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How Elizabeth Warren Took Down the CEO of Wells Fargo, and Why It Matters (asktrim.com)
253 points by xenophon on Nov 29, 2016 | hide | past | web | favorite | 156 comments



I appreciate that Warren didn't let Stumpf talk his way out of taking any responsibility for the actions of his employees and made a clear argument as to why he should be held accountable. Unfortunately, it seems the primary reason he resigned was because the public outrage was loud enough. It seems that until CEOs are personally held accountable via fines or prison (as Warren suggests) we won't see a very big change in their actions. He benefited personally from the policy he implemented, but ignored the negative consequences. The bank is fined, but he is not and keeps his bonuses.


Bullshit he resinged!

at 63, he's the oldest ceo of all the top 5 banks. Stumpf did't resign, he retired!


Resinged is a nice way to put it. Once before the senate, then again before the house.


Sorry and not to be the grammar police but it's resigned...


Re-read the comment. The commenter knows that. He or she purposely reinterpreted the misspelling as a different word, "re-singed" as in "singed again".

(Also, the original mistake was not a grammatical error, but rather a spelling one. If you're going to be pedantic at least get it right.)


haha, fair point. He is probably going to go into consulting and make some extra money for those green fees.


He resigned, and in his successor is from the same senior leadership team in charge during the behaviour that has gotten Wells Fargo into trouble.


He still serves on the board of the Financial Services Roundtable. If he were younger, he'd likely take a break for a few years while doing some silent investing. After everything had blown over, it's not unlikely that he would be welcomed back into the fold.


Carrie Tolstedt is also retiring at the end of the year with $125M.


Oh man, she must be so bummed about that. The struggle is real.


Personal accountability for CEOs is a good step. However, I think the most needed step is that it becomes unprofitable for the owners.


Anyone who has worked in a company of any size knows it'd be down near impossible to know the inner working at all levels of the organization. So, yes, the guy is accountable and needs to lose his job. But the idea that he should go to prison for something like this is ludicrous.


Why not? The outcome was entirely predictable, and there is no way that a CEO of one of the country's largest banks doesn't understand the basic concept of economic incentives shaping people's behavior.

Nothing personal because I'm sure you didn't intend to make things worse for everyone, but your attitude is exactly what's wrong with the US and with capitalism in general - the notion that once an organization is sufficiently large that it becomes hard to trace a chain of liability, then the liability must somehow evaporate and can't be assigned to any individual parties, but must be severally absorbed by the shareholders. Oh, but the shareholders think they don't bear any moral responsibility because it's an agency problem, they only vote on the candidates that the Board of Directors offer them for senior offices. Oh, but the board of directors can't be responsible because they're not involved in the day-to-day running of the bank...and so on.

If corporate status is no more than a means by which to redistribute legal liability so thinly that none of it can accrue to any one individual, then the notion of corporate personhood is broken. I would remind you that the whole reason personhood exists in the first place is to make some sort of accountability possible, otherwise it would be virtually impossible to sue any officers of a company for lack of knowing who engineered a given policy that might form the basis of a legal complaint.


>Why not?

Because prison is barbaric, and expensive and should be saved for hardened criminals. Nothing personal, but it's people like you who think throwing people in prison some kind of societal solution that we have overflowing prisons of petty criminals.


I'm not a fan of barbarism or prison in general, but actually I think that using your position at the apex of one of the world's leading banks to squeeze money out of people at the bottom of the pyramid* qualifies as criminality.

* Whether you consider the consumers or the low-level tellers who set up millions of shadow accounts to meet otherwise impossible performance goals to be the bottom layer, I think the point stands either way.

I'm perplexed by your use of the word 'hardened.' Perhaps you meant 'violent' but there are plenty of people in prison who had a clean record until they committed a violent crime of passion or suchlike, and likewise there are plenty of criminals whose criminality is unquestioned but who never engaged in any violent activity. Again you probably didn't intend this, but I can't help feeling that you're unconsciously making a class distinction between stereotypical blue collar heavies who help themselves or carry out break-ins, vs the sort of nice socially acceptable behavior of sitting at a desk signing corporate documents which will affect thousands or millions of people that the executive has never met and knows nothing about.

Look, I'm sure you just had some generic 'tough guy' in mind, but it's not like I'm demanding the guy get thrown into some hellhole and raped int he shower every day. I'd like if we could have humane prisons like some countries, far fewer people in them, and that they should form a representative cross-section of society.

Really, if you don't have some sort of institutional accountability then it just increases the incentives to do this sort of thing precisely because the upside benefits are so much larger than the downside risks. OK, Stumpf's professional reputation is in tatters and it's probably had a negative impact on his social life...but he can basically afford to spend the rest of his life on a yacht. People suffer worse consequences from divorce.


Except that's not how prison exists today. You steal a TV you go to prison. You steal a car you go to prison. You defraud society to the tune of 500 million you pay a fine and you keep your life of luxury? The double standard is unjustifiable.


Not familiar with "two wrongs don't make a right"?


I think you're implying that those punishments are wrong. What would be justice in your eyes for the three crimes described? To mine, the proportionality seems more than a little out of whack.

- Stolen TV (let's say $1000 burglary)

- Stolen car (let's say $15,000)

- $500MM fraud


Mostly I'm implying that your argument doesn't hold weight. You don't throw someone in prison because if you don't there's a double standard with some other offence. You throw them in there because the crime they committed warranted it.

I'll play anyway for funzies though. First offence?

All 3 should be a non-bankruptable fine with a floor that also scales with historical earnings and wealth. I can't give specific numbers because I think it should be set at figures large enough to act as a suitable deterrent which I don't know and would need to research. Since in a scenario where I'm magically put in charge of the legal system I would have the means and incentive to do that research, I think that's fair on my part. Potentially some public shaming involving stocks and vegetable throwing depending on its cost effectiveness as a deterrent as well.

I imagine the fine amount would be far greater for the fraud though, which would help with the lack of proportionality.


I'm curious, so what do you do if the fine is never paid?

ETA: IS a non-bankruptable fne proportional if the fraud actually bankrupted many others? What if the consequence of the fraud on said victims then led them to further crimes which led them to a ruined life of pverty and squalor? Is a non-bankruptable fine still proportionate? What if it led to suicide, or armed robbery, or even murder...


