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Wells Fargo Schemes Prove The Value Of Vigorous Bank Regulation

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

U.S. Halts New Coal Leases On Federal Land, First Review In Decades

U.S. Halts New Coal Leases On Federal Land, First Review In Decades

By Valerie Volcovici

WASHINGTON (Reuters) – The Obama administration, in the first major review of the country’s coal program in three decades, on Friday ordered a pause on issuing coal-mining leases on federal land as part of new executive actions to fight climate change.

The halt could last three years, U.S. Interior Secretary Sally Jewell told reporters, while officials determine how to protect taxpayers’ stake in coal sales from public lands and how burning coal could worsen climate change.

“We have an obligation to current and future generations to ensure the federal coal program delivers a fair return to American taxpayers and takes into account its impacts on climate change,” Jewell said on a conference call.

Federal land accounts for over 40 percent of U.S. coal production. Most leases are on public land in Western states, primarily Wyoming, along with Colorado, New Mexico and Utah.

The review, the administration’s latest move to combat climate change using executive authority rather than wait for congressional action, comes at a tough time for the industry.

Since 2012, more than 50 coal companies have filed for bankruptcy in the face of competition from cheap natural gas and clean-air regulations that have raised costs for burning the fossil fuel.

National Mining Association President Hal Quinn said development of coal projects on federal land already took more than 10 years and Friday’s announcement just adds more red tape.

“The coal supply being cut off by today’s action has been the source of the lowest-cost and most reliable electricity keeping America’s lights on and people working,” he said.

Republican lawmakers were quick to criticize the reform effort, accusing the administration of “ravaging” coal country.

“Congress will continue to fight back against the president’s ruthless pursuit of destroying people’s low-cost energy sources in order to cement his own climate legacy,” said U.S. House Speaker Paul Ryan.

President Barack Obama, in his annual State of the Union address on Tuesday, hinted at the moves, saying he would “change the way we manage our oil and coal resources so that they better reflect the costs they impose on taxpayers and our planet.”

Environmental groups had pressed the White House for years to freeze fossil fuel leases, arguing that allowing coal development on public land undermines the president’s climate agenda.

Environmental activists have said that while the coal reform program is a good first step, the administration should extend the review to oil and natural gas for it to meet its goal to slash greenhouse gas emissions.

“Any good-faith effort to meet international climate targets necessitates that the vast majority of all remaining coal, oil and natural gas on federal lands must stay in the ground,” said Elijah Zarlin, director of climate campaigns at activist group CREDO.

Jewell said the review will examine concerns flagged by the Government Accountability Office and the Interior Department’s Inspector General, as well as members of Congress and the public.

She added that the Interior Department will also adopt measures to boost transparency of federal coal leasing.

Measures include a public database to show the carbon emitted from fossil fuels developed on public lands, posting online pending requests to lease coal or reduce government royalties, as well as capturing methane emissions from mines.

Jewell said the pause will not apply to existing coal production and that the government will allow mining of metallurgical coal used in making steel, as well as emergency leases if more reserves are needed for power generation.

“We have plenty of coal,” Jewell said, adding that reserves already under lease are enough to sustain current levels of production from federal land for 20 years.

 

(Reporting by Valerie Volcovici, Patrick Rucker and Timothy Gardner; Editing by David Alexander and James Dalgleish)

High Taxes, Regulations, And A Swell Economy

High Taxes, Regulations, And A Swell Economy

In the mythology of the right, California must fail. Its high taxes, strict environmental rules, and thick book of regulations are all ingredients in the conservative recipe for economic meltdown. That California is prospering nicely throws a pie in the face of its harshest critics.

To get around this clash of ideas and reality, an alternative version of California-going-down has been created. It is built on cherry-picked facts, numbers out of context and anecdotes. And the right continues churning out stories of companies “fleeing” California.

