A nonpartisan and knowledgeable voice on US debt and deficit concerns

From the desk of Maya MacGuineas of the nonpartisan Committee for a Responsible Federal Budget. I will offer no additional comment as it speaks for itself.

“Today, the Treasury Department announced that it has begun engaging in a set of accounting tools known as “extraordinary measures” to avoid breaching the nation’s $31.38 trillion statutory debt limit. Those measures are expected to delay that breach until at least early June and possibly later.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

Without qualification, the debt limit must be increased or suspended, and it should be done so as quickly as possible. Ideally, we would return to the practice of lifting the debt ceiling without relying on extraordinary measures – which have become all too ordinary – and refrain from making the increase anything close to a last-minute showdown.

The debt ceiling is too important to turn into a game of chicken, and default should never be suggested by those with a fiduciary responsibility to govern the nation. Politicians who are rightly worried about the nation’s unsustainable borrowing path should take a hard stance against new borrowing and oppose legislation that would add to the debt while offering specific solutions to control the debt already on the books, rather than threatening not to pay the bills on borrowing that has already been incurred.

The debt ceiling does offer the opportunity for all lawmakers to pause, assess the fiscal situation of the nation, and take action as necessary. And it is necessary. The debt as a share of GDP is at near record levels. We are on track to begin adding $2 trillion per year to the debt by the end of the decade. Interest payments are the fastest growing part of the budget and are projected to start costing $1 trillion annually in only a few years. The Social Security and Medicare Hospital Insurance trust funds are headed toward insolvency. And last year alone, Congress and the President passed bipartisan legislation that added nearly $2 trillion to the projected national debt. This is an urgent problem that is not getting the attention it needs.

An ideal solution would be for Congress to lift the debt ceiling as soon as possible and at the same time put in place measures to improve our fiscal trajectory. This could include specific policies or processes such as a fiscal commission.

Attaching fiscal reforms to the debt limit was common practice in the past when both policies and processes to improve fiscal responsibility were included as part of a deal. More recently, in a jaw-dropping act of fiscal irresponsibility, politicians in both parties pivoted to support debt ceiling increases along with legislation that made the debt worse. Under President Trump, the debt ceiling was lifted three times with bipartisan support and included legislation that added in total a stunning $2.1 trillion in new borrowing to the debt.

Congress should return to the past model of a debt ceiling increase, legislation to improve the fiscal situation, and a broad based understanding that the debt ceiling must be increased in a calm and timely manner. We must not threaten default. The cost is simply too high.“

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That debt limit and the real problem

The last time the Republicans shut down the government over the debt limit was led by Senator Ted Cruz. With other nations pleading with the US not to default on its debt, ten female Senators of both parties came together in the last 24 hours before we defaulted and came to an agreement. They told Cruz and his cronies to get out of the pool, it is time for an adult swim. Countries lend money to the US because we pay it back. Reneging on debt is NOT a conservative ideal.

Being concerned with debt is important, but where to be concerned about it is in revenue/ spending ledger. Per the nonpartisan Committee on a Responsible Federal Budget, we need revenue (tax) increases and spending cuts both as the math will not otherwise work. This was the conclusion of the bipartisan Simpson-Bowles Deficit Reduction Committee as well. While Democrats have tended to be better about dealing with the debt than Republicans, I felt when Obama shelved the Simpson-Bowles report it was a great disservice.

The hypocrisy that should be made clear is if Senator Cruz was so concerned about the debt and was willing to stop the government, why did he vote to reduce taxes in December 2017 to increase the debt by just under $2 trillion? This was a Republican law that largely reduced taxes for the wealthy and corporations, raising it on the middle class and throwing some bones at the lower economic class. And, it should be noted it was only passed, since the donors to the party said you need to do something for us or we will reconsider next year’s donations. I wish I were making this up.

Yes, the debt is a problem and we need to deal with it. Dealing with it with the credit limit looks like something major is being done, but until we adjust what we collect and spend every day, then it is all for nothing. By the way, the bill that just passed the House which is dead in the water in the Senate to reduce funding to the IRS has been estimated by the nonpartisan Congressional Budget Office to increase the debt by over $100 billion. It seems, policing tax filings is problematic for wealthy donors. It should be noted that the Trump Organization was penalized for tax fraud just following the week the dead-end bill was passed and its CFO was sentenced to a stay in a jail.

