Help me understand the ruckus against Health Care Reform

As an independent voter, it affords me with the vantage point of seeing very strident views on topics where people lack information. The ruckus by those against (and even those zealously in favor) have been interesting as well as frustrating to observe. With the Supreme Court decision behind us, it is quite obvious Health Care Reform is a pawn in a political game rather than a piece of legislation that will largely do our American public good. There is a serious form of cognitive dissonance underway in the hearts and minds of many who are against Health Care Reform, not because of its features, but because of who passed it and that it must be defeated based on opinions of pundits and politicians who fully do not comprehend what it is. In all fairness, there are some who favor it for similar reasons, but from where I sit it is a much bigger lightning rod for our conservative friends.

I have reached out to my state’s senators and representative for my area to avoid the colossal waste of time to have a phony repeal vote. I have encouraged them instead to make this imperfect law better, as no law is perfect and this one has some needless complexity. But, on the whole, it has with the early implemented concepts and will with the future ones, move us further down the path of improving health care in this country. I also added that there is a lot of misinformation about the law much of it coming from politicians, so the American people do not have a clear-cut idea of what it is and isn’t.

One of the key pieces of misinformation provided is when pundits and politicians tout our existing health care system as the highest quality in the world. According the World Health Organization (WHO), that is not even close to being accurate, as we are rated 38th in the world in health care quality. We are number one in two areas – we have the highest cost health care system in the world and we are the most obese country in the world. So, we are not getting a lot of bang for the buck. We are over-medicated, over tested and less transparent about the cost. We are also the most prolific fast food eaters and we bring the words “super size me” to an ugly art form.

When we look at the Affordable Health Care Act (note I am avoiding the words Obamacare and the political connotations that come with it), it is ironic that the conservative voices are so against it. Why? It is similar to the bill set forth by Republicans in the 1990’s as an alternative to the National Health Care idea espoused by President Clinton. The other irony is it is very similar to the plan put in place by then Governor Romney in Massachusetts, which is working pretty well. This is Romney’s centerpiece legislation and his greatest success as governor, yet he has to hide from it. To tell you the truth, when you change your mind about your biggest achievement, that might be the biggest flip-flop of them all.

Yet, what is it about this law that has people so up in arms? It is not National Health Care, so when people say it is a government takeover of health care that is actually not the case. It is more of a widening of coverage opportunities that will largely benefit the health care insurance companies with greater numbers of participants. Medicaid will also see an uptick in covered individuals for whom the Medicaid option is better suited than the insurance or employer options. We have already seen nearly 2 million young adults added to coverage due to the part of the law already operational that lets kids under 26 (not in college) remain on their parents plans. The college extension already existed. Also, the removal of pre-existing condition exclusions for children and lifetime limits on coverage that are now in place have been most helpful to families and others.

I have seen Congressmen say it will cause employers to get out of their health care employee  benefits for employees. Senator Cornyn of Texas cited a McKenzie study that said 30% of employers would do so. He failed to mention that study was discredited by two different consulting firms who are in the health care consulting business – Mercer and TowersWatson who said employers would do this at a clip of around 8% – 10%. What these two consulting firms have reported is employers will have to be better communicators on the more viable options for their employees. Dependent on their demographics and salary, some employees will benefit more under their employer plan, some will benefit more under the state exchange and some will benefit more under Medicaid. So, the employee will have more choices. It will be more complex, no doubt. Yet, for pundits and politicians to say they will have fewer choices is not true unless an employer exits its health care plans.

The major argument has been the mandate and this one is interesting. Americans do not like being told what they must do, but we have numerous examples where they are and live with it. The mandate will aid the concept of insurance. The better risks pay for the worse risks. It has always been thus, and it will always be thus. Yet, the better risks need insurance against a catastrophe – car accident or unexpected illness. Absent this mandate and what happens now, the insured are paying for these unexpected consequences, but in a costly manner. With no insurance, people will go to the emergency room with a crisis and to the extent they cannot pay, the insured pay for these costs. ER costs are high as they are geared around crisis intervention. This is not where you want most of your health care done. The most interesting and saddest discussion occurred during the GOP primaries where the audience cheered when one of the candidates said they should just let the patient die if he did not have coverage. I am sorry but that is a crock of BS. If it were one of those audience members relatives, they would not hold to that opinion. And, what happened to “love they neighbor as you love yourself?” The mandate is important to the success of the law and must be in place. It will spread the risk over many, making the care more affordable. The people who cannot afford coverage will be afforded with subsidies to buy it. And, if you do decline, the first year penalty is $95 graded up to $695 in ensuing years.

