Institutional Bust-Outs

The episode entitled “Bust Out” appeared in the second season of the Sopranos. Tony’s high school classmate, a degenerate gambler named Davey, has dug himself a hole. He borrows money from Tony to fund his habit, only to lose it all. Once he has lost too much money to be able to pay Tony back on Tony’s terms and Tony’s timeline, Tony executes what is called a “bust-out” fraud.

“Criminals who plan for a bust-out fraud first create a fake company. They often use a shell company or acquire an existing business with a clean credit history. After establishing the company, they build its creditworthiness by making small purchases and paying the bills on time.

“Later, the criminals start making larger purchases on credit, sometimes using stolen identities or fraudulent documentation to support their credit applications. They may also collude with corrupt insiders to help them get approved for larger credit lines. Once they reach their credit limit, the criminals suddenly disappear, leaving behind large amounts of debt they never intend to pay.”

Tony and his crew acquire control of Davey’s existing business, a sporting-goods retail store that his wife inherited and he runs. It has been around for decades during which time it has built up good credit predicated on a strong operating reputation and a long history of timely repayments. This is the asset that Tony will strip mine. He will use the benefits that derive from its reputation for his own gain until they are spent. Here’s a summary of the episode from a fan site.

“They begin racking up debt by purchasing merchandise to sell on the gray market. The proceeds from this are used to retire Davey's debts with them but ruin his own credit in the process. Davey becomes desperate to the point of becoming suicidal, and resorts to sleeping in a small tent set up in his store. During a late-night conversation, Tony explains to Davey he knew the store was one of his primary sources of income, and only let Davey in the game because he knew this store was available to bust out. He reminds Davey that the Executive Game was fair; Davey could just as easily have won a lot of money as lost it. When asked when the bust out will end, Tony curtly replies that it will end when Davey declares bankruptcy, but also reassuringly remarks that after it is over he is "free and clear".

“In the end, Ramsey Sport & Outdoor is defunct due to a lien being placed on it. Men from a liquidation firm are seen seizing the store and placing a for sale on the building, but Tony declares the debt repaid. Davey's brother-in-law, Victor Musto, has had enough of Davey's irresponsibility and takes charge of the family, and orders Davey out of their lives. David does so by separating from Christine.”

Tony and his crew are like a virus that infect Davey’s business, having been exposed through the channel of Davey’s vice. They suck the marrow out of the bone and then they move on. For a lucrative period of time, they benefit from all the goodwill the business has accumulated over decades. None of the counterparties can see that the transition has taken place until it is too late and the business enters liquidation, with all of its virtue monetized for the benefit of the criminal interlopers.

This phenomenon is at play in some of our greatest institutions. It is as perfidious as regulatory capture, the phenomenon in which the regulator ends up promoting the interests of those subject to the rules he has been tasked with enforcing, at the expense of the public good.

In the case of the institutional bust-out, an interest group takes control of an institution and “monetizes” its financial and reputational capital to advance a specific agenda and to benefit the adherents of its cause. It is the mirror image of regulatory capture.

It may seem like beating a dead horse, but a relevant contemporary example is the challenging situation surrounding the erstwhile President of Harvard and her recent resignation.

Under pressure from a disastrous appearance before a Congressional committee in which she tried to strike a balance that would preserve freedom of expression, she erred on the side of defending those who would call for “intifada” and the “use of slogans such as ‘from the river to the sea’” by qualifying her response and refusing to answer yes when asked “whether calling for the genocide of Jews violated their universities’ codes of conduct on bullying and harassment.” Gay gave what must have seemed like a good answer during the lawyered-up preparation session, citing the importance of “context” in deciding what was and was not acceptable on the Harvard campus. For many people, Harvard’s newfound interest in liberty was surprising in light of their ranking in the FIRE College Free Speech Rankings released several months earlier.

“In 2020, Harvard ranked 46 out of 55 schools. In 2021, it ranked 130 out of 154 schools. Last year, it ranked 170 out of 203 schools. And this year, Harvard completed its downward spiral in dramatic fashion, coming in dead last with the worst score ever: 0.00 out of a possible 100.00. This earns it the notorious distinction of being the only school ranked this year with an “Abysmal” speech climate.

