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Wells Fargo Schemes Prove The Value Of Vigorous Bank Regulation

Wells Fargo kicked its public relations machine into gear after news broke that regulators fined the bank $185 million for creating up to 2 million fake accounts in the names of existing customers.

The company took out full-page ads in major publications and top executives made promises to adhere to the company’s “values.” The problem is, the financial giant’s values and business culture are all too evident in this debacle.

Regulators slapped the fine on Wells Fargo through a settlement after discovering that employees created fake email addresses, fraudulently applied for credit cards and moved unwitting customer’s money to the new accounts. The misbehavior earned bonuses and let employees meet aggressive sales quotas.

Yet so far, Wells Fargo remains in denial. Sure, it fired thousands of employees and refunded millions of dollars to the customers in whose names the accounts were fraudulently opened. However, its settlement with regulators does not require it to admit wrongdoing, and its top executive denies that its system of incentives contributed to the behavior.

This is as troubling as the original deceits. Because it signals that significant change, the sort of deep rewiring of attitudes and how they play out in policy, might not come.

CEO John Stumpf flatly insisted to the Wall Street Journal, “There was no incentive to do bad things.”

Why then, did Wells Fargo promptly dump the practice of sales goals to drive new business to its financial services? It’s doubtful that the heavy insistence on cross-selling was shuttered for appearances only.

Maybe Stumpf will be more forthcoming in his testimony Tuesday (Sept. 20) before the Senate Banking Committee. Or maybe it will take discovery from the U.S. attorney’s offices now opening investigations.

The 5,300 people Wells Fargo fired for their involvement in the scandal are believed to have charged the unwitting customers $1.5 million in fees for accounts they didn’t know they opened. They made 565,000 false credit card applications, sometimes closing the accounts as quickly as they were given credit for opening them. That’s called covering your tracks.

Such predatory practices don’t occur in a vacuum. Regulators believe the behavior continued over a period of about five years. No doubt, bosses up the chain of command were pleased and well compensated for the bogus new business and had little incentive to verify that it was on the level. That’s business culture.

At the top of that food chain was recently retired executive Carrie Tolstedt, who headed up the community banking sector. She left the firm with $124 million in stock and options. The lower level employees, who did wrong but were incentivized to do so, got fired. That, too, is business culture.

And it’s just one industry’s example of why the average working person feels systems are so set against them. It doesn’t matter that Wells Fargo refunded fees to people. Or that, in perspective, the 5,300 employees are a fraction of the company’s 270,000 total workforce.

Meanwhile, Republicans in Congress have been trotting out plans to dismantle the Consumer Financial Protection Bureau – the very agency that helped bring this scandal to public light. That’s business culture operating in politics.

The Financial Choice Act, pushed by Jeb Hensarling, a Republican from Texas, seeks to rollback many of the checks and balances set in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted after the financial crisis of 2008. Many Democrats admit that Dodd-Frank, like many sweeping laws, could benefit from a rewrite of certain passages. However, the Wells Fargo script shows clearly that regulators must remain vigilant. And the congressional friends of the big banks must not be allowed to muzzle the public’s watchdog.

(Mary Sanchez is an opinion-page columnist for The Kansas City Star. Readers may write to her at: Kansas City Star, 1729 Grand Blvd., Kansas City, Mo. 64108-1413, or via e-mail at msanchez@kcstar.com.)

(c) 2016, THE KANSAS CITY STAR. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC

Photo: A Wells Fargo branch is seen in the Chicago suburb of Evanston, Illinois, February 10, 2015.  REUTERS/Jim Young

Got Hot Money To Hide? We Can Help!

Hastily rejected first draft of a new TV commercial for the Mossack Fonseca law firm, exposed in the ongoing “Panama Papers” scandal:

——

Are you worried about being indicted? Or having your bank accounts seized?

Are your friends and associates blabbing to prosecutors?

Or maybe you’re just an ordinary deadbeat nephew of an iron-fisted dictator, looking for a safe real-estate investment in the United States?

Come see us at Mossack Fonseca.

We help wealthy weasels hide their money. It’s what we do!

