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The Stagecoach That Robs You

Wells Fargo is in some pretty deep doodoo:

The scope of the scandal is shocking. An analysis conducted by a consulting firm hired by Wells Fargo concluded that bank employees opened up 1,534,280 deposit accounts that may not have been authorized, according to the CFPB.

The way it worked was that employees moved funds from customers’ existing accounts into newly-created accounts without their knowledge or consent, regulators say.

Additionally, Wells Fargo employees also submitted applications for 565,443 credit-card accounts without their knowledge or consent, the CFPB said the analysis found.

Wells Fargo is being slapped with the largest penalty since the CFPB was founded in 2011. The bank agreed to pay $185 million in fines, along with $5 million to refund customers.

“We regret and take responsibility for any instances where customers may have received a product that they did not request,” Wells Fargo said in a statement.

Image by JeepersMedia

Image by JeepersMedia

That’s an awful lot of employees. That is a sufficient number of employees, that firing employees (and paying fines) is not nearly enough. Things like this don’t happen in a vacuum. With that number of employees, we’re talking about inducements without control or oversight. We’re likely talking about middle-manager participation, and acceptance or gross incompetence by the people above them. For what, exactly?:

Some customers noticed the deception when they were charged unexpected fees, received credit or debit cards in the mail that they did not request, or started hearing from debt collectors about accounts they did not recognize. But most of the sham accounts went unnoticed, as employees would routinely close them shortly after opening them. Wells has agreed to refund about $2.6 million in fees that may have been inappropriately charged.

Wells Fargo is famous for its culture of cross-selling products to customers — routinely asking, say, a checking account holder if she would like to take out a credit card. Regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells employees told regulators they had felt extreme pressure to open as many accounts as possible.

As a long-time Wells Fargo customer, this is “take my business from the company” territory. Not out of some grand moral principle, but because this is the sort of thing that can screw around with your credit rating and haunt you for life. That’s even ignoring the $5,000,000 in fees they collected (which, for them, is actually kind of a drop in the bucket. As likely as not caused by employees who themselves screwed up rather than an attempt to extort cash. (I mean, stuff like that is how you get caught.)

And some of this occurred after receiving some pretty negative attention on their sales tactics:

Despite the LA Times investigation, Wells Fargo is still known for having aggressive sales goals for its employees. Wells Fargo’s executives highlight every quarter the bank’s so-called “cross sale ratio,” which is the number of products the bank sales to each of their individual customers. The ratio hovers around six, which means every customer of Wells Fargo has on average six different types of products with the bank.

And a rather high-profile complaint by somebody heading out the door:

There comes a point in organizations when the quest for quarterly profits and appeasement of Wall Street creates what I call organizational psychosis. Unfortunately, Wells Fargo has become organizationally psychotic. How do I know this? My 5 years and 2 months with Wells Fargo have witnessed nothing but disdain for our customers as our sales representatives are pushed to the limits of absolute futility under the guise of “best serving our customers”. Our “Culture of Caring” is unfortunately a lack of caring for the employees of the company which translates into a lack of caring for our customers. Despite the recent rash of bad press and investigations into our sales practices the sales goals of my own and other departments have been increased to a level which is near impossible. This will only further what is already a massive employee turn-over rate and result in a further lack of service and concern for our customer base. My time in sales has seen the disregard of our customers in the constant push of service people funneling customers to me for products they certainly don’t need with service that has not been performed. The good people I have had the pleasure to work with have been veterans that took care of their customers and cared to make sure they were taken care of. Despite metrics that could not be attained by most, at least a few of us did what was ethical and right in light of an organization steeped in poor service and willing to do anything to make sales goals.

Truth be told, the most high-pressure sales tactics I have received from is having to go through ads when trying to access my account on their website. I did receive calls from them for a while, but asked to be taken off the list and that request was respected.

We did have a somewhat bad experience with them when we took out a mortgage. In the final consideration, it came down between Discover and Wells Fargo. I went with Wells Fargo because their documentation requirements were somewhat lighter. They implied that this was in light of the fact that I already banked with them. But once I signed on with them, they asked for everything that Discover wanted, and dragged their feed and delayed the signing on the house.

Maybe it’s time to give Discover another look.

Meanwhile, the $185,000,000 is roughly three days of business at Wells Fargo, and the peons they are getting rid of were likely deadweight if they had to cheat to meet their management mandated targets.

And commerce rolls on…


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Will Truman is a former professional gearhead who is presently a stay-at-home father in the Mountain East. He has moved around frequently, having lived in six places since 2003, ranging from rural outposts to major metropolitan areas. He also writes fiction, when he finds the time. ...more →

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160 thoughts on “The Stagecoach That Robs You

  1. So the bigger picture reality of this fiasco is considerably less malfeasance or top down conspiracy rather than top down stupidity combined with a bottom up revolt.
    The basic core of this debacle rests in a decision by upper and middle management to ride their front line customer facing employees like donkeys to try and boost cross product sales. Basically they levied huge quotas on their customer facing employees and then punished failure to meet these goals with overtime or firing.
    In response the front line employees responded by seizing any opportunity to open new products for customers right up to and including fraud to create new accounts, credit cards etc out of sheer desperation. It’s possible middle management on some level knew but kept quiet out of fear. It’s not so likely that upper management knew but certainly they should have known better.

    It bears keeping in mind that this wasn’t a benefit to Wells Fargo at all. They made absolutely nothing on fees from these extra accounts and probably lost money on employee time spent cancelling and dealing with the customer service problems this caused to say nothing of customer annoyance and lost business. This was not some malevolent corporate scheme to make money. It was far more like overburdened employees throwing their sabots into the machinery to try and keep it from whipping them.

    So, as most things, shortsightedness and stupidity rather than malice.

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    • Sounds right, though is part of the underlying story that conventional banking is having serious problems due to low interest rates or low savings rates, customer rejection of fees, and/ or competition from non-traditional financial services?

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      • I don’t know to be honest. From an insider perspective this fiasco screams that this was utterly unintentional and undesired on all levels of the company. I can almost see the timeline. Executive A institutes a process for tracking new account creation by employee because hey, measuring stuff rocks! Executive B some time later starts basing rewards off it. Executive C starts basing punishment off of it. Executive D tightens all the requirements until they scream. It’s a classic teach to the test situation.

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    • You are too kind. Shortsighted stupidity is not inconsistent with malice, and this shows all the signs of both. The malice lies in their setting up a program that invited–or even mandated–illegal conduct to fulfill its requirements. I don’t doubt that the executive suite is shocked –SHOCKED! –to find that anything improper went on. But this is transparent bullshit. The stupidity lies in that the system was so easily gamed by the employees that it didn’t even bring in much extra revenue.

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      • Look the black and white facts are that WF made no money on these shenanigans. Factor in the cost of lost business and employee time to fix the complaints and they probably lost money before this became public and the fines rained down.

        Yes it’s malice that they’ve been grinding on their front line employees like that but it’s not the kind of malice that is the basis of your standard variety of complaints about bankers. It’s mean spirited, or petty and dumb but it’s not malfeasance. It certainly didn’t help Wells Fargo on any level at any point.

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        • So I held up a Wells Fargo at gunpoint, but dropped the loot in my hasty getaway.

          So really, I didn’t even make any money on the deal. It was really just a silly episode of incompetence and dumbness on my part.

          So sorry! And its really going to suck to lose three days pay over this.

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          • In your analogy, its the bank employees that held up the bank, partly because their employers were dicks, but also because they wanted more money for their job. But in the process they variously used bank customers as screens during the heists putting the customers at risk at harm. But the customers were not robbed, nor did someone attempt to rob them.

            The higher the culpability goes, the more likely its the bank employees holding up the stockholders.

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          • Except in your scenario you set out to hold up a branch of Wells Fargo with the intent to make money from your scheme. In this scenario Wells Fargo fucked up their incentives and performance measurements and a horde of their employees opened a whole whack of fake accounts for their customers to try and meet those incentives and performance measurements; an act that yielded virtually no actual lucre for Wells Fargo and most likely cost them money even before it blew out into the open.

            A better analogy would be that you own a fancy house and staff and pay your butler based on the number of guests he helps take off their coats (and punish him if he doesn’t meet some unrealistic benchmark) so the man then goes about purloining the coats of every guest and person who comes near your home while you’re not looking and you wake up one day to a horde of angry coatless people and some cops at your door and find your closets packed full of useless coats. You didn’t set out in some coat stealing scheme to benefit yourself, you just set up a really stupid incentives and paid inadequate attention.

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            • I dunno, it’s not like employee incentives and performance measurements have nothing to do with corporate intent to make money.

              It seems to me the analogy holds well enough to make the point about culpability and losses from Wells Fargo’s perspective.

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              • For sure, and the eager manager who set up the original idea to incent employees to get new accounts created from existing customers probably would have spit taken all over they computer at the way it turned out. I’d guess that the incenting idea came first then over a series of steps the goals were raised to stupid levels and punishments were added reflexively without ever really thinking about the consequences. It has “look like I’m doing something” managerial derp written all over it.

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    • This was not some malevolent corporate scheme to make money.

      Yes, it was. You’re just in the wrong universe.

      In the *old* universe, the goal of a corporation was to make money. So corporations would set it up where their workers would illegally *make money* (or save money) by, for example, dumping toxic waste in the woods instead of disposing of it.

