A Higher Loyalty: Decision-making in Trumpland
On 9 May 2017, James Comey, director of the powerful US Federal Bureau of Investigation (FBI) was addressing his colleagues at Los Angeles bureau. He explained that FBI had rewritten its mission statement in 2015 to make it shorter and to better express the importance of its responsibility. Its newly defined mission was to “protect the American people and uphold the Constitution of the United States.” Comey said: “I wanted it shorter so everyone would know it, connect to it, and share it with neighbors and especially young people. And then he stopped in mid-sentence. On the TV screens along the back wall he could see COMEY RESIGNS in large letters. The screens were behind his audience, but they noticed his distraction and started turning in their seats. I laughed and said, “That’s pretty funny. Somebody put a lot of work into that one.”
 
While he continued to speak, the message on the screens now changed. Across three screens, displaying three different news stations, flashed the same words: COMEY FIRED. He wasn’t laughing any longer. He told the audience, “Look, I’m going to go figure out what’s happening, but whether that’s true or not, my message won’t change, so let me finish it and then shake your hands.” I said, “Every one of you is personally responsible for protecting the American people… We all have different roles, but the same mission. Thank you for doing it well.” Comey shook hands with everyone and walked to a private office to find out what was happening.
 
The FBI director travels with a communications team so he can be reached in a second. “But nobody called,” writes Comey in his tell-all book A Higher Loyalty. “Not the attorney general. Not the deputy attorney general. Nobody. I actually had seen the attorney general the day before. Days earlier, I had met alone with the newly confirmed deputy attorney general at his request so he could ask my advice on how to do his job-which I held from 2003 to 2005. In late October, shortly before the election, the now-DAG had been serving as the United States Attorney in Baltimore, and he invited me to speak to his entire stall about leadership… He praised me then as an inspirational leader. Now, he not only didn’t call me, he had authored a memo to justify my firing, describing my conduct during 2016 as awful and unacceptable. That made absolutely no sense to me in light of our recent contacts.”
 
Comey learnt that a White House employee was down on Pennsylvania Avenue in Washington (his office) trying to deliver a letter to him from the president. General John Kelly, then the secretary of Homeland Security called. He said he was sick about my firing and that he intended to quit in protest. He said he didn’t want to work for dishonourable people who would treat someone like me in such a manner. “I urged Kelly not to do that, arguing that the country needed principled people around this president. Especially this president,” writes Comey.
 

Meanwhile, his assistant, Althea James, got the letter from the White House guy at the front door, down on Pennsylvania Avenue. She scanned it and emailed it to Comey which showed Comey was fired, effective immediately, by the president “who had repeatedly praised me and asked me to stay, based on a recommendation from the deputy attorney general, who had praised me as a great leader, a recommendation accepted by the attorney general… The reasons for the firing were lies but the letter was real. I felt sick to my stomach and slightly dazed.”
 
As Comey decided to head back to his home Washington, amazingly he had to deal with the question: “How would I get home?” He was no longer and FBI director and wasn’t entitled to the jet that had brought him to Los Angeles. The acting FBI director was now Comey’s deputy, Andrew McCabe. “He and his team had to figure out what was lawful and appropriate. In the shock of the moment, I gave some thought to renting a convertible and driving the twenty-seven hundred miles back alone. But then I realized I was neither single nor crazy. McCabe decided that given the FBI’s continuing responsibility for Comey’s safety, the best course was to take me back on the plane I came on, with a security detail and a flight crew who had to return to Washington anyway. We got in the vehicle to head for the airport.”
 
This was a media circus. News helicopters tracked Comey’s journey from the LA, FBI office to the airport. As Comey rolled slowly in LA traffic he looked to his right. In the car next to his, a man was driving while watching an aerial news feed of us on his mobile device. He turned, smiled at me through his open window, and gave Comey a thumbs-up. 
 
The car pulled onto the airport tarmac with a police escort and stopped at the stairs of the FBI plane. “The helicopters then broadcast our plane’s taxi and takeoff. Those images were all over the news. President Trump, who apparently watches quite a bit of TV at the White House, saw those images of me thanking the cops and flying away. They infuriated him. Early the next morning, he called McCabe and told him he wanted an investigation into how I had been allowed to use the FBI plane to return from California,” writes Comey. McCabe replied that the plane had to come back, the security detail had to come back, and the FBI was obligated to return me safely.
 
