Saturday, February 26, 2011

Nobody's Goin' To Jail

This Little Piggy Had Roast Beef

Mozilo (Photo: NYT Online 2/25/11; Jay Mallin/Bloomberg News)

Last week, the Federal Department Of Justice announced that Angelo Mozilo, former CEO of Countrywide Financial, would not be prosecuted for any of his activities contributing to America (and the rest of the world)'s financial collapse.

The two major elements of the financial collapse were (1) The 'securitizing' of home loan mortgages, packaging and repackaging them into investments offered by major banks and financial firms; and (2) Generating as many mortgages (for new-construction and existing homes) as possible to create even more investment "product".

Countrywide Financial Corporation was the principle engine of this process, and it created many imitators and spinoffs before the Real Estate bubble began collapsing in 2007. Before that happened, Countrywide was a $500 billion-dollar home loan machine with (per the New York Times) "62,000 employees, 900 offices and assets of $200 billion. As the mortgage market boomed beginning in 2000, no company pursued growth in home loans more aggressively than Countrywide."

The fact that so many of the loans created by Countrywide were "toxic" (as Mozilo admitted in an internal email) meant that when the adjustable-rate or interest-only mortgages "reset" to higher monthly payments after a few years, the homeowner - borrowers would have to default and the loans would fail.

Mozilo And Godzill-o (Courtesy Of Barry's Temple Of Godzilla)

Likewise, the securities they backed would have to be lowered in value, and fail for their investor, who would want to get rid of them as "toxic", too. Which is precisely what happened, beginning in August and September of 2007.

But before then, everyone in the chain -- from the major corporations building new homes; to the loan originators (Countrywide Financial), to the banks and financial firms creating the securities and making investment offerings (Bear-Stearns; Goldman Sachs; Lehman Bros.; Citicorp; and European and Asian banks like Banque de France, HSBC; ad nauseum), to the major hedge funds -- the number of which grew dramatically from 2000-2006; to the companies who insured the derivatives trading (AIG) ... everyone, uh, "Made Bank".

Mozilo was a co-founder of Countrywide in 1969, and drove its growth and direction for 40 years. As the NYT reported, despite massive evidence of his actions and decisions, the Justice Department would not prosecute him "for insider trading.... failing to disclose to investors his private worries about subprime loans... [or] for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers."
After nearly collapsing into bankruptcy as its financing dried up, the company was acquired by Bank of America in 2008. When Bank of America took over the company in July 2008, Mr. Mozilo left. The value of the acquisition, because shares of both companies had dropped [from $200 Billion, to] 2.8 billion [-- A loss of nearly 90% of the company's stated value] .

In June 2009, the Securities and Exchange Commission filed civil fraud and insider trading charges against Mr. Mozilo and his top lieutenants: David Sambol, the company’s former president, and Eric Sieracki, the former chief financial officer... In June 2010, Countrywide Home Loans and its mortgage servicing unit, which are now part of Bank of America, agreed to pay $108 million to settle federal charges that the company overcharged customers who were struggling to hang onto their homes...

In October
[2010], Mr. Mozilo agreed to repay $45 million in ill-gotten profits and $22.5 million in civil penalties as part of a settlement with the SEC in which he admits no wrongdoing.

The New York Times also noted, "In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions 'did not amount to criminal wrongdoing.' ”

At all. You are, I imagine, as surprised as I am -- Gosh; Mozilo escaped from prosecution? No one could have forseen that.

A number of the quotes above are from an article by columnist Joe Nocera in yesterday's NYT, about why Mozilo -- or any of the other major players in the financial crisis -- will feel no fret, take no responsibility, and never be prosecuted for what they've done.

In other words, they broke the law and got away with it -- an object lesson for the culture at large, I guess. The Fix Is In. There Ain't No Justice. Once You're Big Enough, It's Get Out Of Jail, Free.

Nocera writes:
A few days ago, I listened to a recording of a lengthy interview with Mr. Mozilo conducted by investigators working for the Financial Crisis Inquiry Commission and posted recently on the commission’s Web site.

It was a remarkable performance; Mr. Mozilo expressed no regrets and no remorse. He extolled subprime loans as a way to allow lower-income Americans to get a piece of the American dream and “really build wealth” — just like people used to do during the housing bubble. He bragged that Countrywide, unlike the too-big-to-fail banks, never took a penny of government money. He said that Countrywide had helped put 25 million Americans in homes.

His voice rising passionately, he said finally, “Countrywide was one of the greatest companies in the history of this country.”
"Which is," Nocera concludes, "a final reason Mr. Mozilo would have been difficult to prosecute. Delusion is an iron-clad defense."