Month: April 2014

The Morality of Glamour

Karl May

I recently read and reviewed Virginia Postrel’s excellent The Power of Glamour, in which she touches on the issues of positive and negative uses of glamour in persuasion — advertising, propaganda, entertainment and branding. She is primarily interested in defining glamour and determining how it is produced by the careful editing of reality to cast a spell on susceptible audiences that has the power to motivate actions — from purchases, to career choices, and even emigration and warfare.

I recently wrote my own book, Bad Boyfriends, which addresses an analogous phenomenon — limerence, or being “in love,” a powerful neurochemical-emotional state that also casts a spell over the observer.

Of course the typical glamours of fashion photography, Hollywood star photographs, or cinema adventures are today so common that most observers are largely immune to their effects — while caught in the spell and enjoying temporary immersion in it, they know it is neither real nor readily attainable. But the effect of both glamour and limerence depends on the susceptibility of the observer, and the construction of a dream of the future self by either glamorous presentations or a few sightings and encounters with the object of limerence can become obsessive for the observer who is starving for that dream.

And as with glamour, age and experience reduce limerence’s power. While a young person might give up his home and job to pursue either a dream career or the fantasy mate, the older and wiser have seen this play before, and know how to enjoy the fantasy and pursue it a little while not irrationally sacrificing the advantages of their current life.

Postrel writes, “Glamour fuels dissatisfaction with the here and now, even as it makes present difficulties easier to endure by suggesting the existence of better alternatives…. By tendering the promise of escape and transformation, glamour feeds on both hope and hardship.” So one’s already drab, boring life looks even worse by comparison, if you are say a German young man around 1900 reading the then-popular Western pulp novels (like those of Karl May); but then you start to obsess over your plan to escape to the Klondike to strike it rich in the new gold rush, and you have goal to work toward and a plan that fills your heart with joy in anticipation. The writer Karl May had never visited the West or met a cowboy, but he still spun an illusion strong enough to motivate thousands.

Similarly, limerence has launched its victims toward both achievement and destruction, sometimes both. Postrel cites Helen of Troy as one of the earliest documented cases of glamour, and it could be said that her power was to induce limerence in nearly everyone who observed her, leading to her kidnapping, war, and the destruction of Troy.

So we come to the question that every sensitive person whose job is to persuade via glamour in advertising or marketing considers: is what I am doing moral? When I create a glamour, I am setting a trap for the susceptible members of my audience that will create inside their heads a persuasive and persistent model of a future they dream of being part of. As always in persuasion, to feel that it is moral one must have a sense that on the whole you are doing those who are persuaded a favor; that they will be better off having purchased that new BMW or party dress, or taking up a career in the Navy.

Critics of persuasion by glamour can cite many examples where slick advertising and presentations caused victims to do harm to themselves — as mild as buying something they did not need and did not use, in which case they traded some money for a brief sense of pleasure in the having of the object. Or as serious as the spell cast over many of the German people by the Nazis using filmed propaganda, with revived pseudoclassical symbols and theories of Aryan mysticism, to justify their expansion and the demonization of “subhumans.”

Similarly, Sigmund Freud’s nephew, Edward Bernays, the “father of PR,” (and father of my Harvard fiction writing teacher!), began the use of mass market persuasion techniques that included what today would be called “viral marketing,” by creating images and narratives designed to be picked up by the mass media and so persuade millions through a combination of advertising and free publicity. His “Torches of Freedom” campaign, which in hindsight seems evil, used a staged demonstration of actresses pretending to be freedom-fighting women demanding the freedom to smoke cigarettes. The National Post comments:

On Easter Sunday, 1929, about a dozen female socialites marched along Manhattan’s Fifth Avenue, ostentatiously smoking cigarettes. Their mission: to fight the stigma against public smoking for women. According to The New York Times, the women insisted that they weren’t holding mere cigarettes but “torches of freedom.”

The march was choreographed by Vienna-born PR pioneer Edward Bernays, then on retainer with the American Tobacco Company. The story is vintage Bernays: a quintessential example of his knack for manipulating public opinion with evocative images and phrases. Bernays had learned from his uncle, Sigmund Freud, that people were basically irrational, driven by instincts. The enterprising nephew unabashedly exploited this insight, appealing to emotions and not intellect whether he was selling Ivory Soap or Calvin Coolidge. The approach revolutionized consumer culture.

Bernays influenced political communication, too. He was dismayed to learn that his 1923 book, Crystallizing Public Opinion, was in Nazi propagandist Joseph Goebbels’ bookcase. Still, in another context, Bernays would likely have approved of Goebbels’ claim, that “in the long run basic results in influencing public opinion will be achieved only by the man who is able to reduce problems to the simplest terms and who has the courage to keep forever repeating them in this simplified form, despite the objections of the intellectuals.” Both men knew well: The public opinion battlefield is the heart, not the head.

believe_woman_smoking

If we are thinking morally, this is usually where we get off the persuasion bus. Let’s suppose that we believe what we want to persuade the public to do will be good for them, on the whole; but we are going to elide the details that might “complicate” their evaluation of our proposals, leaving out the real-life problems that may come up, and make simplified assertions that anyone who understands the situation well will know cannot possibly be the whole truth.

And, voilà! Obamacare!

By a series of steps it is possible to convince an otherwise well-meaning and honest person (or entire political party) that lying over and over again to persuade people to give you permission to spend a trillion dollars on a complex program (too complex, it turns out, to actually be executed well or as planned) that benefits a few people a lot, somewhat more people a little, and harms the balance, sometimes significantly. A billion dollars was spent on duplicative software, mostly wasted; hundreds of millions more on advertising which also left out any significant problems the plan might create for some; and hundreds of millions of dollars more on foot soldiers to promote and assist (and remind the beneficiaries who gave them the gift.) The President was an unusually glamourous figure and supported by both Hollywood and the glamour of rhetoric and dream-spinning. But alas, behind the glamour there was a lack of competence in execution, despite good intentions.

