Broke Banks Mounting

I would like to write the story that is published beneath the headline “Banks and Credit Card Companies Lead Country to Prosperity.” It should be clear that there are things bankers do not know how to do, such as lead. I am also troubled that bankers do not know what to do with the tax dollars they have received from the Troubled Asset Relief Program (TARP), such as lend. Since I cannot write that story, please accept this one.

If ever there was an industry that needs some positive public relations, it is banking. Bank failures have become common place. In Georgia, for example, there have been five bank failures in the last five months and the hits just keep on coming. Another fifteen banks are expected to go under this year, more than twice the number that collapsed there during the savings and loan crisis twenty years ago.

Until last year, California had seen only 3 bank failures during the previous decade – in 1999, 2000 and 2003. According to the FDIC, California suffered 5 bank failures in 2008 alone.

· PFF Bank and Trust, Pomona, California, closed.
· Downey Savings and Loan Association, F.A., Newport Beach, California, closed.
· Security Pacific Bank, Los Angeles, California, closed.
· First Heritage Bank N.A., Newport Beach, California, closed.
· IndyMac Bank, F.S.B., Pasadena, California, closed. (The FDIC was named Conservator.)

Banking is a highly regulated business. Despite news commentaries that bankers got greedy as banks were deregulated and became corrupt, bank consumers have protection. In the case of IndyMac Bank, the third-largest bank to fail in American history, a run on deposits and rising defaults made Federal regulators seize it.

The mortgage loan portion of the banking business earned derision for being lax and, in some cases, predatory in its lending practices. Federal Reserve Chairman Ben Bernanke says that a sustained economic recovery may require additional bailouts of financial institutions. However, the business loan portion of banking has become the collateral casualty that threatens the country’s economic recovery.

As a business management consultant experienced in dealing with bankers on behalf of my clients, it is clear to me that business loan criteria are in flux. Even clients with excellent credit, strong assets and positive history are being denied new loans and are incurring decreased credit lines. New financing does not seem to be happening. Does that mean banks are not lending money to small businesses? They say that they are but that assertion is inconsistent with my clients’ are experiences.

Banks make money by selling the use of money, right? “If the borrower provides the bank with both a belt and a pair of suspenders,” Joe Nocera wrote in the New York Times, “the loan is being granted.” However, “[i]n addition to not making new loans, the banks are systematically withdrawing commitments and capital from the economy.”

So what about the Economic Stimulus Package of 2008? It is about tax breaks for businesses that spent money on property and vehicles last year while their credit lines were getting trashed. According to the Packages press release, “This new legislation will not only benefit small businesses in a variety of ways, but it will also provide an economic boost to the entire nation.” Bold words in that generalization do not change the fact that “there are exceptions and additional requirements.” Tax credits for small businesses that create jobs sound fine, but it takes money to make the payroll to pay for the jobs to qualify for the tax credits.

Consider this: it is not that bankers are greedy, they are just not thinking of anything except their bank as directed from the home office. They do not make informed decisions, they just react. That is not greedy, that is stupid. Additionally, from the previous bailout round of the dying days of the Bush Administration, there is no mechanism to hold the banks accountable for putting bailout money into circulation.

Bank accountability is about to change with the new administration. Specifically, the government might force banks to make loans they would otherwise avoid. It is certain that the Obama administration wants to avoid more stupidity, such as those of the Bush Treasury secretary, Henry Paulson “who sold Congress on an elaborate strategy for shoring up banks and then shifted to an entirely different approach before he even got started.”

A retreat is in order. Banking and bank shareholders have no choice but to go along with a change that will mean making less money by taking less risk.

Meanwhile, forces for the benefit of small business—the largest aggregate employer in the United States -- are seeking the administration’s ear. The National Development Council wants a $75 billion small business stimulus package and a Cabinet-level position to coordinate federal resources for small businesses. Additionally, the National Small Business Association is seeking congress’s ear, asking for 25 percent of TARP funds to be aimed at small business lending and a mandate that 23 percent of stimulus infrastructure funds be contracted out to small businesses. Both are debatable requests.

