This isn’t a tale about turkeys. It’s about pigs.
With America’s economy smashed, and American consumers no longer consuming, these are tough times for everybody, and that includes Wall Street investors and hedge funds. What are they supposed to do with the billions of dollars they have amassed courtesy of the US taxpayers? Wouldn’t it be great if they could figure out a way to help us while helping themselves?
The SEC is at it again. They’re bragging that the agency nailed the largest penalty of its kind in history against the king of the subprime lenders for defrauding his shareholders.
And no doubt, $65 million dollars sounds like a lot of money.
But when you remember how much money Angelo Mozilo raked in during his reign, and when you break down the details of the SEC fine, it doesn’t add up.
It certainly doesn’t add up to much in the way of punishing Mozilo.
As usual when the SEC settles the civil charges it files, Mozilo and his two former colleagues admitted no wrongdoing as part of their settlement.
The SEC accused Mozilo, the butcher’s son who rose to be the president of Countrywide, of keeping from shareholders his fears that his collection of subprime loans was trash while reassuring his stockholders that everything was hunky-dory.
Federal prosecutors are still poking around in the ashes of Countrywide, and maybe they will come up with something.
But so far here’s the scorecard on Mozilo: the SEC said he received $141.7 million as a result of fraud and insider trading. They fined him $22.5 million.
As the Center for Public Integrity points out, that means he has give back just 16 cents of every ill-gotten dollar he got.
In addition, the SEC touts the $45 million that Mozilo will have to turn over to Bank of America shareholders, though that money won’t come out of Mozilo’s very deep pockets. That will come from his insurer and the company that bought Countrywide, Bank of America.
The fines seem even slighter when you contemplate what Mozilo was paid in his days as master of the universe.
In his time as executive chairman of Countrywide between 1999 and 2008, he was paid a total of $410 million in salary, bonuses and stock options.
In 2007, when the company’s stock tanked, dropping from $40 to under $10, Mozilo had an off-year too. He was only paid $10.8 million.
In perspective, this doesn’t seem like much for the SEC to brag about. Sixteen cents on the dollar certainly isn’t going to strike fear into the heart of any business titan.
In California, the nation’s largest real estate market, the robo-signing scandal has produced many calls to halt foreclosures, but little real change so far.
For several years, lawyers who represent borrowers in foreclosure have been complaining about massive and gnarly problems in the foreclosure process.
Because of the way Wall Street sliced and diced mortgages into derivatives and sold them off, the ownership of the mortgage had often not been properly documented, these lawyers said.
Such documentation is a basic legal requirement of foreclosures.
But they couldn’t get many judges to go along with them, especially in California, where, by state law, judges don’t typically oversee foreclosures. They only get involved if a borrower files suit to block a foreclosure, and even then, the courts are reluctant to do anything that would benefit borrowers who haven’t been paying their mortgages.
But disclosures over the past week in the robo-signing scandal may change that, after bank officials disclosed that they signed thousands of foreclosure documents without reading them first. Among the problems were documents that appeared to be forged or inaccurate assessments of how much borrowers owed on their mortgages.
In states with court-supervised foreclosures, the big banks voluntarily called a halt to foreclosures. But not in non-judicial foreclosure states like California.
The banks’ position so far is that the robo-signing doesn’t represent any substantial problems in the documentation, just that they were overwhelmed and understaffed and couldn’t keep up with the paperwork.
Walter Hackett disagrees. He’s a former bank executive who now represents borrowers in foreclosure at Inland Empire Legal Services. Hackett also runs an online bulletin board for lawyers fighting foreclosure. “Sloppy paperwork is too nice a way to describe it,” Hackett told me. “It’s a conspiracy of ignorance.”
He recalled dealing with Wells Fargo on behalf of one client. They were promising his client a loan modification; however, by the time Hackett untangled the paperwork, it turned out the mortgage was actually owned by another bank. “Before a bank can foreclose on a property, they have to prove that they own the note,” Hackett said.
Meanwhile, Attorney General Jerry Brown has issued cease and desist orders against some of the big banks that have acknowledged problems in their paperwork. But Brown’s concern is not actually the robo-signing, a spokesman said, but whether the banks are complying with a California state law that requires the banks to attempt to work out a loan modification before they foreclose on a borrower.
