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December 21, 2012

Glenn Hubbard’s Hilarious Deposition on Behalf of Countrywide

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Glenn Hubbard, Dean of the Columbia University Graduate School of Business

General business has kept me from reading the deposition Matt Taibbi writes about here, but it sounds amazing.

Anyone who’s seen the movie Inside Job will recall the stupendously angering scene in which (Mitt Romney advisor Glenn) Hubbard pissily snaps at his interviewer for asking about his outside relationships with financial services industry [...]

“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.

Wow, just wow. The deposition is right here. As Taibbi notes, Hubbard testified for Countrywide in the lawsuit. This is one of the bigger mortgage-backed securities cases out there. MBIA is suing Countrywide over misrepresentations and fraud in the underwriting process that caused them to lose lots of money on securities they insured for investors. Hubbard apparently endorsed the view that Countrywide’s loans were of the same quality as other mortgage lenders, and thus they didn’t owe the insurer, or investors, any recompense. The losses stemmed from the financial crisis, according to him.

We obviously have reams of data and documentary evidence to rebut that. But Hubbard picked up $1,200 an hour from Countrywide to lie for them. And in the deposition he reveals that, for all that money, he basically looked at Countrywide loans and then he looked at other loans from the same time frame. And not the loan files, but the failure rates. In other words, he testified to the veracity of Countrywide’s underwriting without looking at, um, the underwriting. You wouldn’t catch any variance between Countrywide and other loans if the fraud was systemic during the time of the bubble – which it was. Ameriquest and New Century and all kinds of other fly-by-night lenders, all of them now defunct, had the same business model – write as many loans as possible, regardless of the quality. Hubbard just compared this crap against one another rather than reality. This part of the deposition that Taibbi highlights is hilarious:

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

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

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.

More than half of the loans Hubbard “studied” came from lenders being sued by other entities for fraud in their underwriting process.

It’s pretty incredible that Hubbard, an academic, thought he could throw this fastball by lawyers involved in MBS litigation for years and years. And it’s almost a shock that Countrywide got so little for their money.

I’m going to have fun curling up with this deposition sometime soon.

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