The lies of bankers
It’s journalism-awards season right now, and I’ve been having a lot of discussions of late about whether and how to give out awards for blogs. And one of the points I make repeatedly is that if you’re going to do that (and I’m not convinced that it’s a good or workable thing to do), then the quality of the comments has to be a key consideration in the judging.
I’m blessed with some wonderful commenters, who really know what they’re talking about. On the subject of getting quotes from investment banks, for instance, ruckandmaul writes this:
For a long tme I had to get “marks” for month end pricing on bonds. These were simply corp bonds for month end pricing. I would call to a couple of dealers and ask for a price on XYZ bonds, “89 by 89.50″. No, I’m not looking to sell just give a price for month end, I always called the shops where we were a big client, “oh, for pricing, 93 by 93.75.” Thanks, remember us the next time you make a trade! How the “marks” were done for CDS nonsense and other esoteric offerings, I can only shudder at the thought.
In a way, it’s astonishing that Simon Treacher even needed to falsify his marks by means of clumsy forgery: wouldn’t it have been easier to just find a complaisant desk on the sell-side somewhere?
On another post, RogerNegotiator finds an astonishing OCC letter, authorizing a bank’s request to adopt largest-to-smallest check posting, thereby maximizing overdraft revenue. (If you have $100 in your account, and put a $1 candy bar on your debit card, followed by a $15 t-shirt, both transactions will end up generating a $34 overdraft fee if a $90 check comes in later in the day: the bank will end up making over $100 in fees that day alone.)
The key section in the letter is the last one, entitled “The Bank’s Consideration of the Section 7.4002(b) Factors”. That section lays out four reasons to adopt the practice, and concludes that “the Bank’s process for deciding the order of check posting is consistent with the safety and soundness considerations set forth in section 7.4002(b) and that the Bank may therefore post checks in the order it desires”.
What are those four reasons for ripping off consumers so blatantly? The very first one is “projections showing that revenue is likely to increase as a result of adopting a high-to-low order of check posting”. That’s considered a reason to adopt the practice, in the eyes of the OCC.
As for the rest of the reasons, they’re mostly ridiculous on their face. I love this one, for instance:
The Bank concludes that it needs to adopt the high-to-low order of posting so that customers who frequently write checks against insufficient funds do not do business with the Bank primarily because the Bank’s fee for checks presented against insufficient funds is lower than its competitors’.
Essentially, the bank is saying that its competitors have high overdraft fees, and that it doesn’t want to compete against its competitors, so it needs high overdraft fees too.
And then there’s this beaut:
The Bank states its belief that a high-to-low order of posting is consistent with the majority of its customers’ preferences. The Bank surmises that the intended order, which will result in a customer’s largest bills being paid first, will have the consequence of the customer’s most important bills (such as mortgage payments) being paid first. The Bank thus concludes that a high-to-low order is aligned with the majority of its customers’ priorities and preferences.
This is accepted at face value by the OCC, instead of simply being laughed at. Of course, no one bothered to ask the customers, because they knew full well that customers would never say that they preferred this way of doing things. But so long as the bank simply says that customers prefer it, no problem.
Overall, what we’re seeing here is banks lying about the value of securities and about their customers’ preferences, and regulators doing nothing about it. And, of course, we’re also seeing how wonderfully rich the comments section of a blog can be.