Sep122016
Wells Fargo’s fraud ensures survival of the CFPB
Since its inception, the CFPB has been under attack by the financial industry. The huge Wells Fargo fraud ensures it’s survival.
The financial elites in the United States hate the Consumer Financial Protection Bureau (CFPB) because the CFPB opposes those who want to rape and pillage the American people. The would-be criminals operating our too-big-too-fail institutions spend millions lobbying Congress and buying politicians like Jeb Hensarling to spout nonsense about the problems caused by the CFPB.
After the financial elites destroyed the economy and nearly brought down our entire financial system with reckless risk taking and foolish lending, legislators were forced to act for the greater good; thus we have Dodd-Frank and the CFPB.
Why the Consumer Financial Protection Bureau is necessary
First, people are not willing to accept the consequences of their actions. People want the right to do what they want and obtain the benefits of their decisions when things go well, but as soon as things go badly, they want the government to bail them out. This goes for individuals, organizations, and entire industries.
When things go wrong, nobody steps forward and says, “I made a mistake, and I don’t want help from the government.” If we privatize gains collectivize losses, then we need a paternalistic government regulator with the power to restrict the choices of individuals and organizations.
Second, even if people accepted the consequences of their actions, sometimes these consequences impact others who had nothing to do with the original decision. If every delinquent borrower accepted foreclosure, and if every lender accepted the losses without pleading for a government bailout, the economic consequences of their foolishness would still hurt all of us who didn’t participate in the transaction. When people accepting responsibility for their actions still causes excessive collateral damage, then the activity should be regulated to save the rest of us.
Third, on a more basic level, after years of getting away with ripping off people without substantive consequences, the behavior of large financial institutions deteriorates to the point where we need protection from them. When an entire corporate culture enjoys rewards for bad behavior and avoids any negative consequences, they become emboldened to behave in ways dangerous to everyone else — even their own customers.
Wells Fargo fake accounts fiasco proves big banks don’t learn
$185 million fine erases goodwill earned by industry since the crisis
September 9, 2016 Ben Lane
For many people, their trust in the country’s financial system was broken (perhaps irreparably so) by the financial crisis.
…. the $185 million fine levied against megabank Wells Fargo for thousand of its employees opening more than two million fake accounts in customers’ names in order to get sales bonuses shows that Wall Street hasn’t learned its lesson. …
Any of you who do business with Wells Fargo should go down to your branch and investigate whether or not Wells Fargo opened any accounts without your knowledge or permission. This practice was so widespread that 5,300 Wells Fargo employees already lost their jobs over it.
This is how the CFPB, which slapped Wells Fargo with the largest fine ($100 million) in the short history of the agency, describes what Wells Fargo’s employees were doing:
Spurred by sales targets and compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges. According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” CFPB Director Richard Cordray said.
This practice began in 2011, not long after Wells Fargo and many other financial institutions received government bailout money to stay afloat — afloat in a crisis created by Wall Street’s reckless behavior.
“Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed,” Cordray added. “Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”
Cordray’s words, as they often due, carry a vaguely worded warning to the financial industry: If another company tries to pull a stunt like this, we fill find you. And we will fine you.
Does the fine really accomplish that? Is $180 million enough? How hard do these companies need to be slapped before they stop acting this way?
Now, say what you will about the CFPB (and many have), situations like this prove why the agency’s existence is critically important for consumers.
Over the five years the CFPB has existed, many in the financial industry have bemoaned the CFPB and its actions. The Republican Party basically stated in its national platform that it wants to abolish the CFPB. A Republican-crafted plan to abolish Dodd-Frank is due to be considered in Congress next week.
Will Republicans back peddle from their position in the wake of this scandal? If they don’t, will voters notice or care?
… an agency designed to protect consumers is absolutely necessary. Why?
Because things like this Wells Fargo situation keep happening.
And this is exactly why Wells Fargo just ensured the continued survival of the CFPB.
What politician (other than the corrupted Jeb Hensarling) would vote to kill the agency that’s so obviously needed for our protection.
