EMERGE Everywhere

Gene Ludwig: Better Metrics for Better Solutions

Few people have had a career as dynamic and successful as Gene Ludwig. In this episode of EMERGE Everywhere, this Clinton administration alumnus, financial services CEO, entrepreneur, and nonprofit founder joins Jennifer to talk about his lifetime of dedication to addressing inequity. Together, they explore the need for more holistic measurements that capture the true story of what is happening for everyday Americans, and how policy changes can encourage productivity while helping to lift communities up.

Wednesday, May 12, 2021

Written by

Gene Ludwig

Gene Ludwig

Gene Ludwig is chair of the Ludwig Institute for Shared Economic Prosperity (LISEP), which is focused on improving the economic well-being of lower- and middle-income Americans. He is founder of the Promontory family of companies and CEO of Promontory MortgagePath, a technology-based mortgage fulfillment and solutions company. He is also managing partner of Canapi, a venture capital firm focused on investments in early to growth-stage fintech companies. Gene was the comptroller of the currency under former President Bill Clinton and was also previously vice chairman and senior control officer of Bankers Trust New York Corp.

Learn more about the Ludwig Institute for Shared Economic Prosperity and check out additional episodes of EMERGE Everywhere.

Episode Transcript

Jennifer Tescher:
Welcome to EMERGE Everywhere. I’m Jennifer Tescher, journalist turned financial health champion. As founder and CEO of the Financial Health Network, I’ve spent my career breaking down silos by engaging with innovators across industries, and now, I’m sharing those conversations with you. Meet the forward thinking leaders challenging the status quo and unleashing creative new ways of improving financial health by seeing their customers, employees, and communities in 3D.

My guest today is Gene Ludwig, the successful business leader, lawyer, and former Comptroller of the Currency. Gene just stepped down as CEO of Promontory Financial Group, the regulatory compliance consulting firm that he started 20 years ago and ultimately sold to IBM. But he’s not even close to retirement. These days, he’s focused on making the case that standard government data like GDP and the unemployment rate aren’t truly capturing the real situation for low- and moderate-income families. Gene has long had a passion for those left out and left behind, even more so now as the country begins to crawl its way out of the pandemic. 

Gene, welcome to Emerge Everywhere.

Gene Ludwig:
Well, great to be with you, Jennifer. It’s really a treat.

Jennifer Tescher:
Thank you. There are about a hundred places we could start this conversation, because you have had a remarkable career, from being a lawyer to working in government in the Clinton administration, to being in the private sector with your own company that’s now part of IBM, all while working with nonprofits on the side. You have accomplished so much, but I want to start with where you’re at now. I think it was a couple of years ago that you officially launched the Ludwig Institute for Shared Economic Prosperity. And lately you’ve gotten more active. You’ve been putting out a lot of great work. Tell us more about this relatively new endeavor. What’s your vision for it? And what are the key issues you’re focused on?

Gene Ludwig:
Well Jennifer, thanks for asking. And by the way, when it comes to issues of social justice and doing great and exciting things with your career, nobody can beat you. You’ve really done a phenomenal job. A great deal of respect for you.

Jennifer Tescher:
Thank you.

Gene Ludwig:
Well here’s why I started this. I’ve been concerned, as you know, about social justice my whole career, my whole life. And in particular, over the last several years, I’ve noticed a steep decline in the wellbeing of middle and low income Americans. It first hit me in the face when I went up to my small town of York, Pennsylvania where I grew up to give a speech and I hadn’t been up in about 10 years and I looked around just physically, and it looked shabby and things were really unpainted. It was a material decline. And then I began to think a little bit and I said, look, every time I go home from work when we were in the office, which we.

Jennifer Tescher:
Right.

Gene Ludwig:
I am a little bit now I’d pass the Federal Reserve. I’ve passed this Federal Reserve for 45 years. I either walk, bicycle, or drive. The only thing that’s changed over the last four or five years is the tent community of homeless people, which is getting larger and larger. So when I thought about York, and then you made me focus again on this tent community, I said, “Something’s really wrong here.” And it became pretty obvious, if you read the then anecdotal, but very fine literature, Hillbilly Elegy, a wonderful book, as a lot of people do, you’d say, “Things are not good. Things are not good in America.” And the disruption we’re seeing in terms of extremes in the political parties is emblematic of that, I think.

