Published CommPro.biz 2014.05.06

Walking the Edge of the Razor Blade

It would be hard to find anything gone farther astray from its intended purpose in our society than our capital markets. The New York Stock Exchange and all other such entities in the world of finance as played in the United States have forgotten their purpose, to create a source of capital for Capitalism. Instead they have succumbed to enriching the players. Those who manage the markets have allowed the investment banks and the traders to run the show. The exchanges’ purpose is to support the companies listed, not the bankers and traders.

The investment banks have strayed far from their purpose to aid in the creation of capital and to “make a market” for those “going public.” They have wandered off into the world of legalized gambling, having convinced the Congress that laws against gambling should not apply to them. It was a easy step from there into the toxic derivative instruments that plunged the world into the recession where we little folk still struggle. Traders serve little or no purpose except to generate fees for the markets and their middlemen. This is especially true of the latest breed, those rigging the markets with penny skimming high-speed trading.

These ills are just the latest in the distortions that have increasingly plagued the markets. The whole crazy focus on “Playing the Market” instead of investing has corporate management aiming for short-term goals instead of long-term growth. All it takes to unseat an otherwise great CEO is an unexpected-could-happen-to-any-company event. Take Target’s CEO Gregg Steinhafel, who joined the giant retailer right out of college and worked himself up the ladder. Since moving into the top job he has been walking the razor sharp edge between upscale department stores and grungy discounters.

Steinhafel has moved Target deftly along, playing the quarterly results game and introducing new merchandise lines without losing the chain’s flair for quality and value. His foray into Canada has not gone as well as hoped, but it’s not altogether bad and it’s far from a bad idea. Then came the massive waiting-to-happen-to-someone breech of Target’s credit card systems. While the chain lost volume, it’s a testament to Steinhafel’s solid management style that Target did not lose more. And truth be known, the fault lies more with our banking sector’s refusal to move to a more secure RFID based credit card system a generation ago with the rest of the world.

We understand that in the current climate Gregg Steinhafel had to pay the price for what happened under his watch. But there is a lesson to be learned here, and every publicly held corporate CEO has to be thanking their lucky stars that they aren’t in his shoes. They should take the ethical and moral high ground and use their clout with the Congress to focus on long-term financial health. The Wall Street anything goes Wild West financial world is bad news for everyone, for the people, for investors, for corporate America.

 Published CommPro.biz 2014.04.24

Another Wall Street Scam

Do you remember way back in the 1990s and early 2000s, when the monster banks came up with new investment deals that bundled mortgages together, stamped AAA by compliant rating agencies and sold to the suckers, remember? Then remember what happened next? It turned out that the bundles were really a bunch of crappy AAA. The banks had tricked unsophisticated wannabe home buyers into signing mortgages they couldn’t afford.

We’re sure you remember what happened next; the world economy collapsed. In America we bailed out the monster banks to avoid a depression. But, we neglected to put conditions on the bailouts. So the big banks went right back to gambling with our money instead of helping small businesses where the jobs are created. The fat-cat banks and their bonus hungry executives are fine, while folks who lost their jobs and the rest of us are still suffering.

Nothing like that could happen these days because we’ve made it so hard to get a mortgage that even people who can afford to buy a home have a tough time. The monster banks are doing great with the interest free bucks the Fed has been feeding them, but the number of high-stakes gambling deals –oops when banks gamble the law of the land calls it “investing”– is so limited. They got into commodities, speculating on nearly everything we use. Who cares if they were raising the prices we pay at the pump or the grocery check out? But there wasn’t enough quick and easy money. They are working their way out of that game.

What now to roll the dice on? Enter the private equity folks. Guess what they’ve been doing? They’ve been buying up hundreds of thousands of those homes that ended up on the market dirt cheap after the crash. They are renting them, often to the same people who lost them to foreclosure. But the hefty rents they are collecting are not enough, and too many of the houses are empty. What to do?