Thank you for a much more thoughtful comment. I think you make a lot of good points. Do you think that the fines should be proportionate with respect to the status of the person convicted?

I think one issue is the perception that some very rich people can afford to pay those large fines, which acts as less of a deterrent.


Absolutely, that's what I meant by "scales with historical earnings and wealth."


So you did. Sorry I missed that. Cheers!


The systemic damages done by someone at that level outweighs anything a hardened criminal done. Yes, $500MM in fraud caused magnitudes more misery and suffering to society, as a whole, than one murder. That kind of widespread damage has an untold number of ripple effects, pushing some people at the margins over the edge, breaking up marriages, causing people to drink and/or take narcotics, etc. It's hard to see, but it's like an armed robbery multiplied by 50 million.

In this instance, prison would actually serve as a deterrence.


Perhaps throwing criminal CEOs in prison will speed up the reform our system needs so badly.


Prison may be a bit harsh.

And in a vacuum, you're right. It would be somewhat unfair to drop the hammer, out of nowhere, on some unsuspecting CEO who just did "business as usual".

But that's no excuse; it just means we need to create a culture where this kind of thing becomes increasingly unacceptable, so that in the future executives will know what's expecting of them, and what the consequences can be.

The "unintended" consequences of unrealistic goal-setting should be patently obvious to anyone who's made it that far in business, and if it isn't, we should make it clear that it's something these people need to start thinking about.

In the case of Wells Fargo, this went on for a LONG time, was well-known, frequently reported on, and had a number of whistleblowers.

The CEO can't know what every last person in the organization is doing, but they should be incented to make it their business to a culture in place that doesn't permit this, nor the blacklisting of whistleblowers.


> The CEO can't know what every last person in the organization is doing, but they should be incented to make it their business to a culture in place that doesn't permit this

Where I'm from, there's a group af crimes such that if an employee at a company does them, the CEO will absolutely go to jail, even if they knew about it or not. For example, if your company produces toxic sludge as a byproduct, and someone at the company dumps it in nature instead of properly taking care of it, it's jailtime.

Unsurprisingly, compliance with some environmental protection laws are A+ at all companies. Personal liability works fantastically as a motivator for companies.


Personal liability may also be good limiter for size of companies. If something is unmanageable, it should be split up.


> For example, if your company produces toxic sludge as a byproduct, and someone at the company dumps it in nature instead of properly taking care of it, it's jailtime.

That's a kind of criminal collective responsibility, which I find repugnant whether it's a mother in Palestine being held criminally responsible for her son suicide bomber, or it's a CEO being held criminally responsible for the wrongdoings of some low-level employee that they did not direct and were even unaware of.

Personal liability is arguably OK here, but criminal liability like you describe ("goes to jail") is most certainly not, and I'm surprised that there are so-called enlightened legal jurisdictions that do this.


Strict liability is an old concept in law. I am not buying these claims of innocence involving a low level employee whose activities were not directed by the CEO; this fraud involved thousands of employees responding directly to a clear economic incentive that came down from the executive suite. You don't get to bring about that sort of situation and then disavow any knowledge of it. That's just an invitation to malfeasance. Look up the legal concept of Scienter - someone who knows or who should have known that fraud was taking place shares in the liability. I'm pretty sure the CEO of of a massive bank like Wells Fargo understands that sufficiently tempting/frightening economic incentives are going to drive employee behavior, just as they do consumer behavior.


I'm actually inclined to agree with you re: Wells Fargo. But in general, I think the bar should be very high. If a single employee dumps toxic waste despite clear regulations otherwise, and a history of company enforcement, then I would very much oppose any type of criminal penalty against the CEO.

And just because something is an old concept in law doesn't mean it's right or moral.


I'm honestly morally conflicted here. I reflexively agree with you. However, true justice doesn't exist. Our legal system exists for social and economic stability, not for seeking justice.

(Semi-rantThe American justice system has Libra wearing a blindfold. The blindfold represents objectivity, in that justice is or should be meted out objectively, without fear or favour, regardless of money, wealth, fame, power, or identity. At its core, it's unjust. I've personally experienced it. As an engineer, I have a decent amount of wealth. Because of that, (and after doing lots of research), I was able to hire a well-renowned attorney who had my case dismissed. It wasn't necessarily the barrister's legal ability, it was his personal relationships with the court and specifically the DA.

There were a number of cases before mine. Many either had the defendant representing themselves or represented by a public defender. A number of them received harsh sentences for allegations that weren't as serious as I faced. All of them took the plea deal(which is itself unjust. It effectively punishes you for seeking a trial by jury) because they simply could not afford decent legal representation. The public defender had a stack of manila folders up to his eyeballs. It was obvious he didn't have the resources to mount an effective defense.

I guess it makes sense in a capitalist country that you get the justice you pay for. But I came to accept that it's not about justice. The only reason Madoff had the book thrown at him is because he ripped off a lot of rich and powerful people. Maybe if Stumpf were railroaded into a max federal prison, it would serve as an effective deterrence...unjust for him, but for the greater good of society.


> Our legal system exists for social and economic stability

> [your description of a horribly unjust legal system as you experienced it]

You really think the system you described is good for social stability? People aren't stupid, the ones who got the raw end of the deal noticed the same injustice you did.


I thought they only have to demonstrate that they took reasonable measures (training, checks and balances, culture, etc.) to prevent an employee from doing something like that. Being a CEO without that protection would be scary.


That's super interesting to hear. Can you provide any links to good articles on the topic? This type is reform is something that I think would improve the banking system.

In theory, this keeps CEOs from pleading ignorance as an excuse.


After the S&L crisis in the '80s, quite a few execs went to prison. The same should have happened after the latest crisis, but W's DOJ had reassigned all the fraud investigators in the FBI to anti-terrorism, and neither they nor Obama's assigned very many back. (As well as just not being willing to try to prosecute white-collar crime very hard – much rather get big headlines for big "settlements").


It would be somewhat unfair to drop the hammer, out of nowhere, on some unsuspecting CEO who just did "business as usual".

I remember learning pretty early on that life is not fair, and later on that the justice system is not fair. But dropping the hammer is the only way that the business as usual stops being usual.


> But the idea that he should go to prison for something like this is ludicrous.

Fine. Then the company should get the "death penalty" and be liquidated.

Especially for something like the banking sector where the federal government could replace a bank almost instantaneously, the "death penalty" should get dropped on companies that engage in malfeasance.


