The Robber Bank: Can America Ever Rid Itself of Wells Fargo? | Hacker News Reader

The Robber Bank: Can America Ever Rid Itself of Wells Fargo?

slate.com

210 pointssmacktoward73 comments

"But that $3 billion represents only a small part of the bank’s takings from just this one scam—customer money to which, by its own admission, it “was not entitled.”"

This is totally incorrect. The best estimate of how much money was made from the fake accounts scandal is... about $2m gross. That's for a pretty obvious reason which is that it is very hard to secretly charge people money and very easy to secretly open an account for them which then goes unused.

Essentially, WF did not really profit from this, it was the employees and officers who were fleecing the company and fraudulently opening accounts to do so.

Branch employees were incentivised to sell products like accounts and cards to customers on the theory that WF profited from such sales. Compensation for the employees was set based on an assumed / historical profit per cross-sold product. Senior management had incentive packages that were also based on that assumed link. But of course that was calibrated based on real accounts. Shadow accounts that are setup but not used by the customer (because they don't know they exist) do not and cannot produce profit for the bank. What the bank would have seen over time was number of products sold going up but profit per product going down. Since the former is a leading and the latter a lagging indicator, it can be a long time before that becomes apparent.

From the point of view of WF, this was the dumbest possible fraud because it didn't make them money. I bet that $2m in account opening fees actually comes from the less experienced crooked branch staff because it seems like a rookie mistake that would lead to you getting caught.

Of course there is no such person as "Wells Fargo", and from the point of view of the branch and management employees whose compensation depended on these cross-sales numbers, the scam worked just fine until they were caught.

Semantics. Taking (income) and making (profit) are different things.

Both are true: WF took $3b, WF made $2m.

Where does the 3bn come from though? I'm saying that the gross revenue was $2m. Is the 3bn total damage to customers including credit score hits?

It is a scam to inflate the stock price by posting constantly improving (fake) revenue numbers and reporting them at earnings calls and conferences. Not just the fees made by fake accounts but also signing auto loan customers for duplicative insurance, signing up for credit cards, etc.--all to show that more people are using their services and gain investor confidence.

I fully believe that the former CEO didn’t actually know what was going on and was just looking at top line metrics. You have this in many companies, not the fraud part, but the mantra to be succcessful at whatever cost. In this instance, that permutated down to the branch workers who were incentivized to skirt the rules & meet the metrics set.

Kinda feels like the housing market when loan officers were paid a ridiculous amount for variable interest housing loans versus fixed loans. The banks and everyone were buying them up as that was their top line metrics but ignored how it was actually happening.

I hold the CEO and other top executives there for staying ignorant but I agree, this made minimal money for WF so I don’t think it was the true intent of the CEO to have this happen but they should’ve looked into how markets with not large enough populations had so many accounts. They didn’t and deserve the punishment.

"incentivized" is a weak way to put it. Many employees tried to report the problems, and some were even blacklisted from the industry for doing so while others were threatened with blacklist.

https://www.npr.org/sections/money/2016/10/07/497084491/epis...

"Snitches get stitches" extends to the corporate world too.

What get measured gets improved.

No, you've incompletely identified fraud victims, and as a result have miscalculated the amount fleeced.

The scam goes like this: WF open large numbers of fraudulent accounts, this pumps up some of their customer stats before the fraud is discovered: They get to claim their customers do more business with them, use more of their products, and that they are seeing growth in various areas (more customers using each product). These stats are flaunted to investors, who assumed that the increase in accounts (a leading indicator) would lead to an increase in profits (a lagging indicator).

The investors would then put in money, boosting the stock price.. allowing the executives to sell their stock at inflated prices, allowing WF to raise money for less stock, etc.

WF committed fraud on their customers so that they could pump up their numbers and fleece money from their investors.

Even after the investigations started and they were notified, they hid it from investors for 6 months... the investors found out when the news picked it up.

The damage they've caused was much more than $3B.

You're right that this was primarily a scam on investors, the customers were incidental.

Measuring harm to investors is complicated though. Any investors who bought after the fake gains and did not sell before the scam was exposed have been harmed but other investors have actually gained. I would be interested to see a calculation (by someone other than a prosecutor) of this harm.

Unfortunately there is no way of holding "the bank" accountable for that because the punishment for causing investors to lose money is to fine the bank which is owned by those same-(ish) shareholders.