Destruction comes to those who believe the glamour they have spun around themselves. To make this a nonpartisan roasting, note the Bush administration in Iraq, who very successfully used the US’ competent and overwhelming military to bring down Saddam Hussein in only a few days with the least loss of life and property of any major war in history. Hubris was achieved shortly thereafter, when the occupation dismantled existing police and government functions to (they thought) create a brand new government and society based on US models of representative government and modern freedoms. The resulting chaos and civil war more than wiped out any advantage gained for either the US or the Iraqi people. Good intentions did not magically create good results.

The greater the risk being taken with the audience’s lives or fortunes, the less justifiable is any misleading persuasive technique, including glamour. We should always be asking, “What if I am wrong? What is the downside of what I want them to do if they are not successful? How painful and destructive is disillusionment from the illusion I am trying to create?”

This article from MarketingProfs discusses the new world of marketing where there are so many sources of information and eager writers among the public that creation of lying spin is much harder (despite the example of Obamacare, which was enabled by a certain uniformity of background — and lack of economic knowledge — of most media reporters.) To quote:

Today, people who want to make great stories can use technology to influence public perception, rather than shape public perception around a lie. Think of it like this: Consumers no longer buy out of a fear of not having something; they buy because the product has the potential to enhance their personal story. Progressive marketing companies such as SHIFT Communications and TGPR talk more about how we make and share real stories—rather than “tell” them.

Dreams of being beautiful and admired (fashion, cosmetics, jewelry…) or powerful, wealthy, and admired (luxury cars, watches, ski houses in Aspen…), competent and skilled and admired (Olympic athletes, dancers, musicians…) are all worthy. One question to ask when you are spinning up a glamour aimed at young people is: how many of them can actually achieve it? Say you have written a script about a ghetto kid who takes up basketball and makes it to the big leagues, suffers one crisis when he takes his new position and love interest for granted, and (heartwarmingly) learns to wisely value those who care for him. What happens to the kids who focus on basketball and neglect other things? While we know most will be disappointed, we also know any kind of focus on achievement is better than no focus. What are the offramps along the way for those who fail to get the brass ring? Going to a good school on a scholarship gives the kid a chance to pick up other skills and find other dreams. Being on a team and showing up regularly for practice teaches the most important skills of holding any job.

It’s clear that people need their dreams, and glamour can lead them in directions they did not expect or know of, but were ready for. The mass marketing of glamour has accelerated the dissatisfaction with what is, and the motivation to create the “what ifs” we call progress. The increasing availability of information uncontrolled by one or a few sources means the future is being created by a glamour with more realism, tucked just out of sight but known to be there. But it can still excite the mind and make the heart beat faster, and move the dreamer to take the chance on the dream.


Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 


For more on pop culture:

The Lessons of Walter White
“Blue Valentine”
“Mad Men”
“Mockingjay” Propaganda Posters
“Big Bang Theory” — Aspergers and Emotional/Social Intelligence
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
Reading “50 Shades of Grey” Gives You Anorexia and an Abusive Partner!
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
“Raising Arizona” — Dream of a Family

The Power of Glamour

Power of Glamour

Power of Glamour

The Power of Glamour, by Virginia Postrel.

One of the duties of our public intellectuals is to mine the culture for fresh new ways of seeing and describing the world, bringing together seemingly disparate examples and finding regularities and order in what had only been vaguely understood before. Virginia Postrel has been at this for years, and her latest work is a wonderful read that will help anyone in design, advertising, photography, publicity, or any of the arts of persuasion understand at a deeper level how this dream-making works.

When I was living in Vancouver, I had a friend — Clark Candy, a cousin of John Candy’s — who had recently moved from Toronto after a career in advertising. A motorcycle accident had crushed his knee, and during the long rehab process he decided not to go back to work in advertising, which he felt had little meaning — persuading people to buy things they did not need by trickery and slick lies, eliding ugly realities. He later went on to help produce glamorous TV productions like Once Upon a Time, so he ended up doing much the same work as he did before; perhaps if he had read this book then he might have seen more meaning in his advertising work. Mad Men‘s Don Draper is a character who creates glamours for a living, and is himself a crafted image hiding a troubled soul; but without glamour and aspiration, life would be drained of the spur to progress and self-actualization of these imagined futures.

Glamour, she writes, exists between the viewer and the viewed. It is a subjective illusion of an effortless life, a higher and better self that you might become if only you could put yourself into the picture. A glamour is a spell, like a reverie or dream of your future created by images and ideas. She points out that glamour has always existed — Homer’s epics recited in ancient Greece produced yearnings for lives of heroism and unforced grace in listeners not dissimilar to today’s comic book heroes; artists were commissioned to create paintings of idealized existences to reinforce and inspire the real models, as well as present their favored image to others.

But the enormous increase in mass-produced imagery in the last century has given glamour a new importance, as more and more high-powered images are present in even the poorest people’s lives. Like any tool of persuasion, glamour can be used for good (inspiring young people to work toward careers they might otherwise have never achieved) or ill (politicians use glamour in propaganda — Nazis, Italian fascists, and the USSR, for example.)

With a wealth of examples, the reader is able to make generalizations and follow along as she lays out a new vocabulary for discussing glamour: Sprezzatura, the effortless grace of achievement, a stylish performance without apparent sweat or concern (which of course conceals endless practice and polishing;) theatrical grace, the kind of glamour produced by the artifice of hiding the effort to produce it behind the stage scenery; darkroom grace, created by editing and eliding the flaws and selection of what to leave out (as of a photo) to produce an image with the emotional power to fuel a dream unencumbered by the details of its production.

