The financial crisis of the late 2000s left an indelible mark on the economic and social fabric of the entire world. Though it occurred amid a complex financial landscape that even many economists struggle to understand, its most salient cause was the willy-nilly issuance of risky, difficult-to-value mortgage-backed securities by some of the United States’ leading financial firms.
A Brief History of the Countrywide Debacle
One of the biggest (and riskiest, as it turned out) issuers of these securities was Countrywide Financial, which for a long time enjoyed eye-popping profits and a nearly unrivaled reputation as an innovator in the field. But the collapse of the U.S. housing market in the wake of rampant speculation rendered most of the securities issued by Countrywide worthless. When the company collapsed, billions of dollars in value and hundreds of thousands of livelihoods were wiped out virtually overnight.
In 2008, Bank of America purchased a withered Countrywide for a relative pittance. Unfortunately for Countryside, its troubles were just beginning.
How the Countrywide Settlement Looked
Shortly after the extent of the damage became clear, regulators and private parties began looking into whether Countrywide materially misrepresented the nature of its mortgage-backed securities or was negligent in any aspect of their issuance. Ultimately, it became clear that Countrywide bore significant responsibility for investors’ losses, and a class action lawsuit was launched.
Noted plaintiffs’ firms, including leading securities fraud practitioner Robbins Geller (which is currently involved in notable actions against heavyweights like Alibaba), took part in the civil actions against Countrywide and Bank of America. Numerous firms took part, with Robbins Geller ultimately responsible for securing a $500 million settlement — the largest class action mortgage-backed securities settlement to date. In 2014, Bank of America agreed to pay a total of $16.65 billion to address the federal government’s contention that the firm (along with Countryside) misled investors during the acute phase of the crisis.
What’s to Prevent Another Countrywide?
These settlements were deemed adequate to cover the losses suffered by investors in Countrywide’s securities, though many observers argued that the case did little to hold Countrywide’s crisis-era leaders — particularly Angelo Mozilo, the firm’s former chief executive — accountable for the disaster. Though the Department of Justice appears to be mulling charges against him, it’s unclear whether they’ll actually be brought, due to his age, failing health and the lack of an open-and-shut case against him.
More generally, it’s unclear whether bankers, federal regulators and politicians have really learned the lessons of the financial crisis. Oversight of the financial industry is probably tighter now than before the crisis, but huge regulatory gaps remain. And on the consumer side, the signature legislation of the post-crisis era — known as the Dodd-Frank Act — has been weakened by subsequent legislative action. Unfortunately, the Countrywide debacle might not be the last of its kind.
Despite the Dangers, Whistleblowing Pays Off
It’s worth noting an important footnote to the Countrywide saga: According to a New York Times report, the whistleblower who originally blew the lid off the company’s malfeasance is set to profit handsomely, to the tune of some $57 million. Whatever you think of such a payoff, it shows that for all the personal and professional dangers associated with blowing the whistle on corporate misdeeds, “the right thing” is sometimes also “the profitable thing.”