Throughout 2008, Countrywide Financial, now owned by Bank of America (NYSE: [1]BAC), was [2]attacked as being culpable for the financial crisis. Adam Lashinsky of Fortune magazine, in an appearance on [2]Fox News Channel’s “Cavuto on Business” June 21, 2008, predicted the attacks “won’t stop until they do a perp walk with Angelo Mozilo – the CEO of Countrywide.”
A year later, a report on ABC’s June 4 “World News with Charles Gibson” is seemingly championing that cause. Before a single criminal charge has even been filed, senior justice correspondent Pierre Thomas was already showing footage of jail cells. Thomas blamed Mozilo for being the “catalyst” of the housing crisis.
“Investigators say Mozilo was selling $140 million in stock as Countrywide imploded,” Thomas said. “To many, Mozilo, known for his deep tan and aggressive style, was the king of subprime mortgages – those risky loans that were the catalyst for the housing meltdown. Mozilo, the son of a butcher from The Bronx, has always maintained publicly that he’s never misled anybody.”
Mozilo had told Congress in 2008 it didn’t make sense for his company to make a loan that’s going to fail because ultimately the company would lose. In his report, Thomas pointed out that Mozilo had used the terminology “flying blind” to describe his company’s financial picture, and suggested jail time was possible.
“Today, Mozilo called the allegations baseless and vowed to fight the civil charges, which could to lead to millions in fines,” Thomas said. “But ABC News has learned he also faces an FBI investigation. If criminal charges are brought and successfully prosecuted Mozilo could be forced from his gated community into a jail cell.”
However, CNBC’s Charles Gasparino on the June 4 “The Kudlow Report” took a deeper look at the allegations against Mozilo.
“This is not going to go to trial,” Gasparino said. “These cases nine times out of 10 will settle. If it does go into some sort of trial, it goes before an administrative court judge but that’s highly unlikely. This is a civil case that will likely be settled before – before, you know, we ever see, you know, perp walks and as you know there’s no perp walk in a civil case. But this is going to be settled at some point, it depends on the terms, and as you know in a civil case, no one goes to jail. You pay a fine, maybe Angelo Mozilo gets kicked out of the securities industry for the rest of his life but does he really care right now?”
Gasparino explained that Mozilo may in fact be culpable, based on what he knew and if he was intentionally misleading the market. And if that’s in fact the case, he should face criminal charges. However, “flying blind” was how a lot of financial companies were run at the time – basing risk on historical data and not the borrower’s financial credentials. Mozilo was frank about using that type of risk analysis at the height of the housing boom.
“Listen, Angelo Mozilo used to give speeches about how the way of looking at loans and how to grant loans the old way where you have to document income, where you have to – you know, look at credit scores, where that is outmoded,” Gasparino said. “He didn’t exactly do that on the sly. He basically said there’s other ways of looking at it based on risk history. And I’ll tell you that was the prevailing sort of sentiment during those crazy times of 2005 and 2006.”
The media, Gasparino noted, didn’t find fault with his methodology at the time, as Thomas’ ABC News report has three to four years later.
“And I’ll tell you, it wasn’t exactly – you know, we in the media didn’t exactly tell him you're crazy, why are you doing this? People, it happened and it was accepted,” Gasparino said.