Thursday, July 5, 2012

A Simple Cure for the Banking System

by Margaret Heffernan
This article is reprinted from the Huffington Post. Visit
We bailed out the banks because we couldn't afford not to. We award absurd salaries and bonuses to bankers because we think we can't function without them. In any other context, being made to do something you know is wrong is a crime called blackmail; in banking it appears to be normal. But it doesn't have to be this way. 

We feel ourselves to be at the mercy of the banks because they are so big. But that is also why they go wrong. So why don't we just make them smaller?

A recent study, funded by the Rockefeller Foundation and the Global Alliance for Banking on Values (GABV) compared the performance between 2007 and 2010 of 17 values-based banks with 29 Globally Systemically Important Financial Institutions (GSIFI) as defined by the Financial Stability Board. The value banks are smaller, mission-focused banks like credit unions, Triodos and Handelsbank. The globally significant banks are 'too big to fail' and include Bank of America, JP Morgan, Barclays, Citicorp and Deutsche Bank. 

And guess what they found? The value banks did more for their customers and were financially stronger. "Values-based banks were twice as likely to invest their assets in loans, lending more than 70% of their assets during this period on average. The values-based banks also appear to be stronger financially with both higher levels of, and better quality, capital. The BIS 1 Ratio, an important measure of a bank's solvency, averaged over 14% during the period studied, compared with under 10% for the mainstream banks. The sustainable banks also had an average Equity/Asset ratio of over 9% while the GSIFI banks averaged just over 5% during the period covered." In other words, the smaller banks were less likely to fail. 

Even more important, the smaller banks also delivered better returns: "Return on Assets, the measure increasingly considered most relevant for judging a bank's financial performance, averaged above 0.50% while the big banks earned an average of just 0.33%. Values-based banks also had returns on equity averaging 7.1%, compared to 6.6% for the GSIFI banks."

The report argues that what accounts for the success of the values-based banks is their values. They're embedded in their communities, have transparent governance, enjoy long term relationships with clients and pursue a triple bottom line that won't trade off performance for social impact. And it argues that having these values at the heart of the organization makes them stronger and better. 

I couldn't dispute any of that but I think the report overlooks something so obvious it's easy to miss. These values-based banks are not huge. They are small. That means that the values they pursue are not just statements posted in reception and left to gather dust. It means that personal relationships - between employees and reaching out to customers - are up close and personal. It means that oversight is actually feasible. And it means that titanic, market-shifting deals are impossible. 

Many of the problems posed by the banks derive from their sheer scale. Because they are so vast they can move markets. Because they're huge, they reap enormous profits which then fuels big salaries and giant bonuses. Because the institutions are so mighty, the people running them feel themselves to be immensely powerful. The money and the power both change the way that people think and both work to move leaders ever further away from engagement with society. 

The executives who go astray inside these institutions don't start off as market manipulators; the money and power that size brings changes them. It's easy to cast stones but the truth is that most of us, given the rewards, status and flattery that surround these positions, would find it impossible not to start believing that we were gifted, brilliant and virtuous; it would require the psychological defenses of an elephant not to. The institutions make these people, not the other way around. 

Much has been said and written about the need to change the culture of high street banks. I think these motherhood statements are naïve at best and disingenuous at worst. Everyone in business knows that culture is the hardest thing in the world to change. Think about it: most fat people want to get thin and can't. Most people want to save and don't. Changing human behavior is so unbelievably difficult that there is an argument as to whether it is possible at all. The idea that a vast institution the size of Barclays or RBS or HBOS can change the behavior of every individual it employs is a fantasy.

You cannot achieve cultural change without structural change. This is the central truth that everyone - bankers, regulators, politicians, economists and pundits - have been willfully blind to now for years. It's about time we stopped fooling ourselves and put an end to this painful economic fiasco. Rules won't change banks. A few resignations won't change banks. Inquiries won't change banks. And cultural change is beyond us. Break the banks up and they won't be too big to fail; they will - finally - be small enough for success.

