Wednesday, September 17, 2014

Hugh McColl: Financial crisis caused by greed

Former Bank of America CEO Hugh McColl shared his thoughts on the origins of the financial crisis during a panel discussion Tuesday night, saying it largely stemmed from too much greed.

McColl also said the nation's biggest banks continue to grow as smaller banks are going away. And he warned that there might be trouble ahead for the U.S. economy as a result of too much money being put into circulation.

McColl was among the participants in the discussion organized by the Federal Reserve Bank of Richmond, which is celebrating its 100th birthday this year.

Panelists (left to right): Gantt, McColl, Martin and Rothacker 
Former Charlotte Mayor Harvey Gantt; Matthew Martin, the Richmond Fed's regional executive in Charlotte; and Charlotte Observer reporter Rick Rothacker were the other participants at the event held at the the Levine Museum of the New South.

The focus of the panel talk was the history of banking in Charlotte.

McColl said big banks are getting bigger, despite concerns from regulators and others about financial institutions deemed "too big to fail."

"The facts are that since the Great Recession, the too-big-to-fail banks have gotten much, much larger, and the little banks are disappearing," McColl said.

McColl retired as Bank of America CEO in 2001, before the financial crisis. The "No. 1 underlying cause" of the crisis, he said, was greed.

"You could argue that people borrowed money (for residential mortgages) knowing they wouldn't pay it back. You could argue people made the loan available to them knowing they couldn't pay it back," he said.

McColl said one "great fallacy" that helped spark the crisis was "people believed they could get rid of risk by selling it to somebody else."

"If (there's) nothing else people should have learned out of this collapse is the risk is always there and just because you gave it to somebody else doesn't mean it isn't coming back," he said.

McColl said too much money being put into circulation as a result of fiscal and monetary policy could prove problematic for the U.S. economy, perhaps in the form of future inflation.

"Once it gets into circulation, something's going to happen to it," he said. "It's going to get loaned or invested. We may be sitting on a time bomb of too much money being printed and all this will come home at some point."

"When you get too much money chasing too few good deals, that's when you get problems," he said.

Charlotte has had a Federal Reserve branch since 1927.

McColl called the opening of the branch "the most important" milestone in Charlotte's development into a banking center.

But he also said the region's banking industry expanded along with the economic growth that took place across the South following school desegregation in the 1960s.

"You take '63 forward, the South outgrew the rest of the nation" in terms of incomes, jobs and population, McColl said. "We were growing like gangbusters. ... We just happened to be in the right place at the right time and took advantage of it."


Anonymous said...

McColl wants people to believe that it was the "little man" took on more debt than they could pay driven by their greed.

In actuality the mortgage crisis was fueled by the banks insatiable desire for more and more "derivatives products". The derivatives market which Hugh McColl was a leading figure demanded more mortgages so they could bundle them and sell them as collateralized bonds. It was the banks and their derivatives market that drove the real estate bubble. And it was the banks derivatives market that was bailed out by tax payers!

The article states that McColl retired before the financial crisis. That's somewhat disingenuous, McColl and Greenspan had been fueling histories biggest financial bubble for decades. That the collapse chose to occur after McColl was no longer at the helm at BofA is just dumb luck.

Too bad there isn't another Fernindad Pecora and his Pecora Commission to haul in Hugh McColl where the public could learn just how Hugh McColl destroyed the economy and the financial system.

Anyone that listens to Hugh McColl is a fool.

Alannc44 said...

"Greed" says the man who netted 49 million in 1999. Then again, I guess that's less than superstar NFL-wife-beaters so it's all relative.

Garth Vader said...

How symbolic to have a politician, a banker, a Fed official, and a reporter on the same stage.

All knowing co-conspirators in the greatest fraud and theft in world history.

Garth Vader said...

Deon Roberts,

About a year ago BofA got a lot of publicity by "donating" a home to a Charlotte family (a Ms. Ortega and her son).

I asked you to find out how BofA came to be in possession of the house. I guessed it was a foreclosure, but you promised that you'd look into it.

Here we are almost a year later and total silence on your end.

I suppose I could do some public records searches and find out for myself, but you could save me some time and yourself some headache if you'd just come clean about the story.

Matt M said...

Let us not rule out Stupidity as a major factor in the financial crisis.

Bankers actually believed that they had correctly calculated risk and factored that into the cost of loans and derivaties. That was because they never truely understood the risk formula they were using was inadequate for calculating risk in a falling market. "Pride goath before a fall."

Wiley Coyote said...

I withdrew the little bit of my money I had from Hugh McColl's bank back in thre 80's and swore I'd never give him another dime to this hypocrite, which I haven't.

McColl was a driving force behind consolidating a series of progressively larger, mostly Southern banks, thrifts and financial institutions into a super-regional banking force, "the first ocean-to-ocean bank in the nation's history."

Tony Plath, director of banking studies at the University of North Carolina at Charlotte, described this transformation in 2005 as "the most significant banking story of the late 20th century."

In 2012, polemicist Matt Taibbi described the transition as "a cartoonish arms race of bank acquisitions that would ultimately turn the American business world upside down."

...and McColl is concerned about banks getting bigger?

Yep, hypocrite to the end. Why politicians in this city listen to this man is beyond me.

King Ward said...

It's amusing to watch a bunch of average people possessing the victim mentality trying to poke holes in a man of almost unparallelled achievement, someone who brought more wealth and jobs to this part of the country than almost anyone.

Anonymous said...

Wait a second, wasn't Hugh McColl in charge of Bank of America shortly before its implosion? Isn't he just as guilty of greed than anyone in the United States? Let's not make a hero out of a hoarder!

Wiley Coyote said...

King Ward...

There is no need to poke holes in Hugh McColl.... you can see right through him from 20 feet away.

He started the ball rolling on the economic crisis and in 2008, his "taller one" shrine should have been made to go bankrupt just like any average American...

Walt said...

Wasn't it McColl who tried to out do Ed Crutchfield in every way including the tallest building? All that just to say you were the biggest bank.

Deon Roberts said...

Hi, Garth Vader. Thanks for your comment.

Yes, the properties Bank of America donates for programs like this are properties that the bank has foreclosed on.

But the bank has told me that, typically, the donated properties have been abandoned by their prior owners before the foreclosure sale.

In this case of Ms. Ortega's home, it had been vacant for more than a year before the foreclosure sale, the bank tells me.

Hope this helps. Take care.

Sandra Lee said...
This comment has been removed by a blog administrator.
Anonymous said...

Most of the blame for the housing bust should fall on the Clinton administration, which strongly pushed relaxing lending standards and down payments during the early 1990s. That cheaper money fed the 2000 .com bust, cheap use of real estate as ATMs, and the subsequent housing bubble. It doesn't look much like the Fed learned from that debacle.

Anonymous said...

Whatever you think of the man & his actions,you should listen when McColl or Crutchfield speaks. They have forgotten more than most will ever know about banking & finance.
I think he is right; inflation will be an issue going forward.
The 2008 crisis should be viewed as a slowmotion trainwreck not an instantaneous shock. The country will feel the shock waves for decades.