This is adapted from Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation , which is now available in paperback.

Which profession bears more blame for the global credit meltdown and its ensuing gazillion-dollar bailouts: bankers or economists?

This isn’t a trick question.

So far, bankers have been getting most of the opprobrium. Yes, there are a few solid bankers who didn’t destroy their firms. But pretty much all the prominent bankers failed. And their failures are writ large on the pages of the Wall Street Journal every day. They’ve been hauled before Congress, deposed and fired, lost vast fortunes, and been the targets of populist rage. By common consensus, bankers (and by this I mean the term as it’s used in the tri-state metro area, to describe anybody who works at a relatively high level in the financial services industry) blew it.

But they couldn’t have created the Dumb Money debacle without a substantial assist from economists. Toiling in government and academia, at trade groups and Wall Street firms, practitioners of the dismal science provided the intellectual ballast and justification for much of the insanity of this past decade. At every step of the way, as an Era of Cheap Money devolved into an Era of Dumb Money, and then into an Era of Dumber Money, Ph.D.’s led the cheers. And when things started to go bad, they failed to grasp just how bad things would get.
In February, I recounted some of the economists’ most egregious errors. Alan Greenspan, chairman of the Federal Reserve system, was easily the most influential economist of the last quarter century. His intellectual virtues were many. So, it turns out, were his intellectual sins. Greenspan spent his career evangelizing for the Holy Trinity of low interest rates, deregulated markets, and the ability of financial innovation to insulate markets from calamities. Oops! The persistence of low interest rates sparked a speculative orgy in securities and derivatives. The tools that were supposed to help people manage risk instead created systemic risk.  And deregulated, free, and open markets blew up so badly they required massive government interventions. The disaster was a feature of the financial operating code Greenspan had helped write, not a bug. (Bonus Greenspan screw-up: telling borrowers in the February 2004 that adjustable-rate mortgages could help people save money—just as he was about to start boosting short-term rates.)  Greenspan wasn’t the lone academic economist at fault. During the credit bubble, Greenspan’s successor and many other prominent economists, provided intellectual cover for our vices, failure, and greed. Ben Bernanke helped assuage concerns that interest rates were dangerously low by arguing first that interest rates should be low if deflation is nearly as much a worry as inflation and then that low rates stemmed from a global savings glut. David Malpass, chief economist of Bear Stearns  said we shouldn’t fret about the pathetically low national savings rate at a time when everybody owned stocks and houses. Rising asset markets would do the heavy lifting of savings. Late into the housing boom, David Lereah, chief economist of the National Association of Realtors continually urged Americans to buy houses. After all, he promised, they’d rise in value at least through the end of the decade.

While the performance of many prominent economists during the boom was poor, their performance after it ended may have been worse. As a class—again, with significant exceptions–they failed to recognize that the fall of housing, which started in the summer of 2006, would have negative effects on the economy (“The worst may be over for housing,” Greenspan declared on October 9, 2006) and on the financial system. In November, 2007, Bernanke estimated the losses stemming from subprime as being “in the ballpark” of $150 billion  (Must have been a really big ballpark). Neither of the nation’s chief economists, despite spending their days poring over economic data and meeting with professional economists inside and outside the Fed, seemed to have a clue that the virus of bad lending had spread far beyond subprime, and far beyond housing, and far beyond America’s borders.

Economic forecasting is hard. But the dismal scientists collectively did a horrific job of prognostication as the economy shifted into recession and then plummeted into a sharp contraction. The recession, we now know, started in December 2007. The Blue-Chip forecasters surveyed by the Philadelphia Fed in the fourth quarter of 2007, when the recession was about to start, projected the economy would grow by 2.5 percent in 2008 and that the economy would add more than 100,000 jobs each month in 2008. (Instead, the economy lost jobs every month in 2008 and ground to a halt). In the middle of the fourth quarter of 2008, one in which the economy was shrinking at a 6.3 percent annual rate, they took down their forecast for the quarter from 0.7 percent growth to a decline at a 2.9 percent annual rate. They projected the unemployment rate would be 7 percent in the first quarter of 2009. By March 2009, it was up to 8.5 percent.