So I said, “What to do?” I said first, let me try to understand the problem better and understand why when you read the headlines of the papers, things seemed to be okay; stock market going up, unemployment going down, et cetera. And I convened a symposium, just as I was starting the Shared Economic Prosperity Institute, which I thought was a way to focus attention on this at Yale Law School, a symposium with some fancy thinkers from academia, from activist groups, from business, mayors, governors, et cetera, to answer three questions: is it as bad as I suspect it is? And if so, how bad? One. Two, if it is bad, what are we doing about it? What should we do on a national basis? And then in some cases, it isn’t a national policy necessarily, it can be a local policy.

Jennifer Tescher:
Right.

Gene Ludwig:
If it’s a local situation. And we did that, and a reflection of that symposium ended up in book form.

Jennifer Tescher:
I have the book right here.

Gene Ludwig:
Oh, wow.

Jennifer Tescher:
It’s the Vanishing American Dream, published in 2020. So I highly recommend it. Keep going.

Gene Ludwig:
And that taught me a lot. Listening is a big help, just like looking. And I realized that something was wrong with our economics statistics. Certainly something is wrong with the way we were approaching the economy and the future of America. And we began to dig into this and hire staff to basically start to try to make a big difference.

Jennifer Tescher:
So I believe that one of the main issues you’ve been focused on right now is the way in which we measure unemployment. Say a little bit more about what’s wrong with it and how you would suggest that we measure it.

Gene Ludwig:
Well Jennifer, thanks. The first step, it seemed to me, is to understand the problem with some degree of specificity, from a numbers perspective, not just from an anecdotal perspective. Both are very important, understand. You see people who are on opioids living in a tent, you know you got a problem, but the problem also has got to be analyzed statistically, because otherwise people say, “Oh, that’s just one person, that’s just one this or that or the other.” But not true. These things are broader than that, typically. So what we did was we looked at the headline statistics that all of us read in the papers. The first one we’ve I think nailed in terms of really understanding it is unemployment. And I’ll say a word about that. We’ve done wages recently, we’re in the midst of doing a CPI, consumer price index, how much inflation that we really have.

And then finally, we’ll do GDP, because all of these statistics you get all the time and they’re supposed to give you a sense of what the economy is. And the fact is, if we’re right, that things are really bad for people, they obviously don’t give us a sense of what the economy is in terms of their reality. So we started this. And the first thing we did was unemployment. So that in some ways is the most mind boggling thing. You see the unemployment before COVID. It isn’t just president Trump being bombastic. The numbers coming out of the Bureau of Labor Statistics say 3.7% unemployment, and that should lead you to believe that things are pretty good, everybody’s got a job. So what’s the problem? Best month in decades. Well, something’s got to be wrong.

So we began to unpack the number and found out that the BLS does a marvelous job of collecting information. They’re honest people doing an honest job, but the definitions for what constitutes unemployment were put together in the 1930s, refined a little bit since then, but fundamentally it’s 1930s definition. And what made sense to put together as a definition of unemployment in the thirties makes no sense today. Why? Because the Bureau of Labor Statistics counts as employed you’re employed even if you worked 10 minutes in the last two weeks. If somebody was, say, a part-time thing and say, “Hey, if you can take out the trash for me, that’d be really helpful. I’ll pay you a dollar.”

That is employed for purposes of the PLS number. The second thing is, even if you could get a full or near full-time job, but you can’t earn any decent wage, you’re in a poverty wage, you’re counted as fully employed. Now, if you take the BLS number and simply filter it for not working full time and by the way, full-time is only defined as 35 hours a week. Not 40, but 35. And you can’t earn above a poverty wage, what’s the number? It’s not 3.7%. For all Americans back in January of 2020, and of course it’s much worse today, it was 24%, 23.5 to be –

Jennifer Tescher:
Wow.