 About the Author:  Margaret Heffernan is the British author of Willful Blindness: Why We Ignore the Obvious at Our Peril and How She Does It: How Women Entrepreneurs Are Changing the Rules of Business Success. Both books are available on

Thursday, June 21, 2012

American Consumers are Tired of Waiting for a Recovery

By Thomas Hinton

This week, the Federal Reserve lowered its 2012 recovery expectations stating job growth and the much anticipated business rebound wasn’t going to happen. Chairman Ben Bernanke announced that despite historically low interest rates, fewer jobs will be created than expected and the U.S. economy will only grow by 2.2% this year. His revised projections are not good news for consumers or incumbents.

Consumers had high hopes that the American economy would begin to rebound after five dismal years, but that won't be the case in 2012. Why not?

Blame it on Wall Street, the Congress, President Obama or even the European mess – but, regardless of whom we blame, the stark reality is consumers have lost faith in the political process and those institutions that were supposed to protect us from the economic calamity we’ve suffered through since 2007. This is more than just a political or economic crisis, it's an institutional breach of faith.

Furthermore, the economic game has changed. Nobody seems to have any meaningful answers or long-term solutions. We've not heard anything to date from President Obama or Governor Romney that suggest otherwise. This is why consumers are unwilling to loosen their purse strings and open their wallets. Until we can see positive trends in job growth, a solution to the housing crisis and the reappearance of Main Street shops, consumers will be content to sit on the sidelines and not spend their limited funds.  While there are a few notable exceptions to consumer spending such as paying off credit cards, replacing the old clunker with a new or used car, taking a family vacation at a nearby destination and taking on student loan debts, for the most part, consumers are not willing to spend money on major purchases that can wait.

And, let's not forgot, that America’s economic troubles are being exacerbated by our "too big to fail" banks that once again have invested heavily in questionable foreign investments. Economically speaking, the world looks like a row of thin dominoes just waiting for an ill wind. If Greece, Spain, Italy or Ireland fails, we could all tumble into the economic abyss. As silly as it sounds, this unwelcome global investment scenario appears to be the price we will pay for propping-up irresponsible nations and "too big to fail" banks that want to play in the big leagues of global economics.

And so, as John Mayer’s song lyrics goes, “We keep on waiting, waiting on the world to change.” The only problem is the world is not changing. It hasn't learned its lessons from six years ago and we continue to make the same economic blunders over and over again. Is it any wonder, our economy remains flat and consumers are frustrated?

Given America’s current economic struggles and the dismal performance of our elected leaders to improve our plight, there's a good chance consumers will rise-up on Election Day and "vote the in's out!" We're frustrated with Washington's continued hype and  we're tired of waiting for a recovery that might never come. Certainly not if we stay the course.

About the Author: Thomas Hinton is president of the American Consumer Council, a non-profit consumer education and advocacy organization with over 128,000 members in all 50 states.  Contact:

Monday, April 30, 2012

Why Kellogg's Kashi Cereals are in Trouble with Consumers

Apparently, Kellogg’s Kashi cereals are not as natural as their advertising and website says they are. Last week, after a Rhode Island green grocer pulled Kashi cereal from his store shelf and posted a note explaining to consumers that Kashi used genetically engineered, non-organic ingredients, hundreds of consumers protested claiming Kellogg was misrepresenting its products’ contents.

Kashi’s general manager, David DeSouza, responded by saying, “The FDA has chosen not to regulate the term natural.” Kellogg defines natural as “food that’s minimally processed, made with no artificial colors, flavors, preservatives or sweeteners.”

Sorry, Mr. DeSouza, but that wobbly explanation just won’t cut it with today’s sophisticated green consumers. The problem for Kellogg and Kashi is not with how the FDA defines the term natural. Rather, the problem is with how consumers interpret natural and, certainly, it doesn’t include genetically engineered soy in cereals. This is something any 8th grader would understand let alone a large corporation like Kellogg.