She casts her net wide in the cultural landscape and brings in examples from every part of high and low culture: Hollywood, comic book heroes, cowboys, Gibson Girls, Star Trek, Princess Di, Che Guevara, Helen of Troy and Achilles, theater, industrial design, Mad Men, and Apple. The examples and photographs are delightful and consistently entertaining.

The hardcover itself is an example: perfectly laid out, a sensual pleasure to read and feel. I rarely read anything but ebooks these days, but for this work about a primarily visual phenomenon, the hardcover is the wise choice. It’s the ideal coffee table book.

Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women

divorce cake

divorce cake

We’ve all met the bitter divorced men who feel the system and their ex-wives did them wrong. I don’t take a strong position — I certainly have seen examples of unfairness, but also of couples acting reasonably and courts acting responsibly. But this study (“Divorce and Suicide Risk,” J Epidemiol Community Health 2003;57:993 doi:10.1136/jech.57.12.993) is shocking.

There are many negative effects of divorce, from a decline in living standards for all parties involved, to damage to children, to personal unhappiness of the participants. The aggrieved men are not always free of blame, but their numbers and anger are having an effect on the debates over divorce reform. Family Courts should have as much sympathy for the husband as for the wife and children, and while joint custody is more common now, it is still typical for the wife and children to stay in the family house while the father is kicked out. Perhaps it should be more common for both parties to remain in the home while the children grow up unless they truly are unable to be civil to each other. I know plenty of couples who might as well be divorced but stay married and civil for their kids’ sake.

For more on family law and politics:

Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Life Is Unfair! The Militant Red Pill Movement
Leftover Women: The Chinese Scene
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
Madmen, Red Pill, and Social Justice Wars
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Stable is Boring? “Psychology Today” Article on Bad Boyfriends
Ross Douthat on Unstable Families and Culture
Ev Psych: Parental Preferences in Partners
Purge: the Feminist Grievance Bubble
The Social Decay of Black Neighborhoods (And Yours!)
Modern Feminism: Victim-Based Special Pleading
Stereotype Inaccuracy: False Dichotomies
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
Red Pill Women — Female MRAs
Why Did Black Crime Syndicates Fail to Go Legit?
The “Fairy Tale” Myth: Both False and Destructive
Feminism’s Heritage: Freedom vs. Special Protections
Evolve or Die: Survival Value of the Feminine Imperative
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
Reading “50 Shades of Grey” Gives You Anorexia and an Abusive Partner!
Why We Are Attracted to Bad Partners (Who Resemble a Parent)
Gaming and Science Fiction: Social Justice Warriors Strike Again
Culture Wars: Peace Through Limited Government

More on Divorce, Marriage, and Mateseeking

Marriages Happening Late, Are Good for You
Monogamy and Relationship Failure; “Love Illuminated”
“Millionaire Matchmaker”
More reasons to find a good partner: lower heart disease!
“Princeton Mom” Susan Patton: “Marry Smart” not so smart
“Blue Valentine”
“All the Taken Men are Best” – why women poach married men….
“Marriage Rate Lowest in a Century”
Making Divorce Hard to Strengthen Marriages?
Student Loan Debt: Problems in Divorce
“The Upside of ‘Marrying Down’”
The High Cost of Divorce
Separate Beds Save Marriages?
Marital Discord Linked to Depression
Marriage Contracts: Give People More Legal Options
Older Couples Avoiding Marriage For Financial Reasons
Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Vox Charts Millennial Marriage Depression
What’s the Matter with Marriage?
Life Is Unfair! The Great Chain of Dysfunction Ends With You.
Leftover Women: The Chinese Scene
Constant Arguing Can Be Deadly…
“If a fraught relationship significantly shortens your life, are you better off alone?
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
“It’s up there with ‘Men Are From Mars’ and ‘The Road Less Travelled’”
Free Love, eHarmony, Matchmaking Pseudoscience
Love Songs of the Secure Attachment Type
“The New ‘I Do’”
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Mark Manson’s “Six Healthy Relationship Habits”
“The Science of Happily Ever After” – Couples Communications
Free Dating Sites: Which Have Attachment Type Screening?
Dating Pool Danger: Harder to Find Good Partners After 30
Mate-Seeking: The Science of Finding Your Best Partner
Perfect Soulmates or Fellow Travelers: Being Happy Depends on Perspective
No Marriage, Please: Cohabiting Taking Over
“Marriage Markets” – Marriage Beyond Our Means?
Rules for Relationships: Realism and Empathy
Limerence vs. Love
The “Fairy Tale” Myth: Both False and Destructive
When to Break Up or Divorce? The Economic View
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
“Sliding” Into Marriage, Small Weddings Associated with Poor Outcomes
Subconscious Positivity Predicts Marriage Success…
Why We Are Attracted to Bad Partners (Who Resemble a Parent)

Serial Monogamy: the Fearful-Avoidant Do It Faster

Elizabeth Taylor, pioneering serial monogamist.

Elizabeth Taylor, pioneering serial monogamist.

[2007: Case of the rare fearful-avoidant, Nate.]

Nate’s operating mode is serial monogamy. He feels more secure with one other person and the underlying compulsion to find a source for sex and companionship compels him to try to find a monogamous LTR — over and over and over, with a breakup on average just a few months after committing.

Serial monogamy is now the dominant model for relationships in the West. Where true monogamy implies coupling for life, serial monogamy is exclusive only for a limited time, and implies that when an exclusive relationship stops working for the benefit of either partner, it should end and new partners be found. The old model of forever-after monogamy is honored mostly in the breach, still held up as an ideal though longer lives, urban surroundings, and increased wealth reduced the benefits and increased the opportunity cost of permanent commitments. Even politicians can’t conform to the permanent monogamy standard, it seems, though for the benefit of voters they continue to talk about it in glowing terms.