> Especially for something like the banking sector where the federal government could replace a bank almost instantaneously...

Say what? It takes months to years for the FDIC to wind up a small bank. What is your basis for saying that the government can replace a huge bank almost instantly?

(Or perhaps the correct question is: What is your definition of "replace"?)


Fire the board and all the senior executives, announce a one-month grace period during which no new internal policies will be promulgated, seek a temporary continuance in any ongoing legal cases, and require the firm to undergo a total audit by a new external auditor. Set up a new firm, raise money through an IPO, do a mandatory buyback of all outstanding shares in the original company, and shut it down.

Since the bank isn't actually insolvent, this is much less drastic than winding it up. Of course it's far more complex than I'm outlining here and might take 6 months or a year. But if corporations can always rely on 'too big to fail' then what good is enforcement? A corporate charter that can't ever be withdrawn is basically a license to commit crime in perpetuity by shuffling the personnel.

If we're giving out personal rights without any of the accompanying responsibilities then how do you expect people to maintain any respect for the legal system? It's rather obviously in decline, not least through episodes such as this.


It takes months to years for the FDIC to wind up a small bank.

I'm sure it's something that could be streamlined with enough practice.


>>Fine. Then the company should get the "death penalty" and be liquidated.

Exactly. After all, corporations are people right? So let's actually treat them like we treat people.


You kill people that rob other people? Where are you from?


The fiduciary value of a human life is about one million dollars. Robbing customers or society collectively of, say, 500 million dollars is thus equivalent to massacring 500 people. Yes, business corporations which commit that level of crime should be dissolved.


Perhaps we should just ban Wells Fargo from business for a couple of years then, equivalent to a prison sentence.


* Perhaps we should just ban Wells Fargo from business for a couple of years then, equivalent to a prison sentence.*

The state of California did something like this, suspending Wells Fargo from bond-investment work, at the end of September:

https://www.bloomberg.com/news/articles/2016-09-28/californi...


So you would fire 260k+ people from one day to another? Thats pretty cold.


In theory, we would put the company in jail. However, this isn't possible.


>After all, corporations are people right

Except they're not, and no one says they are.

All the court said was that groups of people don't lose rights they have as individuals.

So if A has right X B has right X C has right X

then A+B+C have right X


Given the enormous scale of the fraud, someone should definitely be going to prison. "But my criminal organization is very large and not everything we did was illegal" is not an excuse.


Enormous scale? The total fees from this fraud were $2.4 million.

https://www.bloomberg.com/view/articles/2016-09-09/wells-far...

The "excuse" is that a bunch of employees did it against management's express instructions, and that management actually took action (albeit stupid ineffective action) to prevent it back in 2014.

https://www.bloomberg.com/view/articles/2016-09-19/tough-tar...

This is not something that was remotely profitable for WF, this was employees lying to WF to hide the fact that they didn't meet their goals.


I should have known you'd show up with some bullshit misdirection.

The scale of the fraud is enormous because it involved millions of accounts. That means millions of individual decisions to misuse customers' accounts for personal profit. The fact that it generated very little income for WF just means that it wasn't a very successful fraud. You don't get to evade criminal liability by saying that your criminal enterprise worked poorly and failed to run an impressive profit.

management actually took action (albeit stupid ineffective action)

Having instituted the policy to begin with, and with the knowledge of how such policies incentivize people, the management bears responsibility for not only the original problem but the ineffectiveness of the subsequent response. The CEO and his peers aren't some clueless kids that got into the C-suite and pushed random buttons on some big control panel, they're experienced managers with a deep knowledge of economics and institutional dynamics...in fact I'm probably selling them short, I'm sure their resumes tell a much more impressive story about their capabilities. So since they were good enough to hire into senior positions, they are surely good enough to take on the responsibility for the highly predictable outcome of their decisions.


...wasn't a very successful fraud.

The fraud was successful; it caused WF to continue paying underperforming salespeople. The fraud didn't make money for WF because WF was one of the victims - in fact, as far as money lost goes, probably the primary victim.

But the thing is, there is no evidence of any criminal organization or conspiracy. The criminals in this case - the 5,300 sales people - don't appear to have coordinated at all.

Are you sure we are commenting on the same story?


The employees' goal posts got moved repeatedly, to the point where employees started cheating out of desperation.

The CEO is culpable because of his "eight is great" mantra. The average citizen does not need multiple checking accounts and multiple credit cards. The entirely goal of the "eight is great" program was to use high pressure sale tactics to push services onto customers that they didn't need.

> At the end of last year, the average Wells Fargo retail customer had 6.3 products, according to the company. [1]

For retail customers this number is absurd. The CEO was fully aware of this. There were whistle-blowers, of course. They got fired.

This was a failure of corporate governance, a failure of internal checks and balances, and a complete moral failure of the chief executive.

So yes the CEO should be held accountable, and that should include jail time.

[1] http://www.wsj.com/articles/how-wells-fargos-high-pressure-s...


To me the line of argument that this was employee fraud, with an unaware management doesn't fly.

All banks have large internal audit departments precisely for the purpose of catching internal fraud. This is a long standing thing in banking and well established.

The idea that Wells Fargo's internal audit department missed several thousand employees carrying out the same kind of fraud over a period of years is entirely unbelievable.

So either the Internal audit team were in on it (extremely unlikely), internal audit were directed by management not to investigate this, or management ignored the reports for internal audit.

To me, its extremely likely that the later options there are more likely to be what happened.


The fact that it was discovered by an external source, not an internal audit, says it all. How can an external auditor have more information than management? Inconceivable.


And the internal audits of the other major banks have yet to uncover wrongdoing. And yet, up to a year ago I couldn't walk into any bank without getting the desperate, hard sell for services. Where's the BofA and Chase inquiries?

I do miss the pretty lady tellers asking if there was anything else they could do to satisfy me. Not so much the guys.


From your own article: 5,300 employees were apparently engaged in fraudulent activities under his watch.

Profitable or not, I stand by my statement.


The theory that someone is valuable enough to be worth the compensation packages given to leaders of this type of company, but not effective enough to prevent this sort of thing if they give it an honest effort, strains credibility.

The theory that the incentive structure discourages that sort of honest effort is much more plausible. The correct response, if that's what's going on, is to change the incentive structure. Prison being what it is, I'd far prefer a way to do that without sending anyone there, but there does need to be some kind of consequence.