Another debatable move is that of credit card companies like American Express. In November the Federal Reserve granted a request by American Express to become a bank holding company and access to low-cost financing from the Fed. Just like the banks, Amex also cuts back credit lines regardless of business or personal credit worthiness or history. The credit card business is a trillion dollar a year industry, cunning, predatory and greedy.

At the top of the banking food chain are some serious minded criminals who got away with being sharks in the Bush Administration’s pool. While the former president may avoid prison, I hope that those lesser crooks at the top serve time. Nor do I believe that bank shareholders, whom the crooks served, should prosper at taxpayer expense while the banking system undergoes its overhaul.

Small business needs direct financial help to grow our pillaged economy and to create the jobs promised by the new administration. Tax credits alone cannot make job growth happen. The new congress and administration need to hear from us. We will have to make prosperity happen. They will have to help us.

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Originally published in Blogcritics Magazine, January 22, 2009

New Bigotry II

I had not intended to write a follow up to Proposition 8: The New Bigotry until I read about the latest hypocrisy in the ongoing debate since the ballot initiative passed. Supporters of Proposition 8, so vocal about voter approval to amend the California State Constitution, now want the same Constitution to overturn another voter-approved initiative -- the Political Reform Act of 1974. They seem to believe that they can have it both ways and have asked the court to back them.

Proposition 8 added fourteen words to the Constitution of the State of California: “Only marriage between a man and a woman is valid or recognized in California.” California voters approved it by 52.3% of the November 4 vote. In 2000, California voters approved Proposition 22, which defined “marriage as between a man and a woman,” by 61% of the vote. On May 15 last year, the California State Supreme Court declared that statute unconstitutional and legalized same-sex marriage in California.

The constitutionality of Proposition 8 is before the California Supreme Court.

The amendments co-author Kenneth Starr represents its supporters in asking the court to uphold the Proposition. By the close of business on January 15, a number of groups filed

amicus curiae, or “friend of the court,” briefs to ad to Starr’s. Among them, the United States Conference of Catholic Bishops, the Family Research Council, and the Union of Orthodox Jewish Congregations filed briefs.

Of its legal filing, San Francisco Archbishop George H. Niederauer wrote that under California Law, “Same sex couples who register as domestic partners will continue to have ‘the same rights, protections and benefits’ as married couples. Proposition 8 simply recognizes that there is a difference between traditional marriage and a same sex partnership.”

One can interpret that as supporting "separate but equal" treatment under the law which is unconstitutional. Nonetheless, Father Neiderauer's opinion is protected speech under the 1st Amendment.

California Attorney General Jerry Brown represents the measure’s opponents in asking the court to overturn the Proposition. Joining the opponents, the League of Women Voters of California, the California Council of Churches, and the California Labor Federation have now asked the court to invalidate Proposition 8.

Of its amicus brief the California Council of Churches said, “ The brief argues that Proposition 8 poses a severe threat to the guarantee of equal protection for all and was not enacted through the constitutionally required process for such a dramatic change to the California Constitution.”

Even Google has weighed in. On its official company blog, the Internet search company joined other businesses in signing a brief in support of the lawsuits to overturn Proposition 8. “Denying employees basic rights isn't right, and it isn't good for businesses," Google General Counsel Kent Walker wrote. He added, “California's image has suffered since the divisive election.”

The Washington Post conservative scribe George Will also weighed in. In a recent column he took to task Jerry Brown’s 111-page argument to invalidate Proposition 8. He wrote, “Passing laws by referenda is an imprudent departure from the core principle of republican government -- representation: The people do not decide issues, they decide who shall decide. But the right of Californians to make laws through the direct democracy of referenda is as firmly established as it is promiscuously exercised.” While I usually disagree with what George writes, I agree it puts the court where it should not be and agree about the promiscuous part.

