Prime Minister Yitzhak Rabin

Ori Nir is the spokesman for Americans for Peace Now. In an article entitled “A Lesson from the Rabin Assassination,” he recently evoked the memory of Prime Minister and Minister of Defense Yitzhak Rabin, who was assassinated 14 years ago. He used the article to support the merits of the two-state solution―

“a solution that will be the result of a negotiated, mutually-accepted separation between Israelis and Palestinians, an end to the occupation, a historic compromise between two conflicting narratives… Moderate Israelis and Palestinians – by far the majority on both sides – must come back to the realization that a two-state solution is a win-win, and that the alternatives entail only losses for both sides.”

So, how would this stand the test of the Duck School that teaches that reality is the way things are, not the way you want them to be?

Mr. Nir is correct: Prime Minister Rabin was widely regarded as a moderate, who understood that the viability of the two-state solution was based on Israel’s need for defensible borders based on the bedrock of the topography of the area. He was not alone in understanding this. For decades, American, Israeli (and surely Palestinian) military experts and intelligence analysts have gone on record in underscoring this.  Prime Minister Rabin also understood that Israel’s security could not be based only on expressions of goodwill from Palestinian moderates who could be swept out of power in a twinkling.

What Mr. Nir ignores is Prime Minister Rabin’s last address to the Knesset on October 5, 1995. In that address, he set forth his position on the specifics of borders that had to be part of a permanent solution. For example, this included not returning to the June 4, 1967 lines. It included a security border in the Jordan valley, in the broadest meaning of that term. It included a united Jerusalem (under Israeli sovereignty) and the establishment of blocs of settlements in Judea and Samaria. Needless to say, if Prime Minister Rabin were alive today, how would Peace Now characterize these positions?

So, fast-forward 14 years. What is the reality we now face?

Although the topography of the area remains unchanged, the proposed borders being discussed for a two-state solution largely ignore Prime Minister Rabin’s positions and the long-standing opinions of Israeli and western military experts and intelligence analysts.  Whatever has changed to justify the rejection of these opinions, we deserve to know what has changed…

With respect to relying on the goodwill of Palestinian moderates in negotiating a two-state solution, we have to note this reality:  the vitriol of Hamas and their fellow-travelers towards Israel has increased. One of their fellow-travelers, the president of Iran, makes no secret of his wish for Israel to be wiped from the world map and he takes pride in his military and financial support for those who share his view. And, in case anyone has forgotten, it was Hamas who were swept into power in the most recent elections in the Palestinian authority. So how exactly do you negotiate a two-state solution with a group whose policy is to destroy you?

Sadly, this is the reality we face. Unfortunately, this is the way things are, not the way we would like them to be. Fourteen years ago, this was the reality Prime Minister Rabin addressed. Perhaps, on reflection, former Prime Minister Rabin is not the best role model for a two-state solution based on borders being advocated today.

Let’s start with the birthers whose argument rests on three premises:

They begin by arguing that Barack Obama’s single white mother and her parents fraudulently published an announcement of his August 4, 1961 birth in Hawaii. They argue he was actually born in Kenya. And why exactly did his mother and grandparents do this? Well, the argument goes, they apparently anticipated something in 1961 that nobody in the United States believed was even remotely possible. They anticipated that their African American son and grandson could be elected president more than forty seven years later. So, on August 4, 1961, a white mother and her parents perpetuated a fraud by placing a birth announcement in the local Hawaii paper…

The second premise was that the same single white mother and her parents somehow managed to persuade the state of Hawaii to issue a fraudulent birth certificate to the baby Barack, who was actually born in Kenya. Whew!

