This is identity theft on a massive scale. Those fired employees should be facing jail time and all the executive management that knew about it but didn’t stop it should be facing jail time too. How is this even debatable?
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So if you own an S&P tracker fund, or a discretionary fund run by an asset management company then you will experience a cost. Why didn’t you stop management? In addition the staff will pay too as the bank will definitely shrink. A good proportion will end up fired. The depositors will be put at risk too, where they have deposits over and above the FDIC threshold. Finally the FDIC funds are not infinite so the levy will go up. Normally that cost would be incident on both shareholders and customers of all banks because its a general cost on all banking and the demand curve is not infinitely elastic. So I guess if you have a bank account with any bank you will end up paying a tiny amount too.
Lets split the difference. I fail to see why management should get off scott free from criminal behaviour they initiated and implemented. So if you want to prosecute both lets go ahead. But bear in mind that deposit insurance is one worth 250k per account. In the case of Wells that might be worth more than usual, but the odds are the bank will need to go into FDIC conservatorship.
Personally I think the decision was taken by management and they are the ones with 125mn bonuses. But if you think shareholders should pay too fair enough. However so far the shareholders are the ONLY people to have paid. The 185mn fine was levied on the shareholders.
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I suggest nothing of the sort. I think they should be jailed for fraud. But as long as investors believe that they can benefit from corporate shady dealings with no more than ordinary risk, there’s incentive for those shady dealings. As you point out, much stock is held not by individuals, but by institutions who have the resources to investigate their investments. If for example CALPERS ditches a stock and announces they think it’s shady, small investors will follow suit. As is, short sellers often call bullshit on companies reports, but the risk to investors is ordinary, not the full loss of being shut down and liquidated due to criminal conviction.
You basic argument against is the same as “too big to fail”. You’re essentially saying “think of all the collateral casualties”. NO!!! Owners (and executives) must share risk, and their proxies the brokerages need to vet their picks. If they fail at it, investors will vote with their feet to those that can protect them from risk. Otherwise why not let the Mafia do an IPO? Let everyone benefit from criminal enterprise!
The fact is that they had a flawed corporate governance structure, with no one guarding against this who wasn’t benefiting. An analyst with the proper loss prevention incentives would have discovered this if shareholders were at risk of losing their entire investment.
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Quite so. I am primarily against executive criminal activity being rewarded. There are all sorts of reasons why the Victorian theory of the firm is no longer valid. In this case it wasnt so much the announced policy, but its implementation which was criminal. Nothing wrong with cross-selling. Whats wrong is where you fire everyone who cant meet their targets unless they open unauthorized accounts. AND you dont bother looking for any unauthorized accounts being opened despite it being normal practice to in banking to do so. What they were doing would have been quite hard to spot from outside the firm. And I would argue that no one has been punished for much worse transgressions in foreclosures which went on and are still going on. Analysts havnt noticed, and neither have the media. But the reports can be read in many locations. Lets face it, analysts rely on senior managers for access. They wont write bad things about them unless they are sure because its a career risking strategy. If it works you might do very well, but if it doesnt you are fired.
Moreover, banks have been fined huge amounts of money since 2008. And it seems to have done very little to encourage good behavior to me. I think this is primarily because the shareholders pay in the event the executives are caught and the management just issue themselves more stock options to make up for any losses. Add up all the fines and tell me it changes executive behaviour. The one group of people who havnt been sanctioned are management, and I have no idea why not. Even Angelo Mozilo is walking free enjoying his suntan. Its absurd. If you think imposing financial penalties on shareholders hasnt been aggressive enough look at the valuation of Citibank before and after 2008. I think its clear that it doesnt matter how much you fine investors. Since they dont control the companies, behaviour will not change. Managers control companies and not shareholders.
I will bet that one senior exec doing prison time from a bank will do way more to change behaviour than any amount of shareholder losses. Because the management will still have an asymmetric payoff function. If their criminal behaviour isnt caught they make 100s of millions. And if it is caught the bank goes bust and they get another job.
What I don’t get is why we are against making execs do jail time? As far as I can tell Stumpf is as qualified to be someones bitch as anyone. I’m sure he would look nice in lipstick.
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A good candidate for an answer is it’s incredibly expensive and time consuming to prosecute people who can hire teams of lawyers to create a incredibly complicated trail to follow. For starters I’d like to see a large chunk of the punitive fines go to the SEC and other regulators, fines going to general funds while the regulators budgets are cut is a recipe for crime.
But the difficulty of prosecution makes tanking the stock even more important, Stumpf knows he won’t go to jail, but maybe if his hundreds of millions in stock were at risk, he’d pay closer attention to what his minions were doing.
