For a little context, I'm going to ask everyone to step into the WAYBACK machine and join me in 2008. Commercial and investment banks around the country were going belly up as a result of their participation in liar loans that gave money to anyone with a heartbeat and surprise, that didn't work out so well when people stopped paying their mortgages.
Never fear, these banks were bailed out to the tune of $700 billion by future Fed Governor Neel Kashkari * (Did I ever tell you the story of how they decided on $700 billion? If not, see below).
Okay, so the remaining banks were saved and they've surely learned their lessons about lying and cheating their way to the top, right?
Fast forward to this weekend when it was revealed that Wells Fargo (yes, that favorite bank of everyone's favorite Billionaire Warren Buffett) had created millions of fake accounts in customers' names to meet sales goals. Assume, for example, that your branch is supposed to open 100 credit cards/week. Well, no one wants an extra credit card right now but Jane Doe did open a checking account with your this week. So the branch manager (or someone) decides to take Jane's personal information, fill out a credit card on her behalf and PRESTO!! Only 99 more to go to meet their sales goal! Wells Fargo will pay a small fine (without admitting guilt?? How is that possible? This is basically identity theft by a US bank!) and most will forget about this story in a week. However, my question is: if Wells Fargo's lending standards are so lax that fake accounts with fake email addresses can be approved, what have they learned since 2008 and what type of loans are currently on their books?
* “What about $1 trillion?” Kashkari said.
“We’ll get killed,” Paulson said grimly.
“No way,” Fromer said, incredulous at the sum. “Not going to happen. Impossible.”
“Okay,” Kashkari said. “How about $700 billion?”
“I don’t know,” Fromer said. “That’s better than $1 trillion.”
Whatever that sum turned out to be, they knew they could
count on Kashkari to perform some sort of mathematical voodoo to justify
it: “There’s around $11 trillion of residential mortgages, there’s
around $3 trillion of commercial mortgages, that leads to $14 trillion,
roughly five percent of that is $700 billion.” As he plucked numbers
from thin air even Kashkari laughed at the absurdity of it all."
- via Too Big To Fail Andrew Ross Sorkin