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.

Stocks Tumble--Will Charlie Brown Kick the Football?

Why is it that all of a sudden I’m feeling just a bit like Charlie Brown getting ready to take another run at kicking the damn football that Lucy is holding with a sadistic leer on her face?

The AP is reporting this noon that stocks are tumbling today (Dow Jones down 165 at noon EDT) because of rising fears by investors about consumer spending.

“While other parts of the economy, including housing and manufacturing, are showing signs of progress, the country cannot have a strong recovery unless consumers are spending more freely. Their spending accounts for more than two-thirds of U.S. economic activity,” the article said.

The article also touched on investors’ concern that the reluctance of consumers to spend will hurt corporate earnings.

As we used to say when I was in junior high school—“no shit, Sherlock”.

Consumers are reluctant to spend for a couple of basic reasons. One is that they don’t have as much disposable income as they did a couple of years ago. Another is that a lot of us don’t have jobs. Still another is that so many people ended up getting bit in the butt by carrying way too much credit card debt that they have neither the ability nor desire to incur any more.

And yet another one, I think, is that consumers couldn’t give a rat’s behind about corporate earnings—those same corporations which were all too willing to shove dubious finance strategies up our behinds for their own profit and then bemoan their fate when the mortgage market blew up in their faces.

I monitor my SEP IRA balance everyday (if I had been doing that a year ago I’d have a lot more money in it now!) and it has gone up over 20% in the last 4 months. That’s unrealistic. I know it. The Wall Street types know it.

I guess it’s our patriotic duty to go on spending sprees so that the Wall Street types can keep getting their bonuses. Is this cynical? Probably. But with what has been done to consumers in the last year, maybe it's time for a healthy dose of cynicism.

The Excess of Fear

Today, the Associated Press reported an interview with Lawrence Summers, Director of the National Economic Council in which he stated “Fear begets fear” and that Americans are exhibiting an “excess of fear” about the economic crisis that must be broken in order to “reverse the downturn”.

Summers is all too glibly invoking FDR’s observation that “the only thing we have to fear is fear itself”. This is especially true when he says that we have undergone a “transition from an excess of greed to an excess of fear”.

Here’s my point. Summers is pretty close when he talks of an excess of greed leading to an excess of fear. But, to me the issue isn’t about fear. It’s about trust. The excess of greed—perpetrated by major financial institutions and, seemingly, supported by economic experts and government officials at the highest levels (think “Dub” and his minions) have seriously eroded the trust we have in our financial institutions, the trust we have in our economy and the trust we have in our future.

That’s even worse than fear. Fear, like the fear that a child has of monsters lurking under the bed, can be managed and can be overcome. But trust, once lost, is incredibly difficult to restore.

Banks (and by that I include everything from small town thrifts to huge international institutions) have long been a source of stability within both our economy and social fabric. The word trust has long been associated with this industry and many lenders have even incorporated that word into their names. We trust our banks to take care of our hard earned money. We trust banks to lend it out to people who will repay it, to people who are worthy of the bank’s trust. We trust banks to provide us with a reasonable return on the deposits we make.

What happens when that trust is shattered? We had all our funds at Washington Mutual. I trusted them. Then it became apparent that they were going under because they had been deeply engaged in the business of making shaky loans to shaky borrowers and had consolidated those loans into shaky securities that ultimately came back and bit the bank in the butt. We took half of our funds out of WaMu and should have taken all of our funds out. Why? WaMu is still there. Yes it is, but it violated my trust. When reports started coming out about the troubles this bank was having, we felt betrayed. Our trust had been betrayed. Greed led to huge losses which ultimately yielded a loss of trust.

Was the greed motivated by desiring to do well for the depositors of the bank? I don’t think so. I believe it was motivated by a desire to play with the “monopoly money” and to generate the biggest possible bonus the “suits” could generate for themselves.

Not to pick on WaMu—but that’s my personal reaction to this so-called “economic downturn” which in reality is an economic debacle. It’s personal. It touches us all in one way or another.

So, the issue as far as I’m concerned is one of restoring trust not alleviating fear. What has happened economically to millions in this country has been a betrayal of our trust. Unlike the 4 year old who can be soothed and hugged away from the fear of the “under the bed monster”, Americans desperately need to see real efforts to restore our trust in the very institutions we rely on to safeguard our money. That includes banks, stock markets, political leadership and our government.

Only trust will break the “excess of fear”.

A Rant on the Economy

A Rant on the Economy

Today the Federal Deposit Insurance Corporation announced that they might run out of money this year. Of course, this is the same FDIC which bumped the amount of money insured in bank accounts from $100,000 per person to $250,000 a few months ago. And now it needs more money.

For some odd reason, this is the proverbial straw that broke the camel’s back for me. AIG just announced losing $59 billion in the first quarter of 2009. If my math is right, that’s something like $666 million a day! This was after a huge infusion of federal money because they were considered too big to let fail. Wasn’t anyone in Washington watching as AIG did this? And, today there was a little piece in the news that says that auditors for GM have informed the SEC that Chapter 11 bankruptcy is getting closer.

The stock market fell also when Warren Buffett announced that Berkshire Hathaway’s profit was down 60% for 2008. This was also part of Buffett’s “mea culpa” when he admitted to having made some errors this past year in his investments. Now, this is seen as bad news. Not to me. Buffett is smart and shrewd. Always has been. He’s the only one who predicted the recession when it started last year by saying “to the average person, we are now in a recession”. It took the so-called experts 6 months longer to even start hinting that a recession was in the works.

In defense of Buffett (compared to all the bonus earning geniuses on Wall Street who are still in denial after screwing their banks, home owners and the public into the ground) Berkshire Hathaway’s profits were down by 60% but it still made a profit. AIG just lost $59 billion in 1 quarter!

We don’t own a house (we’d like to but fortunately held off—thank God because right now I’m unemployed and we’re living off the money we had saved for a down payment). Plus, we watch TV on a 20” model I got at Target for $90 rather than on a HDTV big screen that might have cost two grand. We’ve got credit cards—all total maybe $40 or $50k worth of credit limits—and our balance is maybe $200. Our cars are paid for. We’ve basically done things right.

So, why are we being punished? Where’s our “bail-out”? Or, are we the ones who have to pay for all the fools out there who crammed us into this mess?

Bernie Mac used to sit in his easy chair, lean forward and peer into the camera and say, “America…”. Yep, America, we have “screwed the pooch”. All the bills have come due.

I kind of resent the folks out there who had to have a big SUV and who re-financed their house to pay for it—and then 2 years later did it again. I resent the bankers and economists (and former President) who told everyone that consumer debt was good and we should borrow to buy stuff and keep the economy strong (maybe the Asian economy where all electronics are made). I really resent that I’m 57 years old, Social Security is broke, my IRA is in the tank and I don’t have a job right now.

Who’s going to bail me out? No one, that’s who—except for my wife and I. Well then, I don’t feel like bailing anyone else out either—unless one of our kids needs some help. I didn’t help make the mess. The mess was entirely predictable. The piper now has to get paid and I get to pay him to bail out all the morons out there whose idea of happiness is SUVs, big screen TVs, 3500 square foot starter houses and all other kinds of crap they couldn’t afford. That ain’t happiness. Happiness is being content with what you have and loving those around you. Misery loves company. We’re all going to be miserable together for quite some time. Where is Bobby McFerrin when you really need him?