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March 07, 2008
Bad incentives, kickbacks, dwarves, unfair loans and platinum parachutes
What if the price you paid for your car loan or mortgage wasn't based on your qualifications, but how big a kickback the broker received? And what if that spread between what you should have paid and what you were forced to pay was even worse if you were black or brown? When do legal commissions become illegal kickbacks? Are improper incentives to brokers and executives material to the foreclosure crisis that's led to the economic crisis? What if you got bad investments because your mutual fund manager was seduced by a party-lifestyle involving luxurious spas and dwarf-tossing contests, paid by brokers? Does a corporate captain who took the lifeboat while his passengers drowned deserve to walk away with millions of dollars?
Here are some recent stories.
In yesterday's New York Times (and numerous other papers have similar stories), Jenny Anderson reports that the giant investment fund company Fidelity to Pay U.S. to End Case Over Gifts. "The S.E.C. said the gifts influenced how Fidelity's traders directed their trades." [...] Here's her lede: Days at Wimbledon. Nights at U2 concerts. Flights aboard the Concorde. And a dwarf to toss. You can't make this stuff up.
Also today, Chairman Henry Waxman of the House Oversight and Government Reform Committee grills three CEOs who jumped sinking ships with all the loot from the purser's safe, led by Countrywide's Angelo Mozilo. The lede from Gretchen Morgenstern's story Panel to Review Payouts Given by Troubled Firms in the New York Times: Chief executives of three financial companies who received outsize pay packages even as their shareholders lost billions in the spreading credit crisis are scheduled to testify before Congress on Friday... Of course, all along Wall Street, everyone received commissions for securitizing loans that they weren't accountable for. The rot goes deeper and the blame is broader, and includes the lax regulators, but today's hearing is a start.
Here's a few more:
In today's Wall Street Journal, Ruth Simon reports that Illinois Probes Mortgage Firms (pd sub. req'd): Excerpt: In Illinois, Attorney General Lisa Madigan is trying to determine whether Countrywide, the nation's largest mortgage lender, and Wells Fargo, the second-largest lender, put black and Latino borrowers in subprime or other high-cost loans when they could have qualified for a lower-cost loan.
If the subpoenas find evidence of discriminatory lending practices, Ms. Madigan may push lenders to more aggressively modify loans to minority borrowers in financial distress so they can stay in their homes, or seek other monetary remedies in addition to changes in how loans are made, said Deborah Hagan, chief of the Illinois Attorney General's Consumer Protection Division. The investigation might be extended to other lenders, she added.
Finally, this detailed memo by public interest attorney Stuart Rossman of the National Consumer Law Center provides an excellent overview of mortgage crisis practices and the potential for "impact litigation" to help.
Posted by Ed Mierzwinski at March 7, 2008 06:22 AM
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