Friday, January 20, 2012

A Reputation for Being Very Tough Businessmen

During the 1970s there were some failures of banks known as "Edge Act" banks. An Edge Act bank could loan money only to borrowers who would use the funds off-shore. Thus, such banks would not compete with domestic banks but only foreign banks. Domestic banks, which otherwise were restricted or at a regulatory disadvantage to foreign banks in making international loans, would form Edge Act subsidiaries, which had a different set of rules. The purpose of the Edge Act was to level the playing field on which our banks played and the foreign banks played. This was before the sort of international free-for-all we have in banking and finance today.

During the 1970's, Miami became a center for Edge Act banking. I don't exactly know why. Perhaps it was because it was during that decade that the "latinization" of the community achieved critical mass. By 1970, it had been ten years since Castro took over. During that decade, the first wave of Cuban immigration washed over South Florida, and a second, smaller one, washed over again with Mariel in the early 1970s. During the 1960s, the Cubans who arrived here had been in a survival mode but by 1970 they had become well-established, thanks in large part to the generosity of our government, a generosity motivated by our anti-Communist policy and the toxic nature of the Castro regime, and to the values and character of the Cubans themselves. These "refugees" and the government policies that helped them opened a door for Miami to Latin America. So Edge Act banks popped up in downtown Miami during the early 1970s. CitiBank had one of them.

As I mentioned, we had a recession that decade, and a lot of Edge Act loans went bad. Citibank's Miami Edge Act subsidiary carried a portfolio of these non-performing loans that needed the help of lawyers. At that time, Miami's banking lawyer community was very small. Through Senator Smathers, my firm got almost all of the Citibank Edge Act business. We weren't banking lawyers in that firm at the time, we were litigators. But bank "work-outs" looked like litigation. There was so much of this business at Smathers & Thompson that everyone in the firm got at least a couple of cases. I got a couple, me, a young lawyer who had been cutting his teeth on railroad crossing accident cases. In one of those Edge Act matters, there was a Mormon on the other side, a businessman who had borrowed money from Citibank to make investments in the forest industry in Honduras.

A Mormon? We forget that Mormons send their children into the world as missionaries for a term. They come back home culturally sensitized, knowledgeable, and with a second language. Furthermore, the Mormon culture celebrates success, especially business success. It promotes a clean life-style that allows someone to focus on what the culture finds important. The Mormons are very successful business people.

And they are fairly ruthless, as I found. The Mormon borrower on the other side was very pleasant personally and courteous. He did not exactly lie, he told a version of the truth, but he was out to win, he played close to the edge. The legal cards were stacked against him, however, and we had a good "work-out," but I learned something. In talking about this experience with other people who either were Mormons or had dealt with them, I realized that the person I dealt with was a sort of typical Mormon businessman.

I do appreciate the problem of bigotry and stereotyping, but the people I spoke to seem to think that, with Mormons, one deals with something special, and one needs to be careful. They are definitely not "good old boys." We have other business stereotypes like them, stereotypes that are probably useful to a point, Jews, Chinese, Scots come to mind. These are groups who have been oppressed or discriminated against economically or politically or both, and who fall back on their wits, on education, and on strong and networked families to succeed. For at least 100 years after they appeared in American history, the Mormons developed on the margins of American culture because of their unorthodox religious and social views. Now the religious and social unorthodoxy of the social elites in America have overtaken and passed them by. Now the economic benefits of the Protestant Ethic produce a very strong and successful subculture.

Which brings me to Romney: nice looking, courteous, well-spoken, good family man. Underneath all that is focus, determination, useful experience, competence, moral decency, and a sort of ruthlessness. Frankly, I think that's what we need right now in the White House. (I don't suggest that the President lacks moral decency. He appears to me to lack some of the other qualities, however.) Romney does what he has to do to achieve the objective, whether as governor of Massachusetts, as head of the organizing committee for the 2002 Winter Olympics, as an executive with Bain, or as a Presidential candidate.


Sean Meade said...

nice post on Romney, Paul.

question (that i haven't paid enough attention to answer myself): has Romney switched some views just to try to get elected? it looks that way from my standpoint, but i am not objective. i like your version of him here, sort of like i liked Sullivan's version of Obama...

Paul Stokes said...

Thanks Sean. I surely believe that Romney has leaned in directions he thinks will get him elected. But I also think (or hope) he is anchored firmly enough in the lessons of experience and in his values that he will be a better President than Obama. I think Hillary was right in attacking Obama on the basis of his inexperience. However, Obama could very well be re-elected. I don't see any of the present Republican candidates beating him, except for Romney. As to Romney, he plays right into the "class warfare" gambit. I think it will depend on how big a mess we are in by the time November rolls around.

Sean Meade said...

more good points. thanks for the answer.