Wednesday, January 27, 2010

George Bailey Didn't Play Texas Hold 'Em

Tonight, President Obama will deliver his first ever “State of the Union address to the Congress and the nation. He has had a busy first year. He’s had arguably the world’s biggest ever mess to clean up along with intense pressure to move forward. From my point of view he has done an admirable job of both. Of course, both are works in progress.

The nation didn’t get itself in this mess in one year—it was a decade in the making—and it may take a decade or more to recover. The need to provide greater access to health care benefits has never been more acute than in this time of high unemployment, ruined personal finances and ageing population.

But that’s not my topic today. Today, it’s about banks. Recently Pres. Obama chided the finance and banking industry over its return to overly generous bonuses and pay-outs based on short-term results when only a year ago many of these largest banks (I use the term loosely to cover the mega and other finance institutions who have been the primary beneficiaries of “TARP” and other bail-out funds) were on the brink of collapse and about to take the economy of this country and much of the world with them.

It’s as if “finance” were the world’s highest stake game of Texas Hold ‘Em and these banks were gleefully chortling over each mega-hand regardless of whether it was a hand won or lost. Until all the hands were losing hands and the “play money” was evaporating. Then they cried out to “Uncle Sam” for help.

So here comes “TARP” to the rescue. Billions upon billions. Taxpayer’s money. Now, it’s great that these “banks” were able to repay the money within a year—with interest. (Although it’s a little bit scary that they were able to recoup those losses in such a short timeframe). A new round of risky, exotic financial instruments has started and mega-bonuses are being reinstituted. Recently, Pres. Obama felt the need to directly address the issue at a meeting with bankers. But they don’t seem interested in really listening and changing some of the fundamental maladies of their side of this vital industry.

So all this leads me to think back over the years of my own experience with bankers. Simply put, if not for local bankers little would get accomplished in most of the small and mid-sized communities in our nation. Of course, much of this deals with “state chartered” local banks rather than “national” banks but as larger banks have absorbed many, if not most, small banks they have taken on the same local roles.

I spent roughly 20 years working in the field of community and economic development. I started in state government and then worked for Chambers of Commerce and their associated economic development corporations in the late 70’s until the mid 90’s in North Dakota and Iowa and Minnesota and Wisconsin.

If not for the local banks exercising leadership and investing in their communities little would be truly accomplished. It’s more a sense of George Bailey and his commitment to the depositors of his bank in “It’s a Wonderful Life” than any sense of “noblesse oblige”.

Small town bankers are intimately familiar with the social fabric of their community. They believe in the interrelationships necessary for a community to thrive. They may spend Thursday afternoon at the Country Club but they also spend Saturday at the Little League field and Sunday morning at church before heading back to the office Monday morning—all the while being pestered about local issues and the bank’s role in the community. And they know that this level of commitment yields a flourishing community AND a flourishing bank.

They help hang the evergreen bunting around the town square the Saturday after Thanksgiving and provide both leadership and investment in the fundraiser to send the High School Band to a Holiday parade, the campaign to raise funds to buy a new industrial park, buying the grand champion hog at the County Fair or an effort to pass a school bond issue.

This is what I hope Pres. Obama was trying to remind these mega-financial people about. It’s the old adage that “all politics are local”. Well, ultimately all finance is local too. Or, I could say that the sum total of micro-economics is what makes “macro-economics” possible. These major banks are grand-eloquent in their smug certainty that they are what make the financial world possible. It’s the ultimate trickle-down which, when it failed, scared the hell out of millions and millions of us.

More fundamentally, I would hope that Pres. Obama reminded these financial princes that they may have been able to repay the TARP bail-out with interest in a year but they managed to ruin the hopes and aspirations of millions when 401Ks tanked, mortgages imploded and jobs disappeared. Their debt goes far deeper and the repayment schedule should be amortized at forever.

Small town banks are the backbone of communities. They are the people and institutions to whom we turn in good times and bad. It’s just too bad that the guys at the banks that are “too big to fail” who make their multi-millions in bonuses don’t seem to get it—even when the President reminds them about it. Let’s hope he reminds them again,and again.

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