Catherine Tuilerie, Mountain Finch Post
I am not a rich person by any means and the last few years have not been easy. I thought I had it made. I had a 401k and money in the bank. I own one rental house that brought in $850 per month. Then all of this financial trouble hit. My 401k is worth 47% of what I had figured and my rental house is now under water and I had to drop the rent to $750 to keep a tenant. So I decided to ask the manager at two banks here in town—Chase and Wells Fargo, what had happened to my money.
I figured I would get the run around, but the managers were actually eager to talk about their situation. The first thing I learned was that the government did not set bank policy. Both managers were adamant about that fact. They both said the money was easy and the banks went after the money.
First, the bank policy was changed so that nothing was checked. If a bum off the street wanted a loan and claimed he made $100,000 per year collecting cans, the application said they made $100,000. Credit scores might or might not be checked, but it didn't matter anyway as all of the paperwork was pushed "forward" where someone else made the decision to loan or not to loan. And the loans were approved, but better than approved.
When the applicant(s) showed up at the bank, they were told they could get $200,000 by taking an interest only loan. Lots of them took the increased loan and went shopping for a $200,000 home. The manager knew from the start that the people could not afford the payment on $100,000, but they could afford the payment for the interest on $200,000.
Both managers stated that they themselves had no decision power whatsoever. All of the banking practices went shoved aside.
Now the banks knew the loans were bad from the start, but they came up with an ingenious solution. They bundled the mortgages into an investment opportunity and sold the investment opportunity to the big investment houses, like Merrill Lynch, Goldman Sachs, etc, etc. At first the investment houses thought these were good investments. They were conservative. The borrowers had been checked out by the bank. The money was steady. The interest was fixed. There would be income for 20 years at least. That was at first. The investment houses soon knew the bundles of mortgages were poor investments. But by the time they knew the money was good, so they went right on selling this first class investment. Who bought? Retirement plans for one. Individuals like me for another.
At this point the banks have been paid and the investments houses have been paid; the investors believe they will collect something every month. Then the housing crisis hit.
I asked my two managers if they had taken a pay cut. They assured me that they had not. I asked if the bank personnel had gotten pay increase. Yes they had. I asked if people had gotten bonuses. Yes they had. How much were the bonuses? They couldn't say. How about bonuses for the CEO? They were not at liberty to tell me, but CEO bonuses were substantial.
OK. The banks made poor and legal, business decisions. The bank employees got pay raises and bonuses. The banks were paid for the mortgages, sort of, and the big investment houses took money from investors for mortgage bundles. But for me, I was suddenly worth half of what I had saved for over 25 years.
In the midst of all of this came the bailouts. These began under President Bush; President Obama accelerated this process ten times over.
My bank managers told me their pay was tied to the bailouts.
Who has my money? And why is this not a criminal act?
I decided to subscribe to the Wall Street Journal (WSJ). Perhaps answers would be covered there.
Here is a list of the headlines of recent stories from the WSJ.
1. Peter Madoff Pleads Guilty. WSJ B1, June 30-July 1, 2012. We learn in this story that Peter Madoff is the 8th person to plead guilty in the infamous Madoff scheme. But Peter Madoff did not agree to cooperate with Federal investigators.
2. And on the same page: BofA's Blunder: $40 Billion-Plus. WSJ B1, June 30-July 1, 2012. It seems this loss is due to the purchase of Countrywide Financial Corp. A Professor with the University of North Carolina at Charlotte is quoted. "It is the worst deal in the history of American finance, hands down." Really? How does this stack up against Madoff or the bailouts of banks, investments firms and General Motors? This loss is legal, just a bad business decision. This loss will be eaten by the common people who own mortgages, pay usurious bank fees and have a pension plan. Madoff's deal stole from rich people and was illegal by law.
