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 CommPro.biz 2014.02.20

A Bribe Is A Bribe Is A Bribe

A recent (2/09) New York Times story detailed the hiring of a young woman at the behest of a family friend. A job was created for her at JP Morgan Chase. Her family friend just happens to hold a powerful position in a Chinese agency that oversees insurers. The bank was looking to snag business deals with a number of the insurers that her benefactor holds sway over. There is nothing unusual about arrangements of this nature. What makes this one stand out is, that the “ask” was in the ear of Jamie Dimon, top dog at Chase. The young woman was not only in the room, she was serving as the official’s translator.

First off, the young woman was an outstanding candidate; Chase was lucky to get her. And Dimon was careful to distance himself from the hire. However, Chase did get a bunch of deals right quick from companies under the regulator’s gaze. It seems clear that in addition to getting a first rate employee, Chase made a ton of money from her family friend’s ”contacts”. Because a government official is at the center of this arrangement, a case might be made that hiring the young woman at his behest constitutes a bribe. That’s a big “No-No” under United States law.

This is not an isolated case. Chase has a history of jobs for deals as do most all of the monster banks; Goldman Sachs, Citi, and all the usual suspects. Legally they are likely inside the safe zone; ethically they are not even close. While Dimon was careful to give himself cover on this hire, it doesn’t change the underlying truth. These deals –especially in light of their frequency– indicate that they are part of the culture of these banks. The culture of any organization reflects the ethical and moral compass of its leader; in this case Jamie Dimon.

These monster banks slithering around making backroom deals to gain the favor of business or government officials are ethically pathetic. A good business leader knows to back away from any deal that is not a good deal for everyone involved. Cash under the table or hiring somebody’s kid, either way it’s a bad deal for the buyer and the seller. It’s an admission by the seller that what they’re selling isn’t worth the price, and/or it means the buyer didn’t get the best deal for their bucks.

These banks are too-big-to-fail and way too-big-to-manage. They’ve created a greed driven culture that does anything to keep the bucks rolling. They’ve trampled the real bankers in our community banks, using ill gotten profits gained by gambling with their depositors’ funds; all insured by the FDIC (that’s us). The solution is to break these monsters up before they trigger another crash. We did it in the 1930s  and set up rules that kept us safe for the better part of a century. Lesson learned? It’s time to repeat; break up the too-big-to-fail banks before they fail again. How hard is that to understand?

"Am I wrong?"--"Am I Nuts?"

"What do you think?"--"Do you agree?"

Published in CommPRO.biz 2014.01.16

The Earnings Culture

Public companies are driven by the need to show earnings. The path they follow to that end determines their corporate culture. Horace Greeley, the dominant editor and publisher of the 19^th century, commented, “The darkest hour in any man's life is when he sits down to plan how to get money without earning it.” Problem is, some corporate leaders see any action to increase “earnings” as fully justified. Too many CEOs seek “earnings” by any means. They look at the fines and legal penalties incurred as -“oops”- no more than the cost of doing business.

Investors too often are not concerned how “earnings” are achieved. While the ethical business model is the proven best source of high earnings, some see the concern for employees, communities, vendors, and the environment that model requires as taking money out of their pocket. Some even see a focus on treating customers fair and square as a missed opportunity to increase profits.

We saw this in the run up to the current recession. The monster banks pushed the pipeline to produce more and more mortgages, ignore the details, don’t fret about income verification. Once in hand they threw together these shaky mortgages (“Crap” was the term they used), put a few good ones on top of the pile and sent them off to the rating agencies. The bankers were not hesitant to point out that as paying clients, the rating better be AAA.

These bundles of sure-to-fail “crap” were sold as if the triple A ratings were real. Adding insult to injury these banks placed bets that the “crap” they created and sold would fail. They bet against their own customers. They made money coming and going; money they called “earnings.” The shareholders loved it. J.P. Morgan Chase, Goldman Sachs and a handful of monster banks deliberately created financial products designed to fail.

When they were caught off guard by the collapse of their whole scheme, they turned to the taxpayers for help. While necessary, the bailout was designed by Bush Secretary of the Treasury, Hank Paulson, former CEO of a monster bank. He gave his mates the needed money but failed to attach any conditions. We the taxpayers continue to provide interest free funds to these banks believing that they will lend it to small businesses and create jobs.

Wrong! They are back to gambling with our money, this time boosting prices on basic commodities that folks strapped for cash have enough trouble paying for. As long as the banks’ “earnings” look good, the stock market booms. We are hard pressed to see these “earnings” passing the standard Horace Greeley set. The bank CEOs’ plans are obviously designed to get money without earning it. They set the culture and drove it down through the ranks. The people paid mightily these last five years for the sins of these arrogant banksters. They, however, are above the law. At least the Attorney General of the United States says they are.