Here are Bove’s thoughts on the far-reaching impact of Wells Fargo’s actions:
While there has been tremendous pressure put on the banking industry in the past 8 years by the politicians and the press, the public has voted with its money to increase its commitment to the banks. … It certified the claims by the politicians and the press that banks are run by questionable people who need to be thoroughly controlled by government or the public will not be protected.
Yes, any support for ending the CFPB will evaporate.
And as Brown notes, this apparently started in 2011, just as the crisis was ending.
Here’s Brown again:
Are you f***ing serious? Was the Great Financial Crisis so long ago that all chasteness and propriety are already out the window? This scam has been apparently going on for five years, according to the articles covering the story. Which means it began within a few months of the end of the crisis and all of the congressional hearings and investigations that occurred in its wake. These people are fearless.
That’s bold, bordering on shameless.
They have no shame. They are too-big-too-fail.
“To open more than 1.5 million likely unauthorized consumer deposit accounts and more than 500,000 credit card accounts is despicable, and it’s flat-out fraud. Someone needs to go to prison,” Berger added.
Prison? A banker? Not very likely.
But will any of the bank’s senior executives be held responsible?
Probably not, as is par for the course with these types of situations.
The bank pays a big fine, promises changes, and moves on.
And the rest of us are left to sift through the rubble.
Same as it ever was. And probably the same as it ever will be. And that’s depressing as hell.
The continuing bad conduct of American Bankers is depressing, but I take comfort in knowing their bad behavior just made their watchdog invincible.
If we’re really lucky, it may even shut up Jeb Hensarling for a while.
[listing mls=”OC16200341″]
List of Bank Regulators Makes Your Head Spin
I recently asked a bank compliance person for a list of regulators/entities that have some type of jurisdiction over a typical bank, and could, or do, audit them on a regular basis. Of course immediately what jumps to mind are the likes of the Department of Justice, the Federal Reserve, OCC, FDIC, HUD, CFPB, Fannie Mae, Freddie Mac, and state-level regulators. And groups like Ginnie Mae, MERS, VA, and the NMLS don’t necessarily audit banks but require additional monitoring.
But don’t forget that the IRS has purview over Bank Secrecy Act matters. The NACHA (National Automated Clearing House Association) requires an annual audit of ACH and can audit, as well as state ACH associations. FINRA if the bank is dealing in securities. The Securities Exchange Commission (SEC) is for broker dealer relations. FFIEC has broad IT implications. Financial Stability Oversight Council (FSOC) is gaining authority as CECL and BASEL 3 kick in. MasterCard and VISA also have a secondary overview that can affect our operations with separate rules that exceed fed rules, imagine trying to bank without a VISA or MasterCard Brand. They can cancel your use of their brand for rule infractions.
[And despite all this regulation, Wells Fargo managed to perpetuate a five-year fraud involving thousands of its employees.]
“[And despite all this regulation, Wells Fargo managed to perpetuate a five-year fraud involving thousands of its employees.]”
Strawman + innuendo: Nobody argues that regulation eliminates bad bank behavior, as this comment suggests.
But shouldn’t some of this regulation and compliance catch this kind of behavior?
I didn’t make the observation as an argument against regulation. If anything, the fact that they got away with it so long suggests they are not regulated with enough scrutiny despite the long laundry list of compliance reports they must fill out.
I believe regulators caught this behavior at Wells and have been investigating for many months.
What you believe and what actually happened are different things.
My insight from personal experience is that someone either tipped them off or there was a whistleblower. Regulators have 2 types of exams, routine and non-routine, stuff like this is rarely caught in routine exams because the audit/exam procedures are not thorough enough, they would not go through millions of accounts, in fact they might go through a couple hundred at best.
Non-routine exams are focused based and they probably knew what documentation they needed to ask Wells Fargo for in order to build the case, from there the regulator is willing to redirect lots of resources to investigate all the issues, including going through every account necessary because they know there is a gold mine at the end of the tunnel and a big promotion for someone.
I can’t offer much in terms of house buying experience on this blog but I know financial planning/accounting and I know regulatory bodies well.
