Sunday, December 25, 2016

A wonderful Christmas piece from a very interesting author. Christmas and Living beyond Fear The archangel Gabriel encouraged Mary and Joseph to trust in God. By George Weigel — December 24, 2016 Thanks to the crèche, introduced to Western Christendom by Saint Francis of Assisi in 1223, the Christmas story has become seamless: a unified tale with a single cast of characters, from Mary, Joseph, and the infant savior, wrapped in swaddling clothes and laid in a manger, through the choir of angels, the shepherds, the local Bethlehem townsfolk, the census-takers, the Magi, and wicked Herod the Great. Yet the two gospel “infancy narratives” from which we construct the Christmas story are quite distinct. The leading figure in Matthew’s account of the birth, infancy, and early childhood of Jesus is the just man, Joseph, who is told in a dream that the unexpected child in the womb of his betrothed is “of the Holy Spirit” (Matthew 1:20) — and who then saves the child from the murderous jealousy of Herod by taking his little family to Egypt. By contrast, Mary is the principal actor in Luke’s infancy narrative, and it is to her that the angel Gabriel announces the Incarnation, of which she is invited to be the human agent. Mary is the driver of the story throughout the birth and childhood of Jesus, right through the dramatic scene when she loses her son in the tumult of Jerusalem at Passover time and chastises Jesus after finding him with the teachers of Israel in the Temple. Matthew’s genealogy of the savior, addressed to what is thought to have been a Jewish-Christian audience, begins Jesus’s lineage with Abraham and centers it on King David: Thus, at the very outset of his gospel, Matthew proclaims that this Jesus is the Davidic king-messiah for whom Israel has longed, although he will reign in a different way over a different kind of kingdom. Luke, writing to what is thought to have been a more Greco-Christian audience, drives the genealogy backward through David and Abraham to Adam, “the son of God” (Luke 3:38) — thus underscoring the universality of Jesus’s messianic mission, to which Matthew alludes indirectly by the tale of the “wise men from the East” who had “seen his star in the East” and had “come . . . to worship him” (Matthew 2:1–2). Yet it is the Greco-Christian Luke who tells the story of the miraculous birth of John the Baptist (son of the Jewish priest Zechariah) as the prelude to the story of Jesus, thus making John the hinge between the Old Testament and the New, between the covenant with the people of Israel and the New Covenant in which the “wild . . . shoot” of the Gentiles is grafted onto the “olive tree” of Israel (Romans 11:17). It’s a bit complicated. So we may be grateful to the Poverello of Assisi for bringing this all together in a singularly winsome way by inventing the crèche. Yet what struck me recently on pondering these familiar but nonetheless distinct (and even disjunct) accounts is the link between them: the angelic admonition, “Be not afraid.” In the first chapter of Matthew’s gospel, the archangel Gabriel tells Joseph (who is considering a quiet dissolution of his betrothal to the pregnant Mary) not to fear taking her for his wife. In the first chapter of Luke, the same Gabriel — whose name in Hebrew means “God is my strength” — tells the virgin teenager not to be afraid, for “you have found favor with God” and thus have been chosen to be the God-bearer, Theotokos: to which Mary replies with the paradigmatic statement of Christian discipleship, “Be it done unto me according to thy word” (Luke 1:38). The Incarnation and the birth of the Messiah are a summons to fearlessness: and not the fearlessness that ignores what is objectively frightening, but the fearlessness that lives on the far side of fear in covenant relationship with the God who is Emmanuel (Isaiah 7:14), “God with us.” This is not the fearsome god of the Phoenicians and Carthaginians who demands, and gets, child sacrifice; nor is the God of the Bible like the Homeric deities in the Iliad and the Odyssey, for whom men and women are playthings to be manipulated on a terrestrial gaming board. No, Emmanuel is, literally, God-with-us: with us at the beginning of the Covenant with Israel, on pilgrimage from the bondage of Egypt and into the freedom that truly liberates through righteous living; with us in the manger at the beginning of the New Covenant, dependent on human cooperation for the beginnings of his salvific mission yet radiating peace and light. This is a good Christmas season to be summoned once again to fearlessness, for it comes at the end of a year of fear. Underneath the passions and cacophony of the 2016 election campaign one could sense deep fears — very few of which have been assuaged, on either side of the partisan divide, since the result came into focus in the small hours of November 9. Fear stalks the Middle East, cradle of civilization and birthplace of biblical religion, in various merciless forms. Fear now haunts Europe, as the dry husk of a once vibrantly Christian culture — a German Weihnachtsmarkt, or “Christmas market” — is targeted by homicidal maniacs claiming a religious warrant for their mayhem and cruelty. Throughout the world, order is unraveling, because order must be maintained and has not been for the past eight years. And when order unravels, innocents die and fear drives public life, even as it warps human relationships. There is, in truth, much to be feared in the world, from the resurgence of particularisms that take ugly rather than noble forms to the fragility of the global economic and financial systems: from personal hatreds to systemic deficiencies. The Christian response — the Christmas response — to these and many other very real threats is not to deny them, but to live beyond the fear they engender because God is with us. Emmanuel, God-with-us, is on pilgrimage with his people in history. And Emmanuel continually calls the people with whom he lives to fearlessness. Emmanuel calls his pilgrimage partners to resist the temptation to fall back on the habits of the slaves they were in Egypt, in a vain search for security. Emmanuel calls his people to live the Beatitudes as the royal road to happiness and true human flourishing, rather than settling for the illusory promises of the Culture of Me — another life-warping and death-dealing response to fear. So by all means let us look at things squarely and take the measure of that which is rightly fearsome. But in doing so, let us also heed Gabriel’s call to both Joseph and Mary: to bind ourselves to God-with-us, Emmanuel, who makes his presence known in unlikely ways — a burning bush, a pillar of fire by night, an innocent newborn — yet constantly calls his people to live beyond fear. For Emmanuel is not only with us. Emmanuel goes before us and shows us the way to a brighter future in a Kingdom without fear. — George Weigel is Distinguished Senior Fellow of Washington’s Ethics and Public Policy Center, where he holds the William E. Simon Chair in Catholic Studies.