Younger people in the upper classes now mostly accept the more realistic expectation that they will have multiple partners in their lifetimes. An article from The Dartmouth Free Press expresses the modern view, excerpted here:

Serial monogamists are undoubtedly looking for love, admiration, and respect, but find themselves in mismatched relationships, until (they pray) one will end the series. If you are in such a situation, consider the compromises and sacrifices outlined in the tongue-in-cheek book “Does He Love Me or Am I Just Paranoid? The Serial Monogamist’s Guide to Love” by Carina Chocano: “Step 1: Lower Your Standards. Start by asking yourself the following: Does he really have to be attractive? Does he really have to be smart? Does he really have to be clean? Does he really have to be sane? Step 2: Question Your Instincts. Your gut is telling you to run far away. Pretend not to hear it….Step 3: Accentuate the Positive. Before dismissing someone as “ugly” or “crazy,” take the time to examine his positive qualities: Is he wonderfully weird? Is he thrillingly obsessive-compulsive? Is he expertly medicated?”

So Nate is not alone in this seemingly fruitless emphasis on an outcome that never happens for him over the acceptance and enjoyment of flawed partners as they are, while in the process of getting to know them. The unusual aspect of Nate’s relationship history is the number of partners he’s tried out and the speed of the breakups; otherwise he’s in the mainstream. Family and friends and society at large have told him he should try to achieve permanent partnership with someone respectable, and in pursuit of that goal he will break and leave behind any relationship that doesn’t seem to be heading in that direction, usually because he becomes aware that his prospective partner will end up boring him in time. This is a problem for all really smart people; finding someone who will be stimulating for a lifetime is very much harder than it is for more normal people.

Nate’s prospective partners have mostly been of the same mindset: seeking stability and permanence, and often devastated when such a seemingly perfect boyfriend dumps them. Nate has not helped them much by tending to go along with their plans at first; he has not learned the trick of reducing expectations and being forthcoming about the tentative nature of his interest, so until recently they have had good reason to feel let down when he exited abruptly under the pressure of their expectations. But they, too, only see one brass ring to try for, and reject a relationship that might be satisfying and worthwhile even if not leading to their ideal outcome. And so everyone who lives this dominant paradigm is set up for disappointment and loss while surrounded by interesting and attractive people who’d want to spend time with them….


Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 


More on Divorce, Marriage, and Mateseeking

Marriages Happening Late, Are Good for You
Monogamy and Relationship Failure; “Love Illuminated”
“Millionaire Matchmaker”
More reasons to find a good partner: lower heart disease!
“Princeton Mom” Susan Patton: “Marry Smart” not so smart
“Blue Valentine”
“All the Taken Men are Best” – why women poach married men….
“Marriage Rate Lowest in a Century”
Making Divorce Hard to Strengthen Marriages?
Student Loan Debt: Problems in Divorce
“The Upside of ‘Marrying Down’”
The High Cost of Divorce
Separate Beds Save Marriages?
Marital Discord Linked to Depression
Marriage Contracts: Give People More Legal Options
Older Couples Avoiding Marriage For Financial Reasons
Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Vox Charts Millennial Marriage Depression
What’s the Matter with Marriage?
Life Is Unfair! The Great Chain of Dysfunction Ends With You.
Leftover Women: The Chinese Scene
Constant Arguing Can Be Deadly…
“If a fraught relationship significantly shortens your life, are you better off alone?
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
“It’s up there with ‘Men Are From Mars’ and ‘The Road Less Travelled’”
Free Love, eHarmony, Matchmaking Pseudoscience
Love Songs of the Secure Attachment Type
“The New ‘I Do’”
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Mark Manson’s “Six Healthy Relationship Habits”
“The Science of Happily Ever After” – Couples Communications
Free Dating Sites: Which Have Attachment Type Screening?
Dating Pool Danger: Harder to Find Good Partners After 30
Mate-Seeking: The Science of Finding Your Best Partner
Perfect Soulmates or Fellow Travelers: Being Happy Depends on Perspective
No Marriage, Please: Cohabiting Taking Over
“Marriage Markets” – Marriage Beyond Our Means?
Rules for Relationships: Realism and Empathy
Limerence vs. Love
The “Fairy Tale” Myth: Both False and Destructive
When to Break Up or Divorce? The Economic View
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
“Sliding” Into Marriage, Small Weddings Associated with Poor Outcomes
Subconscious Positivity Predicts Marriage Success…
Why We Are Attracted to Bad Partners (Who Resemble a Parent)

myCFO: Corruption in Financial Services: Inevitable?

myCFO logo

myCFO logo


[from 2007] Some great dirt in yesterday’s WSJ about a company I used to be associated with, myCFO, which was founded during the dotcom bubble to service the financial needs of the booming numbers of IPO-based multimillionaires here in Silicon Valley.

There was nothing wrong with the basic idea: instead of allowing the investment banking and white-shoe firms like Goldman Sachs and Morgan Stanley that took their companies public to grab the followon business of investing their fortunes, these folks would set up a technology-oriented, unbiased practice which would function as a family office for the them.

I had been functioning as a family office for one such IPO multimillionaire for several years when the straight-arrow accountant we used, Kevin McAuliffe at Ernst&Young, became a founding director at myCFO. It appeared they were going to build an excellent management platform which would relieve me of the tedious backoffice business of keeping detailed portfolio records in my expensive portfolio management system (Axys) and generate all the necessary custom reports for me, so I brought my clients over to myCFO, which was making all the right noises. Technically I was a client of theirs and so paid them for certain services — as were my clients. But in practice, we were supposed to be partners in serving my clients.

