Glass-Steagall and Presidential Candidates

One of the major issues that I will take into consideration when choosing a candidate to support in the 2016 election is where they stand on re-instituting Glass-Steagall.  It is not the only factor that I will consider, but it is certainly one of the more important.  The Great Recession, which began at the end of 2007 and cost US taxpayers and the US economy multiple trillions of dollars, was allowed to happen because Glass-Steagall was completely repealed in 1999, just 8 years prior.  I am also convinced that another financial debacle will occur in the near future if Glass-Steagall is not re-instituted.  Glass-Steagall was a simple act that separated the entities that preform risky business functions normally associated with investment banking, from the relatively safer business functions normally associated with commercial banking.  Historically, commercial banks have been safer than investment banks, and therefore, have been allowed to offer deposit accounts insured by the FDIC.  I have written previously about this topic in more depth.  Please reference In Support of Glass-Steagall and Strengthen Our Financial System with Effective Regulations.

So where do the current presidential candidates fall on the topic of Glass-Steagall?  I should probably point out here that I am neither a republican nor a democrat, I am truly an independent.  I think it is safe to say that none of the republican candidates support re-instituting Glass-Steagall.  It has not been posed as a topic at any of the republican debates, and I have not heard a question regarding Glass-Steagall asked to any of the republican candidates in interviews.  However, there is at least one republican who is on the correct side of this issue.  John McCain is currently co-sponsoring a senate bill with Elizabeth Warren to reinstate Glass-Steagall.  However, he is not a candidate this year.  Generally, republicans do not favor re-instituting Glass-Steagall.  I believe they view it simply as additional regulation, which it is not.  It would actually reduce regulatory requirements, as well as make our financial system safer.  However, there are not many people who adequately understand the implications and need for Glass-Steagall.

So how are the democratic candidates doing on the topic of Glass-Steagall?  Let’s take the results from the recent democratic debate.  At least the topic was discussed there.  The leader in the polls at present, Hillary Clinton, is clearly against re-instituting Glass-Steagall.  She says she has a better plan.  That indicates to me that she too does not truly understand the issues behind the need for Glass-Steagall.  There are no better plans.  Other plans have already been tried, and have failed.  Bernie Sanders says he is for re-instituting Glass-Steagall, but then says we must “break up the big banks”.  Sorry Bernie, but that statement is off point.  It is not about how big the banks are, or breaking them up, it is about what business functions they are allowed to perform.  O’Malley seemed to understand the issues, and support re-instituting Glass-Steagall.  However, his poll numbers at the moment are low.

Will our next president support re-instituting Glass-Steagall?  It seems like a long shot at this point, and that means that there is a likelihood that in coming years we will be trying to assess how we got into yet another financial disaster.

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In Support of Glass-Steagall

The legislation commonly known as Glass-Steagall provided simple, yet effective, regulations to our banking system.  It separated commercial banking and investment banking activities and entities.  It was that simple.  This topic was also discussed in an earlier article in 2012 entitled Strengthen Our Financial System With Effective Regulations.  The final repeal of Glass-Steagall occurred in 1999, although regulators had approved specific exceptions to the provisions of the act starting decades before.

Under the Glass-Steagall act, commercial banks were prohibited from engaging in the risky activities of dealing, underwriting, or distribution of non-governmental securities.  Securities firms and investment banks could engage fully in those activities.  Commercial banks could take deposits, which were insured up to a limit per account by the FDIC.  Securities firms and investment banks could not take deposits.  Commercial banks could also be members of the Federal Reserve System, which could provide liquidity and stability in emergency situations.

Glass-Steagall created a strong wall between commercial banks, upon which the safety and soundness of the banking system were based, and investment banks, which were free to engage in the more risky, yet more profitable, business of securities.  Investors in the two types of entities could decide which risk profile fit their needs best.  However, the two types of entities were prohibited from investing in each other, and they could not share employees or executives, including board members.  Glass-Steagall completely separated the two major types of financial services entities, and as a regulation, it was highly efficient.  There were no excess reporting or examination burdens placed on the organizations.  The two types of activities were simply separated.  That is significantly different than what we have today.

Why Was Glass-Steagall Repealed?

