Tag Archives: Wells Fargo

Deregulation isn’t the solution, it’s the problem

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind.   The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth.  Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety.  I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company.  Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale.  We have regulations to prevent this.  We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk.  Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers.  $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution.  This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions.  Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.”  Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world.  In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling.  I have something to sell, and there is a potential customer for my goods or services.  This is another point at which deregulation can easily become part of the problem.  If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public.  Deregulation invites disasters of the public health variety.  We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be?  That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices?  And, if it doesn’t, are there avenues of redress such that the consumer can be compensated?  In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office?  There are voices on the fringe of Free Market thought calling  for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive.  A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not.  A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not.  In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale.  Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US?  To our customers around the world?

 

 

Comments Off on Deregulation isn’t the solution, it’s the problem

Filed under Amodei, banking, Economy, financial regulation, Foreclosures, Nevada economy, Nevada politics, Politics

Warning: Republicans Are Hazardous to Your Bank Account, and this includes Rep. Heck

Dem Rep Job Creation These are some of the most dangerous words ever spoken – with regard to your bank account:

“After eight years of the Obama economy, Americans are struggling with stagnant wages, reduced hours, and decreased economic opportunity. The policies of this Administration, from the Affordable Care Act to the Dodd Frank financial reform legislation, have hurt economic growth and make it more costly and burdensome for businesses to expand and add workers.” [Heck]

Heck tries to waffle a bit in the last segment: “I will continue to support reasonable regulations that protect the consumer, employees, and the environment while working to reduce burdensome federal regulations so that businesses can thrive and create good-paying jobs.”

First, it’s fact check time. As the chart above indicates the ACA and the Dodd Frank Act have not “decreased economic opportunity,” (whatever that might mean) and in light of what’s been happening with Wells Fargo Bank we need to talk about the “burdens of regulation.”  We also need to talk about a piece of legislation that just passed the House Financial Services Committee.

The “Financial Choice Act” —

“The Financial Choice Act split the banking panel with a vote of 30 to 26, with just one Republican, Representative Bruce Poliquin of Maine, siding with the committee’s Democrats against it.

Mr. Hensarling has been a prominent critic of Dodd-Frank and other changes after the 2008 financial crisis, including the creation of the Consumer Financial Protection Bureau to regulate the consumer finance industry.

“It has been six years since the passage of Dodd-Frank. We were told it would lift our economy, but instead we are stuck in the slowest, weakest, most tepid recovery in the history of the Republic,” said Mr. Hensarling at Tuesday’s session. “The economy does not work for working people.”

The legislation, which was unveiled in June, calls for numerous changes to Dodd-Frank. One provision would allow some of the largest banks to exempt themselves from some regulatory standards if they maintained an important ratio of capital to total assets at 10 percent or more.” [NYT]

There’s more. The Financial Choice Act (comprehensive summary pdf) reads like the American Bankers Association Christmas Wish List and Birthday Party requests combined with everything a banker would want from a Financialist Santa Claus.

However, let’s start with the Consumer Financial Protection Bureau about which the House Republicans have several complaints:

“The Consumer Financial Protection Bureau is not accountable to Congress or the  American people. The Bureau’s policies often harm consumers or exceed its legal authority because the Bureau is not subject to checks and balances that apply to other regulatory agencies.” [House pdf]

This is another iteration of the initial whine the GOP wheezed out when the idea of a Consumer Financial Protection Bureau was suggested which would not be subject to the corporate/financialist tastes of Republican Congressional representatives.  The ones who want government so small it can be drowned in a bathtub – and the CFPB along with it.   At this point it might be instructive to ask: What harm has been done to consumers of, say, Wells Fargo Bank, by the CFPB?

“When news first broke that Wells Fargo would pay the largest fine in Consumer Financial Protection Bureau history for routinely opening unauthorized accounts that clients didn’t want or need, CEO John Stumpf put blame squarely on his worst-paid workers.

He’s changed his tune since, as political pressure over the years-long scandal mounted and evidence depicting the high-pressure sales culture at the bank got more attention.

And now, the bank’s board is reaching into Stumpf’s own pocket to discipline him. The CEO will forfeit $41 million in past compensation — all of it in the form of investment holdings that hadn’t vested yet — and the woman who ran his firm’s retail banking unit will give back $19 million of her own.” [TP]

What harm was done by this agency in fining Wells Fargo for its “cross selling scam” that created phony accounts to boost sales figures?  And, what is wrong with this result?

“By clawing back a large chunk of Stumpf’s roughly $100 million in compensation over the past decade, though, the board is hoping to signal that it’s taking the scandal seriously. The day news of the $185 million fine broke, Stumpf portrayed it as an issue of some bad apples at junior positions and said responsibility started and stopped with the 5,300 people fired in response.

That holier-than-thou response first started to crack in front of the Senate Banking Committee last week, when senators including Elizabeth Warren (D-MA) bounced the bank head off the walls of a hearing room for hours.

Wednesday’s announcement of clawbacks comes a day before Stumpf returns to Capitol Hill to face the House’s version of the same inquisition.

