Losing the House but Winning Mom 07

"The Glass-Steagall Act was passed because of the '29 stock market crash. With Congress blaming the banks for the market crash even back then, basically, the act limited the financial activities between banks and security market firms. If that law had still been in place, none of this fiasco ever would have happened," he said. He waved his finger as if he was the banker standing in the middle of a monopoly board ordering all of the players to jail without passing 'Go' and collecting $200. "Banks and security market firms would have been unable to conspire with one another and be in collusion with one another."

Michael leaned forward in his chair.

"Wow," said Michael. "In hindsight, I guess that law was passed for a reason. Huh? "

Mr. Mozilo nodded his agreement to the simplicity of Michael's question.

"What the Gramm-Leach-Bliley Act did was to exempt credit-default swaps from government regulation. That relaxation of government control in effect was the silver bullet that loaded the gun," said Angelo. "Then, another nail in the financial market coffin, in '95, Clinton rewrote the Community Reinvestment Act. In principle the Act was a good thing but no matter their good intentions, as if the Act was a drug ready to be counteracted upon, there are always side and effects to everything and someone there to find that legal loophole and prey on the consumer."

Satisfied with the simplicity of his explanation without having to go in great details, he sat back in his chair and smiled.

"Wow," said Michael.

As soon as Michael showed his interest, Angelo continued with his explanation.

"Playing a big role in creating a permissive lending environment, the Act loosened the housing rules and pressured banks to lend to low-income neighborhoods," said Angelo looking from Jennifer to look at Michael before looking back at Jennifer. "Relaxed government, banking regulations and permissive lending is how we all got into this mess."

Seemingly bursting her bubble about her favorite president and about her preferred political party, Jennifer looked at Mr. Mozilo with interest.

"Now, that's something I didn't know about President Clinton," said Jennifer. "I'm sure his intentions were good and he was honorable. Who knew what more would happen with that Act than just lending money to the poor? The banks found their loophole to use that to their favor," said Jennifer.

Angelo laughed loudly.

"Good and honorable are not two words that I would use in personally describing Bill Clinton," said Angelo.

Impressed that his mother was getting the picture before he even did, Michael looked at his mother before looking at Mr. Mozilo. Angelo Mozilo gave Jennifer the same eye of appreciation with her being on the same page and with him not having to take the time to explain everything.

"It sounds like President Clinton was more for helping himself and his buddies than he was for helping the people," said Michael. "What else is new?"

Angelo shrugged his shoulders and gave Michael a knowing look before leaning forward in his chair as if he was about to divulge secret, government information.

"President Clinton's ex-budget director Franklin Delano Raines, Frank, as he preferred being called, was at the helm of Freddie Mac. He left the agency when after it was embroiled in an accounting scandal that made both Freddie Mac and Fannie Mae wards of the state," he said.

Michael shook his head with all the backroom deals that apparently happened behind the scenes.

"I guess it pays to give the President of the United States as a reference on your resume," said Michael with a laugh.

Angelo nodded his head in agreement.

"In the way that President Clinton was an undergraduate student at Georgetown University and then a graduate law student at Yale, both men attended Oxford. Only Frank graduated from Harvard Law School instead of Yale. Because of who he was and who he knew, he beat a class action lawsuit suing him to recover the lost funds of deceived investors. With him not totally aware of the happenings at Freddie Mac, ignorance is not an excuse of the law but in the case of Frank Raines, with him having far reaching power and influence, it was."

Angelo looked at his watch, before looking up at the sun. He was wearing a Patek Phillippe watch that probably cost him six figures, what most married middleclass people earn before taxes in two years of hard work.

"It's getting hot out here," said Angelo. "Will you join me for breakfast?"

Not wanting to speak for her son, Jennifer looked to Michael and he gave her a nod in the affirmative.

"I'd love to continue this discussion over breakfast," said Jennifer.

Angelo escorted Jennifer to the dining room with Michael following. He stopped to whisper something to his butler. Jennifer figured he had asked the butler to call the police but she was already there and invited inside, so she thought she'd make the most of her visit with Mr. Mozilo until the police arrived to escort her off of the property.

Instead of sitting at the opposite ends of the huge dining room table, as if having a boardroom meeting, Angelo had Jennifer and her son sit across from him. He looked from mother to son before looking back at Jennifer. He confidently sat in his chair as if he was about to begin a meeting of the board.