Saturday, December 17, 2016

State Department Interview The following is a transcript of an interview between a new political appointee named Till, interviewing a career foreign service officer named Neverbright. Political appointee (Till) :Good Morning, thanks for coming. Help us understand what you do: State career employee (Neverbright): I am deputy undersecretary second secretariat peace negotiator for the Middle and Near East. I negotiate our peace treaties with our peace partners in the region. Till: And what are those agreements you have negotiated? Nerverbright: I negotiated the landmark Bilateral Peace Agreement between the USA and Durka Durkastan. Till: And what does that agreement do? Neverbright: That agreement ensures that the government of Durka Durkastan does not support terrorism and remains in the US's sphere of influence. In return for not supporting terrorism, we provide 20 billion a year in aid. Till: Have they supported terrorism in the past? Neverbright: Yes, we have intelligence reports going back 25 years indicating that they have supported radical Islamists groups engaging in various Middle Eastern conflicts with money or weapons which were sourced from Russia. Till: And how do they finance this support? Neverbright: From oil revenues. The country has the 12th largest known supply of oil reserves in the world. Till: And the government structure? Neverbright: They are an Islamic Republic ruled by the same Mullah for 50 years. Till: A republic? How? Neverbright: The people elect a powerless legislative body every 5 years. The legislature approves the Mullah's edicts, incorporating them into law and regulation. They are a very advance society of laws. Till: I see. And the treaty you negotiated, how long did you have to negotiate? Neverbright: Only 12 years. Till: I see. And once signed, how was compliance? Neverbright: Well, we have mixed signals. Through the Durk Durkastan self monitoring program, they have been in full compliance now for the10 years since signing the agreement. Through covert intelligence monitoring, they violated the agreement in the first three minutes after signing. Till: I see. Was the aid stopped? Neverbright: No of course not, the US honors its agreements. Where would we be of we sacrificed our influence in the world by dishonoring our agreements? We went right back to the table with the Durka Durkastanies and negotiated with the threat of sanction if they failed to negotiate. Till: And how did that go? Neverbright: Well we have continued to productively negotiate for 8 years now. Till: And the support for terrorism? Neverbright: Well, we have had mixed results. The CIA provided us with an analysis showing the support for terrorism has gone up when the price of oil is high, but gone down when the price of oil is low. Additionally, their trade deficit with Russia seems to go up when the price of oil is low. We think this causes internal economic stress. A secondary conclusion to our analysis was Russian weapons merchants like to be paid. Till: I see. And going forward where do you see yourself in the state department? Neverbright: No one in this agency has the in-depth knowledge of the Middle and Near East terrorism financing or supporting mechanisms than me. I would like to keep supporting my country by negotiating agreements or the resulting non-compliance agreements that support American influence in the region. Till: I see. Just two more questions. What kind of car do you drive? Neverbright: A Prieus. Till: How is the electricity to your home supplied?? Nevebright: I reduce my DC Power and Light bills with renewable clean energy. I got a good deal on some Solyndra solar panels a few years back. My carbon foot print is amongst the lowest at State. It would be even better if I could afford the current solar panels offered in the market at that time, but for some reason the Solyndra panels were a steel. I am a great negotiator. Till: Well, thank you for talking to us. We will get back to you.