3. Wall Street Is Still Giving to President. WSJ, A4, July 3, 2012. The Democrat party has raised more than $14 million from the investment and securities industry through April 2012. The President has almost 600 bundlers working in the real estate, high-tech, movie, business and finance fields. In 2008 President Obama had 90 bundlers from the securities and investments industry; in 2012 he has 77 bundlers from securities and investment. One of those bundlers is Steven Myers who runs a private-equity firm in Newport Beach, California. Mr. Myers is quoted by the WSJ: Anyone—especially anyone in the financial-services industry—who could argue that we don't desperately need more and better financial regulatory controls is simply being silly."
4. Rate Scandal Set to Spread. Former Barclays CEO Lambasted in Parliament as Other Banks Brace from Fallout. WSJ A1-A5, July 5, 2012. Here we learn that Barclays was fixing the interest for borrowing money and agreed to pay a $453 million fine to US and British regulators. Apparently, Barclays thought they could pay the fine and things would fade into the background.
5. And on the same page. Cities Consider Seizing Mortgages. WSJ A1-A2. July 5, 2012. It seems that San Benadino County and Ontario and Fontana, California would use eminent domain to take over properties that are underwater, cut the loan principle to the value of the property and resell the property to new investors. These new investors might be the homeowners themselves. The example given was a home with a $300,000 mortgage and a market value of $150,000. The "investors" would offer $120,000 and if a judge agreed, the sale would be made. Then the property would be offered to the homeowners for $145,000 with a 30 year mortgage. Profit on this deal was estimated at $25,000. Who dreamt up this brainchild? None other than the architect of Bank of America's low-income lending program in the 1990s, a Mr. Grahm Williams. Mr. Williams is described in the article as a mortgage-industry veteran. The question is who has the $155,000 difference between the original purchase price of $300,000 and the new purchase price of $145,000? The homeowners may have put down 20% or $60,000. Who got the rest of the money?
6. Central Banks Take Action. From Beijing to Frankfurt, Efforts to Spur Growth Fail to Allay Investors' Fears. WSJ, A1-A7, July 6, 2012. This article is difficult to figure out. Raise rates, lower rates. Blah, blah, blah. No wonder investors don't know what to do. And how do banks stimulate the economy anyway? Weren't they in on the financial crisis? And didn't they get bailed out? So is the bailout money now being manipulated by the banking industry?
7. Barclays Bank Bash. WSJ, A12 Reviews and Outlook. July 6, 2012. The Wall Street Journal is bashing regulators in this editorial. The open market should be the judge of which bank is "valuable" and which is not. The editors also state: "And we can almost guarantee that this case will prove to be less simple than the media consensus that a culture of corruption in banking has now been proven." This is a cheap and easy statement to make. Almost anything is more complicated than the media presents. But then the Wall Street Journal is part of that media. If the Wall Street Journal has evidence of honest and straightforward dealings in the financial industry, they should present it. Unfortunately the only thing presented in the Wall Street Journal relates to unethical hucksterism by various parts of the financial industry—private equity firms, banks private and public, Federal Reserve, interest rate setting schemes, etc, etc.
8. Scandal Shakes Trading Firm. Regulators Cite Peregrine in Missing $215 Million; Founder Attempted Suicide. WSJ A1-A2, July 11, 2012. Russell Wasendorf Sr is a hero in Cedar Falls, Iowa, his adopted hometown, primarily because he spread lots of money around in the town and gave to charitable causes. This is easy to do if you have stolen $215 million.
9. Libor Demystified. The Bank of England's No. 2 puts the minor scandal in context. The bank interest rate scandal again, but this time it is a minor scandal. This is about the London Interbank Offered Rate or Libor for short. The Wall Street Journal Editors term the latest Libor scandal a "political circus" in the parting shot in this editorial. Unfortunately, for the WSJ and the financial industry this really is a scandal and it really is about a bank's management lying to everyone about the interest they had to pay on money they borrow from other banks. Why? So they would look more creditworthy and credible and stable. Barclays is a well-known bank. Is lying by a well-known bank a minor scandal? When is a scandal in the financial industry a major scandal?