That makes sense to me. The employees participating in the informal conspiracy knew how to evade the routine reporting requirements, which is probably why it went on for so long without being detected.
From what I read in the LA Times, the sales staff had really low morale due to impossible-to-hit quotas. It’s what led to the fake accounts, but also what probably tipped the Feds off that something was wrong. When you have that many unhappy employees, somebody is bound to blow the whistle eventually.
Astute!
The problem is ‘regulatory capture’
+100
No simple answer but one of the reasons things are not caught is because the institutions are always ahead of the game in terms of knowing what to do to hide it.
The bottom line is that the regulation being conducted is always playing catch up which is why it will never seem like enough unless we have regulator auditor sitting there in-house watching your every move.
They could also pay the regulator auditors more so that they won’t leave to the private industry and they would also do a better job. That’s what I did, I left for almost double the pay for only 6 months of work to help 3 institutions be in compliance and finish their audits with minimal damage. My title wasn’t auditor but conducted audits as part of writing policy.
In the category of quantity does not always equal quality. This is the US government and regulation bodies in general.
Mediterranean-style homes losing popularity
Irvine is loaded with Mediterranean style homes.
Mediterranean-style homes, known for their stucco walls, tumbled stone and wrought-iron accents, are becoming less popular, according to an article by Gabrielle Paluch for The Wall Street Journal.
This 1990s trend may be going out as modern architecture, subdued color palette and a minimalist design takes its place, according to the article.
That being said, going out of style has not made these homes cheap by any means (sorry Mediterranean lovers.)
From the article:
The median list price for a Mediterranean-style home is $750,000—three times higher than the median list price for homes of all styles, according to Realtor.com. But since 2012, list prices of Mediterranean-style homes have remained flat, while median home prices overall rose 25%.
In its examination of four of the most-popular architectural home styles in the U.S.—Mediterranean, modern, Colonial and Victorian—Realtor.com found that Modern homes saw the biggest jump in median asking prices, which rose 37% over four years.
If you own a Mediterranean-style home, don’t worry, your investment is still safe. Jay Kallos, an Atlanta-based architect for luxury home-builder Ashton Woods, said good architecture will always stand the test of time.
Pavilion Park and Beacon Park homes have been much more daring that other developments with the exterior styles. Some are too much for me, but I can still appreciate the effort.
Yeah, Tuscan stopped being cool about 10 years ago, and I would argue it occupies a similar stratum of bad taste as McMansions. Both were seen as symbols of status prior to the crisis, but now are seen as symbols of excess. A lot of those Tuscan renovations were funded with HELOC’s that never got paid back.
Why one expert says value of buying a home is overrated
Millennials won’t being looking to buy a home any time soon a new report from John Burns, a real estate consultant and author, says, according to an article by John Schoen for CNBC.
While homeownership decreased across every age group since the housing crisis, the Millennials have the rest of the market beat by far at a 21.2% drop in homeownership among those under 35, according to the article.
The next closest is 35 to 44 year-olds at a decrease of 16.7%, followed by 45 to 54 year-olds with a 10.7% decrease, 55 to 64 year-olds with an 8.5% decrease and over 65 year-olds with a 3.2% decrease.
The article predicts that this trend won’t end anytime soon as homeownership continues to fall until 2025.
But according to Catherine Rampell, The Washington Post opinion columnist, that’s not a problem.
“From a financial standpoint, I think that the fact that young people are not putting their money in these assets is not so bad,” Rampell said.
As it turns out, about 50% of Millennials, and about two-thirds of Millennial non-homeowners who have student debt, are uncomfortable taking on a mortgage, according to a report this summer by the National Association of Realtors. What’s more, this group was less likely to believe they could even qualify for a mortgage.
Shortage of New-home Lots Promises to Drive Up Home Prices
No, it will drive down new home sales in low affordability markets
A growing shortage of lots for new homes will push up home prices in many U.S. markets.
