Countrywide's Mozilo Should Go to Jail

Anthony Mozilo, former CEO of Countrywide Financial, has settled his case with the SEC and paid a large fine. IMO, he is a crook, and he should go to jail.

Irvine Home Address … 159 TOPAZ Irvine, CA 92602

Resale Home Price …… $439,500

And the judge's gavel fell

Jury found him guilty

Gave him sixteen years in hell

He said "I ain't spending my life here

I ain't living alone

Ain't breaking no rocks from the chain gang

I'm breakin' out and headin' home

Gonna make a jailbreak

And I'm lookin' towards the sky

I'm gonna make a jailbreak

Oh, how I wish that I could fly

All in the name of liberty

All in the name of liberty

Got to be free

Jailbreak, let me out of here

Jailbreak, sixteen years

Jailbreak, had more than I can take

AC/DC — Jailbreak

If I had to narrow my list down to the people most responsible for the housing bubble, Anthony Mozilo would be near the top of the list.

The Option ARM loan was the primary loan product that inflated the housing bubble. Using negative amortization and teaser interest rates, people were able to borrow more than twice the amount than they could afford with a conventional 30-year fixed-rate amortizing mortgage. Once the Option ARM imploded and lending retreated to conventional mortgages, prices needed to fall significantly to rebalance affordability. The Option ARM was the Ponzi virus that caused the debilitating financial disease that inflated the housing bubble and created the current economic morass still plaguing the country.

The only person perhaps more responsible for the housing bubble is Alan Greenspan. If he hadn't let the Ponzi virus out of its vial, and if he didn't allow unregulated insurance "swaps" to encourage dumb money to flow into what they thought were riskless transactions, the air that inflated the housing bubble would not have found its way into Option ARM loans being peddled by Mozilo. Greenspan and Mozilo are my nominees for the fools most responsible for the housing bubble.

Alan Greenspan was clueless, incompetent, and philosophically blinded to the mess he created. What's arguably worse about Mozilo is that he recognized that he released a monster and did nothing about it. Personally, I hope he does go to jail, and he forfeits everything he made from about 2002 onward. It won't happen, but I can always wish for it….

How Countrywide Covered the Cracks

By GRETCHEN MORGENSON — Published: October 16, 2010

ON June 27, 2006, Countrywide Financial, the nation’s largest mortgage lender, was about to close its books on a record-breaking six-month run. The housing market was on fire and Countrywide’s earnings were soaring. Despite all the euphoria inside the company, some executives noticed that Angelo R. Mozilo, the company’s brash and imperious chief executive, seemed subdued.

At a town hall meeting that day with 110 of the company’s highest-ranking executives in Calabasas, Calif., Mr. Mozilo sat alone on a stage, fielding questions and offering rosy predictions about his company’s prospects. But then he struck a sober note in response to a question from one of his colleagues.

The questioner wanted to know what, if anything, worried Mr. Mozilo, according to a participant.

“I wake up every day frightened that something is going to happen to Countrywide,” Mr. Mozilo said.

A year and a half later, that day arrived. In January 2008, Countrywide, the company he had built from a two-man mortgage operation into a lending behemoth, had to sell itself to Bank of America at a bargain price because it was being smothered by losses tied to a mountain of sketchy loans.

Let's be very clear on this point: Anthony Mozilo made a fortune while running his company into bankruptcy. While his company profited hugely as the Ponzi Scheme took over, Mozilo divested himself of his options and shares so that very little of his personal fortune was lost when Countrywide went under.

Yet almost until the moment Countrywide was taken over, Mr. Mozilo was publicly buoyant about its ability to ride out the mortgage crisis. Privately, however, he occasionally offered a gloomier assessment of Countrywide’s prospects and practices, according to e-mail and interviews.

What Mr. Mozilo, now 71, knew about Countrywide’s problems, and precisely when he knew it, was what eventually led the Securities and Exchange Commission to file civil securities fraud charges against him last year. And on Friday, in the Los Angeles courtroom of John F. Walter, a federal District Court judge, representatives for Mr. Mozilo and for two of his top lieutenants — David Sambol, Countrywide’s former president, and Eric Sieracki, the company’s former chief financial officer — settled those charges.

As part of the settlement, Mr. Mozilo and his co-defendants didn’t admit to any wrongdoing. But Mr. Mozilo agreed to pay $67.5 million in a penalty and reparations to investors and is permanently banned from serving as an officer or a director of a public company. Mr. Sambol is paying $5.52 million in a penalty and reparations and agreed to a three-year ban from serving as an officer or director of a public company. Mr. Sieracki agreed to pay a $130,000 penalty.

The settlement is a signal event in the credit crisis and its aftermath, including the foreclosure debacle that is now rattling the mortgage market and upending the lives of average homeowners. Although Goldman Sachs settled securities fraud charges earlier this year, Mr. Mozilo is the first prominent chief executive to be held personally accountable for questionable business practices that contributed to the housing bubble, the dizzying financial machinations that surrounded it, and a ruinous lending spree that ultimately threatened to undermine the nation’s economy.