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I beg to differ. First of all, if we prosecute, then it will cost Stumpf millions to pull the team together to defend himself. Secondly, there are literally thousands of witnesses. Everyone they ever fired for failing to make sales “targets”. Email discovery will probably turn up a bunch of other crimes - crimes which are fully documented by email. And finally, the standard approach is to start from the bottom and offer deals. Its going to be trivial to get someone to finger Strumpf. Frankly I think he doesn’t have a hope in hell of surviving prosecution and will try and cut a deal almost immediately. I think the criminal penalties could easily amount to life in prison - there must be literally a million counts of mail fraud here with a decent number being federal.
And you think its going to be cheaper to prosecute Wells Fargo than its CEO? You must be smoking the good stuff.The questions is whether Wells chooses to pay for his defense. There are good reasons why they might not.
The practice of execs throwing shareholders under the bus for their own criminal behavior is aided and abetted by regulators. It was never justified by difficulty of prosecution. You just need one email and I bet there are a load which are incriminating. It was created by the revolving door between regulator and regulated. The reason why its easier is cos the execs are not reaching into their own pocket. Its the same reason why corporate prosecution doesnt change their behavior.
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The civil penalties were a small fraction of the profits they made from doing it, so I wouldn’t say they “came close” to losing their banking license in any way.
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Abiatha_Swelter is right. They really should have lost their license. AND the management should have been prosecuted. However State Dept and UST stepped in to note HSBC would collapse with dire consequences for global markets and the economy.
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Which is what they said in 2008, and what they will say every single time until we take the consequences and bring them to heel.
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According to Warren he MADE $200m on the scam, no mention of his net worth. He can afford it in the rare event it happens. Look at the record of prosecuting financial crimes. It’s not good. They even recently made insider trading virtually legal by raising the quid pro quo bar insanely high. They’re hard to win, and odds are you’ll lose on appeal. I think somebody upthread commented on Ken Lay being posthumously exonerated.
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The answer to that depends on your definition of “we”.
To the people who write the laws, and the people who own the people who write the laws: impunity for the wealthy is not a bug, it’s a feature.
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True. Which is why I say prosecute the staff not the bank. A few years in a SuperMax will change the managers approach to legal risk taking. We dont have to break a bunch of banks to do it. Unless you fancy breaking them anyway.
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Betcha all the 200mn hasnt vested yet. Criminal prosecution would invalidate the award. So I guess he has 100mn. Second, a prosecution would cost about 10mn a year to fight. Im sure the Feds can drag it out.
You mentioned insider trading. Well thats tough to prove intent cos you need to know state of mind. However in this case we know someone committed the crime. The lowest guy on the rung definitely committed a crime. Now the question is was he ordered to do it. Well go one level up. And keep going. You will have witnesses eager to push the blame onto their manager who told them to do it. And you will have a bunch of guys fired for not doing it. And you will have emails discussing it. And it will be a jury trial. Wells said 5000 people were fired for being bad actors. Well I guess 3/4 of those were actually fired for not hitting sales targets. They are all witnesses.
I would bet this one is a slam dunk. Plus, can you imagine what you will find when you do discovery on the organisations email? Every nasty thing they ever planned will open up.
Every single underling will sing to save their skin. In fact I would bet thats why Tolsted was given her pay in full. I would bet there is a non-disparage clause in there. I would bet she was paid off in full to make sure she didnt tell the world where the orders came from to do this.
You might be right. However if you dont try you wont fix the problem. Destroy as many banks as you like but the managers will still be able to roll the dice and maybe get rich if they dont get caught. And if they do, no biggie.
THATS the moral hazard!
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The solution to all this bullshit is really, really simple.
Just nationalise all the fucking banks.
‘Financial services’… gimme a fucking break. These days you can probably replace a whole bank with a single computer.
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But the thing is, banks CAN do good just like in “It’s a Wonderful Life”. The problem is when they’re a parasite that has grown to 20% of the economy consuming WAY more productivity than they facilitate. What comes to mind is “Mote in God’s Eye” where the watchmakers run rampant and destroy the McArthur. Afterwards the Moties say something to the effect that they’re very useful creatures but must be vented out the airlock regularly to keep their population down. Same with Bankers…and lawyers
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I fancy not letting people practice fractional reserve banking for profit.
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Looks like a lot of witnesses.
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The “Shocked/Not Shocked” meme would be sufficient here if I wasn’t so damned tired of seeing it. Why does it seem like America has such a big problem with whistleblowers? How many horrible things have been avoided or fixed because of them?
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“hoodocanode” is the name for the comments section of the “calculated risk” blog which was one of the important analyzers of the RE bubble.
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You need to watch more episodes of Scooby Doo. At the end of every solved mystery, the villain always says “and I would have gotten away with it too if it wasn’t for you pesky kids”
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