That’s the word from the National Association of Home Builders (NAHB), which says the availability of new-home lots is at a historic low. In the NAHB/Wells Fargo Housing Market Index survey for May, 64 percent of home builders reported the supply of new-home lots in their areas was “low” or “very low.” That’s the highest percentage since NAHB started collecting this data in 1997.
“As long as the supply remains constrained and demand remains strong, new-home prices will continue to rise,” says David Brown, regional senior vice president at Metrostudy, which tracks U.S. housing trends.
In April 2016, the average price of a new home in the U.S. was $379,800, up 13.5 percent from April 2015, according to NAHB.
Brown attributes the lot shortage to a tight market for real estate loans and high land prices in popular areas.
NAHB says the record-high shortage comes as new homes are being started at a rate of less than 1.2 million a year. In 2005, when housing starts climbed past 2 million, the share of builders reporting a lot shortage stood at 53 percent.
“The lack of availability of buildable lots has quickly become one of the biggest issues facing our members,” says NAHB Chairman Ed Brady, a home builder in Bloomington, Ill. “While labor shortages and regulatory burdens remain struggles as well, lot shortages are preventing our builders from responding to growing demand for housing.”
NAHB’s Chief Economist Robert Dietz says the lack of lots for new homes “will have negative impacts on housing affordability in many markets.”
First-Time Buyers Are Slowly Re-Emerging
Last August, about 35 percent of home buyers identified themselves as first-time buyers. Flash-forward one year later, the share of buyers identifying themselves as first-timers has soared to 51 percent, according to research by realtor.com®.
As more first-time buyers re-emerge, new challenges – mostly financial – are becoming more paramount for the market, notes Jonathan Smoke, realtor.com®’s chief economist, in his latest column.
For example, about 9 percent of buyers are now reporting having difficulty qualifying for a mortgage, up from 5.6 percent a year ago. The number of buyers saying they need to improve their credit score has since doubled, increasing from 9.7 percent of all buyers in 2015 to 19.5 percent this August. What’s more, the percentage of buyers who say they don’t have enough funds for a down payment has increased from 16 percent a year ago to 25 percent this year.
“The market has seen growth despite higher prices in part because of pent-up demand from very qualified buyers who were able to meet the challenging mortgage qualifications that are the norm these days,” Smoke says. “A key question for the months ahead is whether a higher share of first-time buyers is ready or capable of qualifying for a loan and closing on a home.”
Are they really buyers if they have no means to actually buy?
In the world of realtors, anyone with desire is a potential buyer if only the lenders would give them a loan. realtors consider loan qualifications standards a barrier to generating a commission rather than an evaluation of whether or not the potential buyer can sustain ownership.
Megaprojects coming to the Bay Area with insufficient new housing
California’s Bay Area is known for its larger-than-life tech empire and pricey urban housing market. Home to tech industry giants Apple, Facebook, Google, and others, it’s easy to get caught up in the evolving picture of glittering Silicon Valley.
However, bigger isn’t always better. Three gargantuan projects planned for development in San Jose, Santa Clara and Mountain View — dubbed “megaprojects” by the San Francisco Bay Area Planning and Urban Research Association (SPUR) — emphasize this fact, as their major plans for commercial amenities vastly overshadow the Bay Area’s desperate need of housing.
The three projects collectively total more than 1,000 acres and individually encompass several million square feet each. Located in three prime tech hubs in the Silicon Valley, the projects include:
City Place of Santa Clara;
Diridion Station of San Jose; and
North Bayshore of Mountain View.
All three projects are mixed-use, combining commercial and minimal residential uses into the new construction. In total, the megaprojects will create roughly 13,000 new housing units and 61,000 new jobs for Bay Area residents.
Here, apt observers will note the glaring discrepancy between the number of potential jobs and housing units resulting from the three projects. From where will the 48,000 employees who don’t live at the project sites come?
If Everything Is So Great, How Come I’m Not Doing So Great?
While the view might be great from the top of the wealth/income pyramid, it takes a special kind of self-serving myopia to ignore the reality that the bottom 95% are not doing so well.