And, to be crystal clear, do not let any politician or opinion host tell you that we can solve our debt problem with only tax increases or spending cuts. We need both. The math will not work if we don’t do both. Full stop. But, don’t take my word for it. Please check out the website for the Committee on a Responsible Federal Budget and read.

No delusions – poor governance in action

In case you had any delusions that the new majority in the US House would offer up good governance, please note:

– Returning Congress representatives Marjorie Taylor Greene and Paul Gosar have been seated on Committees by Speaker Kevin McCarthy, after being removed in the last Congress for their inflammatory and inane remarks. When I think of Greene and Gosar, the words reasonable and collaborative are not top of mind.

– New Congressman George Santos, the one with the highly fabricated resume, will be seated on two Committees by Speaker McCarthy. Instead of advocating for his being censured or even removed, Santos gets two Committee assignments. I guess the Speaker holds lying in higher regard than most people. Either that or he needed his vote to remain Speaker and will put up with anything.

– Numerous bills have been proposed to restrict voting. As an independent voter, the greater problem in America is not enough people voting. So, these bills are the opposite of what is needed, in my simple view. It is highly disappointing that people have been led to believe that there is a huge voter fraud problem. There is not. Yet Republicans seized on this issue because the former president has too shallow an ego to admit he lost and they must have cheated him.

I have stayed away from a key policy difference which is how to go about reducing first our deficit and debt. Once again, the Republicans have pretended to care about the deficit when not in the White House by trying to alter our credit limit not our pocketbook cash flow. The expenditures have already been made, so we need more money and less outflow. The last time our debt limit was held hostage by Senator Ted Cruz, he would later go on to vote for a tax reduction to increase the debt by about $2 trillion, so he obviously did not care that much about it.

I have called the Speaker again to share my disappointment with the three committee assignments. We need serious-minded people to discuss our issues and possible solutions in a serious manner. These three folks have not shown an ability to do that. As for the voting restrictions, if you have to manage turn out to win, then maybe it is your message.

A solution to US debt – listen to Maya MacGuineas

I have long said anyone can promote a tax cut. Actually, in the right crowd I may use a couple of more descriptive words to define how easy it is. In truth, it is not hard to sell. Same goes with beating on the IRS. No one likes the IRS (or your country’s version of it), but it performs a necessary service. Our government cannot function without revenue. So, tax cuts and being critical of the IRS appears to be, but is not necessarily good governance. Often it is just the opposite.

With our US debt the way it is fast approaching $30 trillion and building toward more than $40 trillion, some poor president is going to run on raising taxes and cutting expenses and last only one term if he or she delivers on that needed promise. Think of what happened to the Greece president who put them in an austerity program to avoid them going belly-up a few years ago.

If that happened in the US, the president will have done a great service, but will be fired for it. So, what we need is a person with smarts, diplomacy, and chutzpah. We need someone who has the respect of many across party lines.

I have just the person for the job. Her name is Maya MacGuineas who is the Director of the Committee for a Responsible Federal Budget. She is held in high regard by leadership of both parties. I would love to see her help set in motion the resolution to the problem.

MacGuineas is a Northwestern University graduate with a masters from Harvard University.

Per Wikipedia, “MacGuineas served briefly at the Brookings Institution early in her career, then spent two years at Paine Webber as an equity analyst on Wall Street. She also advised the 2000 presidential campaign of John McCain on Social Security.

She became a senior fellow and director of the Fiscal Policy Program at New America (organization)] At New America, she oversaw its work on the federal budget, entitlement programs, and taxes.

In 2009, she did a stint on the editorial board of The Washington Post. She previously served on the Board of Directors of Common Cause. She also served on the Domenici-Rivlin Debt Reduction Task Force.

She currently serves on the Advisory Board of the Penn-Wharton Budget Model. She is Co-Chair of the National Budgeting Roundtable.

MacGuineas also serves on the Economic Strategy Group of the Aspen Institute. In addition, she is a Member of the National Academy of Social Insurance.

Committee for a Responsible Federal Budget

MacGuineas has served as president of the Committee for a Responsible Federal Budget, a non-partisan public policy organization dedicated to fiscal issues, since 2003. The Committee has been described as a “budget watchdog” by The Hill (newspaper). In 2018, she noted that she is a political independent and that the Committee is critical of both parties.