Ask around. We’re Panama’s premier law firm for privacy-seeking movers of cash — and don’t worry, we promise not to ask where you got it.

Because we don’t want to know. Seriously. Do not tell us.

Let’s say you’ve got your heart set on a $2 million condo on Brickell Avenue in Miami, but you don’t want your name on the deed.

Maybe it’s a birthday surprise for your wife — or maybe you’re worried that people back in Rio won’t understand how you can afford such a posh crib on a government minister’s salary.

No worries, friend.

Come to Mossack Fonseca, and we’ll create an offshore shell company to help you purchase that dream condo.

Shell companies are a great way to hide ownership, and we’ll make up a legitimate-sounding name for yours.

——

(Cut to client testimonial).

I’m Leon Cohen-Levy, and the Mossack Fonseca law firm helped me and my father set up 13 different offshore companies!

One of them was called BlueOcean Finance, which doesn’t sound anything like the money-laundering scam it was.

With Mossack Fonseca’s help, Dad and I were able to buy a mansion on Miami Beach, a condo on Fisher Island, fancy cars and even a helicopter.

The IRS eventually busted us for a $49 million tax fraud, and we were sentenced to 10 years in the slammer.

But that wasn’t Mossack Fonseca’s fault. We didn’t come right out and tell them we were scumbags.

Four years after we were convicted, the law firm was still listed as the registered agent for our shell companies.

Now that’s loyalty!

——

(Cut back to lawyer spokesperson).

The vast majority of our clients here at Mossack Fonseca are not convicted criminals, we’re pretty sure. They’re just honest, regular folks with loads of cash they want to invest using a made-up company name, far from the jurisdiction of their country’s courts.

As a future client of Mossack Fonseca, you wouldn’t ever have to come visit us personally.

In fact, we like dealing with intermediaries, especially other lawyers.

And we have offices all over the world, from Lichtenstein to Uruguay. We’ve even got a booming operation in Wyoming, where the laws of incorporation are basically a joke.

Think of it as the Cayman Islands, with cows.

Many people come to us because they’re interested in prime Florida real estate, one of our specialties.

——

(Cut to client testimonial).

My name is Helder Rodrigues Zebral. If you’ve ever been to Brasilia, you might have dined at my trendy steakhouse.

What you probably didn’t know was that I’ve been convicted twice of embezzling public funds and avoiding public bidding.

Yet, between my criminal trials in Brazil, I was able to buy a $1.9 million condo in beautiful Sunny Isles Beach.

Thanks to the hard-working lawyers at Mossack Fonseca, my dream of owning a piece of Florida’s Gold Coast came true, leaving virtually no trail of paperwork.

I highly recommend this law firm to anyone who is facing corruption charges and possible confiscation of assets in their home country.

——

(Cut back to lawyer spokesperson).

The guiding ethical philosophy of Mossack Fonseca is best summarized by co-founder Ramon Fonseca himself, in a recent exchange with the New York Times:

“We are like a car factory who sells its car to a dealer (a lawyer for example), and he sells it to a lady that hits someone.

The factory is not responsible for what is done with the car.”

So, whether you’re a restless Russian oligarch, an indicted Wall Street financier, or the new prime minister of Iceland, we here at Mossack Fonseca make this solemn commitment:

We really don’t care what you do with the “car” we sell you.

We’ll park it offshore, and happily look the other way.

Call us today, at 1-800-LOOPHOLE.

(Carl Hiaasen is a columnist for the Miami Herald. Readers may write to him at: 1 Herald Plaza, Miami, Fla., 33132.)

(c) 2016, The Miami Herald Distributed by Tribune Content Agency, LLC.

Photo: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, in Beijing, China, January 21, 2016. REUTERS/Jason Lee 

Brouhaha Over Bank Reflects Shifting Power Dynamic Between US, China

By Julie Makinen, Los Angeles Times (TNS)

BEIJING — For years, U.S. officials have chafed at what they contend is Chinese freeloading on the world stage. While the United States has spilled blood and spent a fortune on vexing challenges such as Islamic extremism and African epidemics, China, the muttering goes, hangs back or even swoops in on Washington’s coattails to capitalize economically.