In my opinion, a major cause of the repeal of the Glass-Stegall act was a build-up of greed in the banking system.  It is no secret that investment banks had long coveted the large stable government insured deposit base of commercial banks.  The deposit base would allow them to take on higher risk levels, largely eliminate their sensitivity to interest rate changes, provide a large captive market for the distribution of  investment products, and reduce their need to fund themselves in the public markets.  However, commercial banks were also envious of the high profit margins and high executive compensation associated with investment banks.  Executives in commercial banks were paid a fraction of what their counterparts in investment banks were paid, and they desired the ability to engage in more profitable business and to make more money.   Even the regulators were greedy.  The regulators looked at the large universal banks of Western European countries and Japan, and they wanted US banks to be as large and as complex as those of other countries.  In their view, regulating large complex financial organizations enhanced their relative position globally.

What Do We Have Today?

So, there was pressure on Congress from many different stakeholders to completely deregulate the banking system, and that is exactly what happened.  There were few cries of caution from any of the major players in the banking system.  The new large complex banking organizations that evolved from deregulation indeed did take on new levels of risk unlike anything that had been seen previously.  Trading and distribution profits soared, as did executive compensation across the industry.  New financial instruments were created to support increased trading volume.  Many of these new financial instruments were far removed from any type of real underlying financial transaction, and they proved difficult to quantify from a risk perspective.  This is the banking environment that we have today.  It is directly responsible for the near financial meltdown that we witnessed in 2008, the deep recession and slow recovery that we are still living through, and the trillions of dollars that US taxpayers had to bear to save our economy.

There have been several attempts to apply new regulations to these new financial organizations.  However, the new regulations have focused on increased documentation and reporting.  They are extremely costly for organizations that must comply.  However, most importantly, they have proven to be totally ineffective.  The Glass-Steagall act was simple and effective.  We desperately need to re-institute Glass-Steagall.  A strong economy depends on being able to rely on a sound and safe banking system.  Glass-Steagall provided that assurance for decades before it was repealed.  In my opinion, our economy will not recover to full strength until Glass-Steagall, or something like it, is back in place.

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Career Lesson #1: Know The Details

My first job after graduating from college was with American Can Company, in the consumer products division. I chose American Can over a number of other offers because American Can had a management training program that sounded like the type of entry into the business world that I needed. It was called the Associate Program, and it was designed to provide a broad orientation of major business functions to newly hired college graduates, with an assignment to a permanent position within 12 to 18 months.  It was a terrific program, and it helped launch me into a successful career.  I often reflect on my years at American Can as helping me form a number of strong principles that I took forward into my career.  This post is about the first of those principles.

After accepting the offer from American Can, I was told that my initial assignment would be at a large pulp and paper mill in Naheola, Alabama.  Associates were, not only supposed to gain an understanding of departments to which they were assigned, but also supposed to complete projects that were given to them by those departments.  After completing a small project for the Human Resources department, dealing with labor negotiations, I was told that my second project would be for the Industrial Engineering department. I was supposed to flowchart all information, including forms and timing, through all operations of the mill.  I was told that they expected that the project could take up to 3 to 4 months, and that the Accounting department would be a co-sponsor of the project.

The project actually took about 2 and a half months, and I produced reams of flowcharts, all labeled and cross-indexed.  While I was doing the work, I also found some opportunities to make the flow of information more efficient, eliminating some forms and the time needed to complete them.  The head of the Industrial Engineering department was pleased with the work, and very pleased that I had identified some cost reduction opportunities.  He helped me quantify the estimated savings at about $50,000 per year.  That wasn’t a lot considering the size of the mill.  However, it sounded like a lot to me at the time.

He said that I should present my findings to the mill management group at the next meeting.  However, he also warned me that the Assistant Mill Manager was a very detailed oriented guy and knew the details about just about everything that moved in the mill.  He said that I would get questions about my recommendations, and if I couldn’t answer them, I could lose credibility with the management group.  He encouraged me to be aggressive with my recommendations, but just be sure to have my facts straight.

That caused me to think more deeply about what I had found.  Were these changes so brilliant that no one had ever thought of them before?  I thought not.  Therefore, why were they not already doing things the way I was suggesting?  As I began to think through my recommendations in this manner, I began to uncover the critical “whys”, and not just the “whats”, of the current processes, and more importantly, I began to understand what would need to change if my recommendations were to be implemented.

At the next meeting of the mill management group, I presented my findings and recommendations, with the assistance of the head of the Industrial Engineering department.  The Assistant Mill Manager immediately asked three very detailed questions about how certain functions would be handled if the changes were made.  Because I had worked hard at thinking through the implications of the changes, I was able to answer each of his questions satisfactorily.  Surprisingly, at the end of the meeting, the Assistant Mill Manager said he would take responsibility for overseeing the implementation of the recommendations.

