Global Province Letter:  It’s Not My Fault: You Should Have Known
April 21, 2010

Highway Robbery. Once upon a time, we wondered whether the stagecoach would get through.  In the 19th century Wells Fargo was the king of express and stagecoach services, proudly out-maneuvering bandits at every turn. But in 1905 it got out of the express business, deciding then to be just a slimmed-down Western banker.

As near as we can see, it learned a fair amount from the gunslingers who once held up its coachmen.  Over the last 100 years, it’s become pretty darn good at picking our pockets.  The other day, at the behest of one of their tellers, we went to Wachovia’s (now a Wells subsidiary) ATM to buy a packet of stamps. We’re lazy, you see, and this saved us a 2-minute walk next door to the post office.  Only later on did we finally realize we had shelled out $9.54 for a $7.92 packet of stamps.  That’s the kind of mark up they’d charge you at a pawnshop, but not at a bank, or so we thought.

Bone pickin’ old Wells has other crafty ways of achieving even better returns. It has some automated schemes that will make you feel like you are losing money in a Las Vegas casino. We refer you to “What You See Isn’t What You Owe.”  New York Times, April 11, 2010, p.Bu.7. One Heather Gramp of Portland, Oregon, reports:

 A few months ago, I borrowed about $5,000 through my Wells Fargo line of credit and promptly paid it back, plus interest in a couple of weeks…The vigilant consumer that I am, I looked at my account for several weeks, just to be sure I had paid off the whole loan.  Each time, the balance in my line of credit account was zero….A couple months later, a Wells Fargo collection agent called and spoke to me as if I were a felon.  Seems I actually had owed about $30 in that line of credit….I also owed $117..in late fees.

Zero did not mean zero.  It seems that there was a hidden attachment buried in the computer that made her a candidate for debtor’s prison.  She should not, it seems, have believed what the main page told her.  A Ms.Westermann at Wells said Heather should have known better, and that there was no way technologically of providing the right data in plain view. Through avarice and mismanagement, Wells has devised ways to rake in a few more millions.  And notice, it is not the fault of Wells, according to its minions.  You, the customer, should have known better.

 Yet the truth is that Wells, as big banks go, is not even the worst of the pack. Bank of America, which used to be just across town from it in San Francisco, knows how to fleece you coming and going: its individual profit centers seem to go their own way, doing acute mischief to retail customers.

We’re Not to Blame.  Frank Rich, who has a flair for the dramatic since he used to do theater criticism, is now a middle rank political columnist at the New York Times.  But he hit a home run with “No One is to Blame for Anything,” New York Times, April 11, 2010, p.Wk 10.  Adroitly he points out how Alan Greenspan has tried to wiggle out of the obvious:  the Green one probably is the single most responsible figure for the breakdown of America’s banks and the implosion of the world financial system, always throwing more cash at every bubble, and giving free rein to the hedge fund operators, private equity cowboys, and sub-prime alchemists who laid us low.  The Vatican, as the indignant Frank suggests, is trying to duck blame for the worldwide sex scandals that have so tainted the Roman Catholic Church.  Robert Rubin—high at Treasury and at Citicorp—does not feel accountable for the ongoing financial meltdown.  Rich also names a whole raft of assorted poltroons who have fouled things up and then blamed others, often their customers, for the devastation they have wrought.

Rich is far from thorough in his reportage and generally hurls most of his brickbats at right-wingers, often giving a pass to lefties.  The fact is that both the Bush and Clinton administrations failed miserably at home and abroad.  They both reacted to Middle East terrorism and other events in ways that cost us and the world dearly in terms of lives and treasure.  The two decades since the Cold War ended have been wasted; this was an era in which world security and the world economy could have advanced.  Instead, we have regressed, and our middle classes have taken a tremendous hit that adds up to a 20-30% decline in their standard of living.  And we will continue to regress as long as leaders don’t own up to their personal failures.

The Toyota Case.  We’re still not clear just what causes the unintended acceleration afflicting Toyota’s cars, though we strongly suspect that its internal software has bugs aplenty.  What we can better understand is that the whole company has suffered from two decades of uncontrolled acceleration.  This becomes clear if one merely gives a close reading to “Inside Toyota, Executives Trade Blame Over Debacle,” Wall Street Journal, April 14, 2010, pp. A1-A18.  For most of its history that company has been led by members of the Toyoda family.  In the 1990s the company’s performance was lagging:  non-family members took charge of the company from 1995 through 2009, virtually overlapping the Clinton-Bush period of flounder in the United States.  They successfully pushed growth—exponential growth in volume and profits.  By the numbers, it was an amazing period in which Toyota became the world’s number one car company.  But at a tremendous cost. 

Current President Akio Toyoda argues, successfully we think, that standards, and values, and quality went to hell in a hand basket during this period. Jim Press, onetime U.S. head of Toyota, puts it succinctly.  “The root cause of their problems is that the company was hijacked, some years ago, by anti-family, financially oriented pirates.”

