In Fixing the Game: Bubbles, Crashes and What Capitalism Can Learn from the NFL, I argued that the NFL is obsessive about protecting the game for the fans and constantly monitors the actors in the game to ensure that nobody is engaging in activities that damage the fan experience. And if the rules don't protect the game from clever exploiters, it tweaks the rules to make sure that, going forward, they do so.
I also argued that capital markets regulators are much more lackadaisical about protecting the game that has been entrusted to them — and they should learn a lesson from the NFL before their game is irreparably damaged.
The contrast of the past two weeks could not be starker. First, the world received Greg Smith's resignation from Goldman Sachs, delivered by the unusual and creative method of a New York Times editorial. A week later, NFL Commissioner Roger Goodell announced the punishment of the New Orleans Saints and its coaches and managers for sanctioning a bounty arrangement that paid players to achieve the goal of injuring opposition players.
It is not as though the Smith letter contained particularly new insights. Examples of toxic treatment of their customers by Wall Street firms have been around for many years — including the infamous Abacus sub-prime mortgage transactions, which also featured Goldman Sachs at the center of the scandal. Evidence in derivatives suit trials years earlier featured videotapes of investment bank training sessions explaining how to rip off unsuspecting customers with derivative products that they really didn't understand.
The capital markets game depends on transparency and fair play — both of which Smith claims are consciously undermined at his ex-employer. That notwithstanding, the reactions by regulators have in large part been minor wrist-slaps of the most egregious offenses and an assumption that these offenses were the product of rogue employees; not a logical extension of firm or even industry culture.
How about Commissioner Goodell on "bounty-gate"? NFL fans collectively gasped when the hammer came down. Star head coach Sean Payton: suspended for the entire 2012 season for allegedly letting this go on under his proverbial nose. Alleged perpetrator, former defensive coordinator Greg Williams: ominously suspended "indefinitely" meaning he may have coached his last NFL game. Assistant head coach Joe Vitt, the most logical replacement for Payton: suspended for half the 2012 season. Saints team: docked two high draft picks and fined $500,000.
There was no ambiguity whatsoever about the Commissioner's official message: "We are all accountable and responsible for player health and safety and the integrity of the game. We will not tolerate conduct or a culture that undermines those priorities. No one is above the game or the rules that govern it. Respect for the game and the people who participate in it will not be compromised."
"The integrity of the game," "no one is above the game": these are powerful words. It doesn't matter if you have a clever way to game the game. There is no game if there isn't integrity in it. If you destroy the integrity of the game, the game goes bye-bye and there is no game to game. It is not unlike destroying the environment. Once the ozone layer is gone, it is gone. Once the cod stock is gone, it is gone. Once the whales are gone, they are gone. The temporary personal advantage might feel good to those who skirt the rules, find loopholes in the rules, or hide their knowing violations of the rules. But they are destroying something that they and a lot of other people actually need.
This is why the contrast between the capital markets reaction and the NFL reaction is both so stark and so sad. The NFL said to the perpetrators: "You are going to be in a world of hurt. It is going to change your life and for the worse. You can marinate in your pain for a while." The capital markets regulators and leaders have basically said: "Please try to exercise some self-control if that isn't too bothersome for you and keep it out of the press if that isn't too much trouble." It is pretty pathetic.
I truly love NFL football and I'm glad it's so well managed. But if it got wrecked we could still live with it. Unfortunately that's not a luxury we have with the global financial system. Equally unfortunately it looks like that train wreck is getting progressively closer to happening.