Casualty of duplicity


I knew it! Yes, I know it’s ungracious to say so, but it’s the truth. Three years ago I stopped by a newsagent in Melbourne’s CBD on my way to the doctor to be treated for a particularly nasty bug I’d picked up during an otherwise wonderful visit to Papua New Guinea. 

The newsagent launched into a laudation of Lance Armstrong, assuming after hearing my American accent I suppose, that I’d heartily agree. He did not react well when I replied, feeling very under the weather you must remember, that I thought Lance a drug cheat. “A cheat, you call the man a cheat? He’s been tested more than any other person in history. What more do you want?” he said, examining me head to toe as if this slightly dishevelled man with a greenish hue to his face, was the last person on earth who should be casting dispersions on a cancer-surviving, charity-leading sports hero for the ages. 

When God instructed us to be honest, He wasn’t asking us to sacrifice an advantage. He was instructing us to embrace a gift.

Of course, he was right. I had no evidence whatsoever. So why was I so sure? Because Armstrong won seven Tour de Frances in an era when we knew for sure many of the riders were doping. Think about that. He wouldn’t just have to be better than any rider in history, he’d have to be that much better than any doped up rider in the most competitive era in sports history. I haven’t calculated the odds on that, but it must be somewhere around a gazillion to one. 

But it’s not just Armstrong. I would put money, metaphorically you understand, that this year’s summer Olympics were as much about advances in chemistry as they were about advances in athleticism. We have had decades now of drug cheats remaining one step ahead of enforcement regimes in everything from baseball to swimming, athletics to football, weight lifting to boxing. Why would we think the enforcers miraculously caught up with the cheats this Olympics? Some of the more freakish performances only confirm my suspicions. 

But there is another reason I am suspicious of skullduggery: human nature. You see, wherever you look in the world, when the stakes are high, cheating is rife. But arguably it’s in the world of finance where the cold face of avarice leads to the most dangerous cheating.

We all know we’re in a period of tremendous global financial instability. But most of us don’t know why. Without getting too technical, this is how the mess began. People were given mortgages they couldn’t afford in America. But why would anyone give someone a mortgage they couldn’t afford? Because they got loan origination fees and then sold the mortgages to investment banks. Why would the investment banks buy them? Because they then bundled the mortgages together into “mortgage-backed securities”. But why would any sane investor purchase securities full of dangerously over leveraged mortgages from investment banks? Because investors didn’t know how risky they were. 

Investors didn’t understand the risks because the “independent” ratings agencies rated mortgage-backed securities as very safe. But why would ratings agencies risk their reputation to rate groups of high-risk mortgages as a safe investment? It could be that they simply were incompetent. But a number of experts have pointed to another reason: they had a financial incentive to do so, as they were reaping record revenues and profits from, you guessed it, rating mortgage-backed securities. And in order to keep the mortgage-backed securities ratings business of the largest investment banks, which not only gave them the business but paid them for their ratings, the ratings agencies had, as one analyst put it, “a strong incentive to play along”.1

Eventually homeowners did the predictable—they defaulted on the mortgages they couldn’t afford in droves. The mortgage-backed securities were then downgraded—many from AAA to junk status. As the securities were held by banks, pension funds, insurance companies and even governments around the world, this downgrading depleted the capitalisation of many lenders. As their capitalisation shrank, so did their ability to extend new loans and the whole credit market froze. So everyone from small time borrowers to large companies couldn’t raise capital and things started falling apart in every direction.

Tens of millions of people lost equity in their homes; many lost their homes in total, their jobs and their retirement savings. As an employee of one of the agencies that rated the risk of mortgage-backed securities, wrote to another before the crash: “Let’s hope we are all wealthy and retired by the time this house of cards falters.”2 Maybe he was. Or maybe he found himself clearing out his desk and walking out the door for the last time; like Armstrong, a casualty of his own duplicity. 

It turns out a central problem with dishonesty is that, while it can give individual advantage for a short period of time, it has a tendency to leave a wide swathe of destruction. And that destruction is nowhere better seen than in the lives of the perpetrators. When God instructed us to be honest, He wasn’t asking us to sacrifice an advantage. He was instructing us to embrace a gift.

1 Matthew Philips, “Did Rating Agencies Give Preference to Big Banks?”,

2 Lorraine Woellert and Dawn Kopecki, Moody’s, S&P Employees Doubted Ratings, E-Mails Say (Update2), Bloomberg,

James Standish is RECORD editor for the South Pacific Division.