The banking world reacted with relative indifference to the massive fine that Wells Fargo has agreed to in a settlement with regulators over manifestly criminal behavior that lasted for at least a decade. According to Andrew Murray, US attorney for the Western District of North Carolina, the bank clearly deserved the $3-billion fine the court assessed for fraud that included opening new accounts for customers without their consent and surreptitiously imposing charges for services they had not agreed to. Murray expressed his own astonishment at the “staggering size, scope and duration” of what the media calls Wells Fargo’s “fraudulent sales practices.”

“We are hopeful that this $3 billion penalty, along with the personnel and structural changes at the Bank, will ensure that such conduct will not reoccur,” said Nick Hanna, US attorney for the Central District of California.

Here is today’s 3D definition:

Hopeful:

Confident that, believing a serious abuse has been atoned for, things will rapidly get back to normal so that the abuse can continue in the future in a more palatable form.

Contextual Note

If the scope and duration of what is euphemistically called “sales practices” merited the regulators’ condemnation, the nature of the practices amounts to no less than organized and managed theft carried out on millions of victims. Jack Kelly, writing in Forbes, describes the behavior in these terms: “Employees were accused of creating fraudulent checking and savings accounts by moving money out of existing accounts into the new ones. This was made possible by ‘pinning’ — a process in which the customers [sic] PIN number was set to ‘0000,’ so that bankers could readily control their clients’ accounts and keep them in the dark.”

The figure of $3 billion may seem like a serious punishment for Wells Fargo, but the bank will manage to pay the fine with no particular consequences other than fleeting damage to its reputation. The Motley Fool even considers Wells Fargo an attractive investment, especially if, as a consequence of the settlement, its share price drops in the near future. The regulatory action clearly punishes the bank’s existing shareholders, including Warren Buffett (see below), by reducing share value, but no criminal charges have been brought against those responsible for what is clearly a massive white-collar crime.

Kelly describes the role of the bank’s management in these terms: “Wells Fargo executives pressured rank-and-file bank personnel to aggressively cross-sell products to enhance sales and revenue to meet certain quotas.” Not only were they guilty of organized theft, but also of abuse of hierarchical power causing real psychological damage to many of the banks’ employees. The website Chief Investment Officer reveals that the bank was aware of its systemic breach of ethics even while encouraging it: “Internally, Wells Fargo referred to the illegal practices … as ‘gaming.’ The SEC said top Wells Fargo managers were aware of the gaming practices as early as 2002.”

Presumably, all these executives and managers have names and can be identified, but there have been no prosecutions. Kelly mentions that “John Stumpf, Wells Fargo’s chief executive at the height of the scandal, was forced to resign.” He also received a lifetime ban from working in the banking industry. Peter Whoriskey reported for The Washington Post in late January that Stumpf “voluntarily forfeited $41 million in stock awards and returned incentives valued at $28 million.” On the other hand, the Los Angeles Times reminds us that Strumpf “stepped away with stock worth more than $80 million, according to calculations by Bloomberg. He collected more than $60 million of salary and bonuses during his years at the San Francisco-based firm. And he had accumulated a pension worth $22.7 million by the time he departed.”

We also learn that regulators are “seeking a prohibition and $25 million in fines from Carrie Tolstedt, an executive who reported to Stumpf.” Tolstedt’s lawyer affirms that Tolstedt will be vindicated: “Throughout her career, Ms. Tolstedt acted with the utmost integrity and concern for doing the right thing.”

According to NPR, the terms of the settlement provide for the fine to be “to the U.S. Treasury, while $500 million will go to the Securities and Exchange Commission to be distributed to investors.” Customers may have been gouged, but today’s justice requires that shareholders should never unduly suffer the consequences of corporate crimes.” Neither should those responsible for the crimes, as evidenced by the fact that “the Justice Department agreed to defer criminal prosecution of Wells Fargo, as long as the bank meets certain conditions for three years.”

CNBC summed up the case in these terms: “Wells Fargo has agreed to admit wrongdoing and pay $3 billion to resolve investigations into its long-running fake-account scandal.” That’s how the courts deal with admitted “wrongdoing.” As the proverb tells us, time heals all wounds. After a waiting period of three years, all will be “resolved.”

Historical Note

Wells Fargo was founded in San Francisco in the middle of the 19th century. The name became legendary for Americans because of the Pony Express, the horseback mail service it created that covered most of America’s west. It’s time for the bank to renew its bonds with its own history. The current CEO, Charlie Scharf, has stated the bank’s intention to renounce its sinful ways of the recent past and return to its historical core values: “The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built.”

Warren Buffett has been a major investor in Wells Fargo for some time. Last year, his company, Berkshire Hathaway, sold a quarter of its shares in the bank, but Wells Fargo is still its fourth-largest stock holding. As Buffett explains it in an interview with CNBC’s Becky Quick, it doesn’t really matter how they do their business, commercial banks deserve investors’ attention because they “earn between 12% and 16% on tangible assets. That’s a good business. It’s a fantastic business.”

Buffett nevertheless complains that banks sometimes do “dumb things” and calls Wells Fargo’s actions in the past “massively dumb.” As for the specific crimes Wells Fargo has been charged with, including the pressure put on employees to create as many “phony accounts” (Buffett’s words) as possible, he calls it a “dumb incentive system.” He then makes his major reproach to the bank’s executives: “The big thing is they ignored it when they found out about it. You’re going to do dumb things in business, we do them every day, but you absolutely have to attack a problem as soon as it occurs. If that had happened, the shareholders would be a lot better off.”

Pity the shareholders, not the customers, is the major point Buffett will always make. His second point is that white-collar crimes shouldn’t really be thought of as crimes. They’re just “dumb things” very well-paid people often do. He mentions “dumb” so many times, one wonders whether he doesn’t consider criminal activity as a kind of behavioral norm. As he says, dumb things are what “we do … every day.”

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A Freudian analyst would find the confirmation of this apology for crime in one of Warren Buffett’s casual remarks. When he attempts to moralize about what the bank’s executives should have done, the always folksy Buffett misquotes the proverb he summons to define his moral bearings. As the Freudian analyst would suggest, we should seek the truth in the first version. Here is how Buffett frames his proverbial wisdom: “An ounce of perversion … an ounce of prevention is not worth a pound of cure. An ounce of prevention is worth a ton of cure.”

The cure itself may be a perversion. In any case, Wells Fargo’s settlement with the regulators, with no punishment in view for the great banking minds responsible for the crimes, should, in any ethicists view, be considered a form of judicial perversion.

[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.