Joe Nocera has a must-read story in the New York Times about how the legal fallout from the financial crisis. His basic theme is that the government let all the bigwigs get away with their crimes, but then has a fascinating discussion about how the government targeted an inconsequential mortgage borrower.
I’m not sure I accept the first part of his premise. There were lots of sleazy people taking advantage of the perverse system created by bad government policy, but I would like to see some clear evidence of actual crimes before hopping on that bandwagon. Selling mortgage-backed securities filled with crummy home loans to Fannie Mae and Freddie Mac may have been immoral, for instance (at least from a libertarian perspective), but I’m not aware that it is against the law to make choices that hurt the economy – particularly when government policy is designed to reward such stupidity.
That being said, I do wonder why there haven’t been any bribery prosecutions of the politicians who got sweetheart loans as part of the “Friends of Angelo” scheme. Actually, I don’t wonder why politicians such as Chris Dodd and Kent Conrad got a free ride. Politicians operate by the principle that law are only for the little people. Nonetheless, these are examples of real laws being violated.
But I’m digressing. The purpose of this post is to show how the government decided to go through great effort and expense to nail someone who, at most, was willing to go along with the government-subsidized and government-created housing scam.
Here are the sordid details.
A few weeks ago, when the Justice Department decided not to prosecuteAngelo Mozilo, the former chief executive of Countrywide, I wrote a column lamenting the fact that none of the big fish were likely to go to prison for their roles in the financial crisis. …There was, in fact, someone behind bars for what he’d supposedly done during the subprime bubble. …Mr. Engle’s is a tale worth telling for a number of reasons, not the least of which is its punch line. Was Mr. Engle convicted of running a crooked subprime company? Was he a mortgage broker who trafficked in predatory loans? A Wall Street huckster who sold toxic assets? No. Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the “mortgage fraud” for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on two liar loans. …It’s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. …Even the jurors seemed confused about how to think about Mr. Engle’s supposed crime. When it came time to pronounce a verdict, the jury found him not guilty of providing false information to the bank, which would seem to be the only fraud he could possibly have committed. Yet it still found him guilty of mortgage fraud. “I think the prosecution convinced the jury that I was guilty of something but they weren’t sure what,” Mr. Engle wrote in an e-mail. …Even when he emerges from prison, though, his ordeal will not be over. As part of his sentence, Mr. Engle was ordered to pay $262,500 in restitution to the owner of his mortgages. And what institution might that be? You guessed it: Countrywide, now owned by Bank of America. Angelo Mozilo ought to get a good chuckle out of that one.
Later today, by the way, I’ll post about the IRS’s disgusting role in this story.
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In both cases, your best bet is to call the newspaper and let them run with what is going on. Why in the world was the good owner even talking to the bad owner about what he was doing. You report this stuff to the proper authorities in the proper govn’t dep’t. If that doesn’t work, go to the local newspaper or TV station that uses an investigator into stuff like this. The good owner is lucky by threatening the bad owner or even talking to him that he’s still alive, really. And, the only way to fight the IRS is to bring your case out into the public’s eye. Another man who was taken to court for falsifying tax information by the IRS who when they were investigating found out the accountant transposed numbers. The owner only got the IRS to finally settle (read, back off) when after five years of harrassment, court procedures, etc. went to the newspaper. People flooded the papers, airways, legislatures, IRS and the pro-IRS court/judges with telephone calls, letters, emails, etc.. Unfortunately after “winning” his five year battle, he died of an heart attack within six months. No gov’t agency should have power to destroy anyone or any business over mistakes and even if guilty is it truly a crime and does the punishment fit the crime. That business man was facing paying a huge fine which would close the business and 10-15 yrs in jail and he didn’t even kill, rape, rob, whatever. Our IRS backed by the gov’t has been a dictator for decades now and continues to be.
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The reminds me of something analogous to the whole sub-prime fiasco more generally, and that one could make a corollary observation about in relation to this story specifically.
I was recently privy to a situation in which a local businessman who paid his workers minimum wage discovered that his competition was paying their workers well-below that rate, with additional payment conditions that reduced their net pay even further and also violated the law, (they got away with it by hiring foreign students who don’t know any better, didn’t want to rock the boat for fear of losing their jobs, and/or believed they’d compromise their chances for citizenship).
That presented him with a problem. He was losing business to the competition who were obviously able to undercut him on price. But it also didn’t seem to be his responsibility to take action against the other business, along with any blame/reprisal/burden for being the one to snitch on the other owner, (whom he knew personally).
Eventually, under mounting financial pressures from the unfair competition, and after having failed to convince/cajole/threaten the other owner himself, he called the appropriate government agency to report the illegal practice.
They said that since he was not an employee of the other business reporting the conditions, they would take no action. This is pretty ironic considering the army of bureaucrats he could expect to arrive on his doorstep should he be so much as suspected of violating any of their other piddling regulations himself, (which he’d already experienced).