Clearly, economic forecasters weren’t asking the right questions, or looking at the right indicators. Economists also didn’t always help the private sector companies with which they were associated. Martin Feldstein, president and CEO of the National Bureau of Economic Research, the official arbiter of recession dating, sat on AIG’s board for two decades, and in 2008 was on the board’s finance committee and on its regulatory, compliance, and legal committee—areas in which AIG had catastrophic breakdowns. Legendary Wall Street economist Henry Kaufman was chairman of Lehman Brothers’ finance and risk committee when it went tapioca.

Is it unreasonable to expect that very smart—even genius—economists would have insights into complicated businesses that the CEOs and other bankers lacked? Perhaps. But the economists’ failures may have been less human ones than professional ones. It turns out that the worldview that many economists hew to—a system of efficient markets, populated by rational actors and by owner/managers who naturally take action to preserve the value of their companies—can’t really account for the actions during  the credit bubble (or in any other bubble, for that matter). The set of theories upon which many economists rely—again, I know I’m painting with a really broad brush here—is out of vogue, and is being replaced by a set of funkier ones, which draw from sociology, anthroplogy and psychology, as well as classical economics. The behavioral economists who are in the ascendance will tell you that the irrational behavior on display came as no surprise to them.

So, back to our original question. Bankers or economists?

Bankers have clearly suffered more financial damage—they had a lot more to lose. But when it comes to reputation, I think it’s a draw. One similarity between the two professions’ reaction to the meltdown is that it doesn’t seem to have occasioned much self-examination. The best Greenspan could muster was that he had “found a flaw” in his theories.

Mardi Gras isn’t all nudity and drunken debauchery (though, yes, there is definitely nudity and drunken debauchery). From King Cakes to Mardi Gras Indians, TIME takes a look at the unique traditions of New Orleans’ Carnival season.

Origins

Literally meaning “Fat Tuesday,” Mardi Gras is the culmination of a weeks-long Carnival season that ends on Ash Wednesday. While impromptu foot and horseback parades had been a regular New Orleans occurrence for decades, it was in 1857 that the first “krewe” — private groups with semi-mythological namesakes that organize thematic parades — was established. This 1879 picture details a parade by Rex, an all-male krewe whose leader is known as the “King of Carnival.” The Krewe of Rex established the official Mardi Gras colors of green, gold, and purple.

Let’s Mask

With it’s mixture of Caribbean, Spanish, and French influences, New Orleans’ Mardi Gras adopted the latter nation’s affinity for masked balls and celebrations. In a little more than 150 years, Mardi Gras has only been canceled about a dozen times, typically for disease (yellow fever in the late 1870s) or conflict (the Civil War and both World Wars).

Carnival Royalty

The hierarchy of New Orleans society is on full display during Mardi Gras. In the past, Krewes were often private organizations that held formal, ritzy balls closed to the public. When the city council passed a 1992 ordinance that required krewes to be more inclusive, three of the oldest groups disbanded rather than give up their exclusivity. One of the more inclusive — if ostentatious — traditions is the presentation of the Mardi Gras King and Queen, such as in this 1941 picture.

100 Years Strong

White New Orleans society wasn’t the only group that celebrated Carnival. The city’s significant African American community, subject to its fair share of segregation, started parading in 1909. Named Zulu, after the African tribe, it is said to have been founded in mocking response to the highfalutin Rex parades. In 1949, the Zulu Krewe was the first to crown a celebrity king, Louis Armstrong. And while it experienced a period of profound unpopularity among socially-minded African Americans in the 1960s — Zulu parade participants wore blackface — it effectively integrated Mardi Gras when its parade rolled down New Orleans’ main thoroughfares. Previously, it had been limited to back streets in black neighborhoods. Today, the Zulu Krewe, which rolls on Fat Tuesday, puts on one of the season’s most popular parades.

