Dance of the Reptiles (19 page)

Then there’s Scott Almeida, who forthrightly informed mortgage regulators about his federal drug-trafficking conviction. In 1998 he’d been busted with two kilos of coke, two assault rifles, a stolen pistol, and a drug-packaging device. Not long after Almeida got out of prison, the state gave him a broker’s license and told him to behave. He promptly went out and racked up $3 million in fraudulent loans, choosing as his victims disabled and elderly persons.

What Almeida did was truly rotten, but on the bright side, at least he gave up the cocaine trade.

Consider also the case of Anthony Hollis, an Orlando felon who was given a license to own a mortgage brokerage despite having been convicted of passing bad checks and auto theft. Hollis used his new access to private credit histories to steal more than $200,000 from customers before he was nailed for racketeering.

Sure, it was a slimy scam, but give Hollis credit for showing ambition. Some car thieves are content to stay car thieves their whole lives. Thanks to the great state of Florida, Hollis got an opportunity to advance up the felonious ladder from street crime to white-collar crime.

Same for Richard Crowder of Miami Beach, one of 23 convicted burglars who successfully transitioned into the mortgage field. Eventually, Crowder masterminded one of the state’s worst frauds, setting up $37 million in bad loans by falsifying documents, lying on applications, and staging phony property appraisals.

Crowder, of course, is a lowlife who richly deserves the nine-year prison hitch that awaits him. Yet, without our forgiving state regulators, he’d never have graduated from burglar
to swindler. And wouldn’t you rather have a creep like that tricking your grandmother out of her life savings than breaking into her house in the dead of night?

Likewise, the OFR might have been doing us a favor by not screening aspiring loan originators such as Ronald D. Collins. He was convicted 37 times between 1983 and 2000 of assorted low-rent money crimes, including forgery and grand theft.

Yet had Collins been banned from the lucrative world of mortgages, he might have turned to more dangerous endeavors such as bank robbery or carjacking.

See, after you live in Florida long enough, you learn to look philosophically for the silver lining in every storm cloud.

That will be Don Saxon’s mission as he tries to explain his agency’s chronic inattentiveness to Gov. Charlie Crist and other members of the Financial Services Commission, which is scheduled to meet this week.

Maybe Saxon’s been asleep at the switch, or maybe he was simply trying to keep known criminals off the streets by putting them behind desks instead.

Isn’t it better to be robbed over the phone than at gunpoint?

October 5, 2008

Cindy to Blame for Woes on Wall Street

The collapse of Wall Street and the freeze of credit markets can be traced to one unlikely culprit: Cindy Crawford.

I’m sure she didn’t mean to cripple the economy. Most supermodels avoid meddling in global monetary markets, and it’s unlikely that Cindy realized how much influence she commanded.

Tragically, however, the crash of 2008 can be connected
to that fateful day, a few short years ago, when Cindy got into the business of designing furniture for a popular retail firm.

It wasn’t long before the Crawford brand caught fire. Every time you turned on the television, there she was, languidly sprawling across one of her microfiber plush sofas, or carefully arranging the pastel placemats on one of her cherry-veneer dining tables. She looked great. She had style. She was also much taller than most interior designers.

And, amazingly, you could buy a whole roomful of Cindy’s furniture with no down payment. Unbelievable!

More amazingly, you didn’t have to start paying off the stuff for a whole year or even longer. As a result, thousands of Americans who could barely afford their car payments eagerly started purchasing Cindy’s terrific furniture—although it wasn’t technically purchasing, because not much actual money was involved.

As bankers watched the Cindy phenomenon grow, they realized that the customers who were snapping up all this accessible furniture might want larger homes to put it in. The bankers also understood that special mortgages would be necessary when dealing with folks who already needed at least a year to pay for a headboard and a nightstand. Thus was born the concept of subprime loans, a financing ploy very similar to the one used so successfully by Cindy Crawford’s furniture company.

Subprimes allowed Americans to get homes with a minimal down payment. Interest rates were extremely low and extremely temporary. The mortgages were structured so that those rates—and the customers’ monthly nut—would shoot up radically after a few years, yet nobody seemed worried about that.

Bankers were just tickled to be selling so many loans,
real-estate agents were thrilled to be selling so many houses, and home buyers were elated to have more rooms in which to arrange all their new (and still-unpaid-for) Cindy Crawford furnishings.

The economy was booming, or so we were told. Unfortunately, at no point in this brainless orgy of lending was it required for the folks who were borrowing all that easy money to show they had the means to repay it.

Inevitably, Wall Street was smitten by the Cindy factor. Venerable institutions like Lehman Brothers bought up billions of dollars’ worth of bundled subprime mortgages, on the theory that the price of real estate would keep rising insanely until the end of time. If some poor sucker had to default, so what? Repossess his house and sell it for a profit to some other sucker, who could then fill it with more unpaid-for furniture by Cindy Crawford.

But the Wall Street wizards who control the credit flow made a disastrous blunder. The Cindy Model of friendly finance doesn’t work very well when the stakes are high.

Selling a roomful of furniture to a family that can’t afford to put any cash on the table is different from selling them a house. Thousands of subprime and adjustable-rate mortgages went plummeting into default, and the rest is history.

