Bushonomics

Countrywide Financial CEO Angelo Mozilio:
the latest face of American corporate greed

Is there anything that more fully encapsulates how George W. Bush takes care of his base -- the haves and the have-mores, than the saga of Countrywide Mortgage? Here's a company that doled out mortgages to unqualified buyers like Hershey bars to six-year-olds on Halloween. While Countrywide isn't solely responsible for the mortgage mess, it certainly bears a sizable share of the blame.

So what are the consequences? The same consequences that have befallen executives of other large companies -- a nice, fat severance package for the CEO, with the added attraction of a taxpayer bailout.

Countrywide CEO Angelo Mozilio is expected to pocket a package worth $110 million, along with paid health insurance for himself AND his wife, if the company's sale to Bank of America goes through (emphasis mine):

Such a payout would come on top of huge gains Mozilo has made selling Countrywide stock during the mortgage crisis. As the mortgage industry went into a nose dive in late 2006 and 2007, Mozilo cashed out about $140 million in stock options, becoming one of the highest-paid executives in the country, the L.A. Times reported in November.

The newspaper reports tonight that in his contract agreement, which extended the 69-year-old's employment contract through 2009, Mozilo was guaranteed three times his base salary, plus a cash payment equal to three times the greater of his average bonus or the incentive bonus paid the previous year. Net value: $87.8 million.

In addition, Mozilo has two pensions that his severance agreement gives him the right to receive as a lump sum upon his departure. Those pensions were worth $24 million as of December 2006, the last time the company was required to report their value.

There is more. The Times reports Mozilo would receive continuing health benefits for life for himself and his spouse, three years of life and financial planning benefits, and "tax-gross-up payments" to compensate him for any penalties he'd have to pay for receiving payments the IRS might consider excessive.

Given the slashing of 10,900 jobs at Countrywide this year, and the 81% decline in Countrywide stock over the last year, it is likely Mozilo's severage package will prove more controversial than his previous stock sales.

It's the same old story -- greedy bastard at the top gets to cash out, while tens of thousands of people lose their jobs. We saw it at Enron, we saw it at Worldcom, we're seeing it at the financial companies and banks who bundled these bad mortgages as "investment" vehicles and are now being sold to foreign companies and governments, and we're seeing it at Countrywide. Except that in THIS particular company collapse, you get to help defray the cost of Angelo Mozilio's golden parachute:

Guess who's helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States.

That's because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide's losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years, according to an estimate by tax guru Robert Willens, who left Lehman Brothers Friday after a 20-year run and will be in business as Robert Willens LLC starting next week. The losses could be worth considerably more to Bank of America starting in the sixth year, depending on how big Countrywide's losses are when Bank of America formally acquires it.

At this point, of course, no one knows how much in losses Countrywide has run up since the junk mortgage market began souring and defaults accelerated. Countrywide (CFC, Fortune 500) itself probably doesn't know. But it seems almost certain to ultimately be in the billions.

In tax circles, Bank of America is famous for its 1988 purchase of the failed FirstRepublic Bank of Dallas, which was being auctioned off by federal regulators. Bank of America, then known as NCNB Corp., the parent of North Carolina National Bank, discovered a way to structure the deal to save $1 billion of taxes, using a convoluted strategy that none of the other bidders knew about. That allowed NCNB to outbid its rivals for the bank, and still come out way ahead.

The Countrywide tax break isn't in that league, but it would still be worth a lot of money. Willens estimates that Bank of America will be able to deduct $270 million of Countrywide's losses annually for the first five years it owns the firm.

[snip]

A $270 million annual deduction would save Bank of America something more than $100 million a year in federal and state income taxes. The long-term tax-exempt rate, which is based on Treasury rates and other things so complicated that they make my teeth hurt. The rate changes each year, Willens says, but not by much. When I asked how it's calculated, Willens, a master of tax arcana, threw up his hands. (Metaphorically, of course.) "It's like the formula for Coca-Cola," he said, "no one outside the circle knows it" and it's so complicated that, "no one else wants to find out."

So over the first five years, Bank of America can use a total of $1.35 billion of Countrywide's losses to shelter its income. (That's five years of $270 million annual losses.) If Countrywide's embedded losses when Bank of America buys it exceed $1.35 billion, Willens says, the bank will be able to deduct the rest of the losses, without limit, starting in the sixth year.

Isn't America great?

Now remind me again, Sens. Clinton and Obama, just why we should give these people ANY say WHATSOEVER in setting policies that will affect the people you're supposed to represent?

In a sane world, John Edwards would be running away with the Democratic nomination, because it's stories like this, which we see over and over again in every industry in America, that point out just how rotten and corrupt our system has become, as our representatives have become enthralled with the campaign cash being doled out by these corporations and working Americans pay the price.