      That’s what people still seem to think of when they think of stuff like this, and they look at Well Fargo and go ‘Well, that didn’t actually make any money. So it can’t really be anything they intended. It has to be some sort of stupid accident.’.

      But the point of a *modern* publicly traded corporation is not to make money, apparently. It is to *keep the stock price up*.

      Wells Fargo has, for a while now, had a very high stock price based mostly on the fact it had *amazing* numbers of new accounts. People just kept opening them. And the stock price just kept climbing.

      Whether or not these ‘new accounts’ actually made them any money was irrelevant. Profits only matter in the *old* universe. As long as the people *buying their stock* thought those new accounts were a good thing, the stock price kept going up, and everything was good.

      This is the *modern* corporate universe, where corporations aren’t even breaking the law to make money anymore. They’re breaking the law for *marketing* purposes so their stock goes up.

      To what extent Wells Fargo did this on purpose, and to what extent they knew about it, I have no idea. But the idea ‘Well, they couldn’t have intended it, because it didn’t make money!’ is just plain wrong.

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      • The really sad thing is: This doesn’t appear to have done much to their stock price. Overvalued for *years*, tiny tiny drop when it comes out it was overvalued.

        Proof #49475983 that the stock market is literally just gambling with millions of people betting against each other, and has no almost no intersection with how well a company operates, and we could be playing the game with randomly invented symbols with no connection to actual facts and it’d work almost the same.

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        • No, it just indicates that people who play the market are total imbeciles who have no idea how to do any sort of evaluation of companies at all, and operate solely on emotion. The price increases X% based on lies, when the lies are discovered, it drops….X/10%. Seems completely reasonable to *me* for stock market behavior, because stock market logic is drunken baby logic that has no interaction with the real world.

          But…we sorta already knew that. I mean, the stock was doing well (Vs other banks, which are sluggish from the recession) because they said new accounts were opening, and no one bothered to ask ‘Hey, wait, how come you’re telling us how many *new* accounts opening there are instead of total accounts?’

          Because, again, people who trade stock are complete idiots. As evidenced by the fact that almost all of them can be beaten by people throwing darts at stock listings.

          I am a little startled to find Warren Buffett has a lot of Well Fargo, though. Normally he doesn’t go along with this nonsense.

          Incidentally, if you want evidence that Wells Fargo knew what was going on, there it is right there: In any *sane* corporation, the fact that a huge amount of people were suddenly opening and closing accounts, often literally in the same day, would be a…well, a thing to track down, at the very least.

          Those should be *really* rare. Like, some times someone’s finger slips, maybe, in which case, the IT people need a better interface, or someone needs better training. Or maybe customers don’t understand what they can use their accounts for, and close them immediately when they learn something, in which case, more training, perhaps a better script.

          It’s not something that you ignore happening *thousands of times a day*. For *years*.

          Or you can. Apparently. Ignore this thing that is happening way too much, and plaster a half-truth about in your financial reports.

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            • Erm, did you not understand what I said?

              The price of Wells Fargo stock (Like all public stock) is determined by drunken babies who operate based solely on emotion instead of actual logical things that might be worthwhile in determining what X% of a company should be worth.

              I am not going to place *any* bets on *any* of their behavior.

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            • “I know exactly how the stock market works!”
              “Why aren’t you investing, then?”
              “Because the stock market is bogus garbage that nobody can predict!”

              It’s like the conversation with Malcolm in “Jurassic Park”. “Something’s gonna happen, the system is too complicated!” “Oh yeah? What?” “I don’t know and neither can anyone else.”

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              • “I know exactly how the stock market works!”
                “Why aren’t you investing, then?”
                “Because I know exactly how the stock market works.”

                Which is more or less the same as:

                “I know exactly how to figure the odds at roulette!”
                “Why aren’t you playing it, then?”
                “Because I know exactly how to figure the odds.”

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    • While I think I agree , it’s possible that some of the executives and middle managers who drove the policy/non-policy that led to these new account creations got money off it, by getting bonuses or keeping their job for longer than they would have.

      That still falls more toward the “stupidity” end of the spectrum than to the “malice” end, at least in my opinion. It’s evil, but it’s banal evil, which might be the worse kind precisely because it’s not motivated by something that I would easily call malice.

      And frankly, while I do have much sympathy for the lower-level employees who created these accounts (especially because I suspect keeping their jobs was somehow conditioned on it and any bank that’s worth its customer-service salt has some sort of redundancy to catch this type of thing), they bear some of the blame. Not all or most, but some.

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      • Well sure, the only thing I’m pushing back on is that this was some nefarious plot to advance WF at the expense of their customers. It didn’t advance WF and never could conceivably have done so. Anyone in the evil lair proposing this kind of scheme would be packing their desk in short order.

        It was an idiotic set of assumptions and negligence that harmed WF and its customers, then harmed WF and its employees even more. Certainly if there’s any justice in the world a lot of managers should be canned too but it’s unlikely the morons who set up the incentives are still in a position to be fired.

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  2. When I went to access my safe-deposit box a few weeks ago, the bank’s internal controls had changed so that I had to go to a service desk where she pretended to enter important information while receiving instructions on what services to offer me.. Four (mortgage refinance, home equity loan, credit card, and automobile savings account) during which I became progressively more annoyed at each “opportunity.” I felt bad for her, but I was getting the distinct impression that if I didn’t start signaling my displeasure, the opportunities might have been endless.

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    • That’s why I like my credit union. :) They don’t bother me with crap like that, but they’re always happy to help and quick to revert mistakes. (I found a 500 dollar type on my kid’s saving account, and it took 10 minutes top to get someone, have them look at the check, and see the name was wrong — their scanning equipment didn’t read the account number right, for some reason).

      10 minutes from start to finish, and it’s the first bank error I’ve had with them in 15 years.

      Good rates, too.

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    • My grandmother put me as a person who can access her (basically my extended family’s) safe deposit box a few years back, and I was not very happy I had to, essentially, open an null account with that bank to do that, filling out all sorts of forms.

      Basically, I think I have one of those *meta* accounts that you can have a saving, and a checking, and a money market, etc, account inside, but I have none of those accounts in it. I always wondered what it would look like if I tried to set up online banking there, but I can’t figure out *how* I would do that, because I don’t have any bank routing numbers!

      They pretended me needing an account was for legal reasons, which I’m pretty sure was a lie…safe deposit boxes aren’t, as far as I know, subject to Know Your Customer or any sort of reporting requirements. Why did they need my social security number?

      The really surreal thing is, when I access the safe deposit box…they don’t interact with my ‘account’ at all. I tell them the box number and my name, show them the key, they grab a piece of paper I sign, and they compare it to a physical card with my signature on it. There’s no computer involved in the process! Why do I have an ‘account’, again?

      And, thanks to the lack of computer…they can’t try to upsell (Or, I guess, it would just be ‘sell’.) me on anything, because they don’t know what I have.

      *My* bank, OTOH, keeps trying to get me to add a savings account whenever I talk to them. Literally every time.

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      • I’ve never worked with safe deposit boxes/accounts during my banking careers, so I really have only a slight idea of the processes. I wouldn’t be surprised, however, if some regulations make it so that requiring customers open a null accounts seems like a good idea to that bank’s legal counsel. Or it could be the bank sees it as an opportunity for what it probably seems like to you: a way to eventually get more money and drag people into their system. Or it could be some combination of the two plus other things I hadn’t thought of.

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        • The thing was, not ever having access to a safe deposit box before, I *assumed* at least some part of the ‘access a safe deposit box’ was logical. Of course they need my ID and stuff, because that’s how they know who I am. And I’d have to prove who I was to get access. Seemed reasonable.

          Of course, that’s not how you get access, because safe deposit access is, nonsensically, based off ‘Sign this piece of paper and we’ll vaguely compare it by eye’ and ‘Do you have a key?’.

          Uh, guys? Maybe check some ID or something? You spent all that effort learning who I actually was, and now literally don’t seem to care. Or, hell, compare me to the picture of me *you put in your system* when you scanned my driver’s license!

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  3. It is difficult for a middle class American to have no dealings whatsoever with banks, but I have as little to do with them as possible. My credit union, on the other hand, I have never had any problems with. Yes, they don’t have many branches and their hours suck. But I have never gotten the feeling that they are looking for ways to screw me.

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    • Wells Fargo has been really convenient for us as we’ve moved around. It’s less convenient for us where we currently are, because they don’t operate in our state, but there’s still a place a half-hour away. Once we get settled down somewhere, we might look at more local options like credit unions.

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    • I see it as a set of trade offs. I’ve never had a credit union account, but from what I heard their customer service is usually a lot better and they usually are less predatory (but not non-predatory….I once applied for a job at a cu and was told that promoting cash reserves and other “financial products” was a priority).

      I had an account at a bank local to Big City. That bank seemed pretty reasonable in that its fees were upfront and it wasn’t aggressive about promoting things I didn’t want. And then it got bought out by Bank of America, and whenever I walked into a branch, I was greeted by somebody trying to hawk whatever it is they were supposed to sell. I closed my account there very quickly. (And even though everything was paid through, they had “accidentally” not recorded the closure, I got dinged with fees that were almost sent to collections. I’ll never open an account there again and I try to go out of my way to NOT use a B of A ATM.)