Published 2013.10.24 CommPRO.biz

Shareholders Come Last!

Corporate America, particularly the Monster Too-Big-To-Fail Banks, have it all backwards. A crazy concept, Shareholder Value, conceived as a business strategy in the late 1980s by college professor Dr. Alfred Rappaport, continues to ravage our economy even though it has been thoroughly discredited. One of its early advocates, Jack Welch, sang its praises back then when he was CEO of General Electric. He touted shareholder value for all to hear. Twenty years later in 2009 Welch turned around and said in a newspaper interview, “Shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy; your main constituencies are your employees, your customers and your products".

Welch isn’t the only one to see the light. Jim Collins of Good to Great fame has been pointing to what makes great companies and the importance of long-term strategies rather than the quarter-to-quarter madness obsessing our corporate world today. It is especially dangerous in the case of the Monster Too-Big-To-Fail banks. Striving for short term goals, empowered by immunity from gambling laws, FDIC protected depositors, seemingly unlimited interest-free money from the FED, and the knowledge that there’s a taxpayer bailout waiting if they go too far, leads them to take wildly reckless chances. And the Monster Banks are doing just that, they are going too far.

Back in the real world where corporations are coming to the new Jack Welch, Jim Collins view, they understand that sky-high executive compensation encourages greed, not leadership. Measure after measure shows a different parameter on the road to success. Perhaps most dramatic is the work of two Professors Rajendra Sisodia and Jagdish Sheth. They set out looking for companies that met a list of standards that at first glance seem out of reach, companies that focused on their customers, their employees, their vendors, their communities, the environment and finally last in line, their shareholders; companies striving to serve all their stakeholders. They call them “Firms of Endearment.”

The professors partnered with writer David Wolfe who suggested that before they got too excited when they actually found more than two dozen such companies, that they had better check to see if any of these companies made any money. You know, the “result” where Jack Welch pointed out that shareholder value comes into play. To everyone’s surprise the public companies that made the Firms of Endearment list returned eight times the S&P average over the ten years prior to the list compilation.

Clearly this shows beyond any doubt that all things being equal, the Firms of Endearment high road is far superior even to the taxpayer supported route the Monster Banks inflict on our society. The whole idea that if you take care of the basic stakeholders, your bottom line will take care of itself is lost on these folks. David Wolfe wrote a great book, Firms of Endearment, that details the high road research and results. If you are holding your breath waiting for the Monster Bank CEOs to read it, forget it.

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 2013.08.28

The Customer Is Not Always Right

Let’s review – America has been struggling to rise out of what has been called the Great Recession. A recession brought on by a systematic dismantling of safeguards that protected us for decades after the Great Depression. Engineered by lobbyists working for Wall Street banks and the super rich –the 1% of the 1%– this tearing down of the walls was not intended to cause a recession, just to allow those at the top to make more money.

The recession was an unintended consequence. The big banks had been buying up mortgages to create bundles that investors, pension funds and the like could stash away and collect interest on month after month. What could be safer, we all know real estate never loses value; it always goes up, right? Besides, the banks had these packages checked out; the credit rating services marked them AAA.

This new idea caught on like wildfire. Pretty soon the supply of mortgages wasn’t keeping pace with the need. So the banks pushed the mortgage brokers down the line for more and more mortgages. The brokers urged people to buy, coaching them and fudging the numbers when they didn’t qualify. The banks learned to pile the mortgages with the not-so-nice on the bottom. The rating services were overwhelmed. Under intense pressure from the banks to anoint the investment packages with top ratings, it appears that the services buckled. Soon packages the bankers were calling “Crap” were gaining AAA ratings and being sold by those same bankers to trusting customers.

To understand why the rating services would hang a AAA on what the bankers called “Crap,” we have to look at their business model. The banks asking for AAA ratings paid for them. The banks are the rating service’s customers. They feared that saying no to the banks would just send them to another rating service. They anointed the “Crap” AAA to keep the bucks coming through the door.

That’s pretty much what the Justice Department is saying that Standard & Poor’s did when they sued the rating agency for $5 billion. The DOJ and 14 states are suing S&P, the largest of the rating services. The other two, Moody’s and Fitch, are likely to be next. The $5 billion suit is moving through the California court of District Judge David Carter. S&P rated $4 trillion in various bank investment vehicles over the four years leading up to the collapse.

While S&P is facing the $5 billion lawsuit, keep in mind that the real bad guys are the handful of monster banks that put together the piles of crap and coerced an AAA out of the rating services. What’s more the same banks are back at it– gambling wildly secure in the knowledge that we will have to bail them out again when they stumble. We like to think that doing the right thing is easy. It’s not, what’s easy is taking that first step in the wrong direction

The Price

The nearly unprecedented power a handful of monster banks wield over our lives raises a suite of ethical questions. “Nearly unprecedented” only because it mimics the power of the banking sector in America following World War I and through  the decade we refer to as the “Roaring Twenties.” We all know what happened at the end of that period, the Great Depression.