So they got together with their buddies in the monster banks and came up with a new investment vehicle, Rental Backed Securities (RBS). Same as the mortgage deals but this time rental deals. Just how long will it be before the empty houses they can’t rent fill up with people who can’t afford them? However, the package of homes in the RBS will look good; every home rented.

After the RBS packages have been sold to the suckers, how long will it be before the renters fall behind in their rent and the whole house of cards collapses? If this sounds familiar, it is.  It’s the whole 2007-2008 nightmare all over again. The crappy toxic investment packages collapse, we have to bailout the banks again, they come out great and we suffer. Congress? Not a chance they are too deep in campaign contributions from the banks. We’ll be out in the cold, again.  

Published CommPro.biz 2014.04.08

Too Big To Manage, Not Too Big To Fail

In an effort to forestall another “Too Big Too Fail” recession, our Federal Reserve established the so-called Stress-Tests. The Fed looks at a number of aspects of a bank’s operations and determines its potential to go belly-up, requiring another taxpayer bailout, even triggering another recession. Frankly, none of the monster banks are stable. They engage in what would be illegal gambling except for the exemption the Congress gave them to label risky behavior as “Investments.” The eight largest banks have all been told to beef up; to add close to $70 billion in fresh capital.

The latest stress-test dealt a blow to Citicorp. The sprawling giant failed for the second time in two years. The last stress-test failure in 2012 led to a change in leadership, unseating the CEO. This is the second blow Citi has suffered in recent months; in February its Mexican operation was hit with a $400 million fraud. Basically the Fed found that Citi is out of control, not just too big to fail, but too big to manage. It’s clearly time to break up Citi’s operations; it’s time for Citi to become a bank again.

It’s obviously time for all the monster banks to break up their uncontrollable global operations. They’re all clearly too big to manage. When banks count their Vice Presidents by the tens of thousands, that alone should indicate that the same conditions that led to the breakup of the monster banks of the day in the 1930s are in place again today.  It’s also apparent that these behemoths serve no real purpose in our society.

Quite the opposite, the monster banks disrupt the banking sector. Aside from the role they play in manipulating interest rates and other hanky-panky, they make it more than difficult for our community banks. Take credit cards for instance. With the revenue from their legalized gambling operations, they can make offers that a legitimate community bank cannot match. They suck off the checking and savings accounts as well.

But unlike the community banks they don’t use the funds harvested from these sources to provide small business loans. They pour this cash into risky gambling ventures with no social benefit. That leaves the small businesses that create most of the new jobs in our economy starved for operating cash and our economy the worse for it. In addition to Citi, the Fed failed three international banks with operations in the United States including British giant HSBC which our Justice Department considered too big to jail when they were exposed as facilitating international criminal enterprises.

There are a host of reasons why the monster banks should become a thing of the past. Problem is they pour cash into the pockets of our legislators and thwart any effort to restrict or control them. Arrogant CEOs like Chase über kommandant Jamie Dimon strut and lecture our Congressional leaders, flashing cuff links with the Presidential Seal. Those sent to take care of the people’s business are instead increasingly beholden to those with the cash to dictate to them, among others the monster banks.

 
"Am I wrong?"--"Am I crazy?"

"What do you think?"

"Do you agree?"

Published in CommPRO.biz 2013.09.17

Good News “IS” News, Occasionally

We find ourselves largely focused on a minority. The majority, most of us, are trying to do the right thing everyday. By nature we are an honest hard-working people. And most businesses understand that an ethical model is a roadmap to long-term strong profitability. Take care of your customers, employees, vendors, community, and the environment; and the bottom line takes care of itself.

In our weekly pursuit of ethical issues, we find ourselves largely commenting on players who choose to ignore the ethical model. Those not interested in long-term growth. Then there are those who operate in a non-competitive market. A market that is structurally immune to competition such as healthcare. When was the last time someone struck a deal with a surgeon whilst headed for the operating room?

More disturbing are those made immune to failure through their lobbying efforts. Take the monster banks. They have created a world where they are not only too-big-to-fail; they are permitted to take part in unimaginably outrageous practices. They make huge bets –outright gambling– on anything they can label “investing;” even with depositors’ funds insured by the United States taxpayers. Worse, our Department of Justice is afraid to go after these scumbags; a monumental failure.