“They are free riders and have been free riders for the last 30 years, and it’s worked well for them,” President Barack Obama said of China in an interview last summer with The New York Times. “No one ever expects them to do anything.”

So when China, now the world’s second-largest economy behind the U.S., proposed in 2013 to establish a new bank to provide loans to fund infrastructure projects in developing Asian countries and invited other countries to participate, it might have sounded like just the kind of stepping up Washington had in mind.

But the Asia Infrastructure Investment Bank would also be a challenger of sorts to U.S.-led institutions like the World Bank, the International Monetary Fund, and the Asian Development Bank (which is led by the U.S. and Japan). American officials sought to dissuade allies from taking part in the AIIB.

Publicly, U.S. authorities expressed concerns that a China-led development bank might not adhere to sufficiently high standards of transparency or environmental requirements. But many observers suspected such stated misgivings masked more fundamental U.S. worries about China eroding America’s pre-eminence on a global scale.

When the deadline for applying to be a founding bank member passed this week, China had notched 46 applications — including U.S. allies: Britain, Australia, France, Italy, Germany, and South Korea. Japan was nearly alone in refusing to break ranks with Washington.

Beijing, not surprisingly, has been crowing about it. “The soaring participation has been seen as evidence of China’s growing international sway,” the state-run Xinhua News Agency said in a news report. “If there is one message to glean from the number of applicants, it is that the world has sensibly voted for a more inclusive, balanced, and mutually beneficial international economic order.”

The Global Times, a nationalistic newspaper affiliated with the Chinese Communist Party, said in an editorial that the success in signing up so many partners “has pushed China toward becoming a ‘real major power.'” Founding the AIIB is a “big achievement for China,” it added, while taking oblique note of carping from unnamed quarters. “The greater the good deed is, the more trouble it will attract. The more a country does, the more it will be criticized.”

Appearing increasingly isolated, the Obama administration has come in for a drubbing for its handling of the affair. In a commentary for The Washington Post, Daniel W. Drezner, a professor of international politics at Tufts University and a fellow at the Brookings Institution think tank, pointedly characterized the situation with an expletive suggesting a complete blunder.

The perception of sour grapes only grew when anonymous White House sources were quoted elsewhere griping about London’s “constant accommodation” of China.

Fundamentally, I do see it as a mismanagement of American diplomacy,” said Steve Tsang, head of the School of Contemporary Chinese Studies at the University of Nottingham. “Yet at the same time, I don’t see it as huge victory for Chinese diplomacy.”

“If the U.S. had just acted like they didn’t care so much, it wouldn’t have been a big deal,” Tsang added. “The allies breaking rank with the U.S. is not so much about thinking that the U.S. is less important; it’s just that China is increasing in importance….When dealing with a rising power like China, there’s no real alternative to engagement; non-engagement won’t get you very far.”

Seeking to calm the waters, U.S. Treasury Secretary Jacob Lew, who visited China early this week, said Tuesday in speech in San Francisco that America was “ready to welcome” the AIIB as long as it “complements” organizations like the IMF and the World Bank.

Xu Bin, a professor of economics and finance at the China Europe International Business School in Shanghai, said the bank is an attractive proposition for China for many reasons.

The country, he noted, now has extensive experience in infrastructure projects like building airports and railways, but its own economy is slowing and its industries have excess capacity. So assisting projects in other countries is helpful for Chinese companies going abroad.

At the same time, China has hefty foreign reserves that make establishing AIIB feasible, and its leaders want to internationalize the country’s currency, the renminbi, giving it more clout globally. And in areas like the South China Sea, where China’s oil exploration efforts and work to expand the land mass of contested islands have upset neighbors including Vietnam and the Philippines, the AIIB could be a means of smoothing relations.

In time, Xu predicted, the U.S. and Japan will join in. “I’m sure sooner or later the U.S. and Japan will participate, it’s just a question of how long. Only by participating can you influence it,” he said.