Tuesday, February 25, 2014

My Little Brother

My Little Brother My second youngest brother lost his battle with cancer on Sunday. I was shocked, although I had no right to be. For eight or nine months the tumors had been releasing a hormone which raised his blood pressure and heart rate to dangerous levels. The medical community added more and more to their counter attack on his body, and on Sunday his heart just stopped. I was in shock. I had spoken to him just 2 weeks ago. He had been getting better for over a month after a four month period of more in the hospital than out of it. He was upbeat and we fooled around on the phone as usual. We spoke of our mutual love of Barry White albums and their effect on our spouses. He had been out to a restaurant the weekend before. We were un-rushed and covered all we wanted to cover. Today, this morning, sitting in my office in Riga, seven hours before my family on the East Coast of the US were up, I opened Facebook. One of his college friends had a link to his obituary. I read it in horror. I wailed. I did not know grown people could wail. I wailed. For half an hour, alone at my desk, I cried, hard. For four years I had the conviction that he would get through this. I thought no other way. How could I? The alternative was unthinkable. The first year of his illness, his professional life was slow, so I drafted him into a business venture I had been developing. I did not need his money, only his company. We spoke almost every day. We travelled to California and Latvia together. We played it out until there was nothing left to play out. He gave his advice from experience in the field. It was more entertainment than business, but it was an enjoyable ride. Of the five boys, we shared the same attributes. Tools did not belong in our hands. We played with balls as children, not trucks, not tools. Our handyman abilities are a running family joke. We were meant for office work. Our hands, at best were for cooking, not building. My other three brothers can repair anything, Frank and I were lucky to start the car or lawn mower. It was a bond between us. He was my best man at my first wedding, for no other reason than we were naturally close and had much in common. About eight years ago, we together drove one of my parent’s cars from New York to Florida for them. It was a BMW 5 series. The cup holders flipped out of the console between the driver and passenger seat. The cup holders are incomplete loops, opening toward the seat it is meant to serve. Every time we stopped for a break and picked up a coke or coffee, the turn back onto the highway spilled the beverage in the seat the cup holder was meant to serve. We wore our beverages, from New York to Florida. We laughed at ourselves because we knew; our other three brothers would have been able to fix the problem. We just had to live with it. Frank was special. He had an ability to compete that none of us other brothers has. He developed sporting capabilities that allowed him to compete at levels we just did not have. In team sports or individual sports, he was competitive, the rest of us were average. He was comfortable and in that ability and it made playing with him a pleasure. At the golf course it made him popular. It was pleasure to be there with him. When he felt his worst, a few months ago, I was told he said he missed my father and wished he were here to support him. My father passed away a little over seven years ago. I know my father is supporting him now. I can’t imagine how I will miss you Frank. You are a clear, familiar voice in my head. You occupy a unique place in my heart. As shock fades to grief. I wail.