We’re ceaselessly told/sold that the U.S. economy is doing phenomenally well in our current slow-growth world — generating record corporate profits, record highs in the S&P 500 stock index, and historically low unemployment (4.9% in July 2016).
While GDP growth is somewhat lackluster by historical standards—less than 2% in 2016—it’s growth nonetheless. And the rate of consumer-price inflation is hovering around 1%; negligible by historical standards.
But this uniformly positive statistical view of the U.S. economy raises a question among those not in the top 0.1%: If everything’s going so great, how come I’m not?
Whether it’s struggling to keep up with the rising cost of living, a 0% return on savings, working longer hours while real wages stagnate, scrimping to pay back education loans, despairing at the abuses of power in our banking and political systems, or lamenting the loss of nourishing social interaction in our increasingly isolated and digital lifestyle — most “regular” people find their own personal experiences to be at odds with the rosy “Everything is awesome!” narrative trumpeted by our media.
Who’s saying “everything is so great”? Strawman once again?
The financial elites are saying that. In fact, the Republican establishment from the pre-Trump era lamented that they lost control of the message that “everything is great.” For the one percenters, everything is great, and they want everyone else to believe that too because it keeps them in power.
It’s an overly broad question (“Who’s saying everything is great?), but the only people I thought of are some of the folks who want the Fed to raise rates. The reason it works well as a strawman, is because it’s so broad. Everyone will have some idea of folks they believe are saying “everything is great.”
Somebody is running for Obama’s third term because things are so great, if you can believe it.
And she feeds into the pro-Trump populism claiming that we should stay the course.
She also feeds into it by using a word like ‘deplorables’ which sounds like a British aristocrat talking down to the local riff raff. She is so completely out of touch, but of course the 1%-er donor crowd lapped it up and gave her a raucous ovation.
PBOC’s Ma Says China Must Act to Contain Housing Market ‘Bubble’
China should take steps to restrain bubble-like expansion in housing markets and tame excessive financial inflows into property, according to a central bank economist.
“Measures should be taken to put a brake on the excessive bubble expansion in the property sector, and we should curb excessive financing into the real estate sector,” Ma Jun, chief economist of the People’s Bank of China’s research bureau, said in an interview with China Business News. A third of the financial-system leverage added over the past decade has come from the surge of housing prices, Ma said.
Cities from Shanghai to Shenzhen have been rolling out tightening measures this year as local officials tackle overheating that followed monetary stimulus. Meantime, central bank policy makers are grappling with how to support growth without spurring unsustainable price gains in housing and other assets. The PBOC’s easing cycle since late 2014 included a series of cuts that pushed interest rates to record lows, where they’ve been since October.
“The PBOC will be very cautious about the impact of further monetary policy easing,” said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. The central bank “is wary of the overheating property market and fast-rising mortgage loans.”
Buying a home without even viewing it: Roughly one in five homebuyers make an offer without seeing home in person. Full House home recently sold in San Francisco.
Buying a home without seeing a property in person is like marrying a person by only viewing their Tinder profile. But house horny people are ready to hump away their savings and lock into a 30-year mortgage matrimony. It is a bit surprising but not all that shocking that nearly one in five home buyers are making offers on homes without even viewing a property, according to new research. When bidding wars ensue and rental Armageddon is all the rage, buying a crap shack may seem like the most reasonable decision. And the psychology behind this is interesting. People will spend hours debating what restaurant to go to on Yelp but are itching to buy a home without even seeing it? This is the manic market we are living in. And in the Bay Area, things continue to get nuttier. The Full House home recently sold for a nice amount of money. Given the occupations of the fictional inhabitants, they would likely live in tents behind a tech incubator instead of that place.
Making an offer does not equate to buying a home. Those offers are contingent on an inspection at the very least, so this is just nonsense from the good Doc.
There is no need for more commercial real estate in the bay area, there are already way too many empty buildings now.
Really, I heard anecdotally that commercial rents are way up and they lack sufficient office space to accommodate all the start-ups. Of course, based on the news article above, they are approving a lot more office with a token amount of housing, which will make the housing shortage even worse.
