TIZ the Season

In the nominally Christian continents of Europe and the Americas, it’s officially supposed to be the season of benevolence, bonhomie, and general good cheer.   In the judicial system of the United States, it’s (unofficially) customary to defer the sentencing of a certain class of convicted criminals until after the New Year so that the newly-minted felons can enjoy(?) one last holiday as freemasons men.  Why, even convicted terror supporter Viktor Bout has had his sentencing deferred until early February.

Former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron have been handed a Christmas gift of a slightly different sort: the U.S. Securities and Exchange Commission have charged them with civil fraud [rather than criminal charges] for their material misrepresentations of Fannie and Freddie’s subprime mortgage risk exposure in the previous decade.

patriotism: last refuge of a scoundrel

  • Fannie Mae told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio.  That same year, Mudd told two congressional panels that Fannie’s subprime loans represented didn’t exceed 2.5 percent of its business.  The SEC says Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings.
  • Freddie Mac told investors in late 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books.  And Syron, in a 2007 speech, said Freddie had “basically no subprime exposure,” according to the suit.  The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.   Syron also authorized particularly risky mortgages for borrowers without proof of income or assets [aka ‘liar loans’] as early as 2004, the suit alleges, “despite contrary advice” from Freddie’s credit-risk experts. He rejected their advice.

The feds usually don’t go to trial unless they think they have the proverbial open-and-shut case, and in a civil process the plaintiff’s burden of proof is only ‘preponderance of the evidence’ rather than the standard of ‘beyond a reasonable doubt’ that must be satisfied in a criminal trial.  However, the real take-home lesson to be drawn from the SEC’s announcement is that Barack Obama needs some mortgage-crisis fall guys in his reelection year, and Messers. Syron, Mudd et al. fit the bill all too perfectly.  Unfortunately, these members of the mystic brotherhood really don’t face much worse than a vigorous wrist-slapping, because …

Based on the outcomes of similar cases, the lawsuit might not yield much in penalties against the former executives.  Fines against executives charged in SEC civil cases can reach up to $150,000 per violation.  SEC Chairwoman Mary Schapiro has asked Congress to raise the limit to $1 million [Lunghu would be astounded if Republicans actually oblige her].

Robert Mintz, a white-collar defense attorney says he doubts any top Wall Street executives will face criminal charges for actions that hastened the financial crisis, given how much time has passed.

  • Mudd was paid more than $10 million in salary and bonuses in 2007, according to company statements. He was fired from Fannie after the government took over. He’s now the chief executive of the New York hedge fund Fortress Investment Group.
  • Syron made more than $18 million in 2007, according to company statements.  His compensation increased $4 million from 2006 because of bonuses he received —-part of them for encouraging risky subprime lending, according to company filings.  Syron resigned from Freddie in 2008. He’s now an adjunct professor and trustee at Boston College.

Yep, justice delayed is definitely justice denied.  Just ask the people of Paris (well, some of them):

On Thursday, a French court found former French president Jacques Chirac guilty of misusing public funds and abusing public confidence when he served as mayor of Paris in the 1990s.  Chirac received a two-year suspended sentence.  It is the first time a former French head of state has been convicted since Marshal Philippe Petain, leader of France’s wartime Vichy regime, was found guilty of collaborating with the Nazis.

Chirac enjoyed immunity from prosecution when he served as member of the National Assembly and President, but those patient, pesky French magistrates just waited him out of office.  Anglophone Africa was watching and taking note:

Commenting on Chirac’s conviction, Transparency International Zambia (TIZ) executive director Goodwell Lungu [No relation to your humble correspondent.  Really!] said that leaving office peacefully does not nullify a former leader’s misdeeds.
“We feel that it sends the right signal at the right time.  In the Zambian scenario, the former leadership, especially MMD –particularly Mr. Rupiah Banda– should be able to learn that whatever wrong he might have done to this country and no matter how long [he evades justice], time might catch up with him,” Lungu said.
“This is why we continue calling on former and current leaders to live exemplary lives.  And if they [betray the public trust] and the law catches up with them, they should not [claim] that they are being persecuted.  It simply means that their own past behavior is both catching up with them and persecuting them; so they should face reality,” said Lungu.

“It’s a very good lesson what has happened and the local leadership, both the current leaders, the PF and in particular the MMD leadership should seriously reflect on that.”

That’s tellin’ it like it TIZ.   If only Lunghu could be as hopeful about the United States ‘justice’ system.

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