2010 September 17 | timiacono.com

Mozilo Case Cleared for Trial

It looks like it’s still possible that Orangelo Mozilo might still don an orange jumpsuit someday as Reuters reports that the SEC’s case against the founder of Countrywide Financial (gobbled up by Bank of America during the financial crisis) will soon go to trial.

In one of the highest profile enforcement actions to arise out of the recent financial collapse, the SEC accused Mozilo, former Countrywide President David Sambol and former Chief Financial Officer Eric Sieracki of failing to disclose the true state of Countrywide’s deteriorating mortgage portfolio.Regulators also contend Mozilo made millions by dumping Countrywide stock before the truth emerged.

Attorneys for the defendants have denied any wrongdoing, and argued in court filings that Countrywide was upfront about the risks of its mortgages.

But U.S. District Judge John Walter refused to resolve the case in Mozilo’s favor on Thursday, ruling that the SEC had raised enough factual issues for it to be decided by a jury, according to court documents.

The SEC presented evidence that Mozilo’s stock sales in 2006 and 2007 were “significantly out-of-line with his prior trading plans or practices,” Walter wrote. Thus a jury can decide whether Mozilo acted on inside information, Walter ruled, adding that Mozilo netted over $140 million from those transactions.

Anyone interested in some graphical representations of the orange man’s stock sales can visit Google Images to find a few charts created by yours truly a year or two ago when the sales were in progress. Also see, this search at the old blog for all kinds of ump lumpa related material, Angelo Mozilo is a Moron atop the list.

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Consumer Sentiment Falls to 13-Month Low

The American “consumer” (if ever there was a better word to describe us Americans in an economic sense, I don’t know what it is) doesn’t seem to be developing much confidence in the economic recovery, the Reuters/University of Michigan consumer sentiment index dropping to the lowest level since August of 2009 in the preliminary reading for September.

Someone please tell the stock market that a dismal labor market, falling home prices, and an overall dim view of all things economic and political might make it a little difficult to support currently lofty forward earnings estimates. The first of two readings for September fell to just 66.6 after a final-August print of 68.9, down sharply from the summer high of about 76, a figure that, by the way, is much more typical of recessions than recoveries.

Even worse than the headline number was the future conditions index that tumbled from 62.9 last month to 59.1, its lowest reading since the recovery began early last year.

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Mulishly Squabbling Economists

In Newsweek is a fine column by Michael Hirsh about the general failings of economists in recent years and their lack of critical introspection (what some argue is an unchangeable personality trait for dismal scientists), a piece that is highlighted by the following:

Recently, the National Science Foundation sent out a query asking economists and social scientists to draw up “grand challenge questions that are both foundational and transformative”—a request that one recipient, Andrew Lo, a highly regarded financial economist at MIT, says is a first in his experience. But one problem is that the economics profession “has gotten much more intolerant of divergence from orthodoxy,” says Philip Mirowski, an economic historian at Notre Dame. “The range in which dissent happens is so narrow. In a sense they still cannot imagine the system can operate to undermine itself. That is not a position that is allowed anywhere in the economics profession. The field got rid of methodological self-criticism. This Great Moderation stuff was just arrogance, hubris.” Indeed, the joke on economists, says one of them, Rob Johnson, is that they create simplistic models that depend on people behaving as rational actors motivated by self-interest, yet “they have a blind spot regarding themselves.” The way they squabble mulishly to defend now-indefensible positions is itself evidence of how flawed those rational-actor models are.

It’s a mystery to me how one could write a lengthy article such as this one without once mentioning the Federal Reserve, the body that serves as the overlord for the economics profession, often times playing a critical role in career advancement in academia and elsewhere. But, that’s what Hirsch did…

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Consumer Prices Up 0.3% in August

The Labor Department reported that consumer prices rose 0.3 percent last month after the same size gain in July and, on a year-over-year basis, the inflation rate now stands at just over one percent.  The stewards of monetary policy at the Fed now seem to have prices well under control despite having run their printing press at a record pace over the last  year or so, creating trillions of new dollars that, so far, that have had no impact on overall prices.

Due largely to shelter costs that were flat in August after rising 0.1 percent the month before, core inflation (excluding food and energy) came in at 0.0 percent last month and will no doubt spur more talk of deflation amongst economists.


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Friday Morning Links

Reluctant Realtors: Fannie, Freddie – WSJ
Banks Hold Off On Foreclosure Notices – CNBC
Fighting to Protect Consumers – Warren, HuffPost
Recession Raises Poverty Rate to a 15-Year High – NY Times
Warren: The Right Appointment at the Right Time – Johnson, HuffPost
Losses from Fannie Mae, Freddie Mac seizures may near $400 billion – LA Times
China Highlights Dollar Risk After U.S. Hearings on Yuan Value – Bloomberg
What America needs is a payroll tax cut – Washington Post
U.S. Steps Up Criticism of China’s Practices – NY Times
Judge clears Mozilo case for trial – Reuters
The Downside of Families Doubling-Up – WSJ

Gold retreats from record high – Reuters
Crude Oil Heads for Weekly Decline as Pipeline Restarts – Bloomberg
Roubini Turns Bearish On Gold (Again), Suggests Taking Profits – Zero Hedge
Treasuries Advance on Revived European Sovereign-Debt Concern in Ireland – Bloomberg
Retirement Deficit Reaches $6.6 Trillion: ‘God Help the Poor Gen Xers’ – HuffPost
‘Quite Strong’ 4Q Stock Rally Coming: Senior Adviser – CNBC
What you need to know about commodities ETFs – USA Today
Hedge Fund Managers Set Up for Next Acts – NY Times
The 10 Biggest Myths About Gold – WSJ

Our Best Minds Are Failing Us – Newsweek
Census: More Americans are poor than ever before – McClatchy
Posen: BOE may shift to ‘heavy-duty credit easing’ – Telegraph
What happened to Europe’s collapse? – Fortune
Record Lending Confounds Subbarao as Banks Lag Policy in India – Bloomberg
Bill sets 45-day deadline on lender short sale decisions – REO Insider
Fewer seeking to become real estate agents – O.C. Register
Lower Your Expectations for Home Prices, Sales – WSJ
Bernanke Shadow of Easing Limits BOJ Success With Yen – Bloomberg
The understaffed Fed: What it really means – Washington Post

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