      On the other hand, I have most of my accounts now at a large bank with a large national (but not international) market. It can be predatory, but I used to work there, so I kind of know how the system operates well enough not to fall into the trap. The bank is convenient because it has branches in Big City, and two places out of state I visit frequently.

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      • When I moved to Colorado almost 30 years back, real branch banking was illegal. Some combined activities were allowed — eg, marketing, ATMs — but each “branch” was its own little bank for accounts and such. None of the big national banks had more than one location here, all of them in downtown Denver. We opened our accounts and safe deposit box at the nearest “branch” of several owned by a local holding company. The feel was very much like a credit union.

        Eventually Colorado legalized real branch banking and many of the big players moved in. So much so that it’s hard to find any relatively major intersection in the metro area that doesn’t have one or more banks. We’re still with the same bank (more convenient now since any branch can deal with my accounts), still feels like a credit union. I suspect that’s because it’s privately held, rather than publicly traded.

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        • Perhaps that dynamic helps explain why banks in Big City have such a different feel from those in Cherryplatte, near where you live. In Big City, the banks are much more willing to use their Reg C allowance of days to hold availability of deposits while in Cherryplatte, the ones I worked for or had accounts at usually made most funds available next day unless it was a check of a very large amount.

          (There are probably other explanations, too. Different market culture, different state and local regulations. More/less incidents of fraud.)

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  4. Bipartisanship exists! Will agrees with LGM!!

    More seriously, this stuff keeps happening for the same reasons you mention, the fines amount to a slap on the wrist for the bank and seem to be the equivalent of holding on to a library book for a month. Also the wrong people will be punished. It is incredibly hard to prove a criminal case at the Beyond a Reasonable Doubt level for these kinds of crimes. The C-Suite and Upper Management types are smart enough to set up a system that ends up pointing fingers at middle management.

    What can be done?

    1. Get rid of arbitration and allow class actions. I know I am biased here but plaintiff’s lawyers tend to get more reform because civil law only needs to be proven at a preponderance of the evidence level. You can also use agency theory more and get the C-Suiters to squirm in depositions.

    2. Ban commission based salaries and bonuses for bank employees.

    3. Greater fines though this is hard because how do you hurt the bank without hurting the consumers.

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      • I think it is irrelevant whether they made money or not. What matters is that the felt free to create a corporate culture where employees would need to result to this scheme?

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      • Here I am agreeing with . The bar has dropped pretty low if we see a corporation (which as Mr. Romney reminds us, is people, my friend) engaging in fraud to cook the earnings books, but we mitigate their guilt on the basis of not making any money on the deal.

        If employees goosed their earnings or avoided penalties by playing with customers’ accounts, that affects the company’s bottom line. If it means WF’s costs went up, you can bet that cost is recouped from their customers’ pockets, one way or another. In fact, if you keep your WF account, the lint in your pockets will be used to pay that penalty.

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      • That…doesn’t really matter. I saw a video of a guy robbing a convenience store. He dropped a fifty on the counter, and when the guy went to make change he whipped out a gun and stole the contents of the register and left his 50 behind.

        it was a net loss, because the register held about 20 bucks.

        They still charged him with armed robbery, even though from a pure cash perspective it was armed gifting.

        Because I’m gonna be honest — 5500 employees churning accounts with a lifetime in days? That’s NOT something management misses. Whether they were ignoring it because they thought it boosted stock prices, because they thought the fees were worth it, whatever, or whether they just felt that was an acceptable side-effect of high-pressure sales, they were certainly darn well aware of it.

        Bankers, in general, tend to want to know what’s causing downward blips in their average account length numbers, because that’s often a sign of customer troubles.

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        • That’s not something their immediate managers would miss? That I can believe but the idea that this is something WF cooked up intentionally? That doesn’t pass the laugh test. “Lets set up incentives to crank out a bunch of false accounts which will enrage our customers, not make us any money and then eventually result in huge regulatory fines and massive loss of public reputation.”

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          • It appears to have gone on for quite some time, and without the CFPB, would we have noticed?

            “They got caught, clearly they didn’t intend to commit the crime” is not a great defense. That’s true of EVERY criminal on trial, for instance.

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            • Well if we’re talking about the banking executives here their “crime” was saying “you need to produce this unreasonable amount of new business per month”. Setting unreasonable benchmarks ain’t a crime.

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            • Entirely possible of course.
              But you’re the lawyer, not me. Assume the fraudulent accounts were created by desperate bottom tier employees trying to meat sales targets (which in fact they were). Assume that you can’t find any way to prove that top management set had much to any involvement or any knowledge (most likely they didn’t and even if they did you can be sure there’s no smoking gun emails or what not).
              Add onto that the fact the WF made no money off this mess even before they were busted which kicks motive square in the balls.
              Now tell me lawyer, who’re you arresting, what’re you charging them with and how’re you going to convict them?

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    • Greater fines though this is hard because how do you hurt the bank without hurting the consumers.

      We could try jail time. Seriously. Corporations may be “people”, but some natural person signs off on policy.

      I worked for one of the fragments after the Bell System was broken up in 1984. There were rules about the kinds of services my fragment could and could not perform. During the annual training, the opening statement was of the form, “Why are we doing this training? Because while the corporation may pay fines, you personally will go to jail for violations.” Got people’s attention.

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      • I think there are cases where you can, but I don’t think this would be one of them even if Icelandic policies were in place. This was peon and lower middle management action in response to a corporate environment, rather than deliberate policy.

        I think the corporation should be punished for creating this environment, and executives should be fired, but not sure what else.

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        • It may be tough to pin anything criminal on anybody higher up (I agree with North–this simply wouldn’t make sense as corporate policy as it’s a money loser even if it works), but it seems to me that the individuals involved at the pointy end of the stick were engaged in straight up fraud. They may not be big fish, but if it’s a question of resources, I’d rather see them prosecuted than somebody shoplifting from the local 7-11.

          Also, the title of this article is just perfect.

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      • The problem is that while natural people don’t like artificial people, when it comes time to bring a criminal prosecution, juries don’t like to convict the type of real people that get indicted, people at the bottom of the corporate pyramid like themselves. At least that was one of the explanations a lawyer involved in prosecuting bank fraud after the Great Recession gave based upon post-trial jury interviews.

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        • This is why a RICO-like act for corporations is needed. Have you as a corporate officer created an environment in which criminality flourishes? Then you’re paying a fine equivalent to N times your yearly compensation and you’re going away for a few years.

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    • 2. Ban commission based salaries and bonuses for bank employees.

      That seems reasonable, or at least something that should be discussed, if you’re talking about bank tellers and customer service reps. For new accounts reps, who seem to straddle the line between CSR and the “retail” side of banking, I’m not so sure. For loan officers, I’m less sure.

      This is just anecdotal, but I’ll say I’ve noticed some banks have tried to get by with fewer employees, but making those employees more and more responsible for both the CSR and retail aspects of banking.

      Perhaps it wouldn’t be a bad thing to have such a ban in effect, but if we do it, we might wish to distinguish between the CSR and operations side and the retail side on another. I’m not sure what the distinction would look like in practice, though.

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  5. I once had a Wells Fargo rep try to push a debit card on me. I had a 15 min discussion on why I did not need one (the credit card if payed off every month works as well with more consumer protections). Then he tried the try to cash a check at an out of town branch, and I told him that if they would not cash my check with my passport, clearly I would have to find another bank. He finally shut up. This explains why he would not take no for an answer.
    But the piece demonstrates that one should monitor the mail, and if unexpected things show up, file an ID theft report (for that is what it was).

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  6. I seem to recall a sometime member of our community finding seemingly infinite and highly amusingways to verify his oeuvre, which is that people respond to incentives, especially the perverse ones. Or, stated as Mankiw’s Fourth Principle: “People Respond to Incentives. Behavior changes when costs or benefits change.”

    Here’s a situation where the benefit of submitting “X” number of these transactions earns a reward, and submitting fewer than “X” number of these transactions earns a punishment. There is no requirement that the transactions be either successful or honest — and therefore there is no price for submitting failed or dishonest transactions.

    That could be solved if the corporation were sincere about its elaborate and beautifully-written statement of ethics. Sincerity is demonstrated by not just handing a twenty-four page pamphlet to new hires and making them sign a form acknowledging that they have received and read it, and not even really by having a once-a-year online inservice lesson taught by an online teleconference. It’s demonstrated by managers turning down work that is not ethical in ways that their subordinates can see. It’s demonstrated by rewarding examples of good ethics when they are demonstrated by a subordinate, even if someone else might characterizing that as “rewarding people for doing their jobs.” It’s demonstrated perhaps less pleasantly by punishing examples of bad ethics, but that’s only effective if it’s done before third parties with the capability to punish get involved.

    If punishment is only imposed after regulators or law enforcement call for it, then the employees will quickly discern that the real code of ethics is “Don’t let yourself get caught.”

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  7. Hey, good for the CFPB! A federal government agency doing its job on behalf of consumers who would never be able to hire the lawyers needed to force Wells Fargo to change its practices!

    Go, Sen. Warren, go!

    (there, that should make a couple of the libertarians here a little cranky on a Friday afternoon.)

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    • Come on, all these millions of people had to do was simply each hire their own lawyer at their own expense, individually sue Wells Fargo, and hope their lawyer was better than Wells Fargo lawyers. See, no reason for this silly regulation!

