Has Anything Been Learned? Will Anything Change?
With the caveat that I’m not necessarily saying it’s the best option (for a variety of reasons), but unless authorities go after the heads of huge financial institutions, claw back money ill earned, impose realistic criminal penalties, very little of what caused the real estate and banking crises is ever going to change. The culture, the most powerful of influencers, flows from the head down and in this instance is long and deep entrenched.
The recent $13 billon settlement between JP Morgan chase and the Justice Department is a case in point. Just looking at where that organization is now verses before the crises tells you that their risky behavior was well worth this "punishment." There has been no real “teaching moment” here. Incentives and culture (both corporate and broader societal) have been veering off the proverbial tracks for decades. A few years or rogue repercussions will not change that.
And neither will new rules, including those under Dodd Frank, truly get us where we need to be. The incentives to work around them are just too big. Regulators are just too ill equipped in so many ways and we know that the best of them oftentimes wind up working for or advising those they once regulated A whole other topic but one which, as long as allowed to continue will likely always be a kink in regulatory ability armor. Not to mention the issue of rules being written by folks with limited hands-on experience in what they're regulating (and auditing and enforcing), influenced as much by lobbying as by professionals on the front line (who typically provide input before the rule gets written but not so much afterwards when crucial make or break interpretation and enforcement happens). Besides, regulation in this industry is still ten parts reactionary one part proactive. What have evolved are layers of rules to reign in incompetency and worse. You can’t realistically regulate that.
When it comes to Dodd Frank in particular, though many new regulations do not begin until January 10, 2014. On the front lines we are still seeing very little improvement. For example I spoke with a mortgage servicer last week and still get the run around that helped make put that industry on the regulators radar screen in the first place. Folks on the other end of the telephone line it seems could still care less about “single point of contact” requirements and response times. Culture and personal incentives are still far more influential. Many mortgage brokers will tell you that changes in their industry have actually made loans more costly for borrowers and in the title closing industry banks are passing on much of the new QC rules translating to costly IT which I predict will absolutely push smaller service providers out of the business. I myself ran a fortune 300 title closing company for years and can tell you I would not touch that industry with a ten foot pole any more. A few years from now title closings will be as frustrating and wrought with peril as loan servicing. Thanks to new regulations.
And what of the "johns," in this case that percentage of borrowers who knew or should have reasonably known that they were taking the wrong path with a home purchase or refinance? No doubt there are plenty of innocent borrowers who used good judgment with bad professionals or products and need help but we've also seen endless bad decision making often crossing the line into fraud by borrowers. Rather than reinforce good behavior from Main Street. Over the past few years Washington has given everyone free reign to play the victim card. A culture bound to lead to more, not less, responsible behavior in any context.
No doubt holding JP Morgan chase liable for wrongdoing circa bear Stearns and WaMu, in particular, is a slippery slope. The fact that someone stepped up to help solve that mess, the lion share of which was created before those deals ever happened was presumably beneficial for taxpayers. So I’m not saying much of what’s now being settled with JP Morgan Chase should have even been an issue in the first place but once the decision was made to put it on the table, an outcome that would have realistically made a difference would have been nice.