Gene Ludwig:
Fully unemployed. And for black Americans, it was 28.5. So roughly a third of black Americans who want these are only people who are seeking work could not earn above a poverty wage or couldn’t get a full-time job. Today it’s much worse. For black Americans, about 38%. for everybody else, about 26%. And Hispanics are kind of in between in terms of bad. So that tells you something.

Jennifer Tescher:
Yeah, that’s incredible. And I’m so glad you’ve taken this on. In this book that you put together from the symposium that you hosted at Yale, there were a whole number of recommendations. You must be thrilled with the early days of the Biden administration, given what you suggested needed to happen. What are you most heartened by? And what are the most important policies you think the administration needs to address in order to restore the possibility of the American dream?

Gene Ludwig:
Well, I’m ecstatic about how president Biden has started off and his administration. I think thus far, he’s been unbelievably surefooted and his progression of how you do this, I think is exactly right. First, we badly needed a tourniquet for people who have been so disadvantaged by COVID, because the disadvantaged situation is very unequal. On the one hand, there are people thrown out of work, would have been thrown out of their apartments and houses and et cetera, but they have no real income. And on the other hand, you have the stock market booming and other people getting fabulously rich. 

Jennifer Tescher:
It’s definitely been a K-shaped both problem and recovery.

Gene Ludwig:
Absolutely. And by the way, that’s emblematic of the horrible situation we’ve had for decades that hasn’t been recognized. Because in fact, when there’s a downturn, low and moderate income people, particularly black Americans, get fired first and rehired last.

Every single cycle. So the COVID bill, trying to put a floor under these folks and giving them some money, is absolutely step number one. Put a tourniquet on the thing as you’re bleeding so you don’t bleed to death. Next step is the Jobs Bill. The Jobs Bill is a terrific next step. And the bill, as written, is even better than a normal infrastructure bill. Why is it so terrific? Because it’s not exactly a tourniquet, but it is the first step you would take in getting people back to work. Because what do the people most need? 

They need to be able to have a good, honest job where they can make living. And construction jobs often are higher wage jobs that pay people above a poverty wage, and are the highly needed and respectable jobs. All jobs are respectable in my view, but these are these important. The notion when people say, “Ah my goodness gracious deficit, whoa, we’re not paying for it enough.” I think that is the biggest baloney. There are a lot of baloney again in this world, that basically is designed to say, keep poor people poor, and help rich people get richer, I’m sorry to say, but there’s, “Whoa deficit, all of a sudden deficit big thing,” that’s the wrong way to look at this. This is an investment legitimately and investment in America. And no business in the world can succeed if it doesn’t have investments, and that’s what this is; building highways, hospitals, and bridges. But even beyond that, because Biden has been forward-thinking. Broadband access, building that. Building green energy solutions. It’s insane that America isn’t the world leader in constructing all these green energy solutions. It’s good for the environment, it’s good economically, it’s good from an efficiency perspective. I mean, there’s a huge amount of benefit here to harnessing the wind and the sun, as opposed to burning fossil fuel.

Jennifer Tescher:
Yeah, I’ve known you a long time now, and it’s so exciting to see that you have, in some ways, maybe even more passion for these issues than when I first met you. We go back a long way; you’ve been something of a mentor to me from the early days of my career because we first met at ShoreBank, a community development bank in Chicago that was born in 1973 in the midst of white flight from the south side of the city, which was then followed by the flight of banks and investment capital out of those communities. You were a really large supporter of the bank, I think you were a board observer if memory serves, and you have long been a champion of the role of community development, financial institutions, or CDFIs from the beginning. In fact, when you served as the Comptroller of the Currency under President Clinton, loans to low and moderate income Americans increased tenfold, as did National Bank investments in community development corporations. I wonder if you could reflect a little bit on this time, for us, back during the days when you were the comptroller and yeah, you were really advocating for CFIs. Why was CRA and community investment so important to you?