Finally, there are those who say it has already added to cost. First, it is not fully implemented (someone said it added to cost the day it was signed, which is a neat feat). From what I have seen it has dampened cost increases somewhat and BCBS of NC noted that only 1% of the cost increases they have seen are due to Health Care Reform. Truth be told, we will continue to see cost increases, not because of this law, but because of the demand for care. Per the above, we are a nation of fat people who are getting older. In other words, we are train wrecks waiting to happen. In the meantime, we have marketers telling us to take the purple (and all the other colored) pills to make us feel better or cure a newly named disease. I firmly believe some diseases are named to enhance drug sales. So, health care costs will increase no matter what we do.

Yet, here is where some of the improvements to the law can occur. It has some specific features and by the mere expansion of coverage, will permit more preventive care. The law also supports the investigation of best practices that will improve the quality of care. That is good. However, in addition to finding some simplifications, if we can promote more prevention, incent going to better quality of care providers, etc. we should introduce them into the law.

At this point, it is interesting to note that several GOP Congressmen have been tracking the features of the law  that they would like to see continue should it have been repealed. Further, several insurance companies have noted they would continue some features irrespective of whether the law was upheld. So, we already have a good starting point for discussion. So, Speaker Boehner and Senator McConnell, please do not waste your or our time with the “beating on the chest” repeal mantra. Let’s focus on jobs first and then improving this law, not repealing it. And, take it from an independent’s view, I am not too impressed with Governor Romney flip-flopping on his greatest success story. If he wins and repeals this law, he will have done America a disservice.

As a Little Island is Consumed

Two converging stories crossed my bow this week, which connect the issue of global warming and why it is imperative that we act now. The first one is a short documentary currently airing on HBO called “Sun Come Up.”  While I was looking for something to invest a brief amount of time in before heading to bed, I found this 39 minute documentary which personalizes the issue of global warming better than anything else. The second one was an article on a court ruling buried on page 9 of my morning paper entitled “Court backs EPA’s emissions rules.” The ruling is highly impactful, but our news editors felt that it belonged on page 9.

In the documentary we learn of the plight of the residents of Cartaret Island which is located near New Guinea in the South Pacific. The documentary records the travails of the people who have been asked to go to the mainland 50 miles away by boat to see if they will let the Cartaret people live there. Why? Their island is slowly being consumed by the ocean due to global warming. The ocean has encroached on their island with the salt water already flooding their farms. The mainland is a bigger island called Bougainville which appears to be governed by town councils. The documentary follows the Cartaret ambassadors from town to town as they beseech the various town citizens with their story. These towns are not plush either, so including more people will spread few resources farther. So, they are told no to their request. They finally meet with a town who embraces them and says we must look out for our neighbors.

Throughout their travails, these islanders speak openly and candidly about global warming and the rising sea. People understand the story as they see what is happening around them. While Bougainville is a bigger island, it is also susceptible to rising sea. The Cartarets, as they are called, are witnessing the problems at hand and endeavoring to do something about it before it is too late. The story is a metaphor for the rest of the world, especially the US who is now seeing encroaching tides on its coastlines and the other detrimental impacts of global warming.

In the US, I need not tell you that we have a group of naysayers who are shouting at the wind claiming global warming is a hoax and it is contrived by others to place requirements on corporations. Usually, all regulations are thrown together for a party line mantra of “job-killing regulations.”  When I hear this, my first reaction is you have to be alive and be in good health to have a job and we need to have regulations to govern as well as we can activities that are hazardous to our US and global citizens. In this case, it is not only protecting regulations which are of concern, we are in the “failure to act” stage of the global warming crisis.

Yet, there is hope. Yesterday, a three judge panel of the US Court of Appeals in the District of Columbia that the Environmental Protection Agency (EPA) was “unambiguously correct” that the Clean Air Act requires the federal government to impose limits once it has determined that emissions are causing harm. The judges unanimously dismissed arguments from the industry that the science of global warming was not well supported and that the agency had biased its judgment on unreliable studies. The court upheld rules under the EPA’s “endangerment finding” setting limits on greenhouse gas emissions from cars and limiting emissions from stationary sources. The president of the National Association of Manufacturers said “the Clean Air Act was not designed for greenhouse gases.” My question to him (and fortunately the Court agreed)  is what the hell is it there for then? I also found of interest in the article, industry is somewhat divided on this. On the “hobble the EPA” side rests the oil, gas, coal and utility sectors. Yet, on the opposing side which supports emissions limits are the automakers.

