Marion Isaac: Her Life and Legacy by William M. Isaac
October 3, 2022
Just one week ago today, I had the honor and delight – with my cousin – of escorting our dear Aunt Marion, 103 years young, back down the aisle after the beautiful wedding of her great niece. A photo that was sent to me afterward showed the three of us lit in the beautiful spectrum of afternoon light that filtered through the church’s stained-glass windows. Pews of smiling friends and family lined our pathway to door above which hung the sign ‘Here I Am. SEND ME’. A few hours later the poignancy of that photo would begin to dawn on me and be driven home in shocking ways.
Much like the varieties of colors shining through those church windows, this past week has been filled with dramatically different hues of life. Ashley and Greg’s wedding was lovely, and love filled. As we sat with Aunt Marion outside the church sanctuary and later at the reception, it was clear that she was happy and very moved, as she always was, to be sharing another memorable family event. While we are all heartbroken and shocked by the manner in which Marion would be taken from us only hours after she left that happy gathering, it is hugely comforting to know that the memories and smiles of the family she lived for were fresh in her heart to ‘send’ her to her new home with God.
I’m very angry that this wonderful soul was ripped from us so violently, and I mourn our loss. But at the same time, I am at peace because I know she is now in a better place. She led a wonderful life with her family and friends, including her eight siblings who formed a tight-nit family engaged together in a wonderful and successful family business. We all gathered each Sunday and on every holiday at Marion’s beautiful home to celebrate. She never married – except to her family, the family business, her church, her community, and her many friends.
My wife and I returned to our home in Florida the next morning, intending to return to Bryan the following weekend to attend Aunt Marion’s funeral. Hurricane Ian interceded and raged through Florida starting with Ft Myers and nearby Naples. My sister, Mary, and her husband were intending to travel to Bryan with us to attend Marion’s funeral. Ian destroyed their home and its contents. My oldest son, David, and his family live in nearby Englewood, and their home was severely damaged.
Both Mary and David have responded in a way that reflects the spirit of Aunt Marion and the rest of her siblings. My sister wrote me the following text when I asked her how her family could help her financially. Her response in part was: “God is good, and he has given us a wonderful family and a multitude of great friends. I guess we need advice most of all.”
Aunt Marion is gone from us, but she and her brothers’ and sisters’ spirits live on in their children and nieces and nephews and those who follow. She will always be in my heart.
Biden’s college loan forgiveness misses the point by Thomas P. Vartanian and William M. Isaac published by The HIll on September 13, 2022
September 18, 2022
It’s possible that President Biden’s badly misguided attempt to forgive student debt has poked a hornet’s nest and will focus enough attention on the deep flaws in the U.S. educational system that just may result in greater accountability throughout the education complex.
After the president completed his magical mystery forgiveness tour, we received a lot of feedback on our article on the subject. We were contacted by a man who had been paying his children’s educational loans for 20 years and was, of course, happy to receive the government’s gift. But he was also incredulous that any rational authority would take such an action and not try to cure the root cause of the problem — escalating college and university tuitions subsidized by the taxpayers.
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Federal home loan banks should serve the public, not themselves by William M. Isaac and Cornelius Hurley published by The Hill on September 13, 2022
September 14, 2022
It’s not every day that a regulator for a $1 trillion, nearly 100-year-old bureaucracy signals that a total revamp might be in order. But this is what occurred when the newly confirmed head of the Federal Housing Finance Agency, Sandra Thompson, told Congress that she is commencing a comprehensive review of the mission and operations of the Federal Home Loan Banks (FHLBs).
It appears that the FHLBs long history of resisting change is about to end. That history has served them, if not the nation, well over the years. One can only hope that the obscurity in which they have operated for 90 years is about to end.
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Biden’s Loan Bailout ends Skin in the Game by Thomas Vartanian & William M. Isaac published by The Hill on September 2, 2022
September 6, 2022
The Hill published on September 2, 2022 an article co-authored by my long-time colleague and good friend, Tom Vartanian, and me highly critical of President Biden’s recent decision to forgive hundreds of billion dollars in student loan debt without at least requiring some sort of public service in return. He acted alone without public debate or even a vote in Congress. His action represents a huge acceleration of a long-term trend of destroying any semblance of marketplace discipline so critical to a successful free-market economy. And it is grossly unfair to millions of citizens who have already paid off their student loans, millions more who never sought student loans, and even more who chose not to attend college. I urge you to read the article, a link to which is below:
President’s Biden’s forgiveness of up to $20,000 of the amounts owed on 45 million outstanding student loans represents the official death knell of any semblance of market discipline in America. Unfortunately, his administration has not been alone in giving away taxpayer money without attaching strings to ensure that everyone has some skin in the game.
