Bank of America: Too Crooked to Fail

http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314

by soundsop • 14 years ago

243 90 14 years ago

rollingstone.com

pwg• 14 years ago

Single page link for those who don't want to read an article split up into 5 pages:

http://www.rollingstone.com/politics/news/bank-of-america-to...

kimwim42• 14 years ago

As a 10 year "veteran" of BofA who resigned when the shit started hitting the fan in 2008, there are a few things I feel I should clarify.

Bank of America used to be a reputable organization, and Taibbi did touch on this. I joined the company right as it was completing its "merger" (i.e. hostile takeover) with Nations Bank--a crummy, aggressive Southern bank with a penchant for fascist business models led by criminals Hugh McColl and his lackey Ken Lewis.

In the months that followed Nations Bank's acquisition of BofA, which, prior to the "merger," only had domestic coverage on the West Coast and some of the Southwest, most of the key San Francisco leadership were either forced to resign or resigned in protest against the inevitable wave of dirty business dealings coming in from the South--this, of course, was Nations Bank's plan.

So, the company changed drastically over a period of several years during the last decade--and so did the business ethic. It became more militaristic, and Sigma 6 "procedures" were adopted (a lot of good that did...), and much of the new management either came directly from the military or from executive positions at other major retail companies such as Pepsi Cola, Best Buy, Home Depot--basically ANY line of business OTHER than banking. These people had no experience in banking, and that was ok, because BANKING just became RETAIL. Money and debt became a commodity to be sold to clients instead of managed responsibly.

Nations Bank of America then continued on an extremely irresponsible course of acquiring HUGE numbers of smaller banks across the country--artificially increasing stock value for several years. I remember my stock options doubling TWICE in one year because the value was such that the stock had to split. I took a nice trip to Europe in 2003, as a result. Fortunately, (or unfortunately...) I was younger and much more naive then...

However, depite the Bank's many dastardly doings (resulting directly from Congress/the Bush Administration's continued push to deregulate the banks; beginning, as we all know, with the Clinton administration) the TRUE error that led to the bank's ultimate downfall was the acquisition of Countrywide and perhaps, to a lesser extent, Merrill Lynch.

I still remember that, even during this time, getting a loan done for a client at BofA was a relatively difficult process. BofA was really late to the game in offering clients sub-prime mortgages and the like. Quite frankly, if you couldn't afford the loan, chances were that you wouldn't be able to get it at BofA. Risk management slowly started relenting when they started seeing the profits of its major competitors--and they toyed with the idea of providing subprime loans--but it never really got off the ground before the Financial Crisis. Countrywide, on the other hand...

So, Mr. Lewis chose (and was, in someways, apparently "forced") to acquire Merril Lynch and Countrywide--creating an UNholy trinity that not only decimated the once tremendous value of the company, but has virtually thrown it into a terminal state. The "market" won't correct anything, because no one will touch the BofA toxic waste dump with a 10 foot pole. Also, what is one to do with all the hopeless people who STILL maintain their assets and debt--and, god forbid, INVESTMENTS--with this company? Its reputation amongst people in the know is tarnished beyond repair--and the only reason the government IS helping it, in my opinion, is that with SO MANY incredible obligations and worthless assets (due to it's many irresponsible acquisitions), the government probably knows that it would probably be MORE trouble for the GLOBAL market to let them fail than to slowly "bail" them out with conditions. One could compare this to letting somebody die slowly in hospice as opposed to using a "bomb" to end his/her misery in a hospital full of innocent people...

Whew, that was long...I guess I needed to get some of this off my chest.

EDIT: spelling

Estragon• 14 years ago

I voted up this thread because of this comment. (Bit tired of Taibbi, but your inside history is very interesting.)

asmithmd15• 14 years ago

Now that the 2008 financial crises is past (deferred?) why is no one talking about breaking up these "too big to fail" institutions into companies that are small enough to fail?

I am regular reader of Charles Hugh Smith's "Of Two Minds" blog:

http://charleshughsmith.blogspot.com/

He has a recent post where he compares the Dodd-Frank supposed reform bill (over 2300 pages!) to the Glass Steagall act (37 pages)

http://charleshughsmith.blogspot.com/2012/03/we-have-no-othe...

He goes on to provide a common sense, 5 paragraph law that would provide some actual reform to our banking system.

alecco2• 14 years ago

Who would buy the toxic parts?

read_wharf4• 14 years ago

"why is no one talking about breaking up these "too big to fail" institutions into companies that are small enough to fail?"