So, yes, Kellogg and Kashi now have a growing credibility problem with their once-loyal consumers because – as Roger Nyhus of Nyhus Communications suggested – they fudged on some very basic terminology used in their advertising and packaging. Natural is natural. It cannot include genetically engineered products or by-products.

If Kashi wants to restore its trust with consumers, they need to move fast and correct the problem by changing the language on their cereal products, apologizing for getting it wrong and provide an incentive to green consumers to come back to their brand. And, let this be a lesson to other companies that play with terminology and language in order to mislead consumers into thinking they too are naturally green.  

About the Author: Thomas Hinton is president & CEO of the American Consumer Council, a non-profit consumer education organization with over 125,000 members. Contact:

Saturday, April 14, 2012

Returning America to its Capitalistic Roots

by Thomas Hinton

It should come as no surprise that consumers are frustrated and downright angry at corporate America. We’re especially angry with big banks and big oil. After five years of economic hardship and financial carnage not much has improved for the average consumer. America’s economic forecast is cloudy at best.

There’s a lot of blame to go around for the economic mess we’re in, but at the root of our financial problems is the growing culture of greed that permeates Corporate America and, specifically, big oil and big banks. The One Percenters, as they’ve been labeled by the Occupy Wall Street movement, have grossly misinterpreted what American capitalism is all about.

The corporate vultures do not represent the best economic interest of our nation, nor the world. In fact, they represent what is blatantly wrong with America, and their behavior is both disgusting and criminal. I do not use the word criminal lightly. Their misdeeds and governance actions have undermined the basic freedoms guaranteed to every American as prescribed in our Constitution and the Declaration of Independence, our nation’s two most sacred documents. When the basic rights of Americans – life, liberty and the pursuit of happiness – are compromised by corporate malfeasance under the pretense of a company’s right to make a profit, government has both a responsibility and obligation to protect the interests of its citizens. Regrettably, this is not happening because our elected officials have been unduly compromised by lobbyists and brainwashed into believing a big bank, insurance company or automaker is too big to fail. Such thinking further undermines the basic tenets of American capitalism.

We all know who these corporate culprits are. Their corporate names are household words. Their signage and logos adorn skyscrapers and buildings in every major city across the nation. Many of these companies are led by unindicted crooks who knowingly endorsed programs, schemes and policies that undermined the housing industry – the most sacred cornerstone of the American Dream, created epic levels of unemployment and under-employment, and stripped millions of American of their financial dignity by manipulating investment markets that eroded retirement plans and savings accounts.

All of this happened under the blind eye of our federal government and elected officials. Our federal and state governments have done little to hold these corporate leaders accountable for their brazen abuses or protect consumers from another financial meltdown. While the nation’s attorneys general should be applauded for their efforts to sue big banks in an effort to help distressed homeowners, President Obama and the Congress continue to reward these corporate culprits with government bailouts and gentle slaps on the wrist. Is it any wonder that so many Americans have lost faith in their leaders and their ability to initiate meaningful change? Is it any wonder that consumers are frustrated, angry and bitter about their dwindling economic prospects let alone the economic prospects of our children?

Five years after the financial debacle was perpetrated by big banks with the approving nod of the Federal Reserve, SEC and other federal agencies, millions of Americans remain mired in the economic mud created by investment houses and big banks. It continues to be a very slow and painful financial recovery for millions of consumers; and, all of this is happening while big banks and big oil amass outrageous profits at the expense of struggling America’s consumers.

Can consumers do anything to stop this harmful trend besides transferring their bank accounts to credit unions and limiting their driving so they buy less gas? I think the answer is a resounding yes! Consumers ultimately control the power of the purse and the economic fortunes of a nation because we can choose where and how to spend our money. We can also choose to dethrone those elected officials who contributed to our economic misfortunes. In the final analysis, consumers can regain control of their economic destiny by standing up for what is right with America and demand big banks and big oil honor the true spirit of American Capitalism – making a fair profit while raising the fortunes of society.

