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Archive for the ‘Banking Industry’ Category
Tuesday, July 6th, 2010
The education profession in America is under attack. School districts are laying off teachers, increasing class sizes, and cutting “frills” like art, music, and sports. Those teachers fortunate enough to have jobs are blamed when their classes fail to perform well on standardized tests. They are burdened with an ever-increasing load of paperwork, in the name of “accountability.” They are virtually prohibited from displaying initiative and creativity by administrators who have never been taught even the rudiments of management and are themselves evaluated solely by test scores.
Successful primary education is a partnership between parents, students, and teachers. Parents must provide a home environment that encourages learning. Students must take responsibility for their work. Teachers must motivate children to learn. Absent the first two, the best teacher in the world will fail. But in America today, only the teacher is blamed when students perform poorly. Why? Because, though both teachers and parents are voters, there are a lot more of the latter than the former. And, for reasons that are too deep for me to fathom, we can only see children as victims, not as contributors to their own success or failure.
Twenty-five hedge fund managers made $1 billion or more last year. I suspect that every one of them came from families that actively encouraged education, and that they all were ambitious in school. At the other end of the scale, in a weakening economy, where there are six applicants for every job opening, many would-be workers simply lack the skills to compete. What consolation is it to them, and what good is it to us a society, to realize too late that “bad teaching” is a false and futile excuse.
Tags: community development, economic predictors, education, teacher accountability, unemployment rate
Posted in Banking Industry | 8 Comments »
Tuesday, June 1st, 2010
“For now we see through a glass, darkly;” — 1 Corinthians 13
In recent years, financial transparency has become a fetish. Demands for more detailed disclosure, along with the regulations to back it up, are constant and invariably defended on the grounds of providing more transparency.
Here is a statement issued last week by the Chairman of the Financial Accounting Standards Board, Robert Herz: “The proposal would impact the reporting by financial institutions and all other entities that have financial instruments as the goal of greater transparency in financial statements is pursued.” The Board, known as Faz-Bee, determines the rules of accounting. The proposal to which Mr Herz refers would require banks to record loans at “fair value” along with the current method of “historical cost.”
Before we get too lost in accounting jargon, let’s take an example. Say a bank makes you a $150,000 30-year mortgage at an interest rate of 5%. Under current accounting rules, the bank carries your mortgage on its books at its current principal balance as long as you keep paying. But what if, at some point in the life of the loan, rates for new mortgages rise to 8%. If the bank were required to report its loans at “fair value,” it would have to write down the value of your loan, even though you kept paying. You may say, “So what? That doesn’t change my loan.” True enough, but the prospect of having to record such a loss in the future, could very well influence the kind of mortgage the bank would be willing to make in the first place. Perhaps it would demand a higher rate, periodic rate adjustments, or a shorter term. Almost certainly, you would end up with a more expensive and less predictable mortgage. Achieving “the goal of greater transparency” might not be such an unmixed blessing after all.
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Tags: economic predictors, financial accounting, financial transparency
Posted in Banking Industry | 4 Comments »
Tuesday, May 4th, 2010
Humanity has been using money as a means of exchange for about 5,000 years. For millennia, “money” meant coins whose gold or silver content was equal by weight to their assigned value. It was a common device for over-indebted rulers to debase their currency by reducing its gold or silver content while ordering the coins’ nominal value to remain the same. Thus, they could repay borrowings of say 60 pounds of gold with coins now weighing just 50 pounds. Needless to say, this annoyed their creditors, but it pleased another group whose economic influence has expanded over the centuries: tourists.
Tourists love a bargain, and the best places for bargains are countries where your dollar goes a lot farther than at home. Greece is a wonderful place to vacation. Its rulers would love to make it even more wonderful by debasing the currency. Today that’s done, not by reducing its gold content, but simply by revving up on the printing presses at the mint. Tourists would flock to the country and Greek restaurants, hotels, and resorts would be booming. But, the Greeks don’t control their currency, which is no longer the drachma, but the euro. Instead of Greece trying to inflate its way out of trouble, the International Monetary Fund and the European Central Bank have pledged a €110 billion bailout loan. The price of the loan, and ultimately the price Greeks must pay for being part of the Western European euro zone, are drastic economic austerity measures that are bound to depress their standard of living.
The relative situation of Greece and the richer nations of Western Europe is not unlike those of relatively more or less affluence within the same country. Poorer communities have a hard time making themselves more economically attractive by offering cheaper amenities. Worse, poorer communities cannot tax themselves as heavily as their more affluent neighbors and so fall even farther behind during hard times. Debasing the currency, which is another name for state-managed inflation, is a tool, not a cure-all. But it’s a tool missing from Greece’s tool-kit and from the tool-kits of struggling American communities.
