The Banking System isn’t getting better — it’s getting worse.

Having worked in finance for over half a decade, and now having been involved in high finance now nearly a decade, I’ve been exposed to now only the internal workings of how credit and finance works from the inside, but I’ve studied it extensively as a matter of interest, and I see a problem developing — some if it we all know about, the other parts, not so much.

While our individual finances are improving overall, I see a big problem developing with the same system that brought it down in 2007 — unregulated banking.

In the United States, from the 1700s to the early 1900s, there was banking crash roughly every 15 years.  With the institution of strong regulation, particularly after the Stock Market Crash of 1929, the United States entered a golden age of banking.

How can this be?  With over 100 years of 15 year booms and busts, why did it all of a sudden stabilize?  Regulation.  With strong, effective regulation, bank busts came to a halt.  Not a SINGLE widespread bank bust occurred for over FIFTY years in America.

While a majority of this process took place in the 80s and 90s, the arguable beginning was the Nixon Shock; a term attributed to the end of the Bretton Woods system in the United States, when Nixon unilaterally wrote off the US Dollar’s ability to be converted into Gold; the United States Dollar became a free-floating value currency, which caused the US Dollar to become a reserve currency in many nations of the world — massively increasing it’s value.  In the 1980s, this trend continued: deregulation became the buzz word.  With more risks, banks could make more money with the same hard cash in it’s accounts.

restore-glass-steagallThe most hardcore change, in my opinion came during the Clinton administration, when Congress approved the repeal of the Glass-Steagall Act of 1933, repealed by the Gramm-Leach-Bliley Act of 1999, signed by Bill Clinton in November of that year.  This VERY important piece of legislation turned banking regulation on it’s head: Glass-Steagall was an instrument that separated Main Street banks from Wall Street banks.  In english, this means regular depositor banks (such as Bank of America, or Huntington Bank or Chase Bank) could play the stock market and make investments with depositor money that it otherwise barred from doing under the 1930s legislation, just like Investment banks and corporations can and do.

Seen as a vestige of post-Crash and pre-/post-World War II stabilizing legislation, it was, at the time, seen as unnecessary.  However, when deregulation began picking up steam in the 1980s, things happened in short order:

– The 1980s and 1990s Savings & Loan Crises: Savings and Loan thrifts were given many of the same powers as banks under deregulation legislation signed by President Carter in 1980; without the same regulations banks were subject to.  With the massive take-off of real estate lending, (outstanding mortgage debt was $700 Billion-ish in 1970, and nearly doubled to $1.2 Trillion in 1980), S&L’s took massive risks by lending out more money than they should have, on top of rising interest rates caused many institutions to fail.  This was failure to such a degree the United States had never seen.

– Repeal of Glass-Steagall Act: With the S&L failures still fresh on the minds of financiers and politicians, many argued further deregulation was required to avert such a disaster in the future.  Congress passed Gramm-Leach-Bliley and it was signed by President Clinton at the twilight of his Administration.  By the end of the next Administration (G. W. Bush), only EIGHT years later. the United States was reeling from the worst banking and credit crisis it had seen since the dawn of the 20th century, and it was spreading throughout the world.  The FDIC began publishing lists of bank failures every Friday, conducting raids on banks it or the State controllers deemed in danger of failing, or already had, legally — and, for the first time in history, the FDIC, the Federal Depositors Insurance Corporation’s funds went NEGATIVE from insuring lost depositor money.

All of these took place within 25 years of the beginning of banking deregulation in the United States — AFTER an over 50-year golden era for banking in the United States where bank failure was almost unheard of, to the point where bank failures and bank runs were becoming regular weekly news events on Friday nights.

Even more disturbing, the largest four banking institutions in the United States, the four largest banks (Bank of America, Citigroup, JPMorganChase and Wells Fargo) are now THIRTY percent LARGER than they were in 2007!

How can the next banking crisis be softened, if not stopped?

