While You Were Working - August 4

Financial markets did some good

I get some criticism from time to time about how cynical this column can be about the financial services industry. I always respond by making two points:

  1. I am an equal opportunity cynic. I take shots at banks, policymakers, taxpayers, etc. If something silly is happening, I write about it.
  2. There is so much silliness going on, that a bit of cynicism is actually healthy. After all, if you aren’t at least a little bit cynical about the financial services industrial complex, then you haven’t been paying attention.

Now that we got that out of the way, I want to highlight an instance of financial markets doing some good.

The World Bank is ratcheting up its issuance of catastrophe bonds; and markets are snapping up the coupons. This is a shining example of financial engineering doing its part to solve a critical need for poorer countries that don’t always have funds readily available to handle natural disasters or the sometimes long-tail effects of said disasters.

After issuing $2.5 billion in catastrophe bonds over the past decade, the World Bank has now issued nearly $1 billion in such bonds in the last two months. What this really amounts to is World Bank President Jim Yong Kim simply keeping his word. He explained at this year’s Milken Institute Global Conference that the bank looking to boost its profile and become a front-of-mind option for individuals and firms looking to invest – and do some good – in poorer countries.

And those investors aren’t making out too bad either. The bond coupons on this latest issuance range from 4.12% to 8.92% above the six-month U.S. dollar Libor.

And now back to your regularly scheduled cynicism…

Wells Fargo has now settled a case about how it ripped off military veterans when they refinanced their mortgages and then covered up its actions when it applied for federal loan guarantees. Re-read that last sentence and let it sink in for a while.

Is it still sinking in?

Wells Fargo ripped off veterans and rather than choose to stop ripping off veterans, the bank attempted (ultimately unsuccessfully) to cover its tracks. Wow.

And just to make this a double-tap Friday for Wells Fargo, the bank also announced that it still might uncover a “significant increase” in the number of fake accounts on its books. We are coming up on a year since news of the fake account scandal first broke and Wells Fargo still has no idea how many fake accounts its employees have created.

One argument you hear from people who deride the size of some of the largest banks is that those banks are “too-big-to-manage.” It is a takeoff of the much more common term “too-big-to-fail.” No one can argue that big banks are “too-big-to-manage-profitably,” because all the big banks are enjoying record earnings. However, Wells Fargo’s seemingly never-ending transgressions beg a new question: Can a bank be “too-big-to-manage-ethically?”

 Not the best example to use in a jobs debate

This Bloomberg column from Mark Whitehouse looks at recent jobs data and asks whether President Trump should be as concerned about jobs in the wired telecom and retail sectors as he is about manufacturing and coal mining.

I would submit that sectors like wired telecom and retail are poor examples of sectors that should garner more policymaking support. Like coal mining, those sectors are dying because demand has changed dramatically and/or the economics no longer work to make them as profitable as they were a decade or two ago - or profitable at all. Consumers unplugging from cable is a trend that can't and shouldn’t be reversed. E-commerce like Amazon are killing brick-and-mortar retailers because they deliver more convenience and better prices.

What are policymakers going to do to reverse such trends? Start blowing up wireless communications towers? Start shooting out the tires of Amazon delivery trucks?

Come to think of it, wired telecom and retail actually do deserve the exact same amount of special attention and support from policymakers as manufacturing and coal mining. And that amount should be none.

Catering to a captive audience

As a frequent traveler, I often admire the way airport retailers are constantly trying to keep up with the tastes and trends of the millions of people milling about their concourses waiting to catch flights. Most airports have done a fine job of improving food offerings. Some even offer massages, exercise facilities and pay-by-the-hour beds!

But my favorite new amenity is at the airport in Portland, Oregon. PDX recently opened a small movie theater that shows short films for free. It is not a money maker, but it does shine a spotlight on local filmmakers. Brilliant.

WYWW Appetizers