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    • There’s nothing illibertarian per se about government protecting the public it represents. No police at all is the anarchists utopia, not the libertarians. A federal government agency doing its job on behalf of consumers who would never be able to hire the lawyers needed to force [corporation] to change its [fraudulent] practices seems a lot more legitimate from this libertarians view than, say, a federal government agency doing its job on behalf of corporations by confiscating raisins from the farmers who grow them.

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    • Actually I think libertarians are entirely OK with people seeing what it looks like when the government actually puts the hammer down on financial industry malfeasance. When they really put the screws to those thieving, lying, cheating bastards, nail them right to the wall.

      And, y’know, what happens is that thousands and thousands of middle-class people will never have a really good job again, ever, for the rest of their lives. But that’s worth it, right? It’s worth it, to show the banks that they can’t just get away with stuff, right?

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  8. Look, Wells Fargo was fined more than $100 per person for setting up fraudulent accounts(1) in its customer’s names.

    $100 per offense! That’s huge!

    I mean, I got caught committing forging checks yesterday and I just got a $100 ticket. Right? That’s the punishment for check forgery, right?

    Wait, no, I was confused, that was minimum penalty for parking in handicap space. The penalty for forging checks is actually jailtime. Meanwhile, the penalty for your bank illegally moving your money out of your actual bank account into a new one….which normal people would call ‘theft’, even if they put the money back later…is, uh….apparently smaller than the fine for not having enough handicapped parking spaces, which is $150 a space. (He says, randomly having that law still open.)

    Yes, that’s what’s being a bit ignored here. Well Fargo people weren’t just opening new accounts…you can’t open an empty account at a bank! They were opening accounts and *illegally transferring that person’s money into it to meet the minimum balance*…and then later would close it and transfer the money back out.

    This, of course, could lead to all sorts of problems. In addition to the obvious ‘Get an overdraft’ and ‘Possibly be under the min balance of your original account and have to pay a fee for that’, there are less obvious problems of having random bank accounts in your name that you don’t know about.

    For example, your credit. And I bet dozens of people got smacked, hard, by a judge during a divorce or bankruptcy, for ‘hiding’ a bank account when listing their assets.

    1) Let’s not do the ‘They merely set up things where employees had incentives to do it, it wasn’t actually policy’ excuse.

    Wells Fargo is a fictional person, where all ‘their’ actions are the actions of the employees…that means their employees actions *are* the actions of Wells Fargo. Yes, an employee suddenly pulls out a gun, grabs the contents of his drawer, robs customers, and flees, fine, we understand that’s not Wells Fargo.

    But when Wells Fargo employees do something over a million times…that *is* Wells Fargo’s actions, period, end of story. We can debate some boundary conditions, sure, whether or not an employee’s actions should ‘count’…but this isn’t anywhere near the boundary.

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    • Yup, imagine how certain groups would react if it came out that thousands of government employees used personal info in this way. Somehow, I don’t think Obama would be let off the hook even if he or none of the people he speaks too had any knowledge of it.

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    • Ok, but just saying so doesn’t make it true. I’m perfectly open to a claim that Wells Fargo did it intentionally but it’d help a lot if we can point out how doing this benefited Wells Fargo in general. Because all I see for the company is downsides.

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      • For sake of arguement lets say wells lost money in this criminal enterprise. When did making money become the standard to which we determine the punishment?

        Customers got screwed. Kill corporations that hurt their own customers.

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      • I don’t know if I can prove it benefited them to *your* satisfaction…but I can pretty easily prove they knew about it, which rather proves it benefited them *somehow* or they wouldn’t have allowed it to continue so long.

        Wells Fargo want a lot of new business, so much so they set up specific incentives and rules to get new business from existing customers. This is a very specific corporate goal of theirs, right?

        So, for them to be unaware of what was going on, either:

        1) They didn’t actually have any people in charge of this corporate goal? Like, there wasn’t a VP whose job that was? And entire group of people? They just created these incentives at, like, a CEO-level meeting and just let them run? No monitoring?

        or:

        2) There were people monitoring these things, but they are *grossly incompetent* and instead somehow looking at a large spreadsheet that shows new accounts but *doesn’t* show the total number of accounts? Like, they just didn’t *notice* that their goal of ‘new customers opening existing accounts’ was being completely undone by those same customers immediately closing those accounts?

        Seriously, there’s incompetence, and there’s *literally inconceivable* incompetence.

        If this had just been some small scale thing, sure, I can see not noticing it.

        But considering it was literally such an important corporate goal that employees basically had *quotas*, I don’t understand why anyone wouldn’t understand there was some group, somewhere, sitting in corporate HQ presumably keeping pretty tight track of this…and right there next to ‘newly opened accounts’ would be ‘newly closed accounts’, and it’s not even *hypothetically* possibly they didn’t notice that those had skyrocketed, and the slightest bit of analysis would show that most of those newly closed accounts *were* the newly opened accounts!

        (And, hell, if they thought that those were *legitimately* opened and closed accounts, that’s actually worse! It would mean their staff is engaged in such high pressure selling that their existing customers are getting forced into accounts they don’t want and immediately get rid of, which is a nice way to lose them as any sort of customers!)

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        • I don’t find that level of incompetence inconceivable at all. The large companies I’ve worked for have almost all been completely inept at both choosing and measuring metrics. In choosing them, they almost always created bad incentives (just like these) and measuring them was often done poorly. The manager requesting the metrics rarely knows how they’re gathered and the people gathering them often don’t think it’s a particularly important part of their jobs, and I’ve never known there to be any third party auditing of any performance metrics at all.

          I can totally see “number of new accounts per month” being the only database query run by some database guy who was told that they need to measure new account creation, and I can absolutely see somebody at the VP level thinking that was the metric that mattered and assuming it wasn’t churn from phantom accounts being opened and closed. The whole story feels just about right.

          The opposite story–one of executives who are competent enough to know those metrics and cynically exploit them but not competent enough to know that it’s a stupid scheme to run–seems much harder to believe.

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          • In choosing them, they almost always created bad incentives (just like these) and measuring them was often done poorly. The manager requesting the metrics rarely knows how they’re gathered and the people gathering them often don’t think it’s a particularly important part of their jobs, and I’ve never known there to be any third party auditing of any performance metrics at all.

            Yes, but this requires a level of coincidence that I can’t see, especially since a much more logical way to state the *bank’s* goal is ‘total number of accounts’.

            And, in fact…uh, shouldn’t a large number of account closures have triggered alarm bells *somewhere else* in the company?

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          • While I’m not a banker, I can’t imagine they don’t have — and closely track — metrics that include “Average length of time an account is open”.

            That seems like important bank information, and a million accounts open only a few days should have caused really noticeable downward ticks.

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              • I was unclear. A million accounts whose average open length was a few days should have dropped that metric, the same with credit cards and debit cards.

                Turnover like that in those numbers (average account length less than say, two days, and instantly canceled credit cards) should have raised flags everywhere and noticeably impacted the sorts of “Are we retaining customers” metrics every large business uses.

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        • Your credulity in this suggests you haven’t worked for large corporations. Like you actually think they can’t set up really stupidly thought out incentives or they know better than the front line employees, who do that kind of work every fishing day, how to detect if accounts are being opened using cloned info or not. Really you’re approaching it with an inadequate level of cynicism in my opinion.

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      • Because all I see for the company is downsides.

        Yeah, well, it was all downside for Brock Turner too, wasn’t it? He didn’t even have the chance to get his rocks off before the bicyclists intervened.

        This seems like a similar situation where the only counterpoint available to the perpetrators light sentence relative to equivalent behavior in others is to focus on collateral downsides.

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      • Wells Fargo did it intentionally

        I don’t even know what that would mean. Corporate personhood is a legal fiction, not a psychological truth. Should we conclude from the fact that this was an illegal act that didn’t benefit WF that WF is not guilty by reason of insanity?

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        • Well intentionally would be to suggest that their managerial cohorts intentionally set insane goals and knowingly turned their back to the fraud being perpetuated with a wink. That doing so was fishing them over and earning them no real benefits strikes me as a strong argument that this was stupidity rather than intentional malice.

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          • That doing so was fishing them over and earning them no real benefits strikes me as a strong argument that this was stupidity rather than intentional malice.

            You know, people, the actual problem here is we’re treating things as if Wells Fargo can have goals and desires. Which we’ve further confused with *intent*.

            But that’s not how intent works in the law. Intent is not normally something we debate *inside a person*. You can’t say ‘I didn’t intend to steal that money, but my hand disobeyed orders and took it anyway.’

            And, yes, technically there are times when a person’s body *can* be out of control of himself. If someone starts having a seizure on stairs and knocks someone else down the stairs…that’s not assault. But this is *extremely* rare, and usually really obvious. (Bodies that are not being controlled by a brain find it difficult to commit most crimes.)

            And there’s various disassociative disorders, but the question there is more ‘Is it fair to punish someone for something they cannot remember, for something done by some other version of them?’…and the answer often is ‘No, it’s not…but this person is, right now, not in control of their actions and a danger to others, so we should probably involuntarily commit them’, which seems correct.

            And with all that put together, probably less than one out of a million court cases hinge on ‘Did this mind actually intend to direct their body to do the crime?’.

            Meanwhile, it seems that is *all* we discuss when talking about culpability for fictional people. ‘Oh, look, a corporation committed a crime, let’s figure out how much of the blame management holds, so we know the extent of the corporation’s guilt’. Aka, ‘To what extent did their mind direct their body to do it?’