Because they're too big not to lobby.

cynicalkane4• 14 years ago

Rumor in the commercial banking industry is that, yes, the government eventually wants to break up the banks. This is what I hear when I occasionally get to talk to people who interface with regulators at a high level.

But any internet blogger can make it sound so easy, as if the government can just say, "Ok banks, time to break up," especially in the current political climate. My uninformed guess is that the government has other worries, and wants to see how the Volcker rule pans out.

Symmetry• 14 years ago

According to Confidence Men Obama had ordered Geithner to come up with a plan to break up Citibank, but Geithner delayed coming up with one until after the window of opportunity had closed.

cpeterso4• 14 years ago

Are there other industries that are "too big to fail"? What if all companies had limits on their size (whether that's region, market cap, or whatever)? The number of companies that exist might grow as big companies spin off divisions or new companies try to serve demand unmet by a size-limited company. More companies would mean increased competition, limiting abusive monopolies and corporate lobbying.

This system might be an example of local inefficiencies that lead to a healthier whole. Big companies are supposed to benefit from "economies of scale", but are there any big companies that are not the wasteful, ineffective bureaucracies featured in Dilbert?

read_wharf4• 14 years ago

"much of the new management either came directly from the military or from executive positions at other major retail companies such as Pepsi Cola, Best Buy, Home Depot--basically ANY line of business OTHER than banking. These people had no experience in banking, and that was ok, because BANKING just became RETAIL. Money and debt became a commodity to be sold to clients instead of managed responsibly."

I use a bank whose initials are very close to WtF. When I listen to their managers and "bankers" (the employees who sit at desks rather than stand at counters), I hear them refer to their branch as a "store," e.g. "Hi this is Zachary at store number 1243 ..."

Stores don't manage money, stores sell things, and I am very weary of being upsold to buy car insurance, home insurance, or to be snagged into their bill pay service any time I go in to do something face to face.

Banks are not banks anymore, they're generic retail outfits whose management and executives can be swapped generically with 7/11 or Best Buy, and whose employees have similar functions and upsell responsibilities to those more explicitly retail businesses.

Drbble9• 14 years ago

What's wrong with retail banking being retail? The office where you do the paperwork isn't where they keep the money, it is a customer service center for your benefit.

jackfoxy• 14 years ago

I don't claim any expertise or insider knowledge, but I do recall during the crisis getting the distinct impression from publications like FT, WSJ, and NYT that BofA was strong-armed by The Fed and/or Treasury to acquire Countrywide and ML.

Drbble9• 14 years ago

Based on the constant flood of ungrammatical spam they send me, BofA seems rather proud to be running Merrill Lynch. "Ready to start investing, again?"

jrockway3• 14 years ago

I quit a few months ago, and I agree with you pretty much 100%. Bank of America's current problems stem from two things: being forced to acquire Countrywide's bad loans (and worse PR), and hiring the world's dumbest people throughout the organization.

Bank of America has the worst PR organization I've ever encountered. When the thing about $5 debit card fees was leaked, the media had a field day with BofA, even though one of the big banks was already doing it, and the other big banks were already planning it. Because we had no damage control, we lost a ton of customers and mindshare... for something that we didn't even actually do! (Don't even get me started on all the stores about incorrectly foreclosing on people's houses that we didn't own. Guys, you have a problem there. You need to at least pretend to tell your side of the story!)

Also, I don't understand the hiring process at all: the CEO is some random dude from the legal department that knows nothing about leadership or banking, but somehow got promoted to CEO. (One time, we had a town hall meeting, and he checked that everyone going into the town hall meeting had two Bank of America accounts. What the fuck?)

The rest of the organization is exactly the same. I never had a manager that knew how to program. (My manager was pretty good at resolving political battles, though, which is a useful skill at BofA. The problem was that she had a lot of people that knew nothing about computers telling her what to do, and she couldn't filter out the obvious idiots that were wasting her time.) Most of upper management is people whose pet projects failed at other banks, and BofA was the only place that they could find a job. Nearly every system I had to maintain was written by a team that did the same project at job-1 and the entire team came here. Then the entire team got a better offer, and moved to job+1. You'd think that by the time they were desperate enough to work at BofA, the design and the code would be pretty good... but nope. That would require knowing how to program.

Anyway, what I'm trying to get at is: Bank of America is not evil. They just hire the dumbest, cheapest people they can possibly find, and the result is ... predictable.