I have a 23 mile work commute to Santa Clara. There is plenty of empty builds with for lease signs In Fremont, Milpitas, and Santa Clara. That not including the building currently under construction. Do not just take my word for it there are websites that provide you a view of commercial listings.
I’ll take your word for it. Do you think they’ve overbuilt in that area anticipation of the venture capital continuing forever?
To be fair, Fremont and Milpitas are kinda bottom-of-the-barrel in terms of cachet in the Bay Area. Larry is thinking San Francisco and Palo Alto, which are screaming (although starting to slow down).
It is true that there is a lot more industrial and commercial development rather than residential because it earns the city more in sales taxes and the like. Mountain View is especially guilty of this.
The Bay Area is notoriously boom and bust for office space. Just 12 years ago I used to see “free rent” on vacant business park after vacant business park.
Deutsche Bank has studied the last 35 years and says the next 35 don’t look so good
European stocks are falling and emerging market shares are having their worst day since the UK’s Brexit vote. Bond prices are falling, as investors seek other places for their money. And oil is at a measly $46 a barrel. But Deutsche Bank has more bad news.
Analysts at the German bank say we are at the start of a new economic super-cycle, driven by demographic changes, which will be characterized by low growth, high debt, and higher inflation. “A challenging few decades likely awaits us,” Jim Reid, Nick Burns and Sukanto Chanda wrote in a report published Sept. 8.
Over the past 35 years the freer movement of people and labor, plus a surge in the working-age population, have made for a fast-growing and increasingly globalized economy. But in the future years, not only will some of the largest countries experience slower population growth; there will be big declines in the working-age population. By 2050, the number of people aged 15 to 64 in Europe will plummet 18%, and economic growth rates for the next 35 years will be lower than they were before the 2008 financial crisis, Deutsche predicts.
There’s a small silver lining here, in that fewer workers should mean higher real wages. However, this would also increase inflation. And if governments and central banks take even more drastic measures to boost growth, such as helicopter money—the direct injection of cash to the general public—then inflation will almost certainly accelerate.
This is all particularly bad news for investors in government bonds. They should expect negative real returns over the next few decades, Deutsche Bank says.
That’s bad news for a lot of asset managers, who are already struggling with low returns. Investor Jeffrey Gundlach warned last week they were better off putting their money in cash. It’s an especially severe problem for pension funds, which tend to invest heavily in bonds and are already facing large deficits.
We can also expect less international trade—which is already stagnating—and more efforts by governments to control the flow of capital, the analysts wrote. This will happen as politicians react to the growing anger of people who have lost jobs or seen their wages stagnate as a result of globalization.
Rising LIBOR
SECular shift
New money-market regulations are pushing up a benchmark interest rate
http://www.economist.com/news/finance-and-economics/21705854-new-money-market-regulations-are-pushing-up-benchmark-interest-rate-secular-shift
DURING the financial crisis of 2008, LIBOR was a gauge of fear. The London inter-bank offered rate—at which banks are willing to lend to one another—leapt. (Even then it may have been too reassuring: banks have since been fined billions, and traders jailed, for rigging it.) Lately it has been climbing again: on August 22nd three-month dollar LIBOR rose above 0.82%. That is no cause for panic, but it is a seven-year high and 0.2 percentage points more than in June. What’s going on?
Increases in LIBOR, a benchmark used to set rates for trillions of dollars’ worth of loans, usually reflect either strains on banks or expected rises in central banks’ policy rates. Although the Federal Reserve has been toying with tightening, this time LIBOR’s ascent has another explanation, traceable to the turmoil of 2008. A change by the Securities and Exchange Commission (SEC) in the regulation of American money-market funds has made borrowing pricier, especially for foreign banks.
Before the crisis investors in money-market funds—which lend for short periods to banks, other companies and the government—had become accustomed to treating their accounts like bank deposits, putting money in and taking it out at will. That changed the day after Lehman Brothers went bust, when the Reserve Primary Fund “broke the buck”, declaring that investors could no longer redeem shares for the customary $1 apiece. A run on funds ensued; to halt the chaos, the Treasury was forced to guarantee them.