According to a spokesman for the Clean Air Watch group this was a “slam dunk victory for the EPA and for the Clean Air Act.”  This is great news for US and our fellow global citizens, whether they recognize it or not. We need a powerful EPA to help govern practices that are endangering to humans and our planet.  We need enablers like this to heighten the conversation around the topic of global warming and other hazardous practices that are harmful to our people and planet. I personally see these issues as the greatest ones facing us, as if we do not get this right and right now, we will be perpetuating a death spiral for the citizens of our planet. This will affect not only our coastal cities, it will affect the air that we breathe and our ability to feed and provide fresh water to people.

Let’s focus on the water for now. I am currently reading Steven Solomon’s excellent book called “Water – the Epic Struggle for Wealth, Power and Civilization.”  Great civilizations such as the Assyrians, Egyptians, Romans, Chinese, Ottoman, United Kingdom and the United States have risen and fallen based on their ability to manage water and sanitation flow. The intermixing of the two or keeping them in too close proximity has been equally damaging as diseases such as cholera, dysentery, etc. could wipe out a public. The ability to manage water for farming was crucial. Why is this important now? With encroaching seas, heated planet, petro-chemicals used to maximize crops, fossil fuel recovery and poor mismanagement of fresh water sources, we are sealing our own fate unless we address these and other related issues now. According to Jim Rogers, the CEO of Duke Energy, “water is the new oil.” Beside air, it is our dearest resource and we have become poor stewards of both resources.

So, what do we do now? Let’s make this an issue of import. When we hear people naysaying global warming, you can say I heard that an US Court of Appeals said the above statement in bold print. We need to challenge our lawmakers to move beyond partisan issues and begin addressing these issues now. We need everyone at the table for a concerted planning effort. We truly need to move away from fossil fuel now, but I recognize this divorce has to be well-managed. And, we need to do our own little parts on conservation, the best eco-energy solution. I love the hybrid car commercials talking about how infrequent the owners go to the gas station. That is a great example. Yet, we should find new ways to conserve as well as exercising the current known ways. I have witnessed the best ideas tend to be closest to where the action is occurring. There are many neat conservation ideas occurring all over the place. As they occur and appear to work, let’s highlight them, celebrate them and tell others about them.

Let’s be like the Cartarets. They have identified the problem and are doing something about it. We need to do the same here.

Innovation is Portable – Let’s Keep Good Ideas Here

The President’s recent announcement about deporting undocumented immigrants who have been here five years, are in school or served in the military, and do not have major criminal record, could be called a political maneuver, but the motivation to help our country is on the mark. That is why the substance is supported by more Americans than not and why Mitt Romney has a hard time responding directly to the issue. As an aside, I am frustrated that our partisan politics has hindered everyone’s ability to govern collectively and I am not a fan that the President feels obligated to do an end run. Even though I support this specific mission, I am troubled about continued precedent that his and previous administrations have exercised. I don’t want the Executive branch not working with Congress and vice-versa. But, Congress needs to step up and start doing their job and cease this partisan gamesmanship.

Yet, I digress. I want to focus more on the concept of education and innovation., which is where we need to spend time, energy and effort for our country to return to a growth orientation. In the book that I have cited before, “That Used to be Us – How America Fell Behind in the World It Invented and How It Can Come Back” by Friedman and Mandelbaum, education and innovation are two of the keys to what made us successful and how other countries have stolen our playbook. Depending on what study you read, America has fallen in the ranks of math and science education to 23rd and 27th in the world. The rankings may vary a little by source, but our competitive position is near the above positioning. The US cannot remain competitive when countries like South Korea, China, India, Singapore are eating our lunch on education.

The related issue is innovation. The book notes innovation is portable. So, if the innovative thought process is created in one place, it can more easily be moved these days depending on where capital can be gleaned to develop and execute the idea. America has a history of idea spawning that could be funded, developed and executed here. Back in the 1980’s, American businesses began outsourcing the manufacturing to other countries as it was far cheaper. Before he died, Steve Jobs made the comment it did not make sense  to manufacture in America. Yet, now the idea creation is occurring everywhere, so the growth engine is flourishing in other countries. There are more physicists, engineers, etc. in other countries than there are here.