So between big pharma, predatory healthcare entities, and smarmy bankers, we have lots of unethical issues. We aren’t forgetting that the scumbags make up a tiny minority. Most folks in healthcare are there for the right reasons, executing herculean efforts everyday. Most bankers focus on depositors and businesses in their community. They guard depositors’ savings; make loans to keep businesses growing, homes building, and dreams evolving.

However, good news rarely makes “The” news. That’s what we like when we find a major story about a newsworthy ethical happening. IBM, a pioneer in personal computers, sold that business in 2005 to Lenovo, a Chinese company most of us never heard of. Since then Lenovo has grown their share of the home computer market, recently surpassing Hewlett-Packard. Ninety days ago Lenovo opened an assembly plant in North Carolina. 

All of that is nice, but the icing on the cake came earlier this month (2013.09.02) when Lenovo CEO, Yang Yuanqing, announced that he was splitting $3.25 million –most of his annual bonus– with his workers. For the workers in North Carolina the $300 bucks they received was a nice surprise. For the vast majority in China the $300 is roughly a month’s pay.

Hats off to Yang. He gave away $3 million of his bonus last year. It wasn’t news here until Lenovo built their plant and Yang announced that he would split his time between two headquarters in Beijing and Morrisville, NC. Those who see this as a marketing ploy may have a point, but the impact on Lenovo workers in twenty countries is still there. Unlike other big players, Lenovo produces their computers, phones, laptops and tablets in their own factories. And we’ll bet they don’t have nets stretched around them to prevent the workers from jumping to their death.

Published in CommPro.biz 2013.08.08

Anything Goes

The Monster Banks’ best investment over the last few decades has been the tens of millions they poured into the pockets of the Congress through their “K” Street lobbyists. It paid off, billions in profits that come right out of the pockets of every American. The bankers’ big score was the Financial Services Modernization Act of 1999, AKA the Gramm–Leach–Bliley Act (GLB) named for three members of our Congress who giggled all the way to their banks.

GLB gutted the Glass/Steagall Act; legislation written in the early 1930s limiting banks to the business of banking: taking deposits, making loans, supporting our economy. As a reward we agreed to insure the money of the bank’s depositors, so that should the bank go bust, the money you had in the bank would be safe (up to $10,000). GLB took down the fences, but left the taxpayers on the hook should the banks fail.

That and another gift from Congress, a law exempting Wall Street from gambling laws, opened the door to the crazy stuff that drove our economy off the cliff. The Monster Banks could use your deposits to bet on almost anything, always backed by America’s taxpayers. There are less than a dozen banks in this arena, the To-Big-To-Fail (TBTF) banks that we bailed out when the derivative fueled house of cards they created collapsed. Your corner neighborhood bank didn’t play this game. Unfortunately they suffered along with the rest of us, worse because the TBTF banks buoyed by gambling profits held a competitive edge. 

The TBTF Monster Banks are right back at it. Taking zero interest bucks from the Fed to gamble instead of investing in our economy. There’s a new game in town, commodities. Ten years ago the TBTF Banks got the Federal Reserve to set up a “Temporary” ruling allowing them to deal in commodities. When their mortgage game evaporated, the Monster Banks jumped into this marketplace. With all the free money at their disposal they bought grain and oil, even oil wells and tankers. They are into power, manipulating your electric bill, Enron redux.

Metals -steel, aluminum, copper- all commodity markets they can manipulate; a buck on a new car, a few pennies on a cell phone, a tenth of a penny on your soft drink can. Goldman Sachs, the mother of all TBTF Monster Banks, owns a couple dozen warehouses in Detroit full of aluminum bars. They shuffle them around from one warehouse to another in a dance that allows them to circumvent the law and jack up the cost of aluminum. Anything goes, ethics walks the plank.