The third premise is that, when the Republican governor confirmed that Obama’s birth certificate

And who would possibly believe this? Apparently the whole birther movement and their supporters on cable television and some quite prominent Republican lawmakers. Clearly, these supporters couldn’t overcome the patently absurd premises upon which their argument is based. Did this stop them, though? No…

Now for those two sporting scandals that have rocked Europe…

Last year, the prestigious Harlequins rugby club in London was playing in the semi-final of a major European competition. In the final few minutes of the game, they were trailing by a few points. They needed to get a kicker on the field, but could only do so if one of their players was injured. At a break in play, the club physiotherapist gave a Harlequins player a blood capsule with fake blood. The next time that player was tackled, he bit into the capsule and he left the field for a blood injury. Unfortunately for the club, the whole deal was captured on film—as was the player winking as he left the field. When this was exposed, the coach lost his job; the chairman resigned; and the player was suspended. What were these guys thinking? Did anyone consider just saying “no” when they were asked to cheat? Or was it OK because the coach and doctor said it was OK?

The second incident was reported by the London Times on September 17, 2009. Under the headline,  “The worst act of cheating in the history of sport,” the Times described a Formula One scandal. Nelson Piquet Jr, the son of the three-times world champion, and a young man desperate to make his mark on the sport, was told by his team’s management to have an “accident” at the Singapore Grand Prix last September. He was told exactly where it was to take place and when. As a result of his crash, Piquet’s team-mate, Fernando Alonso, was able to win a race he would otherwise not have won. He did so by taking advantage of the safety procedures that are laid down in Formula One. Piquet turned whistleblower.

So, what kind of people have we become who have created an environment in which ludicrous positions are argued and when demands for cheating are accepted blindly?

Again, what does this have to do with the Duck School? The answer is “everything.” Because some prominent people appear to support the birther movement doesn’t give it any more credibility than it deserves. And just because the owners of two prestigious sports franchises approve of cheating doesn’t make it right…

We sometimes assume that, if there is no record that something happened, then it didn’t happen. Well, that ain’t necessarily so…

We sometimes assume that if enough people do something (e.g. invest with Bernie Madoff), then there is no need not ask any questions about the investment. Well, that too ain’t necessarily so…

We sometimes assume that if someone important says something, we can rely on it because that person is so important. Well, dream on…

We sometimes assume that if we are driving on the freeway at 70 miles an hour in a 60 mile-an-hour zone, and if every car passes us, we won’t be stopped. Tell that to the cop, but don’t hold your breath…

These are all assumptions from which we should free ourselves.

The same point was made by Charles Duelfer, the highly respected former Deputy Executive Chairman of UNSCOM, who led the Iraq Survey Group that was responsible for finding those weapons of mass destruction. In his final report, he described a problem his analysts faced in Iraq. He explained how western thought is filled with assumptions that are built into our thought processes and how we often forget that they shape our thinking and conclusions.

He explained how Saddam’s regime did not document his decisions on weapons of mass destruction. As a result, one could not draw any conclusions – one way or the other – about not finding such documents.

He also pointed out how members of Saddam’s regime habitually concealed bad news from him for fear of losing their positions – or worse. This did not stop him from asking a question of Ali Hasan Al Majid, a member of the Committee of Four. Asked how Saddam treated people who brought him bad news, Ali Hasan Al Majid replied, “I don’t know.” Mr. Duelfer surmised that he was being told the truth and that people knew the consequences of delivering bad news to Saddam.

Every scammer in history has relied on his marks making assumptions that they often had no right to make. And that is why we have to be careful to free ourselves of our assumptions when making important decisions…

Rick Scott

Rick Scott is an unlikely leader of the opposition to health-care reform, although he does know how the system works—and how the system is worked. He also does remind us of how there really are two Americas…

In the world of traditional crime, drugs, sex and family, we have no tolerance for lying and cheating. When it comes to career advancement, however, we live in a different America. Here there is an epidemic of lying and cheating in high schools, colleges and large corporations, but there is no great accompanying outcry. This is probably why the story of Hospital Corporation of America is not widely known. This might change—thanks to Rick Scott and the blogosphere…