* * * * *

"Marion and Herb Sandler," he said as if they had just walked in the room. "They were worth billions. Marion is dead now but they both spent the later years of their lives as philanthropists. Most folks never heard of Marion and Herb Sandler and/or the bank they started, the World Savings Bank. They're the ones responsible for selling home loans with the option called ARM's, adjustable rate mortgages. An adjustable rate mortgages was the reason why you lost your house, no doubt," he said making eye contact with Jennifer. "They made hundreds of millions of dollars and made 2.3 billion when they sold their bank to Wachovia in 2006," said Angelo remaining quiet while his staff served Jennifer and her son breakfast.

"Now I'm really interested. Tell me more please," said Jennifer.

Angelo took a bite of his toast before speaking.

"Phil Gramm, the Chairman of the Senate Banking Committee from '95 to 2000 was the champion of financial deregulation. Deregulation is always good for people like me but always bad for people like you," he said with a little laugh. "He inserted a key provision in the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives, such as credit-default swaps from regulation by the Commodity Futures Trading Commissions. In conjunction with the Gramm-Leach-Bliley Act and the Community Reinvestment Act, that was the start of the giant snowball rolling down the hill that took down Joe Cassano, the head of AIG, and that cost the United States 150 billion dollars thus far."

Jennifer's mouth fell open.

"Oh, my God. I never heard or read any of this. I never heard of any of these people," said Jennifer enthralled. "If I knew any of this was going on behind the scenes, I never would have bought a house. I would have waited and purchased a house for a fraction of the cost after the stock market and housing market crashed," she said.

Angelo shook his head in disagreement.

"Bankers, brokers, politicians, and lawyers paid reporters a lot of money to keep their names out of the newspapers," said Angelo. "Besides, with banks now gun shy and on their best behavior, dotting all of the I's and crossing all of the T's, good luck getting a mortgage after the market crashed. The party was over by then. Those real estate developers who had the cash in their pockets to buy properties for pennies on the dollar made billions," he said.

Michael looked at his mother wide-eyed.

"I don't believe this," he said. "This is so unbelievable."

They remained silent while waiting for Angelo to speak again.

"Alan Greenspan, the Federal Reserve Chairman, became a disciple of the Libertarian Icon, Ayn Rand, after he read Atlas Shrugged. The boy wonder, a financial genius, was the resident financial maestro, the monetary guru, and wizard of Wall Street and of the economy. Nonetheless his God given financial intellect as a super economist, he admitted that he had made a mistake in presuming that financial firms could regulate themselves," said Angelo laughing loudly. "Ha! A mistake? That's an understatement if ever I heard one. That was a monumental blunder." Angelo laughed out loud again. "That was a joke. That was like putting a fox in a henhouse and telling the farmer not to worry about his chickens."

Jennifer couldn't believe she was getting the inside dope on Alan Greenspan from Angelo Mozilo of all people.

"I always liked listening to Mr. Greenspan but I never figured him for being that naïve," said Jennifer.

Angelo stopped to take a bite of his breakfast before continuing.

"James, tell Martha that the eggs are delicious. Martha is my cook. I persuaded her to leave her job as a chef of a five star restaurant after she hurt her back and couldn't stand for long periods of time," said Angelo. "Now by suppling her with a high stool with wheels," he said with a chuckle, "she cooks exclusively for me."

Michael smiled.

"Normally, I don't eat eggs, but these eggs are good," said Michael.

Then, Jennifer smiled.

"Our compliments to the chef," said Jennifer to James. "This is the best breakfast I've ever eaten."

Angelo sat back in his chair again as if ready to give a speech on the state of the economy.

"Swooping in to take advantage of America's hunger for credit was another man you may have not heard mentioned. Wen Jiabao was the proxy of the Chinese government. As everyone is well aware, China was one of the primary dealers of credit to the United States Government. China held an estimated 1.7 trillion dollars in debt. Manipulating money markets behind the scenes, China was eager to control the value of its currency against the U. S. dollar," said Angelo.

Michael banged his fist on the table.

"Damn Chinese," said Michael. "I knew they were behind all of this. It's their fault that we lost our house."

Jennifer shot Michael a look before returning her focused attention to listen to Mr. Mozilo while eating her breakfast.

