Daily Archives: May 3, 2015

Wachovia whistleblower now faces foreclosure from Wells Fargo

Robert Kraus lost his job in 2006 after he says he raised red flags about questionable activities in the corporate and investment bank at Wachovia, now part of Wells Fargo. Since then, he says he has fallen behind on his mortgage because he hasn’t been able to find work in financial services.

“It’s impossible to support my family,” Kraus said in an interview. “I’m unable to find work in my field.”

Wells Fargo started foreclosure proceedings against Kraus and his wife, Julianne, in December, according to court documents. The Krauses are behind on payments on the $515,000 mortgage for their Waxhaw home. A hearing before the Union County Clerk of Superior Court is scheduled for June 9.

It’s not unusual for whistleblowers to fall on hard times, said Fred Alford, a professor of government at the University of Maryland who has written a book on whistleblowers. About half lose their jobs, and of those, many lose their homes, he said.

“When a would-be whistleblower calls me, I tell them: Check your bank account, check your mortgage, check your marriage, check your religion, because all of these will be put under a tremendous strain,” he said. “You’re not just going to blow the whistle and go find another job. It’s going to become your life.”

whistleblowers need a better support system, because society needs insiders to come forward about wrongdoing, Alford said.

“We are a society that idealizes the notion of the individual standing up against the system, but most individuals who stand up against the system get crushed,” he said.

Bank of America broke law protecting accounts of child actors, court finds

Bank of America broke a law that bans withdrawls from the bank accounts of child actors without first getting court approval, a California appeals court ruled this week.

In a class-action lawsuit, the Charlotte bank is accused of violating a California law designed to protect 15 percent of a child actor’s earnings. The bank made illegal withdrawls from the accounts, including to charge them monthly service fees, by failing to get required approvals ahead of time, the suit claims.

The lawsuit, filed in 2012, alleges the bank violated Coogan Law. The law is named after Jackie Coogan, a child actor who starred in silent films in the 1920s and whose parents squandered his earnings.

Coogan Law requires court approval before withdrawls are made from the trust accounts that hold child actors’ earnings. According to court documents, banks can charge fees to the accounts, but the charges must be made directly to the parent or guardian of the actor. Court approval can then be sought to withdraw the fees from the trust accounts.

Big Banks Claim Reform Will Hurt the Economy. Here’s Why That’s BS

Anat Admati, who teaches finance and economics at the Stanford Graduate School of Business, is co-author of The Bankers’ New Clothes, a classic account of the problem of Too Big to Fail banks. On May 6th she will address the “Finance and Society” conference sponsored by the Institute for New Economic Thinking, featuring influential women who have challenged the status quo, like Federal Reserve Chair Janet Yellen, IMF Managing Director Christine LaGarde, and Senator Elizabeth Warren. Admati will join Brooksley Born, former chair of Chair of the Commodities Futures Trading Commission, to discuss how effective financial regulation can make the system work better for society. Seven years after financial hell broke loose, Admati warns that we are far from fixing a bloated and dangerous financial system – and that the system can’t fix itself. Why should you care? This gigantic house of cards could fall on you.

Lynn Parramore: How would you describe the problem of Too Big to Fail banks. Whey does it matter to an ordinary person?

Anat Admati: Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy.

We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis.

They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well.

As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy. They can even break the laws and regulations without the people responsible being held accountable. Effectively we’re hostages because their failure would be so harmful. They’re likely to be bailed out if their risks don’t turn out well.

Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders – even in the failed ones – have suffered the least. They’re thriving again and arguably benefitting the most from efforts to stimulate the economy.

So there’s something wrong with this picture. And there’s also increasing recognition that bloated banks and a bloated financial system – these huge institutions-are a drag on the economy.

LP: Have we made any progress in dealing with the problem?

AA: The progress has been totally unfocused and insufficient. Dodd-Frank claims to have solved the problem and it gives plenty of tools to regulators to do what needs to be done (many of these tools they actually already had before). But this law is really complex and the implementation of it is very messy. The lobbying by the financial industry is a large part of the reason that the law has been implemented so poorly and inefficiently with so much difficulty. We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits.