Of course, those pirates would argue that Akio Toyoda is the source of the current malaise. In their eyes, there’s not much wrong with the company: it’s just that he’s a poor communicator and not fit to run the company.  In keeping with Mr. Rich’s thesis, they blame themselves for nothing. The facts, however, seem to argue against them.  Insidiously, quality in all its dimensions has declined at Toyota. The ills of the company do not stem from ‘a failure to communicate,’ but are better traced to moral breakdown.

Quality Products.  We wonder, with the endemic decline in quality characterized by moral decay, patchwork systems, flawed engineering, cheap materials, lack of critical redundancy, and progressive humiliation of laborers, whether this collapse does not also underlie the gridlock of major governments and the immobility of several developed economies. Toyota’s predicament merely seems to be a vivid example of something more widespread—a failure in will, and ideas, and strategy, and purpose in the highest councils of most of the developed societies.  Ultimately you have to sell something worthwhile now and in the future, rather than unconscionably jacking up the price of stamps produced by somebody else. 

Probably that will be the story—at the end of the day—for Wal-Mart.  It is the world’s most important company.  It has brought cheap goods into hamlets whose denizens don’t have a lot of nickels in their pockets.  But, as we often discuss in the Wal-Mart section of the Global Province, this great company ultimately takes the heart out of any quality good that sneaks onto its shelves—or, failing that, excludes anything that’s too good from its stores. Even as it does smart and strategically appropriate things such as expanding in fast-paced developing nations such as China and India.  When its cheapie ethic takes hold of a people and the innards of products turn to dust, you suddenly find that every Tom, Dick, and Harry is ready to say, “It’s not my fault.”  It’s somebody else’s. The second-rate authors of mediocrity and decay are always very anonymous.

P.S.  Hiking up the price of stamps is not the only way our big money center banks have made a fistful from the largesse of the U.S. government and U.S. taxpayer.  It is commonly known that the banks, for instance, would simply no longer exist if the government had not bailed them out during the recent financial crisis, which was largely created by our commercial and investment banks.  During the whole of Alan Greenspan’s tenure as Fed Chairman, cheap money was thrown at the banks which then often went on to reap profligate profits by simply re-investing the funds, not even having to work for their money.  Our financial sector is rather out of control even now, and, as observes Paul Volcker and others, it is has grown all out of proportion, diverting resources away from more economically productive activities. Until derivatives and numerous other financial instruments are brought under control, we’re gravely at risk.  In this sort of world, China’s currency controls, the target of much vitriol, have served that country well, insulating it from some of the malignancy in the world’s financial system..  The major lesson here is that financial types should never be allowed to rule the world:  they can sort of keep score, but surely they are not meant to run anything.

P.P.S.   These days you are likely to see a Loomis armored car pulling into a Wells Fargo branch or even an ATM location. The banks have outsourced core functions (guarding the store and guarding assets) to sundry intermediaries, so we should wonder if they now even have the core expertise to do what they should do well—take money in and give money out.

P.P.P.S.  Analysts and money managers offer up all sorts of complicated criteria by which to judge potential investments.  We used to bet on smart guys, thinking that would make us a nickel.  But the world has changed.  As we said in our March 4, 2009: Investment Outlook 2009: The Second Great Depression,the over-riding consideration in picking an investment manager, an investment deal, or a company to back is “honesty.”  Men of character are the best hope in times when so many are not only fibbing to us but also lying to themselves.  We’re working up a new investment outlook now, and see a need to move some monies into a few of the developing economies that are genuinely experiencing GNP growth.  A few of them avoided some of the recent  financial chaos.

P.P.P.P.S.  The Tea Party thing is complicated. In many senses, we are dealing with large numbers of fairly well-heeled Caucasians that feel disenfranchised, who sense that power is slipping away from them to new emerging groups in our society.  What the reporters on this movement miss, however, is that its ire also springs from a real decline in the country’s fortunes.  Substantial numbers of people sense that their standard of living in this country has declined, because their dollars buy them so much less and because the infrastructure they have depended on—healthcare and cops and parks and education—no longer gets the job done for them.  We suspect the first erosion in our quality of life set in during the Kennedy-Johnson period and accelerated handily during the Reagan Administration.  We need a historian to look hard at the data.  The problem here is more profound than the growing gap between the rich and the poor.  What has happened is that the public good has suffered so much that life in the United States has come down a notch or two.  Ironically huge private wealth has accumulated, but the whole balance sheet of the public sector has deteriorated.  Moreover, although the chieftains of financial intermediaries have piled up undeserved wealth, the real economy of consumer goods and capital equipment and infrastructure has not been growing very well.

P.P.P.P.P.S. Many years ago we advised one of the country’s major broadcast networks.  Certain of its network and cable operations were making a lot of money.  We asked the executive in charge how he was minting so much money.  The answer, in short, was cheap programming.  For instance, he plugged in a lot of talk shows.  That’s why today we have to listen to a lot of loudmouths:  people will listen to such fare and it’s cheap.  But, of course, it does not educate or nicely entertain, and much of it divides the nation, casting citizen against citizen.


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