Friday, March 15, 2013

The Cost of Trust

“Our distrust is very expensive” said Ralph Waldo Emerson. I love the quote above. It may define our times. But it raises the question; what is the cost of trust lost? Merrill Lynch Credit Corporation, a mortgage lender to Merrill Lynch clients won the Malcolm Baldridge Award in 1997. It was the first financial services company to win the award. Since that time, it has been common to hear total quality management or six sigma, be emphasized at financial services firms (although GE Capital subsidiaries had been working with it from the early 1990’s). While new and connected technology was being introduced by just about every financial services firm, the decade before the mortgage crisis was characterized by process improvement in time and cost. Leveraging the new technologies by efficient processes was paramount to competitive advantage. Better, faster, cheaper was on every leaders mind. Those efforts were paying off. In 2000 the cost to originate a mortgage loan was 141 bp’s, in 2003 it was down to 93 bp’s per the Mortgage Bankers Association Cost Study for those years. In cash to the bottom line that was $265. I use 2000 and 2003 because they are not too close to the financial crisis and may be more balanced as a benchmark than the years closer to the crisis when volumes were way up. It was a low interest rate environment where industry experts knew that most home owners, enjoying steady appreciation could be counted on to refinance possibly twice in a decade, if you provided good service. A focus on key performance indicators by a management team could improve customer satisfaction, speed to approvals and closings and lower costs, improving profitability or price competitiveness. Management sciences was at work (along with technology and very often driven by technology) in the mortgage industry. This was a great time to be in the business. Loans per production employee improved from 41 to 62, for the same period per the same study. Yes a 50% improvement. Ok, channel management might help that one a bit, but not 50%. What’s more, personnel cost per loan went from 70bp’s to 48bp’s for the same period. A very positive trend was developing. Let’s skip the crisis in this discussion and acknowledge you need to be managing production much tighter today than in 2003. Investor put-backs are requiring better quality controls are in place. But with the crisis, trust was lost. Government and investors (same stakeholder really) reaction to the industry’s performance to the crisis was lots of new rules because there is little trust that the industry participants will operate looking out for consumer or investor interest. That lost trust is costing quite a bit as every compliance officer knows. How much is that lost trust costing? Well the MBA released some cost numbers in December for the third quarter of last year. The total loan production expense was 2.13%. The loans per production employee were 16 (annualized). This is just over $3,000 more costly per loan than the 2003 value of 93 bp’s. That’s a lot of compliance. Fortunately for lenders, in the 2012 study secondary and marketing income was 271 bp’s, compared to 94 bp’s in 2003. That kind of spread can mask a lot of issues. But is that spread sustainable? The government has stated in many different ways they want to retreat from their current share of the secondary markets and have private investors come back to the market. The government insuring or buying over 90% of the loans originated is unsustainable. Private investors will want a lot more of that spread than the government has been taking. That brings us back to the cost to originate. The operational risk of sustaining a profitable business model is on the lenders shoulders. Maintaining access to capital markets is too important than cutting any corners to save on costs. Running at the current efficiencies is just as unsustainable as the governments participation rate in the secondary markets. Now that the rules are being defined and implemented, automation will help drive down some costs, but not all of it. The human process that originates a loan will need to be managed better than ever before. The management of that process had better be able to inspire trust, or it will not be competitive or sustainable. That is where leadership, not just management will be the differentiator. Those abilities beyond just control and coordinate are needed. Firms will need the key performance indicators of the loan origination process along with the metrics that evidence an aligned and engaged work force, with a strong values driven culture and clear responsible empowered decision makers ensuring compliance beyond anything programmable or the limits of policy memos. Are you ensuring that for your business? Can you evidence it when someone like a regulator or investor asks to see it? You will not be able to rely on trust, it has been lost. They know you can do, they just don’t trust you will do it. The cost of trust lost is usually handled in a very macroeconomic fashion like the cost to society or to generations or market access or liquidity. But sometimes you can calculate it on what you do every day. So the answer to the question; what is the cost of trust lost? If you’re a lender today; about $3,000 per loan originated.