Under her leadership, the Committee grew in stature as it became a prominent voice for tackling rising national debt that is projected to reach record levels as a share of the economy in the years to come. A Roll Call article stated, “the previously obscure organization, a home for former federal budget officials, has been pulled into the spotlight, speaking to what its members and supporters argue is the overriding fiscal issue of the time.”[15]

In 2012, she became head of the Campaign to Fix the Debt, a project of the Committee that seeks a comprehensive and bipartisan approach to addressing rising national debt. Business leaders, economists, and budget experts became involved with the Campaign, as well as thousands of grassroots supporters.

She has testified before congressional committees on several occasions. A Wall Street Journal piece described her as an ‘anti-deficit warrior.

We have a serious problem with our debt and it will get worse. The solutions must include tax increases and spending cuts. The math will not otherwise work. Do not let anyone tell you it will. They are blowing smoke at you. Both are needed. Let’s give her the job of president and tell the folks in Congress to listen to her guidance. She wields a data-driven set of approaches that will help if done in concert.

Bell weather examples of what is most important to the Republican Party

Having been a member of the Republican Party over twenty years before becoming an Independent voter around 2008, an observation looking back is more than half of the Republican Party is voting against their economic interests and have little idea they are. The reason is the underlying mission is masked from its members, as a means of gaining their vote. Democrats are not perfect, but I find you see their shortcomings in a more overt way. The Democrats are also lousy marketers on what they do well.

Here are two bell weather examples which illustrate this point about the Republican Party. These are not the only or even the biggest examples, but they reveal a propensity not to look after those who are not the wealthy donors or business owners.

The first is the consistent attack by many Republicans on the Consumer Financial Protection Bureau, which is designed to protect people. Why? Banks don’t like the Consumer Financial Protection Bureau as it fines banks, credit card and loan companies for screwing their own customers. So, they fund politicians to try and hobble the CFPB. Please note, I carefully chose the word “screwing” as it seemed to be most apt. Bankers used to be a very trusted profession, but the leadership of these companies threw that trust out the window.

Former Republican Congressman and Chief of Staff Mick Mulvaney was put in charge of said CFPB by the previous president to do that very thing. He could not kill it though and the CFPB just fined Wells Fargo $3.7 billion for setting up fraudulent accounts for its customers without their permission to make bonus targets. But, Wells Fargo is not alone, as companies like Bank of America, American Express, JP Morgan, Citibank, et al have also been fined for their aggressive and, at time unethical or fraudulent, marketing practices.

The second is the more obvious example of a misguided mission. For several years, a new regulation was crafted to require all investment advisors to be considered fiduciaries. In other words, these advisors should be obligated to put their investors’ interests ahead of their own.

Per the Los Angeles Times in 2019, the “Trump administration abandoned a regulation designed to protect U.S. savers from conflicted investment advice. Known as the fiduciary rule, it would have required more brokers and insurance agents to disclose when they’re getting paid to steer people into certain investments. It also would have banned the sale of certain retirement products when they aren’t in savers’ ‘best interest.’

It should be noted the sale of illicit products increased after these fiduciary regulations were abandoned. The investment advisors made more money via transactional sales, but the investor may or may not have benefitted. This abandonment of such an essential requirement makes me ill. Using that “screwing your customers” term again, it allows investment advisors to act with impunity as they make more money. It should be noted that most investment advisors make money off sales of stocks, bonds, mutual funds, etc., so there is a tendency to push customers to sell rather than buy and hold investments.

Understanding and managing financial products is complex. But, they become even more complex if the actors in the process are not held accountable or responsible. To not require an investment advisor to be a fiduciary is malfeasance in my view. Full Stop. To not require and penalize banks, credit card and loan companies to market fairly and truthfully is also malfeasance. Yet, that is precisely what the Republican Party tried to hobble.

People need to know this. Yes, Democrats could improve on some things, but to me these two examples are bell weather ones that speak volumes about the mission of the Republican Party. Sadly, there are others I could have used. Look beneath behind the curtain at the Wizard to see what is really happening.

