"I'd lie if I said every piece of documentation was properly signed and dated," said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest -- all involving drugs.
While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.
"In our world, it was tolerated," said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. "Everybody said, 'He gets the job done.' "
Two years ago, like many somewhat financially literate readers, I was perusing newspapers stories about crazy negative amortization mortgages and exclaiming, "What are they, on crack?" Now we have our answer.
Overexpansion of their system made it impossible for these banks to adequately check the viability of too many loans. So they focused on the big ones, and were lazy. I guess greed incentivizes foolish behavior in the short run eh? And in the long run all we heare is mea culpa?
damn "e" key
Doesn't this guy kind of under cut Megan's two page whine about the poor employees in the financial sector having to sell their condos in Williamsburg a few days ago? Certainly, there are some honest hard working competant people who are being adversly affected by the financial sector collapse. But won't those people eventually land on their feet? The financial sector will turn around eventually. Long term, I wonder if maybe the collapse will do a lot to weed out the incompetant and the corrupt.
I am sorry but I have a hard time having much sympathy for the managers of companies who hired guys whom they knew were on meth to do important jobs. It seems pretty clear the industry was rotten to the core. Perhaps some of those people selling their condos in Williamsburg Megan is so concerned about need to be finding other jobs.
I think Megan was more lamenting the fall, and a great fall requires great heights. Some of these guys are competent. But it isn't enough to be competent, you have to be in a system that encourages you to be thorough in your analysis, not rush you through it because all people see are dollar signs, not if these dollars are viable or not.
I've worked with two software companies that had a similar problem. In both cases they hired great hard working/hard playing salesmen who went out and did an amazing amount of business. The only problem was the volume of business soon became too big for the company to handle. The products reputation began to suffer due to the delays and cost overruns caused by the lack of support.
In the case of the first company the executives realized what was going on and told sales that they needed to hold off and the company could only grow 12-15% a year.
The second company wasn't so lucky - no one was willing to tell sales to slow down and the company grew too fast too quickly and eventually imploded and was sold for pennies on the dollar to a competator.
What was the difference? Company one was private and the executives were also the owners and company two was public. The executives at company 1 could afford to be prudent as they - as the owners - couldn't be fired. At company 2 if the executives had turned down business they would have been out in a matter of months.
So, my solution... possibly... have the shareholders elect the ceo for a term of 4 -7 years. They would earn far less in options and bonus but would have far higher salaries and longer job tenure. It would allow them to say no to greedy employees and greedy shareholders and it would allow them to keep their eye on the long term.
Could we have a link, please?
Thanks.
John,
WaMu was a mid-level bank that until a few years ago was largely regional. It is banks like them, Wachovia, IndyMac, etc. that seem to have caused quite a bit of the problems in the mortgage market, being huge players and along with Countrywide, coming up with various, ahem, innovations. Certainly, many of them are suffering and losing jobs right now. But what Megan was talking about in the previous post, are a lot of people in the financial industry who were pretty removed from this kind of stuff. Even traders on MBS desks who are bearing much of the brunt of this, weren't the ones giving out the mortgages. And that's not even talking about the people in Latin American M&A or Debt Capital Markets or Leveraged Finance who have been axed left and right. Those people had really NOTHING to do with the crisis. But yet they were cut. Do you still not feel sorry for them? And if not, why not? Perhaps you reflexively assume everyone in finance is like that guy in the article?
1) Where is the obligatory brain-dead comment about how a critical comment about drug use contradicts Megan's libertarian bona fides?
2) Of course, they weren't on crack. They were on meth, which no doubt makes some sort of meaningful difference.
3) Just, wow. Those who do not know history, etc., especially Wall Street in the '80s.
The excerpt is from an article in today's New York Times about WaMu:
http://www.nytimes.com/2008/12/28/business/28wamu.html?
I wonder how tall Mr. Parsons is...
Greed in the 80's that Gordon Gecko greed came train wrecked because nobody had any idea how things were going to work. The 80's are the birth of modern financing, and while a lot of the 80's financial issues were predictable, some, like sudden incursion into the US car market, were for one reason or another not. We have to remember the 80's were the crumbling era of the soviet union, yet the CIA certainly never made any noise about it happening. In short the 80's were more blind devotion to old principals in the middle of a paradigm shift. This time round its just plain willful ignorance, greed, laziness, and an inability to tell people this is "NO".
Meth and crack are both really horrific drugs that make you do stupid shit and are hard to keep to recreational levels. Powdered cocaine can be managed as a recreational substance (emphasis on can, it is obviously very easy to get pulled into addiction as well) and even performance enhancing for certain things.
No one is writing elegies to the mortgage banker - most of them were aiding and abetting fraud if not committing it outright. They also mainly didn't get paid much. The lynch mobs ranting about overpaid bankers are focused on wall streeters, few of whom had any supervisory involvement over mortgages but who have tasty pay packets to get the mob riled up over.
Maybe financial reports should include records of what drugs the financiers were using.