Their book points to three issues that would go hand-in-hand with the improvements to education. First, we need a free flow of credit and capital here in the US. Ideas need to be funded. They point out the beauty of mixing well-timed venture capital with government and other capital. The venture capital can get the idea off the table, but the targeted government capital can help bring it to development here. Venture capital is well named. Not all ventures will be successful, so there is a role for them to play as well as other investors included the government. Our country also has a history of significant public, private partnerships. Second, we need to have better patent laws. I think Congress and the President made strides last year, but we need to assure innovators that their inventions are safer here. Third, we need to have some manufacturing here. Process and product improvements have a tendency to occur by those closest to the action. It is noted that the closer some of the innovative manufacturing is to the innovators or leaders, the better chance for these ideas from the manufacturing floor to be heard and implemented. In other words, the innovators can walk the factory floor and see what is working and what is not.

So, how does all of this relate to education and the President’s decision on not deporting undocumented students? Innovation can occur from any source, but it also will occur on the various intersects within education. What I mean by that is people with diverse backgrounds, experiences and interests, will look at problems in a different, more holistic way. As more people intersect, the idea creation is heightened. Steve Jobs noted the classes he took by choice on calligraphy were most helpful in creating a mission of elegance with his computers both inside and outside the machine. We need to provide more avenues for students and adults to become better educated and intersect. One of the Intel Science winners last year was a homeless Hispanic American, e.g.  If this avenue had not been present, we would have lost this innovative young person to the streets or deportation.

By offering the opportunities for education to more Americans, documented or undocumented, we are securing a better future not only for the kids, but for our country. Truth be told, the vast majority of people living in America are spawned from immigrants. We need to pass some version of the Dream Act to provide a path to citizenship for kids who want an education. The President’s temporary executive action will aid this cause. Last year, a North Carolina minister was interviewed on a film about helping homeless families and kids. In addition to the right thing to do, he said something that applies to the undocumented student issue as well. We cannot fathom the untapped intellectual capital that might exist in these kids; we need to give them a chance to succeed.

We need to provide educational opportunities to all kids here. We need to make sure they are getting a good education by investing in the system and rewarding teachers and giving them the freedom to teach. And, we need to make college an affordable option for all. If we grease the skids and permit an environment of education to flourish, good things will happen. Yet, it needs to go beyond that as noted above. As the ideas are spawned, we need to let them take root here. We need to provide the easier flow of credit and capital to create, develop and execute the ideas. If we don’t do the latter, the innovator can still take his/ her ideas elsewhere.

Let me close with a story from Friedman and Mandelbaum’s book to illustrate this point. A company in Brazil needed capital to execute an idea. They looked for money from China, India, Dubai and South Korea. They did not even bother with the US. We have to make it easier to invest or lend to businesses and innovators here or they can and will go elsewhere.  And, if the idea is created elsewhere, more than likely the developmental manufacturing and organization supporting the innovation will be created there, too.

The US needs to be all about education and innovation. We have an advantage over other countries if we do the above. We have a freer society that gives opportunity to all economic strata and ethnic groups and both genders. If we promote an environment of education and value and reward innovation, our ability to leverage this is huge. Also, we need to embrace the idea that innovation can occur everywhere. We need to be a country where ideas can take root. So, let’s recreate the America that was known for this. In spite of all our troubles, we are still a pretty good place.

Climate Change and Your Money

Since there seems to be resistance from our conservative US voting partners regarding full realization around climate change and its sister term that cannot be spoken – global warming – I thought I would try to get their attention talking about their money. Last year, Mercer, one of the largest investment consultants to corporate and public trusteed assets for pension, 401(k) and non-US capital accumulation plans, partnered with 14 global institutional investors (CalPERS, Ontario Municipal Employees Retirement System, Norwegian Ministry of Finance, Government of Singapore Investment corporation, to name a few) to conduct a study on the investment portfolio risk of climate change. The Mercer led study is entitled “Climate Change Scenarios – Implications for Strategic Asset Allocation” and can be found on at http://www.mercer.com/climatechange.

Some of the key findings of the study show that by 2030:

  • Climate change increases uncertainty for long term institutional investors and as such, needs to be pro-actively managed.
  • Investment opportunities in low carbon technologies could reach $5 trillion.
  • The cost of impacts on the physical environment, health and food security could exceed $4 trillion.
  • Climate change related policy changes could increase the cost of carbon emissions by as much as $8 trillion.
  • Increasing allocation to “climate sensitive” assets will help to mitigate risks and capture new opportunities.
  • Engagement with policy makers is crucial for institutional investors to pro-actively manage the potential costs of delayed and poorly coordinated climate policy action.
  • Policy developments at the country level will produce new investment opportunities as well as risks that need to be constantly monitored.
  • The EU and China/ East Asia are set to lead investment in low carbon technology and efficiency improvements over the coming decades.

