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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More News of Banking as a Criminal Conspiracy with BofA and Chase

Bank of America Country BankNew Orleans    There are many small town papers that used to thrive by feeding their readers the daily police reports.  These days reading the financial pages is more than an adequate substitute, since every day we seem to get another perp walk in the criminal conspiracy now called modern banking.

I know it’s tedious to keep returning to our old nemesis, JP Morgan Chase, but let’s face it, under Jamie Dimon and their pursuit of being the biggest bank in the land; they seem to be unable to keep from also being the baddest bank in America.  This time they are trying to enter an agreement to prevent criminal charges for their role as the main Madoff bank enabling his massive Ponzi scheme for over 20 years.   Internal emails seem to abound about suspicious while the bank counted their millions and helped him along the way while doing so.  The arm so clearly understood what the hand was doing that Chase’s private bank refused to take Madoff as a client even as the main bank was his counting house.  Now, late in the game they seem willing to promise that they won’t let this happen again, but will report suspicious activity in the future, but most of us must realize that these big, bad boys will be breaking that agreement even while ink is drying on their signatures.

Meanwhile Bank of America went to a jury trial to try to prove that they didn’t defraud the government by selling packages of bad mortgages directed by the executive, Rebecca Mairone, who was running that part of the show for Countrywide, which is now part of their diminished empire.  Bad move, team!   Mairone ran something it turned out that they called the “hustle,” a nickname for HSSL or the “high-speed swim lane,” which seems to have been a steamed up boiler room operation that pitted bankers in a competition to see who could originate loans more quickly, credit be damned, so that they could bottle the slop up and sell it off on the government’s secondary market.

The jury was disgusted, so “guilty as charged.”   The government is asking for almost $900 million as a penalty to be paid by Bank of America, though the judge will decide of course.  There’s also every indication that there will be a line forming for stockholder and other class actions now given the guilty verdict.

The jury also found Rebecca Mairone guilty as the day is long.   Her lawyers say, it’s not over yet.   Luckily, she still has a job in banking.   You may wonder where she’s working now?   JP Morgan Chase of course where the biggest of the bad boys run wild and free.

chaseWECHASE

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Big Mistakes on Countrywide and Healthcare Polls

Charles Blow

New Orleans   Charles Blow, the statistical columnist for the Times, did an excellent job today of “catching the cat,” as he called it by looking under the numbers of the polls around support or opposition to the Affordable Care Act (ACA).

Looking at a Times/CBS poll that is widely cited by the Republicans as their evidence that the American people hate the ACA, Blow noted that the actual poll showed that 27% of those polled said that ACA did not go far enough and 25% said ACA was about right.  In simple math that’s 52% support for ACA, which undermines the Republican’s claims about the 37% that said ACA “went too far.”  Looking further at the cross references in the poll, he found that those believing it went too far only accounted for 27% of the poll!  Furthermore some of the folks that wanted the bill struck down by the court were “single payers” who wanted Congress to go back and give us a better bill.

This problem with math skills deficiency in America today pervades politics and should lead to some kind of legislation, perhaps something like a No Politician Left Behind bill?

Speaking of enormous math errors, the Wall Street Journal noted that our friends at Bank of America have now ended up paying an extra $40 billion for their originally ill-advised purchase of Countrywide Mortgage for $2.5 billion as it headed for the tank.  Fresh from negotiations with Countrywide, I can still remember the conversations that we had with the Bank of America folks we worked with on mortgage lending where we advised them it was a HUGE MISTAKE for them to buy Countrywide.   But, what did we know, huh?

Math is a tool, and could be a friend, if you embraced it.

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Bank of America’s Countrywide: One of the Worst Deals Ever

New Orleans – In one of the many articles on yet another multi-$100 million settlement, one story, almost in an aside, stated that the purchase of Countrywide’s assets by Bank of America, was “one of the worst deals ever.”  The price tag for Bank of America has been billions.