Interestingly, the monster banks of that day played a small role in triggering that horrific event. However, the people and their representatives in the Congress reacted more aggressively than those in that esteemed body have in response to an event almost exclusively the result of reckless behavior by today’s monster banks. Their power is two-fold: their control over members of Congress through massive injections of campaign cash, plus their ability to convince foolish voters that making rich folks richer will somehow benefit those down the food chain.

Add to this snake-oil logic the idea that instead of addressing the Great Recession as we have every other economic downturn since the industrial revolution, we are told that we need to cut investments in education, our crumbling infrastructure, firemen, police, and anything else that might maintain and improve our nation’s well-being. We are told austerity is the answer, a solution embraced by some in the Euro Zone and Great Britain.

Germany has taken the lead in imposing this path to prosperity on its neighbors. However, it’s not been so keen on austerity for Germany itself. The Scandinavian nations have not embraced austerity with enthusiasm either. Our neighbors to the north, Canada, have seen no need, since their banking laws saved them from the carnage our banks inflicted on Americans. By the way, our banks are fine; we bailed them out and guess what they are doing? The same stuff that crashed the world economy in 2007-2008. Why not? They know we will bail them out again.

How’s austerity working for the American people? They took the hit, no bailout for them. It’s been hard. Losing homes, jobs and dreams has been tough. Some folks can’t deal with it. Marriages come apart, and for some folks who just can’t go on, suicide seems the answer. The suicide rate in Europe has soared and it’s climbed in America as well.

As the recession ballooned from 2007 through 2010 experts* estimate suicides exceeded the norm by more than 4,750 across our land. The rate was a lot higher in states with the highest job losses. Unemployed folks are roughly twice as likely to die by their own hand as those who have work. Every one of these nearly 5,000 Americans who committed suicide was killed by the reckless bankers who tanked our economy. The bankers killed them as surely as if they had mowed them down against a wall; they were “Collateral Damage” in the bankers’ scramble for riches. The bankers gambled and everyone lost,,,,, except them. Some lost their lives.

*David Stuckler & Sanjay Basu, The Body Economic: Why Austerity Kills

Published in CommPro.biz 2013.05.06

The Disposable Bankers

Matthew Marshall Taylor is probably on his way to jail. The 34-year-old took a wire fraud plea deal for making up stuff to cover some wild trades that cost his employer, Goldman Sachs, $118 million. The charges against Taylor are not as serious as they might be because his crime did not put Goldman Sachs’ financial existence at risk and he followed his usual work patterns. Understand, Taylor didn’t steal anything; he just threw Goldman Sachs’ dice for more bucks than he was authorized to put at risk. He was trying to look good by making a big killing and maybe increase his take home pay. Apparently he was having trouble getting by on the over a million and a half he was paid in 2007 when all this came down.

While we understand that Goldman Sachs couldn’t allow this kind of reckless behavior –they had no choice but to prosecute Taylor– it does, however, seem ironic that a minor player goes to jail for covering up reckless financial behavior at, of all places, Goldman Sachs. The same outfit that crafted investment vehicles referred to within the firm as “Crap” so they would look like good stuff, then pressured the rating agencies to bless this crap with top notch ratings. While Matthew Marshall Taylor never put the stability of Goldman Sachs at risk with his $118 million loss, in the same time frame Goldman Sachs put the World Economy at risk with reckless bets that went bad crashing that economy.  

Nobody from Goldman Sachs is facing jail for those bad bets. In fact their head honcho is so arrogant as to claim that he is “Doing God’s Work.” He feels free to mock the members of a Congressional Committee and lie through his teeth while testifying under oath – a felony. He is not facing prison time, nor are any of the other monster bank executives whose reckless behavior, in concert with Goldman Sachs, drove the world economy off the cliff. Not only are they not headed for jail they are right back playing the same reckless games. Why wouldn’t they? They are livin’ large, taking home carloads of money, secure in the knowledge that if they blow it the taxpayers will come to their rescue again, and again, and again.

The Dallas Federal Reserve Bank has a proposal to break these monsters up and take the taxpayers off the hook. In a Bloomberg View OP-ED, Joshua Rosner, a financial research guru takes another tack. He picks up on the monster banks’ defensive position that frames them as part of a worldwide system. Rosner suggests “outsourcing” these fragile monsters, urging them to move to some other country whose citizens don’t mind crazy bankers. These banks do little or nothing for America. There are thousands of slightly smaller banks more than able to support our banking needs. Banks that would no longer have to compete with the Las Vegas style banking model the monster banks represent.

We like it. Let the monster banks set sail, and as they disappear over the horizon taking their risky behavior with them, we can all breathe a sigh of relief.