February 19, 2011

Angelo Mozilo walks

In the LA Times, E. Scott Reckard, who did a fine job covering the SoCal mortgage wheeler dealers, reports:
Federal prosecutors have shelved a criminal investigation of Angelo R. Mozilo after determining that his actions in the mortgage meltdown — which led to $67.5-million settlement against him — did not amount to criminal wrongdoing.

As the former chairman of Countrywide Financial Corp., Mozilo helped fuel the boom in risky subprime loans that led to the crippling of the banking industry and the near-collapse of the financial system.
... But the criminal investigation has wound down without indictments of Mozilo or others at his Calabasas company, according to people familiar with both the prosecution and the defense teams, all of whom spoke on condition of anonymity because they were not authorized to discuss the matter.

As I wrote in VDARE a couple of years ago, the government's leaked case against Mozilo largely consisted of emails recording "Mozilo’s intermittent spasms of skepticism." It seemed kind of bizarre to try to convict him based on the handful of times when he'd wake up and ask, "Why are we doing this?"

Most of the time, however, Mozilo seemed to be a true believer in the post-1992 conventional wisdom that the mortgage industry had left huge sums on the table by not lending more aggressively to Hispanics and blacks.

Reckard goes on:
"Sometimes the public thinks all you have to do is to indict someone and that's it," one of the federal sources said. "But you have to be able to prove your case, and it can be worse losing a case than not bringing one at all."

The 72-year-old Mozilo hung up the phone when contacted for comment at his home in the Lake Sherwood golf community of Ventura County.

So, Mozilo has to pay a $22 million fine for a civil case settled earlier, but gets to keep the rest of the $387 millionhe took home as compensation during the previous decade.

It looks like not one single corporate officer is going to do even a perp walk over subprime, much less hard time. It seems more and more amazing that only a couple of decades ago, Michael Milken did a few years.

I'm having a hard time seeing what else will serve as a deterrent. If you do the arithmetic based on Mozilo's outcome , why wouldn't it make financial sense to try to shoot the moon like he did? $387,000,000 minus $22,000,000 is $365,000,000. Without the risk of jail time, why wouldn't a greedy guy take those odds?

Will Dodd-Frank regulate moon-shooters out of existence? Maybe, but that's asking a lot of civil servants.

35 comments:

Fred said...

George W. will never get credit for this, but his Justice Department gave unprecedented hard time to white collar defendants (like the Enron and Worldcom crooks). The Obama Administration's Justice Department maybe has other priorities.

Anonymous said...

The truth is, Steve, is that government is more culpable than even the mortgage brokers.
All these entrepeneurs ever did was to take advantage of and follow the Community Re-investment Act to the hilt - thus secondhandly implementing government policy.
That there was a 'drink' in it for themselves is a minor consideration.

Claudia Zhao said...

well he played by the rules didn't he?

so who's fault is it? the regulatory system / legal system or the people who maximize their profits while remaining within the bounds of legality?

AMcGuinn said...

In Michael Lewis's telling, Wall Street was very happy to see Milken go down - he was a competitor, not a trading partner like Mozilo.

Benito Mussolini said...

Discipline the economy to the needs of the nation.

Anonymous said...

I don't think what he did was criminal. Why isn't Franklin Raines of Fannie Mae in jail then? Jamie Gorelick was on the board of Fannie Mae and Rahm Emanuel was on the board of Freddie Mac.

RKU said...

Well, I can't say much about the specific Mozilo case, but the general rule seems to be:

"Everyone is innocent, but all the money is gone!"

Maybe we should bring in Putin's prosecutors from Russia. They seem to have a much better track-record with this sort of thing...

Anonymous said...

Hey, let's pass some ex post facto laws to deal with this.

After all, we want more people in prison for non-violent crimes, right?

Anonymous said...

he walked but will they:
http://www.theatlantic.com/business/archive/2011/01/e-mails-suggest-bear-stearns-cheated-clients-out-of-billions/70128/
E-mails Suggest Bear Stearns Cheated Clients Out of Billions

Anonymous said...

The way to deal with this is to let people suffer the consequences. Banks who bought crummy mortgage backed securities shouldn't be able to sell them to the Fed and don't give anybody TARP money as a bail out. Let the more prudent and conservative players take over the irresponsible ones who failed.

Anonymous said...

Matt Taibbi answered your question three days ago in Rolling Stone:

http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?

