Posts Tagged ‘Politics’

Hillary (or Donald) ate my homework

November 7, 2016

Passing Blame with arrows pointing to others accusing them of doing something wrong or messing up and denying responsibility, accountability or culpability

Ya gotta love it! This just in from today’s Wall Street Journal:

If you believe U.S. corporations, Americans are drinking less coffee, eating fewer doughnuts and taking fewer cruises, all because of the presidential election. Companies have made a habit of finding excuses for their quarterly results. Blaming the weather is a perennial favorite. The fear of rising interest rates is another. Brexit is a newer culprit.

Now, Tuesday’s vote is front and center.

Among the companies blaming election angst for lagging performance, according to WSJ, are Starbucks, Dunkin’ Brands (Dunkin’ Donuts married to Baskin-Robbins), Carnival Cruises and McDonald’s. After tomorrow, of course, companies can blame it on whoever wins.

Oh, for the days when companies blamed slow sales on weather – snow in winter (or too-mild weather), heat (or cool) in summer and so on. Is the problem ever that we aren’t selling what people want to buy?

Is this a question investor relations people should ask before news releases and conference calls make these excuses an official message point? My guess is investors are taking notes.

 © 2016 Johnson Strategic Communications Inc.

Still too big to fail

June 23, 2011

Tom Hoenig, president of the Federal Reserve Bank of Kansas City and a skeptic on loose monetary policy and the state of the world’s biggest banks, is convinced the United States still hasn’t heeded the lessons of the last financial crisis.

During an otherwise happy gathering in our hometown, the “CFO of the Year” awards event organized by the Kansas City Business Journal, Hoenig climbed on his soapbox to warn of the prospect of another crisis in the future. The trouble is, he said, the same too-big-to-fail banks that starred in the 2008 meltdown and the recent HBO dramatization of Andrew Ross Sorkin’s book Too Big to Fail are still, well, too big to fail – even moreso.

The financial reform law enacted in 2010 to guard against the next crisis doesn’t solve the issue of systemic risk, Hoenig said. And the world’s central banks continue to be “held hostage” by issues raised in 2008, he said. Exhibit A is the way everyone is worrying that debt problems of one smallish country could reverberate through big banks worldwide – roiling capital markets and threatening a new crisis.

“Dodd-Frank does three things, and it leaves one thing undone – and that is the most significant thing,” Hoenig said. What the financial reform law does:

  • Enhances supervision. “We’ve enhanced supervision after every crisis,” and it hasn’t prevented the next cycle of financial collapses, Hoenig noted.
  • Raises capital standards. But commercial banks used to hold capital around 15% of assets, and now some bankers feel 8% is too onerous a requirement, he said.
  • Mandates a new resolution process. But the next time a giant bank teeters on the brink, the bailout impulse will be as strong as ever, Hoenig said.

What Dodd-Frank leaves undone is addressing “too big to fail,” Hoenig said. The U.S. banking system is more concentrated than ever, and that fact haunts the financial markets, he said.

Hoenig offered a “TBTF” history lesson: In 1913, when the Federal Reserve was created, the five largest U.S. financial institutions managed assets totaling 2½% of the country’s GDP. In the Great Depression, the government created a safety net for banks – FDIC insurance and the like – and barred bank holding companies from speculative activities through the Glass-Steagall Act of 1933.

And it worked, Hoenig said. Banks lent money and cushioned their balance sheets against downturns. Investment banks, kept separate from the safety net, took on leverage and invested in riskier assets for greater returns. The economy grew. Markets did well. While the banks expanded, by 1980 the five biggest still held assets equal to only 14% of GDP. One failure wouldn’t have crashed the system.

That changed after the 1999 repeal of Glass-Steagall freed banks to enter other financial services, growing bigger and bigger – and taking on more and more risk. Despite the turmoil of 2007 to 2010, Hoenig said, the banks kept getting bigger.

“Even today, after the crisis, the five largest financial institutions control 20% more assets than before the crisis,” Hoenig said. With the mergers caused by the financial crisis, concentration in U.S. banking has grown to around 60% of GDP.

As one who has lived through weekend “too big to fail” negotiating sessions, Hoenig said, when another giant teeters on the brink the story will be the same. Given the threat that a huge bank failure could lead to collapse in the real economy, he said, “on Sunday evening, before the Asian markets open, you will in fact bail it out.”

Before that next crisis arrives, Hoenig suggested, big U.S. banks should be broken into more manageable pieces – especially, separating commercial banking with its publicly provided safety net from those riskier investment activities in the capital markets. Hoenig laid out more specifics in a speech last month in Philadelphia.

I agree. Let’s dismantle too-big-to-fail before it fails us, again.

© 2011 Johnson Strategic Communications Inc.

Gridlock? Not the end of the world

November 2, 2010

Of the talking heads on the airwaves and op-ed pages, George Will is one of my favorites – for his insights and the way he offers opinions calmly, without shouting. I appreciate two things Will said on Sunday about the US midterm elections.