Prison. RICO act for running a large criminal enterprise that defrauded millions. Any other industry fraud at this scale would see the dismantling of the enterprise!


It's not ludicrous, and stating it without justification doesn't make it so. Prison is a penalty built into the law, the Sarbanes-Oxley Act. It's not just a bunch of jealous rabble clamoring for it.


If the maximum penalty is losing one's job, the incentives are aligned towards maximum risk as losses are capped at zero. If prison is off the table, the fines need to be large enough so that the perpetrator loses all of his assets, savings, houses, cars, etc. and has to start again with a used Corolla and a studio apartment, since his Rolodex alone is worth millions.


What about a massive fine? Enough to recover all of his bonuses and a good chunk of his salary during his time as CEO?


Considering that he makes a lot of money when things go right he should at least pay a lot of money when things go wrong.

The reward structure is a little one-sided:

* Things go well, CEO makes a lot of money and stays.

* Things don't go well, CEO makes a lot of money and leaves.


If you can show knowledge of the illegal activity then why should prison be off the table?

I suppose just making the fines high enough to actually punish the company should be enough.


I believe a variation of that argument was used at Nuremberg.


Godwin!


Does calling "Godwin" mean we can't take any lessons from WWII or the Nazi era and apply them anywhere else at all?

The poster I was responding to was effectively making the argument that superiors responsibility for the actions of their subordinates varies inversely as a function of organisation size. Clearly that's ludicrous. The executive are responsible for control structure, management methods, reporting lines, KPI setting, and verification processes to ensure that the above are working properly. Further, and more importantly they set the tone for the ethics of the organisation both by what they focus on and by what they ignore.


What do the libertarians say about this theft? While I understand the idea of the free market, I don't see how that would have protected the consumer in this case. The CEO has millions of times the power of the average consumer, and can harness thousands of people to his agenda.

The consumer is left to either (a) pay the "idiot" tax of being stupid enough to sign up for a thieving bank, or (b) rely on the government to protect his best interests.

While I have severe misgivings about the efficiency and corruption of large government, I find it hard to argue that a perfect "free market" would be better for the consumer.


I can't speak for all libertarians, but I consider myself a libertarian and I can make some observations about this whole situation..

1. Those customers who were stolen from will get to participate in the mother of all class-action lawsuits. The settlement will be outlandish. Juries hate huge corporations that screw the little guy, and the lawyers on both sides know it.

If you don't trust the class action to provide you with an equitable settlement, you can opt out and sue them individually. No doubt many lawyers are already lining up for the easy money here.

I've never known a libertarian who opposes the existence of a legal system.

2. So far, no one has produced evidence that the CEO knew about this or allowed it to happen. Putting him in prison would therefore be unjust. The article claimed that his sales quotas were excessive, but the only source for that is the same employees who knowingly defrauded their employer. Relying on their honesty seems like a bad idea.

What we know for sure is that he had sales targets for his salesmen, which is not unethical or unusual. We also know that the vast majority of Wells Fargo salesmen did not resort to fraud to hit those targets.

Even if the sales targets were high, the employees should either step up to the challenge, request a transfer out of sales, or resign. There are no excuses for defrauding your employer, and claiming "my job was too hard, so I lied!" is cause for termination.


> 1. Those customers who were stolen from will get to participate in the mother of all class-action lawsuits. The settlement will be outlandish. Juries hate huge corporations that screw the little guy, and the lawyers on both sides know it.

Nope, since they have a mandatory binding arbitration clause. See http://www.nytimes.com/2016/11/24/business/wells-fargo-asks-....


  "mandatory binding arbitration clause"
Wells Fargo hay have put an arbitration clause somewhere buried in their fine print; however, "binding" is what would be questioned by the courts. Probably pretty easy to refute its bind-ability, given that WF has negated and demonstrated incompetence on its side of the contract duty: safeguarding the consumer's info.

(Binding contracts require competent parties on both sides).

http://www.nytimes.com/2015/11/01/business/dealbook/arbitrat...


The Supreme Court has upheld binding arbitration agreements in the last few years, and unfortunately "demonstrating incompetence" isn't grounds for voiding this. There's also nothing here to indicate that customers or the bank were not "competent". There are certainly issues with the fraudulent accounts, but the entire relationship with the bank would likely be covered by the arbitration clause from the initial account setup (which the customer agreed to). Customers would have to show something along the lines of fraud in the inducement.


> If you don't trust the class action to provide you with an equitable settlement, you can opt out and sue them individually. No doubt many lawyers are already lining up for the easy money here.

You either aren't familiar with what the colloquialism "easy money" means or you are really underestimating the difficultly of going to court against a bank.


As to 2.

Either the CEO did know, or he should have known. The bank's internal audit teams must have known (they would have reviewed staff activities as they always do for fraud, and the idea that they had missed this for many years isn't tenable)

So either the internal audit teams were instructed not to report these issues, or senior management ignored their reports.


no one has produced evidence that the CEO knew about this or allowed it to happen.

He signed his name to the financial reports.


> 2. So far, no one has produced evidence that the CEO knew about this or allowed it to happen.

http://www.businessinsider.com/steve-jobs-on-the-difference-...

"Somewhere between the janitor and the CEO, reasons stop mattering," says Jobs

It's one thing to have one or two departments with illegal incentives. When the entire company is run using illegal incentives, the CEO has to know. Or, he should have known.

Quite frankly, the entire executive should be fired for cause, and sued by everyone.


Reminds me of an anecdote from my days working at a medical device manufacturer. The sales person was responsible for assessing hospital stock of the devices they sold as hospital personnel were too busy doing actual work to do so. The sales person would take inventory and leave a purchase order for the hospital to approve. Story goes that one (some?) of the sales people for a competitor (never us) would lift a ceiling tile and chuck inventory up there. "Oh, looks like you are running low on..."


Most libertarians agree that fraud should be illegal, and that customers should be able to press criminal and civil charges if fraud is perpetrated against them.

In this case, the bank charged customers for services they never requested. That is fraud. It has nothing to do with "free markets" as defined by libertarians.

If you find some libertarian scholarship, you will also notice that libertarians see contract enforcement as a vital role of government. This would also be a breach of contract.