The “Temporary” commodity games regulations expire next month. The Monster Banks are working hard to extend it. It better not happen. More important, we must get these banks out of the other gambling halls we have allowed them to create. We have to stop this nonsense and cut these big banks -quite literally- down to size. If we fail, it’s just a matter of time until we have to bail them out again.

Rule Or Ruin?

Many technical advances present two faces. For instance, we have an unrealistic view of life in the “Horse & Buggy” age. In the motor vehicle age we see death and injury rates and imagine that things were better in earlier times. They were not by any measure; horses are difficult to control at best and the drivers then were no more responsible than they are now. The key to reducing the downside of motor vehicles has been to make cars, trucks and big boy’s toys safer through technical improvements. The rules of the road -among other things- have to improve as well.

A new book, Automate This: How Algorithms Came to Rule Our World, came out last week. Former tech journalist Christopher Steiner delves into the rise in the use of this digital tool as well as its impact on our society. In a Fast Company interview, he says he initially planned to just cover the use of algorithms on Wall Street. But from that starting point his research took him out further and further into our lives like the concentric waves when a rock splashes in a lake. Algorithms make Google search work. They drive customer service programs, they are everywhere.

Many of us know that algorithms underlie the high-speed traders who dominate our stock markets these days. They carry out most of the billions of trades the markets see every day. The upside is that the cost of trading has been going down with this volume. One downside is that some high-volume traders use this tool to shadow trades being exercised by pension funds and other wealth management entities. They can race ahead of these traders scooping up their target stocks and selling them to the funds at a higher price seconds later. The effect is to drive up the cost of the securities in your 401(k) or Grandma’s pension plan.  

Worse, they have contributed to the market’s abandonment of its only benefit to society, as a source of capital for business. In fact the markets have veered from the view of arguably the most talented investor in the world, Warren Buffett, who famously said, "The best time to sell a stock is never." Businesses are obsessed with daily prices and struggle to meet the quarterly expectations of the market instead of the long-term goals that could make them hugely more profitable.

There is a simple solution for this problem. Tax capital gains based on the length of time an investment is held. Just for fun let’s say if you hold an investment for twenty years or more, there would be no tax liability. Ten to twenty years, 5%, five to ten years 10%, two to five years 15%, one to two years 25%, one month to a year 50%, one week to a month 75%, less than a week 95%. Better than pirating value from Grandma’s pension, better for investors, better for business and their employees, better for America. Ethically there is no basis for the gambling hall culture on Wall Street; high speed trading is one gaming table we don’t need.

Banks Behaving Badly

“We’re doing what a bank is supposed to do.” That’s JP Morgan Chase CEO Jamie Dimon before a US Senate Committee after a two billion dollar gambling loss that has since grown to nearly six billion and is forecast to hit even higher numbers. Dimon was much harder on himself than were the Senators, or the members of a House Committee in a subsequent hearing. 

No surprise, members of Congress have good reason to be friendly. Dimon has pitched millions into Congressional war chests -more to Republicans, but lots to go around. The committee members understandably tossed softball questions. Dimon was decked out in cuff links with the presidential seal just so everyone would know where he was coming from. 

Unbelievably nobody called him on his, “We’re doing what a bank is supposed to do” line. This from a “Bankster,” as the Economist has labeled the out-of-control leaders of our financial sector. The billions lost on bad bets placed by one of its traders (AKA gamblers) in London are the least of the problems Dimon is facing. 

Chase is ensnared in the evolving Libor scandal that has a group of international banksters fixing interbank lending rates, impacting every loan rate imaginable. 

The incredibly complex Libor rate fixing scheme crosses civil and criminal legal lines. Dimon was fully aware of his bank’s involvement in this racket when he delivered his “What a bank is supposed to do” line; so we must assume that he thinks juggling interest rates worldwide is what banks do. 

That isn’t even the worst it. When Dimon was flaunting his control over those we send to Washington to do our business, he was fully aware that Chase had just shelled out a seventy-five million dollar fine for rigging a bid on a three billion dollar sewer bond deal that pushed Birmingham, Alabama into bankruptcy. A deal they cinched with a three million dollar bribe to Goldman Sachs. Chase and a host of other banksters have been rigging municipal bond auctions for decades.

