Countrywide Said to Be Subject of Federal Criminal Inquiry – New York Times Why isn’t anyone asked the question: What good is Sarbanes-Oxley if this could so easily happen?
The federal authorities have opened a criminal inquiry into Countrywide Financial for suspected securities fraud as part of the continuing fallout over the mortgage crisis, government officials with knowledge of the case said on Saturday.
The Justice Department and the Federal Bureau of Investigation are looking at whether officials at Countrywide, the nation’s largest mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings, the officials said.
Exactly! It seems S-O just created a ton of paperwork and a shift in responsibility from accounting firms to mid (or lower) level business managers. I also found it interesting that higher- level managers pushed the certification responsibility
as far down the corporate food chain as possible.
Like a line level manager responsible for initialing balance sheets or p&l statements can really ‘certify’ the numbers generated by an accounting team. ” I certify that this line item is accurate, subject to the accuracy, exclusion, misrepresentation, omission, human or electronic error of other data contained within.”
I expect we’ll see similar groundbreaking legislation arising from hedge fund (mis)management and lack of oversight.
The “afterwards” portion of Sarbanes-Oxley kicks in, now. The Board of Directors get to share in responsibility for the crookedness they will say they knew nothing about.
The “before” part doesn’t start unless there’s a whistleblower. Something contemporary American business climate – and our government – has worked very hard at suppressing.
Plus – everyone was making so much sleazy money – there just might not have been any motivation for anyone to rat out the non-diligence.
John
Sarbanes-Oxley is just as effective as McCain-Feingold campaign finance reform. It doesn’t really accomplish anything positive but give the politicians a chance to jump in front of the camera and say “See how hard I work for you? Now everything will be all better.”
My wife works in the accounting dept. of a large corporation and to be in compliance with Sarbanes-Oxley costs them a lot of money. I think a better thing would be to send some of these crooks up the river for 50 years (in a real prison) and see how attitudes change.
SOX is a great way of determining how wide open the barn door is open once the horses have run away.
After watching “Enron: The Smartest Men in the Room”, it’s easy to see how a situation like Enron happens. It’s not that people didn’t know what was going on, it’s that they had an incentive to keep their collective mouths shut until the whole works fell in on itself.
Could anyone see this mortgage crisis happening 5 years ago?
I sure did.
I knew something was very wrong when suddenly all of the mortgage companies were trying to sell interest only mortgages.
Interest only mortgages don’t benefit the bank because there is no equity in the event of a foreclosure, they don’t benefit the consumer because they also accumulate no equity.
Who did they benefit? Sales and marketing.
At what cost? Putting people in homes they couldn’t afford that are perpetually at risk of foreclosure and have no equity to restructure a temporary financial situation and no motivation to avoid foreclosure on a home they have no equity — hence no true investment in.
Interest only mortgages should not be a tax deduction; they help no one own a home as was the intent of the deduction.
I am shocked that SOX didn’t stop dishonest people from securities fraud. Maybe we should make robbery illegal so people won’t steal.
As everyone else has said here, SOX is pretty useless unless you’re a partner at KPMG or PWC. Another sad byproduct of all this is 28 year old CA articling students getting off school buses at various companies every year and telling IT departments what is wrong with them. If you’ve ever suffered through ISACA style audit where you get “advice” on security, networks, and software development practices you haven’t really lived.
Many of the smaller regional banks will be bought up at bargain prices by the biggies, or fail. At this point they don’t have the cash to make loans, which is how they make money, on the interest. A FDCI bailout will be rather expensive. What gets me is that so many people are proceeding as they don’t get the latest economic numbers. I’ve seen panic over much less than this. Maybe they have no choice.
What type of question is that? How can a bill eliminate fraud?
The sub-prime mortgage mess might have been avoided if the government under Carter and strengthened by Clinton didn’t insist on fighting redlining. They said that companies would be scored by how much they are lending to the poor and minorities. So if they don’t give out a loan, they lose money due to government fines. If they do, they stand to lose much more, and get attacked for being greedy too!
@QB
the thing that gets me about SOX is the lack of absolutely defined parameters regarding auditing. you can have one person overseeing things and conducting things in certain manner, then some other person comes in and doesnt like the previous person thing did things so the work has to be done over even though the previous person signed off on it. makes me glad that I dont work for the accounting dept in my company.
but being in IT i get to share in the misery of SOX. Auditors coming in without any prior notice needing “immediate” access to archived documents and emails from servers. being that these people get billed out by the hour of course IT has to drop what they are doing to accommodate them. we even brought in a dedicated DSL line for them because out T1’s were to saturated for their remote access software. i think the costs involved with restating our earnings and auditing were about $20 million for a $4 billion a year company, all because of SOX.
MikeN, the crisis we’re seeing has nothing to do with bank lending practices that changed during the Carter and Clinton administrations, but thanks for the lamest attempt I’ve seen yet of placing retrospective blame. I’m almost surprised you didn’t include FDR in your dragnet of liberal-commie Democrats, but maybe you’re not completely disconnected from reality.
Even if every Democrat and independent in the U.S. were deported to some foreign country tomorrow, and only Republicans remained in your good ol’ USA, you’d still be unhappy, Mikey. Your unhappiness doesn’t have an external cause; you only think it does. It’s probably just a chemical imbalance in your brain.
Good luck with that 😉
Yup – 9 informed opinions and 1 dweeb upset that bigot-based profits were sidelined.
I don’t want deport any Democrats, except for the illegal immigrant ones. I do want to deport their idiotic policies, like this one.
http://tinyurl.com/36r8kn
Jeff Jacoby spells it out a little more. A must-read for all the people pushing ethanol too.