A revisit to Paul O’Neill and his leadership at Alcoa and in the US Treasury (Liz Truss should have taken notice a few months ago)

The following is from an older post, but highlights what true leadership looks like in a man named Paul O’Neill when he was CEO of Alcoa. It also shows what a man of integrity looks like when, as Secretary of the Treasury, he cautioned President George W. Bush against a tax cut to stimulate the economy, a lesson Liz Truss could have used.

I am in the middle of a fascinating book by Charles Duhigg called “The Power of Habit – Why We Do What We Do In Life and Business” and a very useful example appears involving Paul O’Neill. The name rang a bell for another reason, but more on that later. Who is Paul O’Neill? O’Neill was the CEO who turned Alcoa around during his tenure from 1987 – 2000. He joined a company in turmoil, and under his leadership, the value of the company doubled and the annual revenue went from $1.5 Billion in 1987 to $23 Billion. How did he help Alcoa achieve these results?

Ironically, when he made his first speech to investors and stock analysts, they came away unimpressed. He was not a well-known quantity having served as a in the VA Administration, Office of Management and Budget and as a Vice President and President of International Paper. Yet, what he said in that speech gave everyone pause. He said “I want to talk about worker safety.” He went on to discuss how Alcoa had a horrible safety record and his goal was “to go for zero injuries.” Many stock analysts were stunned by this focus as he did not use any of the typical words around synergy or rightsizing, etc. Several told their clients to divest of Alcoa stock after that meeting. One analyst later said “It was the worst piece of advice I gave in my entire career.”

Why the focus? The purpose of the book is to understand the role habits play in everything we do. If you can find a keystone habit and get someone to change it, then other better habits will follow. Companies were no different. O’Neill recognized before he took the job, he needed to help Alcoa change, but the unions did not trust management, communication was poor and processes needed changing. So, he decided to focus on the one thing everyone could agree on – worker safety. By focusing on worker safety, he would help change that habit and watch it spillover.

O’Neill instituted a policy that his managers had to notify him of an accident in the company within 24 hours along with a plan on how we learned from it and how we could avoid it happening again. Many thought it was just window dressing, but two weeks into his tenure, a young man acted rashly to fix a machine and was killed. O’Neill took this to heart and said “I killed this man. All of us in this room killed this man.” Everyone saw this was meaningful and things started to change. But, it was more than safety improving. To receive a report within 24 hours with a plan, a leader needed to know about the accident, what happened and how it could be avoided. Communication up and down the ranks improved, so the safety improvements could be conveyed and understood.

To improve safety, though, you had to improve processes. You had to make things easier to work with and provide the equipment to be safe. Not only did safety improve, but so did productivity. And, with these better communications, ideas from the manufacturing floor started to flow up. Some of the ideas had been bottled up for years, but now people felt empowered to share them. And, before the internet got up and running, they were using an intranet to communicate these ideas which kept them ahead of the competition and let information pass quickly. So, the company took off, because of O’Neill’s purposeful focus on one keystone habit – let’s make our jobs safer.

Where the name sounded familiar is O’Neill became President George W. Bush’s first Secretary of the Treasury in January, 2001. However, with all of his success and track record, he was fired by December 31, 2002. Why? O’Neill was very outspoken in his criticism over the now famous “Bush Tax Cuts” and our going to war with Iraq. As Secretary of the Treasury, he had seen a report that said the US had a looming deficit problem that would require tax increases and spending cuts. That report was suppressed by Bush and we went ahead with the Bush Tax Cuts that unbalanced our surplus budget left by President Bill Clinton aided by his Chief of Staff, Erskine Bowles.

Quoting a footnote in the book, Duhigg notes “However, O’Neill’s politics did not line up with those of the President Bush, and he launched an internal fight opposing Bush’s proposed tax cuts. He was asked to resign at the end of 2002. ‘What I thought was the right thing for economic policy was the opposite of what the White House wanted,’ O’Neill told me. ‘That’s not good for a treasury secretary, so I got fired.’”