Using Compliance to Rebild Trust

“Our distrust is very expensive” said Ralph Waldo Emerson. He had no idea. The Chicago Booth/Kellogg School Financial Trust Index (for the second quarter of 2012) found that only 21 percent of Americans trust the financial system, the lowest point on record since March 2009. This decrease was largely driven by a drop in trust of national banks. Late last summer Innoveta Strategies conducted a survey of financial services executives and found a strong majority (86%) working on restoring public trust for themselves and the industry. Optimistically 83% felt that public trust in financial services industry can be restored. In his book The Speed of Trust, Stephen M.R. Covey introduces and defends the idea that trust in business and in life is built on competence and character. A lot of pages have been written in the last few weeks on the industry reaction to the CFPB issuance of the Qualified Mortgages\Ability to Repay rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules are far from perfect, but they are specific and will become the starting point in how the federal government regulates the mortgage industry going forward. Incorporating these rules into the human and technological processes used to originate mortgages is now a tactical imperative of industry participants. The mortgage loan origination process has never been more expensive according to the MBA Cost Study. Codifying these rules efficiently provides the opportunity to reduce this cost. Attitude is a significant driver of performance. A bad attitude can derail the best calculated plans. Embracing any task makes its execution more efficient. To ensure efficient execution and demonstrate the competence that helps build trust, it is every leader’s duty to embrace the task before him or her. This might be difficult this time around because in the same Innoveta Strategies Survey, 76% of respondents disagreed that the government understood the challenges to the housing market and 53% disagreed that the government had the best interest of the consumer in mind. The competence with which the industry displays in this stage of a major market overhaul will be a significant contribution to the rebuilding of public trust. Demonstrating a commitment to compliance might even demonstrate a little bit of character.

Addressing Mistrust

“Mistrust doubles the cost of doing business” John Whitney, Columbia Business School The cost to originate a residential mortgage has ballooned from 93 bp’s in 2003 to 231 bp’s in the third quarter of 2012. Almost all of that are new procedures and reporting of additional data required by investors and regulators. There are several ways to reduce this cost in the near future. Recently, the final issuance of guidelines will allow technology and policy and procedures, guidelines to standardize the new requirements, thus bringing down the cost somewhat. But there is still a large premium in that number for the mistrust lingers with the mortgage industry today. The rigor with which a successful total quality management or continuous improvement process style of management takes, requires using a lot of facts in a continuous and organized fashion. The tool kit includes reports, scorecards and dashboards to generate the information we need to digest in order to determine the quality and efficiency of our groups’ processes. We answer the question- are we meeting our goals or stretch goals for our process and production? The information positions us to make the many small decisions that can often have a big impact on our production or quality goals. The mortgage industry has well known quality and process metrics; speed to approval or closing, error rates and related reworking, effectiveness of turning inquiries into applications, applications into approvals and approvals into closed loans. Less pursued and often more impactful in managing these key performance indicators is the information we rarely turn to regularly because we don’t turn it into data. If we did, this information can also be used to make small decisions that can have a big impact on results. They are things like- is management’s vision for the business and future known and understood by those doing the work (alignment of the workforce), is our organization’s culture supportive of what we are asking of employees and want to deliver to customers and other stakeholders, are employees engaged and do they have what they need to make decisions in the course of normal and not so normal circumstances? The first reaction to these questions by leaders is usually -that’s why we invest in training and technology and aggressively document our expectations in policy, procedures and guidelines. All of that is good, and in the rigor of continuous improvement, one can never be let up. But the key quality and process indicators are results and don’t directly measure the questions in the previous paragraph. Those measurements have to be derived by asking the questions to the parties involved, collecting the results and measuring performance against a goal. The goal setting and asking part are very often not ever bothered with when a company is focusing on big issues around growth and process improvement. That is as big a mistake as not asking customers if they are satisfied. Best practices needs to include performing regular assessments similar to the questions posed above, as well as other questions measuring a variety of issues around the attitudes pervasive in your organization, capturing the results and tracking their movement over time in a report, scorecard or dashboard, similar to other key indicator measurement tools. These tools have the ability to reflect when an organization’s culture supports decisions in the absence of technical or policy, that are knowledgeable and consistent with all stakeholder interests. It may seem like a “nice to have” and not a “have to have”, except a careful reading of the Consumer Financial Protection Bureau Examination Manual reveals that they are going to look at a firm’s culture specific to the law. What metrics will you show them to affirm your supportive culture? Managing and leading in the world going forward requires a larger tool kit. Assessments that solicit feedback on attitudes and values will be as important to decision making as the quality and process key performance indicators used today. And as you chip away at mistrust, you will move costs down, enhancing profitability and sustainability.