Apparently, Trump exploded with anger. “He ordered that I was not to be allowed back on FBI property again, ever. My former staff boxed up my belongings as if I had died and delivered them to my home. The order kept me from seeing and offering some measure of closure to the people of the FBI, with whom I had become very close,” writes Comey.
 

This episode is the most exciting section of the 277-page book that is supposed to have exposed the chaotic and crazy Trump administration. Comey shows that Trump is behaving more or less like a Mafia boss, demanding complete loyalty from law enforcement and that he just does not believe in democratic norms or the independence of the judiciary. But Trump makes his entry only on page 210. That is because this book is an autobiography of Comey starting from his traumatic experience of Comey and his sister being held hostage by an armed burglar at home, getting bullied in school and losing a newborn son to an illness that could have been prevented. 
 
Comey worked with the New York attorney general’s office as a rookie under former New York mayor, Rudi Guiliani, making his name prosecuting terrorism cases in the eastern district of Virginia, and then as the US attorney for the southern district of New York. He worked in three administrations, as president George W Bush’s deputy attorney general, during the 9/11 attack, as FBI director under the Obama administration which continued for a few months under Trump. 
 
Comey was known for his fierce, go-it-alone, independent approach. He admits that he has a streak of righteousness about his job and that he can be “stubborn, prideful, overconfident and driven by ego.” But there is a strange episode of the past few years that has baffled many. And this is his handling of the Hillary Clinton’s email investigation. Strangely, quite contrary to longstanding custom of FBI, he decided to hold a press conference in July 2016, where he charged Hillary with ‘extremely careless’ handling of ‘very sensitive, highly classified information’, even though he went on to conclude that the FBI recommend no charges be filed against her. This was not even his domain. Bringing charges is the domain of the US department of justice, in consultation with FBI.
 
Then, suddenly on 28 October 2016, 11 days before the election, he announced that FBI was reviewing more Clinton emails that might be pertinent to its earlier investigation. Nothing came of this too. But it is now widely believed that this announcement cost Clinton the election, which she seemed sure to win. Comey provides detailed explanations of why he made those very public announcements about Clinton, but skirts several of the key questions his critics have regarding the need to make announcements about unfinished investigations. 
 
This is an interesting book; it gives insights into how decisions are taken at the highest levels of the world’s most powerful State and how those who seem driven by the deepest sense of loyalty to fairness and justice can be fallible. And, of course, what kind of a human species America has elected as its president.
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    An Insider’s View of the Real Problems of PSBs
    It has been raining memoirs by governors of the Reserve Bank of India (RBI) in the past year or two. Three immediate predecessors of RBI governor Urjit Patel have published books in quick succession, each skirting the big elephant in the room—the gigantic bad debts of public sector banks (PSBs), estimated at anywhere between Rs8 lakh crore (officially) and Rs20 lakh crore (according to a former RBI deputy governor Dr KC Chakrabarty). 
     
    The spate of banking scams, including Nirav Modi-Gitanjali Gems, Rotomac and others, have exposed the ease with which the PSBs were swindled; these had also turned the spotlight on the need for change, with a chorus of voices in government insisting that privatisation is the answer. 
     
    Simultaneously, the government is forcing a sale of companies whose promoters are the biggest wilful defaulters—each in excess of a stupendous Rs25,000 crore. 
     
    Then there is the controversy over ICICI Bank’s CEO, Chanda Kochhar, and Axis Bank’s Shikha Sharma, where RBI has turned down the Bank’s proposal to appoint her for another term. 
     
    All this has brought back into focus some core issues like whether bank nationalisation has served any purpose; the impact of economic reforms on banks; the role of the central bank and the finance ministry; and the contribution of the political class in bringing PSBs to such a sorry mess. 
     
    Reforming the Indian Public Sector Banks: The Lessons and the Challenges, which was released on 9th April in Delhi, is an extremely important book that throws light on all these issues with a unique perspective. 
     