So we’ve had far from enough progress. We are told things are better but they are nowhere near what we should expect and demand. Much more can be done right now.

LP: Banks, compared to other businesses, finance an enormous portion of their assets with borrowed money, or debt – as much as 95 percent. Yet bankers often claim that this is perfectly fine, and if we make them depend less on debt they will be forced to lend less. What is your view? Would asking banks to rely more on unborrowed money, or equity, somehow hurt the economy?

AA: Sometimes when I don’t have time to unpack everything I use a quote from a book called Payoff: Why Wall Street Always Wins by Jeff Connaughton. He relates something Paul Volcker once said to Senator Ted Kaufman: “You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It’s all bullshit.”

Here’s one obvious reason such claims are, in Volcker’s vocabulary, bullshit: Lending suffered most when banks didn’t have enough equity to absorb their losses in the crisis – and then we had to bail them out. The loss they suffered on the subprime fiasco was relatively small by comparison to losses to investors when the Internet bubble burst, but there was so much debt throughout the system, and indeed in the housing markets, and so much interconnection that the entire financial system almost collapsed.  That’s when lending suffered. So lending and growth suffers when the banks have too little equity, not too much.

Now, banks naturally have some debt, like deposits. But they don’t feel indebted even when they rely on 95 percent debt to finance their assets. No other healthy company lives like that, and nobody, even banks, needs to live like that – that’s the key. Normally, the market would not allow this to go on; those who are as heavily indebted feel the burden in many ways. The terms of the debt become too burdensome for corporations, and reflect the inefficient investment decisions made by heavily indebted companies. But banks have much nicer creditors, like depositors, and with many explicit and implicit guarantees, banks don’t face trouble or harsh terms. They only have to convince the regulators to let them get away with it. And they do.

So the abnormality of this incredible indebtedness is that they get away with it. There’s nothing good about it for society. If they had more equity then they could do everything that they do better -more consistently, more reliably, in a less distorted fashion.

Today’s credit market is distorted. A key reason is that bankers love the high risk and chase returns. They are less fond of some of the lending where they are needed the most – like business lending, for example. Instead, most people get many credit cards in the mail and too many people live on expensive revolving credit. Effectively, the poor may end up subsidizing the credit card of the person who pays on time and has zero interest (and we all end up paying the enormous fees merchants are charged). So we can have too much or too little lending and live through inefficient booms and busts. Part of the reason for that is that banks are continually living on the edge in a way that nobody else in the economy would, and regulations meant to correct it are insufficient and flawed in their design.

LP: Banking has been a very profitable business. Is it profitable because the risks are born by the taxpayer? Do you think the bank bonus system is part of the problem?

AA: Yes, banking is partly profitable because of subsidies from taxpayers. There are probably other reasons, and not all of them good ones, in terms of the way competition works and other things. The bonus system encourages recklessness, and recklessness increases the value of the subsidies from taxpayers. Bankers are effectively paid to gamble.

It is profitable for the banks to become big even when this is inefficient, because they can do so with subsidized borrowing on easy terms. Guarantees, explicit and implicit, are a form of free or subsidized insurance. We don’t control whether what banks do with the cheap funding benefits the economy or just bankers and some of their investors. We must reduce these large subsidies that end up rewarding recklessness and harming us. (See Admati’s July 2014 testimony before Congress on bank subsidies).

Read on.

SEC proposal would require certain non-U.S. swap dealers to register in U.S.

The SEC on Wednesday proposed requiring non-U.S. swap dealers that operate trading desks in the U.S. to register with the agency as a security-based swap dealer.

Also, those desks’ transactions would be subject to the reporting and public dissemination requirements under Regulation SBSR, which requires reporting of security-based swap information to registered data repositories.

“These proposed rules are critical for the SEC’s oversight responsibilities,” Mary Jo White, SEC chairwoman, said in a news release. “The rules will help ensure that both U.S. and non-U.S. dealers are subject to our registration, reporting, public dissemination and business conduct requirements when they engage in security-based swap activity in the United States, resulting in increased transparency and enhanced stability and oversight.”

Read on.

Quicken Loans worker charged with bank fraud by Justice Department

DETROIT, MI – Quicken Loans took another hit just a few days after the Detroit loan giant got into the ring with the U.S. Justice Department.

