[Marxism] Glenn Hubbard Took $1200 an Hour to Be Countrywide's Expert Witness

Louis Proyect lnp3 at panix.com
Thu Dec 20 16:51:23 MST 2012


http://m.rollingstone.com/entry/view/id/34444/

Politics: Glenn Hubbard, Leading Academic and Mitt Romney Advisor, Took 
$1200 an Hour to Be Countrywide's Expert Witness
December 20, 2012 | 11:10am EST

Karma is a bitch. Just ask Glenn Hubbard.

A few months ago, the Dean of Columbia's business school was a leading 
economic advisor to Mitt Romney and a rumored (perhaps even consensus) 
candidate for the Treasury Secretary job.

Now Romney's out of the presidential picture and Hubbard – well, he's 
just yet another grasping jobholder who's been exposed as a paid 
mouthpiece in a court proceeding.

Anyone who's seen the movie Inside Job will recall the stupendously 
angering scene in which Hubbard pissily snaps at his interviewer for 
asking about his outside relationships with financial services industry.

In the movie, renowned filmmaker Charles Ferguson pointed out that, 
among other things, Hubbard had co-authored a paper with former Goldman 
chief economist William Dudley in which he praised credit derivatives as 
having improved the "allocation of risk" and helped produce "enhanced 
stability." It was fair to ask how much Goldman's "Global Markets 
Institute" had to pay one of the Ivy League's leading minds to endorse 
the giant daisy chains of credit default swaps and collateralized debt 
obligations that led to the crisis – it was quite a coup, after all, 
like getting the Dean of Harvard Medical School to pose in public 
smoking a pack of Kools.

Anyway, when asked if he did consulting work for big banks, Hubbard 
refused to answer. And when asked if he just didn't remember who was 
writing checks to him when he wasn't overseeing the education of 
American youth, he fumed.

"This isn't a deposition, sir," he hissed. "I was polite enough to give 
you time, foolishly I now see. Give it your best shot."

Again, there's just nothing like karma. If your answer to a perfectly 
sensible question is going to be, "Screw you, this isn't a deposition," 
exactly how long do you think it'll be before you end up actually 
getting deposed? And forced to answer, under oath, just how much your 
opinions cost?

A couple of years, as it turns out.

Hidden among the reams of material recently filed in connection with the 
lawsuit of monoline insurer MBIA against Bank of America and Countrywide 
is a deposition of none other than Columbia University's Glenn Hubbard. 
And boy, is it a wild deposition. It's like Inside Job, only Hubbard has 
to answer the questions he doesn't want to answer. Reading it is like 
watching a man try to avoid breathing in a gas chamber.

At issue here is the fact that Hubbard testified on behalf of 
Countrywide in the MBIA suit. He conducted an "analysis" that 
essentially concluded that Countrywide's loans weren't any worse than 
the loans produced by other mortgage originators, and that therefore the 
monstrous losses that investors in those loans suffered were due to 
other factors related to the economic crisis – and not caused by the 
serial misrepresentations and fraud in Countrywide's underwriting.

In other words, the Dean of the Columbia University business school 
testified that the fact that Countrywide claimed to have conducted 
thorough due diligence when in fact it was pressuring underwriters to 
approve 60 to 70 mortgage applications a day and failing to verify any 
income levels or other key information (to say nothing of the outright 
falsification of such data, which also went on on a mass scale) – he 
testified that these issues were irrelevant.

Investors in Countrywide loans, he reported, in specifically rebutting 
MBIA's claims of fraud, were probably victims of macroeconomic factors, 
among other things the expansion of lending guidelines by "the 
government-sponsored entities," i.e. Fannie and Freddie. You know, that 
old saw.

So how much does it cost to get the Dean of Columbia Business School to 
say that Countrywide customers weren't injured by fraud? Well, MBIA's 
lawyer, David Freeburg, asked Hubbard that very question:

Q. How are you being compensated?

A. I'm being compensated at an hourly rate for my work.

Q. Do you know your hourly rate?

A. Yes, it's $1200 an hour.

For comparison's sake, $1200 an hour is about what Natalia, the woman 
New York Magazine called "America's #1 escort" in a famous profile many 
years ago, made early on in her career working for Jason Itzler, the 
self-described "King of All Pimps." It's not the top-end rate for the 
kind of Mercedes-class prostitute you'd romp with from an outfit like 
the Emperors Club, but according to the L.A. Times, it's still more than 
you'd have to pay for the usual "vanilla sex" or "Republican sex." 
Twelve hundred dollars an hour in America buys high-end companionship 
that can run a little bit kinky, if that's where your needs lay. And 
that's exactly what MBIA got with Hubbard's research.

So how did Hubbard manage to analyze Countrywide and conclude that mass 
fraud in its underwriting procedures wasn't problematic? Easy: He didn't 
look at the underwriting! All Hubbard did was take a group of 
Countrywide loans and compare them to a group of other loans from the 
same time period.

