As we left the previous part, our Bear Stearns loan buyer had made the overture to the bank owners to buy our division. We had proven our value to a well known Wall Street investment banking company. The owners green lighted their review of our operations after confidentiality/non-disclosure agreements were executed.
Legally representing our side in the new line of SBA 504 business was an accomplished Chicago area attorney who had handled the previous two loan pool sales for us. During the process we learned he represented the large, international Morgan Stanley operation through the years. After being involved in the sale of our two pools he asked me if I would be interested in having a conversation with them about our lines of business. I indicated we would once we had accumulated another $100 M pool. It was the summer of 2006 and we projected to be ready to do another in the first quarter of 2007. For now it was time to see if Bear and the bank’s owners could make a deal.
NYC Here I Come
Big cities give me the willies and NYC breaks me out in hives. I have never faulted others for loving it and I can understand the attraction. However, when I walked those streets and dealt with the people on the Street through the years I felt like I was in a very strange land. My stays could not end quickly enough. Sort of like how Jim Croce sang…
I had long moved past ever desiring to progress in my career to working on the Street. Thankfully the visits were short at this point in my life. We even have close family on my wife’s side living on Long Island on the south shore in Islip. Doesn’t matter. Love them and wish them well. They can have it.
Due to the congestion and commute time being shorter I flew into Newark. Our loan buyer was there to pick me up and we headed to the hotel to check in. We had a full schedule over two days and it started that very afternoon meeting hedge fund managers that purchased Bear’s Collateralized Debt Obligation (CDO) securities. We were prepared and the meetings went well. The primary points of the conversations concerned our underwriting methodology and abilities to process loan closings quickly and correctly with our own legal staff coordinating title companies and attorneys. They were reassured of the later when I explained we had previously hired a rising star of the Jones Day law firm from their original Cleveland, OH headquarters who was born and raised in east TN. I toured through each operation briefly to get a feel for their capacity and appetite for what we did. That evening the loan buyer and I enjoyed a good steak dinner at a local hotspot and turned in for the night.
The next morning it was off to meet with the Bear execs. Their 47 floor world headquarters had opened a few years before on Madison Avenue. It was very impressive. I was given a short tour along with brief introductions to some of the managers on the Asset Based Securities (ABS) side. Lunch was held in the corporate dining area before formal meetings with the ABS execs as well as a couple of the corporate execs/Board members. It was during the private meetings that followed with the ABS execs that worked with the CDOs with whom we had most involvement that things got squirrelly.
Dem yankees would never catch the humor in that one.
The first thing they did was call in their favorite shoe shine guy. As we all sat around in the top dog’s office he had the guy shine their shoes and wanted him to do mine. Which was weird because the exec commented that he noticed I was wearing new classic J&M wing tips. Apparently this was a ritual they did several times per week before or after lunch. Frankly, the way they acted and treated the shoe shine guy was off putting to me. That the big dog even noticed my shoes said more about him than it did me.
We started talking business and they probed my brain for secrets to our success and what our expectations and needs were. He asked how much loan volume we could provide annually from Knoxville in a somewhat skeptical way, as in what could the hillbillies in the south ever have that we would want. I responded that we could do as much as they were willing to fund. He acted surprised and looked at the loan buyer, who nodded and said, “He’s not kidding.” The buyer told him what the current global market for the product was, which was expected to grow strongly with the appropriations resolution that I helped negotiate. I told him we had every aspect of national operations covered with quality managers and staffing that were well trained and an operations platform that could deliver. We had a great relationship with elected officials, SBA, USDA and regulators. I then reminded him he probably already knew that from the Fitch and consultant’s reports he had been provided.
He started laughing and looked at my loan buyer. He said, “You guys are two peas in a pod.” He softened his attitude a bit and thanked us for the business we were giving them. He told me he looked forward to pursuing a deal. We moved to the office of the exec over the department in which we had involvement. It was one of the people named in this article:
Although I briefly met a couple of the other people mentioned in the article, it was this guy who handled our business:
https://finance.yahoo.com/news/newrez-expands-access-affordable-home-202800872.html
It was during our conversations, which were cordial and much more down to earth with just the three of us, that I was asked a loaded question about a different industry than ours, but whose loans were included in the same CDOs as our loans. Baron knew that there were large residential mortgage pooling operations as their primary lines of business that also were licensed to do SBA and USDA loans. He asked me my thoughts about several sub-prime residential mortgage lenders such as New Century, American Home and Bayview Financial. I had limited knowledge of New Century, however, what I knew was not good. I knew nothing about American Home. I knew a great deal about Bayview. Bayview was a major bottom feeder in our industry. They were sloppy, incomplete, probably fraudulent underwriters of credit. We would not hire their former employees. I told him that in my opinion their no-income verification subprime residential mortgage loans would be a major issue if Bear did not bake in very high loan loss provisions into the tranches as well as more room in the mortgage interest rates the loans charged that they bought. Many of Bayview’s appraisers of properties were bad news, the values would be inflated to make deals happen. We knew about the appraisal value problems from taking second mortgage positions on the homes of small business owners as collateral in our financing. We had our own issues with obviously inflated values from many of the same shared appraisers. In addition, without personal income verification they would be exposed to unqualified borrowers buying overvalued properties in overheated markets. I specifically remember telling him to run from them.
