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October 4, 2008
When greed met panic.
Here's an interesting window on some of the galloping greed and panic-driven decisions that helped push not only the Federal National Mortgage Association (aka Fannie Mae), but the entire financial system into the abyss.
And as a bonus, it features an appearance by everyone's favorite creepy, over-tanned über-capitalist nightmare, Countrywide Financial's chairman/CEO Angelo R. Mozilo—here meeting with Fannie Mae chief executive Daniel H. Mudd:
Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo [pictured above], the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.
Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.
“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.
“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”
Then Mr. Mozilo offered everyone a breath mint.
Pressured to Take on Risk, Fannie Hit a Tipping Point (NY Times)
