Ten Years Ago, the Phone Rang

She didn’t want to do it. It was risky and the upside was unclear. The firm’s clients were on both sides of the platform and any erroneous data would be fatal to the platform, as the world needed it more than ever.

The Friday before Lehman Brothers collapsed, I was on the phone with Susan Hinko of TriOptima talking through the Wall Street Journal strategy. TriOptima had a unique vantage point into the pending crisis, the notional value of all CDS on the street. At the time, it was estimated to be $66 trillion (or 66 Apples in 2018 terms). The implications of a major counterparty going into default were unfathomable. In part, because no one really knew how CDS may be cleared and settled without a central counterparty.

It was Aaron Lucchetti’s job to provide some modicum of explanation to his readers. TriOptima had the data and he wanted access to it, and a primer on the mechanics of the market. Yeah, the credit desks gave him some understanding but he needed to know how, exactly, these securities would be cleared. TriOptima held the answer. We negotiated into the evening and settled on an off the record conversation to help him understand where the counterparties stood.

But Susan was hesitant. Too much risk. Everyone on the Street would know it was TriOptima’s data. But she also knew the stakes at play were much larger than exposure to her company. So we agreed on a tentative solution. If Lehman Brothers went into default, she’d speak to Aaron. Aaron said I’d be the first call he would make if Lehman employees were called in. He had the story framed up, he needed the data and the explainer. I gave him my cell phone number and waited.

On the other side of the balance sheet of my life was my partner. She worked in prime brokerage at Deutsche Bank, charged in part with managing the risk exposure of her hedge fund clients to credit derivatives. She spent most of the previous week ensuring no trades were routed to Lehman Brothers. Deutsche Bank had already shut off deal flow as one risk management tool. But there was no agreed upon settlement cycle for the credit derivatives, so the notional value of unsettled trades was large. Too large for the bank’s balance sheet depending on which system you looked at. It was a tense situation.

They let her go home on Friday but said everyone was on call that weekend. If Lehman Brothers went into default, it was all hands on deck. Deutsche Bank would have a lot of work to unwind unsettled trades for their clients.

We made a bet. Who’s phone would ring first?  Aaron Lucchetti calling to request the TriOptima interview or Deutsche Bank calling in the prime brokerage team?

That Sunday, the phone rang. It was Aaron. His sources said all Lehman associates were called into the office. The company was running out of cash and around the world, counterparties were refusing to send deals to the firm. He needed to speak to Susan to understand exactly how large the impact may be.

Five minutes later, the other phone rang. It was Deutsche Bank. Come in and prepare for a long evening.

The default had begun. My life would never be the same.

Want to be More Creative? Embrace Boredom

In our digital age, the tech detox is the new juice cleanse. Wellness experts and medical professionals alike remind us to put down our smartphones and step away from our screens for the sake of our mental and physical health. But as I recently learned from journalist and “Note to Self” podcast host Manoush Zomorodi, there’s another problematic side effect of constant connectivity: it keeps us from getting bored.

“Wait,” you might be thinking, “isn’t that a good thing? Who wants to be bored?”

It turns out, as Manoush explains in her Bored & Brilliant podcast series and accompanying TED talk, that boredom affects our brains in a productive and valuable way: it sparks our imaginations (science backs her up). Think back to your childhood. In my house, if we kids complained that we were bored, my parents sent us to play outside. With no video games or devices to absorb our attention, we made up stories, games and activities to entertain ourselves. We used our imaginations – and imagination is the engine of creativity, whether you’re a kid playing in the backyard or an adult brainstorming for a big project at work.

The idea that boredom begets creativity presents an interesting catch-22 for those of us in the communications field: the nature of our jobs demands ever-increasing levels of connectivity, yet our clients count on us for the fresh ideas and creative thinking that are most likely to flourish when we let our minds wander.

As agency professionals, first and foremost, we are in the business of client service. Responsiveness to our clients’ needs and reporters’ requests is critical – and in today’s 24-hour news cycle, responses must be swift. In addition, as service providers, we are under continuous pressure to demonstrate value and deliver tangible results: securing an interview opportunity with a top-tier target publication, developing sharp and compelling campaign content, planning and executing events that will generate awareness and coverage for our clients, and more. It’s easy to adopt the mindset that if we’re not constantly busy, we’re not being productive, and if we’re not being productive, we’re not adding value.

But if you ask a prospective client what they’re looking for in a new agency, they will almost always cite creativity as one of their most sought-after attributesvalues. In my experience, the projects that generate the most praise and excitement from clients are the ones where we flex our creative muscles to come up with a fresh angle for a campaign or an unexpected solution to a stubborn problem. In order to deliver such inspired ideas, we must resist the temptation to remain constantly bogged down in the nitty gritty details of our day-to-day responsibilities.

To be clear, this isn’t an easy thing to do! Carving out time to “be bored” feels uncomfortable, and even a little lazy or self-indulgent. But if we want to do our best work as creative professionals and outstanding service providers, we as an industry need to better encourage the kind of thinking that sparks big, bold ideas and new perspectives. Exactly how to accomplish this will vary from person to person, but it doesn’t require a radical overhaul of your lifestyle or work routine: for example, Manoush suggests leaving your smartphone in your bag and letting your mind wander during your commute, rather than checking emails or listening to a podcast. And if you have a preferred creative outlet or pastime outside of work that helps you get into that imaginative headspace (I enjoy painting and running), make it a priority to block time on your calendar for those activities.