Turns out it increases the amount of greenhouse gases.
#14, that article sounds like it’s trying to absolve bankers and mortgage brokers of responsibility for the corrupt practices that are at the heart of this mess. No law forced them to drop income verification and no law forced them to make interest only loans or dangle a lure of teaser rates on ARM loans. And if there were ever any fears of regulators being tough enforcers of a law intended to maintain an equal opportunity lending environment with respect to minorities, those fears must certainly have been somewhat allayed when Bush took office.
The Bush administration, along with a Republican majority in both houses of Congress, had little apparent ambition to perform any meaningful financial industry oversight as long as the broad economic measures could be spun as indicative of financial good health, which was further spun as a referendum on the efficacy of highest-bracket tax cuts. If the numbers made Bush policies look good, there was no desire to discover that the cursory appearance of wealth was dangerously false.
The banking law in question dates back to 1977, with revisions in 1995 (under a Republican Congress). Blaming that law for the deception and corruption that brought about this mess falls flat. Jeff Jacoby seems to have an agenda that is furthered by blaming Democrats for everything, even corrupt lending practices. I’ll try to pretend I’m surprised that you’re a reader.
@#15
Preach on Brutha Gary!
Everything was pretty damn obvious years ago.
I don’t get caught up in party politics because I think each party has the capacity to do good by the country but as of so far, not the desire or will.
It was sickening watching the Republicans and the absolute disinterest in getting their hands dirty and doing what the legislative branch and executive branch should do.
This was a fully preventable 1980s style Savings and Loan collapse with do nothing idiots taking bribes and lining their pockets.
In the 1990s Alan Greenspan warned of irrational exuberance with regard to the internet stock situation and in the early 2000s I recall him having a similar take on the mortgage and refinance industry.
I find it amazing in retrospect the total lack of vigilance in addressing this situation.
Simple solution:
Stop allowing houses to be purchased as ‘investments’. Four things should never be allowed as investment material: water, food, clothing, and shelter.
Everybody’s overlooking the other contributor to this “mortgage crisis” – overpriced houses caused by speculators ‘flipping’ them.
The crisis isn’t a crisis – it’s a correction in an open market.
By the way, as you drive around, look for houses on street corners up for sale. These are people that can’t afford their real estate taxes anymore because of the artificial rise in the value of their homes. Nice.
#16 HMeyers — Preaching? Heck, you didn’t even see all my arm-waving! In the summertime, I can swat a lot of flies when I get worked up like this 😉
Repuglithugs tell us government is bad and tget into office and prove it.
Republithugs push for reduced regulation–what can follow other than abuse like this?
Our government officials pretty much do tell us what they are going to do, and then they do it.
The only thing surprising should be that SO MANY people still think everything is “unconnected” somehow.
Sheeple.
It’s not the law, it’s the conservative Republican philosophy, which simply doesn’t know how to govern.
Get rid of all the Republican criminals and things will get a lot better.
@#19 – I think the Republican argument about a hands off economy is partially negated by the fact that when these terrible, dangerous and short-sighted business practices create a massive financial crisis the government either is required to bail them out or is effectively required to bail them out to avoid a severe chain reaction to the economy.
It pisses me off that insurance companies and banks always need bailouts. Shouldn’t insurance companies work to manage risk and shouldn’t banks work to maintain a certain level of portfolio diversity to avoid these fiascos?
I mean, we’ve even seen the Enron collapse.
I think any company with of sufficient size and risk to impact the national economy should have special laws entangling executive pay and stock benefits to an amortized term that includes performance of said company 5-10 years out.
Right now, these jokers can screw the company, leave/retire and then the company tanks and “we the people” are left paying for it.
#20–HMeyers==yea verily. Who profits and follow the money! The politicians rake in their pay-offs/bribes/contributions in all market conditions. Poor people get elected to Congress–they all leave as millionaires 2/4 years
later.
The Best choices we voters can make remains the least evil of those running. I say vote all encumbents out until they get the message, but as long as people vote their “values” this will not happen. Pork Barrel Politics advantaging a few people at a time to the detriment of all rules the day.
Its all very obvious and observable from day to day. In essence, democracy doesn’t work, but its “the best” system we have? The solution is a leader to bring our society a “culture of civic responsibility” but that is near impossible.
Some basic easy simple laws could actually change alot and form a basis for the needed change==eg==limitations on CEO compensation. STOP THE MONEY AT THE SOURCE!! and a lot of downstream changes would happen without further regulation.
Like I said, won’t happen. And again==it would be somehow more acceptable if it weren’t so obvious!!!!!! And so it goes.
@21 – “Get rid of all the Republican criminals and things will get a lot better.”
You mean like the good Democrats that presided over the Savings and Loans mess, the House Banking scandal and the Keating Five?
Republicans = bad does not make Democrats = good.
Sell crazy somewhere else, as you can see from this blog, we’re all stocked up here 😉
#23 – Poor people get elected to Congress
In what Marvel Comic Universe?
You keep making these guys out to be criminals for lending to poor people. Yeah, misrepresenting their portfolios when they sell the loans to other banks is fraud and criminal, but that’s a rich person’s squabble. I don’t want banks deciding not to lend to the poor.
The majority of subprime loans are not defaulting. According to you guys, those people should be thrown to the streets for trying to live beyond their means.
You can’t legislate morality.
I hate to sound old fashioned, but our lack of honesty in this country has gone beyond the turning point.
This is why I wretch every time some damn fool in DC wants to let “free market forces” or “competition” be the answer to a problem. Those days are G-O-N-E!! We are screwed. I’m only jealous that I sat around and didn’t steal mine while the getting was good.
Of course playing Nero’s fiddle for 7 years hasn’t helped.