Hypocrites Lose and Other News

There is new information for several stories I have posted here in the Premise Loft and elsewhere. For those keeping score, here are some updates on Proposition 8, banks taking tax money, and the digital television conversion date.

Initially I wrote that the California’s Proposition 8 amounted to legalized bigotry. It received almost 200 comment postings at Blogcritics Magazine after it appeared on New Year’s Day. On March 5, 2009, the state Supreme Court will hear oral arguments in a series of lawsuits seeking to overturn Proposition 8. After the court's seven justices hear those arguments, they have 90 days in which to issue a ruling.

For me it is difficult to fathom the amount of money supporters and opponents spent on the proposition. During the contest's closing days, elected officials, businesses, churches and individuals poured more than $28 million into the race. In all more than $83 million went to the ballot initiative that abolished same-sex marriage in California.

Of the supporters of Proposition 8, the money attributed to The Church of Jesus Christ of Latter-day Saints now has a dollar amount. According to the church's report, nearly $190,000 went to its role in getting the initiative passed. $97,000 of that money went to the Utah-based Mormon Church staff for their time devoted to the Yes on 8 campaign.

In the follow-up article I wrote that the Proposition’s backers demonstrated their hypocrisy by petitioning the state Supreme Court to overturn a different ballot initiative than theirs. Citing a potential for harassment, supporters wanted the court to grant a preliminary injunction to remove the contributors’ identities removed from the secretary of state's Web site. The court told them No and noted that most of the activity the plaintiffs called harassment, such as threats of boycotts, was actually protected free speech.

I took banking accountability to task in two articles, especially in Broke Banks Mounting. The president has capped executive pay, but there is a lot more to be done. Bank public relations took yet another hit recently after a torrent of criticism that Wells Fargo was misusing $25 billion in federal taxpayer bailout money. Calling it a “recognition event,” Wells Fargo had booked 12 nights at two of the most expensive hotels in Las Vegas— the Wynn Las Vegas and its sister hotel, the Encore Las Vegas. The bank cancelled the junket.

Wells Fargo spokesperson Kevin Waetke defended the cancelled trip. “This year, we have the unique opportunity to bring together our Wells Fargo and new Wachovia mortgage consultants to focus on continuing to do all we can for U.S. homeowners.” Continuing to do all we can to U.S. homeowners would have been more accurate.

$25 billion TARP recipient Morgan Stanley had been planning to send its top employees to Monte Carlo along with a similar event in the Bahamas. They cancelled those trips. Likewise Bank of America, which purchased Wall Street financial house Merrill Lynch and mortgage giant Countrywide, canceled all employee incentive trips.

Finally, there is new information about the digital television conversion date delay, although it might have gotten lost. In No Viewer Left Behind I concluded, “The Obama administration may know who its friends are, but millions of viewers are now left behind.” House Republicans blocked the postponement. Supporters of the postponement could not make the two-thirds majority when it came to a vote. However, under a "closed rule" vote prohibiting new amendments, the House held the full floor vote and passed the Democratic-backed bill to delay the mandatory shutdown until June 12. President Obama urged the delay and is expected to sign the bill.

I appreciate your comments and invite you to join the conversation at Blogcritics, where the Fairness Doctrine is being debated.

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

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.

Where Is Our Money?

According to the Associated Press (AP), the banks will not say what they are doing with the taxpayer bailout money they have received. Basically, the $700 billion Troubled Asset Relief Program (TARP) is a bank loan on steroids. Banks who received loans in the billions of dollars are saying things like “We've lent some of it. We've not lent some of it,” according to a spokesperson for JPMorgan Chase, which received $25 billion. “We have not disclosed that to the public. We're declining to."

Need I ask what is wrong with that picture? A business management consultant by trade, I am used to preparing banking presentations and helping my clients ask for business loans. I can guarantee you that one of the most important questions that banks ask is, “What are you going to do with the money?” I can also guarantee you that answering, “We're choosing not to disclose that," would get me and my client shown the door, but that is what Bank of New York Mellon said and they received about $3 billion.

If you ever wondered why the Federal government is not in the banking business, here is a little insight. Just ask the Treasury department what it is doing to monitor the spending of those TARP billions. It is a fair question, right? Now ask yourself what you would think if you got an answer like this one: "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."

You might think that your question had been answered by Sarah Palin.

However, it is much worse than that. For the record, those are the words of Treasury Secretary Henry Paulson. After all, he was the banker who put the rush job on Congress, which at last look was part of the same Federal Government and is not in the banking business.

For argument’s sake, 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 be telling the truth. It would also explain why Geo. Bush picked him. We can only hope that before the next $350 billion is released in the next administration, Tim Geithner will have a plan he can show to congress, which must confirm him to replace Paulson.

Tax payers deserve more in the way of policy than “making it up as we go.” Banking’s top executives deserve to be shown the door. As to being paid bonuses on their way out, to quote one of their spokespersons, “We’re declining to.”