Regarding GOP gains in Congress possibly causing gridlock in Washington, which many pundits greatly fear, the conservative Will said on ABC’s “This Week”:

Gridlock is not an American problem – it’s an American achievement. The framers of our Constitution didn’t want an efficient government, they wanted a safe government. To which end, they filled it with slowing and blocking mechanisms: three branches of government, two houses of the legislative branch, a veto, veto override, supermajorities, judicial review. … When we have gridlock, the system is working. [Video here, Will about 5:30]

Asked about calls for more civility in politics, Will likewise gave a contrarian view:

Nothing wrong with that, until you begin to equate civility with the absence of partisanship, as though there’s something wrong with partisanship. We have two parties for a reason. We have different political sensibilities. People tend to cluster – we call them parties. And we have arguments – and that’s called politics. [Video here, Will at about 3:00]

For business issues like taxes and regulation, the new climate in Washington could be contentious. Partisan. Even polarized. The next two years could seem awful to those who wanted the Obama administration’s agenda to fly through. Some analysts like those in this AP story also worry about gridlock hurting the economy.

I think I’m with Will on this one. After all, businesses do not usually get more robust when the government is in activist mode. A unified Capitol Hill can mean businesses have to send more money to Washington, or must try to figure out more 2,000-page laws. So gridlock may be OK, if we can tune out the shouting.

That’s my two cents’ worth. What’s your opinion?

© 2010 Johnson Strategic Communications Inc.

Not on the agenda

November 2, 2010

At a breakfast meeting this morning of a few colleagues in the NIRI Kansas City chapter, topics ranged widely over investor relations how-tos, idiosyncracies of sell side relationships, and so on. One subject that didn’t come up:

The Election.

Maybe it tells you something. Either we’re all so sick of political ads, or politics itself – or we just want to focus on things we can control. Happy Election Day.

Politics & proxy proposals

January 22, 2010

Update: Activists announce Feb. 4 that they are organizing for proxy fights and lobbying efforts to oppose corporate political involvement. The effort is under the rubric of ShareOwners.org.

The ink is barely dry on the US Supreme Court decision to allow corporations to spend money on political ads, but one likely consequence is that activist shareholders will gain fresh momentum for a wave of proxy proposals seeking to limit or prohibit political spending by public companies.

While political junkies are dithering about how corporate money might sway the 2010 elections, corporations and investor relations professionals should realize that the Jan. 21 Citizens United decision presages a different kind of elections: more shareholder proposals on political activity and spending.

Leading the charge on this issue since 2003, a Washington advocacy group called the Center for Political Accountability has worked with labor unions, religious groups and others to file proxy proposals – more than 60 in 2008 and again in 2009. These generally would require semi-annual reports describing political contributions and who makes the decisions – posted on company websites – along with special oversight by boards of directors of political efforts.

Within hours, the Center for Political Accountability announced the Supreme Court ruling makes it “more critical” to press corporations for change on this issue. The advocacy group negotiates for self-policing by companies it targets, and it says more than 65 companies have adopted disclosure and board supervision.

Since shareholder activism may be Plan B for labor unions and liberal groups seeking to curb corporate money that might fund election efforts, I’m guessing we’ll see a lot more proxy proposals.

Of course, Plan C might be for Congress or the Securities and Exchange Commission to get into the act by requiring some form of disclosure or oversight of corporate political giving. Stay tuned.

© 2010 Johnson Strategic Communications Inc.

Pushback on ‘TBTF’

September 15, 2009

Propping up banks that are “too big to fail” with taxpayers’ capital doesn’t improve the US financial system or benefit bank customers – it just concentrates more power in the hands of a few giant institutions – Tom Hoenig, president of the Federal Reserve Bank of Kansas City, argues in this week’s Barron’s.

Noting that the 20 largest US banks already own 70% of the banking system’s assets, Hoenig says combining failing banks into bigger institutions only increases that concentration – in turn, further concentrating risk in a few megabanks.

Congress might consider whether the centralization of banking is a good thing as it takes up regulatory reform this fall. At this point, President Obama’s regulatory proposal seems to accept the “TBTF” mantra that has governed US policy so far – proposing to deal with the concentration of risk in megabanks by incrementally increasing their capital requirements, then taking them over after they fail.

Hoenig, the Federal Open Market Committee’s longest-serving member, doesn’t think TBTF is a healthy policy:

“I’ve seen banks close for making mistakes,” says Hoenig. “I’ve seen other banks too big for the regulators, being supported by the U.S. taxpayer. It’s harmful to the infrastructure, and sends the wrong message, that influence is what really matters. If we fail to address ‘too big to-fail,’ it will only get worse.”

Hoenig warns of “an oligarchy of interest” linking megabanks and the Washington power powers-that-be who use government policy to sustain them. Instead, Hoenig advocates more market discipline, decentralization and competition. Now there’s a radical idea for reform. But will it play in Washington?