They got him! $67.5 million!

Mr. Mozilo and his two former colleagues were accused of misrepresenting the company’s declining lending standards during 2006 and 2007 and portraying themselves publicly as underwriters of high-quality mortgages even as they learned that the company’s loans were becoming increasingly risky.

The government also contended that Mr. Mozilo and Mr. Sambol improperly profited on inside information about the company’s problematic loans when they sold Countrywide shares. From May 2005 to the end of 2007, Mr. Mozilo generated $260 million from his stock sales, while Mr. Sambol’s sales produced $40 million, the government says.

$67.5M was not enough. He needs to forfeit all of his ill-gotten gains. With as large as his fine is, as long as he profited from the deal, there is no deterrent for others to do the same.

Lawyers for Mr. Mozilo declined to comment. Mr. Sambol’s lawyer said his client had “put the matter behind him for the benefit of his family and loved ones.” Mr. Sieracki’s lawyer noted that the S.E.C. had decided not to pursue fraud charges against his client and that his client had not been barred from serving at a public company. Bank of America is paying Mr. Mozilo’s legal bills. Countrywide is paying $5 million toward Mr. Sambol’s repayment to investors and $20 million of Mr. Mozilo’s reparations.

Bank of America is paying his legal bills and part of his fine? That's outrageous!

The S.E.C.’s legal team, led by John M. McCoy III, associate regional director of the enforcement division, said the settlement amounted to a hard-won victory.

In a statement on Friday, Mr. McCoy said: “This settlement will provide affected shareholders significant financial relief, and reinforces the message that corporate officers have a personal responsibility to provide investors with an accurate and complete picture of known risks and uncertainties facing a company.”

Actually, it reinforces that corporate CEOs can do whatever they want, and either the taxpayers or the shareholders will have to clean up the mess. CEOs are above the law.

Battered by widespread criticism that it failed to corral scam artists like Bernard L. Madoff and to effectively police Wall Street as a whole during the years leading up to the credit crisis, the S.E.C. may now regain some stature as a successful litigator and investor advocate from its settlement with Mr. Mozilo.

“As is the case with most settlements, this is a compromise where nobody comes out a complete winner,” said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels. “The S.E.C. gets a substantial monetary settlement and a bar with respect to Mozilo serving as an officer or director. On Mozilo’s side, he is probably satisfied to have this behind him. He suffers a considerable stain on his reputation, has to pay a substantial amount of money but retains significant wealth and at the age of 71 may find the possibility of being an officer or director of another public company less enticing.”

The fact that Mozilo finds any "win" in this situation is a loss for everyone.

COUNTRYWIDE FINANCIAL began operations in 1969, when Mr. Mozilo and his mentor, David Loeb, refugees from an established mortgage lender, decided to start their own loan originator. The company grew slowly at first, but by 2004, Countrywide was the nation’s largest home lender, generating annual revenue of $8.6 billion. Mr. Mozilo ran the company alone after Mr. Loeb retired in 2000. (Mr. Loeb died in 2003.)

After Mozilo's partner dies, Mozilo unleashes a Ponzi Scheme that ruins the company and the national economy.

An up-by-the-bootstraps entrepreneur — his father was a butcher in the Bronx — Mr. Mozilo was obsessed with wresting market share away from his buttoned-down rivals in the staid world of banking.

“I run into these guys on Wall Street all the time who think they’re something special because they went to Ivy League schools,” he told The New York Times in 2005. “We’re always underestimated. And we still are. I am. I must say, it bothered me when I was younger — their snobbery and their looking down on us.”

In an industry that favored low-key behavior and conservative dress, Mr. Mozilo stood apart. He offered blunt opinions about banking and was open about his corporate aspirations. To complement his ever-present tan, he wore flashy clothes and drove expensive cars like Rolls-Royces that were often painted in a shade of gold.

Still, he managed his business for most of its history with a tight focus on the bottom line and on vigilant lending practices.

If he was so vigilant, why did he approve the Option ARM? Sometimes I wonder if guys like him approach the end of their career and say "WTF, I will maximize short-term gains, make a fortune, and walk away when it all crashes." He is old enough, he probably couldn't spend his fortune if he tried. Like Greenspan, his reputation will never recover, but perhaps a couple of hundred million dollars makes you care less about that sort of thing.

For years, Countrywide specialized in plain-vanilla, fixed-rate loans. As recently as 2003, such mortgages accounted for 95 percent of the company’s loans, according to regulatory filings. Countrywide was the biggest supplier of mortgage loans to Fannie Mae, the federally backed mortgage finance giant that was also hobbled in the credit crisis.

Don't for a moment think that Mozilo is any less responsible for this disaster just because the GSEs got into the game late. The GSEs were trying to make up market share being lost to subprime lenders and lenders like Countrywide that were taking market share with Option ARMs.

In 2004, Countrywide’s sober-minded lending style changed significantly. It began aggressively offering loans to first-time home buyers and to borrowers with modest incomes. These mortgages were known in the industry as “affordability products,” but that ho-hum designation belied the potential financial dangers embedded in the loans if borrowers — particularly low-income borrowers — wound up unable to pay their debts.