Gene Ludwig:
Well, first Jennifer, you were more of a mentor to me; I learned more from you, I’m sure, than you learned from me. The heroes of ShoreBank were actually on the ground, making things happen in South Shore, Chicago. You learn by doing, and you folks really knew, and I learned a great deal. The fact is, I am passionate about the inequities for low and moderate income people, particularly Black Americans, and when I came to office, I was asked in my confirmation hearing by Senator Riegle, who was then chairman of the committee, he asked me, “What are you going to do about lending discrimination?” And really it wasn’t scripted, I said, “In essence, I promise you in the Senate that I will pull it out root and branch.” And so, I set the course to basically do that, both in terms of lending discrimination cases I brought, and an expansion of the Community Reinvestment Act, which was desperately needed. And I learned a tremendous amount.

I had no idea that no one had ever brought a lending discrimination case in the United States. Not the Justice Department, nobody. Now, arguably there was one I have to admit. There was one investigation done by the Justice Department, where a bank in Montana had printed on the big page, big ad, “Foreclosed property for sale, no Black, Jew or Catholic lives in this county.” And it caused an investigation, I mean, right there, in the paper. But that was it. We brought 27, with tens of millions of dollars of fines. And I often say, it’s amazing how people just decided to start discriminating when I became comptroller. So we did that, and that was eye opening. Eye opening. Furthermore, as we expanded the CRA, which I give great credit to President Clinton, because he had promised he would deal with this issue when he was in the campaign. Banks had beat him up saying there’s too much paperwork from this law, and community groups would beat him up saying that there’s not anything being done to help our communities, this law. So, he said, “I’m going to do something.”

I got tasked with taking it over and doing it. And I rounded up the regulators, all up, because I thought it was important that we have a uniform rule, and I was blessed with several, in fact, all of them, very good-hearted. And we went around the country, including in Chicago and had a one day session in different parts of the country to learn how bad the problem was, and what to do, it’s always best to have a better sense of what you’re dealing with. And we reformed the law, and it did result in tens of hundreds of billions of dollars of loans, and investments, and change that benefited low and moderate income communities. But I also learned a lot then, and I’ve learned a tremendous amount since, and everything that had been done today to break redlining, and that’s what the Community Reinvestment Act really is; it’s an anti-redlining statute that Senator Proxmire, God bless him, put into the law in 1977. It is to be affirmative, give people an opportunity, give them a hand up, but people haven’t focused on what happens, irrespective of how hard people work, when by reason of circumstances, not their own, the cyclical economy, other things, they get pushed down. And this is a big issue. And it’s, I think, the biggest issue we face going forward.

Jennifer Tescher:
What’s interesting is the incredible, massive infusion of capital from both the banks, and other private sector companies, and the government into CDFIs, both in the wake of the pandemic, and in the wake of the Black Lives Matter movement, and the racial reckoning we’re going through, and sort of people realizing anew, the incredible gap, the wealth gap among other gaps between different races and ethnicities. I’m curious, given the challenges we face in this country, how far can the CDFI movement take us? How far can those institutions take us? And what’s the role of the big banks, the private sector banks, as we think about CRA and broader opportunities in communities?

Gene Ludwig:
Well, first Jennifer, finance can do a great deal to help, but it can’t do everything. So if somebody says, “Oh, CRA passed and CDFIs, but the communities still are having difficulties,” of course they’re still having difficulties. You need healthcare systems, you need jobs, you need educational opportunities, a lot of things you need that are not financable. You need transportation, so that people can get to those jobs conveniently. So it’s a part of the puzzle, a big part of the puzzle, but a part of the puzzle. CDFIs are critically important elements in this, particularly now, more so every year. Why? Because larger institutions have strengths, they also have tremendous weaknesses, and one of the weaknesses, the difficulty they have, it makes almost common sense, in focusing on smaller bits, on community touches, a lot of our large institutions do quite a good job at that problem, but they don’t do a perfect job. Community organizations, whether they are community banks, or defined a CDFIs, they have their hands on the community. They can see, feel and touch, they know the person that needs the help, and they can be flexible with that person or persons. And it’s harder for big banks.

Now, the role, I think big banks can apply, and are applying, but they can do more is to finance the CDFIs so they can be effective parts of the transmission belt to low and moderate income people. It doesn’t mean that big institutions shouldn’t do more, but this is a wonderful opportunity for large institutions to utilize a system of CDFIs to help low and moderate income people. And as I say, they’re doing it more and more.

