Monday, September 10, 2007

Countrywide's Mozillo's Irresponsible Letter

The weekend edition of the Wall Street Journal carried an article focusing on Countrywide Financial's 20% cut of its work force, and selected quotes from the related letter by CEO Angelo Mozillo to employees of the firm.

In my opinion, at least one part of the letter was totally irresponsible, as well as misleading.

For instance, the Journal article cites Mozillo as writing that current downturn is the

"most severe in the contemporary history of our industry."

Let's consider that statement from a few angles.

First, it appears to let Mozillo off the hook as CEO of Countrywide, as he is about to fire 20% of his employees. It's as if he's saying,

'Hey, people.... It's not my fault...look at this terrible market...yep, most severe ever.....'

Nice try, Angelo. But didn't you lead the charge with alt-a and sub-prime loans? Aren't you CEO? Shouldn't you have been appropriately hedged, and have obtained longer-term, secured lines of funding, to avoid cashiering a fifth of your workforce? Just weeks after declaring that this shakeout was great, as your firm would take increased market share in the mortgage sector?

Then there's the lack of context of Mozillo's comment. Does it not arguably follow that the 'most excessive upturn' in the industry's contemporary history was followed by its 'most severe' downturn? Seems reasonable to me.

Was that excessive upturn not led, in part, by Angelo's company's "innovations?"

It's not only the mortgage banking industry that has had trouble with explosive growth. Look at, in their time, Boeing, the railroads, Advanta, and Atari, to name just a few.

This is pretty much your average story of a firm letting details go, loosening operating standards and, as befits a financial firm, scraping ever-lower down the creditworthiness scale to find customers. All of this finally came home to roost, and Mozillo would have you believe it's someone else's fault.

Maybe he's watched Bear Stearn's Jim Cayne's attempt to blame 'the market' for Bear's fund management woes, which I described here, and figured he'd give it a try, as well.

Apparently one of the behaviors we must now live with in this age of instant electronic communications is that of CEOs getting out in front of an issue and pointing their fingers at anyone and everyone else in blame, rather than take responsibility for their own actions, or inactions, as the case may be.

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