Even so, Countrywide embraced such loans with gusto. For example, adjustable-rate mortgages — those with a low introductory rate that could ratchet up in later years — accounted for about 18 percent of Countrywide’s business in 2003. But a year later, they made up 49 percent of its loans.

Subprime loans also grew in 2004, to 11 percent of its originations, up from 4.6 percent in 2003. These loans often required no down payments and very little documentation of borrowers’ incomes, assets or employment; they generated immense profits to Countrywide but, again, presented a bevy of risks. And even when the going got rough for some homeowners, Countrywide didn’t hesitate to take a hard line with borrowers who fell behind.

Up until the time Countrywide collapsed, all lenders were taking a hard line with borrowers who fell behind. It wasn't until subprime foreclosures crashed the housing markets in places like Las Vegas, Riverside County, Arizona, and Florida that anyone cared about loan modifications, foreclosure moratoriums, and widespread squatting.

A born salesman, Mr. Mozilo promoted his company’s prospects wherever he went. In front of a crowd of investors or analysts, he would predict what Countrywide would generate in profits five years down the road and how many of its competitors the company would vanquish. No matter what, Countrywide would survive, he vowed.

“Over the entire history of this country, housing prices have never gone down nationally. They have gone down in some local areas, but never nationally,” he told an interviewer for CNBC in early 2005. “Secondly, any homeownership over the 10 years has proved to be the best investment that you could ever make. Over any 10-year period, housing prices go up.

Mozilo was completely kool aid intoxicated.

Later that year, he was equally optimistic when he again visited CNBC’s studios.

“From our perspective — and we’ve been doing this for 38 years — we’re still in a terrific mortgage market,” he said. “So the road ahead to us appears to be extremely vibrant, very sound.”

Even as the wheels were coming off of the Countrywide cart in 2007, Mr. Mozilo’s upbeat public pronouncements continued.

“I think you have to keep things in perspective. You know, there’s an old saying that you don’t know who’s swimming naked until the tide goes out, and obviously the tide’s gone out,” he told CNBC in March 2007, when a number of once-successful subprime lenders were plunging toward bankruptcy. “I think it’s a mistake to apply what’s happening to them to the more diversified financial services companies such as Countrywide.

When Bank of America invested $2 billion in Countrywide in August 2007 — a move that caused many analysts to question Countrywide’s financial wherewithal and its ability to remain independent — Mr. Mozilo again struck an optimistic note.

“Countrywide’s future’s going to be great. You know, it’s always been great,” he told CNBC at the time. “So I think, down the line, this is going to be a better company, a more profitable company and a company that’s going to be a great investment for shareholders as we continue down the line. Because the market ultimately will come to us. This is America. People want to own homes.

PRIVATELY, however, Mr. Mozilo had long been worried about some of the loans his company favored, as indicated by e-mails he sent to his deputies. And this gulf between Mr. Mozilo’s private views and his public proclamations went to the heart of the S.E.C.’s case against him.

Mozilo knew the Option ARM was going to end badly, and yet he allowed that product to grow to nearly half of his origination volume. Why would someone do that? To me it seems obvious that he knew he could make huge short-term gains and bail before it all crashed.

Beginning in 2005, for example, he fretted about lending practices at Countrywide, e-mail messages show. One target of his ire was the “pay-option adjustable-rate mortgage,” a loan that let borrowers pay a fraction of the interest owed and none of the principal during an introductory period. These loans put homes within many borrowers’ financial grasp — at least initially.

When a borrower made only modest payments, the shortfall was added to the principal balance on the loan, meaning that the mortgage would grow in size. Given this arithmetic, borrowers could wind up owing more than their homes were worth.

In 2004, pay-option A.R.M.’s accounted for 6 percent of Countrywide’s originations. Two years later, they accounted for 21 percent of its loans. The loans were moneymakers for Countrywide; internal company documents show that the company made gross profit margins of more than 4 percent on such loans, double the 2 percent generated on standard loans backed by the Federal Housing Administration.

Countrywide pushed the lucrative loans hard. A sales document called “Pay Option A.R.M.’s Made Simple” asked rhetorically what kinds of customers would be interested in these loans. “Anyone who wants the lowest possible payment!” was one of the answers.

But these loans unnerved Mr. Mozilo, as his e-mails indicate. In April 2006, for example, he learned that almost three-quarters of the company’s pay-option customers had chosen to make the minimum payment the prior February, up from 60 percent the previous August, according to the S.E.C.’s complaint. In an e-mail to Mr. Sambol, Mr. Mozilo wrote: “Since over 70 percent have opted to make the lower payment it appears that it is just a matter of time that we will be faced with much higher resets and therefore much higher delinquencies.

Mozilo knew exactly what was coming. The statement above from his emails could have been written on a bubble blog at the time.

Two months later, and just one day after he talked up his company’s pay-option A.R.M.’s to investors at a Wall Street conference, Mr. Mozilo wrote an e-mail to Mr. Sambol predicting trouble ahead for many borrowers in these mortgages. They “are going to experience a payment shock which is going to be difficult if not impossible for them to manage,” he said.