Light My Fire

Nighttime Mardi Gras parades feature flame-wielding “flambeaux carriers,” who harken back to days when streets were not as well-lit. Interspersed between the elaborate parade floats, which are now themselves brightly lit, the flambeaux carriers spin, twirl and dip their bodies — all while keeping their torches aflame. Most carriers were initially slaves and free African Americans, and the tradition of tossing them coins continues to this day.

A Family Affair

Many Americans associate Mardi Gras with drunken debauchery and women baring their breasts for cheap colored beads. But most of the season’s celebrations take place outside of the raucous French Quarter, in family-filled neighborhoods such as the tree-lined Garden District. There, parents and kids await daytime parades, many utilizing modified ladders with seats on top. There, children are ideally positioned to catch beads and other “throws” — plastic coins, stuffed animals, cups, Frisbees, etc. — from passing floats. During Carnival season, tree branches along popular parade routes are often covered with hanging sets of gaudily colored beads

A Rowdy Affair

OK, Mardi Gras’ reputation as an alcohol-fueled, nudity-filled bacchanal is not completely unearned. In 1973, a ban was established on Krewe parades in the increasingly rowdy and narrow streets of the French Quarter. In subsequent years, tourists and other drunken fools descended on the Quarter (especially the particularly saucy Bourbon Street) en masse, and the tradition of showing skin for beads began. Native New Orleanians despise the reputation, and rarely venture into the Quarter during Carnival season.

Don’t Eat the Baby

In a city well renowned for its food culture, the act of purchasing a King Cake is a beloved part of Mardi Gras. Sold only during the Carnival season, king cake is a large braided Danish pastry, typically spiced with cinnamon and covered with green, purple, and gold sugar, corresponding to Mardi Gras’ colors. Socked away inside the cake is a tiny plastic baby, and whoever discovers the little tyke in their slice is required to buy the next king cake (or host the next party).

Tribal Traditions

One of New Orleans’ more unique sights is that of two Mardi Gras Indian tribes facing off on a street corner. The Indians are said to be a way for African Americans to pay tribute to Native Americans who helped their slave ancestors escape their masters. New Orleans is home to dozens of Mardi Gras Indian tribes, who each have their own special chain of command and who spend an entire year working on their elaborate feathered and beaded costumes, each of which is worn only once during Mardi Gras season. When two tribes encounter each other, a ritualized, theatrical performance full of chanting, singing, dancing, and bluster ensues.

Indomitable Spirit

After Hurricane Katrina slammed into the city in August, 2005, many thought that Mardi Gras would have to be postponed for the first time since World War II. Residents, however, would hear nothing of it. Absent all the fancy trappings, the city held an abbreviated Carnival whose official parades rolled through the less devastated areas of New Orleans. This unofficial parade, however, marched through the ruined lakeside neighborhood of Gentilly. While the city’s population has not yet returned to pre-Katrina levels, Mardi Gras celebrations have grown unabated.

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http://www.time.com

Dealing with service failures means a lot more than just fixing the immediate problem. Here’s how to do it right.

Nobody’s perfect. That’s a fact, not an excuse.

Which is why it’s crucial for companies to realize that the way they handle customer complaints is every bit as important as trying to provide great service in the first place. Because things happen.

Customers are constantly judging companies for service failures large and small, from a glitch-ridden business-software program to a hamburger served cold. They judge the company first on how it handles the problem, then on its willingness to make sure similar problems don’t happen in the future. And they are far less forgiving when it comes to the latter. Fixing breakdowns in service — we call this service recovery — has enormous impact on customer satisfaction, repeat business, and, ultimately, profits and growth.

But unfortunately, most companies limit service recovery to the staff who deal directly with customers. All too often, companies have customer service sort out the immediate problem, offer an apology or some compensation, and then assume all is well. This approach is particularly damaging because it does nothing to address the underlying problem, practically guaranteeing similar failures and complaints.

