“Men are from Earth, women are from Earth. Deal with it.” ~ George Carlin
By Catherine Austin Fitts
In 1991, after leaving the Bush I Administration, I founded the Hamilton Securities Group, an investment bank and financial software developer in Washington DC.
In 1993, Hamilton won a competitive bid to serve as the lead financial advisor to the Federal Housing Administration (“FHA”) at the Department of Housing and Urban Development (“HUD”) in reengineering the FHA’s portfolio of mortgage insurance and mortgages, including approximately $10 billion of mortgage loan sales of the HUD held single and multifamily mortgages.
Prior to the loan sales program, the FHA Funds recovered only about 35 cents for each dollar of mortgage insurance payments it made on defaulted mortgages. The mortgage loan sales program that Hamilton designed increased recovery rates on defaulted loans to about 70 – 90 cents for each dollar expended by the FHA Funds, saving the Funds and/or U.S. taxpayers in excess of $2.1 billion (in the form of credit subsidy savings). Among other headlines, the results inspired Barron’s to describe the loan sales as, “At last, HUD does something right for taxpayers!”
One of the reasons for the financial success of the loan sales was Hamilton’s application of Internet and software technology to the loan sale marketing and bid process:
- Design books: transactions were implemented first in writing, outlining all the steps involved. This permitted coordination before a transaction among different offices in HQ, field offices, and oversight in Office of Management and Budget and Congressional staff as well as coordination with other government agencies. Agreement as to how a transaction was going to be implemented in writing, created a much more friction free implementation process.
- Pre-engineered due diligence: A national accounting firm was used to due diligence portfolio and to create full files on all mortgage assets and, where appropriate, underlying properties with summary databases that would allow bidders from real estate, mortgage or securities back ground to quickly assess, value and stratify portfolios.
- Online, low cost access: Due diligence and bid packages were available on line at low cost both through the Internet as well as through Bloomberg. This meant that bidders around the world could learn and bid, if interested.
- Program marketing: Loan sales were marketed as a multi-year program. So if a bidder took the time to learn how to bid on one loan sale, they had many opportunities in addition to the immediate bid.
- Optimization methodology: Hamilton worked with AT&T Bell Laboratories to develop an application of their optimization methodology to allow multiple parties in multiple markets to bid for whatever assets they wanted. By permitting, “self-stratification” of the portfolio in a competitive bid process; Hamilton was able to reorganizing the nature of participation in distressed mortgage markets.
Applying software technology and process in this manner allowed me as the President of the company to radically alter the manner in which I staffed these transactions.
In comparison to the teams I needed on Wall Street, I was able to significantly reduce the number of bankers assigned to organize and prepare a $250 million -$1 billion transaction as well as the marketing staff needed to implement the sales effort. This resulted in a significant reduction in the costs of doing a transaction and, as a result, the fees that we charged were highly competitive by industry standards.
Instead of having transactions lead by bankers alone, each transaction required a knowledge manager of equivalent stature whose job was to capture data, create software tools that would make the individual deal more productive and ensure the next one would be better yet. For every “James Bond” we needed a “Q.” The stature of the toolmakers was ascendant. Adding this layer of knowledge management increased immediate costs, but allowed us to significantly reduce costs and increase productivity forward.
On each transaction, our internal goal was that the client made a multiple of Hamilton’s fees by a factor of 10X+. Consequently, the banking and accounting teams were required to track financial impact on both client and Hamilton and to break down and study costs in a variety of ways.
As this data flowed in, I began to notice patterns related to the composition of banking teams:
- Myers Briggs Profiles: Teams with a balance of Myers Briggs profiles were significantly more productive than ones that were not balanced. Essentially having people with multiple approaches to managing information and addressing problems ensured that teams were successful at identifying what they needed it and getting it for optimal results. This was critical as we were managing large, complex transactions in a high-risk environment.
- Men and Women: Teams that combined a balance of men and women were significantly more productive than teams that were all women or all men.
When I drilled down into the male and female staffing, it turned out that teams that were all male were more productive than all women. This was a reverse of what I found in the bar business, where the all female team was 50% more productive than the all male team. It would appear that if you have to live with one sex, take women for bartending and men for financial transactions.
What was even more fascinating was the difficulty I had getting men and women to want to work together given the results. Left to their own devices, women were inclined to want to work with other women. Men were inclined to want to work with other men. I observed similar behavior on Myers-Briggs profiles. Bankers and software developers alike tended to want to work with other people with the same profile.
What I was finding was that left to our own devices, we will self-select into homogenous teams that are significantly more stupid and much less profitable.
Hamilton success came to an abrupt halt as it was targeted by an unsuccessful effort to frame the company with the help of a disgruntled HUD contractor. The effort was used as a pretext to shut down the loan sale program by the government which then began sharing the difference between the new and old recovery rates – many billions of dollars – with the private sector.
In the process of managing the litigation for the subsequent eleven years, I was inspired to do significant research into overt and covert tactics used to manipulate and control the economy. I came to a very important conclusion.
The single most important tactic used to control the general population is sexual politics – turning men and women against each other. That means that an important condition to real solutions is finding ways for men and women to trust each other and work effectively together.
In Part IV, I want to discuss some of the obstacles and opportunities involved in doing so.
About Hamilton Securities
List of FHA Loan Sales 1994-1997