At first all seemed to go well, and all my records were successfully transferred to myCFO’s Axys-based (temporarily, they said) accounting system. But very little happened in rolling out the web-based management platform, and after a year of promises without results I started to get annoyed. Then myCFO began to interfere with the relationship with my clients, pushing on them investment packages I deemed unwise and trying to go around me to persuade them to do things. This was not the way the relationship was supposed to work, and it was clear that despite their claim to be neutral presenters of investment products, the same incentives to market packages for high fees were starting to make themselves felt. I started to have to spend time inoculating my clients against these marketing pressures. Eventually the strain of this contributed to my deciding to close up shop and retire, since I no longer needed the money. My other reasonable alternative was to restructure myself into a hedge fund, but I didn’t really feel the motivation to undertake another startup-equivalent effort.

Here’s an excerpt from an email I wrote to the new investment services manager there as the company began to fall apart in late 2002:

I have been preoccupied with end-of-year tax strategizing and portfolio cleanup. The personal portfolio’s first stage was done two weeks ago, second stage (required by wash-sale rules) scheduled for Dec. 10th or so. The result is about $400K captured losses for future use, plus a more manageable portfolio.

The CRT part of the process was thrown into some turmoil because I was given bad information about the taxation of CRT gains and losses, and never received a copy of the CRT’s current tax account status as requested in mid-year. Capturing tax losses (beyond what’s needed to cover any short-term gains) in the CRT is useful only to a small extent which only appears under some scenarios, so there is no need to swap one position for another just for that reason; the reason to consolidate is more for sake of management ease. The earlier work done on this has to be redone with these new considerations, so wholesale exchanges are probably not worth the cost. I would suggest that people in meetings refrain from making off-the-top-of-their-head strategy pronouncements about tax-complex entities in future.

I don’t know what’s going to be left of myCFO under the new dispensation, though I will be happy to advise **** and **** on service choices. In my view the company totally failed in its original premise, which was application of web technology to remove all the “sticky” factors which made service of wealthy family needs difficult. It was my unwise idea to take a chance on myCFO, and I take responsibility for the inconvenience to [my clients]. At least it’s clear that they did not suffer financially, but it is far from clear that myCFO’s advisory practice is the best choice going forward, and I suggest [my clients] treat as a sales effort any meeting such as you describe where I am not there to note distortions and unproved assertions. And in this field, distortions and unproved assertions are standard practice. myCFO is not the same organization now, and it remains to be seen whether it has conflicts of interest in advisory services similar to standard brokerages now that it is controlled by the Bank of Montreal. It is widely expected that the bank purchased myCFO for the profits to be had in asset management, and if so the activities of IAS in future should be viewed with great suspicion. Goodwill once sold has a way of being milked.

Well, it turns out that myCFO fell for the temptation to sell bad tax shelters to its less scrupulous clients. The straight-arrow tax guy I worked with, Kevin McAuliffe, has a 120-page deposition he gave about the topic posted at the WSJ website yesterday. It makes for interesting reading – no matter how much he tried to warn others that these fee-heavy shelters were bad news for both clients and the company, he was ignored as the firm rushed to beef up its revenues for the expected IPO. Kevin left shortly before I did as the bad actors drove out the good.

[Ed. note: the story link has rotted, so I include the text below.] John Doerr, Silicon Valley VC legend, comes off looking like an ass.

HOUSE OF ‘CARDS’

Fling With Tax Shelters Haunts Silicon Valley
Funded by Tech Barons, MyCFO Inc. Sold Deal The IRS Later Nullified
By PETER WALDMAN
March 6, 2007; Page A1

John Doerr is the dean of Silicon Valley venture capitalists, one who helped launch tech icons like Google and Sun Microsystems. A billionaire, he works with rock star Bono to fight poverty in Africa and with others to increase aid for education and medical research.

Mr. Doerr is less well known for one investment that didn’t pan out. Called myCFO Inc., the firm set out to provide rich people a full menu of financial services, from wealth management to estate planning. It succeeded with only one: tax shelters that helped clients shield hundreds of millions of dollars from taxes. Less than two years after myCFO began selling them in 2000, the Internal Revenue Service said they were bogus.

MyCFO ceased independent operations five years ago, but it still casts a shadow. A bank that underwrote some of its tax deals has admitted that they were shams. Former clients, hit with back-tax bills, are fighting the IRS. Two ex-clients have alleged that myCFO’s tax deals were fraudulent.

Two lawyers who worked with myCFO are under tax-fraud indictment for their work on similar tax shelters. The Manhattan U.S. attorney’s office, which has charged more than a dozen people in connection with tax shelters, said in a court filing last April that it had “an ongoing criminal investigation” involving “various former employees of myCFO.”

The financial backers and board members of myCFO were Silicon Valley royalty. They included James H. Clark, co-founder of Netscape Communications and Silicon Graphics; John Chambers of Cisco Systems Inc.; Thomas Jermoluk, former chairman of Excite@Home; and former Netscape boss James Barksdale. The firm’s outside legal counsel was Larry Sonsini, lawyer to Silicon Valley’s stars.

The firm was Mr. Clark’s idea. Mr. Doerr led its financing and took a leading role on the board. In typical Silicon Valley fashion, board members were closely involved with strategy and operations, according to company documents and legal papers reviewed by The Wall Street Journal. The documents show that directors pushed ahead with the tax-shelter business despite signs that all wasn’t right with the product.

Mr. Doerr praised the head of the firm’s tax-strategies group in a 2001 email for “not only delivering on your original [business] plan, but going beyond to make up the revenue shortfall from the recurring business.” MyCFO “has my full support, and the full support of [my] partners” at Kleiner Perkins Caufield & Byers, the venture-capital firm that financed myCFO, he added.

