Here's What The Big WikiLeaks Bank Data Dump Means For MarketsStone Street Advisors | Nov. 30, 2010, 1:34 PM | 3,713 | 30
I'm going to mostly ignore the bulk of the political/military/etc data dump from WikiLeaks this week and instead focus on what Julian Assange claims is their next leak, oodles of information about one of the big U.S. banks that will paint the firm in a less-than-ideal color. Regardless of which form (if any) of efficient-markets you believe, now that Wikilinks is starting to attack (which I believe is the proper word) the private sector, we are almost certain to see tremendous ripples throughout the capital markets the likes of which we haven't seen since the Financial Crisis first hit.
Assange says the following, about how Wikileaks is going to affect business (emphasis mine):
WikiLeaks means it’s easier to run a good business and harder to run a bad business, and all CEOs should be encouraged by this. I think about the case in China where milk powder companies started cutting the protein in milk powder with plastics. That happened at a number of separate manufacturers.
Let’s say you want to run a good company. It’s nice to have an ethical workplace. Your employees are much less likely to screw you over if they’re not screwing other people over.
So is Assange saying that he and his organization (or whatever) will be the sole arbiters of what constitutes a "good company?" Also, while generally it may be true that well-treated (however we or WL wants to define that aside) employees, valued employees, one's that are not expected to do morally/ethically/professionally questionable things are less likely to turn on their employer, in any organization there will inevitably be at least one or two (or more) disgruntled employees with an axe to grind. At one of my former employers (a large U.S. bank), I knew enough about how screwed up certain things were that I'm fairly certain many people would be quite interested to hear about them.
I liked getting a paycheck, and want(ed) to continue to get them in the future in the industry, so, like many others, I have largely avoided communicating any of this information to the outside world. Additionally, I understood that while I felt compelled to serve shareholders, I was subject to a similar allegience to my friends and co-workers within the company whose well-being would no-doubt be adversely affected were I to release internal information to the outside.
I am no hero, no pillar of moral strength, no causehead or idealogue; I'm just pointing out that unfortunately, for every employee unwilling to leak potentially damaging internal documents/information, there's likely at least one that is or who doesn't understand the full consequences of so doing.
Thus, just as I fear the SEC's proposed "whistleblower penalty" may introduce adverse or perverse incentives into organizations, I'm confident that we are not far from the day where we see an employee (or several) come to severely regret his/her decision to provide information to Wikileaks.
I've already noticed many investigative journalists (and many MSM outlets) seem to think the more information they can get their hands onto, the better (and understandably so, as it'd likely bolster their reputations/careers in the short-term), but as I will further explain later, these journalists and "free information" types should be wary of too much of a good thing...
Assange continues:
Then one company starts cutting their milk powder with melamine, and becomes more profitable. You can follow suit, or slowly go bankrupt and the one that’s cutting its milk powder will take you over. That’s the worst of all possible outcomes.
The other possibility is that the first one to cut its milk powder is exposed. Then you don’t have to cut your milk powder. There’s a threat of regulation that produces self-regulation.
It just means that it’s easier for honest CEOs to run an honest business, if the dishonest businesses are more effected negatively by leaks than honest businesses. That’s the whole idea. In the struggle between open and honest companies and dishonest and closed companies, we’re creating a tremendous reputational tax on the unethical companies.
If only things were so simple back here in the real world...
This reminds me of Citigroup's Chuck Prince when in 2007 he commented something to the effect of "...as long as the music keeps playing we have to keep dancing," meaning that were Citi to stop the risky lending/trading practices that largely caused the Financial Crisis, shareholders would have his head on a stake, that is, the stock price would crash as Citi's financial performance lagged behind that of its competitors.
(On a quick tangent, I am absolutely not defending Prince's behavior; it would have taken enormous fortitude to - as such a large, high-profile firm - be the leader in curtailing risky practices, but I maintain that while his tenure at Citi would likely have been cut even shorter, History would have at least remembered him as the man who had the cajones or what-have-you to do the right thing...)
The point is that it seems Assange is living in a dream world, one vastly different from the one in which most of us live, where decisions are black & white, where incentives clearly push us to make "the right" decisions time and time again, or if not, he, our savior, is here to make sure our incentives are properly aligned.
Be wary of an ex-hacker who claims to be able to fix all the world's ills with a few clicks of the mouse...
More Assange:
No one wants to have their own things leaked. It pains us when we have internal leaks. But across any given industry, it is both good for the whole industry to have those leaks and it’s especially good for the good players.
Upon what research does Assange base such a claim? Even the most idealistic, ivory-tower-inhabiting economics professors most-often shy away from making such broad, general statements. Surely, more transparency is generally preferable over opacity (we'd rather have exchange traded derivatives than a gordian knot of private otc contracts, for example), but as with most things, there are exceptions and boundaries - both practical and legal - to absolute transparency. We call these things trade secrets, intellectual property, and the ability to conduct business without fear of fantastic unexpected and grossly unpredictable events (the release of IP or internal procedures/strategy, for example).
Wikileaks and Assange represent a new, unilaterally-acting force the likes of which businesses and governments must now contend. The problem with them is that Assange, via WL, is now playing God, or at least trying to; in his mind, he and his organization have the right, nay, the duty, to act as judge, jury, and executioner. In his mind, they have the duty to expose the day-to-day activities of low and mid-level employees who were simply going about doing their daily duties.
We're not talking about Nazi SS Officers who, when on trial for war crimes, claimed to simply have been following orders; we're talking more often than not about normal people trying to hang-onto/climb the corporate or government ladder, not people immediately responsible for mass murder. No doubt we may very well see evidence that some very high-ranking individuals have said/done some things they'll come to regret, but as far as I can tell, and as far as I can predict, the bulk of the information will not implicate such influential folk.
As I tweeted earlier, I'm certain that Assange (and WL) are nowhere even remotely close to being unbiased; quite the contrary, I'm confident they have a mission, a set of goals, an endgame towards which they're working. What this endgame is, however, is up for debate. My best guess though is that this will end poorly, not only for Assange, but for many otherwise (mostly-)innocent people. Assange may think he now has the opportunity to re-order the World and the dynamics that govern it, and while there may be some inkling of truth in that, I doubt he realizes (or is capable of so doing) that the effects of Wikileaks will spread further, faster, and deeper than even he could have ever predicted.
I'm of a semi-firm belief that while clearly sub-optimal, our current form of democracy (and capitalism) is better than any other options out there, as I believe Churchill said "Democracy is the worst form of government, besides all the others." Assange likely does not agree, not in the slightest As much as I hate to perpetuate stereotypes, given his background in the liberal hacker underground of the 80's and 90's, I somewhat expect he's of the mentality that the world can quite easily function in a "free information" mode, which in order to usher-in, Assange will, intentionally or not, bring the world as we know it into anarchy and chaos.
I hope I'm way off base here, that Assange realizes the power he holds and ceases to abuse/misuse it, and that others with similar aspirations/ideals do the same. As I am with my investments, I'm hoping for the best, and preparing for the worst, that is, I'm guardedly optimistic this phenomenon will be more about hype than action.
I'll leave you with one final thought, one that my parents repeated ad nauseum to me during my more formative years, one which I hope Assange considers as well:
Be careful what you wish for...
http://www.businessinsider.com/heres-wh ... ts-2010-11 