Jennifer Tescher:
Yeah. I want to take you back to York for a minute. So, on this show, I bring on guests who in general, I would describe as empathetic leaders, and not every leader is empathetic, but they are leaders who are able to see past their own silos and really understand people, what I call in 3D; to really understand people in their full complexity. And I believe that you’re one of those people, and I find that every empathetic leader has a backstory, it’s a lived experience, it’s a parent, it’s something that’s happened in their life, something they’ve experienced. You were raised in York, as you mentioned earlier, and your father, I think, was the country doctor in town. You’ve talked a lot about what a great place it was to grow up in the middle of the 20th century, tell me more about your upbringing, Gene; where does your passion come from, around issues of inequality, and where does that empathy come from?

Gene Ludwig:
Well, it’s a very good question. We all are made up of our circumstance, as you point out, and there are a lot of different influences; parents, teachers, religious leaders, et cetera. And in the case of York, which was a wonderful place to grow up for me, as you mentioned, it was two sides, is the way I put it, of the Norman Rockwell coin. If you look at Norman Rockwell paintings, which used to be the cover of a publication called The Post, Saturday Evening Post, I guess it was called. They by and large, are uplifting, wonderful looks at sort of middle America in the middle of the 20th century, which was an optimistic place with opportunity. On the other hand, a number of it’s cartoons, but more like Thomas Hart Benton, are reflective of discrimination, difficult circumstances, actually. They’re less published, but they’re there. York was both sides of that coin. So even though York, in many ways was a beautiful, pastoral farm community with the busy businesses et cetera, it had its underbelly. So for example, in York, most of the town that was even vaguely suburban, I’m talking about in town as well, in the deeds, it was, “No Blacks, no Jews, no Catholics, no Irish.”

It was no blacks, no Jews, no Catholics, no Irish, no nothing. In other words, it was. So those were the deeds and they were enforced until right in 1960s, when things began to change. It had Klu Klux Klan element in the Southern part of the county, which bordered on Maryland. And in my high school, for example, my high school was in fact integrated. It had one, one black person, which is not by any means the proportion of black people in York, Pennsylvania. So it had its under belly. Now, as it turns out, the advantage of being in a place like York, where I was blessed is there are all kinds of people that you run into, you deal. You don’t drive through something and kind of see it out the window. You walk there, you talk to people. They’re right in front of you.

And in that regard, there was one seminal experience I had, which was really formed my view of how important it is, the work that Jennifer you’ve done so brilliantly and ShoreBank and others. So my dad’s country doctor. He was a quiet, honest, but relatively conservative human being. Certainly in his demeanor. He had two young black boys, black children working to mow the lawn at his office. Their mother was a prostitute. And they came from the most troubled family well-known in York. And my dad says to the boys, I don’t know what caused them to say this one day. He said, “Boys.” They’re in the seventh or eighth grade. In any case, they’re in middle school. “I want you to read the newspaper.”

And the boys could not read anything in the newspaper. My father said, “You know, boys, that really is not acceptable to me. Nobody can work here if you can’t read. So I’m going to get you a tutor and I’m going to give you six weeks. And then in six weeks, I want you to come back here and read the paper.” Well, in six weeks the boys came back and haltingly read the headlines. My father then set upon an effort to provide help to the boys, educational help to the boys, tutors, et cetera, et cetera. So where did that come out? One boy got his BA and MA and ended up teaching as a professor at Morgan State University. The other boy ended up going and getting his BA in computer sciences and things, and ended up with a small computer science business successful in Central Pennsylvania. Lovely folks, lovely families.

Now, when somebody in the federal government said to me, when I was in office, a famous person said to me, “Gene, you’re good hearted, but see, you don’t really understand. Poor people are poor for a reason, meaning economics are economics, and they just don’t have it. You’re trying to do something that can’t be done.” That is nonsense. And I experienced that nonsense in what my dad did. And these boys were friends of mine to this day. The one boy died a couple of years ago, I’m sorry to say. The other boy is still doing his business, but I knew that was nonsense. I knew that was nonsense from my own experience.