MyCFO’s story shows how the sudden wealth spawned by the technology boom had hidden impacts that still echo in Silicon Valley. “There were 30-year-old clients making hundreds of millions of dollars — it was intoxicating,” says James Phillips, myCFO’s former chief investment officer. “The accountants and CPAs wanted their share, too.”

At the time, tax shelters were a lively business. Dozens of national law and accounting firms sold these strategies — Byzantine transactions that often involved foreign currencies and offshore middlemen. MyCFO selected a few tax shelters and refined them for a clientele dripping in capital gains.

Some of California’s leading industrialists were customers. Ray Irani, chief executive of Occidental Petroleum Corp., did a tax deal through myCFO, company records show. So did Ariba Inc. co-founder Boris Putanec and Val Vaden, co-founder of financier Benchmark Capital.

Mr. Jermoluk, the former Excite@Home chairman, was both a founding financier of myCFO and a shelter customer. For fees of about $2.4 million, he acquired ostensible losses to offset as much as $50 million of taxable income, according to company documents and a deposition by his former accountant, Kevin McAuliffe.

Mr. Jermoluk declined to be interviewed about myCFO, as did Messrs. Doerr and Chambers. Messrs. Clark and Barksdale didn’t respond to email and phone requests for interviews. A lawyer for the former directors told a tax client last October that they “categorically denied…misconduct or malfeasance of any sort.” The lawyer, David York, predicted myCFO’s main tax package ultimately “will survive a substantive tax law analysis” in court.

A spokeswoman for Mr. Sonsini said his law firm did basic legal work for myCFO that didn’t include reviewing its tax offerings. Messrs. Vaden and Putanec declined to comment, while Occidental said Dr. Irani wouldn’t comment “on what is clearly a personal matter.”

MyCFO’s main tax shelter, sold to 17 clients, was called Cards, for Custom Adjustable Rate Debt Structure. Each involved an ostensible 30-year bank loan to a foreign party for $50 million to $100 million. MyCFO’s client then assumed the loan and, after some complex swapping of collateral, claimed a loss for tax purposes of nearly the full amount of the loan. Others besides myCFO also marketed Cards.

The IRS in March 2002 ruled Cards invalid. Largely as a result, myCFO sold its name and client list and liquidated its tax business.

The IRS said Cards failed a basic test of legitimacy: It lacked any real economic purpose other than to lower taxes. The agency added that clients were never really at risk for the supposed $50 million or more in loans.

Most myCFO shelter clients are challenging the IRS’s action, in federal court in San Jose. But two broke ranks and alleged the shelters were fraudulent, in civil racketeering suits they filed against big banks that underwrote their Cards deals. They claim they were misled to believe the shelter’s loan structure was actually a viable credit facility. (See adjoining article7.)

From the start, there were internal warnings. Mr. McAuliffe, a former Ernst & Young tax partner who was one of myCFO’s first hires, said that when the firm was just gearing up in 1999, some of its accountants wanted to shun tax “elimination” deals. He warned Mr. Jermoluk and Chief Executive Art Shaw that myCFO was relying too heavily on tax shelters for revenue, Mr. McAuliffe said in a 2005 deposition for a tax client’s lawsuit in San Francisco Superior Court. But he said the founders were talking about an initial public offering, and his warnings went unheeded amid IPO “fever.” Mr. Shaw, CEO of advertising firm Netblue Inc., didn’t return calls seeking comment.

MyCFO had obtained the Cards strategy from a San Francisco investment boutique called Chenery Associates, which also provided it to others. Chenery had done a Cards deal for an aircraft-leasing company, which registered it with the IRS as a tax shelter. The IRS requires corporations to register such tax-driven deals. Its rules for when individuals must register a deal they’re using as a shelter are less strict.

MyCFO officials said their clients would never accept a transaction they had to register as a tax shelter, Chenery Associates owner Roy Hahn later testified in a deposition for San Francisco Superior Court. A lawyer for Chenery removed the obstacle. He wrote an analysis saying that Cards wasn’t a tax shelter under relevant IRS rules.

The lawyer, Graham Taylor, then at LeBoeuf, Lamb, Greene & MacRae, wore multiple hats. He also represented myCFO in refining the tax strategy, court documents show. And when myCFO signed up Cards clients, it arranged for them to hire Mr. Taylor as their lawyer. For fees of roughly $85,000 per client, he supplied many of them with letters saying that if the IRS found their deductions invalid, they shouldn’t owe penalties because they had relied on “an opinion from reputable counsel.”

That counsel, it turned out, was a co-inventor of Cards, Raymond J. Ruble, then at law firm Brown & Wood. The law firm got $250,000 each time a client used Cards. Chenery paid this out of its share of the tax client’s fee.

Chenery also agreed to pay 20% of its own fee into a Ruble family trust, according to court records and Mr. Hahn’s testimony.

MyCFO directors had several briefings about tax shelters, minutes of board meetings show. One in mid-2000 led to a marketing delay while the firm’s general counsel reviewed the matter. Three months later, the IRS, in connection with a similar shelter, warned that “an artificial loss lacking economic substance is not allowable.” Within weeks, myCFO decided to go ahead with marketing Cards.

It quickly signed up 10 clients for fees totaling $16 million. As those deals were closing in late 2000, Mr. Ruble from Brown & Wood emailed myCFO an article in which a prominent tax analyst called Cards a blatant tax dodge. Mr. Ruble said the analyst had “totally missed the boat on business purpose,” which he said lay in financing opportunities.

As the tech bubble deflated, myCFO imposed layoffs and spending cuts, but not on the tax-strategies group. MyCFO’s growing reliance on tax shelters for revenue was discussed at a board meeting in August 2001. At that meeting, the board’s compensation committee, Messrs. Doerr and Clark, approved stock options for 94 employees — giving a third of them to the firm’s top two tax strategists.

