A few weeks ago, I described Wells Fargo's subprime mortgage machine as "capitalism at its worst." According to a June Washington Post expose, the bank systematically pushed subprime mortgages to minority households, charging exorbitant interest rates even when borrowers had sterling credit.
These revelations at Wells Fargo -- the country's largest mortgage lender -- are part of a bigger, deeply disturbing story of how U.S. financial institutions stripped wealth from communities of color during the real estate boom to fuel record profits and huge compensation packages for top executives and star brokers. Partly as a result, minority households have lost most of their hard won gains in wealth made over a generation. It's hard to find a more jarring example of how America's Haves prey on the Have Nots, in what has become an "extractive" society -- meaning a society in which elites suck wealth from the populace, much the way feudal lords once did.
As I said, capitalism at its worst.
Today, we learned what the punishment is for Wells Fargo: a slap on the wrist. The Justice Department just announced a $175 million settlement with the bank for discriminating against African-American and Hispanic borrowers -- small change for a company expected to have revenue of $20 billion this quarter. Especially considering how morally revolting the company's behavior was. As reported in the Times:
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
Wells Fargo brokers also steered more than 4,000 minority borrowers into costlier subprime mortgages when white borrowers with similar credit risk profiles had received regular loans, a Justice Department complaint found. The deal covers the subprime bubble years of 2004 to 2009.
Thomas Perez, the assistant attorney general for the civil rights division, said the practices amounted to a “racial surtax,” adding: “All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less.”
But here's the real kicker: Yes, crimes were committed, but apparently no actual person committed them and, even as it coughs up a fine, the bank is dodging any real responsibility.
Wells Fargo admitted no wrongdoing as part of the settlement. In a statement, the bank also announced that it would no longer finance mortgages through independent brokers, and noted that it had ceased making subprime loans in 2008.
“Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery,” said Mike Heid, president of Wells Fargo Home Mortgage.
So what might future greedheads and lawbreakers learn from this episode? Your company might get caught, sure, but you yourself won't face any negative consequences or even have your name in a government settlement document.
As for the financial penalty, guess who'll pay that? Today's Wells Fargo shareholders -- as opposed to the executives who presided over the bank in the go-go years, allowing or encouraging criminal behavior, and the brokers who actually engaged in such behavior.
With weak settlements like this, the government is just asking for more abuses down the line. Actually, forget "down the line." As I wrote this morning, a new wave of post-2008 financial scandals is already in full swing.