Monthly Archives: August 2018
“Excerpt from Sunday August 26, 2018, the Los Angeles Times front-pager on Senator McCain’s passing. I agree about the honor part and understand his suffering unfairly at the hands of his own government being terrible. I had it much worse on that front. But we all know that nothing can compare…
…to being in war or worse, being a POW and being tortured. God Bless John McCain.”, Mike Perry, former Chairman and CEO, IndyMac Bank
“Perhaps his greatest notoriety, however, came as a member of the “Keating Five.”
In the late 1980s, Charles H. Keating Jr., the owner of Irvine-based Lincoln Savings & Loan, spread cash donations to five U.S. senators — including McCain — in hopes of thwarting a federal investigation into Lincoln’s questionable investments and lending practices.
After a lengthy court-like procedure, McCain was found guilty by the Senate Ethics Committee of showing “poor judgment” for twice meeting with regulators at Keating’s request.
Although there was no sanction, McCain called the experience worse than anything he suffered as a war prisoner.
“The Vietnamese,” he said, “didn’t question my honor.””
“With due respect to Martin Feldstein’s economic bona fides, it seems somewhat disingenuous to suggest the Federal Reserve should “Save Low Interest for a Rainy Day” (op-ed, July 27) as if this inefficient monetary-policy tool is an asset to be drawn upon at some future date, similar to a saver’s nest egg…
…According to St. Louis Federal Reserve data, the interest rate charged for overnight bank loans (fed funds) dropped from 5.25% to 0% in the 16 months from September 2007 until January 2009, and this zero-bound rate continued for six years until December 2015. By contrast, the fed funds rate in the six years from Jan. 1, 1979 until Jan. 1, 1985 averaged 11.90%, with a high of 19%. I can think of no area of economics where a tolerance range of 0% to 19% would constitute efficient policy.
Nobel Prize-winner Milton Friedman observed that “the Fed has given its heart not to controlling the quantity of money but controlling interest rates, something that it does not have the power to do. The result has been failure on both fronts: wide swings in both money and rates.” Friedman couldn’t have imagined, in his wildest dreams, a $4.5 trillion market intervention by the FOMC.”, Mike Smith, Sugar Land Texas, Letters to the Editor of The Wall Street Journal, August 14, 2018
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans. Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted.”, Alex Tse, acting U.S. Attorney for the Northern District of California…
… Wells Fargo Chief Executive Tim Sloan said in a statement that the bank was “pleased to put behind us these legacy issues regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago.”, Excerpts from “Wells Fargo to pay $2 billion to settle case”, Hannah Levitt, The Los Angeles Times, August 2, 2018
Key excerpts from August 1, 2018 Settlement Agreement between Wells Fargo and the United States Department of Justice (re. crisis era Alt-A and subprime mortgage originations and securitizations):
Paragraph I. To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, and in consideration of the mutual promises and obligations of this Agreement, the Parties reach a full and final settlement pursuant to the terms and conditions below. This settlement agreement is neither an admission of any facts or liability or wrongdoing by Wells Fargo nor a concession by the United States that it claims are not well-founded. Wells Fargo disputes the contentions of the United States set forth in Paragraph H.
12. The Parties acknowledge that this agreement is made without any trial or adjudication or judicial finding of any issue of fact or law, and is not a final order of any court or governmental authority.
Mike Perry’s Comments:
You wouldn’t know it from the Los Angeles Times article below or from the other press accounts I have read, but this is a complete and total victory for Wells Fargo.
Wells Fargo was coerced by the government to pay a $2.09 billion civil monetary penalty. That’s a small amount for them and they already had more than reserved for it.
They got disparaged by an acting United States Attorney and had a bad press day, so what. Mr. Tse is a liberal Northern California Democrat and unlikely permanent US Attorney to the Trump Administration. And the bad press was really fake news. How so?
Paragraph I. of the settlement agreement (above) says: “No facts, liability, or wrongdoing was admitted to by Wells Fargo. And Wells Fargo disputes the contentions of the United States in Paragraph H.”
It can’t get any better than that in a settlement agreement with the government.
As further evidence, Wells Fargo’s publicly-traded stock is up some since the settlement was announced.
So why did the press accounts get this wrong?
Because In Paragraph H. of the settlement, the DOJ listed a bunch of negative, unverified allegations-hearsay regarding Wells Fargo’s mortgage lending and securitization practices. Yet one paragraph later, in Paragraph I. (above) Wells Fargo disputes everything in Paragraph H.!
This is exactly what I referred to in my July 11, 2018 blog posting #1300 when referring to the 2014 BoA-DOJ settlement agreement. There I said, “Why this legal hide-the-ball? So that the civil division of Obama’s DOJ could falsely spin to the American public that BofA admitted to unproven allegations…and perpetuate the false narrative of rampant pre-crisis mortgage fraud-defects.” I went on to say, “The Obama DOJ sued every major FHA mortgage lender and sought quick, misleading settlements, using the coercive power that the government holds over banks, as a result of federal deposit insurance. This had a two-fold purpose. It helped cement the false narrative about pre-crisis mortgage lending practices, and it helped recapitalize the insolvent FHA insurance fund.”
That’s the big stuff, but here’s some more.
Read that first sentence of Paragraph I. above…”To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation…the Parties reach a full and final settlement.”