            Newsflash: Wells Fargo is *fictional*. Fictional people do not have minds or bodies.

            Wells Fargo is not some man in a suit. ‘Wells Fargo’ is merely an agreement that society will treat certain people as a single legal person.

            It’s not an agreement that we will treat their management as brains and their employees as arms, and then get mired down in endless discussions if the brains directed the arms to do something and what level of intent that is.

            Wells Fargo does not have intent. It *cannot* have intent. It cannot have any intent whatsoever. The *management* can try to make people under them operate in specific ways, but that doesn’t mean *Wells Fargo* is trying to do something.

            Wells Fargo’s intent is not magically contained solely in the management of Wells Fargo. If it *has* intent, it is the intent of all its employees (Just like its actions are the actions of all employees.)…but it’s probably best to just go with the idea it doesn’t have intent.

            Wells Fargo is merely the sum of its parts. The actions of Wells Fargo are merely everything that everyone employed by Wells Fargo does while wearing the hat of Wells Fargo.

            That is all Wells Fargo is, and that is all we should judge it on. Not what it was ‘trying’ to do, because fictional people cannot ‘try’ to do anything.

            There is no try, with corporations. Only do.

            And I think the *myth* that corporations have some sort of volition, that we should judge them harsher for things they ‘deliberately’ do vs. things they ‘accidentally’ do, is quite possibly one of the most harmful concepts we’ve ever come up with in society. Because it is *incredibly* easy to game.

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            • Now, obviously, when I’m talking about here is *internal* intent.

              I’m saying ‘We really need to stop pretending that corporations can ‘want’ to do something other than what they actually did.’

              We don’t let actual humans argue that unless they have a demonstrable medical condition, I don’t know why we should let corporations argue it. (Unless corporations wish to declare themselves mentally incompetent!)

              There is still eternal intent, like ‘When the corporation did X, what results did they expect X to have?’.

              I’m just saying we need to stop arguing ‘Did they even ‘intend’ to do X, or did they just somehow do that without any volition on their part?’, which is, frankly, a *really* stupid discussion to keep having.

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                • Was it Enron where the CEO’s defense was essentially, “I’m too incompetent to understand what those guys were doing”?

                  Yeah, and I always thought the response to that should have been:

                  ‘Enron, as a corporate entity, has just declared that it mentally incompetent and is hereby determined to be a ward of the state.’

                  But, seriously, guys, it seems like we’ve all fallen for a huge scam, where we have to figure out how much corporations ‘wanted’ (Which we’ve defined as official orders from the top) to do what they literally did.

                  Because we have gotten really confused as to what ‘intent’ means.

                  With actual humans, it is almost *impossible* to argue that your body did something your mind did not intend, unless your body was literally completely out of your control at the time.

                  But somehow, the burden of proof ended up in the place with corporations. Somehow, it has to been proven that that higher-ups *did* know about it.

                  Now, obviously this is true to *individually charge* high-ups with a crime. I’m not suggesting changing the burden of proof for people.

                  But if people operating as a corporation committed crimes, and ‘the corporation’ wants to claim those people were doing things it didn’t approve of, it should have to prove that, just like humans have to prove their bodies were doing things without their permission. This should be pretty easy when the corporation reacted in horror, apologized, and immediately changed things…and pretty damn hard when it reacted how Wells Fargo did, with some haphazard firings.

                  If it *can’t* prove that, it’s something *the corporation* did. Not a few workers. The *corporation* did it.

                  Or, to put it another way: Wells Fargo opened fraudulent accounts to bilk customers out of money. Not ‘Wells Fargo employees’…Wells Fargo, the corporate entity, did that.

                  And that’s what the headlines need to say.

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                  • I think that’s a good distillation of the problem and it handles my objections pretty well.

                    Did low level Wells Fargo employees engage in criminal activities that warrant criminal penalties against them as individuals? Yes.

                    Did “Wells Fargo” the corporate entity defraud its customers? Yes.

                    Does that behavior warrant hefty fines/sanctions against Wells Fargo the corporation? Sure.

                    Did Wells Fargo upper management engage in systematic criminal activities that warrant criminal penalties against them individually? Almost certainly not provably, and probably not at all.

                    Does upper management deserve the blame? Yes. Hopefully the sanctions against the corporation and the terrible press it’s getting do the trick. Heads rolling, policies changing, etc.

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            • “Wells Fargo is merely the sum of its parts. The actions of Wells Fargo are merely everything that everyone employed by Wells Fargo does while wearing the hat of Wells Fargo.”

              And therefore, your honor, the management of Hobby Lobby is well within its rights to cite the RFRA in claiming exception to the PPACA requirements, and to refuse to cover contraceptives in the healthcare plan it offers to its employees.

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              • I don’t know why I say things that are true *by definition*, and you think it proves something in some other circumstances.

                Corporate actions *really are* the sum of actions of employees.

                In fact, my objection to a corporation being supposed to have ‘intent’, which resides solely in management, is almost, but not exactly, the *same* as the objection that a corporation has a religious belief that resides in management.

                I’m not going to say they’re *exactly* the same thing, but it’s actually pretty damn close to the same problem. Corporations that, for *legal purposes*, claim to have specific thoughts, and that those *thoughts* can be use to justify certain behavior under the law.

                There are a lot of laws and rules that privilege human thought. The entire concept of intent is one of them. Religious freedom is one of them. Privacy is yet another. Being compelled to testify against yourself is another.

                And then somehow corporations became people, and starting trying to assert *they* had thoughts, and thus qualified for all these exceptions.

                But in reality, corporations do not have independent thought of any sort. At all. They should not get *any* of the privileges we grant to people *based* on independent thought.

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                • “I don’t know why I say things that are true *by definition*, and you think it proves something in some other circumstances.”

                  We heard many many many many many times, during the whole Hobby Lobby unpleasantness, that a corporation is a separate entity from the people involved and therefore those people had no standing to claim that their personal morality could be affected by the corporation’s actions (or by those that it was compelled to take by the government).

                  In fact it’s a line of argument that you yourself put forth.

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                  • Yes, and I am completely baffled as to why you think that somehow is in opposition to my claim that a *corporation’s* action should be determined solely by what people working for them actually do.

                    Those are, in fact, almost the same positions! Thanks for pointing that out! I hadn’t even noticed my problem with corporate RFRAs was *also* part of the reason that corporations got away with criminal acts.

                    Back then I said that management having beliefs doesn’t make the corporation have beliefs.

                    Now I say that management having intent doesn’t mean the corporation had intent….although my point is framed the other way, saying that management *lacking* intent doesn’t mean the corporation *lacked* intent.

                    Because intent (and beliefs) are not a thing that exists in the context of a corporation.

                    The thoughts (Or even actions) of management are *not* the same as the thoughts of the corporation. Corporations do not have thoughts, and there is no point in the law we should allow them to claim such a thing. They do not have intents (And thus cannot *lack* intent if the law requires intent), they do not have religious beliefs, they do not have favorite bands or secret crushes on Mark that everyone knows about.

                    They should be judged solely by the actions of people working for them. Aka, by ‘their’ actions.

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                    • In that case I’m not sure what you’re even trying to argue, because you seem really hung up on telling us that a corporation is a separate entity from its employees…and that the things done by The Corporation are entirely separate and distinct from things done by the employees…but that the people who work at Wells Fargo are still responsible for the actions they took on behalf of Wells Fargo Inc, and the people who work at Hobby Lobby are not.

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                      • In that case I’m not sure what you’re even trying to argue, because you seem really hung up on telling us that a corporation is a separate entity from its employees

                        Actually, in the Hobby Lobby discussion, my point was they were a separate entity from their *owners* and their *board*, not their employees.

                        They *are* a separate entity from their employees, too, but that wasn’t my point.

                        …and that the things done by The Corporation are entirely separate and distinct from things done by the employees…

                        Uh, no. Corporations literally cannot do anything at all without the actions of their employees. That is what a corporation does…the sum total of its employee actions.

                        Everything a corporate employee does is the responsibility of two people…the person, and the corporate entity they’re working for.

                        But I an honestly baffled here. I am not sure if you’re playing dumb or trying to prove something about how I’m changing my point, but the problem is…I’m not.

                        Really, really not.

                        My point, over in the Hobby Lobby discussion, was that corporations are separate legal entities, and do not have the religious beliefs of their owners or board, because they do not have religious beliefs, as they are inhuman. We need to stop pretending the religious beliefs of the owners are the religious beliefs of the corporation. There is no religious beliefs.

                        My point, *here*, is that corporations, as separate legal entities, do not have the ‘intent’ of management, because they do not have intent at all, because they are inhuman. We need to stop pretending the intent of the management is the intent of the corporation. There is no intent.

                        It’s the same damn thing, almost. It’s letting a corporation get away with using parts of the law designed for *human beings*, containing attributes that corporations literally do not have, but they somehow claim they do.

                        but that the people who work at Wells Fargo are still responsible for the actions they took on behalf of Wells Fargo Inc, and the people who work at Hobby Lobby are not.

                        Erm, I haven’t argued *either* of those positions. At all!

                        I have argued that *Wells Fargo*, as the corporate entity, is responsible for the actions that Wells Fargo employees did. (That’s true for Hobby Lobby, also, but I’m completely baffled as to how that is relevant to anything in the Hobby Lobby case.)