(Also, I hope this doesn't sound bitter. I am not bitter about working there at all. It was just too average to strongly like or dislike.)

freedikrueger• 14 years ago

> Anyway, what I'm trying to get at is: Bank of America is not evil. They just hire the dumbest, cheapest people they can possibly find, and the result is ... predictable.

The result is ... getting payed $37 billion a year in bonuses. That's pretty damn smart if you ask me.

chrischen2• 14 years ago

evil people ⊂ dumb people

Aloisius2• 14 years ago

The only reason I'm still with BofA is because of their ebill service that automatically pays my bills after receiving a statement electronically. I have maybe a a dozen services set up that don't offer automatic payment themselves.

I'd be gone in a heartbeat otherwise.

mgkimsal• 14 years ago

You do realize that some other banks offer similar services too, right?

I say this as someone who is also with BoA, and have been considering leaving. I know it's not easy to leave (believe me) but other banks offer the same services.

joejohnson• 14 years ago

And of course, all of the other banks are nearly as corrupt as BofA.

A lot could change if we all switched to small credit unions; of course, small credit unions can't offer all the fancy featurs of a multinational (like automatic online bill pay or whatever).

As consumers, we have chosen megabanks, even if we realize they are the problem here.

sehugg• 14 years ago

You could try USAA. They have all the bells and whistles (auto bill pay, check cashing app) and have great customer service and conservative lending practices.

EDIT: They have a unique organizational structure more like a co-op (http://en.wikipedia.org/wiki/USAA#Legal_structure)

Aloisius2• 14 years ago

Interesting. I was under the impression that in order to get the good stuff through them, you had to be in the military.

harshreality2• 14 years ago

USAA limits passwords to 12 characters. That means they're doing something wrong for password storage.

Although they offer 2-factor auth, only the SMS option is any good. If you choose Symantec VIP, your login consists of the VIP token and your 4 digit pin, rather than the VIP token and your password. A 4 digit pin does not provide much more security than the VIP token alone. I don't understand why they buddied up with Symantec rather than implementing OATH.

I know they're a good bank, but I can't get past those technical issues.

zanny• 14 years ago

My local credit union has auto bill pay and it only has around ~5k members total.

They also have CD rates 3x higher than any big bank that I've seen.

literalusername• 14 years ago

BAC is up 76.26% YTD. Pretty much everything the article says makes sense, and I'm happy I closed my BofA account years ago, but at $5 I had to snatch up some of that stock. I hardly regret the decision.

brown9-22• 14 years ago

And BAC is also down -30.2% if you started at one full year from today, or -80% if you go back 5 full years. You can find a way to make almost any stock look attractive if you choose the right starting point.

JumpCrisscross• 14 years ago

I don't think his starting point is arbitrary - the article referred to BAC at around 5 in December. Since the beginning of December when it closed at 5.53 BAC has beaten the Vanguard financials ETF by over 59 points (and SPX by over 67).

jrockway3• 14 years ago

I bought stock at $13.37, down from $60ish. I thought it was a good investment. Nope. BAC: the only company worth less than its cash assets.

veyron2• 14 years ago

There are worse banks. For example, Regions Financial quietly slid into positive tangible common equity with the $900M offering last week (for the past few years it was actually negative ...)

Bloomberg had a reasonably coherent discussion: http://www.bloomberg.com/news/2012-03-15/stress-tests-pass-f...

FTA:

    The footnotes to the company’s latest financial statements tell the story. 
    There, the Birmingham, Alabama-based lender disclosed that the loans on its books 
    were worth $8.1 billion less than what its balance sheet said, as of Dec. 31. By 
    comparison, the company’s tangible common equity, a bare-bones measure of net worth,
    was $7.6 billion.

    So if it weren’t for the inflated loan values, Regions’ tangible common equity would 
    have been less than zero, with liabilities exceeding hard assets.

EDIT: fixed formatting -- I wish that there were a way to indicate that a quoted block should be wrapped

Drbble9• 14 years ago

http://seekingalpha.com/#article/279795-5-companies-selling-...

mwsherman2• 14 years ago

Am I the only one who finds this article unenlightening? I don’t disagree with its broad opinions, but it mostly seems a recounting of lawsuits in the public record.

Are there any factual breakthroughs, or is it mostly a rant? It seems very short on new information, and long on name-calling.

