We should pay attention when people sound alarms at their own peril

It fascinates me when an old post starts getting some attention. Right now, one called “Who is Paul O’Neill and why should his opinions matter?” is getting a few looks (a link is below). In essence, O’Neill was fired as Secretary of the Treasury for voicing an opinion the President did not like.

What did he say, you ask? He said he was concerned about the debt and felt the Bush Tax Cuts were unneeded. This is after Bill Clinton handed a surplus budget to the younger Bush. It should be noted the debt is now 5 times larger.

Recently, the well respected Director of National Intelligence Dan Coats resigned under pressure as he told the inconvenient truth about Russian influence and its continuation. Like O’Neill, this clarion call should be heeded. Like with General James Mattis’ resignation last December, Coats departure is giving GOP Senators pause, yet they refuse to act.

Back in late 2007, a Texas financial analyst noticed that people who could “fog a mirror,” were getting huge mortgage loans on properties that seemed to be over-inflated in value. He did his homework and was able to get a meeting with the CFO of Bear Stearns. He told the CFO he thought Bear Stearns was over-extended with risk and was going to to go under.The CFO thanked him and the guy uttered these parting words – well, I am going to bet against you. Within the year, Bear Stearns was bought for a very discounted price before it went under.

Colin Kaepernick is a good NFL quarterback, but he has been blackballed from the league after calling attention to the unequal rights and treatment of Blacks in America. His civil protest was hyper-politicized by a hyper-political president, so he was blackballed, a term which seems apt. Yet, we have a difference in how Blacks are treated. Even further, our society is more economically unequal than it has ever been, with haves owning much greater shares. A society cannot withstand such differentiation for too long. Kaepernick’s protest should be heeded not condemned. His protest is far more emblematic of American values than a flag or anthem ever could be.

Those who are giving clarion calls should be given due consideration. There are financial analysts who have cautioned against Brexit from the outset. Those concerns have fallen on too many deaf ears. Their corollary message is even more dire – do not leave the EU without a deal. That is beyond poor stewardship. It matters not what the current PM says. Yet, if it does happen, it is only fitting that Mr. Johnson is the one trying to deal with the fallout.

Before I close, let me go back to someone who is similar to the Texas man who tried to forewarn Bear Stearns. The movie “The Big Short” highlighted one person of several who saw the housing recession coming. When his concerns fell on deaf ears, he had them create a product to pay off if he was right.  The industry laughed at him until a couple of years later they realized he was right. His clients made a fortune. The movie ends by telling us what this man is now investing in – water. While it does not get much play here, we have a global water crisis which rivals climate change as a concern. He saw it coming.

https://musingsofanoldfart.wordpress.com/2013/03/20/who-is-paul-oneill-and-why-should-his-opinions-matter/

Credit risk appraiser Moody’s buys a firm that assesses climate change risk

Even for those not very familiar with Moody’s, this headline speaks volumes about the impact of the risk of climate change on our country and planet. In a July 24, 2019 article in The New York Times by Christopher Flavelle called “Moody’s Buys Climate Data Firm, Signaling New Scrutiny of Climate Risks,” the company that measures credit risks for bond investors in companies, cities, counties, states and countries, has added to its expertise. Per Flavelle’s article

“Moody’s Corporation has purchased a controlling stake in a firm that measures the physical risks of climate change, the latest indication that global warming can threaten the creditworthiness of governments and companies around the world.

The rating agency bought a majority share in Four Twenty Seven, a California-based company that measures a range of hazards, including extreme rainfall, hurricanes, heat stress and sea level rise, and tracks their impact on 2,000 companies and 196 countries. In the US, the data covers 761 cities and more than 3,000 counties.

‘We are taking these risks very seriously,’ said Myriam Durand, global head of assessments at Moody’s Investor Service, who said the purchase would allow its credit analysts to be more precise in their review of climate-related risks. ‘You can’t mitigate what you don’t understand.’

Sudden shocks such as floods, wildfires, or storms can hurt businesses and send residents fleeing, taking away the tax revenue that government s use to pay debts. And, longer term threats – such as rising seas or higher temperatures – can make those places less desirable to live in, hurting property values and, in turn, the amount raised by taxes.”

To illustrate this risk, the same day I read a reprint of this article in The Charlotte Observer, the local paper ran a story on the town of Fair Bluff, NC which has been flooded twice in that past four years due to Hurricanes Matthew and Florence which lingered over their area. Sitting near the Lumber River, the citizens of Fair Bluff saw the river rise well beyond flood range. The previous flood of this magnitude occurred 90 years before. Sadly, the population and business is declining due to rebuilding costs. As a result, so is the tax revenue to provide services.

There is a huge financial impact of climate change on the lives and business of people and communities. Rebuilding a town that may continue to be in harms way adds to the risk and some people are choosing to relocate. And, It is not just small towns. Houston has had two major floods over the past five years, as well. Houston has felt on a larger scale what Fair Bluff has felt. Not only do the rains of the Hurricane sit over them, the rivers upstate overfill and flow toward the sea. This causes extra flooding.

