Dumb things bloggers say

Alright, I have a mea culpa here. Check out this quote from June 2008:

Bank of America’s Ken Lewis is trying to crack a big nut in taking on Countrywide Financial to its balance sheet. To date, BofA has been fairly successful in limiting its writedowns during this credit crisis, but there are any number of problems attendant with the Countrywide transactions. I thought surely BofA would recognize these risks and back out of the Countrywide deal. But, it looks like full steam ahead. Some of these may cause BofA to be exposed to major financial losses in the future.

More reason BofA is crazy to take on Countrywide

It’s three years since I wrote that now and I think we are definitely seeing this was the right call. Here’s the thing though: In August – two months later – I wrote:

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Basically, the LA Times is showing that Countrywide represents the most obvious case of mortgage fraud, predatory lending, and other ills that caused millions to take on loans they would otherwise not have. As mortgage lending is at the core of the problems facing the U.S. economy, doing a few Countrywide perp walks would be a coup in any politician’s book.

But, then there’s Angelo Mozilo. He is a man who made hundreds of millions of dollars while the mortgage market fell apart and people lost their homes, dreams, and life savings. The U.S. government, the state governments and many an Attorney General will do everything they can to be the first to arrest Mozilo to parade around before the U.S. public. This is what politicians do — Attornies Generals are politicians too.

And, remember, Mozilo was also the originator of IndyMac, which spectacularly went bust this past month.

Why Bank of America took on this kind of open-ended legal risk is beyond me. But, one thing is for sure: we will see convictions at Countrywide.

Ex-Countrywide CEO is the new Ken Lay

Did you get that last sentence: “But, one thing is for sure: we will see convictions at Countrywide.”

That was dumb. Now I know that the best way to rob a bank is to own one.

Lesson learned.

P.S. – I am updating this (at 1130 EDT the next day) to say I remember being amazed the Countrywide deal was still on as more bad news spilled out. I was convinced the government forced $BAC into it. This could be the case because I had similar thoughts about Citigroup asset sales in 2009 as well and we have gotten confirmation that they were forced to do them by the Obama Administration.

P.P.S – in the naked capitalism version of this post, I said: “watch Bill Black regale you with tales about the Great American Bank Robbery. That may put some context around how very wrong I was – and also why the President will pay at the polls for high unemployment despite what some polls say. I think James Carville would say: It’s the bailouts, stupid.”

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9 Comments
  1. Geoff says

    Edward, you are a fine upstanding gentleman, from what I can tell. And not far from my age. But somehow, you didnt manage to gain the necessary cynicism that many of us knew was warranted. You may be late to the party, but you are welcome, and it’s never too late to say you are sorry. Bienvenidos a casa!

  2. john haskell says

    You misoverestimated Obama. And you were far from the only one. :(

    1. Edward Harrison says

      John,

      It’s not just Obama but Bush as well! I wrote both of those posts in 2008 when Bush was President. On top of that, Bush was President when Ebbers, Nacchio, lay, and Arthur Andersen all went down. So, on some level it was reasonable to think that we would see investigations and prosecutions.

      In any event, Obama has been President during the time when these prosecutions would have happened so you’re right that it IS Obama that has missed the boat. Personally, I think singling out wrongdoers is the right thing to do not just for society but for the banks and bankers who are all being tarred with one brush now as a result.

      1. Brendan Dornan says

        Give Obama credit, he did go after whistleblowers like Tom Drake to hide whatever misdeeds the government is doing with with personal phone, billing, gps, etc.

        “The Obama administration’s prosecution of National Security Agency whistleblower Thomas Drake collapsed this week, days before his trial was set to begin. Prosecutors dropped felony charges under the Espionage Act; Drake pled to a single misdemeanor and will not go to prison.”

        http://www.whistleblower.org/blog/31-2010/1463-nsa-whistleblower-thomas-drakes-first-op-ed-in-wapo-we-need-to-listen-to-him

  3. fresno dan says

    “But, then there’s Angelo Mozilo. He is a man who made hundreds of millions of dollars while the mortgage market fell apart and people lost their homes, dreams, and life savings. The U.S. government, the state governments and many an Attorney General will do everything they can to be the first to arrest Mozilo to parade around before the U.S. public. This is what politicians do — Attornies Generals are politicians too.”

    First, you are one smart and well informed blogger (would I admit that I read stupid bloogers? I am stupid enough on my own, I don’t need any increase in that ;) A reasonable person who actually thought the US was not TOTALLY corrupt would have agreed with you…

    One would certainly have thought there would have been prosecutions. We seem to have reached the point where we have two political viewpoints:
    A – the divine right of bankers to pillage
    B – the right of bankers to pillage, (money multiplier, credit is the lifeblood of the economy, collapsing banks cause cats and dogs to mate, Federal reserve rigamarole, inflation is good, et al) but this party believes in evolution…

  4. David Lazarus says

    Well the fact that the the Federal Housing Finance Agency is now suing the big lenders for losses might mean the banks will suffer from fines but I doubt that other than a few loan officers no one will go to jail for mortgage fraud.

    1. Edward Harrison says

      David, I would argue this makes it even worse because the genesis of the problem with control frauds is an agency problem. The CEO or other top officials do not have the same incentives as shareholders when there is control fraud. They are literally looting the shareholders by engaging in (criminally) negligent corporate governance and enriching themselves while leaving the true owners (shareholders) with losses. Going after the corporation only causes those losses to be greater. You need criminal prosecution to pierce the corporate veil and drive out the bad behavior or you are left with a criminogenic environment where bad behavior drives out good.

      It’s not right to tar bankers with one brush. You need to target specific actors who committed criminal acts of control fraud.

      1. David Lazarus says

        I am not disagreeing with you, but the US justice system for whatever reason has simply failed its duty. Yes senior execs need to go to Club Fed and for a long time but with them having such control over the political system what are the chances of that? It is control fraud but no one is interested in dealing with it. So punishing shareholders is the next best thing. It is their fault that they appoint crooks to run their bank.

  5. jporter says

    “Dumb” is perhaps a little harsh Edward. Sounds more like the statement of a man who knows right from wrong, and rightfully expects the powers that be to do their jobs. If guilty of anything, it might be of not fully grasping how spectacularly dumb those powers can be.

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