Here’s something to ponder — Who seems more culpable for inaction: Angelo Mozilo, the disgraced former CEO of Countrywide Mortgage, or former Federal Reserve Chairman Alan Greenspan? The winner of the poll will get a used copy of Hamlet (whenever I get around to it).
Based on internal documents from Countrywide and the Fed, both men saw big trouble ahead for their constituents but did nothing to avert disaster.
The Big Money observes that Mozilo’s concerns for the direction of the No. 1 purveyor of subprime loans (now a Bank of America unit) were unusual. Most CEOS claim ignorance of the details of their sinking ships. Think Ken Lay and Enron. But internal emails the SEC used to press civil charges against Mozilo reveal not only that he knew exactly what was going on but that he was worried about the lending practices at Countrywide:
What makes this case unusual is the clarity and comprehensiveness of Mozilo’s objections to the shenanigans at the company he himself was running. The man that emerges from the SEC’s complaint isn’t the willfully disengaged chief executive we’ve seen in so many other corporate corruption cases. On the contrary, Mozilo systematically sets down a record of everything that is going wrong and how it’s likely to end. Over and over again, he casts himself as the worrier-in-chief, always just on the verge of changing things. To read over the SEC charges against Mozilo is to see in action a grandmaster of the most cynical of corporate arts: the cover-your-ass memo.
Mozilo may have been concerned — or pretended to be concerned — but he never did anything about the company’s lending practices.
Internal documents from the Federal Reserve also reveal that Greenspan spotted trouble but failed to act as well. Wall Street watchers are familiar with Greenspan’s infamous “irrational exuberance” speech in 1996 in which the man known as The Maestro (he played the stock market like a virtuoso) first raised the issue of a stock market bubble. In his new book Bailout Nation Barry Ritholtz publishes this gem from the minutes of the Federal Open Market Committee, the policy-setting group for the central bank:
“I recognize there is a stock market bubble proble at this point,” Greenspan said in a September 24, 1996, Fed meeting, and declared that raising margin requirements was a solution. “I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.”
But the FOMC chair chose not to do so. After the famous “irrational exuberance” speech in 1996, Greenspan thereafter remained silent about speculative excesses that, by late 1999, were terribly obvious to even casual observers.”
Mozilo called liar loans “poison” and Greenspan not only saw the Internet bubble coming but knew exactly what to do about it. Doubtless he saw the dangers of the housing bubble as well. Both did nothing. Mozilo and his top two lieutenants face civil charges of fraud for their action (and inaction); criminal charges are in the works.
So who do you think is more guilty in helping to facilitate the market meltdown of 2008?
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