Although the members of the mill management group were complimentary of my work, I left the meeting feeling that the recommendations were never actually going to be made.  However, about 3 weeks later, the Assistant Mill Manager found me in another department working on another project, and told me that all the changes had been implemented and everything was working great.  He said, “You did a good job on this assignment.  Welcome to the company.”

I learned an extremely valuable lesson during this assignment.  Get the facts straight.  Know the details.  Question why it is not already done that way.  Think through the implications of implementation.  I went on to spend most of my career in management consulting, and there was hardly a day that went by that I didn’t feel grateful for having learned this lesson at such an early stage in my career.

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Members of Congress Need to Grow Up

The current government shutdown has clearly demonstrated many of the fundamental problems with the two Houses of Congress.  Members of Congress can not seem to express an opinion on any topic unless it has been drafted for them by political strategists and communications experts from one of the major two parties.  They can’t seem to formulate logical views of their own, nor make any decisions that may conflict with the rhetoric of the two parties that they have been told to espouse.

While our country tries to cope with the effects of a non-functioning government, members of Congress participate in publicity stunts that are supposed to draw attention to themselves for political advancement.  They seem to crave the attention that, in their minds, they so richly deserve.  They are not interested in working hard to solve our country’s growing list of major issues.  They want to be stars.

If any of us were the parents of the members of Congress, as a group, we would describe their behavior in one word — immature.  And, unfortunately, that is what they are.  However, the road forward is clear.  Members of Congress need to grow up, get the government working again, raise the debt limit, and then go to work on creating a balanced budget, and one that begins to reduce the enormous amount of debt that we have accumulated.  If they truly want to be stars, that is the one surefire way to become stars.

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A Culture of Loyalty

A friend recently reminded me of an employee survey I did a few years ago for a large construction company on the topic of loyalty.  The results of the survey were extremely positive, and underlined the strong effective culture at the company.  In fact, the company’s culture is so strong and so effective, that I have never seen another as good in my thirty plus years in the consulting profession.  With the company’s permission, I wrote an article about the results of the survey and published it shortly after the completion of the survey.  If you have read the article previously, I think it is worth a reread.  This company doesn’t get nearly enough credit for their culture.

As a brief update on the company, I am told that they continue to prosper.  Their reputation for quality construction and on-time project completions continues to spread through the industry, they are growing aggressively domestically, and more recently, have opened new offices internationally.

Here is a link to the article:

A Culture of Loyalty

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Constructive Criticism? Who Wants That?

At one point in my career, many years ago, I was in charge of the Financial Services Consulting practice for KPMG in the New York office.  One year, when the annual performance evaluation forms were sent around to all partners in charge of practices, we decided it was time to try to do something better than the routine evaluation process that was handed to us.  Fortunately, my practice was large and filled with consulting professionals at every level who were smart, ambitious, and trained problem-solvers.  I pulled together a small group of them to work with me in thinking through what an effective performance evaluation process should be for our practice.  The newly designed process was labelled the Net Message process, and it was used for many years in that practice and other practices that I lead within the firm.

The Net Message process had a few design elements that made it effective in our environment.

  • Perhaps the most important design element of the process was that the evaluation was collaboratively prepared.  Every professional of a higher level that had substantial experience with a particular professional on a project during the year, provided input on that professional’s performance.  This was done for every professional in the practice, from the Analyst and Consultant levels, through all levels of Management.  Partners were handled differently, as was appropriate for that level, but input from other Partners was solicited.

  • The Net Message form consolidated the collaborative input on each professional’s strengths, potential areas for improvement, and recommended actions for improving performance.

  • The Net Message form also provided a very clear statement as to how each professional was doing against career objectives.  A professional was right on track with their career and could expect future promotions, was struggling somewhat with their performance and needed to take actions to improve performance, or was not likely to be successful in this particular consulting environment and should start looking for a position on the outside.

  • The Net Message evaluation was delivered to each professional by a small group that included at least two partners, and others of a higher level that had the most experience with the professional.

The Net Message process was an instant success, and was highly praised by the professionals as being open, clear, honest, and straightforward.  At the completion of the process, the professional felt that they had a good handle on their performance, their progression against career goals, and, where necessary, constructive criticism for improvement.  The process proved to be so effective in my practice at KPMG, that, many years later, I decided to introduce it to selected clients, and in fact, implemented it for several clients.