The conservative City Journal has devoted its winter issue to what’s wrong with California. One piece accuses “coastal elites” of destroying drought-plagued almond farmers by “privileging the needs of fish over the needs of people.” (What the fish need is a minimum water flow to their habitats to save them from extinction.)

Not to mess up a sweet fairy tale, but the “coastal elites” and the farmers are often one and the same people. The largest producer of nuts in the state is a company owned by Beverly Hills billionaires Lynda and Stewart Resnick. Hedge funds and banks have also gotten into the almond game, now that a lucrative Asian market has sent nut prices soaring. Thus, in the jaws of a multiyear drought, California “farmers” continue to plant water-gulping almond trees.

What else is wrong with California? A state minimum wage raised to $10 an hour from $9. That Wal-Mart is raising wages to $10 nationwide should offer a hint that $10 an hour is not extraordinarily high.

Zoning and environmental regulations have made California real estate quite expensive, especially along the coast. This is true, although having the Pacific Ocean on a long border hampers development, as well.

One reason zoning and environmental regulations make real estate more expensive is they also make it more desirable. One shouldn’t have to explain this to The Wall Street Journal, but one does after reading its commentary about “the mismatch between supply and demand” in California housing prices.

Actually, supply and demand don’t match or mismatch. Supply is supply, and demand is demand. When demand rises faster than supply, prices rise. That’s the law of supply and demand working as it’s supposed to.

The writer is obviously trying to say that imposing high standards for preserving the quality of life causes housing costs to rise. OK. Those who can’t pay the price — or who want bigger spaces — can and often do consider other parts of the country.

Though the decisions by Toyota and Occidental Petroleum to transfer their headquarters to Texas may energize California’s critics, they represent narrow slices of a bigger picture. A new study from Beacon Economics and Next 10 shows that California remains a powerhouse in attracting companies and well-to-do people.

In 2013, California ranked fourth in job creation by new businesses and fifth in creation of new businesses (a growth rate of 5.5 percent). From 2007 to 2014, 49,000 more people with a bachelor’s degree moved into the state from other states than moved out.

So is California an easy place in which to do business? It’s not. Is it a paradise for less skilled workers? Sadly, no. Few places are these days.

What the strong numbers do mean, Beacon partner Chris Thornberg told the Los Angeles Times, is “that being ‘business friendly’ is not the be-all and end-all of economic development.” He went on: “When you actually look at the data, you’ll find that as kooky as California is, it’s not a state that’s underperforming.”

Let the critics carp. But do correct them.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com. To find out more about Froma Harrop and read features by other Creators writers and cartoonists, visit the Creators Web page at www.creators.com. COPYRIGHT 2016 CREATORS.COM

Photo: Jimmy Emerson, DVM via Flickr

Republicans In Congress Begin New Effort To Water Down Dodd-Frank Law

Republicans In Congress Begin New Effort To Water Down Dodd-Frank Law

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Boosted by their November election gains, congressional Republicans have launched a new effort to weaken, bit by bit, a law that dramatically expanded federal oversight of the financial system after the Great Recession.

On Wednesday, the Republican-controlled House is expected to pass a package of bills making changes to the 2010 law, known as Dodd-Frank, which also created a powerful new agency to protect consumers.

The law was enacted over nearly unanimous opposition from Republican lawmakers. Many despise Dodd-Frank almost as much as they do Obamacare because they believe it’s an overreaction to the 2008 financial crisis and an unnecessary burden on business.

Now with a Senate majority too, Republicans no longer have to worry about Democrats stopping attempts to chip away at the law’s hundreds of regulations, though President Barack Obama’s veto pen looms in the White House.

“The truth is Dodd-Frank was not chiseled in stone. Nobody brought it down to us from Mount Sinai,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX), who is leading the effort to change the law. “Congress would be negligent in its duties if we did not continually monitor and fix Dodd-Frank’s unintended consequences.”

In the last few weeks, Republicans watered down key parts of Dodd-Frank by attaching provisions to so-called must-pass bills — one funding most of the federal government and another reauthorizing an important terrorism risk insurance program that had expired. Obama signed the bills despite his opposition to their changes in Dodd-Frank.