"Simplistically yes the Chinese should shoulder some of the blame but convolutedly no. As if Wen Jiabao was the shylock in Shakespeare's Merchant of Venus, the Chinese were the loan sharks from China," said Angelo with a laugh. "China was responsible for the devaluation of our dollar more than anyone but the American consumer is more to blame for demanding more and more inferior Chinese goods."

Jennifer shot Michael another look.

"Sorry, for my son's passionate outburst. Please continue, Mr. Mozilo."

Angelo raised a hand and waved it down showing that he had no problem with Michael's spirited outburst.

"Angelo. All my friends call me Angelo. Being that you're invited guest in my house, sitting at my table, and eating my food, we're friends. Please call me Angelo."

"Thank you, Angelo," said Jennifer. "Please tell us more."

Angelo closed his eyes for a moment as if taking a nap or falling in deep thought. Then, as soon as his eyes opened, his mouth opened too.

* * * * *

"Then, there was Christopher Cox, the ex-SEC chief. Ignoring repeated allegations of fraud, he chose not to investigate Bernard Madoff and hedge funds as a whole. Starting the fatal, financial failure falling, that one, illegal Ponzi scheme cost retirees and nonprofit organizations fifty billion dollars in losses. Able to nip things in the bud before they got out of hand, the SEC had the power to investigate investment houses such as, Lehman Brothers and Merrill Lynch for better disclosures and not following investment regulations and laws. Blaming limited SEC staff, Mr. Cox chose to close this eyes to such infractions."

Michael looked at his mother before addressing Angelo.

"Wow, who would have thought the SEC was to blame too," said Michael. "I always thought they were above all of that. I always thought that they were like the IRS of the financial market or the Supreme Court of investors' investments."

Angelo nodded his agreement to Michael.

"With plenty of blame to go around there were lots of CEO's on Wall Street who were to blame but none more than Jimmy Cayne of Bear Stearns. I'm not embarrassed or proud to tell you that I'm worth 600 million dollars," said Angelo with pride, "but Jimmy is worth nearly one billion dollars."

Michael whistled his appreciate as to how much money Mr. Mozilo was worth not to mention how much Jimmy Cayne was worth too.

"Wow," said Michael. "Damn. That's a lot of money."

Angelo sat back in his chair seemingly proud with his personal accomplishments and happy to confess all of this about his colleagues.

"Bear Stearns held 40 billion in mortgage bonds that they sold to JP Morgan. Sandy Weill's Citigroup was another big bank to blame. Meanwhile, the biggest culprit in this financial fiasco, was Kathleen Corbet of Standard & Poor. She slapped AAA seals of approval on the riskiest of the loans."

Jennifer shook her head back and forth.

"My God, such a mess," said Jennifer.

Michael nodded to his mother.

"It's as if once the ball was in motion, no one could stop it rolling downhill and taking people and companies with it before reaching the bottom in a gigantic crash," said Michael.

Angelo smiled a nod at Michael.

"It wasn't only America grabbing at the greed. Fred Goodwin of the Royal Bank of Scotland was a big player in overreaching what his bank could safely afford when he acquired ANB Amro. Another big player on the world stage was David Oddsson, Iceland's Prime Minister. He made his country an experiment in free-market economics by privatizing their three main banks. Then, when Iceland's economy soured, they had a macroeconomic meltdown. The IMF, the International Monetary Fund, had to step in after the currency lost more than half of its value," said Angelo seemingly knowing everything that economically happened in the world at the time.

Jennifer pushed the remainder of her breakfast away to concentrate on drinking her coffee while listening to the guru of mortgage banking taking control of the conversation. As if he was an oracle, and he was, and as if she was a student of finance, and she was, she only wished she had been privy to his wisdom before she spent all of her money on a house that was lost to foreclosure.

"Tell me more," said Jennifer sitting forward in her chair with interest.

Looking much like two high school freshmen in a sex education class, Michael sat forward in his chair too.

"Hedge funds were responsible for sloppy mortgage lending. John Devaney and other hedge fund managers bought up mortgages to thereby help make it possible for lenders to make questionable loans and then sell them. He actually told Money Magazine, "The consumer has to be an idiot to take on one of those adjustable rate mortgages weighted down with balloon payments and high interest, but it has been one of our best performing investments."

Michael nodded his head in agreement.