You may say, “So far, so good. It’s now in the Court’s hands.” You would be correct and, in addition to all those briefs, amicus or otherwise, there is an additional law suit to consider. That suit alleges that California’s Political Reform Act is unconstitutional. The Political Reform Act was adopted as a statewide initiative (Proposition 9) by an overwhelming vote of the electorate in 1974.

According to the State of California, “the law's most fundamental purpose [is that] of ensuring that ‘receipts and expenditures in election campaigns should be fully and truthfully disclosed in order that the voters may be fully informed. . . .’” However, supporters of Proposition 8 have filed a lawsuit that seeks to keep the public from seeing the supporters’ campaign finance records, which are required under the post-Watergate law to be posted for 10-years.

Claiming that the reports have led to harassment of donors, they have asked the court to declare the law unconstitutional.

The First Amendment Coalition says that the suit probably will not succeed. According to the Coalition’s executive director, Peter Scheer, "The problem with their argument, of course, is that campaign finance laws, both at the state and federal level, have been litigated endlessly now since Watergate and the argument has, in one form or another, been rejected."

Still, it is amazing what can be done with data today. While the suits are being considered, much has been done with Proposition 8 supporter information. Not only is it a matter of public record, it can be found online on a map. That is pretty darned amazing.

Incidentally, if you have not seen Jack Black in Proposition 8 – the Musical, have a look.

As I wrote in my initial piece, it was “the effort to invalidate 18,000 gay marriages that changed my mind on writing about the issue to expose it as the sheer, unadulterated bigotry it is.” Adding hypocrisy makes it New Bigotry II. The courts will rule as early as March.

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Originally published in Blogcritics Magazine on January 17, 2009.

A Lot of News But Are We Aware?

Think of our news as a dartboard game and opinion as a dart. As long as your dart hits and sticks in the target, your dart scores, you earn points and you can espouse an opinion. Since the dart board is the size of an empty store building, it’s hard to miss. Without a toss we can start with the news that the store building is empty and have an opinion on its emptiness. But, could we have seen it coming? Shouldn’t we have?

I spent some time as a television reporter. A shopping mall had burned to the ground and was still smoking when I arrived with another hundred reporters from regional newspapers, radio and television stations. I shot video above the scene from the skids of a sheriff’s helicopter -- a panoramic view that included all those other reporters standing behind the yellow police tape.

The next day, only reporter on the scene, I shot video from inside the shouldering ruins of the mall. Wet and smoky, the eerie scene got personal when my camera caught a man and a woman hunkered down just inside the door of what, just days before, had been their store and their life savings. Except for the arsonist, no one saw that devastation coming.

No one aside saw California based department store chain Mervyn’s closing. At least the employees and customers did not until the company filed for Chapter 11 bankruptcy protection last July. Cerberus Capital Management, the company that owns Target, saw it coming. Target owned Mervyn’s. The problem is that Mervyn’s was not financially big enough to be saved from failing. GM and Chrysler, by comparison, are too big to let fail, at least for now. Cerberus, the financial company not the mythical guardian of Hades’ gates, also owns GMAC and Chrysler.

Hurricanes are huge. We can personally run from one, but property damage is still going to happen. If we cannot run, the risk of not surviving increases. If we cannot see it coming, we do not know to run. A hurricane is a huge depression, the effects of which are only mitigated by our meteorological forecasting technology. Do we really lack economic forecasting technology? Could we not see this recession coming?

We seem to need something to blame. I blame the news dartboard. It is too big to miss. Unfortunately, it is also personality dependent so we always need someone to blame. We blame the weatherforcaster for the tropical depression instead of blaming an inaccurate forecast.

Since blame is personality dependent, we throw another dart and hope to hit a person. Bulls-eye! Bush! That will work but the target is too big, too easy, too many more column inches to write, and too many writers to fill those inches. How about Madoff, the $50-billion Ponzi scheme guy? The same result as Bush. I am afraid that blame is only interesting.