10. Fed Weighs More Stimulus. Slow Recovery Has Central Bank on High Alert but Not Ready to Pull the Trigger. WSJ, A1-A2, July 12, 2012. It is not clear what the Federal Reserve might do from this article. It is clear that the recovery is very sluggish and even the financial experts at the Federal Reserve are out of ideas.
11. Business Woes, Erratic Moves Dogged Stricken Executive. WSJ A1-A14, July 12, 2012. The Peregrine Financial Group, Inc scandal (see #8 above), turns and turns. Mr. Wasendorf sent out wedding invitations for August 4, 2012, but he and his fiancée secretly married in Las Vegas. US Bancorp is cooperating with Federal investigators. Peregrine had dealings with other crooked firms. No one knows where the money is. It's gone.
12. An Eminently Bad Idea. Seizing private mortgages to sell to other private investors. WSJ A16, July 12, 2012. Now WSJ weighs in on the item in #5 above. This scheme is from Mortgage Resolutions Partners, a San Francisco-based venture-capital firm. Until early 2012 its executive chairman was Phil Angelides, a California Democrat. Mr. Angelides was chosen by Nancy Pelosi to chair the Financial Crisis Inquiry Commission. Mr. Angelides resigned from Mortgage Resolutions Partners when it was revealed his connections to California politics. Smells doesn't it.
13. Red Flags at Failed Broker. Firm Was Subject of Multiple Actions; Investigators Study 'Incredible Forgeries'. Warning Signs on Broker Were Missed. WSJ A1-A2, July 13, 2012. This is Peregrine Financial Group again. This article describes many warning signals that things were not being done correctly at this firm, including deceptive advertizing, forging bank documents, dealing with "troubled" brokers who brought in cash, but the customers lost money, fines by regulators and so forth.
14. At J. P. Morgan, Whale & Co. Go. At J. P. Morgan Chase, The 'Whale" Team Is Out. This story is a follow-up. J. P. Morgan & Chase lost $5 billion. This "blunder" led to a $25 billion loss in market value and questions about the competence of James Dimon, CEO of J. P. Mogan Chase. The "blunder was made in the Chief Investment Office, a unit that invests the bank's excess cash. Three traders have resigned according to the WSJ story, and that the "risk failures" were isolated to the Chief Investment Office.
Donald Trump made public comments about this incident. Mr. Trump said that "Jaime Dimon is a good guy and it is a shame this is happening to him." Or words to that effect. This probably meant that someone else would take the fall and that is exactly what happened. Mr. Dimon, that good guy, stayed in place; three guilty and "evil" traders lost their jobs and probably their careers.
15. Ex-Bankers Are Charged With Fraud. WSJ C3, July 13, 2012. Bank of the Commonwealth cost the FDIC $268 million is 2011. According to this WSJ story, Erci Holder, the US Attorney General described the practices that led to the $268 million loss as highly flawed, but not necessarily criminal. Six people were charged in this case.
16. Wells Fargo Settles Lending-Bias Cases. Bank Will Pay $175 million for Mortgage Practices Tied to Minorities: Pact Alleges Higher Fees and Interest Rates Charged. WSJ C3, July 13, 2012. Is there something new about these charges? Hardly. Wells Fargo paid the fine to avoid court. They admitted no wrong. That said, the Wells Fargo manager that I interviewed was quite clear about the shoddy banking practices they used before the housing crisis. This complaint looks like more of the same. If the customer is ignorant, poor, whatever, charge them more fees and more interest. The title above uses the plural—cases. Thirty-six states and the District of Columbia. This is systemic just like the shoddy lending practices.
Ironic, I think, that 14, 15, and 16 appeared in the same issue---Friday, July 13th.
17. Card Giants to Pay $6 Billion. Visa, MasterCard Agree to Settlement That Allows Retailer Surcharges for Paying With Plastic. WSJ A1-A5, July 14-15, 2012. This article is about price-fixing lawsuits filed in 2005. Visa was found to be 67% responsible and MasterCard 33% responsible. But banks are helping MasterCard so their part of the settlement will only be 12%. The decision allows merchants to collect fees for credit card users. Credit card users may pay more for anything they charge on plastic.