In a client environment, we found that the Net Message process needed to be toned down somewhat.  It was designed for a professional consulting environment that embraced “up or out” career management concepts.  The consulting professionals were all ambitious, and the culture of the practice was aggressive.   However, this was not the case in most client environments.  Many client employees reacted negatively to strong constructive criticism, regardless of how well-intentioned it was.  In general, client employees viewed constructive criticism as being criticism, first and foremost.  We solved this issue with the process by placing more emphasis on employees’ strengths and their long-term value to the organization.

After making these adjustments, the Net Message process worked well in client organizations.  It provided straightforward, clear, open communication with their employers, and that is what employees want most from a performance evaluation process.

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Stuck in the middle with…well, apparently, no one!

There is no doubt that our country has become more and more divided politically.  Rhetoric has become more intense, positions have gotten more rigid, and debates have become more heated, from both the left and the right.  Unfortunately, I don’t seem to fit into either group.  I seem to be, as some people say, “solidly in the middle”.  I don’t think my views are wrong, but I seem to be part of a group that grows smaller each day.  Many of my friends over time have moved further to the left, or further to the right, and they seem to have grown angry that others have not moved along with them.  Being “in the middle” feels lonely.

What does being “in the middle” mean?  Well to me, it means that I tend to be liberal on most social issues, but conservative on most fiscal issues.  I believe in government spending to help people live better lives, provide safety nets for people when they need them, make investments in our future, and of course protect our country.  But only to the extent that we can afford those expenditures.  I believe in efficient government, but not forcing cuts in vital areas of assistance or investment by irresponsible reductions in tax revenues.  It seems to me that efficiency in government should be achieved before cuts in funding occur.  That means we have to work at it, not just try to force it.

Politicians on the left seem to believe that spending must continue, even though our tax revenues don’t support it.  Politicians on the right seem to believe that spending must be reduced so that tax revenues can also be reduced.  Both of these approaches seem wrong to me, and potentially dangerous to our country.

It seems obvious to me that we, as Americans, all own a part of this country’s present and its future.  Therefore, we should all want to make choices and decisions that seem correct for all of us.  However, the political left has moved too far left, and the political right has moved too far right, for the two sides to even discuss the issues with each other, and both sides seem to have lost interest in discussing the issues with people “in the middle”, like me.  Maybe that is because there are no longer any people “in the middle”, except me.

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A Disaster Is Not In My Contract

On Saturday, October 29, 2011, an early Winter storm swept through the New England states. It was a storm that New Englanders refer to as a “Nor’Easter”, and it left a path of destruction and power outages across much of New England. The Farmington Valley area in Connecticut was particularly hard-hit, with most of the area not getting power back for well over a week. The storm was no more severe than other “Nor’Easters” that we have experienced in the past. However, this storm came early in the year, and the leaves were still on most of the trees. The weight of the leaves and the snow together caused trees to bend and break, and therefore, take out power lines. The power outages severely crippled the area. Many individuals were forced to move into shelters that had been set up, and many small businesses, not being able to withstand the loss of inventory and the lack of revenue for over a week, simply had to close their doors for good. The impact of the storm was devastating to the area.

Our family actually missed the frontal part of the storm, but we certainly experienced plenty of the aftermath. My wife and I were visiting our two sons in college that weekend, and we were not in the direct path of the storm. However, on Sunday night, October 30, 2011, we were making our way back home. We took our normal route back home, which is through rural areas of New York state and Connecticut, because we did not know at the time that the storm had caused so much destruction. When we got to within 50 miles from home, we began to notice that there were no lights on in houses, small towns were completely dark and isolated, and there were very few other cars on the road. As we got within 25 from home, we began to encounter roads that had been marked as closed. As we got closer still, many more roads were closed, but were not marked. Fortunately, our GPS kept leading us to detours around the closed roads. The trip home took us several times longer than normal, but we eventually made it.

The trip home was nerve-racking, with us constantly anxious about actually making it home and constantly wondering about the possible state of our home. However, the most surprising thing about the trip was that we didn’t see one single figure of authority during the entire 50 mile drive. There were no law enforcement personnel, federal, state, or local. There were no fire department personnel, volunteer or otherwise. There were no medical personnel. Even though the power was out for miles around us, there were no power company crews. There were no elected officials, no government employees, and no volunteers. There was no one. We traveled through several small towns in both New York and Connecticut where traffic, street, and all house lights were out. We encountered numerous closed roads, including some that required us to back up significant distances in order to turn around in the dark. Fortunately, we were able to help an older man who was trying to drive to his daughter’s house and had become lost and disoriented on one of the blocked roads. Nowhere on this 50 mile trip did we see one single person of authority, or even someone who was just out trying to help others. There was no one.

