Apologists for crony capitalism are telling the American people that shareholders and executives of failed banks will be wiped out. The reality is more complex.
Segment on his compensation at Signature Bank, which I wrote about last week (starts at 3:20):
"I was looking for an ongoing source of income. So about 325K per year which I must say, it might sound a little arrogant, for an honors graduate of Harvard Law School, $325K per year is not an excessive salary."
How many hours per year did Barney "work" to "earn" that salary? As I documented in great detail, his CASH take from eight years on the Signature board was a bit under $2 million. Which I guess was a big sacrifice because that turns out to be around $250K/year, not $325K/year.
Barney Frank is the perfect example of corrupt, revolving door politics. This story has been lightly reported because Barney has the "correct" political views. I can only imagine the outrage if he was on the other side of the aisle (not that there aren't plenty of corrupt people on that side as well).
It was interesting to read a WSJ article today that stated that banks can be exempt from filing insider transactions with the SEC. This is why I could not find Barney Frank’s Form 4s on EDGAR and had to go digging through the FDIC database linked to above. Seems like a ridiculous rule — the filings should absolutely be on EDGAR where you can use RSS feeds for monitoring, as I do for dozens of companies. It was a real pain to have to use the FDIC database rather than EDGAR.
And this from Keith Fitz-Gerald, Founding Partner, Keith Fitz-Gerald Research:
The SVB situation would be a comedy of errors if it weren’t so sad.
SVB execs apparently sold blocks of shares before everything came unglued.
SVB employees received bonuses hours before regulators shuttered everything.
SVB’s Chief Administrative Officer Joseph Gentile was former CFO at Lehman Brothers.
Now we’re learning that Kim Olson, SVB’s recently appointed chief risk officer, worked at Deutsche Bank from 2007… and here’s the clincher… at the time when it lied to investors about its mortgage-backed securities (the collapse of which led to the housing crisis).
Berkshire isn't the only great company out there with great leadership, but I haven't found very many of them. Warren and Charlie still being paid a salary of $100,000 annually and they have never given themselves a pay raise since the late 1960's. Who else does that? Answer - No one.
Charlie uses his own personal Daily Journal stock to pay DJ employees bonuses. Who does that? No one.
I "stole" this from another writer (Lyn Alden) and thought it was really well said.
Silicon Valley Bank had 1) a ton of recent new deposits from one concentrated industry, 2) an unusually high number of large depositors (business-sized accounts) that were not covered by FDIC, and 3) an unusually high ratio of securities with unrealized losses relative to its total capital. Therefore, due to weak risk management practices, it was uniquely vulnerable to this type of depositor rug-pull that made them sell securities at a big loss. A number of other banks, especially ones focused on serving large depositors above the FDIC limit (and thus highly exposed to a bank run), have found themselves in a similar position, so there has been a localized contagion among banks that have similar asset and deposit profiles to Silicon Valley Bank.
From a depositor perspective, banks are basically highly-leveraged bond funds with payment services attached, and we treat it as normal to keep our savings in them.
Thank you! I have been looking at Markel and will research further. So far I have read many years of their letter to shareholders. I am impressed with their results and openness. Tom Gaynor is very impressive.
Another company I have been looking into is Fairfax, with Prem Watsa at the helm. I appreciate your thoughts on it and other companies with high integrity management with good track records.
I suspect that few remember Mr. Frank's role in essentially forcing FNMA & FHLMC to loosen their standards and buy sub-prime mortgages. Back when the CRA was tightened in he late 90's banks moaned about having to hold loans made pursuant to the CRA on their books; regs were changed that allowed those loans to be packaged and sold to FNMA and FHLMC - and those loans were a big part of the reason FNMA and FHLMC had to be bailed out in 2008/09. IMHO Barney Frank has had a very large hand in a number of financial disasters. I am sure that his presence on the board of bank is not related to his knowledge, it would be related to his contacts within the regulatory agencies.
I was always amazed how he essentially got off scot free from the 2008/9 debacle. This is the way representative republicanism now works in the USA. Everyone who cares to look will find similar circumstances for most important Senators and Representatives. Even Presidents (esp. Democrats) come into office relatively "poor" and leave as multimillionaires. Look at the Clintons and the Obamas. The system is corrupt but will not change without a collapse.....which is coming despite anything Peter Zeihan says.
Mar 13, 2023·edited Mar 13, 2023Liked by The Rational Walk
I keep seeing these "revolving doors system" even in countries like the US and the UK from i used to expect more. In my country (Cyprus) the below is our current finance minister's (abbreviated) CV in chronological order:
- Minister of Labour 2003
- Minister of Finance 2004-2005
- CEO of the then 3rd (and now 2nd) largest bank 2005-2014
- Non Executive director of the Central Bank of Cyprus 2018-2023
Almost everyday I think about how much we will all miss Warren and Charlie when they are gone. Why is it so difficult to manage a company with integrity and rationale thinking? We have been very lucky to have those 2 lead the Berkshire culture, but it is also sad that more companies don't model their leadership off of Berkshire's approach. There are a few others out there...Markel comes to mind. Wouldn't it be great to see the employees of SVB return all of their bonuses that they received last week? Wouldn't it honorable to see Barney Frank return all his compensation and publicly admit that he didn't deserve the money based on Signature Bank's failed crypto strategy? Don't hold your breath on either happening.