                        That’s me pointing out the responsibility of the *corporate entity* for the actions of their own employees.

                        I have stated no opinion on the responsibility of the people who work at Well Fargo. I would, frankly, much rather see them cut deals to turn on their managers…but we’re not going to see arrests at all, because arrests would give them the right to discovery, and discovery would show the entire management was in on it.

                        And I have no idea what the people who work at Hobby Lobby would even be responsible for!

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                        • “Everything a corporate employee does is the responsibility of two people…the person, and the corporate entity they’re working for.”

                          and then…

                          “We need to stop pretending the religious beliefs of the owners are the religious beliefs of the corporation.”

                          Make up. Your FUCKING. MIND.

                          Either the employees are responsible for their actions or they aren’t.

                          If they are, then taking actions that are immoral means they’re responsible for that immoral behavior. And, per the RFRA, religious belief is a valid source of moral framework for persons subject to Federal law. It doesn’t matter what “the corporation believes” or how “corporations can’t have beliefs” because it isn’t “the corporation” doing anything, it’s individual employees who need to take personal responsibility for their actions.

                          And if they aren’t, then none of the Wells Fargo people can be held to any personal judgements of immorality, because it was all just part of the job and the only really immoral entity was Wells Fargo Inc.

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                          • Either the employees are responsible for their actions or they aren’t.

                            I have pointed out several times that ‘responsibility of employees’ literally has *nothing* to do with Hobby Lobby.

                            Hobby Lobby’s *employees* did not get in trouble with the government. And they did not sue the government.

                            I am perfectly fine with Hobby Lobby *employees* not having to do things that violated their religious beliefs. That’s actually part of anti-discrimination law, not the RFRA. They can request a religious accommodation. (If the corporation meets certain thresholds, and I believe Hobby Lobby would.)

                            If *that* was the situation, if the employee in charge of buying insurance had requested a religious accommodation, this would mean that Hobby Lobby, as a corporate entity, needs to get *other employees* to do those legally-required things.

                            But that *wasn’t* the situation. Hobby Lobby, *itself*, sued, because it, *itself*, claimed it had the same religious beliefs as its owners. The *corporate entity* and the owners did not want to follow the law, not specific employees.

                            I keep saying that, but you seem to be unable to grasp it. Nothing about Hobby Lobby involved employees desires whatsoever. The suit was by the corporation and the owners, for them to not have to *tell employees* to follow the law. (Or, I guess, for them to explicitly tell employee *not* to follow the law, because I’m pretty sure a bunch of accountants you tell to get insurance would sorta automatically follow the law on buying compliant insurance…or not even bother do that, considering that all insurance sold included the mandated contraceptive stuff, they wouldn’t even ‘know’ they were following the law.)

                            If they are, then taking actions that are immoral means they’re responsible for that immoral behavior.

                            You’re trying to turn my statement of *legal* responsibility into *moral* responsibility. I have said nothing about moral responsibility at all.

                            Corporations cannot have moral responsibility for anything, but, more to the point, responsibility does not even work that way.

                            People who break the law are *always* responsible for breaking the law, and can be charged with that.

                            Corporations who get employees to take illegal actions are *additionally* responsible for breaking the law, and can be charged with that. If you want an analogy, a corporation that encourages or even allow lawlessness because it helps the corporation is a *criminal conspiracy*…but it’s one that is a fictional person, and thus can actually be charged with a crime.

                            Yes, there are thresholds and assumptions of culpability, like I said if some bank employee randomly pulls out a gun and starts shooting up customers before robbing the place, I’m not going to assume that’s Wells Fargo’s fault…

                            …but in these circumstances, I’m insisting that Wells Fargo is way, way, way past any legal threshold. This is something they were specifically monitoring! There is no way in hell they didn’t know it was happening!

                            Meanwhile, responsibility in the *moral* sense is completely unrelated to the law.

                            If corporate owners are not happy with a *legally-mandated* behavior of a corporation, and think it’s immoral, and think by owing part of the corporation they are responsibly for that thing, they…probably shouldn’t own part of that corporation. No one *made* them do that.

                            Oh, and if *that’s* something we actually should care about, I feel I must point out that *millions* of people have money in pension plans that they cannot change, and are often even *government operated*…and those plans are invested invest in all sorts of morally-dubious corporations, doing morally-dubious things that actually *aren’t* required by law. (I.e., they’re behaving immorally *voluntarily*, instead of doing it under threat of law.)

                            Meanwhile, the Hobby Lobby owners could have, *at any time*, sold the corporation and walked away with billions.

                            I guess it’s only the *rich* people who can demand the right to have the *separate legal entity* that their money is in behave however they want it to, even if such behavior is in violation of the law. Everyone else just has to put up with it.

                            And, per the RFRA, religious belief is a valid source of moral framework for persons subject to Federal law. It doesn’t matter what “the corporation believes” or how “corporations can’t have beliefs” because it isn’t “the corporation” doing anything, it’s individual employees who need to take personal responsibility for their actions.

                            If it doesn’t matter what the corporation believes, you realize that Hobby Lobby’s case literally makes no sense at all, right? Because that case was literally about *what Hobby Lobby*, as a corporate entity, believed!

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          • Seems to me DavidTC has a strong counterpoint that all this continued to go on while WF management has been busy firing 5300 people over the last 5 years for exactly the fraudulent behaviors they’ve been fined for allowing to continue for so long (proving that they were unable to catch and release enough rouge agents to prevent mass fraud and its fallout). Worse, there’s no indication afaict that they have any inclination to manage things anything differently going forward. Again, DavidTC offers the counterpoint that top management can indeed benefit despite the appearance of fishing themselves over in the process.

            I concur on the stupidity and even lack of intentional malice (up to a point), but I’m not buying the Colonel Klink defense. WF management knew or should have known about the scale of the problem and their failure to effectively manage it a long time ago, and they certainly can’t claim they don’t know now. However insane continuing these policies may look to you or me, intentionality cannot be denied past the point of know return.

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            • Well heck I’m fine with that and I’m pleased as punch that they got busted and fined. It’s pretty obvious from their behavior, as you and DavidTC outlined, that they were in one of those stupid places companies get where they were pounding a nail through their foot and firing the hand doing the pounding over and over again. Presumably the public debacle is the kick in the head they need to give up on the dumb assumptions that were at the core of the mess in the first place.

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              • I agree completely, but it seems the kick in the head hasn’t made the Wells Fargo CEO any smarter yet. De Nile ain’t just a river in Africa.

                But Mr. Stumpf, in an interview with The Wall Street Journal, wouldn’t comment on who was ultimately responsible for the practices and sales-driven culture that led employees to open as many as two million accounts without customers’ knowledge. Mr. Stumpf said that at the bank, “There was no incentive to do bad things.”

                Rather, Mr. Stumpf appeared to lay blame for the problems with the employees involved than with any flaw in Wells Fargo’s systems or culture. He said that some employees won’t “honor” the bank’s culture and that the bank had changed its sales goals to put in more discipline and to take “more risk off the table.”

                But wait! They say they’ll fix what they’re blaming on “some team member” right away pronto — next January — it’s THAT important!

                As part of trying to move forward, the bank earlier Tuesday said it planned to eliminate all product sales goals in its retail banking operations starting in January.

                “We think to the extent that some team member used a sales goal as a motivation to do something that is inconsistent with our culture is just not worth it,” Mr. Stumpf said. “We’re taking it off the table.”

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                • I wouldn’t necessarily use public statements as the marker of whether the lesson has been learned. If he said, “We gave employees the incentive to commit fraud,” it would play well to people like us and also bite him hard in the ass if the feds decide to take the case to court.

                  “He already admitted that he encouraged the fraud. The only decision the court needs to make is which laws that violates and how stiff the punishment should be.”

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                  • I wouldn’t expect any CEO to incriminate himself. I’m saying that a wise CEO of a financial institution would understand that blame-shifting fraud against their own customers on a massive scale to low-level employees and “some team member” is going to be counterproductive in the extreme in their efforts to regain the faith and trust of current and potential customers absolutely essential to any fiduciary business. They’re not just shooting themselves in the foot again here, they’re now aiming for the heart and shooting again.

                    A wiser CEO would face publicly known facts, admit “mistakes were made”, emphasize their cooperation with authorities and acceptance of their fine, and by now, after years of investigation, be able to show how they have taken action to address those mistakes in ways designed to restore essential public faith in their management of fiduciary responsibilities.

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    • Actually, everyone:

      We’ve been operating under bad information.

      Remember those 5,300 people Wells Fargo fired for doing this?

      They fired those people over THE LAST FIVE YEARS.

      Yes, Wells Fargo knew their employees were doing this over the last five years, and bluntly admitted it.

      And they didn’t bother changing any incentives at all, or doing anything about this, except sometimes firing people when customers complained about imaginary accounts.

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        • I second ‘s response to that, and then turn your statement around:

          Firing a thousand people per year, for five years, for doing things the wrong way indicates incentives for that thing hadn’t changed much over those years.

          Although let’s be clear here: It wasn’t actually 1000 a year. The thing appears to have run for *three years*, and then mostly shut down.

          http://www.charlotteobserver.com/news/business/banking/article100888147.html

          ‘The workers were terminated between January 2011 and March 2016, with the number of firings declining since 2013’

          So it looks like, to some extent, they managed to *mostly* stop this activity by 2014. I was going to say ‘to their credit’, but before I give them any ‘credit’ for that, I want to know when the CFPB started investigating and when the bank realized that.