In this day and age, a full-fledged digital detox is an unreasonable stunt for most of us to attempt. Fortunately, you don’t need to abandon technology altogether to jump-start your creativity – you just need to give your brain a chance to get bored every once in awhile.

A Crucial Signal For The Recovery’s Durability

Whatever one thinks of Donald Trump, none can deny that the economy has picked up since he entered office. How much of this good news stems from his policies remains a matter of debate. Presidents invariably get too much credit for economic good news and too much blame for the bad. But especially since so much of the growth surge relates to capital spending by business, surely some of it reflects the regulatory relief engineered by this White House as well as the tax reform. The crucial question now is how durable is the renewed interest by business to spend on new equipment and facilities? The answer will say much about the sustainability of the overall economic acceleration both over the near and the longer term. By extension, it will also say much about the staying power of the stock market rally.

One of the salient features of the economy’s remarkably slow recovery between 2009 and 2016 was the paucity of capital spending. It took three full years for business to recover its pre-recession high.  Usually that happens in a year or less. During this time, overall spending by American business on software and equipment, as well as structures grew in real terms at barely 5% a year on average, unusually slow by the standards of past recoveries.  The pace slowed still more after 2014. Usually, capital spending picks up as the recovery matures and business looks to keep up with output by enlarging its productive facilities. But according to the Commerce Department, things looked very different between 2014 and 2016. During this period, real capital spending of all kinds rose at only 1% a year on average and real spending on new equipment failed even to grow 0.4% a year.

During the entire period 2009-16, business spending so underperformed historic norms that the sector during much of this time held back the pace of overall economic growth. Not only did this behavior contribute to the disappointing strength of the overall economy and so employment, but the slow rate at which business modernized and added to capacity also raised questions about the economy’s capacity for future growth over the longer term. There was ample reason for concern, too. Spending on equipment and facilities and what the Commerce Department refers to as “intellectual property products” feeds not only the economy’s gross productive capacity but also worker productivity and hence real wages. Reflecting the paucity of such spending, output per hour expanded at an atypically slow 0.6% a year between 2010 and 2016 and wages after inflation did no better. With good reason, questions arose about the economy’s long-run growth potential and the outlook for the average worker’s living standards.

But starting in 2017, almost as if someone had fired a starting gun, the whole picture changed. In the first quarter of that year, real spending on structures and equipment, as well as software and the like, surged at almost a 10% annual rate, a far cry from the patterns that had prevailed between 2009 and 2016. Significantly, spending on software and the like, after years of stagnation, jumped at a 7.9% annual rate. The new, accelerated pace continued throughout the year. By the end of 2017 overall spending after inflation ran 6.4% above year-ago levels, a slight slowdown from the pace of the first quarter but much stronger than anything exhibited between 2009 and 2016. By that time, spending on new equipment had risen 9.1% above late 2016 levels.

The pace of such spending accelerated still further during the first half of this year.  Preliminary Commerce Department figures for the period show that overall capital outlays on equipment rose at a 6.4% yearly rate. Most significant, spending on software and intellectual capital jumped at a 12.6 percent yearly rate. Outlays for all sorts of facilities and new equipment went from imposing a drag on the economy’s overall pace of growth to offering a contribution.  In this year’s first half, such spending alone added 1.3 percentage points to the overall growth of real gross domestic product (GDP) accounting for more than one-third of the overall pace of expansion. More encouraging still, this capital spending surge, especially on software and other sources of intellectual capital, has at last begun to lay a foundation for future productivity growth and wage increases.

Sustaining this trend then is crucial for the economy to deliver robust growth in the future, both in the period immediately ahead and over the longer term. On this front, what little data exists for the third quarter offers some good news and some bad. New orders for civilian aircraft, which had surged in 2017 and earlier this year, seem to have hit a wall. Their drop has dragged down overall orders for new capital equipment 4.9% during the three months ended in July, the most recent period for which data exist. That is over 20% at a yearly rate. Of course, aircraft orders are notoriously volatile. They are quite capable of surging again in the next few months. Offering more solace than the inscrutable nature of civilian aircraft orders is how civilian capital equipment orders excluding aircraft have continued to expand, growing some 2.7 percent during this most recent time, an 11.2% yearly rate.

There can be no mistaking that the decline in aircraft orders, once it runs through to shipments, will slow the economy’s overall growth pace, probably during the fourth quarter and the first quarter of 2019. For the rest, a continuation of robust capital spending growth elsewhere would help secure the economy’s long-term productive future and support overall growth rates superior to the 2009-16 period. It would in time also improve labor productivity and wages. But if the aircraft drop signals a more general trend, then the economy will again look vulnerable. Growth would relapse to the paltry growth rates of the 2009-16 period and longer-term hopes for productivity growth and wage gains would dissipate.

Originally published on Forbes.com.