Libertarian != Anarchist :)


Libertarian != Anarchist

This "faith in the law" is libertarianism's biggest weakness, and the reason why the older I've gotten, the more appealing anarchism has become. The ways we see the law working in this case, are just the ways that law actually works. Screw the little guy and protect the big man? A feature, not a bug!

The reasonable way to oppose unfairness is to actually oppose unfairness, not to imagine that some contingent and evolved phenomenon called "law" is going to magically give us what we want. If utopia comes and police are devoted only to the enforcement of contract, those entrusted with interpreting contracts will be our rulers. Those in power, will exercise power. This recursion can't be defined out of existence.


Agreed, and I appreciate the comment. I've developed the same appreciation for anarchism.

But the original comment I responded to seemed to imply that the libertarian theory would allow this "free market" behavior, which is not the way libertarians see it.


+1 for this. Libertarians are not against laws. In fact contract enforcement is arguably the most important law.


In a "perfect free market", customers have access to all of the information required to make the decision, and can make an informed choice on the products and services they buy and sell based on their circumstances.

That wasn't the case in this situation. Customers didn't have all of the information, and as a result, were taken advantage of.

In regards to the specific fraud component (signing up customers to services they didn't ask for), I think you've just seen the consequences of what happens. Share price tanks, CEO is forced to leave. Again, this comes down to access to information; when it became clear Wells Fargo were committing fraud, the market moved against it due to a reduction in good will/image/reputation. As a result of this information becoming public, fewer customers are likely to sign up to Wells Fargo, meaning the expected profits from this company are likely to be lower than expected previously.

The government has a role to keep information available, so society can make a decision about what it deems acceptable corporate practice.


Of course, basically all economic theory is predicated on the assumption that information is basically free and widely available. In reality, this is simply not the case - information is either not free, or it is time-consuming to acquire (and therefore not free in another sense). As soon as one understands this a lot of free market ideology stops making sense and things like Consumer Production Bureaus start to sound like an intelligent way of managing risk insurance for the general population.


Economic theory is not predicated on such a thing. Information asymmetry is a modeled and studied effect in economics. The efficient market hypothesis is a model that lets you explain certain phenomena that happen even if information is perfect, and though real life is not perfect, it has resemblances to such scenarios.


It's based on assumptions as he described:

"Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify the proofs of desired conclusions. Examples of such assumptions include perfect information, profit maximization and rational choices."

https://en.wikipedia.org/wiki/Economics


Not economics, some models of economics, and economists and the field is very well aware of the limitation of their own modeling, since the rest is borderline sociology with very limited capacity of experimentation, and some of the most prominent economists (Marx, Adam Smith, Keynes) wrote extensively in sociological terms.


Perhaps a more narrow description would be for me to have said most free-market economic theory and/or Chicago-school theory, which is what I studied. Other schools of economic thought do a better job of explicitly taking into account the assumption that information is costly.


I have libertarian tendencies, but I don't think the free market is the answer to all our woes.

Free markets are for efficiency, laws are safety.


Yeah, you don't really want free markets - you want well-designed markets. It just happens that some of the easiest ways to wind up with a poorly designed or implemented market is by doing the things that the free-market folks rail against. For example, making the regulations for interacting with a market so onerous that participants can't engage in the amount of market behavior that they need to fill their needs.

On the other hand, a lack of enforcement against fraud and deception can also ruin a market. For a good example of this, American consumers do not have to check for counterfeit rice, while Chinese consumers do.


It's common for purist libertarians to believe that contracts are very important, and their enforcement to be one of the main duties of the state.

I don't think that adequately handles situations where the CEO creates an environment where the emergent behavior of low level employees is to create fake accounts, but it would possibly address the liability of the financial of the victims.


It isn't a truly free market if there is information asymmetry between consumer and corporation. Therefore, government intervention should be considered acceptable to even things out.


there are is never not information asymmetry, so this philosophy would become an excuse to make government intervention in all cases. The next conundrum is how to define 'evening things out', and if you can't imagine that power being misused, you have either a poor imagination or very little knowledge of history.


Businesses compete for consumers. Consumers prefer honest businesses. Businesses optimize for consumer preferences.

Edit: The business considers this complex, multi-variable equation and tries to extract as much profit as possible. In many cases, the consumer is apathetic. Personally, I signed up for a Wells Fargo account last week despite being completely aware of this news. As a joke, I almost asked the guy if I _already_ had an account!


If you live in the West you live in a free market right now. Asking the "libertarians" what they would do about this incident in the "free market" is a deceptive thing to say. Not only does it ignore the fact that we live in a free market, it unjustly pins the failings of the system we live in on a philosophy which has a wide array of different nuances and subgroups. Libertarians range from anarcho-capitalists, to socialist libertarians, to anarcho-communists. Additionally, a "perfect free market" does not exist and never could. Nor could a "perfect government".

If you want to be angry, look at how the government is failing you now. If you want to say that the "non-free market" you're living in is better, well, what happened here? The CEO just gets to retire and they have to pay a measly fine.

Oh and before anybody says "we don't live in a true free market", until we live under absolutely no system of government, nobody civilization has really ever lived under what is technically a free market. If you pay taxes or tribute or respect some sort of authority you live in a government and it is acting upon the market. I find that to be a useless definition.


The problem is that libertarians will use the ideal about free markets to oppose any sort of sane regulation or discussion about the limits of the market. I would say markets in the US are rigged in many obvious ways, due to the outsized influence of business in American elections and the political system. So much of business regulations in the US is written by people from the very same business and people who oversee the markets are often from the same industry they are supposed to regulate and go to fat jobs in the industry after they have done the bidding of the industry in the public sector. Whether it is Tesla, broadband, telecoms or utilities you see the established players effectively block new entrants with all their political connections.

Just look at the ridiculous situation with patents, trademarks and copyrights. All of them have long outgrown their original intention and has been so amplified and extended that they can be used to very effectively kill all smaller competition and milk consumers dry.

The argument that government is horrible has been used effectively again and again to make government horrible. Is has been stripped of cash to work effectively and become completely dependent on largess from the private enterprise to function. That attracts the most rotten people as politicians, thus ensuring that government never looks good. The last thing these people want is a well functioning government.


Pragmatically I'm not a libertarian, though I believe anarchism to be the most moral political philosophy. In practice I lean far left of most people.