          So it turns out they were able to change incentives for that…after firing (let’s say) 4000 people for illegal activities over three years, they *finally* realized they had a problem that needed fixing, in the *best* interpretation of their behavior. (In the worse interpretation, they realized they were under investigation.)

          So I guess the actual question is: Is there *any* threshold of supposedly ‘independent’ and ‘unauthorized’ illegal behavior by employees that means we are willing to look at a corporation and say ‘You have *way* too many examples of that to claim it’s renegade behavior. You *clearly* have constructed a corporate environment that results in this?’

          Because, right now, it seems we don’t.

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          • I am starting to think corporations need rules like the Navy does. If your org is found guilty of bad behavior[1], then the chain of command gets cleaned out in some fashion, whether they knew about it or not.

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            • I can’t see it happening, though. Corporations are in the sweet spot of having rights [1] without responsibilities [2], and are not going to give that up without a huge fight that their status as huge campaign donors [3] makes them the favorite to win.

              1. Freedom of speech and now religion
              2. Like, to obey the law.
              3. There’s that “freedom of speech” again.

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              • On [2], at least penalties severe enough that they can’t be regarded as “just a cost of doing business”.

                Many years ago, the Minnesota PUC issued requirements that all calls to the local phone company’s trouble-reporting line be answered by a properly-trained human within X seconds, where X was pretty damned small. Fines to be paid on the difference Y-X, where Y was the number actually achieved. The cost to staff the line to achieve X was… large. The optimization problem to solve for the value of Y that minimized the combined staffing costs and fines landed on my desk at Bell Labs.

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            • What we need to do is stop imagining that corporations have some sort of internal desires that can vary from their actual action. At all. We don’t allow that for *actual* humans, why are we allowing it for corporations?

              See this

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              • Sure, agree, but that doesn’t address the issue that corporate execs are skilled at insulating themselves from responsibility (as are leaders from all manner of organizations both public & private). What I’m saying is there is no dodging it. I mean, it’s one thing if a single employee does a bad thing, but if there is a clear pattern of behavior that can be linked to institutional climate or culture, then management & C-suite start finding themselves unemployed, because the buck has to stop somewhere, and for too long the attitude has been “well, it stops somewhere below me…”

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    • …Also: worked for them as a doc-review/data-entry temp briefly (not in the consumer banking side – indeed in a whole different entity). It was horrific.

      (Though have a friend who works in the downtown Mpls bank headquarters. (Pretty sure he would have had nothing to do with this.) And by all indications it’s helped him build a wonderful life in the Twin Cities.)

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  9. This story may be about to blow up pretty big.

    On an episode of my favorite issue/human interest radio show, On Point with Tom Ashbrook (plug!), on this topic Thursday, a listener called in (at 32:10) who said that she is an attorney who represented a former Wells Fargo employee who was fired – not for participating in the fraud (like the five thousand others were), but for reporting it up the chain within the company, or trying to. (!) Yeah. That’s a BFD. Beyond this already being a BFD. The employee (if telling the truth, rightly) sued, but settled with a gag order. But I imagine that there are others who were similarly treated, and now they have less reason to settle (perhaps) and quite possibly more support to sustain lawsuits that won’t need to be settled, or if they are settled, settled without gag orders as tight as this one.

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    • You know, we can all sit here and pretend that Wells Fargo’s version of event is true, but we all know it’s not. There is simply no way that a corporation, especially not a corporation that over-analysis everything its employees do, has to keep firing people for this. It cannot make any sense.

      As we all probably suspect, the supposed 5300 employees that were fired for this were, in fact, probably fired for *complaining* about this, or not understanding how to do this right, or overdoing it.

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      • Or were just fired in general, or even just laid off, and Wells Fargo is not claiming they were fired for this. 5000 fired employees for this cause looks proactive.

        5000 employees fired or laid off over three years in general is…less so.

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      • Nah, I don’t think it was for complaining about it. I think it was for getting caught doing it. Caught not by the internal audits that didn’t exist, but by customers who checked their accounts at the wrong (or right) time.

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        • It should be noted the CFPB discovered or at least had a big part in uncovering this. That agency trumps wants to get rid of and R’s have been trying to eliminate or handicap. Will the press ask Trumpy about it or will it become a campaign issue: Probably no and maybe

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        • Ah, yeah, that’s a possibility too.

          Although I think it’s probably not just ‘customers who checked their accounts at the wrong (or right) time’ but ‘customers who checked their accounts at the wrong (or right) time and had also interacted in some manner with lawyers or law enforcement or bank regulators’.

          I.e., I bet that if Wells Fargo could pass it off as an error, they did. If it looked like they wouldn’t be able to, well, they’d fire that guy, claim he just did it randomly for no real reason.

          I really hope we start getting customers coming forward talking about how they found extra accounts of theirs in 2014 or so (Long after Wells Fargo had supposedly started firing people for this) and the bank said it was a *mistake* and refunded any fees.

          I wonder if that’s even legal. If you show up worried about activity on your account, and the bank *knows* it’s fraudulent, and done by their employees, but claims otherwise…

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      • Oh, hilariously, check out the article’s exact words: Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees related to the shady behavior.

        ‘related to the shady behavior’

        Not ‘committed the shady behavior’.

        Just ‘related to’. Those employees had *something* to do with this behavior. Vaguely. Somehow.

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  10. Without getting into the weeds and getting into an extended discussion about the strong disagreements I have with some of the above, especially the corporate finance-related stuff, I’ll leave it at this…

    This is too widespread and too systemic for me not to compare this to what happened at Countrywide during the subprime years. WF’s reputation for successfully cross-selling it’s products (now we know why) was very well-known to the point of it being part of the company’s corporate identity, much like Countrywide’s “success” in the subprime space. This isn’t a handful of mortgage bond traders in a much larger operation, where there’s a greater possibility of not knowing what’s going on the farther up the chain.

    The big question is what’s the biggest fish to catch and what’s used to do it? If Angelo Mozilo’s case is a barometer, it’s probably unsatisfactory. Mozilo settled on civil fraud charges. Apparently, the DOJ didn’t think they had a strong enough criminal case to prosecute. Same goes for the DOJ’s case against S&P.

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    • I would suspect that, among other things, the law as written probably didn’t anticipate (and thus is not written) for corporate malfeasance like this.

      “We should throw them in jail” is rather hard, unless the board went truly crazy. It doesn’t take much to protect themselves from such things, to make it almost impossible to win a conviction.

      We can punish the “company”, but the managerial actors are heavily shielded. Which makes deterrence a real problem in a corporate world where you can fail out of your CEO job with a 7 figure parachute and into a new one with even better pay.

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      • The foundations of modern securities law were passed in 1933 and 1934, respectively, and while there have been large-scale attempts to bring the regulatory framework in line with the era of the large, modern multi-nationals (Sarbanes-Oxley, Dodd-Frank), the companies will always be ahead of the game.

        I am probably to the point where I’m becoming a more vocal advocate of revising the fraud statutes to place criminal liability on the executive officers of a company in situations like this. You’re right. Now, for a criminal fraud prosecution, you need to show beyond a reasonable doubt that it was orchestrated at the top. Take the high standard of proof and throw the complexities of the banking/finance business in the faces of an overwhelmed jury and the chances of a conviction are near zero (see the Bear Stearns case).

        I think it’s impossible to hold the C-Suite accountable for every bad act of an employee, even illegal ones, but using that as an excuse not to address this issue is reckless. I’ve come around to @mike-schilling’s idea of a RICO-type statute so long as the trigger is reasonable. Something like Wells Fargo? Yes, I wouldn’t object. A rogue trader? Probably not.

        I also think that it should be mandatory for compensation policies not place employees in a potential conflict position with its customers. Why retail bankers aren’t treated as fiduciaries and regulated accordingly is beyond me.

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        • Same reason investment advisers weren’t. (I think that just changed?).

          They want to put their own profit ahead of the customer’s best interest.

          And they get away with it because they have an awful lot of money, and the public (as with investment advisers) thinks they are fiduciaries (not in those terms, but in the sense that bankers are supposed to put the client’s interest first).

          But yeah, I’d start with fiduciary changes myself, looking to require it in places where the public already believes it (or forcing disclosure, at least) and see where that takes us.

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          • I’d have to go back to my days of studying for the Series 7, but I thought that investment advisors had to register per the Investment Advisers Act of 1940. I thought they were fiduciaries as well. There’s a lot I may not remember and I could also have a few regulations mixed up. I think investment advisers to the public pension funds are fiduciaries due to ERISA, but again, don’t hold me to any of this.

            There’s no reason not to force fiduciary relationships, especially when the results are fewer potential conflicts of interest and increased transparency, both of which should be part of the backbone of any good financial regulation.

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        • Now, for a criminal fraud prosecution, you need to show beyond a reasonable doubt that it was orchestrated at the top. Take the high standard of proof and throw the complexities of the banking/finance business in the faces of an overwhelmed jury and the chances of a conviction are near zero (see the Bear Stearns case).

          I’m not sure about convicting *people*, but I think there’s a way around that to deal with corporations.

          I think what we need to do is remove intent from the equation. As I said before, intent isn’t actually intended (heh) to handle situations *inside of people*…and Wells Fargo is a person. If we’re going to treat corporations like people, let’s treat them like we would *actually* treat a person.