And in September 2006, Mr. Mozilo wrote an e-mail saying the company had no way to assess the risks of holding pay-option A.R.M.’s on its balance sheet. “The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,” he wrote.

Another Countrywide product that concerned Mr. Mozilo was its so-called 80/20 loan, named for the fact that the combination allowed a borrower to receive money covering 100 percent of a home’s purchase price.

Mr. Mozilo had become worried about these loans in the first quarter of 2006, when HSBC Bank, a buyer of Countrywide’s 80-20 loans, began forcing the lender to repurchase some that HSBC contended were defective.

In all my years in the business, I have never seen a more toxic product,” he wrote to Mr. Sambol in an April 17, 2006, e-mail cited by the S.E.C. “With real estate values coming down … the product will become increasingly worse.

Such e-mails suggest that by mid-2006, Mr. Mozilo had recognized how reckless some of his company’s lending had become. And just three months later, according to the S.E.C. complaint, he met with his financial adviser to increase the amount of Countrywide shares he could cash in under a planned executive stock-sale program.

How else can you interpret his behavior? He obviously knew his company was going to implode, and he wanted to get as much money as he could out of the company before the end.

Mr. Mozilo had always been a big seller, and rarely a buyer, of the Countrywide shares he was granted as a part of his compensation. The timing of some of his sales, however, has drawn the scrutiny of the S.E.C.

For example, on Sept. 25, a day before writing the e-mail about how Countrywide was “flying blind” on pay-option A.R.M.’s, he set up a new planned stock-selling program for himself, known as a 10b-5 plan, the S.E.C. said.

Such plans allow executives to sell stock regularly, without running afoul of regulations governing the sale of stock around significant corporate announcements. Mr. Mozilo also set up plans enabling a family foundation and a trust he oversaw to sell shares.

Altogether, the S.E.C. said, from November 2006 to October 2007, he sold more than five million Countrywide shares under his personal plan. His gains were $140 million, the S.E.C. said.

Mr. Mozilo has long maintained that his stock sales were not unusual, and in the past Countrywide has said that it and Mr. Mozilo were battered by economic forces beyond their control.

Mozilo is a liar. His stock sales were unusual, and he did now that Countrywide was going to be battered by the economic forces his mistakes created.

No one, including Mr. Mozilo, could have foreseen the unprecedented combination of events that led to the problems borrowers, lenders and investors face with many of these loans today,” a Countrywide spokesman told The Times in 2007. “Countrywide is proud of its role in making homeownership affordable to lower-income households.”

But lawyers and analysts say Friday’s settlement means that Mr. Mozilo’s legacy is likely to be something quite different from that of a banker who brought homeownership to the masses.

“Mozilo is agreeing to a permanent ban on serving as an officer or director of a public company,” said James A. Fanto, a professor at Brooklyn Law School and a specialist in corporate and securities law. “That is a significant punishment and does not look good for his legacy.”

Mozilo should be forced to face every borrower who took out his toxic loans. These people lost their family homes, and they should be angry.

Mozilo's legacy will be one of personal greed and foolishness. He drove his company into oblivion for his personal enrichment.

Bought at the bottom of the bear rally

The current bear rally began in the spring of 2009 when the Federal Reserve bought down the interest rates, regulators permitted amend-extend-pretend, and banks began the policy of widespread squatting in high-end homes. People who bought in that time period believe they purchased at the bottom and now they have some equity. We will see.

The previous owner of today's featured property bought the place for $416,000 on 6/24/2003. When this property sold for a loss in 2009, it was a 2003 rollback. That owner managed to own California real estate for 6 years and lose money.

The property was then purchased for $400,000 on 6/22/2009. Apparently the new owners have changed their minds and now would like to get out at breakeven. They have priced the property at $429,500. This gives them some room to negotiate and still get out at even.

So will they get it? Have prices of individual properties increased 10% since last year allowing these owners to get out at breakeven?

Irvine Home Address … 159 TOPAZ Irvine, CA 92602

Resale Home Price … $439,500

Home Purchase Price … $400,000

Home Purchase Date …. 6/20/2009

Net Gain (Loss) ………. $13,130

Percent Change ………. 3.3%

Annual Appreciation … 7.1%

Cost of Ownership


$439,500 ………. Asking Price

$15,383 ………. 3.5% Down FHA Financing

4.25% …………… Mortgage Interest Rate

$424,118 ………. 30-Year Mortgage

$83,394 ………. Income Requirement

$2,086 ………. Monthly Mortgage Payment

$381 ………. Property Tax

$71 ………. Special Taxes and Levies (Mello Roos)

$37 ………. Homeowners Insurance

$215 ………. Homeowners Association Fees


$2,790 ………. Monthly Cash Outlays

-$330 ………. Tax Savings (% of Interest and Property Tax)

-$584 ………. Equity Hidden in Payment

$24 ………. Lost Income to Down Payment (net of taxes)

$55 ………. Maintenance and Replacement Reserves


$1,954 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$4,395 ………. Furnishing and Move In @1%