What businesses should be doing is looking at service recovery as a mission that involves three stakeholders: customers who want their complaints resolved; managers in charge of the process of addressing those concerns; and the frontline employees who deal with the customers. All three need to be integrated into addressing and fixing service problems.

Tensions naturally arise in and among the groups. For example, customers can be left feeling that their problem wasn’t addressed seriously, even when they’ve received some form of compensation. Service reps can start seeing complaining customers as the enemy, even though they point out flaws that need fixing.

Managers in charge of service recovery, meanwhile, can feel pressure to limit flows of critical customer comments, even though acting on the information will improve efficiency and profits.

However, successfully integrating these three perspectives is something that fewer than 8% of the 60 organizations in our study did well.

Based on our research and our own years of work in service management, here is a look at the three stakeholders in service recovery, focusing on their different perspectives and the tensions that arise among them. We then make recommendations on how to address these tensions and integrate the aims of all three to achieve better — if not perfect — service.

The Customer

Fairness is typically the biggest concern of customers who have lodged a service complaint. Because a service failure implies unfair treatment of the customer, service recovery has to re-establish justice from the customer’s perspective.

Say a bank customer requests a deposit receipt from an ATM but the machine fails to print one. The customer becomes worried and goes to one of the bank tellers. The teller checks the account, and assures the customer that there is no problem, that the deposit was made. But if the teller only focuses on the fact that the account was credited, he or she has ignored what in the customer’s view was the most severe and critical aspect of the service failure: the worry initially felt, and the extra time it took to verify the deposit.

Customers often want to know — within a reasonable time — not only that their problem has been resolved, but how the failure occurred and what the company is doing to make sure it doesn’t happen again.

A customer’s faith can be restored using this kind of approach — once. We have even noted something referred to as a “recovery paradox,” in which customers can be more delighted by a skillful service recovery than they are by service that was failure-free to start with.

But there is a flip side to this as well: Customers have more tolerance for poor service than for poor service recovery. And if a customer experiences a second failure of the same service, there is no recovery strategy that can work well. In all likelihood, that customer will be lost forever.

Our research suggests that after a failed service recovery, what annoys — and even angers — customers is not that they weren’t satisfied, but that they believe the system remains unchanged and likely to fail again.

The Manager

The chief aim of managers in service recovery is to help the company learn from service failures so it doesn’t repeat them. Learning from failures is more important than simply fixing problems for individual customers, because process improvements increase overall customer satisfaction and thus have a direct impact on the bottom line.

But companies generally obtain and study only a fraction of the service-failure data that could be gathered from customers, employees and managers. Even when managers agree that customer feedback is essential, there is often poor information flow between the division that collects and deals with customer problems and the rest of the organization.

In some cases, one study revealed, the more negative feedback a customer-service department collects, the more isolated that department becomes, because it doesn’t want to be seen by the company at large as a source of friction. Some companies even create specialist units that can soak up customer complaints and problems with no expectation of feeding this information back to the organization. Others actually impede service recovery by rewarding low complaint rates, and then assuming that a decline in the number of reports indicates customer satisfaction is improving.

Some managers in our study saw conflicts between providing great customer satisfaction and achieving high productivity. For instance, incentive structures sometimes placed equal values on sales and on customer service. But as one manager noted: “If you want to achieve 100% [satisfaction], you don’t have time for selling. It’s questionable whether you can score 100% on service quality and 100% on [sales] objectives.”

In any kind of business, there comes a point at which a service recovery can become excessive in the company’s eyes, and be seen as giving away the store. However, many customers don’t want a payoff. They simply want to have their problem fixed and to be reassured that it won’t happen to other people in the future.

The Employee

Frontline service employees have the greatest job satisfaction when they believe they can give customers what they expect.

These workers have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers.

Yet companies do surprisingly little to support them.

To be successful, these workers need to feel that management is providing the means to deliver successful service recovery on a continuing basis. Alternatively, when employees believe management doesn’t support them, they tend to feel they are being unfairly treated and so treat customers unfairly. They display passive, maladaptive behaviors and can even sabotage service.