Brown spokesman Jim Finefrock said, “We’re talking to them [the banks]. We’re hoping for a resolution of the matter.”
He acknowledged that Brown was focused on compliance with the California law, not the larger issues of whether documents had been improperly filed in foreclosure cases.
The implications of the foreclosure fiasco are potentially huge, what Reuters business blogger Felix Salmon describes as “the mother of all legal messes.” If the problems with the paperwork prove substantial, they could undermine previous foreclosures and home sales, leading to a waves of litigation involving borrowers, homeowners banks and investors. The bad news for the economy is that the robo-signing scandal will only prolong the foreclosure crisis, keeping those facing foreclosure, and the entire housing market, from attaining some kind of stability.
While politicians and organizations have been calling for investigations and moratoriums on foreclosures, those are only a start. We need real leadership to forge long-term solutions, instead of the weak half-measures we’ve gotten so far. Maybe the robo-signing mess will offer the opportunity for the administration, the banks and the investors to try again to solve the foreclosure debacle and to get it right this time.
He did appoint her to an important-sounding post as a White House adviser with responsibility to set up the agency, which after all was her idea in the first place.
Is the president actually marginalizing her with the window dressing of a fancy title? Or will she have a meaningful role in setting up the agency and shaping policy?
The punditocracy has gone into overdrive analyzing the president’s handling of Warren.
The positive spin is that it’s a savvy political move on Obama’s part to get her to work right away creating the agency and avoid a Republican filibuster, and that the president will finally be hearing from an insider not under Wall Street’s spell.
The more skeptical interpretation sees it as the latest example of the president’s failure to push back against Wall Street on issues that Wall Street cares about. As he has in the past, rather than picking a principled fight with Wall Street (and Republicans) Obama found a way around it.
The third spin, from Barney Frank, is that Warren actually didn’t want a permanent appointment now, keeping her options open to either exit the administration or accept the job later.
Writing on WheresOurMoney.org earlier, Harvey Rosenfield, eloquently described why Warren is the best person to lead the new agency.
Warren has been a long-time critic of predatory lending practices and the American way of debt. In her role as congressional monitor of the federal bank bailout she’s been a fearless straight shooter and a down-to-earth demystifier of the complexities and foibles of high finance.
But Obama’s handling of her appointment reinforces the impression that he’s weak in the face of Wall Street’s power. Why in the world, with a high-stakes election less than 2 months away, would the president want to avoid a fight with Wall Street and Republicans on behalf of the undisputed champion of the middle-class and consumers? If the president does intend to appoint Warren to head the agency later, does he seriously think it will be easier later?
Unlike most of the president’s other top economic advisers, Warren has never been cozy with Wall Street. But it’s simply not realistic to expect the president is about to get more aggressive in reining in the big banks with Warren on the inside.
The president has shown that he is capable of ignoring perfectly good advice from well-respected advisers with impressive job titles within his administration. Remember Paul Volcker? The former Fed adviser has been a lonely voice within the Obama administration warning about the continuing dangers of the too big to fail banks and too much risky business in the financial system. But the president used Volcker as little more than a populist prop, preferring the more conciliatory approach championed by his other top economic adviser, Larry Summers, Treasury Secretary Tim Geithner and Fed president Ben Bernanke. These three effectively fought off the tougher aspects of financial regulation at the same they time touted themselves as real reformers. While the president made clear Warren will work directly for him, will she be able to match Summers, Geithner and Bernanke, all seasoned bureaucratic infighters? She’s done little to endear herself to them and has publicly tangled with Geithner.
There’s no question that Warren, a Harvard bankruptcy law professor, has already played an extraordinary and important role in helping understand the financial collapse and its fallout. She’s never been anything but forthright, no-nonsense, principled, unafraid to speak truth to financial power and to demand accountability. She will need all those qualities as well as thick skin and nerves of steel for her new job. The stakes are high. I wish her well.
Remember when the president’s chief of staff, Rahn Emmanuel, strode onto the political stage and stirringly channeled Churchill, saying: “Never waste a crisis?”
