Wells Fargo, Chase, Etc. & The Butterfly Effect

The butterfly effect is a term related to meteorology (the study of weather phenomena) and to chaos theory (a branch of mathematical and physical theory). A meteorologist named Edward Lorenz is credited with having given the concept its name. Basically the butterfly effect is the observation that an event as seemingly insignificant as the flapping of a butterfly's wings might create a minuscule disturbance that, in the chaotic motion of the atmosphere, may eventually become sufficiently amplified to change the large-scale atmospheric motion, possibly even leading to a huge storm in a distant place. The immense number of tiny variables is one reason why long-term weather is so difficult to forecast. The term "butterfly effect" is sometimes applied to areas outside meteorology, making reference to the fact that small, almost imperceptible things can have large and momentous consequences.

"The U.S. Attorney in the Southern District of New York, Preet Bharara, yesterday brought a case against WF seeking "hundreds of millions of dollars" in damages for what it says is a decade of fraudulent behavior, in which WF wrongfully certified more than 100,000 mortgages as being eligible for federal mortgage insurance. Basically, Wells Fargo screwed the FHA and HUD by mass-approving loans without regard for whether they were defective or not."

From Rolling Stone

Wells Fargo is not big enough (yet - let Uncle Sam stupidly hand out a few more bailouts and they might attain enough size) in and of itself to bring down the entire mortgage market.  But, given the way that banks in general operate, when a bank large enough to act as a "butterfly" starts making dodgy loans, it can influence the operations of competitors.  Values tend to be interconnected within real estate since comparable sales are used to determine current values for surrounding properties.  Those "values" (whatever the fuck that word means anymore) influence tax rates and revenues for the state.  If a collective of Wells Fargo, Chase, Citi, Wachovia, Golden West, Countrywide begin on a decade long period of originating bullshit mortgages for fun and profit, it serves as the butterfly flapping its wings to create a hurricane over time.  There were people voicing concern.  They were spread out and could be found mostly on blogs like HousingPANIC (I used to post comments under "Smug Bastard" there).  In my case, I would talk about this in meetings with my superiors and co-workers but no one listened.  When people benefit from a fraud, they tend to poo-poo those who point out the obvious as being tinfoil-hat wearing Chicken Littles.  One of my buddies said she was given the nickname "Cassandra - the Muse of Bad News" (lookin' at you Fraud Diva 2).  From 2002-2007, people from within my own social, work and family circles (including my own adult children) would look at me like my hair was on fire when I would suggest that we were seeing a fraudulent credit bubble chasing real estate assets that would ultimately end badly.  They also took a condescending view of me as not being well off enough to buy property at the time.  It did not help that I was in the middle of a costly divorce at the time.  My thoughts about the emperor not having any clothes turned out to be true but it is tough to stick to your convictions when not very many people share them and when your own adult daughter tells you that you are a fucking failure and borderline insane (who knows – maybe I am – I am writing this ridiculous blog, right?).  It wasn't the asset bubble that troubled me.  People are greedy by nature and we will always have asset bubbles.  What bothered me most was the effect that this dysfunctional, systemic fraud had on the value structure of everyday people.  To re-use a phrase in Kunstler's blog "Anything goes and nothing matters", including the truth.

From James Kunstler's blog: The poet W.H. Auden called his time "a low, dishonest decade." Bad as the 1930s were, the stakes are even higher now, and our clownish inattention conceals darker falsities that could make that terrible era seem quaint.