    The author, TR Bhat’s, is a refreshingly different voice from the usual policy wonks, bureaucrats and academics who have usually had a hard stand in support of nationalisation or for privatisation, depending on their ideological perspective. 
     
    Even DN Ghosh’s memoir gave us only a ringside view of bank nationalisation without commenting on how it has eventually turned out. 
     
    Bhat’s is a dispassionate, insider’s assessment of how government policies affected PSBs ignoring their failures and shortcomings, including worryingly high incidents of fraud and corruption at PSBs. Bhat has led the Corporation Bank Officers’ Organisation (CBOO) with distinction and has served as an officer director on its board. More importantly, he pioneered whistle-blowing by the Corporation Bank’s Union to safeguard the Bank from rapacious chairmen colluding with industrialists to dole out loans to already defaulting companies. 
     
    As an investigative journalist, I have personal knowledge of how the Union has worked to protect the Bank’s interests. The present state of the Bank’s finances only reflects how the system eventually defeated their efforts. 
     
    The book is a must-read for members of this government and its advisors whose public statements display a worrying intention to ram through global cookie-cutter solutions without investing the time and effort to find specific remedies to a uniquely Indian economic environment and savings culture. 
     
    The attempt to pass the Financial Resolution and Deposit Insurance Bill and the demand for bank privatisation (which has been slightly muted since the surfacing of issues at Axis Bank and ICICI Bank) are just two examples. 
     
    Bhat covers four issues: a) nationalised banks have acted as shock-absorbers for the economy, by taking over failed private banks after every major scam; b) nationalised banks have been exploited by every government for its political agenda, while never putting in place proper human resource policies and investing in training and skill development; c) every crisis led to the formation of a committee which painstakingly identified issues and offered solutions which were ignored (of special significance is the report of the independent commission headed by SP Shukla and backed by bank unions); d) failure of supervision by RBI was responsible for most of the scams as well as protecting large defaulters by refusing to name and shame them almost until the bankruptcy proceedings began. 
     
    Bhat also analyses the problem of the government as the owner of PSBs on five fronts—appointment of top executives, the appointment of directors to their boards, the working of the board, the internal working of the banks and failure to fix accountability.
     
    Interestingly, the book contains a sharp rebuttal to governor Urjit Patel’s claim that RBI has no powers over PSBs, although it was already in print when Dr Patel made his startling claims at a speech in March 2018. It outlines four ways in which RBI engages with banks. Some interesting nuggets that provide a timely recollection in today’s turmoil are:
     
    Bad debts have been papered over, for decades, by RBI and the government and economic liberalisation provided only a temporary palliative by allowing banks to increase capital by going public and make them profitable for a short interval. 
     
    The scandal of loan write-offs ends up protecting wilful defaulters by wiping the slate clean. Bhat writes that after the loans were written off, the same industrialists would be granted fresh loans in other names. Such write-offs increased even as ‘loan overdues were surging’, he says. Interestingly, this government has falsely defended in Parliament the Rs2.4 lakh crore loan write-off between April 2014 and September 2017, claiming that it was a tax-saving device to clean up bank balance sheets and did not let off the borrowers. Dr Chakrabarty, has called such write-offs the biggest scandal of the century. It is important for us to remember that we, the people, have paid for these write-offs though regular bailouts and re-capitalisation of PSBs by the exchequer. 
     
    There is a lack of accountability of the PSB chiefs and the absence of any yardstick to evaluate their performance. The worst that has happened to PSB chairmen is that they have been asked to leave. Many such appointments have been political. There has been a failure of internal and external audits, lack of action on  RBI’s own inspection reports.
     
    The forced-mergers of failed private banks with PSBs have allowed RBI to avoid accountability for its failed supervision over the decades. Most of us recall the merger of Global Trust Bank with Oriental Bank of Commerce (which hurt the latter’s performance for two to three years), but forget other mergers of that time such as Nedungadi Bank with Punjab National Bank and Benares State Bank with Bank of Baroda. 
     
