You’ve read a lot about how Big Data can save the world and all that. You don’t read much (at least until Snowden) about its downsides.
The New York Times’s Jessica Silver-Greenberg reports on one reason so many people can’t get bank accounts: They’re caught up in massive databases that turn minor violations like overdrafts into offenses that force people into the payday-loan underworld of the unbanked:
The ranks of those without bank accounts have swelled — up more than 10 percent since 2009, according to the Federal Deposit Insurance Corporation — as banks have sharpened their focus on more affluent customers who typically generate twice the revenue of their lower-income counterparts. Many banks are closing branches in poor areas and expanding in wealthier ones, according to an analysis of federal data.
Rejection for would-be bank customers can come as a shock. Tiffany Murrell of Brooklyn says a credit union denied her checking account application in September 2012 even though she had a job as a secretary and was up to date on her bills.
The obstacle, it turned out, was a negative report from ChexSystems, a consumer credit reporting firm that provides customer data to virtually every major bank and credit union in the nation. The black mark stemmed from a overdraft of roughly $40 in June 2010, according to a copy of a letter that the 31-year-old Ms. Murrell later received from ChexSystems. While she repaid the amount, plus interest and fees, before applying for a new account, the incident, she says, has barred her from opening an account at nearly every bank she has tried, an experience she called “insulting and frustrating.”
— David Fiderer takes apart Paolo Pellegrini, the former John Paulson managing director, who has issued, um, contradictory testimony in the prosecution of Goldman Sachs ex Fabrice Tourre.
No snippet will give you a sense of the full picture, so read the whole thing. But here’s a sample:
Then you have to consider the Pellegrini’s word games, which are used to deceive. At three meetings, either they discussed investment recommendations, or they discussed Paulson’s intention to short. Which means there could have been three meetings where the shorting strategy never came up. And, “wanting to buy protection on tranches of a synthetic RMBS portfolio,” is not the same as wanting to buy protection on the portfolio being assembled for the ABACUS transaction.
And no, Steve, buying protection is very different from buying a naked short. Generally speaking, people buy protection on risk exposures they already own. Shorting something you do not own is altogether different.
Which is why Abacus 2007-AC1 and $100 billion other synthetic mezzanine CDOs just like it, were all deeply immoral and unethical transactions. They had no legitimate purpose, since they financed nothing. They never added “liquidity to the market,” since everything about CDOs and credit default swaps is kept secret in order to protect the guilty. And they did not represent “a bearish view on housing,” since this was money on a sure thing, the fatal flaws in the triple-B ratings of hyper-levered tranches of subprime bonds. Their singular purpose was to screw a bunch of suckers, the outsiders who never made it on to Greg Lippmann’s email distribution list.
— American Banker continues its excellent work (which built on a report by Silver-Greenberg, by the way) on big banks’ sketchy debt-collection practices, reporting that Wells Fargo is now joining JPMorgan Chase in suspending its sales of bad debt to outside collectors. Previous reports had uncovered serious abuses in how the banks and their third parties handled the collections.
One reason for the results: regulators who are actually on the ball, with a big assist from the watchdog press:
CFPB Director Richard Cordray this month vowed to take enforcement action against the debt-collection industry and said his agency will hold banks accountable for lapses by third-party debt buyers. The OCC has compiled a list of best practices for banks that sell third parties rights to collect credit card debts the banks have already charged off their own books. The agency said this month that it is developing more binding supervisory guidance for the industry.
New York State Superintendent of Financial Services Benjamin Lawsky also on Thursday proposed a series of reforms that would require debt collectors to improve recordkeeping and the disclosures they make to borrowers.