINT was supercharged in the business of foreign exchange trading. I queried whether if that were true, why Warren Buffet, with all his billions, was not completely invested in that game. No answer.

He, too, lost all of US$10,000, a saving he was hoping to increase for house purchase. He does admit to me today that I was correct, but he simply could not bring himself to see it. These are examples of the demonstration effect on the way to euphoria — the unsustainable three-card accomplice's win.

What of the environment? Commercial banks in Jamaica sell loans expensively but buy deposits cheaply. The atmosphere begs for a Robin Hood: enter OLINT. The Church applauded. Recall the placard-bearing working-class woman outside the Half-Way Tree Courthouse whose sign proclaimed "Carlos a poor people government, free Carlos now!!!"

These schemes obviously take better care of the poor than their government. So what role for OLINT's political contributions? What better way to protect oneself from regulatory censure in the short run than to lavish largess upon your esteemed governors?

Evidently, the mix of financial malpractice, religion, and politics can become toxic if their interaction creates a fantasy or phantom prosperity that temporarily becomes the ecosystem of the economy. In such an environment, economic and material prosperity become the exact opposite of what they appear to be.

Time, I daresay, still exists for a reality check despite, or should I say especially in the presence of the FINSAC and Dudus-Manatt enquires. As to the pastor's hope that "Smith's confession of wrongdoing will be accompanied by squealing on the other persons who participated in a Ponzi scheme which defrauded persons of US$200 million (J$17 billion)", that may be wishful thinking. On the other hand, is the pastor himself unwittingly squealing on the Church? Can the law that is an ass interpret this as indistinguishable from, or actually a 'joint criminal enterprise'?