Anonymous said...

http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

Matt T in rolling stone asks the obvious... why is no one going to jail?

Only madoff but that's because the rich were cheated, not the middle class.

Chicago said...

Here and there the government finds it useful to stage a public hanging of some well known malefactor, complete with a public ride to the gallows and accompanying drumroll. This is just for show to satisfy the howling public and for prosecutors to make a name for themselves. The money is gone, spent, hidden, whatever. These scandals can't just be one or two man shows, there must have been entire networks of people involved. Who they are, where they are, isn't tracked down very far beyond the first layer or two.

none of the above said...

Why, it's almost as though rich, powerful, well-connected people simply weren't held accountable for crimes in the same way as normal people.

Ah, but if that were true, no doubt we'd see tons of other cases where the powerful were able to get away with crimes in plain sight. So no worries, right?

Marcus said...

Looks like his campaign contributions went to both sides of the aisles- which makes sense. He had this thing tied up with whoever was going to be in charge of the gov't.

http://www.campaignmoney.com/political/contributions/angelo-mozilo.asp?cycle=08

Svigor said...

$387,000,000 minus $22,000,000 is $365,000,000. Without the risk of jail time, why wouldn't a greedy guy take those odds?

Heh, why wouldn't he with the risk of jail time?

If he served 10 years, that's $36m per year. I'd take time in any joint, much less minimum security club Fed, for $36m a year.

Prison sentences aren't going to do it. Asset forfeiture is way out ahead of prison time here.

Svigor said...

After all, we want more people in prison for non-violent crimes, right?

No, of course not. If nobody's bleeding, let 'em play. White collar criminals are cute.

Anonymous said...

A few months ago the FBI ran a sting operation to catch a potential terrorist in Portland, when really the whole fake plot was set up by the cops themselves. It would be nice to see the Feds also run these operations to sweep up Wall Streeters who are willing to commit securities fraud.

Anonymous said...

hey Steve, how come u can't be more like the Yglesias who touches on a variety of topics that are relevant to our lives and/or at least: interesting.

all u do is talk about race.

even this post, is really a proxy for race discussion

Mr. Anon said...

Bullshit talks. Money walks.

Luke Lea said...

It would be nice to see the tote of all the major players: names and their total take for the years before the crash.

Anonymous said...

And the costs of regulation are borne by all, so you have to consider how much every firm, everywhere, would be paying for this deterrent.

Please, the innumeracy is positively liberal of you@

agnostic said...

Government responds to the preference of the median voter, even ones that aren't directly elected like judges. Someone along the line, they're appointed by someone who can be recalled by voters.

Throughout the 1980s there was a widespread and deep mistrust of finance wizards, so by 1989 the government had to take stronger action against Milken, given how angry people had been against fancy bankers.

Not just the hit movie Wall Street, but also the Pet Shop Boys song "Opportunities," and even the prototypical young financial hot-shot Alex P. Keaton from Family Ties. Early in the series, he returns to his job at a mom & pop grocer because his job at the megamarket, despite offering better opportunities for career advancement, treats him like a faceless number.

There's also a two-part episode where Tom Hanks plays Alex's Uncle Ned, another Wall Street hotshot who made junior VP by age 28. His corporation was going to lay off a lot of workers just to improve their bottom line, so he hides millions of dollars using his computer skills.

Alex defends him for standing up for what he believes in, since it was meant to help others out rather than maximize profits at any social cost.

(Episodes available to stream at cbs.com by the way. Check the Family Ties wikipedia page for an episode guide to see what the titles are.)

That worldview is long dead. It's all about fancy bankers using their computer skills to help NAMs, live up the "baller" lifestyle, pop bottles, bling-bling, pimp my ride, etc.

Thus, regulators see that most people won't start a riot if the crooks walk free, if banks get bailed out, and so on. People still perceive bankers as helpers trying to allow everyone to live the American dream, get easy credit, live on debt with no consequences, etc. So they don't want to see them really harmed -- slapped on the wrist at worst.

Why So Serious said...

"It looks like not one single corporate officer is going to do even a perp walk over subprime, much less hard time. It seems more and more amazing that only a couple of decades ago, Michael Milken did a few years.

I'm having a hard time seeing what else will serve as a deterrent."

Try cracking more jokes more often. Maybe that will work.

Anonymous said...

How much of the $387mm in earnings ended up as worthless stock? My guess is alot. Not that that excuses any malfeasance, but hyperbole like that undermines the case for action.

jack strocchi said...