Joseph's got the right idea. Daily drug tests. You piss, you pass. If not, no underwriting for you.
"This is your recession.
"This is your recession on drugs."
*CRASH*
Any questions?
Yep, just about 2 years ago, I noticed the weird mortgages that were being generated to support those wild property prices in the Bay Area and I wondered where the adults were. Who, in their right mind, would ok such crazy schemes? The banks had absolutely no protection. They were floating 80% loans and then floated the 20% loan so that no one was paying PMI. They were giving away money to people who might have no intention of ever paying it back and they had no insurance.
The door to these crazy schemes was opened in the 90s with the CRA, but the CRA loans could've been covered. The problem arose in recent years when the coke snorters noticed that they could apply CRA conditions to just about anyone with a pulse. That's when the wild mortgages started proliferating. So, while Barney Frank, et al, were initially responsible for opening Pandora's Box, and were unwilling to shut it when the first hints arose, still...the banks themselves are ultimately responsible because they shut out the adults and let the fools run wild.
Wow. Meth. That's so... street. And coke? Seriously? Dude. 1987 called, they want their drugs back.
Today's elite investment professional goes with Ritalin or Adderall instead... it lasts for hours. No embarrassing need to run to the bathroom and snort up every 90 min. What's more, get an ADD diag and there are no awkward drug busts to worry about. It's even covered by insurance!
20-30 years from now there's going to be an awful lot of interesting discussion about the physiological effects of very-long-term amphetamine use, because there's one hell of a huge informal research trial going on right now.
Did I miss any big sob story for the construction workers who, in 2003-2006, were busy building the over-supply of houses? And then were let go, in the 500 000 or so range?
I don't recall Megan being so sad about them -- of course, they didn't have high SATs and get MBAs with high school loans, either; and few are probably her friends. (One is a brother in law of mine.)
It's OK to be sad, on a human side, to anybody losing their job. But there were too many houses.
And far, far, too many loans and fees, and deals and fees, and Credit Swaps and fees; and too many bank fees. If all the big banks that would be insolvent w/o gov't cash go bankrupt, it would be all of them. Yes, an end of an era.
But production & distribution companies with products that are being sold would still need loans, and it IS important that there be viable banks to give such loans.
It's not at all clear that any of the Big Banks need to survive for the good companies to get loans, tho.
Oh c'mon you can't actually be focusing on the drugs? I have seen one of two results for drug use, either your completely incapacitated, or shouldn't be trying to stick a needle into anyone. By the way no libertarian, liberal, conservative, nobody would say that taking drugs is a great idea for production. You may hear that about amphetamines, "sleep is a crutch" and all, but a heart attack in your late 30's will put your production down the tube. Plus it will impair decision making, remember nobody's making grades their competing with each other. Yeah you can be high and still get a good grade. But you won't be high and beat your friends in a game of basketball, cards, or finance.
"By the way no libertarian, liberal, conservative, nobody would say that taking drugs is a great idea for production."
- - - -
Taking some drugs correctly is a great idea for production.
And, no, I wouldn't try to compete while high. But while enjoying enhanced alertness and perceptions with amphetamines, the competition better come ready to play.
I think this is all about drug of choice. You don't list Meth as a job skill. Now LSD, that's useful to the firm. Everyone in your organization is freaking out because: VW is the largest capitalized company in the world, AIG just went under, or the market dropped 1200 points. You on the other hand can just sit back and say "I once watched a muffin turn into a monkey, this isn't anything".
For some reason, you have stuck a little "Lookup Word" icon in the middle of your quote, specifically, in between the 'whe' and 're' in "where". I thought it was some kind of weird browser bug, but no, it's right there in the html code. Even worse, clicking on it does nothing!
The simple problem with the CRA is this: Liberals like Barney, Dodd, etc. told lenders that "These Official Victim Groups cannot be held to any standard of creditworthiness. If you try, we will encourage activists and regulators to harass you out of business."
The problem is that if you can't have standards that apply to everybody, sooner or later you can't have standards that apply to anybody.
There's not even any way to determine who's a member of the victim groups. Is Ward Churchill really a Native American? How about someone who claims to be gay? What's the standard for being black? One drop rule OK these days? I don't recall DNA tests being used. All of this was easy to predict.
The lynch mobs ranting about overpaid bankers are focused on wall streeters, few of whom had any supervisory involvement over mortgages but who have tasty pay packets to get the mob riled up over.
There were mortgage brokers and bankers making hundreds of thousands of dollars by cramming people into crummy loans they couldn't afford and selling them off to Wall Street. Wall Street "gurus" encouraged the loans because they only required a 90-day warranty. All the mortgage brokers had to do was get somebody in a loan that went 90 days without a default and they'd make money.
Hey, bobby b. you right! A little bump don't hurt nobody... "Toot toot, beep, beep"... "Where did I put that TI-89" "Oh... it's hot in here... somebody turn on the A/C" "Wait!... I just remember something... didn't WaMu buy Providian Financial Corp... which had a suit against it for unethical business practices." "Oh! here's the TI-89... silly me I was sitting on it." "JUST SAY NO!"