I put O’Neill’s quotes in bold for effect. I would add that Warren Buffett, another pretty smart cookie, largely said the same thing at the time. Buffett said “You are giving me a tax cut I do not need.” So, just to state the obvious:

– we had a balanced budget, even a small surplus;

– President Bush wanted to push tax cuts to stimulate the economy;

– his Secretary of Treasury, a pretty competent leader, reads a report that forewarns of deficits down the road and tells the President and Vice President Dick Cheney (by the way, he recommended Cheney to Bush’s father for Secretary of Defense), that tax cuts are not the right answer for the economy and we need increases and spending cuts;

– the President and Vice President (who wielded more power than many VPs) ignores his advice and asks him to resign;

– we now have budget deficits heightened by the Bush Tax Cuts and two unfunded wars; and

– we continue to fight over these Bush Tax Cuts and need to raise revenue as well as cut spending to address the deficit, two ideas the suppressed report and fired Secretary of the Treasury espoused in 2002, eleven years ago.

Hindsight is usually 20/20, but the last bullet is very important. We have leaders who refuse to see that we must increase tax revenue and cut spending. No greater authorities than Alan Simpson and Erskine Bowles reached that same conclusion in the Simpson-Bowles Deficit Reduction Commission report. O’Neill, a very successful and competent CEO told his bosses, Bush and Cheney, this very thing and got fired. He also told them this before it would happen and before Bush actually threw gasoline in the fire and made it worse. Not to beat a dead horse, but Presidential historians have also noted President Bush as one of the worst presidents we have ever had and contrary to what his brother Jeb said last week, history will not judge him any better looking back from a future date.

So, to recap. Paul O’Neill, Warren Buffett, Alan Simpson and Erskine Bowles, all pretty capable people, said we need tax increases and spending cuts to address our deficits.However, O’Neill said it in official capacity as Secretary of Treasury and got fired. And, now we are living with not only the failure to act, but actions taken by Bush that are perpetuated today. I think O’Neill and these other people’s opinions matter and we should listen to them.

Pay day lending – a little easy math to show how perilous this is for a person in need

I wrote the following about ten years ago, but the example remains pertinent.

I am quite certain my fellow bloggers are inundated by spammers who love your blog or post without commenting on anything specific. One of the more popular spammers comes from various pay-day lending groups. When we talk about bad types of capitalism, pay-day lending ranks close to the top. It is the worst form of usury as people in need get preyed upon by these folks. The pay-day borrowers do not realize they are paying an interest rate north of 200% as it is so easy to do.

Yet, what happens are the people in need set themselves up for a death spiral that is hard to pull out from. They begin a journey of paying more and more interest to pay off the use of funds a few weeks before their pay check. These lenders were outlawed in NC, which just meant they moved across the border to do more sales. I have heard people who say they provide a useful purpose, yet in essence they don’t. People are getting immediate money for a need coverable by their pay check. Yet, end up paying more than double or triple the amount they borrowed. And, it does not stop. You are beholden to the pay-day lenders for a long duration.

The lenders used to set up shop just off the military bases. This is unfortunate as they would prey on married couples who are separated by an ocean with one distracted  by war. The one at home needed the money and did not have the counsel of two heads asking is this the right path forward. In the volunteer charity work I do with homeless families, quite often the families are paying interest rates of 23% on a car loan. This type of car payment puts a huge bind on their budget and we help them get away from this loan and into a better one. Yet, for the pay-day lending, you have to multiply the 23% loan interest rate by a factor of 10 or more.

If you do not believe me, let’s do a simple exercise. If I have bi-monthly take home pay of $1,100 and need to get it now, the pay-day lender will give me $1,000. That will likely include a processing fee of some sort, but let’s say it is $0 and the rest due is interest plus the loan. So, the next pay-day, the lender takes my $1,100 payment to settle the loan. That is a 10% interest for a 1/2 month time period. Since there are 24 such time periods in a year, using simple interest, that is a 240% annual rate of interest.

If that is not bad enough, come the end of the 15 day period, I find I need my paycheck, so I reborrow it. So, I give them my paycheck, they take out another an extra $100 (I am rounding to make the math easier) on the interest I owe and they loan me $900 rather than $1,100 in take home pay. So, now I owe $2,200 on the use of $1,900. Assuming I could pay it back in 15 days, that would be a 1/2 month loan rate annualized to the tune of 379% per annum. However, I cannot pay the full loan back as my next pay check is only $1,100. So, I borrow yet again. The take out $200 more in interest due on top of the next $100, so I get $800. So, now I owe $3,300 on the use of $2,700.

I used a fictitious interest rate for the ease of the math. Yet, I also did not factor in a processing fee either. Yet, the purpose of the illustration is to show how fast you can get in over your head. Even if you did not borrow against a portion of your paycheck, you can soon end up owing the entire amount. A key problem is the people in need are the least likely to run the numbers. They just need the cash.