About the Author:
Thomas Hinton is president of the American Consumer Council, a non-profit consumer advocacy and financial education organization with over 126,000 members. He can be reached at

Friday, January 27, 2012

Why Aren’t Southwest and Spirit Airlines aboard the New Truth-in-Advertising Rules?

This week, Ray LaHood, the Secretary of the United States Department of Transportation, announced new rules that require domestic airlines to include all taxes and fees in airline ticket prices. These new rules are common sense and are good for consumers.

Surprisingly, Southwest, Allegiant and Spirit Airlines are resisting this “truth in advertising” policy by suing the US-DOT over the new rules. The airlines are arguing that the new requirements make the rules for the airline industry more stringent than any other. That’s utter nonsense! The fact is consumers are fed-up with the airlines lousy service, unfair pricing rules, non-disclosure of upfront costs for baggage, meals and ticket changes. This is why Secretary LaHood and US-DOT should resist any changes to their new rules. Consumers deserve honesty and full disclosure from the airlines.

Frankly, I’m surprised by Southwest Airlines’ involvement in the lawsuit. As one who regularly flies Southwest, I think it might tarnish their otherwise sterling reputation. Southwest Airlines has been an industry leader and a role model for domestic airlines in many ways – their consistent profitability, a very strong safety record, low fares, free baggage, customer-friendly flight attendants who know how to make passengers smile and laugh during the safety announcements, and the most user-friendly website in the industry, bar none.

On the other hand Spirit Airlines has earned a reputation for nickel-and-diming its passengers for everything! So, their position in the lawsuit is understandable. They want to continue to lure prospective passengers onto their website by disguising low fares before hammering them with various fees and charges after passengers have purchased the ticket. These are the very types of unfair pricing tactics that Secretary LaHood is trying to stop.

In fact, Spirit Airlines and AirTran Airways, which is owned by Southwest, were fined a combined $90,000 for violating the pricing rules in advertisements such as emails, tweets and on their websites. Allegiant Airlines was fined in 2009 for not including a convenience fee in initial fare quotes. Need I say more?

The airlines have had their way for too many years. They have consistently practiced unfair and devious pricing schemes to lure passengers onto their flights and making record profits in the process. But, a growing number of complaints by consumers prompted the U.S. Department of Transportation to implement new rules which are based on fairness, truth-in-advertising and full disclosure. Frankly, these new rules are long overdue and the airlines ought to quit their pouting and do the right thing by consumers.

The turbulence surrounding the new Department of Transportation rules amounts to little more than belly-aching from the airlines that must now be honest and forthright with consumers. It’s one more reason why a strong government watchdog agency like the U.S. Department of Transportation is necessary. Without such rules in place, airlines would continue to use unfair pricing tactics and unscrupulous methods to lure travelers onto their planes. Am I exaggerating? Not at all! Just read what the lobbying group, All Airlines for America (A4A) stated in the legal brief they filed with the D.C. Court of Appeals in support of the lawsuit by Spirit, Allegiant and Southwest Airlines.

In its legal filing, A4A said, "ATA members share DOT’s stated objective of ensuring that customers are treated fairly and consistently, receiving the products and services for which they have paid on the basis advertised to them. But ATA members do not share DOT’s unstated, but apparent, goal of holding airlines to much higher standards of conduct than prevail in other deregulated industries."

In other words, the airlines don’t like being held accountable to the same common sense practices and fairness standards that American consumers expect from every other industry. Are you kidding me? And, remember, folks this is the same industry that has gutted its workforce, stripped its talented and dedicated employees of fair wages and benefits and moved to decertify its unions. No wonder consumers are frustrated and outraged at the questionable pricing practices used by so many of our nation’s airlines. Perhaps, the airlines should simply mind their Ps and Qs and be lucky Secretary La Hood isn’t pushing for re-regulating the airlines!

About the Author:
Thomas Hinton is president of the American Consumer Council, a non-profit consumer education organization with over 120,000 members. He can be reached at