Hold on to Your Wallets, Subprime Stan Is Back

I want to post this article in full since it is so excellent. Let me simply say there are certain people in any business who know how to milk the system. In the Wall Street game, if you exclude the mainstream bankers (clearly experts) I have to give credit to Mr. Kurland - he is playing investors like a fiddle. Kudos to him - there are always more sheep to slaughter. The series of "related" companies he has created to profit from PennyMac is simply jaw dropping, but I am sure they are "arms length" - haha.

As I wrote over and over the past 2 years, anyone who thinks it will be "different" or we will "learn" from this episode doesn't understand how it works. We would only have learned if we had allowed actual failures to happen and let those who invested in such ideas take massive baths. See when you touch a hot stove and the government comes in and says that your finger never burnt and here are hundreds of billions to make sure your finger did not burn - you learn nothing. Well actually you learn if your finger is big enough the government will always save it, your finger is too big to burn. So instead of letting fingers burn, and hence in the future investors would actually have a reason to act like watchdogs over their investments, we've taught them the status quo is not only fine, but we're going to backstop it with taxpayers money. The "new era" is here... except it's even better than the old era. Cramerica 2.0.

What I love best is these C-level executives M.O. When times are good - it is because of them, and their skill set that is SO unique they need to make 300x+ the average peon in America. Only a few humans on this Earth posses their skill set - certainly not European CEOs, who make a fraction for the same amount of work (clearly they have much weaker skill sets overseas). This is how they justify their outsized pay.

But when things go wrong, despite their being at a company 5, 10, 20, or in this case 27 years, they know nothing of the issues that caused the illness. Despite their unique 1 in 100 million skill set. Do you see how it works? They are so talented and skillful (to earn the big bucks) yet so out of the knowledge loop to have missed all the bad things going on in their company. Talk about asymmetric outcomes. This is exactly the same defense at Beazer Homes we wrote about a while back [At Beazer Homes It was See No Evil, Hear no Evil] among many other examples.

Beazer lied to shareholders about how much money it was making. First, it lied by claiming it was making less than it was. Then it lied by hiding losses when the housing bubble began to burst. To keep the lies going, the government says, the company prepared fraudulent documents to mislead its auditors.

The bucks have continued to flow to the top, but the company thinks the responsibility for the crimes lies elsewhere. Heads rolled among lower-level officials, but the chief executive and chief operating officer have kept their jobs.

The board — all of whose members were there when the crime wave was under way — has not changed at all.

If a boss can preserve his deniability about crimes committed by his company — perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options — then he can escape being held accountable if the crimes are eventually uncovered.

Let us dismiss this myth of C-level executive worship ... people have simply been brainwashed. Here is a man with 10 years as CFO and 17 years as COO at Countrywide, and he claims he was unaware of what was going on... hah. He is joined by executives from Washington Mutual (failed) and IndyMac (failed). I love this system; our public institutions are simply feeding troughs for

the few heads at the top and the sheep are told to keep throwing their 401k money in; it's the only way to secure your retirement! Reverse Robin Hood style (take from the many, give to the few) at it's best. Enjoy

US capitalism at work! Baaaaaah.

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Call it another sign that fear is out, greed is back, and we have entered the new post-crisis era. Subprime Stan is back on Wall Street, after less than three years away.

Stanford "Stan" Kurland, the Countrywide Finance executive who pocketed more than $140 million at the expense of outside investors at the height of the subprime mania, has raised about $300 million from fresh investors for his latest venture -- trying to profit from the crisis.

His PennyMac Mortgage Investment Trust (PMT) made its stock-market debut last week.

True, the IPO only raised about half the $750 million originally planned. But it's still plenty. Add it to the $584 million that Kurland has raised from other investors, including BlackRock and Highfield Capital Management, and it gives him a war chest of around $900 million.

The name of the game: Distressed mortgages, particularly the kind of troubled subprime loans that Countrywide used to make. Buy 'em cheap. Cut a deal with the homeowner. Make a mint.

(for the rest of the article,

click here.)

Comments

[John Galt:]

I can't believe Ian Mccarthy at Sleezer homes. The company lost 25 dollars per share, they laid off probably 50-75% of the company and he gets a bonus. I guess only a skillful CEO like him could cut costs like that.

By the way, we don't have "Capitalism" in America. The price of money (interest rates) and the supply of money are set by the government. We have a mixed economy that is slowly eroding away, although more free market than most countries.

Aug 05 08:54 AM

[the3rdchimp:]

Kurland was CFA and COO at Countrywide to 2006; he helped make it the largest mortgage lender in history; I don't make any presumptions about his character or motivations. The other executive at PMT are steeped with experience in making and marketing subprime. I suspect they are in the best position to unravel and restructure distressed mortgages. If now is not the time to invest in distressed mortgages, then when is the time. I understand that investors are skittish about taking a chance on mortgage-related reits, given recent experience. Your attitude and the market's tepid interest in this IPO, says clearly that this is not a popular company. I can at least be sure that it has not been oversold due to irrational exuberance. I think it's the right business at the right time with the right management. I'm taking a small stake in the stock and see what happens.

Aug 15 10:15 AM