Business Ethics Alive in Small Banks – Strong Ethics Equal Healthy Banks

October 18, 2008

It’s easy to become cynical when all you hear in the media is bad news.  But not all news is bad.  In a recent CNN article there was some refreshing comments from small, but healthy, banks.  They were making loans and, for the most part, it was business as usual.

Here are some comments from the article:

Conservative lending practices seem to be a common denominator among banks that have remained strong and stable during the current banking crisis, and those banks are still making loans.

Peoples Bank President Todd McKee, left, chats with customer Tommy McVay on Friday in Lubbock, Texas.

Peoples Bank President Todd McKee, left, chats with customer Tommy McVay on Friday in Lubbock, Texas.

The failures of behemoths such as Washington Mutual and IndyMac have drawn media attention, but not all big banks are in trouble — and smaller banks are not immune.

For sometime, as a business ethics speaker, I have said that the underlying problem related to the economic crisis we’re facing today has been founded in a lack of business ethics.  For those comments I have been the brunt of criticism.  But, if ETHICS is choosing good from bad with a moral obligation and duty…then I submit that what is reported in the CNN report supports my position.

“Our underwriting standards have tightened a little bit,” said Ronald Heaton, president of the Cedar City, Utah, bank. “… Our standards haven’t changed drastically, and we’re still loaning … but we’re watching our underwriting standards closely so that people are able to repay their loans.”

Mortgages that didn’t require borrowers to prove their income or make a down payment got many lenders into trouble, but his bank never offered those: “Didn’t make sense,” he said.

Some would-be borrowers “wanted us to do everything, and we said, ‘We don’t do everything. We have standards,’ ” Heaton added.

Nonbank mortgage lenders were able to generate substandard mortgages because they were not adequately regulated by the federal government, Heaton said.

Now those bad loans have come home to roost, the nonbank lenders are out of the game, and State Bank of Southern Utah’s mortgage business is picking up, Heaton said.

Folks…that’s just plain ole good ethics.  Heaton (whom I’ve never spoken to or met) is 100% accurate.  If you have standards (founded by sound business ethics) you won’t find yourself in major financial trouble.  I contend that lending practices, that were not founded with sound ethical principles, are in large part the root cause of why we are where we are today.

Another part of the CNN report states:

In Texas, the state Department of Banking says state-chartered institutions wisely stayed out of the subprime game.

“That’s not what we do. We’re not in the subprime market whatsoever,” said Todd McKee, president of Peoples Bank in Lubbock. “Lending here is the same as it’s always been.”

The way it’s always been is up close and personal. McKee said his bank’s customers prefer to do business with tellers face-to-face rather than through the drive-up window.

“I’m president of the bank, and I sit right by the front door, so I wave at every single soul that walks in the bank. Everybody has access to me,” he said. “My partner [Larry Allen] is the CEO. … He sits at the other door. So we know everybody that comes in the door.

May sound “hokey” but that is banking the way it was meant to be.  I recall my first loan when I was 18 years old (I’m now 51) was made – not by a credit score – (funny I don’t think they existed then), but rather the loan was made on character and the fact that the bank president trusted me to repay (and knew where my mama was if I didn’t).  I paid the loan back and was proud to do business with them.

This last comment from the article states it best – “You can look at credit all day, you can look at collateral, but if they can’t make that payment, there’s no sense in making that loan. And we’ve always done that. We’re all supposed to do that.”  That is business ethics!


“Teach Me To Trade” Instructors Indicted in a Multi-Million Dollar Stock Trading Seminar Scheme

March 11, 2008

People from all walks of life attended seminars nationwide to learn how to better invest their money. They attended “Teach Me To Trade” seminars – controlled by the Whitney Information Network, Inc. a nationwide seminar company. See their web site here.

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Seems that Linda Woolf, age 48, and David Gengler, age 34, both of Utah, were indicted on federal grand jury charges of wire fraud and conspiring to commit wire and mail fraud. In addition, the SEC also announced the filing of civil fraud charges against Woolf and Gengler.

According to the news release from the US Attorney’s office: Woolf and Gengler falsely represented themselves to be highly successful stock traders in order to sell “advanced” seminar courses costing from $3,000 to more than $40,000. Many of the attendees were senior citizens, who were encouraged by the Woolf and Gengler to take out large lines of credit and to show their retirement and investment portfolios to the seminar sales staff (known as “Success Coaches”), ostensibly to receive investment advice, but really to allow the staff to identify how much money an individual had available.

Woolf and Gengler worked for “Teach Me To Trade,” a brand name controlled by the Whitney Information Network, Inc., a nationwide seminar company that frequently targeted Northern Virginia.

While this might be one of the first indictments against “Teach Me To Trade” instructors, it is not the first time this organization has been accused of unethical business practices. Just searching for “Teach Me To Trade” – other than their nicely done website – turns up a more bad press than good. Here are some examples:

Trading is not as easy as they would make you believe and most people will loose their money. This company takes advantage of the most financially vulnerable and should be stopped. Denise – Glenview, Illinois – full article here.

My major complaint about TMTT is that they prey on the innocent. A bonafide organization would have advised us that this was beyond our means. Henk Belfast, New York – full article here.

I recently went to the free seminar in Arizona just to see how much trading information could be tought in a 2 hour class. What a joke that was! It was 2 hours of trying to be scammed into paying $200 for a 3 day workshop. After listening to basically a salesman in a cheap suit talk about the money you could make with their product I realized how much information he was leaving out on every chart he showed. It was just enough to get your attention but also confuse the hell out of you to make you feel stupid. Then he would explain how with more classes all of this would become clear and easy to understand. Its a scamming sales pitch…take my advice and save your money. Chad – Arizona – full report found here.

According to an article in Business Week, “Woolf and Gengler worked as independent contractors, according to the indictment, and received sales commissions of 10 percent to 15 percent from Teach Me to Trade, which is a part of the Whitney Information Network, a publicly traded company based in Cape Coral, Fla.

Whitney itself is not charged, though the indictment says Woolf and Gengler relied on the company’s “fradulent marketing efforts” to entice the public to their seminars.”

Criminal indictments are only charges and not evidence of guilt. Defendants are presumed to be innocent until and unless proven guilty. That said, every choice has a consequence. My guess – and it is only an educated guess – is that this is the beginning of the crumble of this organization. I suspect that “Teach Me To Trade” will try to distance themselves from those indicted, but with all the buzz out there on this organization, I would suspect that there will be more to come.

Today, I speak to groups nationwide about Choices and Consequences. Do your employees make the best choices for your company—or for themselves? Are you ready for some straight talk about success, choices, and ethics from a business executive who lost it all…and gained more than he could ever imagine?

In an unusually vulnerable style, Chuck Gallagher explores the decisions we make through the veil of honesty, integrity, and ethics. Your audience will be touched by his personal stories and poignant lessons.

For information about my presentations, visit my website – www.chuckgallagher.com