No Confidence

I wasn't planning on writing this soon but the banker in me just had to bring up the new banking trend. Some of the biggest US banks began to inform their clients today on a new fee. In the past, if you had millions to deposit you looked for the bank that paid the highest interest rate, right? No more. Instead the new trend is to charge the customer a fee to deposit their money at the bank!

That's right, the rich, businesses or anyone wanting to deposit millions will have to pay for the privilege of banking at one of the bigger banks.





You thought the rediculously small interest paid on savings, money market accounts or CDs was bad - now customers and businesses have to pay the banks to hold their millions! You're better off putting it under your mattress.

I hate to admit this, but as a former banking consultant I can understand why banks are doing this. Basically there is too much cash floating around as investors are getting out of the stock market and real estate. In fact money is so prevalent that the Federal Reserve is charging the few banks that need to borrow money an interest rate of 0%. Yup, it is free to borrow but that isn't the problem, the problem is too much money.

Not to get too technical but banks have to balance out their Assets which are loans and cash on hand vs. their Liabilities of deposits and stocks.







Too much deposits and they can't make enough loans to balance it out. Businesses today are afraid to get new loans as the economy is uncertain and they are afraid of the future impact of Obamacare. There are few mortgages as no one is buying houses and the few customers who try for a loan are turned down as banks are being very strict. So banks can't turn the big deposits into loans today.

In today's economy, banks interest margin (the rates they collect on loans minus the rate they pay out on deposits)has been smaller and smaller. And now they can't even turn around and loan out the big deposits to earn even a small interest fee. Banks are making up that lost income by now charging customers a fee to hold their large deposits.

So I understand why this sort of makes sense from the bank's point of view. But I worry about the bigger picture. I don't like that we have all this excess cash. It is scary to think that people and companies are not investing in our future nor are banks helping out individuals or small businesses with loans.

Some analyst reviewing today's 512 drop in the stock market said it was a vote of no confidence in our future. I agree. For how can you blame anyone for shying away from investing in the stock market after the last few days of free fall and the jump in gold? Not to forget that Washington just agreed to more spending and more debt.

How do we turn our economy around? How do we give our citizens, and big and small businesses confidence in our future?


Unfortunately, does anyone truly believe our economy and unemployment will get any better considering who is in the White House? Or will confidence return only after we get a true leader? Preferably someone with real business acumen, someone who knows how to live on a budget like the rest of us do. Most of all, we need a leader who understands how to give Americans and American businesses the freedom to succeed or even to fail, then learn from it and come back stronger and wiser. Until then, add my voice in with all the others who are starting to shout "No confidence!"

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A Proponent of Profiling - Part 1

I have absolutely no sympathy for the people who are protesting the use of profiling. In fact I think the whole anti profiling ideology is a bit insane. Arizona borders Mexico. Mexicans are illegally crossing that border. And yet the Arizona police can’t actively look for these illegal Mexicans because that would be profiling which is illegal. As I said, this is insane.

When it comes to profiling, I should admit that I am a bit prejudiced because I made my career by profiling in the private industry. I worked for two seemingly opposite industries – casinos and banks. But in both cases the same rule applied, studying past behavior can predict future behavior. Before technology changed things, both industries would send out mass mailings to all their customers offering the same product or service. Not only was this expensive but it resulted in a low rate of people actually buying that product or service.

Starting in the late 80’s companies began to get the hardware and software needed to computerize customer information. A lot of data was now being generated and for some reason I had a knack in analyzing all of this data on past behavior and demographics. I was in at the start of Harrah's famed players club and then at Caesars Palace, Las Vegas. In these casinos, I would profile their customers using information gathered from their member’s card, put players into segments based on their gaming and where they lived and then determined what offer was needed to generate the most profits from each segment. Thanks to profiling I helped casinos make a lot of money.

In banking you could go a step further and predict behavior based on a customer’s demographics. It is just common sense. But then again so much of profiling is just that, common sense. Anybody would figure out that a 25 year old probably doesn’t have the money for CDs but would need car loans or mortgages. On the other hand an 82 year old probably isn’t interested in on-line banking or a car loan. As I said, simple common sense is a big part of profiling. Demographics however could not help predict how much a person would gamble, if at all. Perhaps the only indicators that were ever used were to exclude nearly everyone who lived in Utah as Mormons didn't gamble but target people in Chinatown to visit when the casino was empty at Christmas. Otherwise neither age, income, race nor any other demographic indicator helped in explaining gaming habits. Luckily, demographic data does help in profiling almost every other kind of company.

It’s not just banking and casino who profile their customers. Every sophisticated industry has been doing this for years. Why do you think so many businesses now offer some kind of membership card that you show when making a purchase? This is used to collect data on your behavior and many companies will also include your demographics in their profiling of customers. How do they know your age, income, education etc? They send their customer file of names and addresses to outside companies who specialize in obtaining specific information about everybody. This data is retrieved from a variety of sources including all that information you provide when filling out warranty cards for example.

The company I once used to provide demographic data on bank customers guaranteed an 80% match. They could provide a bank with detailed information such as age, home value, race, marital status and even type of car you owned on up to 80% of every customer. Combining demographic information with your buying habits allowed us to accurately profile you. Based on that profile you will be sent offers that are targeted specifically for you.

