President Obama and Those Fat Cats from Wall Street – 2009 Ethics a Year in Review (1 of 3)

January 1, 2010

Frankly I couldn’t believe what I heard on the news when President Obama, in an interview, called bankers into the White House to seek their help with the economy – having referred to them the day before as “Fat Cat” bankers.  Hum…the President of the United States resorting to labeling people in less than a professional manner.  Perhaps it is just his folksy style, but that type of approach seems much less than presidential.  But then I got to thinking…

Seems like in this administration there was some effort to curb the abuses that the banks have hurled at consumers when it came to credit cards.  That, for everyone but the banks, was hailed as “about time” legislation.  Ethically, the banks have played less than fair with consumers.  Personal example…my wife, who has spotless credit had a Bank of American card with a zero balance and substantial credit limit, received a letter from BofA increasing her interest rate to 22.9% from 8.9%.  She called asking why and was told it was a mistake, but one that could not be undone.  After expressing her deep dissatisfaction and then vowing (after she got off the phone not to ever use the card), she got a letter from Bank of America (just a week later) cutting her credit line by 75%.  Ethical actions by Bank of America – yea right.

According to Money Magazine senior writer – Donna Rosato – “Lawmakers gave issuers till February 2010 to fully comply with the new law. Meanwhile, issuers have rushed to raise interest rates, impose new fees and cut credit limits. The median rate on credit cards surged 13% to 23% from December 2008 to July 2009, according to a study by the Pew Charitable Trusts. Meanwhile, a bill to expedite the credit card reforms, the Credit Card Rate Freeze Act, has gone nowhere. When the new law kicks in in 2010, consumers will have more protection.”

Maybe the term “Fat Cat” Bankers was justified.

Ah…but there’s more.

Fortune Magazine states:

What Ken Lewis wanted, Ken Lewis got. During his eight-year tenure as Bank of America’s CEO, he embarked on a dizzying series of acquisitions to create the nation’s biggest financial services company.

But when his last two big buys — toxic-mortgage giant Countrywide and dead-on-its-feet bank Merrill Lynch — drew too much scrutiny from regulators and shareholders, Lewis packed up his golden parachute last October and bailed.

Maybe I should be a bit kinder in my blog.  Perhaps after squandering Bank of American funds on losing propositions, they needed the rate increase on credit cards.  Of course, that assumes that folks use those credit cards.  In our case, I think not.

BUT TO TOP IT OFF…

When the government, back in the Clinton administration, asked Fannie Mae and Freddie Mac to extend credit to many American who, otherwise, were not credit worthy – I have to ask the question – with rising deficits and massive government spending – why should anyone in the government call anyone names when the government is doing just what those Wall Street “Fat Cats” did – namely living above their means.  We have massive debt and seem to believe that living in debt is O.K.

Perhaps the ethical thing to do is say – NO to additional government debt and do what is being preached to the population – live within your means and act ethically and in a responsible manner.

WHAT DO YOU THINK?


FBI Mortgage Fraud Investigation – Too Little Too Late? Is This Smoke and Mirrors or the Real Thing?

September 24, 2008

For some time I have been writing and speaking about white collar crime, business ethics and the issue of mortgage fraud.  Then we have the issues that have surfaced over the past several weeks culminating with the President’s address tonight.  A major recession (I’d call it a depression) is facing us if we don’t do something now.

Now just may be too late.  Many individuals and firms have either gone under or become the target of a massive FBI investigation into mortgage fraud over the past several years.  But at the heart of this entire mess is the government and their failure to provide oversight and accountability.  It seemed that a robust economy balanced on the back of home ownership was more important than practical long term ethical decisions that fall on the backs of our elected officials.  (And for anyone who feels that I am leaning one way or the other politically – I feel there is plenty of blame for all elected officials).

Now we find in published reports that the FBI is expanding it’s investigation of major institutions whose names have been at the heart of the meltdown we are today witnessing.

