Sunday, February 27, 2011

A tale of two abuses.

OK, look at Joe Nocera's column in yesterday's New York Times (here) ("Biggest Fish Face Little Risk of Being Caught"), and then look at Gretchen Morgenson's column today (here) ("Waiting Seven Years for Two Answers"). My own conclusion is that there's no downside risk to overreaching in ways that hurt consumers.  (Mozilo, no jail time? Wells Fargo Bank, with three different stories about the reasons behind its inability to demonstrate proof of holding a note on a house?)  Of course things aren't going to change.  Not until there's some real, personal, honest-to-goodness, scary consequences for executives who tolerate obscenely bad behavior.  And I'm not counting on there being any, unless Elizabeth Warren's Bureau of Consumer Financial Protection actually figures out a way to get the incentives for (1) punishing bad behavior and (2) allowing innovation right.  If anyone can, she can; but I'm not sure it's possible.  

And I come back to the same question, time and again:  where are the boards?  How do those independent directors get the information that they need to ensure that their officers are behaving appropriately? And how do those directors fight the urge to get along by playing along?

3 comments:

Anonymous said...

Sometimes I think that it only appears that the biggest fish do not get caught because something happens that many characterize as "bad", often with the benefit of hindsight. In fact, what they may have done was not "illegal" as the law existed, but it sure looks questionable in hindsight. That may not be true of Angelo Mozilo, but it may well be true of others.

Speculating in mortgages by the poorly qualified seems like a stupid thing to do in hindsight. In fact, many knew that the tranches assembled for offerings were likely to blow up. But, Congress had determined that getting mortgages to poorly qualified buyers was worth the effort, the feds decided that bond rating agencies of a certain stripe merely had to pass on the creditworthiness of offerings and thereby leave others off the hook even if they disagreed. In short, the rules reflected a judgment that we collectively today wish we hadn't made.

On the other hand, the overall progress of the human race is upward. Despite imperfections, life expectancies continue to rise. circumstances of the poorest in our society as regards to health care, travel, transportation generally, entertainment, climate conditioning, communications and on and on dwarf William Randolph Hearst's standards in these same respects. Allowing pogroms on leaders based on judgment rooted in hindsight may slow or preclude future advances. The call for accountability raises the question of how we judge and the need for sober consideration of our existing framework. Else, we repeat the trials of witches and the pogroms against Jews in the wake of the Black Death in 1349.

Angelo may be guilty, but I have yet to see the hard proof. In my view, he has been convicted in the court of public opinion, which is the equivalent of "She turned me into a newt." It may be that we find his ilk so hard to prosecute precisely because the rules are flawed and money to hire lawyers means exploiting those rules in ways no one thought of when they drafted them.

Nancy Rapoport said...

Apologies to Trouble Down At The Mill! I accidentally deleted your comment instead of posting it, so I went back to the email notification, and am pasting your comment here:

Trouble Down At The Mill has left a new comment on your post "A tale of two abuses.":

Anonymous is correct. While it may be obvious that Mozilo is a self-serving greedy d**k, the key question is was he an ILLEGALLY self-serving greedy d**k. And truthfully, when it comes to this sort of thing, we have people in Congress who violate the law and even admit to it and not only are not prosecuted but are still "serving" there.

I had no trouble avoiding Mozilo's provable or non-provable malfeasance; I simply did not do any business with his firm. It is much harder to avoid the harm the crooks and incompetents in Congress wreak. If I had my druthers as to which rat's nest to clear out, it would be the one in Washington.

mukerji said...

Totally off the topic Dr. R. but you need to refashion your blog in such a way that protects your identity as best as possible. Identity thieves lurk everywhere and blogs are a very good target. Please be careful.