Higher education is a good thing, and the more well-educated people we have, and the better educated they are, the better it is for the nation. But there are much better ways to achieve those goals than by using taxpayer money in undisciplined ways that distort the incentives underlying financial markets.
Government subsidies abound, and it may indeed be in the public interest from time to time to accept the moral hazard that accompanies a massive taxpayer-funded bailout when the benefit outweighs the moral hazard created. But this delicate balance increasingly seems to be relying on political expediency rather than financial reality.
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Time to get smart about financial technology — and how to regulate the $10T market by Thomas P. Vartanian and William M. Isaac published by Business Observer on June 30, 2022
July 1, 2022
If you truly understand cryptocurrencies, stablecoins, Web3.0, NFTs, blockchain and the metaverse, you are in a select minority. Most of these terms have definitions that change based on who is using them and for what purpose they are being used.
As former federal bank regulators who have handled more than a thousand bank failures over the last 50 years, we think that it is long past time for reasonable oversight to be brought to financial technology businesses. That should not be a controversial concept — every industry that solicits consumer funds is regulated. Yet, the hallmark of this new fintech world is the absence of regulation. That is always dangerous, particularly since the cryptocurrency business — comprised of 18,000 cryptocurrencies, 600 crypto exchanges, $3 trillion of crypto derivative securities and trillions of dollars of leverage — is a $10 trillion market relying on software, networks and systems that are not secure and have coughed up $16 billion of cryptocurrency to hackers. For perspective, the entire U.S. banking industry has $22 trillion of assets.
Recent events should send a sobering message to Congress and regulators. Bitcoin is trading at around $20,000, down from its high just last year of $68,000. Terra and several other stablecoins have run into financial problems, and the extent of marketable assets purportedly backing stablecoins has been challenged in at least one case by the federal government. Crypto exchanges are similarly experiencing financial pressures that are resulting in crypto holders learning that their funds may not be held in a legally separate form but as general reserves available to any creditor in bankruptcy. Confidence — an absolutely critical element of surviving in the financial services business — has been evaporating almost as fast as it expanded.
We have some recommendations derived from our experience as bank regulators and advisers about how to proceed.
- Financial services that consumers rely on should be regulated based on the activities performed and the systemic impact they might have, with focus on who provides them. It make no sense to spend 100% of the country’s prudential regulatory resources regulating banks when more than 50% of the country’s financial services occur through entities other than banks.
- Cryptocurrencies should be regulated as money and securities to the extent that they purport to be, or act like them.
- The people who establish and operate financial technology services should be required to pass the same integrity litmus tests any bank or securities firm organizer, director or controlling party must.
- The Internet must be reconstructed to be more secure, emphasizing real person authentication, good governance and strong online enforcement.
- Federal, state, and global supervisors must be transformed so that a leaner, modernized system of regulation can deploy technologies such as artificial intelligence to successfully regulate technologically enabled financial markets.
Governments have spent the past 25 years under-regulating technology while over-regulating banks. The ubiquitous nature of ransomware, the exponential growth and unwinding of crypto empires and the malicious use of technology by nation states, criminal cartels, terrorists and hackers highlight the dark side of technology which has gone unregulated far too long. We can only hope that policymakers will agree and create a smarter financial regulatory mechanism that matches modern finance.
Isaac and Vartanian Author Letter to the Editor of the Wall Street Journal in Response to an Op-Ed piece Suggesting that Crypto Does Not Require Regulation, June 21, 2022
June 21, 2022
In “Sick Stablecoins Can’t Infect Financial Markets” (op-ed, June 13), Niall Ferguson and Manny Rincon-Cruz are narrowly focused on the here and now. Having handled the collapse of more than 1,000 banks and thrifts ourselves at the Federal Deposit Insurance Corporation and Federal Savings and Loan Insurance Corporation, we believe that policy makers should be focused on what will happen if cryptocurrency continues to grow in an unregulated fashion throughout the world.
Crypto already has an estimated global footprint of $10 trillion when considering direct amounts issued, derivative crypto instruments and leverage created to purchase those instruments. If crypto continues to penetrate financial and banking markets, the loss of confidence from the inevitable crash-of an instrument that often has no intrinsic value as well as its contagion impact could be devastating.