This alienation is compounded when the workers believe that management is not improving the service-delivery process, which keeps employees in recurring failure situations. Even though complaining customers represent an opportunity to fix problems and improve satisfaction, alienated employees often see them as the enemy. In a study of a major European bank, employees in Switzerland consistently indicated that they did not consider reports of missing account statements to be complaints. As one said: “These things happen. There is nothing we can do about that.”

At companies that reward low complaint rates, frontline employees become tempted to send dissatisfied customers away instead of admitting a failure has occurred.

Craig Frazier

Resolving the Tensions

Our experience with managers interested in improving service recovery indicates that most hope for a quick fix of some specific tensions. But quick fixes only treat the symptoms of underlying problems. Real resolutions should involve closer integration among the three stakeholders, such as gathering more information from customers and sharing it throughout the company, and adopting new structures and practices that make it easier to spot problems and fix them.

We suggest the following five strategies:

• Create a “service logic” that explains how everything fits together. This should be a kind of mission statement or summary of how and why the business provides its services. It should integrate the perspectives of all three groups:

What is the customer trying to accomplish, and why?

How is the service produced, and why?

What are employees doing to provide the service, and why?

The results should serve as a guide both for delivering service and for help with service recovery. It should include a detailed study of internal operations; map out how the company responds to customer complaints; and describe how the company uses that information to improve service-recovery processes. Similar mapping should detail every step of customer experiences, including those of real customers with complaints, highlighting their thoughts, reactions and emotions along the way. Highly skilled managers and employees who can think outside the box are a must.

TNT NV, a Netherlands-based global delivery company, developed a service logic to help it grow in a mature market. Using a small, high-powered management team backed up by customer discussion forums, the company mapped its processes from a customer point of view, including a map of customer emotions during both regular processes and service recovery. The mapping exercise and the service logic that it produced led to a redesign of processes by managers and field staff that cut across traditional functional boundaries.

For example, previously a driver running late for a scheduled delivery had to call into the control center, which would then contact customer services, which would then contact the customer. Such calls often arrived after the delivery already had been made, thus further annoying the customer and embarrassing the driver. Since the process redesign, however, a driver running late is allowed to contact the customer directly. TNT drivers frequently visit the same customers almost every day, so their customers know them and appreciate the personal contact. The drivers also appreciate being able to make the calls directly.

• Draw attention to the successes of customer-service groups. Companies use in-house publications, intranets and training programs to share stories that emphasize their values and culture. Employees who come up with cost-saving ideas, for example, are often singled out for praise. But rewards and recognition also should flow to heroes in service-recovery stories. Such heroes can be on the operations side, helping to develop cost-efficient systems for handling complaints, and on the marketing side, giving a customer extraordinarily helpful treatment after a service failure. Singapore Airlines Ltd., in its in-house magazines, frequently tells stories about employees who have provided not only outstanding service, but exceptional service recoveries. Senior managers, too, will not hesitate to swoop in anywhere there is an issue, creating more stories about internal vigilance. When customer-service employees believe that their goals are in line with the organization’s values, they are more willing to exert the extra effort required in a failure-and-recovery situation.

• Give customer-service staff as much freedom as your business strategy allows.When a business has very few routines and its ties to customers are based on individual relations, service representatives should have more autonomy in resolving complaints. For such businesses, spending more time on service recovery — and retaining customers — has a clear effect on the bottom line. By contrast, in a highly standardized business with purely transactional customer relationships, such as a fast-food restaurant, employees should adhere to procedures in resolving complaints. Customer satisfaction in such businesses is closely aligned with high productivity, so there is less to be gained by customizing resolutions of complaints. 

Ritz-Carlton, for example, the luxury brand of Marriott International Inc., authorizes personnel at the front desks of its hotels to credit unhappy customers up to $2,000 without asking a supervisor’s approval. On the other hand, in one of our consulting projects, a client reacted very negatively to this approach, claiming that such a policy would be too expensive for his company. We replied that the high cost of poor service is exactly what makes this system work so well: It forces management to eliminate service failures in the first place.