This all came out when the Feds convicted three minor players from GE Capital they nailed rigging bond auctions. The Feds got their hands on recordings of telephone conversations between banksters making highly illegal deals to pass municipal bond business around among the banks. In addition to the bankster types from GE who are going to jail, scores of others from virtually every major bank in America and many international banks as well have taken a plea deal. 

Let’s be clear about what’s going on here. 

Between the Libor racket and the municipal bond rigging scam- the banksters have ripped off everyone in America to the tune of untold billions. JP Morgan Chase is not alone in these Mafia style rackets, but if that’s what Jamie Dimon thinks “banks do” then he has a different ethical standard than most of us hold.

They’re Back – 
Run For Your Lives!

What do you think our leaders would do when confronted by the imminent collapse of a sector of our economy whose assets are equal to 56% of our GDP? Given what they did in 2008 –properly we think– we can safely assume they would prop up the institutions at risk. Are you surprised that five of the banks we rescued in 2008 now have assets equal to 56% of our GDP*? In 2006 -before the collapse- these same five banks’ combined assets equaled 47% of our GDP*.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo, five of the players whose reckless actions drove the world economy off the cliff, are lined up to do it again. Their assets grew more than 40% from 2006 through 2011*. Why? That’s no mystery, the banks know and investors know that if there’s another collapse we will bail the Zombies out again. With the taxpayers on the hook, big banks are gambling with the same risky stuff that led to the 2008 collapse –derivatives, swaps etc., the stuff the bankers refer to as “crap.”

If it goes all wrong, the bankers and their investors have the taxpayers ready to bail them out again. Where else would investors put their bucks, high returns no risk? Published reports say all three rating services along with a covey of regional Federal Reserve presidents, see a bailout for the Zombie Banks down the road. Meanwhile, your neighborhood community bank –the bank down the street on the corner– doesn’t have an investment (AKA gambling hall) division; putting them at a distinct disadvantage in finding investors and customers.

We know how to solve this problem, been there, done that. Eighty years ago when the wheels fell off our economy our nation faced the same dilemma. They busted up the big banks and made them choose the sector of the banking world in which they wanted to operate. The Glass-Steagall Act separated investment banks from the regular commercial banks that we ordinary folk deal with.

During the 1990s’ deregulation frenzy the investment banks –Goldman Sachs in particular– pressed hard to break down this wall. In 1999 they succeeded Glass-Steagall was repealed. Then they convinced the Congress to exempt them from the gambling laws and they were off to the races. Take any risk, bet on any crazy thing, as long as you could call it an investment – it is legal. Within a few years they distorted the derivative and commodity markets turning them into Zombie bank gambling halls. Here’s the catch. They know they can’t lose. They know the suckers (AKA customers) take the losses. Worse comes to worse the taxpayers will be stuck with the mess. The bankers and investors will be just fine.

We all know what happened in the decade following the repeal of Glass-Steagall. We had to bail the banks out and now they are fine; back doing the exact same things that drove us off the cliff. Meanwhile the rest of America –and the world– is working its way out the hole they left us in. They are not doing anything illegal; however, ethically it stinks. It’s time to break up the Zombie banks and put them back in their cages, investment banks on one side of the business and commercial banks on the other. If not, we’ll be bailing them out again. They are counting on it

 *Bloomberg 04.19.12

Banking 101

The “K” Street Banker Boys are pouring millions into the political arena in a desperate effort to hold on to the massive Las Vegas style gambling enterprise that characterizes too much of our banking sector today. Banking differs from Vegas in two important ways, however.

1)  When the bets the Wall Street Bankers place against the suckers (AKA “us”)  go against them, they just run to the taxpayers (us) who cover their losses. So they can’t lose. That’s too-big-to-fail banking.