In February 2009, Rick Scott founded Conservatives for Patients’ Rights, which he said was intended to put pressure on Congress to enact health care legislation based on free-market principles. He said at that time, “[When] the government gets involved, you run out of money and health care gets rationed.” There was a touch of irony and more than a touch of chutzpah in his statement. In an earlier life, when he was president of what was then Columbia/HCA, the patients under his hospitals’ care truly needed a patient’s bill of rights. And in his case, when the government did get involved in the health care system, it certainly benefited the public because it uncovered massive fraud…

Rick Scott was a mergers and acquisition lawyer from Dallas. Prior to 1987, he had no experience in running hospitals. In 1987, however, he started a company named Columbia Hospital Corporation. In 1995, his company merged with Hospital Corporation of America and became Columbia/HCA. By 1997, he ran 350 hospitals, 150 outpatient surgery centers and more than 570 nursing homes. It operated in 36 states, as well as in England, Switzerland and Spain. A year earlier, in 1996, Time named him one of the “25 most influential Americans” for “transforming how American hospitals do business,” with an operation that “consolidates operations and imposes cost controls.” No kidding…

In her book, Money-Driven Medicine, Maggie Mahar described the frugality of his business. She described how nurses complained of the “filthy conditions” and how the hospitals slashed the ratio of nurses to patients. One nurse reported apparently having to watch 72 patients’ heart monitors at a time. Hospital executives were paid enormous bonuses for meeting financial targets. Meanwhile, Scott showed little compassion towards patients. Instead, he focused on the bottom line and created a business climate in which, irony of ironies – and to use his own words, “health care gets rationed.” In a recent post, this is how Maggie Mahar described the climate in which Scott’s executive team worked:

But if you brought in the money, you were rewarded handsomely. Internal hospital records would later show that hospital executives were paid enormous bonuses, not for reducing infections or lowering mortality rates, but for meeting financial targets such as “growth in admissions and surgery cases.” In 1995 one-fourth of Columbia’s administrators won bonuses equaling  80 percent of their  salaries—or more.  When bonuses become that large, some critics charge, they no longer function simply as incentives. They invite fraud. Scott also did his best to avoid needy patients, questioning whether hospitals should throw their doors open to one and all. “Do we have an obligation to provide health care for everybody? Where do we draw the line? Is any fast-food restaurant obliged to feed everyone who shows up?”

Even prior to the HCA merger, Rick Scott had to have known about the False Claims Act. Since 1986, the government has recovered $12 billion from information received under the Act. And it was clear in which industries the offenders were operating. Of the top one 100 False Claims settlements, 56 were with heath care corporations.

Rick Scott had to have known about this Act… After all, the Act was having an enormous impact on the health-care industry in which he was a major player.

This Act offered an incentive to whistle-blowers and was designed as a deterrent for those who were defrauding the government. The Act invited people to come forward and report companies that were defrauding the government. If the claims could be substantiated, those reporting the fraud would share up to 30% of the amount recovered. The Act also offered the government the power to prohibit companies convicted of serious crimes from doing business with it—thereby effectively putting them out of business. In the case of an industry that relied heavily on relationships with Medicaid, Medicare and Tricare, this was serious business. If the government found claims against the company to have merit, it could have put the company out of business…

When his company merged with HCA in 1995, he and his colleagues must have known about the pre-merger 1993 raids on 19 HCA offices in which evidence was sought of overcharg­ing and fraud. This was major news within the company. It couldn’t possibly have been hidden from Scott. As the senior executive of the new merged company, and as a sophisticated attorney, Scott couldn’t possibly claim ignorance — particularly in the face of possibly looming indictments. In the unlikely event that Scott was ignorant, the New York Times reminded him of what he faced. In 1996, numerous stories began appearing in the New York Times of improper business practices at Columbia/HCA. It appeared that Rick Scott had done little to change the culture of cheating at HCA. In the spring of 1997, federal agents conducted document raids on several Columbia/HCA facilities and seized records from more than two dozen facilities in seven states. There was no way Scott could plausibly claim ignorance…

