Monday, September 26, 2016

First thing we do, let’s kill all the regulators!

Jonathan Foxx
Managing Director
Lenders Compliance Group

“First thing we do, let’s kill all the regulators!”

Actually, Shakespeare's exact line is ''The first thing we do, let's kill all the lawyers.''

This famous exhortation was stated by Dick the Butcher in Henry VI. Dick the Butcher was a follower of the rebel Jack Cade, who thought that if he disturbed law and order, he could become the king. So, carrying out the inference, Shakespeare was suggesting that if the rebels kill all the lawyers law and order would be destroyed and he, Jack Cade, could become king. This incitement was not a denigration of lawyers, but a veiled homage to them!

In my recent article, Wells Fargo, A Predator’s Tale, I wrote about how the lack of systemic accountability is at the core of illegal banking practices. Since the news broke of Wells Fargo’s financial debauchery, there has been no dearth of eschewing the encumbrance of blame.

The circular firing squad has begun! Let us count the ways.

·         Damned if you do. Damned if you don’t.
o   Politicians who want to dismantle the Consumer Financial Protection Bureau blame it for not going after Wells Fargo sooner.

·         Proof of the pudding is in the eating.
o   Politicians who want to strengthen the CFPB declare its virtues for having gone aggressively after a Too Big To Fail bank.

·         Fix the problem. Not the blame. (Sort of!)
o   Fire 5,300 low level employees – problem supposedly fixed – but management and compliance personnel remain largely unscathed and fully employed.

·         The devil made me do it!
o   Many of the fired 5,300 low level employees accuse management’s excessive sales demands for causing them to commit fraud in the service of performance goals.

·         Rock the ramparts!
o   Castigate the regulators for purportedly failing to find violations in examinations and then only belatedly pursuing enforcement.

·        Quis custodiet ipsos custodies? - pace Juvenal
 (Who will guard the guards themselves?)
o   Compliance department could not possibly have not known about the violations, but apparently nobody was overseeing the compliance department, at least not with compelling oversight.

This scam began as a result of a whistleblower. Then an investigation ensued, triggered by the whistleblower’s information. Shortly after the investigation began, the dark swindle leaked into the news – back in 2013! However, the fraud itself traces its sorry history to 2011.

Or to be precise, Wells Fargo began firing employees in 2011, the Los Angeles Times ran stories on the spurious practices in 2013, and the Los Angeles City Attorney filed his lawsuit against the bank in May 2015.

But why did the regulators not discover the violation? At this point, it appears that they missed it! Is that really possible? Maybe this was a resource issue. Somehow, I don’t think a resource issue caused the violation, if you consider that in 2015 Wells Fargo was the world's second largest bank by market capitalization and the third largest bank in the U.S. by assets. Let’s give them that for the moment! Let’s just assume it was a resource issue. Even so, that assumption would kind of lead to a big crack in the fault lines, a steep ravine in the culpability abyss, a chasmal canyon filled with unrequited expectations, a wobbly thread dangling from the drooping rafters of safety and soundness; for, practically speaking, it sure does seem that the examiners did not review the merely trifling routine details of opening new accounts.