At this point I suggested he pay someone to go work for the other guy with the express intent of taking legal action, (a little shady in itself). But any way you cut it, you can see that it was HIS problem, and HIS cost. He could have tried to compete by doing exactly the same thing – breaking the law – paying less – and exposing himself to legal liability. Not an attractive option.
This played out over time. He’s now out of business, and the guy running the “sweatshop” has a new branch at his old premises.
This made me realise that one does need to take responsibility for keeping his competition honest – and consider it a cost of doing business, (or leave the table). But I also wondered if someone in the government were perfectly aware of the situation and somehow complicit, (the owner of the other business is himself foreign-born, recently arrived, and in his home country bribery and corruption is just the way business is done).
If that were the case, then there was no winning move to make – or at least the cost for one operator fighting the system would have been prohibitive, and the risks unattractive. One should not expect businessmen to play for a Pyrrhic victory.
The real kicker here is that I agree with you on the minimum wage, (there shouldn’t be one). Obviously the “sweatshop” owner concurs. But it was that very law preventing the honest owner from competing. The very regulation that gave the shonky operator an unfair advantage. And now, as a result, there are two businesses in town where not only are the foreign students being “exploited”, by the standards of the minimum-wage-Left, (all the other – mostly white Australian workers – were fired and replaced with foreign students), but this country may well be one step closer to being as corrupt as the one they came from.
Talk about unintended consequences! You can imagine if both business owners started illegally paying below minimum wage. They both stay in business, but the net outcome is the same as when he continues to comply with the law and is pushed out of the market. In seems ultimately every business in the industry breaking the law is the only outcome a rational person can expect.
And I can imagine this guy being raked over the coals post mortem if he had chosen to break the law too – doing what was necessary not to lose what he had built before this situation occurred, (at least in the short-term).
You may well laud his decision not to go that route, but the systemic problem still exists regardless of his individual actions.
And this scenario has all the usual elements that obfuscate the real issue and that political pundits love to blame instead: “evil” businessmen, immigrants that “tuk ur jerbs!”, the supposed need for more regulation to protect the poor intimidated worker, the “failure” of free market competition to regulate an industry and keep it flying right for Mom and apple pie … I mean … Mum and meat pies … Queen and country … well you know what I mean …
So anyway, holding this guy to account for his participation in the mortgage fiasco is kinda like holding one of the EMPLOYEES responsible for working below minimum wage. They by necessity have to falsify paperwork and misreport income – which their employer is happy to do on their behalf. And I’m sure in some broader technical sense it is illegal for them to even enter into a below minimum wage arrangement.
But would you seriously point the finger at those guys and suggest THEY are the problem here?
I suppose you could argue that on some level and make a rational-sounding argument, but you’re being completely irrational if you have no intention of addressing the root causes and more significant violations at all.
Sorry, I didn’t think that would post, my other posts were awaiting moderation so it was for the moderator. Perhaps because they contain URLs. I was posting about this web site (add the usual dot ending I’ll leave off so this posts): StopNationalDebt
Federal government will need >$1 million per household to pay its IOUs!
> $116 trillion =”official” debt plus money short for future social security, medicare, etc
Even its “official debt” of $14.2 trillion is $123,911 per household!
Say NO to credit card politicians! Cut the Card!
ps, oops, perhaps you might leave off the first paragraph of that last post (or let me repost it) and not post this message. Sorry, I just realized it wasn’t written clearly, I’m operating on too little sleep having been trying to post about the issue all around facebook the last couple of nights and not getting any traction amidst the noise, and discovering facebook stops you from posting too many messages too easily fearing its spam.
These numbers and info on StopNationalDebt.com might help turn people into libertarians, but I need people to help get the word out somehow and to get them to join facebook and show their numbers, however I’m unsure how to break into the blogosphere. I’d commented on a prior post which is still awaiting moderation, and sent an email.
I think numbers in the $trillions for debt are too abstract for many non-political junkies to pay attention to and the way to get them to to truly understand how bad it is in in terms like these which should be on the toungue of all small government types in the country:
Federal government will need >$1 million per household to pay its IOUs!
> $116 trillion =”official” debt plus money short for future social security, medicare, etc
Even its “official debt” of $14.2 trillion is $123,911 per household!
Say NO to credit card politicians! Cut the Card!
Details at http://StopNationalDebt.com
Facebook at http://www.facebook.com/pages/Federal-Debt-1-million-per-household-is-too-much/155810177811775
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Wasn’t it found that the banks were engaging in things that would probably fit a common law definition of fraud but were allowed by regulation and thus (since Congress effectively delegates lawmaking ability when they give the power to the regulation) not illegal?
To refute your first point about the big fish not being prosecuted. I think there is a lot of evidence that the big banks were selling mortgage backed securities to investors from one door while hedging against those same securities from the back door. I believe it is illegal to tell an investor that you believe in the security you are selling when in fact you don’t and are hedging against it.
I may be wrong, just basing this on that Inside Job documentary.
I can anticipate the later post… the IRS agent who checks out tax records based on seeing you in an expensive car is scum, plain and simple.