“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

“Wall Street Occupiers vs. The Tea Party,” The Colorado Springs Business Journal, October 21-27, 2011, 17.

OF OWLS AND TEA

Once again, the left doesn’t know how to market itself or express its views with the bravado of the right. While the right set in motion the Tea Party already in 2009 to respond to TARP, the left demonstrates under the label Occupy Wall Street. Really?

When we think of occupation, we think of Israel in the West Bank or America in Iraq, not exactly friendly images that motivate us to join…If we were to help, how about OWLS? Owls are thoughtful, we are told, but, as Hegel taught us: “The owl of Minerva spreads its wings only at the falling of the dusk.” Are they figuring things out after the fact, perhaps too late?

Some have claimed that though they come from the two ends of the political spectrum, Occupy Wall Street and the Tea Party have some concerns in common: complaining about big and wasteful government that bails out large banks while common folks are suffering from over-taxation and low incomes. The Tea Party in its origins blamed Wall Street, too.

Others have reminded us that they have different goals in mind: while the left still believes that government programs can save the country, the right believes that “job creators” will do a much better without any government intervention. Both sides, though, can collaborate on decreasing regulations that affect us all and benefit banks more than other entrepreneurs.

Just as the right is misguided when wanting to eliminate a government they need for national security, the Owls miss an important point that makes their complaints against Wall Street misdirected. Remember the story of the scorpion and the frog (or turtle)? The scorpion asks the frog to carry it across a river. The frog is afraid of being stung during the trip, but the scorpion argues—logically—that if it stung the frog, both would drown. The frog agrees and begins carrying the scorpion, but midway across the river the scorpion does indeed sting the frog, and they sink. When asked why, the scorpion points out that this is its nature, it can’t help being a scorpion (regardless of the illogical action).

Guess what? Wall Street is about greed, it does what it does best when it makes billions of dollars in computerized trading, in hedging its bets, and cornering the markets. Owls can’t change the nature of Wall Street no matter how much they protest. Likewise, the Tea Party can’t change taxes as such, no matter how many pledges they make politicians sign: taxes are needed to run government agencies and provide public goods. Unless you intend on dismantling the US, the DC vortex needs cash.

So, the right and the left should join forces to reform the country, despite their ideological differences. Since neither side can ever expect to achieve its goals, the process of political transformation could transform the economy as well, and improve our lives in the meantime. Both ends of the spectrum should demand more accountability and personal integrity—most politicians are lawyers or millionaires by training, and as such must have cut corners to achieve successful careers, even if only to make promises they failed to keep. But unlike the scorpion or Wall Street, it’s not in their nature to be corrupt; it’s an acquired taste.

Moreover, both sides want to be heard by politicians. They need to bar lobbyists from financing all elections in America and determining the political agenda of the country. If election-funding reforms keep on failing, and if the Supreme Court’s decision of 2010 to let corporate America enjoy the right to make any contribution to candidates as a protection freedom of speech (like individual citizens), then perhaps eliminating lobbyists would do the trick. Politicians may have to listen to their constituents after all.

Finally, since the right loves the military budget no matter its size and rationale, and since the left wants jobs for the unemployed, let’s turn the military into a welfare agency, with a safety net to the unemployed. Raise the military budget not for tanks and drones, but for jobs for every American, no matter the qualifications. The military has already GED Plus Enlistment Program for those without high-school diploma or GED. Extend this and other programs like this to include jobs for veterans, retraining them for the health care industry, the fastest growing segment of the economy.

If owls drank tea or threw it into harbors, and if tea party goers had owls for pets, maybe we’d have a country that could find solutions to its problems. Protests are important so that politicians can hear the pain of citizens. When politicians are deaf, either supply hearing aids or don’t re-elect them.

Raphael Sassower is professor of philosophy at UCCS and believes in the abundance of our blessings. He can be reached at rsassower@gmail.com Previous articles can be found at sassower.blogspot.com