According to CNN:

The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and AIG – and their executives – as part of a broad look into possible mortgage fraud, sources with knowledge of the investigation told CNN Tuesday.

Two officials with knowledge of the FBI investigation into the mortgage crisis said “the investigation is all very preliminary”. They said there is a lot of anger and people want someone held accountable.

Officials are looking into whether any criminal activity occurred, but the Bureau said the investigation will take some time. They said the investigation is in the preliminary stages, and so far it is a broad look at the companies involved.

“From what I’ve seen so far, I really don’t believe we’re going to find widespread fraud,” according to one of the officials. They said they have to go where evidence and facts lead. Just because an investigation has been opened doesn’t mean there will be charges.

Trust me – there will not be charges.  The FBI investigation (done by well meaning people) is just a political smoke screen so that those who want accountability will feel that something is being done.  Frankly, nothing substantive will be done to hold those most accountable for this financial failure responsible.

As reported in my prior blog entries, FBI Director Robert Mueller told Congress that 1,400 individual real estate lenders, brokers and appraisers are now under investigation in addition to two dozen corporations.  What is of most interest is that the focus is on small time fish and a big sea of corruption.

Greenspan told Congress sometime in the recent past that something must be done with Freddie Mac and Fannie Mae or we would face a meltdown and grave financial crisis.  His prediction has come true.  What’s sad is that our politicians from both sides of the isle did not have the fortitude to step up and do the right thing.  Rather, they buried their head in the sand and now find that they are drowning in a sea of financial misfortune.

ENRON’s leaders were held criminally liable for their financial misdeeds.  This collapse makes the ENRON mess pale in comparison.  Yet, since government backed Freddie Mac and Fannie Mae are at the heart of the problem – both backing poor loans and selling them to the market – there will be nothing criminal to come from this.  The government doesn’t have the will or courage to regulate itself – nor the ethical wisdom to do what is right.

Cynical – well not really.  Practical – yes.  This $700 billion dollar plan will in the end cost $3 TRILLION…just wait and see.  Meanwhile, there is a long winter ahead and the chill we will feel won’t just be the weather.

QUESTION:  Do you believe the FBI will find anyone in any major institution recently names held criminally liable?


Financial Meltdown? Where Were Our Government Leader’s Ethics? Comments by Ethics Speaker Chuck Gallagher

September 23, 2008

The words are “urgent action” as uttered by those in financial leadership in our country.  Action needs to be taken in order to avoid a financial meltdown.  Somehow, I would suspect that words similar to that were uttered immediately before the Great Depression.  Have we learned nothing from past history?

According to CNN:

“You know, I share the outrage that people have,” said Paulson. “It’s embarrassing to look at this, and I think it’s embarrassing to the United States of America.”

“There is a lot of blame to go around – a lot of blame with big financial institutions that engaged in this irresponsible lending … blame to the people who made loans they shouldn’t have made, people who took out loans they shouldn’t have taken out,” said Paulson, who served as CEO of Wall Street giant Goldman Sachs for seven years before he became Treasury Secretary in 2006.

Now I’m confused.  Treasury Secretary Paulson is a smart man…otherwise he would not have lead Goldman Sachs and been named Treasury Secretary.  Yet, now we face one of the most significant financial crisis of our generation and times and at the heart of the issue are actions taken by aggressive financial institutions.

“Blame to the people who made loans they shouldn’t have…”  Secretary Paulson shame.  Blame to the people.  The people don’t have control over what loans are available and which loans are marketed to them.  I agree there should be blame, but to blame people who responded to sophisticated marketing campaigns that were promulgated by financial institutions who have huge profits to earn is absurd!

The “people” bought what you sold and only by the grace of the federal reserve is your former company – Goldman Sachs still in business.  The sad reality is – we are where we are due to misguided efforts and actions by those institutions (financial and government) who should have known better.