Tags: currency strength, economic predictors, exchange rates, financial crisis
Posted in Banking Industry | 1 Comment »
Tuesday, April 6th, 2010
The financial crisis began with too much borrowing, and it won’t be over until the debt burden of American households is manageable. The chart below shows household debt payments as a percentage of disposable income on a quarterly basis since 1985.
Back then, the country had just emerged from a harsh “double-dip” recession and households were just starting to borrow again. The 1991 recession brought on another retrenchment. But, as the long expansion of the Clinton years took hold, we built our debt burden back and then some. By the first quarter of 2008, nearly 14% of our disposable income went to pay debts. The percentage has been falling ever since, but it still has a long way to go before reaching a more reasonable level.
What is a reasonable level? The table below also covers the period 1985 through 2009. It slices and dices households and their debts into several groupings. The first two columns, in yellow, cover all households. The next column, in green, covers renters only, while the three blue columns reflect the debts of homeowners. The first row of percentages shows the ratio of debt service to disposable income for the fourth quarter of 2009. The next two rows show the averages and medians for the whole period. The last two rows show the variances between the last quarter and the long-term trends.
The story is compelling. All households have reduced consumer debt obligations, which are now below historical levels as a percentage of income. Mortgage debt payments have been reduced but are still almost 1% above long-term trend. Looking farther back, the difference is starker. For the 10 years 1985 through 1994, mortgage debt absorbed 9.79% of disposable income. It actually dropped to 9.11% in the following ten years.
It’s taken about two years for mortgage debt service to drop from a peak of 11.30% to 10.55% as a percentage of income. Assuming—and it’s a big assumption—the same rate of decline going forward, the percentage will fall below 10% in two years more. That’s not a bad proxy for how long it will take for the economy to return to full strength.
Tags: debt payment, economic predictors, economic trends, financial crisis, household debt
Posted in Banking Industry | No Comments »
Tuesday, March 2nd, 2010
Times are tough all over. This month’s Atlantic Monthly magazine carries a thought provoking and thoroughly dispiriting article by Don Peck called, “How a New Jobless Era Will Transform America.” Peck quotes Kathryn Edin, who teaches public policy at Harvard, describing her recent research in South Philadelphia. “These white working-class communities—once strong, vibrant, proud communities, often organized around big industries—they’re just in terrible straits. The social fabric is just shredding. There’s little engagement in religious life, and the old civic organizations that people used to belong to are fading. Drugs have ravaged these communities, along with divorce, alcoholism, violence.” That’s an ugly picture, but the worst is yet to come. “I hang around these neighborhoods in South Philadelphia, and I think, ‘This is beginning to look like the black inner-city neighborhoods we’ve been studying for the past 20 years.’”
Edin’s comments unintentionally point out that many people have long-ago written off mostly-minority neighborhoods. Except, of course, the people who live in those neighborhoods. Despite the tremendous stresses of lost jobs, tumbling home values, and growing neglect from the larger community, the residents of the minority neighborhoods ShoreBank serves continue to care deeply.
The reason is that people in our communities can put down roots. Unlike in wealthy suburban areas, several generations can afford to live in the same neighborhood. There are few “For Sale” signs because homes are often passed on to the next generation, other relatives, or friends. There is a vibrancy and cohesion that ShoreBank recognized from the beginning and continues to value, and indeed, to rely on.
But, all the economic data—national, state, and local—lead inexorably to the same conclusion: the downturn has hit minorities much harder than white Americans. For blacks as a whole, this is not a recession, but a full-scale depression. As a general rule of thumb, the numbers show that, however bad things are for whites, they are twice as bad for blacks. However good things are for whites, they are half as good for blacks. The ramifications of racism live on.
Tags: community development, economic predictors, financial crisis, ShoreBank, triple bottom line, unemployment rate
Posted in Banking Industry | No Comments »
Tuesday, February 2nd, 2010
The American Recovery and Reinvestment Act may have great potential for economic boosting, but we cannot depend upon it to drive new jobs. The federal government website www.recovery.gov provides detailed information on how the $787 billion of American Recovery and Reinvestment Act funds are being distributed. As of January 22, the government has paid out $268.8 billion in the form of tax benefits ($92.8 billion), contracts, grants, and loans ($73.2 billion), and entitlements ($102.8 billion). Data on the recipients of stimulus funds is broken down by sub-units as small as zip codes.
ShoreBank’s oldest location is in the heart of the South Shore neighborhood in zip code 60649, where unemployment is more than 20% and home values have declined by more than 40% in one year. A total of just one contract and one grant have been awarded in this zip code. The contract was for $1,800 to H L Jackson Consulting Company to review grant applications. The grant was for $200,000 to an organization called Featherfist to provide services to the homeless. That $200,000 is part of a larger $34 million grant to the City of Chicago which in turn created just 60 jobs, although none at Featherfist.