What I wanted to stop was this demonization of "the free market" and its wholesale "what would libertarians say nonsense" because it ignorantly ignores the nuances of the political philosophy and unfairly demonizes an economic system that is responsible for a lot of good things.

The issue with patents, well, that's an example of the government failing. Not the market.


It's so true. I have been places where governments were more effective and efficient than in the us ... Worshipping the idea that "governments can never do anything right" seems to be a self-fulfilling proposition in a democracy ...


>If you live in the West you live in a free market right now.

> nobody (in) civilization has really ever lived under what is technically a free market.

So, we do or we don't?


You do live in a free market. You don't live in a free market by a definition including no interference from government. But that's a dumb and useless definition so it's tossed out here.


"A free market is a system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority."

Most, if not all Western countries are not free markets. They are often partially free, but definitely not completely free. And there are very few countries in the world right now, if any, which have a free market.

So no, he doesn't live in a free market.


The definition is too stringent to be useful, and I made note of the Wikipedia definition (because I knew people would google search "what is a free market" to look up the definition since they don't know it) and already gave at least a partial explanation as to why I disregard that aspect of the definition. It's a useless definition, it's like having a philosophical discussion with a solipist.


Look I love Elizabeth Warren but this whole article is really over the top.

> leaders of financial institutions are painfully aware that there are consequences

They were fined lousy 280m and the CEO was allowed to resign a full 3 years after it was first reported. Really, REEAAALLLY painful stuff there.


Its becoming cases of the wheels of justice turn, they turn slowly but they turn. The rate they are turning has become much faster (never --> 3 years is a big speed improvement) and the people that are getting caught in those wheels is a much higher level. 5 years ago clerks, now a CEO.


Then maybe we should ditch the wheels and use Hammers of Justice instead?

The ceo PERSONALLY made more money during the scam than entire bank was fined. really epic stuff here, I mean, Really, way to dish out the pain!


The difference is he didn't personally direct people in a criminal way for personal profit. The fact heads didn't role is what is the real issue here. There should have been a strong internal house cleaning after this became known to the top. But they apparently didn't react in a satisfactory way.

This is where the CEO was at fault. He didn't send the right signal that this type of behavior will result in a skewering. And he (and others at the top) deserved to lose their job as a result.

But to claim he was knowingly profiting from some sort of criminal conspiracy is unhelpful hyperbole.

Whether or not the people who created this internal culture and ignored the malicious behavior of thousands should be criminally liable is another issue. But he was certainly separated enough from it where anything beyond a shameful career ending is a bit much.


The bank was also fined many times more than it made from the scam.


i mean, i guess if you dont factor in 100% stock price increase they didn't make that much money.


And keep his stock valued at $109million..... I am sure he is quite distraught.


The pain is only in the risk to their pocketbook. Not any other actual risk...


most of us are entrepreneurs,so we should all appreciate the value of the corporate vail.

But this is criminal identity theft. all of us would expect real consequences for that kind of activity.


Let's not overlook the fact that not only did the whistleblowers' concerns not get addressed[0], they were also subsequently fired for <bullshit reasons> trumped up charges, AND their U-5[1][2][3][4] was also marked as well, which makes it much harder to get another job in banking as banking organizations have access to this universal employee report card as it is colloquially referred to.

[0]http://fortune.com/2016/10/18/wells-fargos-former-ceo-may-ha...

[1]http://www.wealthmanagement.com/practice-management/u5-hazar...

[2]http://www.finra.org/industry/terminate-individuals-registra...

[3]http://www.npr.org/2016/10/14/497991242/fired-wells-fargo-em...

[4]http://www.forbes.com/sites/billsinger/2011/12/15/wells-farg...


Can we remove:

-"Why x matters" -"What we know" -"Slammed" and -"Number x will shock you!"

from all news headlines?


I wish. Newspapers seem to have decided that the best way to attract readers is to imitate the magazines that live near the supermarket checkout.


Can you blame them? It's ultimately driven by users. If we didn't click on these article titles, the publishers wouldn't use these ridiculous formats.


In pushing for jail time for this particular CEO, Elizabeth Warren is barking up the wrong tree. Stumpf made mistakes in setting incentives and monitoring staff culture, but there is no evidence he committed fraud. The bank overcharged customers $2 million dollars and paid a $185 million settlement. That seems reasonable to me.

More worryingly, the bank also seems to have harassed and blacklisted whistleblower employees. No doubt it will have to pay a hefty settlement and class-action lawsuits, but again the CEO is guilty only failing to monitor bank culture. There was nothing malicious or criminal in his actions.

The number of fake accounts created by the bank - 1.5 million! - is irrelevant. I run a business and can create a billion customer accounts in seconds without harm to anyone else. What matters is how much damage the bank did to others - in this case the bank has already paid a fine proportional to that damage.

Instead of going after a hapless CEO and a company that has already paid a huge settlement for a relatively small error, Elizabeth Warren should focus her attention on banks which overinflated the value of their mortgages before selling them on to other banks or Freddie Mac and Fannie Mae. In such cases we're talking a fraud involving billions of dollars, that led to worldwide financial recession, and where perhaps the CEO had direct knowledge of the fraud.

[Disclosure: I own shares in Wells Fargo]


Part (most?) of the damage isn't contained in the numbers you cited. Wells Fargo used customer identities to apply for and open credit cards, which could have affected their credit scores and thus potentially the interest rates they paid on loans (that could be a lot for something like a mortgage). It's hard to know what the dollar figure of this is, but it probably raises the damages a little bit.


Yes you're right - the bank's actions had an effect on the credit scores of many thousands of people. Still, the size of the settlement with regulators seems to reflect that.


In the same vein, Sheila Bair is an amazing human being. She was chair of the FDIC during the TARP funding and bank bailouts. She wrote a captivating book on the battle against the corruption of banks and the difficulties in policing issues with government funding.

Book link: https://www.amazon.com/Bull-Horns-Fighting-Street-Itself/dp/...


I watched Stumpf testify in front of the Senate Banking Committee, and while I agree that (from what I saw) he should be held accountable, what I don't understand is why the right venue for it is the Senate instead of the Judiciary.

Warren clearly thinks that Stumpf wasn't just doing a bad job, but that what he did and didn't do was criminal in some way (eg the talk of jail time, comparisons to Enron in the article). The CFPB settlement also indicates that there was wrongdoing, at least on the part of Wells Fargo the corporation.