So, Moody’s is improving their ability to assess repayment risk to bondholders. A city that has rebuilt or prepared poorly is at greater risk of flight of people, businesses and tax dollars. What should also be alarming to American citizens is while Moody’s is taking forward thinking action, the US government is stripping climate change reports from their websites and demoting, transferring or running off Ph.Ds who are expert in measuring and addressing climate change. In short, we are throwing away a technical advantage that could help the US and the world.

Repeating what Ms. Durand said above, “You can’t mitigate what you don’t understand.”  So, please ask all politicians what they plan to do about climate change including the US president. And, a question for those who still buy the hoax stuff, why is Moody’s spending all of that money on a hoax?

 

Mona Lisas and Mad Hatters

I have always appreciated when excellent word smithing matches up with equally marvelous music. And, the pairing need not come from one person, as Elton John and Bernie Taupin demonstrated time and again.

One of their clever songs came off John’s 1972 “Honky Cat” album. “Mona Lisas and Mad Hatters” is John’s matching Taupin’s direct lyrics about a time in New York City, when it was less safe than it is today. The story is Taupin heard a gun shot outside his hotel room and penned a song to reflect his angst. John wrote sad, but reminiscent music which he sings so well.

Here is the middle portion of the song including its famous chorus.

“This Broadway’s got
It’s got a lot of songs to sing
If I knew the tunes I might join in
I’ll go my way alone
Grow my own, my own seeds shall be sown, in New York City

Subway’s no way for a good man to go down
Rich man can ride and the hobo he can drown
And I thank the Lord for the people I have found
I thank the Lord for the people I have found

While Mona Lisas and Mad Hatters
Sons of bankers, sons of lawyers
Turn around and say good morning to the night
For unless they see the sky
But they can’t and that is why
They know not if it’s dark outside or light”

Several references stand out. The commuters of all persuasions not knowing if it is dark or light. While they may have Mona Lisa painted smiles or the hypertension of a Mad Hatter, they do feel safety in numbers or in a cadre of friends who serve as a port in the storm.

The other reference is to Broadway which offers a glitzier image of New York, a polished apple, so to speak. New York has been reborn, but there was a time when the city needed its underbelly to match the hype. It took a lot of effort through leadership and consistency but is once again quite the destination. I am reminded of the story of a paint crew who would paint over graffiti overnight, then do it again. The consistent effort was symbolic revealing more than an attention to detail,

Maybe we should update the song to reflect our Mona Lisa smiles and Mad Hatter hypertension on social media.

Freezing executive pay opens up money for workers

An article in The Guardian earlier this week caught my eye. CareCentrix CEO John Driscoll penned an editorial “We froze the salaries of 20 executives – and it improved the lives of 500 employees.” Driscoll took the reins of this struggling healthcare company, whose financial troubles included a significant amount of staff turnover.

Driscoll worked with his leadership team and Human Resources to make a number of changes, but he felt that was insufficient to right the ship. So, he made a decision to find more money to keep workers who were struggling and working multiple jobs.

As Driscoll wrote in The Guardian, “What that meant for our company was that if we just froze the wages of our most senior team – less than 20 executives – we could radically increase the wages and improve the lives of nearly 500 of our teammates.

The conversation with our executives was straightforward. We were in the midst of a turnaround. We were demanding much from every corner of the company. Small financial sacrifices from those at the top could be life changing for those at the bottom of our wage scale. We needed to do it to build a real sense of Team CareCentrix. They agreed. With joy, we announced in January 2015 that our minimum base pay for employees would go up to $34,000, or the equivalent of $15 per hour.

Raising wages in the midst of a business turnaround was not easy. We needed our executive team to buy into a vision of business success where every employee had a fair shot at success. It worked.

Our business has tripled over the past five years. Our minimum wage is now approaching $16.50 per hour and last year we broadened profit sharing to all levels of the company.”

This caught my attention as the US far exceeds other nations in the ratio of CEO pay to average worker pay and has for some time. Having been a former Compensation & Benefits manager, manager of people and consultant, executive pay is much more upwardly elastic than that of average workers. Average worker pay has a lid placed on it through the budget process – which often overemphasizes past, current or expected troubles. Also, downsizing at the time of annual raises facilitates the lowering trend on average pay increases as folks who would have received little or no increase are let go – so folks that remain receive suppressed increases to make the percent increase in the budget work.

What I like about this CareCentrix example is the thought process and solicited buy-in from rhe executives. Yet, it need not take a burning platform to make needed change. There is a productivity cost to turnover that impacts the bottom line due to constant churning, replacement, recruitment and training of staff. Keeping more people longer is accretive to profits.

Some larger national companies have recognized this and raised their floor pay levels – Bank of America, Wells Fargo, and Walmart are in this group. So, thoughtful discussions are needed, in my view, around these issues irrespective of or along with governmental imposition on increased minimum wages.

The strangest thing

Listening to an interview with New York Times reporter David Enrich on NPR the other night, I heard a story that boggles my mind. When Donald Trump declared bankruptcy on six different enterprises, US based banks stopped lending him money. So, he went to German based Deutsche Bank for business loans.