– Reconstitute a Bretton Woods-like system for the American economy: peg it with something convertible to stabilize the possible future crash of the US Dollar.  This would, in general, lower the value of the dollar, however, the dollar would be safe from a crash, or other cataclysmic disaster brought on by a perceived lack of confidence in the American financial system, which is all that currently “holds up” the American economy and the value of the US Dollar.

– Reinstitute a Glass-Steagall Law.  Banks shouldn’t be allowed to gamble with depositor money.  When banks buy futures or invest in trusts or mutual funds with depositor money, it’s the same as taking it down to the Casino and betting on a three-of-a-kind.  In fact, I’d be willing to bet on a CASINO win, over futures and stocks, at the moment.

Gag Order includes your Defense?

Courtesy drivebyplanet.com

Courtesy drivebyplanet.com

Ladar Levison started the email service Lavabit ten years ago; taking a significant amount of his adult life building his business.  While it’s understandable some in the government could be concerned over the use of non-government interceptable communications (is that even a phrase?) being used by terrorists or other people bent on causing whatever, this fact isn’t what disturbs me.

What deeply disturbs me, is he was forced to close, then under a gag order of the United States Government, isn’t allowed to discuss it at all — not even with his LAWYER.

Has it come to such a point where the United States will use legal scare-tactics to not only shut down threatening interests, but even deny those people (when they, themselves, have done nothing wrong) the right to not only defend themselves against it, but silence them?

I get that Lavabit was seen as a threat by the US Government, I’m not denying that.  Stuff like that CAN a threat.  It’s that they went after the owner, who has business interests in keeping people’s private information PRIVATE, and they essentially scared him into silence to such a point, he can’t even legally consult his lawyer.

Deeply disturbing.

Cummings’ Rules of Being The Boss…

Having been a manager, I have a pretty solid set of rules I’ve always followed that not only work well, but inspired some true loyalty from the people I employed — honestly, to the point that I felt truly moved by the dedication I received from them.  With any luck, someone will read it one day, and it may inspire them as a manager.

FE_DA_BossRelax_032713425x2831.  Never make your employees do something you’re not willing to do yourself.
Yes, part of being a Boss is delegating, but never make people who work under you do something that you’re not willing to take on yourself should the time call for it.

2.  Be straight with those who work with you.
If you have intentions that could effect them, get their input on it, if at all possible; which brings us to:

3.  Be willing to get input from those under your charge.
Those who work for you can not only draw inspiration from your confidence in them, but it can make them more productive if they feel their opinion is respected.  There are times autocratic leadership is required — but in just as many, if not more times, more democratic authority can make for just as effective, if not even better solutions.

4.  Be straight with prospective hires.
Often, people are just not the right fit for the job you’re advertising for, and you have to let them down — particularly those who need the work.  Be up front with your feelings, but offer them reassurance.  There’s no reason to create ill-will with those who could very well pass along someone else to you who could be a better fit.  While it’s not your job to hand-hold or counsel a prospective employee, it doesn’t hurt to give them a little positive reinforcement.

5.  NEVER fire on a Friday.
To me this is a capital offense I see too many managers make, particularly those who are calculating a firing in advance that could otherwise be served at another time.  Not only is it depressing for your employee facing the terminal pen, it can also create an atmosphere of distrust.  Mondays are a better time for this; not only for your employee (Getting fired sucks, but hey, I can go home early on Monday!)  Getting a pink slip on a Friday kills a weekend.  Hard.

6.  Encourage productivity and positive work environments.
Start an “Employee of the Month” program.  Offer prizes or incentives for those who put in the extra “little bit” or who perform just that little bit more.  Not only does this create some friendly rivalry in the office to compete for the prizes you lay out, but it also can show who has dedication and drive to succeed.