The news dartboard makes it abundantly clear that a lot of things are not in our best interest, like Ponzi Schemes, predatory lending and poor public policy. What it does not make clear is that we do not have to stand for it like an animal in the beam of oncoming headlights. We seem to have a tremendous amount of information at our disposal. Oddly, what we do not seem to be is aware.

For example, are we aware that banks and credit card companies have no mandate to make our business and personal financial lives suck? As institutions, they are not bright lights. At best they are rear-view mirrors. From a behavior point of view, they are like lemmings. They actually need us not to follow them over a cliff. We are their customers and following their plummet does not work for us. Maybe blaming banks will.

Back at the news dartboard, the scoring point for bank failures is a triple score. In Georgia, for example, there have been five bank failures in the last five months and the hits just keep on coming. Another fifteen banks are expected to go under this year, more than twice the number that collapsed there during the savings and loan crisis twenty years ago.

I do not see a scoring headline that says “Banks and Credit Card Companies Lead Country to Prosperity.” Should we blame them further? On one side I can argue that we cannot blame people for not doing what they do not know how to do – such as lead. On the other side I am troubled when bankers who have received tax dollars from the Troubled Asset Relief Program (TARP) refuse to say where that money is being spent.

“We've lent some of it. We've not lent some of it,” said a spokesperson for JPMorgan Chase, which received $25 billion. “We have not disclosed that to the public. We're declining to." Really!

As a business management consultant with years of experience asking for and getting money for my clients, I can guarantee you that bankers ask two make-it or break-it questions. One is, “What are you going to do with the money?” The second is, “where did you spend the money we gave you?” I can also guarantee you that answering, “We're choosing not to disclose that," would get me and my client shown the door. Bank of New York Mellon got about $3 billion of the TARP and that is what they told the Associated Press.

Fortunately, there is the Treasury Department. It is monitoring how our taxpayer TARP billions is being spent. How is it doing that monitoring?

"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this. So we're building this organization as we're going."

That might sound like a Sarah Palin answer, but it is worse than that. Those are the words of Treasury Secretary Henry Paulson. Let’s overlook the “lightening speed” bit and focus on Paulson’s central point. If he had said “We are making it up as we go,” he would use fewer words to tell the truth. We would at least be aware that he was a banker.

While we than deserve more in the way of public policy than “making it up as we go,” that is what we have. It is public policy as a dartboard game. Now that we are aware of that, perhaps we had better learn how that game is played.

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Originally published in Blogcritics Magazine on January 14, 2009.

Smoking Government: A Tobacco Tale

Smoking became a significant political issue beginning with a shocking event in 1964 -- First Surgeon General's Report: Smoking and Health. The Johnson Administration’s Surgeon General Dr. Luther L. Terry’s report came to what was then an astounding conclusion: “smoking causes cancer." The implications were staggering since the administration needed the tobacco growing states on its side, not to mention the industry’s money. To say that smoking was not only a multi-billion dollar year industry but a way of life would be understatement.

Joseph Califano, the senior domestic policy aide to President Johnson, said, "It was a very dramatic and courageous thing to do." Califano also said, "We wanted to get schools integrated, the voters' rights act passed, fair housing passed. And all of those things required us to take on the whole phalanx of Southern states." Therefore, the Johnson Administration did not want to deal with the implications of the report by directly addressing them.

When I turned fourteen in 1964, I looked forward to taking up smoking as a grown up kind of thing. At the time almost half of all Americans smoked and they did it everywhere – restaurants, theatres, airplanes, offices. Television and movie stars smoked and cigarette advertising was everywhere. Magazines, newspapers, radio, television, billboards, movie theatres all benefited from cigarette ad revenue. Even television cartoons had cigarette sponsors.

