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  • September 11, 2019
  • Chuck Osborne


Several years ago I was interviewing a prospective new employee. The gentleman was currently employed by one of the financial institutions where our clients custody their portfolios. I told him about Iron Capital’s code of ethics and how we have zero tolerance for violations of our code. Put simply, we expect our employees to behave with integrity. He told me that this was music to his ears. He was “Mr. Integrity.” (He really said that.)

The next week we had not made a decision on the position yet, but we needed the same gentleman’s help with his current employer. They wanted us to commit to bringing more assets to their firm. We don’t do that. It is up to our clients to make those decisions. We may guide them, but we never force them to use a particular custodian. He told me that he understood and suggested that we should just lie. He explained that they ask for these commitments but they don’t enforce them, so no worries, just tell them what they want to hear. So much for Mr. Integrity.

It is easy to have integrity in theory; it is a little harder when we demand it in practice. Of course, most would laugh at the idea of discussing integrity and politics in the same post, but here I go. Everything seems to be political today, and that especially goes for the policy of the Federal Reserve (Fed). Jerome Powell, the current chair of the Fed, is getting political pressure from all sides. Recently the pressure came from a former Fed member.

William Dudley, the former president of the Federal Reserve Bank of New York, wrote, in essence, that the Fed should not lower interest rates in response to a slowdown in the economy caused by the Trump administration’s trade war. This, Dudley hoped, would bring on a recession and cost Trump the election. He later tried to walk back his remarks, but not that far back. Mr. Dudley obviously does not like President Trump.

One of the many problems with our politics today is that it has become all about what side are you on, not about the substance of what anyone actually believes. There is no intellectual honesty today. If a politician we don’t like supports a policy we do like, we change our mind on policy. If he is for it, I’m against it, no matter what “it” is.

Enter Larry Summers. Mr. Summers served in the Clinton administration. He has had a long and distinguished career as a liberal economist. Mr. Summers is no fan of President Trump. However, he believes in the old-fashioned idea of institutional integrity. The Fed is supposed to be, and frankly does a surprisingly good job of being, an apolitical organization.

Last week Larry Summers read William Dudley the riot act on CNBC. It is simply irresponsible for a former Fed member to publicly imply that the Fed should ever ignore its mandate because they don’t like either the policy or the person who happens to be in elected office, he said. It is wrong, period. Having the opinion that the current president is a bad guy does not change that.

I congratulate Mr. Summers for having the integrity to stand up for behaving like professional adults. My father always told me that when dealing with others, I was not responsible for their behavior, but I was responsible for my own.

We could all learn a lesson from that. If we are honest with ourselves and maintain intellectual integrity, then we will sometimes agree with someone we do not like. We will disagree with someone we do like. We will understand that someone else behaving badly does not condone our doing the same.

Who knows, if we all lived that way, we might even start getting along. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA
Managing Director, Iron Capital