China’s open call for other countries to join the AIIB did pose some delicate political questions for authorities in Beijing. Longtime ally North Korea reportedly sought to join, the NK News website reported, but was rejected because the tightly controlled Communist state lacks a functional banking system.

Taiwan, meanwhile, apparently will have its application welcomed, even though Beijing does not acknowledge that the self-ruled island off its southeast coast is a separate country. China normally asks that other countries and international agencies reject any position or agreement that implies Taiwan has statehood.

Since taking office in 2008, Taiwan’s president, Ma Ying-jeou, has pushed for trade agreements with other governments and participation in regional bodies that offer tariff cuts or other advantages to its export sector. Otherwise, the government fears, Taiwan will lose out to exporter rivals such as Japan and South Korea.

But Ma’s opponents worry that too-close economic ties with China will let Beijing erode the island’s self-rule. Small protests involving several dozen demonstrators broke out in Taipei this week when Taiwan said it intended to apply for AIIB membership.

Xu, of the China Europe International Business School, said he believed Taiwan’s participation would help it integrate more deeply with other Asian economies. For China, Xu said, the AIIB is a vehicle through which President Xi Jinping and other leaders in Beijing may be able to foster better relations across a wide swath of Asia.

“This is a breakthrough point for Xi Jinping,” said Xu. “China is emerging as a superpower in Asia, and many countries are afraid. Through this (AIIB), China can demonstrate it’s helpful and valuable, and not a threat.”

But Lew, the U.S. Treasury secretary, said Washington was still waiting to see how China would use its leading role in the AIIB to shape the region.

“With China’s economic growth and emerging focus on driving international development,” he said in San Francisco, “there is considerable interest in how China will integrate into the framework for international economic relations sustained since World War II, how it will use its new influence, and what ideas and ideals it will promote.”

Photo: David Dennis via Flickr

Banking Goes Postal

American Postal Workers Union (APWU) president Mark Dimondstein has an offer that should be hard to refuse, especially for the 10 million American households, mostly low income, that do not have a checking account or other basic banking services.

Through its network of 30,000 post offices and other outlets, the United States Postal Service (USPS) could readily and cheaply provide many banking services (just as it now provides money orders), no matter where you live or what you earn. This could save people without bank access from paying the exorbitant interest and fees at currency exchanges, payday lenders, rent-to-own dealers, pawn shops and other subprime financial institutions.

Postal workers would also win: Expanding postal services would create more jobs. Moreover, the additional revenue would strengthen USPS’ finances, bolstering the four major postal unions’ ongoing fight against management’s austerity measures. Although the postal service earned a surplus on operations in 2014, it ran a deficit overall because of perverse requirements Congress imposed in 2006 that retiree health care benefits for the next 75 years be fully pre-funded within a decade, a standard far more demanding than those required by any other retirement systems. Much more than the decline in first-class mail, that manufactured budget crisis has fueled USPS management’s campaign of job cuts. The postal workforce dropped from about 700,000 in 2006 to less than 500,000 last year, and management hopes to reduce it by as many as 15,000 more this year. The cuts also involve service degradation, post office closings and privatization — such as delivering postal services at the office-supply store Staples, where jobs are low wage and non-union. If postal unions can implement banking and roll back the retiree pre-pay requirement, they will return the postal service to solvency while expanding the public sector to address private market shortcomings.

Dimondstein intends to make establishing postal banking a major demand, even though it falls outside the bread-and-butter issues unions typically bring up in bargaining. He plans to argue that creation of the bank would profoundly affect the mandatory bargaining issues of wages, hours and working conditions.

The negotiations come on the heels of a new campaign, launched by the postal unions — in partnership with community groups such as National People’s Action, Public Citizen, USAction and Interfaith Worker Justice — to mobilize the public in favor of a postal bank.

Twenty-eight percent of U.S. households either have no checking account or rely heavily on non-bank services such as currency exchanges. In many cases, poverty, high bank fees (especially for small-scale customers), credit problems and distrust keep people from opening bank accounts. But another major reason is lack of access.