“What’s more, granting Harvard a score of 0.00 is generous. Its actual score is -10.69, more than six standard deviations below the average and more than two standard deviations below the second-to-last school in the rankings, its Ivy League counterpart, the University of Pennsylvania. (Penn obtained an overall score of 11.13.)”

The Harvard Corporation defended Gay until it didn’t. Her willingness to tolerate an environment in which Jewish students felt endangered was one thing. Her unfortunate use of “duplicative language” in her doctoral dissertation and two published articles were something they were willing to overlook. But the steady drip torture of ongoing allegations of plagiarism (all of them verifiable by inspection of the original documents) proved to be too much.

The only thing that seemed to limit the damage was the paucity of her publications (seventeen) and the weakness of the intellectual impact of these works. One of the researchers whom she failed to acknowledge, Carol Swain from Vanderbilt University, came out swinging in a piece entitled “Claudine Gay Betrayed the American Values of my Black Elders to Exploit White Guilt”:

“Yet my black elders knew on an instinctual level that to give in to race and racism was to give immutable characteristics power over individual identity and character. As one of my elders told me, "I'm not the n****r they call me. That's all them." They knew that giving in, identifying with the race that the racist saw, would have led them into the trap of endless victimization. And it is to their credit that these doctors, dentists, professors and filmmakers always insisted on finding the path of success somehow.

“Needless to say, Claudine Gay comes from a different stock. She aimed for tenure at Stanford University despite an academic record that would make most think twice, and shot for the presidency of Harvard despite achievements that fell far short of past presidents'. The power of white guilt would compensate for any shortcomings she may have and propel her to the top.

“Whether she was conscious of it or not, Claudine Gay's entire life was organized around race. Race was the excuse for all of her shortcomings. It was America that made her existence and path in life possible.”

Race is at the center of this nasty business. It is central to the treatment of Jews on the Harvard campus. It is central to Gay’s academic research. It is something that Gay thinks is the best explanation for her ouster:

“Never did I imagine needing to defend decades-old and broadly respected research, but the past several weeks have laid waste to truth. Those who had relentlessly campaigned to oust me since the fall often trafficked in lies and ad hominem insults, not reasoned argument. They recycled tired racial stereotypes about Black talent and temperament. They pushed a false narrative of indifference and incompetence.

“It is not lost on me that I make an ideal canvas for projecting every anxiety about the generational and demographic changes unfolding on American campuses: a Black woman selected to lead a storied institution. Someone who views diversity as a source of institutional strength and dynamism. Someone who has advocated a modern curriculum that spans from the frontier of quantum science to the long-neglected history of Asian Americans. Someone who believes that a daughter of Haitian immigrants has something to offer to the nation’s oldest university.”

This is not just a personal defeat. It is a setback for those who believe in the cause of promoting diversity, we are told.

As an aside, this self-proclaimed “daughter of Haitian immigrants” neglects to mention that her father and uncle own the monopoly concrete provider in the country of Haiti. She is extraordinary among Haitian immigrants (or any kind of immigrant) for a pedigree that includes degrees from Phillips Exeter, Stanford, and Harvard. Contrast her background with that of her steadfast critic, Carol Swain:

“Carol Miller Swain was born on March 7, 1954, in Bedford, Virginia, the second of twelve children. Her father dropped out of school in the third grade and her mother dropped out in high school. Her stepfather used to physically abuse her mother, Dorothy Henderson, who is disabled due to polio. Swain grew up in poverty, living in a shack without running water, and sharing two beds with her eleven siblings.^[3] She did not finish high school, dropping out in ninth grade. She moved to Roanoke with her family in the 1960s and appealed to a judge to be transferred to a foster home, which was denied. Swain instead lived with her grandmother in a trailer park.