          We don’t stand around and debate if a human being’s ‘brain’ intended to move their ‘arms’. We just *assume* that is true, barring some sort of mental illness.

          So, if we start framing it like this, start thinking like this, there’s a catch-22 that Wells Fargo is in:

          1) Either they *did* intend to move their ‘arms’ in such a manner as to steal millions of dollars.

          2) Or they are *literally* mentally incompetent and/or a danger to others, in the legal sense.

          If they don’t admit to #1, well, then #2 is true. They cannot control their body’s behavior.

          And *not* because of physical problems (They can literally buy new body parts, aka, hire new people), but because their brain simply does not seem to be sending out understandable signals. They assert they’re saying to behave one way, but their body is doing something entirely different.

          This is called being mentally incompetent.

          If some actual person acts like that, if some human person was telling us they *weren’t* trying to steal things, but they constantly stole them anyway (And we *believed* that they really thought they weren’t trying to steal things.), that’s involuntary commitment territory. That’s ‘real and present threat of substantial harm to others’, and, hey, involuntary commitment time.

          If someone’s body is literally doing things they didn’t tell it to, things that injure (Even just the financial sense) other people, they can’t be allowed to wander around free!

          Of course, a corporation being a *fictional* person, we can instead replace their brain instead of trying to lock them up. Like, the entire brain, aka, management.

          Or we can demand they stay in the nice padded room and play with the foam blocks until they can show their bodies are doing what their minds say to do.

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          • That’s ‘real and present threat of substantial harm to others’, and, hey, involuntary commitment time.

            Oh, and I suspect that racking up a $180 million dollar *fine* counts as ‘harm to self’ also.

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          • I think what we need to do is remove intent from the equation. As I said before, intent isn’t actually intended (heh) to handle situations *inside of people*…and Wells Fargo is a person. If we’re going to treat corporations like people, let’s treat them like we would *actually* treat a person.

            I don’t treat corporations as people in this respect. If there are lawbreakers, those individuals should be prosecuted accordingly irregardless of personal or professional capacity.

            After the two Bear Stearns long-subprime hedge funds failed in 2007, an event that ultimately led to its demise in early 2008, the DOJ prosecuted the two hedge fund managers (unsuccessfully). A person that violates securities laws while acting in his/her professional capacity can be prosecuted accordingly already.

            The problem I see with prosecuting senior level executives has nothing to do with the “personhood” nature of companies but the combination of the threshold for criminal fraud and the organizational structure that puts so many people between the C-suite and where most fraud is likely to take place.

            I think you may be able to get a majority of people here to agree that intent needs to be removed in order to appropriately address a situation like this or like Countrywide. The harder battle is getting people to agree on what we replace it with. We can go back and forth forever on that one, although I have a pretty good idea of what I would want to see.

            The questions are 1) at what point can senior management be held legally liable for actions in the organization even though members of senior management may not have directly or even indirectly orchestrated such actions? 2) Is prior knowledge of said activity or activities required? 3) Which members of senior management does it apply to?

            I’m sure putting this into practice and ironing out the details would be a royal pain in the ass, but that shouldn’t be a deterrent. The more I read about this situation, the more my patience wears thin with the banking industry.

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            • The questions are 1) at what point can senior management be held legally liable for actions in the organization even though members of senior management may not have directly or even indirectly orchestrated such actions? 2) Is prior knowledge of said activity or activities required? 3) Which members of senior management does it apply to?

              I dunno if trying to hold senior management legally liable can ever work.

              What I think might be a much easier task is clawing back *everything*. Literally every single penny of the former management’s salary.

              Basically, while I was basically joking about the mentally incompetent thing, but here’s a much more workable legal theory:

              The government should just say: Wells Fargo was *either* operating as a criminal conspiracy, *or* it was, literally, completely unmanaged. If the existing ‘management’ does not wish to be charged with criminal fraud for charging the company for a service they *clearly* were not providing, management will return everything they were *ever* paid for that, and quit their jobs.

              Seriously, it’s absurd where we’ve got this situation where the ‘winning’ claim is ‘We are a bunch of incompetent fuck-ups who have no idea how to manage this corporation to make sure it’s *not* committing hundreds of thousands of felonies’. Uh, well, that’s an interesting assertion you just made…

              No. That is not a winning claim. The government basically declare ‘Look, if you cannot operate the company you were hired to operate…you’re con artists, and we’re going to arrest you for *conning* a salary out of Wells Fargo, unless you give it back’.

              And those executives should be forever banned from corporate-executing too.

              I don’t know if it’s the government should respond, perhaps it should be the *shareholders* that say ‘Then give us all the money back we *paid* you to manage the thing, you complete morons’. But there should be *some* sort of legal response to people declaring they were too incompetent to operate the bank they’ve been running for years and were paid *millions* of dollars to manage.

              Can we imagine that claim working in any other place? ‘Your honor, it has been alledged that the the houses I built collapsed and killed people because I used extremely low quality material, but *I* say they collapsed because I don’t know anything about building houses, and I merely used the low quality material because it was prettier. So, now that that’s been cleared up, let me continue operating my home contruction business…’

              Oh, and on top of that, any board that has given *performance-based bonuses* (Which are a tax dodge) to any corporate executives that were (at a minimum) criminally neglectful, should be *forever* barred from issuing performance-based bonuses, because they are clearly completely incapable of judging ‘performance’ in any meaningful sense.

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                • LOL, I had no idea that had already started. She got around to that a lot faster than I expected.

                  I love this line:

                  ‘Responding to those questions, Stumpf said he lacked the appropriate expertise, declaring himself at various times not to be a lawyer, a compensation expert or a credit consultant.’

                  Oh, really. What sort of expertise *were* you paid hundreds of millions of dollars for, then? How to wear an expensive suit?

                  And I also love the fact that Wells Fargo Vision and Values Statement literally includes the line: If you want to find out how strong a company’s ethics are, don’t listen to what its people say, watch what they do.

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                  • Going back to my example regarding the Navy – a ship’s Captain isn’t a deckhand, an engineer, or an aviator, but if shit goes sideways, it doesn’t matter, he’s the one whose career comes to an abrupt halt.

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                • Why isn’t the mention of Senator Warren a violation of the commenting policy? ;)

                  Even if I agree with her on this, and I’m not sure seeing as I haven’t read what she has to say on this, I’d attribute that to a blind squirrel occasionally getting lucky and finding a nut.

                  Friends don’t let friends… ;)

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                    • I caught a few minutes of it. Kind of easy to look good when you have such an easy target to shoot at.

                      He either makes himself look like a moron or look complicit in the whole thing in front of someone that would throw his ass in prison if she could. I’d almost make myself look like an incompetent jackass just to see her blood pressure go up in real time.

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              • Sorry it’s taken so long to get back to you.

                I would be more than supportive to some kind of clawback/lookback structure for the performance-based compensation. I’m not sure if I’d go after salary. It doesn’t seem like a smart hill to die on and it’s a relatively small portion of the total comp package at the executive level. I’d be open to further vesting restrictions on option-based comp.

                Banning an executive for life from the banking and securities industry is fine by me and sufficient for these purposes.

                The claim that “we’re incompetent f–k ups” is the polite way of saying “f–k you and try to prove it in a court of law”. This way they take their lumps in front of Congress as opposed to spending millions of dollars in litigation, winning and making the DOJ look bad.

                I don’t know if I’ve ever heard the term corporate executing before unless it’s lefties wanting to execute corporate executives.

                How are performance-based bonuses a tax dodge? If it’s income, it’s taxed at ordinary income. If it’s restricted stock units, it’s taxed at ordinary income and then can be taxed at capital gains depending on the basis when sold. Not sure how regular stock options are taxed up front but there’s definitely a taxable event upon sale.

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                • As long as they’re not issued at prices that are already “in the money” stock options are $0 for income purposes when received/vested. Profits from exercising nonqualified options are 100% ordinary income at the time of exercise. Profits from incentive stock options are not counted as income but they do count toward AMT. There’s definitely a tax incentive there, but it’s limited unless there’s some very clever hanky panky that I’m not aware of.

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                • I would be more than supportive to some kind of clawback/lookback structure for the performance-based compensation. I’m not sure if I’d go after salary. It doesn’t seem like a smart hill to die on and it’s a relatively small portion of the total comp package at the executive level. I’d be open to further vesting restrictions on option-based comp.

                  I say: Go after all pay, be willing to compromise down to just performance-based stuff.

                  Banning an executive for life from the banking and securities industry is fine by me and sufficient for these purposes.

                  In a *sane* world, corporate executives who, *at best*, completely screwed up their entire job and got a company hit with a huge fine wouldn’t *need* to be barred by the government from anything.

                  In this world, the fines aren’t very large, and complete and utter corporate mismanagement is not any sort of bar to further executive employment offers.

                  How are performance-based bonuses a tax dodge?

                  Not a tax dodge for the employee, a tax dodge for the corporation.

                  Corporations can only count up to 1 million pay per person as a business expense, from what I understand, *unless* it’s performance-based compensation.

                  And, thus, corporations structure their entire executive pay as ‘performance-based compensation’, and set the goals low enough that they’ll always be met.

                  Barring Wells Fargo from doing this (Because clearly they have no concept of what ‘performance’ is.) would result in them either paying more corporate income tax…or lowering executive compensation.

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