United for a Fair Economy (UFE), a financial reform group and coalition member, reports that the number of federally insured financial institutions fell last year to the lowest level since 1934. This loss of banks is turning many distressed inner city and rural communities into “banking deserts,” especially for people of color. The more than one-quarter of Americans with little or no conventional banking services encompasses 53.6 percent of black households and 46.8 percent of Latino households, but only 19.5 percent of non-Latino white households.

These households are disproportionately poor; the average “underserved or unserved” household in 2012 made $25,500 a year. And, staggeringly, they paid an average of $2,412 for fees and interest to banking alternatives, according to a 2014 White Paper prepared by the Postal Service’s Office of Inspector General in support of a postal banking service. That added up to $89 billion in price-gouging revenue for the subprime finance industry in just one year. (And that’s the conservative estimate; UFE calculated the average fees and interest at $3,029 per household in 2013, for a total of $103 billion.) In one year, the underbanked and unbanked pay out more in financial service charges than the federal government spends on all domestic food aid, including food stamps — much of it going to the same people who frequent payday lenders.

Subprime financial predation seriously destabilizes working-class families. People who filed for bankruptcy in 2012 fell short on their bills by an average of just $26 a month. Given that underserved households pay out about $46 a week to the ripoff bank alternatives, these high-priced debt-service products may be a major factor driving many of the working poor into bankruptcy. Meanwhile, much of that predatory income ultimately finds its way into the coffers of Wall Street, the big banks and the super-rich who own and finance the alternative, high-cost operations.

Most poor people distrust both banks and the alternatives, such as pawn shops, but they do trust the post office, according to the UFE’s research. Also, unlike banks, post offices are in every neighborhood. Nearly 60 percent are in zip codes with one or no banks.

Postal banking has plenty of precedents. From 1911 to 1966, the United States Postal Savings System offered financially secure but low-interest savings accounts for small depositors. Many other countries, starting with Britain in 1861, have had postal banks, often quite large: Japan’s Post Bank was the world’s biggest savings bank in 2006.

A new postal banking system could be a fully public institution or an alliance with other parts of the banking system, such as community banks or credit unions. But in the end, “there’s this public option if [people] want to put their money where their mouth is,” says Dimondstein.

A postal bank is an example of the “Grand Alliance” between postal unions and the public that Dimondstein sees as essential for saving the postal service from dismantling. For this political strategy to succeed, the postal bank will have to provide its customers with a low-cost alternative to the predators, not just a means of making more money for the postal service.

The USPS should be able to dramatically reduce charges for services like check cashing, money transfer and bill paying, while still earning enough to make the postal service more financially sound. As the postal service already has a huge infrastructure and workforce, it would require relatively little startup capital and could quickly operate on a very large scale, opening up potential efficiencies.

The coalition for a U.S. postal bank is part of a small but growing movement to democratize finance through institutions such as state banks. Postal banking has already won support from consumer financial protection advocate Senator Elizabeth Warren (D-MA). In July 2014, Rep. Cedric L. Richmond (D-LA) introduced a bill that would establish a postal bank, but it died in committee.

Because postal banking has existed previously in the U.S., the APWU believes that new legislation may not be necessary for USPS to offer expanded financial services. Instead, says Dimondstein, “We want the postmaster general and postal management to take this up. Here’s a natural postal solution to their problems.”

But outgoing postmaster general Patrick Donahoe’s strategy has been the polar opposite. He explained in his farewell speech in early January that USPS management wants more flexibility to cut jobs, benefits, services and facilities, and to shift work into Staples stores. The new postmaster general, Megan J. Brennan, comes from his team; she served as chief of postal operations. But the combined pressure of union negotiations and public demand could inspire a new postmaster general to change course.

Dimondstein and the coalition believe the venerable post offices of America can play a new role in stopping the fleecing of a quarter of American families by piratical subprime financiers. And they believe that this old standby could demonstrate how government can fix a serious shortcoming of the private markets and avoid the resulting wreckage to many already hard-pressed American families. The opportunity for more democracy, equality and financial security, especially for the most vulnerable Americans, is huge. The cost of failure could be just as large.

David Moberg is a senior editor at In These Times.

Originally posted at In These Times.

Photo via Wikimedia Commons