• Collect as much data as you can, and share it widely. Companies must gather more feedback about poor service, record it and make it accessible. Managers and other employees have to be armed with strong information to be effective at resolving disputes.

It should be easy for customers to file complaints. One way to achieve this is by offering many communication channels. A regional airline in Asia, for example, uses annual passenger surveys, interviews with frequent fliers, focus-group discussions, customer hot lines, critical-incident surveys, onboard suggestion leaflets and even live call-in radio shows. Software should be used that serves as a database for both positive and negative communications with customers. Employees and managers should be trained to mine the data and put it to use easily and quickly.

• Use meaningful measures of employee performance — rewards and demerits. Positive reinforcement and incentives should be offered for solving problems and pleasing customers. A system for measuring customer satisfaction should be devised to help rate employee performance. Salary increases and promotions then should be linked to an employee’s achieving certain levels. There also should be disincentives or demerits for poor handling of customer complaints. Performance reviews thus may include a balanced scorecard — one that recognizes the need for both productivity and customer satisfaction.

—By STEFAN MICHEL, DAVID BOWEN and ROBERT JOHNSTON. Dr. Michel is associate professor of marketing at Thunderbird School of Global Management, Glendale, Ariz. Dr. Bowen is the Robert and Katherine Herberger chair in global management and a professor at Thunderbird. Dr. Johnston is professor of operations management at Warwick Business School, University of Warwick, Coventry, England. Wall Street Journal, SEPTEMBER 22, 2008.

Three weeks after the stock market crash in 1929, Lawrence J. Fava jumped into the Schuylkill River in Philadelphia. He was a middle-aged real estate dealer, and he was “frantic” about the losses he had suffered, according to his suicide note. He left the note on the Girard Avenue Bridge and then leapt into the dark, frigid water, according to a small item published that month in the New York Times. But Fava survived the fall, and he regretted his decision at once.

Fava thought the Schuylkill River held a solution. Not a solution to his financial woes, alas, but to the anxiety that had hijacked his peace of mind. He was stalked by a fear of the future — “of the innocent persons who would suffer” because of his losses. But when he hit the river, he was suddenly afraid of something clear and present. Fava had perspective, and he clung to a piling in a desperate bid to undo his decision.

In the face of the current economic meltdown, some people have more reason than others to worry — people, for example, who need to spend their savings very soon. For them, fear serves a purpose: it encourages action, which may prevent further losses. But for most of us, what will happen in the stock market in three or 10 or 20 years, when we will most need our savings, is unknowable. We can’t predict the financial future, so we shouldn’t try. But anxiety doesn’t work according to those rules.

The part of the brain that takes over when we are frightened is called the amygdala. It’s an ancient, almond-shaped mass of nuclei located deep within the brain’s temporal lobes. The amygdala is designed to be wildly sensitive to certain things — for instance, anything uncontrollable and unfair (like a terrorist attack involving an airplane) — and remarkably forgiving toward other, far deadlier menaces that seem to be small in scale (car crashes) or involve less suffering (heart attacks).

Most of all, the amygdala loathes unpredictability of the kind we are currently enduring. Lab experiments with rats and humans show that both species prefer predictable electric shocks over unpredictable shocks. That’s because, on a normal day, the brain works by following shortcuts. We recognize patterns in order to make split-second judgments about what we are seeing. Shortcuts are ruthlessly efficient, which is important for an organ that only uses about 40 watts of power per operation. But the more uncertainty we face, the more shortcuts our brains use. And the shortcuts lead to a slew of predictable errors.

Shortcuts, for example, make us more prone to do whatever everyone else is doing — or whatever Jim Cramer tells us to do. “The brain cannot afford to re-evaluate on a millisecond by millisecond basis. So it will use other people’s opinion as a proxy for its own,” says Emory University neuroeconomist Gregory Berns, author of the new book Iconoclast: A Neuroscientist Reveals How to Think Differently.

