Toxic CEO Pay Story
For a new generation of Angelo Mozilo wannabes, the sky is still the limit.
As a critic of runaway CEO pay, I have a lot of scars from debates I've done on cable TV business shows. But my most memorable pummeling was in August 2007, when I nearly got my head bitten off for criticizing Countrywide Financial CEO Angelo Mozilo on the CNBC show Squawk Box.
My offense? I questioned whether Mozilo really deserved to be the sixth-highest paid CEO in the country, given that the company's sub-prime mortgages were already showing clear signs of toxicity, with skyrocketing foreclosure rates.
Suddenly I had show host Carl Quintanilla and the other guests, including David John of the Heritage Foundation, shouting me down, saying that Mozilo had built the company from nothing and shareholders should be happy to give him every penny of his $42.9 million in compensation.
Looking back, it's hard to find a clearer example of the business press blindly glorifying highly paid CEOs. As we all know today, Mozilo's reckless subprime adventures were a disaster for the company and the country. Four months after that CNBC show, Countrywide no longer existed. In January 2008, Bank of America agreed to purchase the ravaged lender in a fire sale.
The Washington Post recently published an extensive analysis of how Countrywide's toxic loans continue to poison Bank of America--and the national economy. Of the 14 million loans Bank of America is managing today, Countrywide originated 10 million. And of those who borrowed from Countrywide, 15 percent are behind on payments, compared with 6 percent for loans that Bank of America originated.
Bank of America also had to cough up $43.5 million to settle a Securities and Exchange Commission suit over charges that Mozilo engaged in fraud and insider trading as he tried to hide the signs of the coming crash. Mozilo had to fork over $24 million for his share of the SEC settlement. That's a small fraction of the $529 million he pocketed over the past decade, according to The Wall Street Journal.
While any petty shoplifter or check-bouncer would have to face the prospect of jail time, Mozilo thus far has managed to escape criminal charges. He's free to spend his remaining ill-gotten loot any way and anywhere he pleases.
Countrywide's recklessness also continues to be a drag on federal agencies that purchased or guaranteed their trashy mortgages. Fannie Mae, Freddie Mac, and the Federal Reserve Bank of New York are among the investors who are demanding that Bank of America repurchase mortgage packages that were based on sloppy paperwork. More than half of these "buyback" claims stem from mortgages created by Countrywide.
It doesn't give me much pleasure to look back at that CNBC show and say "I told you so." It would be different if policymakers had learned from the examples of Mozilo and other Wall Street bandits and cracked down on such pay for plunder practices once and for all.
By all accounts, however, financial industry compensation is on track to break a record high this year--for the second year in a row. For a new generation of Angelo Mozilo wannabes, the sky is still the limit.
Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-author of the report Executive Excess 2010: CEO Pay and the Great Recession. www.ips-dc.org