SDN | December 30, 2008 12:31 AM: you couldn't be more wrong. All CRA did was tell banks -- and ONLY banks, that if they were going to lend to anybody, they had to lend to everybody. They couldn't redline certain areas/zipcodes/neighborhoods/etc. for whatever reason -- income, ethnicity, their mother-in-law lives there... Mortgage brokers are and were immune from CRA and the vast majority of these "toxic" mortgages were approved by brokers.
Crack = 1% interest rates from the Fed year after year
John from Concord,
You realize the difference between meth and Adderall is about /\ that much. (Especially if you chew the Adderall or Ritalin before you swallow. YEEEE*efffin*HAAA)
Bankers are the biggest advocates of laissez-faire regulation standards. They don't get sympathy when they beg the federal government for a handout.
Re: The door to these crazy schemes was opened in the 90s with the CRA
Here we go again! It's Black people's fault! It's poor people's fault!
Nope. The CRA dates back to the 1970s. CRA-compliant loans (there are strict standards) have been defaulting at lower than average rates. Get your facts straight!
Xmas: I have heard that to be true, yes. That, and the whole bit about the legality and the prescription and the insurance and the -- as long as you don't chew too thoroughly -- the time release.
ben, if you don't think the tonier investment and law firms are full of people using meth or coke (or more likely these days, their legal chemical cousins Adderall and Ritalin), particularly in the under-40 age bracket, you need to ask around more. And if you don't think that something like Adderall is a "great idea for production", you definitely need to ask around more... or just read this Josh Foer piece from 2005.
Eh, JonF:
It's not black people's fault, or Latino people's fault. It's the fault of government policies (of which the CRA was just one and was more actively enforced by the Clinton Administration than by Carter) that sought to make more credit available to blacks and Latinos. The result of those policies was to lower standards across the board.
President Bush continued and extended Clinton's jihad against rational lending standards, taking on the 'evil' of down payments. All in the goal of increasing home ownership rates, particularly among blacks or Latinos (who voted for Bush in record numbers, for a Republican).
The government set the trough up, and the banks greedily participated in the charade. The rest is history.
jean --
WaMu, Wachovia, IndyMac, and other large lenders were banks before they went belly-up, from what I understand.
JonF --
Yes, CRA-compliant laws are defaulting at lower rates. Whoever wrote the CRA claim was wrong in a technical sense. It wasn't the CRA itself. Rather, it was its de facto expansion in the 1990's by Deval Patrick and Andrew Cuomo in the Clinton administration and Frank and Dodd in the early 2000's that helped fuel the problem. When Patrick was a lawyer in the Clinton admin, he was tasked with enforcing the Fair Housing Act (which banned discrimination in mortgage approval), which he did by forcing mortgage brokers to give more mortgages to blacks (even though their rejection of these mortgages was in no way race based). He then went to work for one of them, making huge moolah, as the head of their minority lending operation (convenient, huh?).
Y'know what I like about people that think drugs will help. They eventually O.D., or they start to think they can cut things like sleep and food, then there is a raving lunatic in the office who I can torment by moving things and using sudden motions.
Drugs are the ultimate endurance test, but eventually they always win.
Nor has Megan yet provided the link I requested almost 24 hours ago.
It would be irresponsible not to speculate as to whether or not Ms. McA. is exercising due diligence in the same way her (unlinked) protagonist seemed to.
Or if she just doesn't give one effing shit about her work or viewers. Free market, baby!!
Re: It wasn't the CRA itself. Rather, it was its de facto expansion in the 1990's by Deval Patrick and Andrew Cuomo in the Clinton administration and Frank and Dodd in the early 2000's that helped fuel the problem.
Then why didn't the problem surface a lot sooner, instead of waiting ten years? And mortgage brokers themselves were not forced to do anything; the CRA applied to banks not brokers. No, lenders gave out these loans quite freely, since they knew they could sell them (and whatever trouble they bred) to Wall Street. There was quick and easy money to be made, and no one has ever had to force someone to do that! Meanwhile the government has programs in place to help low-income or poor-credit borrowers: the FHA, for example-- whose loans are also defaulting at below average rates. The FHA will back risky borrowers but insists on certain standards, most importantly full documentation of income and assets. To the extent blame accrues to the government it is secondary-- the failure to halt the trainwreck (or at least try to), and the maintenance of excessively low interest rates for too long a time period.
JonF,
It was well known for decades that traditional lending practices (e.g., credit history, documentation, down payments) had a disparate impact on minorities. Since at least the 1970s, many CRA and fair housing supporters have been saying that the traditional lending practices were not a justified business practice and/or there were other lending practices less disparate impact.
Is there any doubt that requiring solid credit histories, documentation, and down payments could have helped avert the current mess? I am skeptical whether CRA and similar initiatives started us toward our current crisis. However, given the tone that was set, it was very difficult for any serious political leader (especially a Democrat) to challenge the perilous course over the last 10 years.