To test this herd behavior, Berns and his colleagues hooked 32 people up to brain-imaging equipment and watched them reckon with a group opinion (about whether two shapes were the same or different) that was clearly false. They found that the brain worked to integrate the false opinion into its perception of the world. In other words, if other people start selling a stock you thought was valuable, you may want to do the same — at first.

In a state of high uncertainty, the brain wants most of all to do something — anything. “The natural urge, when we hurt, is to pull away,” says John Forsyth, an associate psychology professor in the Anxiety Disorders Research Program at the University at Albany, SUNY. Unfortunately, doing something — like selling stock or drinking heavily at the office — can make things dramatically worse.

Happily, the brain’s other defining characteristic is that it is flexible. Once we know our weaknesses, we can compensate for them. The part of your brain associated with conscious thought, called the prefrontal cortex, has a direct line into the amygdala and can quiet it down. This requires effort — and creativity. “The most productive thing is to recognize that it’s natural to feel anxiety in the context of unpredictability. A rat would be going through the same stuff,” says Forsyth, and he means that in a reassuring way. “And then sit with it. Do not let your feelings decide what to do. Feelings are fickle.”

It may also help to consider what you will do if you do lose everything. Literally, what will you do first, second and third? Contemplating action can shrink the threat to life size and introduce new possibilities. “We become very attached to our mentally constructed future,” says Forsyth. “The harder you hold on to your story about your future, the harder this will be.”

After Fava jumped into the Schuylkill River in 1929, his brain finally had a threat it knew how to handle. He held fast to the piling until he was rescued by a river police boat. The police delivered Fava to the Presbyterian Hospital, where he was revived.

By AMANDA RIPLEY Wednesday, Oct. 15, 2008. www.time.com

WHEN an engaged couple breaks up, does the ring go back to the one who bought it? Or does it remain in the hands — and possibly on the hand — of the recipient, especially if she was the one spurned?

Though a seemingly inconsequential issue when measured against the prospect of an unhappy marriage, the conflict over the ring has led couples to court.

“I probably get an e-mail every two or three weeks asking for my advice on this question,” said Joanna Grossman, aHofstra University law professor who has written on the subject.

“It is something that a lot of people dispute,” Ms. Grossman said. “People can spend an exorbitant amount of money on rings they cannot afford and then it is not uncommon for them to break up. But the rings are not usually worth enough to offset the cost of litigation.”

One high-profile case that was headed to court but was diverted by an agreement earlier this year was that of Sharon Bush and Gerald Tsai, the billionaire investor who has since died. In December 2006, Mr. Tsai gave Ms. Bush (the former wife of Neil Bush, a brother of the president) an 11-carat canary-diamond ring he bought for $243,040 at Saks. In January, the engagement was called off, and when Ms. Bush did not return the ring, Mr. Tsai filed suit in Manhattan Supreme Court seeking its return.

Ms. Bush and her lawyer, Raoul Felder, took the position that the bauble was not an engagement ring but a gift, and therefore did not have to be returned. Mr. Felder said that terms of the agreement could not be divulged but that she has since been seen wearing the ring.

“This was one of the other presents given on Christmas,” said Mr. Felder. “It was a nonconditional gift. I can’t understand how a man is not embarrassed to ask for his ring back. It always amazes me what happened to chivalry.”

Chivalry aside, in recent years courts have almost always held that the ring goes back to the buyer, no matter the circumstances. The premise is that the engagement ring is a conditional gift — the condition being that a marriage take place. And if it does not, the agreement is rendered null and void. Furthermore, courts have ruled that it does not matter who broke the engagement, the donor or the recipient.

“If you have no-fault divorce, you must have no-fault engagements,” said Joanne Ross Wilder, a principal in the Pittsburgh law firm Wilder & Mahood. In 1999 she won a ruling in a Pennsylvania case that is viewed as precedent setting: the ring should be returned to the donor.

