give WaMu and CFC a break...

[sniglet]

Everyone is dumping on Countrywide Financial and Washington Mutual these days for helping to drive the real-estate bubble. The recent New York Attourney General lawsuit against WaMu is a case in point.

However, when you look at how the real-estate bubble formed, you just can't blame CFC or WaMu for it. They were faced with a really hard decision: let other lenders dominate and exit the mortgage business or play ball. If WaMu didn't pressure appraisers to meet the price then some other lender (and appraiser) would have underwritten the loan instead. When there are ravenous investors just waiting to buy any high-yield mortgage security that can be cranked out (no questions asked) WaMu would have been irresponsible to have let some other lender take the commission fees for doing the loan. What else was WaMu supposed to do, just go out of business and let other lenders own mortgage underwriting?

Likewise, we can't blame appraisers for doing faulty work either: they didn't have a choice. Refusing to issue rosy appraisals was tantamount to quitting the appraisal business (i.e. since no one would come to you for appraisals). The ONLY option was to give the lenders the appraisals they demanded.

We can't even really blame the home buyers for driving up prices. If you weren't willing to bid even higher prices than the other rabid buyers, and take on exotic financing, your only option was to be shut out of home-ownership altogther.

All the sniveling recriminations under-way now are self-serving and risible. Sure, we are in for a major housing depression (with massive collapses in prices), but we can do without the finger pointing. When you have an asset mania there is nothing anyone can do about it, and the participants are all caught up by forces of a mob mentality that are beyond your control.

[Alan]

That is a good point. Finger pointing does nothing. I just want to see entities shoulder the resposability for the actions they took. No one was talking about sharing gains with me when things were going well. Why should I have to help shoulder the burder when things go bad?

[mike2]

[sniglet]

[rose-colored-coolaid]

[AwaySooner]

Tanman cashed out $130 millions in stock for his grand children education fund, I don't think he needs a break from you. How about WAMU using their "proven appraiser" to drive up your housing price, while you are struggling to pay mortgage, I think you should be given a break. I need a break too, my 18 months drink 1 galloon or organic milk a day, I am going broke.

[laxtosnoco]

I don't buy the excuse that 'everyone else was doing it so we had to too.' These companies decided to chase short-term gains for what looks like will be long-term financial ruin. Executives get paid the big bucks because they are supposed to be able to make good business judgments.

You can make a similar case in almost every industry where competition drives companies to take risks or adjust pricing. The smart companies avoid disaster by sticking to sound business models and don't get caught up in the mania.

[casey1167]

[TJ_98370]

Interesting admission by Mr. Kovacevich, chairman of Wells Fargo-

...."We make all the same mistakes," he says. "These past two years show it again: we never learn, we don't price for risk, we think that it's going to be different this time."......



When times are good, it's awfully hard to tell the knuckleheads from the geniuses in the financial-services business. That's because bad loans and bad investments tend to look just as profitable as good ones--and sometimes even more so--until trouble hits.

Lots of trouble has been hitting lately, with private-equity loans turning sour, AAA-rated subprime mortgage securities turning into junk, and all manner of other bets going bad. This ought to make it easier to figure out just who in the money business knows what he's doing. Which explains why the just-completed earnings-reporting season for banks and other financial firms was the most informative in years. Not to mention entertaining, especially during the usually soporific conference calls with analysts in which executives discuss their results......

........Still, some will end up less scathed than others. The banker with the most impressive record of avoiding scathings is Dick Kovacevich, chairman of Wells Fargo. Wells not only had an O.K. quarter but also has the best long-run stock performance of the country's big-five banks. So what does Kovacevich, who took over as president of Wells predecessor Norwest in 1989 and just stepped down as CEO in June, think of the current troubles? "We make all the same mistakes," he says. "These past two years show it again: we never learn, we don't price for risk, we think that it's going to be different this time."......
.

[sniglet]

[jillayne]

In corporations, managers owe duties of good faith to the company to make decisions that are in the best interest of the company. Directors and senior executives owe higher duties to shareholders.

I heard on the radio tonight that the CEO of Citi is going to resign at a board meeting this coming Sunday.

I think this is all just beginning to unravel.

It would be interesting to take a look at the US Federal Sentencing Guidelines for corporations to see what kind of punishment standards are already in place for what's happened at the high corporate level.

If I get to point a finger, it would be at the entire system of mortgage lending. It is structurally unsound and is in the process of collapsing. After the dust has settled, people will be better able to talk and listen to ideas about how to rebuild it.

[sniglet]

[Siddha]

[laxtosnoco]

[rose-colored-coolaid]

I think you can trace almost all of this crazy activity back to the options that many of these executives get paid in, and it's going to look at lot like why hedge funds tend to fail disastrously.

Let's say I am CEO of a company with stock symbol XYZ. Our stock is selling at $20 a share right now. The board would like our stock to sell higher, because then they are all making a profit. So, they grant me a stock options that expire 2 years from now with a strike price of $25 a share.

I decide I need to profit from those options, but they are underwater to me right now. If I can increase the share price $6, I make a killing, but the stock loses $6 a share I'm no worst off than if it gained $3. I, as CEO, make no more money if our shares rise slightly than if they drop precipitously. This is a strong motivation to gamble the companies future on large gains.

Basically, we will continue seeing this behavior in all sectors forever unless legislation is passed outlawing pay commensurate to stock prices. Of course, don't hold your breath for that to happen, because such legislation sounds anti-capitalism, even though it would make for a stronger economy with less semi-criminal behavior at the top of corporations.