$4,395 ………. Closing Costs @1%

$4,241 ………… Interest Points @1% of Loan

$15,383 ………. Down Payment


$28,414 ………. Total Cash Costs

$29,900 ………… Emergency Cash Reserves


$58,314 ………. Total Savings Needed

Property Details for 159 TOPAZ Irvine, CA 92602


Beds: 2

Baths: 1 full 2 part baths

Home size: 1,500 sq ft

($293 / sq ft)

Lot Size: n/a

Year Built: 2002

Days on Market: 89

Listing Updated: 40420

MLS Number: P744558

Property Type: Condominium, Residential

Community: West Irvine

Tract: Mand


What a beauty! Perfectly designed for a roommate situation, this quality Lennar home with two big master suites has loads of upgrades: travertine flooring with an inlaid marble design pattern downstairs, elegant sand-colored corian kitchen counters and a BIG walk-in pantry. One of the master bedroom baths has a shower with dual heads, travertine floors, double sinks and a roomy walk-in closet. This popular plan has a big common room downstairs with a kitchen that opens directly to the living room with fireplace, and a big 2-car garage with easy direct access into the home. Relax on the front stone patio of this beautifully-designed community and have an afternoon cool drink or a casual barbecue with friends. Located walking distance to the huge community pool, spa, kiddy pool and public tennis courts, and popular Tustin Marketplace. Enjoy an evening stroll to the much-utilized year-round Tustin Sportspark with walking paths, tennis and baseball diamonds.

64 thoughts on “Countrywide's Mozilo Should Go to Jail

  1. OrangeRenter

    I read somewhere yesterday that the settlement was structured so that BofA pays $20mil and somehow he pays nothing… Not sure how that works.

    Also, when Option Arms were the hot item, they earned 3x the typical margins in the secondary market, and 20-something-year-old sales agents where I worked were paid 3x the normal commission… For this reason they pushed these loans on everyone they could doing whatever it took to convince them.

    I never understood why these loans were worth so much more than a conventional loan when they only earned 1-2% initially. I guess the market thought they’d be wildly profitable when they reset, but we never got that far – they imploded before that day came.

    1. SeattleDave

      “I never understood why these loans were worth so much more than a conventional loan when they only earned 1-2% initially.”

      Through a quirk in the accounting, the banks were able to book the entire interest payment as profit in the month it was made, even though the owner paid less of the interest that was due. The remainder of the unpaid interest was tacked onto the principal, and was essentially deferred. So the bank was booking a profit on money that they did not actually receive. Sweet!

    2. lowrydr310

      For this reason they pushed these loans on everyone they could doing whatever it took to convince them.

      It probably didn’t take much convincing, nothing more than something along the lines of, “I could cut your monthly mortgage payment in half.”

      It surprises me how stupid people are when it comes to shopping. Even large businesses don’t care much about total cost; it’s all about cash flow.

  2. Geotpf

    I don’t understand the concept of owning a propetry for just a year (unless you are just blatantly flipping it, which doesn’t seem to be the case here). Transaction costs are large, and moving is a pain in the butt. Of course, there could be an unexpected job loss or transfer, death, or family issue that requires an unexpected out of town move.

    As for whether or not it will sell at a profit (minus costs, of course), I wouldn’t be surprised. The owner purchased at close to the absolute bottom, and the last four sales of this exact floor plan all sold significantly above their list price.

  3. AZDavidPhx

    What I find amazing is how little outrage we are seeing wth these reports of the Federal Reserve blatantly and openly coming out and saying that we don’t have enough inflation.

    While everybody is running around with their hair on fire over MERS and robo-signers and deadbeat house debtors being foreclosed “fraudulently” – we have the central bank right out in the open calling for the theft of everyone’s money.

    The master of the universe is now saying that we don’t have enough inflation so we need to print enough money to cause inflation that wouuld equal 2% per year since 2007.

    OH, so I guess Ron Paul was right then – the job of the Central Bank is indeed to create inflation after all. The sheer hubris of these people is stunning – thinking that they can just create money out of thin air to cure what ails us. This is going to come to an end at some point. I suspect even within my own lifetime.

    1. Swiller

      Ron Paul is an excellent man. I had to WRITE IN his name to vote for him for president in California. Look to Thomas Jefferson David.

      “I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” — Thomas Jefferson — The Debate Over The Recharter Of The Bank Bill, (1809)

      Excellent link to read:

      1. AZDavidPhx

        Look to Thomas Jefferson David

        I suspect the founders would be fairly pissed off to see what we have done with the place. I visited Mt. Rushmore earlier this year. Perhaps we should petition to have the monument updated to reflect the times. Could we chisel a nice big Jefferson giving us his middle finger?

          1. Chuck Ponzi

            Can I take a crack?

            Price inflation is generally good for debtholders whose debt is backed by the asset which is being inflated. It’s not good for savers who intend to purchase said assets in the future.