When that comparison revealed that Countrywide's loans failed at about 
the same rate as the non-Countrywide loans, he smartly concluded that 
fraud wasn't the problem and that macroeconomic factors must have been 
the cause.

Except for one thing: He left out the fact that about half of the loans 
in the "non-Countrywide" pool he selected for his analysis were 
originated by companies that were also being sued for underwriting fraud 
and other irregularities. What Hubbard did is compare a bunch of bad 
loans to a bunch of bad loans.

What's fascinating in the deposition is the way Hubbard repeatedly tries 
to avoid answering the question about what kind of research he did, or 
didn't do, in his Countrywide analysis. His sneering annoyance shines 
through as brightly as it did in Inside Job, but this time he couldn't 
just say, "You've got three more minutes." Here, for instance, he 
actually tries to play dumb when asked if he looked into Countrywide's 
origination practices:

Q. Did you make any inquiry into how Countrywide actually originated its 
loans?

A. I'm not sure exactly what you mean by that.

Awesome. Hubbard here is just being intentionally obtuse: he's trying to 
see how much of an appetite MBIA's lawyers have for fighting through his 
dickishness. They press on:

Q. You understand there was a process by which Countrywide originated 
the loans that it included in the securitizations?

A. Yes.

Q. And there was also a process by which Countrywide examined the loans 
that it purchased from other originators inclusion in securitizations?

A. Correct.

Q. Did you make any factual inquiry into the nature of either the 
process of origination or the process of due diligence by Countrywide?

A. I'm not an underwriter in this proceeding, so neither of the 
assignments that I told you would require such.

He knows it's a yes or no question, but he's letting them know they're 
going to have to beat it out of him:

Q. And it's fair to say that you gave your opinions without any inquiry 
into how Countrywide actually originated its loans or how Countrywide 
examined the characteristics of the loans that it purchased from other 
originators, correct?

A. I'm not an underwriter. As an economist, what I can do is look at the 
implications of the claims made by MBIA and its experts.

Q. So is that a yes in response to my question?

A. You have to tell me the question again.

Yikes! If I was Freeburg I would have pulled out the sponge and the car 
battery at this point. Fortunately, the MBIA lawyer is more mature, and 
went on calmly:

Q. It's a fairly simple question. You gave your opinions without any 
inquiry into how Countrywide actually originated its loans, correct?

A: I did not underwrite.

That's as close as they got to getting Hubbard to admit that for $1200 
an hour, he swore that Countrywide's underwriting practices were 
irrelevant – without investigating Countrywide's underwriting practices.

As for the question of how Hubbard managed to omit the fact that the 
loans he compared Countrywide loans to also had underwriting problems, 
there was this exchange:

Q. So in the aggregate, more than half of your entire population in the 
control group was affected by litigation?

A. I think, well, yes, by number of pools, yes.

Q. And in neither your initial report nor your rebuttal report did you 
disclose that fact for the benefit of the court?

A. Well I've already told you I didn't think it was relevant from my –

Q. I'm aware that's what you said today. But the fact is in neither your 
initial report nor your rebuttal report did you disclose that more than 
half of all the securitizations in your so-called control group were 
affected by litigation?

A. If I don't think something is a relevant fact, why would I have 
disclosed that?

Q. You're agreeing with me, you didn't disclose it, right?

A. That's a factual question. You had innuendo attached to it.

Q. Well, sir, I do think it's significant that you didn't disclose that 
fact, that's why it's in my question. I just wanted to confirm you did 
not disclose that fact, right?

A. I didn't disclose the fact.

Hubbard must be a very inquisitive thinker. He took $1200 an hour 
specifically to not learn how subprime loans were created. Moreover, he 
did this non-learning for Countrywide years after the financial 
collapse, long after the truth about that company had already become 
common knowledge pretty much everywhere in the world outside Hubbard's 
office, long after Countrywide CEO Angelo Mozilo had been charged by the 
SEC with deliberately misleading investors (and insider trading, to 
boot), and long after the Attorney General of California had concluded 
that Countrywide was essentially a giant scheme to use mass fraud to 
dump pools of bad loans on unsuspecting marks on the secondary market.

Given the great masses of information that was out there about 
Countrywide, Hubbard in other words had to perform a labor of Hercules 
to avoid letting the truth about the company slip through a crack in his 
skull. Naturally, this awesome ability to non-absorb information makes 
him qualified to be one of America's leading academics. Way to go, 
American learning!

On a personal note, I'm bummed by this Hubbard news, because it ruins 
one of my favorite quotes of all time – Henry Kissinger saying that 
"University politics are so vicious precisely because the stakes are so 
small."

That was always a fantastic joke, but now that Wall Street is 
subsidizing the imperious academic administrators whose only reward used 
to be blocking the careers of the more brilliant teachers and professors 
they secretly envied, it doesn't work anymore.





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