… how to do business.
If you want to make big money – say $1200 an hour – you can’t be too scrupulous about how you do research, and you can’t be too scrupulous about your clients.
As Matt Taibbi points out, Hubbard took $1200 an hour from the now-notorious Countrywide Financial Corp. to be an expert witness on their behalf in an insurer’s lawsuit against them.
… Hubbard testified on behalf of Countrywide in the MBIA suit. He conducted an “analysis” that essentially concluded that Countrywide’s loans weren’t any worse than the loans produced by other mortgage originators, and that therefore the monstrous losses that investors in those loans suffered were due to other factors related to the economic crisis – and not caused by the serial misrepresentations and fraud in Countrywide’s underwriting.
In other words, the Dean of the Columbia University business school testified that the fact that Countrywide claimed to have conducted thorough due diligence when in fact it was pressuring underwriters to approve 60 to 70 mortgage applications a day and failing to verify any income levels or other key information (to say nothing of the outright falsification of such data, which also went on on a mass scale) – he testified that these issues were irrelevant.
For that amount of money, you’d expect scrupulous research techniques.
Not.
So how did Hubbard manage to analyze Countrywide and conclude that mass fraud in its underwriting procedures wasn’t problematic? Easy: He didn’t look at the underwriting! All Hubbard did was take a group of Countrywide loans and compare them to a group of other loans from the same time period.
When that comparison revealed that Countrywide’s loans failed at about the same rate as the non-Countrywide loans, he smartly concluded that fraud wasn’t the problem and that macroeconomic factors must have been the cause.
Except for one thing: He left out the fact that about half of the loans in the “non-Countrywide” pool he selected for his analysis were originated by companies that were also being sued for underwriting fraud and other irregularities. What Hubbard did is compare a bunch of bad loans to a bunch of bad loans.
Taibbi concludes:
[T]his awesome ability to non-absorb information makes him qualified to be one of America’s leading academics.
December 23rd, 2012 at 12:08PM
I’m not much of a Hubbard fan. His response to the critique of business schools by serious people like Bennis, O’Toole, and Mintzberg was definitely not a stellar example of reasoning; see my post The B-School Debate:
http://photoncourier.blogspot.com/2006_07_01_archive.html#115302440769488379
December 25th, 2012 at 3:28PM
Uh, Ma Barker and Alvin Karpis retain a consultant who says their behavior seems no different from, say, Bonnie and Clyde’s. Must be something “macro” to explain it all . . . away.
An acquaintance of mine with a blue collar job and my dentist were pressured (before the bubble burst) to accept high-principal loans beyond their ability to repay by guys who told them they didn’t even need to provide proof of income or records of other outstanding loans. They declined.
January 21st, 2013 at 9:28AM
[…] Not just the last decade, of course; corporate misbehavior and crime has been massive for decades. And business schools have been offering tons of ethics courses through all of those decades. But, you know, check out this category, Beware the B-School Boys. Just read the latest entry in it, about the dean of Columbia University’s business school. […]