It is more accurate to ignore the existence of the legal entity "WF" and deal only with the natural persons. Employees / executives conspired on a massive scale to defraud the shareholders by collecting undeserved incentive payments and realising artificial gains on any stocks they sold. Some investors benefits and some lost out depending on timing of purchase and sales of the stock. A small number of customers suffered miniscule and temporary incidental harm to credit scores and an even smaller number suffered actual cash harm through paying account fees for accounts they did not ask for.

The article's lead is a lie. Slate reports that "$3 billion represents only a small part of the bank’s takings from just this one scam", but that's simply not true - as they quoted (!!), Wells Fargo was only accused of taking millions. (The Warren quote they pointed to seems to also be a lie, but I guess it's plausible that she has some principled reason for thinking that $12 billion of profits are "from" the fake account scam even though they're not directly taken from customers.)

This doesn't fill me with trust that the article's other examples of misconduct are reported honestly.

No kidding - this is some pretty terrible reporting. These account openings were no where NEAR that profitable. The big whales (business accounts, high net worth etc, lending, borrowers) really did not represent in these account openings. I was actually a customer at time, they opened an account, I logged on, saw it, asked them to close it. In my case they tagged the opening onto a different account opening. But was super easy to clean up for me.

I'd be curious how folks are getting a $12B profit from these account openings which were low / no balance in many cases

These figures include fraud committed by various other divisions, it's just that the bank accounts portion was the most visible form of this fraud. I believe their forex and precious metals desks were some examples of divisions that committed fraud.

The article seems vague (like when one is too lazy to do real research and so things are kept wishy washy.) However the key paragraph was this:

>>> Warren has been fighting Wells Fargo’s misdeeds for more than a decade, as she reminded Nevadans at the Democratic primary debate on Feb. 19, harking back to a 2008 meeting with Las Vegans who’d lost their houses in the mortgage crisis.

https://www.investopedia.com/terms/r/robo-signer.asp

https://www.marketwatch.com/story/us-breaks-down-93-bln-robo...

For those not familiar with this scandal, the banks signed false legal documents attesting to reviewing documents which in fact they had not. Real reviews would have revealed errors in some cases. Accordingly, hundreds of thousands of foreclosures were unjust. However, without adequate legal funds, homeowners could not fight the foreclosures and ended up losing homes w/o cause in many cases.

Everyone involved in the robosigning process should have gone to jail for fraud. Everyone at any point in the management chain who was aware that the company was obtaining a financial advantage by knowingly making false statements to a court is guilty of an offence.

I understand how an injustice was committed upon whoever was underwriting the loan, but please explain the injustice of foreclosing on someone who isn’t paying their mortgage? What would justice look like to you? If it’s not foreclosure, then who should pay for the house?

> but please explain the injustice of foreclosing on someone who isn’t paying their mortgage

You can read more about the fraud here[1] but in short Wells Fargo (and others) wrongfully foreclosed on homes that were owned by someone who:

- was not in default. i.e., They were, in fact, paying their mortgage or in some cases had even completely paid it off.

- was entitled to protection under the Servicemembers Civil Relief Act. Most often, active duty military personnel stationed overseas.

- was entitled to foreclosure protection under federal bankruptcy laws.

- had entered into a written modification agreement with the bank and had been abiding by the terms of that agreement.

- was wrongfully denied a mortgage modification or requested a mortgage modification and received no response.

In addition, there were many cases where the institution had an obligation to engage in loss mitigation efforts with the borrower (modification, short-sale, cash-for-keys, etc.) and failed to do so.

[1] https://www.federalreserve.gov/consumerscommunities/independ...

1) They were lying about what documents they did or didn’t have so Wells (and others, but largely Wells) were foreclosing on the wrong house—like borrowers who previously had a Wells loan but paid it off—or on people who were not past due. That’s unjust.

2) Play by the rules. If the rules say you have to have a documented chain of title and transfers of ownership of deeds of trust, do it. You and I would be laughed out of court at best, arrested and charged with fraud at worst, for doing what these people did. But they, because they did it at the behest of a large bank and “who could really know any better?”, got almost completely away with document fraud. Even if someone didn’t pay, the bank had no right to foreclose if Wells couldn’t prove it owned or had the right to enforce the loans. Everybody playing by the same rules and being rewarded or punished under them is just.

