People Really Hate Banks

Watching first the Senate, then most recently, the House Financial Services Committee verbally berate Wells Fargo CEO John Stumpf, I get the impression that multiple politicians’ dogs have been kicked by a Wells Fargo employee. These guys are really taking the recent fraudulent account scandal personally. If I were John Stumpf I would have resigned already, mostly just so I wouldn’t have to keep going to these hearings. The guy has already voluntarily forfeited $41 million in compensation and no one really seems to care. Elizabeth Warren is calling for a criminal investigation. The idea that a CEO could or should have any idea what is going on at the lowest levels of one division is absurd to me. Yes, there are people that need to be held accountable, but not the CEO. Well, maybe for his eight is great comment. That one was troubling. I don’t want to sound like I’m defending Wells Fargo, I guess I just feel like banks have done a lot worse things to the American people than opening up an account they didn’t know about. Relatedly, the state of California (among others) has suspended it’s business relationship with Wells Fargo for 12 months. California is the nation’s largest underwriter of municipal debt and Wells has previously been the second largest underwriter of said debt. Number one was Citigroup! You remember Citigroup right? You know, they paid $7 billion in fines for misleading investors about the quality of their mortgage bonds during the financial crisis. They also paid $425 million for manipulating Libor. Is this ringing a bell? They also paid over $2 billion in fines for manipulating foreign exchange rates. So…let’s put that in perspective, Wells Fargo paid $185 million for opening fake accounts and Citi paid, well a lot more. To be completely fair, Wells Fargo also had their hands in the financial crisis and the last tally that I saw put them at $9.7 billion in fines since 2008. Our friends at Citi were at a whopping $12.8 billion. So what is my point? I guess it’s that we will have to watch Stumpf slump around the headlines like a bad dog until the next big bank gets caught doing something they shouldn’t do. Then the whole charade starts all over again. Politicians get to mock indignation, executives get to feign contrition, and customers can pretend that they didn’t know banks are screwing them every day. 

The Donald         

Jeff recently asked if I read the Financial Times. He asked because he pays for my subscription to the Financial Times, and therefore he gets a monthly reminder that I subscribe to and he pays for the Financial Times. He then asked how much value I get from the periodical and suggested that I may be better off subscribing to The Wall Street Journal. I reminded Jeff that he also pays for my subscription to The Journal and quickly changed the subject. Well Jeff, this one is for you. When I write about Trump it isn’t because I like or dislike him, it is because sometimes he makes himself very easy to write about. Trump is not a great communicator and so he says things that sound crazy…or he is crazy, either one. The Financial Times published an op-ed written by a member of Donald Trump’s economic advisory council – we have a real chicken/egg scenario here. Does Donald say what he says about the economy because people like this are telling him about the economy or did Donald teach this person about economics? The article actually offers less insight into Trump’s economic policy then it does draw attention to the ridiculous amount of double speak we have come to expect from politicians. The article starts with interest rates and sort of stumbles towards currency manipulation then eventually the gold standard. So what insight does Trump’s economic advisory council offer? None. This article is one of the most confounding things I have ever read regarding economics, an already confounding subject. Does Trump want rates to go up or down? Does he want foreign currencies manipulated or not? Does Trump want a gold standard? All I could take away from the article is that things are happening in the economy, good things and bad things. Donald Trump knows about these things and has opinions about them. Basically, this article alone was worth a year’s subscription to the Financial Times. Thank you Jeff. 

Trade Settlements

When you sell a stock it takes 3 days to “settle” and this process is known affectionately among brokers as “T+3.”  This means that if I place an order to sell on Monday, I can have my money on Thursday. Why? Mostly because we don’t have blockchain yet. It still seems like an arbitrary number. I just always assumed that it was somehow related to the fact that stocks were originally bought and sold via telegraph and therefore it took a few days to make sure you were being cheated. Then, for almost 200 years no one ever thought to ask, “Can we do this faster?” Personally I like to imagine that there is an old Commodore 64 somewhere at the heart of all this slowing all the transactions down. Replacing the machine would trigger catastrophic economic collapse so we just wait three days. It really is one of those reason though, either no one ever questioned the time period or there is a technical, valid reason the transaction has to take 3 days. Well it turns out it’s the latter! The SEC has proposed a new rule to shorten the timeframe to two days instead of three. How will they do it? New technology, new legislature? Nope, they will just start saying it takes two days instead of three. I love this industry (in a weird, hateful way). However, this whole thing really is related to blockchain and we have seen similar changes in banking regulation. Both industries are incredibly rooted in tradition and are very slow to change and adapt. Blockchain has forced both to examine current the process in the face of becoming obsolete. Blockchain promises instant, simple, cost effective transactions while the current system is inefficient, long, and complicated. The end result will be neither, but rather somewhere in the middle.

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