Tag Archives | banks behaving badly

How the economy went bad, in one easy column

When someone asks if I can explain how the entire American economy fell into the dumper, I’ve typically tried to explain the phenomenon of collateralized debt obligations, or maybe recommended reading Michael Lewis’s The Big Short . (After you read it I guarantee that for at least 10 minutes you will understand exactly what a synthetic collateralized debt obligation is.)

No more. Now I’ll refer people to Paddy Hirsch and this excerpt from his book, Man vs. Markets . It’s a clear-language explanation of how the deeper in the banks got making potentially bad loans, the more money they made, and the more they had to make more potentially bad loans. Depressing but great reading.


How a bank error could push up your tax bill

If you get a credit card company or bank to forgive a debt, the institution is likely to send you–and the IRS–a Form 1099 at the end of the year. The amount listed on that form might be taxable income to you. (Whether or not you actually have to pay tax on the money depends on several factors, including whether you were insolvent or bankrupt when the debt was forgiven. Helping taxpayers deal with this kind of thing keeps tax pros like myself fully employed.)

Amazingly and outrageously, some banks are apparently sending out 1099s for debts that individuals no longer owe, and that the banks legally are not even allowed to forgive. As The New York Times’s Gretchen Morgenson reports, some banks may be sending out these notices to people who no longer owe a debt. The individual then gets the opportunity to explain to the IRS why a notice from a multi-billion-dollar, multinational institution is wrong.

Oh—and the banks may even be able to use these notices to take advantage of a government program giving them credit for “helping” customers who had bad loans. Just when you thought you’d heard everything about banks’ bad lending practices and bollixed-up record-keeping.


Whistle-blower’s Swiss bank-account secrets worth $104 million, says IRS

Anyone not reporting income hidden in Swiss bank accounts has a new reason to be nervous: The IRS has awarded a whistle-blower $104 million for his help in exposing secrets of the Swiss banking system, as reported in The New York Times.

Bradley C Birkenfeld’s information led to Swiss bank UBS paying $780 million to the U.S. government, admitting it conspired to defraud the IRS, and revealing information on more than 4,500 American clients with Swiss accounts You can learn more about the case and about Birkenfeld, including how he once smuggled diamonds in his…toothpaste (bet you didn’t see that coming) by checking out this 60 Minutes story.

Birkenfeld wound up spending more than 2 1/2 years in prison for withholding information from the IRS about the man who was his top client. For those of you who think this way, that means he “earned” more than $100,000 for each day he spent in prison.

The reward is fully taxable income. Of course.


Bad banks behaving badly

Apparently, banks don’t have trouble just with tracking who actually holds some of the loans they make. They also can screw up on tracking property tax payments on the loans they service–and then send borrowers incorrect threatening warnings that they owe taxes and could lose their home.

bank of america 150x150 Bad banks behaving badlyBrent Hunsberger of The Oregonian has the story about BAC Tax Services Corp., part of Bank of America, which sent these letters to close to 5,000 Oregonians. Imagine getting this Your-Lender-May-Promptly-Begin-Foreclosure-Proceedings letter that BAC sent out.

BAC, by the way, is an arm of BAC Home Loan Servicing LP, which previously agreed to pay at least $20 million for allegedly foreclosing illegally on 160 members of the military.