Get to Know Amber Roberts, the Newest Member of Our Management Team

Today, we announced the appointment of Amber Roberts, a 15-year veteran of financial services communication, as the new CEO of Vested’s professional services operation in the United States.

The full announcement is out now, but here’s a summary. Amber will focus on maximizing the value that we can deliver to clients, who turn to us for bold, actionable integrated communications services. Her mandate is partly expanding our set of services, partly mentoring staff, and partly developing new business. Ultimately, she will provide leadership for and oversight of all of the services we conduct for clients in North America, from strategic counseling to content development to press management to issues-driven communications to planning and everything in between.

This is a new position, and Amber is the perfect fit.

Vested is a unique agency. We have an investment division, Vested Ventures, and a proprietary technology platform, Vested IQ. We have a chief technology officer and a chief economist. We have plans to establish additional lines of business during the next 12 to 18 months. These resources and ventures make our abilities as consultants as strong as they can be. Few, if any, other firms that serve the interests of financial companies can truthfully say that they, too, take this approach.

The foundation for all of this is a robust, best-in-class services offering that consistently, methodically delivers on what clients need and expect. It’s the thread that ties everything together, and this has been our vision since day one.

I’m so excited to have such a fearless leader, successful woman, financial services expert, and entrepreneur join our leadership team. Amber will be a key part of our growth as our teams continue to deliver the ideas and actions that create value for our clients. Her experience working on both high-stakes companies within banking, private equity, asset management and insurance as well as creative consumer campaigns will prove invaluable as we enter into the next chapter of our expansion.

Going Into The NAFTA Negotiations, Canada Has Trouble

Going into the NAFTA negotiations, Canada faces all sorts of troubles. The Mexico-U.S. deal puts its representatives at a distinct disadvantage. Perhaps even worse for Ottawa, the country’s economy faces fundamental economic problems. The government’s  admirable goals of offering citizens prosperity in a green and compassionate environment have failed to account for essential economic trade-offs that now threaten growth potentials, making a deal with the United States more important than ever. Even if Canada gets a reasonable deal from Trump and the Mexicans, the economy and Prime Minister Justin Trudeau will still face severe growth problems.

Most troubling in Canada’s economic picture is the shortfall in business spending on productive facilities. Whereas such spending south of the border in the United States has accelerated markedly in the past year and a half, Canadian business still shows reluctance to put dollars at risk to either modernize or expand. Industrial output has accelerated to be sure, growing 5.2% in 2017 and seeming to maintain a smart pace of advance this year. But Canadian business has failed to expand capacity with that rise in output. Instead it has managed by using existing capacity to its fullest extent. Utilization rates on average range over 86%, high by historic and international standards, suggesting that firms have begun to employ less profitable and outdated facilities to sustain output. Spending on new equipment did rise in the first quarter, hardly a wonder since business clearly already faces constraints. But even then, the flow of real investment in new machinery and equipment remained a mere 3.5% above year-ago levels.

The problem is long standing, too. According to Fraser Institute analyses, Canadian business investment after inflation has declined at almost a 5% annual rate since 2014. It has dropped from some 13.5% of the country’s gross domestic product (GDP) earlier in this century to a mere 11.0% recently. Monies spent to expand and modernize machinery and equipment have suffered the most dramatic relative decline, falling from 6.2% of GDP earlier in the century to barely 4.0% more recently. International comparisons are possibly the most telling. Capital investment per worker — the basis of productivity growth and real wage increases — stands far below most other developed countries. Canada spends more than a third less than Australia, for instance, to provide its workers with productive facilities and almost 40% less than the United States. It spends less even than France, almost 35%. These differences, though meaning little immediately, will tell over time as the additional facilities enhance the productivity of foreign workers while Canadian workers fall behind.

While neglecting domestic operations, Canadian business seems to see a future abroad. Canadian investment in the United States has grown a remarkable 18% a year during the three years through 2017, the last period for which complete data are available. Such spending flows jumped 19.0% in 2017 alone. Canadian investment dollars have flowed at an even higher rate to other countries. Gross investment outflows from Canada have increased a striking 35% a year during this same three-year period. Meanwhile, U.S. and other foreign investors seem determined to avoid Canada. Foreign direct investment in that country fell 26% in 2017 and stands at less than half the level recorded in 2015.

Various analyses have tried to identify the causes of Canada’s problem. While all admit that the influences on investment decisions remain less than fully understood, some observations are especially telling. The Bank of Canada has pointed to uncertainty about U.S. policy, especially under Trump, but that can account for only a small part of things, since the trend pre-dates his election and even his candidacy. More telling, perhaps, is the rise in corporate taxes in Canada. Back in the 1990s, Ottawa made a major effort at competitiveness by holding down corporate tax burdens. This had a powerful effect, especially since the United States at the time maintained one of the highest corporate tax rates in the world at 35%. But since, Canadian corporate taxes have edged up. According to Fraser Institute calculations, the marginal tax rate on capital investment has risen from 17.5% in 2012 to over 20% at present. It will not help that tax reform in the United States has now lowered corporate tax rates there.