According to Rachel Kyte, Vice President of IFC, one of the study sponsors, “That climate change poses significant financial and economic risks has only been accentuated by the tens of billions of dollars in losses due to recent climate related natural disasters such as the floods in Australia and Pakistan and the wildfires in Russia.” Since that study, we have had extreme floods, droughts and wildfires in other parts of the world, including the US.

This study can easily stand alone, given its approach, concerns and sponsors. Yet, to embellish it further, in earlier posts I have noted Warren Buffett and China’s huge investments in solar energy, General Electric’s increasing manufacturing of wind turbines,  the new Risk Management program on climate change established by Georgia State University, one of the largest risk management universities in the US, and the assessment of Marsh, the world’s largest insurance broker, who noted that climate change risk is one the greatest risks facing businesses and governments.

In the US, we need to begin active long-range planning with all concerned parties. The fact the EU and Asia-Pacific regions are leading the charge is telling. We cannot have one of the major US political parties not advocating publicly what they know privately. They are doing a disservice to their voters, country and planet. We need to move stridently away from environmentally caustic approaches that are continuously invested in. Fracking is an environmental powder-keg and drains too much water from our dear supply for the value it brings. Deep sea drilling scares many as the BP/ Horizon disaster is only one of many tenuous sites out there and the Gulf of Mexico is seeing continued impact with that spill. And, sitting in North Carolina, the GOP led legislature’s refusal to accept a peer-reviewed and revalidated scientific paper on sea rise by 2100 which notes the sea will rise by 39 inches is mind-boggling. This paper is consistent with those developed in Maine, Virginia, Louisiana and other states. I mention Virginia due to their proximity to NC.

So, here is the bottom line. The cost of failing to plan ahead (in fact, it is already to late to say ahead) is staggering and will impact your investments in a huge way. Not to mention, the impact it will have on your life. I half-jokingly mentioned that post-apocalyptic games our kids play always speak of a nuclear disaster. The more likely candidate for causing this will be climate change as our planet heats up and hurts our food and water supply, the toxic chemicals in the land, air and water brew some more, and the sea consumes key port cities such as Norfolk, Galveston, etc. The scientists note the rising sea level is like elevating a basketball court. The storms coming ashore will find it easier to dunk a basketball as a metaphor for wreaking more havoc.

So, we need the GOP leaders to admit what they already know and join the rest of the planet in trying to plan ahead.  Newt Gingrich was right when he did the commercial with Nancy Pelosi saying he was wrong before. That was before his later denial when running for office, which is indicative of how uninformed voters are. Global warming is occurring and we need to act now in a concerted way. If we don’t, we will be affecting all of our lives and our money, too. That would be sad on both counts.

 

Two Doses of Needed Sanity

Setting aside the big news at the end of the week with the President providing temporary amnesty for undocumented students and veterans, there were two other pieces of news that provided doses of sanity that should be strongly considered. Both Jamie Dimon and Jeb Bush offered testimonials this week which I hope will be wake-up calls to primarily the GOP, but Democrats, as well.

Jamie Dimon is the CEO and Chairman of JP Morgan Chase and is widely respected as one of the smartest financial people around. He was testifying in front of a Congressional Committee offering his apology for his bank’s failure to circumvent a $3 Billion loss due to some inappropriate risk taking. In my Friday post regarding “A Decline in Responsible Banking” I called all bankers to task to return to more responsible banking. The multiple businesses banks find themselves in have increased the complexity and risk to a degree even one of the smartest bankers could not fully recognize what was happening. To his credit, he apologized to his shareholders, customers and the committee.

Yet, some of the things he said while he was in front of the committee were quite interesting. The GOP heavy committee wanted him to be highly critical of the Dodd-Frank bill saying it was too onerous on banks and needed to be repealed. In essence, he did not do that, although he did contend there are pieces of it that are overly burdensome. And, he noted that portions of it may have helped his bank and the industry not be derailed by his bank’s recent failure. The committee members kept trying to put inflammatory words about Dodd-Frank in his mouth, but he stuck to his comments. In fact, some of it was quite comical and was obviously disappointing to the GOP committee members who wanted more ammunition.

However, a sidebar comment is the key message which I hope will be heeded. He said the major thing holding business back is the inability for our governmental leaders to address our deficit issues. He strongly advocated the Simpson-Bowles Deficit Reduction plan which includes the anti-Grover Norquist sentiment of raising tax revenue as well. These comments caught the committee truly off guard. It was not unlike the reaction when Professor Richard Mueller of Cal-Berkley testified last year in front of another GOP heavy committee that he changed his mind about global warming after doing his own research and now agreed with other scientist that it was occurring.