I am presuming the audience reading this is fairly astute, much more so than the average Joe’s and Josephine’s. If you have friends or relatives who are going down this path or who are considering it, help them look at other options. There are an increasing number of microloan possibilities whose lenders do not prey upon the borrowers. There are some other financial assistance programs that go under varying names. There may be some co-lending options as well. The dilemma is the pay-day lending is a vicious cycle that is difficult to break. So, help people avoid that cycle and try to get out of it if they can.

I do not begrudge anyone making a reasonable profit. Yet, I do find fault with people making an excessive profit off the backs of people who can least afford it. If you have a story about pay-day lending, please feel free to share it. Others need to see how this death spiral can affect people.

British Prime Minister asks King to not speak at a climate change conference

In an article entitled “King Charles abandons plans to attend Cop27 ‘following Liz Truss’s advice’” by Nadeem Badshah of The Guardian, the environmentally conscious King was asked to not speak to the group by his new fossil fuel friendly Prime Minister. Here a few excerpts, with a link to the entire article below:

“King Charles III has reportedly abandoned plans to attend and deliver a speech at the Cop27 climate change summit on the advice of Liz Truss.

The monarch, a veteran campaigner on environmental issues, had been invited to the 27th UN climate change conference in Sharm el-Sheikh, Egypt, next month.

But the prime minister is understood to have raised objections during a personal audience at Buckingham Palace last month, according to the Sunday Times.

Buckingham Palace has confirmed King Charles III will not attend the summit.

A senior royal source told the newspaper: ‘It is no mystery that the King was invited to go there. He had to think very carefully about what steps to take for his first overseas tour, and he is not going to be attending Cop.

They said the decision was made on the government’s advice and was ‘entirely in the spirit of being ever-mindful as King that he acts on government advice.’ However, it remains ‘under active discussion’ about how King Charles will make his presence felt at Cop27, which runs from 6 to 18 November.

Another source said the new monarch would be ‘personally disappointed’ to miss the conference and was “all lined up to go”, with several engagements planned around his Sustainable Markets Initiative (SMI), which aims to persuade businesses to invest in environmentally friendly initiatives.

To be frank, this is a huge disappointment as climate change is such an important and urgent issue. It is my understanding from this and other articles, the new PM wants to promote offshore oil drilling, which is highly concerning given the rocky seas off Great Britain. It should be noted that Scotland is a forerunner in tidal and offshore wind energy given the rocky and windy seas, so an oil rig seems prone to disaster. And, in contrast, if an offshore wind turbine crashes into the sea, the only thing that would happen is a splash.

This has not been a good month for the new PM after winning the nod. Her embrace of trickle-down economics in her budget is of such concern, the Bank of England had to pony up $65 billion pounds to steady the cratering bond markets. Coupled with an inability to explain or understand financial matters in interviews, a poll yesterday said 71% of Brits have little confidence in her and her party to address financial matters.

While I was glad to see Boris Johnson step down given his transgressions and failure to lead, I was forewarned that his replacement may not be the solution needed or hoped. While the King (and Queen’s) role is in part ceremonial, one key function they do serve is being ambassadors for the UK. King Charles had meetings lined up at Cop to play such a role and to hear him speak on such an important topic would have made me proud if I were a Brit.

Let’s hope there is a change of heart and mnds.

https://www.theguardian.com/uk-news/2022/oct/01/king-charles-abandons-plans-to-attend-cop27-following-liz-trusss-advice

Bankers used to be trustworthy, but threw their reputation out the window – a reprise

In 2014, I wrote the following post which was predicated on yet another huge fine of a large bank for inappropriate activities in selling products. Just yesterday, per The Charlotte Observer in an article called “Bank settles with feds over claims it ‘misused’ 401(k),” Wells Fargo was fined $145 million (after earlier fines for unethical and some illegal practices) for cheating its own employees and retirees with higher stock transaction fees in the company 401(k). This latest fine was forthcoming from the Department of Labor as they govern employer sponsored 401(k) plans. It should be noted the bank settled the case without admitting guilt.