One director asked if myCFO would have an obligation to refund clients’ fees if the tax deals were unwound. “It was basically, ‘Gosh, is this kosher?’ ” says someone who was there. “Then they read the attorneys’ comfort letters and everyone shut up.”

Mr. Doerr was a booster for the firm’s tax strategists. In response to Mr. Doerr’s 2001 email lauding the tax team for its performance — which he sent on Sept. 11, 31 minutes before the first plane struck the World Trade Center — the tax team’s leader reported landing $4.5 million more in fees. Five days after 9/11, Mr. Doerr replied: “This is AWESOME news, particularly during a week marred by national tragedy…. Please keep me posted.”

But some of myCFO’s accountants and client-service people were in revolt, according to Mr. McAuliffe’s deposition. In late 2001, he and several colleagues refused to sign shelter clients’ tax returns until myCFO agreed to indemnify them for any personal liability. One client was claiming a tax loss greater than his net worth. “It was only a matter of time until the IRS came down pretty hard,” Mr. McAuliffe testified.

In January 2002, the IRS offered a broad tax-shelter amnesty: It would waive penalties for any taxpayer who owned up to using a questionable shelter.

MyCFO staffers disagreed over what to tell clients about this and whether to discourage them from taking the amnesty. Ultimately, the firm sent out what General Counsel Steve Debenham, in an email about a draft to a colleague, called “a CYA letter,” for “cover your a — .” It said the IRS appeared to be focusing on the packages offered by major accounting firms, which “may be less credibly supported by a substantive economic justification….”

Mr. McAuliffe mocked that distinction in an email to colleagues. “Same law firms, similar or same promoters, same tax effect,” he said, wondering if myCFO was “smoking our own dope again?”

He also dismissed the idea that myCFO’s clients were penalty-proof for relying on reputable counsel. “You bought your opinion. You bought your comfort-level letter,” he said later in his deposition. Mr. Debenham and Mr. McAuliffe both declined to be interviewed.

Two months later, the IRS ruled that Cards was an improper shelter. MyCFO’s board discussed the ruling by phone. MyCFO by this time was little more than a tax-shelter brokerage, according to documents prepared for the meeting. If it closed its shelter business, it would forgo $10 million in revenue in the next three months and be in the red.

Instead of closing the tax business, myCFO tried to revive it by hiring a veteran of KPMG, an accounting firm that was especially active in selling tax shelters. The employee, Randall Bickham, brought a pipeline of tax deals worth a projected $7 million in fees.

The board also explored selling the company. MyCFO documents show Deutsche Bank AG, which had worked with myCFO on several Cards deals, expressed interest in acquiring the firm for $200 million to $300 million, but backed away, citing potential tax-shelter liability. Bank of Montreal agreed to buy myCFO for $90 million but it, too, backed out over the same concern, myCFO documents show. In October 2002 Bank of Montreal finally purchased just myCFO’s name, client list and some other assets. It paid $30 million, about a third of the sums the Kleiner Perkins founders and others had put in. Bank of Montreal now has a private-banking unit called Harris myCFO Inc., which declined to comment.

Directors assigned the rest of myCFO to a liquidator. They gave Mr. Bickham, the former KPMG man, a $1.4 million contract, paid in advance, to maintain files and assist clients in “controversy issues” with the IRS.

In 2005, Mr. Bickham was among those charged by the Manhattan U.S. attorney with tax evasion and conspiracy to defraud the IRS. The charges relate to work he did while at KPMG. He has pleaded not guilty and declined to comment.

Also charged was Mr. Ruble, the Cards co-inventor. He was cited for tax-shelter work he did for others, mostly KPMG. Mr. Ruble’s law firm had fired him, after discovering the deal he had with Chenery to funnel 20% of Chenery’s fees into a Ruble family trust.

By that time, Mr. Ruble was at Sidley Austin, which had absorbed Brown & Wood. Sidley Austin and KPMG both faced civil litigation over tax shelters, which they settled last year for $179 million, including legal fees.

Mr. Taylor — the lawyer who helped myCFO refine the shelters and assisted its shelter clients — was indicted in a tax-shelter matter in Utah. Both he and Mr. Ruble have pleaded not guilty, and both declined to comment.

Federal prosecutors also investigated a German bank that helped arrange some of myCFO’s tax shelters. In a deferred-prosecution deal reached last year, the bank, Bayerische Hypo-und Vereinsbank AG, or HVB, agreed to a $30 million penalty and admitted that the Cards deal contained “fraudulent and illegal elements.”

The bank’s confession didn’t mention myCFO. But it said “all parties involved” knew the Cards credit facility wasn’t a legitimate long-term loan and would be unwound in about a year to generate “the phony tax benefits sought.” Said HVB, in a Statement of Admitted Facts: “The transactions were prearranged by the promoters… and had no purpose other than generating tax benefits for the clients involved.”

Hyperlinks in this Article:
(1) http://online.wsj.com/article/SB117315094960127889.html
(2) http://online.wsj.com/public/resources/documents/mycfo-mcauliffedepo-03062007.pdf
(3) http://online.wsj.com/public/resources/documents/mycfo-final-McAuliffe-Exhibits.pdf
(4) http://online.wsj.com/public/resources/documents/mycfo-doerremails-03062007.pdf
(5) http://online.wsj.com/public/resources/documents/mycfo-hvbstatement-03062007.pdf
(6) http://online.wsj.com/public/resources/documents/mycfo-boardpresentation-03062007.pdf
(7) http://online.wsj.com/article/SB117315094960127889.html
(8) http://online.wsj.com/public/resources/documents/mycfo-deutschebank-03062007.pdf
(9) http://online.wsj.com/public/resources/documents/mycfo-jonesruling03062007.pdf
(10) http://online.wsj.com/public/resources/documents/mycfo-houlihanpresentation03062007.pdf
(11) http://online.wsj.com/public/resources/documents/mycfo-bickham-03062007.pdf
(12) http://online.wsj.com/public/resources/documents/mycfo-iranletter-final.pdf
(13) http://online.wsj.com/public/resources/documents/mycfo-thurmonddepo-03062007.pdf
(14) http://online.wsj.com/public/resources/documents/mycfo-case03062007.pdf
(15) http://online.wsj.com/public/resources/documents/mycfo-businessplan03062007.pdf