Less easy to quantify are the ill effects of  Canadian regulatory obstructions. Industry has consistently pointed to labor and environmental issues as reason why they remain reluctant to expand in Canada.  Investment in oil and gas, for instance, has suffered from provincial resistance to the construction of pipelines.  Indeed, British Columbia recently so fought a trans-mountain pipeline project that industry completely abandoned the effort. This sort of problem would affect investment levels anywhere, but for Canada it looms especially large, since oil and gas stand as a huge part of that economy. Along with these sorts of problems, the large Ontario-based auto supplier, Magna, has pointed to restrictive labor laws as an additional investment disincentive. In testimony before a government inquest, Magna management explained how environmental and labor regulations have made them less inclined to build in Canada, especially when neighboring U.S. states have offered concessions. Not least is how all these restrictions have raised the cost of electric power throughout Canada. Indicative is the proposed carbon tax legislation that would have taxed 30% of emissions at C$10 a metric ton initially, rising to C$50 by 2022.

Many in Canada and across the developed world contend that environmental and labor rules of the sort Canada has adopted are entirely appropriate.  They have much reason on their side.  They argue, convincingly, that corporate tax burdens simply reflect companies’ obligations to the larger society. Reality, however, makes clear that business will leave if other nations fail to impose similarly imposing rules. Since Ottawa has little chance of getting other governments to its cause, especially the United States in these upcoming negotiations, it will either compromise or lose out. The compromise seems to have already begun. Recently, the Canadian government reduced to 20% the portion of emissions subject to the carbon tax and indicated a willingness to make further accommodations if companies can show competitiveness problems. It is apparent that Ottawa and the provinces will have to go further along this path to secure Canada’s productive future, even if they get a deal from Washington and Mexico City.

Originally published on Forbes.com.

The Need To Protect Consumers From Consumer Protection Regulations

For all the faults of Dodd-Frank-era regulations, some of which I outlined in my last post, the consumer protection elements may create the worst distortions. Reforms aimed to cut consumer expenses but ended, no doubt unintentionally, closing off access to credit and otherwise either disguising costs or transferring them. The resulting opacity and confusion imposed by these reforms now demand additional reforms so that financial firms will reliably offer services and consumers can make informed choices according to which cost the most to deliver.

First on this list of unintended consequences emerges from Dodd-Frank’s efforts to reduce the fees banks charge merchants for the use debit cards. The reforms concerned banks above a certain size. That stipulation no doubt aimed to protect smaller banks, but in reality was pointless, since smaller institutions seldom issue such cards, and when they do, they constitute a tiny fraction of overall debit card services. Before Dodd-Frank, Federal Reserve (Fed) research estimated, merchant fees came to about 44¢ on the average transaction, which the Fed’s researchers estimated at about $38.00. The law capped fees at 24¢, a flat fee of between 21 and 22¢ plus 0.05% of the transaction’s value. This measure, again according to Fed research, cut back bank revenue from this service by almost three quarters from $14.6 billion to $4.1 billion.

The rule, in other words, made this service a losing proposition for most banks. They had a simple choice. They could discontinue the debit card service, hardly a benefit to the millions of users that the legislation aimed to protect. Or they could make up the difference somewhere else where the regulators had not yet turned their gimlet eye. Most firms chose the second path. Fed research estimates that they made up almost all the lost revenue by raising account fees to all customers some 15%. It was either that or end the service.

The distortions and inequities of these moves should be obvious. The banks were made whole. Merchants paid less than the costs of the service from which they benefited. Bank account customers foot the bill for the difference. Effectively, retail bank customers subsidized the merchants and the banks — hardly an equitable outcome. The whole picture also brought to light a more general inadequacy of Dodd-Frank. The ease with which banks raised account fees reveals how little competition exists among larger banks in this country. Dodd-Frank, for all its complexity, has done little to correct the consumer abuse implicit in this situation. On the contrary, by enshrining notions like too-big-to-fail, the legislation has created a privileged place for these large institutions.

A different piece of Dodd-Frank-like legislation, the CARD Act, created other distortions. It aimed to protect credit card borrowers by mandating lower rates. The effect was to bring the banks back to where they first introduced credit cards in the 1970s. Then, bank credit cards aimed at low risk, high-income customers. Banks had little choice, since most cards faced state-mandated interest rate ceilings, making it a losing proposition for any financial institution to offer cards to customers where there was a greater risk of default. As those state interest rate regulations eased in the 1980s and 1990s and banks could charge a rate commensurate with risk, they began to expand their card business to include less credit-worthy holders. By forbidding rates commensurate with risk, the CARD Act left financial firms with two choices. They could lose money on a large portion of their credit card business, or they could reverse the historical process by pulling back from less-credit-worthy customers. They chose the latter course.  From 2010, when the act, along with Dodd-Frank, went into effect, the number of low-credit-worthy people holding cards dropped from 70% of the total to 50%.

In response, non-prime borrowers also had two options. They could lose their access to credit, which the law seemed determined to do, or they could turn to less-regulated sources. Some states blocked this second avenue by forbidding non-bank lenders access to the market. Retail borrowers in these states simply had to do without. But in those states that lacked such regulation, non-prime borrowers flocked to less-regulated corners of finance. In these states, Fed research concluded, high-risk consumers substituted “consumer finance credit for reduced access to bank credit cards,” often at higher cost. In other words, the people who the CARD Act aimed to protect either lost out completely or paid more.