So is this profiling a bad thing or is it simply good marketing? The truth is, for the most part, people love it. If CVS knows I frequently buy Coke then why would I be upset if they often give me coupons for Coke? It’s a win-win situation. You get offers for products you actually use and need and the company makes money. Everybody is happy – thanks to profiling. There is, however, one major drawback.

When profiling their customers, businesses often use outside companies that specialize in this. In fact that consulting team I managed was with a company that specialized in the financial industry. Now in order to profile First Federal Bank’s customers we needed two types of data – past behavior and demographics. Past behavior was obtained by having First Federal send in their computer files with all of their customer’s information. That’s right. Your banking data (name, address, SS, credit card numbers, bank account numbers, how much you had in your accounts, loan info etc.) could very well be sitting in some third party business office or worse on somebody’s laptop that they take home. And you would never know. Of course these third party businesses are supposed to follow tight security rules but I could walk through my old offices on any given day and see tapes or CDs with bank data sitting openly on people desks or PC's with bank data on the monitor and no one at the desk.

But it gets worse. In order to get that demographic data the company I worked for had to then send the names and addresses to yet another company. Granted, we never sent anything other than just name and address but nonetheless this information was being passed around and when returned contained specific demographic information about each customer. Shortly before I retired there was a scare when this demographic provider was hacked. There were also frequent news stories about other companies which had been hacked or worse, a laptop with all the customer data was lost or stolen. This is a serious problem but it is a security problem, not a profiling problem. Tighter security or providing companies with a means to profile their customers in-house will resolve this issue.

Profiling in the business sector is a win-win for everybody. Companies send offers targeted to you specifically and in doing so reduce their expenses and increase their profits. Everybody wins. So why is profiling considered to be atrocious in the public sector? Since I got rather carried away talking about business profiling I will tackle this question in my next blog.

Czar Takeovers

Ronald Reagan started it with one. Clinton increased it to three and the last president upped it to four. Our current President, however, has gone over the top with 16 and probably more to come. Of course I am talking about Czars. What started out innocently in Reagan’s day with a Drug Czar has become a dark and disturbing trend under this President. It seems that Obama is announcing new Czars all the time and no one seems to care. Yet you should. In fact you should be very very frightened.

One of the latest Czars to be announced is the Pay Czar. According to the Wall Street Journal “The Obama administration plans to appoint a "Special Master for Compensation" to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.” That doesn’t sound too ominous however later in the same article the WSJ reports that “The government is also pursuing a separate revamping of financial-sector rules that could change industry compensation practices more broadly. For instance, the Federal Reserve is considering rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank”. Excuse me? Who will decide if the pay is threatening? The government? And notice they now are targeting "employees" and not just the executives!

Forget what you hear on TV. Yes some of the large Banks pay exorbitant amounts to the top tier of executive but that is only a handful. Before all of this, Banks were actually known for handing out great sounding titles but paying low salaries. Now add in the new Pay Czar and his rules which will be applied to all of the employees, not just the very top tier. Can’t you just see some poor teller making less than $25,000 a year being told that she won’t get a raise this year because it would “threaten the safety and soundness of the bank”? No raise this year? Sorry, not management’s fault – blame it on the Pay Czar. Oh yeah, this is going to happen alright.

If the Pay Czar can regulate bank salaries, what industry is next? When will this unelected Czar with unlimited powers start to reach into your pocket and affect your salary? And if not the Pay Czar there is sure to be one of the other 15 Czars who will affect your life, your salary, your expenses and your family. Oh yes, and your computer with one of the latest Czars, the Cyber Czar although not sure how the Cyber Czar differs from the Technology Czar.

How soon before the Cyber/Technology Czars start to control the internet? Will there be a day that I am told that this blog “threatens the safety and soundness” of this country? That perhaps speaking out against the government will be a hate crime or maybe that will fall under the Homeland Security Czar.

Will the Health Czar reach into your home, your life, telling you what doctors you can see and what food you can eat? Hey don’t laugh. They are already doing the latter – controlling what you eat. They got rid of trans fat, whatever that was, and are now discussing taxing unhealthy foods such as soda and candy.

All of these Czars are working for your own good, of course. All because they don’t trust you, the public, to make the right decisions so the Czars will make the decision for you. What foods you can eat. What cars will be available for you to drive. What salary you should earn. Coming soon – what doctor you should see. And on and on and on.

In case you are curious, here is a list of the Czars announced to date. Just reading the titles of these Czars gives me a chill: Drug Czar, Energy and Environment Czar, Homeland Security Czar, Health Czar, Urban Affairs Czar, Economic Czar, Regulatory Czar, Technology Czar, Government Performance Czar, Border Czar, WMD Policy Czar, Intelligence Czar, Car Czar, Great Lakes Czar, Cyber Czar.

In total, these Czars control over $1 trillion. But no one voted for them. No one vetted them. Congress never approved them. They have broad powers. They can make a law, police the law, and determine penalties for not obeying their law. They are all three executive branches in one person, one Czar. And they serve only President Obama. Now are you frightened?