Again, it doesn’t mean it’s “wrong”, but rather it doesn’t rise to the level of being informative or corroborable. Trust me, I am inclined to agree with the tone but I don’t feel smarter for having read it.

veyron2• 14 years ago

there will be no factual breakthroughs until someone in the know actually discusses what happened in a case.

for example, if a GS employee spoke out about what really happened with el paso and kinder morgan (they were advising el paso in a buyout while owning stake in KM), then we'd really see AGs and others go after the banks

asmithmd15• 14 years ago

Maybe if you are a close watcher of BofA you didn't learn anything; below are some of things about BofA I didn't know before reading this article:

"controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages."

"AMBAC, the second-largest bond insurer in America, went bankrupt in 2010 after paying out some $466 million in claims over 35,000 Countrywide home loans. After analyzing a dozen of the mortgage pools, AMBAC found that a staggering 97 percent of the loans didn't meet the stated underwriting standards."

"In the first half of last year, Bank of America paid $12.7 billion to settle claims brought by defrauded customers."

"Allstate claims it got stuck with $700 million in defective mortgages from Countrywide. The states of Iowa, Oregon and Maine, as well as the United Methodist Church, are suing Bank of America over fraudulent deals, claiming hundreds of billions in collective losses. And there are similar lawsuits for nonmortgage-related securities…Merrill Lynch brokers allegedly dumped $944 million in auction-rate securities … even though the brokers knew that the auction-rate market was already going bust. "

"for instance, intentionally ding depositors with bogus overdraft fees. (A class action suit accused Bank of America of heisting some $4.5 billion from its customers this way; the bank settled the suit for a mere 10 cents on the dollar.)"

"paid a $137 million fine for its sabotage of the government-contracting process"

"Last year, the bank was sued, alongside some of its competitors, for conspiring to rig the London Interbank Offered Rate."

"As part of an $8.4 billion settlement it entered into with multiple states over predatory lending practices, the bank agreed to provide homeowners with modified loans … the bank "materially and almost immediately violated" the terms, according to Nevada Attorney General"

"Just a few weeks ago, the government charged Bank of America with violating the Fair Housing Act"

"Last December, the bank settled with the Justice Department for $335 million over Countrywide's practice of dumping risky subprime loans on qualified black and Hispanic borrowers."

"In South Carolina, Bank of America won a contract to distribute unemployment benefits through prepaid debit cards – and then charged multiple fees to jobless folk who had the gall to withdraw their money from anywhere other than a Bank of America ATM. "

"they asked the bank to move a chunk of that mess from Merrill Lynch onto Bank of America's own balance sheet. Why? Because Bank of America is a federally insured depository institution. Which means that the FDIC, and by extension you and me, is now on the hook for as much as $55 trillion in potential losses. Black, the former regulator, calls the transfer an "obscenity. As a regulator, I would have never allowed it. Transferring risk to the insured institution crosses the reddest of red lines."

SkyMarshal3• 14 years ago

There are many egregious wrongdoings there, but I find this one particularly pernicious:

> "Last year, the bank was sued, alongside some of its competitors, for conspiring to rig the London Interbank Offered Rate."

LIBOR + the US T-Bill rate (plus the Federal Funds rate?) is generally considered the risk-free rate of return, upon which all other interest rates in the economy are indexed. I'm sure there's nothing more heady and master-of-the-universe-feeling than manipulating the entire world that way, but it's pretty fucked nonetheless.

One problem with the increasing concentration of wealth and the financialization of the global (or at least Western) economies is that banks and ibanks are becoming more and more able to play games like this with markets. Beyond a certain threshold of capital and leverage, market manipulation becomes not only possible but a viable business strategy.

I know it's happening now, especially with HFT and algo systems accounting for over half the volume on major exchanges, just not the extent of it. The incentives are getting seriously out of whack.

mwsherman2• 14 years ago

Fair enough and no, I am not such an observer that I would know all those things. But many of those “facts” are loaded with motives and intentions, which are not factual. (“Not factual” doesn’t mean false, it just means non-objective and unproveable.)