On a more pointed note, Former Florida Governor Jeb Bush also was in the news about his concerns over the debilitating, uncompromising  direction the  GOP has taken. Ruth Marcus of the Washington Post does a nice job in her “Two faces, two stories of the GOP” column this week of addressing Bush’s issues in contrast to those of Wisconsin Governor Scott Walker. Speaking directly about the deficit, Jeb Bush said we need to consider tax revenue increases as well as spending cuts. He said he would have signed up for last summer’s Obama/ Boehner 10 to 1 compromise in a heartbeat. He said we were going to have $10 worth of cuts for every $1 worth of tax increase. That should have been a no brainer.

Walker had countered with the Tea Party, Norquist rhetoric that we are taxed enough. I had written an earlier post regarding ‘What Kind of Tea is the Tea Party Drinking?” on this issue. According to the Paris based Organization for Economic Cooperation and Development (the OECD), the US ranks 32nd out of 34 countries in Total Tax Revenue ratioed to GDP. That is third from the bottom. In 2009, our 24.1% Tax/ GDP ratio was 9.7% behind the average of the 34 countries of 33.8%. And, in 2000 the last time our budget was balanced – the year before the other Bush brother tax cuts – our 29.5% Tax/ GDP ratio trailed the global average of 35.3%. For those who don’t want to think globally, we can look historically and say the current US tax rates are the lowest they have been in over 50 years. So, the data is pretty clear that we are not “taxed enough already.”

These two sane voices have pointed to the same issue as a problem. They have also pointed to the same type of solution – tax increases and spending cuts. When Congress failed to act on the 10 for 1 deal last summer, it was the key reason the S&P downgraded the US bond rating. Boehner and Obama got it right, but the uncompromising Tea Party/ Norquist crowd prevented an extremely viable approach. I also blame the President and Democrats (and GOP, too), not for the 10 to 1 deal – that was clearly a GOP failure – but for their failure to embrace the Simpson-Bowles plan. As an independent, I feel we missed a golden opportunity and I am with Jamie Dimon and many others on this. The bipartisan Gang of Six saw this and tried to move Simpson-Bowles forward, but were squeezed out.

Fortunately, it is not too late. Per Erskine Bowles, if we fail to address the deficit, we will fail at the most avoidable problem we are facing.  Sanity is what we need to address this and other issues. We need the incumbents to stop trying to keep their jobs and start doing their jobs. We also need Mitt Romney to stop advocating for a 20% tax cut, because that is at the height of irresponsibility. Economists, not handpicked by the GOP and not quoted on Fox News, have noted this would increase the deficit. The Bowles-Simpson plan would verify that assertion.  In Marcus’ editorial she notes when Walker counters with the prosperity that followed when Ronald Reagan cut taxes, that Reagan actually increased taxes on several occasions after the initial tax cut to combat deficit issues that resulted. Those tax increases are conveniently forgotten in the Reagan legend that echoes around the GOP these days.

I applaud Dimon for his comments in the face of due criticism of his bank. I applaud Jeb Bush for saying what needs to be said to try to right the GOP ship. It is obvious from his comments, we elected the wrong Bush brother. Republicans and Democrats, please heed these messages. I realize that any dumb ass can get elected saying they will cut taxes, but we don’t need any more dumb asses in office. We need sane, collaborative voices who are more concerned about helping people than winning an argument.

 

The Decline of Responsible Banking

Earlier this week, a banking icon passed away. John G. Medlin, who was the CEO and Chairman of Wachovia Bank for many years retiring in the early 1990’s, died of a heart attack while playing tennis. I had the good fortune of knowing John Medlin and would agree with the obituaries about his many contributions to Wachovia, banking and the community. When I think of Mr. Medlin, the word that first comes to mind is “solid.” If I thought for a second more the word “honest” would also appear. Mr. Medlin provided stewardship over responsible growth in his bank. They did business in the right way, being judicious lenders and offering good customer service. Of course, the bank was not perfect, but for the most part it acted like a bank rather than something it was not.

At the time of his death, it was reported that his former bank which had been purchased by First Union (who adopted the Wachovia name) and then Wells Fargo is being sued for malfeasance around mortgage lending. A former mortgage lender, who now helps people with inappropriate mortgages, is part of suit that claims the bank preyed upon an economic class of potential customers selling them mortgages that they could ill-afford without explaining in full the details. The lender said she was incented to approve mortgages and it did not matter if the mortgagee would fail to comply with the terms in the future. She said the bankers even went to African-American church and civic leaders to drum up business without using terms like a variable mortgage. I am not saying whether this is true, but I do know former Wachovia (now Wells Fargo) people who have questioned the leaders of the mortgage group as to why they were pushing “pick a payment” variable mortgages, which were designed for a very astute audience.