*****************

Last week, Bank of America was the latest bank to be penalized for fraudulent or aggressive marketing practices. They have had so many fines for malfeasance or aggressive marketing practices that it is hard to keep track of their sins. The latest penalty fined Bank of America $783 million for selling credit card consumers products and services they did not request. The Consumer Financial Protection Bureau (CFPB), which was newly created a couple of years ago by the Dodd-Frank Act under the tutelage of now Senator Elizabeth Warren, said the $738 million of that fine is used to restore money to those customers who were fraudulently sold these products.

In its first two fiscal years of operations ending June 30, 2013, the CFPB has fined banks and financial entities $942 million of which the significant majority goes to the consumers who were harmed or defrauded. The banks and financial institutions that were penalized include, but are not limited to American Express, Capital One, Discover, and JP Morgan Chase. While the significant majority of the penalty goes to the consumers, the remainder, which is usually less than 10% of the overall fine, goes into a Civil Penalty Fund, which has the following purpose as stated in the CFPB 2013 Annual Report:

“Under the Act, funds in the Civil Penalty Fund may be used for payments to the victims of activities for which civil penalties have been imposed under the Federal consumer financial laws. To the extent that such victims cannot be located or such payments are otherwise not practicable, the Bureau may use funds in the Civil Penalty Fund for the purpose of consumer education and financial literacy programs.”

What is interesting to me is why certain politicians are against this agency? I want them to tell me why an agency designed to protect the average Joe’s and Josephine’s is a bad thing. To state the obvious, these politicians tend to be Republican and tend to be supported by bankers. Senator Richard Shelby, who Chaired the Senate Banking, Housing and Urban Affairs Committee from 2003 – 07 is one of the key critics of the CFPB. (Sidebar – under president Donald Trump, Mick Mulvaney was appointed to lead the CFPB to hobble it).

This is one area where people who don’t want regulation need to explain how we would be better without it. Would it be OK for bankers to have full license to sell their customers services they do not need? Is it OK for banks to screw people over? I find most people confuse unwieldy bureaucracy with regulation. We need the latter, but need to guard against the former. I also find people who don’t want to be regulated tend to be those who need to be regulated more. The fossil fuel industry comes to mind, but that would be a large digression.

Having worked in Human Resources within a bank back in the 1990s, what I have witnessed is being a banker used to be one of the most trusted professions. Now, it ranks much lower in trust.  And, they only have themselves to blame. Truth be told, bankers used to be trustworthy, but threw their reputation out the window.

The slippery slope began in earnest with the repeal of the Glass-Steagall Act in the late 1990s. This act had been put in place at the time of the Great Depression and was designed to assure that banks would be banks and not investment banks, security traders or insurance companies. With the feeling everyone learned their lesson and cooler heads would prevail, the repeal of the Glass-Steagall Act reopened the can of worms. The real reason for the repeal was banks wanted the fee income that usually came with those products and services. Yet, to add another metaphor, the can of worms became a Pandora’s Box.

What transpired after that repeal is banks pushing the envelope more and cross selling products and services to unsuspecting customers. Two marketing trends emerged. “Bundling” and “Tying.” Bundling represents the concept if you do more business with us, we will give you better terms. By itself, that is not necessarily a bad practice. Yet, when married with tying, it becomes unethical and illegal. Banks started tying business marketing together, so that you had to business with them in one area to get a better deal on another service which was more vital to the buyer. Usually these offers were not made in writing, as some tying can be illegal.

But, the larger trend that occurred is a selling push to reward employees for selling you services you may or may not need. The unscrupulous ones would push the hardest and do things that now get the attention of the CFPB. One of the key reasons the mortgage crisis hit is the better mortgage market dried up and banks had all of these mortgage bankers with nothing to do.

With the push out of the second Bush White House that home ownership was good, the higher risk mortgage market became the target. It was at this time you saw mortgage-in-a-box retail stores competing against banks to sell mortgages to people who did not understand fully what was being sold to them. Variable mortgages and the dreaded Pic-a-payment mortgages that brought Wachovia down after their acquisition of Golden West, were being sold to people who were in over the heads, both economically and educationally. People should have been asking more questions, but trusted the men and women in nice suits that told them they could afford the American Dream. They failed to mention or fully explain terms like “negative amortization” and “variable mortgages” especially what transpires when the rate goes up by 200 basis points.