7.  Reward those who go out of the way for you on a favor.
Sometimes, you may have to call an employee in for that weekend audit, or something that they normally wouldn’t do.  While they’re being paid for their work, give them a little something extra.  Buy them a lunch, or offer to pick up a set of concert tickets for the band you hear them talk about.  After they’ve done their job during their otherwise off-time…  offer them a $20 from your wallet.  The gesture alone says a lot, even if they refuse.

8.  Ask them “How’s everything going, all okay?”
As their supervisor, the decisions you make effect their lives.  With the swipe of a pen, your decisions can make their day, or throw them into a depression.  While you may not care to know about every detail of their lives… be interested in your employees.  Ask them about their hobbies and interests.  Not only does this give you an insight as to who they are past their nametag, it inspires a feeling of trust and interest that can make an employee feel important, and that they really are a part of your team.  If you see a change in their behavior, even if it’s not effecting their performance, ask them about it.  Give them a moment or two to vent.  They produce to make you productive — stuff like that only helps.

How Goldman Sachs is giving you the screw…

Nick Madden, VP/CPO, Novelis, Inc.

“The situation illustrates the perils of allowing industries to regulate themselves.”
— Nick Madden, Chief Procurement Officer, Novelis, Inc.

We all know about the 2007 Financial Crisis — and how it wiped out millions of jobs around the world, and we know where it began, the US Subprime and Unsecured Credit Markets.  Now that the crisis is over, many think that a lot of the rackets, many assume that tighter financial regulations are helping keep large financial institutions from screwing over the same people they boned over in writing and trading in extremely risky securities.

Wrong.

Goldman Sachs, since 2008, has been buying up MASSIVE amounts of one metal: aluminum, and storing them in warehouses everywhere, particularly in Detroit.  What are they doing with it?  Just sitting on it.

Why is this a bad thing?  Isn’t sitting on metal a good idea when it’s cheap?  Sure… always a good thing.  However, when you buy up so much of it, you’re affecting the world supply of it, not so much.  By reducing supply, you increase demand — and what happens when demand goes up and supply goes down?  Raise the cost.

In 2008, Goldman Sachs reported that they were storing 50,000 tons of Aluminum in warehouses and company owned property.  In 2010, that number increased to 850,000 tons.  At this time?  1.5 MILLION tons.   TONS.

Now, when companies want to buy aluminum domestically, as nations like China like to set prices at the state-level, companies will turn to domestic companies, like those owned by Goldman Sachs.  Because they control the aluminum, they can say “Sorry, we can’t get it to you that fast, we apologize,” when in actuality, they can delay delivery to drive up the price.  Indeed, subsidiary of Goldman, before purchasing, was able to supply aluminum to its end-users, was 6 weeks.  After the purchase and management rearrangement by Goldman, the wait is now sixteen MONTHS.

How much, you say?  What’s YOUR bottom line?

According to Cenk Uygur with The Young Turks, the price increase at this time, broken down per aluminum can of soda/pop, is one tenth of cent, per can — equivalent.  While that doesn’t sound like a lot of money to the end user, that makes a massive dent in the profits of the initial supplier, such as the Soda company, in this case, to buy and manufacture the soda cans.  At Goldman’s level, however,

With the average of US$90 million worth of aluminum cans (ALONE) used in the US, and tons and tons of aluminum used in house sidings, wheels in automobiles, automobile body, anything you can think of.  On average, that increase works out to be roughly US$2 per every 35 pounds of aluminum.  With the average automobile using 12 pounds of aluminum (The New York Times), that adds up to US$12 in additional cost — that didn’t come from anywhere other than artificially controlling the supply to demand — only by slowing down aluminum shipment… that it owns, and stores.

Bottom line, from the entire operation of aluminum storage and shipment control, Goldman Sachs’ cut of the operation: US$5 Billion over the last three years.  (Thanks again, to The New York Times for this figure.)

Madden’s quote at the beginning of this entry has a lot sharper a point on it now, doesn’t it?  What do you think?