The blood rushed from his face and he turned white as a ghost. Oopsie. My loan buyer sat quietly and observed. Baron recovered and began talking specifics about our operations, but you could tell he was still clearly shook. We discussed he and his spouse’s recent visit to our area to the classy, elite Blackberry Farms and finished our business with each other, which closed out the meetings with Bear.
The loan buyer spoke briefly with everybody while I waited. We then walked back to the hotel and he began laughing uncontrollably. He said Baron had run back to the Big Dog’s office to tell him what I said about Bayview. He said they had been buying large volumes of pooled subprime residential mortgage loans for their CDO tranches they sold to the hedge funds. My response was that if they did not want to know honest answers to their questions they should not ask.
My intention was to fly back to Knoxville the next morning, however, with business matters completed I checked on flights as soon as I got back to my room. I was pleasantly surprised that a redeye direct flight home had a seat available. I made the arrangements, packed up, caught a cab and headed to Newark. I called the loan buyer and thanked him for all of his efforts. He promised to fill me in on the results in a couple of days. He felt good about how things went.
The Offer
The loan buyer called a couple of days later and gave me the name of a Bear analyst I would be working with for the acquisition discussions. He said they definitely wanted to pursue it. So I guess causing Baron severe heartburn that day did not work against us. In the back of my mind I could not help but wonder about how awful their understanding of credit was.
***** Critical Point To Understand *****
We are going to jump ahead in the timeline to make a serious point that will help with the rest of the BIMD story as well as the real world today. There is something important for readers to understand with all you see in the news about big banks in trouble and Wall Street activities. My loan buyer had correctly warned me before the NYC visit that investment bankers rarely understood the underlying credit of loans. They are profiteers and deal makers, not credit officers. The term “credit” means something totally different to them. As a result they are fully dependent upon the ratings of pools of loans by Moody’s, S&P and Fitch – The Big Three who do 95% of the ratings. The major investment banking firms did not invest big into hiring staff that had the expertise necessary to audit the credit worthiness of the underlying assets. As an example, at Bear their internal review of individual loans was random audit style by a young analyst working his/her way up the system. They took only a cursory look at some of the deals themselves and really did not know what they were seeing. The analytical staff worked off the statistics of the average performance of similar pools of loans in Mortgage Backed Securities (MBS) over time and built that into their formulas in the investments. The pressure to turn deals quickly was more of a concern than knowing the underlying quality of the securities they sold. They would take the Big Three ratings at face value and make the deals happen.
So when Baron nearly tossed his cookies in front of me that day, he was revealing he had no idea he was being fleeced on the credit of the underlying assets (loans) by Bayview that were being pooled for CDO’s and sold to Bear’s best customers in the hedge funds. As we learned from the various autopsies of Bear’s collapse through the years, this was also true with the other subprime lenders in their stable. For what it is worth, Bayview is international and still around today. They may have cleaned up their act, but I have no idea and do not care.
Think about that scenario and place yourself into the seats of the Bear execs. You are unwittingly screwing over your best customers while they are dependent upon you doing your job well with billions of dollars at stake. Not good. If you are the Bear Chairman at that time, Jimmy Cayne, you are spending your days off playing in bridge tournaments or golfing with no cell phone on you for your staff to contact. Too busy playing the dog and enjoying life to take care of business. That was a job for others to do.
So take it a step farther. Who are your customers in the hedge funds? Oops. Many of the customers are not American and not institutions. Some of the invested funds are from other business people, investors and leaders in other countries with “expectations”, especially when it comes to preservation of the capital they have invested. Some of them are not very nice people, like Chi-coms, Saudis, criminals and such.
Understanding that, we logically move one more step forward. If the parties that invest into a hedge fund with expectations of decent capital preservation and a good return on investment (ROI) learn they are upside down in their investment, they are not going to be happy. If you are responsible for this situation due to incompetence or lack of doing due diligence, you are probably preparing to make a hasty exit if you are not fired first. You may even consider doing something unethical or illegal to cover the “mistake” to preserve your income and lifestyle – or continue breathing.
