BLOG VIEW: Creating A Mess = Job Security

A presidential plea. Buses, loaded with angry taxpayers and curious reporters, cruising outside their homes. A handful of death threats. These elements combined were apparently enough to encourage 15 of the top 20 AIG executives to return their government-funded bonuses, New York State Attorney General Andrew Cuomo reported Monday.

Even though I count myself among the masses who felt gypped upon finding out that my hard-earned tax dollars were being used to add a layer of wealth to the already-rich, I must admit, the end result hardly feels like a victory.

A few top-level employees in AIG's financial products division have left the company, and more might be on their way out, according to Reuters. The returned bonus money hasn't – and won't – translate into a quick fix for any of the country's most dire problems.

The Obama administration seems content with using the entire scandal as fodder for why the government should grow larger. Meanwhile, Republicans appear only too happy to exploit the situation for partisan gain, as the New York Times' Thomas Friedman points out.

All of this is undeniably unfortunate. But taking a step back, let's look at the core reason why these bonuses were thought necessary in the first place.

(And in the interest of saving time and space, I'm ignoring Sen. Christopher Dodd's allowance of the terms, simply because his signing off on just about any agreement is indication enough that the underlying idea is poorly conceived. Example A: Dodd's decision to campaign for an unrealistic bid at the White House during a time when his presence on the Senate Committee on Banking, Housing and Urban Affairs was needed most. Also, I'm ignoring Dodd's role in orchestrating the AIG bailout and bonuses because, well, he ignored his role in the AIG bailout and bonuses.)

So, what was the most commonly cited reason for needing to retain the financial products wizards at AIG? Why, they're the only ones who can unwind the complex derivatives that nearly brought the insurance giant to its knees. Of course!

This concept – that those who made the mess are the only qualified candidates to perform cleanup – is not limited to the case of executives at AIG.

The Private National Mortgage Acceptance Co. LLC – or GSE-sounding PennyMac for short (as in, "will buy loans for pennies on the dollar") – received a lot of e-ink a few weeks back. blogger Felix Salmon hailed the company as a mortgage servicing hero. A New York Times article from the same week, however, had a more skeptical tone.

Times reporter Eric Lipton's lead: "Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation's economic crisis�So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess."

Yes, Stanford Kurland – former president of Countrywide, the company that seemingly hasn't met an attorney general by which it hasn't been sued – is again heading a mortgage operation. First announced a year ago, PennyMac's business model, in short, is to share the profit that comes with turning nonperforming loans into performing ones.

Some would suggest this is a bizarre twist of fate, seeing how Countrywide was probably responsible for originating at least some of those now-nonperforming loans. As one source quoted in the Times piece said, "Kurland is seeking to capitalize on a situation that was a product of his own creation."

The irony here is that Kurland and company, like it or not, may have the hard-to-find balance of expertise, capacity and resources necessary to perform this kind of work.

Along the same lines are the many examples of former mortgage brokers who are now jumping on the loan modification bandwagon. As Salon illustrates in its "Predatory lending with a smiley face" article, there's no shortage of brokers – many of whom were again responsible for pairing borrowers with ill-fitting mortgages – looking to "help" homeowners avoid the dreaded F word.

It goes without saying for anybody who has followed the many foreclosure rescue scam lawsuits and loan modification data updates that not all of these companies or individuals have borrowers' best interests in mind.

To recap: AIG execs who designed complicated financial products received retention bonuses because they were irreplaceable; Countrywide execs who oversaw one of the shadiest mortgage operations of all are now charged with fixing bad loans; and mortgage brokers who steered borrowers into bad loans are now claiming they can help said borrowers.

And isn't it ironic � don't you think?

– John Clapp, editor, Servicing Management

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