Four paths toward a better 2013 in business
Herewith is a short wish list about what might make it a happy one for investors, taxpayers, home buyers and consumers...Angelo Mozilo - "This is not caused by any act of Countrywide or by any act of MBIA," he said. '`It was caused by an event that was unforeseen by anyone, because if anybody foresaw it, you would never have insured it, we would never have originated the loan.

Four paths toward a better 2013 in business
By Gretchen Morganson

Herewith is a short wish list about what might make it a happy one for investors, taxpayers, home buyers and consumers.

1. Make it sting
First, when regulators like the Securities and Exchange Commission (SEC) settle with individuals after investigations, why not require those people to pay a sizable portion of the fines and penalties out of their own pockets? Only then will these deals deter bad behaviour.

Having these parties pay up would solve a big problem: they are typically covered by shareholders of the company in question, or by that company's insurer. Making shareholders pay seems unfair. But that's the way it is now.

There is a precedent for making individuals in such cases accept financial responsibility: the 2005 settlement in an investor suit against WorldCom directors. Having presided over its huge accounting fraud and 2002 collapse, the company's directors were required to personally pay $18 million. Insurance covered the remaining $36 million.

The amount that each director paid represented 20 per cent of his or her net worth. Lawyers representing investors in that case made personal payments a requirement of the settlement. This should not be an anomaly.

2. Solve the ratings mess
Why not ensure that investors get all the information they need to conduct extensive due diligence before agreeing to buy complex securities? This may be the only way to blunt the credit ratings agencies' power or, better, make them disappear.

Five years after investors suffered billions of dollars in mortgage losses owing to the incompetence of Moody's and Standard & Poor's, it is beyond frustrating that these agencies still conduct their businesses as usual. And while the Dodd-Frank law was supposed to reduce the government's reliance on credit ratings, that goal has not been achieved. Reform of the industry seems to have stalled.

The ratings agencies have also managed to continue hiding behind the defence that their ratings are opinions and subject to First Amendment protection from litigants. Being subject to lawsuits for their failures would surely encourage these companies to be more diligent. Maybe some of the ratings-agency suits inching through the courts will get rid of this free speech fiction once and for all.

3. Wake up the regulators
And how about requiring some penalty for failure when regulators mess up on the job? We've all seen the disastrous results of financial regulators' failure to identify problems and nab scofflaws in the years leading up to the credit crisis. And yet, none have been held accountable for these transgressions.

Perhaps this is not surprising, given that almost no one in the private sector has been held responsible for misdeeds during the mania. But regulators should operate with a higher sense of duty to the taxpayers they serve. When they fail in that regard, there should be consequences.


4. Make leaders lead
Finally, wouldn't it be nice if executives acted like leaders and accepted responsibility for the actions of their companies and their employees? This dream came to mind while reading a deposition of Angelo R. Mozilo, the founder of Countrywide Financial. His testimony took place in June 2011 but was filed two weeks ago with the New York state court that is hearing a suit brought against Countrywide by MBIA, the mortgage insurer. Mozilo is rarely heard from these days. So his views on the collapse of his company and industry are of interest.

Early in the deposition, the lawyer for MBIA asked this of Mozilo: "After all the foreclosures and ruined lives and lawsuits, including the losses to MBIA, do you have any regrets about the way you ran Countrywide?"

An excellent question, given the carnage that Countrywide left behind. But not to Mozilo, who answered with a version of history that is his alone. "This is a matter of record," he said.

"The cause of the problems of foreclosures is not created by Countrywide, nor MBIA. This is all about an unprecedented, cataclysmic situation, unprecedented in the history of this country. Values in this country dropped 50 per cent."

He continued by noting the financial misery at many banks, as well as at companies like AIG and institutions like Fannie Mae and Freddie Mac.

"This is not caused by any act of Countrywide or by any act of MBIA," he said. '`It was caused by an event that was unforeseen by anyone, because if anybody foresaw it, you would never have insured it, we would never have originated the loan. And it spread across the world. So that's the issue. All these lawsuits is — was created by nothing that anyone did, any one company did. Any judgment made on a foreclosure — on a loan being made is because values deteriorated.

"And for the first time in the history of this country, people decided that they were going to leave their homes because the value of their home was below the mortgage amount," Mozilo said. '`Never in the history of this country did that ever happen, and that could never have been assessed in the risk profile. These people didn't lose their jobs. They didn't lose their health. They didn't lose their marriage. Those are the three factors that cause foreclosure. They left their home because the values went below the mortgage. That's what caused the problem.

"So I have no regrets about how I – how Countrywide was run. It was a world-class company," Mozilo went on. "So your tirade about foreclosures and lawsuits is nonsensical and insulting. Countrywide did not cause this problem. We made no loans in Greece. We made no loans in Ireland. We made no loans in Portugal. This is a worldwide financial crisis that was totally a shock to the system."

Mozilo's state of denial is pretty breathtaking. He did a fine job. That's his story, and he's sticking to it. Shareholders of Bank of America, who have shouldered billions of liabilities in its acquisition of Countrywide, might feel a bit differently.

GRETCHEN MORGENSON / The New York Times News Service
http://www.nytimes.com/2012/12/23/business/four-paths-toward-a-better-2013-in-business.html?_r=0