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Opinion

Mozilo to the rescue

Angelo Mozilo, former chief executive of Countrywide Financial, paid a $22.5 million penalty and disgorged $45 million of what the SEC calls "ill-gotten gains" to settle disclosure violation and insider trading charges

Could the villain of the piece yet have a hero’s role to play? Last month, Angelo Mozilo, former chief executive of Countrywide Financial, paid a $22.5 million penalty and disgorged $45 million of what the SEC calls "ill-gotten gains" to settle disclosure violation and insider trading charges. It is the largest sum ever paid by a public company executive in an SEC settlement. Robert Khuzami, director of the SEC enforcement division, says: "Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite – a looming disaster." The money will be returned to investors harmed in Countrywide’s collapse.

Meanwhile, investors in Bank of America now face the costs of put-backs by investors of MBS backed by dodgy Countrywide mortgages. Foreclosures in the US stand at 2.5 million homes and one in five US homeowners have debts higher than the value of their property. Instead of paying penalties, couldn’t Mozilo be put to work to fix the problem? That’s the suggestion of Christopher Whalen and Dennis Santiago, analysts at Institutional Risk Analytics. They point out: "Countrywide originated hundreds of billions of dollars a year in new loans, an amount many time’s the bank’s assets and a level of productivity far above that of larger banks. The people and operations of Countrywide were once the envy of the industry."

Such energy, perseverance and imagination is needed now and Whalen and Santiago say: "The FDIC should create a new subsidiary called Resolution Trust Corp II, headed by Mozilo and other industry veterans, to purchase bad assets from banks, sell foreclosed assets, raise funds and unify all government disposal efforts into a common sales effort."

Presumably Chuck Prince could organize the music for its opening party, Jimmy Cayne could bring the refreshments and John Thain could design the executive suites.

Might it happen? The SEC settlement permanently bans Mozilo from ever again serving as an officer or director of a public company. But that doesn’t stop him working for the federal government.

Calls for Mozilo’s rehabilitation can be taken with a pinch of salt. Whalen’s and Santiago’s suggestion of a new Resolution Trust Corp, or similar Reit-type vehicles to own and manage foreclosed real estate in partnership with banks and investors, deserves serious consideration. It sounds better than the Fed taking bad assets off banks’ hands and then simply putting them back for repayment at par, claiming breaches of reps and warranties.

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