It turns out that what he was really saying was: “Never waste an opportunity to reward your campaign contributors.”
Two years after the credit meltdown that crippled our economy, the financial system remains way too complicated and continues to reward high risk and focus on short-term profits that offer few benefits to those who aren’t bankers.
And even after the fiasco we’ve been through, the banks continue to snooker the snoozing watchdogs.
Last week, the Wall Street Journal reported how 18 banks have continued to manipulate their financial reporting to disguise from regulators their real level of risky borrowing.
And this is after the generous, no strings attached bailout that put trillions of taxpayer-backed dollars into the hands of the big banks.
We need a massive overhaul. What we’re getting instead is a charade, tricked out by a Democratic leadership intent on rewarding failure, propping up the status quo and labeling that reform.
One of the few U.S. senators who’s offering a stronger version of reform and consistent candor on the shortcomings of the leadership’s proposals is the man who replaced Vice President Joe Biden. Sen. Ted Kaufman, D-Delaware, said last month: “After a crisis of this magnitude, it amazes me that some of our reform proposals effectively maintain the status quo in so many critical areas, whether it is allowing multi-trillion-dollar financial conglomerates that house traditional banking and speculative activities to continue to exist and pose threats to our financial system, permitting banks to continue to determine their own capital standards, or allowing a significant portion of the derivatives market to remain opaque and lightly regulated.”
The Democratic senators would do well to be guided by the words of someone who was one of them not long ago, who was particularly astute about the toxic influence of lobbyists and campaign cash on our economy and the political process.
Back when he was a U.S. senator, President Obama wrote in the Financial Times in 2007 that the subprime crisis “was also a parable of how an excess of lobbying and influence can defeat the common sense rules of the road, placing both consumers and the nation’s well-being at risk.”
Washington, Obama wrote, “needs to stop acting like an industry advocate and start acting like a public advocate.”
Candidate Obama wouldn’t have been shocked by the new report from the Treasury Department’s Inspector General about how the two regulating agencies which were supposed to watching over Washington Mutual bungled the job before the bank collapsed in 2008, under the weight of worthless subprime mortgages, resulting in the largest bank failure in U.S. history.
It turns out that regulators were well aware of the foul odors coming off the carcass of Washington Mutual’s loan business. But the Office of Thrift Supervision continued to find the bank “fundamentally sound” and didn’t raise alarms until days before it collapsed.
We can’t let our leaders ignore these harsh lessons that came with such a high price. They may be able to squander a crisis, but without some meaningful change to rein in the financial industry, the crisis may waste the rest of us.
Is the Democratic Party obsolete?
That’s the question that keeps nagging me as I watch President Obama and the Democratic leadership fumble away their opportunities to fight for meaningful reform of health care and the financial system.
The president and congressional leaders consistently shy away from fighting for reforms they themselves propose, such as the public option or the consumer financial protection agency.
They obsess over whether someone will accuse them of partisanship, or whether they will spook the markets if they crack down on reckless profligate bankers. They appear to find any excuse to avoid pushing the kinds of fundamental of changes that would challenge the health care and financial industry.
I don’t think you can blame the Republicans, whatever their own faults. They oppose reform. They’re fighting Obama and his policies as a way to regain power. They’re pursuing that opposition determinedly, and they’re betting it will pave their way back to a majority. It’s not the Republicans’ fault if they set traps for the Democrats and the Democrats continually fall for them.
Members of the Democratic leadership have shown profiles in cowardice when it comes to fighting for any reforms opposed by the insurance or financial industries. In the latest display, House and Senate leaders are furiously trying to blame the other for the death of the public option, even though it’s supported by a majority of Americans and even 40 members of the U.S. Senate.
But the insurance companies have fought the public option, which would provide those forced to buy health insurance under reform an alternative to private insurance. So the Democratic leadership has shown determination to find a way to eliminate the provision without leaving their fingerprints on the corpse.
