Four American presidents worked in private companies, in Finance, before becoming president. The four were all credit reporters before becoming Presidents of the United States.
Credit Reporting was a respected position that provided strong training in sound business practices
from Dun and Bradstreets site, refering to its famous employees.
Lincoln, Grant, Cleveland and McKinley all worked for Dun and Bradstreet, at different times. There they learned:
- To evaluate which organizations and companies were worthy of credit. In essence, which good ideas should be financed and which not.
- Which benchmarks to use once credit was given, and how to continuously monitor what was being done.
- Most important of all they learned when to cut credit when necessary, instead of continuously asking for greater debt ceilings.
- They learned when to "stop throwing good money after bad," something most of the next Presidents never learned.
- To always evaluate the 5 Cs of Credit "Character, Conditions, Capacity, Capital and Collateral" something your banking system has forgotten, especially the first C, Character.
I have always been amazed how America was so lucky to have four presidents trained, still as young men, in one of the most difficult business skills at that time. This was so appropriate for a future presidency.
The "Reporting and Evaluation of Credit," is a field so notoriously complicated, that academics unfortunately spent the next 100 years trying to simplify the process.
In fact oversimplified, to a single number (VAR), or a Credit Score ( B-) part of today's problems.
I propose banks became overleveraged, because academics in math, physics and economics, gave banks a false sense of security with oversimplified credit models. Now, only one of the 5 Cs is taken into consideration, Collateral, which explains the sub-prime mess, CDS etc. And worst of all, these models are based on quantitative methods that exclude the 4 Cs, and all the A to Zs.
Lincoln, Grant, Cleveland and McKinley are surely turning on their graves.
America has lost its Lending IQ. That is one reason banks are not lending.
Rather than "more regulation," what is needed is more attention to lending on a custom made basis, one to one lending, relationship banking and not asset-based banking.
We will have to re-introduce Management of Lending in our MBAs.
Banks will not be profitable again, will not have sustained growth if they do not go back to basics.
Leaders have forgotten the basics of credit management: when, to whom, why, how much, knowing the conditions of the underlying business and not the value of the underlying assets.
When I was at Harvard Business School in 1972, Management of Lending, by Prof. Charlie Williams, was one of the most popular courses, with classes 160-students strong.
He was born in Romney, West Virginia, and died just last year.
According to Stephen A. Greyser Professor of Business Administration Emeritus, "Charlie Williams was one of the most influential HBS professors during his tenure on the faculty."
We learned much more than the 5 Cs of Credit. It was strategy, business plans, organizational structure, contracts, bankruptcy proceedings and law, no algorithms or econometric formulas.
Management of Lending amazingly is not even given anymore at Harvard. Period.
Harvard's Dean blamed the Crisis of 2008 on "Greed," not even realizing that Harvard Business School was partly to blame, and all the other Business Schools and Schools of Economics that consider Credit Reporting and Lending as low-brow discipline.
Four Presidents working for the same company is not a coincidence, a Black Swan, as academics today would like to refer to this fact.
It was an imperative to success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
