Friday, Jun 05, 2009
UK mortgage lenders need this kind of fraud trial too
Telegraph: Countrywide's former chief Angelo Mozillo charged with fraud and insider dealing by SEC
The US Securities and Exchange Commission (SEC) last night charged Angelo Mozilo, the former chief executive of America's biggest mortgage lender, with securities fraud and insider dealing...The SEC alleges that the trio misled the market by falsely assuring investors that Countrywide was primarily a prime-quality mortgage lender..."Mr Mozilo privately described one Countrywide product as 'toxic,' and said another's performance was so uncertain that Countrywide was 'flying blind'," he added.
Posted by mountain goat @ 09:29 AM (578 views) Add Comment
10 Comments
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1. paul said...
So, when is the same scrutiny going to be given to UK mortgage lenders?
Seems the FSA's mortgage fraud hotline is still on answerphone ...
2. mountain goat said...
Paul - In both cases the SEC and FSA were asleep during the bubble, but they can make up for it now by gathering evidence for fraud and prosecuting.
3. icarus said...
The failures that led to this kind of scam were systemic, deeply involving the SEC. This makes the prosecution of Mozillo effectively a show trial designed to validate the system by implying that its failures were down to a few bad apples.
At a very basic level you might ask how on earth the SEC allowed CDOs. It doesn't require much thought to realise that bonds should at least have a clearly identifiable source, an operator whose creditworthiness and cashflow can be assessed, and a clear price in a secondary bond market. CDOs had multiple sources whose creditworthiness and cashflow were unknown and were traded over the counter i.e. no secondary market to determine price and no orgaised market to determine counterparty risk. CDOs always sat between "extremely risky" and "scam". That's before one even mentions CDSs.........
Furthermore the SEC gave in to pressure from Paulson as head of Goldman Sachs in 2004 to relax the 'net capital rule', thus allowing investment banks to crank up their leverage to even more absurd levels and enabling bankers to get up to even more shenanigans. And somebody somewhere decided that seven SEC staff were sufficient to supervise what in 2007 were five investment banks which controlled assets of $4 trillion and were able to call upon trillions more from money markets, pension funds and commercial banks.
4. mountain goat said...
Icarus yes the SEC were hopelessly under-staffed and there was pressure to minimise over-sight because of a philosophy that the market was best at assessing risk. I actually agree that the market is best at assessing risk but then you need to let failure to judge risk properly be punished by the market too, and not bailout losers.
However, risk and minimal over-sight still does not justify fraud. If there can be shown to be criminal misrepresentation and fraud then there should be prosecutions, despite all the circumstances of minimal policing. I also read that the SEC were usually able to call on the FBI to investigate allegations of fraud, but post 9/11 2001 meant the war of terror occupied that agency.
5. icarus said...
mountain goat - The markets may be best at assessing risk if they aren't rigged, as they are when five investment banks have Washington in their pockets and control vast funds. These aren't the de-centralised markets with thousands of price-takers. Funds of this magnitude can shift markets in the speculators' favour. These banks could inflate and deflate bubbles in all kinds of markets to their own advantage.
As for prosecuting the bad guys - do so by all means, but more than that needs to be done if (a) the bad guys paid the police chief and (b) the cops gave the bad guys the keys to the safe.
6. mountain goat said...
Icarus perhaps I have naive hope that justice will prevail. I hope the incestuous link between JP Morgan GSachs and the government gets broken. Corruption eventually weakens the system so can't go on forever.
On a lighter note and off-topic but still funny so I will paste it here
7. devo said...
8. devo said...
What sort of censorship is this?
9. mountain goat said...
Devo if you post an image sometimes the source webpage blocks it to keep control of their material.
10. little professor said...
devo -