18. And in the same issue: Peregrine CEO's Dramatic Confession. WSJ A1-A2, July 14-15, 2012. When Russell Wasendorf tried to commit suicide, he left a note admitting to fraud, counterfeiting bank documents and embezzlement. Mr. Wasendorf tried in the note, to absolve all of the people around him—his son, wife, etc. See #s8, 11, and 13 above.
19. States Step Into Libor Probe. New York and Connecticut Examining Whether Rate Fixing Cost Them Money. WSJ C1-C2, July 16, 2012. I have trouble with this one. What is an interest-rate swap? Does this mean the banks manipulated interest rates so these states paid more for the money they borrowed?
20. Card Deal's Foes Arm For Battle. WSJ C1-C3, July 16, 2012. It seems there are an additional 3,700 convenience stores and other firms that believe they were screwed by the credit card companies.
21. HSBC Nears Pact In Launder Inquiry. WSJ C1-C2, July 16, 2012. It appears HSBC Holdings, PLC was laundering drug cartel money. Wachovia, now part of Wells Fargo paid a $160 million fine in 2010 for money laundering according to the WSJ article.
22. Future Clients Ask: 'Where's My Money?' WSJ C3 July 16, 2012. Two cases are driving clients to check on the safety of their money by asking for some of it back. And of course firms are complying, but who knows if the money you get back is yours or is part of the general fund? The two cases driving these inquires: MF Global Holdings Ltd. ($1.6 billion gone) and Peregrine Financial group, Inc also known as PFGBest, at least $215 million missing.
23. Missteps Doomed Barclays' Leaders. WSJ A1-A10, July 16, 2012. Barclays tried to keep the identity of the executives involved secret. The UK Financial Services Authority approved a promotion for del Missier and Diamond was allowed to stay as the CEO, this before the public outcry began. This secrecy and protectionism of crooks is a "misstep". Also, Diamond did not get along with his English colleagues. Diamond is US born and bred. The WSJ claims they raised a red flag in 2008 about Libor. Well for the folks at the WSJ, it is now 2012—that's 4 years later for you folks at the WSJ who are not mathematical whizzes so you blew this story.
24. Goldman Builds Private Bank. Shift Into Lower-Margin Lending Reflects Harsh Climate Facing Wall Street. WSJ A1-A2, July 17, 2012. I wondered why a bank would have a public face and a private face. The private bank is for wealthy clients. According to this WSJ article, J. P. Morgan Chase and Bank of America Corp. also have established private banks within their banks. It appears that about half of the Goldman's private bank's assets are derivatives. This WSJ article includes whining by bank executives about new regulations, about how difficult it is to conduct banking business in the present regulatory climate. So is a private bank subject to the new regulations? And is a private bank insured by the FDIC?
25. Senate Probe Faults HSBC. Report Says Bank Ignored Money-Laundering Warnings. WSJ C1-C2, July 17, 2012. Welcome to the dirty side of banking supporting your local drug dealer and terrorist. This bank, according to WSJ held 50,000 client accounts and $2.1 billion in 2008 in the Cayman Islands operation. An HSBC official is quoted by WSJ: there "was a culture [of] pursuing profits and targets at all costs." The rest of this article goes on to describe dirty operations in Mexico and the firing of a HSBC compliance officer who questioned what was going on at the bank.
26. Banker Accounts On Libor Conflict. WSJ C1-C2, July 17, 2012. Jerry del Missier, recently dismissed from Barclays told investigators he was following orders from his boss. Mr. Diamond and Mr. Tucker deny the charge, saying they never told anyone to low-ball borrowing costs. Wink, wink, nod, nod.
27. The Scandal Bhind the New Financial Scandals. Current Account by Franscesco Guerrera. WSJ C1-C2, July 17, 2012. Here is an author who bites the bullet. Mr. Guerrera takes the financial industry to task, everything from internal crooks, light-weight regulators, to the financial industry asking for lighter regulation from the regulators they blame for the meltdown in 2008. As Mr. Guerrera says, "The financial industry and its political masters have to look forward, whether they like it or not."
