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.
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.)
> 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.
That's simply how people are paid in the finance industry. Let's say you make $300,000 a year. A bank will pay you $200,000 a year, and in a good year, give you a $200,000 bonus. But in a bad year, they'll "only" give you $75,000. So that $37 billion could easily be "everyone made less than their target salary" rather than "the executives gave themselves $37 billion".
Personally, I think the system is stupid: you have to pay me for my labor even if its misused and you make no money off it. But other people see the $$$ in good times, and the system continues. I now negotiate assuming my bonus will be 0, which is pretty much what I saw when I worked in finance anyway. (Bonuses were allocated based on a "has threatened to quit" basis; since I was always happy, I was never a problem that needed to be solved with money. When I did threaten to quit, they could no longer afford to match the counter offers. Or rather, chose not to.)
If that is supposed to say Evil people are a subset of dumb people, then I have to disagree. There are brilliant people who are also evil, like a good portion of the Nazi leaders, or Rupert Murdoch, or emperor palpatine.
There is a difference between being dumb, and doing something dumb.
About once every 2 months I forget how to operate a door. I put my hand on the door handle, push, and walk right into the door, because I forgot to twist the handle. That's a monumentally stupid thing to do, but I don't think it necessarily means that I'm monumentally stupid (at least I hope it doesn't :).
I'd be interested to hear why you think every evil person's actions are dumb when evaluated in the long term.
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:
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.
The problem is lack of leadership. Who do you mean by "the government"? There are only people in government service and none of them are beating the drum that too big to fail is too big to exist.
By 'the government' I mean Congress and all the relevant regulators such as the SEC and the Fed...
...and please don't imagine to the temptation that the world is not the way you want it because of the lack of a leader, or something. This stuff is heavily politicized and very complicated, and part of that complication is because of the generations of regulators who said 'something must be done'.
All I see is Obama's top team being very cozy with the big banks, and the Republicans would let BofA institute gas chambers as long as it was "free market". Where's 'the government wanting to break them up' in that?
Assuming you're not going on common Internet Wisdom and have some knowledge of this, I'd be interested to know in what ways Obama's top team is cozy with banks. I'm not being facetious--well, maybe a little--but I find this stuff fascinating.
"Evil" is a silly term. Robert Rubin (citi), Henry Paulson (goldman), Tim Geithner (ny fed), these names aren't ringing a bell?
The impression I've gotten is that the financial world is convinced that Obama is out to get them, so of course it's "common knowledge" that he has a plan to break up the banks. But what's he actually done? The settlement with the big banks a couple months ago was a slap on the wrist at best, and removed a huge liability.
Hey, sorry, I edited my post after you responded, but I didn't say and never said that it's "common knowledge" that Obama wants to break up banks.
What I said is that the financial industry, as of recently, has had an antagonistic relationship with the government, and that this is common knowledge in the industry. That's how they see it, anyway. There's a lot of tiptoeing the government has to do, because they're still counting on commercial banks to clear the housing market, to have their back on distressed bank mergers, etc.
Anyway, I'd rather see top bankers in those positions than top politicians. Obama's a moderate and a technocrat; so your thesis isn't distinguishable from the null hypothesis.
> "Evil" is a silly term. Robert Rubin (citi), Henry Paulson (goldman), Tim Geithner (ny fed), these names aren't ringing a bell?
My brain parses that as: people whose roles will require experience and insight in dealing with huge sums of money and complex economic effects at the national level TURN OUT to also be the kind of people you'd want to hire for other roles that benefit from applying experience and insight in dealing with huge sums of money and complex economic effects at the national level.
Now, if they're corrupt, that would be a bad thing. But having prior relevant experience? A good thing.
I understand that generations of regulators that wanted to maintain the status quo followed the logic:
Something must be done!
This is something we can all agree on.
This must be done!
I also think an insightful leader can propose actions that disrupt the status quo and leave the world a better place.
I posit that the internet would not have been able to take-off the way it did if the DOJ had not successfully broken up AT&T. Remember there used to be exactly one company who owned the phone lines running into your house and across the country. Since they owned the wires they decided what equipment you could hook onto their wires - which happened to be only equipment they sold and installed.
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.
That is exactly the problem. The US taxpayers already "own" the toxic parts. Taxpayers are on the hook for whatever bad bets BofA has made yet there is no visibility into those bets whatsoever.
You don't break it into toxic and non-toxic. You break it up by region, so you get small regional banks each with both toxic and non-toxic parts and the don't let them recombine.
ie. Make Bank of America a wet coast only bank again.
Nobody would buy it without some government insurance, making it pointless. The best paths now are either letting it orderly fail (if that's possible) or forced nationalization at a symbolic price.
But if I had to bet, my money would be on some travesty against the US taxpayer like Bear Stearns good assets sold for close to nothing and taxpayers taking the junk mortgage assets.
But current BofA management will keep complicating it as long as possible, maximizing their income. Also the legal pandora's box of imminent lawsuits makes thing very bleak.
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?
> Are there other industries that are "too big to fail"?
What about governments?
If there are companies that are "too big to fail" and therefore should be broken up, surely the US govt should also be broken up. (CA's govt may qualify as well.)
Good point. I would support that. The US government was designed to be a federation of state governments, but power hunger interests have twisted the definition of "federal" government so as to consolidate power. :\
"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.
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.
Nothing necessarily. There isn't even much wrong with them selling car insurance. But the strong emphasis on upsell gives me the impression that my banking is not only incidental to bringing me in and selling me insurance, but that the banking operations of a bank are not bringing in enough profits to satisfy shareholders. Maybe even not enough for survival.
If a bank can't be profitable (enough) being a bank, or needs to chase other retail markets to shore itself up, then that's a problem, given the role of banks in the economy.
Or maybe it's just change. But I think it's worth noticing.
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.
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?"
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