By July 1997, the writing was on the wall. A Florida grand jury issued indictments against three executives. Rick Scott was forced out by the board of directors and was replaced by Dr. Thomas Frist, Jr., the co-founder of HCA and the brother of Senator Bill Frist, soon to become Majority leader of the United States Senate. He might have been ousted as the company’s senior executive, but the results of the investigation would forever tarnish his moral authority to be an advocate of patients’ rights…

After one of the longest investigations of its kind, HCA pleaded guilty in 2001 to 14 felonies and paid $840 million in penal­ties—at that time the largest fraud recovery in history. What followed, however, was astonishing. New charges were announced against the company. Apparently, no steps had been taken to prevent the same behavior and policies being repeated. There were again charges of kickbacks, overbilling and improper physician investment arrangements. The govern­ment’s case was that the company was fraudulently keeping two sets of books to  overbill the government.

As HCA made millions, the Los Angeles Weekly offered some details of how it operated:

“What did HCA do? It inflated its expenses and billed the government for the overrun; it billed the government for services ineligible for reimbursement (like advertising and marketing costs).”

According to Forbes magazine, HCA violated both law and medical ethics when,

“the company increased Medicare billings by exaggerating the seriousness of the illnesses they were treating. It also granted doctors partnerships in company hospitals as a kickback for the doctors’ referring patients to HCA. In addition, it gave doctors ‘loans’ that were never expected to be paid back, free rent, free office furniture —and free drugs from hospital pharmacies.”

On December 18, 2002, a sudden settlement was announced. The company pleaded guilty to 14 felonies. It agreed to pay another massive fine—this time $631 million. Under the agreement, the company and its executives avoided criminal charges. This settlement was coincidentally five days before Senator Bill Frist’s election as majority leader of the US Senate. His father, Thomas Frist senior had founded HCA. His brother, Thomas Frist junior, had controlled the company for the past two decades. According to Forbes magazine, they had built a personal fortune of around $2 billion off the company.

LA Weekly takes up the account:

“The Bush Justice Department suddenly ended a near-decade long federal investigation into how HCA for years had defrauded Medicaid, Medicare and Tricare (the federal program that covers the military and their families), giving the greedy health-care behemoth’s executives a sweetheart settlement that kept them out of the can.

The government’s case was that HCA kept two sets of books and fraudulently overbilled the government. The deal meant that HCA agreed to pay the government $631 million for its lucrative scams—which, on top of previous fines, brought the total government penalties against the health-care conglomerate to a whopping $1.7 billion, the largest fraud settlement in history, breaking the old record set by Drexel Burnham. The deal also meant that HCA can continue to participate in Medicare.”

When the settlement with HCA was announced five days before Senator Bill Frist’s election as Senate majority leader, Charles Lewis of the Center for Public Integrity told Newsweek magazine—

“I think it looks like hell. It’s not some obscure company he owns stock in. … It is the source of his wealth … you’ve got to wonder: If there was substantial fraud committed in that company, what did the Frist family know and when did they know it?”

Two days after the settlement was announced, Rep. Pete Stark (D—Calif.) said:

“Senator Frist has close family and financial ties to HCA. I find it remarkable that at the same time as the Republican Party is coalescing around Senator Frist’s candidacy for Senate majority leader, the administration is poised to strike a potentially unjustifiable bargain that would benefit his family’s company at the expense of American taxpayers.”

Had the HCA executives been charged, they would have had little choice but to offer Ken Lay’s idiot defense by claiming that they had no idea what the company had done under their watch to have been fined $731 million in December 2000 and that they had no idea at all that the company was continuing its practices through June 2003…

Neither Rick Scott nor the other Columbia/HCA executives were convicted of any offense, but, as we listen to Rick Scott leading the charge against health-care reform, we would do well to ask ourselves what we are looking at and hearing:

Is it a beautiful, knowledgeable swan speaking with great moral authority? Or is it perhaps a duck with little or no moral authority?

