Politicians buoyed by Wells Fargo are part of the problem

Sharon Poczter, an economics professor at Cornell University who studies the bank sector and emerging economies, says culpability for the Wells Fargo fraud case should fall on politicians and regulators as well.

Bio: https://dyson.cornell.edu/people/sharon-poczter

Poczter says:

“What is at the center of the Wells Fargo fraud case is much larger than a couple of thousand employees opening fake accounts. Rather, the problem is with an incentive architecture across politicians, regulators, bank shareholders, and executives that both encourages bad behavior to happen and avoids punishing it enough when it does.

“Regardless of pay grade or position, one of the only indisputable tenets of economics is that people respond to incentives. Rewarding meeting sales targets will encourage employees to meet them. Applauding politicians for a growing economy buoyed by companies like Wells Fargo encourages politicians to protect such companies if they are at risk of failure.

“Thus, while Congress this week has been extremely angry blaming leaders like Jack Stumpf and Janet Yellen, this examination should include their culpability as well because we are all interconnected in this intricate web of incentive problems.”

“While extremely difficult, designing an incentive system that breaks the self-enforcing cycle of bad behavior among all players is the true challenge, not demonizing this week’s villain.”

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