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December 2010, Week 2

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Tue, 14 Dec 2010 20:40:04 -0500
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Toxic CEO Pay Story 
For a new generation of Angelo Mozilo wannabes, the sky is
still the limit.

By Sarah Anderson,

OtherWords
December 13, 2010

http://www.otherwords.org/articles/toxic_ceo_pay_story

As a critic of runaway CEO pay, I have a lot of scars from
debates I've done on cable TV business shows. But my most
memorable pummeling was in August 2007, when I nearly got my
head bitten off for criticizing Countrywide Financial CEO
Angelo Mozilo on the CNBC show Squawk Box.

My offense? I questioned whether Mozilo really deserved to be
the sixth-highest paid CEO in the country, given that the
company's sub-prime mortgages were already showing clear
signs of toxicity, with skyrocketing foreclosure rates.

Suddenly I had show host Carl Quintanilla and the other
guests, including David John of the Heritage Foundation,
shouting me down, saying that Mozilo had built the company
from nothing and shareholders should be happy to give him
every penny of his $42.9 million in compensation.

Looking back, it's hard to find a clearer example of the
business press blindly glorifying highly paid CEOs. As we all
know today, Mozilo's reckless subprime adventures were a
disaster for the company and the country. Four months after
that CNBC show, Countrywide no longer existed. In January
2008, Bank of America agreed to purchase the ravaged lender
in a fire sale.

The Washington Post recently published an extensive analysis
of how Countrywide's toxic loans continue to poison Bank of
America--and the national economy. Of the 14 million loans
Bank of America is managing today, Countrywide originated 10
million. And of those who borrowed from Countrywide, 15
percent are behind on payments, compared with 6 percent for
loans that Bank of America originated.

Bank of America also had to cough up $43.5 million to settle
a Securities and Exchange Commission suit over charges that
Mozilo engaged in fraud and insider trading as he tried to
hide the signs of the coming crash. Mozilo had to fork over
$24 million for his share of the SEC settlement. That's a
small fraction of the $529 million he pocketed over the past
decade, according to The Wall Street Journal.

While any petty shoplifter or check-bouncer would have to
face the prospect of jail time, Mozilo thus far has managed
to escape criminal charges. He's free to spend his remaining
ill-gotten loot any way and anywhere he pleases.

Countrywide's recklessness also continues to be a drag on
federal agencies that purchased or guaranteed their trashy
mortgages. Fannie Mae, Freddie Mac, and the Federal Reserve
Bank of New York are among the investors who are demanding
that Bank of America repurchase mortgage packages that were
based on sloppy paperwork. More than half of these "buyback"
claims stem from mortgages created by Countrywide.

It doesn't give me much pleasure to look back at that CNBC
show and say "I told you so." It would be different if
policymakers had learned from the examples of Mozilo and
other Wall Street bandits and cracked down on such pay for
plunder practices once and for all.

By all accounts, however, financial industry compensation is
on track to break a record high this year--for the second
year in a row. For a new generation of Angelo Mozilo
wannabes, the sky is still the limit.

This work is licensed under Creative Commons.

[Sarah Anderson directs the Global Economy Project at the
Institute for Policy Studies and is a co-author of the report
Executive Excess 2010: CEO Pay and the Great Recession.
www.ips-dc.org]

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