It looks like not one single corporate officer is going to do even a perp walk over subprime, much less hard time. It seems more and more amazing that only a couple of decades ago, Michael Milken did a few years.

Back in JUL 2008 I described the US financial system as being at the tail end of a "decade long white collar crime wave". Apparently the authorities are so stumped for clues that only a single suspect has been charged.

Madoff is doing some time. But he stole from charities and celebrities. Thats obviously crossing a line.

Otherwise it appears that the entire multi-trillon dollar GFC rort and rip-off has not produced one single perp-walk either in the US or the EU.

If you want to rob a bank the best place to start is by owning it.

Anonymous said...

That worldview is long dead.
that's a wasp worldview vs market dominate minorities who traditionally prey on host populations.

Has to be said...

Yes, let's shoot the wreckers and the greedy kulaks. After all, it worked so well in the USSR.

Sorry, this mess didn't happen because of Mozilo or Bush or Wall Street or whatever your favorite scapegoat is. And Taibbi is an idiot.

Anonymous said...

I believe Rich people should be able to steal as much as they want. And if it causes the Government to bail firms out in order to prevent a market meltdown -so be it.

After all, that's the free market.

Besides most Bankers only steal money because of Government regulations. We need to let Goldman Sachs and Citigroup run free- we've been holding them back with all our petty rules and regulations regarding fraud and requiring audits and such.

Luke Lea said...

Just goes to show. Capital is the accumulated crime and sacrifice of centuries -- plus interest.

Civilization used to be financed by agricultural servitude, which was good for the few at the expense of the many. Some day we will figure out how to finance civilization by a tax on the few -- aka, capital -- for the benefit of the many.

The key is to tax consumption, not income, and to do so progressively. It's called a graduated expenditure tax and the great American economist Irving Fisher figured out how to do it in the darkest days of WWII.

What was the catch? Implementation. It required registering (and monitoring) all bank and brokerage accounts on a yearly basis. Before computers and the internet that was impossible. Further, it meant an end to shell corporations and overseas tax havens -- something that would obviously require the cooperation of all our major allies.

We have a global economy and we have an international financial system. What we don't have are international political institutions capable of policing that system.

Luke Lea said...

Addendum: How can democratic political institutions ever overcome -- or, rather, harness -- the forces of selfishness in the interests of the greater good?

History shows that only religious passion is more powerful. It will require an extension and reinterpretation of our religious traditions on a scale of the Protestant Reformation.

But on the basis of what idea, what truth, what insight, what new revelation?

I am an old man near the end who has nothing to lose. So let me state the outrageous yet beautiful, the horrible, awful, yet glorious truth. It can be done is six words: capital is the re-incarnation of Christ.

kurt9 said...

The Enron and Worldcom guys obviously ran the wrong kind of racket.

If I were in prison over the previous financial fraud from the early 00's, I would sue to have my conviction overturned. Nothing Enron, WorldCom, or any of the accounting scandals that came to light during the early 00's has come close to the economic damage these subprime scum have done.

We clearly have a criminal government that needs to be replaced.

Mr. Anon said...

"Anonymous said...

hey Steve, how come u can't be more like the Yglesias who touches on a variety of topics that are relevant to our lives and/or at least: interesting.

all u do is talk about race."

People who can't be bothered to capitalize the beginnings of sentences, and who write "u" for "you" are obviously drooling, cretinous, stupid nitwits who should be ignored. It's not worth writing for idiots like you.

Anonymous said...

Yes, let's shoot the wreckers and the greedy kulaks. After all, it worked so well in the USSR.
Actually sweetheart, the "Kulacks' in this case are the American middle classes who have been subsidizing and bailing out wall street for decades.

none of the above said...

Has to be said:

Yeah, when poor people borrow vast sums of money they obviously can't pay back from sophisticated multinational companies dealing in complex derivatives based on those worthless mortgages, and then have to be bailed out by the taxpayers, and afterward continue to benefit from a de facto "too big and well-connected to fail" credit rating, you can't really blame the sophisticated institutions that took on the risks they didn't understand, or the politicians who signed off on their bailouts. No, really, the people to blame for the financial collapse are the poor people who took those mortgages out when they couldn't afford to pay them back.

You have internalized a fundamental rule of modern America: The powerful, rich, and well-connected are *never* responsible for their actions. It's someone else's fault, or nobody's fault, or your fault for thinking there's a problem.