This week we present a special treat; a sneak peek at Paul Muolo and co-author Mathew Padilla's book "CHAIN OF BLAME: How Wall Street Caused the Mortgage and Credit Crisis."
I first met Angelo Mozilo, the co - founder and CEO of Countrywide Home Loans, 20 years ago. It’s hard to put an exact date on it, though I do remember the first time he came to my Washington office on G Street two blocks from the White House. He was dressed in a dark gray suit, and was wearing a white shirt with a blue collar and a red tie. It was the kind of shirt that investment bankers wore when they appeared on CNBC (FNN) to discuss the vicissitudes of the stock market. Later on I would learn that Angelo was none too fond of investment bankers, though he did like the shirts they wore. (He also was a big fan of CNBC.)
During his visit to my office he had a PR flack (as we journalists like to call them) at his side, but the PR man (who has since gone down the road) was there strictly as a formality. You might say he was corporate bling. He was there because every CEO, of course, had his own PR man. Angelo, by this time, was already at the epicenter of the mortgage industry in the United States. He needed a PR man like he needed an extra brain. Back then no one spoke for Angelo Mozilo. When he talked no one interrupted him to help clarify or shape his message. The CEO of a firm that would one day become the nation's largest residential lender knew exactly what he wanted to say before he said it.
One reason Angelo came to trust me as a reporter had to do with a book I co - wrote about the savings and loan (S&L) crisis of the late 1980s and early 1990s, "Inside Job: The Looting of America's Savings and Loans." He had read the book, admiring its detail and its financial morality tale -- a story about so - called honest businesspeople who took advantage of newly passed laws that allowed them to loot federally chartered S&Ls (thrifts). He was genuinely appalled by the audacity of both legitimate businessmen (real estate developers mostly) and con artists who were allowed to own S&Ls and treat them like their own personal piggy banks. The S&L crisis led to the indictment of hundreds of men (and a handful of women). Dozens went to prison. Others walked.
Angelo lobbied me on one point, and he said it almost every time we talked about the S&L crisis -- that the criminality inherent in the thrift mess could never happen in the world of residential mortgage banking, where loans were securitized into bonds and sold every day by the billions. (The huge thrift losses were caused by commercial real estate boondoggles and junk bond investments.) "The capital markets are the regulator in our business," I recalled him saying. "Wall Street would snuff it out." He wasn't crazy about the Street, but he believed that because Wall Street firms were the gatekeepers between the lenders (and hence the homeowners) and the institutional investors, it was in their best interests to keep everything clean, to promote honesty and integrity.
He had made this argument before subprime lending began to boom in 2003. He believed it down to his toes -- that Wall Street (despite his contempt for it) would keep the housing market honest because the Street controlled the mortgage bond business, where most of the money for home lending came. It was in the Street's best interests. I wasn't so sure. I became even less sure when the losses (the nice word being write-downs) at banks and Wall Street firms topped $300 billion in the spring of 2008. To me and my co-author, Mathew Padilla, something had gone awry. A million or so people had lost their homes to foreclosure. Two or three million would follow in their path by the end of the decade. It wasn't just housing and mortgages that were ailing. It seemed as though the nation was getting hit from all different directions: rising energy and commodities prices, falling home values, banks pulling credit lines of all sorts including commercial and student loans. The mortgage virus had spread, infecting the entire body. It was as though the U.S. economy, which had burned so brightly during the Bush years, was a mirage. Angelo had been wrong. The capital markets -- Wall Street -- had failed us.