            Money creation (not necessarily linked) is a good thing. Especially when your goods and services capabilities are expanding. Otherwise, you have price deflation since the same amount of money is chasing more goods and services (lower prices in the future). The promise of lower prices in the future causes money velocity to drop, causing money hoarding, which from a value judgement in my opinion is bad. My value system says that money should be properly invested, lent to someone who will invest, or spent. Generally, hoarding money is only useful in the short run as a defensive measure. In my opinion. It’s worth what you paid for it.

            As a final note, changing perceptions of value and how money are allocated between various needs and wants by society can change the price inflation/deflation without being controlled by the money supply. As always, there is a tenuous link (ceteris paribus).


          2. Kirk

            Hey Chuck, that’s a pretty good explanation. But, it doesn’t have to be about an abstract concept like personal values. For all the reasons you list, it simply has to do with keeping the economy rolling. That is, people getting paid to do something productive so that they don’t starve or go off looting and killing other people. When not enough money is not circulating through the economy (money hoarding) that is eventually where you end up.

            The problem with discussing inflation is that the word is used to mean many things. Yes, we need rising prices and that is indeed a type of inflation. But, rising prices without rising wages (wage inflation) is a real problem and is probably why people get pissed when they hear the Fed wants inflation. Moderate inflation is good when both prices and wages rise. It is bad when either one is happening and the other is not.

            The Fed seems to think that they can force wage inflation (in aggregate – i.e. more hiring) by forcing price inflation. They are probably wrong. Pumping money into the economy and it ending up in the hands of big companies will not drive up wages. The cheap money will almost certainly be used for mergers and acquisitions to reduce the number of employees at the companies. So, rather than helping the economy, it may hurt the economy by increasing the number of layoffs.

            So, the Fed is correct in wanting inflation, but probably doesn’t have the power to do so in a productive manner. Only Congress has that power and our Senate rules (super majority required to pass anything) prevent them from acting.

            You can thank Republicans for blocking good policy and Senate Democrats for being a bunch of pussies back when Republicans threatened to go “nuclear” by eliminating the filibuster. The filibuster should be eliminated, but Harry Reid and most senators are probably too gutless to do it.

    2. AZDavidPhx

      Holding steady at 2%!

      “The greatest shortcoming of the human race is our inability to understand the exponential function.” -Dr. Albert Bartlett

  4. Perspective

    “…Bank of America is paying his legal bills and part of his fine? That’s outrageous! …”

    Well, technically an insurance company is likely paying BoA’s portion through a “Directors & Officers” policy.

    1. IrvineRenter

      I can understand these policies as necessary when the directors and officers are doing the work of the company, but when they get fined for doing something nefarious, which by definition is not part of doing the work of the company, these policies should not be invoked. I am surprised a policy like this does not exclude certain criminal or civil actions.

      1. Perspective

        All insurance policies have exclusions. D&O policies usually cover the defense of claims arising out of the normal duties, and then exclude claims of violations against company policies or criminal acts.

      2. Perspective

        Another thought – D&O policies have caps on coverage (like all ins policies), but even very high caps can be reached quickly.

        e.g. I think I read/heard somewhere that Dick Fuld’s (Lehman Bros CEO) legal costs were adding-up so fast (because there are so many plaintiffs and claims) that he’s exceeded Lehman’s policy’s cap for his legal defense. He’s therefore paying for everything going forward out-of-pocket.

  5. Prison for White Collar

    Given we are in an election year, I wish someone in one of these debates would ask Jerry Brown the following:

    “Mr. Brown, under your recent months as California Attorney General, you have been very vocal about going after the fraud in Bell. In the past years since the real estate market collapsed, the media has been flooded with cases of mortgage fraud, both from the loan originators and the people obtaining the loan. I think everyone here will agree that the fraud involved was on a much more widescale basis than what happened in Bell. Can you please describe what your office has done to go after loan originators (including executives and loan officers/processors) as well as individuals who knowingly falsified loan documents in order to obtain a loan?”

    I would ask a similar question to both gubernatorial candidates and AG candidates about if elected what they will do. And I won’t let them out the easy way by only talking about commenting on executives. Pin them down and ask about the actual loan officers and homeowners who knowingly committed fraud.

  6. alan

    I understand you anger at Mr. Mozilla and he should go to the Federal Pen. But, think of money like drugs. Mr. Mozillo was just pusher, the banks, e.g. Lehman Brothers, were the “grower, suppliers and cartel” behind Mr. Mozilla. I’d be a lot more angry at the Investment Banks than Mr. Mozilla. Without someone to pedal these loans to, he never would have ammounted to anything. And what about the US Government? Who bailed out these banks at tax payer expense?

    1. Perspective

      “…Who bailed out these banks at tax payer expense? …”

      You mean, “to the taxpayers’ benefit,” no? At least to date, the bailout of the banks is less a “bailout” and more a “vulture investor” purchase. This investment has returned profits to the Treasury.

      The key is to get out of these bank shares now while they’re still fraudulently appearing solvent.

      1. JDSoCal

        Don’t forget moral hazard as well. Risk and consequences for failure is an essential element of capitalism.

        1. IrvineRenter

          The moral hazard with these bailouts concerns me greatly. Why will banks be prudent in the future with implied government backing?