This one paragraph is representative of a key reason why we had a housing crisis. Yes, the buyers should be aware of what they are signing, but there is trust factor that was violated many times by people on the selling side. Per the book “Class Matters” it has been shown that people in a lower economic class do not ask sufficient questions of their service providers and trust people in suits and ties more than they should. This is exacerbated by the fact mortgage paperwork is complicated. We have all signed documents over and over that we did not fully understand what we are signing. Yet, we knew enough to ask questions on occasion. This did not occur enough around these variable mortgages. The American dream of home ownership blinded people.

Another key reason which led to the housing crisis dates back to the repeal of the Glass-Steagall Act which was put in place during the Depression to prevent commercial banks from being investment banks. There was a reason this was put in place when it was, yet in the late 1990’s, the banks felt Glass-Steagall was preventing them from competing and making a reasonable profit for their shareholders (sounds like Dodd-Frank backlash doesn’t it?). In this case, the banking lobbyist group was able to convince Washington to repeal Glass-Steagall. Banks became multiple businesses around investments, insurance and commercial banking. Their goal was to sell more things to the same customers and increase profits (and risk)  by facilitating investment in merger deals.

The governance of a banking company became much more complex than ever before. Few people in the management ranks, much less the Board of Directors, understood fully the risks they were taking. Commercial banking was not uncomplicated, but far simpler than the businesses a banking company manages today. A good book on the subject is “Crash of the Titans” which describes the demise of Merrill Lynch and the travails of Bank of America, which shows the lack of understanding of the risk at the very top of the house.

If it were isolated to BofA and Merrill Lynch that would have been one thing, but it permeated other organizations bringing down Bear Stearns, Lehman Brothers, Washington Mutual and Wachovia among others. Bear, WaMu and Wachovia were gobbled up at yard sales, but Lehman went under. And, if it were isolated to that time, that would also be another thing. Yet, Jamie Dimon, the CEO of JP Morgan Chase, appeared this week before a Congressional Committee to discuss JPMC’s failure to stop a bad investment decision that cost its shareholders $3 billion at last count. It might be more when all is said and done. If you watch “Too Big Too Fail” you will get a glimpse of the ego of Mr. Dimon. He is a smart cookie and knows it, but his leadership team failed to grasp the complexity of this deal and the risk involved. A former banking CFO, Sallie Krawchek, said in a recent article that banking is now so complex, it is extremely hard for the CFO and CEO to fully understand and explain the risks.

Yet, I think the bigger issue that Mr. Dimon and others fail to grasp, is they have breached the trust that bankers earned and used to deserve. In the months following the financial collapse, banking CEOs testified in front of the Congressional Committee. I recall the CEO and CFO of Goldman-Sachs not fully understanding what the Committee was telling them. It was unprofessional and, even unethical, for Goldman-Sachs to sell an investment product to investors, while betting against it with other investors’ and their own money. The two leaders kept focusing on the legality of the issue. The fact that they breached the trust of clients was lost on them.

Getting back to John Medlin, I did not have the opportunity to ask him what he thought of all of this. I wish I had. He would have likely detested the irresponsible actions of these leaders. If Mr. Medlin had an Achilles Heel, it may haven been he was too cautious on occasion. Yet, from where I sit, a responsible, honest and solid banker is precisely what we need in this world. It should not be lost on anyone, that the more conservative Canadian banks did not suffer like the US banks. And, there are some very strong regional banks that did not get into areas that were beyond their comfort zone. They all suffered to degrees because of the echo effect on housing, development and businesses. Yet, they continued onward.

These other banks try to do business in the right way. We need all banks to recognize this and return to being solid banking organizations. Bankers have to earn back our trust. Unfortunately, settling lawsuits for past misdeeds where they do not admit or deny guilt, will continue and shine a spotlight on their breach of trust.  Also, the cross selling initiatives will hinder their efforts as well. Yet, they need to continue on that journey and climb out of the hole they dug. I recognize Dodd-Frank may be overly complex, but the banks earned this regulation. When Jamie Dimon complains about it, my first reaction is “tough shit.” Mr. Dimon is lucky to keep his job right now, so he should not be throwing stones at anyone trying to help his shareholders and customers. In other words, making sure he does his job. Mr. Dimon, if you want the money, you have to take the responsibility, as well.

John Medlin understood this.  I hope other banking leaders do as well. We need them to understand and start walking the talk again. We need responsible banking led by responsible leaders.