Isn't the right thing to do to prosecute Stumpf in court? The testimony seemed to me to have no purpose other than to put Stumpf "on trial", and it led to damaged PR and his resignation, but it looked like a "trial" without due process protections like knowing what exact charges he was facing. Another missing protection I was particularly disturbed by was how often she would cut him off and not allow him to defend himself (yes, his answers were clearly evasive, but it still isn't fair to do that).


It's fair in that the Senate can't impose any penalty on him other than a public shaming. I agree that it would be better if the judiciary took on this case. Unfortunately Congress holds the power of the purse and that effectively means it can keep the DoJ on a much shorter leash than most people appreciate. Also, sadly, the complexity of litigation means that if it goes to court Wells Fargo could just keep the proceedings spinning out for years before it ever gets to trial, by which point almost everyone will have forgotten what the original issue was. Indeed, this is more or less what happens now.


>It's fair in that the Senate can't impose any penalty on him other than a public shaming.

They can compel him to answer questions, and those answer can then be used by prosecutors.


The testimony seemed to me to have no purpose other than to put Stumpf "on trial"

Think about it. Who would benefit from putting a banker on public trial? I'll give you a guess, their initials are EW.


This is good. Articles like this however always seem to recall the subprime mortgage crisis, when "too big to fail" sheltered CEOs and banks from much fallout.

I would like to express to Sen Warren, and others, that a more fragmented & transparent financial system is important-- but much less than the broadband & tech sector.

Google has 1.6B[0] users of a total of 3.8[1] internet users.

too big to fail is 42% of the world using "core" services from one institution.

The data is hard to find and I am on mobile but the consolidation of global broadband & wireless provideres attempted or closed between 2015-2016 was nearly 1 Trillion. A rollup of unprecedented levels.

[0]http://m.wolframalpha.com/input/?i=+total+active+users+googl... * While this is Alexa's visits total, subsets of Google's 10-k (which doesnt break this out because they are facing heavy competition) adjust to uniques. If someone finds better data, I will adjust, but this seems to be the accepted active user base of google.

[1]http://m.wolframalpha.com/input/?i=total+internet+users&x=0&...


The difference in your comparison though is the internet still works if Google goes under. If a TBTF bank goes under [1] the financial system can halt/implode. Which is the main argument to break up the banks to a level where there isn't total-system fragility.

[1] due to their own reckless behavior / Capitalism on the upside, Socialism on the downside.


The economy still works if banks go down, it just gets messy. How many companies & people use gmail to communicate, google apps for biz, android, search.

40% of the internet hitting Bing would potentially overwhelm it. Keep in mind the subprime mortgage crisis was several banks. Add microsoft and google, the world would panic.

Facebook sees 1/3 traffic of google. Just like a run on banks, people desperate for info would prob level news sites maybe even FB.

Consider that outside of content/services we have providers. Verizon down. At&t down. Overwhelm the other towers or broadband failure.

Leaving aside how disgusting it is that these are actively encouraged monopolies and kill innovation & competition, it is dangerous.

1% of Germany lost internet TODAY. Deutsche telkom hit with ddos. 5 Banks in Russia 2 weeks ago. Oct 21 we all remember what happened to dyn.

This isn't even hypothetical, literally getting worse daily.


>The economy still works if banks go down, it just gets messy.

This is not accurate. The _ability_ of an ISP to route packets is not affected if another ISP stops routing packets (their ability to rout packets is independent). There will be a change in bandwidth usage but not in ability. If a TBTF bank goes down, it is entirely possible that other banks have financial contracts with it that are necessary to be fulfilled for the second bank to remain operational (their ability to route financial payments is dependent)


Well, I am going to call BS as if we had regulation regarding consolidation of banks, then we would have a larger eco-system in the financial areas: [0]

Here is my problem with banking, if naive, please inform me: Banking should be treated like any other base infrastructure. Financial infrastructure is critical. It is not ok for the foundation of modern commerce and civilization to be controlled by so few. We need to revamp our financial situation. period.

http://www.motherjones.com/files/images/big-bank-theory-char...


What we need is a federal licensing agency for bankers that is similar to the state-by-state licensing agencies for lawyers. That way, when a banker gets caught violating ethical obligations (e.g., defrauding people) he can be disbarred from ever working in finance ever again. Proving an ethical violation is much easier than proving a criminal act.


I doubt the Consumer Financial Protection Bureau will survive the upcoming Trump/Republican attack on federal regulatory agencies.


Isn't it awesome? And in a couple of more years when we have another meltdown we can again say that nobody saw it happen and blame everybody but ourselves. F*ck us.


It has around 600 Million dollar budget and employs 1000s of people. The upcoming crazy administration putting their foot on anything of that scale could be suicidal.


Big whoop. No jail time served. Stumpf stepped down and the criminal enterprise (that remains till this day) was charged with millions that when compared to their profits (in the billions) range, what really was accomplished? The worst thing that happened here was he lost his job but kept a nice severance package and took a vacation. Talk about justice.



Can she and other senators question and bring down Trump if he does something illegal?



But the chances of that happening are slim, given that the Republicans will control both the House and the Senate, and in the end a successful impeachment requires a 2/3 majority. It could happen if he makes enough Republicans angry and/or does something illegal _that they agree should be illegal_. This would likely exclude running afoul of some business law that the current Congress enacts to specifically target his divided interests (like trying to force him to put his business in a blind trust, something that every other president has done by convention).

Then again, the establishment Republicans would probably be much more comfortable with Pence in the driver's seat, so who knows?


Take Down? WTF he still has all of his many millions and is not in jail.


VW CEO didn't resign;



great capitalism, great democracy


It would be good if Elizabeth Warren would look into the Clinton Foundation. Make sure things are up to snuff, so to speak.


Im too lazy to look, but I'm pretty sure this same thing was reported many times before.


I absolutely love Senator Warren. That being said, the notion that the stock price of Wells Fargo could be significantly impacted by this scheme (which is central to Ms. Warren's argument) is not well founded.

Wells Fargo makes 86 billion in revenue per year. Even if 10 million accounts were made and each made a thousand dollars -- (incredibly generous) ... over the course of 5 years this accounts for 1 billion in revenue or 200 million dollars per year. Annualized it is much less than 1% and would not inflate the stock price.