“After she divorced in 1975, Swain earned a GED and worked as a cashier at McDonald's, a door-to-door salesperson, and an assistant in a retirement facility.^[3] She later earned an associate degree from Virginia Western Community College.^[2] She went on to earn a B.A., magna cum laude, in criminal justice from Roanoke College and a master's degree in political science from Virginia Tech. While an undergraduate at Roanoke College, she organized a scholarship fund for black students that by 2002 had an endowment of $350,000.^[3] She finished a Ph.D. in political science from the University of North Carolina at Chapel Hill in 1989.^] In 2000, she earned a Master of Legal Studies from Yale Law School.”

If we put it all together, in Claudine Gay, we have someone who enjoyed tremendous privilege for most, if not all, of her life. She launched to the heights of American academia with a monotonic, frictionless trajectory. She stood in the vanguard of a movement she describes as the promotion of “diversity as a source of institutional strength and dynamism.”

She tells us what she really thinks in her New York Times oped piece:

“At tense moments, every one of us must be more skeptical than ever of the loudest and most extreme voices in our culture, however well organized or well connected they might be. Too often they are pursuing self-serving agendas that should be met with more questions and less credulity.”

She’s right, of course. But, who was more well-connected in the American academy than the President of Harvard University? Who appeared to be pursuing a self-serving agenda more than her? Who did not survive the scrutiny of an incredulous public?

Interestingly, the Opinion editor of the New York Times, Kathleen Kingsbury, wrote in her newsletter about Gay’s opinion piece and why they published it, here cited by the Washington Free Beacon:

‘"As Opinion editor, I rarely express my own views publicly on guest essays we publish," Kingsbury wrote, "but here it's worth saying that, in the current conversation around Harvard, I've been more drawn to arguments made by others."‘

These others included Ross Douthat and John McWhorter who argued for Gay’s removal.

Was Claudine Gay one of the leading lights of a diversity movement in the midst of a bust-out to exploit the credibility and resources of leading American institutions, caught out only by her fidelity to its politically correct anti-Jewish dogma? Or was she a victim of political crossfire, the happenstance of a divided country?

In a university context, these kinds of movements, wrapped in the Trojan Horse of innocuous sounding aspirational truisms (“Diversity, Equity, Inclusion”), designed to appeal to virtue-signalers accustomed to unquestioned belief in the simplistic Cliff’s Notes version of life, provide cover for the hollowing-out of the institution.

Josh Barro has a good piece where he talks about the contemporary American university, referring to the outlandish rationalization of plagiarism, the replication crisis, the growth in size and power of the administrative bureaucracy, and the increasing emphasis on social and political activism at the expense of intellectual rigor.

“After all, if the strategy is simply to polarize views about universities and turn them into a liberal cause célèbre, that’s not only going to be a disaster for university budgets in red states; it doesn’t even look like it’s working as a strategy to build support among liberals.”

He refers to a Gallup poll that shows a broad decline in support for universities, a sentiment shift that spans political allegiances.

“Americans’ confidence in higher education has fallen to 36%, sharply lower than in two prior readings in 2015 (57%) and 2018 (48%). In addition to the 17% of U.S. adults who have “a great deal” and 19% “quite a lot” of confidence, 40% have “some” and 22% “very little” confidence.”

John Kenneth Galbraith, the Harvard economist, coined the phrase “the bezzle” to describe the “temporary gap between the perceived value of a portfolio of assets and its long-term economic value.”

“Alone among the various forms of larceny [embezzlement] has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks.”

If the DEI movement is, in fact, a bezzle, it is because there is a growing gulf between the public’s perceptions of the value that universities deliver and safeguard and the reality of their descent into activism in place of discovery.

This intellectual and cultural larceny would constitute one of the most striking examples of an institutional bust-out in American history.

At what point will the institutions DEI has penetrated declare moral bankruptcy and return to the virtues that built their now-depleted reputations like merit, freedom, openness, innovation, debate, and inclusion?

Is the bezzle honeymoon period in which there was an superficial psychic gain of fervent self-congratulatory moral triumph now complete?

When will society impose a lien on the DEI movement?

When will these institutions become, in the words of Tony Soprano, “free and clear?”

Will that day even come?