The same with financial reform, where the Democrat leadership has zigged and zagged but hasn't won the fight for strong independent consumer protection or meaningful regulation of the complex investments that blew up in the meltdown. Sen. Chris Dodd, the long-time friend of insurers and financial titans who serves as Senate Banking chair, flirted with a strong reform proposal when he was running in a tough reelection campaign. But he backed off after he decided to retire and now appears ready to resume his traditional role in service to the bankers’ lobby. As an industry publication recently noted, insurance companies will miss Chris Dodd.
The Democratic leadership don’t seem to stand for any strong principles.
The president and Democratic leaders pay only lip service to the deep anger in the country over the erosion of the middle class, and the bank bailout that pumped up Wall Street while leaving Main Street on life support. The Democrats fear that anger because they know that their own Wall Street-friendly policies have helped fuel the series of speculative bubbles that brought prosperity and then a crash that wiped out the financial security of millions of Americans.
The president and his party are banking that the economy will improve enough by later this year, and 2012, to blunt voters’ anger.
If it does, the Democrats will claim credit for setting the economy right without having unduly upset their contributors in the financial and insurance industries. Even better for the Democrats, they will be able to bolster their fundraising by showing how they hung tough against the call for stronger reforms.
The Democrats came into office promising not to “waste a crisis.” But their efforts to reform health care and the financial system and to put Americans back to work have shown a distinct lack of urgency.
Could there be another way?
Obama will face voters on the 100th anniversary of the last presidential election in which a third-party candidate beat a major party candidate. The third-party candidate was a former president, Teddy Roosevelt, running on the progressive Bull Moose ticket promising to bust up the powerful big corporations of the day, known as trusts. Roosevelt was angry that the president who followed him, Republican William Howard Taft, hadn’t followed in his activist political footsteps. The former president was not afraid to show his ire, calling on his followers to launch “a genuine and permanent moral awakening.”
Taft, for his part, favored a laissez-faire policy toward business and regulation that resonates with the era that we’ve been through. “A national government cannot create good times,” Taft said. “It cannot make the rain to fall, the sun to shine, or the crops to grow.” But by meddling, government could “prevent prosperity that might otherwise have taken place.”
Sound familiar?
Roosevelt lost the election to Woodrow Wilson, but he got more votes than hands-off Taft.
Today the tea party is rumbling on the right, threatening revolt against the Republicans. There’s already the beginnings of a coffee party. If the economy doesn’t cooperate with the Democrats, the tea party’s discontent could be just the beginning of the end of the two-party stranglehold on our government.
In the pantheon of contemporary American capitalism, there are few living heroes. Now there is one fewer. Sol Price, the legendary retailer, unprecedented philanthropist, counselor to people and presidents alike, died last month at the age of 93. He was a mentor and a friend to many including myself, a modest man whose straightforward approach to his business and the nation’s could be epitomized by the question to which this web site is dedicated: “where’s our money?”
On Friday, more than a thousand friends of Sol Price packed a San Diego ballroom to mark his passing.
One of them was Jim Sinegal, who was just a kid when he met Sol while unloading a bunch of mattresses at FedMart, Sol’s first venture into retailing, back in the nineteen fifties in San Diego. Sinegal was there in 1976, when Sol and his son Robert pioneered the “big box” membership store. Its features are commonplace now, but back then, they were a revolution in retailing: the stores relied on word of mouth rather than paid advertising. Expenses were cut to the bone by building concrete warehouses and locating them where real estate was less costly. Hours were limited. Instead of tens of thousands of stocked items, you’d find only thousands. But they’d be top quality, and, because they were bought in bulk and overhead was so low, much cheaper for the consumer. And for a long time, the stores refused to accept credit cards – because Sol did not like the idea of his customers going into debt.
Sol always considered himself an agent of the consumer. “We tried to look at everything from the standpoint of, Is it really being honest with the customer?” Sol told Fortune Magazine in 2003. “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.”
They called the company the Price Club. I always found it fascinating that he was born with a last name so nearly eponymous with the savings ethic that marked his retail philosophy. Today, after a 1993 merger, the $71 billion company is known as Costco. It has 566 stores, with over 56 million members. Sinegal is its President.
(A note for those who consider invention the province of the young: Sol was 60 years old when he started the Price Club.)