But what if we actually knew better than to trust him? What if we suspected that, in his own life, there were signs of hypocrisy? What if this guy had lost his moral authority? As he continued to lean on us using the “trust me” routine, should we blindly trust him under any circumstances?

Newt Gingrich

For the purpose of exploring hypocrisy, let’s forget scams for a moment. Let’s focus instead on where the best examples of hypocrisy reside—the low hanging fruit. Let’s look in the world of politics…

With apologies to Groucho Marx and Newt Gingrich:

If he looks like a hypocrite and acts like a hypocrite, don’t let that fool you. He really is a hypocrite…

As we increasingly see Newt Gingrich all over the television pitching himself as the new voice of the Republican Party; as a representative of family values, and as a newly converted Catholic, we need to remember a few things about Newt:

• As he was leading the impeachment movement against President Clinton for having a sexual relationship with a young intern, Gingrich himself was having an affair with a young intern…

• After leading the derision of President Clinton for claiming that oral sex is not sex, this was apparently his own position as he was cheating on his first wife with a married woman named Anne Manning. According to an article in Vanity Fair, she claimed that this allowed him to claim he had never slept with her…

• On the family values front, this was a man who has been married three times and divorced twice. This was a man who cheated on his first two wives…

• Again on the family values front, as one of his wives was still in hospital recovering from cancer surgery, he is reported to have visited her to discuss divorce terms…

• When he criticized Notre Dame University for inviting President Obama to deliver its commencement address because of his anti-Catholic views, the recently converted Gingrich appears to ignore that his own anti-Catholic lifestyle hardly qualifies him to opine on the subject…

• Finally, when he recently claimed that the Democratic Party was at fault because it was in a position to do something about clarifying whether or not water boarding was torture and because it failed to pass legislation to prohibit it, he also failed to divulge that it did pass legislation outlawing water boarding. He also failed to divulge that President Bush had vetoed it…

So, assuming a reasonable argument could be made that Newt Gingrich could make no claim to any moral authority, could he ever claim your support based on the “trust me” shtick? When it came to matching words and deeds on subjects relating to moral authority, wouldn’t you have to discount pretty much anything he said that was based only on the “trust me” routine?

So what’s the conclusion of all this?

Assuming you know the person who is pitching you is a known or suspected hypocrite, that has to cast a heavy cloud on everything he was asking you to do. And if you ignored that cloud, could you ever claim to have been taken by surprise when his words and deeds didn’t match? In that case, if you claimed victimhood, you were not the victim of a scam. You were simply the victim of your own blind trust…

The Madoff and Enron sagas offers great examples of this…

Applying the principles of The Duck School, Enron’s revenues defied common sense. In noting that Enron had apparently doubled its reported sales between 1999 and 2000, Dan Ackman, wrote this for Forbes:

“In its creation of revenue, if not profit, Enron was truly the corporation from another planet… Before it declared bankruptcy, Enron said it was on track to double revenue again… Had it done so, it would have become the second-largest corporation in the world in terms of sales.”

Something was weird. He asked how, in less than 18 months, the company could have gone from a relatively obscure energy-trading company to one of the largest companies in the world by revenue? And how could a company that was reporting such large revenues have no cash? In the first nine months of 2000, Enron had negative cash flow. How could a company operate without cash? Its debt was rising. Something was wrong…

Dan Ackman offered his take on the company’s numbers by using the analogy of an Olympic track coach:

“An uncritical reading of Enron’s inscrutable reports indicates it was running so much faster than everyone else. If an Olympic coach heard a report that an unknown runner had broken the world record for the mile by two seconds, he might be skeptical or wonder if the runner was on drugs. But if he had heard that the runner had run a mile in three minutes flat, 45 seconds faster than everyone else, he’d refuse to believe it. He’d say it was impossible. Or he’d say the watch was broken. When Enron made equally unlikely pronouncements no one seems to have asked a question of thought twice.”