The maneuver provided an early road map to how the new Republican-controlled Congress might try to make long-sought changes to financial regulations over Obama’s objections.

Liberal Democrats, led by Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA), are rallying to stop the effort.

They nearly derailed the government funding bill last month because it contained a provision that eased Dodd-Frank restrictions on bank trading of financial derivatives — the type of complex investments that helped trigger the financial crisis.

Liberals’ anti-Wall Street fervor was highlighted this week when investment banker Antonio Weiss withdrew his nomination to a senior Treasury Department position because of opposition from Warren and others who objected to his Wall Street background.

“We’ve already seen that the new Republican Congress is going to aggressively attack the Dodd-Frank act,” said Warren, who was an outspoken advocate for the legislation. She launched the law’s Consumer Financial Protection Bureau before winning a Senate seat in 2012.

“The risk of another financial crisis remains too high, and we should be strengthening financial reforms, not rolling them back to benefit Wall Street,” she said.

The proposed changes before the House now include a controversial two-year delay in implementing part of the so-called Volcker Rule, which bars banks from making risky investments. The changes are necessary, supporters say, to avoid saddling businesses with heavy-handed regulations.

The White House said Obama would veto the bill because “the administration has strong concerns with any provisions that would weaken key consumer and investor protections and elements of financial oversight.”

Most Democrats have vowed to keep the law intact.

“We have seen this movie before,” said Sen. Sherrod Brown (D-OH). “We will keep seeing it over and over again.”

But some changes are needed, said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry trade group. He argued that Democrats are overreacting to sensible and relatively small-scale fixes.

“Sometimes we’re trying to do things that will actually make the system work better,” he said. “We’re not always twisting our mustache, doing this villainously.”

The delay in the Volcker Rule, for instance, is necessary to avoid pushing banks into getting rid of some assets in a “fire sale” fashion, Creighton said. The legislation in the House would extend an existing delay in implementing the rule to 2019 from 2017.

Republicans note some of the Dodd-Frank changes have bipartisan support.

The legislation that includes the Volcker Rule delay, called the Promoting Job Growth and Reducing Small Business Burdens Act, garnered 35 Democratic votes last week when Republicans unsuccessfully tried to pass it in an expedited procedure that required a two-thirds vote.

The focus liberals have put on changes to Dodd-Frank in recent weeks has made it tougher for Democrats to support the Republicans, said former Rep. Barney Frank (D-MA).

“I’ve talked more about the bill in the last couple of months than in years, and that’s a good thing,” said Frank, who led the effort to pass it in the House in 2010. “It’s now become a national issue again and I’m very confident the public will become very angry” if Republicans continue to attack it.

The biggest mistake Republicans could make would be to try to weaken the Consumer Financial Protection Bureau, which is popular with the public, Frank said.

The bureau has a director, who is appointed by the president to a five-year term, and is funded directly by the Federal Reserve, which means Congress can’t cut its budget.

Republicans complain the agency is too powerful and want to replace the director with a five-member commission and subject its funding to the congressional appropriations process. The House has approved legislation in the past to make those changes, but the bills have died in the Senate.

It’s unclear whether Senate Republicans now will be able to pass Dodd-Frank changes. If they do, Obama will veto them, said Treasury Secretary Jacob J. Lew.

Republicans could then try to force Obama’s hand by including the changes in must-pass bills. Last week, for instance, they added to the terrorism risk insurance bill a provision to exempt agricultural and energy companies from requirements to post collateral when trading derivatives.

Warren and other supporters of Dodd-Frank have called such maneuvers legislative hostage-taking.

“If we fail to challenge this cynical strategy now, it will only encourage Republicans to pull our financial regulations apart piece by piece,” Warren told her colleagues last week. But an attempt to remove the provision from the bill was defeated 66-31.

Photo: House GOP via Flickr