Jennifer Tescher:
Thanks so much for sharing that story. Gene, that’s really powerful. I want to zoom out now. We’ve talked about the career you’ve had within the financial industry in a plethora of different roles, and we’ve seen huge change during that time, and particularly with technology.

I think about Promontory Financial, the regulatory advisory firm that you co-created, that you ultimately sold to IBM a few years ago to enhance their work on the cloud. And it’s my understanding that Promontory was really providing the training data, if you will, for IBM’s efforts in reg tech and AI. I’m a big fan of technology. As you know, it was a big part of what led me to start then the Center for Financial Services Innovation, now Financial Health Network. But I also think that technology is just a thing. It can be either good or bad. It’s not automatically one or the other. And I think when we talk about tools like AI, you really see both sides of that coin. That there are some tremendous opportunities for what AI can do. And there are some risks and I’d love to hear you reflect a little bit on that, given that you’ve had a chance to be up close and personal to those kinds of technologies.

Gene Ludwig:
Well, Jennifer, you’ve already done the best job at answering the question in terms of the dangers here and the opportunity. Technologies absolutely are neutral. People who use the technologies can use them for good or can use them for ill. They are another tool in the financial toolkit. And without regulation or direction, they can really go haywire. As good as they can be, let me say a word about both the good and the bad. One of the biggest problems for low and moderate income financial services lending, for example, is that the transaction cost is very high because the actual amount is smaller than a big transaction. And the amount of time that it takes from the smaller loan is about the same, maybe even more than on the bigger loan. So there’s less way to spread the cost over a bigger pie.

Technology gives one the promise of being able to lower the cost of doing a transit action, which disproportionately should benefit smaller lending and smaller other financial services opportunities. But the problem is, as you said, it’s just a tool and it depends how it’s used. I think the best example of this actually goes back to the CRA and what happened afterwards. So the CRA really was the first big push to make loans available for low and moderate income people, particularly housing loans, big push. And it worked and the loans were safe and has a good track record, et cetera, and change things for the good.

But lo and behold, it taught the crooks, the pirate is that, hey, you can actually make money in these communities. And then of course pirates being pirates, they said, ah, and if we charge more and we use unseemly terms, we can really screw them because we’ll pretend we’re really helping people and that’s the subprime market. And the subprime market took advantage of low and moderate income people. And caused a huge disruption in low and moderate income communities and is completely outrageous. So we have to have rules that are sensible for the utilization of these tools, so that they are used for good and not for ill. And that goes back to my anger over the government’s not giving any tar money in saving shoreline. I think this is a big issue. These are big, big issues in terms of. What we ended up doing, and we have a tendency to do is to blame the sheep for the wolves.

Jennifer Tescher:
Yes. Well said.

Gene Ludwig:
See, the reason there are wolves, there were all the sheep, and all I could do is eat and destroy. And so, we’ve benefited the wolves in the last crisis and basically slaughtered the sheep. So we’ve got to turn that around and getting a handle on regulation around tech, such that its products are used for good is a big thing.

Jennifer Tescher:
Yeah. And are you feeling good about what you’re seeing in terms of what’s coming from our financial regulators on this front? Or is there more that needs to be done? I mean, I guess having a new comptroller would help.

Gene Ludwig:
Yes. Well, yes, it’s always helpful to have these agents in their heads in place. These technologies are emerging, as you know, Jennifer, explosively. When you think back in our lifetime, you don’t have to be my age to look back and say just last year, last decade, decade, most of these things didn’t even exist. They were in science fiction. You saw them in Star Wars. So they’re still very new and regulators tend to catch up to change slowly. And I think that a lot to be said for. That they allow innovation, which is a good thing for America. And then they begin to figure out how to regulate it. That process of how to regulate it is going on now.

But we have mechanisms in place like the CFPB, Consumer Financial Protection Board that really can be very, very helpful here because a lot of these technologies are not just being utilized or in banks. They are in other financial services providers that are not covered by the bank regulators, so CFPB. So there’s a lot to be done. I believe the agencies are getting at it, but these things are new and there isn’t a real framework in place that is sort of iron clad to apply to them. And as I say, I think that’s really appropriate given the explosive elements here.

