Angelo Mozilo, CEO and founder of Countrywide Financial, is probably in for a bad year.
Among his other worries, he has just been sued by the State of Illinois, which was then joined by the State of California. I have not seen the Complaint (civil) but according to a New York Times article the Illinois Attorney General "asked that Mr. Mozilo contribute personally to the damages." I am sure that there are other State suits and perhaps prosecutions in the offing.
I met Angelo Mozilo twenty years ago (have never spoken with him since). The guy was bristling with intensity and ambition. Anyone could see that he was going to build Countrywide (which he started in 1969) into something big. And you know what? He gave us just what we wanted.
Mozilo, the son of a Bronx, New York butcher, answered "the call of the wild" as he built Countrywide into the country's largest mortgage lender. Over the last ten years or so, he tailored his company to:
1. Give the Administrations of 2 Presidents what they wanted: higher homeownership rates.
2. Give the Federal Reserve what it wanted: a vehicle to turn its low interest rate policy and wink-wink attitude toward crazy lending into a housing boom.
3. Give the mortgage brokerage industry what it wanted: loan products to generate lots of fees by loading up borrowers with unconscionable debt.
4. Give the real estate agents what they wanted: easy mortgages so that they could sell, sell, sell.
5. Give the real estate attorneys what they wanted: more closing and refinance business.
6. Give the investment bankers what they wanted: more loan product that they could securitize and sell for big profits to investors (which securities were blessed by ratings agencies who coincidentally were doing other work for the investment banks behind alleged Chinese Walls).
7. Give the home buyers what they wanted: 100% financing so that they could play no-lose Russian roulette - if house prices went up, great... if not, send the bank the keys in the mail.
Mozilo responded to the market by giving the market exactly what it wanted. And all worked well while housing prices were rising. Then the market died and Mozilo went from hero to goat very quickly. By the way, if prices were still rising today, he would probably be getting Man of the Year awards in 2008 - instead of legal summons.
What's my point?
I worry when we as a society turn over-zealous in looking to personalize and find villains for problems (the housing bust and credit crunch) for which we all have responsibility.
I realize that the State Attorneys General, the regulators and the prosecutors all have to do their jobs but where were they when the foundation for the ensuing problems was being put in place? Did we need the housing bust for people to understand that 100% financing, adjustable payment-option loans, and artificially low rates could lead to trouble?
I guess that I would rather we spend our capital and energies on learning from our mistakes so that the next time we sense the mania, we can be proactive. Reactive may feel good - suing or prosecuting guys like Mozilo - but that won't bring back the hundreds of billions of dollars lost in the process, let alone the disruption and pain to American homeowners.
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