In my parents’ time, during the print and radio advertising era, icons like Santa Claus and actors like Ronald Reagan lit up. Medical doctors endorsed cigarette brands for “patients who smoke.” Millions of dollars went into television commercials which created their own icons, like the Marlboro Man. Even Fred Flintstone and Barney Rubble lit up Winston’s. That is until Congress passed and President Nixon signed the Public Health Cigarette Smoking Act on April 1, 1970. When it went into effect on New Year’s Day 1971, television lost $220 million a year in revenue.

More money is being spent today on tobacco advertising in anti-smoking campaigns. It is just that those ads may not be working the way they are intended. Many that use disturbing images are designed to scare people so that they don’t smoke. Present research, however, shows that such a strategy either does not work or may backfire.

The special relationship between tobacco and government date from the founding period. One can see it literally set in stone at the 19th century US Capitol building. The sight is called the Hall of Columns -- 28 Corinthian columns line the corridor. When you look at their capitals, you see a stone work metaphor. In addition to classical acanthus leaves and native thistles, American tobacco plants appear to support the ceiling of government. In reality, tobacco still supports a lot of government at many levels.

Tobacco remains a big source of tax revenue at federal, state, county and city levels. According to the Tobacco Merchants Association, bills to raise tobacco taxes have been active in 22 state legislatures since last year. The National Conference of State Legislatures reports that the previous year 11 states enacted increases. How much money is that? R. J. Reynolds Tobacco Company estimates that state taxes generate almost $15 billion in revenue, while the federal excise tax of 39 cents a pack raises over $7 billion.

If you are a cigarette smoker traveling to New York, you may want to take a carton of smokes with you. The New York Legislature recently approved an increase in the cigarette tax that makes it highest in the country, almost $3 a pack. That is projected to raise $265 million for the state’s general fund.

Cigarette manufacturers argue that tobacco taxes make for an unstable revenue source because of declining sales. Supporters of increased cigarette taxes make a claim that increases in tobacco taxes drive down smoking rates, particularly among youths who may find that they cannot afford to start. The tobacco industry says smokers already bear an unfair tax burden and that the tax increases encourage bootlegging.

The economics of cigarettes first became an issue to me when I went to military school in 1965. A pack of cigarettes from a machine on campus cost a quarter. In town a carton cost $1.65, great savings on a $4.00 per week allowance. Price increases made me quit in 1975 when the pack cost half a dollar. I quit again in 1985 when it crossed the dollar mark. When I finally quit last year cigarettes cost about $4.00 a pack in San Francisco.

While the feds and states are raising tobacco taxes, smoking rates are going down. The American Heart Association says 26 million men and 21 million women in the U.S. are smokers. Meanwhile, cigarette sales declined 18%; nearly 4 billion packs a year by 2007. Unfortunately, the National Cancer Institute says smoking-related illnesses are pushing half-a-million deaths each year in the U.S.

As if smoking is not enough of a danger and its economic and health impacts are not scary enough, there is yet more to fear. Step aside second-hand smoke. Meet the new headline maker -- third-hand smoke. Third-hand smoke is a term being used to describe the invisible but toxic gases and particles that cling to smokers’ hair and clothing, lingering long after second-hand smoke has cleared. Passive smoking makes headlines but it may not be a very good point of argument.

According to Jane Gravelle, an economist with the Congressional Research Service, “You hear that passive smoking might increase your risk 20 percent, 50 percent, 70 percent, but what you don't know is that lung cancer among nonsmoking individuals is a very, very rare disease. So you can have a big percentage increase, and it's still a very small risk.”

I first read about third-hand smoke the same day I read the latest story about the president-elect’s smoking. His doctor described Mr. Obama’s smoking history as “intermittent” and said he had quit several times. That is good enough with me. However there are folks who will wonder whether or not his quitting is a good thing, especially in a crisis situation otherwise known as the presidency.

Enter Neal Benowitz of the University of California, San Francisco, an expert in nicotine addiction. He says that “there is evidence that stopping smoking can cause irritability, slowed reaction time, or difficulty concentrating and solving problems. But that’s typically in heavy smokers — people who’ve smoked 10 or more cigarettes a day.” The good news for the nation is that Mr. Obama’s doctor reports that “he had quit several times.”

