Unemployment, Real Estate and Banking

I would rather be hated for what I think than loved for what I do not. I have particularly sought to put this slightly modified maxim into action in recent years. The public is so confused and edgy, that I recently managed to anger people on the right and the left by comments I offered at recent public forum on job creation. Experience has taught me that we need to communicate most about those matters which trouble us most. I talked about quite a few subjects, but it was my comments on unemployment and real estate that provoked anger.

The most disturbing macro trend of my 28 year banking career has been the concentration of economic wealth and control in large banks and the public sector. Whether exercised through large corporations or governments, centralized financed is politicized finance. It should not surprise anyone that public sector resources are directed by and to those who are most politically powerful. Wall Street has no political convictions beyond owning the winner’s favor. Washington has no economic convictions other than “to the victor belong the spoils”. Anticipating, influencing and responding to the political winds can be extraordinarily profitable. Public officials face enormous temptation to manipulate and direct the activities of systemically relevant corporations. For public officials, this is the proven path to power and wealth. I am frequently asked about the Occupy Wall Street (OWS) movement. I sympathize with the anger directed at the megabanks. I know well the damage they do to their customers and to the common good. It is a little hard to get a handle on the OWS intentions beyond anger. It strikes me that they are frighteningly naive about the corruption and incompetence endemic to governmental control. The Tea Party members I know seem to be sincere decentralists, but seem dangerously unaware how Jeffersononian impulses are co-opted to serve the interests of crony capitalists.

Being a community bank with material relationships with around 25% of the private companies in our area provides us with a lot of access to people and their financial circumstances. There is a degree of candor that goes with our market position. We do not discuss individual private information publically, but we do periodically attempt to explain in public the general themes we hear and observe in private. I gave three talks that day on similar subjects, so I am going to take this opportunity to restate my gleanings from the thousands of conversations and data points that are part of the life of this community banker.

We have two very different unemployment problems. There are many diligent young people facing discouraging job searches, but the challenges of the middle age person with family obligations are particularly painful. In a culture where the wisdom of the years is devalued, the declining physical strength and higher health care costs of 40,50 and 60 year olds, cause many employers to avoid hiring the more experienced person. Many such job seekers are facing a cut in pay and bring the increasing burden of health care costs for a family to the search. Employers don’t make decisions on wages paid, rather expected costs incurred. Age discrimination is illegal, but we all know it happens. The more that health care costs are shifted to private payors, the more discrimination we will face based on age and family size. I have not yet personally faced these challenges, but like most of you, I know quite a few families who have. The social safety net exists to help needy people with food and housing while they find solutions. The other unemployment problem is that of the person who by design or default has concluded that they are owed housing, food, health care, transportation and a smart phone for being alive. This entitlement mindset makes work a lifestyle choice rather than a necessary responsibility and a source of human dignity. My comments at the forum were an attempt to articulate what I hear and observe from those companies who have the resources to hire people. They were not offered to offend anybody, but to shed light on a very real problem. We need to find a way to differentiate in our public safety net between the truly needy and chronic freeloaders. I said it then and I mean it now.

I also said we need to pay attention to our core industries which I identified as paper, food processing and specialized equipment manufacturing. I noted that many people work in health care and as public sector employees. Health care and public sector employment are very important services, but they are not the sources of economic surplus from which such necessary services are funded. I am not opposed to green energy initiatives, but, as they still require massive public subsidy, they are also not a net source of the surpluses necessary to fund the social services we need. I then turned to the interrelated problems in the real estate and finance sectors. Both industries remain very troubled. The solution is not to reinflate the bubble. When the dust settles, we need a more humble understanding of what the finance, insurance and real estate industries should be. Banks should not imagine that they create economic value through clever financial engineering. They should be modest intermediaries between those with surplus funds and those with worthy credit needs. When finance gets complicated, it always turns ugly. Likewise the real estate industry should not think of itself as the fountainhead of economic prosperity. Buildings are places within which people live, work, eat, play and pray. To construct and maintain such places well is a very important and noble way to earn a living, but in a low growth state, the real estate sector facilitates rather than creates economic activity. To paraphrase Warren Buffet, “we can’t all just feed each other pizzas”. What does the real economy of this region look like? What can and should it become? Who will and should invest in our future? As we search for a time of greater opportunity, these are the questions we must answer.

I don’t wake up in the morning intending to say things that offend people, but I have long since reconciled myself to the responsibilities of a committed community banker. A good bank seeks to contribute to a healthy community’s self understanding. Most of our work occurs in private, but in these times of turmoil, we have made a conscious effort to contribute to the public’s understanding of the crisis we face. We do this by giving public voice to the general themes we see and hear in private. This might not be textbook PR, but it is good community banking. The emotion unleashed by my comments reflects the depth of confusion, anger and despair we face. I used to think I worked in the private sector on economic matters. We are now trending toward the complete fusion of economics and politics. I hope cooler heads prevail, but in the meantime we will do what we can to offer the informed perspective we have.