The news of the Securities and Exchange Commission filing of a fraud suit against Angelo R. Mozilo, once celebrated executive of Countrywide Financial was somewhat breathtaking. As the New York Times Reported today in this article:
“Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as ‘toxic and ‘poison,’ S.E.C officials said that he misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time he also generated $140 million in profits by selling stock in the company . . “
This comes out at a time when the government is throwing hundreds of billions at banks to start to shore up the economy while people are getting kicked out of their houses due to foreclosure, in case you haven’t been paying attention.
My focus is on “what” work people do, as defined by its specific outcome, and a growing concern I have about the response to the collapse of the financial markets rests cleanly in three areas:
1) There isn’t a holistic approach in terms of defining success. It sounds like all of the energy is aimed at helping the banks survive (which is clearly an important component of a solution), but I what I am still not hearing is any support for the homeowners. Why are they the only ones really getting punched in the arm? In some cases it’s clearly the right answer for the bank to simply lower the value of the mortgage because the house isn’t worth what it was, and no one will pay the amount reflected on paper.
2) Clearly a lot of people in banking understood the risks they were taking. Someone received those e-mails Mozilo sent, and it’s a pretty good bet lots and lots of people at Countrywide and at other banks knew what they were doing. There was no fear of accountability for lying and doing a disservice to their shareholders. The there are a couple of ways to correct that behavior:
(a) I don’t see any reason why the banks should have to disclose each loan and the credit rating of the individual holding the loan, insurance companies already track real time risk, why shouldn’t banks have to do that and now report it?
(b) I remember seeing pictures of the Drexel people being carted away in a row of handcuffed executives. Why aren’t we seeing that happen at Countrywide. I understand innocent until proven guilty (with the Gitmo asterisk), but the public and the bankers need to see that lots and lots of bankers are being held accountable for this as a step in the direction of driving better behavior.
Is that an overreaction? Maybe. Is it the something that is neeed as part of an overall step toward recovery? Let’s find out. Who is with me?
-Ric
I’m with you with a couple of clarifying points Ric. There is no question that an officer with legal fiduciary responsibility must be held accountable and should be assessed fines in the amount of any gains they made in addition to penalties. In extreme cases maybe even incarceration.
I do like “innocent until proven guilty” and I would add that we can’t hold people accountable for actions that were possibly unethical but definitely not illegal at the time. We need to get the proper controls and regulations in place now to ensure this can’t happen legally in the future, and we need to do that quickly.
I wish I knew how to make it seem unappealing to a person to manipulate complex financial instruments for a living instead of creating something of true value. That is one of the positives of this economic calamity to me, that there seems to be a dramatic reconsideration of these values in many people.