Sunday, October 7, 2012

Rebuilding Trust


A man's character is his fate. — Heraclitus, Greek philosopher (c. 540-c. 475 B.C.) “Trust is like the air we breathe. When it’s present, nobody really notices. But when it’s absent, everybody notices.” – Warren Buffet Is there any trust for the mortgage banking industry? When the government, our elected officials and their appointed agents (regulators), files lawsuits against major industry participants, it is society saying, you have done wrong, you violated our trust. Three government and or settlements of lawsuits (?) hit the news headlines recently: the $26 billion settlement with the five big mortgage servicers for robo-signing, FHFA lawsuits in the name of Fannie Mae and Freddie Mac against seventeen major banks for fraud in private label securities sold to them, Wells Fargo settling with the Department of Justice for originating subprime loans disparately to minorities. So our government and its organs have said “no” to the way the industry originates, sells and services mortgage loans. Is there any question as to public trust for the industry? Building or rebuilding trust is a financial services industry-wide imperative as identified in the Ernst & Young’s Global Retail Banking Survey of 2011 as well as many other research reports. Steven Covey writes in The Speed of Trust that trust requires competence and character. Competence has been exemplified by the industry leadership’s speed and commitment to addressing the above mentioned issues as well as its ability to size to the market, adapt to both the changing borrower credit performance and capital market consolidation as well as preparing for the changing regulatory compliance burden. The ‘character’ part of this equation is exemplified by ethical behavior. In order to rebuild trust it is important that the work done in both of these areas is effectively communicated. Home prices may stabilize the housing market, but the housing finance market is unsustainable in its current form. Who contributes what to the reconstruction of this market is a combination of both competence and character, i.e. who is trusted to do it. The previous market took a lot of things for granted, like the government was happy to directly or indirectly promote home ownership (think Fannie Mae never forgetting to mention “The American Dream”, mortgage deductions, etc.,). Certainly government is going to have a big say in what comes next. What voice will the industry have in this process? Well, it certainly is competent, but show me the character. Character is a much harder topic to communicate. It has lots of components and is pretty subjective. How is the mortgage industry in general about trusting? A recent survey of mortgage industry leaders suggests we don’t exactly excel at trust beyond our immediate sphere of influence. The mortgage leaders’ survey results showed gaps between the values leaders and their organizations hold and their confidence that these values are the standard of behavior and decision-making within the manager and employee ranks. Also, most organizations have a written code of ethics or code of conduct (91%), yet responses to management practices integrating values and ethics into practice is considerably lower. The survey results suggests that leaders communicate about ethics much more verbally than in writing (informally rather than formally), and amongst the firm’s leadership more than to the employee base. There seems to be considerable confidence in ethical leadership, yet to a lesser degree, measurement of its values and communication of expectations and results beyond the leadership team. So, if trust is the sum of competence plus character, and I don’t trust particularly easily, how do I get to being trusted? I know I have character (ethics), I want to believe my organization is ethical, but I don’t feel quite so sure about that. Like other things you manage, do you have a “system” for managing and discussing ethics? You may train your employees on ethics, but if you use the industry tools, that training is focused on the individual identifying an ethical issue and how to make ethical decisions addressing that issue. That industry provided training has no content about how to talk or write about ethics, how to manage it, how to track or report it. In other words - it has no content on deploying or maintaining an ethical framework. An ethical framework will usually include identifying your firms’ values along with its vision and mission, recording them in a code of ethics or a code of conduct. Once these values are clearly stated you must incorporate them into your firm’s documentation, like policies and procedures, job descriptions, pay increase, bonus and performance evaluation policies. Pushing yourself to identify and write these documents will create a language for your organization to communicate about ethics. The positive reinforcement of ethical behavior and effective communication through performance and pay increase processes will eventually have the effect of having an easily identifiable ethical component of your organizations culture. Implementing an ethical framework and consistently demonstrating accountability, transparency and mutual respect directly improves risk management and compliance and better positions firms for productive communication with all stakeholders, including regulators, customers and investors. This in turn leads to building trust. There is good news too. The Harvard Business Review did an issue on Trust in 2009. Among the items they discussed was the observation that people are hard-wired to trust. The first thing we learn in life is to trust, because we are totally dependent beings for the first few years. We want to trust. The recommendation was similar to President Reagan’s foreign policy - trust but verify. With the headlines full of examples of abused trust, we need to find the language and information that demonstrates the character necessary to be trusted. Allow people to verify. Leveraging already strong process management skills should be a great place to start.