Tuesday, March 24, 2015

“How should America’s banks be tested?” The Colorado Springs Business Journal, March 20-26, 2015, 23.

How Should Banks be Tested?

What do tests really test? This may seem a silly philosophical question, but educators and government agencies are keen to figure this out.

My concern here isn’t with education, but with banking. Usually the banks do the testing: Are you credit-worthy? What’s your score?

Any one of us who ever took out a car loan, house mortgage, or business loan knows what obstacles we had to overcome to be found “worthy” of a loan, passing a test.

We should recall that if banks borrow money from federal sources at around 0.25% and just charge twice as much, 0.5%, then their gross profit is 100%! Charging 2.5% (and paying only 0.25%) provides 1,000% gross profit margin. Wouldn’t you want to own a bank?

But banks must pass tests, too: according to a government “stress test,” 31 of the largest US banks somehow passed: in case of a financial crisis, they seem to have enough cash reserves to manage their leveraged portfolios.

Given that Forbes claims that just five banks control more than half of the $15 trillion of the financial industry, the test of 31 banks ranges close to 80% of financial assets. More tests will be coming, so there may be some unexpected surprises in the next few weeks.

We have heard since the Great Recession by Republicans and Democrats alike that without a healthy banking system our economy would collapse, so this should be good news to all Americans, no?

What would you say if I told you that all my students always pass my courses? Wouldn’t you suspect grade-inflation, low standards, or simply academic incompetence?

Passing is passing, and if all students or banks deserve to pass the test, why quibble? Isn’t the Millennia Generation big on giving trophies in athletic contests even to losers for just showing up?

Well, if everyone on Wall Street seems delighted with banks, it’s because self-congratulation is part of game, making sure that the banking welfare system (with government subsidies and bailouts) shields bankers from Main Street and pesky regulators.

But, the cozy and perhaps too intimate bond financial institutions enjoy with their regulators—and the politicians who enjoy their campaign largesse—isn’t shared by everyone.

Most surprisingly, the naysayers don’t only include the Occupy Wall Street members of yesteryear or the Tea Party when its members objected to the banking bailout; instead, it’s the Oracle of Omaha, Warren Buffett, who has had some nasty comments about the financial industry, despite (or because of) his intimate knowledge of its leaders and their practices.

Reuters reports that in his latest letter to his shareholders, he said: “Periodically, financial markets will become divorced from reality—you can count on that . . . never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is—zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices." Instead of reflecting reality, Wall Street is mired in fantasy.

As The New York Times reported only days ago, Buffett mockingly calls the “the Street’s denizens” “money-shufflers” who “don’t come cheap” and who have “expensive tastes.” Does he really mean it? 

When your personal fortune is $72 billion and your tastes remain relatively upper-middle-class, you can say whatever you want. Are these just cheap shots? Or is there an argument here? And if there is one, is it an economic or moral one?

When Buffett laces his Letter with a description of Wall Street bankers as those who “are always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings, particularly if these acrobatics produce mergers that generate huge fees for investment bankers,” then it’s clear that economics is at the heart of his critique.

At one point, Buffett argues that “Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly held businesses. The bankers tell the buyer that the premium is justified for ‘control value’ and for the wonderful things that are going to happen once the acquirer’s C.E.O. takes charge.” But, this isn’t true; they mislead.

So, if you are confused about why new mortgages aren’t spurring the housing market even though mortgage rates are at historical low levels, or if you are puzzled why business loans aren’t as easily obtained as expected, just remember: if a bank borrows at 0.25% and invests in US Treasury bonds that yield (February 28, 2015) 4.79%--why bother with risky lending to the public it’s supposed to serve?

Have the banks passed your financial, not to mention moral test?

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

Tuesday, March 3, 2015

“ROTC program sets good example,” The Colorado Springs Business Journal, February 27-March 5, 2015, 19.

Military Jobs: A Case Study

Whether the debates are about higher education or the Greek default on its debt, they seem to revolve around the question of job creation. The message has been part of the political landscape since the Great Depression, and is bound to preoccupy the upcoming presidential election.

What does it really mean to create jobs? It could mean opening a little shop or restaurant, a garage or salon, and hiring people to help run the operation.

In such cases, it is presumed that the new employee was unemployed before—otherwise this would only mean job transfer rather than job creation.

Economists and politicians alike promote this idea of job creation as a means towards economic growth, a way to increase the economic pie so that it can feed more mouths.
The appeal of job creation isn’t limited to economic growth, but also includes the presumption that every new job necessarily means one less welfare recipient. If you have a job, you won’t collect unemployment benefits.

But here, too, there is as much an economic justification as a moral one: the newly employed will become productive members of society, earning their keep rather than remaining lazy dependents on the welfare state.

The moral argument ends up being about fairness, as candidate Mitt Romney was overheard to have claimed: 47% of Americans who don’t pay taxes will never understand a) how the system really works, b) how they are a drag on the economy, and c) why they don’t count.

In the name of preserving jobs, Governor Hickenlooper went hat in hand to plead for the retention of the military presence at Fort Carson. But does it matter what kind of jobs are we talking about? Are there better or worse jobs, well-paying or below-poverty jobs?

The recent announcement of Walmart that it’ll increase wages to 40% of its employees was greeted with cheers around the nation. It even agreed not to have its employees “on call,” and provide them with regular schedules.