Conspiracy theorists might see in these distortions and inequities collusion between Wall Street and Washington. One could forgive them for reaching such a conclusion.  Matters certainly look suspicious. A more charitable interpretation would simply point to unintended consequences, or in more folksy language the old saw that the road to hell is paved with good intentions.

Those problems stem from two chronic failings of Washington regulation. Its legalistic nature focuses on institutions and particular legal structures leaving markets and the broader financial industry to swing around the regulations, as has clearly happened with consumer protections as well as elsewhere with Dodd-Frank. The other problem is Washington’s habit of using regulation to impose on vendors and industry to help favored or needy groups in society. Because these impositions reduce profitability, it should come as no surprise that business avoids them in one way or another. In most cases, the people that Washington intended to help lose out on services or if they can get them elsewhere, pay more than they did before the regulations went into effect. If Washington wants to help certain groups that badly, it might do well to resist the temptation to impose the expenses obliquely on others through regulation and instead forthrightly tax to give certain groups the help. Then the authorities could see clearly at the polls how much the public likes the idea.

Originally published on Forbes.com.

Dodd-Frank Desperately Needs More Reform

Though Congress has taken some steps, Dodd-Frank needs more reforming. A close look at its effects, now that enough time has passed to produce evidence, shows that it has created as many problems as it solved, if, in fact, it solved any problems. It is not that the financial system should go without disciplined control. Regulation is essential. The 2008-09 crisis showed that, as have earlier crises. But what the country got from Dodd-Frank clearly was not the answer. It has created inequities and shifted risk rather than reduce it, leaving the system as crisis prone as ever. As the evidence since its passage shows, it would do better to step back from micro controls on bank practices and find risk-control disciplines by putting financial firms, large and small, on notice that excessive risk could lead to their demise.

Generally speaking, Dodd-Frank’s deficiencies lie in two areas. First, its efforts to protect the system as a whole have created inequalities and inefficiencies that have otherwise distorted credit flows and may well have made the system less rather than more resilient than it was. Recent reforms of Dodd-Frank have begun to correct this flaw but only began to do so. Second, legislation from that time, by extending Washington’s habitual obsession with legal structures and institutional categories, has ignored many new financial actors, leaving them to step in where the rules discourage banks from going, creating risk for the system while the regulators look elsewhere. What is more, the risk remains at the banks, for even as the rules forbid banks to take on certain risks, they allow them to lend to non-bank actors who take on those same risks. Concrete illustrations can give a sense of the extent of these problems.

“Too big to fail” holds pride of place when it comes to Dodd-Frank inequities. It is easy to see the reasoning behind the legislation.  Large institutions can threaten the efficacy of the whole financial system more than small, and so the government’s effort to protect the system offers them guarantees of a sort attached to stricter regulatory requirements.  But as always is the case in such circumstances, the unintended consequences loom large. Despite the extra rules and the stress tests imposed on these large banks, the implicit government guarantee gives them a competitive edge over their smaller competitors that more than compensates. Potential clients cannot help but prefer dealing with guaranteed institutions. It is then far from surprising that since Dodd-Frank went into effect in 2010 the ten largest banks have increased their share of deposits from barely over 50% of assets to slightly more than 75%.

The inequity imposed by this “reform” goes still further.  The law had originally set a relatively low size that would bring on extra rules and special scrutiny.  Banks that rose above that level but still remained far below the huge, trillion-dollar-plus institutions faced the worst of both worlds, extra regulatory burdens but none of the advantages of the too-big-to-fail designation.  Accordingly, smaller banks that contemplated mergers for business reasons hesitated for regulatory reasons.  Merger activity declined by a quarter after Dodd-Frank.  Because smaller institutions resisted growth, the Dodd-Frank “reforms” not only gave the mega institutions the competitive edge of a guarantee but also gave them shelter from the competition they might have otherwise arisen from up-and-coming regional players.  By raising the bank size subject to extra regulatory scrutiny, recent legislation has moderated this effect but certainly not erased it.

A good example of how the Dodd-Frank rules shift rather than reduce risk comes from the repro market, where banks lend to each other short-term in order to support an even flow of credit and banking services. Dodd-Frank originally tried to control the risks in this area by demanding different amounts of backing for loans depending on the riskiness of the instruments used as collateral. Since, for example, regulators saw treasury bonds as safe, they allowed banks to borrow more freely with them as collateral than say, equity collateral, which the regulators considered riskier.  These rules drew the banks toward safer assets, at least safer in the eyes of the regulators, who for some reason saw mortgage-backed bonds as safer than most assets, even though they played a big role in the 2008-09 financial crisis. New rules from the Bank for International Settlements look instead at overall leverage without discrimination.  This would seem to put the onus on banks to determine which collateral has the greatest risk, but by also capping overall leverage, this “pure leverage” approach has driven banks to cut back on generally in lending to each other, even as they lean when they do so toward riskier if more profitable instruments for collateral, like equities. The banks, accordingly, have turned away from mortgaged-back collateral, allowing non-banks, which are not regulated, to fill the market gap by using mortgage-backed collateral in this activity.

