The Bank That Couldn't Shoot Straight

Other than President Donald J. Trump, Wells Fargo CEO Timothy Sloan has to be the most hated man in Washington, or at least he was this week.

On Monday, the New York Times published a story which said employees at the bank “remain under heavy pressure to squeeze extra money out of customers” despite “years [of] publicly apologizing for deceiving customers with fake bank accounts, unwarranted fees and unwanted products” and claims by top executives that they “have eliminated the aggressive sales targets that spurred bad behavior.” That was a reference to the 2016 scandal in which over a period of many years, thousands of bank employees opened millions of accounts without customers’ knowledge or consent.

But that proved to be only the beginning of the bank’s problems. Since then there has been a steady drip of one scandal after another, from forcing auto loan customers to buy insurance they didn’t need to allegedly overcharging military veterans for mortgage refinances.

Indeed, “each time a new scandal breaks, Wells Fargo promises to get to the bottom of it. It promises to make sure it doesn’t happen again, but then a few months later, we hear about another case of dishonest sales practices or gross mismanagement,” Rep. Patrick McHenry, R-N.C., told Sloan at a House Financial Services Committee hearing on Tuesday.

At the hearing, members of both parties lambasted Sloan and his bank. Continue reading "The Bank That Couldn't Shoot Straight"

The Fed's 2018 New Year's Resolution

George Yacik - INO.com Contributor - Fed & Interest Rates


In February Jerome Powell takes over as chair of the Federal Reserve, succeeding Janet Yellen. His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation. He and the other members of the Federal Open Market Committee should at the very least change the inflation target number, or, better yet, find a different measuring stick altogether.

One of the Fed’s mandates, we know, is to keep inflation “stable,” as noted on the Fed’s website, citing the Federal Reserve Act (the other two mandates are achieving maximum employment and moderate long-term interest rates). The current Fed has taken to defining price stability as 2% inflation. Given that the Fed already basically believes it has accomplished the other two objectives, and price inflation has been nothing but rock-solid stable for several years, it’s not clear why it’s still so determined to get inflation up to that 2% target rate, and letting that dictate its monetary policy. If prices are stable at about 1.5%, rather than 2%, doesn’t that meet the mandate, as long as prices are stable?

During the Great Depression of the 1930s the lack of inflation – more accurately, deflation – was a big problem, feeding the downward spiral in the economy for more than ten years. Since then, economists, both on the Fed and elsewhere, have been absolutely terrified of that happening again, even though we haven’t come close to it, not even during the depths of the recent Great Recession. Now that we have seemed to have finally pulled out of the last financial crisis, it’s time to put that deflation obsession to rest. Continue reading "The Fed's 2018 New Year's Resolution"

Trump: Bad Bankers Beware

George Yacik - INO.com Contributor - Fed & Interest Rates


So now President Trump has thrown himself into the discussion about Wells Fargo. Maybe now the bank will get the justice it deserves. And maybe now the message about Trump’s intentions about financial regulation will become less fake.

First a little background. Three months ago Federal Reserve Chair Janet Yellen made some pretty startling comments for a Fed chief, publicly criticizing Wells’ behavior toward its customers as “egregious and unacceptable.”

She was talking, of course, about the bank’s years-long practice of signing up its customers for checking accounts, savings accounts, credit cards and other products without asking their permission or even telling them. But since then there have been reports and admissions by the bank of several other excesses, such as charging auto loan customers for insurance they didn’t ask for, dunning mortgage customers for interest rate-lock extension fees when the bank itself caused the delays, overcharging military veterans on mortgage refinance loans, and allegedly closing customers’ accounts without telling them why it did so.

You would think that the Fed – which regulates Wells and other big banks – would have come down on the bank by now. Yet nothing’s happened since Yellen made those comments.

Then last week the president injected himself into the fray. Continue reading "Trump: Bad Bankers Beware"

Fleeing The Fed Ship

George Yacik - INO.com Contributor - Fed & Interest Rates


William Dudley, the president of the Federal Reserve Bank of New York, has become the latest senior Fed official to announce his retirement. He follows Fed Vice Chair Stanley Fischer, who announced his intention to resign in September, and Daniel Tarullo, the central bank's top financial regulator, who announced his resignation back in February.

Of course, the biggest departure at the Fed was one that wasn’t voluntary, namely President Trump decision not to renominate Janet Yellen for another term as Fed chair, ignoring 40 years of precedent to reappoint a sitting Fed chief. Instead, of course, he nominated Fed governor Jerome Powell to replace her when her four-year term ends in February. Still, Yellen is entitled to finish her 14-year term as a member of the Fed’s Board of Governors, which doesn’t expire for another seven years, on January 31, 2024, although her staying on would also be unprecedented.
All told, there are now three open seats on the seven-member Board of Governors, which of course may rise to four if Yellen elects to leave.

It’s pertinent to ask, then: What are all the departures at the Fed, both voluntary and involuntarily, signaling? Is it simply senior officials graciously moving aside to let a new president get a chance to pick his own people? Or is there something more sinister afoot, namely, do they indicate that a big change in the market is about to occur and they want to get out before the chickens come home to roost? Continue reading "Fleeing The Fed Ship"

Janet Yellen's Final Exam

George Yacik - INO.com Contributor - Fed & Interest Rates


Although he professes to “really like her a lot,” President Trump appears to have made up his mind that that the next chair of the Federal Reserve won’t be the incumbent of the past four years, Janet Yellen.

On Tuesday, according to media reports, the president asked Republican senators for a show of hands on whether they favored current Fed governor Jerome H. Powell or John B. Taylor, the Stanford University economics professor and frequent Fed critic. Results of the informal vote weren’t disclosed. On the same day, the New York Times ran an article comparing the “finalists” for the Fed chair position, mentioning only Powell and Taylor, even though the White House has said Trump is considering three additional candidates, including Yellen.

So it now looks like it’s a two-man race between Powell and Taylor. Trump has promised to make an announcement any day, at least before his trip to Asia at the end of next week.
Regardless of who he chooses, it’s certainly an appropriate time to review Yellen’s tenure as Fed chair, either as a historical exercise or as an indicator of what we can expect for the next four years in the event she is reappointed. Let’s look at some of the main points. Continue reading "Janet Yellen's Final Exam"