    How a taskforce of the Confederation of Indian Industry (CII) had suggested the closure of three banks that had turned sick—Indian Bank, United Commercial Bank and United Bank of India. It led to a sharp reaction from trade unions that exposed how the banks’ losses were almost entirely due to defaults by CII members. The move was abandoned and the banks even turned around for a while. Indian Bank is by far the best PSB now.
     
    The book stops just short of the current turmoil in banks as they struggle to deal with new provisioning norms and bankruptcy proceedings as well as frequent government diktats that force banks off track (as in the pressure of demonetisation, opening Jan Dhan accounts, taking responsibility of Aadhaar enrolment, etc) from their core banking functions. 
     
    However, the sweep of issues covered right from nationalisation to the present day allows us to understand exactly why the present debate on bank privatisation or what to do with PSBs, will not resolve the problem. At the very least, 3/4th of the newly constituted Bank Board Bureau will have a lot to learn from the 300-odd pages of this important book.
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    COMMENTS

    Mahesh S Bhatt

    1 year ago

    Bigger the animal harder the taming wilder is gets more damages he does collatrally Mahesh Bhatt

    Ramesh Poapt

    1 year ago

    2018 will be the last year of samdra manthan!?

    Balakrishnan S

    1 year ago

    Indian bank the best PSB!!!

    A Guide for Novice Investors
    This is not a new book. It was published way back in 2004 by the fund rating company Morningstar. It has just been reissued jointly by Macmillan and Wiley as an Indian edition, given the huge popularity it enjoys. It is a classic which appeals to those interested in understanding ‘moats’ that protect businesses from competition and lead to long-term value creation. Every budding analyst, I come across, claims that he has read this book to become a better investor. So, what are these five rules? 
     
    1. Do Your Homework: This refers to the framework of investment knowledge required to analyse a business. This essentially includes knowledge of finance and investment accounting. Chapters 4-7 explain how to analyse companies. 
     
    2. Find Economic Moats: This is the most important part of the book. Dorsey suggests looking at quantitative factors like free cash flows, net margins and return on equity and return on assets, as a first step. The second step would be to try to find qualitative factors behind the numbers that create the moat, such as brands, technology, switching costs or low cost of operations. 
     
    3. Have a Margin of Safety: Even the world’s most wonderful business is a poor investment if purchased for too high a price. The book takes the reader through all the conventional measures of market valuation such as prices to sales, earnings and book value, earnings yield and price to earnings growth, etc. It ends with a little known measure—cash return—which is free cash flow to enterprise value and measures how efficiently the business is using its capital. A whole chapter is devoted to intrinsic value by the discounted cash flow method which, unfortunately, is of no practical utility.  
     
    4. Hold for the Long Haul: This is obvious, especially in the US, where taxes and trading costs can eat into a large part of your profits.
     
    5. Know When To Sell: Dorsey promises to explain this later but I could not find any elaboration on this. I find this a most callous and egregious slip-up. He has several pages devoted to when not to sell which does not really help much. 
     
    After having explained these five points, about halfway through the book, Dorsey takes the readers through how to analyse two real companies. He picks up Advanced Micro Devices, a tech company, and Biomet, a maker of medical devices. This chapter gives readers a chance to put on an analyst’s cap. All this is in the first part of the book which also includes mistakes to avoid, how to spot financial fakery, a 10-minute test of an investment idea which will help you quickly reject stocks that are not worth researching, while filtering investment-worthy opportunities that demand further research.
     
    There is a second part of the book which is a guided tour of individual sectors. This section is quite unique. Most books on investing show no awareness that each sector is different and may demand a different set of tools for analysis. 
     
    The sectors covered in this book are: healthcare, consumer services, business services, banks, asset management and insurance, software, hardware, media, telecom, consumer goods, industrial materials, energy and utilities. Dorsey explains how companies make money in each of these sectors and how moats get created. Of course, these are all US-centric factors; nevertheless, it helps to develop the right analytical approach. The Five Rules for Successful Stock Investing is a great book for beginners and a good refresher to leaf through every once in a while, even for seasoned professionals. 
     
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    COMMENTS

    Ramesh Poapt

    1 year ago

    easy to read, but too though to implement!

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