So, bankers used to be trustworthy, but they threw it out the window. They earned these new stripes. You have to be the navigator of your customer service experience, in general, but especially with a bank. You have to ask questions about why you are being asked to do something. You need to ask why you need another credit card. You need to ask why is the salesperson pushing so hard on this issue. If you don’t, you may need the help of the Consumer Financial Protection Bureau.

With that said, I know many fine people who work for banks. They do their best to serve their customers. Yet, the higher-ups are pushing for sales and align incentives with that push. As a result, even well-meaning people will push the envelope even more. I have been a business for over 34 years and a truism I have learned is you make more money serving the needs of your client long term. You may make more money on occasion by pushing that envelope, but you may do so at the expense of a long term relationship which might come to an end.

For full disclosure, I am a shareholder (sidebar – I am no longer a shareholder of BofA) and customer of both Bank of America and Wells Fargo. These fines disappoint me. I want them to be accountable to their customers, employees and shareholders. But, they also need to be accountable to their regulators. They owe it to all of us.

Work place humor can be found in surprising places

Sometimes workplace humor offers the funniest lines, as they are unexpected. Even in working for a large, staid bank for about four years, I came across some funny things. Some of these I have used before, but have placed them all together for your reading (hopefully) pleasure.

A new state banking president had just moved into their headquarters and was outside smoking a cigarette due to a ban on indoor smoking. To be frank, the president was probably not the one you would pick out of a line-up as the president, so a woman smoking outside asked “I have not seen you before, what department do you work in?” When he responded sheepishly, “I am the new president of the bank,” she responded quickly with “And, I am the Queen of Effing England!”

Following his non-presidential looks to a branch he was touring, the new president was told he resembled their regional manager, a man I will call Bubba Johnson, to preserve his identity. The president spoke to the employees and said “People say I resemble Bubba Johnson, but that cannot be, as Bubba is uglier than a pair of old bowling shoes.”

A young communication analyst was giving guests a tour of the floor her department was on which also was on the same floor where all the Board meetings occurred. On the walls, were pictures of all the bank CEOs and chairmen, gender identity intended. When she got to the hallway, she said to her guests, “And, here is wall with pictures of a bunch of dead white guys.” Observation duly noted.

If you ever worked for a bank or had a relative who did, titles are handed out like candy. I think they are used in part so as to give a lesser raise. So, there are several thousands of assistant vice-presidents and several hundreds of vice-presidents. One of the dilemmas of this construct was uttered by a long-time bank employee who said, “As soon as you give someone a title, they start acting presidential.”

My boss’ boss was someone who tended to invade people’s personal space getting inches from yours when he talked to you. The gender of the other person did not matter, as he was an equal opportunity space invader, pun intended. My boss, though, had a unique way to stave off said invasions. When asked how, he said “Whenever I meet with him, I always make sure there is a piece of furniture between us, a chair, a table, a desk.”

My boss had some of the funniest stories about his time working for a bank, our bank had acquired. The CEO of that bank was the most imperial of presidents I have ever witnessed. There seemingly was no perquisite he did not have. One story is he invited key bank customers to his daughter’s wedding to get the bank to pay for it. Why spend my money he thought?

He also had a chauffeured limousine for protection, which the driver/ bodyguard would circle back and drive his wife around when he was at work. It would do the same for the COO’s wife. Since they argued over the limo, the bank solved the problem by getting a second one. My boss was talking with driver about the error of his process to keep the CEO safe. He said, “You drop him at the door once you get here, but fail to understand that everyone inside wants to kill him.”

One of those perquisites was a lengthy change of control agreement. To get the money, the retired CEO would have to do various things, one of which was to file monthly reports of his activities. When he was about seven months in arrears, the actual CEO was made aware of it. His solution was simple and very effective. “Stop paying him.” Within a few weeks, the retired CEO completed the reports.

Finally, the head of security for the bank had some very funny stories that he could only share in general. A couple of takeaways from his stories are (1) avoid places that have cameras when you are having a sexual encounter with a colleague, which includes stairwells, (2) an irate spouse who confronts her philandering husband at work has a better aim with a hurled coffee cup than you might think, and (3) avoid having an affair with a person whose spouse also works for the bank. Of course, all three could be solved by avoiding the affairs altogether.

I am certain you each have some workplace humor. Please feel free to share your stories.