The SEC’s new rule, which takes effect on October 14th, obliges “prime” funds (buyers of banks’ and companies’ paper, as well as public debt) serving institutional investors to let their net asset values vary, rather than fix them at $1 a share. To prevent runs, they may also limit and charge for redemptions if less than 30% of their assets can be liquidated inside a week.
This has made prime funds much less attractive, causing a “change in the landscape of the wholesale funds market”, says Steve Kang, an interest-rate strategist at Citigroup. Between October 2015 and July 2016 all prime funds’ assets declined by more than $550 billion, to $1.2 trillion, according to the SEC; “government” funds that invest in Treasuries and the like have swollen by a similar amount, to $1.6 trillion (see chart). Prime funds have also pushed their liquidity ratios well above the 30% threshold as the October deadline approaches; they are loth to lend for as long as three months. Steven Zeng of Deutsche Bank notes that in the past couple of months the average maturity of large funds’ assets has declined from more than 20 days to less than 13.
For foreign banks, which account for more than $800 billion of prime funds’ $938 billion of bank securities, this is depleting an important source of dollars. (American banks rely more on deposits.) Borrowing has become pricier, which LIBOR echoes. They seem to be filling the gap: for example, cash-rich companies are thought to be lending via “separately managed accounts” rather than prime funds. Banks have other alternatives, but borrowing using exchange-rate swaps, explains Mr Kang, is more expensive; central-bank swap lines are dearer still, and because they are primarily regarded as emergency facilities, banks are reluctant to tap them.
The pain will vary from bank to bank. American lenders with lots of LIBOR-linked mortgages may even gain. Some foreign banks may also recoup higher borrowing costs: their floating interest-rate commercial loans outweigh those at fixed rates. But many borrowers will pay a price. The aftershocks of 2008 rumble on.
Leaving for the city
Lots of prominent American companies are moving downtown
http://www.economist.com/news/business/21706285-lots-prominent-american-companies-are-moving-downtown-leaving-city
FIFTY years ago American companies started to move their headquarters away from city centres to the suburbs. Some critics blamed the exodus on “white flight”, as businesses followed their employees out of increasingly crime-ridden cities. The firms themselves ascribed it to corporate responsibility. They provided offices in safe neighbourhoods and near good schools—one academic, Louise Mozingo, of the University of California, Berkeley, calls it “pastoral capitalism”. Whatever the reason, it created a new type of HQ: not an office tower in the pumping heart of a metropolis but a leafy campus in the middle of nowhere.
Now a growing number of companies are moving back again. The most prominent example is General Electric, which abandoned New York City for a 68-acre campus in Fairfield, Connecticut, in 1974, but is now swapping its bucolic site for a collection of warehouses on the Boston waterfront. There are legions more. Chicago’s downtown has attracted an impressive collection of HQs, from both the surrounding suburbs and from farther afield, including McDonald’s, Kraft Heinz, Motorola Solutions, Boeing, and Archer Daniels Midland, a food-commodities giant. Zappos, an online retailer, has moved from an office park outside Las Vegas into the city’s old downtown. Biogen moved from Cambridge, Massachusetts, to the Boston suburbs in 2011 only to return a year later. Many tech companies were born urban and couldn’t be any other way. Twitter and Salesforce are in downtown San Francisco, and Jeff Bezos is building a huge campus for Amazon in downtown Seattle.
City boosters are delighted. “This is better than hosting the Olympics,” says Shirley Leung, a columnist with the Boston Globe, of GE’s move. Corporate executives sound like graduate students after their first reading of “The Rise of the Creative Class” by Richard Florida, an urbanophile intellectual. Jeff Immelt, GE’s chief executive, says that “we want to be at the centre of an ecosystem that shares our aspiration”, and notes that Boston attracts “a diverse, technologically fluent workforce”. Ann Klee, who is helping to oversee GE’s move to Boston, says that the new headquarters will do without a car park, in order to encourage workers to use public transport. It will dispense with security gates and wants the public to come in. Greg Brown, the CEO of Motorola Solutions, commends downtown Chicago for its “energy, vibrancy and diversity”.