Based on aggregate data from recipients, 599,108 American workers were being paid by stimulus funds in the fourth quarter of 2009. This seems like a pathetically small number, with more than 15 million Americans unemployed. But it merely underlines what should be obvious: government does not have the capacity to be the primary job creator. Government primes the pump, but the private sector does the work.
Recent reports on Gross Domestic Product growth and strengthening activity in manufacturing are the real signs of progress. GDP surged 5.7% in the fourth quarter, fueled by gains in business spending on software and equipment. Manufacturing activity in January expanded for the sixth consecutive month and manufacturing industry employment is projected to increase in the months ahead. Employment is already growing in fields as diverse as textiles, petroleum & coal products, and transportation equipment. Hopefully, it won’t be too long until job growth returns to 60649 and beyond.
Tags: American Recovery and Reinvestment Act, economic predictors, ShoreBank, triple bottom line, unemployment rate
Posted in Banking Industry | No Comments »
Tuesday, January 5th, 2010
January 1, 2010 dawned cold and clear in Chicago, the start of a new year and a new decade. Rarely has a year started with more hope that it will be better than its predecessor. One important survey indicated that Americans are more upbeat about the short-term future than they have been for two years. The economy is recovering from the worst of the recession, but there is a big difference between recovering from a cold and recovering from pneumonia – this recovery will be long and uneven. It will be many months before the fear of a serious relapse can be dismissed. This fear may also be prolonged by the opposing trends in the job and housing markets, which are key economic indicators.
In 2009, over four million jobs were lost, on top of over three million lost jobs in 2008. On average, 575,000 American workers filed for unemployment insurance every week last year. However, recent employment data is beginning to show improvement. Only 11,000 jobs were lost in November, and first-time unemployment insurance claims in December were the lowest in more than a year. Still, the economy has to generate 100,000 new jobs each month, just to absorb new entrants to the workforce.
While the employment picture is brightening, housing remains highly problematic. Mortgage delinquency climbed to 9.64% by September 30. The median sales price for an existing home dropped to $172,600, the lowest since 2003, wiping out trillions of dollars of equity. Spending on construction is also down to 2003 levels.
I actually recently sat down to discuss the economic recovery in 2010 with Lisa Leiter at Crain’s Daily Business, which you can view here.
All-in-all, the watchword for 2010 will have to be Patience.
Tags: economic predictors, ShoreBank, triple bottom line, unemployment rate
Posted in Banking Industry | No Comments »
Tuesday, December 8th, 2009
The Bureau of Labor Statistics reported that the overall unemployment situation was unchanged from October to November. The unemployment rate moved down slightly from 10.196% to 9.992%, and non-farm payrolls dipped by a mere 11,000. Job losses for September and October were revised downward, so over the last three months total net job losses were 261,000 compared to 921,000 in the three summer months. Job losses in many sectors—manufacturing and construction especially—continue unabated, but for the first time in many months there are real signs of hope.
The most heartening sign is the growth in temporary help, which has moved from a low of 1.74 million jobs in July to 1.86 million in November, including an increase of 52,000 jobs in October (see chart). As employers begin feeling the need to add workers, they often start with temporary hires before feeling confident enough to add permanent workers. Another hopeful sign is an increase in the average workweek for production and nonsupervisory workers by 0.2 hours to 33.2 hours, the highest level since February.
Few people, except those who were recently hired, should be popping champagne corks just yet. Recoveries can be just as unpredictable and long as the same economic downslide that got the economy to this point. These stats are merely signs that the worst of the economic downslide is over. The true unemployment rate, including so-called “marginally attached” or discouraged jobseekers, remains stubbornly high at 17.2%. Both the average and median length of unemployment continue climbing to 28.5 weeks and 20.1 weeks respectively. But, while the November employment picture is still not good, it is the least bad since 2007.
Tags: economic predictors, ShoreBank, triple bottom line, unemployment rate
Posted in Banking Industry | No Comments »
Tuesday, November 3rd, 2009
Most people think the Census Bureau only springs to life in years ending in zero to conduct its decennial head count. Not so. Among its numerous publications is an annual report on poverty in America. The 2008 report was published a few weeks ago.
Poverty, sadly, never seems to go away, even in the world’s richest country. Our poverty rate last year rose to 13.2%, encompassing 39.8 million people, among the highest numbers in about a dozen years. In addition, more than 17 million people had an income of less than one-half the poverty threshold, and 6.3 million children lived in such low-income households.
Stark as these figures are, they present a snapshot of a moment in time rather than an assessment of the dynamics of poverty. In contrast to many parts of the developing world, poverty in America tends not to be a long-term condition. Over the four-year period from 2003 through 2007, just 1.8% of the American population was chronically poor. On the other hand, almost a third of the population could be classified as living below the poverty level for at least two months. More than a quarter of households classified in the bottom 20% by income moved up between 2004 and 2007, while a similar percentage moved down from the top 20%.