Jennifer Tescher:
Yeah. So you have always, I feel like I’ve seen the next thing early, seen around the corner. And so you’ve been, I think, aware of and excited about the potential of technology for a while. So one of the other recent things you’ve done is you’ve started a venture firm, Canopy, to invest in technology in order to power the smaller banks. So I’d love to hear more about what trends you’re seeing and your sense of how successful these kinds of tech tools and platforms will be in enabling the smaller banks in this country to survive?

Gene Ludwig:
Very, very good question. And a hard one. The technologies are really good. The ones we’re investing in that they are basically meant to be symbiotic with existing financial institutions, including smaller institutions. And what we try to do at Canopy, what we do is invest in those symbiotic technologies, making smaller and larger institutions aware, not the largest because the largest have their own venture funds, aware of what these new technologies are. So they can adopt them. Make the choice themselves, but adopt them promptly where it makes sense and not be so far laggard, so they get taken advantage of by now. The dangers here are twofold, particularly for the smaller enterprises. Dodd-Frank did a lot of things right, but like any statute or regulation, it’s not perfect. And one of the things that did wrong, which is a big, huge problem, is that it did not extend coverage of the rules and regulations to non-banks.

And that anomaly makes the country less safe, not more safe. That’s a big deal. And it has quirks and protection for consumers. And so, smaller banking organizations have challenges, getting the capital and enthusiasm for investment that they should, which tilts towards the non-banks because they don’t have regulation. And they also don’t have the same structure of consumer protection regulation, better because of the CFPB, as I mentioned as banks do. So we’ve tilted the playing field unwittingly though we intended to do at this point, in the wrong direction. And that is problematic. If you say where is my head beyond? I think it’s two things, Jennifer. One, we must in our generation do everything possible to write these economic and racial wrongs. 

I think we are at the point where we have not many months, years left to do this. The world economically has been going in the wrong direction. It has been going in the direction of pulling apart. I’m pro economic prosperity for everyone. I’m not a leveler that everybody’s got to learn the same thing or whatever, not at all, but we have to basically focus attention now to make sure that lower and moderate income people have a fair share of the pie. In that regard, I’m very much cheered by Chairman Powell’s positive statements on the CRA. It is owned by advancing the notion of extending CRA to non banks. That’s very courageous of him.

When I first gave a speech on this when I was in my last year of controller in 1998, it was not greeted with a great deal of enthusiasm. There were those in higher office who quite criticized, so Powell stepping out here is a very very good thing. He recognized, as I believe genuinely, the problems of middle and low income Americans. He said that. He even says in this speech, he makes mention of the importance of shared prosperity because that’s good for the whole economy he says and I think that’s absolutely correct. I think as a moral matter, it’s critical. Number one, we don’t have much time left. We’ve got to do that.

The second thing we have got to do is think about how we deal with the natural cycle that will turn down at some point. In a market economy, particularly for finance, it is naturally cyclical and we will hit a bump in the road. No matter how good the government is or how good the finance is, that will happen. How do we deal with that in a way we don’t have the same disruption we did in 2007? By the way, in that period of disruption is the same as in 1999, 2000, in smaller the low and moderate income people get hurt more. We got to deal with that huge inequity. That’s absolutely critical.

The third thing we’ve got to do for our economy generally is encourage productivity in terms of business, small business, opportunity, education, healthcare. We really lift everybody up. There’s unlimited opportunity in the world to make things better, but we have got to basically put aside our less good tendencies and our fears, and basically do what I think President Biden and the administration are now doing, thank God, which is focusing on how to solve problems and try to solve them quickly.

Jennifer Tescher:
Gene, I think that is a great place to leave this conversation. Thank you so much for joining me on Emerge Everywhere.

Gene Ludwig:
Thank you, Jennifer. Good to be with you.

Jennifer Tescher:
This has been EMERGE Everywhere, a Financial Health Network production. I’m Jennifer Tescher, and I’d love to hear your ideas for future guests and your reactions to the show. You can connect with me on Twitter @JenTescher. If you liked this episode, please review the show and subscribe wherever you get your podcasts. To learn more about the work and research we do, please visit emerge.finhealthnetwork.org. See you next time.