Warren and Charlie are truly the GOAT, not just in compounding capital, but also in leadership in business integrity. We are all lucky to have them guide us for so long. Is Markel as good as Berkshire under Ted/Todd, Greg and Ajit?
IMO, Markel is a high integrity company with outstanding leadership. Tom Gayner has 100's of interviews available online if you ever want to hear him answer questions about Markel. Here is a recent podcast interview of Tom Gayner that will give you a sense of his leadership style and also of Markel business. https://podcasts.apple.com/us/podcast/the-business-brew/id1540847053?i=1000602442670
Disclaimer: I am a shareholder in Markel and in Berkshire Hathaway.
"If current politicians and regulators see former politicians and regulators rewarded in this manner, they will get a clear message from the private sector: “Let’s be friends while you are in public service and we will take care of you once you retire.”
This is corrosive to the system and should be outright prohibited."
Out of curiosity, have you discussed the prohibition of this in a previous post? I'd like to read if you have. If you haven't, disregard.
All healthy banks will cover the losses via higher deposit insurance fees. So of course this will be paid for either by the shareholders of those banks or through less advantageous terms for borrowers or depositors. And that impacts the real economy. We are constantly lied to by politicians who think we are too stupid to understand the truth.
I suspect that the politicians know that we know that they are lying. They also know that we can't do anything about it, that they are going to do what they want to do, legality or truth be damned.
Segments of a Barney Frank interview on his role at Signature Bank:
https://www.youtube.com/watch?v=cVHYG90F75Q
Segment on his compensation at Signature Bank, which I wrote about last week (starts at 3:20):
"I was looking for an ongoing source of income. So about 325K per year which I must say, it might sound a little arrogant, for an honors graduate of Harvard Law School, $325K per year is not an excessive salary."
How many hours per year did Barney "work" to "earn" that salary? As I documented in great detail, his CASH take from eight years on the Signature board was a bit under $2 million. Which I guess was a big sacrifice because that turns out to be around $250K/year, not $325K/year.
Barney Frank is the perfect example of corrupt, revolving door politics. This story has been lightly reported because Barney has the "correct" political views. I can only imagine the outrage if he was on the other side of the aisle (not that there aren't plenty of corrupt people on that side as well).
It was interesting to read a WSJ article today that stated that banks can be exempt from filing insider transactions with the SEC. This is why I could not find Barney Frank’s Form 4s on EDGAR and had to go digging through the FDIC database linked to above. Seems like a ridiculous rule — the filings should absolutely be on EDGAR where you can use RSS feeds for monitoring, as I do for dozens of companies. It was a real pain to have to use the FDIC database rather than EDGAR.
WSJ article: https://www.wsj.com/articles/first-republic-bank-executives-sold-12-million-in-stock-in-months-before-crash-ca6ce79e
And this from Keith Fitz-Gerald, Founding Partner, Keith Fitz-Gerald Research:
The SVB situation would be a comedy of errors if it weren’t so sad.
SVB execs apparently sold blocks of shares before everything came unglued.
SVB employees received bonuses hours before regulators shuttered everything.
SVB’s Chief Administrative Officer Joseph Gentile was former CFO at Lehman Brothers.
Now we’re learning that Kim Olson, SVB’s recently appointed chief risk officer, worked at Deutsche Bank from 2007… and here’s the clincher… at the time when it lied to investors about its mortgage-backed securities (the collapse of which led to the housing crisis).
I am a Berkshire shareholder since 1999, but not of Markel o Fairfax, yet. It's been an amazing learning experience.
Berkshire isn't the only great company out there with great leadership, but I haven't found very many of them. Warren and Charlie still being paid a salary of $100,000 annually and they have never given themselves a pay raise since the late 1960's. Who else does that? Answer - No one.
Charlie uses his own personal Daily Journal stock to pay DJ employees bonuses. Who does that? No one.
I "stole" this from another writer (Lyn Alden) and thought it was really well said.
Silicon Valley Bank had 1) a ton of recent new deposits from one concentrated industry, 2) an unusually high number of large depositors (business-sized accounts) that were not covered by FDIC, and 3) an unusually high ratio of securities with unrealized losses relative to its total capital. Therefore, due to weak risk management practices, it was uniquely vulnerable to this type of depositor rug-pull that made them sell securities at a big loss. A number of other banks, especially ones focused on serving large depositors above the FDIC limit (and thus highly exposed to a bank run), have found themselves in a similar position, so there has been a localized contagion among banks that have similar asset and deposit profiles to Silicon Valley Bank.