 

 

Lessons from Dad

Six years ago this month, my father passed away. I have been thinking about him a lot this month, as my middle child graduated from high school and my youngest had her 15th birthday. In fact, I wore his anniversary ring my mother had given him during the graduation so he could be there. Like all of us, Dad was not perfect, but he was one of the finest people I have ever met.

He was raised by his Aunt and Uncle, since his parents had a messy divorce. He tried living with each, but that was not a productive co-habitation for any of them. He learned the grocery business at a very young age working in his Uncle’s small store in a small town. Like many people of his time, he started smoking when he was 12. A near life-long habit that was a contributing factor to his death, even though he had quit for over ten years beforehand. His smoking is a reason I don’t.

He graduated from a small college in north Georgia that had a work-study program, the only way he could have afforded college. There he met my mother and literally fell into her lap while diving for a loose ball during a basketball game to which she arrived late. To say he fell for her would be an understatement. It is not ironic that many couples they befriended there were still married when he died (he was married to Mom for 54 years when he died).  My father went to work as a management trainee for a large grocery chain, but moved over into the then called data processing business, the computer science of its time. Back in the 1950’s, everything was new in the computer business.

Dad was a great athlete – track, baseball and basketball – and gave back by coaching his boys (and girl). My best friend and I used to call him the 45-year-old pitching machine, as he would always go throw batting practice to my brother, sister and me. His selflessness was one of his great attributes.He was always giving to others whether it was getting up early to check on a smoked ham or turkey (or both) he was cooking for his co-workers or family or helping someone.

He taught me many things which I try to emulate. Let me mention a few before closing with an anecdotal lesson that I shared again with my children last night.

  • Everyone is welcome in our home. To this day, our children’s friends are always welcome to stay for dinner. My wife and I live in chaos on occasion, but hearing your children and their friends laugh is the greatest sound on earth.
  • Do your best at whatever you try. To do less harms both you and your employer. It is a hard concept for children to grasp that they are cheating themselves when they don’t do their best.
  • Treat everyone like you want to be treated. Dad grew up from very humble beginnings and a broken home. He never put on airs and was as genuine a person as you could find. He was a natural leader, but you would never know that from talking with him. Think of the movie “Dave.”
  • Have dinner together with your family. My wife and I strive to do this as much as possible. The kids grow tired of the small dinner bell, customary blessing and “how was your day” or “anything unusual, funny or interesting happen today” questions. Trust me, you have to vary the questions. They may complain, but would not trade a moment of it if you asked them.
  • It is more than OK to hug or kiss your wife in front of the children. One of the greatest gifts a father can give is loving his children’s mother. That is harder these days, but it is worth the effort.
  • Marriage is hard and you have to work at it. Three musts. Be friends with your wife as it gets you through ups and downs. Confer together on children issues that arise, so you are on the same page (raising children is joyous, but not easy especially in this day and age) And, have a sense of humor. Life is too short and it is easier to laugh with people rather than have them laugh at you.

While, there are many other lessons learned, let me close with a final lesson that I was reminded of by my son’s graduation speaker. A successful woman told the graduates you will fail at something. Get back up, dust yourself off and keep on going. Life will go on. My father was not perfect as I said. I carry a curse with me that he had. I am an alcoholic. I have not had a drink in almost five years. I tell people I drank more in my first 48 years than many people do in a lifetime. I use the verb “am” as I want to have a drink everyday, even now. They key is to say to yourself – “I am not going to drink today.”

Dad was an alcoholic, as well. He had risen to the position of Senior Vice President in his firm. He was very successful. Yet, one day he was not where he was supposed to be and something happened at work. Since his goodwill at work was so large, he was not fired, but demoted instead. He had to go to work the next day as a peer of the people who used to report to him. He could not just go somewhere else; he had to go face the music every day. Going back to the graduation speaker’s counsel. He failed. He knew he had to feed his family, so he got up, dusted himself back off and went back to work. He told people “I screwed up,” but he made up for it by going back to work every day.

Dad was a smart man, well-respected and great employee. By the time he retired,  he had worked his way back up and was on the Board of Directors of the same company. This is what being an adult (or in this case) a man is. I tell my guys being a man is not being macho, wielding a sword like they do in the games or being proficient at weaponry. Being a man is being accountable and responsible each day. It is owning up to your mistakes and saying I will do better. I should say it is “doing better” as anyone can say they will do better.

Dad had many lessons for me (and others). This last one which shows how someone handles failure is the deepest as we are all “fixer uppers” and will fail. The key is what you do next.  My father showed how. I love you Dad.