The vile filth coming out of Wall Street lately has my mind reeling. Both in the sheer amount of it and in the utter depravity that falls under the aegis of banking and investment. Today Greg Smith became the former executive director and head of Goldman Sachs' United States equity derivatives business in Europe, the Middle East and Africa. He explained his departure in the New York Times, of all places. He seems to be the lone big wig in the industry to have tired of the drive for short-term profits and the exaltation of greed as a cardinal virtue. Smith laments how the ethos of Goldman Sachs has deteriorated from serving the customer to screwing the customer.
I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
Matt Taibbi's take on Smith's jeremiad just made it more depressing. According to him, no regulations, no lawsuits, and no Occupy protests could ever change what he calls the "screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry". Instead, he says, "Real change was always going to have to come from within Wall Street itself." If true, then millions of people and their families are at the mercy of Wall Street even more so than they are now. Hell, billions. It means that We the People are powerless. It means that we live in a plutocracy and, if we are lucky, we may be the beneficiaries of a little noblesse oblige. If we're lucky.
I don't know what effect Smith's resignation will have. Maybe his former employer will take heed and change. Then again, maybe it won't. Perhaps other Wall Street firms will act on his admonition but, then again, maybe not. There are a lot of angry guys out there who are pissed because they're doing dishes by hand and Goddess knows we can't have investment banker types doing that. It's why Rome fell. (Where's Madge when you need her?) So, short of nuking Wall Street from orbit, there's not much we can do.
And what have they been up to? With the Attorney General foreclosure settlement terms having been made public as well as at least some of the results of the HUD Inspector General's investigation, we now know more of just what those pecunious gundyguts have done, continue to do, and will be able to do in the future.
Let's start with how "the mortgage settlement lets banks systematically overcharge you and wrongly take your home. According to Abigail Field, there is a threshold for error in loans so any fuck-ups on the part of the banks up to that threshold don't count and don't have to be reported. Furthermore only "reportable" errors get tallied.
Imagine your household income is $80,000. Imagine that at $80k the bank’s formula says you get a modification and thus you can keep your house. But the bank doesn’t use $80k in its math; it uses $77,000. So the computer rejects you, and you lose your home to foreclosure. Does law enforcement care about the bankers wrecking-your-life error? No, because the $3,000 error, while enough to deny you the mod, isn’t 5% of your income. So the error was too small to count.
It’s not enough for the B.O.B.s to make such a big mistake when they rejected you for a mod and foreclosed that the error is “reportable”. They have to make 5 reportable errors in every hundred files reviewed before they get in trouble! Since the B.O.B.s (Bailed Out Bankers)are dealing with millions of people seeking mods, that’s a lot of A-OK big mistakes–50,000 for every million mod applications.
She notes many more ways banks can screw over customers before suggesting that "maybe we should start asking if the banks as too big to be competent." The lesson here is that banks can overcharge and illegally foreclose on homes up to a certain point before our government will do anything about it.
Isaac Gradman, a lawyer, reviewed the settlement. He notes that it lays out the misconduct of the banks: providing false or misleading information to borrowers, overcharging borrowers and investors for services of dubious value, lying to borrowers about the reasons for denying their loan mods, signing affidavits without personal knowledge and under false identities, and so on. Yet banks don't have to admit guilt.
It also looks like very few homeowners will receive relief out of the $17 billion dedicated to that cause:
The first problem is that, as the Wall Street Journal recently noted, the actual amount of loan forgiveness isn’t large relative to the problem of underwater debt. The WSJ attributes to Ted Gayer, co-director of economic studies at the Brookings Institution, the estimate that the settlement’s complex set of requirements mean that about 500,000 borrowers, or 5% of those who are underwater, may be eligible for help.
He also mentioned how banks can get credit towards that $17 billion by modifying loans and a potentially unintended consequence.
It would be one thing if banks shared in the cost of modifying a loan in securitization, and the credit was proportionate to the cost they paid. But aside from transaction costs, banks absorb not one cent of a reduction of principal or interest on a loan held by investors. Thus, by giving banks the opportunity to pay their settlement amount with investors’ money, regulators may be encouraging banks to modify twice as many loans, but they are also encouraging banks to impose the costs of those loan mods on the investors who had absolutely nothing to do with these servicing atrocities. (Emphasis his.)
Matt Stoller reports that Wells Fargo continues to robosign. And worse:
But I think the most interesting parts of the document release were the HUD Inspector General reports on the five banks and the DOJ complaint. What these prove is what we’ve always known – the law enforcement community knew exactly what these banks were doing. DOJ simply chose not to prosecute.
I guess Eric Holder was too busy figuring out how Obama and the Cigarette Smoking man from X-Files chatting in a dark room counts as due process.
Stoller also says that "Bank of America would not comply with subpoenas."
Indeed, David Doyen wrote a post called ”Obstruction of Justice a Feature of Bank Interaction with Foreclosure Fraud Investigators” in which he details some of the ways the banks impeded the HUD investigation. He notes like Stoller that the DOJ sat on info of crimes and preferred, in his words, “to use it to negotiate a settlement than in a criminal inquiry.”
Wasn't it Obama who said, “What Wall Street did was immoral, but it wasn’t illegal”?
Dayen points out this doozy from the investigation:
We reviewed 36 affidavits for foreclosures in judicial States to determine whether the amounts of borrowers’ indebtedness were supported. Chase was unable to provide documentation for the amounts of borrowers’ indebtedness listed on the affidavits for all except four. When we reviewed the four affidavits, three were inaccurate. Specifically, the amounts of the borrowers’ late charges and accumulated interest did not reconcile with the information in Chase’s mortgage servicing system.
A 97.22% fuck up rate. And we bailed these douchbags out?
Lastly, American Banker began a multi-part series on Tuesday delving into how the Office of the Comptroller of the Currency is investigating JP Morgan Chase for issues in their credit card unit. The first part of the series is here and you can read blog posts about it from Matt Taibbi, Yves Smith, and David Dayen.
The upshot is thus. A whistleblower named Linda Almonte came forth accusing JP Morgan Chase of
1. Chase Bank sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts. . .when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances.
2. Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer’s credit card file, including bankruptcy notices, powers of attorney, notice of cancellation of auto-pay, proof of payments and letters from debt settlement companies.
3. Chase Bank executives mass-executed thousands of affidavits in support of Chase Banks collection efforts and those Chase Bank executives did not have personal knowledge of the facts set forth in the affidavits.
After a couple years or so it appears a regulatory agency is finally looking into the matter and, furthermore, it seems that these practices continue.
What chance do lower and middle class people have if Wall Street entities can basically make shit up and pass it off on someone else for a profit and only get a slap on the wrist from the Feds? We are fucked six ways til Sunday and sitting around hoping for more Greg Smiths to have an effect is the coldest of comforts.
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