Starbucks, Jamba Juice Make You Fat

starbucksfrappuccino

[2006] This article discusses those sweet, caffeinated smoothies Starbucks sells, and their desire to sell them to kids without appearing to market to children directly. They are introducing Frappucino™ juice blends; I don’t see nutritional info on the new drinks on their web site, but they are probably even worse than the existing Frappucinos, which typically have more than 400 calories of (mostly) sugar (80 g carbs) for a 16-oz serving. This is a sugar bomb — drinking one of these will spike your blood sugar, leading to more fat deposition followed by a carb-craving coma.

Note that Jamba Juice-ish smoothies are almost as bad, usually having 200+ calories of sugar in the same 16 oz. format. But juicing fruit lets the liquid sugars enter your bloodstream quickly, whereas fruit itself slowly releases its nutritional value as the cell walls break down in your digestive system, which is much better.

I’m not suggesting (as surely some will) that some government should step in to protect children (or anyone else) from unhealthy processed foods. But the constant advertising of fruit juice as something healthy misleads people into thinking they are choosing wisely when they pick up one of these.

It’s not unusual for people to have several of these concoctions a week. Then they wonder why they can’t stop gaining weight….

For more on diet and weight loss:

Getting to Less Than 10% Body Fat Like the Models – Ask Me How!
Fat Doesn’t Make You Fat. Government Guidelines Did!
‘Fed Up’ Asks, Are All Calories Equal?
Fructose: The True Villain?
More on “Fed Up”, Sugar Subsidies, and Obesity
Another Study on Diet Drinks
LeBron James Cut Carbs for Lean Look
Why We’re Fat: In-Depth Studies Under Way
Almonds: Superfood, Eat Them Daily for Heart Health
Fish Oil Supplements Ward Off Dementia
More on Diet Drinks: Best Studies Show They Aid Weight Loss
Vani Hari: “Food Babe” and Quack
Cleanses and Detox Diets: Quackery
Sugared Soft Drinks: Health Risk? (and What About Diet Soda?)
Gluten-Free Diets: The Nocebo Effect
Acidic Soft Drinks and Sodas: Demineralization Damages Teeth
Fish and Fish Oil for Better Brain Health
Salt: New Research Says Too Little May Be Unhealthy
Bulletproof Coffee: Coffee, Oil, and Butter for Breakfast?

Older Couples Avoiding Marriage For Financial Reasons

One of the themes I will bring up often is how legal marriage has been manipulated by legislatures who seem to want to promote it, then set up financial disincentives because in most of the tax and welfare policies they promote, they want to appear “progressive” — in other words, tax at a higher rate for the well-off, and remove social subsidies from people whose incomes go up. As a result, two income couples must seriously consider whether it is worth the legal protections of marriage when their taxes may rise and their subsidies fall. For older couples with children from previous marriages, legislatures have often taken away their freedom to give their estate away as they wish, requiring certain percentages to the surviving spouse. Even with complex prenups, courts may not follow their wishes, and so it is safer and cheaper to forgo legal marriage and try to get what protection they can from medical and financial powers of attorney and trusts. Which are also expensive to draft.

The New York Times covers this here.

More on Divorce, Marriage, and Mateseeking

Marriages Happening Late, Are Good for You
Monogamy and Relationship Failure; “Love Illuminated”
“Millionaire Matchmaker”
More reasons to find a good partner: lower heart disease!
“Princeton Mom” Susan Patton: “Marry Smart” not so smart
“Blue Valentine”
“All the Taken Men are Best” – why women poach married men….
“Marriage Rate Lowest in a Century”
Making Divorce Hard to Strengthen Marriages?
Student Loan Debt: Problems in Divorce
“The Upside of ‘Marrying Down’”
The High Cost of Divorce
Separate Beds Save Marriages?
Marital Discord Linked to Depression
Marriage Contracts: Give People More Legal Options
Older Couples Avoiding Marriage For Financial Reasons
Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Vox Charts Millennial Marriage Depression
What’s the Matter with Marriage?
Life Is Unfair! The Great Chain of Dysfunction Ends With You.
Leftover Women: The Chinese Scene
Constant Arguing Can Be Deadly…
“If a fraught relationship significantly shortens your life, are you better off alone?
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
“It’s up there with ‘Men Are From Mars’ and ‘The Road Less Travelled’”
Free Love, eHarmony, Matchmaking Pseudoscience
Love Songs of the Secure Attachment Type
“The New ‘I Do’”
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Mark Manson’s “Six Healthy Relationship Habits”
“The Science of Happily Ever After” – Couples Communications
Free Dating Sites: Which Have Attachment Type Screening?
Dating Pool Danger: Harder to Find Good Partners After 30
Mate-Seeking: The Science of Finding Your Best Partner
Perfect Soulmates or Fellow Travelers: Being Happy Depends on Perspective
No Marriage, Please: Cohabiting Taking Over
“Marriage Markets” – Marriage Beyond Our Means?
Rules for Relationships: Realism and Empathy
Limerence vs. Love
The “Fairy Tale” Myth: Both False and Destructive
When to Break Up or Divorce? The Economic View
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
“Sliding” Into Marriage, Small Weddings Associated with Poor Outcomes
Subconscious Positivity Predicts Marriage Success…
Why We Are Attracted to Bad Partners (Who Resemble a Parent)