That’s the real world, folks.
As a result, there is/was an unwritten rule in their line of business. You make the tranche holders of a MBS whole if it goes off the rails by refinancing it into a CDO that was combined with other assets such as bonds and other MBS investments. It is an in and out such that the holders suffer minimal to no losses on the original securities they purchased even if the ROI is watered down. Tranches are sold and the risk/reward is determined by the probability of default of the underlying investments in the CDO. The customers also understand they are not to take losses on their investments in the highly rated tranches. If they take losses they never do business with the company again. If you work for the investment bank who brought an underperforming CDO to market that suffered loss in the mid to low risk tranches; you do everything you can to eat the loss. You are not legally responsible, but you do it to protect your relationships with your good customers. In doing so, your investment bank loses money on those transactions.
Which leads back to the rating of pools by The Big Three. As I previously posted, Fitch was the one who put in the effort to understand our business and the underlying credit of the loans themselves. Moody’s was a complete zero – totally uninterested and just went through the motions. They rated our assets at BBB, the same as subprime residential mortgages. A 55% or less loan to value commercial real estate loan made to a profitable business with a good balance sheet is not a BBB risk by any measure. S&P was more interested, just not as enthused with the small global market of the product. There was not enough loan volume to gain their interest, so we never received or pursued the rating. Fitch was all over it and asked really good questions about the credit, industries, etc. When they gave the first small pool an A with a promise to increase it to AA in the next pool if the first pool was executed well, which they later honored; we knew we had our rating agency.
Bear liked Fitch a great deal, but used all three based on the desires of their customers. So when the broader market for CDO’s got in trouble in the national economic collapse a little over a year later, the execs would hide behind the ratings of The Big Three as their excuse. Which should tell about anybody that The Big Three were not all that sporty at understanding credit and the loans they rated either. They simply did not put in the work. Add in they needed contracts with the investment bankers to make money for themselves and stay in business. They did not necessarily have clean hands in all they represented.
Well, guess what happened in 2006 when Goober Gump hit NYC and Baron’s office at Bear? He arrived during the height of the shenanigans of rating billions of dollars of subprime pools of residential mortgage loans at BBB or A in the higher risk levels of the tranches of the CDO’s. In truth, many of those underlying assets were garbage in overheated markets, they just did not know it yet. Which speaks to how ridiculously bad their understanding of lending type credit was. That is until Goober in his own unusual way gave them advance warning. Which I am very sure they ignored and conveniently forgot as they began pointing fingers at everybody else less than a year later.
I hope you are grasping a reality with this story. Supposedly intelligent, business savvy people with Ivy League educations and elite contacts with other wealthy people worldwide were total simpletons in regard to understanding the real product they sold. They committed no time or brain cells to it. They simply could not be bothered with knowing more about the goose that laid the golden eggs. They were too busy killing it with pressure and greed. All of it encouraged by corrupt politicians following orders from their puppet masters, building the traps that ensnare the unwise and gullible.
Greed breeds unwise decisions. Success can breed laziness and inattention to detail. Power corrupts. Trusting the untrustworthy leads to ruin. All of that is included in scripture. Perhaps we should pay attention?
The sad thing is the real, evil worldly powers of this world know it and use it. They establish the systems and orchestrate the situations that lead to the melt downs. They create the booms and busts that lead to the excesses and failures. They position their resources to capitalize on the misery and seize even more power.
As a result; fast forward, rinse and repeat in 2023.
Return To The Story
Back at home I had numerous conversations with Bear’s assigned analyst. The conversations were some of the best I held with them. He was knowledgable and asked good questions. He was not condescending like their execs and did not lie or make things up. One day he called to give me a heads up that an offer would be going out in a week to the owners. We had reviewed and negotiated over the true cash flow of our division the previous week. They had also reviewed our projections should we be capitalized and funded appropriately. For perspective, exclusive of our profits, the rest of the bank made $2 – 2.4 M pretax historically over many years. In our division’s second full year of operations in 2005 we contributed $5.5 M pretax net income after their arbitrarily high, internally charged cost of funds, normal capital allocation and ridiculous administrative overhead charges for almost no services the bank provided. The later was intended to make the core bank look like it was doing better than it actually was. At the time of the purchase negotiation with Bear we were nearing 2006 FYE, which a few months later resulted in $7 M of pretax net income with the bank’s executive overhead increased by another $400 K. Due to projected sales growth for 2007, we had not budgeted net income to increase significantly above 2006 FYE. The net income growth would occur the following year as a large volume of construction loans went into permanent financing and the loans sold, which occurred as a function of emphasizing the SBA’s 504 loan program on commercial real estate.
