Blaming Countrywide's Angelo Mozilo

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Jun 5 2009, 10:08 am by Arnold Kling

Fans of scapegoating can applaud the SEC's assault on Angelo Mozilo, the former CEO of Countrywide Funding. My guess is that Mozilo, like many mortgage industry executives, was conflicted during the late stages of the housing bubble. On the one hand, they knew that lowering lending standards was imprudent. On the other hand, the loans were performing too well to justify reversing course.

I can make a plausible case that Mozilo would be raising red flags internally while reporting positive results externally, and yet he was honest in both contexts. It was true that what lenders were doing was imprudent by traditional standards, and it was also true that--until 2007--it was working out pretty well for them.

In hindsight, we know that Mozilo and others would have done better to take a firm stand against high-risk lending. But if we are going to use hindsight to put people on trial for their errors of judgment, then just about every policymaker and every financial executive deserves to be indicted.

Comments (3)

Django48 June 5, 2009 1:15 PM

Nonsense. Mozilo's been charged civilly - not criminally indicted - for insider trading, which is well-defined under securities law. One must presume that the SEC lawyers who brought the charges vetted the facts and determined that they had a credible prima facie case before going forward. How is that scapegoating?

Sure Mozilo was conflicted. Most of his wealth was tied up in company stock. His personal interest in maximizing his own profits by dumping his own holdings at the highest price before the stock tanked conflicted with his fiduciary duty to the shareholders as a corporate officer. He knew that the subprime loans the company was churning out were garbage and that it was only a matter of time until the whole thing cratered. No doubt in my mind how that conflict should be resolved.

It's hard to comprehend why this man should ever deserve our sympathy.

phoebe1 June 5, 2009 7:32 PM

Of course this is classic scapegoating. They have built Mozilo up in a media frenzy to take the blame for where the economy is at. They have no choice but to conveniently interpret stock sales negatively or the angry public will be wondering about the effectiveness of the SEC and others. Just look at how many people out there are making fun of the color of his skin. It has gotten out of hand. I applaud Arnold for posting what he did and his comment about hindsight.

Django48 (Replying to: phoebe1) June 5, 2009 9:10 PM

Believe whatever you like. I'll save my sympathy for the Countrywide borrowers who got sucked into bad subprime loan deals by Mozilo's unscrupulous brokers and are now facing foreclosure and eviction.

Really weird though, that orange skin, now that you mention it.