          1. AZDavidPhx

            Why will banks be prudent in the future

            They won’t.

            We are entering the new age of Government mortgages for all. 30 years from now, FHA will be accepted by the common man as the only way to buy a house. The idea of getting your own 30 year mortgage with a 20% down payment will be one of those things that people used to do back in the stone age.

            Still waiting for 50 year mortgages to become the norm but for some reason the banks are not going for it yet.

    2. matt138

      The fed is the grower.

      Low interest rates equal super miracle grow.

      Banks are distribution.

      CEOs are cartel boss.

      Loan officers and wall st brokers are pushers.

      Govt is the cop looking the other way.

    3. John

      Mozillo and many other should commit suicide and donate their assets to charity for the betterment of society.
      If they go to jail, then we have to pay taxes to keep them there.

  7. FreedomCM

    virus out of the “vile” (vial)

    and I’m not quite certain whether I would prefer mozillo to be in jail or forced to live in a squalid apartment complex in anaheim with his former mortgagees

  8. Alan

    I wonder if anyone can now ask for equal treatment under the law? Mozilo took something over $450 million, and is being (personally) fined somewhere around $26 million, perhaps less. He’s 71, got $100’s of millions and is barred from being a company director. They might as well impose a lifetime ban on him playing center in the NBA also. So the next time anyone gets caught for theft, offer to pay 5% and keep the rest, while promising never to work as director for whoever you’ve robbed. At least with all of our problems, the US is taking leaps forward to being a more compassionate and forgiving society. 🙂

    1. Honcho

      And while we’re at it, how about all of those loan mod scam attorneys? One recently settled with the CA state AG for $1 million, despite the fact that his company took in over $10 million from defaulted borrowers looking for help without providing ANY help. Seriously, the whole scam was to file a lawsuit and simply delay the foreclosure and collect monthly payments from the borrower that otherwise could have been going to pay their mortgage.

  9. Bazooka_Joe

    I’m not sure why all of this is shocking. Particularly the surprise that BofA paid his legal fees and part of his penalty. I truly believe that CW and BofA were conspiring this whole situation 10 years in the making.

    1. Perspective

      When you’re a director or officer of a corporation, the company is obligated to pay for your defense if the accusations arise out of actions taken in the performance of your duties. The company typically has an insurance policy to pay for legal fees, fines, and judgments.

      1. Alan

        Is that a legal requirement from the State or Federal government? Or is it that directors and officers of a corporation insert into their own contracts that the company will pay for their defence and fines that come from their actions? Right next to use of the company aircraft for personal vacations, and other benefits to help them sleep peacefully and so be able to do more and better work for the shareholders.

        1. Perspective

          Not sure – I have a little exposure to corporate and insurance law, but just enough to add marginal thoughts like these.

          If you’re a director or officer in a corporation though, you will want the company to purchase D&O policies to cover legal costs arising out of the performance of your duties.

  10. gepetoh

    Are we p.o’d at him for supporting and encouraging Option ARMS (which in itself seems perfectly legal), or that he hid his real concerns presumably for his own benefit (which IS crooked)? I think the non-conventional products are dangerous, but certainly shouldn’t be illegal. His decision to push the product the way he did may be morally questionable, but I’m on the fence about whether it should be punishable. Having said that, he should certainly be investigated for his contradictory actions.

    1. matt138

      We do not need to regulate option arms. Let the banks and MBS investors decide who is able to borrow an option arm, sans govt influence.

      Why do many argue for regulation, but argue against the best, most important type of regulation – free market regulation?

      Let them sell option arms until the company implodes and vanishes – that’s all the regulation we need. The problem only reaches systemic proportions when govt subsidy is involved.

      And the main problem stems from interest rate manipulation – dubbed “stimulus” by the clueless to “avoid a greater recession”. we haven’t avoided anything.

  11. Bitter Renter

    I know there was a lot of pooh-poohing of the NY Times journalistic integrity the other day, but I thought this article on Japan’s lost decade was quite well-done and gave me much more insight than other coverage I’ve read as to how this has been experienced by the average Japanese person:

    The article also mentions the new phenomenon of Japanese microhouses. Very neat to see the latest ways the Japanese have figured out how to make the most of relatively tiny living spaces. I wouldn’t mind living in some of these:

  12. JDSoCal

    The problem, Irvine Renter, is, just because you hate (justifiably so) what that scumbag Mozilo did, it’s hard to make a criminal case on this. The ARM borrowers *could* have made payments, they just didn’t. And do these foolish borrowers have any complicity in their own improvidence? They were the other half of the transaction. I think the SEC is settling because they realize proving actual crimes is going to be difficult.

    A couple of great links on this:

    And here’s the scary one, especially for California RE:

    Anyone who read this and could think the banks are a buy, as many talking heads on CNBC are saying, are fools.

    1. Honcho

      I didn’t read this as his “crime” being the introduction or pushing of the ARM.

      I thought Mozilo’s greater sin was saying the company was doing fine while it was actually tanking and he was pulling all his money out.