It is apparent that the rules have neither reduced overall leverage nor the risk, in the mix of collateral.  All they have done is shifted the risk among financial players.  The system is no safer than previously.  It is just that the risk lies in different quarters.  The same effect emerges from Dodd-Frank’s treatment of what are called “leveraged loans.”

This lending consists of loans to corporate borrowers that already carry high debt levels.  The risks are clear.  Banks favor them anyway because they carry higher rates than most, ore than enough to compensate for the risk. Various regulatory bodies under the law offer guidance on such lending but neither prohibit it nor impose special penalties for making leveraged loans.  When in 2015 regulators first issued guidance, large banks cut back on such lending.  Small banks, which were not covered by the guidance, showed no change in their behavior. But because the demand for such lending remained unchanged, non-banks, also not covered by the guidance, stepped into the breach left by the large banks.  Previously, large banks averaged 185 such loans a month totaling $25.1 billion. After the guidance went into effect, they averaged only 142 loans totaling $19.4 billion.  Over the same time, non-banks have raised the pace at which they have made leveraged loans from 23 a month to 32 and the dollar amount from $1.5 to $2.8 billion. Their actions have not completely filled the gap left by the large banks, but they do constitute a substantive jump nonetheless. Risk to the financial system, in other words, has hardly declined.  It has simply shifted.  And since the non-bank lenders financed their loans largely by borrowing from the banks, they have the exposure anyway, indirectly to be sure, but it remains nonetheless.

A further examination of other aspects of the financial system would add to the number of illustrations.  The regulators clearly need to jettison their focus on legal and institutional classifications and regulate all players equally.  That way, their rules, for better or worse, would at least encompass the whole system rather than influence only parts of it.  The way risk slides might also alert them to the need to embrace the ultimate risk-control discipline on lenders: the real possibility of bankruptcy.  Too big to fail and other less obvious promises of government support or protection invite financial players to take risk.  Rather than elaborate standards, especially if applied unevenly, more effective bankruptcy rules could protect the system by putting financial managers on notice that they and their shareholders could pay the ultimate price for excessive risk taking.

Originally published on Forbes.com.

Sofia Romano: Morning Person and Vegan Vestie

We’re excited to continue the #VestedLife monthly mini-series, which profiles a day in the life of Vested’s passionate, busy, coffee-fueled employees (affectionately dubbed “Vesties”). This series is part of an ongoing initiative to uncover (and celebrate!) the unique culture at the agency and give readers a peek at how fun yet challenging life at Vested can be.

#VestedLife: Sofia Romano: Morning Person and Vegan Vestie

Sofia Romano, UK Senior Account Executive
Canterbury, Kent, United Kingdom
Sofia tweets at @SofiaRomanox


Sofia Romano Coffee Addict5:33am

My day officially starts with the sound and smell of my coffee alarm clock. I can tell you have several questions about this:

1. Why so early?

2. Why 5:33 and not 5:30?

3. Coffee alarm clock…. Are you crazy?

I live in Canterbury, Kent, and actually don’t wake up until 5:48. My commute is an hour and a half plus I like to start my day early as I am most productive in the mornings.

The coffee addiction and weird number thing is a whole other story that I’m choosing to skip over [Editor’s note: Ooh, the intrigue!].


Sofia Romano A Day in the VestedLife
St. Pancras Station


My train leaves and my Vested day has begun. I begin by catching up on last night’s emails and reading today’s news. Of particular interest is a short video by the Financial Times, which discusses Project Innovate and the recent talks of replicating the successful FCA sandbox worldwide. Interesting stuff.

Once my train pulls into the iconic St. Pancras station, I set off on my morning walk to the office to clear my mind and prepare for a busy day ahead.



What a busy morning! So far I’ve drafted a press release, conducted media outreach, had two internal client meetings and a new business meeting — all before midday! What I love about life at Vested is that every day is so busy, unique and full of opportunities to learn about the different aspects of financial services. Today is no different. I’ve dabbled in asset management, investor services, financial edtech, fintech and financing for small and medium enterprises — and this day is showing no signs of slowing down. Financial services nerds of the world, unite!


Sofia Romano A Day in the VestedLife
Our stunning office space. Click the photo for more images.


When did it get so late? My stomach is rumbling which tells me I’ve skipped lunchtime. I head out to explore the wonders of Leather Lane’s street food, only to find that everywhere is packed away. It’s a shame because I was looking forward to gorging on a polenta wrap from my favourite vegan stall, but it turns out lunch and a milkshake from POD hit the spot! I sit outside in the courtyard of the beautiful Waterhouse Square, overlooked by our WeWork office, and enjoy the last remnants of the sunshine.


Sofia Romano


After more media relations work, event planning, writing a blog post for a client and taking full advantage of the coffee machine, my day is coming to an end. The office is oddly cold, so I huddle up in my Vested Vest™, wrap up my actions for the day and prepare my to-do list for tomorrow. I have also given myself some journey-home actions, which include preparing a briefing note for a client appearing on Bloomberg TV, as well as reading a new post by 11:FS on financial education.



