Bad Debt

Last year Goldman Sachs agreed to a $5.1 billion settlement with federal and state governments over its role in the housing crisis. A stipulation of the settlement was that they would provide $1.8 billion in homeowner relief. This is not unlike the agreements signed by J.P. Morgan Chase and Bank of America. There is one small difference though; Goldman Sachs does not originate many loans. One way a bank can provide relief to homeowners is by modifying or forgiving debt owed to them.

The Bank of Americas and Chases of the world can simply call people that owe them money and reduce their payments or lower their interest rates. It is in their best interest anyway as most lenders are in the mortgage business, not the home owning business. Goldman, however, did not have an inventory of mortgages to modify. Most recently, they purchased the majority of loans available at Fannie Mae’s auction. They purchased a total of 8,000 loans with unpaid balances of $1.4 billion. The relief that Goldman provides these debtors goes towards the $1.8 billion agreement. Once the homeowners are current, Goldman can try to package and sell the debt to investors.

Never mind that Goldman is legally required to do something, buying delinquent debt can actually be profitable. They are paying between 50 and 90 cents on the dollar and, according to the head of research at Amherst Capital Management, LLC, buyers can make an additional 5 to 15 cents of profit when they sell the loans.

J.P. Morgan Chase

The JP Morgan human resources department has concluded that annual performance reviews are a terrible idea. Leading research on the topic suggests that they are correct. However, instead of eliminating them, bank management decided that they should have reviews all the time.

This is a weird marriage of peer reviews (dubbed 360-Reviews) and instant gratification. I have not seen peer based reviews used in a long time. I always assumed it was because corporations realized how arbitrary and political they were. I never imagined they were not adopted because people felt they were not getting feedback fast enough! Part of me blames Amazon. When I order something on the internet Amazon tells me when it’s packaged, when it’s shipped, when it gets loaded on a truck, and ultimately when and where it was left at my house. I started to notice the negative effect of constant feedback in my life when I would order other things. I found myself sitting at restaurants wondering, “What is my food doing right now? There should be an app that tells me what my food is doing.” Then Domino’s invented its mobile ordering platform. When I order pizza from Domino’s, it tracks my pizza’s progress from conception to delivery. And I watch it. That cannot be healthy.

The difference with Chase’s app is that it is constantly delivering you progress on you. Sure, I want to know what my pizza is doing but I have to think that updating my pizza’s status is a real bummer for the person making the pizza! Unfortunately, I cannot blame Chase. I have to blame millennials. Even more so than Domino’s and Amazon, social media has created an environment for people to receive constant attention and feedback. According to Chase: “Executives at the bank found many workers, especially millennials, crave constant feedback instead of a traditional once-a-year performance review.”

I understand why the bank would say this; millennials do want constant feedback, sort of. Millennials want constant praise and that is not quite the same thing. Full disclosure, I am a millennial. This is going to be a hard lesson for millennials. At work, positive feedback comes with negative feedback. Sometimes you just get negative feedback and positive feedback comes in the form of no feedback at all.  

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