Why was no one around during this disaster? The only conclusion that I seemed to be able to draw at the time was that no one considered it their responsibility to be around during a disaster. Indeed, I believe it is true. No doubt, the job descriptions, employment contracts, union contracts, and/or performance evaluations of the people who could have been around that night, just simply did not contain any specific requirements for being available during disasters. That has to be the case. After all, we have spent decades encouraging agreements between entities and/or individuals in the human resources area to be defined and refined by legal experts. Every detail that could affect job performance, salary increases, or total compensation, must be negotiated and word-smithed between two opposing parties until a compromise, that makes no one happy, is reached. Gone are the days when people in positions of authority felt ownership over the actions of their companies, towns, or governments. Gone are the days when people felt that they had responsibilities just because they held a particular position.

So, how can this situation be improved? Well, realistically, nothing of real substance is likely to change. It would require that negotiations in the human resources area become less adversarial and more oriented toward teaming. It would require that we become less controlling in our views toward others, and more trusting that people will do the right things. These types of changes are not easy to accomplish. Therefore, whenever I am traveling after a major storm, I will be sure to check the travel advisories, because we now know that if we need help, there will be no one around.

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Article Plagiarism

Over my career, I have probably written thousands of articles, documents, presentations, speeches, thought pieces, blog posts, and the like. I am a consultant, and consultants must communicate their thoughts and ideas to support their business. However, a few years ago, I began to write articles for publication for different reasons. First, I am trying to reduce the number of hours I spend working, and ease gracefully into retirement. Writing articles allows me to keep my brain active. Second, I am grateful for a very successful career, and want to give something back if I can. Writing articles allows me to share with others some of the knowledge and experience that I have been fortunate enough to acquire over the years.

At this point, I suppose I would have to rate my article writing endeavor as moderately successful. Several of my articles have been picked up by various types of publications, mostly general business publications, but also some clients’ in-house publications. That’s the good news. The bad news is that they have also been picked up by various types of publications with the author being listed as someone other than me. My articles have been plagiarized! It has also happened to blog posts, such as this one.

Now, I don’t believe my articles are among the best ever written. I understand my weaknesses as a writer, but I do the best that I can. My articles are about the content that is being communicated, and hopefully my writing communicates content adequately. Therefore, I was surprised, if not shocked, to learn that some of my articles have been the object of blatant plagiarism.

Plagiarism of my articles seems to have taken two different forms. First, there are articles that have been republished word-for-word, with someone else’s name as author. One such person’s name that has been listed as author is Gaurav Rai. Now, I don’t know this person, or anything about him. He may not actually be a real person. He seems to make no changes to my articles, except a reversal in the title. For example, I published an article in 2010, entitled “Strategic Management Process – The Definition Stage”. In Gaurav Rai’s plagiarized version, the title is “The Definition Stage – Strategic Management Process”. Other than that, the article is plagiarized word-for-word.

Another form that plagiarism of my articles has taken is that they are republished with large sections of new text blasted into them at random points within the article. At times these sections of added text share the same general subject matter as the original article, and other times they don’t. They are just random, and I would not be surprised if they were also plagiarized from another source. Many of my articles that have been plagiarized in this way seem to have “admin” listed as author.

So, which form of plagiarism do I prefer? Well, obviously the answer is neither, but I suppose I have to accept both. I have thought about going after the people who have plagiarized my articles, and the organizations that have sponsored them. However, the time and effort required to monitor publications broadly, follow up, and get the plagiarizers to stop, just simply exceeds my capacity. Therefore, unfortunately, there is little of a practical nature that I can do about the plagiarism. So, one might ask, if there is nothing realistically that you can do, what is the purpose of this article? Well, for one thing, I would like the plagiarizers to know that I know. In addition, I am anxious to see if this article also becomes plagiarized.

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Strengthen Our Financial System With Effective Regulations

This article explores the reasons why regulation of financial services organizations is needed, discusses a few of the problems with our current regulatory environment, and offers suggestions as to focus of any potential new regulations. The key question is not whether we have too many or too few regulations, it is whether our regulations are effective.

Strengthen Our Financial System With Effective Regulations


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