by. Henry Meier
Call me wacky, but I don’t think a convicted arsonist should be able to collect insurance for burning down his house.
If you agree, you’ll understand why I am a little uneasy about an announcement last evening ofa settlement of more than$9 billionbetween Bank of America (BoA) and the Federal Housing Finance Administration (FHFA). Thisputs to bed claims that Countrywide and Merrill Lynch duped Fannie Mae and Freddie Mac into purchasing mortgage-backed securities that crashed, causing billions of dollars in losses and contributing to the eventual bankruptcy of the GSE’s.
I’m a bit more impressed, however, by a related announcement.New York’s Attorney General Eric Schneiderman was able to get former BoA CEO Ken Lewis to contribute $10 million to a settlement of claims thatBoAdeceived shareholders as part of the bank’s efforts to acquire the aforementioned Merrill Lynch and Countrywide.The AG’s settlement represents the first that I am aware of in which a CEO is taking personal responsibility for his actions during the mortgage crisis. What a concept! Lewis also accepted a three-year ban from serving as an officer or director of any public company.
Let’s take a trip down memory lane. As late as 2008, Fannie and Freddie were private corporations that specialized in buying mortgages and packaging them as mortgage-backed securities. Many of our largest private banks, including Countrywide and Merrill Lynch, also purchased mortgages from banks and credit unions and packaged them as so-called private label securitiesfor sale in the secondary market.
