Those who have been waiting — and waiting, and waiting — for the worst culprits of the the mortgage meltdown to face some kind of public accounting are getting treated this week to a trial in a New York court. As Bloomberg’s Greg Farrell and Patricia Hurtado reported this week, it’s an unusual trial in which prosecutors have leveraged an S&L-era law to extend the time to bring charges.
The trial’s unusual in another way, too. Actually, bizarre. It involves mortgage misdeeds at Countrywide Home Loans (an entity that no longer exists), perpetrated by Countrywide employees (who are not named) for which the shareholders of Bank of America (whose suffering never seems to end) will have to pay if Bank of America (which as the acquirer of Countrywide is being sued) loses. Justice may finally be cantering into court, but it feels like she’s riding a donkey.
All the things that went on at Countrywide make for eye-popping reading, even six years after the fact. The story of the “high-speed swim lane” (HSSL, or “Hustle” — really), in which loan applications flowed forward at top speed, is one for the ages. An especially telling detail in the complaint: A single loan application was submitted to Countrywide’s computerized approval system 58 times, presumably with tweaks to make it more acceptable. (Bank of America denies the allegation, in an answer that amounts to “show us the documents!”; we’ll see if prosecutors deliver.)
And yet … while the details still make good reading, it’s hard to understand just what the justice-seeking purpose of such a prosecution might be. It’s more a theatrical representation of justice, akin to the trials of pigs for mauling small children. We can assume that the folks who tried and hanged “infanticidal swine” in the French towns of Trochon and Abbeville in the 15th century (that great phrase is from a 1906 monograph on the subject by Edward Payson Evans) also felt that when something so terrible has happened, some kind of trial has to be held. It doesn’t have anything to do with holding the perpetrators responsible — and certainly not with deterrence.
For Bank of America, this case is the residue of what can only be called one of the very stupidest deals in corporate history. Having reason to believe that Countrywide, once the biggest mortgage lender in the United States, could be a sinkhole of litigation, Bank of America chief Ken Lewis chose to buy it anyway. So if you consider this just punishment for corporate stupidity, Bank of America’s shareholders are reaping what the bank’s executives sowed.
In an interview with Bloomberg, U.S. attorney Preet Bharara holds the current case up as an example of how prosecutors can look through the statute books to find the tools they need to bring bank cases. And indeed, there’s a certain amount of legal cleverness involved in a trial of a bank that, in the words of a judge describing a similar case, “engaged in fraudulent activity and harmed itself in the process.” All the legal cleverness in the world, though, can’t hide that this case doesn’t actually affect any of the people who were responsible for the Hustle in the first place.
No Countrywide executives are sitting in the defendant’s chair in this case. If some of them have paid millions in penalties, it still feels like a bargain. When former Countrywide chief Angelo Mozilo agreed to pay $67.5 million to the Securities and Exchange Commission, New York magazine‘s Jessica Pressler deadpanned that the SEC was “trying to spin” it as a victory. At least that was Mozilo’s own money. (Update: Or maybe it wasn’t! A reader points out that according to the Associated Press Mozilo’s old employer seems to have picked up $45 million of that tab.) This prosecution doesn’t even offer that pale satisfaction. Think of it this way: If you were going to commit a fraud, would you feel deterred by the prospect that, six years later, a big corporation to which you no longer have any connection would have to spend millions of dollars defending a lawsuit? Didn’t think so.
In “The Criminal Prosecution and Capital Punishment of Animals,” Evans tells the story of a rooster that was executed for the “heinous and unnatural act” of laying an egg. Supposedly, after the rooster was killed, three more eggs were found inside it. If cases like the current BofA prosecution succeed in exposing more details of boom era shenanigans, maybe they serve some purpose. Still, it does leave the nagging question of whether you’ve got the right chicken on the scaffold.