Trust: Don't Bust It, Grow It


Just as "a certain age" means "an uncertain age," "trust but verify" means "don't trust--verify." And a bit late in the game, the arbitrator and mediator Barry Goldman tries to give some lessons to Los Angeles Times readers in "The Good Time Charley Theory of Customer Relations." Mainly: every trade and profession has major conflicts of interest.

According to Mr. Goldman there are three answers. One, tongue in cheek, is to

live in communities where we know everyone and only do business with people we know. Join the Amish.

But seriously, what about affinity fraud, which has appeared recently in some of the most devout religious circles?

Then there's stricter regulation. But wasn't Bernard Madoff a trusted SEC advisor in the Clinton era, when investor protection was supposed to have been a watchword? How can we verify whether current reforms will stop future con artists from adapting to the new regime?

And Mr. Goldman advises:

When the voice on the phone tells you he's got an investment that will double your money in 30 days, ask yourself: "Why is he calling me? If I knew about an investment that would double my money in 30 days, would I call him?"

Mr. Madoff's pitch, though, was that he didn't offer spectacular growth, just steady gains. Madoff investors thought they were being prudent and comparatively modest, and far from making aggressive cold calls, the perpetrator often played hard to get. That obscure CPA firm and those dot-matrix statements? Maybe just examples of economy. Secretive? So are many brilliant legitimate hedge-fund operators. You can hire a professional financial advisor to vet your investments, but some of them still fell for or even collaborated with Madoff.

This is the age of polymorphic suspicion. Each new remedy--like "evidence-based medicine"--has its own conflicts. Outsized bonuses are in part the result of 1990s executive pay reforms supposedly tying compensation to results, which of course only stimulates the manipulation of results. Feedback scams plague Web auction sites. School test scores? Scientific journal decisions? What measure hasn't been gamed, if not tainted?

Our problem might be not that we are gullible, but that we are so skeptical that our suspicion can be turned against us, as it is in spam antivirus programs. What America really needs to do is strengthen faith in our institutions. Negative checks aren't enough. There must be a positive plan. A good place to begin is this article on social capital.

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Edward Tenner is a historian of technology and culture, and an affiliate of the Center for Arts and Cultural Policy at Princeton's Woodrow Wilson School. He was a founding advisor of Smithsonian's Lemelson Center.

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