What makes us different from other nations? Mobility. The Census Bureau notes that its statistics “yield insights into…the economic mobility of US residents.” Compared to the millions trapped in generations-long poverty in the urban shantytowns and isolated rural villages of the developing world, poverty in America is relatively dynamic. If there is hope for a better future among those living in despair, it is our nation’s track record of economic mobility.
Though poverty here may not always be a life sentence, having almost 40 million people in poverty at any time remains a national disgrace. It is more than the populations of Connecticut, Mississippi, Arkansas, Iowa, Kansas, Utah, Nevada, New Mexico, West Virginia, Nebraska, Idaho, Maine, New Hampshire, Rhode Island, Montana, Delaware, South Dakota, Alaska, North Dakota, Vermont, North Dakota, Wyoming, and the District of Columbia combined. It is time to move more people to action.
Tags: community development, economic predictors, green banking, ShoreBank, triple bottom line
Posted in Banking Industry | No Comments »
Tuesday, October 6th, 2009
By Mary Houghton, cofounder and President, ShoreBank Corporation
The recent Clinton Global Initiative (CGI) conference focused on “how” the world can address urgent global needs like providing greater access to quality health care and education, and creating sustainable economies. Finance turned out to be one of the “hows.”
President Clinton used his convening capacity to bring private, public, philanthropic and nonprofit partners together in “commitments” (a firm commitment of an amount to launch or expand a scalable program) that gained support and sometimes funding from their presence and coverage at the event. The CGI also featured progress reports on previous “commitments,” showing the power of past conferences. The areas of impact included strides made in expanding access to finance for the poor.
This was an excellent forum for discussing new ideas and models in the field of financial services, of which there are many, like a dramatic increase in small business lending or using microfinance platforms to deliver other services. In the wake of the current global financial crisis, many voices are pointing to the failure of the globe’s largest banks and financial institutions and are seeking either a return to local-scale banking or to business practices that create value beyond short-term financial profits.
This backdrop only increased the urgency my colleagues and I felt about our participation. CGI selected Jan Piercy, Executive Vice President, ShoreBank to be a Finance Track leader, responsible for designing a plenary and three working sessions. In addition to my speaking role on a breakout panel on how banks might better serve consumers who are without access to affordable, traditional banking services, a number of ShoreBank Directors, managers, partners and “alums” served as Finance Track advisors, moderators and speakers.
ShoreBank was also involved in five new “commitments” during CGI 2009, of which three of them were selected to be publicly announced during the sessions. They include:
* John Berdes and his colleagues at ShoreBank Enterprise Cascadia working with more than a dozen organizations in Oregon to create a new loan program to improve energy efficiency for homeowners in Portland and ultimately, elsewhere in the state. The program could grow to be very large and be replicated nationally. This caught the eye of the Clinton Global Initiative staff and the “commitment” was announced by President Clinton at a special plenary session.
* Arjan Schutte of the Center for Financial Services Innovation (CFSI) was recognized in a working session for CFSI’s commitment to establish the Core Fund to finance businesses extending financial products and services to low-income consumers.
* ShoreCap Exchange’s “commitment” to create a Small Business Network to support local financial institutions extending credit to smaller borrowers in developing and emerging markets around the world.
It was also announced that ShoreBank is a founding member of the Investors Council of the Global Impact Investing Network, which committed to expanding the ways to evaluate social as well as financial returns on investments. ShoreBank’s partners in The Global Alliance for Banking on Values (GABV) are Triodos and BRAC. Our three institutions became co-sponsors of a new network of banks that have a triple bottom-line core business model. Launched in early 2009, GABV’s next annual meeting will be in Dhaka in March 2010. Banks with at least $100 million in assets and central social banking focus are sought to join the alliance.
Perhaps the most unexpected aspect of CGI was former President Clinton participating in a half-dozen sessions with all the facts at his fingertips, a passion for change that would benefit ordinary people, and with a strong, often apolitical point of view.
Not surprising? Matt Damon and Brad Pitt can give good speeches!
The Clinton Global Initiative invites members back year after year to report on progress (and obstacles) in achieving commitments made in earlier years. This lends more reality and honesty than is usual in these venues. For example, Brad Pitt reported on some very attractive green housing built by Make It Right in the Lower 9th Ward in New Orleans. He was proud of the hundred-some houses now up and occupied but also modest enough to wish it were hundreds more.
For additional information on all the ShoreBank companies, visit www.shorebankcorp.com or www.sbk.com.
Tags: Clinton Global Initiative, community development, green banking, Mary Houghton, ShoreBank, triple bottom line
Posted in Banking Industry | 1 Comment »
