Interview With Weakonomics

by Manshu on June 2, 2009

in Opinion

Weakonomics is a great personal finance blog and I am really happy to present this interview with its creator — Philip. Since, he is a banking guy, I thought it would be great to ask some questions related to banking. He gave some great replies and I learned quite a bit reading his interview.

Please consider subscribing his feed. And here is the interview.

1. How do the bank insider’s view the current crisis, especially people who were working in departments that had nothing to do with the crisis, but saw the media go after banks as if they were all bad?

I can barely speak for myself, much less my bank or the industry as a whole, but I can share what I’ve learned from conversations I’ve had over the past couple of years.  Those of us not involved with the process were at first dumbfounded at the notion that another section of the bank could fail so badly that it drags down the rest of the company.  I’m unrelated to the credit problems, but my group has had layoffs and will likely have more as a result of these problems.  I could be gone next week, next month, or sometime during the next year.  Generally speaking, we’re tired of every conversation with friends and family revolving around the company we work for.

For those that were directly involved there is a lot of frustration. Everyone is responsible for this mess, but at the same time everyone can point to someone else to blame.  The mortgage guy can point to the risk guy who can point to the investment banker who can point to the CFO who can point to the CEO who can point to Congress who can point to their constituency.  I can make a compelling argument showing why each party played a role in bringing this down, but ultimately the entire system failed, so it needs to be revamped.

2. Did you see any signs that made you think that something is definitely wrong here?

It’s hard for even insiders to notice anything wrong.  There would have been a small minority that really had a chance to look at a loan portfolio and see the large amounts of bad debt, but even if that person had spoken up who would listen?  To a manager, all he sees is an ever increasing revenue stream that as of yet hasn’t let anyone down.  Just about everything I knew about the crisis and the impending worries in late 2006 and into 2007 I learned from media reports about increasing defaults and a looming bubble.

3. Do you see any shift in the attitudes of those working in the banking sector?

For us employees, we’re concerned about our job prospects.  I majored in finance and planned to spend my career in banking and investments, however for the next half-decade we’re going to see a greater supply of skilled banking employees and reduced demand for those skills.  Personally, I can’t say I trust the leadership in banks because there isn’t much initiative to establish leaders.  We have managers, presidents, and executives, but no one is taking an active interest in the welfare of the employee.  Not that we’re asking for any, but it would do a world of good in an industry where loyalty is already a least common attribute.

4. Do you think that the banks are still making or repeating some mistakes that they were before?

Without a doubt.  Someone close to me at work is getting divorced and buying a house, yet this person was still able to obtain an ARM with a 2 year fixed rate.  This person is just as likely to get laid off next week as I am, and this person got this loan because it was the only one they could afford.  I sure wouldn’t give that person a loan.  However this is simply a small example in a big pond of traditional banking.  Lending is down, banks are cutting customers that only have a loan with the bank (sometimes called single-service clients), campaigns to increase deposits are commonplace, and many of the bad products are no longer offered. These are measures needed to reduce a bank’s exposure to bad loans.  Banks will still fail, people will still get bad loans, but the banks have learned that the methods of the past are not a way to long-term profitability, and so for the most part they have learned their lesson (for at least a generation).

5. As a banking insider, do you have any advice for banking customers?

That’s a hefty question.  I’ll answer it in two parts.

A) The best advice you can get on your banking is to make friends with a teller or anyone that works in a glass office at a local branch.  I’ve never worked in a branch or directly with a customer, so I can’t offer too much.  Make no mistake though, when you walk into that branch, it is like walking into a car dealership.  Everyone there can make a dime off of you, and may not always have your best interest at heart.  Most are good, honest members of the community, but everyone from the tellers to the branch manager stands to gain from winning your business.
B) On a global scale with banks, it’s best to look at them as someone you do business with.  That person provides a service to you and intends to make a profit in the process.  If you so desire, there are things you can do to minimize the amount of profit they can make from you.  Ultimately though, if you eliminate their profit margin you eliminate their service, you both lose.  Grocery stores don’t sell you food at cost, Disney World marks up all their merchandise, and banks are here to make money.

I really enjoyed doing this interview and would like to interview other bloggers as well. If you are interested please get in touch with me using the contact form.  I hope readers found this good too, please leave comments to let us know.

{ 6 comments… read them below or add one }

MoneyEnergy June 2, 2009 at 1:39 pm

Nice interview…. good perspective on thinking about banks as car dealerships. I’m not sure how true that is in Canada – i.e., I don’t think that even the tellers stand to make a direct profit off of doing something with you (like commissions, etc.) But certainly if you call in on the telebanking line, there are people there always wanting to offer you new products. A bank is definitely a business. That’s why I like their dividends!:)

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Manshu June 2, 2009 at 3:35 pm

@MoneyEnergy: Yeah, if they are doing their job well and not short changing others — no one is going to mind them. I think the interview turned out really well.

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the weakonomist June 2, 2009 at 7:17 pm

Thanks Manshu! This was awesome!

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Will Luxing June 2, 2009 at 8:11 pm

Great interview. I especially like the portion where he explains that everyone can point a finger at another person to blame. It really shows how deep this problem has gone to the heart of the country.

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Moneymonk June 4, 2009 at 2:39 pm

I enjoyed reading this, nice interview

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Tony June 6, 2009 at 2:30 am

A great interview, thanks.

I have a similar point of view (I was a UK bank insider until the end of 2007) and can tell the same story: there was a “groupthink” that residential (and commercial) property would keep rising in value indefinetely – it didn’t matter if a borrower defaulted on their loan as the bank could easily resell the property and clear the debts. EVERYONE was responsible: bankers wanted their bonuses, shareholders wanted more dividends and ever increasing capital growth, home owners and property investors (speculators may be a better word) wanted more and more growth, the Government were happy to collect more taxes from the illusory growth, and we all kept borrowing (either against property or on credit cards etc). TV programmes, newspaper articles and dinner party conversations all said that you were mad if you didn’t borrow as much as possible (insane amounts) to invest in property! The “bubble burst”, “the wheels fell off”, but the Government and the banks have learnt nothing and just want to get the same mad process going again.

I suspect that the USA is rushing to do the same. More regulation won’t help if the drive from the top is to print money, lend more get a real estate boom going!

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