The starting offer from Bear was going to be $19 M. I negotiated with him a bit and he stated their bottom line was $21 M, which I agreed was reasonable at three times annual cash flow. I told him I was not wanting to be involved, that if they were successful with the owners I would enjoy working with him and if not we would still be doing business with our loan sales.
It was a reasonable offer; especially for a bank with only $550 M in assets and a little over $2 M in net income without us. With the funds they would be able move into some major statewide markets with branch expansion while retooling their operations platform to better serve their customer bases with more technologically advanced products than they currently offered.
🤣🤣🤣😂😂😂🤣🤣🤣😂😂
That is all we could do when we learned that the owners demanded Bear pay them $110 M for our purchase. The analyst called me with the results and I nearly fell out of my chair. He was serious. He said the owners were indignant in their responses. We wished each other well and said goodbye. I talked with our loan buyer and we just laughed about it. It demonstrated just how greedy and unsophisticated they were as owners of the bank. So business continued as usual as if none of it had ever happened.
As we were accumulating loans for our next pool sale a couple of months later in early 2007 the loan buyer called and said he was getting uncomfortable with how things were going at Bear. He wanted to know if we still had a home for him. He detected liquidity issues as some of the CDOs were in trouble and securities were getting difficult to sell. As a result they were lowering his pricing on buying SBA 7(a) guaranteed loans from lenders nationwide. I confirmed with the owners and we all agreed to hire him. He would be over loan sales and the bank’s treasury investment portfolio. He had other buyers for our loans and would be working for our best interests now. He would be working for us in the next pool sale to Bear, so we knew what the purchase offer should be.
This was my first concrete indication that all things were not well on the Street.
Conclusion
I hope this has helped folks understand what actually happens on the Street within some areas of the financial industry. The odd and somewhat disheartening thing is so many of the scoundrels never really get in trouble and end up being hired by a crony to do the same things they did before. They all run in the same circles and go to the same parties. Their kids go to the same private schools and they eat at the same restaurants and clubs. They talk the same talk, walk the same walk, look down on the peasants, and live lavishly. The whole thing is an incestuous mess existing in an echo chamber.
A few of the people I encountered were good hearted; they were just caught up in the mess and did not know why, how or when to exit. Many later rebounded in their careers such as Baron did. He remained married to the residential mortgage industry – the same industry that is doing the same things it did 15 years ago.
I wonder if any of them is feeling a little deja vu all over again as the economy craters and the winds of war blow harder?
Thanks for reading and hold on as Goober continues his ride.
Thanks TradeBait2, this is a really good piece and it made me think about the 2000 tech bubble in Silly Valley where it felt like angels were investing in foolish tech willy nilly without having a clue what might be profitable or helpful to users. In the early days we called such development efforts “blue sky” and the promises of stock for engineering employees was called “foo foo dust.” From my place at the bottom of dev teams, I could hardly imagine the scale of what you’ve learned and seen without the opportunity to read your posts. I really appreciate the time you take to share these with us.
As a sole proprieter there in the 90s, I knew to analyze how these startups were obviously spending money unwisely. Ostentatious office space, marketing driven or engineering driven management. I trusted engineering driven except for one instance with nepotism which you don’t necessarily see immediately. After reading your post, I learned that the problems I saw in the 90s wasn’t just in tech, but also in banking and probably lots of other areas. Somewhere along the line, hiring based on skills and merit was sidelined. Heaven help us.
YOU have many stories to tell as well Barb and I would love to read them. You saw it in your world just as I did in mine. You said it as it is – “Somewhere along the line, hiring based on skills and merit was sidelined. Heaven help us.”
It is by design. Most of it is orchestrated for nefarious purposes. Some of it is pure incompetence.
I know, TradeBait and it’s scary to know some are that evil or that stupid. Joe Biden really hates being called stupid, I noticed. He must have heard it before. 😅 I am not certain I could pull together my own past stories. It will take awhile. I did not take notes. LOL
Break it down a period at a time. That’s what I did. I have always been blessed with a good memory and analytical thinking pattern. The problem is sleepless nights happen when my mind starts grinding over details and will not let go. But is is good therapy.
OH BOY do I even know that pattern!
And yeah some of my articles are via a sleepless night!
My problem has always been trying to take a matrix worth of ideas and fit it into a linear article.
Short???
NO WAY😅
But what you do is a gift, Gail. The value is priceless and greatly appreciated.
“…I learned that the problems I saw in the 90s wasn’t just in tech, but also in banking and probably lots of other areas….”
….
Boy isn’t that the TRUTH!
It was SYSTEMIC.
