Some quick thoughts on the Wells Fargo controversy.

1. We’re still learning what went on inside Wells Fargo. What seems clear is that there was a major management failure to monitor for the creation of fake deposit and credit card accounts.

 

2. It’s also probably true that the targets for cross-selling given to employees were unrealistic (their target was for each customer to have eight accounts, not because there was any good reason why customers would benefit from eight accounts, but because, as John Strumpf put it in a 2010 annual report, “eight” rhymes with “great.” I kid you not). And since employees were rewarded for opening accounts, regardless of how much income those accounts generated, you can see the potential for them to game the system. Setting sales goals and structuring incentives is challenging, and it looks like Wells Fargo fell down on the job.

 

3. Although this is far from proved, it looks like there may have been at least a handful of cases where whistleblowers were fired for bringing the phony accounts to the attention of higher-ups. That would be very bad.

 

4. There’s no evidence so far to think this was some major fraud orchestrated from the top in an attempt to bilk customers. As the Wall Street Journal notes, the charges incurred by customers were minor and ultimately rescinded, although they did have to deal with the hassle of closing the accounts. The biggest loser here was Wells Fargo, which paid (and eventually had to fire) thousands of employees for creating bogus accounts that brought in virtually no revenue, has been fined $185 million so far, and is now suffering a major loss in reputation.

 

5. To treat this as a victory for the Consumer Financial Protection Bureau created by Frank-Dodd is just ridiculous. They didn’t uncover this scandal. The Los Angeles Times did, with the follow-up led by the Los Angeles City Attorney.

 

6. If you watched the Senate’s questioning of Strumpf, two things are clear. First, most of the senators gave the employees opening fake accounts a free pass, blaming their actions on managers who gave them unrealistic cross-selling goals. That is insane. Management clearly dropped the ball here, but, no, if your boss gives you sales goals you can’t meet, it’s still your responsibility to follow your company’s stated policies to say nothing of adhering to basic moral standards.

 

7. Second, and more troubling, the thrust of Senator Elizabeth Warren’s celebrated haranguing of Strumpf was that Wells Fargo’s sin was trying to increase its stock price through cross-selling — even if that cross-selling was conducted legitimately and honestly. The lesson she wants us to draw is that the problem here was not bad incentives, poor management or deceitful employees creating bogus accounts — it was Wells Fargo’s desire to profit by marketing products to customers that Warren thinks they didn’t need. Listening to her, the fake accounts are almost beside the point: they are just an eloquent illustration of what inevitably happens when bankers try to make money.