Is the new urbanism all it is cracked up to be? It is easy to find counter-trends, given America’s size and variety: many CEOs continue to see a future in the suburbs of the sunbelt. ExxonMobil is building a headquarters for 10,000 people in the outskirts of Houston. Toyota is moving its North American headquarters from Torrance, California, to suburban Dallas. There is also tax-and-benefits arbitrage going on: over the past decades, the suburbs have become complacent and downtowns have got hungrier. GE’s affection for its old home in Connecticut was no doubt weakened by the state’s decision in 2015 to raise business taxes by $750m. Boston provided an estimated $145m in incentives to secure the deal.
Still, something is clearly changing in America’s older cities. They are much less crime-ridden than before, thanks to a combination of better policing and demographic change. The homicide rate fell by 16.8% from 2000 to 2010 in big cities. Now these urban centres are magnets for millennials fresh from university and with few responsibilities. Young professionals are reconquering former no-go areas and shifting the problem of urban blight into the suburbs. Hiring such people in Boston, GE reckons, will help it shift its focus from hardware to software and from selling things to offering services over the internet.
Yet the new downtown headquarters are very different from the old ones, and not just because they are open-plan and trendy. They are far smaller. Often, firms are moving their senior managers to the city along with a few hundred digital workers. Moving back to Chicago’s centre has usually involved downsizing: Motorola Solutions’ HQ shrank from 2,900 to 1,100, and that of Archer Daniels Midland from 4,400 to 70. Many companies are deconstructing their headquarters and scattering different units and functions across the landscape, leaving most middle managers in the old buildings, or else moving them to cheaper places in the southern states. Aaron Renn of the Manhattan Institute, a think-tank, reckons that head offices are splitting into two types: old-fashioned “mass” headquarters in the sunbelt cities, and new-style “executive headquarters” of senior managers and wired workers in elite cities such as San Francisco, Chicago and Boston.
That suggests there will be no return to the broad-based urban prosperity of America’s golden age. San Francisco could be the template of the future. Its centre is divided between affluent young people who frequent vegan cafés and homeless people who smoke crack and urinate in the streets. Long-standing San Franciscans resent the way that the urban professionals have driven up property prices. And those young workers may fall out of love with the city centre when they have children and start worrying about the quality of schools and the safety of streets.
To the top of the pyramid
The best book to read if you want to understand corporate America’s migration patterns is not Mr Florida’s but a more recent study, Bill Bishop’s “The Big Sort”. It argues that Americans are increasingly clustering in distinct areas on the basis of their jobs and social values. The headquarters revolution is yet another iteration of the sorting process that the book describes, as companies allocate elite jobs to the cities and routine jobs to the provinces. Corporate disaggregation is no doubt a sensible use of resources. But it will also add to the tensions that are tearing America apart as many bosses choose to work in very different worlds from the vast majority of Americans, including their own employees.
no comment needed:
http://fortune.com/2016/09/12/wells-fargo-cfpb-carrie-tolstedt/
IR,
These commercial projects were probably started back in 2011/2012. It takes years to line up permits and financing. I am sure there were concerns back then that there would be insufficient office space for the tech growth. There are lots of apartments, town homes, and single family homes coming on line as well.
I have no idea what a Wells Fargo private banker earns, but suppose they make $50k per year. Then eliminating 5,300 of them would equal a savings of $265 million the first year, which exceeds the fine of $185 million.
True but it was over the course of a few years per the reports I read.
Now, this is me guessing but they were probably due for a trim anyways with increased online banking, more ATM’s, Robo-Advisors, Mobile Apps, less foot traffic etc. So in other words, they were probably happy to come out paying only $185 mill, which they probably made 30x as much over the years, and cut down on people at the same time. They save money on both ends to cover future fines lol, who losses? Customers and I’m sure the employees who unwillingly were pressured to cut corners and now have a big fat “FIRED” tag in their employment history or even a ding on their U4’s.