Finance

Signature Significance: Bernie Sanders’ Ignorant Tweet

/ Jack Marshall / 26 Comments

Bernie tweet

Yesterday, the Democratic candidate for President of the United States, a long-time member of the United States Senate, tweeted this message to his “followers,” and also, given the nature of Twitter, the nation:

“You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”

Now, if you don’t instantly recognize why this is an astoundingly ignorant statement, especially for a Presidential candidate running on a platform of economic restructuring, that’s okay. Don’t feel badly. It’s a weekend, you’re probably groggy from all the holiday cheer, and most important of all, you aren’t presuming to hold yourself out as qualified to be President, or constantly lecturing about the evils of capitalism. Sanders is, however, and this cretinous statement is signature significance. Nobody who understands loans, interest, collateral, banking, or economics would say, write or publish such a fatuous statement, even once. This is signature significance: an informed, logical, attentive, competent individual will not make such a bone-headed mistake…never. Sanders, however, has said this at least twice; in October, he tweeted a variation on the same economically ignorant theme:

“It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages.”

Actually, it does, Senator; it makes perfect sense, unless you are twelve. The concept is called “collateral.” That is something of value that  a lender can take if a borrower defaults on the loan. The deal is interest, plus security, the collateral. A house or a car are tangible collateral, so the interest rate can be lower. When the loan is for college tuition, however, there is no collateral. If the borrower defaults on the loan, the bank can’t take the student’s diploma, or education, or download all of the alleged knowledge the loan paid for from brain to laptop. Of course the interest rate is higher. That is, “of course” if you know anything at all about finance.

The unavoidable and shocking conclusion: Sanders is holding himself out as the leader to revolutionize how the U.S. economy works, stimulate growth and jobs, and show the way to a fairer and more just financial system, yet he is stunningly uninformed about the basics of finance, hasn’t learned a thing in all his years in the Senate, and worse, lacks the diligence to learn what he has an obligation to understand in order to justify having a vote on economic matters in the U.S. Senate, never mind setting policy as President.

This is bad.

Is there any excuse or defense for that tweet? No. Should anyone trust an elected official this ignorant and so lazy and arrogant that he makes no effort to disabuse himself of financial illiteracy? No. Does such a bone-brained misunderstanding mean that no intelligent person should listen to or take seriously any of his pronouncements about the economy? Yes.

To be fair to the Senator, let’s try to find some explanation for this that doesn’t prove that he couldn’t pass Economics 101 at a community college: Continue reading →

If Only There Had Been More Like Her…

/ Jack Marshall / 2 Comments

Frank Navran, a friend, colleague and perceptive ethicist with a talent for teaching ethics with vivid stories, tells this one, a true case of integrity applied the right way, by the critical person, in a timely fashion:

While attending an ethics conference in New York in October of 2008, I decided to stay with friends in New Jersey. That meant riding the train into the City for my conference. On the second day of the conference, I happened to sit next to a young woman who was neither reading nor napping so I engage her in conversation. It started with a simple “Do you ride the train every day?”

She said that yes. she does ride the train every day, and had been doing so for seven years since she and her family chose to move to New Jersey “for the kids”. I asked what kind of work she did, and she replied that she  was the CFO of a mid-sized insurance company.  Now, recalling that this was the fall of 2008, insurance companies were in the news. And so I asked her how things were at her company. Her reply was, “Better than most”.

Now I was curious. “What does “Better than most” mean?”, I asked.

She went on to explain. “About three years ago I left AIG, where I knew my prospects for advancement were limited, and accepted an offer to become the CFO for my current company.  As a newly-hired CFO, one of the first things I did was to meet with my staff. When meeting with the gentleman who managed our investment portfolio I asked for a description of our holdings. He proceeded to sing the praises of our investment strategy which included a significant percentage dedicated to what he referred to as “securitized debt”.

She said she was not familiar with these instruments and asked how they worked. His reply was that they were AAA rated and were returning huge investments. Unsatisfied, she probed for details, and when he was unable to provide them, suggested that the “do his homework” and meet with her again in two days.

Two days later, when asked to explain securitized debt, he restated that they were AAA rated and very profitable but added that no one seemed to really understand just how they worked.

Her reply, she told me, was simple She gave him three months to divest the company of anything that he couldn’t adequately explain to her simply because she was not going to go before her Board and justify their investment strategy without understanding the nature of and workings of the instruments in which they were invested.

“In other words, she had integrity,” Frank concludes. “What a radical concept.”

Indeed. What the CFO did was not, of course, radical. It was honest, responsible and prudent. We can only imagine how different things would be today if there had been more executives like her when the financial sector was operating with mirrors,  winks, and sleight of hand.

<Sigh!>