They were foreclosing people who were paying. Thus the name robosign - signing foreclosure without proper review.

You're assuming your conclusion there, buddy.

The point of the robosigning scandal was that Wells Fargo (and a bunch of other banks) were often swearing in a court of law that a) Fargo owned the mortgage and b) the homeowner was in default on the mortgage when one or both of these things was not, in fact, true.

It continues today:

https://theintercept.com/2016/05/18/foreclosure-fraud-is-sup...

In many cases the logical answer to this question is that the home owner would still pay.

There is a process that is to be followed that gives the home owner a chance to explore options or simply to get through a temporary financial crisis.

In some cases they actually foreclosed on houses that did not actually have mortgages. Bet a review would have caught THAT.

If the loan was fraudulent then it's unjust to enforce it.

Don't want to lose billions of dollars? Don't give out fraudulent loans. Is it tough to avoid incentivising your employees to commit fraud? Aw, you might need to spend some money on combating that, or be less greedy.

Pay whom, though?

Foreclosure gives the value of the house to someone else. It's entirely reasonable that, before confiscating someone's life savings and throwing them on the street, a document is presented to a court that isn't a forgery.

It's not their fault that the loan got sold into a complicated system of securitisation. In fact, some of the victims didn't owe money and were foreclosed anyway!

The direction of the article is... meandering at best. I can't comment on the factual accuracy but it sure felt like some kind of advertisement for Elizabeth Warren, who I assume is a political figure.

Elizabeth Warren is a political figure (she recently ran for President), but she became a political figure through strong advocacy on the issue of consumer finance - she was a law professor who proposed and built the US's new Consumer Financial Protection Bureau before entering politics proper. So it's reasonable that people tend to treat her as an authority in this space.

Don't forget that Wells Fargo was purchased by Wachovia in a merger after Wachovia was caught laundering billions of dollars in Mexican drug cartel money.

Wells Fargo acquired Wachovia (not the other way around) at the time of the collapse in the banking industry due to the great recession mess.

https://en.wikipedia.org/wiki/Wachovia#Acquisition_by_Wells_...

Forest. Trees.

You're looking at a branch and missing the forest [0]

>The acquisition of Wachovia by Wells Fargo was completed on December 31, 2008, after a government-forced sale to avoid Wachovia's failure

[0] https://en.wikipedia.org/wiki/Wachovia

That wasn't the point. The point was that the corrupt people and practices at Wachovia didn't disappear.

Slate has always been really dubious. I remember reading it for a while and feeling like its editorials were informative, and always very scandalous. But then I read an article about a subject matter I was more familiar with and I realized that it was pretty tilted. I don't bother with it anymore.

> “Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.

> In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.”

– Michael Crichton (1942-2008)

Ref: https://www.epsilontheory.com/gell-mann-amnesia/

Somehow people in the tech bubble like to believe that any "theory," "law," or "effect" that has a name on it is true. Gell-Mann Amnesia effect is one of the ones that simply doesn't hold up.

Why? Because it makes the false assumption that the person who wrote a flawed story also wrote every other story in the newspaper, which is both untrue and impossible. It presumes that because someone underqualified was interviewed in one article that every person interviewed in the rest of the paper was also underqualified. Again, untrue.

Worse, it doesn't understand that the editorial section is not the international section is not the comics section is not the classified ads.

It's perfectly reasonable to start each new story you read in a newspaper with a bit of amnesia. It was written by a different person in a different place in a different time. Just like if I buy a crappy video game in Target, that doesn't mean that every single video game in Target is crap.

This doesn't seem entirely true though - especially with news. There's a central organization at, say, Slate, that's responsible for hiring, editing, and fact-checking what they publish. Sure, some writers are going to be better/worse than others, but an organization that hires and retains bad writers who do bad research and editors who don't catch it, even when it's been pointed out, is an organization where you should have concerns elsewhere.

The proposition isn't that one bad article means everything will be false forever, but that you should approach all articles with some skepticism that the author/editor knows what they're talking about. Especially when you know from past evidence that they will publish things that you know to be wrong or misinformed.

It's not much different than how folks are getting concerned about counterfeit things on Amazon. I don't think that every product on Amazon is fake, and I don't think the fakes are evenly distributed across all categories. That doesn't mean I shouldn't check most things I buy to make sure they're safe when I know that Amazon doesn't seem to care if they ship me defective or counterfeit products.