  13. JDSoCal

    Alan Greenspan, the ex-Chairman of the Federal Reserve of the US, said in an CNBC interview in February 2009, titled, The House of Cards:

    “I have got some fairly heavy background in mathematics but some of the complexities of some of the instruments that are going into CDOs bewilders me. I do not understand what they are doing or how they got the type of returns from the mezzanines and various tranches of CDOs. And I figure, if I did not understand it and I had access to a couple of hundred PhD.s, how the rest of the world is going to understand it, sort of bewilders me.”

    1. matt138

      If it takes more than 1 sentence to explain what you’re selling, it is probably illegal. sumpthin like that.

  14. Kirk

    Man, I couldn’t even read this whole post. I might have an aneurism if I think too much about this. It’s like we’re slowing moving back to a feudal society where the rich control everything. This douche bag basically got off scot free. He has more money than he’ll ever be able to spend. The fine might as well have been a penny. It would have the same effect as this fine.

    1. gepetoh

      The rich have controlled everything since… well, forever. I think capitalism is based on that notion.

        1. matt138

          Capitalism is the only system allowing hope and rights for the individual.

          The issue we are dealing with now is big govt manipulated capitalism (removing fear and consequence from the market) and govt not enforcing laws when fraud, corruption, etc. takes place.

          I see it as a function of this: the closer we get to a free market, the less chance big, less-than-nimble banks and our current problems have of surviving. The market purges and cleanses naturally but we foolishly resist it.

    2. HydroCabron

      This is what many Americans want. Glenn Beck recently told his listeners to donate directly to corporate interests, and they crashed the Chamber of Commerce’s online donations page.

      Yes, this disgusts me, but I also wonder what will happen if/when these people realize how hard they’re being screwed – that may lead to something even worse!

      1. AZDavidPhx

        I also wonder what will happen if/when these people realize how hard they’re being screwed

        Those folks know they are being screwed! And it is the liberal boogeyman who is doing it!


    3. Eat that!

      Maybe we should make all rich people run for office. They seem to like spending their money that way.

      1. Kirk

        LOL! That is truly the brightest part of this election. Two rich woman with a sense of entitlement blowing their money only to lose.

      2. AZDavidPhx

        Maybe we should make all rich people run for office.

        Or maybe the voters should stop voting for these rich pricks. That’ll be the day!

  15. lowrydr310

    This looks like a very nice place, but:

    $83,394 ………. Income Requirement

    $2,790 ………. Monthly Cash Outlays

    I earn a lot more than the income requirement, but I couldn’t afford $2700 per month, and that’s with no debt other than a manageable student loan obligation. I’m trying to save some money – emergency savings, 401(k), IRA, yet I still find it extremely difficult to do so.

    1. gepetoh

      Agreed, that’s a lot for someone making $84K. I think that number is based on the P&I being 30% of gross income? I think it should be 30% should be off of total monthly outlay, which would make it $112K. And then we still have to question whether the traditional 30% even makes sense with today’s cost of living.

    2. AZDavidPhx

      $83,394 ………. Income Requirement

      $2,086 ………. Monthly Mortgage Payment

      At that level you would be spending almost 50% of your take-home pay on your mortgage.

      Is this realtor arithmetic?

    3. Laura Louzader

      This place is only “affordable” to someone making $83,000 a year using a DTI of 4:1. This became acceptable during the first bubble in the late 70s and early 80s.

      You are correct- you can’t really afford it if you want to save a healthy amount of money and afford the rest of your life.. like, perhaps, car ownership, and a family. These are things someone earning an above-average income ought to be able to afford, but our reliance on debt has made our lives very expensive in this country.

      Increasing the acceptable DTI ratio from 2.5X income to 4X income is one of the worst turns the financial concerns ever did home buyers. I remember that prices immediately escalated steeply in response, and more conservative, cautious borrowers were effectively priced out of homes that would otherwise have been well within their means.

      The overall effect has been to turn us into a country of debt serfs with an abysmally low savings rate. I feel that this lack of resilience in our population is a perfect setup for an economic disaster that just keeps rolling, and taking more people down into poverty as it continues on. Because of our lack of cash, we have no power to recover, especially since we’ve taken the run-up-more-debt-to-pay-old-debt gambit as far as we can taken, with the kind of results we could expect.

  16. matt138

    The greenspan cartoon appeals to emotion. It assumes that a meat company, left to its own device, would sell tainted meat as a viable long term business model. All competitors would follow suit, the greener/browner the meat the better. Customers would flock to buy rancid meat.

    And I’ve heard the argument that short term profits cloud business rationale and sometimes it does; but my question is: Which is more crucial to the survival of a company – short term profit or long term viability?

    Free market consequence is the ever-looming grim reaper: beheading the unscrupulous and persuading the rest.

    The govt can be corrupted; the free market cannot.

    1. Steve

      Perhaps a quick re-read of the jungle will enlighten you to the miracles of the free market in the meat industry.

    2. Kirk

      I think Atlas Shrugged was a great book. It really showed how intellectually stunted “free market” capitalists are.

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