As Burning Bright likes to say, ‘the system of systems’ If you step back you can see there was a MAJOR CHANGE in ‘the system of systems’
ISO-9000 (International Standards Organization) did not just impact quality but many, many other fields.
What is interesting, is when I got my first training ~ 1985, I sat next to a guy who had just immigrated from the Soviet Union. Having dealt with a really good company who was serious about quality, I did not see the TRAPS in the emphasis on third party paperwork vs hands on inspecting what ever it was.
This guy said something that stuck with me all these years.
He said ISO was the SAME SYSTEM USED IN THE SOVIET UNION AND A COMPLETE FAILURE!!! 
>>>>>>>>>>>>>>>>>>>>
So take a look at ISO It started 75 years ago in 1947. It has morphed into a MONSTER.
“…The ISO story began in 1946 when delegates from 25 countries met at the Institute of Civil Engineers in London…” So it started innocently as ENGINEERING STANDARDS.
There are now 24749 International Standards covering almost all aspects of technology, management and manufacturing.
24749
International Standards Organization
You’ll find our Central Secretariat in Geneva, Switzerland.
And YES ISO does FINANCIAL STANDARDS!!
I ‘searched’ the word ‘Financial’
1044 results found
>>>>>>>>>>>>>>>>>
To tell you the truth, I never actually understood what I had stumbled on to until I finished writing the comment.
What better way to ‘GOVERN’ than to propagate INTERNATIONAL STANDARDS that are then enforced on a country wide level.
For example my town uses INTERNATIONAL BUILDING STANDARDS!
Thanks for this, Gail! Somewhere between 2004 and 2007, I did a tech edit on an IEEE document about tech writing. I did a heavy edit and offered all the tips and explanations I could. My employer at the time would not let me include my name as an editor since I was working on documents for her that went up to the Pentagon. She did not care if I did the edit on company time though, so I was pleased for the opportunity to contribute what I’d learned over time writing for a number of tech companies, large and small. The thing is, who has time to read all these standards? Probably nobody. Long ago, I wished we could learn through osmosis. Now, I am grateful we don’t.
Great point, Gale!
Enforced via international courts. Voluntary submission as a subversion of Constitutional law and by extension, state and local laws.
Thank you for another peeling back of the curtain on big business & high finance for a fascinating glimpse behind the scenes of greed, incompetence, & hubris as well as the contrasting small town values & biblical principals showing the best way forward!
Your sidebar about NYC reminded me of my dad’s brief experience there as a newly minted U of M MBA grad. He had some type of employment interview in NYC, where he’d flown to from Detroit. He thought it went very well & he had visions of moving to this big city & moving up in the world. However he never got a call back & ultimately ended up working for Ford in Henry Ford’s hometown. He had a solid career there & accepted early retirement 30 years ago in his mid 50’s, I attended his retirement party with my new baby son Nathaniel going through simultaneous life changes 🙂
I had never known that my dad dreamed of working in the Big Apple for Detroit was all I’d ever known about his background. Though he did quite well at Ford as the head of a Purchasing division, just a step below VP, he didn’t obviously reveal that he’d had perhaps even bigger dreams as a younger man.
I’m thankful that the Lord kept his feet on the ground & we were enabled to grow up in the mid West rather than the East Coast. So many things would be incredibly different about my life had I grown up in NYC…AND I seriously doubt that such a background would have lead me to the pages of the Q-Tree for enlightenment & encouragement!
Oh, that squirrel tale is pretty priceless!
Thanks for sharing that. As you can surmise, I am also glad he stayed for his and your family’s benefit. IMO that was a blessing and God’s protection involved. It is so easy to fall into that Wall Street/NYC trap. So many have and lived to regret it.
As you will learn over the next couple parts to this story, the same protection your father received was being provided to me, which at the time I had no idea was occurring.
Thanks for staying with this, Valerie.
God’s sovereign hand covering us all, even when, maybe even Especially when, we are oblivious. He is So Good!
Looking forward to your next installment!
Valerie,
I have a similar story. I was born in NYC. Dad had started a Union at the shop where he worked. The Mafia moved in took over the Union and told Dad to get out of town if he wanted to stay alive.
We moved to upstate NY and about 10 years later back to north of the city for about 5 years. I was NEVER so glad as when my family moved back to northern NY! It was a ‘nice’ area not far from where Hitlary lives but the people were HORRIBLE. In the entire 5 years I never made ONE friend in my class. Yet when I joined the new school in Upstate (again a nice area) I had no problem despite the fact I was badly traumatized from the treatment I had earlier.
Dad and Mom were both very religious and given their lives after they left NYC, I think the Mafia did them a favor in driving them out of NYC.