Clawbacks are a hot-button concept for finance watchdogs and Wall Street critics. Many of the industry’s sins stem from compensation policies that incentivize executives to break whatever rules they have to keep the company stock rising, knowing they’ll walk away rich even if the company gets caught. Clawbacks, observers and policymakers say, are an important tool in reversing that deviant cycle.” [TP]

So, how do the House Republicans mean to “improve” the CFPB? The CFPB that caught Wells Fargo? Made the Bank pay fines and restitution? Made the Board of Directors claw back the ill-gotten gains of the bank executives and not lay the whole scam on the lower level employees?

The House Republicans want to (1) replace the head of the CFPB with an awkward “bipartisan” board; that should facilitate logjams and obstructionism. (2) Make the CFPB budget subject to specific Congressional control – meaning the Congress can cut the budget until there is no way the agency can do its job. (3) Require a cost benefit analysis of every rule promulgated by the agency – which means if the regulation “costs too much” for the preservation of bank profits the rule dies. (4) Prohibit the CFPB from cutting off “access” to fraudulent or abusive bank practices and products.  In other words, the bankers have the CHOICE to offer any product they wish and if you buy in and get scammed that was your choice as a consumer.

Now it’s time to return to Representative Heck’s own words: “…Dodd Frank financial reform legislation, have hurt economic growth and make it more costly and burdensome for businesses to expand and add workers.” 

Does Representative Heck believe that they current structure of the CFPB as an independent agency is a weakness?  Does he believe that it should be subject to Congressional pressure to weaken its enforcement activities?  Is CFPB protection from fraudulent practices and products really denying Americans “choices” in financial products?

If the “Financial Choice Act” (essentially a repeal of Dodd Frank) came up for a vote in the House today would Representative Heck vote in favor of it?

And how does he feel about the House GOP charges that the CFPB was late to the game and didn’t handle the Wells Fargo case adequately?

“Where was the CFPB? Why did they come in so late to the game?” he continued. “They have immense powers and this is their job to enforce these basic consumer laws and it appears they were asleep at the switch.”

Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing. 

The controversy over the San Francisco-based financial institution has become the latest flash point in a bitter battle between Republicans and Democrats over the fate of the CFPB, which was created by the 2010 Dodd-Frank overhaul of financial regulations.

The legislation passed with almost no GOP support. Ever since, House and Senate Republicans have been trying unsuccessfully to reduce the power of the bureau, arguing it was designed to avoid congressional oversight and has limited consumer’s access to credit through over-regulation.” [LATimes]

Interesting that the very Republicans who were trying to reduce the power and capacity of the CFPB to regulate lending practices are now trying to blame the agency for not doing enough, fast enough.

“Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said Republicans are pushing “a false narrative” about the CFPB’s role in the Wells Fargo case in order to discredit the agency.

“The fact is the CFPB and OCC were investigating before the L.A. Times story came out,” he said. “But that does not mean that the leading congressional opponent of the CFPB won’t try to pitch that narrative again at this hearing because it plays to his base. But it’s simply false.” [LATimes]

Nice try, Rep. Hensarling, but there’s an ample record of Republican opposition to the creation, organization, and implementation of the CFPB to make any contention that the 1,600 man/woman agency wasn’t trying to do its job in regard to the egregious practices of Wells Fargo. As the old saw goes: That dog won’t hunt.

So, the next question to Representative Heck (and Hardy and Amodei too) is: In light of the Wells Fargo scandalous behavior and the bilking of its own customers, what are you advocating to increase the power of the Consumer Financial Protection Bureau to actually protect PEOPLE and not the bankers who have been scamming them?  No one chooses to get bilked, and no one should have to tolerate banks who chose to bilk their customers.  Period.

** On the other hand Nevadans who want adequate protection from illegal, illicit, and otherwise unethical banking practices have an advocate running for the U.S. Senate – Catherine Cortez Masto, who has a track record of taking on the big banking interests on behalf of us “little people who pay taxes.”   A candidate with an endorsement from the woman who fought for the CRPB, Elizabeth Warren:

“I’m so grateful to have Senator Warren’s support,” said Cortez Masto. “Senator Warren and I are both committed to taking on the big banks, protecting consumers, homeowners and helping to grow the middle class – issues I championed as Attorney General and hope continue doing in the U.S. Senate with her. Unlike my opponent Joe Heck who has voted to keep tax breaks for big corporations and billionaires like the Koch brothers, I will fight for policies that help hard working Nevadans, not hurt them.”

“Catherine’s race is critical to restoring our Democratic majority,” said Senator Warren. “During her two terms as Nevada’s Attorney General, Catherine held big banks accountable and fought predatory lending, cracked down on sex trafficking and got tough on elderly, child, and domestic abusers. Catherine knows who she’s fighting for and I need her fighting alongside me in the Senate.” [Link]

And there’s the choice – let the banks make the choices? Or, protect people from the banks’ bad choices.

Comments Off on Warning: Republicans Are Hazardous to Your Bank Account, and this includes Rep. Heck

Filed under Economy, financial regulation, Heck, koch brothers, Nevada economy, Nevada politics, Politics, Republicans