The Detroit News reports that the Justice Department has charged a former Quicken contractor with conspiracy to commit bank fraud.

The DOJ accused Quicken contract worker Cynthia Slay of giving bank account information from loan applicants to an “unnamed source” who then stole $22,000 from the accounts.

Slay “no longer performs work for the company,” according to Quicken spokesman John Perich.

According to The Detroit News, Slay allegedly used a Craigslist add to get people to help her drain the accounts.

The DOJ alleges that Slay went after loan applicants with at least $10,000 in their account.

Read on.

New York High Court Weighs Mortgage Claim Time Limits

New York law gives investors who say they were duped into buying flawed mortgage bonds six years to sue. But does the clock start ticking on the day the bonds were packaged or after problems with the loans came to light?

On Thursday, New York’s highest court confronted that question as it considered an appeal by investors seeking to force a Deutsche Bank AG unit to buy back bad loans packaged into securities before the financial crisis. The eventual ruling by the state Court of Appeals could open the door to many more such cases if the investors’ trustee prevails.

Paul Clement, a lawyer for the trustee, told the court that the six-year statute of limitations begins to run only after the flaws are discovered — and not, as the bank argued, when the bonds were packaged and sold years earlier.

“This is a contract that extends for 30 years,” Clement said, referring to a legal agreement related to the bonds. “It would be odd for investors to put themselves in a position where they would be unprotected for the last 24 years.”

Read on.

Major U.S. Retailers Are Closing More Than 6,000 Stores

Submitted by Michael Snyder via The Economic Collapse blog,

If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores?  The “retail apocalypse” that I have written about so frequently appears to be accelerating.  As you will see below, major U.S. retailers have announced that they are closing more than 6,000 locations, but economic conditions in this country are still fairly stable.  So if this is happening already, what are things going to look like once the next recession strikes?  For a long time, I have been pointing to 2015 as a major “turning point” for the U.S. economy, and I still feel that way.  And since I started The Economic Collapse Blog at the end of 2009, I have never seen as many indications that we are headed into another major economic downturn as I do right now.  If retailers are closing this many stores already, what are our malls and shopping centers going to look like a few years from now?

The list below comes from information compiled by About.com, but I have only included major retailers that have announced plans to close at least 10 stores.  Most of these closures will take place this year, but in some instances the closures are scheduled to be phased in over a number of years.  As you can see, the number of stores that are being permanently shut down is absolutely staggering…

180 Abercrombie & Fitch (by 2015)

75 Aeropostale (through January 2015)

150 American Eagle Outfitters (through 2017)

223 Barnes & Noble (through 2023)

265 Body Central / Body Shop

66 Bottom Dollar Food

25 Build-A-Bear (through 2015)

32 C. Wonder

21 Cache

120 Chico’s (through 2017)

200 Children’s Place (through 2017)

17 Christopher & Banks

70 Coach (fiscal 2015)

70 Coco’s /Carrows

300 Deb Shops

92 Delia’s

340 Dollar Tree/Family Dollar

39 Einstein Bros. Bagels

50 Express (through 2015)

31 Frederick’s of Hollywood

50 Fresh & Easy Grocey Stores

14 Friendly’s

65 Future Shop (Best Buy Canada)

54 Golf Galaxy (by 2016)

50 Guess (through 2015)

26 Gymboree

40 JCPenney

127 Jones New York Outlet

10 Just Baked

28 Kate Spade Saturday & Jack Spade

14 Macy’s

400 Office Depot/Office Max (by 2016)

63 Pep Boys (“in the coming years”)

100 Pier One (by 2017)

20 Pick ’n Save (by 2017)

1,784 Radio Shack

13 Ruby Tuesday

77 Sears

10 SpartanNash Grocery Stores

55 Staples (2015)

133 Target, Canada (bankruptcy)

31 Tiger Direct

200 Walgreens (by 2017)

10 West Marine

338 Wet Seal

80 Wolverine World Wide (2015 – Stride Rite & Keds)

On a side note: Full Layoff / Closing List:

http://www.dailyjobcuts.com