The Gaza Crisis.
It’s been a week, and yet we’re still left with more questions than answers. There’s a lot of information out there, and there’s not a chance of me being able to cover everything. I’ll try to keep things reasonably brief.
Misinformation. The amount of misinformation and “fake news” surrounding the attack on Israel and the crisis in Gaza has been astronomical, and has become something of a meta-story. I’ve read a bunch of takes; the one I’d go with is this one from Vox.
Russia, Ukraine, and Broader Impacts. It’s taken Russia absolutely no time at all to blame US foreign policy for the current crisis in Gaza. It’s an argument about US policy towards Israeli settlements in the Occupied Territories. There’s a lot to poke at, but I’m trying to not turn Business Thoughts into a policy wonk Substack. (There’s enough of those already.) In more pot/kettle news, Putin’s gone and said that civilian casualties in Gaza would be “unacceptable.” Ukraine, anyone? But if, like me, you’re of the opinion that the news cycle can only handle one armed conflict at a time, as Gaza ramps up, coverage of Ukraine will inevitably ramp down. The infighting among Republicans in the US House of Representatives only makes matters worse. So, overall, Gaza erupting is a boon for Russia.
Hostages. The thing no one’s really talking about—because it’s depressing to talk about—is how the hostage situation in the current crisis is an unsolvable problem. Media coverage and “think pieces” offer little more than nervous hand-wringing. Given the nature of Gaza, hostage rescue missions by the IDF might be the most difficult rescue missions in the history of modern warfare / counterterrorism. The US has deployed a special operations cell to assist on the intelligence front, and it’s likely (though I’m speculating here) that this is out of the Army’s lesser-known Intelligence Support Activity. Israel’s got plenty of capable units with which to actually conduct the operations, but one can’t even begin to plan them without some sense of where the hostages are. And Gaza, with its tunnel networks and dense population, make that an almost impossible challenge. The question for the future, not now, is: how did Israel allow Hamas to build “the perfect mousetrap” right next door. It’s an uncomfortable question with likely even more uncomfortable answers.
Civilians, Refugees. The story dominating the news cycle is that of Israel’s orders for Gazan civilians to evacuate southwards, as Israel plans to commence an offensive into the northern areas of the territory. Now, Gaza isn’t that big, being roughly 20 miles north-to-south. But, given the bombardments thus far, key avenues of flight (i.e., major roadways) might be blocked or otherwise not traversable. Complicating the matter, southern Gaza is just not that big, and the border with Egypt is still closed (on orders of the Egyptian government). Egypt’s unwillingness to take in Palestinian refugees might strike some as inhumane, but from the Egyptian standpoint, it makes perfect sense. For that, one need only examine the Lebanese Civil War, of which I’m sure policymakers in the Egyptian government are keenly aware.
Other Fronts. Without going too far into detail, if you’re watching for the potential spread of the crisis, it’ll likely be in southern Lebanon where things erupt next. There’s been shelling back and forth between the IDF and Hezbollah. I don’t think that’ll be the last of it.
There’ll be more coverage of the situation in Gaza in future issues of Business Thoughts, but we’re going to now return to some of our more regular content.
Political Corruption.
It’s funny, because we’ve been talking about the Middle East (where political corruption is sort of “business as usual”), that this story about political corruption actually takes place in the United States. And, even more “come on, really?!,” is that it involves a Democrat, not a Republican. I thought you were supposed to be the good guys?1 Senator Bob Menendez (D-NJ) and his wife have been charged with taking bribes to illegally act as foreign agents of the Egyptian government.
There were meetings at Menendez’s offices at the Senate. There are texts. It’s almost as dumb as it is bad. There isn’t some big magnificent conclusion for this one. I guess, don’t do crimes? Especially not if you’re a US Senator?
Fake Parts.
Here’s a treatment for a sequel to Arrested Development: a 35-year-old “former DJ” from Venezuela starts a company that sells fake jet engine parts to major airlines. It’s a story ripped straight from the headlines, because, well, it actually happened. To summarize heavily, this is a story about the failure of internal controls around procurement at companies that really shouldn’t have such failures. But nobody clicks on a news story about supply chain audits, so here we are, talking about a guy who did a fraud. And somewhere in LA, a limited series is being pitched to Netflix.
The real thing to focus on here is how major airlines like United and Delta, which are highly regulated and should be held to an extremely high standard, managed to allow fake parts to infiltrate their supply chains. And the use of the word “fake” here is interesting, because what we’re really talking about is something more like “fraudulently refurbished.” The parts at issue, which wouldn’t have been considered “airworthy,” were paired up with false documentation regarding their airworthiness, and there you have it: a fraud.
This has apparently been going on for years, as several airlines have had to disclose to the SEC. Not good, and will certainly be costly. But the thing to focus on is that the cost now will likely be much higher than stepped-up supply chain authentication measures would have been were they implemented at the get-go. The fraudster’s company apparently used a “virtual office” address near Buckingham Palace in London to give itself a more legitimate posture. I wonder if anyone from any of the affected companies ever bothered to turn up for a visit, much less an audit.
Enabler FOMO.
Folks, we have a real wunderkind problem. With pulsing regularity, the headlines bring us a story about a young, inexperienced entrepreneur who was “so close to greatness,” except for all the fraud. Theranos. Frank. FTX. There’s a full-on (growing) list. But the problem with media coverage on these events is that it tends to focus too tightly on the founders themselves (e.g., Holmes, Javice, Bankman-Fried, etc.) because, well, people love to gawk at those who’ve fallen from grace.
The fraud might be the most salacious part—and the part that’s necessary to secure a conviction—but to me, it’s not the part that we should really be paying attention to. Fraud is maybe the oldest crime there is; fraudsters are everywhere, and they always have been. But doing frauds has at least one thing in common with starting up a legitimate business: scale. And scale requires enablers.
With the enablers of fraudsters, we’re tempted to let them off easy. “They’re victims,” we might say, because their business decisions (whether investment, endorsement, career, etc.), haven’t paid off. But my take on the latest coming out of the FTX trial is something I’ve believed for a while: in these cases, there was clearly a point at which the fraud was unraveling, and (relatively?) smart people chose to shut up and double down. But the complicity of accomplices is something we might expect, right?
For me, it’s the investors, with their lax corporate governance controls, that deserve more of the blame than they seem to be getting. Driven by a fear of missing out on “the investment of a lifetime,” investors (in FTX and elsewhere) opted to bury their collective heads in the sand and place their trust in a very smart child. But that, right there, is the problem: having intelligence and having good judgment aren’t the same thing. And while it’s great that a young person is very smart, that simply doesn’t mean that that person has powers of judgment which outstrip their age and level of experience. The correlation might actually be inverse, and it’s something that investors seem to willfully fail to understand, time and time again.