These guys definitely made a mistake. It wasn't calculated fraud. It was bad incentive setting. Politicians like Warren don't intuitively understand how hard it is to actually control a group of thousands of middle-class workers and get them to do things.It is not easy to govern ... sadly politicians are the least knowledgable in what it takes and they hurt good people like Stumpf (I trust his leadership and qualities because he was appointed by Buffett).

WF stock dropped a bit prior to the hearing and I bought as much as I could. Luckily most of Wall Street is smarter than such politicians and it paid off. Thanks Senator Warren.

What I would like to see is politicians be held to the same accountability as these guys. That would be hilarious. I wonder how well Obamacare would do if we could actually measure results based on metrics.

Our society needs people that can blend business acumen with the spirit and heart of people like Elizabeth Warren. Only Buffet or Gates come to mind.


You make a good point about how hard it is to properly incentivize a large group of people. Stumpf and leadership made a best estimate for what goals and incentives were necessary to reach performance. However, the key is that when employees began voicing concerns over what was being done they were ignored and in some cases intimidated and blacklisted from working in banking. That is why they should be held accountable. It's because of their lack of positive action when the negative outcomes from their incentive program began appearing.

http://fortune.com/2016/10/09/wells-fargo-work-culture/


The point wasn't for these fake accounts to generate revenue. The bank executives knew that Wall Street used the number of new accounts opened as an indicator in their valuation of the stock. They explicitly reported new accounts in their quarterly results. Knowing this the executives pursued policies to boost account numbers reasoning that it would boost the stock price by boosting expectations even though it wouldn't boost revenue.


This is the central point I am making: there is little evidence that: 1) The stock price was inflated. This can be seen by the fact that the valuation of WF is relatively stable both prior to and after this debacle. (outside of the short term volatility due to the scandal). If what you are saying is true then we would have expected the market to dump WF shares at the "inflated" price. This did not happen

2) That the intention of the executives was to increase the stock price by leveraging the fake accounts rather than to increase real accounts whilst policing an incentive scheme that was harsh to the point that it resulted in bad behavior by low level workers.

My point is that the revenue impact from the addition of fraudulent accounts is so negligible that to equate it to "fraud" is misleading.

Any incentive scheme has cheaters, abusers and fraudsters. That is the norm in an organization that employees thousands of unskilled workers.

This is a case of an incentive scheme that was pushed too hard despite market realities -- to the point where people felt compelled to lie to keep their jobs (which was morally wrong on their part -- regardless of "how tough it is to find work" or "needing to put bread on the table"). Those people were fired. In order to understand if this was fraud or not we need to look at whether or not these incentive schemes generated an increase in LEGITIMATE accounts being created.

If this was the case then the incentive scheme worked and policing needed to be increased or modifications needed to be made to the management to prevent bad behavior.

If this was not the case -- then we have to ask why the management chose to push harsh incentive schemes knowing that it only created fraudulent accounts.

The type of black and white thinking that is going on in this thread (and elsewhere) is emotionally driven due to the size of Stumpf's paycheck. Most people are just not used to seeing $100mm dollars.

I would be very skeptical of articles like the one linked to above. Anyone who has lead a large organization that contains people that couldn't compete or got fired and angry has heard these types of gripes... they are a dime a dozen. My point is that Stumpf paid for his sins and I don't think we need to roast him further. I think Warren's appraisal of the situation is excessive.


The problem with this argument is that they were aware of the fraud as early as 2007 and did nothing to correct it. They were complicit in it.

http://money.cnn.com/2016/10/18/investing/wells-fargo-warned...


You are right. I am wrong. Thank you for teaching me!

Was not aware of this letter:

https://www.documentcloud.org/documents/3143757-Wells-Fargo-...


If you can call "meet the goals or get fired" incentive setting. Forcing employees to carry out some cack-headed upper management initiative on pain of losing their jobs isn't that.


If the CEO shouldn't be held liable for the fraud then why shouldn't the ones who signed off on all the fake accounts? Didn't they directly benefit from inflating the numbers?


"These guys definitely made a mistake. It wasn't calculated fraud. It was bad incentive setting. Politicians like Warren don't intuitively understand how hard it is to actually control a group of thousands of middle-class workers and get them to do things.It is not easy to govern"

Oh come on, talk about sugar coating it!!! If you create crazy incentives of course it is FRAUD! If it wasn't CEOs could wash their hands of every possible fraud they might imagine by simply setting the right incentives to get the fraud done. You got an economy were people are lucky to hold onto a job and you are threatening them with getting fired if they don't meet your insane goals? That is like a tortured person answering whatever the torturer asks.

We see this stuff happening again and again. This is the new way of committing fraud. Engineer it so that the poor suckers at the bottom have to take all the heat. The poor suckers who have no golden parachute to fall back on when they are kicked out.

When you got 5000 employees caught doing this, the alarm bells should be ringing and you should realize you did something wrong instead of firing everybody. 5000 employees aren't all rotten apples who did something for their own gain. They gained nothing and put their reputation and job on the line for this so top management could line their pockets.

Makes me sick.


How is it fraud? No one told them to make fake accounts. Even the most naive person knows that making a fake account is wrong. 5000 people did the wrong thing. To me it seems like people are blaming the top for widespread moral bankruptcy at the bottom.


I'm sure you've heard that ignorance of the law is no excuse right? Similar principle works here. No way the CEO did not know what was going on if 1000's of his subordinates were doing it. Saying that he couldn't have known is negligent. Personally I do not buy the story that he did not know. Come on for fucks sake, Trump just got elected on virtually pure lies and you are still being stupidly naive. This CEO knew.


He is not going to jail because they did nothing illegal, and most likely didn't even have negative intent.

You are speaking like someone who has little experience with sales culture or sales incentive structures.

You also seem to be naive to the level of fraud, theft and lies that "working-class" people regularly commit. Get out of the kumbaya bubble and wake up to reality.

Workers do bad things all the time. They fired people when they caught them doing fraud. They never encouraged or enabled people to do fraud. They should have pushed for stronger top-down communication to state that they are investigating it and shutting it down.

I'm not saying these guys are angels. I'm saying that people are blowing this out of proportion comparing it to Enron.

That's my 2 cents. Take it or leave it.


Yeah, people like you are the problem. Just because you are used to it and/or every body does it does not make it OK. All you are doing is continuing to make excuses for the current fucked up system.




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