2) The banks managed to get themselves immunized from the state lottery laws, so they can bet on anything. For instance, they could legally bet whether you will make your mortgage payment on time when they have no connection to you or your mortgage.

This set some of our biggest financial institutions onto a path focused on profit and the outrageous bonus structure that this gambling hall culture has spawned. A culture defended haughtily by JPMorgan Chase “Whiner-in-Chief” Jamie Dimon, who chose newspapers to justify the banker’s insane paychecks.

Duded out in his trademark 1950’s “Ducktail” do, Jamie is quoted, “Obviously our businesses have high capital and high human capital,” implying that nobody in newsprint land could compare. What nonsense. And, their capital –cash, that is– is not theirs, it’s ours, the billions we gave the banks to stabilize our economy. So what are they doing with our money? They are rolling the dice again, confident that we will bail them out again, when the dice come up snake-eyes again.

 “Proprietary Trading,” as the bankers like to call it, was a principle cause of the recession. This practice is a recipe for disaster. Here and there the milk-toast mild Dodd Frank Act does have a tooth left. The one dealing with proprietary trading, called the Volcker Rule, is facing a firestorm from the banking lobby. It would pretty much take gambling out of the banking business, push the bankers back into the real world where they can fail, and when they do, fail without taking the country down with them.

When Bill Clinton signed “The Commodity Futures Modernization Act” opening up Wall Street to gambling, Washington unleashed a chain of events that resulted in the collapse of the world economy eight years later. Wall Street began leaping one ethical barrier after another and today everyone but the bankers is suffering.

The folks who actually toil day in and day out for a living, like those struggling to find a workable journalism model, shouldn’t have to put up with sneers from a second-rate punk like Jamie Dimon. Banking at every level has but one reason to exist, to provide the capital that sustains our economic life. Dimon and his lot are clueless when it comes to that kind of banking.

Rolling the Dice, Again

Let’s suppose a bunch of organized crime types –unbeknownst to you– put together a scheme to offer odds on whether or not you will pay your mortgage on time each month for the next year. And even though your mortgage is only a few hundred bucks a month, they found high rollers willing to put big money, hundreds of millions, on one side or the other of these bets.

While that’s a little oversimplified, that’s pretty much what happened leading up to the 2008 financial crash when the big banks had folks betting for and against packages of home mortgages. Of course organized crime types would be in big trouble if they did something like that; gambling laws in almost every state make that kind of activity a big no-no. Those laws, however, do not apply to banks, and others engaged in what can laughably be called investing. During recent decades the Federal Government adopted laws exempting this form of gambling.

You would think that after what happened so recently we would have changed those laws. You would be wrong. In fact the lobbyists have managed to block even modest reform. Dodd/Frank would have made some important changes, but it has been hamstrung by opponents who simply cut off funding to implement the reforms.  

And the gamblers have turned to the commodity market. Summer, normally a quiet time, has seen an all-time record trading month in July and it looks like August will surpass it. All the exchanges from commodities to stocks are racking up billions of trades every day; some are showing trading increases in the billion range doubling normal volume. From the high-frequency traders who are little more than pirates roaming the capital markets to panicky investors afraid to be skinned by the gamblers, the markets are crazy.  

It’s time to set some parameters that will bring the markets back to their purpose, to create capital to support our economy. Banks need to get back to banking and off the trading floor. The exchanges need to focus on their purpose, to serve as a marketplace for capital and business to meet and create growth in our economy. At this point they are too interested in the revenue created by billions of trades and not interested enough in the future of this nation.

We need to reward investors, those who buy and hold stocks. Those in the market for the long haul. They’re the ones who should get the tax breaks. Let’s make capital gains taxes gradually go away the longer you hold an investment. Let’s make the gains reaped by those who buy and sell stocks in a matter of days or hours or a few seconds subject to punishing taxes. This kind of “playing” the market generates no public benefit.

And let’s call those who bet for and against almost anything what they are, gamblers. Let’s take away their “Get out of jail free cards.” Let them suffer the same legal consequences as those running an illegal card game in their basement. It’s the right thing to do.