Another great line from Lyn's piece:
From a depositor perspective, banks are basically highly-leveraged bond funds with payment services attached, and we treat it as normal to keep our savings in them.
Thank you! I have been looking at Markel and will research further. So far I have read many years of their letter to shareholders. I am impressed with their results and openness. Tom Gaynor is very impressive.
Another company I have been looking into is Fairfax, with Prem Watsa at the helm. I appreciate your thoughts on it and other companies with high integrity management with good track records.
WSJ article this afternoon on Barney Frank lobbying Congress while a member of Signature’s board on a matter that directly benefited the bank.
Exerting this type of influence is the only reason he was on the board. Legal corruption.
https://www.wsj.com/articles/barney-frank-pushed-to-ease-financial-regulations-after-joining-signature-bank-board-e5c8819c
I suspect that few remember Mr. Frank's role in essentially forcing FNMA & FHLMC to loosen their standards and buy sub-prime mortgages. Back when the CRA was tightened in he late 90's banks moaned about having to hold loans made pursuant to the CRA on their books; regs were changed that allowed those loans to be packaged and sold to FNMA and FHLMC - and those loans were a big part of the reason FNMA and FHLMC had to be bailed out in 2008/09. IMHO Barney Frank has had a very large hand in a number of financial disasters. I am sure that his presence on the board of bank is not related to his knowledge, it would be related to his contacts within the regulatory agencies.
I was always amazed how he essentially got off scot free from the 2008/9 debacle. This is the way representative republicanism now works in the USA. Everyone who cares to look will find similar circumstances for most important Senators and Representatives. Even Presidents (esp. Democrats) come into office relatively "poor" and leave as multimillionaires. Look at the Clintons and the Obamas. The system is corrupt but will not change without a collapse.....which is coming despite anything Peter Zeihan says.
Very well thought out and articulated comment.
I keep seeing these "revolving doors system" even in countries like the US and the UK from i used to expect more. In my country (Cyprus) the below is our current finance minister's (abbreviated) CV in chronological order:
- Minister of Labour 2003
- Minister of Finance 2004-2005
- CEO of the then 3rd (and now 2nd) largest bank 2005-2014
- Non Executive director of the Central Bank of Cyprus 2018-2023
- Minister of Finance (today) 2023
"it's a big club, and you ain't in it!" - George Carlin.
Almost everyday I think about how much we will all miss Warren and Charlie when they are gone. Why is it so difficult to manage a company with integrity and rationale thinking? We have been very lucky to have those 2 lead the Berkshire culture, but it is also sad that more companies don't model their leadership off of Berkshire's approach. There are a few others out there...Markel comes to mind. Wouldn't it be great to see the employees of SVB return all of their bonuses that they received last week? Wouldn't it honorable to see Barney Frank return all his compensation and publicly admit that he didn't deserve the money based on Signature Bank's failed crypto strategy? Don't hold your breath on either happening.
Warren and Charlie are truly the GOAT, not just in compounding capital, but also in leadership in business integrity. We are all lucky to have them guide us for so long. Is Markel as good as Berkshire under Ted/Todd, Greg and Ajit?
IMO, Markel is a high integrity company with outstanding leadership. Tom Gayner has 100's of interviews available online if you ever want to hear him answer questions about Markel. Here is a recent podcast interview of Tom Gayner that will give you a sense of his leadership style and also of Markel business. https://podcasts.apple.com/us/podcast/the-business-brew/id1540847053?i=1000602442670
Disclaimer: I am a shareholder in Markel and in Berkshire Hathaway.
"If current politicians and regulators see former politicians and regulators rewarded in this manner, they will get a clear message from the private sector: “Let’s be friends while you are in public service and we will take care of you once you retire.”
This is corrosive to the system and should be outright prohibited."
Out of curiosity, have you discussed the prohibition of this in a previous post? I'd like to read if you have. If you haven't, disregard.
I used to like Barney. His name was on the regulations. What happened?
I think he's always been on the "payroll" of the financial industry, first via political donations and more explicitly after retirement from congress. From Rudy's comment below: https://www.opensecrets.org/members-of-congress/summary?cid=N00000275&cycle=CAREER
Nailed it.
Somebody somewhere is going to have to hold the bag. Otherwise, there would be no need for a bailout, LOL.
The only question is who is going to be designated to be the bagholder.
That would be.... us.
All healthy banks will cover the losses via higher deposit insurance fees. So of course this will be paid for either by the shareholders of those banks or through less advantageous terms for borrowers or depositors. And that impacts the real economy. We are constantly lied to by politicians who think we are too stupid to understand the truth.
I suspect that the politicians know that we know that they are lying. They also know that we can't do anything about it, that they are going to do what they want to do, legality or truth be damned.
Barney's top donors
https://www.opensecrets.org/members-of-congress/summary?cid=N00000275&cycle=CAREER
Please read this if you need to laugh yourself to tears
Boom!