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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Middle Class, Walmart Lies, Too Big to Indict or Fail, Altruism, and Stress

unions rally in Michigan

New Orleans    You wouldn’t believe it, if it weren’t true!

Second Walmart Supplier Found in Bangladesh Fire Tragedy:  Steven Greenhouse, NYT

Scott Nova, executive director, of the Worker Rights Consortium, said the new documents raised additional questions about Walmart’s role at the factor.  ‘If Walmart’s claim that they were the victim of one rouge supplier had any shred of credibility, it’s gone now.  Walmart is limited to one of two options – to say, yes, we know these suppliers were using the factory or, two, we have no control over the supply chain that we’ve been building in Bangladesh for more than 20 years.”

Attack on Union Security in Michigan, Home of UAW and Middle Class:  Monic Davey, NYT

“We’re hearing from people around the country asking what in the world is happening in Michigan,” said Senator Debbie Stabenow, a Democrat.  “The governor had said he didn’t want to become Wisconsin.  Well, this is Wisconsin – and worse, because we’re the place, frankly, where the middle class began.”

HSBC Agrees to Pay Almost $2 Billion for Money Laundering, But…

HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.   (Ben Protess & Jessica Silver-Greenberg, NYT)

But, None of them Know What to Do With “Banks Too Big To Fail” Still!

The paper from the Bank of England and the F.D.I.C. focused on one way to accomplish this. The relevant regulator would take control of the bank’s parent company, then embark on a restructuring. By saying they are focusing on the parent company, regulators hope to shape expectations in the market and minimize destabilizing uncertainty when a bank implodes. This approach, “will give greater predictability for market participants about how resolution authorities may approach a resolution,” the regulators wrote.  The strategy then aims to put a seized bank back on its feet. In most cases, the bank would be insolvent, meaning that losses had eaten all its equity. To right the bank, the regulator would take the parent company’s debt and turn it into enough equity to support the bank’s operations in the future.   But questions surround the strategy. The paper is little more than a commitment to cooperate. In other words, it does not give either regulator the power to reach into a foreign jurisdiction to restructure a bank.   [Peter Eaves NYT]

Can’t Inhert Altruism, but at Least it Feels Good to Give:  Perri Klass, NYT

“There is some degree of heritability,” said Carolyn Zahn-Waxler, a senior research scientist at the University of Wisconsin-Madison, who has done some of these twin studies. But she notes that the effect is small: “There is no gene for empathy, there is no gene for altruism. What’s heritable may be some personality characteristics.”   Scott Huettel, a professor of psychology and neuroscience at Duke, described two broad theories to explain prosocial behavior. One, he said, was essentially motivational: It feels good to help other people. Economists have also looked at the question of altruism, and have hypothesized about a “warm glow effect” to account for charitable giving.

Don’t Worry about All of This Though, Chill Out! – Jane Brody, NYT, Personal Health Column

In an interview, Dr. Chansky said that when real calamities occur, “you will be in much better shape to cope with them if you don’t entertain extraneous catastrophes.”  By “extraneous,” she means the many stresses that pile up in the course of daily living that don’t really deserve so much of our emotional capital — the worrying and fretting we spend on things that won’t change or simply don’t matter much.  “If you worry about everything, it will get in the way of what you really need to address,” she explained. “The best decisions are not made when your mind is spinning out of control, racing ahead with predictions about how things are never going to get any better. Precious energy is wasted when you’re always thinking about the worst-case scenarios.”  When faced with serious challenges, it helps to narrow them down to specific things you can do now. To my mind, Dr. Chansky’s most valuable suggestion for emerging from paralyzing anxiety when faced with a monumental task is to “stay in the present — it doesn’t help to be in the future.  “Take some small step today, and value each step you take. You never know which step will make a difference. This is much better than not trying to do anything.” Dr. Chansky told me, “If you’re worrying about your work all the time, you won’t get your work done.” She suggested instead that people “compartmentalize.”

There you are, ready for another day!

 

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