By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is http://www.twitter.com/matthewstoller
Mozilo’s emails expose a political philosophy borrowed from Ronald Reagan.
I was combing through the Financial Crisis Inquiry Commission resource materials, and I found an interesting email from former Countrywide CEO Angelo Mozilo to his senior executives. It was written in 2004, and the main subject was the declining credit quality of loans due to heavy competition from mortgage originators.
The last part of the email, though, got very political.
I must admit that the upcoming election has exacerbated my concerns in that a Kerry win could cause a serious disruption in the economy if he is successful in rolling back a substantial portion of the tax breaks initiated by Bush. It is the wage earners $200,000 and over that are the drivers of the economy and that is the group that Kerry has stated that he will attack. This could clearly cause a major bump in the road.
As you know I have no political bias but I would be concerned about any candidate that proposes a massive wealth transfer from the people to the federal government.
I would like you to consider my concerns and let me know your thoughts.
It’s true Mozilo had no political bias in terms of who got favorable lending treatment; lots of Democrats took out low-cost Countrywide “Friends of Angelo” loans. But the rhetoric and politics he uses here are straight up Texas GOP.
The transfer of power from the people to the federal government, and with Obama, we’ve had a giant leap in that direction.
The federal government has taken too much tax money from the people, too much authority from the states, and too much liberty with the Constitution.
He and Reagan were both government-haters. Now, Mozilo needn’t have worried about the 2004 election, as John Kerry voted to extend the Bush tax cuts last year and probably would have found a way to extend them as President. It is interesting that Mozilo, whose business depended on the income of people in lower and middle income brackets, felt that it was people with incomes of $200k and up who drive the economy.
As for the rest of the email, Mozilo was clearly telling his executives in private something different than he told his investors. Here’s what he told his execs.
I fully understand that our residuals have been modeled on a conservative basis but it is only conservative based upon historical performances. But the type of loans currently being originated combined with the unprecedented stretching of all aspects of credit standards could cause a bump in the road that could bring with it catastrophic consequences.
Here’s Countrywide’s 10K for 2004.
We develop cash flow and prepayment assumptions based on our own empirical data drawn from the historical performance of the loans underlying our other retained interests, which we believe are consistent with assumptions that other major market participants would use in determining the assets’ fair value.
So there you have it. Angelo Mozilo didn’t just dump hundreds of millions of dollars of stock when he secretly knew that the loans Countrywide was originating couldn’t support the stock valuation. He was also Reagan-esque as he did it.
Matt Stoller is a Fellow at the Roosevelt Institute and the former Senior Policy Advisor to Congressman Alan Grayson.