This settlement with the Justice Department for racial discrimination in lending by Countrywide wide was north of $300 million, proving mainly how much both of the bums still managed to get away with anyway.  Countrywide steered qualified borrowers into subprime loans so that they would pay more in fees and interest.  Attorney General Holder on NPR estimated that in 2007 a Latino borrower in Los Angeles would pay more $1200 more in fees and interest for such a loan in the first two years of the debt than they would have paid without discrimination.   Attorney General Lisa Madigan in Illinois also announced a high ticket settlement as Bank of America tries to consolidate the charges against profits by the end of the year.

It goes without saying that Bank of America / Countrywide borrowers will not be so lucky and will continue paying the price long after this hand slap is forgotten.  Many are still struggling with foreclosures.  The date of the settlement will not include everyone victimized by subprime loans.  Finding many of these borrowers who now have lost these same houses and no longer have the same addresses will also be frustrating and unsuccessful in many cases.

Reading all of this is bittersweet for me since in 2007 we were still trying to negotiate directly with the top dogs of Countrywide (literally as it turned out!) and get them to forsake such practices for a set of “best practices” and reforms on the subprime side.  We finally finished the agreement at about this time of the year in 2007 and executed it in the spring of 2008.  I left ACORN in June of 2008, and as near as I can determine Countrywide managed to slip the noose and evade most of the terms of the agreement as it transitioned to Bank of America and tried to “play pretend” that B of A had something more than a “pig in a poke.”

Eventually roosters come home to roost to stay with the animal metaphors, but when it comes to home mortgage scams and thievery, all of this still seems not nearly enough!

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Bank of America’s Countrywide Ghoul Strikes Again

Nebank of americaw Orleans Reports from Bloomberg News and the Los Angeles Times are raising the specter of Bank of America filing for bankruptcy for its Countrywide mortgage unit detonating the “nuclear” option to save the parent company and run from the toxic mortgage load bought in 2008.  I wonder if this doesn’t finally give another explanation to Bank of America’s continued resistance to rational modification of mortgages to allow mortgage holders to stay in their homes.

According to these reports, Bank of America, its lawyers and strategists have spent time and money making sure that they contained the Countrywide operation as a separate entity.  The Bloomberg report notes:

“Countrywide has $11 billion in assets that could be depleted through demands to repurchase defective mortgages,” Jonathan Glionna of Barclays Plc said in an Aug. 31 note. After that, Bank of America may not have any obligation to pay claims from Countrywide’s creditors, he said.

Typically, a corporation that acquires another firm’s assets isn’t liable for the seller’s debts, unless the transaction is considered a de facto merger or there was fraud in the takeover, Robert M. Daines, a Stanford Law School professor, wrote in a legal opinion prepared for BNY Mellon, trustee for the Countrywide mortgage bonds. Daines analyzed whether Bank of America would have to pay bond investors if Countrywide couldn’t.

American International Group Inc. (AIG), the insurer that sued Bank of America last month to recoup more than $10 billion in losses on Countrywide mortgage bonds, argued that the bank is a legal successor to the unit. New York-based AIG cited a series of transactions by Bank of America in 2008 that “were structured in such a way as to leave Countrywide unable to satisfy its massive contingent liabilities.””

Obviously one reason all of the big whoops suing Bank of America from Freddie to Fannie are making sure in any litigation or settlement that BofA is on the hook for Countrywide is their fear that the company will finally jettison this toxic nightmare.  But for poor, working homeowners the problem in getting modifications and preventing foreclosure is that Bank of America clearly has to continue to play pretend and pump up the fake value of Countrywide mortgages that are still on the books at the loan terms rather than the underwater value.

In Phoenix where values have been halved and Arizona Advocates and Actions has been mired in the modification process with Bank of America few if any modification offers make financial sense for homeowners because the bank continues to pretend that houses now worth little more than $100,000 are still holding the $250,000 loan value of the original mortgage.  Restating the mortgage to the actual value would save millions of homeowners.  Unfortunately, injecting reality might bring the whole house of cards down, not just the Countrywide unit, but all of the nation’s largest financial institution, Bank of America.

What a mess!

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