To some extent, this is progress. It has been well documented that Walmart employees have cost taxpayers $6.2 billion in Medicaid costs and other welfare programs, like food stamps (Forbes, 4/15/14). So, if Walmart pays its employees more in wages, America’s support of its employees decreases.

Not all jobs are alike, and some, like the Walmart ones, can be costly to the public at large. We should carefully examine the facts before we applaud a policy change.

What about marijuana jobs in Colorado, now that recreational consumption is as legal as medical use? No matter how much the leaders of Colorado Springs dislike the idea, I’d venture to say that the jobs created in this industry pay better than at Walmart, and thus contribute positively to the state’s economy.

If you have a moral objection to pot jobs in comparison to Walmart jobs, we are having a different conversation: no longer about job creation but about morality. Is the morality of Walmart—outsourcing overseas and poverty-level wages—superior to that of the pot industry, where chilling with a joint increases food consumption?

If we remove moral judgment about which industry is better than the other, perhaps the debate can focus on the economy itself. And if economic health is the goal—sustainability and/or growth—we might turn to the military for advice.

No, I’m not suggesting that we all apply for military service or that we should expect the armed forces to ensure the economic health of the nation; it has enough on its plate.
Yet, the military is a successful welfare system developed over a century: educating young men and women, training them, and preparing them for civilian jobs and careers.

The ROTC program is a model of sensible investment in the future of students who become officers and then serve in the military. Why not replicate it for all other national needs, from teachers and engineers, to nurses and scientists?

What if corporate America identified young college students, paid for their education, and then signed them to work for them at reduced rates for the first few years of their careers until they repaid for their education?

If the military can do this efficiently—a government agency by any definition—couldn’t the private sector do it even better? From hospitals to technology startups we can envision a crop of dedicated and highly qualified young students eager to contribute to their country’s wellbeing.

Incidentally, this would of course reduce student debt which right now overshadows mortgage debt. Win-win? Too good to be true? If tried, this experiment can be as good as the military one, and perhaps more popular for those not interested in warfare.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com


Tuesday, January 27, 2015

“Better way to describe it: Paris is us,” The Colorado Springs Business Journal, January 23-29, 2015, 23.


What does the callous murder of journalists and Jews in Paris have to do with Colorado business? Why should we, so far away from what happened, care?

Let me answer these questions by analogy, one that was famous in the 1950s and may have been forgotten by now. It was a Protestant Pastor in Germany, Martin Niemöller (1892–1984), who famously said (there are different versions):

“First they came for the Socialists, and I did not speak out—because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out—because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out—because I was not a Jew.

Then they came for me—and there was no one left to speak for me.”

What may seem remote at one point, the singling out of one minority group, becomes extremely relevant and personal at another. Lest we forget, there is some connectivity between all of humanity, and more specifically, between all the social, economic, political, and moral variables that guide us.

It’s inappropriate to compare what happened in Nazi Germany to what happened in Paris to a small satirical magazine with 60,000 circulation and to a kosher storefront. Unlike the German government who persecuted Jews and gays, socialists and Catholics, and others, the French government is sending police officers and troops to protect its minorities.

But the reason so many marched in Paris with signs that read “I am Charlie,” is that they didn’t simply want to show solidarity, but more importantly, they demonstrated that when something is morally objectionable, it cannot be contained; it spills over to every facet of the community.

When Wall Street misbehaves, Main Street is affected. When a so-called rogue trader throws off the balance of trades or “corners the market” in oil futures, for example, it’s not exclusively his affair.

His company’s reputation suffers, and it may even incur some fines. Wall Street gets a black eye as well, and regulators are seen as lax. Eventually, we can expect that the markets in general will be affected. Why should we care what happens to the case of the rogue trader, like the infamous “whale”?

As employees and employers, we have money invested in the markets, in the virtual safes of Wall Street, either through money market or pension funds. Likewise, interest rates—for cars and homes, business loans and credit cards—somehow are still dependent on what the giant Wall Street investment banks want us to pay. The Treasury Department responds to Wall Street, after all, in case you ever forget who has been heading it for decades.
In other words, “we are Wall Street” just as much as “we are Charlie.” You can pretend that financial or journalistic variables are separate from each other, but they are not! You can even claim that you don’t read French and that except for French Fries, you have no relation to France or its problems with extreme Muslims and their journalistic and Jewish victims.

But what will you say when this happens in New York? Still too far for you to identify with the problem there, on the East Coast? When the office of the NAACP was bombed here not long ago, was that close enough? Do you have to be African-American to be affected?

You may not care now, as Pastor Niemöller reminds us, because you aren’t a Jew or a journalist, black or financial maven, but when they come for you—who will speak out on your behalf?

When I see electricians changing wall-pack bulbs in below-freezing temperatures and the drivers who struggle in the snow to roll dumpsters to their truck for unloading—are they me?
When the guys in overalls come to empty 1,500 gallons of our grease-trap so early in the morning so as not to upset neighbors with the noxious odors of their work—are they you?

When the line-cook prepares your meal and the server brings it to your table—do you identify with their work, their diligence, their prayer for a good tip because they pay their own college tuition?

What the horrible incident in Paris should remind us all is that when catastrophes happen elsewhere, it’s only by random chance that they occur where and when they do. The idea that it cannot happen to you is preposterous, even fool-hardy.

The solidarity shown in Paris should remind us to feel sympathy and empathy with those around us, the people who serve and work for us, who teach and protect us, who lead and entertain us, and who might be victimized for no fault of their own.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com