As an aside, I noticed all my cousins (and my brother) who all grew up in NYC are’HARD’ edging towards nasty. I think the lack of space and the competition is NOT good for people’s souls.
That last statement is one I have observed as well.
We have some upstate NY’ers that live two doors down from us. They feel like they are home here in east TN. Kind hearted and fit right in. Will help anybody that needs help in the neighborhood. The NYC kind never stick around here.
YUP!
We have had zero problem fitting in here in rural NC. our values are similar to theirs.
😊
Amazing deliverance for you & your parents! What a blessing that you escaped relatively unscathed.
It seems from my perch from afar that people in NYC are subject to non-stop one-sided hard-core lefty propaganda so that they think they are well informed but are just not allowed to process other viewpoints. It might be nearly impossible to deprogram such relentless brainwashing! Perhaps that’s part of what led you to “divorce” your brother 😉
Actually Big Brother supported president Trump although he was a marxist in college. 😜
That’s funny. Maybe he grew out of it 😉
Thanks, hope the shoeshine fellow is doing well.
lol. As do I.
TradeBait,
I have the same feelings for NYC. Lived north of the city when I was in grade school and enjoyed the museums back in the 1960s when the city was a decent place to visit.
Now there is NO WAY you could get me to go visit my cousins on Long Island! OR go to New York STATE for any reason!
Exactly – you understand and have much more experience with it that I ever did.
In our business we got to where we did no loans in the NYC and Philadelphia metros. The corruption and extortion were just too much to handle. Everybody seemed to be on the take from architects and engineers to building inspectors to contractors to the local librarian it seemed. The customers/borrowers had to build in extra fees that made the deals ridiculous to monitor and inflated the costs. Add in the surly, condescending attitudes.
Hard pass.
I can certainly relate!
I keep thinking of that John Calhoun mouse utopia experiment where the mice completely change behaviour until the colony dies off.
I had not seen that video before. That was fascinating to watch and makes perfect sense.
Alpha males win even in mice populations. Who versus what. Social contact matters. Betas went after other betas. Sexual deviancy increases.
Then self absorption begins with increasing numbers of show ponies. Mentally retarded.
Life cycle fully displayed. Birth/Infancy, growth, maturity, decline/death. The usual curve of the graph.
Small spaces, more people, expect mice-like behaviors as the people population dumbs down with uncontrolled human interaction that spawns deviancies of every type.
I will not be taking accurate observations with a grain of salt as suggests we should at the end.
Are we there yet, daddy? 🤣
Glad you … appreciated++… that video. Anyone advocating ‘smart cities’ and tiny 200 sq ft apartments should have to watch that video.
If they STILL advocate it, they are MONSTERS!
++ I did not want to use the word ‘liked’
“…My loan buyer had correctly warned me before the NYC visit that investment bankers rarely understood the underlying credit of loans. They are profiteers and deal makers, not credit officers. The term “credit” means something totally different to them. As a result they are fully dependent upon the ratings of pools of loans by Moody’s, S&P and Fitch – The Big Three who do 95% of the ratings. The major investment banking firms did not invest big into hiring staff that had the expertise necessary to audit the credit worthiness of the underlying assets….”
…
OH BOY does that sound FAMILIAR!!!
When ISO-9000 became all the rage, I, as a quality eng/lab manager, was told NOT TO DO INCOMING INSPECTION!
At one company I argued with the VP of accting that it would cost $68.00/year in additional chemicals to do the incoming and could save them big headaches down the road but NO DICE… We MUST TRUST OUR VENDORS. 🙄🙄😖
Later that year a bad incoming batch of raw material cause the entire continuous process line to go solid. They spent WEEKS chiseling the plastic out of that line.
After that mess I got to do my incoming inspection. 😋
>>>>>>>>>>>>
I wrote this years ago in 2009. Same time frame as your article AND the same fundamental problem NO ATTENTION TO THE QUALITY OF THE PRODUCT!!
Why did the Food Inspectors fail?
To understand the problem it is necessary to look at the “Quality Revolution.” In the 1970s when I first started working in the quality field, Military. Standard 105D (it became 105E later) was often used to determine incoming inspection levels. Mil Spec 105Dwas a common-sense, statistics-based standard, appropriate to the military sense of getting things done correctly, and it saw wide use in industry. It provided methods to categorize vendors as good, average or below average. The customer could adjust the level of incoming inspection accordingly.
Dr. W. Edwards Deming, a mathematician doing research into quality, had been ignored by US business. He took his expertise to postwar Japan where his methods revolutionized quality. After superior Japanese quality flattened American business in the market place, Americans started searching for the “Magic Wand” that would allow them to compete, Several experts cashed in on this mad search. Joseph Juran, Armand Feigenbaum and Philip Crosby emerged as the leaders of the pack.
