Real Estate News & Commentary

What the Recent Wells Fargo Scandal Tells Us About the U.S.’s Financial Institutions

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The massive new Wells Fargo scandal reminds us how flawed the financial and banking system is. It also highlights great new opportunities and reminds us why recent innovations and new trends in the real estate investment space have been so necessary.

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Wells Fargo is in the hot seat again. The big bank has been accused of running whole divisions that artificially inflated the company’s perceived stock value and performance to shareholders while victimizing customers by illegally signing them up for accounts and fees without their knowledge. Executives received millions in compensation for this work. The CEO is under fire for selling off his stock right before the scandal blew up.

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Bank Oversight

This is probably no surprise to Wells Fargo customers who have seen service deteriorate since 2008, even while costs have risen. In fact, it really highlights everything wrong today.

In a meeting discussing the Wells Fargo scams, Federal Reserve Chair Janet Yellen talked about changes to oversight of banks and commented, “Too big to fail is not a black and white issue.” According to the Fox Business report, some smaller banks with less than $250 billion in assets may no longer be subject to certain financial stress tests. Still, the biggest banks including Bank of America and Wells Fargo have reportedly failed to pass their stress tests. That isn’t good news for depositors, shareholders, or the public.

Related: Is a College Education Financially Worth It — Or Is It a Giant Scam?

The bottom line is that we’ve seen these institutions blatantly break the law again and again, almost with immunity, since at least 2008. If they get caught, they put on the lobby pressure to change things in their favor or simply get taxpayers (regular people who were taken advantage of) to bail them out. If they get fined, they try to get away without paying those penalties or helping those injured.

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Think About Who You Support

Yet, just like with the big recent Facebook farce in which the company was found to have misled advertisers by as much as 80 percent with their data, some people keep investing in these companies. They buy the stock, they buy their products, they hand over their most personal information, and they even trust their deposits, investments, and home mortgages to these companies. Then they wonder why things go wrong for them.

Of course, not everyone is falling for it. We’ve seen a boom in private lending, social lending, direct investment in real estate, and real estate crowdfunding. More are investing directly, raising money directly, and wisely not counting on the banks for returns or deposits.

Related: What Real Estate Investors Can Learn from Bank of America’s Failure to Focus

Hopefully the Wells Fargo scandal will be a fresh wake up call to the rest — a call to pay attention to where you put your money, who you do business with, and how you do business. We’ve got to recognize that we are each either a part of the solution, or we are a part of the problem. Who we do business with matters. Who we spend our dollars with matters. The example we lead with matters. It doesn’t just matter for you or me, our neighbors, or our country. It matters for our kids and the environment they’ll grow up in. It will affect whether they can keep the legacy you created or even begin to create their own.

We won’t always get it 100 percent right, but if we make this a priority, we can change things for the better together.

What do you think about Wells Fargo’s latest scandal? Do you still plan on using their services?

Let me know your thoughts with a comment.

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
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    Natasha Keck Investor from Mountain View, California
    Replied almost 4 years ago
    Thanks for the reminder that each of us can influence the behaviors of large corporations by choosing where to give our business.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied almost 4 years ago
    You’re welcome. Glad you enjoyed the content, Natasha. We all need reminders from time to time.
    Account Closed Rental Property Investor from Oakland, CA
    Replied almost 4 years ago
    “CEO under fire” should be edited to “CEO out of a job” 🙂
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied almost 4 years ago
    Yes! Agreed.
    Juan Ayala Rental Property Investor from San Diego, CA
    Replied almost 4 years ago
    Great article!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied almost 4 years ago
    Glad you enjoyed it, Juan.
    Jorge Rojas Real Estate Professional from Columbia, Maryland
    Replied almost 4 years ago
    It really is shocking as to what some of these big banks are capable of getting away with. And you’re right on point, we need to mindful of who we interact with.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied almost 4 years ago
    Having awareness is key. Thank you for your comment, Jorge.
    Aleksandar P. Investor from Chicago, Illinois
    Replied almost 4 years ago
    Sterling, I understand your point but I think that you are too hard on these banks, particularly when it comes to bailing them. You can not look at them as completely independent entities. They are highly regulated and in most cases influenced by decision makers in Washington DC. The banking system is just corporate welfare. Blaming the banks is no different than blaming the welfare recipients for welfare, blaming home-borrowers for taking advantaged of taxpayer guaranteed loans and interest rate tax deductions, or savers from taking advantage of taxpayer insured saving accounts. But that is a whole new topic.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied almost 4 years ago
    Thank you for sharing your perspective. Valid points from a different point of view.
    Tim Puffer from Lansing, Michigan
    Replied almost 4 years ago
    There is ZERO good reasons to put your money with a big bank for this exact reason. Try to stick with a local bank or credit union. You can build better relationships and negotiate terms easier.