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Saturday, March 15, 2008

The Economics of Trust

by Tanta on 3/15/2008 09:30:00 AM

Yves at naked capitalism has a great post up this morning on Character and Capitalism. I strongly recommend Yves' post and the Steve Waldman post as well.

Two anecdotes to add to the mix: back in the 90s I found myself at some manager compliance training session at my stuffy regional midwestern bank. The compliance officer was talking about the corporate policy of running credit reports on job applicants. The rationale was that, well, you don't hire people to handle other people's money all day if you have reason to believe they are personally desperate for money.

The human resources manager was there, and at that point she let out a loud uncontrollable guffaw. Challenged, she responded that yes, the HR department does order the credit reports as policy requires. They put them in the file, as policy requires, and get on with hiring people anyway. "Are you aware," she asked the compliance officer, "what we pay tellers and accounting clerks? If we didn't hire people who really needed the money, we wouldn't have anyone to hire."

A few years later I was in some meeting of the CRA Committee (Community Reinvestment Act), wherein we were examining the proposed guidelines for a low-income lending initiative. There was some resistance to the loan program based on the fact that borrowers with incomes as low as 50% of the area median could qualify. Grumbling about having to make loans to "poor people" ensued. My boss pointed out that over half the rank and file in his department who would be actually handling these loans--reviewing the loan files, preparing them for the servicing system, delivering them to custodians and investors--were paid 50% of the area median or less. Henry Ford might have figured out many decades ago that you need to pay your workers enough that they can buy your product, but that lesson was lost on the banks.