Could the recent revelation that Countrywide Financial bought influence in Washington by providing VIP loans to officials have surprised anyone? A report by the House Oversight and Government Reform Committee last week described VIP loans to lawmakers, staffers and other powerful people in government given in the hope of blocking measures that would have curtailed Countrywide’s profits.
Officeholders of importance to Countrywide were accorded special status in a program known as FOA, for Friends of Angelo (Angelo Mozillo, Countrywide’s Chairman), which allowed them to have extremely favorable mortgage rates. Among those who received non-competitive rates were Democratic Senator Christopher Dodd, Chairman of the Senate Banking Committee and Democratic Senator Kent Conrad, Chairman of the Senate Budget Committee. Republican Chairman of the House Armed Services Committee, Buck McKeon was also given a VIP loan, along with Democratic Representative Edolphus Towns and Republican Representatives Pete Sessions, Elton Gallegly, Tom Campbell and numerous staffers and relatives of various officials. In addition, many of these lawmakers along with Republican Ed Royce of the House Financial Services Committee received large campaign contributions from Countrywide.
These VIP loans and campaign contributions were provided in an attempt to halt legislation that aimed to reform the mortgage industry. Though these laws might have prevented the meltdown in the housing market and the subsequent recession, they never came to fruition. Senator Dodd also sponsored a $300 billion housing rescue bill that would have benefited the mortgage industry.
Executives at Fannie Mae and Freddie Mac also received preferential loans from Countrywide, including Democrats Franklin Raines and James Johnson, the latter for over $10 million. Johnson helped arrange a “strategic partnership” between Countrywide and Fannie Mae in 1999. Fannie Mae subsequently imploded and cost the government over $93 billion to bailout.
Countrywide played a major role in precipitating the recession by issuing sub-prime mortgages to people the brokers knew were poor credit risks and would likely default. However, under the leadership of that esteemed public citizen Angelo Mozillo, Countrywide paid bonuses to their brokers on the basis of the number of mortgages they generated, ignoring the quality of the loans. Even though most of these loans were farmed out by bundling them and selling them as investment vehicles, Countrywide was on the verge of bankruptcy before it was taken over and rescued by Bank of America in 2008. (This move was said by the Wall Street Journal to have cost Bank of America over $40 billion, one of the worst business deals ever.)
It is estimated that Mozillo made over $400 million while at Countrywide, most of it by selling stock in the company. Much of this took place in 2007 as the company began to fail. Mozillo reassured stockholders about the health of Countrywide even as he was selling his shares. Questions have been raised about whether this was insider trading by Mozillo, but no criminal charges have been brought against him. Indeed, no criminal charges have been brought against any of the executives of the financial companies responsible for the mortgage debacle, nor against any of the lawmakers or regulators who may have also played a role. Though these executives made out like bandits and government officials benefited as well, it was the taxpayers who wound up paying the bills.
Financial company executives in bed with lawmakers and government officials. Payoffs galore. Taxpayers get screwed. Is anyone surprised? Can it happen again? You bet.
Resurrecting Democracy
A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.
Political junkie, Vietnam vet, neurologist- three books on aging and dementia. Book on health care reform in 2009- Shock Therapy for the American Health Care System. Book on the need for a centrist third party- Resurrecting Democracy- A Citizen’s Call for a Centrist Third Party published in 2011. Aging Wisely, published in August 2014 by Rowman and Littlefield. Latest book- The Uninformed Voter published May 2020