Even there, Deutsche Bank’s investment bank soured on Trump and refused to lend him any more money. Then, its real estate mortgage bank soured on him and was owed US $50 million after refusing to lend him more. But, after bank leadership mandated no more lending to Trump, the story became even more bizarre.

Trump’s son-in-law, Jared Kushner, introduced him to a private wealth manager in New York for….Deutsche Bank. She arranged a $50 million dollar loan from Deutsche Bank’s private wealth group to pay back the outstanding loan with the real estate mortgage bank group within Deutsche Bank. Robbing Peter to pay Paul does not adequately define what happened. And, this is after Deutsche Bank leadership mandating no future loans with Trump. Enrich was unsure if this loan was still outstanding.

Having worked for a very conservative bank in my past, this is a quite surprising story. As a retired consultant, I am aware of one bank that had to be sold due to one very big loan defaulted. I am also aware of several banks who overextended themselves during the housing crisis that no longer exist. But, for Deutsche Bank to permit one part of the bank to pay off a loan from another part for a persona non grata individual, is quite strange and not in keeping with good stewardship.

It should be noted Deutsche Bank has been investigated and fined for money laundering for members of Russian oligarchy. It is also why there is interest in Trump’s financial dealings with this bank by the US Congress. Enrich noted Deutsche Bank is the “Rosetta Stone” to digging into Trump’s finances. This is why Trump has threatened to sue the bank to prevent such release.

Sully and Ben – right people at right time

Seeing a man in leadership who does not value or have the patience for studying issues highlights those who do and execute that knowledge in times of crisis. In recent memory, two heroic events bear witness to such people – Sully Sullenberger and Ben Bernanke.

Sullenberger is the more recognizable name as the pilot who safely landed a jet plane in the Hudson River. Dealing with a rare double bird strike shortly after take-off his calm, learned presence helped him evaluate options, then choose the best path, but still a dangerous one.

What is less known is Sully volunteered to study previous plane crashes to help all pilots and builders of planes. He took the time to know why planes crashed. In particular, he knew what had to be done to keep a plane landing in the water from flipping sideways when one wing touched the water and the other did not. He was the right pilot for the Hudson landing.

Bernanke is less known as the former Chair of the Federal Reserve. His tenure overlapped the housing recession and banking crisis in 2007- 09. Working with Treasury Secretary Hank Paulsen, they developed a plan to stabilize the banks and keep the economy going.

Like Sully. Bernanke studied why the US went into the Great Depression and how it came out. He studied helpful decisions and others that were not so helpful. He was the right person for the right time, a calming, analytical influence.

It should be noted being studious is not the only similarity between the two men. Their calm nature is also a key similarity. Their calmness is infectious and enables others to do their job and offer input. In times of crisis, those who lose their heads, are the ones not to follow.

From the books and news reports I have read or watched, neither of these two traits would be top of mind in describing the President. Aides lament his lack of interest to study and limited attention span. And, mercurial is a more common definition than calming.

I mention this as it seems far too many issues are contentious. A recent survey noted our nation is more stressed. And, this is without a real crisis, which worries me greatly. I have this looming sense the man will pick a fight for ratings.

So, kudos to Sully and Ben. May we learn from your lessons and example. The only thing I have learned from the President is how not to act.

 

Friday follies

I hope you have had a great week. Since there are several issues bouncing around inside my head, here is a summary review of the follies for the week.

The Brexit clock keeps ticking while the British parliament keeps placing their collective thumbs in their more southern orifices. A second Brexit vote would likely end with a different conclusion, but it would take more time than they have and would involve another decision by an uninformed public. Let me give Parliament its out, but it will take more courage than they have. They should either accept May’s terms or vote to remain. I would urge the Brits to remain, as I would hate to see Northern Ireland and Scotland leave the UK.

Here in the US, Trump’s campaign manager, Paul Manafort, was sentenced to 47 months in prison. While a much lighter sentence than many felt, he does have another sentence coming in another court. If Trump is as innocent as he proclaims, with the guilt of Manafort and other Trump associates, Trump is not very good at judging friends and associates. Yet, as I have witnessed time and again as a consultant, an organization takes on the personality of its leader. So, if subordinates are guilty of lying, cheating, and criminal behavior…

China’s slowing economy is impacting orher countries as expected. It was reported yesterday that China is buying less from abroad and using those dollars internally. The US trade deficit with China has grown not lessened the past year. And, the EU banks have softened economic projections as a result. What continues to surprise me is how little the US President understands how trade deficits and tariffs work. This may be the best metaphor of his Presidency as economics were supposed to be his strength.

Finally, populists are popping up in more countries in greater numbers. To me, a name that implies a broader appeal should not give greater license to spread hate and bigotry. In spite of all of our many faults here in the US and some leaders who need to find a conscious, we have benefitted greatly from being a melting pot. Diversity is a strength. I fully understand the need to govern the numbers of people immigrating in, yet painting all newcomers as evil, is not appropriate. What frustrates me is issues over immigration should be fact-based and reflective of the country’s mores and ideals and not sold on fear.

That is all for now. I know I have overlooked a great deal. Have a great weekend.