Affordable Housing Institute : US

By: David A. Smith

 

Two years ago, two years after I’d called the market top and just as the subprime mess was beginning to break, in the form of New Century’s bankruptcy and problems alleged at Countrywide, I stuck up for Angelo Mozilo – or more precisely, I questioned the New York Times’s putative expose of Countrywide’s marketing and sales practices, of which the Times breathed a hot aura of indignation. 

 

Now I feel like a chump.

 

“Ah’m your worst nightmare”

 

Not for disemboweling the Times article, which was a potpourri of flung chaff, a bit of wheat, and a few kernels of aggressive salesmanship – none of which, in hindsight, were the root cause of Countrywide’s problems or indeed the nation’s problems.  Rather, I fell into the double-negative trap – concluding that if the Times’ so mighty labor had brought forth only this mouse, there could be no larger creature hiding in the straw.

 

“Do I look like someone trying to buy influence?”

 

Then came the steady drip-drip-drip of the Friends of Angelo (FOA) VIP program, the favors here and there to elected officials of every stripe and body and committee. 

 

Two U.S. senators, two former Cabinet members, and a former ambassador to the United Nations received loans from Countrywide Financial through a little-known program that waived points, lender fees, and company borrowing rules for prominent people.

 

Senate Banking Committee chair Chris Dodd

What could Senate Banking have done for Countrywide?

 

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

Former Secretary Jackson

What could HUD have done for Countrywide?

Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke. Jackson was deputy H.U.D. secretary in the Bush administration when he received the loans in 2003. Shalala, who received two loans in 2002, had by then left the Clinton administration for her current position as president of the University of Miami. She is scheduled to receive a Presidential Medal of Freedom on June 19.

 

Then came the litany of I-didn’t-knows and I-thought-everybody-was-a-VIP and similarly ingenuous expressions of the Blanche Du Bois defense – the kindness of strangers.

 

“I have always depended on the kindness of strangers.”

 

Implausible as I found the response – you’re an extremely powerful person, you are suddenly bestowed with favors, and you assume that everyone is so treated? – I never found a story to post, because what is there to say about alleged venality?

 

Stick to the true facts, ma’am

 

Except when it’s structural, and when that structuralism threatens the financial system’s integrity … and that is the point made in a recent Wall Street Journal article on what Sherlock Holmes would call the Case of the Curious Incuriosity:

 

Panel Split on Need to Probe VIP Loans

 

A congressional battle is heating up over whether to subpoena records of Countrywide Financial Corp.’s controversial VIP mortgage program.

 

Transparency is a fundamental of good government.  Particularly here, when we have had a wealth loss of epochal proportions, and we do not understand the causes, much less how to prevent them from recurring.

 

Rep. Edolphus Towns, the Brooklyn Democrat who is chairman of the House Oversight and Government Reform Committee, reiterated in a Sept. 30 letter to panel members his opposition to Republican calls to subpoena the VIP program’s records.

 

Can we subpoena the records, Mr. Towns?

 

I find this curious because I have never yet encountered a Congressional panel that wouldn’t want to investigate alleged wrongdoing:

 

“When you have eliminated the impossible, whatever remains, however unlikely, must be the truth.”

 

In the letter, Mr. Towns, who public mortgage documents indicate received two Countrywide VIP loans –

 

That’s a direct conflict of interest, and grounds for recusal.

 

– likened the program to “a customer loyalty” initiative, “similar to airline frequent flier programs or supermarket discount cards.”

 

Hogwash.

 

You’re running it into the red, Congressman

 

Unlike a ‘customer loyalty’ initiative, by all accounts:

 

1.  Loyalty had nothing to do with it, since customers were buying only one loan product.

2.  The program was not generally known, nor generally available.  Indeed, it was anti-advertised!

3.  The CEO was personally approving the discount coupons.

 

Why was it called “Friends of Angelo” instead of “Friends of Countrywide?”