As Congress and the White House scramble to stanch the bleeding, investor confidence remains shaky. It might be helpful if Cindy stepped forward in some dramatic way, as fellow icon Warren Buffett has done. Here’s what she should say to reassure worried Americans: “Please don’t buy any more of my elegant yet comfortable furniture unless you actually have the money to pay for it. Before coming to the store, take a close look at your bank statements to make sure you’re not making an incredibly foolish mistake.

“Hey, if you can’t write a personal check for that five-piece king bedroom set, then you probably shouldn’t buy it. Be stylish, America, but be smart. Tomorrow will be a brighter day.”

Who knows what impact such a bold speech would have on the stock markets, but I wouldn’t be surprised to see an instant rebound. The financial titans who followed Cindy Crawford down the path of carefree lending will just as faithfully follow her back to the realm of fiscal prudence.

There are encouraging signs from the furniture empire for which Cindy is the marquee draw. If you ordered that five-piece king bedroom set today, you wouldn’t get to wait years before making the first payment. You’d only get six months.

It looks like Cindy’s getting tough.

Take heed, Mr. Treasury Secretary. The handwriting is on the wallpaper.

November 23, 2008

The Beggars in Their Corporate Jets

If you’re like most Americans, you probably weren’t dabbing tears from your eyes while listening to the woeful pleas of Richard Wagoner, Alan Mulally, and Robert Nardelli.

They are the chiefs of the Big Three automakers, who last week traveled in high style to our nation’s capital and begged for $25 billion to save their companies—and, by dire inference, the whole American economy—from ruin.

Interestingly, none of these gentlemen took much blame for leading the U.S. car industry into this terrible abyss, citing instead the global credit crunch, unfavorable trade policies, and other factors out of their control. And while it’s probably true that the automobiles being made today by GM, Ford, and Chrysler are safer, more reliable, and more fuel-efficient than ever, that’s only because they’re scrambling to catch up
with Japanese competitors, who’ve been kicking their butts for the last 30 years.

Toyota and Honda aren’t asking Congress to bail them out, because they don’t need it. But if they ever do, they probably won’t be so foolish as to send their top executives on a public money-grubbing mission in a private luxury aircraft. Wagoner, Mulally, and Nardelli all flew to Washington on separate corporate jets, which provoked lacerating commentary from the legislators whose sympathy they sought.

Said Rep. Gary Ackerman of New York: “It’s almost like seeing a guy show up at the soup kitchen in high-hat and tuxedo.… I mean, couldn’t you all have downgraded to first class or jet-pooled or something to get here?” The response to that inquiry was a blank stare from the pampered auto chiefs, for whom the idea of flying commercial is inconceivable, worse than standing in the deli line at the grocery.

You’d be hard pressed to find three guys more disconnected from Main Street and less qualified to talk about the plight of the average autoworker. According to
The Washington Post
, Wagoner’s total compensation from GM last year was $15.7 million. Mulally collected $21.7 million from Ford.

When asked by Rep. Peter Roskam of Illinois if he’d be willing to cut his salary to $1 a year, as Chrysler’s Nardelli has said he would do, Mulally replied: “I think I’m okay where I am.”

Spoken like a true capitalist. Now give that man a big fat government bailout! As for Nardelli’s benevolent offer to accept only a buck a year in compensation, he could surely afford it. In January 2007, he quit abruptly after six years as CEO of Home Depot, Inc., where he’d been paid as much as $38 million annually. Before leaving the company, Nardelli negotiated a “retirement” package worth $210 million, a stunningly
obscene sum even in the surreal realm of corporate parachutes.

The amazing thing is that GM, Ford, and Chrysler all have sophisticated public relations departments that their executives obviously failed to consult before hopping in their Gulfstreams and Lears and zooming off to Washington. Nobody was asking that the CEOs apologize for their personal wealth and career successes. But when the corporation that rewards you so extravagantly is going down the toilet, a little humility and sensitivity is in order.

If one or more of the Big Three should collapse, the impact on the economic markets will be massive, the ripple extending far beyond Detroit. Labor experts estimate that as many as 2.5 million people could be thrown out of work nationwide. Nobody wants that to happen, but we also don’t want to throw our money at an industry that stupidly continued to crank out SUVs even as gasoline was hitting $4 per gallon.

When the Big Three belatedly decided to “retool” and go green, what did they do? They asked for, and have been promised, a $25 billion loan from Uncle Sam. Then the companies announced they needed
another
$25 billion as a cash float, to get through these rocky times. Boy, did they send the wrong bunch to make their pitch. The generosity of Americans doesn’t—and shouldn’t—extend to sustaining the ethereal lifestyles of multimillionaires. Lots of executives fly private, but not to their own pity parties.

Bailouts are meant to save jobs, not corporate chariots. The CEOs went back to Detroit rejected, if not chastened. While Congress is mulling a compromise loan package, the attitude toward the automakers remains deeply skeptical.

If the companies were smart, they would have benched
the Fab Three and instead sent some Main Street faces to Washington—an assembly-line worker from a Ford plant, a transmission mechanic from a Chrysler dealership, an upholstery cutter from a GM parts supplier. In other words, men and women who would truly suffer if those companies folded; folks who might not be able to pay their mortgages, or keep their kids in college … or even fly Jet Blue, much less on a Gulfstream.

February 8, 2009

Bernie Madoff, the Prisoner of Park Avenue

Private reflections of Bernard L. Madoff, a prisoner on Park Avenue
.