You're making a straw-man of what the Effect is trying to get at. It's not saying one bad article means every single article is fully false, or that you shouldn't trust the sports scores, or Cathy is giving you bad life advice. It's just stating that we tend to not realize that one bad article may be a sign of more intrinsic bad editorial practices at a publisher.

The Gell-Mann Amnesia effect resonates with me. Here is why. The few times I've read an article about something with which I have intimate knowledge there have been mistakes in the article. What should one do with this knowledge? Should I ignore that the evidence I have on hand is that when the article is about something with which I know a great deal there usually are errors in it? The evidence I have suggests that reporters get things wrong frequently.

It's possible that reporters only get things wrong in the areas that I know and understand but it seems much more likely to me that falsehoods in articles are much more common than people realize.

One should be seeking out primary resources and reviewing facts independently for any non-trivial bit of news. In my experience when doing one's own research into an article you'll find that approximately 75%+ of articles contain inaccuracies and about 30% - 40% of articles are flat-out wrong.

> Gell-Mann Amnesia effect is one of the ones that simply doesn't hold up.

At most, you should trust specific journalists who are covering topics germane to their expertise.

> Just like if I buy a crappy video game in Target, that doesn't mean that every single video game in Target is crap.

Consider video game "journalism" instead and you'll have a fair comparison.

Right now I am trying to rid my business of Wells Fargo. They are charging us $700 / month for services that would cost me around $200 from PNC. Their pricing is so convoluted that it is impossible to understand, and their reps take advantage of that. They quoted me an estimate of an additional $60 / month to add positive pay verification for checks, but my bill went up $300. And just to add insult to injury, they charge $1 for every time I need to run a search on our account records. Oh and I amlmost forgot to add, I was locked out of our account for a few days because of a rule change. I made the mistake of using them out of convenience because my personal account is with them. Don't make the same mistake as me. When you start a business avoid Wells Fargo like the plague.

Took my business almost five years to exit relationship w/WF (only a few months ago). Banks are super-sticky. But grind that process homie!! Once my account at WF closed I noticed the sun was brighter and I smile more often.

I’d take a look at SVB, Brex and others (PNC is good as well) depending on what you need the business account for. I have one with Chase and haven’t had any issues but it’s a small account anyways so might not apply for you.

I second this. We used Wells Fargo through our angel and seed rounds. Switched to Silicon Valley Bank after our A, and wish I could go back in time and use them from the start.

> they charge $1 for every time I need to run a search on our account records

This alone would annoy me to the point of closing the account. Absolutely zero reason for this in this day and age

How can we reconcile this with still sending men to prison for 5 years for selling dime bags of weed on the corner? Seriously, who's the bigger criminal here? I get it, companies aren't people, blah blah. But people make these decisions and those people should be punished.

I tend to agree. But the criminals who opened the fake accounts were overworked low-level staffers with unrealistic sales quotas, so they're very sympathetic. I don't think I've seen anyone even suggest they should be prosecuted; the discussion has largely focused on their bosses and Wells Fargo as a company, who fired them when the fake accounts were discovered.

> But the criminals who opened the fake accounts were overworked low-level staffers

At who's direction? How does low-level staffer at WF#1167 know low-level staffer at WF#2826 2200 miles away? When would they share the information that this is how you up your numbers? Upper management had to know. They had to have encouraged this.

Even if that's true, and I think it's important to note there's no known evidence for it, being asked to commit a crime doesn't normally diminish your culpability for it. If your boss tells you to open a fake account, you're obligated to say no, just as you would if your boss told you to go punch someone or steal their wallet.

On the other hand, under the UCMJ generally subordinates that are forced into compliance with unlawful orders are not punished anywhere near as harshly as the superior officers that cause the situations.

Not that any institution gets it right or is spotlessly incorruptible, but the general direction of UCMJ actions is the good of the service, not just being punitive.

That principle seems to have been followed here. The individual fraudsters were just fired, although some reports have indicated there’s a black mark on their record; the CEO was fired, paid 17 million dollars, and is banned from ever working for a bank in the future. (And he’s not even accused of having ordered the fraud, just of not doing enough to stop it.)

I think you left off your sarcasm tag. Getting > 0 dollars as a consequence of encouraging and abetting multiple scandals worth of malpractice is NOT what I meant.