I arrive back home in Canterbury and enjoy a well-deserved dinner. I am tired yet happy with today’s successes, and look forward to what tomorrow may bring. Life at Vested is no walk in the park, especially when you choose to live a million miles away #nosympathy. But if you love what you do (and where you live), everyday is absolutely worth it. Bring on 5:33am!

What to Expect When Your Baby Turns Three

What to expect when your baby turns three: In this case, our baby is Vested (but that’s my human baby pictured!) and we couldn’t be more proud of how far it’s come. This July marks the firm’s third year in business, and just like parents who look far down the road to ensure opportunities for their child, we’re paving the way for Vested’s future. For us, and for many young parents, this means investing.

Parents — in some cases soon-to-be parents — start saving for their child’s education before the little one is even born. Through opening a 529 college savings account, parents can save, tax-free, while their lump sum is collecting interest. We’re doing some investing of our own: in our staff, in our work, and in our clients. Not only have we seen the ROI, but we’ve managed to secure our spot as the pre-K Valedictorian.

See how our developmental stages have been as crucial as a toddler’s to helping us grow, learn, and play.


Age three carries some big emotional milestones for kids—their first friendships, and proven success in positive reinforcement. It’s the age where children become more conscious of how they feel. Vested, too, has an awful lot of feelings about its third birthday; but the most overwhelming? Gratitude.

Over the last year, we’ve been fortunate enough to win 10 industry awards and secure two finalist placements. These include PRNews’ The Finnies: won by our Maggie Mognahan; PRNews’ The Finnies: won for our work with Clarity Money; PRNews’ PR People: our CEO Dan Simon was named a finalist;  Bulldog Reporter’s Stars of PR: Vested was named Most Innovative; Bulldog Reporter’s Stars of PR: Vested was named Best Boutique Agency; Bulldog Reporter’s Stars of PR: Vested was named Best News Agency; Business Intelligence’s PR and Marketing Excellence award: Vested won; Business Intelligence’s PR and Marketing Excellence Award: given to our COO Ishviene Arora; Gramercy Institute’s Financial Marketing Strategy Award: won for our work with Rockefeller & Co.; Agility Solutions’ Bulldog PR Awards: won for our work with Rockefeller & Co; SVUS Awards for PR World Awards: won by our President Dan Simon; SVUS Awards for PR World Awards: Vested won.

And somehow, that’s not all. We’re incredibly grateful for our new client, Morgan Stanley, as well as our existing clients, with whom we continue to grow and build relationships.


Just like toddlers, we’ve found our voice in year three. We hosted our first-ever Leading Women’s event, moderated by our COO Ishviene Arora. The roundtable event brought together big names of females in finance, including with Bloomberg TV anchor Emily Chang; CCO of Women’s World Banking Karen Miller; Morgan Stanley’s Head of Corporate Affairs Michele Davis; and Founder of Girls Who Invest Seema Hingorani.

Plus, our CEO Dan Simon MC-ed Money20/20, one of the biggest annual conferences in finance. The day-long event showcased innovation in the finance and technology fields during its Demos, Case Studies & Announcements section. Dan also headed to the Gramercy Financial Group’s conference in Boston this spring, where he presented Vested’s Millennial Money Study, which analyzed the demographic, their spending habits, and flaws in existing research. With the study came media coverage, a one-pager, and two blog pieces.

Speaking of media, members of the Vested team also lent their voices and perspective to industry publications. A few highlights: Seres Lu bylined a piece for Markets Media on the 10-year anniversary of Bear Stearns, and Ishviene was quoted in an NBC News piece. I published a piece in Forbes about gendered tech brands, and later, was quoted in the publication for a piece about women in finance. Similarly, our in-house economist Milton Ezrati appears in Forbes, and dropped by Cheddar earlier this year to discuss Trump and tariffs. 

Our new UK office — which also opened during year three, but more on that later — did some talking, too. CEO Elspeth Rothwell and team hosted the office’s inaugural Breakfast and Brainfood, where we brought together industry leaders to discuss the latest consumer trends in marketing and financial services.


Much like talking, three years seemed to be a landmark for us in the thinking department too — or more specifically, thought leadership. We ramped up our blog content this year, having published more than 60 posts to-date on subjects like traditional economy analysis, to female leadership, to the World Cup, brand trends and more.

Plus, our blog gave us a platform to explore and embrace how much fun finance can be. We love a good meme and took the liberty of compiling Instagram’s best financial meme accounts. The post caught the eyes of Haley Sacks, the brain behind @MrsDowJones, who reached out to thank us. Long story short, the ‘grammer and content creator later came into the office for a Vested Lunch n’ Learn.

Playing and learning

As we mentioned, we’re firm believers that finance can be fun. This includes being able to poke fun at ourselves and what we do. Last fall, we launched a fintech name generator because the world knows there’s a serious lack of catchy, buzzwordy financial technology company names, many of which either lack vowels or end in “ly.” And while the generator is a bit of a gag, it’s helped us stop and think about how important the proper branding is for newly launched companies.

We’ve also tapped into other forms of tech for some more creative and playful ways of learning. In October, we took our weekly newsletter, Vested Suggested, to the next level. The letter consists of curated news headlines and why they’re relevant – and thanks to our pal Alexa, are now even easier to digest. The Amazon device will read the newsletter out loud so you can get caught up on what’s happening this week, hands-free.

