Wells Fargo, Criminal Enterprise

ct-wells-fargo-settlement-questions-oversight-20160910New Orleans   I’ve never been a fan of Wells Fargo. We fought them endlessly over predatory lending practices in mortgages and subprime products. They don’t listen, they obfuscate, stonewall, and hide behind layers of lawyers in stubborn refusal even when faced with evidence of clear misdeeds. We were able to fight Citicorp, Bank of America, HSBC, and a ton of subprimes, even Countrywide, and succeed in reforming practices and achieving decent settlements, but Wells Fargo, even when they settled did so narrowly and without conviction. I was clear for ACORN and our members, you just can’t trust a bank like that with your money.

It is some relief that now everyone in the United States is getting a crash course in learning that Wells Fargo is not the community banker it has claimed to be, but a criminal enterprise.

Let’s review the facts, now being widely reported. For five years employees of Wells Fargo opened up to 2 million bank and credit card accounts willy-nilly without any permission from anyone. Often the accounts were closed fairly quickly which is why the penalties now being paid by the bank are less than $200 million. It was a penny ante, amateur scam with employees making up email addresses and sometimes virtually opening up the accounts from Wells Fargo internet domains. The bank has now fired 5300 employees who were involved in this fraud. As the New York Times’ columnist, Andrew Sorkin, points out, “that’s not a few bad apples.”

Wells Fargo has taken out ads apologizing and taking responsibility, but they clearly, as usual, have their fingers crossed behind their backs. A couple of months ago before all of this criminality became public, they allowed Carrie Tolstedt, a 27-year veteran and their head of “community banking,” to retire and walk away with over a $120 million going away present. Various banking analysts are calling for a “clawback” since Wells has rules allowing them to recover monies from executives where there were ill-gotten gains. The Wall Street Journal was so grossed out by all of this that they reported the calls for clawbacks and showed a picture of Ms. Tolstedt, but couldn’t bring themselves to mention the $120 million she took away with her office plants for fear that all of us Visigoths would be clamoring at the gates.

What will they learn? Likely nothing.

But, it’s easy to explain how this happens, and it is the same way that it happened when mortgage brokers were writing fictitious so-called, “lair’s loans,” where many observers of the 2008 financial meltdown are still confused and some think it was the borrower fibbing, rather than the underwriter. In the current Wells Fargo case on cards and accounts, as well as their own and many other situations previously on loans, it is crystal clear that once you link pay to simple production, you can guarantee there will be fraud. The only question will be how long it takes you to be caught, and how much money the bank makes in the interim.

For managers there, just like Carrie Tolstedt, there is a disincentive to impose the kind of controls that would weed out these problems. Top dogs get paid on the numbers, just like the runts of the litter. In bank after bank, once you get them across the table for all of their talk about protection using sophisticated algorithms, risk management, and blah, blah, blah, they simply are culturally and systemically unable to tightly manage on performance and standards, once production is all, and pay is linked to such incentives.

They are all smart enough to know this, but it’s the nature of capitalism in some ways to ignore it. You can only conclude that they didn’t care or thought that they wouldn’t be caught. None of which recommends a bank like Wells Fargo as a place to trust your money, since they are clearly committed to themselves first and their customers last, as little more than numbers being crunched in their back rooms somewhere.

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Please enjoy Phish’s Breath and Burning. Thank you KABF.

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Bank of America Record Settlement with Remorse

BANK OF AMERICA SIGN ON BRANCH - MIDTOWN MANHATTAN NEW YORK CITY USAMissoula     Accurate reports seem to indicate that the Justice Department is in the final drafting of a record setting, highest corporate penalty ever paid with Bank of America for mortgage related abuses. The price tag is going to be slightly north of $16 billion with $9 billion going to the government by way of a fine and $7 billion being some modest relief for some of the homeowners caught in the misdeeds.

At one level part of me says, hah, got the bastards finally! The Justice Department had hard bargained Bank of America to almost its original demand. Bank of America had been trying to organize a pity party for itself claiming that they had done the government and the rest of us big favors by picking up Countrywide and Merrill-Lynch so they should be in line for an attaboy rather than billions in fines, so that bubble was finally burst.

But, closer reading still gives me buyers’ remorse on closing the deal with Bank of America.

First, there are few of us that don’t realize that the “soft” $7 billion part of the settlement is as much accounting tricks helping Bank of America’s own balance sheet as it is real relief for the homeowners who faced – and continue to face – foreclosure. There’s still not much relief in store for them as these chapters close and everyone else moves forward, while family’s hopes and homes are both in tatters.

Secondly, it turns out that Judge Jed Rakoff, a Manhattan federal judge, is once again a hero to those of us who would like real justice from Wall Street. According the Times his recent decision for 17000 home owners awarding a $1.2 billion against Bank of America punctured the last of their lawyers’ lame rationales, and brought them within 24 hours to a deal with Justice that had been slipping away.

And, here’s the hurting part about this. Even with a record settlement it seems there is also the likelihood that many more multiples of billions may have been left on the table!

The bank’s top lawyers and executives, who made the ill-fated decision to fight that case in Judge Rakoff’s court rather than settle, appeared to recognize that another courtroom battle would not only be futile but extremely expensive, according to two of the people briefed on the matter. The remaining cases, which by contrast would involve billions of dollars in securities backed by home loans, could have cost the bank multiples more than Judge Rakoff’s penalty, perhaps even more than a settlement with the Justice Department.

Let’s just face it. There’s never going to be a way or a day that this will all feel good.

Banks and Wall Street got over. They’re paying to play now essentially, but the victims are not going to ever be made whole and none of us are ever going to feel happy about any of this at this point.

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