Tag Archives: wells fargo

Banks and Their Buddies Learned Little to Nothing from the Great Recession

New Orleans     When we can muster up the attention span to read past the latest Mueller investigation activity and the Trump tantrums, we can see what Congress is doing to try to make life easier for the banks and gut Dodd-Frank requirements that force them to pay more attention in class rather than going the “greed is good” route.  It turns out that there is little relief in revisiting the lessons our old friends, the banks, have learned from their reckless behavior that led to the real estate bubble and the Great Recession only a long decade ago.

Of course, they certainly learned to be careful in dealing with the subprime lending market and its exorbitant and often predatory interest rates.  Wrong!  They only learned that they shouldn’t lend in their own names and through direct subsidiaries, but instead should supply nonbank middlemen with billions so that they can take the first fall when that bubble crashes.  The Wall Street Journal calculates that between 2010 and 2017, yes within 2 years of the meltdown and their repeated mea culpas to politicians and customers, they jumped in hard and collectively have made $345 billion in loans to such companies.  Many of these subprime loans are not in real estate, but in auto financing and similar areas that are even more unstable, if that’s possible.   Don’t for a minute think that this is just something the smaller fry are feeding on, because the big fish are goring on these loans.  Major bank loans to nonbank financial companies that loan money to subprime borrowers include Wells Fargo at $81.1 billion, Citigroup at $30.5 billion, Bank of America at $30.2 billion, JP Morgan Chase at $28.1 billion, Goldman Sachs at $22.2 billion and Morgan Stanley at $16.3 billion.

That’s not all that banks and their buddies haven’t learned.  On the wild right there are still pundits and posers who claim that loose credit standards, ACORN and the Community Reinvestment Act triggered the real estate meltdown and the recession, rather than their own activity.  Two researchers from the Urban Institute, which is the real estate industry and developers own think tank, in a working paper plainly state that the blame game is misplaced.

we … show that First-Time-Home-Buyers have similar loan performance as that of repeat buyers. This evidence indicates that the expansion of lending to include more marginal borrowers may not be the main cause of the financial crisis. Instead, the poor performance of the cash out refinances and refinances more generally, are more important contributing factors.

They put the shoe firmly on the foot of cash out refi’s that were popular for hordes of speculators and investors trying to take money out of properties as the bubble got bigger and then being caught short in their ability to pay as the market became overloaded and crashed.  In plain language speculators, big and small, with the help of bank’s emphasis on refinancing, were a much larger factor.

When banks won’t even admit to themselves what their role was in the crisis, how can they learn the lessons to avoid the next disaster?  Playing button-button on subprime loans and having their lobbyists dissemble in Congressional hallways about where the blame really lies are both signs of more meltdowns to come by the refusal to learn the lessons of the last one.

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Updates on Banks as Criminal Enterprises: More Wells Fargo Mess

New Orleans   The old adage that “what goes around, comes around” applies nicely to Wells Fargo, long in our experience one of the pariahs of banking and a shameless purveyor of predatory products and lending, long a target of ACORN campaigns.  Recent years have seen their corrupt culture begin to catch up with the San Francisco-based financial institution especially when they were caught creating thousands and thousands of fake accounts in their boiler rooms.  When that shoe fell, others started flying as the bank seems to careen from one scandal to another, and every internal and external report seems to report the impacts as even worse than first revealed.

It is likely far from over.

In a story about the transactional exchanges between banks and universities, where various institutions negotiate semi-exclusive arrangements to have the first and best crack at students, Wells Fargo once again is coming in first when it comes to preying on students as well.  In a recent Wall Street Journal report “twenty-two of the 30 highest average fees” were at schools with Wells Fargo contracts, while 20 of the 30 lowest were with Pennsylvania-based PNC Financial Services by comparison.  Wells in a typically flannel-mouthed response to the reports said that their charges were higher because “some students have ‘more complex banking needs, such as sending wires or purchasing more checks.’”  Who are they kidding?  The markup on check purchases at banks is huge, and how many youngsters use checkbooks rather than cards?  Come on!  They also make beaucoup on wire transfers and remittances, so this doesn’t answer the question either.

There is a sign that the greed and fast dealing of Wells and other banks may have finally gone past the usually rubbery line drawn by the Federal Reserve with one of Janet Yellen’s final announcements as chair.   Responding to Wells as a repeat offender, the Fed limited its ability to grow for the next year until it gets its act totally together, and then in an almost unprecedented move, demanded that 25% of the board be replaced this year.  In a reaction to the decision during the stock market selloff, Wells lost over 9% of its value taking a $29 billion beating on its valuation, pushing it significantly behind its competitors.

Will Wells and its kind finally get the message?  It’s hard to say since we’ve seen nothing but more evidence of predation from them even as their bully-boy practices have been exposed repeatedly.

If patience is running out at the Federal Reserve and on Wall Street, maybe they will finally understand why we chanted in front of their Los Angeles headquarters years ago, “Predatory Lender, Criminal Offender!”

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