In 1987 the methods used by Deming and the other leaders were quantified as a set of quality manufacturing standards called ISO 9000. I was one of the first to get training in ISO 9000 here in the USA. I was impressed by the first half of the presentation and during break started discussing what I had learned with my seat-mate. He was not at all impressed. He was originally from Russia, and he told me that the Soviet Union had used the same kind of system for years, and that and it generated paperwork, not quality. Twenty years later I, along with other quality professionals, agree with him.
Bean counters, looking only for immediate additional profit, found some of the concepts of ISO 9000 very attractive:
The third item is particularly interesting. If the method fails, that is, if the supposedly prequalified material is no good, there might be no choice but to use it anyway! The result can be anywhere from a minor inconvenience to a total disaster.
So what does this have to do with the peanut fiasco? First, because of the “Quality Revolution” a version of ISO was developed for the food industry. It was called HACCP and was published as an international standard in 1993 by Codex Alimentarius. In 1995 Mil Std 105E was declared obsolete and in 1996 HACCP was adopted by the USDA.
Notice how this ruling has shifted the focus of audits, both government and private, from testing for contamination to the paperwork documenting the “Quality Management System”. Secondly, rigorous incoming inspection has been drastically cut‒if not eliminated‒by the companies that receive raw materials. In buying peanuts from the vendor Kellog relied only on a third-party auditor who reported on the integrity of the suppler. Twenty or thirty years earlier Kellog would have sent their own quality professional to work at the vendor’s facility.
If the “Quality Revolution” worked so well for the Japanese, why isn’t it working in the USA? There are several reasons. First is the Japanese sense of honor, ethics and integrity. Deceitfulness is frowned upon and results in a loss of face and disgrace to the family.. Secondly, Japan is a small country so word of deceitfulness spreads easily.. In the USA a slick salesmen who lies to get sales is likely to be praised and held up as an example to new salesmen. The US has a very mobile population, there are always new suckers moving into the community . A scoundrel can relocate to any of forty nine other states.
Another problem, according to quality expert Kaoru Ishikawa, is America’s regulations of business that give tremendous importance to each company’s quarterly results. He claims that the result is short-sightedness.
Nailed it. The last three paragraphs of your post explain it perfectly IMO
You may be surprised at what I say. Dr. Deming was a treasure. America chose to go the other direction and we are still paying the price because of who we were then and remain.
I have a personally autographed The Deming Dimension hardback book he addressed to me on Dec. 19, 1992. The ghostwriter/proof reader for him was a lady located in Oak Ridge, TN who is the sister of an accomplished banker I worked with off and on for years. This Deming confidant managed a quality control consulting company with customers in that area that did work with DOD and DOE and their contractors. She was outstanding at her work and used Dr. Deming’s principles and methods with all of her firm’s customers. The extent of my personal contact was a brief conference call with him and her involving my appreciation for the book and his contributions to humanity.
But your post identified the problems with how things are here that you learned all so well in your work.
Dr Deming is one of my HEROES!!!
I was at a video conference with Dr Deming and that snake oil salesman Juran. We got to submit questions and Dr Deming PICKED MINE!!! 😍
It was about Awards. At the time ‘participation awards’ were becoming all the rage. My question was about the effect on an individual who had worked hard and did all the actual work but DID NOT get individually acknowledge. Instead the TEAM or team leader did.
This happened to me many times. MY WORK was ‘given’ to someone else who then got the Atta boys and the promotion. Heck one moron, who could not think his way out of a paper bag, was handed MY RESEARCH and actually got to present it on TV! And when I say moron, I mean a real IQ of some where below 95.
….
This is why I get so angry when I see those men stealing the trophies from the women.
They are very lucky the girls they abuse are better mannered than I or they would be singing soprano for the rest of their lives!!!
You fully understand and we are in total agreement. I literally hate what happened to you. I saw it happens so many times. It did not happen under my watch. I took no credit for what any member of my team did – they got the recognition and any rewards. Unfortunately, that is not the norm and it leads to more problems internally as well as the loss of good, talented staff.
EXACTLY!!!
It is amazing how the momentary gratification of taking the ‘Atta-boy’ you do not deserve can have such long term effects on the morale of your department.
You would think that point would be POUNDED INTO THE HEADS of the people taking management courses given how critical it is.
Banks are notorious for giving the attaboys to the non-deserving and title only promotions to the deserving. It is because of that I elected to enter the speciality I did. Never regretted the move, just grew weary of the stress and politics.
