naked capitalism

blahblahgurgleblegblah says:

That custom IT system is likely why Countryside was so efficient to begin with. It is rare that a company can manage and track internal procedures using off the shelf software. Typically, to gain real automation, the firm hires internal developers to write custom tools that fit perfectly within the internal processes devised by the firm’s founders.

I have seen many IT disasters whereby firms have decided to dump internally written systems that were perfectly functional in order to transition to COTS “solutions” that don’t in any manner automate internal procedures. However, by forcing that transition, the firm is able to fire its internal development team and claim a short term overhead savings. That is, until the whole system collapses and the firm goes bankrupt. But by that time the management team responsible for that decision has long since bailed and is off destroying the next company.

KnotRP says:

> but I have a suspicion it will be making a comeback. A very
> painful comeback.

The music has stopped, and management
is now finding that they collectively burned the corporate furniture to fuel operations (tragedy of the commons), so
there is much scrambling but few chairs left unburned…next up, downsizing/flattening of management hierarchies, and lots
of “american management talent” getting “freed up to pursue
new and exciting opportunities with a laser printer”.

Jim Haygood says:

We’ve all seen what happens when a giant acquirer absorbs a smaller, scrappier organization: the smart, self-actuating people leave; the drones stay behind to kowtow to the acquirer’s managerial drones.

Yves does a fine job here of digging into a behind-the-scenes organizational angle which rarely can be reported in the mainstream press (though occasionally in books), since it’s quite subjective, yet very significant.

Along similar lines, JPMorgan is bulking up attorney and foreclosure team hiring at its former Bank One subsidiary in Columbus, Ohio. This is an institution whose entrepreneurial glory days passed long ago in the Eighties. JPM’s drones now hire lower-level drones to ‘ensure staff takes minutes during conference calls,’ and perform similar spurious tasks of an unproductive bureaucracy drowning in its own fecklessness.

These are object lessons in the true enormity of having foolishly bailed out money center banks, AIG, GM, Freddie and Fannie. Resuscitated zombies are economic vampires.

Paul Tioxon says:

Submitted for yr approval, Check 21, the federally mandated electronic check clearing system for the national banking industry. Why, because in 9/11/2001 jet liners were weaponized and all air traffic was grounded for days. The shocking consequence of this defensive response was to completely shut down the clearing of paper checks. It froze the wheels of commerce more than the attacks by their hitting of key targets. Congress, in a financial reform greater than the one most recently attempted, brought the entire banking industry kicking and screaming in the current state of technology for electronically clearing checks. That is why so many banks offer the little machines to businesses that sign up for commercial accounts. And what is the import of all of this? The banks are cheap bastards that would not spend a penny, or reinvest capital into their industry to keep it running up to date, efficiently, with measurable productivity gains.

No, the twin towers had to fall down to get that simple modern amenity from slum-lord-capitalism. The BofA had other system integration tales to tell. The great synergy of merged banks, like Fleet and BofA was not apparent because the two computer systems were East is East and West is West and never the twain should meet. Why, because that too would cost money, another reinvestment of capital would have to happen. And, when you’re are in the middle of a cartelization of the financial sector of America, well, who cares, let the overworked and underpaid bear that cross in life. You would have to call two different 800 numbers to get West Coast account info, because East Coast computers were legacy technology, that had not been integrated. Oh well, someday. BofA and MBIA, more of the same, until their system integration D-day. Well, the profits from their fees and 32% default penalty rates could justify the capital reinvestment. It paid. Who knew that they should have stayed the course of cheapskates and not paid for the system integration in the face of credit card reforms.

Matt says:

The Mortgage Bankers Association reports that about 1.1 percent of the 58 million mortgages go into notice of default/foreclosure every quarter now. The servicers were hit with a tsunami several years ago and they don’t seem to be performing very well.
Once rotten management reaches the top and rewards only short term performance metrics the babies are thrown out with the bathwater and the entire entity becomes riddled with rotten management willing to do anything for their 3 month or 12 month metrics.
The management techniques required to run a successful car lot or pay day loan store don’t necessarily scale up to running trillions in assets over the long term.

Texas Reader says:

Austin L. Wolff – foreclosure is preferable (for the lender) to accepting a deed-in-lieu from the property owner because foreclosure wipes out any junior liens.

I have over 25 yrs in lending and want to say that Yves characterization of how loan servicing operations have been grossly mismanaged, and many of the comments here, are EXACTLY right. I’ve never worked in servicing, but have dealt with the servicing folks.

Since the mid 1990′s the costs have been reduced in servicing by having the employees manage more and more loans, and lowering compensation which drove out the experience and diligent people. Heck, if I made what the servicing people made even I’d have a hard time caring about the quality of my work.

The improvement of profits by reducing costs is fine in the manufacturing realm where you can measure errors and hold management accountable. In a service business the reduction in costs ends up causing a reduction in work quality (as the best people leave for better paying jobs, and inexperienced people are hired to fill the jobs) and as “turnaround time” and “volume” determine the dept managers’ pay. Errors often go unnoticed because consumers don’t catch them. As a result, managers do not have any incentive to make sure the work is done properly – doing it properly takes longer and impairs the managers’ productivity numbers. With quality off the table business risk skyrockets because errors in consumer finance can be very expensive once lawyers get involved and start drumming up class action cases.

All of this disgusts me having lived through it, and then having watched the big banks’ senior managers KEEP THEIR JOBS after my tax money bailed out their stockholders. For those of you who have not been keeping score, our federal tax dollars have bailed out Citicorp THREE times since the early 1970s. I believe in “too big to fail” but also believe that if the taxpayer has to bail a bank out to protect our economy, the stockholders of that bank should be wiped out so we taxpayers become the owners and get all the benefit when the bank recovers.

Right now I’m not working in lending and am quite relieved for the reprieve.

Cynthia says:

So this is what a typical American company does after it acquires a company, whether this company has got its duck in roll or not, whether it is squeaky clean or corrupt to the bone. It fires the company’s mid-level managers and technicians who actually know how the company works, but keeps its top-level managers and their closest yet clueless advisers who only pretend know how the company works.

No wonder the US is well on its way to becoming a second or even third rate power.