I suppose what I am getting at is that critics need to play a better, more empirical game if they are to succeed. This article is emotionally manipulative, by design.

aet• 14 years ago

I agree. I read this guys book, and it was similar quality.

corford• 14 years ago

As a non-US person, I found it a nice recap. I mean, I knew BofA was bad but jesus fucking christ... they make Goldman Sachs look vaguely respectable.

kunle• 14 years ago

I question BofA's business practices and relationship with the government as much as the next guy, but this:

"a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. "

Fairly certain that $55 trillion approaches the overall GDP of the global economy. Its super easy to make compelling arguments about BofA without resorting to such exaggerations.

anonymoushn• 14 years ago

That the total liabilities referred to are $55T is a fact. That the FDIC would be capable of paying out even a small fraction of that is an exaggeration, though.

tedunangst3• 14 years ago

There's no reason the FDIC would need to pay out $55T. They only need to cover insured deposits. Moving bad bets onto the books makes the insured deposits riskier, but it doesn't insure the bad bet as well.

tedunangst3• 14 years ago

That's possibly the notional value for all their derivative positions, but you're right in that BofA is unlikely to be in a position where they'd write a check for that amount. I think the author picked the biggest number he could find without understanding what it means.

addendum: The same mistake is repeated elsewhere: '"About $350 trillion worth of financial products globally reference LIBOR," says one antitrust lawyer familiar with the case.' Unless I'm mistaken, that too is notional value. A swap or whatever is usually worth a lot less than its notional value.

Apocryphon• 14 years ago

How does U.S. Bank compare to BOA?

read_wharf4• 14 years ago

Enviously, I imagine.

They have the worst customer service of any bank that I've done business with. My friends all agree. Anecdote of a handful.

tsotha• 14 years ago

>At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time.

And with that, I could stop reading. If I had noticed it was Taibbi I could have saved myself a few seconds.

Nrsolis2• 14 years ago

I'm not the biggest fan of Taibbi. I find his writing style to be just too close to tabloid style sensationalism to be worthwhile reading. He pollutes his reporting with far too much personal judgement.

The facts pretty much speak for themselves without all the hyperbole.

chunkybacon• 14 years ago

The facts may speak for themselves, but someone still has to put them into an article so that we will read them. If it requires inserting a few hyperbolic statements along the way, I'm willing to accept this.

there• 14 years ago

US startups/small business owners: who are you using for your business checking account?

I had my business and personal accounts with Fifth Third for many years but had to switch to Bank of America when I moved to a state where 5/3 didn't have locations. Now that I'm back in Chicago, I'm looking to switch away from BoA due to their ridiculous fees and questionable business practices.

I have to make check deposits once or twice a week, so small credit unions are probably out of the question. The one good thing about BoA was that its ATMs accept check deposits by scanning them without filling out deposit slips and they have locations everywhere, so I've only had to deal with their tellers like twice in the past year and a half.

SkyMarshal3• 14 years ago

Silicon Valley Bank and Square1 are two banks that focus on startups/small business.

http://www.svb.com/

http://www.square1financial.com/bank/

(They're on my radar for when I get to that point, but haven't used either yet.)

jasonkester2• 14 years ago

Every time I visit the US, I reserve one of my few days there as "fix whatever BofA did to my account" day.

My English wife has an account with them, and they have a habit of switching her account type without warning to whichever one has the highest monthly fees, thus draining the account from ~$1,000 to $32.50 by the time we find out about it. Then we spend a few hours in a branch, shouting at the manager. And it gets escalated up the line until somebody can do something about it. And we get a case opened to credit it all back and put us back onto the "Free, no fees, honest, we mean it this time" account.

Just did the 3rd round of this last week.

Their advice: "You should log on to your online banking on a regular basis to make sure your fee status hasn't changed." Because "our terms of service allow us to change fees without notice."

Sweet. My bad then. We'll be sure to check in every few days to make sure your bank hasn't confiscated all of our money. Thanks for the tip.

brown9-22• 14 years ago

Maybe this is a dumb or too personal of a question then, but why not close the account and move to a more competent bank?

I don't understand why people continue to keep their money in an institution that they don't even seem to trust. There are far better choices out there.

jasonkester2• 14 years ago

US bank accounts are hard to get if you don't live there (and don't have a several-month history of living there currently), but they're really handy to have. So until we can get a new account set up for my wife with a better bank, we're sorta stuck with them.

It's painful, but even if they didn't refund the annoying $20/month fees they keep tacking on, it'd still be worth it just to keep the toehold.

mainguy• 14 years ago

For me, the switching cost of changing my gas bill, electricity bill, mortgage, credit card, Home phone, Cell phone, dentist, AWS account, heroku, mysafari, spotify, napster, hulu, engine yard, ... I know I'm just hitting a few here... to a new bank/card is a big enough disincentive to have me locked in. I AM however looking at better alternatives because i'm tired of BOA.

SkyMarshal3• 14 years ago

> why not close the account and move to a less desperate bank?

FTFY.

shingen• 14 years ago

Bank of America == US Government

Bank of America: Too Crooked to Fail

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