I think that goes for most corporations unfortunately.
”Zero tolerance” policies in schools have only empowered the bullies and disheartened the victims, as intended.
Life is NOT a rose garden and children have to learn how to fight for themselves from an early age.
Yes, prevent real injury BUT ALLOW FIGHTS! That is how kids learn to toughen up.
I was timid and my Mom MADE ME CONFRONT the girl bullying me. With mom’s permission I told her I would catch her off school property ALONE and beat her up if she did not quit picking on me. It worked!
(It didn’t hurt that I spent summers mucking out stalls for free rides.)
I should note that the exact same impulse hit financial auditing with Sarbanes-Oxley. The emphasis shifted from “kicking the tires” on physical things to documenting and testing “the system of internal control” over financial reporting. SSDD, same results.
YUP, Burning Bright is correct they messed up the ‘System of Systems’ and they hit EVERYTHING!!!
Glad to hear that from you, coothie. That is exactly how I saw it. I will have more on some of the changes they made to reflect the “physical things” well after I retired that were first discussed with the SBA and politicians during the years I lobbied in DC.
And while I am on the ISO-9000 quality kick…
At one of my ASQ quality conferences I talked to a guy working in Texas for Boeing. He got the same DO NOT TEST bull Schiff from his management. Well us QC types have a tendency to be a bit ornery so he grabbed some ‘High Tensile Strengh’ bolts (5 hash marks) and slapped them into his Instron Tensile Testing machine. They snapped like butter. The darn things were POT METAL!! Seems the Chinese had found that if they put the 5 hash marks on the head of a bolt it sold for a much higher price so that is what they did to their CHEAP CHINESE SCHIFF.
….
This is an old comment I saved about the military:
Roger W. Knight > Malatrope • 2 hours ago
http://www.americanthinker.com/articles/2015/12/the_polemics_of_donald_trump_comments.html#comment-2429787442
^^^ Agree completely. Which is why PDT knows he can get things under control relatively quickly. Outside the box thinking by people with practical intelligence.
Given the businesses POTUS Trump was in, esp high end hotels and golf courses, I am sure he has WAREHOUSES full of information on who is ‘naughty and who is nice’
Given, as you pointed out, these top of the heap people have gotten away with shoddy/crooked thinking/dealing for years that is INTERNATIONAL IN SCOPE, I get the feeling we are going to be in for a very nice surprise once we get past ‘The Q Precipice’
First people have to HURT enough to wake up. Meanwhile the Congress committees are doing a slow reveal while Steve Bannon and others are screaming about the invasion over the border, the covid clot shots and other bombs.
Now to just get thru the next two years or so.
OH!
I forgot to add that I love your music selections, esp the song about the squirrel.
Hubby just watched and ROLLED!
Stevens is just priceless, an American icon. Harold Ragsdale is still kicking at 84. One of his more manic funny ones…
One company I worked at was pursuing ISO-9000 certification. One large part of it involved thoroughly documenting the expected actions of every worker who laid hands on the product. This resulted in a great big book of Standard Operating Procedures that was completely ready to be translated into Chinese, Vietnamese, or Hindi and shipped overseas. I found this peculiar.
Another odd part of the exercise was requiring that everyone that supplied you with anything be likewise ISO-9000 compliant. If they were ISO-9000 compliant, they would likewise be expected to demand that all of their suppliers were similarly ISO-9000 compliant — and so on, and so on…. This struck me as cultlike. Especially when you can trace the limits of sources-of-sources-of-sources and realize that the initial stage of everything is some poor bastard prying something out of the earth. Is there an ISO-9000 standard for child labor collecting cobalt ore?
🤣👍
Do not miss my comment to Valerie, I think I stumbled onto something very critical when I was writing that comment. See what you think.
Unbelievable. And yet…easily believable. If you’ve never been poor or feared being poor, then why would you worry about credit worthiness and tangible value?! Instead of sending these criminals to jail, we should just make them give away everything they own and start over at rock bottom.
Great story telling TB, and great insights. Greed is poison to the soul.
Thanks, friend. You hit the theme of this one on the button.
Thank you for sharing. Just catching up and appreciate sharing your insights and gifts 🙂
Isn’t it great to get the ‘inside story’ from first hand accounts?
Yes it is 🙂
Thank you for reading, my friend. We’ve got a few more before this part of the story ends.
Good look forward 😅
I just had to add this Mises quote:
ARCHIVED:
“the thesis of etatism that the members of the government and its assistants are more intelligent than the people and that they know better what is good for the individual than he himself knows, is pure nonsense” Mises Omnipotent Government
And just for yucks:
ARCHIVED:
Yes 👍