While rank and file employees who complied were and should have been fired, his punishment should have been far more severe, at least forfeiting every dollar of compensation and realistically serving time for fraud.

That is because there is no JUSTICE system. The system we have is not designed to make things right. It is designed to satisfy some things the governments and reaches like to be

It is a stupid human trick - people tend to hold those in power to a lesser standard than those without even when they lack any conflicts of interest.

Whether cultural or genetic there is a clear dynamic linked to history of might makes right - regardless of direction of causation.

Another factor is the failure point of adversarial systems. While having a prechosen defender would be equal the incentives are insanely exploitable. The rich or powerful (being a pillar of the community is a form of power among others) have stronger defenses to force the dotting of every i and crossing of every t even before any corruption. Combinr that with organizational dynamics that are about diluting and confusing responsibility for self protection - whether it is businesses, church, government, mob, or organized crime.

I'm doing my part by not having an account with them.

Yeah I left years ago.

It's telling that they have since sent me 3 different checks for what I think were significant amounts ... for 3 different scams they ran while I was a customer... 2 I had no clue about until they sent me the check.

Wasn't that part of their crime, creating accounts for people without their knowledge?

As far as you know.

I've tried, but I've had two mortgages sold to Wells Fargo without any choice on my part so I keep getting stuck dealing with them.

I was a victim in 2007 of Wells Fargo’s tactic of re-ordering debit transactions from largest to smallest to maximize overdraft fees. I remember screaming at a bank manager about this practice that he claimed he could do nothing about. I closed my account that day and put my savings into a credit union across the street.

Wells Fargo and American Express have a close knit history. As a matter of fact, Butterfield Wells and Fargo were founders of AmEx.

It’s no surprise AmEx was caught doing the same thing: https://www.wsj.com/articles/amex-staff-misled-small-busines...

While true, the Wells Fargo company that Wells and Fargo founded was taken over in 1998 by Norwest, which ended up rebranding itself as Wells Fargo.

Interesting. I quit Wells Fargo last week to focus on my machining business. I would have stayed on if they let me work remotely - it took at most 15 minutes a day to do my c++ coding job. But, seeing as how it took 4 months to get Python3 installed, and the SSD and 128GiB memory upgrades for my desktop were apparently stolen from the “IT Workroom”, getting a laptop seemed like a bridge too far.

I felt a little bad about quitting, but WF fires tens of thousands of people at a time for no apparent reason...

When will corporations, which are effectively treated as people, be placed in jail and or executed?

This is a puff piece for Elizabeth Warren.

You're completely right.

> Sen. Elizabeth Warren, whose incisive and relentless questioning led to the resignations of not one but two Wells Fargo CEOs in connection with the scam, was not impressed with the announcement.

> Warren has been fighting Wells Fargo’s misdeeds for more than a decade

> Last month, banking regulators reported that John Stumpf—Sloan’s predecessor, whose nose Warren bloodied so effectively back in 2016

> A picture captioned "Sen. Elizabeth Warren questions Wells Fargo CEO John Stumpf"

> After Sen. Elizabeth Warren mopped the floor with onetime Wells Fargo CEO John Stumpf

> Sen. Warren demanded answers from the bank

> Warren’s popularity grew in no small part because of the effectiveness and vim with which she socked it to Sloan in October 2017

Not defending Wells Fargo, but there's a quite a bit of fiction mixed in with facts in this article; More of a hit piece on Warren Buffet and an informercial for Elizabeth Warren.

Buffett isn't exactly the cleanest financier out there. His company is famous for owning the space of predatory finance options for low-income Americans. He's specialized in it, in fact.

> More of a hit piece on Warren Buffet

Do you really think Buffett does not know Wells Fargo is running a huge fraud, he has been through an another type of fraud when he had invested in Solomon many years back. he knows how rotten the banking industry is.

I think he's jaded now. With Solomon, he was mad, now I think he sees dealing with fraud as just another cost of dealing with the finance industry.

Why should we be "getting rid" of Wells Fargo? That part isn't clear to me. The magnitude of the false accounts was relatively small. There are probably worse things happening in the banking world. Is there such a focus on this because it is easy to understand relative to other complex issues in the financial world? Or is this just a piece to advertise for Elizabeth Warren? When I see phrasings like "Sen. Elizabeth Warren mopped the floor..." it comes off as unprofessional and nakedly biased reporting, rather than factual reporting.

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