Sam Walton, the founder of WalMart and later Sam’s Club (names he acknowledged cribbing from FedMart and Price Club), said, “I guess I’ve stolen – I actually prefer the word ‘borrowed’ - as many ideas from Sol Price as from anybody else in the business.” But in contrast to the WalMart approach, Price offered employees high wages, employment stability, full health care coverage and invited unions to represent store workers.
Sol’s honesty and integrity were the core of his being, and guided his conduct as a businessman. Sinegal told the story of how Price refused to set up restrooms separated by race in Texas. How he once persuaded a hosiery supplier to cut his wholesale price deeply upon the promise of volume sales, but when the volume failed to materialize, Sol repaid the wholesaler the difference, a gesture unheard of then – or now. Or how he refused to lowball the owners of a bankrupt company forced to sell their assets. “Never kick a man when he is down,” Sol said.
“It is impossible to make him bigger in death than he was in life,” Sinegal said Friday.
Sol became famous around the world for his business acumen, but it was his philanthropy that distinguishes him from so many other ultra-rich. “Sol told me, ‘we make money so we can give it away,’” recalled Sherry Bahrambeygui, a young, super-smart lawyer he recruited to help manage the Price family’s business and charitable endeavors.
Sol lived the quintessentially American rags to riches story, and I saw that background reflected both in his demeanor – he was direct, to the point, and would not tolerate flattery or prevarication – and in his careful, frugal approach to everything he did, from how he lived to his businesses and philanthropy.
The son of a labor organizer, Sol grew up during the Great Depression and decided to study law, graduating from University of Southern California Law School in 1938. During World War II, he practiced law by day, but spent his nights training maintenance workers to service engines at a San Diego airfield. Unlike most businessmen, who often whine about lawsuits and support efforts to roll back consumer protection laws, Sol was a strong supporter of the right to go to court. All of his actions were guided by his strong sense of what was just and fair.
Though his personal wealth was estimated at $500 million, he lived in a modest home, drove himself to work until he no longer could, used pencils rather than pens, and, I’m pretty sure, wore a Timex watch.
Sol instituted his most ambitious philanthropic project close to home. Working with local officials, Sol, his son Robert and a small staff operating out of his office in LaJolla revitalized the dilapidated City Heights section of San Diego. He, his family and their charities donated over $150 million to build schools, housing, a library, recreational facilities, a police station, and provide a host of family services to City Heights residents. No detail was too small to escape his attention; he was known to insist on the particular kind of shrubbery to be included in the landscaping. His work at City Heights confirmed his belief that the most efficient and effective way to provide health care to kids was through the school system – an approach that was briefly contained in the health care legislation now before Congress.
Another project arose from the loss of a grandson to cancer at age fifteen. The Aaron Price Fellows program enrolled promising high school students in a special curriculum that taught about government and civic involvement. One of its graduates, San Diego City Councilman Todd Gloria, joked on Friday that some might say a “ten pound bag of rice” was Sol’s legacy. Not so for the six hundred Price Fellows. “I would not be where I am today were it not for Sol Price,” Gloria said. When asked to identify themselves, dozens of Price Fellows in the audience stood up – a diverse group of young, smart, eager people who will be California’s next generation of leaders.
An unabashed Democrat and liberal, Sol supported many advocacy groups, from Public Citizen and the Urban Institute in Washington, D.C., to the Center for Public Interest Law at the University of San Diego, and the group I founded in 1985, Consumer Watchdog.
Asking Sol for money was nothing like anything I had ever experienced. At our first meeting, in the 1990s, I had barely said hello before he gruffly sent me away, with instructions to come back with an organization budget and a profit and loss statement. I was taken aback. “Non-profits aren’t supposed to make a profit,” I protested. He chuckled that chuckle that I quickly learned preceded a shaking of his head and then a short but tough lecture. “What happens if your expenses are greater than what you bring in?” he asked. “Why should I invest in something that might not be around?” I returned with the data, which we poured over, Sol all the while questioning my assumptions, my strategies, asking me where every penny went, forcing me to consider how we could do our work more effectively (even if it ended up costing more). Once he was satisfied with the plan, Sol became a major supporter.