“Before this case, there was a split of opinion in the United States as to whether the donor should get the ring back if he broke the engagement without just cause,” Ms. Wilder said. “If you get into who was at fault in deciding whether the ring should remain with the donee or return to the donor, you do a counterintuitive analysis. Isn’t the purpose of an engagement to be a trial period and isn’t it better to break an engagement than a marriage? Whose fault is irrelevant.”

But state by state, that view does not always prevail. Gary L. Nickelson of Forth Worth is president-elect of the American Academy of Matrimonial Lawyers. He said that in Texas exceptions were sometimes made depending on who instigated the breakup. Although the courts there generally accept the premise that an engagement ring is a conditional gift, he said that in a 2003 decision: “the court decided that if the donor was the one who broke the promise, then the recipient could keep it. It gets sticky if the groom calls it off. He has broken the condition, so some courts say that he should probably suffer and not gain rights to the ring.”

Ms. Grossman noted that trying to establish fault can be tricky at best and painful at worst. “Taking two people who decide they are not right for each other and putting their entire relationship on trial is usually not worth the economic or emotional cost,” she said.

Ownership of the ring did not become a problem for Dean Fechner and his former fiancée when their wedding plans were canceled in June 2007.

“The man should definitely get the ring back,” said Mr. Fechner, 36, of Manhattan. “It was intended to show that I wanted to spend the rest of my life with this person and that I put a value on our relationship.”

Last month Mr. Fechner, who works on Wall Street, sold the three-carat custom ring for $15,000 ($3,000 less than he said he paid for it) on idonowidont.com, a Web site that sells rings for couples who have changed their minds.

Letitia Baldrige, the etiquette expert, said the person who breaks the engagement is responsible for making good. “If the woman breaks it, she should send the ring back immediately,” Ms. Baldrige said. “If it is the man, he should say, ‘Of course you keep the ring.’ ”

Should the ring be a family heirloom, Ms. Baldrige added, the woman should return it. “But then he should buy her another piece of jewelry or simply give her a credit at a jewelry shop,” she added. “Nice people do that.”

Even those lawyers who define the ring as part of the contract to marry, and therefore subject to return if the contract is voided, recognize the need for exceptions.

“Assuming Mr. Wonderful is married to someone else and getting divorced and gives her a 4-carat ring, he is not legally able to become engaged,” said Eleanor Breitel Alter, who leads the matrimonial department and is a partner in Kasowitz, Benson Torres & Friedman in New York. “There are cases that say he cannot get the ring back because there was a legal impediment to the marriage at the time he gave it.”

Citing cases where estates seek to recover rings, she said: “Another complication occurs if the giver of the ring dies prior to the marriage and it is the death that prevents the marriage. Then the donee may keep the ring.”

Even after the marriage has taken place and the ring is unequivocally the property of the wife, questions may still arise. “Once the marriage occurs, the wife keeps it because the conditions were completed,” Ms. Alter said, “but if you upgrade the ring because one carat seems too puny, and get a 4-carat stone instead, that becomes marital property which can be divided in a divorce.”

It did not occur to Nadia Sookram, 29, a finance manager with MTV, to keep the one-carat solitaire she had received from Michael O’Neil, her college boyfriend. Even though plans for their wedding in July 2005 were well in place — a banquet hall had been booked, dresses for five bridesmaids chosen, and a photographer hired — when they broke up.

“There was no discussion about the ring, and he never asked for it,” said Ms. Sookram, who gave it back. “Throughout our whole relationship, he was broke and had been saving up forever to buy it. I asked my mother if she wanted money from the ring because we lost a lot of money on the wedding, but it’s not about the money. It’s about rebuilding and moving on. I feel proud of the decision.”

Welcome to JoeMunte’s Weblog. Today is early in the morning at 2.23am, not yet sleep, but I’m very happy finally I have (and I did) my own weblog. Hope you enjoy my writings, it’ll be fun.