Sadly, until it was too late, nobody took much notice of Dan Ackman and others in the financial media who shone a light on the wackiness that was Enron…

As for Madoff, as I’ve already been noted in an earlier post, Barron’s magazine smelled something in the air way back in 2001. In an article that year, Barron reported that it asked Bernie Madoff how he accomplished compound average annual returns of 15% for more than a decade. This made no sense. It was inconceivable to them how he could perform so consistently year in and year out. The 2001 Barron’s article describes how three option strategists for major investment banks just didn’t buy this. For them and for others, Madoff’s split strike strategy was not the whole story… Sadly, nobody paid attention.

What’s the moral here? Firstly, if something seems too good to be true, it might not be true… Secondly, don’t assume the so-called experts have done their homework, they might not have… Thirdly, trust yourself. If the explanations you hear make no sense, you might just be right. Don’t accept the inexplicable…

You see, he has this hedge fund that is run by some real players. They are all Harvard business school grads. They’ll invest our money for us and will charge us 2% of whatever we invest with them and then 20% of any profits. He tells us this is the standard deal that hedge fund managers charge.

What he laid out was indeed a typical hedge fund manager deal. If any reputable person with an established hedge fund with luxurious corporate offices in the Plaza District in New York had offered us the same deal, we would probably have felt quite comfortable…

The Duck School is here to shine the light of common sense on what we do. Think of the second rule of The Duck School — the one about ignoring how wealthy, well-educated and successful the messenger was. What questions would we ask the messenger?

Our first question might be this: How easily could we  get our money out?

Many hedge funds do not allow us to get our money back easily. This is known as “gating” investors. Personally, if I couldn’t get my money out easily, this deal wouldn’t be too attractive…

The second question might be a tad uncomfortable for the fund manager, but we would ask it anyway:

We understand that the manager should be given an incentive to make us a profit. But why shouldn’t there also be an incentive for him not to lose our money?

So, we’re totally fine with him being our 20% partner with respect to profits, but he must then also be a 20% partner with respect to losses. If he isn’t prepared to do this, the result is way too weird. If we invested $1 million with him and he makes a profit of $1 million over a year, he would receive $200,000. After the first year, this would leave us with $800,000 and him with $200,000. If he then lost $800,000, this would leave us with no profit and him with $200,000. This is way too weird…

What’s the conclusion here? Are hedge funds scams? No, just as we weren’t scammed when we bought that fake Rolex in the subway, so too here we weren’t scammed. We knew what the deal was. If we agreed that we couldn’t get our money out easily and if we agreed that he would share only in our profits, we weren’t scammed. We just made lousy deals…

The Duck School can help shine a light on common sense, but it can’t prevent us ignoring what we see…

In their book, The Smartest Guys in the Room, Bethany McClean and Peter Elkind referred to an Enron employee’s account of the company’s approach to accounting rules. Tell me if this sounds familiar:

A dog or an Irishman?

Say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, “This is a duck! Don’t you agree that it’s a duck?” And the accountants say, “Yes, according to the rules, this is a duck. Everybody knows that it’s a dog, not a duck, but that doesn’t matter, because you’ve met the rules for calling a it a duck.”

What were the accountants thinking? Could they claimed they were the victims of a scam? Hardly, yet that is what they claimed. They knew they were looking at a dog dressed as duck and when they certified the dog as a duck, they became part of the scam. They had failed the Rolex test, as had everyone else involved…

At the time, there were some financial analysts who were questioning the lack of clarity of Enron’s public financial disclosures. Despite this, other analysts continued to recommend that the public buy Enron’s stock—but many had their own agenda. Again, this is how Bethany McLean and Peter Elkin described the situation:

To be sure, Enron, with Andersen’s assistance, did everything it could to camouflage the truth, but there was more than enough on the public record to raise the hackles of any self-respecting analyst.

