If you didn’t know any better, you’d swear the banks are out to prove they learned nothing from the financial crisis.
A big bank lobbying group, the Financial Services Roundtable, named the first executive director of its newly formed risk management group Wednesday. The Roundtable’s Financial Stability Industry Council will lobby Congress, the Fed and others on behalf of the banks.
This promises to be a busy job, since the government just set up two new offices – the Financial Stability Oversight Council and the Office of Financial Research – to keep the banks from blowing up the economy as they did during the housing bubble. Who knows what tricks the regulators might try to pull?
To put it more politely, the FSIC “will be crucial in the years ahead as we work with regulators and policymakers to ensure that financial services firms are well positioned to strengthen the American economy and consumer,” as Roundtable CEO Steve Bartlett said.
And who will lead this crucial organization? Why, longtime banking executive Don Truslow – who was chief risk officer at Wachovia between 2001 and 2008. Looking at how things turned out there, you’d have to say he is an interesting choice for the job.
Wachovia was known for years as a soundly managed bank, but it threw that all out the window in 2006 when it paid $24 billion to buy Golden West Financial, a California thrift that was one of the most aggressive pushers of adjustable-rate mortgages during the bubble.
Wachovia’s then CEO, Ken Thompson, said he felt his bank was “merging with a crown jewel.” That so-called jewel held $120 billion or so of adjustable-rate loans – including more than $70 billion worth in the housing meltdown state of California.
That is nothing if not a risky concentration in a risky product. But astute risk manager that he is, Truslow wasn’t worried. “Our view regarding the quality of the Golden West underwriting practices has just continued to grow stronger,” he said on April 16, 2007.
His view aside, when house prices turned south, borrowers defaulted in droves, prompting investors to flee Wachovia. Truslow quit in July 2008 after the bank posted an $8.9 billion second-quarter loss. He nonetheless called Wachovia “an excellent company with strong core businesses and an outstanding franchise.”
That is probably not the way most people would describe a bank that managed to lose an additional $24 billion in third quarter of 2008 before being sold for a song and a tax break to Wells Fargo (WFC) at the height of the financial panic.
But then, the bankers have always had their own take on things — we are the heart of the economy! we were hit by a perfect storm! — regardless of how it might square with reality. Truslow’s appointment shows, surprise surprise, that the banks won’t be making any concessions on that front.
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