"Wow, we're a couple of idiots," said Michael with sadness.

Jennifer shook her head in disbelief.

"Lew Ranieri, was the father of mortgage-backed bonds in which home loans were packaged together by Wall Street firms and sold to institutional investors. He boasted that his mortgage trading desk made more money than all of the rest of Wall Street combined. The balloon burst when subprime borrowers started missing their payments. Then the mortgage market stalled and subsequently the bond prices collapsed," said Angelo. "Which is why they called them junk bonds," he said with a little laugh. "A better name would have been shit bonds."

Now it was Jennifer's turn to nod her head in agreement.

"That's us, a couple of idiots," said Jennifer. "We no longer could afford our mortgage when the adjustable rate moved it out of our financial reach."

Angelo seemingly looked sad for Jennifer's plight.

"The gorilla of Wall Street, as Dick Fuld was known, moved Lehman into subprime mortgages," said Angelo. "Bankrolling lenders, and with no one watching the henhouse but the fox, they made questionable loans to borrowers. Lehman took those loans and made them into bonds, junk bonds stamped with AAA rating by Standard and Poor that were nothing but toxic debt. Fuld earned $500 million in compensation during his tenure as CEO at Lehman."

Michael just sat there in shock.

"With the spotlight on Greenspan, Bush, and Paulson, and everyone blaming the collapse of Wall Street on them, I never heard of any of these people playing such a major role in the meltdown," said Michael.

Angelo nodded.

"The rich and powerful are always well insulated. Stan O'Neal, Merrill Lynch's CEO guided his company to create CDO's, collateralized debt obligations, which were primarily subprime mortgage bonds. With 41 billion dollars in subprime bonds, Merrill Lynch failed and just as they did with my bank, Bank of America swooped in to buy them too," said Angelo.

Now Jennifer looked angry after hearing the real story.

"This is so amazing hearing the inside scoop from the horse's mouth," said Jennifer doing her best to hide her anger. "Seemingly the one bank who made out was Bank of America."

Jennifer shook her head in disbelief.

"David Lereah, chief economist of the National Association of Realtors, was quoted as saying that the housing market is going to keep chugging on forever," said Angelo. "Regularly trumpeting the infallibility of the housing market, he chastised people for missing out on the housing boom in 2006. Then, changing his tune from a trumpet of joy to a bugle of warning, a year later in 2007, he was quoted as saying, "It appears we have established a bottom," said Angelo with a loud laugh.

Jennifer nodded in agreement.

"I was definitely caught up in that," confessed Jennifer. "My dream was to own my own home."

Michael seemed surprised by the enormity of the responsibility of all the players.

"Encouraging the housing boom, Burton Jablin, the programming czar of Scripps Networks, which owns HGTV, helped inflate the real estate bubble by developing programs such as, Designed to Sell, House Hunters, House Hunters International, My House is Worth What?, and Income Property. He not only gave the housing market gusto but also he gave it glamour," said Angelo.

"I faithfully watch House Hunters and House Hunters International every day," said Jennifer.

She smiled her innocent ignorance at Angelo.

"Homebuilders had much to do with the housing market collapse too. As CEO of Beazer Homes, Ian McCarthy had become the poster child for the worst behavior of homebuilders. His aggressive sales tactics and lies about borrowers' qualifications contributed to the economic housing meltdown.

"This is just so unbelievable," said Michael.

"Then, of course, there's President George W. Bush and his Secretary of the Treasury, Paulson. Bush is to blame because the meltdown of the economy happened on his watch. Secretary Paulson is to blame for allowing Lehman Brothers to fail and then for opening the doors of the Treasury to banks and insurance companies. With some of these corporations not repaying the government, he passed out billions of dollar without properly accounting for who got how much money," said Angelo laughing loudly again. "Can you imagine that knucklehead? I can't imagine that knucklehead passing out money like that. All he cared about was getting his tax free, 450 million dollar, golden parachute from Lehman Brothers before closing their doors."

"That's so unbelievable," said Jennifer echoing her son.

"What's even more unbelievable than Secretary of the Treasury, Henry Paulson, passing out billions for our tax money to his friends, is that no one went to jail. No one was even arrested. With this being the biggest robbery in the history of the United States, no one was even charged with a crime," said Angelo Mozilo. "Now that Feds are after me, just me and no one else."