Saturday, August 1, 2015

The CBC on Home Capital Group

Yet another example of problems with a financial story.  In, Home Capital scandal may presage a slowdown (July 31, 2015), Don Pittis asks, "could the scandal at Home Capital just be the beginning?" His analysis states that, "as markets get into trouble, more and more accounts get shuffled off to the riskier end of the business. Pressure to succeed intensifies."  Then, suddenly, Pittis invokes the name of Bernie Madoff as an example of what can happen under pressure.

Pittis tries to couch this sensationalist firecracker by saying, "of course the Home Capital scandal is of a completely different magnitude".  The problem with this piece is that "there is no suggestion of a possible Madoff-like Ponzi scheme here,"  so why link the story to Madoff at all? It's not a "different magnitude", it's a different solar system than a Madoff style ponzi scheme.  Pittis is borrowing the emotional hype of the Madoff name for what purpose?  Is it to suggest or accuse management at Home Capital Group of masterminding a fraud?  Does he have evidence of this?  The Globe should hold itself to a higher standard.

Some context (includes my own editorializing)
At this point in time, it looks like Home is caught in a PR mushroom cloud for bungling the disclosure of some fraudulent mortgage applications.  The Twitter vigilantes (mostly U.S based hedge fund types who are keen to short Canada), have been out in force insinuating, if not outright making accusations of, offences as extreme as fraud on the part of management.  The media has been more than happy to give them a platform to voice their opinions as the looming Canadian housing market crash is a national obsession.  But essentially, based on the facts to date, Home is under attack for discovering and disclosing fraud.  You would think that this would be taken as a positive sign that the system works: usually a lender would go on merrily not disclosing fraudulent files because they would never even know about it!