The
banking business once functioned on the “Law of Threes.” Depositors received three percent interest on
their savings accounts; borrowers paid three plus three percent interest on
their loans; bank officials made it to the golf course by three o’clock each
day. Banks generated modest but fair
profits.
Times
have changed, as the current Wells Fargo exposé demonstrates. Dating from 2011, thousands of bank employees
opened unauthorized accounts for millions of customers. The holder of a checking account might become
the recipient of a savings account, with funds transferred from the checking
account without notice. Additional
accounts, many incurring fees for such items as credit cards or Social Security
direct deposits, might also be created, often the result of authorization with
the customer’s signature forged by the bank employee. Despite the misfortune afflicting many
unaware customers, the bank hierarchy profited nicely from these activities
Who’s
to blame? According to John Stumpf,
Wells Fargo’s CEO, 5,300 low level bank employees contrived on their own to
engage in these nefarious activities.
When he and executive management learned of this—after the fact, of
course—these guilty parties were all fired.
That resolved the problem; no further action is required.
The
banker’s official assurances are unlikely to wash. With the massive sums involved, the
illegalities committed and the many parties with vested interests, we may
expect a donnybrook. Mr. Stumpf’s
hostile questioning by a U.S. Senate committee was merely the opening
round. Over the weeks and months to come
we’ll see the institution of class action lawsuits, the filing of criminal
indictments, and all sorts of activities prejudicial to Wells Fargo and its
senior executives. Whether or not the
two primary beneficiaries of the illicit operation, Mr. Stumpf, as well as
Carrie Tolstedt, the company’s former head of community banking, eventually
find themselves behind bars is hard to predict.
I’ll
conclude with this final thought: Banking has come to embrace the corporate
culture, which leads me to inquire as to exactly why the public corporation
exists. I’ll offer a theory. It’s my belief the principal reason is to
enable its officers, directors and other favored insiders to draw financial
benefits from it. Everything else is
incidental.
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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity
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