Who gets the Golden Ticket? Charlie or the Banks?

Financial Times Headline: Caution urged on US bank foreclosure fines

Who gets the golden ticket? We all remember the deserving Charlie Bucket inside the chocolate factory of the eccentric chocolatier, Willy Wonka. In the end, Charlie gets the Chocolate Factory and the golden ticket.

This week’s Financial Times writer Tom Braithwaite reported a story: Caution urged on US bank foreclosure fines. The story focuses on how banks will be fined for failures that led to the foreclosure debacle. BUT…there is some sympathy and sugar coating happening. It seems regulators are pressing to avoid “dangerously large” penalties, according to one of the top officials participating in fractious settlement talks.

John Walsh, acting comptroller of the currency, told the Financial Times that he supported financial penalties for mortgage servicers, led by Bank of America and Wells Fargo, whose shoddy paperwork and improperly signed affidavits caused the repossession of delinquent borrowers’ homes to come to a grinding halt.

Here’s another BUT….

But the Office of the Comptroller of the Currency has differed with some state attorneys-general, the Federal Deposit Insurance Corporation and the new Consumer Financial Protection Bureau, which all want a more far-reaching settlement, with $20b in fines and at least some of the money used to reduce the debt owed by struggling homeowners.

The fact is this: if the government goes too light on banks; it will be an invitation for banks to continue to skirt the law and continue to believe that they are not just too big to fail, but too big to be regulated or stopped.

In effect, it’s encouraging a kind of moral hazard that says to the banks:
“No problem, walk all over the tax payer, the home owner and the government and we will not do much to you other than slap your wrist.”

Such a signal will only ensure further misconduct in the future.

Ironically, it is the moral hazard argument that the Fed Reserve uses to discourage principal reduction for underwater homeowners. That argument goes that if we allow homeowners to get a principal reduction your neighbor will want one too.

How ironic that moral hazard is a concern for home owners behavior but not bank behavior?

But then again, who ever said there was not a double standard…Let’s never forget the golden rule… he who holds the gold rules!

 

From the trenches,

Roy Oppenheim