After electricity deregulation turned into a costly scam in 2000 and Consumer Watchdog took a lead role in trying to protect Californians against a taxpayer bailout of the energy industry, Sol helped us raise money from people he knew all over the state. I recall one day asking for his views on various possible solutions to the crisis. He imparted some wisdom that clearly had served him well. “You don’t always have to have all the answers. Sometimes it’s important just to ask the right questions.”
Sol’s support for well-run non-profit groups was widely recognized. What was less well known is how he took care of the people he came in contact with. Sherry Bahrambeygui described Sol as having an ability to connect with individuals in a deeply personal way. I experienced it as an almost uncanny sixth sense. One day in the fall of 1997 I drove down to his office, intending to discuss a grant for Consumer Watchdog. But when I sat down, he said to me, “what about your own financial situation? What’s your plan for the future?” In truth I had been so absorbed in my work that I’d too often neglected those matters. What made him ask remains a mystery to me. But we then spent many hours together, me and the founder of Costco going through my own finances! I later learned that I was one of many to whom he had offered personal advice and assistance.
For years after that, I would visit him every month, sometimes with my family. The man who was brutally honest and laser-like when scrutinizing a balance sheet or a business proposal was also a witty storyteller who liked to talk politics and history with friends and family over dinner. His insights into human nature were entertaining and often eerily prescient. He knew everyone and enjoyed connecting people. Among those he introduced me to were his close friends Brian and Gerri Monaghan, who became my friends as well. On Friday, they whispered to me with a laugh that if Sol had been in attendance at his memorial he would have left after fifteen minutes – he was never comfortable being the center of public attention, much less adoration.
I saw Sol just a few weeks before he died. His wife Helen had passed the year before, and he seemed, for the first time, weary. He was distant and uncharacteristically quiet. Yet when I wondered aloud why people seemed to grow more conservative as they grow older, a twinkle came back into his eye and he said, “I think it’s because they sense their own mortality and become more fearful.” I saw no fear in his eyes. I will always be grateful that I had one last chance to thank him for all he had done.
There were many poignant moments at last Friday’s tribute – laughs, gasps at previously unheard anecdotes, and the occasional swiping away of tears as people recalled, publicly or privately, their own moments with Sol. But the time I choked up was at the very end, after Robert spoke about his mom and dad’s 78-year marriage, then thanked the crowd and left the podium. There was polite applause, and it seemed that it was time to go. But then something changed; the applause grew louder, and suddenly everyone was standing, and, facing the now-empty stage, clapping their hands together in a sustained thunder for many minutes – a last ovation for Sol.
In an age defined by forgettable billionaires who built little but monuments to their own narcissistic folly, Sol Price left a remarkable and enduring legacy. He changed corporate America’s relationship with consumers and the lives of the many thousands of people who knew him.
One thing is clear: Citigroup executives thought they had a deal with the government to pay back their bailout money so they could pay themselves as much as they wanted.
Then it all started to unravel. The Washington Post disclosed that the IRS granted Citigroup huge tax breaks (meaning billions) as part of the exit strategy the "too big too fail" bank worked out with Treasury officials.
After that the stock market rejected the government and Citigroup’s assessment of the bank’s health and the deal fell through.
Looks like the top lawyer and other fat cats at AIG, whose salaries are now paid by American taxpayers, are maneuvering to be able to escape limits on their pay. Today’s Wall Street Journal reports that a Ms. Anastasia Kelly, the General Counsel of AIG, and four other insurance executives gave notice last week that they were “prepared” to leave by the end of the year if their pay is cut by Kenneth Feinberg, the government “pay czar” who sets compensation levels for companies that got bailout money. AIG got $182 billion in taxpayer dollars. AIG’s top employees want to bust the $500,000 pay cap set by Feinberg.
After all the poor bankers have been through, they can’t even go to Chicago for their annual conference and enjoy their Roaring 20s cocktail party without having to contend with a bunch of protestors.
What do these protestors want, for Pete’s sake?
It wasn’t like the bankers were partying and playing golf the whole time. A hundred of the more than 1,500 in attendance took time off to help fix up a house they had foreclosed on.