28. Trading Firm CEO: I spent it. Note From Peregrine Founder Says Millions Went to Cover Losses, Pay Fines. This article details the note left by Russell Wasendorf Sr. at his attempted suicide. Perhaps the only thing true in the note is that he stole the money. The rest of the note tries to exonerate his son and his wife. This article says the fraud began in 1993.
29. Goldman to Tighten Belt Further. Finance Chief Viniar Says 'Couple of Hundred People' May Lose Jobs, as Firm Posts 11% Profit Drop. WSJ C1-C2, July 18, 2012. According to this article Goldman faces, "a triple-whammy of lackluster business conditions, the global economic rut and regulatory headwinds." This is an interesting statement as regulatory headwinds are put front and center as bad for business. Goldman's pays an average of $225,697 to employees this year down from $392,617 in 2007.
30. Libor Scandal Ensnares Fed, BOE. WSJ C1-C2, July 18, 2012. The Federal Reserve Bank of New York learned of possible interest rate rigging in 2007 and the current Federal Reserve Chair, Ben Bernanke learned of it in 2008. Barclays has paid an estimated $450 million settlement. Apparently, US Regulators began investigating interest rate rigging in 2008. The case took until 2012 before a fine was imposed.
31. Scolded, HSBC Vows Laundering Vigilance. WSJ C1-C2, July 18, 2012.HSBC Holdings executives have apologized to the US congress for laundering drug money and terrorist money. Irene Dorner: "We deeply regret and apologize for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees and the general public. HSBC's compliance history as examined today is unacceptable." The OCC regulatory agency found actionable practices for over six years and did nothing to stop HSBC from dealing with terrorists and drug cartels. HSBC opened accounts for a Taliban Affiliate (whatever that means) and an international terrorist. So now they say they are sorry. How many people were murdered because of HSBC practices? How many terrorist attacks were financed via HSBC? HSBC is an accessory to the crimes of terrorists and drug cartels. And the result is "We'll be good in the future." Are there no penalties for the responsible HSBC officials? Accessory to murder is a crime.
32. Capital One Dealt Fine For Pitch to Customers. WSJ C1C2, July 19, 2012. Another credit card company pitching identity protection, payment protection and other "services" automatically charging their Capitol One credit card. Capital One used deceptive practices, in plain English; Capital One lied to customers to make sales. They will refund $150 million to 2.5 million customers.
33. Peregrine's Struggle to Stay Airborne. WSJ C1-C2, July 19, 2012. This article is a rehash of previous articles, but clearly puts Russell Wesendorf Jr. at the head of the company. Investigation continues. The $215 million is missing.
34. Peregrine's Vast Money Trail. WSJ C1-C2 July 20, 2012. More on the varied and failed investments of this crooked company.
35. Wall Street's Latest Housing Play: Packaging Rent Payments for Sale. WSJ C1-C2 July 20, 2012. This should be headlined Wall Street's Latest Ploy. Does this sound familiar? Now they are packaging rent payments from people living in previously foreclosed homes. Firms snap up foreclosed homes and then rent them. They then package thousands of these rent payments into securities and sell them to other investors. Here are a few of the players: Colony American Homes, LLC, Colony Capital, LLC, Western Asset Management, Carrington Mortgage Holdings, LLC, Wells Fargo, and Citigroup. Nice to see a company with experience in selling packaged bad mortgages involved in selling packaged rents resulting from their fraudulent lending practices. Like having the fox guard the henhouse.
36. U. S. Speeds Its Selloff Of Bailout Securities. WSJ A1-A2, July 20, 2012. The U. S. government disbursed $416 billion and has received $344 billion in cash. This leaves $93 billion outstanding---shares in banks, General Motors, AIG, Ally Financial. The government has supposedly made money. They disbursed $245 billion to 700 banks and have been repaid 264.7 billion. The Federal Reserve Bank of New York has received $72.7 billion and made $5.2 billion. All of this is fine, but what about the loans made by the Federal Reserve? Have these been repaid? And did the government really make money?