What I have found is that it takes a lot of quitting to quit smoking. My advice to the new president is to personalize the act of quitting. Don’t turn your daughters into smokers, either first-, second- or third-hand. The government will be able to find revenue somewhere else. Besides, as American author and non-smoker John Steinbeck said, “I can start any time I want.”

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Originally published in Blogcritics Magazine on January 6, 2009.

Proposition 8: The New Bigotry

I had not planned to write about the controversy being exploited by each side of California’s Proposition 8. I did not care who voted for it, how much money was spent on it or the margin of its approval. As far as I was concerned the issue would play itself out in public opinion and in time become just another footnote of our culture. While the California Supreme Court is considering whether Proposition 8 violates the State Constitution, it is the effort to invalidate 18,000 gay marriages that changed my mind on writing about the issue to expose it as the sheer, unadulterated bigotry it is – our new bigotry.

However, where to start has been a bug-bear. Then it came to me – Rush Limbaugh, who decided to lead the charge on the day after the election. He claimed that California’s passing of Proposition 8 told judges that they could not override what conservatives did in that ballot initiative, defining marriage as a legal bond only between a man and a woman. Although I think he is a huckster, such a digression obfuscates the point that Prop 8 is bigotry.

Rick Warren came to mind next. He is more of a media magnet than Rush these days and he is smooth. He refers to a “five-thousand-year . . . definition of marriage” with a smile, referring to Proposition 8 as a “free--speech issue.” Warren’s artful dodge is that he “objects to the redefinition of marriage.” Smooth sounding intolerance is still intolerance, which is at the core of bigotry.

By definition, “one who is strongly partial to one's own group, religion, race, or politics and is intolerant of those who differ” is a bigot. Bigotry is “the attitude, state of mind, or behavior characteristic of a bigot; intolerance.” The American Heritage® Dictionary of the English Language, Fourth Edition, also notes, “Bigot is first recorded in English in 1598 with the sense ‘a superstitious hypocrite.’"

What I am writing about is bigotry as an ideology. The obvious form is racism characterized by hostility, a belief in inferiority and an assumption that one race is superior to another. Today that is considered a human rights violation. Another form is sexism, characterized by judgments based upon gender rather than upon individualism and an assumption that one sex is superior to another. Other forms include fascism, nationalism, ageism, classism and pretty much any where narrow mindedness and stereotypes overcome logical thinking.

It is the will of 52% of a voting public over 48% that changed the stance of California’s Attorney General Jerry Brown. He has filed suit to overturn the Proposition, writing that the courts have already said that the right to marry is protected as an “inalienable right.” Brown writes further that a “tyranny of the majority” would be established if a ballot initiative could to take away an inalienable right. This is something that the Constitution was designed to prevent.

The sponsors of Proposition 8 are championed by Kenneth Starr, dean of Pepperdine University's law school and the former independent counsel who investigated President Bill Clinton. He argues that by upholding the initiative and invalidating 18,000 same-sex weddings performed before the election, the court would preserve the people's lawmaking powers. "Proposition 8's brevity is matched by its clarity,” Starr wrote. “There are no conditional clauses, exceptions, exemptions or exclusions." He would know since he was one of its authors.

Although I am not a lawyer, it occurs to me that there is also the pesky matter of ex post facto law, also known as retroactive law and prohibited by the Constitution. The American Heritage® New Dictionary of Cultural Literacy, Third Edition, says, “A law that makes illegal an act that was legal when committed . . . “In the case of Proposition 8, same-sex marriages may no longer be performed, at least for now. However, to invalidate marriages performed while they were legal makes the Proposition an ex post facto law.

The new bigotry has plenty of articulate spokespeople to espouse its specious cause. I would be interested to know what they think about repealing laws that prohibited marriages between blacks and whites. But that is the old bigotry.

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Originally published in Blogcritics Magazine on January 1, 2009.