Last week I got to watch the flip of the regulatory coin and see both heads and tails of bank supervision.
One side, we all saw: the 2 billion-plus snafu at J. P. Morgan. Despite purportedly dramatically more stringent oversight, as mandated by the Dodd-Frank act, it's "deja vu all over again" (to quote Yogi Berra) on Wall Street.
The other side involved an all-too-common tale these days: a retired executive, living in a free and clear luxury home in one of the best enclaves of a front range city, who got relieved of his life savings by a Bernie Madoff type. Even in the currently depressed market the property was probably worth a couple of million.
In this instance, the owner simply wanted to take out some cash equity to live on for a few years until it might be timely to sell the property. He wanted more than he could get from an FHA reverse mortgage, and certainly had the collateral to support the request.
He offered to put all of the interest in escrow in advance, and just draw the remainder over a five-to-seven-year period. The proposal even included a provision for an annual appraisal, with draws curtailed if the property value should drop to cause the loan to value to exceed 50 percent.
Two banks turned it down because of lack of income and amortization (reduction) of the principal balance. Both agreed that it was a deal that they would have competed fiercely for, say, six years ago. Neither thought it was a bad loan. But they couldn't make it because the regulators would almost certainly criticize it.
Why do bank regulators show such disparity in oversight? Well, for one thing, because they can. It's easy to rip a single little loan to a homeowner. On the other hand, they don't understand what J.P. Morgan does half the time, any more than J.P. Morgan does.
The lady with the ultimate accountability for the JPM fiasco made $31,000,000 over the past two years. (Disclaimer: This is not a sexist statement. Most of the corporate poobahs responsible for the demise of Bear Stearns, Merrill Lynch, Lehman Brothers, et. al., were male members in good standing of the Old Boys Club. It just shows that, given an opportunity, gender is no barrier to being egregiously overpaid to perform incompetently.)
And this highlights a continuing problem in our financial infrastructure. In the rarified air of Wall Street, the city of London, the Bourse, ordinary people are paid extraordinary - even obscene - amounts to make big bets with other peoples' money. Overpaid execs should probably have half of their over-compensation deferred pending big losses from bad decisions.
It probably won't change though, despite Congressional dithering and candidate posturing. There's too much money involved to turn off the spigot; the darn faucet's broken.
So, small business people, scammed retirees and other deserving people who are good loan risks will continue to walk into banks with hat in hand, walking out with empty pockets, while people like James Dimon (JPM CEO) continue to roll in so much cash that they could be sued for the next 20 years and still have enough to live on through three lifetimes after legal fees.
We've heard a lot of discussion about certain banks being too big to fail. It's uncertain whether that's true or not.
But one thing is certain: They're too big to control.
Pat Dalrymple is a valley native. He's been in the mortgage and banking business since 1961. He'll be happy to answer your questions or hear your comments. His e-mail is dalrymple@sopris. net.