Is crypto about to crash the U.S. banking system today? No. Will it cause massive problems if allowed to continue spreading without proper regulation and controls? Bet on it.
Ten economic warning signs policymakers ignored by Thomas P. Vartanian and William M. Isaac published by The Hill on June 16, 2022
June 16, 2022
Policymakers are running for the exits when it comes to answering for the state of the economy. Excuses range from Russian President Vladimir Putin to COVID-19. Those excuses have some merit. But whatever peripheral justification is pulled out of the hat, the fact remains that economic duress was inevitable given the way politicians on both sides of the aisle have used and abused the economy over the last two decades.
We, and just about every other financial expert, have been writing about the inevitability of inflation and economic duress for years. So how did our leaders not see the financial damage being done by the continuous injection of fiscal and monetary poison into our economic veins? It seems it simply was not politically convenient to be concerned about the economy as it was being stuffed with more pork.
We as a country must take responsibility for what is happening. We are doing this to ourselves by electing people who are markedly unqualified for leadership positions.
Leadership is not about being able to deliver people good news – fabricated or not. It is about being able to explain the inevitable bad news and providing tangible solutions that make sense. When was the last time you saw that in Washington or in most state capitols? Who was the last American leader who reminded us that there is no free lunch? Does anyone represent the concerned middle anymore?
We have heard all the excuses for not seeing inflation and economic shortages coming. Here’s the evidence. You be the judge.
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BankThink The dark side of financial data sharing by Thomas P. Vartanian and William M. Isaac published by American Banker on June 1, 2022
June 1, 2022
Cryptocurrencies are proving that technology makes it difficult for policymakers to find the balance between encouraging valuable financial innovations and regulating dangerous economic hype. Data-sharing applications that facilitate open banking are the latest examples of technological innovations that boast of valuable new competitive opportunities for financial institutions and their customers. But by now, policymakers should realize that cyberspace is a buyer-beware zone.
Sharing data so that consumers can complete financial transactions more efficiently sounds terrific. Third-party providers who will get their hands on this valuable information will certainly think so. But financial institutions should be cautious about sharing the massive amounts of highly confidential data they maintain about customers who often misunderstand the relative risk/reward ratio of sharing it.
Open banking typically relies on innovative application programming interfaces (APIs) that allow consumers to share their bank and credit card transaction data with everyone from financial to health care providers to increase functionality and efficiency. While platforms that share data with such applications and services may save consumers time and money, the moment data is shared across companies or industries, the risk of execution failure and the potential for fraudulent third-party provider access increases, not to mention the creation of serious economic infrastructure and national security risks. The more providers that touch or are unaccountable for a user’s data, the greater the number of vulnerabilities there are.
Rising interest rates will be tough on small businesses by William C. Dunkelberg and William M. Isaac published by American Banker
May 2, 2022
For the past few years, the availability of qualified workers has been the top business problem for small firms, trumping taxes and government regulations, historically popular choices. Today, the No. 1 issue is inflation. The Federal Reserve says it has the tools to bring inflation back down to 2%, which, by the way, is not “price stability,” one of the Fed’s two goals (the other is full employment).
The Fed’s policy posture has changed dramatically, from patiently waiting for inflation to go away while maintaining near-zero interest rates and heavy purchases of bonds, to an end to bond buying and prospects of accelerated increases in interest rates. The Fed Funds rate could go from zero to 3% in a matter of months. This, in conjunction with the withdrawal of the Fed from the bond market, could raise the yield on the 10-year bond to 5% or more. The strategy is to slow spending in the economy, reduce growth and, with less pressure from spending, cause prices to fall, all without a recession.
The yield on the 10-year bond is an important rate, often the base for determining mortgage rates (which have already risen in anticipation of Fed actions). But the cost of loans for small businesses has always been closely related to the 10-year yield. Since 1973, the National Federation of Independent Businesses has asked a random sample of its member firms what rate they paid on their most recent short-term loans. Historically, those rates have been several percentage point above the yield of the 10-year, rising and falling in sync with it.
If Fed policy takes the fed funds rate to 3%, the 10-year will likely increase to about 5%. In that case, one might anticipate average rates charged to small businesses could rise to the 8% range, well above what firms report paying now. This will be the inevitable outcome of the Fed’s fight against inflation. Small businesses already see this coming. Many borrowers with variable-rate indexed loans are asking their lender banks to convert to fixed rates loans at the rates they currently have. The banks, of course, don’t fall for it, as they read the news too.