 

The letter followed a Sept. 29 letter from the panel’s ranking Republican, Darrell Issa of Southern California, seeking support from committee members for subpoenaing the records from Bank of America Corp., which purchased Countrywide last year.

 

Mr. Issa’s letter said the VIP program “engaged in a systematic campaign to buy influence” from public officials, and the subpoena is needed to determine the extent of that effort.

 

That’s the issue, isn’t it?  Was Countrywide trying to buy influence, or secure it with gifts that would create a warm feeling that could be converted into influence?

 

A serious allegation – that deserves to be taken seriously

 

Political contributions are legal, and appropriate.  Bribery is illegal.  When a product or service is delivered with a bargain element embedded, is that bargain an oversight, a gift, a political contribution, or a bribe?  It has to be one of those four things.  However, even if it is some underhanded, does the giver know it is?  Does the recipient realize he’s being influenced?

 

Here’s the rub:

 

A.  Did the recipients know they were getting a bargain?  We know the givers knew what they were providing.

B.  Even if the recipients were unaware, should they have been compelled to find out?  Skepticism in the face of unexpected generosity would seem a prerequisite for an elected official.

“We were providing a valuable service.”

 

In his letter, Mr. Towns noted that the Senate Ethics Committee had looked into the VIP program in connection with loans obtained by Democratic Sens. Chris Dodd and Kent Conrad.

 

Which is irrelevant on two counts, since (x) even if two individual recipients of largesse are as pure as the driven slush, that doesn’t exculpate Countrywide from possibly having a pattern of seeking influence, and (y) Mr. Towns is in the House, not the Senate, and when was the last time the House declined to examine something because the Senate had already done so?

 

“Pure as the driven slush”

 

That committee determined the senators, who denied any wrongdoing, hadn’t violated ethics rules.

 

That’s all right, then

 

The problem is not the isolated incident, but the pattern of favoring people who could influence the company’s profitability.  Even if these three exemplary individuals are in fact saints incarnate, they are not the totality of the program.

 

Mr. Towns wrote that his staff’s review of the VIP program didn’t find evidence of special favors to government officials.

 

Nothing to see here, move along

 

“So, Mr. Towns, the people who work for you could not find any evidence of special favors to government officials, even though their boss got a specially favored loan?”

 

That defies logic!

 

The letter didn’t say what the review entailed.

 

Don’t you trust me?

 

His letter also noted that there is a Justice Department criminal investigation of Countrywide.

 

Another red herring.  A Justice Department investigation of Countrywide is not the same as a Congressional investigation of the VIP program’s applicability to members of Congress.  Further, it’s entirely possible that the VIP program could be legal, yet violate Congressional rules, which are much more strict.  For that matter, since when is ‘not-illegal’ the end of the matter? 

 

You’re so gullible, you’ll re-elect me

 

It added that of 28,000 VIP program borrowers, “the vast majority” were private citizens and not government officials.

 

That too is irrelevant.  Countrywide could well have been trying to influence private citizens – legitimately or illegitimately would not matter – and that by itself would be no necessary subject for Congress.  But if, among the VIP borrowers, we found that every single member of Congress received preferential treatment, and the amounts were substantial, how would the citizens react?

 

Aux armes, citoyens!

 

Mr. Towns’s letter didn’t mention the two loans he received from Countrywide in 2003.

 

Two loans, not just one?  Twice the conflict of interest?

Perhaps two conflicts cancel each other out?

 

In August, The Wall Street Journal reported that the public mortgage documents from the two loans indicated that both had gone through Countrywide’s VIP unit.  At the time of the Journal story, Mr. Towns’s spokeswoman said his decision not to issue a subpoena had nothing to do with his Countrywide mortgages.  She said that if Mr. Towns received VIP loans, it was without his knowledge, and he didn’t believe he received any favored treatment from Countrywide.

 

There’s a simple way to find out.

 

 

Open the books Countrywide.

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