The analysts and the other professionals let us down… They had failed the Rolex test… They had failed to apply the most basic rules of The Duck School…

If anyone knows of any quotes about scams or that reflect the rules of The Duck School and the obstacles we face in following them, please pass them on. I’ll keep updating this post to reflect new quotes I’ve received…

Here are a few I’m planning to use—

“If you call a tail a leg, how many legs has a dog? Five? No, calling a tail a leg don’t make it a leg.”

Abraham Lincoln

“If he looks like an idiot and talks and acts like an idiot, don’t let that fool you. He really is an idiot.”

Groucho Marx

“Who are you going to believe, me or your own eyes?”

Groucho Marx

“If you wish to know the mind of a man, listen to his words.”

Chinese proverb

“The reality of the other person lies not in what he reveals to you, but in what he cannot reveal to you. Therefore, if you would understand him, listen not to what he says, but rather to what he does not say.

Kahlil Kibran

“The cruelest lies are often told in silence.”

Robert Louis Stevenson

“Those are my principles. If you don’t like them, I have others.”

Groucho Marx

“He who asks is a fool for five minutes, but he who does not ask remains a fool forever.”

Chinese proverb

“Out of intense complexities intense simplicities arise.”

Winston Churchill

“He who asks is a fool for five minutes, but he who does not ask remains a fool forever.”

Chinese proverb

“When a man says that he approves something in principal, it means he hasn’t the slightest intention of putting it in practice.”

Otto Von Bismark

“To repeat what others have said, requires education; to challenge it, requires brains.“

Mary Pettibone Poole

“I believe that a scientist looking at nonscientific problems is just as dumb as the next guy.”

Richard Feynman

“Don’t go around saying the world owes you a living. The world owes you nothing. It was here first.”

Mark Twain

“No question is so difficult to answer as that to which the answer is obvious.”

George Bernard Shaw

“Judge a man by his questions rather than by his answers.”

Voltaire

Here’s the test:

Someone approaches you in a subway and offers you a Rolex. It looks like a Rolex, but it doesn’t feel like one. It is as light as a feather—quite unlike the Rolex watches that are sold for thousands of dollars in the stores. For you, you are told, the price is $50. Although neither of you actually mouth the words, you each know its fake.

Here’s the question: If you buy it, are you the victim of a scam? And can you later really claim outrage and surprise about what occurred?

The answer to both questions is “no”—you simply bought a fake Rolex. End of story…

In researching some of the larger more outrageous recent scams, it is almost impossible to believe that some of our finest and brightest didn’t recognize the lies. Enron’s Ken Lay and Jeff Skilling, for example, tried to make the case that they had no idea what was happening on their watch. They claimed they had no knowledge of the very schemes they hatched with Andrew Fastow, their CFO. They blamed anyone they could think of from their lawyers, accountants, Andrew Fastow and their other colleagues, on the one hand, to the financial media, on the other. These former darlings of Wall Street put forward a novel “I-am-an-idiot” defense in their criminal trials. Fortunately, sanity prevailed. Their juries didn’t buy it. …

In the Bernie Madoff saga, if any student enrolled in any business school in any part of the world was to claim to his professor that he could offer investors a consistent rate of return year in and year out for decades in good times and bad, he would be hooted out of class and would fail the course. Remarkably, this is precisely what Madoff claimed he could accomplish and did accomplish year in and year out for decades. He was the guy in the subway peddling the fake Rolex. And some of our very finest and brightest bought what he was selling. They claimed they had no idea it was fake. They claimed that they too were victims of his scam. Puleeez… All that happened was they bought a fake Rolex, knowing it was fake. They failed the Rolex test…

Late last year, I bookmarked an article on Citigroup and the financial meltdown by Thomas Friedman. As I thought about the Rolex test, I thought about his article, which is well worth reading. In discussing the financial meltdown in general and Citigroup in particular, he described how our finest, brightest and best-paid bankers were either “over-rated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye.” Sounds awfully like the guy in the subway who bought that Rolex…