Fed Chairman Ben Bernanke is reported to have said that the central bank would prefer that the government not have to take an active role in raising capital needed by financial firms. But he said there was no alternative given current market conditions.

“Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke said.

Ethics are defined as the discipline dealing with what is good and bad and with moral duty and obligation.  As an Ethics Speaker, I feel that those who lead have not only a moral duty but a supreme obligation to do what is good and in the best interest of those they serve.  At this moment the debate in Washington, DC directly relates to doing what is in the “good and best interest” of those they serve.  Sad that we had to arrive on the brink of a financial disaster in order for our leaders to take notice.

We can all make mistakes.  Leaders are not perfect.  But as I say in ever Ethics presentation I make – Every Choice Has A Consequence.  This is no different.  The self-serving profiteering choices of the past – loaning money to those who could not afford it and driving an economy on the back of those who are now blamed – is unethical and wrong.  I submit that had the same actions been made on a small scale – the government would have charged those involved with fraud and it would have been a “white collar crime” example.  But this is too big and now it is called a mistake with our top financial leaders and institutions being bailed out.

What do you think – Goldman, Merrill, Lehman, AIG, Freddie Mac and Fannie Mae – the government’s oversight – ethical or unethical?

An interesting commentary by Ron Paul can be found here…you might want to take a look.


Mortgage Appraisal Reform – NY Attorney General Pushes for Agreement

March 4, 2008

Andrew M. Cuomo, New York Attorney General, announced agreement between his office and Freddie Mac and Fannie Mae allowing the two largest purchasers of home loans to buy only from those lenders that meet new standards for appraisals.

An independent organization will be established to implement and monitor new appraisal standards. The following was agreed to:

  • Establishment of the “New Home Valuation Protection Code,” which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. Under the new code mortgage brokers will be prohibited from selecting appraisers and lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals or from using appraisal management companies that they own or control.
  • Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the new code or they will not be purchased.
  • The new “institute” which will be funded with $24 million from Fannie and Freddie will field complaints from appraisers who believe that their independence has been compromised and will protect those appraisers from retaliation. The institute will also establish a nationwide consumer hotline to manage complaints about appraisal fraud or violations of the new code. The institute will be funded with $24 million from Fannie Mae and Freddie Mac and will be required to report to OFHEO and the Attorney General’s office on a regular basis.

As reported in this blog, many of the mortgage fraud schemes revolve around fraudulent and/or inaccurate appraisals. Many appraisal companies are actively involved in the fraud schemes by inflating the appraisals on the properties in question. In some cases, they are paid a kickback based on the excess funding generated from the bogus loans and mortgage frauds.

The following quotes were from Mortgage Daily News: “Today’s agreement with Fannie Mae and Freddie Mac begins to set right what had gone so horribly wrong in the mortgage industry – rampant appraisal fraud,” said Cuomo. “The integrity of our mortgage system depends on independent appraisals. Again and again our industry-wide investigation found that banks were putting pressure on appraisers to drive up the value of loans just to make a quick buck. We believe the new standards, and the new independent monitor agreed to today, can begin to erase this problem from the industry.”

“Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae and Freddie Mac and the mortgage market,” said OFHEO Director James Lockhart. “OFHEO is committed to working closely with fellow regulators, the Attorney General, Fannie Mae, Freddie Mac, appraisers, lenders and other market participants to assure that the roll-out of the new code builds upon best practices, recognizes constructive comments to identify further refinements, and avoids unintended consequences.”

According to the Office of Federal Housing Enterprise Oversight, “There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages.”

Questions:

  1. Is this too little too late to correct the seemingly rampant fraud in the mortgage industry?
  2. Will agreements like this become the norm as government sets out to ensure against mortgage fraud?
  3. Should the industry be allowed to govern itself in light of the issues and mortgage crisis we face?

Your comments are welcome! Ethics and White Collar Crime Speaker – Chuck Gallagher – signing off…