Well, enough of the Wall Street Journal. Thirty-six headlines from June 30 to July 20. I probably missed a few headlines as this stuff is mind-numbing.
Here is some additional information from friends and relatives. A friend refinanced an $89,000 loan with PNC Bank. The interest rate had been 6.3%; PNC offered 4.2% on a property valued at $62,000. The original purchase price was $135,000. This is a great deal for PNC. They got paid over $5,000 in fees, etc to make a loan that had already been vetted, stamped and with regular payments. Everything PNC did was electronic except that they sent in a closing team to get signatures. The homeowner will pay off the loan sooner, but they have lost $73,000 on the house and $5,000 to refinance. If they let the house go, their credit would be toast.
Another relative refinanced through Fannie Mae. Their house was under water big time. They owed more on the house than they paid originally. No problem. They got a loan for the full amount at 2%.
That's $195,000 on a house they financed originally at a purchase price of $189,000 with an additional $6,000 for a second. The house was appraised for $189,000 for the current loan. Nice if you can get this sort of financial treatment.
I happen to know some folks in Merrill Lynch, now a subsidiary of Bank of America. One of my acquaintances quit because Bank of America was "full of crooks and con men". Three others who stayed now are required to recommend good loan prospects to Bank of America. They have numbers to make for loan recommendations. But they are traders for Merrill Lynch. Now the bank is telling traders what to do.
Here are my impressions from these headlines.
1. The financial industry is wealthy and crooked as a dog's hind leg. The dishonesty in the financial industry is across the board from Ponzi schemes to insider trading to shady investment vehicles. The industry is powerful politically because they give favored status to people in Washington, DC--- people who have the power to make things legal or illegal. Honesty and ethics are not part of this equation.
2. Do not steal from people with power. Bernie Madoff made this mistake as did the people at Peregrine Financial and others. Steal from people with little or no power. The mortgage industry did this. The financial industry did this. Steal from the 401ks, the state pension funds and similar investment systems. These systems are not organized and have too diffuse power in Washington, DC to be actually effective. The credit card companies have the ideal way to steal as they have millions of powerless clients.
3. Make certain that regulations favor your business practices.
4. Make certain that so many powerful people are in your system that if you begin to fail, they will make certain you get help, because they have a personal financial stake in your viability.
5. The financial system is headed by Ali Baba except there are 400,000 thieves, not 40. Little Baba was President Bush, Huge Baba is President Obama. Both Presidents understand the system and their financial abetment only differs in scale.
6. In effect, bailout money is financing the political parties. President Obama seems to be ahead on bailout financing for his reelection campaign.
7. The government did not make money with the bailout funds and the Wall Street Journal knows this very well. Calculate the money made with bailout funds at 7% per year. This is 2% for investing in US Treasuries and 5% for inflation. The government lost money on the bailout funds. The 'made money' mantra sounds good politically, but does not stand light, even the light of a candle.
8. Regulations, in place and planned, must be effective in corralling the loose, unethical financial industry because the industry now whines about great restrictions on their capacity to fleece the public.
9. The takeover of investment firms by banks should be stopped. This is an unethical conflict of interest.
10. The financial industry makes blunders, mistakes and oversights, but does not commit crimes. Even the Attorney General of the United States says this. These mistakes, blunders and oversights are reasons for rewards, not punishments. Even people who finance terrorists are not punished. Apologies for not meeting expectations of just about anybody are sufficient to avoid punishment.
11. The banks were paid by the financial houses for packaged mortgages and the financial houses were paid by pension funds and other investors for these investment vehicles. Then the banks and financial industries were "bailed out" for investments for which they had already been paid. The people who lost money were folks like me, with 25 years of saving and investing. The banks are making money on foreclosed houses because they have already been paid.
I wish those inside the financial industry would speak up about the unethical practices currently being constructed or already in place.
I am glad I live in a country with a free press. Thanks to the Wall Street Journal for publishing these stories.
Thanks to mountainfinchpost.com for posting my comments.