Social media has been another successful avenue for us to get a little cheeky, and turn the idea of stodgy, stuffy finance on its head; and it seems to be working. Our following on LinkedIn, Twitter and Instagram has grown over the last year and given us the opportunity to tell it like it is.


Up, up and away! Ok, maybe not so much “away” but rather in addition to. We relocated to a new office in midtown complete with some of our favorite snacks, a massive open floor concept, and of course, our resident pups!

We also added the UK office – formerly Templars PR – and hired Elspeth Rothwell as its CEO and Katie Spreadbury as Director. And they weren’t the only ones: they’re just two of 15 new hires, including a new CTO and a culture specialist. It’s also helped us earn the spot as the world’s fastest-growing PR firm in 2017, according to the Holmes Report.

To say it’s been an eventful year would be an understatement. But it’s been about so much more than accolades or financial growth, although those things are important. We look back on the last 12 months and feel overwhelmed with gratitude for our dedicated staff that makes Vested the creative and inspiring company it is, and for the clients who put their trust in us to push the envelope and forge ahead. Happy Birthday to us; we can’t wait to see what year four brings.

Vested Third Birthday

The Dark Side of the Sun

British sentiment has certainly changed its tune since the ‘Beast from the East’ dominated headlines back in March. We’re now halfway through the summer season and the heat has been stifling. Then, last weekend, the heavens opened and a tropical thunderstorm came crashing down.

Being Brits, we adore talking about the weather and the rapid shifts provide ample opportunity for small talk: we complained about the overbearing heat of the Central Line, or the uncomfortably warm evenings disrupting our sleep, but overall sentiment remained high; it was hard to avoid the influx of emails that began with a reference to the sunshine. Now that the rain from the weekend has passed, many Brits are excited for what is predicted to be a long period of sunshine once again.

Many, but not all. Two industries in particular are far from delighted: agriculture and European tourism.

Satellite Images of British Heatwave EffectsSatellite images of Britain in May (left) and recently (right). Source: SWNS, via The Independent

Burning agricultural resources

When we experience heat waves and minimal rain, hobbyist gardeners lament their browning lawns. For others, their very livelihoods are threatened.

Wildfires have been spreading, threatening safety and killing crops. Rising temperatures are highly detrimental for those reliant on agriculture to make a living. While many Brits took advantage of the weather via beaches and sunbathing, farmers carried water for miles, dug wells to keep their crops and livestock alive, and worked through the night to collect the little moisture available.

Heat and drought cause more than physical pain for farmers; they can cause economic pain. Farmers have raised concerns that a shortfall of rain will increase the cost of animal feed so many farmers will have to sell their livestock to compensate. Fewer cows mean less commercial milk production, causing a drop in supply and a consequential rise in consumer milk prices. And it’s not just milk costs we need to be worried about; our veggies are at stake too!

The Guardian details nicely (or rather gruesomely, actually), the impact of the heat wave on our vegetables:

  • Lettuces: 40% increase in demand; yields down by 25%; prices up by 22%
  • Carrots: yields expected to be down by 30%; prices up nearly 55%
  • Onions: production expected to be 25% smaller this year; prices up nearly 55%
  • Broccoli and cauliflower: shortages are severe; prices up 37% for the former and 81% for the latter
  • Potatoes: the recent downpour has improved matters slightly, but the crop is still likely to be around 25% lower in production than last year
  • Apples: at best, production will be in line with last year
  • Peas: expect smaller peas and increased attacks from pests such as the pea moth

The sun is here to stay, and so are we

The veggies (or our pockets, rather) are hurting, but so is international tourism. We all know that the summer months are a deadzone in Europe: from July through to September, you can forget trying to get an important meeting in the diary.

In fact, in August 2017, 63% of Brits surveyed said they were planning to travel to Europe in the next 12 months (ABTA), and that’s excluding the last-minute holiday bookings.

This year, though they’re still taking time off work, Brits are ditching sunny Spain and opting to holiday in the UK instead. This is great news for many and particularly those lucky enough to have the seaside on their doorstep. For professionals such as travel agents, companies, or international communities reliant on UK tourism, the impact has been rather bleak.

British beaches have stolen the sunbathers, swimmers and volleyball players, and kept them from seeking refuge in hotter climates. Travel agents have therefore slashed their prices on trips abroad.For example, TUI cut the price of its foreign holidays by up to 72%, The TImes reported a week-long stay for two in Thassos, Greece, dropped from £686 pp to a measly £191.

While it may not be bad for consumers that travel agents are reducing their hiked up prices, the tourist communities and seasonal industries throughout Europe will experience far tougher challenges should this trend continue.

Is the future bright?

Climate has a clear and measurable impact on local economies. We’ve seen it in California, where drought and wildfire routinely cost dollars and lives. And CNBC recently profiled the economic impact of the drought in Cape Town, South Africa. Regardless of one’s stance on climate change, we must acknowledge the impact that weather has on various industries, and those impacted must work to be agile as changes manifest. That said, while this (until now) rare heat lasts, I’ll be making as many trips to the seaside as I can manage.