What a joke, right?
This agreement involves Alt-A and subprime mortgages and securitizations from 2005-2007, more than ten years ago! And if Wells Fargo and the United States can’t afford the costs and uncertainty of a trial, no one can.
The reason Wells Fargo settled is they won.
The reason the government settled is they couldn’t prove their case in court. They couldn’t even get Wells Fargo to admit to a single allegation they made. But they got to put their unproven-hearsay allegations in the agreement and falsely spin them to the American public.
In Section 4, Excluded Claims of the settlement, there is a long list (more than a page in just 12 pages) of other potential actions the government could still take related to Wells’ Alt-A and subprime origination and securitization practices. By way of example, employees and directors are not exempted by this settlement agreement for, ”b. Any criminal liability; c. Any liability of any individual;….g. Any administrative liability, including the suspension and debarment rights of any federal agency;”
I’m not a lawyer, but it has been over ten years. Hasn’t the statute of limitations expired? Why put this in the settlement at all?
The only reason I can think is more window-dressing for the DOJ, so they can falsely portray this settlement as tough and harsh.
If Wells Fargo really had deficient Alt-A and subprime mortgage origination and securitization practices, why didn’t this settlement agreement lay out remedial actions Wells Fargo needed to take and the government’s oversight of such?
Finally, let’s go back to acting US Attorney Tse’s quote at the beginning of this post.
He says, “Abuses in the mortgage-backed securities industry led to a financial crisis that devasted millions of Americans.”
Even if he had proved his allegations in Paragraph H. against Wells Fargo, and he factually did not, how can a lifelong government attorney and prosecutor, with no training in economics and finance, make such a claim? Isn’t this statement a lie and show his obvious bias?
Isn’t Mr. Tse’s second statement also false? “Today’s agreement holds Wells Fargo responsible….” How so?
Wells Fargo to pay $2.09 billion to settle probe into crisis-era mortgage abuses
By HANNAH LEVITT
Ten years after faulty mortgages upended the global financial system, Wells Fargo & Co. agreed to pay $2.09 billion to settle a U.S. investigation into its creation and sale of loans that contributed to the disaster.
The long-anticipated penalty, announced Wednesday, is in line with what some analysts had predicted and smaller than sanctions borne by some of the San Francisco bank’s competitors. But the case offers a new look behind the scenes at decisions made at one of the nation’s largest home lenders before the crisis — and the evidence that executives saw of mounting trouble.
Investors, including federally insured financial institutions, ended up suffering billions of dollars in losses on securities that contained home loans from Wells Fargo, the Justice Department said in a statement announcing the accord. The investigation focused on mortgages in which borrowers were allowed to state their incomes, without providing proof.
Starting in 2005, the bank set out to double production of two types of risky mortgages: one known as subprime, offered to borrowers with weak credit, and another called Alt-A, a product targeted at independent contractors and others who may not draw a steady paycheck.
As part of the push, Wells Fargo loosened requirements for so-called stated-income loans, which allow borrowers to say how much they made without verification. The bank later sampled and tested some mortgages and found borrowers had fudged income numbers. Despite those findings, it continued to report inaccurate income figures to investors who bought mortgage-backed securities that later went bad, according to the settlement agreement.
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” Alex Tse, acting U.S. attorney for the Northern District of California, said in a statement. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted.”
Wells Fargo Chief Executive Tim Sloan said in a statement that the bank was “pleased to put behind us these legacy issues regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago.”
Other big banks settled similar claims with the Justice Department years ago and paid much larger penalties. In 2014, Bank of America and Citigroup agreed to pay $16.7 billion and $7.3 billion, respectively, to settle allegations they misled investors about risky mortgage-backed securities. JPMorgan Chase agreed to a similar settlement in 2013 and paid $13 billion.
Those deals, like Wednesdays, dealt only with mortgage-backed securities. Big banks, including Wells Fargo, have also paid to settle allegations that they duped the federal government into improperly backing crisis-era loans through the popular FHA mortgage insurance program. Wells Fargo agreed to pay $1.2 billion in 2016; Bank of America and Chase reached smaller settlements in 2014.
Wells Fargo executives had been signaling the settlement’s approach. In January, Chief Financial Officer John Shrewsberry told Bloomberg his firm would probably hash out terms this year.
Although he declined to discuss the potential cost, the firm took a $3.3-billion litigation charge late in 2017, mainly for mortgage-related issues. Bloomberg Intelligence analyst Elliot Stein had estimated the settlement for mortgage-backed securities could cost more than $2 billion.
The settlement comes as Wells Fargo tries to correct a series of consumer abuses that have resulted in a raft of fines and sanctions, including a growth cap imposed on it by the Federal Reserve because of weak risk management and corporate oversight.
Over the last two years, the bank has admitted that it created millions of bank accounts without customers’ authorization, charged improper fees on mortgage borrowers and forced thousands of auto-loan customers to pay for insurance policies they did not need.
Those practices, and others, also have led to more than $1.1 billion in payments to the Consumer Financial Protection Bureau and other regulators, including a $185-million settlement over unauthorized accounts in 2016 that kicked off the bank’s troubles.
Wells Fargo shares rose 36 cents, or 0.6%, to $57.65 on Wednesday.
Times staff writer James Rufus Koren contributed to this report.